<PAGE>
As filed with the Securities and Exchange Commission on February 12, 1998
Registration No. 333-42623
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
The Thaxton Group, Inc.
(Name of small business issuer in its charter)
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<CAPTION>
South Carolina 6140 57-0669498
<S><C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1524 Pageland Highway
Lancaster, South Carolina 29721
(803) 285-4336
(Address and telephone number
of principal executive offices)
Kenneth H. James
Chief Financial Officer
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29720
(803) 285-4336
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Barney Stewart III
Brian T. Atkinson
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
--------------------------------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
THE THAXTON GROUP, INC.
$ 50,000,000
AGGREGATE PRINCIPAL AMOUNT OF
SUBORDINATED TERM NOTES DUE
1,6, 12, 36 AND 60 MONTHS
AND
SUBORDINATED DAILY NOTES
This Prospectus relates to the offering of (i) Subordinated Term Notes
due 1, 6, 12, 36 and 60 months (in the aggregate, the "Term Notes"), and (ii)
Subordinated Daily Notes (the "Daily Notes") of The Thaxton Group, Inc. (the
"Company"). The Term Notes and the Daily Notes are individually referred to as a
"Security" and collectively referred to as the "Securities." The price of each
Security will be its original principal amount, with no discounts or deductions
for commissions. The total proceeds to the Company if all the Securities are
sold will be $50,000,000 before deducting offering expenses, estimated at
approximately $150,000. However, there can be no assurance that the Company will
receive any particular amount of proceeds from the offering of the Securities.
See "Use of Proceeds."
The Company will determine, from time to time, the rates of interest
payable on the Term Notes. For one month Term Notes, the rates will be at least
equal to the rate established for the most recent auction average of United
States Treasury Bills with maturities of 13 weeks. For all other Term Notes, the
rates will be at least equal to the rate established for the most recent auction
average of United States Treasury Bills with maturities of 52 weeks. The rate of
interest at the time of purchase of a Term Note will be the rate payable
throughout the original term of the Term Note. The interest rate payable on the
Daily Notes will be determined by the Company and may fluctuate on a monthly
basis. Once adjusted, such interest rate will remain in effect until next
adjusted by the Company. The interest rate on the Daily Notes will be no less
than 3% below nor more than 5% percent above the rate established for the most
recent auction average of United States Treasury Bills with a maturity rate of
13 weeks. In no event will the interest rate on the Term Notes or the Daily
Notes be more than 12% or less than 2% per annum.
Examples of the initial annual interest rates for the Securities as of
January 15, 1998 are as follows: Daily Note - 5.75%; 1 Month Note - 6.25%; 6
Month Note - 7.00%; 12 Month Note - 7.50%; 36 Month Note 8.00%; and 60 Month
Note - 8.25%. At the time of purchase of a Security, the actual initial annual
interest rate may be more or less than these examples.
A schedule of the interest rates for each Security will be provided to
any potential investor at the offices of the Company and its affiliates where
the Securities will be sold. In addition, potential investors may call the
Company at 1-888-842-9866 during normal business hours to obtain information
about the current interest rates for the Securities.
All Securities offered hereby are subject to redemption by the Company
prior to maturity. The Securities are also redeemable by the holder prior to
maturity (with an interest forfeiture, which may be waived by the Company, in
the case of the one month Term Notes, and an interest rate reduction penalty, in
the case of the Term Notes). The Company, in its sole discretion, may require
the holder to give up to 30 days' prior written notice of intent to redeem prior
to maturity. The Securities will be subordinated to all existing and future
Senior Indebtedness of the Company as described herein. As of September 30,
1997, the Company had approximately $50.4 million of Senior Indebtedness. See
"Description of Securities."
The Securities are being offered by the Company and will be sold at the
offices of the Company and its affiliated finance and insurance companies
operating under the names TICO Credit Company and Thaxton Insurance. In
addition, a limited amount of the Securities may be offered by Maxwell
Investments, Inc., as a selling agent. No underwriting discounts or commissions
will be paid in connection with the offering of the Securities. See "Plan of
Distribution". The Company anticipates that the offering of the Securities will
continue for up to two years. There can be no assurance that all or any portion
of the Securities will be sold. The Securities will not be listed for trading on
any securities exchange and the Company does not expect that any active trading
market for the Securities will develop.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES 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.
- -------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS DEPOSITS OR OBLIGATIONS OF AN
INSURED DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION ("FDIC").
- -------------------------------------------------------------------------------
See "Risk Factors" beginning on page 6 for important considerations relevant to
an investment in the Securities.
Note: Investors who purchase any of the Securities should retain this Prospectus
in their records for future reference in connection with any renewals or
automatic extensions of the Term Notes. See "Description of Securities."
The date of this Prospectus is February __, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company files reports with the United States Securities and
Exchange Commission (the "Commission") Such reports, which include quarterly
reports on Form 10-Q and annual reports on Form 10-K, can be inspected and
copied at public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, filings made by the Company with the Commission through its
Electronic Data Gathering and Retrieval System ("EDGAR") are publicly available,
using the Company's name or stock trading symbol, "THAX," through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. Prospective investors should carefully
consider the information discussed under "Risk Factors" which begins on page 6.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding, among other items, (i) the Company's business and
acquisition strategies, (ii) the use of the proceeds of the offering, (iii) the
Company's financing plans, and (iv) industry and other trends affecting the
Company's financial condition or results of operations. These forward-looking
statements are based largely on management's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in this Prospectus, including
general economic conditions, prevailing interest rates, competitive factors, and
the ability of the Company to continue its business and acquisition strategies.
In light of these risks and uncertainties, future events and actual results
could differ materially from those contemplated by the forward-looking
information contained in this Prospectus. See "Risk Factors," "Use of Proceeds,"
"Business," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company
The Company is a diversified consumer financial services company. Its
primary line of business is purchasing and servicing retail installment
contracts generated from the sale of used automobiles by independent dealers
("Automobile Sales Contracts"). Finance receivables resulting from purchases of
Automobile Sales Contracts represented approximately 74% of the Company's total
finance receivables at September 30, 1997. The Company also makes and services
personal loans ("Direct Loans") to persons with limited credit histories, low
incomes, or past credit problems ("Non-prime Borrowers"). The Company presently
purchases Automobile Sales Contracts and/or makes Direct Loans in Georgia, North
Carolina, South Carolina, Tennessee, and Virginia under the name "TICO Credit
Company." Under the name "TICO Premium Finance Company" in North Carolina and
South Carolina and "Eagle Premium Finance Company" in Virginia, the Company
finances insurance premiums, primarily for personal lines of insurance purchased
by Non-prime Borrowers through independent agents ("Premium Finance Contracts").
The Company also sells, on an agency basis, various credit-related insurance
products in conjunction with the purchase of Automobile Sales Contracts or the
making of Direct Loans and, through its subsidiary Thaxton Insurance Group, Inc.
("Thaxton Insurance"), sells on an agency basis, various lines of property and
casualty, life, and accident and health insurance. The Company recently formed
CFT Financial Corp., a mortgage banking firm, and began originating residential
mortgage loans primarily for Non-Prime Borrowers in South Carolina and North
Carolina in January 1997, which are sold on a nonrecourse basis to various
investors.
The non-prime consumer credit industry is highly fragmented, consisting
of many national, regional, and local competitors. Many lenders, including most
lenders providing automobile financing, tend to avoid or do not consistently
serve borrowers with credit histories that do not meet the stringent, objective
credit review standards used by traditional lenders. Since 1985, the Company has
specialized in serving Non-prime Borrowers and has developed considerable
expertise in applying both objective and subjective credit evaluation procedures
and controlling processing and collection costs, which are significantly higher
on credit extended to Non-prime Borrowers.
The Company's business strategy is to continue to diversify by offering
a wider range of financial products and services. Although a significant portion
of the Company's growth in recent years has been attributable to the expansion
of its portfolio of Automobile Sales Contracts and the Company intends to
continue this strategy in selected markets, Direct Loan, Premium Finance
Contract and residential mortgage originations will be emphasized as well. In
addition, the Company intends to focus on the development and marketing of other
consumer finance and insurance products that offer cross-selling opportunities
among its customers. Management believes that these cross-selling opportunities
will enhance the Company's ability to successfully implement its diversification
strategy and retain existing customers.
2
<PAGE>
The Company's finance receivables bear interest at fixed rates, which
in some instances are subject to a legal maximum. Historically, these
receivables have been financed by incurring indebtedness with floating interest
rates. As a result, the Company's interest expense generally will increase
during periods of rising interest rates while its interest income remains
constant, thereby decreasing net interest rate spreads and adversely affecting
the Company's profitability. Management believes that by financing a portion of
these receivables with the fixed rate Securities offered by this Prospectus, the
Company will be able to better match its fixed rate receivables with fixed rate
debt and improve the Company's interest rate sensitivity and net interest rate
spreads.
The Company's executive offices are located at 1524 Pageland Highway,
Lancaster, South Carolina 29720, and its telephone number is (888) 842-9866. The
Company has a total of 24 finance offices, with 15 located in South Carolina,
two in North Carolina and Georgia, three in Virginia, and one in Tennessee, 20
insurance offices, with 12 located in South Carolina and eight in North
Carolina, and two residential mortgage offices, one in North Carolina, and the
other in South Carolina.
The Offering
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<S> <C>
Subordinated Term Notes Due 1, 6, 12, 36 and 60 months
and Subordinated Daily Notes......................................... $ 50,000,000
Use of proceeds........................................................... Temporary repayment of
indebtedness under Revolving
Credit Facility.
Expected termination date of the offering................................. The Company expects the
offering will continue for up to
two years but reserves the right
at any time to suspend or
terminate the offering entirely.
</TABLE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------ ------------ ------------- ------------ ------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income...................... $4,139 $6,197 $9,319 $7,058 $8,130
Provision for credit losses.............. 481 890 3,593 1,423 3,885
Net interest income after
provision for credit losses.......... 3,658 5,307 5,726 5,635 4,245
Insurance commissions, net............... 3,354 4,618 5,893 4,158 3,962
Other income............................. 361 579 986 795 844
Operating expenses....................... 6,246 8,767 11,974 8,659 9,346
Income tax expense (benefit)............. 464 664 247 728 (112)
Net income (loss)........................ 663 1,073 384 1,201 (183)
Net income (loss) per common share....... 0.20 0.31 0.09 .30 (0.05)
At December 31, At September 30,
------------ ------------ ------------- ------------ ------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------ ------------
Balance Sheet Data:
Finance receivables...................... $22,450 $47,900 $63,107 $63,575 $70,991
Unearned income.......................... (5,037) (10,823) (14,366) (15,375) (15,376)
Allowance for credit losses.............. (424) (783) (2,195) (1,205) (3,440)
Finance receivables, net................` 16,989 36,294 46,546 46,995 52,175
Total assets............................. 21,757 46,760 56,681 55,666 64,100
Total liabilities........................ 19,384 40,443 50,310 48,131 58,021
Shareholders' equity..................... 2,373 6,316 6,371 7,536 6,079
</TABLE>
3
<PAGE>
Summary of Terms of Securities
Subordinated Term Notes Due One Month
Minimum Investment $100
Interest Rate The Company will determine, from time to
time, the rate of interest payable on one
month Term Notes, which rate will be at
least equal to the rate established for the
most recent auction average of United States
Treasury Bills with a maturity of 13 weeks,
but no less than 2% per annum and no more
than 12% per annum.
Interest Payment Payable at maturity.
Automatic Extension Automatically extended for a new
one-month term at the then applicable
interest rate, unless the holder notifies
the Company on or before the maturity date
that the holder does not wish to extend the
term.
Additions and Redemptions Holders of one month Term Notes may adjust
the original principal amount, without
extending the maturity, at any time by
increases or decreases resulting from
additional purchases or partial redemptions;
provided, however, that partial redemptions
may not reduce the outstanding principal
amount below $100. Upon presentation of a
one month Term Note to the Company, the
Company will, for the Holder's convenience,
record any adjustments to the original
principal amount, such as additional
purchases or partial redemptions.
Redemptions by the holder, in whole or in
part, prior to maturity will result in a
forfeiture of all accrued interest on the
redeemed amount unless the Company, in its
sole discretion, elects to waive the
forfeiture in whole or in part. The Company,
in its sole discretion, may require the
holder to give up to 30 days' prior written
notice of a redemption. Redeemable, at the
option of the Company, without premium, at
any time on 30 days notice.
Subordination Subordinated to all existing and future
Senior Indebtedness.
Subordinated Term Notes Due 6, 12, 36 and 60 Months
Minimum Investment $1,000
Interest Rate The Company will determine, from time to
time, the rate of interest payable on 6, 12,
36 or 60 month Term Notes, which rate will
be at least equal to the rate established
for the most recent auction average of
United States Treasury Bills with a maturity
of 52 weeks, but no less than 2% per annum
and no more than 12% per annum.
Interest Payment At the holder's option, either monthly,
quarterly or at maturity.
Automatic Extension Automatically extended for a new
6, 12, 36 or 60 month term at the then
applicable interest rate, unless the holder
notifies the Company on or before the
maturity date that the holder does not wish
to extend the term. The Company will give
the holder 30 days notice in advance of
maturity date of the automatic extension
provision
Redemption Redeemable at holder's option upon payment
of penalty equal to the difference between
the amount of interest actually accrued
since the date of issuance (or most recent
extension date) and the amount of interest
that would have accrued
4
<PAGE>
had the rate of interest been 3% less than
the rate in effect on the date of issuance
(or most recent extension date). The
Company, in its sole discretion, may require
the holder to give 30 days' prior written
notice of a redemption. Redeemable at the
option of the Company, without premium, at
any time upon 30 days notice.
Subordination Subordinated to all existing and future
Senior Indebtedness.
Automatic Extension Procedure Not later than 15 days prior to the maturity
of a Term Note, the Company will provide the
holder with an extension notice and a copy
of the Company's most recent quarterly
report filed with the Commission and, if not
previously furnished to the holder, a copy
of the Company's most recent annual report
filed with the Commission. The extension
notice will advise the holder of the
maturity date of the holder's Term Note, the
principal amount due on maturity, the amount
of accrued interest to the maturity date and
the applicable interest rate upon an
automatic extension of the Term Note. The
extension notice will also inform the holder
that, upon request, the Company will
promptly furnish the holder with a copy of
this Prospectus, as amended or supplemented.
Unless prior to the maturity of a Term Note
the Company receives notification of the
holder's intention to redeem the holder's
Term Note, it will be automatically extended
as described above under "Automatic
Extension."
Subordinated Daily Notes
Minimum Investment $50
Interest Rate As determined by the Company and adjusted
monthly effective on the first day of the
month; no less than 3% below or 5% above the
most recent auction average of United States
Treasury Bill with 13 week maturities and in
no event, less than 2% per annum or more
than 12% per annum. Holders of Daily Notes
will be notified promptly by first class
mail of any monthly adjustment in the
interest rate.
Interest Payment Accrued daily and compounded quarterly,
payable upon redemption
Additions and Redemptions Holders of Daily Notes may adjust the
original principal amount at any time by
increases or decreases resulting from
additional purchases or partial redemptions;
provided, however, that partial redemptions
may not reduce the outstanding principal
amount below $50. Upon presentation of a
Daily Note to the Company, the Company will,
for the holder's convenience, record any
adjustments to the original principal
amount, such as additional purchases or
partial redemptions. Holders of Daily Notes
may redeem them, in whole or in part, at any
time, without penalty. The Company, in its
sole discretion, may require the holder to
give up to 30 days' prior written notice of
a redemption. Daily notes are redeemable at
the option of the Company, without premium,
at any time on 30 days notice.
Subordination Subordinated to all existing and future
Senior Indebtedness.
5
<PAGE>
RISK FACTORS
The Securities offered hereby will constitute general unsecured
obligations of the Company. Persons considering investing in the Securities
should consider the following risk factors in deciding whether or not to
purchase the Securities:
Securities Not Insured. The Securities are not obligations of an
insured depository institution such as a bank and are therefore not subject to
the protection of the FDIC or any insurance. Accordingly, if the funds used by
an investor to purchase the Securities are taken from a savings account in a
bank or savings and loan association or certificates of deposit issued by any
such institution, the investor should recognize that by purchasing the
Securities the investor is subjecting those funds to a significantly greater
degree of risk of loss.
Transferability of the Securities Limited. There is no trading market
for the Securities and the Company does not expect one to develop. Potential
investors should not purchase the Securities with the expectation that a trading
market for the Securities will subsequently develop. The Securities are
non-negotiable. All transfers and assignments of the Securities may be made only
at the offices of the Company.
Subordination to Senior Indebtedness. Payment of the indebtedness
evidenced by the Securities is subordinate to the prior payment when due of the
principal of and interest on all Senior Indebtedness of the Company. Investors
should be aware that if the Company's becomes insolvent, they would be entitled
to receive payment on the Securities they hold only after all of the Company's
Senior Indebtedness is paid. Senior Indebtedness of the Company is broadly
defined to include all debt of the Company other than the Securities. See
"Description of Securities - General Provisions Applicable to all Securities -
Subordination." As of September 30, 1997, the principal amount of the Company's
Senior Indebtedness was approximately $50.4 million. The Company has the
unrestricted right to increase or decrease at any time the amount of Senior
Indebtedness to which the Securities will be subordinate. There can be no
assurance that the Company would have or be able to obtain sufficient funds to
pay off the Securities if the Company becomes insolvent or upon a dissolution,
winding up, liquidation or reorganization of the Company.
Forfeiture of Interest for Early Redemption of One Month Notes. Holders
of one month Notes who elect to redeem them prior to maturity, in whole or in
part, will forfeit the entire amount of accrued interest on the amount redeemed.
The Company, in its sole discretion, may waive all or a portion of the
forfeiture, but there can be no assurance the Company will do so.
Interest Rate Reduction Penalty for Early Redemption of 6, 12, 36 and
60 Month Securities. Holders of 6, 12, 36 and 60 month Term Notes who elect to
redeem them prior to maturity will forfeit an amount equal to the difference
between the amount of interest actually accrued on the 6, 12, 36 or 60 month
Term Note and the amount of interest that would have accrued on the Term Note
had the rate of interest been 3% less than the rate in effect at the date of
issuance (or most recent extension date). See "Description of Securities --
Redemption of Securities at Option of Holder."
Possible 30-Day Notice Requirement for Redemptions by Holders and
Related Risks. Holders of the Securities have the right to redeem them, in whole
or in part, at any time. However, the Company, in its sole discretion, may
require holders of the Securities to provide the Company 30 day's prior written
notice, by first class mail, of any early redemption requested by the holder and
this requirement may be imposed by the Company at any time, including at the
time a holder otherwise requests early redemption of his Security. Management
believes that this 30-day notice requirement would most likely be imposed in
circumstances where a temporary increase in redemption requests by holders would
make it difficult for the Company to administratively process the requests on a
timely basis or if the aggregate dollar amount of requested early redemptions
exceeded the Company's ability to promptly fund the redemptions from available
cash or borrowing sources. If the Company should implement this notice
requirement, holders of Securities desiring to obtain early redemptions will be
delayed in doing so and, any
6
<PAGE>
such delay, depending upon the Company's financial circumstances at that time,
could increase the risk of a default by the Company for failure to honor
redemption requests upon the expiration of the 30-day notice period. Interest
would continue to accrue on the Securities until redeemed by the Company.
Need to Retain Custody of Securities Certificates. Within ten days
after purchasing a Security, the purchaser will receive a Daily Note or Term
Note in certificated form that corresponds to the terms of the Security he
elected to purchase. In addition, holders of the Securities will receive monthly
statements from the Company that inform the holder of the issue date of his
Security, the principal amount, the interest rate, maturity date and the amount
of interest accrued through the most recent interest accrual date. This
information will also be continuously maintained in the Company's books and
records. However, because full redemption of a Security requires presentation to
the Company of the holder's Daily or Term Note in certificated form, purchasers
of the Securities are urged to keep their Security certificates in a safe place.
In the event a certificate is lost or destroyed, a holder desiring to redeem a
Security in full may be required to indemnify the Company before a redemption
payment is made.
Impact of Credit Losses on Profitability. The non-prime consumer credit
market is comprised of borrowers who are deemed to be relatively high credit
risks due to various factors. These factors include, among other things, the
manner in which they have handled previous credit, the absence or limited extent
of prior credit history, and limited financial resources. Consequently, the
Company's Direct Loans and Automobile Sales Contracts, relative to prime
consumer loans and retail installment contracts, involve a significantly higher
probability of default and greater servicing and collection costs. The Company's
profitability depends upon its ability to properly evaluate the creditworthiness
of Non-prime Borrowers, to maintain adequate security for Automobile Sales
Contracts, and to efficiently service and collect its portfolio of finance
receivables. No assurance is given that the credit performance of the Company's
customers will be satisfactory, or that the rate of future defaults and/or
losses will not exceed the Company's recent prior experience. Delinquency rates
related to consumer lending and automobile financing are significantly
influenced by general economic conditions, such as the rate of unemployment,
and, if economic conditions in the Company's markets should deteriorate, the
Company anticipates that its delinquency rates would likely increase.
Recent Material Adverse Trend in Credit Loss Experience. Based upon the
Company's loss experience during the quarter ended September 30, 1997,
management recorded a $950,000 net increase in the Company's allowance for
credit losses resulting in a total allowance of approximately $3.4 million at
September 30, 1997. This increase was due to a substantial increase in net
charge-offs of approximately $1.3 million for the quarter ended September 30,
1997 compared to $1.3 million for the first six months of 1997. Accordingly, the
provision for credit losses charged against income for the third quarter was
$2.4 million and the increased provision resulted in a net loss of $770,000 and
$183,000, respectively, for the quarter and the nine months ended September 30,
1997.
For the fourth quarter of 1997, the Company's net charge offs were
approximately $1.3 million, the allowance for credit losses increased to
approximately $4.2 million and the provision for credit losses was approximately
$2.1 million. The increased provision in the fourth quarter is expected to
result in a net loss for the quarter of approximately $278,000, and the
increased provision in the third and fourth quarters is expected to result in a
net loss for the year of approximately $1,050,000. Given the intensely
competitive conditions that currently exist in the non-prime automobile sales
finance markets where the Company operates, there can be no assurance that this
adverse trend will not continue. If this trend continues, it would have a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --"Recent Material Adverse Trend in Credit Loss Experience."
Risk Associated With Expansion of Automobile Sales Finance Operations.
The Company's past growth has been due to, and its growth strategy depends in
part on, the opening of new finance offices that focus primarily on purchasing
Automobile Sales Contracts in markets not previously served by the Company. The
Company's future expansion of its finance office network depends primarily upon
the Company's ability to attract and retain qualified and experienced finance
office managers and the ability of such managers to develop relationships with
independent dealers serving those markets. The Company typically does not open a
new finance office until it has located and hired a qualified and experienced
individual to manage it. Although management believes the Company can attract
and retain qualified and experienced managers as it proceeds with expansion into
new markets, no assurance is given that it will be successful in doing so. In
addition, the success of the Company's automobile sales finance operations is
dependent
7
<PAGE>
upon the Company's ability to maintain credit quality and administration as it
seeks to increase the number of Automobile Sales Contracts generated by existing
and new finance offices. No assurance is given that it will be successful in
doing so. If the recent material adverse trend in the Company's credit loss
experience continues in early 1998, the Company may temporarily curtail the
opening of any new finance offices for purchasing Automobile Sales Contracts.
See "Business -- Business and Growth Strategy."
No Minimum Number of Securities Required to be Sold. In reviewing the
information set forth under the headings "Use of Proceeds," "Capitalization,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," prospective purchasers of the
Securities should note that no minimum number of Securities is required to be
sold and no assurance is given that any particular number of Securities will be
sold.
Increases in Interest Rates. While the Company's finance receivables
bear interest at fixed rates, which in some instances are subject to a legal
maximum, the Company generally finances these receivables by incurring
indebtedness with floating interest rates. As a result, the Company's interest
expense generally will increase during periods of rising interest rates while
its interest income remains constant, thereby decreasing net interest rate
spreads and adversely affecting the Company's profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Profitability." Through this offering of fixed rate Securities, the Company
anticipates that it may be able to reduce some of its dependency on floating
interest rate borrowings and increase its net interest rate spreads. However,
there can be no assurance that this offering will result in the sale of any
particular amount of the Securities.
Key Management. Although the Company has recently employed additional
management personnel experienced in various aspects of consumer finance, the
Company's success depends, in large part, on the continued service of its senior
management, including James D. Thaxton, Chairman of the Board, President, and
Chief Executive Officer, and Robert L. Wilson, Executive Vice President and
Chief Operating Officer. The Company maintains key employee insurance in the
amount of $1,000,000 on the life of Mr. Wilson but maintains no such insurance
on the life of Mr. Thaxton. Neither Mr. Thaxton nor Mr. Wilson is subject to an
employment agreement with the Company, although in December 1995, Mr. Wilson
received a grant of restricted Common Stock that vests over a ten-year period.
See "Management -- Executive Compensation." The loss of either Mr. Thaxton or
Mr. Wilson may have a material adverse effect on the Company's business.
Competition. The business of acquiring and purchasing Automobile Sales
Contracts is highly fragmented and competitive. Historically, commercial banks,
savings institutions, credit unions, financing affiliates of automobile
manufacturers, and other lenders providing traditional consumer financing have
not consistently served the non-prime segment of the consumer finance market.
Recently, however, some bank holding companies have acquired used automobile
finance companies in an effort to recapture some of the customers their bank
subsidiaries have rejected on the basis of rigid credit scoring systems. In
addition, there are numerous nontraditional consumer finance sources serving
this market. The Company believes that its primary competitor in the automobile
sales finance and consumer loan business is TransSouth Financial Corporation,
which operates in most of the Company's markets. The Company also competes with
numerous regional consumer finance companies. Many of these competitors or
potential competitors, including TransSouth Financial Corporation, have
significantly greater resources than the Company and have preexisting
relationships with independent dealers in the Company's markets. Any increased
competition from these or other sources of credit for Non-prime Borrowers may
limit the Company's ability to execute its business and growth strategy and
could have a material adverse effect on the Company. Such competition could
result in a reduction in the interest rates earned on Automobile Sales Contracts
and Direct Loans or in the dealer reserve the Company is able to obtain when it
purchases an Automobile Sales Contract. See "Business -- Competition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Credit Loss Experience."
The premium finance business also is highly competitive. Because
interest rates are highly regulated, competition is based primarily on customer
service, response time, and down payment amounts. There are numerous independent
finance companies specializing in premium finance for personal lines of
insurance. In addition, many independent insurance agencies finance premiums for
their customers either directly or through an affiliate. Some bank holding
companies have subsidiaries that finance premiums on insurance sold by other
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subsidiaries of the holding company as well as by independent agents. Any
increased competition from these or other providers of premium finance may limit
the Company's ability to execute its business and growth strategy and could have
a material adverse effect on the Company.
Competition in the independent insurance agency business is intense.
There are numerous other independent agencies in most of the markets where the
Company's insurance offices are located. There are also direct agents for
various insurers operating in some of these markets. The Company competes
primarily on the basis of service and convenience. The Company attempts to
develop and maintain long-term customer relationships through low employee
turnover and responsive service representatives and offers a broad range of
insurance products underwritten by reputable insurance companies. Any increased
competition from other providers of insurance products may limit the Company's
ability to execute its business and growth strategy and could have a material
adverse effect on the Company.
The origination of residential mortgages for Non-prime Borrowers is
highly competitive and there are numerous companies engaged in this business,
many of which have substantially greater resources and experience than the
Company. The Company intends to compete mainly on the basis of service to
customers in markets where it already has a presence with its consumer finance
and insurance offices. Increased competition from other providers of mortgage
products may limit the Company's ability to implement its residential mortgage
growth strategy and could have an adverse effect on the Company.
Regulation. The Company's business is subject to various state and
federal laws which require licensing and qualification. These laws may regulate,
among other things, (i) the maximum interest rate that may be charged to
borrowers on Automobile Sales Contracts, Direct Loans, and Premium Finance
Contracts, (ii) the sale and type of insurance products offered by the insurers
for which the Company acts as agent, (iii) the Company's rights to repossess and
sell collateral, and (iv) virtually all aspects of the premium finance business.
An adverse change in these laws or the adoption of new laws could have a
material adverse effect on the Company's business by limiting the interest and
fee income the Company can generate on existing and additional finance
receivables, limiting the states in which the Company may operate, or
restricting the Company's ability to realize the value of collateral securing
its finance receivables. Moreover, a reduction in existing statutory maximum
interest rates or the imposition of statutory maximum interest rates below those
presently charged by the Company in unregulated jurisdictions would directly
impair the Company's profitability. In addition, an adverse change in the
maximum permissible interest rates that may be charged to borrowers in markets
into which the Company may consider expanding could reduce the attractiveness of
such markets, thereby limiting the expansion opportunities of the Company. The
Company is not aware of any such material pending legislation in the markets it
currently serves or in the markets it has targeted for expansion. An adverse
change in, modification to, or clarification of any of these laws or
regulations, or judicial interpretations as to whether and in what manner such
laws or regulations apply to Automobile Sales Contracts and Direct Loans
purchased or originated by the Company, also could result in potential liability
related to Automobile Sales Contracts previously purchased and could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, due to the consumer-oriented nature of the industry in
which the Company operates and uncertainties with respect to the application of
various laws and regulations in certain circumstances, industry participants
frequently are named as defendants in litigation involving alleged violations of
federal and state consumer lending or other similar laws and regulations. See
"Business -- Regulation."
Geographic Concentration. The Company's finance and insurance offices
are located primarily in South Carolina. The Company's profitability may be
disproportionately affected by the general economic conditions of and regulatory
changes in South Carolina. The Company believes, but no assurance is given that,
such geographic concentration will decrease in the future as result of its
growth strategy, which includes the possibility of further expansion into
adjacent southeastern states. See "Business -- Business and Growth Strategy."
Risks of Premium Finance Business. The collateral for Premium Finance
Contracts is the unearned portion of the premium paid to the insurance carrier.
The smaller the percentage that the customer's down payment represents of the
total premium due, the greater the Company's risk of loss is if inefficiencies
in servicing the loan result in the Company's failure to cancel the insurance
policy and seek a return of the unearned portion of the premium in a timely
manner or the insurance company files for bankruptcy. To reduce its risk of
loss, the Company
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generally requires a down payment of between 20% and 50% of the premium
financed. To reduce the risk of loss from the insolvency of an insurance
company, the Company has adopted a policy of insuring premiums only on personal
lines of insurance obtained from insurance companies with a rating of C+ or
better from A.M. Best & Company, except for policies issued by insurance
companies participating in state-guaranteed reinsurance facilities. Neither the
independent insurance agents who sell insurance to individuals for whom the
Company finances premiums nor the insurance companies have any liability under
the Premium Finance Contract to the Company in the event of a payment default.
See "Business -- Premium Finance Business."
Dependence on the Revolving Credit Facility. The Company depends
primarily on borrowings under a revolving credit facility (the "Revolving Credit
Facility") extended by FINOVA Capital Corporation ("Finova") to finance
purchases of Automobile Sales Contracts, to fund the origination of Direct Loans
and Premium Finance Contracts, and to carry these receivables until they are
repaid and/or funded by the Company's other capital resources. The Company's
ability to obtain a successor facility or similar financing will depend upon,
among other things, the willingness of financial organizations to participate in
funding Non-prime Borrower credit organizations and the Company's financial
condition and results of operations. No assurance can be given that the Company
will continue to comply with the terms of such facilities or to extend the
commitment terms thereof. Although the Company believes that other financing
would be available, no assurance can be given that successor financing will be
available to the Company when needed and on similar terms. The Revolving Credit
Facility is a $100 million credit line which is used by the Company primarily to
purchase Automobile Sales Contracts and to originate Direct Loans and Premium
Finance Contracts. At September 30, 1997, borrowings of $49.1 million were
outstanding under the Revolving Credit Facility. The facility expires on August
31, 1999. See "Business -- Financing" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Control by Existing Shareholder. James D. Thaxton, the Company's Chief
Executive Officer, President, and Chairman of the Board, beneficially owns
approximately 80% of the outstanding shares of Common Stock. As a result, Mr.
Thaxton is able to elect all of the Company's directors, amend the Company's
articles of incorporation, effect a merger, sale of assets, or other business
acquisition or disposition, and otherwise effectively control the outcome of
other matters requiring shareholder approval. See "Principal and Management
Shareholders."
Risks Associated with Possible Acquisitions. The Company recently
completed the acquisition of Thaxton Insurance, an affiliated insurance agency.
As part of its growth strategy, the Company may pursue acquisitions of other
independent consumer finance companies, insurance agencies, or related
companies. The Company does not currently have any agreement, proposal,
understanding, or arrangement regarding any particular material acquisition.
With respect to any future acquisitions, no assurance is given that the Company
will be able to locate or acquire suitable acquisition candidates, or that any
businesses which are acquired can be effectively and profitably integrated into
the Company. In order to provide funds for any acquisitions, the Company will
likely need to incur, from time to time, additional indebtedness and to issue,
in public or private transactions, equity and debt securities. The availability
and terms of any such financing will depend on market and other conditions, and
no assurance is given that such additional financing will be available on terms
acceptable to the Company, if at all. See "Business -- Business and Growth
Strategy."
USE OF PROCEEDS
If all of the Securities offered hereby are sold, the net proceeds to
the Company are estimated to be approximately $49,850,000 (after payment of
offering expenses estimated at $150,000). However, there can be no assurance
that the Company will receive any particular amount of proceeds from the
offering of the Securities. In addition, the Company does not expect that it
will ever have as much as $49,850,000 in net proceeds available at any one time
due to, among other factors, the maturities of the Securities and the time
period over which the offering will be conducted. Any net proceeds available to
the Company from sales of the Securities during the offering will be used to
temporarily repay indebtedness outstanding under two tranches of its Revolving
Credit Facility.
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The Revolving Credit Facility is a $100 million credit line which is
used by the Company primarily to purchase Automobile Sales Contracts, originate
Direct Loans and Premium Finance Contracts, and provide working capital for the
Company's other lines of business. The Revolving Credit Facility consists of six
tranches and has a maturity date of August 31, 1999. The primary tranche is used
to finance consumer receivables and provides for advances of up to $100 million,
less any amounts advanced under the secondary tranches. One of the secondary
tranches ("Tranche B") also is used to finance consumer receivables and allows
the Company to borrow up to $10 million against a higher percentage of Net
Finance Receivables than under the primary tranche. At September 30, 1997, 46.5
million was outstanding under the primary tranche and $2.6 million was
outstanding under other tranches. The interest rate for borrowings is a defined
prime rate plus one percent per annum for the primary tranche and plus five
percent per annum for Tranche B (9.50% and 13.50%, respectively, at September
30, 1997). The Company expects to continue using the Revolving Credit Facility
to fund the growth of its business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Business and Growth Strategy."
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DESCRIPTION OF SECURITIES
General
The Securities will be issued under an Indenture, dated as of February,
1998 (the "Indenture") between the Company and The Bank of New York. The
Securities will be subordinated, unsecured obligations of the Company. The
material terms, provisions and covenants contained in the Securities and the
Indenture are described below.
The Securities will be subordinate in right of payment to Senior
Indebtedness of the Company, as described below under "Subordination." The
Indenture does not limit the incurrence of Senior Indebtedness or any other
debt, secured or unsecured, of the Company or any subsidiary, nor does it
contain any terms which would afford protection to holders of the Securities
(individually a "Holder" and collectively the "Holders") in the event of a
recapitalization, a change in control, a highly leveraged transaction or a
restructuring involving the Company.
The Securities will be obligations of the Company only. Because the
Company does business through subsidiary corporations, its rights and the rights
of its creditors, including the Holders of the Securities, to participate in the
distribution of the assets of any of the Company's subsidiaries upon
liquidation, dissolution or reorganization of a subsidiary will be subject to
the prior claims of the subsidiaries' creditors, except to the extent that the
Company may itself be a creditor with recognized claims against the subsidiary.
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") as in effect on the date of the
Indenture. The Securities are subject to all such terms, and holders of the
Securities are referred to the Indenture and the Trust Indenture Act for a
statement of them. The statements under this caption relating to the Indenture,
a copy of which is filed as an exhibit to the Registration Statement, and the
Securities are summaries and do not purport to be complete. Such summaries make
use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture.
Terms of Subordinated Term Notes Due One Month
Each one month Term Note will be issued in the minimum principal amount
of $100 and will mature one month after date of issuance unless redeemed or
extended as provided therein. Holders of one month Term Notes may adjust the
original principal amount, without extending the maturity, at any time by
increases or decreases resulting from additional purchases or partial
redemptions; provided, however, that partial redemptions may not reduce the
outstanding principal amount below $100. Upon presentation of a one month Term
Note certificate to the Company, the Company will, for the Holder's convenience,
record on the certificate any adjustments to the original principal amount, such
as additional purchases or partial redemptions.
The Company will determine, from time to time, the rate of interest
payable on one month Term Notes, which rate will be at least equal to the rate
established for the most recent auction average of United States Treasury Bills
with a maturity of 13 weeks, but no less than 2% per annum and no more than 12%
per annum. The rate of interest at the time of purchase will be the rate of
interest payable throughout the original term of the one month Term Note.
Interest will be payable at maturity.
Not later than 15 days prior to the maturity of a one month Term Note,
the Company will give the Holder notice by first-class mail of the maturity
date. Each one month Term Note will be automatically extended for successive one
month terms at the rate(s) of interest then in effect for one-month Term Notes
unless, prior to maturity, the Company receives notification of the holder's
intention to redeem the Term Note. Except for a possible change in the rate of
interest, all of the terms and conditions applicable to the one month Term Note
when issued will also apply during each period of extension.
Terms of Subordinated Term Notes Due 6, 12, 36 and 60 months
Each 6, 12, 36 or 60 month Term Note will be issued in the minimum
principal amount of $1,000 and will mature 6, 12, 36 or 60 months after date of
issuance unless redeemed as provided therein. The Company will
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determine, from time to time, the rates of interest payable on the 6, 12, 36 or
60 month Term Notes, which rate will be at least equal to the rate established
for the most recent auction average of United States Treasury Bills with a
maturity of 52 weeks but no less than 2% and nor more than 12% per annum. The
rate of interest at the time of purchase of a particular 6, 12, 36 or 60 month
Term Note will be the rate payable throughout the term of such Term Note.
Interest will be payable, at the Holder's option, either monthly, quarterly or
at maturity (compounded quarterly).
No later than 30 days prior to maturity of a 6, 12, 36 or 60 month Term
Note, the Company will give the Holder notice by first-class mail of the
maturity date. Each 6, 12, 36 or 60 month Term Note will be automatically
extended for successive 6, 12, 36 or 60 month terms, respectively, at the rates
of interest then in effect for 6, 12, 36 or 60 month Term Notes unless, prior to
maturity, the Company receives notification of the Holder's intention to redeem
the Term Note at maturity. Except for a possible change in the rate of interest,
all of the terms and conditions applicable to such Term Notes when issued will
also apply during each period of extension.
The Company will have the right, at its option, to call any of the 6,
12, 36 or 60 month Term Notes for redemption before maturity, at any time.
Interest on 6, 12, 36 or 60 month Term Notes called for redemption will continue
to accrue until the date of redemption and no premium shall be paid thereon. The
Company will give the Holder of a 6, 12, 36 or 60 month Term Note not less than
30 days' prior written notice by first class mail of each redemption,
specifying, among other things, the principal amount of the Term Note to be
redeemed and the redemption date. The principal amount of the Term Note
specified in such notice, together with interest accrued and unpaid thereon to
the date of redemption, will become due and payable on such redemption date.
Procedure for Automatic Extensions of Term Notes
Not later than 15 days prior to the maturity of a Term Note, the
Company will provide the holder with an extension notice and a copy of the
Company's most recent quarterly report filed with the Commission and, if not
previously furnished to the holder, a copy of the Company's most recent annual
report filed with the Commission. The extension notice will advise the holder of
the maturity date of this Term Note, the principal amount due on maturity, the
amount of accrued interest to the maturity date and the applicable interest rate
upon an automatic extension of the Term Note. The extension notice will also
inform the holder that, upon request, the Company will promptly furnish the
holder with a copy of this Prospectus, as amended or supplemented. Unless prior
to the maturity of a Term Note the Company receives notification of the holder's
intention to redeem his Term Note, it will be automatically extended as
described above."
Terms of Subordinated Daily Notes
Daily Notes will be issued in the minimum original principal amount of
$50. Holders of Daily Notes may adjust the original principal amount at any time
by increases or decreases resulting from additional purchases or partial
redemptions; provided, however, that partial redemptions may not reduce the
outstanding principal amount below $50. Upon presentation of a Daily Note
certificate to the Company, the Company will, for the Holder's convenience,
record on the certificate any adjustments to the original principal amount, such
as additional purchases or partial redemptions.
If the holder redeems in full the obligation represented by a Daily
Note, such Daily Note must be surrendered by the Holder to the Company and the
indebtedness evidenced thereby shall be fully discharged by payment to the
Holder of the outstanding principal amount thereof, together with any accrued
but unpaid interest, as reflected on the books of the Company. The Company
retains the right to require the Holder to give the Company no less than thirty
(30) days' prior written notice, by first class mail, of a redemption requested
by the Holder, which notice shall specify the principal amount of the Daily Note
to be redeemed and the redemption date.
The interest rate payable on the Daily Note will be determined by the
Company and may fluctuate on a monthly basis. Any adjustment to the interest
rate will be made by the Company on the first day of the month. The fluctuation
may reflect adjustments which are either increases or decreases in the rate of
interest payable. The interest rate, once adjusted, will be effective as of the
first day of each month and shall remain in effect until next
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adjusted by the Company. The interest rate will be no less than 3% below nor
more than 5% above the rate established for the most recent auction average of
United States Treasury Bills with maturities of 13 weeks and in no event will
the interest rate be less than 2% per annum or more than 12% per annum. Interest
will be accrued daily and compounded quarterly. Holders of Daily Notes will be
notified by first-class mail of any monthly adjustments in the interest rate.
Redemption of Securities at Option of Holder.
One Month Term Notes. The Holder of a one month Term Note will have the
right, at such Holder's option, to redeem the Note prior to maturity, in whole
or in part. Upon such early redemption, the holder will forfeit all accrued
interest on the principal amount redeemed unless the Company, in its sole
discretion, elects to waive all or a portion of the forfeited interest. In
addition, the Company retains the right to require the Holder of a one month
Term Note to give the Company up to 30 days' prior written notice, by first
class mail, of a redemption requested by the Holder, which notice shall specify
the principal amount of the Term Note to be redeemed and the redemption date.
Six, 12, 36 or 60 Month Term Notes. The Holder of a 6, 12, 36, or 60
month Term Note will have the right, at such Holder's option, to redeem the Note
prior to maturity. The Holder, upon such redemption prior to maturity, will
forfeit an amount equal to the difference between the amount of interest
actually accrued on the 6, 12, 36 or 60 month Term Note since the date of
issuance or most recent extension and the amount of interest that would have
accrued thereon had the rate of interest been 3% less than the rate in effect at
the date issuance or most recent extension. When necessary, forfeited interest
already paid to or for the account of the Holder will be deducted from the
amount redeemed. Holders of 6, 12, 36 or 60 month Term Notes will also have the
right to make partial redemptions prior to maturity, provided however, that a
partial redemption may not reduce the principal amount to less than $1,000. The
interest rate penalty for each redemption of a 6, 12, 36 or 60 month Term Note
will be calculated only upon the principal amount of the Term Note redeemed. 6,
12, 36 or 60 month Term Notes may be redeemed before maturity without interest
rate penalty upon the death of any Holder or if the Holder is determined to be
legally incompetent by a court or any other administrative body of competent
jurisdiction. The Company retains the right to require the Holder of a 6, 12, 36
or 60 month Term Note to give the Company no less than 30 days' prior written
notice, by first class mail, of a redemption requested by the Holder, which
notice shall specify the principal amount of the Term Note to be redeemed and
the redemption date.
Daily Notes. The Holder of a Daily Note will have the right, at such
Holder's option, to redeem the Daily Note at any time, in whole or in part,
without penalty. The Company retains the right, however, to require the Holder
of a Daily Note to give the Company up to 30 days' prior written notice, by
first class mail, of a redemption requested by the Holder, which notice shall
specify the principal amount of the Daily Note to be redeemed and the redemption
date.
Possible 30-Day Notice Requirement for Redemption by Holders. As noted
above, the Company, in its sole discretion, may at any time require holders of
any of the Securities to give the Company 30 days' prior written notice, by
first class mail, of a redemption request. If the Company elects to impose this
requirement, it expects to do so by informing holders of the Securities of the
requirement personally when they are present in the offices of the Company or
its affiliates where the Securities may be presented for redemption, by
appropriate signage in these offices and possibly by a letter mailed to holders
of the Securities. Interest will continue to accrue if the Company should impose
this notice requirement. See "Risk Factors -- Possible 30-Day Notice Requirement
for Redemption by Holders and Related Risks."
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General Provisions Applicable to All Securities
Optional Redemption by Company. The Company will have the right, at its
option, to call any of the Securities for redemption, in whole or in part, at
any time. Interest on the Securities called for redemption will continue to
accrue until the date of redemption and no premium shall be paid thereon. The
Company will give the Holder not less than thirty (30) days' prior written
notice by first class mail of each redemption, specifying, among other things,
the principal amount of the Security to be redeemed and the redemption date. The
principal amount of the Security specified in such notice, together with
interest accrued and unpaid thereon to the date of redemption, will become due
and payable on such redemption date.
Subordination. The indebtedness evidenced by the Securities is
subordinate to the prior payment when due of the principal of and interest on
all Senior Indebtedness. Upon maturity of any Senior Indebtedness, payment in
full must be made on such Senior Indebtedness before any payment is made on or
in respect of the Securities. During the continuance of any default in payment
of principal of (or premium, if any) or interest or sinking fund on any Senior
Indebtedness, or any other event of default with respect to Senior Indebtedness
pursuant to which the holders thereof have accelerated the maturity thereof, no
direct or indirect payment may be made or agreed to be made by the Company on or
in respect of the Securities. Upon any distribution of assets of the Company in
any dissolution, winding up, liquidation or reorganization of the Company,
payment of the principal of and interest on the Securities will be subordinated,
to the extent and in the manner set forth in the Indenture, to the prior payment
in full of all Senior Indebtedness. The Indenture does not limit the Company's
ability to increase the amount of Senior Indebtedness or to incur any additional
indebtedness in the future that may affect the Company's ability to make
payments under the Securities. Except as described above, the obligation of the
Company to make payment of principal or interest on the Securities will not be
affected. The Holders of the Securities will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made on Senior
Indebtedness out of the distributive share of the Securities. By reason of such
subordination, in the event of a distribution of assets of the Company upon
insolvency, certain general creditors of the Company may recover more, ratably,
than Holders of the Securities.
"Senior Indebtedness" means Indebtedness of the Company outstanding at
any time other than Indebtedness of the Company to a subsidiary for money
borrowed or advanced from any such subsidiary or Indebtedness which by its terms
is not superior in right of payment to the Securities. "Indebtedness" means the
principal of, and premium, if any, and interest on, (1) any debt of the Company
for borrowed money whether or not evidenced by a note, debenture, bond or
similar instrument (including indebtedness represented by a purchase money
obligation given in connection with the acquisition of any property or assets)
including securities; (2) any debt of others described in the preceding clause
(1) which the Company has guaranteed or for which it is otherwise liable; and
(3) any amendment, renewal, extension or refunding of any such debt. As of
September 30, 1997, the outstanding amount of Senior Indebtedness of the Company
was approximately $50.4 million.
Defaults and Remedies. The term "Event of Default" when used in
connection with the Securities generally means any one of the following: (i)
failure of the Company to pay interest when due, which failure continues for 30
days, or failure to pay principal of any of the Securities when due (whether or
not prohibited by the subordination provisions); and (ii) certain events of
bankruptcy, insolvency or reorganization involving the Company or certain of its
subsidiaries.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, mail to the Holders notice of all uncured defaults
known to it (the term "default" for this purpose shall only mean the happening
of any Event of Default specified above, excluding grace periods), provided
that, except in the case of default in the payment of principal of or interest
on any of the Securities, the Trustee shall be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of the Holders.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of any series of the
Securities then outstanding, by notice in writing to the Company (and to the
Trustee if given by the holders), may declare the principal of and all accrued
interest on all the Securities
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of such series to be due and payable immediately. Such declaration may be
rescinded by Holders of a majority in principal amount of such series of
Securities if (1) the Company has paid or deposited with the Trustee a sum
sufficient to pay all overdue interest on such series of Securities and
principal of any Securities which have become due otherwise than by such
declaration of acceleration and (2) all existing Events of Default have been
cured or waived.
Defaults (except, unless theretofore cured, a default in payment of
principal of or interest on the Securities or a default with respect to a
provision which cannot be modified under the terms of the Indenture without the
consent of each Holder affected) may be waived by the Holders of a majority in
principal amount of a series of Securities (with respect to such series) upon
the conditions provided in the Indenture. The Indenture requires the Company to
file periodic reports with the Trustee as to the absence of defaults.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
Consolidation, Merger, Conveyance, Transfer or Lease. The Company may
not consolidate with, merge into, or transfer or lease substantially all of its
assets to, any other corporation other than a Subsidiary, unless the successor
corporation assumes all obligations of the Company under the Indenture and the
Securities and certain other conditions are met. Thereafter all such obligations
of the Company will terminate and the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer or
lease is made will succeed to all rights and powers of the Company under the
Indenture.
Securities Non-Negotiable. The Securities are non-negotiable and no
rights of ownership may be transferred by mere endorsement and delivery of the
Securities to a purchaser. All transfers and assignments of Securities may be
made only at the offices of the Company, upon presentation of the Security and
recordation of such transfer or assignment in the books of the Company. The
Securities are not transferable to any person who is not a resident of a state
where the offering of the Securities has not been registered under applicable
state securities laws unless an exemption from such registration is available.
Modification of the Indenture. The Indenture contains provisions
permitting the Company and the Trustee, without the consent of any Holder, to
supplement or amend the Indenture under certain specified circumstances,
including to cure any ambiguity, to correct or supplement any other provision
thereof, to evidence the succession of a successor to the Company or the
Trustee, to add to the covenants of the Company for the benefit of the Holders
or additional Events of Default, to secure the Securities, or to add any other
provisions with respect to matters or questions arising thereunder which the
Company and the Trustee deem necessary or desirable and which do not adversely
affect the interests of the Holders. Otherwise, the rights and obligations of
the Company and the rights of the Holders may be modified by the Company and the
Trustee only with the consent of the Holders of a majority in principal amount
of each series of Securities then outstanding. No reduction in the principal of
or the interest rate on the Securities or in the percentage of Holders required
for modification of the Indenture and no extension of the maturity of any
Securities or in the time of payment of interest will be effective against any
Holder without his consent.
The Company as Paying Agent. All principal and interest payments shall
be made to the Holders by the Company and notice thereof shall be provided by
the Company to the Trustee.
Satisfaction and Discharge of Indenture. The Indenture will be
discharged and cancelled upon payment of all the Securities or upon deposit with
the Trustee, within not more than one year prior to the maturity of all the
Securities, of funds sufficient for such payment or redemption.
16
<PAGE>
The Trustee. The Trustee is The Bank of New York, a New York banking
corporation, whose principal corporate trust office is in New York, City. Notice
to the Trustee should be directed to The Bank of New York, Towermarc Plaza,
10161 Centurian Parkway, Jacksonville, Florida; Attn: Assistant Treasurer.
The Holders of a majority in principal amount of all outstanding series
of Securities have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, provided that
such direction would not conflict with any rule of law or with the Indenture,
would not be prejudicial to the rights of another Holder and would not subject
the Trustee to personal liability. The Indenture provides that in case an Event
of Default should occur and be known to the Trustee (and not be cured), the
Trustee will be required to use the degree of care of a prudent man in the
conduct of his own affairs in the exercise of its power. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders unless
they shall have offered to the Trustee security and indemnity satisfactory to
it.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company set forth below are qualified by
reference to, and should be read in conjunction with, the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The balance sheet at December 31, 1995 and 1996 and the income data for the
years then ended are derived from the consolidated financial statements of the
Company audited by KPMG Peat Marwick LLP, independent auditors, which are
included elsewhere in this Prospectus. Such financial statements have been
restated to include the effects of the acquisition of Thaxton Insurance using
the "as if" pooling of interests method of accounting. As such, all periods
prior to the acquisition have been restated. The balance sheet data at December
31, 1994 and the income statement data for the year then ended are derived from
consolidated financial statements of the Company. The selected financial data
presented below for the nine months ended September 30, 1996 and 1997, and as of
September 30, 1997 are derived from the unaudited consolidated financial
statements of the Company included elsewhere in this Prospectus. Such statements
have been prepared in conformity with generally accepted accounting principles
and include all adjustments which are, in the opinion of management, necessary
to a fair presentation of the results for the interim periods presented. All
such adjustments are, in the opinion of management, of a normal recurring
nature. Results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
September 30
------------------------------ --------------------
1994 1995 1996 1996 1997
--------- ---------- --------- --------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest and fee income.............................$5,438 $9,182 $13,529 10,104 11,837
Interest expense.....................................1,299 2,985 3,046 3,707
----- ------ ------- ------ ------
4,210
Net interest income..................................4,139 6,197 9,319 7,058 8,130
Provision for credit losses.......................... 481 890 3,593 1,423 3,885
----- ------ ------- ----- -----
Net interest income after provision for credit 3,658 5,307 5,726 5,635 4,245
losses
Insurance commissions, net........................... 4,618 5,893 4,158 3,962
3,354
Other income......................................... 361 579 986 795 844
Operating expenses...................................6,246 8,767 11,974 8,659 9,346
Income tax expense (benefit)......................... 464 664 247 728 (112)
----- ----- ------ ----- -----
Net income (loss)..................................$. 663 $ 1,073 $ 384 1,201 (183)
= ===== ========= ======= ===== =====
Net income (loss) per common share $ 0.20 $ 0.31 $ 0.09 .30 (.05)
Common shares outstanding............................3,309 3,938 3,932 3,932 3,912
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
September 30,
------------------------------ --------------------
1994 1995 1996 1996 1997
--------- ---------- --------- --------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Average interest rate earned (1)(2).................39.24% 33.78% 30.92% 31.60% 29.93%
Average interest rate paid (2).......................9.74 11.32 10.21 10.00 9.81
Net interest spread (2).............................29.50 22.46 20.71 21.60 20.12
Net interest margin (2)(3)..........................31.11 23.85 22.14 23.09 21.51
Allowance for credit losses as a
percentage of Net Finance
Receivables (4)....................................2.44 2.05 4.35 2.15 6.04
Allowance for credit losses, dealer reserves
and
discount on bulk purchases as a percentage 6.07 4.91 7.81 5.97 8.34
of
Net Finance Receivables (4).......................
Net charge-offs as a percentage
of average Net Finance
Receivables (2)...................................3.11 3.08 5.06 3.62 6.71
- --------------------
</TABLE>
(1) Average interest rate earned represents interest and fee income for the
period divided by average Net Finance Receivables during the period.
(2) Percentages for the nine months ended September 30, 1996 and 1997 are
computed using annualized operating data which do not necessarily
represent the comparable data for a full twelve-month period.
(3) Net interest margin represents net interest income for the period
divided by average Net Finance Receivables during the period.
(4) Net finance receivable balances are presented net of unearned finance
charges only.
18
<PAGE>
<TABLE>
<CAPTION>
At Year Ended December 31, At September 30,
----------------------------------- -----------------
1994 1995 1996 1997
----------- ----------- ----------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Finance receivables.............$22,450 $47,900 $63,107 70,991
Unearned income (1)............. (5,037) (10,823) (14,366) 15,376
Allowance for credit losses..... (424) (783) (2,195) (3,440)
Finance receivables, net........ 16,989 36,294 46,546 52,175
Total assets.................... 21,757 46,760 56,681 64,100
Total liabilities............... 19,384 40,443 50,310 58,021
Shareholders' equity............ 2,373 6,371 6,079 6,316
- --------------------
</TABLE>
(1) Includes unearned finance charges, dealer reserves on Automobile Sales
Contracts and discounts on bulk purchases. Dealer reserves and
discounts on bulk purchases totaled $631,709, $1,091,979, and
$1,747,000 at December 31, 1994, 1995, and 1996 respectively, and
$1,308,367 at September 30, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Credit
Loss Experience."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Historical Development and Growth
Prior to 1991, the Company primarily was engaged in making and
servicing direct consumer and insurance premium finance loans to Non-prime
Borrowers. In 1991, the Company made a strategic decision to begin diversifying
its portfolio by actively seeking to finance purchases of used automobiles by
Non-prime Borrowers. Management believed that the expertise it had developed in
extending and servicing installment credit to Non-prime Borrowers would enable
it to profitably finance used automobile purchases by borrowers having similar
credit profiles. The Company facilitated its entry into this segment of the
consumer credit industry by engaging additional senior and mid-level management
personnel with substantial used automobile lending experience. Since 1991, the
Company has evolved into a diversified consumer financial services company
engaged in used automobile lending through the purchase and servicing of
Automobile Sales Contracts, the origination and servicing of Direct Loans and
Premium Finance Contracts, selling insurance products on an agency basis and
originating residential mortgage loans.
The following table sets forth certain information with regard to
growth in the Company's finance receivable portfolio.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
----------------------------------------- --------------
1994 1995 1996 1997
---------------------------------------- --------------
<S> <C> <C> <C> <C>
Automobile Sales Contracts
Total balance at period end, net (1) $8,823,559 $22,788,837 $35,998,537 41,161,289
Average account balance at period end 2,317 3,436 3,699 3,632
Interest income for the period 1,990,268 5,031,402 8,361,396 7,420,336
Average interest rate earned (2) 31.10 % 28.92 % 27.98 25.64 %
Number of accounts at period end 3,808 6,632 9,733 11,334
Direct Loans
Total balance at period end, net (1) $7,107,446 $9,460,798 $9,896,100 10,530,826
Average account balance at period end 1,175 1,405 1,324 1,417
Interest income for the period 2,305,296 2,248,168 2,941,705 2,227,304
Average interest rate earned (2) 34.66 % 31.60 % 30.01 29.08 %
Number of accounts at period end 6,047 6,736 7,475 7,432
Premium Finance Contracts
Total balance at period end, net (1) $1,482,009 $4,827,067 $2,846,451 3,923,371
Average account balance at period end 272 336 287 329
Interest income for the period 151,402 484,222 737,895 398,072
Average interest rate earned (2) 13.96 % 15.35 % 17.52 15.68 %
Number of accounts at period end 5,442 14,378 9,931 11,941
------------------
</TABLE>
(1) Finance receivable balances are presented net of unearned finance
charges, dealer reserves on Automobile Sales Contracts and discounts on
bulk purchases.
(2) Averages are computed using beginning and ending balances for the period
presented and are annualized for periods of less than one year.
Management believes the best opportunities for continued growth in the
Company's Automobile Sales Contract and Direct Loan portfolios lie in the
opening of new finance offices in small to medium-sized markets in the states
where the Company presently operates and contiguous states that management
believes to be under served by its competitors. The Company opened two new
finance offices in 1996 and five in 1997. The Company estimates that the capital
expenditure necessary for opening each new finance office is approximately
$21,000. While there are certain risks associated with such expansion,
management believes that its ability to identify and retain finance office
management personnel having established relationships with local independent
dealers, its
20
<PAGE>
expertise in extending and servicing credit to Non-prime Borrowers, and other
factors will enable it to manage anticipated growth in its finance office
network and in its Automobile Sales Contract and Direct Loan portfolios. The
Company will seek to expand its Premium Finance Contract portfolio by
establishing and broadening relationships with insurance agencies having a
client base in need of premium financing. The Company also periodically may make
bulk purchases of Automobile Sales Contracts and Premium Finance Contracts if
such purchases are deemed beneficial to the Company's competitive position and
portfolio mix and will seek opportunities to expand its network of insurance
offices primarily through the acquisition of independent insurance agencies.
Recent Acquisition and Expansion Activities
On October 31, 1996, the Company exchanged 300,000 shares of Common
Stock for all of the outstanding capital stock of Thaxton Insurance. At the time
of its acquisition, Thaxton Insurance had 19 insurance offices in North Carolina
and South Carolina. Thaxton Insurance continues to conduct business as a
wholly-owned subsidiary of the Company. See "Certain Transactions."
During 1996 the Company opened finance offices in Sumter, South
Carolina and Augusta, Georgia. The Augusta office was the Company's first in
Georgia. Both of the finance offices opened in 1996 are primarily devoted to the
purchase and servicing of Automobile Sales Contracts. The Company also opened
two mortgage lending offices in Charlotte, North Carolina and Florence, South
Carolina during the year and began originating residential mortgage loans in
January 1997. The mortgage lending offices are located in the same building as
the Company's insurance offices.
During the first nine months of 1997, the Company opened finance
offices in Anderson, Florence and Columbia, South Carolina, Christiansburg,
Virginia and Cumming, Georgia that will be devoted almost exclusively to the
purchase and servicing of Automobile Sales Contracts, and Thaxton Insurance
acquired independent agencies in York, South Carolina and Winston-Salem, North
Carolina.
Net Interest Margin
The following table sets forth certain data relating to the Company's net
interest margin.
<TABLE>
<CAPTION>
For the Year Ended December 31, Nine Months Ended
September 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Average Net Finance Receivables (1) $13,712,742 $26,710,887 $43,717,445 $42,598,449 $52,478,778
Average notes payable (1) $11,447,977 $23,447,113 $37,611,963 36,272,503 45,038,305
Interest and fee income (2) $ 5,380,470 $ 9,024,232 $13,518,563 10,096,204 11,779,303
Interest expense (3) 1,114,829 2,653,614 3,841,683 2,720,758 3,315,055
----------- --------- --------- ---------- ---------
Net interest income $ 4,265,641 $ 6,370,618 $9,676,880 7,375,446 8,464,248
=========== ========= ========= ========== =========
Average interest rate earned (1) 39.24% 33.78% 30.92% 31.60% 29.93%
Average interest rate paid (1) 9.74 11.32 10.21 10.00 9.81
----- ----- ----- ------- ------
Net interest rate spread 29.50% 22.46% 20.71% 21,60% 20.12%
===== ===== ===== ======= ======
Net interest margin (4) 31.11% 23.85% 22.14% 23,09% 21.51%
===== ===== ===== ======= ======
- ------------
</TABLE>
(1) Averages are computed using month-end balances during the periods presented
and are annualized for periods of less than one year.
(2) Excludes interest and fee income earned by Thaxton Insurance.
(3) Excludes interest expense paid on Thaxton Insurance related debt.
(4) Net interest margin represents net interest income divided by average Net
Finance Receivables.
The principal component of the Company's profitability is its net
interest spread, the difference between interest earned on finance receivables
and interest expense paid on borrowed funds. Statutes in some states regulate
the interest rates that the Company may charge its borrowers while interest
rates in other states are unregulated and
21
<PAGE>
consequently are established by competitive market conditions. At September 30,
1997, approximately 13% of Net Finance Receivables were subject to maximum
interest rates imposed by statute and substantially all of these receivables
were earning interest at the maximum rate. There are significant differences in
the interest rates earned on the various components of the Company's finance
receivable portfolio. The interest rates earned on Automobile Sales Contracts
generally are lower than the interest rates earned on Direct Loans due to
competition from other lenders, superior collateral, and longer terms. The
interest rates earned on Premium Finance Contracts are state regulated and vary
based on the type of underlying insurance and the term of the contract.
Unlike the Company's interest income, its interest expenses are
sensitive to general market fluctuations in interest rates. The interest rates
paid to the Company's primary lender are based upon a published prime rate plus
set percentages. Thus, general market fluctuations in interest rates directly
impact the Company's cost of funds. The Company intends to explore opportunities
to fix or cap the interest rates paid on all or a portion of its borrowings;
however, there can be no assurance that fixed rate financing or suitable
interest-rate hedge facilities will be available on terms acceptable to the
Company. The Company's general inability to increase the interest rates earned
on finance receivables may impair its ability to adjust to increases in the cost
of funds resulting from changes in market conditions. Accordingly, increases in
market interest rates generally will narrow the Company's interest rate spread
and lower its profitability while decreases in market interest rates generally
will widen the Company's interest rates spreads and increase profitability.
The decline in net interest rate spreads from 1994 to 1996 was
attributable primarily to the increased level of Automobile Sales Contracts in
the Company's finance receivable portfolio. The Company expects Automobile Sales
Contracts to be a component of future growth in its finance receivable
portfolio. If this growth in Automobile Sales Contracts occurs, the Company
expects that its net interest spread will continue to narrow. See "Liquidity and
Capital Resources."
Results of Operations
Comparison of Nine Months Ended September 30, 1997 to Nine Months Ended
September 30, 1996. Finance receivables at September 30, 1997 were $70,990,704
versus $63,574,776 at September 30, 1996, a 12% increase. The primary component
of this increase was Automobile Sales Contracts, which increased from
$48,522,580 at September 30, 1996 to $53,609,889 at September 30, 1997, or 10%.
The Company opened two branch offices in 1996 and one in early 1997, which
generated significant additional volume of Automobile Sales Contracts during the
first nine months of 1997.
Unearned income at September 30, 1997 was $14,066,851 versus
$13,461,332 at September 30, 1996, a 5% increase which was directly related to
the higher volume of Automobile Sales Contract originations during the first
nine months of 1997. The provision for credit losses established for the nine
months ended September 30, 1997 was $3,885,424 versus $1,423,355 for 1996, and
the allowance for credit losses increased from $1,079,570 at September 30, 1996
to $3,440,680 at September 30, 1997. The allowance for credit losses as a
percentages of Net Finance Receivables increased from 2.15% at September 30,
1996 to 6.04% at September 30, 1997. The allowance for credit losses predicted
by the Company's reserve model increased significantly from the end of the
second quarter of 1997 to the end of the third quarter of 1997 due to three
factors. First, the Company experienced a high level of charge-offs during the
third quarter that were roughly equal to those experienced during the first half
of the year. When this data was included in the reserve model, the historical
loss factors utilized by the model increased significantly. Second, losses on
the relatively large number of repossessed vehicles disposed of during the third
quarter caused dealer and bulk purchase reserves to fall below required levels
for a number of individual dealers and bulk purchases. Third, the finance
receivable portfolio experienced moderate growth during the quarter, resulting
in a corresponding increase in the allowance to provide for losses expected on
the newly originated finance receivables.
The growth in finance receivables during the nine months ended
September 30, 1997 versus the comparable period in 1996 resulted in higher
levels of interest and fee income. Interest and fee income for the nine months
ended September 30, 1997 was $11,837,182, compared to $10,104,327 for the nine
month ended September 30, 1996, a 17% increase. Interest expense also was
higher, increasing to $3,706,770 for the nine
22
<PAGE>
months ended September 30, 1997 versus $3,046,164 for the comparable period of
1996, a 22% increase. The increase in interest expense was due to the higher
levels of borrowings required to fund finance receivable originations and the
working capital requirements of Thaxton Insurance.
Net interest income for the nine months ended September 30, 1997
increased to $8,130,412 from $7,058,163 for the comparable period of 1996, a 15%
increase. The increase in net interest income was attributable to the higher
level of finance receivables, the interest income and fees from which more than
offset the 7% decrease in net interest spread for the nine months ended
September 30, 1997 versus the comparable period of 1996.
Insurance commissions net of insurance cost decreased to $3,961,939 for
the nine months ended September 30, 1997 from $4,158,173 for the comparable
period of 1996, due to reduced sales of insurance products to borrowers. Other
income increased from $795,598 for the nine months ended September 30, 1996 to
$843,797 for the comparable period of 1997 due to increased profit sharing
payments to Thaxton Insurance from various insurance carriers.
Total operating expenses increased from $8,659,467 for the nine months
ended September 30, 1996 to $9,345,572 for the comparable period of 1997, an 8%
increase. The increase in expenses was due to opening new finance offices in
addition to a general increase in costs associated with administering a larger
finance receivable portfolio.
The Company generated a net loss from operations for the nine months
ended September 30, 1997 of $182,806 as compared to a net income of $1,201,397
for the comparable period of 1996. The decrease in net income was due to the
higher levels of net interest and insurance commission income being offset by
higher operating expenses and increased provisions for credit losses.
Stockholders' equity decreased from $6,371,305 at December 31, 1996 to
$6,078,944 at September 30, 1997 as a result of the Company's net loss from
operations during the period.
Comparison of 1996 to 1995. Gross finance receivables at December 31,
1996 were $63,106,601 versus $47,900,234 at December 31, 1995, a 32% increase.
The primary component of this increase was Automobile Sales Contracts, which
increased from $32,455,654 at December 31, 1995 to $47,603,138 at December 31,
1996, or 47%. The Company opened four finance offices in 1995 and two in 1996,
all of which originated primarily Automobile Sales Contracts, generating a
significant additional volume of such contracts. Premium Finance Contracts
outstanding decreased from $5,046,110 at December 31, 1995 to $2,943,338 at
December 31, 1996, or 42%, due to the Company's decision to reduce origination
activities in Virginia. Direct loans increased 21%, to $12,560,126 at December
31, 1996 compared to $10,398,470 at December 31, 1995 due primarily to increased
loan demand at the Company's existing finance offices.
Unearned income at December 31, 1996 was $12,578,514 versus $9,731,532
at December 31, 1995, a 29% increase which was directly related to the higher
volume of Automobile Sales Contract originations during 1996. The provision for
credit losses established for the year ended December 31, 1996 was $3,593,399,
versus $890,337 for 1995. The increase in the provision for credit losses was
due to strengthening the Company's allowance for credit losses in response to
higher than expected loan losses and repossessions in the fourth quarter of
1996. The allowance for credit losses increased from $783,200 at December 31,
1995 to $2,195,000 at December 31, 1996. The allowance for credit losses as a
percentage of Net Finance Receivables increased from 2.1% at December 31, 1995
to 4.4% at December 31, 1996.
Cash levels decreased from $3,214,977 at December 31, 1995 to $421,465
at December 31, 1996. This decrease was due to the use of the proceeds of the
Company's public offering on December 29, 1995 to pay down the Revolving Credit
Facility on January 3, 1996.
The growth in finance receivables during the year ended December 31,
1996 versus the comparable period in 1995 resulted in higher levels of interest
and fee income. Interest and fee income for the year ended December 31, 1996 was
$13,528,881, versus $9,182,149 for the year ended December 31, 1995, a 47%
increase. Interest
23
<PAGE>
expense also was higher, increasing to $4,209,763 for the year ended December
31, 1996 versus $2,985,056 for the year ended December 31, 1995, a 41% increase.
The increase in interest expense was due to the higher levels of borrowings
needed to fund the larger finance receivable portfolio, offset somewhat by
reduced interest rates payable by the Company to its primary lender under new
agreements entered into in 1996.
Net interest income for the year ended December 31, 1996 increased to
$9,319,118 from $6,197,093 for 1995, a 50% increase. The increase in net
interest income is attributable to the higher levels of finance receivables, the
interest income and fees from which more than offset the 7.8% decrease in net
interest spread for the year ended December 31, 1996 versus 1995.
Insurance premiums and commissions net of insurance cost increased to
$5,893,606 for the year ended December 31, 1996 from $4,617,651 for 1995, a 28%
increase due to the higher levels of Automobile Sales Contract originations, the
triggering event for most sales of insurance products to borrowers, and
increased commissions generated on the sale of insurance policies by the agency.
Collection expense increased from $42,233 for the year ended December
31, 1995 to $63,797 for 1996, an increase of 85% due to growth in the Company's
finance receivables. Collection expense as a percentage of average Net Finance
Receivables remained constant at 0.2%.
Reinsurance claims expense increased from $310,231 for the year ended
December 31, 1995 to $516,194 for 1996, an increase of 66%. The increase was
primarily due to a 64% increase in finance receivables outstanding, which
resulted in a corresponding increase in credit insurance sold in connection with
the origination of those receivables.
Total operating expenses increased from $8,767,241 for the year ended
December 31, 1995 to $11,974,280 for 1996, a 36% increase. The increase in
expenses was due to opening new offices in addition to a general increase in
costs associated with administering a significantly larger finance receivable
portfolio, with average net loans outstanding increasing 63%.
Net income decreased to $384,184 for the year ended December 31, 1996
from $1,072,598 for 1995. The decrease in net income was due to higher levels of
net interest and insurance income, offset by a higher loss provision for credit
losses and expenses.
Shareholders' equity increased from $6,315,944 at December 31, 1995 to
$6,371,305 at December 31, 1996, as a result of retained earnings from after tax
profits during the period, partially offset by the conversion of 340,000 shares
of preferred stock to subordinated debt.
Credit Loss Experience
Provisions for credit losses are charged to income in amounts
sufficient to maintain the allowance for credit losses at a level considered
adequate to cover the expected future losses of principal and interest in the
existing finance receivable portfolio. Credit loss experience, contractual
delinquency of finance receivables, the value of underlying collateral, and
management's judgment are factors used in assessing the overall adequacy of the
allowance and resulting provision for credit losses. The Company's reserve
methodology is designed to provide an allowance for credit losses that, at any
point in time, is adequate to absorb the charge-offs expected to be generated by
the finance receivable portfolio, based on events or losses that have occurred
or are known to be inherent in the portfolio. The model used by the Company
utilizes historical charge-off data to predict the charge-offs likely to be
generated in the future by the existing finance receivable portfolio. The model
stratifies losses by originating office and by type, and develops historical
loss factors which are applied to the current portfolio. In addition, changes in
dealer and bulk purchase reserves are analyzed for each individual dealer and
bulk purchase, and additional reserves are established for any dealer or bulk
purchase if coverage has declined below adequate levels. The Company's
charge-off policy is based on an account by account review of delinquent
receivables. Losses on finance receivables secured by automobiles are recognized
at the time the collateral is repossessed. Other finance
24
<PAGE>
receivables are charged off when they become contractually past due 180 days,
unless extenuating circumstances exist leading management to believe such
finance receivables will be collectible. Finance receivables may be charged off
prior to the normal charge-off period if management deems them to be
uncollectible.
Under the Company's dealer reserve arrangements, when a dealer assigns
an Automobile Sales Contract to the Company, the Company withholds a certain
percentage of the principal amount of the contract, usually between five and ten
percent (the "Discount Percentage"). The amounts withheld from a particular
dealer are recorded in a subsidiary ledger account (the "Specific Reserve
Account"). Any losses incurred on Automobile Sales Contracts purchased from that
dealer are charged against its Specific Reserve Account. If at any time the
balance of a dealer's Specific Reserve Account exceeds the amount derived by
applying the Discount Percentage to the total amount of principal and interest
due under all outstanding Automobile Sales Contracts purchased from such dealer
(the "Excess Dealer Reserve"), the dealer is entitled to receive distributions
from the Specific Reserve Account in an amount equal to the Excess Dealer
Reserve. If the Company is continuing to purchase Automobile Sales Contracts
from a dealer, distributions of Excess Dealer Reserves generally are paid
quarterly. If the Company is not continuing to purchase Automobile Sales
Contracts from a dealer, distributions of Excess Dealer Reserves are not paid
out until all Automobile Sales Contracts originated by that dealer have been
paid in full. The aggregate balance of all Specific Reserve Accounts, including
unpaid Excess Dealer Reserves, are reflected in the balance sheet as a reduction
of finance receivables. The Company's allowance for credit losses is charged
only to the extent that the loss on an Automobile Sales Contract exceeds the
originating dealer's Specific Reserve Account at the time of the loss.
The Company periodically purchases Automobile Sales Contracts in bulk.
In a bulk purchase arrangement, the Company typically purchases a portfolio of
Automobile Sales Contracts from a dealer at a discount to par upon a review and
assessment of the portfolio by the Company's management. This discount is
maintained in a separate account against which losses on the bulk portfolio
purchased are charged. To the extent losses experienced are less than the
discount, the remaining discount is accreted into income.
Recent Material Adverse Trend in Credit Loss Experience
The Company's charge-offs as a percentage of average Net Finance
Receivables increased from 3.08% for the year ended December 31, 1995 to 5.06%
for the year ended December 31, 1996 and from 3.62% for the nine months ended
September 30, 1996 to 6.71% for the nine months ended September 30, 1997. These
increases were attributed to a general deterioration in loan performance
experienced by the Company during the latter part of 1996 and the first nine
months of 1997. The Company's credit policies have remained consistent through
the third quarter of 1997, and management believes that its charge-off
experience was comparable to that experienced by other lenders in the non-prime
sector. In response to this increased loss experience, the Company made several
operational changes in the second half of 1996 which, over the long-term, are
expected to reduce the Company's charge-offs. These changes included reducing
purchases of Automobile Sales Contracts from certain dealers for which loss
experience had been unsatisfactory, splitting several offices to obtain improved
collection by locating collection personnel in closer geographic proximity to
borrowers, and reorganizing the Company's regional structure to place more
experienced supervisory personnel in charge of certain offices with higher than
average credit loss experience. Although management believes that these changes
have resulted in fewer charge-offs than would have been experienced without the
changes, they have not had the effect of reducing losses to acceptable levels.
As a result, in the fourth quarter of 1997 the Company tightened its credit
policies by, among other things, increasing qualifying ratios for credit
approval of borrowers and increasing required down payments on Automobile Sales
Contracts financed by the Company. These policy changes may result in slower
portfolio growth of the Company's automobile sales finance receivables,
particularly in light of the current credit market for Non-prime Borrowers,
which is highly competitive. Although management believes that over time these
changes will reduce charge-offs to acceptable levels, the Company's charge offs
were higher in the fourth quarter of 1997 than they were in the fourth quarter
of 1996.
Charge-offs for the quarter and year ended December 31, 1997 were
$1,335,188 and $3,974,932, respectively, as compared to $1,054,614 and
$2,210,441 for the quarter and year ended December 31, 1996, and the allowance
for credit losses increased from $3,440,680 at September 30, 1997 to $4,237,300
at December 31, 1997, an increase of $796,620. The provision for credit losses
for the quarter and year ended December 31, 1997 was $2,131,808 and $6,017,232,
respectively, as compared to $2,170,044 and $3,593,399 for the quarter and year
ended December 31, 1996. The increased loss provision is expected to result
in a net loss for the quarter and year ended December 31, 1997 of approximately
$278,000 and $1,050,000, respectively, as compared to a net loss of $817,213 for
the quarter ended December 31, 1996 and net income of $384,184 for the year
ended December 31, 1996. There can be no assurance that the adverse trend in
credit losses experienced by the Company will not continue in the future and, if
it continued, it would have a material adverse affect on the Company's results
of operations.
25
<PAGE>
The following table sets forth certain information respecting the
Company's allowance for credit losses and credit loss experience at or over the
periods presented.
<TABLE>
<CAPTION>
At or for the Years Ended At or for the Nine Months
December 31, Ended September 30,
----------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Net Finance Receivables (1) $17,413,014 $38,168,681 $50,447,410 $50,113,444 $56,923,853
Allowance for credit losses $ 424,425 $ 783,200 $ 2,195,000 1,079,570 3,440,680
Allowance for credit losses as a percentage
of Net Finance Receivables (1) 2.44 % 2.05 % 4.35 2.15% 6.04%
Dealer reserves and discounts on bulk
purchases $ 631,709 $ 1,091,979 $ 1,747,000 $1,913,558 $1,308,367
Dealer reserves and discounts on bulk
purchases as a percentage of Automobile
Sales Contracts 6.68 % 4.91 % 4.64 5.35% 3.08%
Allowance for credit losses and dealer
reserves and discount on bulk purchases $ 1,056,134 $1,875,179 $3,942,000 $2,993,128 $4,749,047
Allowance for credit losses and dealer
reserves and discount on bulk purchases
as a percentage of Net Finance
Receivables 6.07 % 4.91 % 7.81 % 5.97% 8.34%
Provision for credit losses $ 481,063 $ 890,337 $3,593,399 $1,423,355 $3,885,424
Charge-offs (net of recoveries) $ 426,624 $ 821,806 $2,210,441 1,155,827 2,639,745
Charge-offs (net of recoveries) as a
percentage of average net finance
receivables 3.11 % 3.08 % 5.06 % 3.62% 6.71%
- -----------------
</TABLE>
(1) Net finance receivable balances are presented net of unearned finance
charges only.
The following table sets forth certain information concerning
Automobile Sales Contracts and Direct Loans at the end of the periods indicated:
<TABLE>
<CAPTION>
At December 31, At September 30,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Automobile Sales Contracts and Direct
Loans contractually past due 90
days or more (1) $ 110,030 $ 179,831 $ 380,569 $ 396,999 $ 484,772
Automobile Sales Contracts and Direct
Loans (1) $15,931,005 $ 32,249,635 $45,894,637 $44,129,221 $51,692,115
Automobile Sales Contracts and Direct
Loans contractually past due 90
days or more as a percentage of
Automobile Sales Contracts and 0.69 % 0.56 % 0.83 % .90 % .94 %
Direct Loans
- -----------------
</TABLE>
(1) Finance receivable balances are presented net of unearned finance charges,
dealer reserves on Automobile Sales Contracts and discounts on bulk
purchases.
The following table sets forth certain information concerning Premium
Finance Contracts at the end of the periods indicated:
<TABLE>
<CAPTION>
At December 31, At September 30,
---------------------------------------- ----------------------------
1994 1995 1996 1996 1997
---------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Premium finance contracts contractually
past due 60 days or more (1) $ 26,418 $ 99,537 $ 100,633 $89,543 $60,154
Premium finance contracts outstanding (1) $1,482,009 $4,827,067 $2,846,451 3,500,913 3,923,371
Premium finance contracts contractually
past due 60 days or more as a
percentage of premium finance contracts 1.8% 2.1% 3.5% 2.6% 1.53%
- ----------------------------
</TABLE>
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases.
The Company also incurs various expenses related to the collection of
delinquent accounts. These expenses consist of miscellaneous expenses paid to
third parties for activities related to collection on delinquent accounts and
repossession of collateral. The following table sets forth certain information
concerning collection expenses for the periods indicated.
26
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months
December 31, Ended September 30,
---------------------------------------- ----------------------------
1994 1995 1996 1996 1997
---------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Collection expenses $29,980 $42,233 $63,797 $45,313 $65,468
Collection expenses as a percentage of
average Net Finance Receivables 0.22% 0.16% 0.15% 0.11% 0.12%
</TABLE>
Liquidity and Capital Resources
The Company generally finances its operations and new offices through
cash flow from operations and borrowings under the Revolving Credit Facility.
The Revolving Credit Facility, which provides for borrowings of up to $100
million, is extended by Finova and matures on August 31, 1999. The facility
consists of six tranches. The primary tranche is used to finance consumer
receivables and provides for advances of up to $100 million, less any amounts
advanced under the secondary tranches. Tranche B, one of the secondary tranches,
is also used to finance consumer receivables and allows the Company to borrow up
to $10 million against a higher percentage of Net Finance Receivables than under
the primary tranche. The Company borrows against Tranche B only when it has
exhausted available borrowings under the primary tranche. The Revolving Credit
facility also provides a $5 million tranche dedicated to nonconsumer
receivables, a $25 million tranche established to provide a mortgage loan
warehouse facility, a $10 million tranche which permits borrowings against
insurance commissions generated by Thaxton Insurance, and a $7 million tranche
to finance future acquisitions. As of September 30, 1997, $49.1 million was
outstanding under the Revolving Credit Facility, $46.5 million of which had been
advanced under the primary tranche and $2.6 million of which had been advanced
under secondary tranches. At September 30, 1997, there were no advances under
Tranche B. Under the terms of the Revolving Credit Facility, the Company's Net
Finance Receivables at September 30, 1997 would have allowed it to borrow an
additional $4.9 million against existing collateral, with $50.1 million of total
potential capacity available for borrowing against qualified finance receivables
generated by the Company in future periods. The interest rate for borrowings is
the prime rate published by Citibank, N.A. (or other money center bank
designated by Finova) plus one percent per annum for the primary tranche, the
nonconsumer receivable tranche, and the mortgage loan tranche, plus five percent
per annum for Tranche B and the acquisition tranche and plus two percent per
annum for the insurance commission tranche. The interest rate is adjusted
monthly to reflect fluctuations in the designated prime rate. Accrued interest
on borrowings is payable monthly. Principal is due in full on the maturity date
and can be prepaid without penalty. The Revolving Credit Facility is secured by
substantially all of the Company's assets and requires the Company to comply
with certain restrictive covenants, including covenants to maintain a certain
debt to equity ratio, tangible net worth, annual net income within prescribed
limits, and a covenant to limit annual distributions to common shareholders to
25% of net income.
Cash flows from financing activities during the years ended
December 31, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1994 1995 1996
------------- ------------- ------------
<S> <C> <C> <C>
Revolving Credit Facility $5,851,419 $16,538,315 $ 8,941,444
Other notes payable 82,672 (746,058) 1,292,851
Dividends paid on preferred stock (52,500) (17,500) ---
Common Stock --- 3,210,133 ---
------------- ------------- ------------
Total $5,881,591 $18,984,890 $10,234,295
============= ============= ============
</TABLE>
Management believes that the recent increase in the maximum borrowings
available under the Revolving Credit Facility, in addition to cash expected to
be generated from operations and the sale of the Securities pursuant to this
Prospectus, will provide the resources necessary to fund the Company's liquidity
and capital needs through 1998. See "Use of Proceeds."
27
<PAGE>
Impact of Inflation and General Economic Conditions
Although management does not believe that inflation has a direct
material adverse effect on the Company's financial condition or results of
operations, increases in the inflation rate generally are associated with
increased interest rates. Because the Company borrows funds on a floating rate
basis and generally extends credit at the maximum interest rates permitted by
law or market conditions, increased interest rates would increase the Company's
cost of funds and could materially impair the Company's profitability. Inflation
also can affect the Company's operating expenses. The Company's business could
be affected by other general economic conditions in the United States, including
economic factors affecting the ability of its customers or prospective customers
to purchase used automobiles and to obtain and repay loans.
Accounting Matters
The Company adopted Statement of Financial Accounting Standard ("SFAS")
Nos. 121 and 123 during 1996. The adoption of these standards had no material
impact on the Company's results of operations or financial position in 1996. In
addition, the Financial Accounting Standards Board had issued SFAS No. 125, as
amended by SFAS No. 127, which the Company will adopt in 1997. Based on the
Company's current operations, adoption of these standards is not expected to
have a material impact on the Company's financial statements.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in
February, 1997. SFAS 128 applies to entities with publicly traded common stock
or potential common stock and is effective for financial statements for periods
ending after December 15, 1997, including interim periods. SFAS 128 simplifies
the standards for computing earnings per share previously found in APB Opinion
15, "Earnings Per Share." It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all companies with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Company's present computation of diluted EPS under
APB Opinion 15 is applied against a materiality test of 3 percent. Although
earlier application is not permitted, SFAS 128 will require restatement of all
prior-period EPS data presented.
The FASB also issued SFAS No. 129, "Disclosure of Information about
Capital Structure" in February, 1997. The purpose of SFAS 129 is to consolidate
existing disclosure requirements for ease of retrieval. It applies to all
entities and is effective for financial statements issued for periods ending
December 15, 1997.
The FASB also issued SFAS No. 130, "Reporting Comprehensive Income" in
June, 1997. The purpose of SFAS 130 is to address concerns over the practice of
reporting elements of comprehensive income directly in equity. This SFAS
requires all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed in equal prominence with the other financial statements. This
statement is effective for periods beginning after December 15, 1997.
Comparative financial statements are required to be reclassified to reflect the
provisions of this statement. The Company will adopt the provisions of this SFAS
for fiscal year 1998.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in June, 1997. This statement applies to all
public entities. The provisions of SFAS 131 require certain disclosures
regarding material industry segments within an entity. The statement is
effective for periods beginning after December 15, 1997. The adoption of this
standard is not expected to have a material effect on the Company's financial
reporting.
28
<PAGE>
BUSINESS
General
The Company was organized in July 1978 as C.L. Thaxton & Sons, Inc.,
and from that date until 1991 was primarily engaged in making and servicing
direct consumer and insurance premium finance loans to Non-Prime Borrowers. In
1991, the Company made a strategic decision to begin diversifying its portfolio
by actively seeking to finance purchases of used automobiles by Non-Prime
Borrowers and has since evolved into a diversified consumer financial services
company. In October 1996, the Company acquired Thaxton Insurance and began
selling, on an agency basis, various lines of property and casualty, life, and
accident and health insurance.
The Industry
The segment of the consumer finance industry in which the Company
operates, which is commonly called the "non-prime credit market," provides
financing to consumers with limited credit histories, low incomes, or past
credit problems. These consumers generally do not have access to the same
variety of sources of consumer credit as borrowers with long credit histories,
no defaults, and stable employment, because they do not meet the stringent
objective credit standards imposed by most traditional lenders. The Company,
like its competitors in the same segment of the consumer finance industry,
generally charges interest to Non-prime Borrowers at the maximum rate permitted
by law or, in states such as South Carolina where there are no legal maximum
rates, at competitive rates commensurate with the increased default risk and the
higher cost of servicing and administering a portfolio of loans to such
borrowers. By contrast, commercial banks, captive financing subsidiaries of
automobile manufacturers, and other traditional sources of consumer credit to
prime borrowers typically impose more stringent credit requirements and
generally charge lower interest rates.
The non-prime consumer credit market is highly fragmented, consisting
of many national, regional, and local competitors, is characterized by relative
ease of entry and, in the case of used automobile financing, by the recent
arrival of a number of well capitalized publicly-held companies. The Company
believes that most of these companies are concentrating their activities on
providing financing to Non-prime Borrowers with less extensive credit problems
who are purchasing late model used cars (coming off lease or former rental cars)
from franchised automobile dealers. By contrast, the Company concentrates on
providing financing to Non-prime Borrowers who have more extensive credit
problems and are purchasing lower-priced, older model automobiles from
independent dealers and making Direct Loans to Non-prime Borrowers to meet
short-term cash needs.
The premium finance industry for personal lines of insurance is also
highly fragmented. Insurance companies that engage in direct writing of
insurance policies generally provide financing to their customers who need the
service. Numerous small independent finance companies such as the Company are
engaged in providing premium financing for personal lines of insurance purchased
by Non-prime Borrowers through independent insurance agents. Because the rates
they charge are highly regulated, these companies compete primarily on the basis
of efficiency in providing the financing and servicing the loans. A significant
number of independent insurance agents provide premium financing to their
customers either directly or through affiliated entities. As banks are allowed
to enter the insurance business, they also are increasingly engaging in the
premium finance business.
Independent insurance agencies represent numerous insurance carriers,
and will place a customer's business with the carrier whose combination of
features and price best match the customer's needs. In comparison, direct agents
represent only one carrier. Most carriers find use of independent agencies to be
a more cost effective method of selling their products than using a direct agent
force. In 1995 total premiums written by carriers in the United States was
approximately $263 billion. Of that amount, approximately 54% was written by
independent agents.
29
<PAGE>
Competition in the independent insurance agency business is intense.
There are numerous other independent agencies in most of the markets where the
Company's insurance offices are located. There are also direct agents for
various insurers operating in some of these markets. The Company competes
primarily on the basis of service and convenience. The Company attempts to
develop and maintain long-term customer relationships through low employee
turnover and responsive service representatives and offers a broad range of
insurance products underwritten by reputable insurance companies.
Business and Growth Strategy
In order to expand its business and improve operating results, the
Company intends to continue to pursue a business strategy based on its (i)
in-depth understanding of the consumer finance business, (ii) ability to
evaluate credit risks associated with the non-prime credit market, (iii)
substantial experience with automobile dealers' financing requirements for
Non-prime Borrowers, (iv) efficient and effective servicing and collection of
its finance receivables, and (v) diversification into additional financial
services activities. The principal components of the Company's business and
growth strategy include:
o Commitment to diversification -- Unlike many of its competitors who
specialize in used automobile finance, the Company is a diversified
consumer financial services company and intends to continue to diversify.
Although management anticipates that some of the Company's growth over the
next 12 to 18 months will be in its portfolio of Automobile Sales
Contracts, Direct Loan, Premium Finance Contract origination, and the
origination of residential mortgage loans will be emphasized as well.
Moreover, management believes the acquisition of Thaxton Insurance in
October 1996 will provide significant opportunities to cross-sell the
Company's various financial products and services. The Company operates
finance offices in a number of markets where Thaxton Insurance operates,
and in many cases the profile of a Thaxton Insurance customer is similar to
that of a Non-prime Borrower. An incentive program designed to reward
employees who successfully pursue cross-selling opportunities was
implemented during the fourth quarter of 1996. The Company is actively
seeking to enter other financial services businesses.
o Experienced management -- The management team in the Company's lending
operations, including its regional supervisors and office managers,
possesses extensive experience in consumer finance, most of which has
involved lending to Non-prime Borrowers. The Company believes that the
retention of this experienced management team is critical to the Company's
ability to maintain credit quality, supervise its operations, and further
expand its network of finance offices. The Company has also recently hired
an experienced insurance professional to manage the independent insurance
agency operations, in addition to adding other management personnel in that
division of the business.
o Expansion of the Company's office network -- The Company currently has a
total of 24 finance offices located in Georgia, North Carolina, South
Carolina, Tennessee, and Virginia. The Company currently plans to open at
least two additional finance offices in 1998, either in the states where
the Company currently operates or in adjacent southeastern states where the
Company believes that its business strategy is likely to be successful. In
deciding where to open additional finance offices, the Company intends to
concentrate on smaller urban areas where the Company is able to hire
experienced personnel who not only have substantial experience in the
consumer finance industry but are also familiar with local market
conditions and have existing relationships with local dealers. When
management deems it to be advantageous to do so, the Company may choose to
expand its finance office network through the acquisition of other
independent finance companies. The Company will also seek opportunities to
expand its insurance office network through acquisition of additional
independent insurance agencies in markets management believes are
attractive.
o Incentive compensation for finance office management -- The Company
rewards its finance office managers for business development by providing,
in addition to a base salary, incentive compensation arrangements that are
tied to the productivity of their respective offices. To ensure credit
quality is maintained, however, finance office managers must keep their
delinquent accounts within certain parameters and maintain a certain return
on receivables before they are eligible to receive the incentive
compensation.
30
<PAGE>
o Strong independent dealer relationships -- The Company emphasizes service
by providing independent dealers from whom it purchases Automobile Sales
Contracts with a timely, reliable, and consistent source of financing for
purchases of used automobiles by Non-prime Borrowers. In hiring managers
for existing and new finance offices, the Company seeks to identify and
recruit individuals with existing relationships with dealers in targeted
areas.
o Supervision and monitoring of finance offices -- The Company's senior
management has established policies based on many years of experience in
the non-prime credit market for close monitoring and supervision of all
aspects of finance office operations, which serves as a counterbalance to
the Company's otherwise decentralized operations. Each of the Company's
three regional supervisors conduct unannounced visits to each finance
office within their region twice annually to conduct an extensive review of
its operations and all finance receivables recently originated. The
supervisors' findings and recommendations are reported to senior
management, and the supervisors are responsible for monitoring future
compliance by finance office managers with their recommendations.
o Management information systems -- The management information systems used
by the Company provide management with daily reports that contain critical
operational information from each finance office. This information includes
the daily volume of Automobile Sales Contracts purchased and Direct Loans
made and repossession activities. The Company's premium finance business
also is highly automated, using a separate management information system,
and the insurance agency operations utilize one of the most widely used
agency management systems available.
o New business initiatives - During the latter part of 1996, the Company
entered into several new business activities. With the acquisition of
Thaxton Insurance the Company began selling on an agency basis property and
casualty, life, and accident and health insurance, and conducts this
business through a network of 20 insurance offices located in North
Carolina and South Carolina. The Company presently is developing strategies
to increase the volume of premiums generated by these offices as well as
improving the profitability of its insurance agency operations. In
addition, the Company began a mortgage brokerage operation during the
fourth quarter of 1996. Two of the Company's insurance offices are being
utilized to take mortgage applications, which are reviewed for compliance
with the underwriting standards of correspondent lenders at a central
location. The Company plans to expand this program to other locations
during 1998. The Company expects to originate both prime and non-prime
mortgages. Presently all mortgage loans are being funded by correspondent
lenders, which take ownership of the loan immediately upon closing. The
Company takes no interest rate risk, and has no liability to the
correspondent lenders in the event of a monetary default by the borrower.
The Company receives a fee for originating the mortgage.
Automobile Sales Contract Purchases
Set forth below is a description of the process that the Company
follows in connection with its purchase of an Automobile Sales Contract from an
independent dealer and the sale of ancillary insurance products.
Dealer Solicitation. The Company solicits business from independent
dealers through the business development efforts of the manager of each finance
office and regional supervisors. Dealers in the area are evaluated by the office
manager with a view to ensuring that the Company purchases Automobile Sales
Contracts from reputable dealers carrying an inventory of quality used
automobiles. A relationship with a dealer begins only after the soundness of the
dealer's business is determined by a credit investigation of the dealer,
inquiries with state regulatory agencies and inquiries of local civic and
community organizations. The Company seeks to form relationships with dealers
that have been independently operating for a sufficient period of time to have
established a base of repeat customers with a track record of paying their
obligations under Automobile Sales Contracts despite an otherwise non-prime
credit history. The Company tracks the monthly performance of borrowers'
accounts by dealer, allowing the Company to review and evaluate the quality of
the Automobile Sales Contracts purchased from
31
<PAGE>
each dealer. This procedure allows the Company to terminate business dealings
with a dealer quickly if the Automobile Sales Contracts purchased from that
dealer have a higher than average rate of delinquency.
Dealer Agreements. The Company enters into a non-exclusive agreement
with each dealer (a "Dealer Agreement") which sets forth the terms and
conditions under which the Company will purchase Automobile Sales Contracts. The
Dealer Agreement provides that all Automobile Sales Contracts sold to the
Company are without recourse to the dealer with respect to the credit risk of
the borrower, except for Automobile Sales Contracts for vehicles sold to
relatives or employees of the dealer. A Dealer Agreement includes
representations and warranties of the dealer that relate generally to such
matters as whether the dealer has (i) filed an application for a certificate of
title showing a first lien in favor of the Company, (ii) obtained the full down
payment specified in the Automobile Sales Contract either in cash or in the form
of cash and an allowance for a vehicle trade-in and (iii) complied with
applicable state and federal consumer credit protection laws relating to
Automobile Sales Contracts. If the dealer breaches the terms of the Dealer
Agreement with respect to any Automobile Sales Contract purchased by the Company
or if the dealer's customer withholds payment as required under any Automobile
Sales Contract because of a claim, defense, counterclaim, or setoff against the
dealer, the dealer is obligated to repurchase the Automobile Sales Contract on
demand by the Company for its net unpaid balance. If the purchaser of the
automobile recovers any amount from the Company as a result of a claim against
the dealer, the Dealer Agreement provides that the dealer will reimburse the
Company for any amounts paid the customer and for any costs incurred as a result
of such claim.
The Dealer Agreement allows the Company to withhold a specified
percentage of the principal amount of each Automobile Sales Contract purchased,
an arrangement designed to protect the Company from credit losses on Automobile
Sales Contracts. These dealer reserves, which range from five to 10% of the net
amount of each Automobile Sales Contract purchased, are negotiated on a
dealer-by-dealer basis and are subject to change based upon the collection
history of the Automobile Sales Contracts purchased from each dealer. See
"Management's Discussion and Analysis -- Credit Loss Experience."
Origination of Automobile Sales Contracts. Automobile Sales Contracts
purchased by the Company are originated by dealers when they sell a used car at
retail to a customer. The dealer completes and the customer signs a retail
installment contract and security agreement (giving the dealer a security
interest in the vehicle financed) on a printed form provided by the Company,
which includes the extensive disclosures required by state and federal law
regarding such matters as the annual percentage rate, the finance charge, the
amount financed, the total amount of all scheduled payments, and the total sale
price. The contract also includes a section where the customer may indicate
whether he or she desires to purchase credit life and credit accident and health
insurance, the premiums for which are included in the amount financed if the
customer elects to purchase credit insurance. The printed form identifies the
Company as the intended assignee of the contract and the terms and conditions of
the assignment to the Company are printed on the back of the form. The form
specifically provides that the terms of the assignment are subject to the terms
of the Dealer Agreement between the Company and the dealer.
The maximum interest rates on Automobile Sales Contracts originated in
South Carolina are based upon the maximum rate filed by the originating dealer
with state regulatory authorities. Such rates are not subject to a statutory
maximum. The maximum interest rates on Automobile Sales Contracts originated in
North Carolina are subject to a statutory maximum based on the model year of the
vehicle. Rates on used automobile purchases range from 18% per annum on vehicles
one or two model years old to 29% per annum on vehicles more than four model
years old. Interest rates on Automobile Sales Contracts originated in Virginia,
Georgia, and Tennessee are not subject to regulation. The actual interest rate
on an Automobile Sales Contract is set within statutory limits, if applicable,
based upon the credit profile of the borrower, the make, model and condition of
the collateral and market conditions.
Credit Evaluation and Approval Procedures. The Company applies
underwriting standards in purchasing Automobile Sales Contracts that take into
account principally the degree of a proposed buyer's creditworthiness and the
collateral value of the vehicle being financed. If a borrower elects to finance
the purchase of an automobile through a dealer with whom the Company has an
established relationship, which is typically the case, the dealer will
32
<PAGE>
submit the borrower's credit application to the Company for review and proposed
transaction terms. The office manager, or other office personnel under the
manager's supervision, conducts the credit evaluation review. This review
generally takes into account, among other things, the borrower's credit history,
ability to pay, stability of residence, employment history, income,
discretionary income, and debt service ratio, as well as the collateral value of
the vehicle. The borrower's credit history is assessed principally through the
evaluation of a credit bureau report which is obtained immediately after receipt
of an application from a dealer. The Company uses a standard application
analysis score sheet to conduct a credit evaluation that incorporates the
factors described above. Unless the borrower's total score falls below a
specified cutoff point, the office manager has the authority to approve the
purchase of the Automobile Sales Contract, up to his credit limit, with no
further review. If the borrower's total score falls below the specified cut-off
point, the office manager must receive approval from a regional supervisor
before approving the application for credit.
Generally, the Company will not finance more than 100% of the average
trade-in value of the automobile as set forth in the current edition of the
National Association of Automobile Dealers Official Used Car Guide and requires
that a borrower make a down payment of at least 10% of the purchase price. In
certain limited instances when the borrower is unable to make a sufficiently
large down payment, the Company will agree to purchase the Automobile Sales
Contract but will issue to the dealer a "deferred certificate" for the
difference between the average trade-in value of the automobile and the portion
of the sale price not covered by the borrower's down payment. Only when the
borrower has paid the entire balance of the Automobile Sales Contract is the
Company obligated to pay to the dealer the amount of the deferred certificate.
Automobile Sales Contract Purchases. Upon consummation of the sale of
the automobile to the borrower, the dealer delivers all required documentation
to the Company's office. The required documentation includes the executed
Automobile Sales Contract, proof of title indicating the Company's lien, an
odometer statement confirming the vehicle's mileage, proof that the automobile
is insured with the Company designated as loss payee and any supporting
documentation the Company specified in its conditional approval of the purchase.
Only when compliance with these requirements is verified, does the Company remit
funds to the dealer.
Bulk Purchases of Automobile Sales Contracts. From time to time the
Company purchases Automobile Sales Contracts in bulk from dealers who have
originated and accumulated contracts over a period of time. By doing so, the
Company is able to obtain large volumes of Automobile Sales Contracts in a
cost-effective manner. The Company applies underwriting standards in purchasing
Automobile Sales Contracts that take into account principally the borrowers'
payment history and the collateral value of the automobiles financed. Such
purchases are typically made at discounts ranging from 25% to 50% of the
financed portion of the Automobile Sales Contracts. There generally are no
dealer reserve arrangements on bulk purchases. In connection with such bulk
purchases, the Company reviews all credit evaluation information collected by
the dealer and reviews the servicing and collection history of the Automobile
Sales Contracts and obtains the required supporting documents.
Sales of Insurance Products in Finance Offices. In connection with the
origination of Automobile Sales Contracts, the Company offers, as agent, credit
life, and credit accident and health insurance. Borrowers under Automobile Sales
Contracts and Direct Loans secured by automobiles generally must obtain
comprehensive collision insurance on the automobile that designates the Company
as loss payee. If the borrower allows such insurance to lapse during the term of
the contract or loan, the Company will purchase a vendors' single interest
insurance policy, which insures the Company against a total loss on the
automobile, and add the cost of the premium to the borrower's account balance.
The Company also offers, as agent, limited physical damage insurance, which
satisfies the requirement that the borrower purchase comprehensive collision
insurance. Limited physical damage insurance is a modified form of collision
insurance that will pay the borrower or the Company the lesser of (i) the cost
of repairs, less a designated deductible amount, (ii) the actual cash value of
the automobile, less a designated deductible amount or (iii) the net unpaid
contract or loan balance, less any delinquent payments. The Company receives
commissions on the sales of insurance equal to 20% of the premiums on credit
life and credit accident and health insurance and 25% of the premiums on limited
physical damage coverage.
33
<PAGE>
Direct Loans Program
The Company has been in the business of making Direct Loans to
Non-prime Borrowers since 1985. Direct Loans are typically sought by such
borrowers to meet short-term cash needs, finance the purchase of consumer goods
or refinance existing indebtedness. Generally, less than 10% of Direct Loans are
secured by first or second liens on real property. The remainder are secured by
personal property or are unsecured. The typical original term on a Direct Loan
is 15 months. In South Carolina and Tennessee, where there is no limit on the
maximum interest rate the Company may charge on Direct Loans, the Company has a
posted maximum rate of 69% per annum, which it may not exceed until the Company
files a higher maximum rate with the state regulatory authorities. In North
Carolina, the Company generally charges the maximum interest rates permitted by
law for such loans, which range from 18% to 30% per annum, depending upon the
amount financed. The Company currently does not make Direct Loans in Georgia or
Virginia. The actual interest rate on a Direct Loan is set within statutory
limits, if applicable, based upon the credit profile of the borrower, the type
and value of any collateral and market conditions.
The credit evaluation procedures employed by the Company in connection
with Direct Loans are, with the exception of loans secured by real estate,
similar to the credit evaluation procedures employed in connection with the
purchase of Automobile Sales Contracts. The value of the collateral, if any,
however, is a far less significant factor in the Company's credit evaluation of
a Direct Loan. Instead, the Company places its primary emphasis on the ratio of
the anticipated debt service to the borrower's disposable income. Direct Loans
not secured by real estate are approved by office managers. If the loan is to be
secured by real estate, the Company obtains an appraisal of the property,
obtains a title opinion from an attorney and verifies filing of a mortgage or
deed of trust before disbursement of funds to the borrower. The Company
generally will not loan an amount in excess of 50% of the appraised value of the
real estate or, in the case of a home equity loan, 50% of the borrower's equity
in the property. All applications for Direct Loans secured by real estate must
be approved by the Company's President or Executive Vice President.
In connection with making Direct Loans, the Company also offers, as
agent, credit life and credit accident and health insurance on terms and
conditions similar to those on which it sells such credit insurance in
conjunction with the purchase of Automobile Sales Contracts. On all Direct Loans
that are secured by personal property other than a used car, the Company, in
lieu of filing financing statements to perfect its security interest in the
collateral, purchases non-filing insurance from an unaffiliated insurer. The
Company charges its customers on such loans an amount approximately equal to the
filing fees that would have been charged to the customer if the Company had
filed financing statements to perfect its security interest, which amount is
typically included in the amount of the loan. The Company uses such amount to
pay premiums for non-filing insurance against losses resulting from failure to
file. Under the Company's non-filing insurance arrangements, approximately 90%
of the premiums paid are refunded to the Company on a quarterly basis and are
netted against charge-offs for the period.
Servicing and Collection of Automobile Sales Contracts and Direct Loans
The Company has a staff of experienced personnel to collect, account
for, and post all payments received using a computerized management information
system to track each borrower's account activity. The Company's computer system
provides office personnel with access to all information contained in the
customer's contract including the amount of the contract, maturity, interest
rate, vehicle and reference information and payment history. Customer service
personnel in each finance office also respond to borrower inquiries, investigate
delinquencies and communicate with borrowers to obtain timely payments, monitor
the insurance coverage of the automobile serving as collateral, and, when
necessary, repossess financed automobiles.
When an Automobile Sales Contract is purchased or a Direct Loan is
made, the finance office personnel follow procedures that are designed to ensure
that borrowers understand their obligations and the terms of the Automobile
Sales Contract or Direct Loan. Particular emphasis is placed on the amount and
due date of each payment, the Company's expectations regarding the timely
receipt of payments and maintenance of insurance coverage, and the Company's
delinquency and repossession policies. The Company provides payment coupon books
to borrowers to remind them of their monthly payment obligations.
34
<PAGE>
Finance office personnel typically contact borrowers by telephone whose
payments are not received within one or two days after the due date of a
payment. A customer service representative in the office continues to contact
the delinquent borrower by telephone and, in some instances by mail, until
payment has been received. When a delinquent borrower brings his account
current, the Company places special emphasis on getting assurances from the
borrower that he or she will make the next payment on the due date. The Company
believes that early and frequent contact with delinquent borrowers reinforces
their recognition of their obligation and the Company's expectation for timely
payment. The Company's policy for payment deferments is to permit no more than
two in a twelve-month period on Direct Loans. Payment deferments on Automobile
Sales Contracts are granted only upon review by the office manager of the
Company's equity position and the borrower's needs.
The Company's repossession policy on Automobile Sales Contracts and
Direct Loans secured by automobiles is administered on a case-by-case basis. The
Company's policy is to work with a delinquent borrower for a brief period to
permit the customer to keep the car and continue making payments to the Company.
However, should a borrower become seriously delinquent or should the office
personnel determine the borrower is not dealing in good faith, the Company
repossesses the borrower's car. In most instances, repossessions are handled by
the Company's employees. Most automobiles are repossessed 30-45 days after the
account initially becomes delinquent, although in some cases repossessions occur
in less than 30 days. Repossessed vehicles are generally sold by independent
dealers on a consignment basis for the Company or through wholesale automobile
auctions. See "Management's Discussion and Analysis -- Credit Loss Experience."
Premium Finance
The Company is engaged in the business of providing short-term
financing of insurance premiums, primarily for personal lines of insurance such
as automobile insurance purchased by Non-prime Borrowers, indirectly through
independent insurance agents. Most agents who refer premium finance business to
the Company are located in North Carolina, South Carolina, and Virginia and
represent insurance companies that either have a rating of C+ or better from
A.M. Best & Company or participate in state-guaranteed reinsurance facilities. A
small amount of the Company's business involves financing premiums for
commercial lines of insurance for small businesses, including property and
casualty, business automobile, general liability, and workers' compensation. The
Company also periodically makes bulk purchases of Premium Finance Contracts. A
substantial amount of the Company's premium finance business is derived from
customers of the 19 insurance offices owned by Thaxton Insurance.
When an individual purchasing insurance through an agent with whom the
Company has an established relationship is unable to pay the full amount of the
premium, the agent will offer a Premium Finance Contract that allows the insured
to make a down payment and finance the balance of the premium. Because the
Company is able to cancel the insurance policy generally within a period of 23
to 28 days after the due date of a delinquent payment and receive a refund of
the unearned portion of the premium, the creditworthiness of the insured is a
less important factor than the size of the down payment and an efficient and
effective system for servicing and collecting the portfolio of Premium Finance
Contracts.
The typical term of a Premium Finance Contract ranges from three to
eight months depending primarily upon the term of the underlying insurance
policy, which in most cases is six months but in some cases may be as long as 12
months. The required down payment ranges from 20% to 50% of the premium
depending upon the state in which the insured resides, the term of the
underlying insurance contract, the identity of the referring agency and the
insured's financial circumstances. The smaller the down payment by the customer
on a Premium Finance Contract (and the resulting higher original principal
balance of the loan), the greater the Company's risk that the amount of the
unearned premium at the time of a payment default will not be sufficient to
cover the unpaid principal balance of the loan. Conversely, the higher the down
payment (and the resulting lower original principal balance of the loan), the
lower the Company's risk of loss in the event of a payment default. The Company
allows a down payment of 20% only on Premium Finance Contracts for policies sold
by certain "non-standard" insurance agencies operated by Thaxton Insurance in
North Carolina. At December 31, 1996, such Premium Finance Contracts
35
<PAGE>
represented approximately $1.1 million, or 36%, of total Premium Finance
Contracts outstanding. Because the original principal balance of such Premium
Finance Contracts is larger than it would be if higher percentage down payments
were required, the Company's risk of loss is increased.
The Company generally imposes the maximum finance charges and late fees
permitted by law for Premium Finance Contracts, which are subject to extensive
regulation in the states where the Company engages in this business. All of the
states in which the Company operates permit assessment of a fee of up to $15 on
each Premium Finance Contract and a maximum interest rate of 12% per annum.
After the Premium Finance Contract is originated, the Company sends the insured
a payment coupon book to serve as a reminder of the payment due dates. Although
most payments are received by mail, in some instances payments are made directly
to the agent who wrote the underlying insurance contract and then forwarded to
the Company. If a payment is not received by the sixth day after the due date, a
late fee is added to the past due payment and a notice of intent to cancel the
underlying insurance policy is mailed to the insured. If payment is not received
by the 10th day after the notice of intent to cancel is mailed (the 15th day in
South Carolina), the Company mails a notice of cancellation advising the insured
that the Company will cancel the underlying insurance policy in seven days
unless payment is received. If the insured fails to make payment by the seventh
day, using a power of attorney provided by the insured at the time the insurance
was purchased, the Company notifies the insurance company to cancel the
underlying insurance policy. Upon receipt of this notice the insurance company
remits to the Company the unearned portion of the premium, if any. The Company's
procedures for providing notices to borrowers are set up to provide a parallel
set of notices to the agent who wrote the underlying insurance policy.
Insurance Agency Operations
With the acquisition of Thaxton Insurance in October 1996, the Company
began selling on an agency basis various lines of automobile, property and
casualty, life, and accident and health insurance. Thaxton Insurance does not
assume any underwriting risk in connection with its insurance agency activities.
All underwriting risk is assumed by the insurance companies represented by
Thaxton Insurance. Thaxton Insurance is paid a commission by the insurance
company for which business is placed. On some policies, Thaxton Insurance is
eligible for additional commission payments (profit sharing) if the loss
experience on the business falls below specified levels. At December 31, 1996,
Thaxton Insurance had approximately 28,500 insurance customers.
Competition
The non-prime consumer credit market for used automobile finance and
personal loans is highly competitive and fragmented. Historically, commercial
banks, savings and loans, credit unions, financing arms of automobile
manufacturers and other lenders providing traditional consumer financing have
not consistently served the non-prime segment of the consumer finance market.
Recently, however, several large bank holding companies have acquired used
automobile finance companies in an effort to recapture some of the customers
their bank subsidiaries have rejected on the basis of their rigid credit scoring
systems. The Company faces increasing competition from a number of companies
providing similar financing to individuals that cannot qualify for traditional
financing. These include a number of well-capitalized public companies which
have only recently entered the business of purchasing Automobile Sales Contracts
and are seeking to rapidly expand their business. Management believes that
currently its primary competitor is TransSouth Financial Corporation, a
financial services company, which operates in most of the markets where the
Company operates. The Company also competes with numerous small, regional
consumer finance companies. Many of these competitors or potential competitors,
including TransSouth Financial Corporation, have significantly greater resources
than the Company and have pre-existing relationships with established networks
of dealers. To the extent that any of such lenders significantly expand their
activities in the markets where the Company operates or plans to operate, the
Company could be materially adversely effected. The basis on which the Company
competes with others in used car financing is primarily the price paid for
Automobile Sales Contracts, which is a function of the amount of the dealer
reserve, and the reliability of service to participating dealers. The basis on
which the Company competes with others in making Direct Loans is the interest
rate charged and customer service.
36
<PAGE>
The size of the Company's average Automobile Sales Contract is
considerably smaller than that of many other companies engaged in purchasing
Automobile Sales Contracts. The Company believes this is due in large part to
the fact that most of the Company's competitors are seeking to do business
primarily with franchised dealers selling late-model, lower mileage used
automobiles for significantly higher prices than the automobiles offered for
sale by the independent dealers with which the Company has relationships, which
tend to be somewhat older, higher mileage vehicles. Because the costs of
servicing and collecting a portfolio of finance receivables increases with the
number of accounts included in the portfolio, management believes that many
apparent potential competitors will choose not to do business with the type of
dealer targeted by the Company.
The premium finance business, particularly for personal lines of
insurance, also is highly fragmented and competitive. Because interest rates are
highly regulated, competition is primarily on the basis of customer service,
response time, and the required amount of down payment. There are numerous
independent finance companies specializing in premium finance for personal lines
of insurance. In addition, many independent insurance agencies finance premiums
for their customers either directly or through an affiliate. Some bank holding
companies have subsidiaries that finance premiums on insurance sold by other
subsidiaries of the holding company as well as by independent agents.
Competition among independent insurance agencies is intense. There are
numerous other independent agencies in most of the markets where the Company's
insurance offices are located. There are also direct agents for various
insurance companies located in some of the Company's markets. The Company
competes primarily on the basis of service and convenience. The Company attempts
to develop and maintain long-term customer relationships through low employee
turnover and responsive service representatives and offers virtually all types
of insurance products.
The origination of residential mortgages for Non-prime Borrowers is
highly competitive and the number of companies engaged in the business is
increasing rapidly. The Company has only recently begun originating residential
mortgages and currently expects to compete mainly on the basis of the service
that it provides to customers in markets where it already has a presence with
its finance and insurance offices.
Regulation
Consumer finance companies are subject to extensive supervision and
regulation under state and federal statutes and regulations. Depending upon the
nature of the transactions entered into by the consumer finance company and the
states in which it does business, governmental statutes and regulations may
require the lender to obtain licenses and meet specified minimum qualifications,
limit the interest rates, fees and other charges for which the borrower may be
assessed, limit or prescribe certain other terms and conditions of the
financing, govern the sale and terms of related insurance products, and define
and limit the right to repossess and sell collateral.
The relevant federal statutes include the Truth In Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Real Estate
Settlement Procedures Act ("RESPA"). These statutes generally are enforced
against consumer finance companies by the Federal Trade Commission and are
supplemented by regulations promulgated by this and other federal agencies. In
general, these laws require the Company to provide certain disclosures to
prospective borrowers, prohibit misleading advertising, protect against
discriminatory lending practices, and prohibit unfair credit practices. Among
the principal disclosure items under the Truth In Lending Act are the terms of
repayment, the final maturity, the total finance charge, and the annual
percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants on the basis of race,
color, sex, age, or marital status. Pursuant to Regulation B promulgated under
the Equal Credit Opportunity Act, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. The Fair Credit
Reporting Act requires the Company to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer credit reporting agency. Regulations promulgated by the Federal
Trade Commission limit the types of property a creditor may accept as collateral
to secure a consumer loan and provide for the preservation of the consumer's
claims and defenses when a consumer obligation such as an Automobile Sales
37
<PAGE>
Contract is assigned to a subsequent holder. RESPA imposes specific disclosure
requirements, escrow account and borrower inquiry procedures, and kickback and
referral fee prohibitions upon lenders whose portfolio of receivables secured by
first or second liens on residential real property exceeds a specified dollar
amount.
The Company presently purchases Automobile Sales Contracts in Georgia,
North Carolina, South Carolina, Tennessee, and Virginia, originates Direct Loans
in South Carolina, North Carolina and Tennessee, and originates Premium Finance
Loans in North Carolina, South Carolina, and Virginia. Interest rates on Premium
Finance Contracts are subject to statutory ceilings in all three states. See
"Premium Finance." Interest rates on Automobile Sales Contracts are subject to
statutory ceilings only in North Carolina. See "Automobile Sales Contract
Purchases -- Origination of Automobile Sales Contracts." Direct Loans are
subject to statutory ceilings only in North Carolina and Tennessee. See "Direct
Loans Program." Each state regulates other aspects of the Company's business,
such as charges for insurance, forms of collateral, application of payments,
default charges, repossession, and disclosure matters, in varying degrees. Such
regulations may require the licensing of the Company or one or more of its
finance offices. The Company's finance offices also may be subject to periodic
examination by the division of state government charged with enforcing consumer
finance statutes and regulations. In some instances, state statutes and
regulations impose more stringent disclosure and antidiscriminatory provisions
than comparable federal provisions and may impose specific statutory liabilities
upon and create causes of action against creditors who fail to comply with such
provisions.
The Company also is subject to state statutes and regulations governing
insurance agents in connection with sales of credit and other insurance. These
provisions may require that officers and employees involved in the sale of
insurance products be licensed, govern the commissions that may be paid to
agents in connection with the sale of credit insurance, and limit the premium
amount charged for insurance.
Management believes the Company operates in substantial compliance with
all applicable statutes and regulations relevant to its consumer finance and
insurance agency activities and that Automobile Sales Contracts purchased
individually or in bulk have been originated in compliance with these
provisions. Violations of the provisions described above may result in private
actions for damages, claims for refunds of payments made, certain fines and
penalties, injunctions against prohibited practices, the potential forfeiture of
rights to repayment of loans, and the revocation of licenses granted by state
regulatory authorities. Adverse changes in the statutes and regulations to which
the Company's business is subject, or in the enforcement or interpretation
thereof, could have a material adverse effect on the Company's business.
Moreover, a reduction in the existing statutory maximum rates or the imposition
of maximum rates below those presently charged by the Company in unregulated
jurisdictions would directly impair the Company's profitability.
Employees
As of September 30, 1997, the Company employed 242 persons, none of
whom was covered by a collective bargaining agreement. Of that total, 35 were
located in the Company's headquarters in Lancaster, South Carolina and 207 were
located in the Company's other offices. Management generally considers its
relationships with its employees to be good.
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<PAGE>
Property
The Company's executive offices are located in Lancaster, South
Carolina in a leased office facility of approximately 12,000 square feet. The
lease expires in September 1999, but includes an option to renew for an
additional five-year term. The Company leases the facilities, in some instances
from affiliates, in which its branch offices are located. These offices range in
size from approximately 800 square feet to 2,200 square feet under leases
expiring from December 1997 to August 2004, most of which include renewal
options for periods ranging from two to five years. The monthly rental rates for
such offices range from $300 to $5,100 per month. Since most of the Company's
business with dealers is conducted by facsimile machine and telephone,
management does not believe that the particular locations of its finance offices
are critical to its business of purchasing Automobile Sales Contracts or its
premium finance operations. Location is somewhat more important for the
Company's Direct Loan and insurance agency operations. However, other
satisfactory locations are generally available for lease at comparable rates and
for comparable terms in each market served by the Company.
Legal Proceedings
The Company presently is not a party to any legal proceedings nor is
management aware of any material threatened litigation against the Company.
MANAGEMENT
Directors and Executive Officers
The Company's directors and executive officers and their ages as of
November 30, 1997 were as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James D. Thaxton......................... 51 Chairman of the Board, President and Chief
Executive Officer
Robert L. Wilson......................... 57 Executive Vice President, Chief Operating
Officer and Director
Kenneth H. James......................... 44 Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
C.L. Thaxton, Sr......................... 74 Director
Jack W. Robinson*........................ 67 Director
Perry L. Mungo*.......................... 60 Director
</TABLE>
*Denotes members of Audit and Compensation Committees.
James D. Thaxton has served as Chairman of the Board, President and Chief
Executive Officer of the Company since it was founded. Prior to joining the
Company, Mr. Thaxton was an insurance agent at C.L. Frates & Company in Oklahoma
City, Oklahoma from 1974 to 1976. From 1972 to 1973, he was employed as an
underwriter by United States Fidelity and Guaranty. James D. Thaxton is the son
of C.L. Thaxton, Sr.
Robert L. Wilson joined the Company in January 1991 and has served
since July 1991, as its Executive Vice President, Chief Operating Officer and a
director. From October 1988 until July 1990, Mr. Wilson served as
39
<PAGE>
Operations Manager of MANH - Financial Services Corp. For more than 25 years
prior thereto, Mr. Wilson served in various positions with American Credit
Corporation and its successor, Barclays American Corporation, including as
Southeastern Regional Manager and Executive Vice President of Barclays American
Credit Division.
Kenneth H. James joined the Company in August 1995. Prior thereto, he
was employed by General Electric Capital Mortgage Corporation since 1980,
holding the positions of First Vice President and Comptroller of the Mortgage
Insurance group. From 1979 to 1980 Mr. James was employed by the North Carolina
Department of Insurance as an Insurance Company Examiner. From 1975 to 1979 Mr.
James was employed by FCX, Inc., holding the positions of Assistant Controller,
Tax Manager and Internal Auditor.
C.L. Thaxton, Sr. has served on the Board of Directors of the Company since
it was founded. Mr. Thaxton is a director of Thaxton Insurance, which he founded
in 1950 and is the manager of its Pageland office. Mr. Thaxton is the father of
James D. Thaxton.
Jack W. Robinson, who became a director in August 1995, is the
President, Chief Executive Officer and principal owner of MMC Holding, Inc.,
which through its principal subsidiary is engaged in mica mining.
Perry L. Mungo, who became a director in August 1995, is the President,
Chief Executive Officer and principal owner of P.F. & P.L. Mungo, Inc., a
privately-owned industrial and commercial construction company.
All directors hold office until the next annual meeting of shareholders
or until their successors have been duly elected and qualified. The Company's
executive officers are appointed by and serve at the discretion of the Board of
Directors.
The Board of Directors has established a Compensation Committee which
makes recommendations concerning salaries and incentive compensation for
executive officers and other employees of the Company and administers the
Company's stock plans. The Board has also established an Audit Committee, which
recommends to the Board of Directors the selection of the Company's independent
auditors and reviews the results and scope of the audit and other services
provided by the independent auditors. Messrs. Robinson and Mungo are the members
of the Compensation and Audit Committees. Directors do not receive any
compensation from the Company for their service as members of the Board of
Directors. All directors are reimbursed for reasonable expenses incurred by them
in attending Board and Board committee meetings.
Executive Compensation
The table below shows the compensation paid or accrued by the Company,
for the year ended December 31, 1996, to or for the account of the Chief
Executive Officer and its only other executive officer whose total salary and
bonus exceeded $100,000 during 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-----------------
---------- -- ------------ --- ----------
Restricted
Year Salary Bonus Stock
Name and Principal Position ($) ($) ($) Award ($)
-------------------------------- ---------- ------------ ---------- -----------------
<S> <C> <C> <C>
James D. Thaxton, 1996 83,908 66,037 ---
President and Chief 1995 74,513 10,100 ---
Executive Officer
Robert L. Wilson, 1996 130,507 127,747 ---
Executive Vice President 1995 123,076 32,985 900,000(1)
---------------
</TABLE>
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<PAGE>
(1) On December 29, 1995, Mr. Wilson was awarded 100,000 shares of
restricted Common Stock. Subject to his continued employment by the
Company, the award will vest in ten annual installments which commenced
on the date of the grant. At December 31, 1996, 80,000 shares of the
award remained subject to restriction and, notwithstanding such
restriction, had a market value of approximately $880,000 on that date.
Mr. Wilson is entitled to vote and receive dividends on the restricted
shares. On September 30, 1997, Mr. Wilson agreed to permanently forfeit
the shares scheduled to vest on December 29, 1997.
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<PAGE>
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock at November 30, 1997 by: (i) the only
person who is the beneficial owner of more than five percent of the outstanding
common stock; (ii) each director; and (iii) directors and officers of the
Company as a group.
<TABLE>
<CAPTION>
Number of Shares and Percentage of Common
Name of Beneficial Owner Nature of Beneficial Ownership Stock Outstanding
--------------------------- ------------------------------ ---------------------
<S> <C> <C>
James D. Thaxton 3, 248,000 (2) 83.0%
Robert L. Wilson 90,000 2.3
Kenneth H. James 1,111 *
C. L. Thaxton, Sr. 55,555 (3) 1.4
Jack W. Robinson 113,403 (4) 2.9
Perry L. Mungo 29,000 *
Directors and officers
as a group(6) 3,537,069 90.4
- ---------------
</TABLE>
(1) An asterisk (*) indicates less than one percent.
(2) Includes 1,112,828 shares held by a family limited partnership as
to which Mr. Thaxton shares voting and investment power.
(3) Includes 37,222 shares held of record by Mr. Thaxton's spouse,
Katherine D. Thaxton, as to which Mr. Thaxton shares voting and
investment power.
(4) Includes 4,400 shares held of record by Mr. Robinson's spouse,
Kathryn H. Robinson, as to which Mr. Robinson shares voting and
investment power.
CERTAIN TRANSACTIONS
Issuance of Series B Preferred Stock
The Company entered into an agreement with Jack W. Robinson and certain
of his affiliates pursuant to which they will exchange 27,076 shares of Common
Stock for an equal number of shares of the Company's Series B Convertible
Preferred Stock (the "Series B Preferred Stock"). The terms of the Series B
Preferred Stock are identical to the Series A Preferred Stock except that
dividends thereon are payable, at the Company's option, in additional shares of
Series B Preferred Stock. See "Description of Capital Stock -- Preferred Stock."
Acquisition of Thaxton Insurance
On October 31, 1996, the Company acquired Thaxton Insurance by
exchanging 300,000 shares of Common Stock for all of the outstanding capital
stock of Thaxton Insurance. At the time of the acquisition, Thaxton Insurance
operated 18 insurance offices in North and South Carolina. The number of shares
issued in the transaction was determined based upon a multiple of gross
commissions collected by Thaxton Insurance during the twelve-month period ended
December 31, 1995, which were approximately $3.7 million, and the market value
of the Company's shares issued in this transaction, taking into account the
transferability restrictions applicable thereto. The capital stock of Thaxton
Insurance was acquired from James D. Thaxton, William H. Thaxton, and Calvin L.
Thaxton, Jr. James D. Thaxton is an executive officer, a director, and the
majority shareholder of the Company. William H. Thaxton and Calvin L. Thaxton,
Jr. are James D. Thaxton's brothers and all three are sons of Calvin L.
Thaxton, Sr., a director of the Company.
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<PAGE>
Conversion and Repayment of Subordinated Debt
Concurrent with the closing of the Company's initial public offering of
Common Stock on December 29, 1995, $1.0 million of subordinated debt held by
affiliates of the Company was converted into 111,111 shares of Common Stock. Of
that number, 55,556, 18,333 and 37,222 shares were issued to Thaxton Insurance,
C. L. Thaxton, Sr., and Katherine D. Thaxton, respectively. James D. Thaxton
owned a one-third interest in Thaxton Insurance at the time of the conversion.
C. L. Thaxton, Sr. is a director of the Company and Katherine D. Thaxton is his
spouse. The Company also repaid $1.0 million of subordinated debt to Thaxton
Insurance on that date. The subordinated debt converted into Common Stock
represented notes payable that were to mature in August 1997 and April 1998. The
notes paid interest at an annual rate of ten percent, or the prime rate of a
specified bank plus one percent, whichever amount was greater.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Moore & Van Allen, PLLC, Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of The Thaxton Group, Inc. as of
December 31, 1995 and 1996 and for the years then ended have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
PLAN OF DISTRIBUTION
The Securities will be sold by officers and employees of the Company
and certain of its finance and insurance subsidiaries in reliance upon Rule
3a4-1 under the Securities Exchange Act of 1934 ("Rule 3a4-1"). Persons
associated with the Company and its affiliates who participate in the offering
of the Securities will limit their participation to activities permitted under
Rule 3a4-1 and no commissions or other direct or indirect compensation will be
paid to such persons in connection with the sale of the Securities. In addition,
a limited amount of the Securities may be sold by Maxwell Investments, Inc.
("Maxwell Investments"), a member of the National Association of Securities
Dealers, Inc., as a selling agent. James T. Garrett, Jr., an officer of a
mortgage lending subsidiary of the Company, is also a registered representative
with Maxwell Investments and is expected to be the only person associated with
Maxwell Investments that may participate in the offering and sale of Securities
on behalf of that firm. No commissions or other direct or indirect compensation
will be paid to Maxwell Investments in connection with the sale of the
Securities. Rule 3a4-1 is not applicable to Maxwell Investment's participation
in the offering or any sales of the Securities by Mr. Garrett on behalf of that
firm.
The Securities may be marketed by the Company through the use of
newspaper advertisements, mailings of this Prospectus to the Company's insurance
and selected consumer finance customers, signs in the offices of the Company and
its finance and insurance subsidiaries and by providing copies of this
Prospectus to potential purchasers who inquire about purchasing the Securities.
The Securities will not be marketed by officers, directors or employees of the
Company and its finance and insurance subsidiaries by telephone or other oral
solicitation.
Daily Notes will not be offered or sold in South Carolina.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
The Thaxton Group, Inc.
Independent auditors' report.............................................. F-2
Consolidated balance sheets as of December 31,
1995 and 1996 and September 30, 1997 (unaudited)........................ F-3
Consolidated statements of income for the
years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 and
1997 (unaudited)........................................................ F-4
Consolidated statements of stockholders' equity
for the years ended December 31, 1995
and 1996 and the nine months ended September 30,
1996 and 1997 (unaudited)............................................... F-5
Consolidated statements of cash flows for the
years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................. F-6
Notes to consolidated financial statements................................ F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
The Thaxton Group, Inc.
We have audited the accompanying consolidated balance sheets of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Thaxton Group,
Inc. and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Greenville, South Carolina
March 14, 1997 KPMG Peat Marwick LLP
F-2
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Balance Sheets
December 31, 1995 and 1996 and September 30, 1997
<TABLE>
<CAPTION>
December 31,
--------------------------------- September 30,
1995 1996 1997
---------------- ---------------- --------------------
(unaudited)
Assets
------
<S> <C> <C> <C>
Cash $ 3,214,977 $ 421,465 $ 683,522
Finance receivables, net 36,293,502 46,546,087 52,174,806
Premises and equipment, net 1,184,844 1,947,210 2,003,245
Accounts receivable 1,371,313 1,269,384 2,461,565
Repossessed automobiles 500,300 1,166,495 877,603
Goodwill and other intangible assets 2,989,217 3,463,814 4,128,432
Other assets 1,205,333 1,867,112 1,770,595
----------- ----------- -----------
Total assets $46,759,486 $56,681,567 $64,099,768
----------- ----------- -----------
Liabilities and Stockholders' Equity
------------------------------------
Accrued interest payable $ 408,854 $ 387,237 $ 416,374
Notes payable 36,898,376 46,345,883 53,066,540
Notes payable to affiliates 401,277 743,621 1,022,879
Accounts payable 1,583,880 1,350,306 1,240,901
Employee savings plan 818,115 1,098,457 1,382,679
Other liabilities 333,040 384,758 891,451
---------- ---------- ----------
Total liabilities 40,443,542 50,310,262 58,020,824
---------- ---------- ----------
Preferred Stock, $1.00 par value,
5,000,000 shares authorized,
340,000 shares outstanding in 1995,
no shares outstanding in 1996 and 1997 340,000 - -
Common stock, $ .01 par value; authorized
50,000,000 shares, issued and outstanding
3,938,284 shares in 1995, 3,932,178 shares in
1996 and 3,911,682 shares in 1997 39,383 39,322 39,117
Additional paid-in-capital 3,563,681 3,504,027 3,339,677
Deferred stock award (810,000) (720,000) (665,000)
Unrealized loss on marketable securities (6,392) - -
Retained earnings 3,189,272 3,547,956 3,365,150
--------- --------- ---------
Total stockholders' equity 6,315,944 6,371,305 6,078,944
--------- --------- ---------
Total liabilities and stockholders' equity $ 46,759,486 $ 56,681,567 $ 64,099,768
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Income
Years Ended December 31, 1995 and 1996 and
Nine Months Ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
------------------------------------ -------------------------------------
1995 1996 1996 1997
---------------- --------------- -------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and fee income $9,182,149 $13,528,881 $10,104,327 $11,837,182
Interest expense 2,985,056 4,209,763 3,046,164 3,706,770
---------- ----------- ----------- -----------
Net interest income 6,197,093 9,319,118 7,058,163 8,130,412
Provision for credit losses 890,337 3,593,399 1,423,355 3,885,424
---------- ----------- ----------- -----------
Net interest income after
provision for credit losses 5,306,756 5,725,719 5,634,808 4,244,988
Other income:
Insurance premiums and
commissions, net 4,617,651 5,893,606 4,158,173 3,961,939
Other income 579,599 985,763 795,598 843,797
---------- ----------- ----------- -----------
Total other income 5,197,250 6,879,369 4,953,771 4,805,736
Operating expenses:
Compensation and employee
benefits 4,659,148 5,602,895 4,203,585 4,538,859
Telephone, postage, and supplies
987,229 1,126,599 823,545 1,056,751
Net occupancy 1,071,612 1,228,414 919,806 1,113,405
Reinsurance claims expense 310,231 516,194 371,851 276,950
Insurance 120,979 193,670 141,063 211,148
Collection expense 42,233 63,797 45,313 65,468
Travel 115,442 158,513 100,268 103,681
Professional fees 162,897 175,821 111,517 166,188
Other 1,297,470 2,908,377 1,942,519 1,813,122
---------- ----------- ----------- -----------
Total operating expenses 8,767,241 11,974,280 8,659,467 9,345,572
---------- ----------- ----------- -----------
Income before income tax 1,736,765 630,808 1,929,112 (294,848)
expense
Income tax expense (benefit) 664,167 246,624 727,715 (112,042)
---------- ----------- ----------- -----------
Net income (loss) $1,072,598 $ 384,184 $1,201,397 $ (182,806)
========== ============ ========== =============
Dividends on preferred stock $ 60,000 $ 25,500 $ 25,500 -
============ ============= ========== =============
Net income (loss) applicable to
common shareholders $1,012,598 $ 358,684 $1,175,897 $ (182,806)
========== ============ ========== =============
Net income (loss) per common
share $ 0.31 $ 0.09 $ .30 $ (.05)
============= =========== ============ =================
Weighted average shares
outstanding 3,312,559 3,830,472 3,938,236 3,925,973
============= =========== ============ =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1995 and 1996 and
Nine Months Ended September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Unrealized
Additional Deferred gain on Total
Common Preferred Paid-in- Stock Marketable Retained Stockholders'
Stock Stock Capital Award Securities Earnings Equity
----------- ------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thaxton Group, Inc. $ 31,480 $ 700,000 $ 64,720 $ - $ $ 1,877,988 $ 2,674,188
Thaxton Insurance Group, 400 748,332 - - (463,315) 288,488
Inc. 3,071
----------- ------------ ------------- ------------ ------------ ------------- ------------
Balance at December 31, 1994 31,880 1,448,332 64,720 - 1,414,673 2,962,676
3,071
Pooling adjustments 2,600 (658,332) (356,269) - - (250,000)
762,001
----------- ------------ ------------- ------------ ------------ ------------- ------------
Restated Balance December
31, 1994 34,480 790,000 (291,549) - 2,176,674 2,712,676
3,071
Issued 334,724 shares of
common stock in public 3,348 - 2,456,785 - - - 2,460,133
offering
Dividends paid on preferred
stock ($.025) - - - - - (60,000) (60,000)
Conversion of 450,000
shares of preferred
stock to $450,000 of - (450,000) - - - - (450,000)
subordinated debt
Issuance of 100,00 shares
as a restricted stock 1,000 - 899,000 (900,000) - - -
award
Vesting of 10,000 shares of
stock award - - - 90,000 - - 90,000
Conversion of $500,000
subordinated debt into
55,556 shares of stock 555 - 499,445 - - - 500,000
Unrealized loss on
marketable securities - - - - (9,463) - (9,463)
Net income - - - - - 1,072,598 1,072,598
----------- ------------ ------------- ------------ ------------ ------------- ------------
Balance at December 31, 1995 39,383 340,000 3,563,681 (810,000) (6,392) 3,189,272 6,315,944
Employee stock grant 17 - 16,828 - - - 16,845
Purchase and retirement of
7,786 shares of stock (78) - (76,482) - - - (76,560)
Conversion of 340,000
shares of preferred
stock to $340,000 of - (340,000) - - - - (340,000)
subordinated debt
Dividends on preferred stock - - - - - (25,500) (25,500)
Vesting of 10,000 shares of
stock award - - - 90,000 - - 90,000
Unrealized gain on
marketable securities - - - - 6,392 - 6,392
Net income - - - - - 384,184 384,184
----------- ------------ ------------- ------------ ------------ ------------- ------------
Balance at December 31, 1996 39,322 - 3,504,027 (720,000) 3,547,956 6,371,305
Purchase and retirement of
13,300 shares of stock (133) - (137,850) - - - (137,983)
Issuance of 2,007 shares
of restricted stock 20 - 22,057 - - - 22,077
Issuances of 797 shares of
stock under Employee
stock purchase plan 8 - 6,343 - - - 6,351
Forfeiture of deferred (100) - (54,900) 55,000 - - -
stock award
Net loss - - - - (182,806) (182,806)
=========== ============ ============= ============ ============ ============= ============
Balance at September 30, 39,117 - 3,339,677 (665,000) - 3,365,150 6,078,944
1997 =========== ============ ============= ============ ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE THAXTON GROUP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1995 and 1996
and Nine Months Ended September 30, 1996 and 1997 (Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------- --------------------------------
1996 1997
1995 1996 (unaudited) (unaudited)
--------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $1,072,598 $ 384,184 $ 1,201,397 ($ 182,806)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for credit losses 890,337 3,593,399 1,423,355 3,885,424
Depreciation and amortization 608,929 756,791 543,242 698,719
Deferred taxes (93,868) (26,715) - ---
Vesting of stock awards 90,000 90,000 67,500 ---
Compensatory grant of stock to
employees --- 16,845 16,845 28,428
Unrealized (gain) loss on
marketable securities (9,462) 6,392 6,392 ---
(Gain) loss on sale of premises
and equipment (12,325) (25,301) (32,372) (22,190)
Gain on sale of investment (75,957) --- --- (10,859)
Increase (decrease) in other 528,629 (2,026,919) (1,696,074) (820,394)
asset
Increase (decrease) in accrued
interest 1,396,601 76,869 (346,304) 710,647
---------- ---------- ----------- -----------
payable and other liabilities
Net cash provided by operating 4,395,481 2,845,545 1,183,981 4,286,969
activities ---------- ---------- ---------- -----------
Cash flow from investing activities:
Net increase in finance receivables (20,195,250) (13,845,854) (12,124,568) (9,514,143)
Capital expenditures for premises
and equipment (628,435) (1,295,387) (614,094) (588,942)
Proceeds from sale of premises and
equipment 17,200 79,907 23,440 25,750
Proceeds from the sale of 283,698 --- --- 24,481
investments
Acquisitions, net of acquired
cash equivalents (1,336,338) (752,973) (638,941) (833,990)
Purchase of securities (1,333,942) (68,843) (14,739) ---
Notes receivable (affiliate) (810,907) 896,302 1,264,815 ---
----------- ---------- ----------
Net cash used by investing
activities (24,003,974) (14,986,848) (12,104,087) (10,886,844)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of
common stock 2,460,133 --- --- ---
Repurchase of common stock --- (76,560) (47,030) (137,983)
Dividends paid (60,000) (25,500) (25,500) ---
Proceeds from issuance of notes 20,002,676 9,449,851 8,033,645 6,999,915
payable ---------- ---------- ---------- ---------
Net cash provided by financing 22,402,809 9,347,791 7,961,115 6,861,932
activities ---------- ---------- ---------- ---------
Net increase (decrease) in cash 2,794,316 (2,793,512) (2,958,991) 262,057
Cash at beginning of period 420,661 3,214,977 3,214,977 421,465
---------- ---------- ----------- -----------
Cash at end of period $3,214,977 $ 421,465 $ 255,986 $ 683,522
========== ========== =========== =========
Supplemental disclosures of cash flow
information: Cash paid during the
period for:
Interest $2,813,715 $3,805,229 $3,043,825 $3,592,790
Income taxes 844,658 554,651 504,573 27,843
========== ========== ============ ==========
Noncash financing activities:
Conversion of preferred stock to
notes payable 450,000 340,000 --- ---
Conversion of subordinated debt to
common stock 500,000 --- --- ---
========== =========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE THAXTON GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 1995 and 1996 and
September 30, 1996 and 1997 (Unaudited)
Note 1 - Summary of Significant Accounting Policies
The Thaxton Group, Inc. (the "Company") is incorporated under the laws
of the state of South Carolina and operates branches in South Carolina, North
Carolina, Georgia, Virginia and Tennessee. The Company is a diversified consumer
finance company that is engaged primarily in purchasing and servicing retail
installment contracts purchased from independent used car dealers and making and
servicing personal loans to borrowers with limited credit histories, low incomes
or past credit problems. The Company also offers insurance premium financing to
such borrowers. A substantial amount of the Company's premium finance business
has been derived from customers of the independent insurance agencies owned by
Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which was acquired by the
Company in 1996. The Company provides reinsurance through a wholly-owned
subsidiary, TICO Reinsurance, Ltd. ("TRL"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and the amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
Prior year consolidated financial statements have been restated to
include the balances of companies combined and accounted for as
poolings-of-interests as discussed in Note 2. Certain amounts for 1995 have been
reclassified to conform to the 1996 presentation. These reclassifications have
no effect on shareholders' equity or net income as previously reported.
The following is a description of the more significant accounting and
reporting policies which the Company follows in preparing and presenting its
financial statements.
(a) Interest and Fee Income
Interest income from finance receivables is recognized using the
interest (actuarial) method on an accrual basis. Accrual of income on finance
receivables continues until the receivable is either paid off in full or is
charged off. Fee income consists primarily of late fees which are credited to
income when they become due from borrowers. For receivables which are renewed,
interest income is recognized using a method similar to the interest method.
(b) Allowance for Credit Losses
Additions to the allowance for credit losses are based on management's
evaluation of the finance receivables portfolio considering current economic
conditions, overall portfolio quality, charge-off experience, and such other
factors which, in management's judgment, deserve recognition in estimating
credit losses. Loans are charged-off when, in the opinion of management, such
loans are deemed to be uncollectible or six months has elapsed since the date of
the last payment, whichever occurs first. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations.
(c) Non-file Insurance
Non-file insurance is written in lieu of recording and perfecting the
Company's security interest in the assets pledged to secure certain loans.
Non-file insurance premiums are collected from the borrower on certain loans at
inception and renewal and are remitted directly to an unaffiliated insurance
company. Certain losses related to such loans, which are not recoverable through
life, accident and health, or property insurance claims, are
F-7
<PAGE>
reimbursed through non-file insurance claims subject to policy limitations. Any
remaining losses are charged to the allowance for credit losses.
(d) Premises and Equipment
Premises and equipment are reported at cost less accumulated
depreciation which is computed using the straight-line method for financial
reporting and accelerated methods for tax purposes. Maintenance and repairs are
charged to expense as incurred and improvements are capitalized.
(e) Insurance
The Company remits a portion of credit life, accident and health,
property and auto insurance premiums written in connection with certain loans to
an unaffiliated insurance company at the time of origination. Any portion of the
premiums remitted to this insurance company which are not required to cover
their administrative fees or to pay reinsurance claims expense are returned to
the Company through its reinsurance subsidiary, TRL, and are included in
insurance premiums and commissions in the accompanying consolidated statements
of income. Unearned insurance commissions are accreted to income over the life
of the related insurance contracts using a method similar to that used for the
recognition of finance charges.
Insurance commissions earned by Thaxton Insurance are recognized as
services are performed in accordance with Thaxton Insurance's contractual
obligations with the underwriters, but not before protection is placed with
insurers.
(f) Employee Savings Plan
The Company offers a payroll deduction savings plan to all its
employees. The Company pays interest monthly at an annual rate of 10% on the
prior month's ending balance. Employees may withdraw savings on demand.
(g) Income Taxes
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (Statement 109),
requires a change from the deferred method of accounting for income taxes of APB
Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(h) Earnings Per Share
Earnings per share is calculated using the weighted average shares
outstanding of 3,312,559 and 3,830,472 for 1995 and 1996, respectively. Such
share amounts have been adjusted for the 10,025.48 for one stock split declared
by the board of directors on September 8, 1995. All share and per share data
have been retroactively adjusted for the stock split. The effect of common stock
equivalent shares applicable to stock option plans has not been included in the
calculation of net income per share because such effect is not materially
dilutive.
(i) Intangible Assets
Intangible assets include goodwill, expiration lists, and covenants not
to compete related to the purchase of insurance agencies. Goodwill represents
the excess of the cost of insurance agencies over the fair value of its assets
at the date of acquisition. Goodwill is amortized on a straight-line basis over
a fifteen to twenty year period. The
F-8
<PAGE>
expiration lists are amortized over their estimated useful life of twenty years
on a straight-line basis . Covenants not to compete are amortized according to
the purchase contract over five to six years on a straight-line basis.
Intangible assets also include the premium paid to acquire Eagle Premium
Finance, which is being amortized on a straight-line basis over ten years.
Recoverability of recorded intangibles is evaluated by using undiscounted cash
flows.
(j) Stock Options
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
which requires that the fair value of employee stock-based compensation plans be
recorded as a component of compensation expense in the statement of income or
the impact of such fair value on net income and earnings per share be disclosed
on a pro forma basis in a footnote to the financial statements if the Company
continues to use the intrinsic value method in accordance with APB 25. The
Company will continue such accounting under the provisions of APB 25.
(k) Fair Value of Financial Instruments
All financial assets of the Company are short term in nature and all
liabilities are substantially at variable rates of interest. As such, the
carrying values of these financial assets and liabilities approximate their fair
value.
(l) Repossessed Assets
Repossessed assets are recorded at their estimated fair value less
costs to dispose. Any difference between the loan balance and the fair value of
the collateral on the date of repossession is charged to the allowance for
credit losses.
(m) Unaudited Interim Financial Information
Information with respect to September 30, 1996 and 1997, and the
periods then ended, have not been audited by the Company's independent auditors,
but in the opinion of management, reflect all adjustments (which include only
normal recurring adjustments) necessary for the fair presentation of the
operations of the Company.
Note 2 - Business Combinations
The Company acquired all of the outstanding capital stock of Thaxton
Insurance on October 31, 1996 in exchange for 300,000 shares of the Company's
stock. Thaxton Insurance is incorporated under the laws of the State of South
Carolina and licensed as an insurance agency in the states of North Carolina and
South Carolina.
The financial statements were previously reported by combining the
assets, liabilities and stockholders' equity of the separate companies at the
date of acquisition at their historical cost basis. In addition, the results of
operations and cash flows of Thaxton Insurance were included in the consolidated
financial statements from the date of acquisition. Upon further consideration,
the Company determined that the periods prior to the date of acquisition should
be restated under the "as if" pooling method. Accordingly, the consolidated
financial statements for periods prior to the combination have been restated to
include the assets, liabilities and equity and results of operation and cash
flows of Thaxton Insurance. Total assets and stockholders' equity in 1995 were
previously reported as $40,691,506 and $7,177,890, respectively. Net income per
common share and net income in 1995 were previously reported as $0.29 and
$921,069, respectively and $0.18 and $666,399, respectively in 1996.
In accordance with poolings-of-interests accounting, the financial
statements of the Company have been restated to reflect the acquisition as if it
had been effective as of the earliest period presented. The respective
contributions of the pooled entities to consolidated total income, net interest
income after provision for loan losses and net income for the years ended
December 31, 1995 and 1996 were as follows:
F-9
<PAGE>
1995 1996
--------------- --------------
Total income:
The Thaxton Group, Inc. $ 9,731,080 15,800,127
Thaxton Insurance 4,648,319 4,608,123
=============== ==============
Combined $ 14,379,399 20,408,250
=============== ==============
Net interest income after provision for credit losses:
The Thaxton Group, Inc. $ 5,480,281 6,083,481
Thaxton Insurance (173,525) (357,762)
=============== ==============
Combined $ 5,306,756 5,725,719
=============== ==============
Net income:
The Thaxton Group, Inc. $ 921,069 666,399
Thaxton Insurance 151,529 (282,215)
=============== ==============
Combined $ 1,072,598 $ 384,184
=============== ==============
The Company's total income and net interest income after provision for
credit losses has been adjusted from amounts previously reported to reflect
certain reclassifications from noninterest income and expense to interest income
and expense, in accordance with accounting classifications followed by the
Company.
The Company acquired all of the outstanding capital stock of Eagle
Premium Finance (Eagle) on September 1, 1995 in a cash purchase. Eagle is a
one-office consumer finance company located in Norfolk, Virginia that
specializes in financing premiums for personal lines of automobile insurance. At
the date of purchase, Eagle had total finance receivables of approximately
$1,921,000 and the Company recorded an intangible asset of approximately
$350,000. The remaining intangible asset was approximately $337,000, $302,000,
and $276,000 at December 31, 1995, December 31, 1996 and September 30, 1997,
respectively, and is included in goodwill and other intangible assets in the
accompanying consolidated balance sheets.
Note 3 - Finance Receivables
Finance receivables consist of the following at December 31, 1995 and
1996 and September 30, 1997:
<TABLE>
<CAPTION>
December 31,
--------------------------------------- September 30,
1995 1996 1997
-------------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
Automobile Sales Contracts $ 32,455,654 $ 47,603,138 $53,609,889
Direct Loans 10,398,470 12,560,126 13,298,184
Premium Finance Contracts 5,046,110 2,943,337 4,082,631
--------- ---------- ---------
Total finance receivables 47,900,234 63,106,601 70,990,704
Unearned interest (9,325,101) (12,445,781) (13,922,921)
Unearned insurance premiums, net (406,431) (132,733) (143,930)
Bulk purchase discount (416,000) (1,014,000) (571,683)
Dealer hold back (676,000) (773,000) (736,684)
Allowance for credit losses (783,200) (2,195,000) (3,440,680)
------------- ------------- -----------
Finance receivables, net $ 36,293,502 $ 46,546,087 52,174,806
============ ============ ==========
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan receivables.
With bulk purchase arrangements, the Company typically purchases a group of
receivables from an auto dealer or other retailer at a discount to par based on
management's review and assessment of the portfolio to be purchased. This
discount amount is then maintained in an unearned income account to which losses
on these loans are charged. To the extent that losses from a bulk purchase
exceed
F-10
<PAGE>
the purchase discount, the allowance for credit losses will be charged. To the
extent losses experienced are less than the purchase discount, the remaining
discount is accreted into income. The amount of bulk purchased receivables, net
of unearned interest and insurance, and the related purchase discount
outstanding were approximately $3,710,000 and $416,000, respectively, at
December 31, 1995, approximately $7,371,000 and $1,014,000, respectively, at
December 31, 1996, and approximately $8,298,000 and $572,000, respectively, at
September 30, 1997.
With holdback arrangements, an automobile dealer or other retailer will
assign receivables to the Company on a loan-by-loan basis, typically at par. The
Company will withhold a certain percentage of the proceeds, generally 5% to 10%,
as a dealer reserve to be used to cover any losses which occur on these loans.
The agreements are structured such that all or a portion of these holdback
amounts can be reclaimed by the dealer based on the performance of the
receivables. To the extent that losses from these holdback receivables exceed
the total remaining holdback amount for a particular dealer, the allowance for
credit losses will be charged. The amount of holdback receivables, net of
unearned interest and insurance, and the related holdback amount outstanding
were approximately $20,320,700 and $676,000, respectively, at December 31, 1995,
approximately $31,451,000 and $773,000, respectively, at December 31, 1996, and
approximately $32,259,000 and $737,000, respectively, at September 30, 1997.
At December 31, 1996 and September 30, 1997, there were no significant
concentrations of receivables in any type of property or to one borrower.
These receivables are pledged as collateral for a line of credit
agreement.
Changes in the allowance for credit losses for the years ended December
31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------- ----------------------------------
1995 1996 1996 1997
------------- -------------- -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Beginning balance $424,425 $ 783,200 $ 783,200 $ 2,195,000
Valuation allowance for acquired loans 290,244 28,842 28,842 -
Provision for credit losses 890,337 3,593,399 1,423,355 3,885,424
Charge-offs (924,620) (2,526,231) (1,390,424) (2,767,660)
Recoveries 102,814 315,790 234,597 127,916
------- ----------- ----------- ----------
Net charge-offs (821,806) (2,210,441) (1,155,827) 2,639,744
--------- ----------- ------------ ------------
Ending balance $783,200 $ 2,195,000 $1,079,570 $ 3,440,680
======= ========== ========== ===========
</TABLE>
The valuation allowance for acquired loans relates to the acquisition
of approximately $3,425,000 and $748,000 of receivables in 1995 and 1996,
respectively.
The Company's loan portfolio primarily consists of short term loans,
the majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables is
not materially different from carrying value.
F-11
<PAGE>
Note 4 - Premises and Equipment
A summary of premises and equipment at December 31, 1995 and 1996
follows:
1995 1996
---------------- -------------------
Leasehold improvements $ 444,096 $ 504,328
Furniture and fixtures 541,061 477,158
Equipment and automobiles 1,609,586 2,762,214
--------- ---------
Total cost 2,594,743 3,743,700
Accumulated depreciation 1,409,899 1,796,490
---------------- -------------------
Net premises and equipment $ 1,184,844 $1,947,210
================ ===================
Note 5 - Intangible Assets
Intangible assets consist of the following at December 31, 1995 and
1996:
1995 1996
-------------------- ---------------------
Covenants not to compete $ 47,995 $ 102,022
Goodwill 1,782,932 2,036,563
Insurance expirations 1,732,227 2,135,098
Purchase premium 348,938 348,938
------- -------
Total cost 3,912,092 4,622,621
Less accumulated amortization 922,875 1,158,807
------- ---------
Intangible assets, net $ 2,989,217 $3,463,814
=========== ==========
The majority of the intangibles were acquired by the Company in
connection with its acquisition of Thaxton Insurance.
Amortization expense was approximately $179,741 and $105,000 in 1995
and 1996, respectively.
Note 6 - Leases
The Company conducts all of its operations from leased facilities. It
is expected that in the normal course of business, leases that expire will be
renewed at the Company's option or replaced by other leases or acquisitions of
other properties. Total rental expense was approximately $440,000 in 1995 and
$304,000 in 1996.
The future minimum lease payments under noncancelable operating leases
as of December 31, 1996, are as follows:
1997 $446,559
1998 270,670
1999 178,358
2000 52,296
2001 30,100
--------
Total minimum lease payments $977,983
=======
F-12
<PAGE>
Four of the office buildings in which the Company conducts business are
owned by related parties. These premises are leased to the Company for a total
monthly rental rate of $4,350.
Note 7 - Notes Payable
At December 31, 1995 and 1996, notes payable consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
<S> <C> <C>
Note payable to insurance company maturing in May, 1998 and bearing
interest at prime plus 2% and is reset quarterly $ 300,000 $ 500,000
Note payable to insurance company payable within sixty days after written
demand by the lender. The note bears interest at prime plus 2%
and is reset monthly - 250,000
Lines of credit 34,632,281 42,615,947
Note payable to finance company due in monthly installments of $9,091 through
July, 2003 including interest at 8.99%. This note is secured by
an aircraft purchased with the funds - 540,600
Note payable to insurance agency due annually on July 1 in installments of
$78,022 through July 1997, including interest at a rate of 9% and secured by
agency purchased with funds and various individual
stockholders' assets 137,248 71,578
Note payable to individual due annually on January 1 in installments of $23,496
through January 2001, including interest at a rate of 8% and secured by agency
purchased with funds and various individual
stockholders' assets 93,814 93,814
Note payable to individual due annually on June 1 in installments of $40,000
through June 1998, including interest at a rate of 7% and secured by stock
purchased with funds and various individual
stockholders' assets 104,973 72,321
Note payable to individual due on January 1, 1997 plus interest at a rate of 7%.
Secured by agency purchased with funds and various
individual stockholders' assets 60,000 60,000
Note payable to individual due in monthly installments of $3,607 through January
1999, including interest at a rate of 6% and secured by agency
purchased with funds and various individual stockholders' assets 116,182 79,012
Note payable to individual due in monthly installments of $9,478,
through March 2001, including interest at a rate of 6% - 423,449
Notes payable to individuals with varying maturity dates and rates
ranging from 8-12% 1,421,637 1,639,162
Note payable to individual due in 1996, plus interest at a rate of 12%
unsecured 32,241 -
------------ -------------
$ 36,898,376 $ 46,345,883
========== ==========
</TABLE>
F-13
<PAGE>
A schedule of maturities of long-term debt is as follows:
Year Ending
December 31 Amount
- ------------------------------------------- ----------------------
1997 $ 1,256,603
1998 44,261,706
1999 315,870
2000 211,126
2001 140,129
Thereafter 160,449
------------
Total $ 46,345,883
===========
At December 31, 1996, the Company maintained a line of credit agreement
with a commercial finance company for $80 million, maturing on July 31, 1998. At
December 31, 1996, the Company's net finance receivables would have allowed it
to borrow an additional $5.6 million against existing collateral, with
approximately $39 million of total potential borrowing capacity available under
the $80 million limit in place on such date. The outstanding balance under this
line of credit was $41,166,000 at December 31, 1996. There are two tranches
under this agreement, Tranche A and Tranche B. The total line of credit under
Tranche A is $70,000,000 of which $30,159,000 is available at December 31, 1996.
This tranche bears interest at the lender's prime rate plus 1% (9.25% at
December 31, 1996). The total line of credit under Tranche B is $10,000,000, of
which $8,675,000 is available at December 31, 1996. This tranche bears interest
at the lender's prime rate plus 5% (13.25% at December 31, 1996). Interest on
the outstanding line of credit balance is payable monthly.
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The agreement
requires the Company to maintain certain financial ratios at established levels
and comply with other non-financial requirements which may be amended from time
to time. Also, the Company may pay dividends up to 50% of the current year's net
income. As of December 31, 1996, the Company met all such ratios and
requirements.
Thaxton Insurance maintains a line of credit agreement with the same
commercial finance company for $3 million maturing June 30, 1998. Of this
amount, approximately $1,686,000 was available at December 31, 1996. The
outstanding balance under this line of credit was $1,314,000 at December 31,
1996. Borrowings under this arrangement bear interest at the lender's prime rate
plus 3% (11.25% at December 31, 1996), payable monthly.
Thaxton Insurance also has a line of credit agreement with a commercial
bank whereby the Company can borrow up to $400,000. The principal is payable on
demand, and interest is payable quarterly at the bank's prime rate plus one
percent (9.25% at December 31, 1996). The amount outstanding as of December 31,
1996 was approximately $136,000. The line of credit is secured by certain real
estate, furniture, fixtures, equipment and investments owned by Thaxton
Insurance and individual shareholders. Thaxton Insurance also has a sweep
account with the bank. The bank requires Thaxton Insurance to maintain a $55,000
balance in the account. If the account drops below $55,000 the bank
automatically advances money from the line-of-credit to increase the account to
$55,000.
The Company's line of credit agreement for $80 million was restructured
on September 3, 1997 to increase the maximum borrowings available thereunder to
$100 million and to extend the maturity to August 31, 1999. The facility
consists of six tranches. The primary tranche is used to finance consumer
receivables and provides for advances of up to $100 million, less any amounts
advanced under the secondary tranches. Tranche B, one of the secondary tranches,
also is used to finance consumer receivables and allows the Company to borrow up
to $10 million against a higher percentage of Net Finance Receivables than under
the primary tranche. The Company borrows against Tranche B only when it has
exhausted available borrowings under the primary tranche. As of September 30,
1997, $49.1 million was outstanding under the Revolving Credit Facility, $46.5
million of which had been advanced under the primary tranche and $2.6 million of
which had been advanced under secondary tranches.
F-14
<PAGE>
At September 30, 1997, there were no advances outstanding on Tranche B. Under
the terms of the Revolving Credit Facility the Company's Net Finance Receivables
at September 30, 1997 would have allowed it to borrow an additional $4.9 million
against existing collateral, with $50.1 million of total potential borrowing
capacity available for borrowing against qualified finance receivables generated
by the Company in future periods. The interest rate for borrowings is the prime
rate published by Citibank, N.A. (or other money center bank designated by the
lender) plus one percent per annum for the primary tranche and plus five percent
per annum for Tranche B. Interest rates on borrowings under the other tranches
range from prime plus one percent per annum to prime plus two percent per annum.
The line of credit agreement requires compliance with several financial
and other covenants which may be amended from time to time, including leverage
tests, dividend restrictions (25% of the current year's net income), and minimum
net worth requirements. The Company presently is in compliance with each of
these covenants and management does not believe they will materially restrict
implementation of the Company's business or its expansion strategy.
Note 8 - Notes Payable to Affiliates
The Company had approximately $744,000 of notes payable to affiliates
at December 31, 1996. At December 31, 1995, the Company had notes payable to
affiliates of $401,277. During 1995, $500,000 of notes payable to affiliates
were converted to common stock and an additional $500,000 was repaid from
proceeds of the public stock offering.
During 1996, 340,000 shares of Preferred Stock B of Thaxton Insurance
Group were converted to $340,000 of notes payable.
Note 9 - Benefits
In 1995 the Board of Directors of the Company adopted the Thaxton
Group, Inc. 1995 Stock Incentive Plan (the "Incentive Plan"), under which
620,000 shares of common stock were available for grants to key employees of the
Company. Awards under the Incentive Plan may include, but are not limited to,
stock options, stock appreciation rights, restricted stock, performance awards
and other common stock and common stock-based awards. Stock options granted
under the Incentive Plan may be either incentive stock options or non-qualified
stock options. During 1996, the Company granted 20,000 options to employees
under the Incentive Plan at an exercise price of $9.00 per share. The options
vest and become exercisable in installments of 20% of the shares on each of the
first, second, third, fourth, and fifth anniversary dates of the grant. None of
the options outstanding at December 31, 1996 were exercisable. All options
granted in 1996 have a contractual maturity of ten years. The grant date fair
value of options granted during 1996 was $3.90 per share as determined by using
the Black-Scholes option pricing model with the following assumptions: (1)
risk-free interest rate of 6.25%; (2) expected life of 5 years; (3) expected
volatility of 10.40%; and (4) no expected dividends.
Under the Incentive Plan, the Company granted a restricted stock award
of 100,000 shares of common stock to an executive officer of the Company. The
stock award became effective December 29, 1995 ("Vesting Date") with 10,000
shares vesting at that time. The remaining shares become vested at the rate of
10,000 shares per year on the first through the ninth anniversaries of the
Vesting Date only if the executive officer is employed by the Company on the
applicable anniversary date. The Company will record compensation expense over
the vesting period based on the market value at the date of grant.
During 1995 the Board of Directors of the Company also adopted the
Thaxton Group, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"),
under which 100,000 shares of common stock are available for purchase by
substantially all employees. The Stock Purchase Plan enables eligible employees
of the Company, through payroll deductions, to purchase at twelve-month
intervals specified in the Stock Purchase Plan, shares of common stock at a 15%
discount from the lower of the fair market value of the common stock on the
first day or the last day of the year. The Stock Purchase Plan allows for
employee contributions up to 3% of the participant's annual
F-15
<PAGE>
compensation and limits the aggregate fair value of common stock that may be
purchased by a participant during any calendar year to $25,000. As of December
31, 1996 no purchases had been made under this Stock Purchase Plan.
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock based compensation benefit plans as permitted under
SFAS No. 123. In accordance with APB 25, no compensation expense is recognized
by the Company when stock options are granted because the exercise price of the
Company's stock option equals the market price of the underlying stock on the
date of grant. Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net income and net income
per share would not have been materially different than reported.
F-16
<PAGE>
Note 10 - Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1995:
Federal $ 652,927 $ (88,504) $ 564,423
State 105,108 (5,364) 99,744
------- ------ ------
$ 758,035 $ (93,868) $ 664,167
======= ======= =======
1996:
Federal $ 234,067 $ (22,487) $ 211,580
State 39,272 (4,228) 35,044
------ ------- ------
$ 273,339 $ (26,715) $ 246,624
======= ======= =======
</TABLE>
A reconciliation of the Company's income tax provision and the amount
computed by applying the statutory federal income tax rate of 34% to net income
before income taxes is as follows:
1995 1996
---- ----
Statutory rate applied to net income before taxes $ 590,500 $ 214,475
Increase (decrease) in income resulting from:
Goodwill amortization 28,208 50,809
TRL nontaxable income (84,712) (79,132)
State taxes, less related federal benefit 65,832 23,129
Other 64,339 37,343
---------- ----------
Income taxes $ 664,167 $ 246,624
========== ==========
The effective tax rate was 39.1% and 38.2% for the years ended December
31, 1996 and 1995, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and (liabilities) at December 31, 1995 and
1996 are presented below:
1995 1996
----------- -----------
Deferred tax assets:
Loan loss reserves $ 361,416 $ 872,213
Intangibles 22,591
Unearned interest and fees 187,414 28,856
Other 94,380 34,016
----------- -----------
Total gross deferred tax assets 665,801 935,085
----------- -----------
Less valuation allowance - -
----------- ----------
Net deferred tax assets 665,801 935,085
----------- -----------
Deferred tax (liabilities)
Prepaid insurance (173,743) (300,525)
Depreciable basis of fixed assets (38,000) (92,144)
Deferred loan costs - (88,232)
Intangibles - (146,667)
Other - (4,705)
----------- ------------
Total gross deferred tax liability (211,743) (632,273)
------------ -----------
Net deferred tax asset $ 454,058 $ 302,812
=========== ===========
F-17
<PAGE>
The Company recorded deferred tax liabilities of $177,961 related to
its 1996 acquisition of Williams Agency, Inc. The balance of the change in the
net deferred tax asset is reflected as a deferred income tax benefit in the
accompanying consolidated statements of income.
There was no valuation allowance for deferred tax assets as of January
1, 1996 or 1995 and no net change in the allowance during 1996 or 1995. It is
management's opinion that realization of the net deferred tax asset is more
likely than not based upon the Company's history of taxable income and estimates
of future taxable income. The Company's income tax returns for 1993 and
subsequent years are subject to review by taxing authorities.
F-18
<PAGE>
TABLE OF CONTENTS
Available Information...............................1
Prospectus Summary..................................2
Risk Factors........................................6
Use of Proceeds....................................10
Description of Securities..........................11
Selected Consolidated Financial Data...............16
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............19
Business...........................................28
Management.........................................39
Principal and Management Shareholders..............41
Certain Transactions...............................41
Legal Matters......................................42
Experts............................................42
Plan of Distribution...............................42
Financial Statements..............................F-1
-------------------
No officer, employee or other person has been authorized to give any information
or make any representations not contained in this Prospectus in connection with
the offering of Securities covered by this Prospectus. If given or made, such
information or representations must not be relied on as having been authorized
by The Thaxton Group, Inc. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the information set forth in this
Prospectus or in the affairs of The Thaxton Group, Inc.
THE THAXTON GROUP, INC.
$50,000,000
AGGREGATE PRINCIPAL AMOUNT
OF
SUBORDINATED TERM NOTES
DUE 1,6, 12, 36 AND 60 MONTHS
AND
SUBORDINATED DAILY NOTES
----------------------
PROSPECTUS
----------------------
_______, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Bylaws of the Company provide for indemnification of its officers
and directors against liabilities and reasonable expenses incurred in connection
with any action, suit or proceeding to which such person may be a party because
he is or was a director or officer of the Company or serving in a similar
capacity at the Company's request for another entity, to the fullest extent
permitted by the laws of South Carolina. Under the laws of South Carolina,
unless limited by its articles of incorporation, a corporation shall indemnify a
director or officer who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director or officer of such corporation, against reasonable expenses incurred by
him in connection with the proceeding. South Carolina law also provides that a
corporation may indemnify a director or officer if he acted in good faith and in
a manner he reasonably believed to be, with respect to conduct in his official
capacity, in the best interests of the corporation, and, in all other cases, in
a manner not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, he had no reason to believe his conduct
was unlawful. With respect to suits by or in the right of the Company, such a
person may be indemnified if he acted in good faith and, in the case of conduct
within his official capacity, he reasonably believed his conduct to be in the
Company's best interest, and in all other cases, he shall not have been adjudged
to be liable to the Company.
The South Carolina Business Corporation Act of 1988 also permits
certain corporations (including the Company), by a provision in its articles of
incorporation, to limit or eliminate the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director, except with respect
to any breach of the director's duty of loyalty to the corporation or its
shareholders, or acts of omissions not in good faith or which involve gross
negligence, intentional misconduct or a knowing violation of law, or which
occurred prior to the time such provision became effective, or with respect to
transactions in which the director received an improper personal benefit, or for
approving an unlawful distribution. The Company's Amended and Restated Articles
of Incorporation include such a provision. As a result of the inclusion of such
provision, shareholders of the Company may be unable to recover monetary damages
against directors for action taken by them which constitute negligence or which
are in violation of their fiduciary duty of due care, although they are not
precluded from obtaining injunctive or other equitable relief with respect to
such actions. Such provision is not effective to eliminate or limit statutory
liabilities arising under federal law, including liabilities under federal
securities laws.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be incurred in
connection with the offering of the securities:
Securities and Exchange Commission filing fee.................... $14,750
NASD filing fee.................................................. 5,500
Printing expenses................................................ 25,000*
Legal fees and expenses.......................................... 40,000*
Accounting fees and expenses..................................... 12,500*
Blue Sky filing fees............................................. 4,300
Trustee's fees and expenses...................................... 43,000*
Miscellaneous expenses........................................... 4,950*
----------
Total $150,000*
*Estimated
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
On December 29, 1995, $1.0 million of subordinated debt held by
affiliates of the Company was converted into 111,111 shares of Common Stock.
This transaction was not registered under the Securities Act pursuant to the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering. See "Certain Transactions -- Conversion and Repayment of
Subordinated Debt."
On October 31, 1996, the Company acquired Thaxton Insurance by
exchanging 300,000 shares of Common Stock for all of the outstanding capital
stock of Thaxton Insurance. The capital stock of Thaxton Insurance was acquired
from James D. Thaxton, C.L. Thaxton, Sr., and William H. Thaxton. This
transaction was not registered under the Securities Act pursuant to the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering. See "Certain Transactions -- Acquisition of Thaxton Insurance."
On July 1, 1997, the Company began offering and selling only to
residents of the State of South Carolina up to $10 million in Subordinated Term
Notes due 1, 6, 12, 36 and 60 months, with interest rates ranging from 5.5% to
8.25% per annum (the "SC Term Notes"). Through November 30, 1997, the Company
had sold $1,566,137 in aggregate principal amount of SC Term Notes. Offers and
sales of the SC Term Notes were not registered under the Securities Act pursuant
to the exemption provided by Section 3(a)(11) thereunder.
II-2
<PAGE>
Item 27. Exhibits
1 Form of Selling Agent Agreement between the Company and Maxwell
Investments, Inc.(7)
3.1 Amended and Restated Articles of Incorporation of The Thaxton Group,
Inc.(1)
3.2 Bylaws of the Thaxton Group, Inc.(1)
4.1 Form of Indenture, dated as of February __, 1998, between the Company
and The Bank of New York as Trustee(7)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of
Indenture)
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of
Indenture)
4.4 Form of Subordinated Note for 6, 12, 36 and 60 Month Notes (included
as Exhibit C to Form of Indenture)
5 Opinion of Moore & Van Allen, PLLC(7)
10.2 Loan Agreement dated May 16, 1994 between the American Bankers
Insurance Company of Florida and the Company(1)
10.3 Security Agreement dated January 19, 1995 between the Company and
Oakland Auto Sales, including Guaranty by Thaxton Insurance Group,
Inc.(1)
10.4 Form of Restricted Stock Award between the Company and Robert L Wilson
10.5 The Thaxton Group, Inc. 1995 Stock Incentive Plan(1)
10.6 The Thaxton Group, Inc. Employee Stock Purchase Plan(1)
10.8 Incentive Stock Option Agreement between Kenneth H. James and the
Company (2)
10.11 Incentive Stock Option Agreement between James A. Cantley and the
Company(2)
10.12 Loan Agreement dated March 18, 1996 between the American Bankers
Insurance Company of Florida and the Company(2)
10.14 Aircraft Sales Agreement between Corporate Aircraft Marketing and The
Company dated July 16, 1996(3)
10.15 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
Insurance Group, Inc., James D. Thaxton, William H. Thaxton and Calvin
L. Thaxton, Jr.(4)
10.17 Form of Stock Purchase Agreement by and between the Company and Jack
W. Robinson and affiliates
10.18 First Amended and Restated Loan and Security Agreement dated September
3, 1997 between Finova Capital Corporation and the Company (6)
10.19 Schedule to First Amended and Restated Loan and Security Agreement (6)
22 Subsidiaries of The Thaxton Group, Inc. (5)
24.1 Consent of KPMG Peat Marwick
24.2 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this
Registration Statement)(7)
25 Power of Attorney (included on the Signature Page of this Registration
Statement)
26 Form T-1, Statement of Eligibility of Trustee(7)
- ---------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1996.
(4) Incorporated by reference the Company's Current Report on Form 8-K
dated October 31, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-4, Commission File No. 333-28719
(7) Filed with this Amendment.
II-3
<PAGE>
Item 28. Undertakings
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales of the
Securities are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information in the registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That for the purpose of determining liability under the
Securities Act of 1933, each such post-effective amendment
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; and
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Pre-Effective
Amendment No. 2 to Registration Statement (File No. 333-42623) to be signed on
its behalf by the undersigned, thereunto in the City of Lancaster, State of
South Carolina , on February 12, 1998.
THE THAXTON GROUP, INC.
By: /s/ Kenneth H. James
Kenneth H. James, Vice President, Chief Financial
Officer, and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Kenneth H. James his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he or she might, or could,
do in person, hereby ratifying and confirming all that said attorney-in fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to Registration Statement (File No. 333-42623) has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James D. Thaxton* Chairman of the Board of Directors, February 12, 1998
- ---------------------------------
James D. Thaxton President and Chief Executive
Officer
/s/ Robert L. Wilson* Executive Vice President, Chief February 12, 1998
- ---------------------------------
Robert L. Wilson Operating Officer and Director
/s/ Kenneth H. James Vice President, Chief Financial February 12, 1998
- ---------------------------------
Kenneth H. James Officer, Secretary and Director
(Principal Accounting Officer)
/s/ C.L. Thaxton, Sr.* Director February 12, 1998
- ---------------------------------
C.L. Thaxton, Sr.
/s/ Kenneth H. James February 12, 1998
- ---------------------------------
Kenneth H. James, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
1 Form of Selling Agent Agreement between the Company and Maxwell
Investments, Inc.(7)
3.1 Amended and Restated Articles of Incorporation of The Thaxton Group,
Inc.(1)
3.2 Bylaws of the Thaxton Group, Inc.(1)
4.1 Form of Indenture dated as of February __, 1998, between the Company
and The Bank of New York as Trustee(7)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of
Indenture)
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of
Indenture)
4.4 Form of Subordinated Note for 6, 12, 36 and 60 Month Notes (included
as Exhibit C to Form of Indenture)
5 Opinion of Moore & Van Allen, PLLC(7)
10.2 Loan Agreement dated May 16, 1994 between the American Bankers
Insurance Company of Florida and the Company(1)
10.3 Security Agreement dated January 19, 1995 between the Company and
Oakland Auto Sales, including Guaranty by Thaxton Insurance Group,
Inc.(1)
10.4 Form of Restricted Stock Award between the Company and Robert L Wilson
10.5 The Thaxton Group, Inc. 1995 Stock Incentive Plan(1)
10.6 The Thaxton Group, Inc. Employee Stock Purchase Plan(1)
10.8 Incentive Stock Option Agreement between Kenneth H. James and the
Company (2)
10.11 Incentive Stock Option Agreement between James A. Cantley and the
Company(2)
10.12 Loan Agreement dated March 18, 1996 between the American Bankers
Insurance Company of Florida and the Company(2)
10.14 Aircraft Sales Agreement between Corporate Aircraft Marketing and The
Company dated July 16, 1996(3)
10.15 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
Insurance Group, Inc., James D. Thaxton, William H. Thaxton and Calvin
L. Thaxton, Jr.(4)
10.17 Form of Stock Purchase Agreement by and between the Company and Jack
W. Robinson and affiliates
10.18 First Amended and Restated Loan and Security Agreement dated September
3, 1997 between Finova Capital Corporation and the Company (6)
10.19 Schedule to First Amended and Restated Loan and Security Agreement (6)
22 Subsidiaries of The Thaxton Group, Inc. (5)
24.1 Consent of KPMG Peat Marwick
24.2 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this
Registration Statement)(7)
25 Power of Attorney (included on the Signature Page of this Registration
Statement)
26 Form T-1, Statement of Eligibility of Trustee(7)
- ---------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1996.
(4) Incorporated by reference the Company's Current Report on Form 8-K
dated October 31, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-4, Commission File No. 333-28719
(7) Filed with this Amendment.
Exhibit 1
Maxwell Investments, Inc.
8318-255 Pineville-Matthews Rd.
Charlotte, NC 28226-4707
James D. Thaxton
President and Chief Executive Officer
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, SC 29721
Re: Offering of Subordinated Daily and Term Notes of
The Thaxton Group, Inc./Sales Agent Agreement
Gentlemen:
This letter confirms the agreement between The Thaxton Group, Inc. (the
"Company") and Maxwell Investments, Inc. ("Maxwell") regarding the participation
of Maxwell on a "best efforts" basis in the offering by the Company of its
Subordinated Term Notes Due 1, 6, 12 36 and 60 Months and Subordinated Daily
Notes (collectively, the "Notes") registered under the Securities Act of 1933,
as amended (the "1933 Act"), pursuant to a Registration Statement on Form SB-2
(File No. 333-42623) (the "Registration Statement"), and to be issued under an
Indenture, dated __________, 1998 (the "Indenture") between the Company and The
Bank of New York (the "Trustee"). The offering of the Notes (the "Offering")
will commence on or about February _________, 1998 and will continues for up to
two years, unless otherwise terminated or suspended by the Company. All of the
Notes will be offered pursuant to the Prospectus included in the Registration
Statement, as it may be amended or supplemented (the "Prospectus"). Maxwell
understands that the Notes are eligible for sale only in Georgia, Florida, South
Carolina, North Carolina and Tennessee, except that no Daily Notes may be
offered or sold in South Carolina.
(a) Representations of the Company. The Company represents and warrants to
Maxwell as follows:
(i) The Registration Statement and Prospectus contain all material
statements required to be stated therein in accordance with the 1933 Act
and the regulations promulgated thereunder by the Securities and Exchange
Commission (the "Commission"), and do not and will not contain any untrue
statement of a material fact or
<PAGE>
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein in light of the circumstances under
which they were made not misleading;
(ii) During of the Offering, the Company will have all requisite power
and authority and all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own its properties and carry on its businesses as
set forth in the Prospectus and to complete the sale of the Notes and to
enter into this Letter Agreement and to carry out the provisions and
conditions hereof;
(iii) Neither the execution and delivery of this Letter Agreement, the
consummation of the transactions herein contemplated, nor compliance with
the terms and provisions hereof will conflict with or result in a breach of
any of the terms, provisions or conditions of the articles of incorporation
or bylaws of the Company, or any agreement or instrument to which the
Company is a party, or by which it or any of its properties, is bound or
affected, or violate any franchise, license, permit, judgment, decree,
order, statute, rule or regulation applicable to the Company;
(iv) The Notes, when issued and delivered to purchasers in exchange
for payment to the Company of the respective principal amounts thereof and
authenticated by the Trustee as provided in the Indenture, will be duly and
validly issued and fully paid.
(v) This Letter Agreement has been duly and validly authorized,
executed and delivered by the Company and is a valid and binding agreement
and obligation of the Company enforceable according to its terms except as
such obligations may be limited by bankruptcy or other laws relating to or
affecting creditors' rights generally; and
(vi) The Company is not subject to any material contingent obligation
nor are its properties or business subject to any material risks, except
those that have been disclosed in the Prospectus.
(b) Representations of Maxwell. Maxwell represents and warrants to the
Company that:
(i) Maxwell has all appropriate licenses and registrations with the
Commission, the National Association of Securities Dealers, Inc. ("NASD")
and any applicable state regulatory bodies to offer and sell the Notes on a
"best efforts" basis as a selling agent for the Company;
(ii) Neither Maxwell nor any person associated with Maxwell that
participates in the Offering will make any statements to potential
purchasers of the Notes respecting the Notes, the Company, its operations,
financial condition or prospects except such statements as are contained in
the Prospectus; and
-2-
<PAGE>
(iii) In connection with the offer and sale of any Notes by Maxwell,
Maxwell will comply with all rules and regulations of the NASD applicable
to the conduct of its business including, without limitation, rules of the
NASD applicable to "fair dealing" with customers and the "suitability" of
the Notes for investment by non-institutional investors.
(c) Maxwell as Selling Agent. On the basis of the representations and
warranties of the Company herein contained, and subject to the terms and
conditions herein set forth, Maxwell agrees to act as a nonexclusive sales agent
for the Company in connection with the Offering, it being understood by the
parties that Maxwell shall not receive any commissions or other compensation
with respect to any sales of Notes that Maxwell may make hereunder.
(d) Termination Date. The Termination Date of this Letter Agreement shall
be thirty days from the date on which the Company notifies Maxwell in writing
that this Letter Agreement is terminated. Maxwell may also terminated this
Letter Agreement upon thirty days written notice to the Company.
(e) Indemnification. To the extent permitted by law, the Company will
indemnify Maxwell against all claims, losses, damages or liabilities (or actions
in respect thereof), whether arising in connection with court action, regulatory
action or arbitration to the extent such claims, losses, damages or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in the Prospectus or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
the Company will reimburse Maxwell for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claims, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by or on behalf of and relating to
Maxwell specifically for use in the Prospectus.
(f) Representations and Agreements to Survive Termination. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Letter Agreement shall be deemed to be representations,
warranties and agreements as of the date hereof, the Termination Date and for
the period between such dates, and such representation, warranties and
agreements shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto and shall survive
termination of this Letter Agreement and the occurrence of the Termination Date.
(g) Independent Contractors. The Company and Maxwell are independent
contractors and nothing herein shall be deemed or construed to create any
relationship between any of the parties hereto other than that of independent
contractors.
-3-
<PAGE>
(h) Integration Clause. This Letter Agreement contains all of the
understandings between the parties hereto with reference to the Offering, and
cannot be modified or changed except by a written instrument signed by the
parties hereto.
(i) Parties. This Letter Agreement shall inure solely to the benefit of and
shall be binding upon each of the parties hereto and their respective
successors, and assigns and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Letter Agreement or any provision herein contained.
(j) Arbitration. Any controversy, dispute or question arising out of or in
connection with or in relation to this Letter Agreement or its interpretation
performance or non-performance or any breach thereof shall be determined by
arbitration conducted in Charlotte, North Carolina in accordance with then
existing rules of the American Arbitration Association. The Company shall select
one arbitrator, Maxwell shall select one arbitrator and the two arbitrators
shall select a third with substantially similar qualifications. Any decision
rendered shall be binding upon the parties thereto and may be enforced in any
jurisdiction. However, the arbitrators have no authority to grant any relief
that is inconsistent with this Letter Agreement. The expense of arbitration
shall be borne equally by the Company and Maxwell.
(k) Applicable Law. This Letter Agreement shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
If the foregoing correction sets forth our understanding with respect to
Maxwell's proposed participation in the Offering, please so confirm by signing
and returning one copy of this letter.
Maxwell Investments Inc.
By: __________________________________
Donald O. Thompson, Jr., President
ACCEPTED AND AGREED TO
this _____ day of February ______, 1998.
THE THAXTON GROUP, INC.
By: ____________________________________
James D. Thaxton, President
Exhibit 4.1
- --------------------------------------------------------------------------------
THE THAXTON GROUP, INC.
and
THE BANK OF NEW YORK,
as Trustee
---------------------
INDENTURE
Dated as of February __, 1998
-----------------------
$50,000,000
Subordinated Term and Daily Notes
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - Definitions and Other Provisions of General Application......................................1
Section 101 - Definitions.......................................................................1
Section 102 - Compliance Certificates and Opinions..............................................6
Section 103 - Form of Documents Delivered to Trustee............................................7
Section 104 - Acts of Holders...................................................................8
Section 105 - Notices, Etc. to Trustee and Company..............................................9
Section 106 - Notice to Holders; Waiver.........................................................9
Section 107 - Conflict with Trust Indenture Act................................................10
Section 108 - Effect of Headings and Table of Contents.........................................10
Section 109 - Successors and Assigns...........................................................10
Section 110 - Separability Clause..............................................................10
Section 111 - Benefits of Indenture............................................................10
Section 112 - Governing Law....................................................................10
Section 113 - Legal Holidays...................................................................10
Article II - Security Forms.............................................................................11
Section 201 - Forms Generally..................................................................11
Section 202 - Securities in Global Form........................................................11
Article III - The Securities............................................................................12
Section 301 - Amount Unlimited; Issuanble in Series............................................12
Section 302 - Denoninations....................................................................14
Section 303 - Execution, Authentication, Delivery and Dating...................................14
Section 304 - Temporary Securities.............................................................16
Section 305 - Registration, Registration of Transfer and Exchange..............................16
Section 306 - Mutilated, Destroyed, Lost and Stolen Securities.................................18
Section 307 - Payment of Interest; Interest Rights Preserved...................................19
Section 308 - Persons Deemed Owners............................................................20
Section 309 - Cancellation.....................................................................20
Section 310 - Computation of Interest..........................................................20
Article IV - Satisfaction and Discharge.................................................................21
Section 401 - Satisfaction and Discharge of Securities of Any Series...........................21
Section 402 - Application of Trust Money.......................................................22
Article V - Remedies....................................................................................22
Section 501 - Events of Default................................................................22
Section 502 - Acceleration of Maturity; Rescission and Annulment...............................23
Section 503 - Collection of Indebtedness and Suits for Enforcement by Trustee..................24
Section 504 - Trustee May File Proofs of Claim.................................................25
Section 505 - Trustee May Enforce Claims Without Possession of Securities......................26
Section 506 - Application of Money Collected...................................................26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 507 - Limitation on Suits..............................................................26
Section 508 - Unconditional Right of Holders to Receive Principal (and
Premium, if any) and Interest, if any..........................................27
Section 509 - Restoration of Rights and Remedies...............................................27
Section 510 - Rights and Remedies Cumulative...................................................27
Section 511 - Delay or Omission Not Waiver.....................................................28
Section 512 - Control by Holders...............................................................28
Section 513 - Waiver of Past Defaults..........................................................28
Section 514 - Undertaking for Costs............................................................28
Article VI - The Trustee ...............................................................................29
Section 601 - Certain Duties and Responsibilities..............................................29
Section 602 - Notice of Defaults...............................................................30
Section 603 - Certain Rights of Trustee........................................................31
Section 604 - Not Responsible for Recitals or Issuance of Securities...........................32
Section 605 - May Hold Securities..............................................................32
Section 606 - Money Held in Trust..............................................................32
Section 607 - Compensation and Reimbursement...................................................32
Section 608 - Corporate Trustee Required; Eligibility..........................................33
Section 609 - Resignation and Removal; Appointment of Successor................................33
Section 610 - Acceptance of Appointment by Successor...........................................34
Section 611 - Merger, Conversion, Consolidation or Succession to Business......................35
Section 612 - Appointment of Authenticating Agent .............................................36
Article VII - List of Holders and Reports by Trustee and Company........................................37
Section 701 - Company to Furnish Trustee Names and Addresses of Holders........................37
Section 702 - Preservation of Information; Communications to Holders...........................38
Section 703 - Reports by Trustee...............................................................39
Section 704 - Reports by Company...............................................................39
Article VIII - Consolidation, Merger, Conveyance, Transfer or Lease.....................................40
Section 801 - Company May Consolidate, Etc., Only on Certain Terms.............................40
Section 802 - Successor Corporation Substituted................................................41
Article IX - Supplemental Indentures....................................................................41
Section 901 - Supplemental Indentures Without Consent of Holders...............................41
Section 902 - Supplemental Indentures With Consent of Holders..................................42
Section 903 - Execution of Supplemental Indentures.............................................43
Section 904 - Effect of Supplemental Indentures................................................43
Section 905 - Conformity with Trust Indenture Act..............................................43
Section 906 - References in Securities to Supplemental Indentures..............................43
Article X - Covenants ..................................................................................44
Section 1001 - Payment of Principal and Interest, if any.......................................44
Section 1002 - Maintenance of Office or Agency.................................................44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 1003 - Money for Securities Payments to Be Held In Trust...............................44
Section 1004 - Corporate Existence.............................................................46
Section 1005 - Maintenance of Properties.......................................................46
Section 1006 - Payment of Taxes and Other Claims...............................................46
Section 1007 - Statement as to Compliance......................................................46
Section 1008 - Waiver of Certain Covenants.....................................................47
Article XI - Redemption of Securities...................................................................48
Section 1101 - Applicability of Article........................................................48
Section 1102 - Election to Redeem; Notice to Trustee...........................................48
Section 1103 - Selection by Trustee of Securities to be Redeemed...............................48
Section 1104 - Notice of Redemption............................................................49
Section 1105 - Deposit of Redemption Price.....................................................49
Section 1106 - Securities Payable on Redemption Date...........................................49
Section 1107 - Securities Redeemed in Part.....................................................50
Article XII - Meetings of Holders of Securities.........................................................50
Section 1201 - Purposes for Which Meetings May Be Called.......................................50
Section 1202 - Manner of Calling Meetings......................................................51
Section 1203 - Call of Meetings by Company or Holders..........................................51
Section 1204 - Who May Attend and Vote at Meetings.............................................51
Section 1205 - Regulations May be Made by Trustee..............................................51
Section 1206 - Evidence of Actions by Holders..................................................52
Section 1207 - Exercise of Rights of Trustee and Holders Not to be
Hindered or Delayed...........................................................52
Article XIII - Subordination of Securities..............................................................52
Section 1301 - Securities Subordinate to Senior Indebted.......................................52
Section 1302 - Trustees and Holders of Securities May Rely on Certificate
of Liquidating Agent; Trustee May Require Further
Evidence as to Ownership of Senior Indebtedness; Trustee
Not Fiduciary to Holders of Senior Indebtedness...............................55
Section 1301 - Payment Permitted if No Default.................................................55
Section 1304 - Trustee Not Charged With Knowledge of Prohibition...............................56
Section 1305 - Trustee to Effectuate Subordination.............................................56
Section 1306 - Rights of Trustee as Holder of Senior Indebtedness..............................57
Section 1307 - Article Applicable to Paying Agents.............................................57
Section 1308 - Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness..............................57
Section 1309 - Trustee's Relation to Senior Indebtedness.......................................57
</TABLE>
iii
<PAGE>
INDENTURE
INDENTURE, dated as of February ____, 1998, between THE THAXTON GROUP,
INC., a corporation duly organized and existing under the laws of the State of
South Carolina (herein called the "Company"), having its main office at 1524
Pageland Highway, Lancaster, South Carolina 29721, THE BANK OF NEW YORK, a
banking corporation organized and existing under the laws of the State of New
York, as trustee (herein called the "Trustee"), having its principal office in
New York, New York.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured,
subordinted notes (herein called the "Securities"), to be issued in one or more
series as in this Indenture provided.
All things necessary to make this Indenture and the Securities, when
executed and issued by the Company, valid and binding obligations of the
Company, in accordance with their terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
1. the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
2. all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
3. all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean
<PAGE>
such accounting principles as are generally accepted at the date or time of
such computation; and
4. the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that Article
Six, are defined in that Article.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Securities pursuant to Section 614.
"Bank" means (i) any institution organized under the laws of the United
States, any State of the United States, the District of Columbia, any territory
of the United States, Puerto Rico, Guam, American Samoa, or the Virgin islands
which (a) accepts deposits that the depositor has a legal right to withdraw on
demand and (b) engages in the business of making commercial loans, and (ii) any
trust company organized under any of the foregoing laws.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors or duly authorized committee thereof and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Business Day" when used with respect to any particular Place of Payment,
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment or New York, New York are
authorized or obligated by law to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the execution of this instrument such commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
2
<PAGE>
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board of Directors, its
President, a Vice President, and by its Treasurer, an Assistant Treasurer,
Controller, an Assistant Controller, Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located in New York,
New York, Attention: Corporate Trust Department.
"Corporation" includes corporations, associations, companies and business
trusts.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to the Securities of any series issuable
or issued in the form of a global Security, the Person designated as Depositary
by the Company pursuant to Section 301 until a successor Depositary shall have
become such pursuant to the applicable provisions of the Indenture, and
thereafter "Depositary" shall mean or include each Person who is then a
Depositary hereunder, and if at any time there is more than one such Person,
"Depositary" as used with respect to these Securities shall mean any such
Depositary with respect to the Securities of that series.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Event of Default" has the meaning specified in Section 501.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means (1) the principal of, and premium, if any, and
interest on any debt of the Company for borrowed money whether or not evidenced
by a note, debenture, bond or similar instrument (including indebtedness
represented by a purchase money obligation given in connection with the
acquisition of any property or assets) including securities; (2) any debt of
others described in the preceding clause which the Company has guaranteed or for
which it is otherwise liable; and (3) any amendment, renewal, extension or
refunding of any such debt.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of particular series of Securities established as contemplated
by Section 301.
3
<PAGE>
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller or an Assistant Controller, the Secretary or
an Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
in-house counsel to the Company, and who shall be satisfactory to the Trustee.
"Outstanding", when used with respect to Securities means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation
(ii) Securities for the payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided, however, that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bonafide purchaser in
whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by or held for the account of the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Securities so owned or so held which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
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Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor. Upon request of the Trustee,
the Company shall furnish to the Trustee promptly an Officers' Certificate
listing and identifying all Securities, if any, known by the Company to be owned
by or held for the account of the Company or any other obligor upon the
Securities, or any Affiliate of the Company or of such obligor and the Trustee
shall be entitled to accept such Officers' Certificate as conclusive evidence of
the facts therein set forth and of the fact that all Securities not listed
therein and not otherwise excluded from the provisions hereof are Outstanding
for the purposes of any such determination.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, or
government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of any series,
means the place or places where the principal of and interest on the Securities
of that series are payable as contemplated by Section 301.
"Predecessor Security" of any particular security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security, and, for purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Redemption Date", when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed,
in whole or in part, means the price at which it is to be redeemed pursuant to
this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 301.
"Responsible Officer", when used with respect to the Trustee, means the
chairman of the board of directors, the chairman or any vice chairman of the
executive committee of the board of directors, the chairman of the trust
committee, the president, any vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers.
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"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means Indebtedness of the Company outstanding at any
time other than Indebtedness of the Company to a Subsidiary for money borrowed
by the Company from, or advanced to the Company by, any such Subsidiary or
Indebtedness which by its terms is not superior in right of payment to the
Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by the Company or by
one or more of its other Subsidiaries, or by the Company and one or more of its
other Subsidiaries. For purposes of this definition, "Voting Stock means stock
of the class or classes having general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
the subject Subsidiary (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Trustee" means the Person named as "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such with respect to
one or more series of Securities pursuant to the applicable provisions of this
Indenture, and thereafter "Trustee" shall mean or include each Person who is
then a Trustee hereunder, and if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities or any series thereof shall
mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
905.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president other than an assistant vice president, whether or not
designated by a number or a word or words added before or after the title "vice
president".
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed
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action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representation
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of , or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such Counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall. become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing such agent shall be sufficient for any purpose of this Indenture and
(subject to Section 601) conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(e) Without limiting the generality of the forgoing, unless otherwise
specified pursuant to Section 301 or pursuant to one or more indentures
supplemental hereto, a Holder, including a Depositary that is the Holder of a
global Security, may make, give or take, by a proxy or proxies duly appointed in
writing, any request, demand, authorization, direction, notice, consent, waiver
or other action provided in this Indenture to be made, given or taken by
Holders, and a Depositary that is the Holder of a global Security may provide
its proxy or proxies to the beneficial owners of interests in any such global
Security through the standing instructions and customary practices of such
Depositary.
(f) The Trustee shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interests in any global Security held by a
Depositary entitled under the procedures of such Depositary to make, give or
take, by a proxy or proxies, duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action
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provided in this Indenture to be made, given or taken by Holders. If such a
record date is fixed, the Holders on such record date or their duly appointed
proxy or proxies and only such Persons, shall be entitled to make, give or take
such request, demand, authorization, direction, notice, consent, waiver or other
action, whether or not such Holders remain Holders after such record date. No
such request, demand, authorization, direction, notice, consent, waiver or other
action shall be valid or effective if made, given or taken more than 90 days
after such record date.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with a Responsible Officer of the Trustee at its Corporate Trust
Office, or
(2) The Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first class postage prepaid, to the Company
addressed to the attention of the President of the Company at the address
of its principal office specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the Trustee by
the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice to Holders by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
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SECTION 107. Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities 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.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefits or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law.
This Indenture shall be governed by and construed in accordance with the
laws of the State of South Carolina and, unless the laws of another jurisdiction
are specified pursuant to Section 301, the Securities shall be governed by and
construed in accordance with the laws of the State of South Carolina.
Notwithstanding the foregoing, the parties hereto acknowledge and agree that the
situs of the trust created hereunder and the administration thereof shall be
deemed to be the Corporate Trust Office.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of principal of (and premium, if any) and interest, if any,
need not be made at such Place of Payment on such date, but may be made on the
next succeeding Business Day at such Place of Payment with the same force and
effect as
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if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series and the certificate of the Authenticating
Agent shall be in substantially the form of Exhibit A, B and C, or in such other
form (including global form) as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon, as may be required to comply with the rules of any securities exchange,
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. If the form of
Securities of any series is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by Section
303 for the authentication and delivery of such Securities.
The definitive Securities, if any, shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner,
subject to the rules of any securities exchange upon which the Securities may be
listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 202. Securities in Global Form.
If any Security of a series is issuable in global form, such Security may
provide that it shall represent the aggregate amount of Outstanding Securities
from time to time endorsed thereon and may also provide that the aggregate
amount of Outstanding Securities represented thereby may from time to time be
reduced to reflect exchanges. Any endorsement of a Security in global form to
reflect the amount, or any increase or decrease in the amount, of Outstanding
Securities represented thereby shall be made by the Trustee and in such manner
as shall be specified in such Security. Any instructions by the Company with
respect to a Security in global form, after its initial issuance, shall be in
writing but need not comply with Section 102.
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ARTICLE III
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered and Outstanding under this indenture is unlimited. The Securities may
be issued up to the aggregate principal amount of Securities from time to time
authorized by or pursuant to a Board Resolution.
The Securities may be issued in one or more series. All Securities of each
series issued under this Indenture shall in all respects be equally and ratably
entitled to the benefits hereof with respect to such series without preference,
priority or distinction on account of the actual time of the authentication and
delivery or Maturity of the Securities of such series. There shall be
established in or pursuant to a Board Resolution, and subject to Section 303,
set forth or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series:
1. the title of the Securities of the series (which shall distinguish
the Securities of the series from all other series of Securities);
2. any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906, or 1107);
3. the date or dates (or manner of determining the same) on which the
principal of the Securities of the series is payable;
4. the rate or rates (or the manner of calculation thereof) at which
the Securities of the series shall bear interest (if any), the date or
dates from which such interest shall accrue; the Interest Payment Dates on
which such interest shall be payable (or manner of determining the same)
and the Regular Record Date for the interest payable on any securities on
an Interest Payment Date;
5. the place or places, if any, in addition to the principal office of
the Company in Lancaster, South Carolina, where the principal of (and
premium, if any) and interest on Securities of the series shall be payable,
any Securities of that series may be surrendered for registration of
transfer, and where any Securities of that series may be surrendered for
exchange;
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6. the period or periods within which, the price or prices at which,
and the terms and conditions upon which Securities of the series may be
redeemed, in whole or in part, at the option of the Company;
7. the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, and the
terms and conditions upon which Securities of the series shall be redeemed
or purchased, in whole or in part, pursuant to such obligation;
8. if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable:
9. if the amount of payments of principal of (and premium, if any), or
interest on the Securities of the series may be determined with reference
to an index, the manner in which such amounts shall be determined;
10. if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
502;
11. whether the Securities of the series shall be issued in whole or
in part in the form of a global Security or Securities and, in such case,
the Depositary for such global Security or Securities;
12. whether the Securities of the series will be subordinate to any
other series of Security or other debt of the Company and the terms of such
subordination;
13. if other than the law of the State of South Carolina, the law
which will govern the terms of the Securities; and
14. any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any particular series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such Indenture supplemental hereto.
At the option of the Company, interest on the Securities of any series may
be paid by mailing a check to the address of the person entitled thereto as such
address shall appear in the Securities Register.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or
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an Assistant Secretary of the Company and delivered to the Trustee at or prior
to the delivery of the Officers' Certificate setting forth the terms of the
series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in registered form without
coupons in such denominations as shall be specified as contemplated by section
301. In the absence of any such provisions with respect to the Securities of any
series, the Securities of such series shall be issuable in denominations of
$1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order and subject to the provisions hereof shall authenticate
and deliver such Securities. If any Security shall be represented by a global
Security, then, for purposes of this section and Section 304, the notation of
the record owner's interest therein upon original issuance of such Security
shall be deemed to be delivery in connection with the original issuance of each
beneficial owner's interest in such global Security if all the securities of any
one series are not to be originally issued at one time and if a Board Resolution
relating to such Securities shall so permit, such Company order may set forth
procedures acceptable to the Trustee for the issuance and authentication of such
Securities. If the form or terms of the Securities of the series have been
established in or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating:
(a) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
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(b) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 301, that such terms
have been established in conformity with the provisions of this Indenture;
and
(c) that all conditions precedent to the authentication and delivery
of such Securities have been met and that such securities, when
authenticated and delivered by the Trustee and issued by the Company in the
manner and subject to any conditions specified in such Opinion of Counsel,
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject. to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting the enforcement of creditors' rights and to general equity
principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties,
liabilities, protections, indemnities or immunities under the Securities and
this Indenture or otherwise in a manner which is not reasonably acceptable to
the Trustee.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture.
If the Company shall establish pursuant to Section 301 that the Securities
of a series are to be issued in the form of one or more global Securities, then
the Company shall execute and the Trustee shall, in accordance with this Section
and the Company Order with respect to such series, authenticate and deliver one
or more global Securities that (i) shall represent and shall be denominated in
an amount equal to the aggregate principal amount of all of the Securities of
such series issued and not yet cancelled, (ii) shall be registered in the name
of the Depositary for such global Security or Securities or the nominee of such
Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions and (iv) shall bear a legend
substantially to the following effect: "Unless and until it is exchanged in
whole or in part for Securities in definitive registered form, this Security may
not be transferred except as a whole by the Depositary to the nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary."
Each Depositary designated pursuant to Section 301 for a global Security
must, at the time of its designation and at all times while it serves as
Depositary, be a clearing agency registered under the Exchange Act and any other
applicable statute or regulation.
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SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
in the manner specified in Section 303, temporary securities which are printed,
lithographed, typewritten, mimeographed, photocopied or otherwise produced, in
any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive securities of the same series of authorized denominations. Until so
exchanged, the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the office of the Trustee a register
(the register maintained in such office being herein referred to as the
"Security Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and for
transfers of Securities. The Trustee is hereby initially appointed "Security
Registrar" for the purpose of registering Securities as herein provided.
Upon surrender for registration of transfer of any Security of any series
at the office or agency in a Place of Payment for that series, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of the same
series, of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any Authorized denominations and of a
like aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
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All Securities issued upon registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Security Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company or the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities other than exchanges
pursuant to Section 304, 906 or 1107 not involving any transfer.
Neither the Company nor the Security Registrar shall be required (i) to
issue, register the transfer of or exchange Securities of any series during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of Securities of that series selected for
redemption under Section 1103 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
Notwithstanding any other provision of this Section 305, unless and until
it is exchanged in whole or in part for Securities in definitive registered
form, a global Security representing all or a portion of the Securities of a
series may not be transferred except as a whole by the Depositary for such
series to a nominee of such Depositary or by a nominee of such Depositary or
another nominee of such Depositary or by such Depositary or any such nominee to
a successor Depositary for such series or a nominee of such successor
Depositary.
The Company may at any time and in its sole discretion determine that the
Securities of any series issued in the form of one or more global Securities
shall no longer be represented by a global Security or Securities. In such event
the Company will execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of definitive Securities of such series, will
authenticate and deliver, Securities of such series in definitive registered
form without coupons, in any authorized denominations, in an aggregate principal
amount equal to the principal amount of the global Security or Securities
representing such series, in exchange for such global Security or Securities.
If specified by the Company pursuant to Section 301 with respect to a
series of Securities, the Depositary for such series of Securities may surrender
a global Security for such series of Securities in exchange in whole or in part
for Securities of such series in definitive registered form on such terms as are
acceptable to the Company and such Depositary. Thereupon, the Company shall
execute, and the Trustee shall authenticate and deliver, without service charge,
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(i) to the Person specified by such Depositary a new Security or
Securities of the same series, of any authorized denomination as requested
by such Person, in an aggregate principal amount equal to and in exchange
for such Person's beneficial interest in the global Security; and
(ii) to such Depositary a new global Security in a denomination equal
to the difference, if any, between the principal amount of the surrendered
global Security and the aggregate principal amount of Securities
authenticated and delivered pursuant to Clause (i) above.
Upon the exchange of a global Security for securities in definitive
registered form without coupons, in authorized denominations, such global
Security shall be canceled by the Trustee. securities in definitive registered
form without coupons issued in exchange for a global Security pursuant to this
Section 305 shall be registered in such names and in such authorized
denominations as the Depositary for such global Security, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Securities to or as
directed by the Persons in whose names such Securities are so registered.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them and any agent of either of them harmless,
then the Company shall execute and, upon its request, the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same series
and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of written notice to
the Company or the Trustee that such Security has been acquired by a bonafide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new security pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
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Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor securities) is registered at the
close of business on the Regular Record Date for such interest payment.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company as provided below:
The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security of such series and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date thereof to
be mailed, first-class postage prepaid, to each Holder of Securities of
such series at his address as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the securities of such series (or their respective
Predecessor Securities) are
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registered at the close of business on such Special Record Date and shall
no longer be payable.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to any payments made on account of beneficial ownership
interests of a global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order.
SECTION 310. Computation of Interest.
Except as otherwise contemplated by Section 301 for securities of any
series, interest on the Securities of each series shall be computed on the basis
of a 365-day year and the actual number of days elapsed.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Securities of Any Series.
(a) The Company shall be deemed to have satisfied and discharged the entire
indebtedness an all the Securities of any particular series and, so long as no
Event of Default shall be continuing, the Trustee for the Securities of such
series, upon Company Request and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of such
indebtedness, when
(1) either
(A) all Securities of such series theretofore authenticated and
delivered (other than (i) Securities of such series which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306 and (ii) Securities of such series for the
payment of which money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or
(B) all Outstanding Securities of such series not described in
Subclause (A) of this Subsection (a) (1) and not theretofore delivered
to the Trustee for cancellation (i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year, or (iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company; and the Company, in the case of (i), (ii), or (iii) above,
has deposited or caused to be deposited with the Trustee as trust
funds in trust an amount sufficient to pay and discharge the entire
indebtedness on such Outstanding Securities not theretofore delivered
to the Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to the Outstanding Securities of such
series, including, without limitation, the fees and estimated expenses of
the Trustee through and including the latest date of payment of such
Securities to the Holders thereof; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of the
entire indebtedness of all Securities of such series have been complied
with.
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Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECT10N 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment either directly or through any Paying Agent (including
the Company acting as its own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal (and premium, if any) and interest
for the payment of which such money has been deposited with the Trustee.
ARTICLE V
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(3) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which is elsewhere in
this Section specifically dealt with or which has expressly been included
in this Indenture solely for the benefit of series of Securities other than
that series), and continuance of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of that
series a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder, or
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(4) the entry by a court having jurisdiction of (A) a decree or order
for relief in respect of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of the property of the Company, or ordering the winding up or
liquidation of the affairs of the Company, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
(5) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by the Company to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement against the Company of any bankruptcy or insolvency case or
proceeding, or the filing by the Company of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State law,
or the consent by the Company to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or of
any substantial part of the property of the Company, or the making by the
Company of an assignment for the benefit of creditors, or the admission by
the Company in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the company in furtherance
of any such action; or
8. any other Event of Default provided in the Security or the Board
Resolution with respect to Securities of that series.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the outstanding Securities
of that series may declare the principal amount of all the Securities of that
series to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration such
principal amount shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are expressly waived.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal
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amount of the Outstanding Securities of that series, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(a) all overdue interest on all Securities of that series,
(b) the principal of any Securities of that series which has
become due otherwise than by such declaration of acceleration and
interest thereon at the rate or rates prescribed therefor in such
securities,
(c) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed
therefor in such Securities, and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
curved or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest on any Security of
any series when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of any Security at
the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and, to
the extent that payment of such interest shall be legally enforceable, upon any
overdue installments of interest, at the rate or rates prescribed therefor in
such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
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If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal and
interest, if any, owing and unpaid in respect of the Securities and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of the Holder in any such proceeding.
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SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest on the Securities in respect of which or for the
benefit of which such money has been collected. ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Securities for principal and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
(1) an Event of Default with respect to that series shall have
occurred and be continuing and such Holder shall have previously given
written notice to the Trustee of such default and the continuance thereof;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
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(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal (and Premium,
if any) and Interest, if any.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee, and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided, however, that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default:
(1) in the payment of the principal of or interest, if any, on any
Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee
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for any action taken, suffered or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Company, to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Securities of any series, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of or interest, if any, on any Security on or after the Stated
Maturity or Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
ARTICLE VI
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default, with respect to
Securities of any series:
(1) the Trustee undertakes to perform, with respect to Securities of
such series, only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may, with
respect to Securities of such series, conclusively rely, as to the truth of
the statements and correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether they conform to the requirements of this
Indenture.
(b) In case an Event of Default with respect to Securities of any series
has occurred and is continuing, the Trustee shall exercise, with respect to
Securities of such series, such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own grossly negligent action, its own grossly
negligent failure to act, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
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(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible officer, unless it shall be proved that the
Trustee was grossly negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities of any series, determined as provided in Section 512, relating
to the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture with respect to the Securities of such
series; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series, the Trustee shall transmit by mail to all
Holders of Securities of such series, in the manner set forth in Section 106,
notice of such default hereunder known to the Trustee, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of or interest on any Security of such
series, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or a trust committee of
directors or Responsible Officers of the Trustee in good faith determines that
the withholding of such notice is in the interest of the Holders of Securities
of such series; and provided further, however, that in the case of any default
of the character specified in Section 501(4) with respect to the Securities of
such series, no such notice to Holders shall be given until at least 60 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to Securities of such series.
The Trustee shall not be deemed to have knowledge of any Default or Event
of Default except any Default or Event of Default of which the Trustee shall
have received written notification or a Responsible Officer charged with the
administration of this Indenture shall have obtained actual knowledge, and such
notification shall not be deemed to include receipt of information obtained in
any report or other documents furnished under Section 704 of this Indenture,
which reports and documents the Trustee shall have no duty to examine.
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SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601, and notwithstanding anything else
contained herein or in any Securities:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith an its part, rely upon an Officers' Certificate;
(4) as a condition to the taking, suffering or omission of any act
contemplated hereunder, the Trustee may, but is not required to, consult
with counsel and the written advice at such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication thereof, shall be taken as the statements of the
Company, and the Trustee or any Authenticating Agent assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company or the Trustee, in its individual or
any other capacity, may become the owner or pledgee of securities and, subject
to Section 608 and 613, may otherwise deal with the Company with the same rights
it would have it if were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees;
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of any express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its gross negligence or
bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without gross negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
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As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a first lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except for
funds specifically held in trust for the benefit of the Holders of Securities.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder for the Securities of each
series which shall be a corporation organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $150,000, and subject to supervision or
examination by Federal or State Authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time with respect to the securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 610 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Oustanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
1. the Trustee shall cease to be eligible under Section 608 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
2. the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf on himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 610. If, within one year after such resignation,
removal, or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Oustanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 610, become the successor
Trustee with respect to the Securities of such series and to that extent
supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
required by Section 610, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series in the manner
and to the extent provided in Section 106. Each notice shall include the name of
the successor Trustee with respect to the Securities of such series and the
address of its Corporate Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers, and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
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and money held by such retiring Trustee hereunder, subject nevertheless to its
lien, if any, provided for in Section 607.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust, that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee, to the extent contemplated by such supplemental indenture, all property
and money held by such retiring Trustee hereunder with respect to the Securities
of that or those series who which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case
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any Securities shall have been authenticated, but not delivered, by the Trustee
or the Authenticating Agent, as the case may be, then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee or
Authenticating Agent, as the case may be, may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee or successor Authenticating Agent, as the case may be, had
itself authenticated such Securities.
SECTION 612. Appointment of Authenticating Agent.
At any time when any of the Securities remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue or upon
exchange, registration of transfer or partial redemption thereof and Securities
so authenticated shall be entitled to the benefits of this Indenture and shall
be valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to exercise corporate trust powers and to act as Authenticating
Agent, having a combined capital and surplus of not less than $150,000 and
subject to supervision or examination by Federal or State Authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the parties hereto or the Authenticating
Agent or such successor operation.
An Authenticating Agent for any series of Securities may resign at any time
by giving written notice thereof to the Trustee for such series and to the
Company. The Trustee for any series of Securities may at any time terminate the
agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company in the manner set forth in Section 105.
Upon receiving such notice of resignation or upon such termination, or in case
at
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any time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, the Trustee for such series of Securities may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment to all Holders of
Securities of the series with respect to which such Authenticating Agent will
serve in the manner set forth in Section 106. Any successor Authenticating
Agent, upon acceptance of its appointment hereunder, shall become vested with
all the rights, powers and duties of its predecessor hereunder, with like effect
as if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Trustee for the Securities of each series agrees to pay to the
Authenticating Agent for such series from time to time reasonable compensation
for its services under this Section, and the Trustee shall be entitled to be
reimbursed for such payments, subject to Section 607.
The provisions of Sections 308, 604 and 605 shall be applicable to each
Authenticating Agent.
Pursuant to each appointment made under this Section, the Securities of
each series covered by such appointment may have endorsed thereon, in addition
to the Trustee's certificate of authentication, an alternative certificate of
authentication in the following form:
"This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
____________________________________,
as Trustee
By:__________________________________
As Authenticating Agent
By:__________________________________
Authorized Agent
ARTICLE SEVEN
LISTS OF HOLDERS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date in each year, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date, and
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(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and conent as of a date more than 15 days prior to the time
such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Indenture or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to transmit,
then the Trustee shall, within five business days after the receipt of such
application, at its election, either:
(i) afford such applicants access to the information preserved at the
time by Trustee in accordance with Section 702 (a), or
(ii) inform such applicant as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appears in the information preserved
at the time by Trustee in accordance with Section 702(a), a copy of the form of
proxy or other communication which is specified in such request, with reasonable
promptness after a tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses of mailing,
unless within five days after such tender the Trustee shall mail to such
applicants and file with the Commission, together with a copy of the material to
be mailed, a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the best interests of the Holders or
would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
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after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise, the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with Section 702 (b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
SECTION 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the year
following the first issuance of Securities, the Trustee shall transmit by mail
to all Holders as provided in Section 313(c) of the Trust Indenture Act a brief
report dated as of such May 15, if required by Section 313(a) of the Trust
Indenture Act.
SECTION 704. Reports by Company.
The Company shall;.
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed from
time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner set forth in
Section 106, within 30 days after the filing thereof with the Trustee, such
summaries of any
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information, documents and reports required to be filed by the Company
pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other corporation,
or sell, convey, exchange, transfer or lease its properties and assets
substantially as an entirety to any Person other than a Subsidiary, and the
Company shall not permit any Person other than a Subsidiary, to consolidate with
or merge into the Company or sell, convey, exchange, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
corporation, or sell, convey, exchange, transfer or lease its properties
and assets substantially as an entirety to any Person other than a
Subsidiary, the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer,
or which leases, the properties and assets of the Company substantially as
an entirety shall be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of and interest on all the Securities
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such sale,
conveyance, exchange, transfer or lease, properties or assets of the
Company or any Subsidiary would become subject to a mortgage, pledge, lien,
security interest or other encumbrance which would not be permitted by this
Indenture, the Company or any such Subsidiary or such successor corporation
or Person, as the case may be, shall take such steps as shall be necessary
effectively to secure the Securities equally and ratably with (or prior to)
all indebtedness secured thereby; and
(4) the Company or any such Subsidiary has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, conveyance, exchange, transfer or lease and
supplemental indenture comply
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with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 802. Successor Corporation Substituted.
Upon any consolidation by the Company with or merger by the Company into
any other corporation or any sale, conveyance, exchange, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 801, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, exchange, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein, and thereafter, except in the case of a lease, the
predecessor corporation shall be relieved of all obligations and covenants under
this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons; or
(5) to change or eliminate any of the provisions of this Indenture,
provided, however, that any such change or elimination shall become
effective only when there is
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no Security Outstanding of any series created prior to the execution of
such supplemental indenture which is entitled to the benefit of such
provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 610(b); or
(9) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided, however, that such action shall not
adversely affect the interests of the Holders of Securities of any series
in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than 50% in principal amount of
the Oustanding Securities of each series affected by such supplemental
indenture, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby;
(1) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or change any Place of Payment where, or the coin
or currency in which, any Security or any principal of or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Oustanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
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(3) modify any of the provisions of this Section, Section 513 or
Section 1010, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; provided, however, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1010 or the
deletion of this proviso, in accordance with the requirements of section
610(b) and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, protections, indemnities, liabilities or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in affect.
SECTION 906. References in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental
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indenture. If the Company shall so determine, new Securities of any series so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Oustanding Securities
of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal and Interest, if any.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and the
interest, if any, on the Securities of that series in accordance with the terms
of the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, an office or agency where Securities of that series
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities of that series
and this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. Money for Securities Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or interest, if any, on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
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Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, prior to each due date of the principal of or interest on
any Securities of that series, deposit with a Paying Agent a sum sufficient to
pay the principal or interest becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will.
(1) hold all sums held by it for the payment of the principal of or
interest on Securities of that series in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any
payment of principal or interest on the Securities of that series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security of any series and remaining unclaimed for three
years after such principal (and premium, if any) or interest, if any, has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided. however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York and in each Place
of Payment for Securities of that series, notice that such money remains
unclaimed and that, after a date
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specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company, unless otherwise required by mandatory provision of applicable
escheat, or abandoned or unclaimed property law.
SECTION 1004. Corporate Existence.
Subject to Article Eight and to Section 1007, the Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence, rights (charter and statutory) and franchises as well
as the corporate existence, rights (charter and statutory) and franchises of
each Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries considered as a whole and that the loss thereof
is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary, and (2) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of the Company or any Subsidiary; provided however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
SECTION 1007. Statements as to Compliance.
(a) The Company will deliver to the Trustee, within 90 days after the end
of each fiscal year, a written statement, which need not comply with Section
102, signed by the Chairman of the Board of Directors, the President, Vice
Chairman or a Vice President and by the
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Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller of
the Company, stating, as to each signer thereof, that:
(1) a review of the activities of the Company during such year and of
performance under this Indenture has been made under his supervision, and
(2) to the best of his knowledge, based on such review, (a) the
Company has fulfilled all its obligations under this Indenture throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to him and the nature and
status thereof, and (b) no event has occurred and is continuing which is,
or after notice or lapse of time or both would become, an Event of Default,
or, if such an event has occurred and is continuing, specifying each such
event known to him and the nature and status thereof.
(b) Accountants' Certificate. The Company shall deliver to the Trustee,
within 90 days after the end of the Company's fiscal year, a certificate signed
by the Company's independent certified public accountants stating (i) that their
audit examination has included a review of the terms of this Indenture and the
Securities as they relate to accounting matters, (ii) that they have read the
most recent Officers' Certificates delivered to the Trustee pursuant to
paragraph (a) of this Section and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe that
the Company was not in compliance with any of the terms, covenants, provisions
or conditions of this Indenture as they pertain to accounting matters and, if
any Default or Event of Default has come to their attention, specifying the
nature and period of existence thereof; provided that such independent certified
public accountants shall not be liable in respect of such statement by reason of
any failure to obtain knowledge of any such Default or Event of Default that
would not be disclosed in the course of an audit examination conducted in
accordance with generally accepted auditing standards in effect at the date of
such examination.
SECTION 1008. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in sections 1004 to 1006, inclusive, with
respect to the Securities of any series, if, before the time for such
compliance, the Holders of at least 50% in principal amount of the Oustanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this Article, subject to any requisite regulatory approvals of
any nature whatsoever.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed. In the case
of any redemption of securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee Of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more then 45 days
prior to the Redemption Date by the Trustee, from the Oustanding Securities of
such series not previously called for redemption, by lot or such other method as
the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
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SECTION 1104. Notice Of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed no less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register. All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Oustanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
respective principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security, or portion thereof, to be redeemed
and, if applicable, that interest thereon will cease to accrue on and after
said date, and
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit Of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date.
SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided however, that installments of interest the
Stated Maturity of which is on or prior to the Redemption Date shall be payable
to the Holders of such Securities, or one or
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more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon surrender
therefor for redemption, the principal shall, until paid, bear interest from the
Redemption Date at the rate prescribed therefor in the Security.
SECTION 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing) and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of the same series, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered, except that if a global Security is so surrendered, the Company
shall execute, and the Trustee shall authenticate and deliver to the Depositary
for such global Security, without service charge, a new global Security or
Securities in a denomination equal to and in exchange for the unredeemed portion
of the principal of the global Security so surrendered.
ARTICLE TWELVE
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1201. Purposes for Which Meetings May be Called.
A meeting of Holders may be called at any time and from time to time
pursuant to the provisions of this Article for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to give
any direction to the Trustee, or to waive or consent to the waiving of any
Event of Default hereunder and its consequences, or to take any other
action authorized to be taken by Holders pursuant to any of the provisions
of Article Five;
(2) to remove the Trustee or appoint a successor Trustee, pursuant to
the provisions of Article Six;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Sections 901 and 902; or
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(4) to take any other action authorized to be taken by or on behalf of
the Holders of any specified aggregate principal amount of the securities
under any other provision of this Indenture or under applicable law.
SECTION 1202. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Holders to take any action
specified in Section 1201. Notice of every meeting of the Holders, setting forth
the time and the place of such meeting and in general terms the action proposed
to be taken at such meeting, shall be mailed by the Trustee to the Company and
to the Holders not less than 20 nor more than 60 days prior to the date fixed
for the meeting. Any meeting shall be valid without notice if the Holders of all
the Oustanding Securities are present in person or by proxy, or if notice is
waived before of after the meeting by the Holders of all of the Oustanding
Securities, and if the Company and the Trustee are either present or have,
before or after the meeting, waived notice.
SECTION 1203. Call of Meetings by Company or Holders.
In case at any time the Company, pursuant to a resolution of its Board of
Directors, or the Holders of not less than 25% in aggregate principal amount of
the Oustanding Securities, shall have requested the Trustee to call a meeting of
Holders to take any action authorized in Section 1201 by written request setting
forth in reasonable detail the action proposed to be taken at the meeting, and
the Trustee shall not have mailed notice of such meeting within 20 days after
receipt of such request, then the Company or such Holders in the amount above
specified may determine the time and the place in Lancaster, South Carolina for
such meeting and may call such meeting to take any action authorized in Section
1201, by mailing notice thereof as provided in Section 1202.
SECTION 1204. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Holders a Person shall (a) be a
Holder of one or more Securities with respect to which the meeting is being
held, or (b) be a Person appointed by an instrument in writing as proxy by such
Holder of one or more Securities. The only Persons who shall be entitled to be
present or to speak at any meeting of Holders shall be the Persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.
SECTION 1205. Regulations May be Made by Trustee.
Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders, in regard to proof of the holding of Securities and of the appointment
of proxies, and in regard to the appointment and duties of inspectors of votes,
the submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the meeting
as it shall deem appropriate.
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At any meeting each Holder or proxy shall be entitled to one vote for each
$1,000 principal amount of Oustanding Securities held or represented by him.
SECTION 1206. Evidence Of Actions by Holders.
Whenever the Holders of a specified percentage in aggregate principal
amount of the Securities may take any action, the fact that the Holders of such
percentage have acted may be evidenced by (a) instruments of similar tenor
executed by Holders in Person or by attorney or written proxy, or (b) the
Holders voting in favor thereof at any meeting of Holders called and held in
accordance with the provisions of the rules for meetings of Holders, or (c) by a
combination thereof. The Trustee may require proof of any matter concerning the
execution of any instrument by a Holder or his attorney or proxy as it shall
deem necessary.
SECTION 1207. Exercise of Rights of Trustee and Holders Not to be Hindered or
Delayed.
Nothing in this Article contained shall be deemed or construed to authorize
or permit, by reason of any call of a meeting of Holders or any rights expressly
or impliedly conferred hereunder to make such call, any hindrance or delay in
the exercise of any right or rights conferred upon or reserved to the Trustee or
to the Holders under any of the provisions of this Indenture or of the
Securities.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees that anything in this Indenture or the
Securities of any series to the contrary notwithstanding, the indebtedness
evidenced by the Securities of each series is subordinate and junior in right of
payment to all Senior Indebtedness to the extent provided herein, and each
Holder of Securities of each series, by his acceptance thereof, likewise
covenants and agrees to the subordination herein provided and shall be bound by
the provisions hereof. Senior Indebtedness shall continue to be Senior
Indebtedness and entitled to the benefits of these subordination provisions
irrespective of any amendment, modification or waiver of any term of the Senior
Indebtedness or extension or renewal of the Senior Indebtedness.
In the event that the Company shall default in the payment of any principal
of (or premium, if any) or interest on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration of acceleration or otherwise, then, upon written notice of
such default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of or
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interest on any of the Securities, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Securities.
In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its property,
(b) any proceeding for the liquidation, dissolution or other winding
up of the Company, voluntary or involuntary, whether or not involving
insolvency or bankruptcy proceedings,
(c) any assignment by the Company for the benefit of creditors, or
(d) any other marshalling of the assets of the Company,
all Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) shall first be paid in full before any
payment or distribution, whether in cash, securities or other property, shall be
made to any Holder of any of the Securities on account thereof. Any payment or
distribution, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), which would
otherwise (but for these subordination provisions) be payable or deliverable in
respect of the Securities of any series shall be paid or delivered directly to
the holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings) shall
have been paid in full. In the event of any such proceeding, after payment in
full of all sums owing with respect to Senior Indebtedness, the Holders of the
Securities, together with the holders of any obligations of the Company ranking
on a parity with the Securities, shall be entitled to be paid from the remaining
assets of the Company the amounts at the time due and owing on account of unpaid
principal of (and premium, if any) and interest on the Securities and such other
obligations before any payment or other distribution, whether in cash, property
or otherwise, shall be made on account of any capital stock or any obligations
of the Company ranking junior to the Securities and such other obligations.
In the event that, notwithstanding the foregoing, any payment or
distribution of any character, whether in cash, securities or other property
(other than securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in these subordination provisions with respect to
the indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any
53
<PAGE>
such plan of reorganization or readjustment), or any security shall be received
by the Trustee or any Holder in contravention of any of the terms hereof, such
payment or distribution or security shall be received in trust for the benefit
of, and shall be paid over or delivered and transferred to, the holders of the
Senior Indebtedness at the time outstanding in accordance with the priorities
then existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full. In the event of the failure of the Trustee or any Holder
to endorse or assign any such payment, distribution or security, each holder of
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
same.
No present or future holder of any Senior Indebtedness shall be prejudiced
in the right to enforce subordination of the indebtedness evidenced by the
Securities by any act or failure to act on the part of the Company. Nothing
contained herein shall impair, as between the Company and the Holders of
Securities of each series, the obligation of the Company to pay to such Holders
the principal of (and premium, if any) and interest on such Securities or
prevent the Trustee or the Holder from exercising all rights, powers and
remedies otherwise permitted by applicable law or hereunder upon an Event of
Default hereunder, all subject to the rights of the holders of the Senior
Indebtedness to receive cash, securities or other property otherwise payable or
deliverable to the Holders.
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all Senior Indebtedness, the Holders of Securities of each series shall
be subrogated to all rights of any holders of Senior Indebtedness to receive any
further payments or distributions applicable to the Senior Indebtedness until
the indebtedness evidenced by the Securities of such series shall have been paid
in full, and such payments or distributions received by such Holders, by reason
of such subrogation, of cash, securities or other property which otherwise would
be paid or distributed to the holders of Senior indebtedness, shall, as between
the Company and its creditors other than the holders of Senior Indebtedness, on
the one hand, and such Holders, on the other hand, be deemed to be a payment by
the Company on account of Senior Indebtedness, and not on account of the
Securities of such series.
The provisions of this Section 1301 shall not impair any rights, interests,
remedies or powers of any secured creditor of the Company in respect of any
security interest the creation of which is not prohibited by the provisions of
this Indenture.
The securing of any obligations of the Company, otherwise ranking on a
parity with the Securities or ranking junior to the Securities, shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
54
<PAGE>
SECTION 1302. Trustees and Holders of Securities May Rely on Certificate of
Liquidating Agent; Trustee May Require Further Evidence as to
Ownership of Senior Indebtedness; Trustee Not Fiduciary to
Holders of Senior Indebtedness.
Upon any payment or distribution of assets of the Company referred to in
this Article Thirteen, the Trustee and the Holders shall be entitled to rely
upon an order or decree made by any court of competent jurisdiction in which
such dissolution or winding up or liquidation or reorganization or arrangement
proceedings are pending or upon a certificate of the trustee in bankruptcy,
receiver, assignee for the benefit of creditors or other Person making such
payment or distribution delivered to the Trustee or to the Holders, for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Thirteen. In the absence of any such bankruptcy trustee, receiver, assignee or
other Person, the Trustee shall be entitled to rely upon a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a trustee
or representative on behalf of such holder) as evidence that such Person is a
holder of such Senior Indebtedness (or is such a trustee or representative). In
the event that the Trustee determines, in good faith, that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payments or distributions pursuant to this
Article Thirteen, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, as to the extent to which such Person is entitled to
participate in such payment of distribution, and as to other facts pertinent to
the rights of such Person under this Article Thirteen, and if such evidence is
not furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
Trustee, however, shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness.
SECTION 1303. Payment Permitted if No Default.
Nothing contained in this Article Thirteen or elsewhere in this Indenture,
or in any of the Securities, shall prevent (a) the Company at any time, except
during the pendency of any dissolution, winding up, liquidation or
reorganization proceedings referred to in, or under the conditions described in,
Section 1301, from making payments of the principal of (or premium, if any) or
interest on the Securities, or (b) the application by the Trustee or any Paying
Agent of any moneys deposited with it hereunder to payments of the principal of
(or premium, if any) or interest on the Securities, if, at the time of such
deposit, the Trustee or such Paying Agent, as the case may be, did not have the
written notice provided for in Section 1304 of any event prohibiting the making
of such deposit or if, at the time of such deposit (whether or not in trust) by
the Company with the Trustee or Paying Agent (other than the Company), such
payment would not have been prohibited by the provisions of this Article, and
neither the Trustee nor any Paying Agent shall not be affected by any notice to
the contrary received by it on or after such date.
55
<PAGE>
SECTION 1304. Trustee Not Charged With Knowledge of Prohibition.
(a) Anything in this Article Thirteen or elsewhere in this Indenture
contained to the contrary notwithstanding, the Trustee shall not at any time be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment of money to or by the Trustee and shall be entitled
conclusively to assume that no such facts exist and that no event specified in
Section 1301 has happened, until the Trustee shall have received an Officers'
Certificate to that effect or notice in writing to that effect signed by or on
behalf of the holder or holders, or their representatives, of Senior
Indebtedness or from any trustee under any indenture pursuant to which such
Senior Indebtedness shall be outstanding; provided, however, that, if prior to
the third Business Day preceding the date upon which by the terms hereof any
money becomes payable for any purpose (including, without limitation, the
payment of either the principal of or interest on any Security), or in the event
of the execution of an instrument pursuant to Section 401 acknowledging
satisfaction and discharge of this Indenture, then if prior to the third
Business Day preceding the date of such execution, the Trustee or Paying Agent
shall not have received with respect to such money the Officers' Certificate or
notice provided for in this Section 1304, then anything herein contained to the
contrary notwithstanding, the Trustee or such Paying Agent shall have full power
and authority to receive such money and apply it to the purpose for which it was
received and shall not be affected by the notice to the contrary which may be
received by it on or after such date. The Company shall give prompt written
notice to the Trustee and to the Paying Agent of any facts which would prohibit
the payment of money to or by the Trustee and Paying Agent.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Company by a Person representing himself
to be a Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); provided, however, that failure to give such
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 1305. Trustee to Effectuate Subordination.
Each Holder of Securities by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination as between such Holder and holders of Senior
Indebtedness as provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
56
<PAGE>
SECTION 1306. Rights of Trustee as Holder of Senior Indebtedness.
The Trustee shall be entitled to all the rights set forth in this Article
with respect to any Senior Indebtedness which may at the time be held by it, to
the same extent as any other holder of Senior Indebtedness; provided, however,
that nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder; and provided, further, that nothing in this Article shall apply to
claims of, or payment to, the Trustee under or pursuant to Section 607.
SECTION 1307. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if the Paying Agent were named
in this Article in addition to or in place of the Trustee; provided, however,
that Sections 1304 and 1306 shall not apply to the Company or any Affiliate of
the Company if the Company or such Affiliate acts as Paying Agent.
SECTION 1308. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants in this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with. The holders of Senior Indebtedness may, at any time
or from time to time and in their absolute discretion, change the manner, place
or terms of payment, change or extend the time of payment of, or renew or alter,
any such Senior Indebtedness, or amend or supplement any instrument pursuant to
which any such Senior Indebtedness is issued or by which it may be secured, or
release any security therefor, or exercise or refrain from exercising any other
of their rights under the Senior Indebtedness, including, without limitation,
the waiver of default thereunder, all without notice to or assent from the
Holders of the Securities or the Trustee and without affecting the obligations
of the Company, the Trustee or the Holders of the Securities under this Article.
SECTION 1309. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Indebtedness shall be read into this
Article against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness. The Trustee shall not be
liable to any holder of Senior Indebtedness if it shall mistakenly pay over or
deliver to Holders, the Company
57
<PAGE>
or any other Person moneys or assets to which any holder of Senior Indebtedness
shall be entitled by virtue of this Article or otherwise.
58
<PAGE>
TESTIMONIUM
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
THE THAXTON GROUP, INC.
By:__________________________________
Title:______________________
[Seal]
Attest:
______________________________
THE BANK OF NEW YORK
as Trustee
By:__________________________________
Title:______________________
[Seal]
Attest:
______________________________
59
<PAGE>
Exhibit A
[Front Side of Daily Note]
Subordinated Daily Note
Series D
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29721
Date of Issue ____________, 19_____ No._________________________
FOR VALUE RECEIVED, The Thaxton Group, Inc. (the "Issuer") hereby promises
to pay on demand the principal amount of ___________________________ Dollars
($_________), together with accrued interest as provided herein, to
Name _________________________
_________________________ Social Security or Stated Maturity
Employer I.D. No. ("Maturity")
Address _________________________ _______________ ______________
_________________________
(the "Holder"), or registered assigns, in the manner provided for on the reverse
side hereof.
This Subordinated Daily Note (the "Daily Note") shall bear interest on the
unpaid principal amount at the initial rate of _______________________________%.
This rate may fluctuate as described on the reverse side hereof. Interest shall
accrue daily and be compounded quarterly.
Issuance Under Indenture. This Daily Note is one of a series of a duly
authorized issue of securities of the Issuer (each a "Security") and, together,
the "Securities") issued and to be issued in one or more series under an
Indenture, dated as of __________, 1998 (herein called the "Indenture") between
the Issuer and The Bank of New York, New York, as Trustee (herein called the
"Trustee" which term includes any successor Trustee under the Indenture) to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations, duties and immunities
thereunder of the Issuer, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
Reference is made to the further provisions of this Daily Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
Unless the Certificate of Authentication hereon has been executed by the
Trustee referred to herein, either directly or through an Authenticating Agent,
by the manual or facsimile signature of an authorized signer, this Daily Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
This Security is not a deposit, savings account or an obligation of an
insured depository institution and is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other governmental agency.
<PAGE>
[Front Side of Daily Note]
ATTEST: THE THAXTON GROUP, INC.
By:____________________________ By:_________________________________
Kenneth H. James, Secretary James D. Thaxton
Chairman of the Board, President
[SEAL] and Chief Executive Officer
Authentication Certificate:
This Daily Note is one of the series of Securities referred to in the
within-mentioned Indenture.
The Bank of New York, as Trustee
_________________________________
Authorized Agent
2
<PAGE>
[Reverse Side of Subordinated Daily Note]
Payment and Interest Accrual. Payment of the principal of and interest on
this Security shall be made on a Business Day in lawful money of the United
States at any office of The Thaxton Group, Inc., or at such other place as the
Issuer may designate to the Holder in writing (a "Place of Payment"); provided,
however, that any such payment may be made, at the option of the Issuer, by
check mailed to the registered address of the Holder. Upon payment or tender of
payment of the principal amount and accrued interest thereon, ON DEMAND, this
Security shall be surrendered to the Issuer for cancellation at the Place of
Payment. Unless otherwise agreed in writing by the Issuer, interest hereon shall
cease to accrue, and the Issuer shall have no further liability with respect
thereto, upon payment (or tender of payment in the aforesaid manner) of the
principal amount hereof, and accrued interest thereon, ON DEMAND.
Interest Rate Adjustment. The interest rate will be determined by the
Issuer and may fluctuate on a monthly basis. Any adjustment to the interest rate
will be made on the first day of the month and shall remain in effect until next
adjusted by the Issuer. The interest rate will be no less than 3% below nor more
than 5% above the rate established for the most recent auction average of United
States Treasury Bills with maturities of 13 weeks. In no event will the rate of
interest payable be more than 12% per annum or less than 2% per annum. The
Issuer shall notify the Holder promptly by first class mail of any adjustment in
the interest rate.
Optional Redemption by Issuer. This Daily Note is subject to redemption
upon not less than 30 days' notice by first class mail, at any time, as a whole
or in part, at the election of the Issuer, without premium, together with
accrued interest to the Redemption Date. Each partial redemption payment shall
be made as provided in the Indenture on the Outstanding Securities of this
series of the Securities called for redemption.
Redemption by Holder. The Holder shall have the right at his option to
redeem this Daily Note, in whole or in part, on any Business Day. Holders shall
also have the right to make partial redemptions; provided, however, that upon a
partial redemption, a minimum outstanding principal amount of $50 must be
maintained. The Issuer retains the absolute right to require the Holder at any
time (including the time at which the Holder may otherwise request a full or
partial redemption of this Daily Note), to give the Issuer no less than 30 days'
prior written notice by first class mail of a redemption demanded by the Holder
and which notice shall specify the principal amount of the Daily Note to be
redeemed and the redemption date which shall be a Business Day.
Recordations of Additions or Partial Redemptions. Upon presentation of this
Daily Note at a Place of Payment, the Issuer, or the Issuer's agent, will, for
the Holder's convenience, record on the register that is a part hereof any
adjustments to the original principal amount of this Daily Note, such as
additional purchases or partial redemptions.
Assignment. As provided in the Indenture and subject to certain limitations
therein set forth, this Daily Note shall not be transferable to any person
except by endorsement and delivery by the Holder, or his duly authorized
representative at the Place of Payment referred to above, and upon surrender to
the Issuer with proper endorsement, a new instrument of like tenor shall be
issued in the name of the transferee. No service charge shall be made for any
such registration of transfer or exchange, but the Issuer may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Unless and until transferred in the manner aforesaid, the
Issuer, the Trustee and any agent of either of them may treat the Holder whose
name or names appear on the face of this instrument as the absolute owner hereof
for all purposes and neither the Issuer, the Trustee nor any Paying Agent shall
be affected by notice to the contrary. If this Security is payable to two or
more persons, they shall be deemed to be joint tenants with right of
survivorship and any and all payments herein shall be made to either, or the
survivor of them.
SUBORDINATION. THE INDEBTEDNESS EVIDENCED BY THIS DAILY NOTE IS, TO THE
EXTENT AND IN THE MANNER PROVIDED IN THE INDENTURE, SUBORDINATE AND SUBJECT IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS (AS
DEFINED IN THE INDENTURE) OF THE ISSUER, WHETHER OUTSTANDING AT THE DATE OF THE
INDENTURE OR THEREAFTER INCURRED. EACH HOLDER OF THIS DAILY NOTE, BY HIS
3
<PAGE>
[Reverse Side of Subordinated Daily Note]
ACCEPTANCE HEREOF, AGREES TO AND SHALL BE BOUND BY ALL THE PROVISIONS OF THE
INDENTURE RELATING TO SUCH SUBORDINATION.
Event of Default. If an Event of Default, as defined in the Indenture,
shall occur and be continuing, the principal of all the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.
Issuable in Registered Form Only. This Daily Note is one of a series of
Securities issuable only in registered form without coupons.
Defined Terms. All capitalized terms in this Daily Note which are defined
in the Indenture and not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
Initial Purchase/Register Balance
This Daily Note Register is provided for the convenience of the Holder.
Entries may be made only by an authorized agent of the Issuer to reflect
additional purchases or redemptions. The Issuer will not be liable for any
transaction unless an entry is made hereon by an authorized agent of the Issuer.
The Holder will receive statements on a quarterly basis which will include all
transactions for the period.
- --------------------------------------------------------------------------------
Transaction Date Received/Paid
By Redemptions Purchases
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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4
<PAGE>
Exhibit B
[Front Side of One Month Term Note]
One Month
Subordinated Term Note
Series M
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29721
Date of Issue ______________________, 19__ No. __________________
FOR VALUE RECEIVED, The Thaxton Group, Inc. (the "Issuer") hereby promises
to pay the principal amount of _________________________ Dollars ($
_______________) one calendar month after the date of issue to
Name ______________________
______________________
Social Security or Stated Maturity
Employer I.D. No. ("Maturity")
Address ______________________ _________________ _________________
______________________
(the "Holder"), or registered assigns, in the manner provided for on the reverse
side hereof. This Subordinated One Month Note (the "Term Note") shall bear
interest on the unpaid principal amount from the date of issue until paid at the
rate of _____________ percent (____%) per annum, such interest to be paid at
Maturity.
Issuance and Indenture. This Term Note is one of a series of a duly
authorized issue of securities of the Issuer (each a "Security") and, together,
the "Securities") issued and to be issued in one or more series under an
Indenture, dated as of __________, 1998 (herein called the "Indenture") between
the Issuer and The Bank of New York, New York, New York, as Trustee (herein
called the "Trustee" which term includes any successor Trustee under the
Indenture) to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations, duties and
immunities thereunder of the Issuer, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
Reference is made to the further provisions of this Term Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
Unless the Certificate of Authentication hereon has been executed by the
Trustee, either directly or through an Authenticating Agent, by the manual or
facsimile signature of an authorized signer, this Term Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
This Security is not a deposit, savings account or an obligation of an insured
depository institution and is not insured by The Federal Deposit Insurance
Corporation (FDIC) or any other governmental agency.
<PAGE>
[Front Side of One Month Term Note]
ATTEST: THE THAXTON GROUP, INC.
By: ________________________________ By: __________________________________
Kenneth H. James, Secretary James D. Thaxton
Chairman of the Board, President
[SEAL] and Chief Executive Officer
Authentication Certificate:
This Term Note is one of the series of Securities referred to in the
within-mentioned Indenture.
The Bank of New York, as Trustee
__________________________________
Authorized Agent
2
<PAGE>
[Reverse Side of Subordinated One Month Term Note]
Payment And Interest Accrual. Payment of the principal of and interest on
this Term Note shall be made in lawful money of the United States at any offices
of The Thaxton Group, Inc., or at such other place as the Issuer may designate
to the Holder in writing ("Place of Payment"); provided, however, that any such
payment may be made, at the option of the Issuer, by check mailed to the
registered address of the Holder. Upon payment or tender of payment hereof at
Maturity or earlier redemption (in whole), this Term Note shall be surrendered
to the Issuer for cancellation at the Place of Payment. Unless otherwise agreed
in writing by the Issuer, interest hereon shall cease to accrue, and the Issuer
shall have no further liability with respect thereto, upon payment (or tender of
payment in the aforesaid manner) of the outstanding principal amount hereof plus
all accrued but unpaid interest at Maturity or earlier redemption.
Possible Automatic Extensions. No later than 15 days prior to Maturity, the
Company will give the Holder of this Term Note notice by first-class mail of the
Maturity and provide the Holder with a copy of the Company's most recent
quarterly report on Form 10-Q filed with the United States Securities and
Exchange Commission (the "Commission"), or, if the Holder has not previously
been provided with such, a copy of the Company's most recent annual report on
Form 10-K filed with the Commission . This Term Note (with any interest payable
at Maturity being added to the principal amount here) will be automatically
extended for successive terms, equal in duration to the original term hereof, at
the rate(s) of interest in effect for Term Notes of this series then being
offered by the Issuer unless, prior to Maturity, the Issuer receives written
notification of the Holder's intent to redeem the Term Note or receive the
interest payment due at Maturity. All of the terms and conditions applicable to
the Term Note when issued will also apply during each period of extension. Upon
any extension hereof, unless this Term Note is surrendered and cancelled and a
new Term Note is issued in its stead, the principal amount of this Term Note
shall be deemed amended to include any accrued but unpaid interest that is added
to the principal amount and the date of Maturity shall be deemed amended to be
the date of Maturity of the period of extension.
Redemption Prior To Maturity By Holder. The Holder shall have the right at
its option to redeem this Term Note, in whole or in part, on any Business Day
prior to Maturity. Upon any such redemption, the Holder shall forfeit all
interest accrued since the date of issuance of this Term Note (or, in the case
of a renewal or extension of this Term Note, from the date of the most recent
renewal or extension); provided that the Issuer, in its sole discretion, may
waive all or any part of such forfeited interest. The Issuer retains the
absolute right, however, to require the Holder at any time (including the time
as which the Holder may otherwise request a partial or full redemption of this
Term Note) to give the Issuer up to 30 days' prior written notice by first class
mail of a redemption demanded by the Holder, which notice shall specify the
principal amount of the Term Note to be redeemed and the redemption date which
shall be a Business Day.
Optional Redemption By Issuer. This Term Note is subject to redemption upon
not less than 30 days' notice by first class mail, at any time, as a whole or in
part, at the election of the Issuer, without premium, together with accrued
interest to the date fixed for redemption in such notice (the "Redemption
Date"), but any interest installment, which is due and payable on or prior to
such Redemption Date, will be payable to the Holder at the close of business on
the relevant interest payment date. Each partial redemption payment shall be
made as provided in the Indenture on the Outstanding Securities of this series
of the Securities called for redemption.
In the event of redemption of this Term Note in part only, a new Term Note
or Term Notes for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
Recordations of Additions or Partial Redemptions. Upon presentation of this
Term Note at a Place of Payment, the Issuer, or the Issuer's agent, will, for
the Holder's convenience, record on the register that is a part hereof any
adjustments to the original principal amount of this Term Note, such as
additional purchases or partial redemptions.
3
<PAGE>
[Reverse Side of One Month Term Note]
Assignment. As provided in the Indenture and subject to certain limitations
therein set forth, this Term Note shall not be transferable to any person except
by endorsement and delivery by the Holder, or his duly authorized representative
at any Place of Payment referred to above and, upon surrender to the Issuer with
proper endorsement, a new instrument of like tenor shall be issued in the name
of the transferee. No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless and until transferred in the manner aforesaid, the Issuer, the Trustee
and any agent of either of them, may treat the Holder whose name or names appear
on the face of this instrument as the absolute owner hereof for all purposes and
neither the Issuer, the Trustee nor any Paying Agent shall be affected by notice
to the contrary. If this Term Note is payable to two or more persons, they shall
be deemed to be joint tenants with right of survivorship and any and all
payments herein shall be made to either, or the survivor of them.
SUBORDINATION. THE INDEBTEDNESS EVIDENCED BY THIS TERM NOTE IS, TO THE
EXTENT AND IN THE MANNER PROVIDED IN THE INDENTURE, SUBORDINATE AND SUBJECT IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS (AS
DEFINED IN THE INDENTURE) OF THE ISSUER, WHETHER OUTSTANDING AT THE DATE OF THE
INDENTURE OR THEREAFTER INCURRED. EACH HOLDER OF THIS TERM NOTE, BY HIS
ACCEPTANCE HEREOF, AGREES TO AND SHALL BE BOUND BY ALL THE PROVISIONS OF THE
INDENTURE RELATING TO SUCH SUBORDINATION.
Event of Default. If an Event of Default, as defined in the Indenture,
shall occur and be continuing, the principal of all the Securities may be
declared due and payable in the manner and with the effect provided in the
Indenture.
When Payment Date is Not a Business Day. In any case where any interest
payment date, Redemption Date or the Maturity (as set forth above) of this Term
Note shall not be a Business Day at any Place of Payment, then (notwithstanding
any other provision of this Term Note) payment of principal and interest need
not be made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the interest payment date or redemption date, or at the stated
Maturity (as set forth above), provided that no interest shall accrue for the
period from and after such interest payment date, redemption date or stated
Maturity, as the case may be.
Issuable in Registered Form Only. This Term Note is one of a series of
Securities issuable only in registered form without coupons.
Defined Terms. All capitalized terms in this Term Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings assigned
to them in the Indenture.
4
<PAGE>
[Reverse Side of One Month Term Note]
Initial Purchase/Register Balance
This Term Note Register is provided for the convenience of the Holder.
Entries may be made only by an authorized agent of the Issuer to reflect
additional purchases or redemptions. The Issuer will not be liable for any
transaction unless an entry is made hereon by an authorized agent of the Issuer.
The Holder will receive statements on a quarterly basis which will include all
transactions for the period.
- --------------------------------------------------------------------------------
Transaction Date Received/Paid
By Redemptions Purchases
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
<PAGE>
Exhibit C
[Front Side of Term Notes Other Than One Month Notes]
____ Month
Subordinated Term Note
Series [T-6, T-12, T-36 or T-60 with Series
Designation Based on Original Term at
Date of Issuance]
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29721
Date of Issue ______________________, 19__ No. __________________
FOR VALUE RECEIVED, The Thaxton Group, Inc. (the "Issuer") hereby promises
to pay the principal amount of _________________________ Dollars
($_______________) _______________ calendar months after the date of issue to
Name ______________________
______________________
Social Security or Stated Maturity
Employer I.D. No. ("Maturity")
Address ______________________ _________________ _________________
______________________
(the "Holder"), or registered assigns, in the manner provided for on the reverse
side hereof. This Subordinated Term Note (the "Term Note") shall bear interest
on the unpaid principal amount from the date of issue until paid at the rate of
_____________ percent (____%) per annum, such interest to be payable as provided
on the reverse side of this Term Note.
Issuance Under Indenture. This Term Note is one of a series of a duly
authorized issue of securities of the Issuer (each a "Security") and, together,
the "Securities") issued and to be issued under an Indenture, dated as of
__________, 1998 (herein called the "Indenture") between the Issuer and The Bank
of New York, New York, as Trustee (herein called the "Trustee" which term
includes any successor Trustee under the Indenture) to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations, duties and immunities thereunder of the Issuer,
the Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
Reference is made to the further provisions of this Term Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
Unless the Certificate of Authentication hereon has been executed by the
Trustee, either directly or through an Authenticating Agent, by the manual or
facsimile signature of an authorized signer, this Term Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
[Front Side of Term Notes Other Than One Month Notes]
Interest Payment Options
Interest at the above rate will be paid
______ Monthly
______ Quarterly
______ At Maturity (compounded quarterly)
This Security is not a deposit, savings account or an obligation of an insured
depository institution and is not insured by The Federal Deposit Insurance
Corporation (FDIC) or any other governmental agency.
ATTEST: THE THAXTON GROUP, INC.
By: ________________________________ By: ________________________________
Kenneth H. James, Secretary James D. Thaxton
Chairman of the Board, President
[SEAL] and Chief Executive Officer
Authentication Certificate:
This Term Note is one of the series of Securities referred to in the
within-mentioned Indenture.
The Bank of New York, as Trustee
___________________________________
Authorized Agent
2
<PAGE>
[Reverse Side of Term Notes Other Than One Month Notes]
Payment and Interest Accrual. Payment of the principal of and interest on
this Term Note shall be made in lawful money of the United States at any office
of The Thaxton Group, Inc., or at such other place as the Issuer may designate
to the Holder in writing ("Place of Payment"); provided, however, that any such
payment may be made, at the option of the Issuer, by check mailed to the
registered address of the Holder. Upon payment or tender of payment hereof at
Maturity or earlier redemption (in whole), this Term Note shall be surrendered
to the Issuer for cancellation at the Place of Payment. Unless otherwise agreed
in writing by the Issuer, interest hereon shall cease to accrue, and the Issuer
shall have no further liability with respect thereto, upon payment (or tender of
payment in the aforesaid manner) of the outstanding principal amount hereof plus
all accrued but unpaid interest at Maturity or earlier redemption.
Possible Automatic Extensions. No later than 15 days prior to Maturity, the
Company will give the Holder of this Term Note notice by first-class mail of the
Maturity and provide the Holder with a copy of the Company's most recent
quarterly report on Form 10-Q filed with the United States Securities and
Exchange Commission (the "Commission"), or, if the Holder has not previously
been provided with such, a copy of the Company's most recent annual report on
Form 10-K filed with the Commission . This Term Note (with any interest payable
at Maturity being added to the principal amount here) will be automatically
extended for successive terms, equal in duration to the original term hereof, at
the rate(s) of interest in effect for Term Notes of this series then being
offered by the Issuer unless, prior to Maturity, the Issuer receives written
notification of the Holder's intent to redeem the Term Note or receive the
interest payment due at Maturity. All of the terms and conditions applicable to
the Term Note when issued will also apply during each period of extension. Upon
any extension hereof, unless this Term Note is surrendered and cancelled and a
new Term Note is issued in its stead, the principal amount of this Term Note
shall be deemed amended to include any accrued but unpaid interest that is added
to the principal amount and the date of Maturity shall be deemed amended to be
the date of Maturity of the period of extension.
Optional Redemption By Issuer. This Term Note is subject to redemption upon
not less than 30 days' notice by first class mail, at any time, as a whole or in
part, at the election of the Issuer, without premium, together with accrued
interest to the date fixed for redemption in such notice (the "Redemption
Date"), but any interest installment, which is due and payable on or prior to
such Redemption Date, will be payable to the Holder at the close of business on
the relevant interest payment date. Each partial redemption payment shall be
made as provided in the Indenture on the Outstanding Securities of this series
of the Securities called for redemption.
Redemption Prior To Maturity By Holder. The Holder shall have the right at
its option to redeem this Term Note in whole or in part on any Business Day
prior to Maturity. Upon such redemption, the Holder shall forfeit an amount
equal to the difference between the amount of interest actually accrued on this
Term Note since the date of issuance (or, in the case of a renewal or extension
of this Term Note from the date of the most recent renewal or extension) and the
amount of interest that would have accrued on this Term Note had the rate of
interest been 3% less than the rate of interest actually accrued. When necessary
to comply with the requirements of this paragraph, any interest already paid to
or for the account of the Holder shall be deducted from the amount redeemed.
Holders shall also have the right to make partial redemptions prior to Maturity;
provided, however, that, in the case of a partial redemption, a minimum
outstanding principal amount of $1,000 is maintained. The above-mentioned
forfeitures shall be calculated only upon the amount so redeemed. This Term Note
may be redeemed before Maturity without forfeiture of any interest upon the
death of the Holder of this Term Note or when the Holder of this Term Note is
determined to be legally incompetent by a court or other administrative body of
competent jurisdiction. The Issuer retains the absolute right to require the
Holder at any time (including the time at which the Holder may otherwise request
a partial or full redemption of this Term Note) to give the Issuer no less than
30 days' prior written notice by first class mail of a redemption demanded by
the Holder, which notice shall specify the principal amount of the Term Note to
be redeemed and the redemption date which shall be a Business Day.
In the event of redemption of this Term Note in part only, a new Term Note
or Term Notes for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
3
<PAGE>
[Reverse Side of Term Notes Other Than One Month Notes]
Assignment. As provided in the Indenture and subject to certain limitations
set forth therein, this Term Note shall not be transferable to any person except
by endorsement and delivery by the Holder, or his duly authorized representative
at any Place of Payment referred to above and, upon surrender to the Issuer with
proper endorsement, a new instrument of like tenor shall be issued in the name
of the transferee. No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless and until transferred in the manner aforesaid, the Issuer, the Trustee
and any agent of either of them, may treat the Holder whose name or names appear
on the face of this instrument as the absolute owner hereof for all purposes and
neither the Issuer, the Trustee nor any Paying Agent shall be affected by notice
to the contrary. If this Term Note is payable to two or more persons, they shall
be deemed to be joint tenants with right of survivorship and any and all
payments herein shall be made to either, or the survivor of them.
SUBORDINATION. THE INDEBTEDNESS EVIDENCED BY THIS TERM NOTE IS, TO THE
EXTENT AND IN THE MANNER PROVIDED IN THE INDENTURE, SUBORDINATE AND SUBJECT IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS (AS
DEFINED IN THE INDENTURE) OF THE ISSUER, WHETHER OUTSTANDING AT THE DATE OF THE
INDENTURE OR THEREAFTER INCURRED. EACH HOLDER OF THIS TERM NOTE, BY HIS
ACCEPTANCE HEREOF, AGREES TO AND SHALL BE BOUND BY ALL THE PROVISIONS OF THE
INDENTURE RELATING TO SUCH SUBORDINATION.
Event of Default. If an Event of Default, as defined in the Indenture,
shall occur and be continuing, the principal of all the Securities may be
declared due and payable in the manner and with the effect provided in the
Indenture.
When Payment Date is Not a Business Day. In any case where any interest
payment date, Redemption Date or the stated Maturity (as set forth above) of
this Term Note shall not be a business day at any Place of Payment, then
(notwithstanding any other provision of this Term Note) payment of principal and
interest need not be made at such Place of Payment on such date, but may be made
on the next succeeding Business Day at such Place of Payment with the same force
and effect as if made on the interest payment date or Redemption Date, or at the
stated Maturity (as set forth above), provided that no interest shall accrue for
the period from and after such interest payment date, Redemption Date or stated
Maturity, as the case may be.
Issuable in Registered Form Only. This Term Note is one of a series of
Securities issuable only in registered form without coupons.
Defined Terms. All capitalized terms in this Term Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings assigned
to them in the Indenture.
[LETTERHEAD OF MOORE & VAN ALLEN]
Exhibit 5
---------
February 12, 1998
The Thaxton Group, Inc.
1524 Pageland Highway
Post Office Box 1069
Lancaster, South Carolina 29721
Attention: Kenneth H. James
RE: Registration Statement on Form SB-2/File No.333-42623
Gentlemen:
We refer to the above-referenced Registration Statement, as amended (the
"Registration Statement"), under the Securities Act of 1933, as amended, filed
by The Thaxton Group, Inc., a South Carolina corporation (the "Company"), with
the Securities and Exchange Commission, relating to up to $50,000,000 in
aggregate principal amount of the Company's Subordinated Term Notes Due 1, 6,
12, 36 and 60 Months and Subordinated Daily Notes (collectively, the "Notes").
The Notes will be issued under an Indenture by and between the Company and The
Bank of New York, as Trustee, the form of which is included as Exhibit 4.1 to
the Registration Statement (the "Indenture"). The Notes will be sold at a price
equal to 100% of their respective principal amounts primarily by officers,
directors and employees of the Company and certain of its subsidiaries without
the payment of commissions or other selling compensation. In addition, some
Notes may be sold by Maxwell Investments, Inc. as a selling agent without the
payment of commissions or other selling compensation.
We have examined the originals or photocopies or certified copies of such
records of the Company, certificates of officers of the Company and public
officials and other documents as we have deemed relevant and necessary as the
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents as
originals, the confirmity to originals of all documents submitted to us as
certified copies or photocopies and the authenticity of the originals of such
latter documents.
Based upon our examination mentioned above, and relying upon statements of fact
contained in the documents which we have examined, we are of the opinion that,
upon the adoption of Board Resolutions as contemplated by the Indenture and the
execution and delivery of the Indenture by
<PAGE>
The Thaxton Group, Inc.
February 12, 1998
Page 2
the Company and the Trustee, the Notes will be duly authorized and will be
validly issued and binding obligations of the Company, enforceable in accordance
with their terms (except as enforcement thereof may be limited by bankruptcy,
insolvency or other laws affecting the enforcements of creditors' rights
generally) when issued in accordance with the Indenture and paid for as
summarized above and in the Registration Statement.
We hereby consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the related Prospecuts.
Very truly yours,
/s/ Moore & Van Allen, PLLC
MOORE & VAN ALLEN, PLLC
Exhibit 26
----------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) ____
----------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
13-5160382
(I.R.S. employer identification no.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (zip code)
----------
Kenneth H. James
Chief Financial Officer
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29720
(803) 285-4336
(Name, address and telephone number of agent for services)
----------
THE THAXTON GROUP, INC.
(Name of small business issuer in its charter)
SOUTH CAROLINA 57-0669498
State or other jurisdiction of (IRS employer
incorporation or organization identification no.)
1524 Pageland Highway, Landcaster, South Carolina 29721
(803) 285-4336
(Address and telephone number of principal executive officer)
----------
Debt Securities
(Title of the indenture securities)
<PAGE>
1. General Information.
Furnish the following information as to the trustee--
Name and address of each examining or supervising authority to which
it is subject.
Superintendent of Banks of the State of New York
2 Rector Street
New York, N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York
33 Liberty Plaza
New York, N.Y. 10045
Federal Deposit Insurance Corporation
Washington, D.C. 20429
New York Clearing House Association
New York, N.Y.
Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 4.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
<PAGE>
(1) A copy of the Organization Certificate of the Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise corporate
trust powers. (Exhibit 1 to Amendment 1 to Form T-1 filed with Registration
Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with
Registration Statement No. 33-29637.)
(4) A copy of the existing By-laws of the Trustee. (Exhibits 4 to Form T-1
filed with Registration Statement No. 33-31019.)
(6) The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration No. 33-44051.)
(7) A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of
all facts on which to base a responsive answer to Item 2, the answer to said
Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an amendment to
this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Jacksonville and the
State of Florida, on the 6th day of February, 1998.
THE BANK OF NEW YORK
By: /s/ Tammy Stegall
---------------------------
Tammy Stegall, Agent
<PAGE>
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, in connection with the proposed issuance of The Thaxton Group, Inc.
Debt Securities, The Bank of New York hereby consents that reports of
examinations by Federal, State, Territorial or District Authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
THE BANK OF NEW YORK
By: /s/ Tammy Stegall
---------------------------
Tammy Stegall, Agent
<PAGE>
EXHIBIT 7 TO FORM T-1
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business September 30, 1997, published in accordance
with a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
Dollar Amounts
in Thousands
ASSETS
- ------
Cash and balances due from
depository institutions:
Noninterest-bearing balances
and currency and coin $5,004,638
Interest-bearing balances 1,271,514
Securities:
Held-to-maturity securities 1,105,782
Available-for-sale securities 3,164,271
Federal funds sold and securities
purchased under agreements to resell 5,723,829
Loans and lease financing receivables:
Loans and leases,
net of unearned income 34,916,196
LESS: Allowances for loan and
lease losses 581,177
LESS: Allocated transfer
risk reserve 429
Loans and leases, net of unearned
income and allowances and reserve 34,334,590
<PAGE>
Assets held in trading accounts 2,035,284
Premises and fixed assets (including
capitalized leases) 671,664
Other real estate owned 13,306
Investments in unconsolidated
subsidiaries and associated
companies 210,685
Customers' liability to this bank
on acceptances outstanding 1,463,446
Intangible assets 753,190
Other assets 1,784,796
-----------
Total assets $57,536,995
===========
LIABILITIES
- -----------
Deposits:
In domestic offices $27,270,824
Noninterest-bearing 12,160,977
Interest-bearing 15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBF's 14,687,806
Noninterest-bearing 657,479
Interest-bearing 14,030,327
Federal funds purchased and securities
sold under agreements to repurchase 1,946,099
Demand notes issued to the
U.S. Treasury 283,793
Trading liabilities 1,553,539
Other borrowed money:
With remaining maturity of one year
or less 2,245,014
With remaining maturity of more year
through three years 0
With remaining maturity of more than
three years 45,664
<PAGE>
Bank's liability on acceptances
executed and outstanding 1,473,588
Subordinated notes and debentures 1,018,940
Other liabilities 2,193,031
-----------
Total liabilities 52,718,298
===========
EQUITY CAPITAL
- --------------
Common stock 1,135,284
Surplus 731,319
Undivided profits and capital
reserves 2,943,008
Net unrealized holdings gains (losses)
on available-for-sale securities 25,428
Cumulative foreign currency
translation adjustments (16,342)
Total equity capital 4,818,697
-----------
Total liabilities and equity capital $57,536,995
===========
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith)
