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As filed with the Securities and Exchange Commission on March 28, 1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 2)
Genesis Financial Group, Inc.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Virginia 5777 54-1671737
- ------------------------- ------------------- ------------------
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Classification Code Identification No.)
organization) Number)
4206 Williamson Road, Roanoke, Virginia 24012 (540) 265-1368
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(Address and telephone number of principal executive offices)
4206 Williamson Road, Roanoke, Virginia 24012 (540) 265-1368
- --------------------------------------------------------------------------------
(Address of principal place of business or intended principal place of business)
Richard R. Sayers, P.O. Box 404, Roanoke, Virginia 24003-0404 (540) 343-9800
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
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CALCULATION OF REGISTRATION FEE
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Title of each Dollar Proposed maximum Proposed maximum Amount
class of securi- Amount to be offering price aggregate offer- of regis-
ties to be registered per unit ing price tration
---------- -------- ---------
registered fee
- ---------- ---
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Promissory Notes $6,000,000.00 $10,000.00 $6,000,000.00 $2,069.00
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Installment Sales $1,500,000.00 $ 5,000.00 $1,500,000.00 $ 518.00
Contracts and
Guarantees
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The registrant hereby amends this registration statement on such date or dates
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Disclosure alternative used (check one): Alternative 1___; Alternative 2 X
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THIS PRELIMINARY PROSPECTUS IS DATED March 28, 1997
SUBJECT TO COMPLETION
PROSPECTUS
GENESIS FINANCIAL GROUP, INC.
A Virginia Corporation (the "Company")
4206 Williamson Road
Roanoke, Virginia 24012
$7,500,000.00 Installment Sales Contracts and Corporate
Guarantees
Installment Sales Contracts ("Contracts") in the aggregate amount
of $7,500,000.00 with a
minimum investment of one Contract (average
contract valued at $5,000.00)
Guarantee ("Guarantee") by Company of payment obligations arising
under the Contracts
-----------------------------
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES 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.
_________________________________
Offerees will be initially restricted to a minimum
purchase requirement of one Contract with Guarantee having a value on
average of $5,000.00.
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PRICE TO PUBLIC AGENT'S PROCEEDS TO
COMMISSIONS/3/ ISSUER/4/
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Per Contract/ $ 5,000.00 $ 250.00 $ 4,750.00
Guarantee/1/
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$7,500,000.00 $7,500,000.00 $375,000.00 $7,125,000.00
Installment Sales
Contracts and
Guarantees/2/
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Total $7,500,000.00 $375,000.00 $7,125,000.00
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of the registration statement.
This Prospectus is dated March 28, 1997
(1) The Contracts to be sold hereunder vary in amount and length with the
average price of a Contract being $5,000.00 and the average term being 42
months. Accordingly, a minimum investment of approximately $5,000.00 will be
required to purchase one Contract. Contracts will be sold on a best efforts
basis; however there is no minimum amount of Contracts that
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must be sold to close this offering. The Company will guarantee payments to
Investors under a defaulted Contract until replaced. Contracts and
Guarantees will be sold as a single unit. (See "DESCRIPTION OF THE
SECURITIES.")
(2) Contemporaneously with this offering, the Company intends to offer for sale
up to $7,500,000.00 in corporate promissory notes ("Notes"). However, the
Company will not sell more than $7,500,000.00 of Contracts and Notes in the
aggregate pursuant to its SB-1 Offering. (See "Description Of The
Securities" and "Description Of The Business.")
(3) This estimate is based upon a 5% commission and the sale of all securities
offered hereby by the Company's agents. The Company does not intend to pay
more than a 5% commission fee to its selling agents. There are no formal
arrangements or agreements with any broker or dealer for the placement of
the Contracts and Guarantees. The Company reserves the right to enter into
such arrangements during the offering period. Principals of the Company
will not receive any commissions or other remuneration for selling the
Company's securities.
(4) Before deducting estimated offering expenses of $11,318.00.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form SB-
1 under the Securities Act with respect to the Contracts and Guarantees offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Contracts and Guarantees offered hereby, reference is hereby made to the
Registration Statement, including the exhibits and schedules thereto. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document filed with the Commission are not necessarily complete. With
respect to each such contract, agreement or other document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
As a result of the offering of the Contracts and Guarantees described herein,
the Company will become subject to the periodic reporting and other
informational requirements of the Exchange Act. As long as the Company is
subject to such periodic reporting and information requirements, it will file
with the Commission all Commission reports, proxy statements and other
information required thereby. The Registration Statement and the exhibits and
schedules thereto, as well as such reports and other information filed by the
Company with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional office located at 7 World Trade
Center, Suite 1800, New York, New York 10048. Copies of such material may be
obtained by mail from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, or from the regional office at prescribed
rates. The Commission's Web site address is "http://www.sec.gov".
The Company intends to distribute to its investors an annual report shortly
after the end of each fiscal year.
Until ___________________, all dealers, if any, effecting transactions in the
Contracts and Guarantees, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
The Company currently has a minimal operating history. It intends to engage
primarily in purchasing and servicing installment sales contracts originated by
Mr. Car Man, Inc. ("MCMI"), a Virginia corporation and an Affiliate of the
Company, in the sale of used automobiles, vans, light
2
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trucks and other vehicles. These installment sales contracts comprise the
Contracts offered hereunder. (See "PROSPECTUS SUMMARY"; "DESCRIPTION OF THE
BUSINESS"; and "DESCRIPTION OF THE SECURITIES.")
Please refer to the "Glossary" section of this Prospectus for the meaning of
capitalized terms used throughout the text.
This Offering Involves Certain Material Risk Factors
----------------------------------------------------
In addition to the general risks in investing in a relatively new enterprise,
potential investors should consider other major risks, including:
(i) competition in the used car business;
(ii) the inability of investors to liquidate their investments;
(iii) the inability of customers to fulfill their contractual obligations
under the Contracts;
(iv) recession or other economic downturn in the economy adversely impacting
MCMI's potential customer base;
(v) increase in charge-offs and delinquencies with respect to the Contracts
which could materially and adversely affect the Company's
profitability;
(vi) the loss of the Company's two principal executives; and
(vii) the failure or liquidation of MCMI.
There is no trading market for the Contracts and there are no assurances,
should transfer of such Contracts be authorized, that a market will develop, or
if any such market does develop, that it will continue. (See "RISK FACTORS.")
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.............................................................. 2
PROSPECTUS SUMMARY................................................................. 7
The Company and Affiliates..................................................... 7
Securities Offered............................................................. 8
Risk Factors................................................................... 9
RISK FACTORS....................................................................... 9
I. Risks of Credit Business..................................................... 9
General Risks............................................................. 9
Financing Risks........................................................... 10
Operational Risks......................................................... 11
II. Operating Risks.............................................................. 11
Short Operating History................................................. 11
Limited Capital and Need for Additional Financing....................... 11
Key Personnel........................................................... 12
Default Risks........................................................... 12
Failure of MCMI......................................................... 12
Replacement Contracts................................................... 12
Repossession and Casualty Risks......................................... 12
Lack of Financial Statements............................................ 13
Dependence on Certain Principals........................................ 13
Determination of Offering Price and Under Collateralization............. 13
Tax Risks............................................................... 13
Lack of Liquidity....................................................... 13
Debt Service Obligations................................................ 13
Company's Competition And Affiliation................................... 14
MCMI's Competition...................................................... 14
Management's Conflict of Interest and Lack of Agreement to Sell
Contracts.............................................................. 14
Termination of Common Ownership......................................... 15
Minimum Sale Requirements............................................... 15
MCMI's Obligation to Replace Contracts.................................. 15
III. Investment Risks............................................................. 16
No Public Market............................................................ 16
Limitations on Liability of Officers and Directors.......................... 16
No Independent Counsel to Investors......................................... 16
Subscription of Securities and Shelf Registration........................... 16
Assignment of Contracts..................................................... 16
Change in Economic Conditions............................................... 17
Limitation on Guarantee..................................................... 17
Collateral.................................................................. 17
USE OF PROCEEDS................................................................. 18
SUMMARY OF FINANCIALS........................................................... 20
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INVESTMENT HIGHLIGHTS.......................................................................... 21
DETERMINATION OF OFFERING PRICE................................................................ 22
CAPITALIZATION................................................................................. 22
DISCLOSURE OF COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES................................................. 23
DESCRIPTION OF THE SECURITIES.................................................................. 24
Installment Sales Contracts - Overview..................................................... 24
Investment Options......................................................................... 24
Solicitations and Commissions.............................................................. 25
Description and Assignment of Contracts.................................................... 25
Calculation of Purchase Price and Investment Return........................................ 25
Guarantee and Replacement Contracts........................................................ 26
Limitation on Guarantee and Investor's Rights.............................................. 26
Collateral 27
Company's Obligations Under Contract....................................................... 27
MCMI's Liability........................................................................... 27
DESCRIPTION OF THE BUSINESS.................................................................... 27
Genesis Financial Group, Inc............................................................... 27
Mr. Car Man, Inc........................................................................... 30
COMPETITION.................................................................................... 30
EMPLOYEES...................................................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 32
I. Genesis Financial Group, Inc.,........................................................... 32
Operating History..................................................................... 32
Liquidity and Capital Resources....................................................... 32
Purchase of Contracts from MCMI....................................................... 32
Source of Revenues.................................................................... 32
Factors Affecting Operations.......................................................... 33
Projections........................................................................... 33
II. Mr. Car Man, Inc......................................................................... 33
Operating History - Overview.......................................................... 33
Analysis of Financials for the Year Ended December 31, 1996........................... 34
Liquidity and Capital Resources..................................................... 34
Results of Operations............................................................... 34
Analysis of Financials for the Three and One-Half Years Ended December 31, 1996...... 35
Liquidity and Capital Resources..................................................... 35
Results of Operations............................................................... 35
Prospective Information............................................................... 35
Results of Operations................................................................. 36
Benefits of Affiliation............................................................... 37
Refining the Showroom................................................................. 37
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Warranty.................................................................. 37
PROPERTIES......................................................................... 38
LEGAL PROCEEDINGS.................................................................. 38
MANAGEMENT......................................................................... 38
Directors 38
Officers 39
Biographies of Directors and Officers.......................................... 39
Executive Compensation......................................................... 39
PRINCIPAL STOCKHOLDERS............................................................. 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................... 40
LEGAL MATTERS...................................................................... 41
EXPERTS............................................................................ 41
GLOSSARY........................................................................... 41
INDEX TO FINANCIAL STATEMENTS...................................................... 43
APPENDIX A: Retail Installment Sales Contract..................................... A-1
APPENDIX B: Guarantee And Replacement Agreement................................... B-1
APPENDIX C: Assignment Of Sales Contract.......................................... C-1
APPENDIX D: Partial Assignment Of Sales Contract.................................. D-1
APPENDIX E: Subscription Letter................................................... E-1
APPENDIX F: Indenture............................................................. F-1
APPENDIX G: Articles Of Incorporation And Bylaws Of Genesis
Financial Group, Inc.................................................. G-1
APPENDIX H: Articles Of Incorporation And Bylaws Of Mr. Car Man, Inc.............. H-1
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6
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PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the information and financial statements included
elsewhere in this Prospectus.
The Company and Affiliates
--------------------------
The headquarters of the Company is located at 4206 Williamson Road, Roanoke,
Virginia 24012. The telephone number is (540) 265-1368. The Company has a
minimal operating history to date.
The Company will engage primarily in purchasing and servicing installment
sales contracts ("Contracts") originated by Mr. Car Man, Inc. ("MCMI"), a
Virginia corporation and an Affiliate of the Company, from the sale of used
automobiles, vans, light trucks and other vehicles (collectively referred to as
"Automobiles"). The principals and 100% shareholders of the Company are Jeffrey
W. Akers and Franklin W. Blankemeyer, Jr., both of Roanoke, Virginia. Messrs.
Akers and Blankemeyer also are the 100% shareholders and principals in MCMI.
Although the Company and MCMI were formed simultaneously on June 15, 1993, the
principals concentrated exclusively on developing and expanding MCMI's used
Automobile business during the past three years. Having established MCMI's
market niche in the Roanoke Valley, the principals are ready to implement the
second phase of their business plan to establish a funding source for MCMI's
business operations. The Company was formed for this purpose and will provide
centralized funding, receivables management, and collection services for the two
business locations which MCMI currently owns and operates and for its future
operations in the used Automobile industry. MCMI's customer base primarily
consists of individuals having limited access to traditional sources of consumer
credit (the "Non-Prime Consumer"). The Company assists MCMI with the sale of
used vehicles by providing an indirect source of funding for such buyers.
Contracts which meet the Company's underwriting standards are purchased from
MCMI after the Company has reviewed and approved the Automobile purchaser's
credit application. In order to achieve an acceptable rate of return on its
funding and adjust for credit risks, Contracts are purchased from MCMI at a
discount to the remaining principal balance. (See "DESCRIPTION OF THE
BUSINESS".)
MCMI will offer its Contracts for sale exclusively to the Company. Depending
upon its capital resources, the Company intends to purchase some or all of the
Contracts offered by MCMI from time to time. MCMI has been engaged in
purchasing, servicing, selling, and financing used Automobiles since August 2,
1993. MCMI and the Company have targeted the Non-Prime Consumer as its primary
customer base. In the past, this segment of the used car market has been very
poorly serviced since the consumer had few dealerships from which to choose.
MCMI's goal is to establish a new marketing niche in the used car industry in
the Roanoke Valley, located in Southwest Virginia, and beyond through a very
heavy emphasis on customer service, proper marketing, and sound business
management. MCMI currently has two locations serving the Roanoke Valley area and
future expansion is planned targeting additional market areas outside the
Roanoke Valley.
Contemporaneously with the offering of its Contracts and Guarantees, the
Company will also offer for sale to investors its corporate promissory notes
("Notes"). Since the Guarantees are not being sold as a separate security and
are an integral part of each Contract, the references to the term "Contract"
hereunder shall be deemed to include the Guarantee where appropriate. Although
the Company does not currently intend to sell more than $1,500,000.00 in
Contracts to Investors, the Company reserves the right to sell up to
$7,500,000.00 in Contracts, as well
7
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as up to $7,500,000.00 in Notes. In no event, however, will more than
$7,500,000.00 in the aggregate of Contracts and Notes be sold to Investors. The
Offering will be conducted over a two (2) year period, and the proceeds will be
used to fund the purchase of additional Contracts generated by MCMI and the
Company's other business operations. The primary source of funds to cover the
return on an Investor's investment hereunder will come in the form of the
contractual payments made by the underlying customers liable on the Contracts
purchased by the Investor. Although the Company intends to replace a defaulted
Contract with a new Contract having similar payment terms, the Company will
cover any deficiency that might arise resulting from such default. Accordingly,
the Company will guarantee that payments to Investors will continue
uninterrupted. In such an event, the Company would have to use its cash
reserves or other funds to satisfy such obligations. Because of the nature of
MCMI's business, the entire Offering will continue over an extended period of
time to allow MCMI the time it will need to generate a sufficient number of
Contracts to sell to the Company in order to consummate this offering. In
addition, in order to adapt to changing market conditions and maximize its
opportunities to capitalize on investors' investment objectives and goals, the
Company reserves the right to adjust from time to time the amount of Contracts
and Notes it will offer for sale subject to the $7,500,000.00 offering limit.
Accordingly, the Company may file amendments to this Prospectus in conjunction
with its other periodic reporting requirements.
The Company's strategy is to grow its portfolio of contract receivables by
assisting MCMI in growing its business. The Company and MCMI believe that the
nature of their business present significant opportunities for growth for the
following reasons: (1) the automobile finance market, with approximately $325
billion in outstanding automobile installment credit as of March 31, 1995, is
the second largest consumer credit market in the United States; (2) the Non-
Prime Consumer portion of the automobile finance market is estimated to be
between $30.0 and $50.0 billion; (3) the used automobile market has grown over
the past five years at four times the rate of the new automobile market; and (4)
there is not a dominant used car dealer which focuses on the Non-Prime Consumer
in the Roanoke Valley or in the other major cities and towns surrounding
Roanoke.
MCMI has successfully concluded a private placement of its Contracts under
Rule 504 of Regulation D promulgated under the Securities Act of 1933. Through
the private placement of such Contracts, MCMI has raised capital in excess of
$950,000.00. Because of the success of MCMI's business and the private offering,
the principals of the Company and MCMI look to expand their business and
customer base through additional capital infusion. (See "DESCRIPTION OF THE
BUSINESS"; "USE OF PROCEEDS"; "DESCRIPTION OF THE SECURITIES"; and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.")
Securities Offered
------------------
The securities described by this Prospectus are comprised of installment sales
contracts ("Contracts") generated by MCMI in the course of its normal business
operations and purchased by the Company from time to time, together with the
Company's guarantee ("Guarantee") of the contractual obligations under each
Contract sold. Since the Company's Guarantee pertains to each Contract sold
hereunder, future reference to the term Contract shall be deemed to incorporate
the underlying Guarantee which securities are sold as a unit. The Company, in
its sole discretion, may purchase some or all of such Contracts as they arise
and will purchase the Contracts at a discount to the remaining principal
balance. Although the underlying value of the Contracts will vary as a function
of the purchase transaction, the average price of a Contract is $5,000.00 and
the average term of a Contract is 42 months. Investors must purchase a minimum
8
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of one Contract. If the offering is oversubscribed, the Company, at its
discretion, may reduce an Investor's subscription to accommodate other
subscriptions. The bulk of the net proceeds of the offering will be used to
purchase additional Contracts from MCMI on an ongoing basis. MCMI will use the
funds to replenish its inventory of Automobiles and for working capital. (See
"USE OF PROCEEDS; "DESCRIPTION OF THE SECURITIES" and the form Contract in
Appendix "A.")
Risk Factors
------------
An investment in the Contracts offered hereby will involve certain substantial
risks. These risks include a lack of financial flexibility and liquidity,
absence of a significant operating history for the Company, potential federal
and state regulations of financing institutions, competition, the nature of
MCMI's business, the higher risk customer base targeted, and the lack of an
--------
existing market for the Contracts. (See "RISK FACTORS.")
[.]
RISK FACTORS
An investment in the Company involves significant risks and is suitable only
for persons of substantial means who have no need for liquidity in their
investments. The following is not intended as a comprehensive discussion of all
risks that might be encountered by an Investor in the Company. Investors are
urged to consult with independent advisors and tax counsel for the possible
personal and tax consequences of an investment in the Company.
In addition to the other factors and information set forth in this Prospectus,
Investors should carefully consider and evaluate the following specific risk
factors:
I. Risks of Credit Business
------------------------
A. General Risks. The operation of a credit business primarily engaged in
-------------
purchasing and servicing installment sales contracts for used Automobiles
originated by an affiliated company involves certain risks, including those
described in this Prospectus. By way of example and not limitation, an
investment in the Company is subject to the risk of adverse changes in general
or local economic conditions, such as: (i) inability to compete with other
consumer funding sources in a competitive market; (ii) inability to raise and/or
maintain sufficient capital reserves to finance the purchase of new Contracts
originated by MCMI; (iii) inability of MCMI's customers to service their debt;
(iv) inability of MCMI's customers to maintain gainful employment; and (v)
inability of MCMI to maintain high patronage levels.
In addition, certain expenditures associated with investments in the Company
(principally debt payments, lease obligations and maintenance costs) are not
normally decreased by events adversely effecting the Company's income. In the
event debt payments are not met, the Company may lose its leasehold interest in
some or all of its current business locations and may sustain as a result of a
foreclosure a loss of an asset collateralizing a secured debt. To the extent the
Company purchases real property in the future and defaults on any debt secured
by such real property, it could suffer a loss of its equity investment in such
real estate as a result of a foreclosure.
The success of the Company also depends upon the management skills of the
principal executive officers. The principal executive officers have prior
experience in collateral financing
9
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and have operated MCMI since its inception. (See "MANAGEMENT" for a more
thorough description of the background of the principal executive officers.)
B. Financing Risks. The Company will incur substantial indebtedness through
---------------
the issuance of the Notes to be offered contemporaneously with the Contracts.
Such indebtedness is required to be paid within 3.5 years of the issue dates.
The Company has the right to prepay the Notes at any time without penalty.
Although the Company anticipates that the indebtedness will be spread out over a
period of years, there can be no guarantee that the Company will be able to
service all of its indebtedness as it arises under the Notes which could result
in the loss of some or all of the Company's assets which in turn may force the
Company into bankruptcy and/or liquidation. Without incurring such debt, the
Company may be unable to adequately finance the purchase of the Contracts from
MCMI. Without such financing, MCMI may be unable to obtain, through operating
cash flow and/or from other sources, the funds it needs to meet operating
expenses and replenish its inventory of Automobiles. (See "USE OF PROCEEDS.")
In addition, although the Company does not anticipate incurring any debt
obligations pertaining to its Guarantee of the Contracts since the Company will
pass through to Investors a sufficient portion of each payment made by the
underlying customer on each Contract to satisfy such obligations, there can be
no assurance that the Company will have sufficient Contracts available to
replace a defaulted Contract to relieve the Company of its obligations to
service the indebtedness arising and payable to Investors under a defaulted
Contract. Any such additional debt obligations would further burden the
Company's cash flow and reserves and could adversely impact its financial
viability. (See "DESCRIPTION OF THE SECURITIES" and "DESCRIPTION OF THE
BUSINESS.")
Pursuant to the terms of the offering set forth herein and the Guarantee And
Replacement Agreement, the Company will be obligated to replace any defaulted
Contract with a new viable one having similar terms and conditions as the
defaulted Contract. See the form Guarantee And Replacement Agreement in
Appendix "B". Upon the purchase of the Contracts from MCMI, the Company will
automatically assume all of the obligations of MCMI for servicing the Contracts,
collecting the customer's debt payments and undertaking repossession proceedings
in the event of a customer's default. The Company will execute an Assignment Of
Sales Contract, or a Partial Assignment Of Sales Contract, in favor of the
Investor upon the purchase of a Contract, or an interest therein, as the case
may be, to evidence the purchase and assignment transaction. A copy of the
Assignment and Partial Assignment forms are appended hereto in Appendices "C"
and "D", respectively. (See "DESCRIPTION OF THE SECURITIES.") Except for such
assignment, there are no further agreements, contracts or arrangements between
or among MCMI, Company and/or the Investors pertaining to these obligations.
The Company will also provide each Investor with its written Guarantee in the
form appended hereto in Appendix "B" upon the purchase of a Contract. The
Guarantee will also evidence the Company's obligation to replace a defaulted
Contract with a new Contract as soon as practicable.
The Company will purchase at a discount from MCMI from time to time some or
all of the Contracts generated through MCMI's business operations to help fund
MCMI's capital needs for operating expenses and new inventory. The Company
intends to use the bulk of the offering proceeds from the sale of the Contracts
for such purposes. (See "USE OF PROCEEDS" and "DESCRIPTION OF THE BUSINESS.")
The Company will package from time to time some or all of the Contracts it
purchases from MCMI for resale to Investors to provide additional funds for the
purchase of new Contracts. The Company will be responsible for collecting
payments and servicing the Contracts it sells to the Investors. Although the
Company anticipates
10
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that customer payments under the Contracts will be sufficient to service its
obligations to its Investors arising under the Notes and Contracts, there can be
no assurance that a customer will not default under his or her Contract. (See
"DESCRIPTION OF THE BUSINESS.") In the event of a customer default on a
Contract within an Investor's portfolio, the Company will replace the defaulted
Contract with a new Contract having similar terms and provisions as soon as
practicable. Absent such a replacement Contract or until such a Contract is
generated, the Company will be obligated to make all payments due under the
defaulted Contract to the Investor. (See the Guarantee in Appendix "B".) There
can be no guarantee that a replacement Contract will become available, or if one
becomes available that another default will not occur, and/or the Company will
have sufficient capital to satisfy all of its payment obligations under the
Notes and/or Contracts.
C. Operational Risks. If the expenses of operating the Company's business
-----------------
exceed the Company's income, the Company may have to obtain additional sources
of financing or dispose of some of its assets under disadvantageous terms. In
addition, in the event the operation of the Company's business does not generate
sufficient operating income to pay all of its operating expenses, taxes and debt
service requirements, MCMI may not be able to sustain its business operations
for lack of financing for new inventory. There can be no assurance that the
Company will not incur operating deficits. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.")
Should the Company's revenues be insufficient to service its debt and pay
taxes and other operating expenses, the Company will be required to utilize
working capital and/or seek additional funds or financing. There can be no
assurance that additional funds will be available to the Company if needed, or,
if available, will be on terms acceptable or advantageous to the Company.
II. Operating Risks
A. Short Operating History. Even though the Company was organized on June
-----------------------
15, 1993, the Company has a minimal operating history. However, MCMI has been
operating since August 2, 1993, and has successfully conducted a private
placement of its Contracts under Rule 504 of Regulation D, promulgated by the
Securities Act, through which it raised in excess of $950,000.00. The Company
anticipates that MCMI's business will continue to grow and that MCMI will
continue to generate Contracts that will be purchased by the Company and
subsequently packaged for resale to Investors. Although the Company believes its
commercial paper financing and MCMI's used car business will be profitable,
there can be no assurance that the Company will generate sufficient revenues to
service all of its debt and other obligations to make the Company profitable.
B. Limited Capital and Need for Additional Financing. Although the Company
-------------------------------------------------
believes it will have sufficient capital from the Offering to commence and
continue its business operations on a profitable basis, there can be no
assurance that the Company's activities will be successful or will generate
adequate cash flow to meet its capital and operational needs as they arise.
Therefore, additional capital may have to be raised internally and/or externally
from time to time to finance the Company's continuing and expanding business and
its capital requirements. Such additional financing may not be available at all
or at the time needed or may be available only on adverse terms. If the Company
is unable to raise sufficient capital by whatever means, the Company's ability
to maintain and/or expand its business operations and MCMI's ability to obtain
funding for new inventory may be severely hindered.
11
<PAGE>
C. Key Personnel. The Company and MCMI are dependent upon the continued
-------------
services of Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers. The loss of the
services of Mr. Blankemeyer or Mr. Akers could have a significant adverse effect
on the Company and/or MCMI.
D. Default Risks. As customary with any consumer credit business, there is
-------------
substantial risk involved with customers defaulting on their obligations under
the Contracts. Since the Company will primarily operate to fund the operations
of MCMI and since MCMI will target "higher risk" consumers for the purchase of
its inventory, the risks of default are enhanced. There can be no guarantee that
the Company or MCMI will be able to absorb such losses through repossessions and
continued operations. Currently, MCMI experiences a 25% repossession rate based
upon the total number of Contracts generated which is within the non-prime
industry's national average. The Company anticipates that its credit review
policies and the cash flow generated from the resale of repossessed cars will
significantly curtail potential losses from customer defaults. (See "INVESTMENT
HIGHLIGHTS.")
E. Failure of MCMI. Currently, the Company is solely dependent upon MCMI
---------------
to generate the Contracts that it intends to purchase, package and resell to
Investors. Conversely, MCMI will be primarily dependent upon the Company to
provide the needed funding for its operating expenses and new inventory. There
can be no assurance MCMI will continue to be successful in the used car
business. In the event MCMI experiences a protracted downturn in its used car
business or goes out of business, the Company's primary source of Contracts
would be materially and adversely impacted. Presently, the Company has no plans
for financing other used car dealerships or any other related business. There
can be no guarantee that the Company will be able to sustain any such loss of
MCMI's level of business and/or its affiliation and/or develop new business
relationships to satisfy its operating expenses and other obligations, including
its obligations to Investors under the Notes and Contracts, or to continue its
operations on a profitable basis.
F. Replacement Contracts. In the event a customer defaults on a Contract
---------------------
which has been sold to an Investor, the Company intends to replace as soon as
possible the defaulted Contract with a new, enforceable Contract having similar
terms. The Company will assume all risks of repossession and collection. There
can be no guarantee that the Company will be able to maintain or obtain a
sufficient number of viable Contracts to replace non-performing Contracts in an
Investor's portfolio which would require the Company to satisfy all debt
obligations under the defaulted Contract. There can also be no guarantee that
the Company will have sufficient reserves or cash flow available to satisfy
these obligations. In such case, the Company's profitability and/or financial
resources may be severely impacted. (See "DESCRIPTION OF THE SECURITIES" and the
Guarantee in Appendix "B".)
G. Repossession and Casualty Risks. Repossession of an Automobile sold on
-------------------------------
an installment basis is an inherent risk of the used car business. However, the
Company and MCMI have established credit guidelines which are stringently
enforced to help alleviate this risk. In addition, the Company intends to assume
all risks associated with a repossession by replacing the Investor's non-
performing Contract with a new enforceable Contract having substantially similar
terms. The Company will vigorously enforce its repossession rights and resell
the repossessed Automobile in accordance with applicable law. On average,
twenty-five percent (25%) of all Contracts purchased by Company each year will
end in default resulting in repossession of the underlying Automobile. An
additional five percent (5%) of Automobiles sold each year are damaged beyond
repair. Based upon these assumptions, the Company anticipates that the 25%
repossession rate and 5% damage rate will total approximately ten percent (10%)
of the
12
<PAGE>
Company's accounts receivable on an annual basis. (See "INVESTMENT HIGHLIGHTS.")
However, in most cases involving a casualty, the Company's investment is
protected by casualty insurance. (See "DESCRIPTION OF THE BUSINESS.")
H. Lack of Financial Statements. Although the Company has had a minimal
----------------------------
operating history since incorporating in 1993, a comparative balance sheet has
been prepared as of December 31, 1993, 1994, 1995 (audited) and 1996 (audited).
In addition, a comparative balance sheet and income statement for the same
periods has been prepared for MCMI. Audited financial statements for the year
ended December 31, 1995, and an unaudited balance sheet and income statement for
the year ended December 31, 1996 for MCMI have also been prepared and are
included in this Prospectus. (See the "FINANCIAL STATEMENTS.")
I. Dependence on Certain Principals. Franklin W. Blankemeyer, Jr. and
--------------------------------
Jeffrey W. Akers intend to devote their full time to promote, market and develop
the business of the Company and MCMI. There can be no guarantee that all
principals will remain with the Company and/or MCMI, and the departure of one or
more could adversely affect the future success of the Company and/or MCMI.
J. Determination of Offering Price and Under Collateralization. The
-----------------------------------------------------------
offering price of the Contracts will be determined by the Company in accordance
with the procedures set forth in the sections captioned "DESCRIPTION OF THE
SECURITIES -Calculation of Purchase Price and Investment Return" and
"DETERMINATION OF OFFERING PRICE.") Because of the commonality of the ownership
interest in MCMI and the Company, the offering price is not determined in an
arms-length transaction. Since MCMI's inventory is predominately late model used
Automobiles, most, if not all, Contracts sold to Investors will be under
collateralized based upon the wholesale value of the underlying Automobile.
However, the offering price is calculated to give the Investor the 20% or 25%
annual return option selected by the Investor as provided in the foregoing
sections.
K. Tax Risks. All prospective Investors should retain their own tax
---------
counsel or advisor to discuss the possible tax effects ensuing from an
investment in the Company.
L. Lack of Liquidity. The Company will service the debt obligations
-----------------
evidenced by the Contracts through normal business operations in conjunction
with MCMI. The Company anticipates that the payments made by customers under the
Contracts will be sufficient to satisfy the Investors' investment return.
Proceeds from this offering will be used primarily to fund the Company's working
capital needs, including the purchase of additional Contracts, and to provide a
source of funding for MCMI's business operations. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.") In the event the Company's operating revenues
are insufficient to meet its obligations, additional cash requirements must be
funded through additional borrowings or credit extensions which may be
unavailable. Since the Company will not have substantial assets that can be
pledged as collateral for financing purposes, obtaining additional secured
financing may not be possible. This lack of financial flexibility and liquidity
could adversely impact an investment in the Company.
M. Debt Service Obligations. Pursuant to the Offering of its Contracts and
------------------------
Notes, the Company will be obligated on a significant level of indebtedness. In
addition to the Notes to be offered contemporaneously with the Contracts, the
Company will be obligated to service the Contracts sold to Investors in the
event a customer defaults and there are no replacement Contracts available. In
servicing this indebtedness, the Company may be vulnerable to various risks,
including, without limitation, the impairment of the Company's ability to obtain
additional
13
<PAGE>
financing for working capital, capital improvements or other purposes and a
possible downturn in the economy. (See "PROSPECTUS SUMMARY"; "DESCRIPTION OF THE
SECURITIES"; and "DESCRIPTION OF THE BUSINESS.")
N. Company's Competition and Affiliation. Currently, the Company intends to
-------------------------------------
purchase Contracts generated solely by its Affiliate, MCMI. Since the Company
and MCMI share the same principals and management, MCMI will not offer its
Contracts to any other funding source or company. Accordingly, the Company does
not anticipate any competition as long as MCMI remains viable and an Affiliate
of the Company. There can be no guarantee that MCMI will continue its successful
operations and/or remain in business. In such event, the Company would have to
contract with one or more alternative sources for such Contracts to continue its
business operations. In addition, there can be no guarantee that the principals
and management of the Company and MCMI will remain the same and that the
business relationship of the companies would continue unchanged as a result. In
such case, the Company may have to pursue alternative source for its Contracts.
There can be no assurance that such alternative sources can be found, or that
the Company will be successful in obtaining a sufficient source of new Contracts
to continue operating. (See "DESCRIPTION OF THE BUSINESS.")
O. MCMI's Competition. In general, the used car business is highly
------------------
competitive. There are numerous competitors in the industry who are more
established and who have substantially greater financial resources than the
Company and MCMI. In addition, there are numerous competitors having greater
name recognition, better capitalization, equivalent or lower pricing guidelines,
more experienced organization, and a larger employee base. Also, the Company and
MCMI must contend with those competitors having better facilities and/or
equipment. Although Management believes MCMI has a significant advantage in the
Roanoke Valley at the present time due to the absence of any other dominant used
car dealer targeting the Non-Prime Consumer, the high degree of competition in
the used car business will remain a primary factor affecting both MCMI's and the
Company's profitability. The used car business will also continue to be highly
susceptible to changes in the economy and the buying habits of the general
public. (See "INVESTMENT HIGHLIGHTS"; "DESCRIPTION OF THE BUSINESS"; and
"COMPETITION.")
P. Management's Conflict of Interest and Lack of Agreement to Sell Contracts.
-------------------------------------------------------------------------
Since the Company and MCMI are owned and managed by the same principals, the
determination of the discount and purchase price for a Contract purchased by the
Company from MCMI is not arrived at in an arms-length transaction. On average,
the face value of a Contract is discounted between 25% and 50% when sold to the
Company. Currently, the Company is solely dependent upon MCMI to generate the
Contracts. Because of the commonality of ownership, there is no separate
agreement between the Company and MCMI obligating MCMI to offer the Contracts to
the Company at the discounted value, or any other price, or obligating the
Company to purchase same. The affiliation of the two companies allow the
principals to internalize all business operations. Such an arrangement bestows
a significant benefit on the principals in that they are able to offer to its
customers through their wholly owned entities both the Automobile and the
financing. Accordingly, MCMI has a ready source for factoring its Contracts;
the Company has a continuous supply of Contracts; and the principals have
complete control over all financial matters. In addition, the affiliation of
the principals and the companies maximize other cost efficiencies by allowing
the principals to streamline managerial and administrative functions and
financial accounting procedures. The principals will have sole discretion in
determining which Contracts will be bought and sold as well as the discounted
purchase price. However, since the two companies will rely exclusively on the
other for their respective business operations, the principals do not believe a
written agreement is necessary at this time. Further,
14
<PAGE>
since the principals control all decisions in this regard, the principals do
not anticipate any adverse impact to Investors since the calculation of an
Investor's return is predicated upon the principal and interest payments of the
underlying customers which figure remains constant throughout the calculations.
Although the principals do not plan on selling their interest in either company,
there can be no guarantee that they will continue to jointly own both. In the
event of an ownership change in one or both companies, the existing business
relationship may be curtailed or severed entirely. In such event, the Company
may not have sufficient reserves of replacement Contracts and/or be able to
develop new sources for such Contracts to replace defaulted Contracts, and/or be
able to continue business operations on a profitable basis. Under such
circumstances, the Company may be forced: (i) to assume all the obligations
under the defaulted Contracts for their respective terms which obligations would
have an adverse impact on the Company's financial resources and viability as a
going concern; or (ii) to cease business operations altogether. (See
"DESCRIPTION OF THE SECURITIES"; "DESCRIPTION OF THE BUSINESS"; "DETERMINATION
OF THE OFFERING PRICE" and "MANAGEMENT".)
Q. Termination of Common Ownership. Because of the commonality of ownership
-------------------------------
of the Company and MCMI, there is no written contract or agreement between the
companies obligating MCMI to sell or offer to sell all of its Contracts to the
Company, or obligating the Company to buy same, for the reasons specified in
Paragraph P above. In addition, since MCMI is currently obligated to replace
defaulted Contracts under its previous offering under Rule 504 of Regulation D,
MCMI may be required from time to time to maintain a reserve of Contracts for
such purpose until the prior investors are paid in full. The risks to Investors
upon termination of the common ownership of the companies and for the lack of a
contractual obligation on the part of MCMI to sell the Contracts solely to the
Company are the same as set forth in Paragraph P above. (See "DESCRIPTION OF
THE BUSINESS" and "MANAGEMENT.")
R. Minimum Sale Requirements. The Company will have to sell a minimum of 3
-------------------------
Contracts at an average of $5,000.00 each to satisfy the closing costs incurred
in conjunction with this offering which costs are set forth in items (a) through
(c) and (e) in the section captioned "Use Of Proceeds" and before it will have
excess funds available to fund its working capital account, assuming a minimum
of 5 Notes at $10,000.00 each are sold to cover the $46,000.00 in closing costs
allocated to that offering. In addition, the Company estimates it will need to
sale $2.5 million in Contracts and/or Notes over the twelve month period
following the Effective Date to continue its business operations. There can be
no guarantee that the Company will be successful in raising these funds within
the allocated time or that it will be able to continue operations on a
profitable basis irrespective of the amount of funds raised during the
Offering.
S. MCMI's Obligation to Replace Contracts. Pursuant to MCMI's prior
--------------------------------------
Regulation D offering under Rule 504, MCMI is also obligated to replace a
defaulted Contract with a new one on similar terms as the Company's obligations
set forth in this Prospectus. Notwithstanding MCMI's obligation, the Company's
needs shall be given priority over MCMI's in the event both companies need a
Contract for replacement purposes. MCMI does not operate under any time
restraints for replacing its defaulted Contracts allowing the principals to
prioritize the Company's obligations. The principals do not anticipate the
occurrence of any such competing circumstances since both MCMI and the Company
intend to maintain a pool of valid Contracts for replacement purposes and since
MCMI will not be selling Contracts to Investors. Although Management anticipates
little or no adverse effects on the supply of Contracts based upon the
historical and projected operations of the two companies and the rate of
default
15
<PAGE>
experienced by MCMI, there can be no assurance that the Company will be able to
purchase a sufficient number of Contracts on a timely basis to avoid incurring
liability pursuant to its Guarantee of a defaulted Contract and/or continue
operations on a profitable basis.
III. Investment Risks
----------------
A. No Public Market. No public market exists for the Contracts, and it is
----------------
unlikely that a ready market will exist at any time in the future. Since the
Guarantees are an integral part of each Contract, there is no ready market for
the Guarantees either. Accordingly, if an Investor wishes to transfer or sell
his Contracts, he may be unable to liquidate his investment promptly at a
reasonable price due to market conditions and/or the general illiquidity of such
an interest.
B. Limitations on Liability of Officers and Directors. The bylaws of the
--------------------------------------------------
Company provide that the officers and directors of the Company shall be
indemnified to the extent allowed by law. Therefore, an Investor may have a more
limited right of action against the officers and/or directors than he would have
if there were no such limitations.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED WITH RESPECT TO AN OFFICER'S OR DIRECTOR'S ACTION, THE
SECURITIES AND EXCHANGE COMMISSION HAS TAKEN THE POSITION THAT SUCH
INDEMNIFICATION PROVISION IS AGAINST PUBLIC POLICY AND, THEREFORE, IS
UNENFORCEABLE. (SEE "DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.")
C. No Independent Counsel to Investors. No independent counsel has been
-----------------------------------
retained to represent the interests of the Investors. This Prospectus was
drafted, in part, by counsel retained by or whose fees are paid, directly or
indirectly, by the Company. These documents have not been reviewed by any
independent attorney on behalf of the Investors. Each Investor should,
therefore, consult with his own counsel and accountants as to the terms and
provisions of this Prospectus and all other documents relating thereto.
D. Subscription of Securities and Shelf Registration. The Company intends to
-------------------------------------------------
offer the Contracts over a period of two years. Accordingly, the Company cannot
predict with any degree of certainty how successful the offering will be or if
the Contracts will be fully subscribed. The Company anticipates that it will
take approximately two (2) years to fully subscribe the Contracts. Although the
Company anticipates that a successful Offering will provide sufficient revenues
to satisfy the Company's financial needs for at least six months following the
consummation of the Offering, there can be no guarantee that the Company will be
successful even if the Contracts are fully subscribed and/or will be able to
pursue additional financing as and when needed.
E. Assignment of Contracts. Upon the purchase of a Contract, or an interest
-----------------------
therein, by an Investor, the Contract, or interest therein, will be assigned to
that Investor's portfolio. (See "DESCRIPTION OF THE SECURITIES.")
Notwithstanding the assignment, the Company will be solely responsible for and
shall have the legal right to enforce all contractual obligations of the
customers and all rights of MCMI under the Contracts, including, without
limitation, the right to repossess the Automobiles. Although the intent of the
Company is to relieve the Investor of all such burdens and obligations, in the
event the Company cannot replace a defaulted Contract or make the defaulted
customer's payments as they become due when necessary; becomes insolvent; or
otherwise terminates its business operations, an Investor may
16
<PAGE>
be required to enforce the terms and obligations under a Contract, including the
commencement of a repossession action, to recover his or her investment
hereunder.
F. Change in Economic Conditions. Since the offering will be conducted over
-----------------------------
a two year period, the Company will be more susceptible to local and national
economic changes. Although the Company believes the return options offered on
its Contracts will remain attractive during the offering, there can be no
guarantee that certain conditions or events will not occur during this period
which will have a major impact on the Company's and/or MCMI's business
operations. Such events may include a loss of a major employer in the market
area of MCMI, especially if the job loss adversely impacts the Non-Prime
Consumer, and a major shift in the interest rates. Although an increase in such
rates would probably not impact the Non-Prime Consumer since he is accustomed to
paying higher interest rates because of his credit history, it could have a
deleterious effect on the marketability of the Contracts and/or Notes to
Investors by reducing their return on borrowed funds used to purchase the
Contracts and/or Notes or by rendering their investment return less competitive
in light of current market rates.
G. Limitation on Guarantee. Although the Company will provide its Guarantee
-----------------------
for each Contract purchased pursuant to the terms and conditions set forth in
this Prospectus and in the Guarantee And Replacement Agreement appended hereto
as Appendix "B", such Guarantee is subject to the Company's ability, at any
given time, to obtain a new, replacement Contract and/or to the availability of
sufficient cash reserves and/or cash flow from operations to satisfy the
Company's obligations to an Investor in the event a defaulted Contract is not
replaced promptly. There can be no guarantee that the Company will always have
such Contracts and/or cash resources available as needed. In such an event, the
Company will have the right to repossess the Automobile and apply the net sales
proceeds to refund the Investor's investment in the defaulted Contract. The
Investor has the right to receive the net sales proceeds from the sale of the
Automobile after repossession. In the event the Company fails to repossess the
Automobile on the Investor's behalf, becomes insolvent or otherwise ceases
operations, the Investor may have to implement a repossession action and/or file
suit against the customer and/or Company to collect the payments due under the
defaulted Contract. Because the amount of the original obligations of the
Company to an Investor under a Contract generally exceed the Automobile's
wholesale value, there can be no assurance that a repossession action will
satisfy the Company's outstanding obligation to the Investor. The Investor
would then have to pursue the Company and/or customer for any such deficiency.
There can be no guarantee that the Investor will be successful in collecting the
deficiency. (See "RISK FACTORS - Determination of Offering Price"; DESCRIPTION
OF THE SECURITIES"; and the Guarantee And Replacement Agreement in Appendix
"B".)
H. Collateral. Whether an Investor elects the 25% or 20% investment option,
----------
the Investor's investment will be secured by the underlying Automobile. An
Investor purchasing a partial interest in a Contract under the 20% option will
still be secured by the Automobile even though the entire stream of payments due
from a customer under the Contract will not be assigned to him. This accounts
for the lower investment return since the Investor's risk is less than an
Investor purchasing the entire Contract. The Company will retain all excess
payments under such Contract. Accordingly, in the event of a default, the
Investor will have the same rights to repossess the Automobile and to sue for
any deficiency as an Investor who purchases the entire Contract. (See "RISK
FACTORS - Limitations on Guarantee" and "DESCRIPTION OF THE SECURITIES -
Collateral.")
17
<PAGE>
USE OF PROCEEDS
Currently, the Company has a minimal capitalization. A portion of the proceeds
of this offering will be used to pay certain costs and expenses associated with
this offering. The following table sets forth the proposed use of proceeds from
the sale of the Contracts. Although the Company has the option to sell up to
$7,500,000.00 in Contracts, the table assumes that only $1,500,000.00 in
Contracts are subscribed. Since the Contracts are being offered to Investors
contemporaneously with its corporate promissory notes, the costs associated with
both offerings have been pro rated predicated upon the percentage each offering
bears to the aggregate $7,500,000.00 offering limit, assuming $1,500,000.00 in
Contracts and $6,000,000.00 in Notes are offered and fully subscribed. (See
"PROSPECTUS SUMMARY" and "DESCRIPTION OF THE SECURITIES.") The following
figures represent the Company's best estimate as to the needs of the Company.
Accordingly, such estimates are subject to change as circumstances dictate and
should not be relied upon as a definitive account of the ultimate use of the
funds. All proceeds of the offering will be held by the Company for the benefit
of the Investors.
<TABLE>
<CAPTION>
<S> <C>
Proceeds from Offering: $1,500,000.00/1/
- ---------------------- ----------------
LESS:
- ----
(a) Registration Fee: 518.00/2/
(b) State Securities Filing Fees: 1,300.00/3/
(c) Non-Refundable Legal Fees, Printing and 8,000.00/4/
Copying Costs; and Miscellaneous
Closing Costs Attributable to the
offering:
(d) Compensation of Selling Agents: 75,000.00/5/
(e) Accounting Fees: 1,500.00/6/
(f) Working Capital and Reserve: 1,413,682.00/7/
Total Application of Proceeds: $1,500,000.00/8/
</TABLE>
Notes to Use of Proceeds:
- ------------------------
1. Based on an offering of Contracts in the amount of $1,500,000.00 being fully
subscribed. The Company has the right to sell up to $7,500,000.00 in
Contracts but currently does not anticipate selling more than $1,500,000.00
during the offering period. The Company may also sell less than
$1,500,000.00. This offering is being made in conjunction with the offering
of the Company's Notes. However, the total aggregate amount of Contracts and
Notes that may be sold is $7,500,000.00. The Company anticipates this
offering will continue for a period of two (2) years. However, all fees and
costs listed herein are to be paid whether this offering is successful. (See
"DESCRIPTION OF THE SECURITIES.")
2. Based on 1/29 of 1% of the $1,500,000.00 aggregate offering price of the
Contracts. Total registration fee for both Notes and Contracts will be
$2,587.00. If the offering of the Notes is unsuccessful, the Company will pay
the full registration fee from this offering. Such fee is payable before the
Effective Date of this Offering.
3. Represents 20% ($1,500,000.00 Contracts offering/$7,500,000.00 aggregate
offering amount) of $6,500.00, the estimated cost of registering the
Contracts and Notes in the applicable states. This figure is subject to
change depending upon the amount of securities
18
<PAGE>
offered per state; the registration fee of each applicable state; and the
final number of states in which the securities are registered. Such fee is
payable on or before the Effective Date of this Prospectus.
4. Represents 20% (calculated as above) of $40,000.00, the estimated costs to be
incurred in connection with the Offering including: (i) legal fees; (ii)
recording, printing, and travel expenses, and any other organizational or
closing costs and fees; and (iii) reimbursement of certain out-of-pocket
expenses for filing and other fees incurred in complying with federal and
state securities laws. All such fees and costs are non-refundable and shall
be paid on or before the Effective Date of this Prospectus. A substantial
portion of these expenses have been prepaid. Any excess funds remaining after
the payment of the foregoing expenses will be added to the working capital
account.
5. Represents the aggregate amount of compensation to be paid to selling agents
of the Company based on a 5% commission scale. Assumes the Contracts are
fully subscribed solely upon the efforts of the Company's agents. The Company
reserves the right to sell some or all of the Contracts through its own
efforts without compensation. Any funds not used for commissions will be
added to the working capital account.
6. Represents 20% (calculated as above) of $7,500.00, the estimated cost of
accounting fees to be incurred with respect to the Offering of the Notes and
Contracts. A substantial portion of these expenses have been prepaid. The
balance of such fees will be paid on or before the Effective Date of this
Prospectus.
7. Represents the balance of the offering proceeds to be used for working
capital and reserves. The Company projects that 90% ($1,272,314.00) of such
funds will be used for the purchase of additional Contracts generated by
MCMI. The remaining 10% ($141,368.00) of these funds will be used: (i) to
service the Company's debt obligations under its Notes which are being issued
contemporaneously with its Contracts; (ii) to satisfy the Company's operating
expenses; and (iii) to fund its reserve account for capital improvements and
similar needs.
8. Pursuant to the costs set forth in items (a) through (c) and (e) above, the
Company will have to sell a minimum of 3 Contracts at an average of $5,000.00
each to satisfy these obligations and before it will have excess funds
available to fund its working capital account, assuming a minimum of five (5)
Notes at $10,000.00 each are sold to cover the approximately $46,000.00 in
closing costs allocated to that offering. Since there is no existing or
formal agreement with a broker or dealer and since there is no fee or
commission obligation in effect, the costs do not include item (d) above
regarding commission fees. The Company intends to utilize its working
capital account to purchase additional Contracts from MCMI and to satisfy its
normal operating expenses, including, without limitation, taxes, rent,
utilities, salaries and general overhead expenses. Whether the Company is
successful in fully subscribing the Contracts, it also intends to use the
bulk of the proceeds from the sale of its Notes for such purposes. The
Company estimates it will need to sell $2.5 million in Notes and/or Contracts
over the next twelve (12) months following the Effective Date to continue its
business operations. Because of the nature of MCMI's business, Contracts
will be generated over a period of time. Accordingly, such Contracts cannot
be purchased from MCMI and resold to Investors until they are generated. The
Company's business is predicated upon the continuous flow of Contracts from
MCMI. See the section captioned "RISK FACTORS" for a more detailed
explanation of the risks involved with an investment in the Company. It
should be noted that the Company intends to sell a substantial portion
19
<PAGE>
of its Notes over a period of time to correlate with the generation of
Contracts by MCMI. (See "DESCRIPTION OF THE BUSINESS.")
SUMMARY OF FINANCIALS
The selected financial data presented below for the periods ended December
31, 1993, 1994, have been derived from the unaudited financial statements of the
Company and MCMI. The financial data for the year ended December 31, 1996 and
1995 have been derived from the audited financial statements of the Company and
the notes thereto. The financial statements of MCMI as of December 31, 1995 and
for the year then ended were audited. The financial statements of MCMI as of
December 31, 1996 were unaudited. The unaudited financial statements reflect all
adjustments of a normal recurring nature which management considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. The data set forth below should be read in conjunction with
the section captioned "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and the "FINANCIAL STATEMENTS," notes
thereto and other financial and statistical information appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1994 1995 1996
STATEMENT OF
INCOME DATA
- ------------------
<S> <C> <C> <C> <C>
Net Sales $ 120,392 559,637 1,135,664 1,994,475
Cost of Sales 92,265 456,841 713,182 1,324,202
------------ ---------- ---------- ---------
Gross Profit 28,127 102,796 422,482 670,273
Operating Expenses 48,695 110,724 167,497 304,498
------------ ---------- ---------- ---------
Operating Income (20,568) (7,928) 254,985 365,775
Other Expense, Net 2,394 13,775 31,328 20,688
------------ ---------- ---------- ---------
Net Income (Loss) (22,962) (21,703) 223,657 345,087
============ ========== ========== =========
STATISTICAL
DATA
- -----------------
Gross Profit 23.36% 18.37% 37.20% 33.61%
-----
Margin
Operating Margin -17.08% -1.42% 22.45% 18.34%
-----
BALANCE SHEET
DATA
- -----------------
Working Capital 55,080 92,539 277,465 522,915
-------
Total Assets 61,645 134,213 393,252 666,983
-------
Long-Term Debt
and Capital Leases 81,224 143,260 167,708 188,263
-------
Stockholders' ($20,862) ($41,411) $143,716 $355,759
--------
Equity
</TABLE>
20
<PAGE>
This financial information is prepared on a proforma basis as if the two
companies, Genesis Financial Group, Inc. and Mr. Car Man, Inc., were combined
during the periods presented. The companies were S Corporations during the
periods presented, therefore no provision for income taxes is reported.
Effective January 1, 1997, the S Corporation status of Genesis Financial Group,
Inc. was terminated, and the Company became subject to corporate income
taxes.
INVESTMENT HIGHLIGHTS
The Company has projected revenues to be approximately $1.2 million by year
two. Net income for that year is projected at $116,400. (The complete set of
projections is included in the section captioned "Financial Statements.") The
growth of the Company will be financed by the placement of Notes payable up to
$6 million by the end of year two, although the Company may sell up to $7.5
million in Notes pursuant to the Offering. These Notes bear interest at 18% for
forty-two months.
The proceeds of these Notes will be used to acquire Contracts from its
Affiliate, MCMI, of up to $7.5 million by the end of year two. The Company will
recognize income as interest income is earned, and other fees as collected.
The projections include a provision for bad debt expense to maintain an
average reserve equal to ten percent (10%) of outstanding accounts receivable.
These calculations are based on the assumptions that there is a (i) 25% default
rate on all Contracts purchased from MCMI, (ii) as well as a 5% casualty rate.
It should be noted that in a majority of cases casualty claims will be fully
covered by insurance.
During the first full year of operations, Management plans to establish a
separate office and expand its staff to handle the increased volume. To support
the growth of the Company, Management must also work to expand the operations of
MCMI. The proceeds from the sale of the Notes will be used to purchase
Contracts from MCMI on an ongoing basis. To generate the volume of sales
necessary, MCMI will manage an aggressive marketing campaign to attract the
buyers to the lots. Management is planning to open one new car lot in each of
years one and two which will require an additional investment of approximately
$100,000 per lot for inventory, and $25,000 per lot for furniture and fixtures.
MCMI intends to fund its growth and expansion plans through cash flow generated
during normal business operations; revenues received from the sale of its
Contracts to the Company; and/or funds obtained from traditional funding
sources, such as financial institutions.
As MCMI expands, other expenses will increase accordingly. The projections
included in the section captioned "Financial Statements" reflect Management's
estimate of other operating expenses for years one and two.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
21
<PAGE>
DETERMINATION OF OFFERING PRICE
The offering price for the Contracts will be determined by the Company based
upon the value of each Contract, the terms and conditions of each Contract and
the investment option elected by an Investor. The determination of the purchase
price of a Contract sold by MCMI to the Company is not conducted in an arms-
length transaction because of the commonality of ownership of the two companies.
(See "RISK FACTORS - Management's Conflict of Interest and Lack of Agreement to
Sell Contracts" and "Termination of Common Ownership.") The following is a
brief explanation of the process by which the purchase price of a Contract is
determined. MCMI finances the sale of an Automobile to a customer amortizable
over a 42 month period (average) at 35% per annum. The Contract is then sold to
Company at a discount of the face value ranging anywhere from 25% to 50%.
Depending on the investment option selected by an Investor, the purchase price
of the Contract is calculated to give the Investor the 20% or 25% annual return
option selected predicated upon the same principal and interest payments
originally established for the customer. Accordingly, the purchase price of a
Contract sold to an Investor is a function of the face value of the Contract,
the principal and interest payment schedule and the amount of the discounted
purchase price to the Company. (See "DESCRIPTION OF THE SECURITIES" and
"DESCRIPTION OF THE BUSINESS.") In electing the 25% investment option, the
Investor purchases the entire Contract and receives all payments made by the
customer under the Contract which amounts will equal the Investor's principal
investment and his 25% annual return. With the 20% investment option, the
Investor purchases a partial interest in the Contract and receives that portion
of the payments made by the customer until the Investor's principal investment
is returned with the 20% annual return. In both cases, the Contract is assigned
to the Investor's portfolio. There is never more than one Investor per Contract
regardless of the investment option selected. (See DESCRIPTION OF THE
SECURITIES.")
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1996, on an actual basis. (See "PROSPECTUS SUMMARY" and "USE OF PROCEEDS".)
<TABLE>
<CAPTION>
December 31,
1996 Actual/(1)/
------------------
<S> <C>
Short-term debt -0-
Long-term debt 11,600
------
Stockholders' equity:
Common Stock, no par 2,000
value (100 shares
authorized; 20 shares
outstanding
Retained Earnings (13,457)
-------
Total Stockholders' Equity (11,457)
-------
</TABLE>
_______________________
(1) Please see the section captioned "Financial Statements" set forth in this
Prospectus.
22
<PAGE>
DISCLOSURE OF COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 13.1-697 and 13.1-702 of the Code of Virginia, as amended, permit any
Virginia Corporation to indemnify its directors and officers against liability
incurred in a proceeding if he conducted himself in good faith and believed (a)
in the case of conduct in his official capacity with the Corporation that his
conduct was in its best interests and (b) in all other cases that his conduct
was at least not opposed to its best interests. In the case of a criminal
proceeding, a Corporation may indemnify a director made party to such proceeding
if he had no reasonable cause to believe his conduct was unlawful. A
Corporation may not indemnify a director under those Sections in connection with
a proceeding by or in the right of the Corporation in which the director was
adjudged liable to the Corporation or in connection with any other proceeding
charging improper personal benefit to the director, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him. Indemnification permitted
under those Sections in connection with a proceeding by or in the right of the
Corporation is limited to reasonable expenses incurred in connection with the
proceeding. Unless limited by its Articles of Incorporation, the Corporation is
required to provide mandatory indemnification to an officer or director who
entirely prevails in the defense of any proceeding to which he was a party
because he is or was an officer or director of the Corporation against
reasonable expenses incurred by him in connection with the proceeding. Also,
unless limited by the Corporation's Articles of Incorporation, an officer or
director of the Corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or seek indemnification
in another court of competent jurisdiction. The court may order indemnification
if it determines the officer or director is entitled to mandatory
indemnification as described above, in which case the court shall also order the
Corporation to pay the officers, or directors' reasonable expenses incurred in
obtaining court-ordered indemnification, or, with respect to a proceeding by or
in the right of the Corporation, the officer or director is found by the court
to be fairly and reasonably entitled to indemnification in view of all the
relevant circumstances even though he was adjudged liable, but any
indemnifications shall be limited to reasonable expenses incurred. The
Corporation is given the power to make further indemnity to any officers or
directors that may be authorized by the Articles of Incorporation or any Bylaw
made by the stockholders or any resolution adopted, before or after the event,
by the stockholders, except an indemnity against gross negligence or willful
misconduct.
The Articles of Incorporation of Genesis Financial Group, Inc. provides that
the directors and officers of the Company may be indemnified in the manner,
against the matters, and to the full extent provided by the Code of Virginia.
The Company may purchase directors and officers insurance for such purposes.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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. (See "RISK FACTORS - Limitations On Liability Of
Officers And Directors.")
23
<PAGE>
DESCRIPTION OF THE SECURITIES
A. Installment Sales Contracts - Overview. The Company intends to offer to
--------------------------------------
Investors over a two (2) year period not less than $1,500,000.00 in installment
sales contracts ("Contracts") generated by and purchased from MCMI during its
ordinary course of business together with the Company's Guarantee of such
Contracts. The Company has the right to sell up to $7,500,000.00 in Contracts
under the rules and regulations of the Commission pursuant to an SB-1 offering.
Contemporaneously with this offering, the Company will offer up to $7,500,000.00
of its corporate promissory notes ("Notes"). Currently, the Company intends to
offer up to $6,000,000.00 in Notes to investors. In no event may the Company
sell more than $7,500,000.00 in Contracts and Notes in the aggregate pursuant to
this SB-1 offering. The Company will purchase some or all of the Contracts
generated by MCMI from time to time at a discount to the remaining principal
balance. The Contract evidences the indebtedness of the customer to MCMI for the
purchase of the customer's Automobile. The Contract will be assigned to the
Company when it is purchased. The Company will then service the Contract for the
full term of the Contract. The Company will package the Contracts and resell
them to Investors under the options described below. The Company will use the
net proceeds from the sale of the Contracts to Investors to purchase additional
Contracts from MCMI. (See "DESCRIPTION OF THE BUSINESS" and "USE OF PROCEEDS.")
MCMI will use these funds to replenish its inventory and for operating capital
needs. The stream of payments generated by the Contracts will comprise the
funding source for the return on an Investor's investment. Each Contract will
also be collateralized by the particular vehicle purchased. To minimize the risk
to Investors, the Company intends to replace any non-performing Contract with
another Contract having substantially similar terms and provisions. (See the
Guarantee And Replacement Agreement in Appendix "B".) By replacing such
defaulted Contracts, the Company is able to eliminate some of the risks
associated with default and repossession. The Company may, from time to time and
at its discretion, maintain a limited reserve of viable Contracts to accomplish
this goal. The Company may be unable to satisfy its obligations under the
Guarantee which would force the Investor to pursue repossession and other legal
remedies. (See "RISK FACTORS - Limitation on Guarantee and Investor's
Rights.")
B. Investment Options. Each Investor will have two investment options in
----------------------
purchasing a Contract. The Company is offering either a 20% or 25% annual return
option depending upon an Investor's risk tolerance. A form of the Contract used
by MCMI is appended hereto as Appendix "A."
(i) 20% Investment Option. Under the 20% investment option, an Investor
---------------------
purchases only a partial interest in the Contract. The Company will pass through
each payment due and payable under the Contract by the customer to the Investor
until the Investor has recovered his principal investment and received a 20%
annual return. The balance of the remaining payments due under the Contract will
be retained by the Company.
(ii) 25% Investment Option. Under the 25% investment option, an Investor
---------------------
purchases the entire Contract and, accordingly, will receive the entire stream
of payments due under the Contract to realize a 25% annual return on his
investment. Although an Investor's "at risk" capital would increase, his yield
is enhanced. Contract terms will vary between twelve and forty-eight months with
the majority of Contracts in the forty-two month range. The purchase price of
each Contract will also vary depending upon the term, amount and yield of each
Contract. Contracts will be selected and sold to Investors to match their
investment option. The Company will deliver the original Contracts to the
Investors as they are purchased but will service all
24
<PAGE>
Contracts on behalf of the Investors. The Company intends to pool the Contracts
as needed to fulfill each Investor's subscribed amount.
C. Solicitations and Commissions. Solicitations and sales of the Contracts
----------------------------------
will be made by the principals and/or agents of the Company. The Company
anticipates paying commissions associated with this offering on agents' sales
only. The principals of the Company will not receive any commissions or other
remuneration on the sale of Contracts. Total estimated commissions would be
$75,000.00 assuming a 5% commission, a fully subscribed offering, and agent
solicitation only. Currently, the Company has no written or verbal agreement or
understanding with any brokerage firm or sales agent. The Company may retain
such services during this offering and will use its best efforts in negotiating
a 5% commission rate. In the absence of such brokers-dealers, the two
principals of the Company, Jeffrey W. Akers and Franklin W. Blankemeyer, Jr.,
will conduct such activities on behalf of the Company in reliance upon Rule 3 a
4-1 promulgated under the Exchange Act. The Company will issue the Contracts
directly to an Investor upon receipt of a validly executed Subscription Letter,
a copy of which form is appended hereto in Appendix "E", certified funds in the
amount of the purchase price and any other document required by the Company for
an investment hereunder.
D. Description and Assignment of Contracts. MCMI uses a standard form Retail
---------------------------------------
Installment Sales Contract in all transactions involving the sale of an
Automobile. (See Appendix "A" for a copy of the Contract.) Except for the
purchase price, interest rate and amortization schedule, the terms of the
Contracts will not vary to any significant degree. Upon the Company's purchase
of the Contracts from MCMI, MCMI will execute an Assignment Of Sales Contract
assigning the Contract to the Company. The Company will then sell the Contract
to an Investor for a price determined as provided in Paragraph E below. The
Company will execute a separate form Assignment Of Sales Contract or Partial
Assignment Of Sales Contract, as determined by the investment option selected by
the Investor, assigning the Contract, or a portion thereof as the case may be,
to the Investor. Regardless of the investment option selected by an Investor,
there is only one Investor per Contract. The Company will not sell multiple
interests in a single Contract. (See Appendices "C" and "D" for a copy of the
Assignment forms.)
E. Calculation of Purchase Price and Investment Return. The purchase price
---------------------------------------------------
of a Contract for an Investor is determined based upon the original face value
of the Contract, the interest rate, the amortization schedule and the discounted
purchase price paid by the Company. The following example best describes the
mechanism by which the discounted purchase price to the Company, the purchase
price to the Investor and the Investor's investment return are calculated.
1. MCMI sells an Automobile to a customer for $5,695.00 and finances the
purchase price over a period of 42 months at 35% interest. Principal and
interest payments equal $236.94 per month.
2. MCMI sells the Contract to Company for 75% of the face value or $4,271.25
($5,695.00 x 75%). On average, MCMI will discount the purchase price
between 25% and 50%. Such an arrangement is within the sole direction of
the principals since both companies are owned and managed by said
principals. The principal and interest payments due under the Contract
remain unchanged.
3. Assuming an Investor elects the 25% annual return option, the purchase
price of the Contract sold to the Investor is $6,589.28.
25
<PAGE>
4. Based upon the 42 monthly payments of $236.94, the Investor receives
$9,951.48 during the term of the Contract. The $9,951.48 represents a
return of the Investor's principal investment of $6,589.28 plus a 25%
annual return on that investment totalling $3,362.20.
As long as the underlying customer makes his debt payments under the Contract
on time, the Investor will receive his investment return, as aforementioned, in
the form of a pass through mechanism by which the Company remits some or all of
the customer's payments each month to the Investor. In the event of a default
and a replacement Contract is not readily available, the Company will be
obligated to continue such payments out of its cash reserves or other revenues.
This obligation is set forth in its Guarantee described below.
Because MCMI and the Company share common owners and management, the purchase
price of a Contract sold to the Company is not established in a negotiated or
arms-length, transaction. Such calculations are subject to the sole discretion
of and are based upon the factors set forth above in this paragraph E. (See
"RISK FACTORS - Management's Conflict of Interest and Lack of Agreement to Sell
Contracts" and "Termination of Common Ownership.")
F. Guarantee and Replacement Contracts. Upon the purchase of a Contract by
-----------------------------------
an Investor, the Company will execute a Guarantee And Replacement Agreement
("Agreement") in the form appended hereto as Appendix "B". The Agreement will
obligate the Company to replace a defaulted Contract with a viable one as soon
as reasonably practicable under the circumstances. The new Contract will have
terms and conditions similar to the defaulted Contract. In addition, the
Agreement will obligate the Company to guarantee that all payments due an
Investor under a defaulted Contract are paid on a timely basis until a
replacement Contract is substituted therefore. The Company intends to undertake
all risks associated with a defaulted Contract, including, without limitation,
repossession. Absent a replacement Contract, the Company will be forced to use
its cash reserves or other revenue sources and/or borrow the funds to satisfy
its obligations under the defaulted Contract.
G. Limitation on Guarantee and Investor's Rights. Although the Company will
---------------------------------------------
provide its Guarantee for each Contract purchased pursuant to the terms and
conditions set forth in this Prospectus and in the Guarantee And Replacement
Agreement appended hereto as Appendix "B", such Guarantee is subject to the
Company's ability, at any given time, to obtain a new, replacement Contract
and/or to the availability of sufficient cash reserves and/or cash flow from
operations to satisfy the Company's obligations to an Investor in the event a
defaulted Contract is not replaced promptly. There can be no guarantee that the
Company will always have such Contracts and/or cash resources available as
needed. In such an event, the Company will have the right to repossess the
Automobile and apply the net sales proceeds to refund the Investor's investment
in the defaulted Contract. The Investor has the right to receive the net sales
proceeds from the sale of the Automobile after repossession. In the event the
Company fails to repossess the Automobile on the Investor's behalf, becomes
insolvent or otherwise ceases operations, the Investor may have to implement a
repossession action and/or file suit against the customer and/or Company to
collect the payments due under the defaulted Contract. Because the amount of
the original obligations of the Company to an Investor under a Contract
generally exceed the Automobile's wholesale value, there can be no assurance
that a repossession action will satisfy the Company's outstanding obligation to
the Investor. The Investor would then have to pursue the Company and/or
customer for any such deficiency. There can be no guarantee that the Investor
will be successful in collecting the deficiency. (See "RISK FACTORS -
Determination
26
<PAGE>
of Offering Price"; DESCRIPTION OF THE SECURITIES"; and the Guarantee And
Replacement Agreement in Appendix "B".)
H. Collateral. Whether an Investor elects the 25% or 20% investment option,
----------
the Investor's investment will be secured by the underlying Automobile. An
Investor purchasing a partial interest in a Contract under the 20% option will
still be secured by the Automobile even though the entire stream of payments due
from a customer under the Contract will not be assigned to him. This accounts
for the lower investment return since the Investor's risk is less than an
Investor purchasing the entire Contract. The Company will retain all excess
payments under such Contract. Accordingly, in the event of a default, the
Investor will have the same rights to repossess the Automobile and to sue for
any deficiency as an Investor who purchases the entire Contract. (See "RISK
FACTORS - Limitations on Guarantee" and "DESCRIPTION OF THE SECURITIES -
Collateral.")
I. Company's Obligations Under Contract. Upon the assignment of a Contract
------------------------------------
from MCMI to Company, the Company will assume all of the rights of MCMI to
enforce the terms of the Contract against the customer, including, without
limitation, repossession and collection rights. MCMI will have the obligation
to fulfill all obligations arising under its warranty. (See "DESCRIPTION OF THE
BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.") The principals do not anticipate the Company will have
any liability to the customer since it did not participate in the negotiation or
execution of the Contract. However, the Company may be subject to certain
defenses to enforcement actions that a customer would raise against MCMI,
including the failure of MCMI to fulfill its warranty or its money back
obligations. There can be no guarantee that the Company will be immune from
legal process in the event of a dispute between the customer and MCMI. Even if
the Company is fully absolved of any such liability, it still could incur
certain legal costs to defend its position. (See "RISK FACTORS - Legal
Liability.") There is no additional exposure for the Company arising from a
customer's complaint resulting from its Guarantee hereunder.
J. MCMI'S Liability. MCMI will have no liability to an Investor of a
----------------
Contract arising from a default thereunder since there is no agreement or other
arrangement between MCMI and the Investors. Investors shall deal solely with
the Company. Company shall have the right to pursue MCMI in the event of a
breach or failure by MCMI to fulfill its obligations under the Contract.
Investors shall note that because of the existing relationship of the principals
and the companies, it is highly unlikely that the Company would pursue any such
rights against its Affiliate. In such event, the Company would endeavor to
remedy the default by other methods, such as replacing the Contract in question
with a new one. (See "DESCRIPTION OF THE SECURITIES - Guarantee And Replacement
Contracts" and Appendix "B" for the Guarantee And Replacement Agreement.)
DESCRIPTION OF THE BUSINESS
A. Genesis Financial Group, Inc. The Company was incorporated on June 15,
-----------------------------
1993, under the laws of the Commonwealth of Virginia as an S Corporation under
the Internal Revenue Code ("Code"). Effective January 1, 1997, the Company
terminated its S Corporation status and is now a C Corporation under the Code.
The Company was formed specifically to provide a ready funding source for Mr.
Car Man, Inc. ("MCMI"), a used car dealership and an Affiliate of the Company.
The Company is 100% owned by Jeffrey W. Akers and Franklin W. Blankemeyer,
27
<PAGE>
Jr. The principals in the Company are the same as in MCMI. The Company has a
minimal operating history to date but anticipates capitalizing on a significant
business opportunity by actively participating as the financial arm of MCMI's
business. As previously discussed, the Company will purchase at a discount some
or all of the Contracts generated by MCMI from time to time upon the sale of its
Automobiles. The Company intends to package the Contracts and offer them to
Investors on an ongoing basis to generate revenues for business operations,
including the purchase of additional Contracts from MCMI.
In conjunction with the underlying offering of Contracts, the Company will
also register up to $7,500,000.00 in Notes for sale to investors. However, the
Company cannot sell more than $7,500,000.00 in Contracts and Notes in the
aggregate pursuant to its SB-1 offering. MCMI's targeted market will primarily
consist of those individuals who are unable to obtain financing through
traditional sources because of poor credit or other salient risks, including,
without limitation, divorce, medical emergencies, and job loss ("Non-Prime
Consumers"). Such customers are generally deemed to be in a "high risk"
classification by most conventional lenders giving them little opportunity to
reestablish their credit status and to redeem themselves in the consumer market
place. The Company will follow strict guidelines before approving any such
financing, including, without limitation, reviewing credit reports and verifying
employment and residence status. In addition, the Company must be reasonably
assured that the customer has the ability to pay without adversely impacting the
customer's standard of living. The Company retains the right to review and
revise its credit terms as and when it deems necessary or appropriate under the
circumstances. Although strict adherence to these guidelines will not prevent
non-performance of every Contract, the Company reasonably believes that it will
reduce the exposure of the Company to customer defaults. (See "RISK FACTORS";
"INVESTMENT HIGHLIGHTS"; and the Financial Statements in this Prospectus.)
MCMI will assign and transfer to the Company all Contracts purchased by the
Company and the motor vehicle titles to the Automobiles covered by such
Contracts. The Company intends to use the bulk of the funds received from the
sale of the Contracts to Investors to purchase additional Contracts. MCMI will
use the funds it receives from the sale of its Contracts to Company to finance
its business operations including, without limitation, the replenishment of its
inventory. The Company anticipates a steady stream of Contracts since the
targeted customer base for MCMI will be comprised of individuals who are unable
to obtain financing through traditional or other sources. (See "USE OF PROCEEDS"
and "INVESTMENT HIGHLIGHTS.")
The Company will service all Contracts for the benefit of Investors just as if
the Company had retained its interest in the Contracts. Accordingly, the
Company will collect all payments due from the underlying customers, and fulfill
any and all obligations originally imposed upon and enforce all rights
originally granted to MCMI thereunder, including, without limitation, the
commencement of collection and/or repossession actions in the event a customer
defaults. A majority of repossessed cars will be auctioned or resold by the
Company.
Although the Company will provide a funding source for MCMI's business
operations, it is not subject to any lending or consumer credit licensing
requirements under the laws of the Commonwealth of Virginia since it is an
Affiliate of MCMI and purchases the consumer Notes at a discount.
Pursuant to the closing costs set forth in items (a) through (c) and (e) in
the section captioned "Use Of Proceeds," the Company will have to sell a minimum
of 3 Contracts at an average of $5,000.00 each to satisfy these obligations at
closing. In addition, the Company will
28
<PAGE>
have to sell a minimum of 5 Notes at $10,000.00 each to satisfy the closing
costs associated with that offering before the Company will have excess funds to
fund its working capital account. The Company estimates that it will need to
sell $2.5 million in Contracts and/or Notes over the twelve month period
following the Effective Date to commence its business operations. (See "RISK
FACTORS - Minimum Sale Requirements.")
Upon the consummation of the Offering, Management believes the Company will
have sufficient revenues to meet its future operating needs for the next six
months. Accordingly, after the Offering is closed, the Company may have to seek
additional capital or financing from time to time in the future.
The Company will be contractually obligated under the Guarantee And
Replacement Agreement to replace defaulted Contracts with new ones as soon as
reasonably practicable. (See "DESCRIPTION OF THE SECURITIES" and Appendix "B"
for a copy of this Agreement.) The Company anticipates accomplishing this task
either by maintaining a limited reserve of viable Contracts and/or through the
purchase of new Contracts from MCMI. The Company intends to purchase as many
Contracts from MCMI as funds allow. However, there is no written contractual
agreement obligating MCMI to sell its Contracts to Company. Management believes
this is unnecessary since both companies are owned by the same principals and
since MCMI will be dependent upon the Company to finance its business
operations. No Contract will be originated by MCMI or purchased by Company
unless the underlying customer satisfies the companies' credit requirements
discussed herein.
MCMI will retain some of its Contracts to satisfy its obligation to replace
defaulted Contracts under its previous private placement under Rule 504 of
Regulation D of the Securities Act. Although Management anticipates little or
no adverse effects on the supply of Contracts based upon the historical and
projected operations of the two companies and the rate of default experienced by
MCMI, there can be no guarantee that the Company will be able to purchase a
sufficient number of Contracts on a timely basis to avoid incurring liability
under its Guarantee of a defaulted Contract and/or continue operations on a
profitable basis. Except for this obligation, Management anticipates MCMI will
offer for sale to Company all of its Contracts as they arise. (See "RISK
FACTORS - MCMI'S Obligation to Replace Contracts.") The Company does not use
any type or form of selection process in determining which Contracts it will
purchase once they arise; subject, however, to the availability of cash or other
resources for such purposes.
In addition to the funds raised from the sale of the Contracts hereunder, the
Company intends to use the bulk of the proceeds received from the sale of its
Notes to fund the purchase of Contracts from MCMI. The Company will generate
revenues from the purchase of the Contracts in two ways. The Company may retain
one or more of such Contracts as they are purchased. By retaining the Contract
and with interest on a Note at 18%, the Company retains the spread on each
monthly payment equal to the difference between the principal and interest
installments made by the customer under the Contract and the principal and
interest installments paid by the Company under the Note. By selling the
Contract to an Investor, the Company makes its profit up front represented by
the difference between the purchase price of the Contract paid by the Investor
and the discounted purchase price paid by the Company for the same Contract.
The Company will undertake to repossess the Automobile in the event a customer
defaults. All such repossessed Automobiles will be sold at auction or, to the
extent allowed by law, resold by the Company. The opportunity to resell such
Automobiles is also dependant upon the
29
<PAGE>
condition of the vehicle upon repossession. There can be no guarantee that all
repossessed Automobiles will be in the same or similar condition as of the time
of original sale.
B. Mr. Car Man, Inc. Mr. Car Man, Inc. ("MCMI") is a Virginia corporation
-----------------
duly organized on June 15, 1993, as an S Corporation under the Code. MCMI began
business on August 2, 1993, at which time it sold its first used vehicle.
Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers own all the issued and
outstanding stock of MCMI and each play an integral part in the business
operations of both companies. MCMI presently has two locations in the City of
Roanoke, Virginia.
MCMI has established its reputation through fresh marketing ideas, a strong
emphasis on customer service and a sound financial base. MCMI strives to focus
on its customers and their needs. In addition, MCMI believes it has implemented
the best service program for its customers. Currently, MCMI offers all customers
a service agreement based on dealer's cost. Such a program covers the actual
cost of all parts needed with labor under warranty currently charged at $22.50
per hour. This service agreement continues as long as the Contract is
outstanding.
Prior to this Offering, MCMI successfully concluded a limited private
placement offering under Rule 504 of Regulation D of the Securities Act of 1933.
Through this offering, MCMI raised in excess of $950,000.00. MCMI targets the
higher risk, Non-Prime Consumer, since there is a tremendous market for this
type consumer. MCMI anticipates that the majority of the Contracts it generates
will be sold at a discount to the Company through which it will obtain the
financing it needs to replenish its inventory and meet its other operating
capital needs. MCMI will retain some Contracts from time to time to fulfill its
obligations to its previous investors under the 504 offering with respect to
defaulted Contracts. There is no written agreement between MCMI and the Company
obligating MCMI to sell its Contracts exclusively to the Company. However,
because of the commonality of ownership of the two companies, the success of the
companies' business operations will depend upon such an arrangement.
Accordingly, Management has no intention to deviate from this course of action.
MCMI's future goals include the development of a new showroom concept to
augment its customer base and additional expansion. MCMI intends to install
video monitors which will play segments of movies and comedy routines poking fun
at the used car industry. Inter-mixed between these segments will be songs and
other musical themes about cars in general which will be played through a
computerized sound system. MCMI intends to package this media presentation in
displays incorporating parts of cars. This concept will provide a more
captivating and entertaining experience for the consumer. MCMI intends to
implement this new showroom concept at its second location at 4206 Williamson
Road. MCMI's goal is to open a new lot at a rate of one per year for the next
three years. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.")
MCMI has implemented strict credit guidelines for its potential customers.
MCMI does not utilize loan-to-value ratios in determining credit worthiness.
Instead, it scrutinizes a customer's job retention, residence history, debt
service requirements, income potential and other similar factors. Because MCMI
targets the Non-Prime Consumer, standard loan-to-value ratios are not
emphasized.
COMPETITION
Since the Company intends to purchase all of its Contracts from its Affiliate,
MCMI, the Company has no direct competition for such Contracts. However, if MCMI
experiences a downturn
30
<PAGE>
in its business, becomes insolvent, or goes out of business, or if the common
ownership of the Company and MCMI should change for whatever reason, the Company
may be forced to pursue other dealerships and/or consumer related businesses to
continue its business operations. In such event, the Company could encounter
significant competition in its market area which competition could have an
adverse effect on its financial viability and business operations. (See "RISK
FACTORS - Company's Competition and Affiliation.")
Management estimates that the Company has 5 major direct competitors in the
Non-Prime Market in its existing market area in Southwest Virginia which
includes Roanoke City, Salem City, Roanoke County, Botetourt County, Montgomery
County and the Town of Vinton. In addition, there are numerous new and used car
dealers in the market area in general. Because of the difficulty in
ascertaining the sales volume of its competitors, Management is not able to
determine its percentage share of the used car market at this time.
The Non-Prime Market is very fragmented and highly competitive. Despite
significant opportunities, many financial entities, such as banks, savings and
loans, credit unions, captive finance companies and leasing companies, do not
consistently provide financing to this market. These organizations, which have
consistently serviced the automobile finance business, have migrated toward
higher credit quality consumers. The entities which do provide consistent
financing for Non-Prime Consumers can be broken into two primary categories:
(i) publicly traded specialty automobile finance companies; and (ii) dealers who
provide financing programs directly to the consumer. The remainder is comprised
of smaller finance organizations that solicit business when their capital
resources permit.
Due to the fact that specialty finance companies must compete with one another
for each car dealer's business, the Company believes it has a significant
advantage because MCMI will sell its Contracts exclusively to the Company. The
dealer who finances his own vehicles and does not sell off his contracts finds
himself at a disadvantage due to the substantial amount of capital that the car/
finance business requires. These dealers typically do not have large resources
of capital and typically sell their vehicles AS/IS without offering any kind of
extended service warranty.
Because of its affiliation with the Company, MCMI anticipates having
sufficient capital to implement and provide fresh marketing ideas, a clean
atmosphere, and friendly sales associates which, in turn, will separate it from
its competitors. MCMI's dedication to the customer, its exclusive bumper to
bumper warranty (which is a dealer cost warranty and lasts for the entire term
of the Contract) and its five day money back guarantee will help MCMI, and
therefore the Company, to prosper in this large and growing segment of the
industry. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "DESCRIPTION OF THE BUSINESS.")
EMPLOYEES
Currently, the Company and MCMI have eight (8) employees in addition to the
two (2) principals who are full-time employees. There are no employment
agreements or other similar arrangements with the employees. None of the
employees are currently covered by collective bargaining agreements. Management
for both corporations believes that its employee relations are satisfactory.
(See "MANAGEMENT.")
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
I. Genesis Financial Group, Inc.
-----------------------------
A. Operating History. The Company has a minimal operating history to date.
-----------------
Although the Company and MCMI were incorporated at the same time, the principals
of the Company realized that they had to concentrate exclusively on building
MCMI's business in the initial years to generate the customer base and sales
volume needed to support the financing arm of their used car business. The
principals have successfully completed this part of their business plan and now
seek to expand their business to incorporate the credit side of the used car
industry. By providing customers with well-maintained used cars and favorable
credit terms not readily available elsewhere, Management believes the Company
and MCMI will become firmly entrenched in its market area. Through the Offering,
the Company should become sufficiently capitalized to maintain its market niche.
B. Liquidity and Capital Resources. Although the Company currently has no
-------------------------------
lines of credit and the availability of credit in the foreseeable future is
uncertain, Management believes that the Company will be able to meet its future
obligations after the Offering through internally generated funds, primarily the
collection of payments due and owing under the Contracts, and/or externally
generated funds, primarily the continued placement of its Contracts. However,
there is no assurance that such collections will be sufficient to: (i) cover all
future obligations of the Company; (ii) purchase Contracts as they arise; and/or
(iii) meet the operating needs of MCMI. Under such circumstances, the Company
may have to seek additional sources of financing and/or credit which it may not
be able to obtain or which may be available only on unfavorable terms.
The Company will generate revenues from the purchase of Contracts in two ways.
The Company may retain one or more of such Contracts as they are purchased. By
retaining the Contract and with interest on a Note at 18%, the Company retains
the spread on each monthly payment equal to the difference between the principal
and interest installments made by the customer under the Contract and the
principal and interest installments paid by the Company under the Note. By
selling the Contract to an Investor, the Company makes its profit up front
represented by the difference between the purchase price of the Contract paid by
the Investor and the discounted purchase price paid by the Company for the same
Contract.
C. Purchase of Contracts from MCMI. The Company was formed to be the
-------------------------------
financing arm for the principals' used car business conducted by MCMI. Although
the two companies are owned by the same principals and will rely significantly
on the successful operations of each other, the companies will operate as
separate and distinct entities. MCMI has been successfully operating on its own
since its inception. The Company intends to utilize the funds raised from the
sale of the Contracts and Notes to purchase additional Contracts from MCMI as
they become available. The Company will purchase such Contracts at a discount
of the original face value. See the section captioned "DESCRIPTION OF THE
SECURITIES - Calculation Of Purchase Price and Investment Return" for a more
detailed description of how the discount is calculated.
D. Source of Revenues. As aforementioned, the Company anticipates generating
------------------
the revenues it will need to satisfy its operational needs, including the
payment of normal operating
32
<PAGE>
costs such as utilities, rent, payroll, bad debt, repossession costs, debt
service, etc., primarily through the sale of its Contracts and Notes and through
the excess funds generated from customer payments under the Contracts. (See
"DESCRIPTION OF THE BUSINESS" and "DESCRIPTION OF THE SECURITIES.") Investment
and similar income will also be available for such purposes. The Company
intends to sell the Notes as Contracts arise from MCMI's business operations.
Accordingly, as a general rule, the Company will not incur additional debt under
the Notes until such time as Contracts become available for purchase. MCMI has
been successful in selling its Contracts to investors in the past. The Company
intends to target this existing group of investors for its Contracts as well.
E. Factors Affecting Operations. Currently, the Company will rely
----------------------------
exclusively on MCMI to generate the Contracts. If MCMI's volume of business
should become stagnant or decrease, or if it should become insolvent, the
Company would have to find other sources for such Contracts to continue its
business operations. See the section captioned "RISK FACTORS" for a more
detailed discussion of the various risks involved regarding the affiliation of
MCMI and the Company and the proposed business operations of both entities. In
addition, a significant change in the local economy, such as a loss of a major
employer, could also adversely impact the Company's business operations if the
jobs lost have an inordinate impact on the Non-Prime Consumer workforce. In
addition, an increase in interest rates could also impact the Company's
viability. However, the Company would not anticipate a significant impact to
MCMI's business since the bulk of the Contracts represent the Non-Prime Consumer
who, because of his status, is accustomed to paying higher interest rates. Such
changes could affect the marketability of the Contracts and/or Notes to
Investors by reducing their return on borrowed funds used to purchase the
Contracts and/or Notes or by rendering their investment return less competitive
in light of current market rates. (See "RISK FACTORS.")
F. Projections. Management is optimistic about the business opportunities
-----------
available to the Company and MCMI in the Non-Prime Market. Based upon the growth
of MCMI since its inception and the forecasts for future growth and expansion
described below, Management believes the Company will experience continuous
growth as the number of Contracts generated by MCMI increases. The projections
for growth of MCMI are based on historic amounts and plans for the next two
years. For the year ended December 31, 1996, MCMI sold 317 Automobiles at an
average price of $5,630 per vehicle from their primary car lot, which opened in
October, 1995, and a second smaller lot. Total number of sales in 1994 and 1995
were 114 and 192, respectively. Based on the 1996 average price of a car sale,
MCMI projects sales of approximately 310 vehicles for 1997 and 620 for 1998. To
accomplish this sales volume, MCMI plans an aggressive marketing campaign to
reach its target market. Projections include advertising expense at
approximately 2.8 percent of sales volume, where industry averages are less than
one-half of that percentage. MCMI has experienced an average growth rate over
200 percent since its first year in business. Management anticipates this
growth rate to continue through the first year of its Offering of Notes and
Contracts. In the first year of the Offering, MCMI plans to open its third car
lot to provide the additional inventory and sales staff to handle the increased
volume. Later in the second year, a fourth car lot will be opened.
Accordingly, the Company's growth and profitability are inextricably
interrelated with MCMI's. See the sections captioned "INVESTMENT HIGHLIGHTS"
and "DESCRIPTION OF THE BUSINESS" for a more detailed description of the
business operations of the Company and MCMI.
II. Mr. Car Man, Inc.
----------------
A. Operating History - Overview. MCMI has grown rapidly since its inception
----------------------------
in mid-1993, increasing its revenues from $120,392 for the six months ended
December 31, 1993 to
33
<PAGE>
$1,125,664 for the year ended December 31, 1995 to $1,994,475 for the year ended
December 31, 1996. MCMI has averaged gross profit of 29.7% and net profit of
11.1%. The operations of MCMI have evolved from the basic premise of selling
and leasing Automobiles to the financing of the purchase price and the
successful completion of a limited private placement offering of its Contracts.
The growth of MCMI has been realized through aggressive advertising campaigns
targeted at its potential customer base. Automobiles sold in the year ended
December 31,1995 totaled 192 and has climbed to 317 through the fourth quarter,
1996. To maintain the growth in volume, MCMI expanded its employee base from
the two founding stockholders to include sales positions, mechanics and
administrative staff. In 1995, MCMI opened it second car lot which also houses
its administrative offices. MCMI financed its growth initially through funds
borrowed from individuals. With the successful limited private placement
offering of its Contracts, funds in excess of $950,000.00 were raised. The
future expansion of MCMI to one additional car lot per year for the next three
years will be financed from the growth of MCMI's Contracts volume the bulk of
which Contracts will be acquired by the Company with funds generated through the
SB-1 offering of its Contracts and Notes in the aggregate amount of
$7,500,000.00.
B. Analysis of Financials for the Year Ended December 31, 1996.
-----------------------------------------------------------
(i) Liquidity and Capital Resources. For the year ended December 31,
-------------------------------
1996, working capital increased by $245,450. Cash flow from
operations was primarily affected by a net profit of $347,599, less an
increase in accounts receivable and inventory of $231,952. Cash
provided by operations of $135,868 was used generally to fund
distributions to shareholders and reduce balances of outstanding
liabilities. MCMI also received proceeds from new loans of $58,048
during 1996, when combined with operations generated an increase in
cash of $40,633.
MCMI's quick ratio increased from .64 to 1 in 1995 to .90 to 1 in
1996. The increase in the ratio is attributable to the increase in
cash as a result of the 75% increase in volume in the most recent
year. Historically, MCMI's growth rate has been financed in part by
loans from related parties and other third party individuals. Funds
were also received from the placement of installment contracts in a
successful limited private placement offering.
(ii) Results of Operations.
---------------------
(a) Resources and Net Income. MCMI's revenues for 1996 increased 75%
------------------------
over what was reported in 1995. The increase is attributable to a
full year's operation of a larger second car lot that was
established in October, 1995. The new lot accommodates more than
double the number of Automobiles handled at the original lot.
Also, additional sales persons were added during 1996 to generate
increased sales volume. The average price per car sold in 1996 was
relatively consistent with that in previous years, so the increase
is due to the number of Automobiles that were sold.
(b) Income from Operations. As a percentage of revenues, income from
----------------------
operations was 15% for the year ended December 31, 1996, which is
comparable to that in 1995. As MCMI has grown, expenses remained
relatively consistent between 1995 and 1996 when analyzed as a
percentage
34
<PAGE>
of revenue. Advertising expense increased only 13.7% in 1996, due
to the effectiveness of the marketing efforts in place.
C. Analysis of Financials for the Three and One-Half Years Ended December 31,
--------------------------------------------------------------------------
1996.
----
(i) Liquidity and Capital Resources. MCMI began operations in June 1993,
-------------------------------
financing its start up with funds borrowed from individuals who were
generally related parties. Cash was used for operations in 1993 and
1994. In 1995, cash flow provided by operations was primarily
affected by a net profit of $223,743, less an increase in accounts
receivable and inventory of $195,470. Cash provided by operations of
$46,664 was used generally to fund distributions to shareholders and
acquire property and equipment. MCMI also received proceeds from new
loans of $78,315 during 1995, when combined with operations generated
an increase in cash of $40,456.
Stockholders' equity has increased from a deficit of ($12,189) in
1993 to a balance of $367,216 in 1996. This growth has occurred
primarily from the increased volume of sales of Vehicles during the
existence of MCMI.
(ii) Results of Operations.
---------------------
(a) Revenues and Net Income. Since inception in 1993, MCMI's revenues
-----------------------
have experienced an average growth rate of 181%. As a percentage
of revenues, net income has grown from a loss of (10.1%) in 1993 to
its current level in 1996 of 17.4%. Net income for 1996 was
$347,599, a fifty-five percent increase from 1994.
Revenues for the year ended December 31, 1995 increased 102.9%
over 1994, and revenues in 1994 increased 364.8% over the short
period of operations in 1993. The overall increase in revenues and
net income is due to the increased number of Automobiles sold.
(b) Income from Operations. As a percentage of revenues, income from
----------------------
operations was 14.7%, 19.8% and 31.5% in 1995, 1994 and 1993,
respectively. From the date of incorporation through 1995,
expenses have not remained consistent as a percentage of revenues
because MCMI was not a mature business and was establishing itself
in the marketplace. In 1996, its operations settled and remained
relatively consistent with 1995.
D. Prospective Information. A key element of MCMI's business plan is
-----------------------
solidifying its source for capital funding to maintain and satisfy its
increasing demand for inventory. As MCMI expands with additional lots, the
demand for additional inventory will also increase. Coupled with the historical
growth in sales volume, MCMI's need for capital will become of paramount
importance. The principals foresaw this need which precipitated the formation
of the Company and the Offering. With the affiliated status of both entities,
MCMI will have an exclusive source in the Company for marketing its Contracts.
Having a ready buyer for its Contracts will allow MCMI to replenish its
inventory on an ongoing basis and continue business operations. Through the
Offering, the Company will have the funds to purchase the Contracts as they are
generated by MCMI. (See "DESCRIPTION OF THE BUSINESS.")
35
<PAGE>
Management believes MCMI has established a strong reputation in its market
area for providing good service and dependable Automobiles. In targeting the
Non-Prime Consumer, Management expects MCMI to increase its market share because
of the lack of dealers and finance companies competing for this consumer class.
(See "COMPETITION.")
Management anticipates achieving its principal goal of enhanced sales
volume through a number of initiatives. First, MCMI plans on implementing an
aggressive marketing campaign targeting the Non-Prime Market. Second,
Management intends to expand its business and market exposure by opening one new
car lot each year for the next two years. Additional inventory and sales staff
will be added to meet the increasing demand for Automobiles and to handle the
increase in customer traffic. Third, through MCMI's affiliation with the
Company, MCMI has an exclusive buyer for its Contracts, thereby converting its
accounts receivable into immediate cash. By maintaining a steady stream of cash
flow, MCMI will be able to replenish its inventory and meet its operating needs
of an ongoing basis which, in turn, reduces or eliminates MCMI's reliance on
future borrowings. Fourth, with a successful Offering by the Company, the
Company will have the capital it needs to fund the purchase of MCMI's Contracts
as they become available. This alleviates MCMI's dependence on outside sources
of financing to satisfy its capital requirements and to continue business
operations.
E. Results of Operations. The following discussion is qualified in its
---------------------
entirety by and should be read in conjunction with the Financial Statements,
including the notes thereto, appearing elsewhere in this Prospectus.
(i) Introduction. MCMI's primary source of cash flows are the principal
------------
and interest payments arising under the Contracts. To date, MCMI has been
successful in maintaining its business on a profitable basis through a
successful private placement of its Contracts under Rule 504 of Regulation D
promulgated under the Securities Act and normal business operations. In selling
its Contracts to the Company, MCMI will be relieved of having to negotiate and
contract with third party financial services from time to time to raise capital
for its operations. This will also allow MCMI to concentrate on its primary
business of selling Automobiles and to maintain a minimal debt structure.
(ii) Increase in Sales Volume. MCMI has experienced an average growth
------------------------
rate of over two hundred percent (200%) since its first year in business. (See
"DESCRIPTION OF THE BUSINESS.") Based on the initiatives set forth above,
Management is confident that MCMI's sales volume and revenues will continue to
grow. Management expects this trend will continue irrespective of the impact of
future market conditions on interest rates since the Non-Prime Consumer is
already accustomed to higher market rates as a factor of the higher level of
risk exposure he represents. However, higher interest rates may have a material
impact on an Investor's investment decision by rendering his return on
investment less competitive with other alternative investment opportunities
and/or reducing the profit margin on funds borrowed to purchase a Contract.
(iii) Capital Expenditures. Management plans to open two (2) new car lots
--------------------
over the next two years in the Roanoke Valley which is in the State of Virginia.
As a result, MCMI expects the trend of higher sales volume in fiscal 1997 and
1998 to continue with projected sales of 310 and 620, respectively. Management
estimates that approximately $250,000.00 will be required to finance MCMI's cost
of opening the two lots. Each lot will require approximately $100,000.00 in
inventory and $25,000.00 in furniture and fixtures. MCMI intends to finance its
expansion program principally from cash flow generated during normal business
operations, revenues received from the sale of its Contracts to the Company,
and/or funds obtained from
36
<PAGE>
conventional funding sources. (See "INVESTMENT HIGHLIGHTS.") Presently, MCMI
does not intend to seek or incur additional credit facilities or debt since the
Company will provide the financing needed by MCMI through the Offering.
(iv) Affiliated Status. A critical component of both MCMI's and the
-----------------
Company's success is the exclusivity of their business relationship. MCMI will
depend solely on the Company to purchase its Contracts which will generate the
funds it needs to meet its expansion goals and operating expenses. The Company,
in turn, will depend solely on MCMI to generate the Contracts it will purchase
for resale to Investors. Accordingly, Investors' funds will be used by the
Company primarily to purchase additional Contracts from MCMI and ultimately by
MCMI to purchase new inventory used to fund its operating expenses and expansion
program. This business relationship is primarily predicated upon the continued
commonality of ownership of the two entities and the success of the Offering.
(See "RISK FACTORS" and "DESCRIPTION OF THE BUSINESS.") There are no written
agreements or arrangements memorializing this relationship at this time because
of the existing commonality of ownership of the two entities and the significant
advantage such relationship bestows on each entity over its competitors. (See
"RISK FACTORS" and "COMPETITION.")
F. Benefits of Affiliation. To remain competitive in the used car industry,
-----------------------
MCMI must maintain sufficient operating capital to replenish its inventory. This
cannot be accomplished if it finances the majority of its sales without the
assistance of a finance company. The Company provides a ready market for MCMI's
"car paper" (i.e., the Contracts), which generates the cash flow MCMI needs to
satisfy its ongoing capital requirements. With a successful Offering, the
Company anticipates it will have the capital reserves necessary to purchase
MCMI's Contracts on a continual basis. Management's long term goal is to
establish: (i) a market for MCMI's Contracts with large financial institutions,
pension funds and/or insurance companies; and/or (ii) sufficient lines of
credit, thereby reducing the need for individual investors.
G. Refining the Showroom. Management will develop a new showroom concept
---------------------
which will be stimulating to the eye as well as the ear. On display will be
video monitors replaying segments of movies and comedy stand-up routines, all of
which poke fun or in some way humorously relate to the car industry. Intermixed
between these segments will be portions of songs and other musical themes about
cars, all being played through a computerized sound system. Management will
emphasize the car theme in packaging this media by incorporating parts of cars
into the display. For example, a video monitor could be installed inside the
headlight and grill section of a '55 Chevy and hung from the ceiling. The car
buying process then truly becomes a captivating and entertaining experience.
Psychological research proves that humor lowers anxiety. By lowering a potential
customer's anxiety level, his level of trust rises which increases the chances
of selling more cars.
H. Warranty. MCMI currently offers to its customers a five (5) day money back
--------
guarantee and a bumper to bumper dealer cost warranty. If a customer does not
like the Automobile for any reason, MCMI will give the customer his down payment
back less mileage. With the warranty, which lasts for the full length of the
financed contract term, MCMI only charges the customer what MCMI paid for the
part (no markup). Labor under warranty is currently priced at $22.50 per hour.
These features are unmatched in MCMI's market area, and Management believes few
if any independent car companies offer these services in other regions of the
United States.
37
<PAGE>
PROPERTIES
The following table describes the principal office and business locations of
the Company and MCMI and the monthly rental as of December 31, 1996:
<TABLE>
<CAPTION>
Location Description Rent/Month
- -------- ----------- ----------
<S> <C> <C>
3733 Williamson Road
Roanoke, Virginia Service and Collections Lot/1/ $1,326
4206 Williamson Road
Roanoke, Virginia Sales Lot and Executive and $1,650
Administrative
Offices for MCMI and the Company/2/
</TABLE>
Management projects to open one additional car lot per year for each of the next
three years. Rental projections are based on lease rates that are comparable to
existing lease agreements.
_______________
/1/ Leased (term expires July 31, 1998, no renewal option)
/2/ Leased (term expires August 31, 1997, with unlimited one year renewal
option)
LEGAL PROCEEDINGS
Currently, neither Company nor MCMI is a party to any legal proceeding.
Although there have been no such proceedings to date, there is no guarantee that
such proceedings will not arise in the future in the ordinary course of
business, especially with respect to collection efforts necessitated by customer
defaults.
MANAGEMENT
A. Directors
---------
The table below sets forth the name, age, and position of the Company's and
MCMI's Directors:
<TABLE>
<CAPTION>
Name Age Position/Status
---- --- ---------------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 Director; 50% Shareholder
Jeffrey W. Akers 32 Director; 50% Shareholder
</TABLE>
Messrs. Blankemeyer and Akers are the sole shareholders and directors of MCMI
and the Company and are serving terms that will expire at the date of the annual
shareholders' meeting in 1996.
38
<PAGE>
B. Officers
--------
The table below sets forth the name, age and position of the Company's and
MCMI's executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 President and Secretary
Jeffrey W. Akers 32 Vice President and Treasurer
</TABLE>
C. Biographies of Directors and Officers
-------------------------------------
Franklin W. Blankemeyer, Jr. Mr. Franklin W. Blankemeyer, Jr., co-founder
----------------------------
and Director of the Company and MCMI, has served as the President and Secretary
for both companies since June 1993. Prior to founding the Company, Mr.
Blankemeyer was employed by Valleydale Foods, Inc. and Valleydale Packers, Inc.
(collectively "Valleydale") and served as plant manager of Valleydale's Salem,
Virginia, sales/production facility directing the efforts of 225 employees.
Valleydale had annual sales of $40,000,000.00. Mr. Blankemeyer was with both
companies for a total of 8 years. Mr. Blankemeyer also served as program
director for Southwestern Virginia's International Trade Association during his
employment at Valleydale Packers, Inc. Mr. Blankemeyer graduated from Hampden-
Sydney College in 1986, cum laude, with a B.S. in Economics.
Jeffrey W. Akers. Mr. Jeffrey W. Akers graduated from Virginia Tech in 1987
----------------
with a B. S. in Civil Engineering. He worked at Richard L. Williams Consulting
Engineers as a Project Structural Engineer for three years designing small to
medium sized commercial buildings before turning to the field of finance and
investments. After two years serving as a Financial Consultant and a training
manager for IDS Financial Services (now American Express Financial Advisors)
where he qualified for the Mercury Award, presented to the top 20% performers,
he founded the Company and MCMI with Mr. Blankemeyer. Mr. Akers is currently a
Director and the Vice-President and Treasurer of both companies.
D. Executive Compensation
----------------------
Compensation of Directors. Neither the Company's nor MCMI's Board of
-------------------------
Directors receive any compensation or remuneration of any kind.
The following table sets forth the aggregate annual compensation of the
executive officers of MCMI and the Company for the last fiscal year:
<TABLE>
<CAPTION>
Principal Salary/Other Annual
Name of Officer Position Year Distributions/1/ Compensation/2/
- --------------- --------- ---- ---------------- ---------------
<S> <C> <C> <C> <C>
Franklin W. President/ 1996 56,472.00 NONE
Blankemeyer, Jr. Secretary
Jeffrey W. Akers Vice- 1996 56,472.00 NONE
President/
Treasurer
</TABLE>
39
<PAGE>
(1) The two principal officers received stockholder distributions in the amount
of $56,472.00 each during 1996. No bonuses were paid during this time.
The Company anticipates implementing a monthly salary in the amount of
$2,000.00 for the two principals commencing in 1997, in addition to
stockholder distributions.
(2) Neither officer received any other compensation or benefit of any kind
during 1996.
Cash Incentive Compensation. At the present time there is no management
---------------------------
incentive plan or any other type of remuneration or compensation plan
benefitting solely the executive officers of MCMI or the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of the common stock of the Company as of the Effective Date, (i) by
each director and officer, (ii) by each person known by the Company to be the
beneficial owner of ten percent or more of the outstanding shares of common
stock of the Company, and (iii) by all directors and officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned of Class
---------------- ------------------ --------
<S> <C> <C>
Franklin W.
Blankemeyer, Jr. 10 50%
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers 10 50%
505 24th Street, S.W.
Roanoke, Virginia 24014
Directors and Officers 20 100%
as a Group (2 persons)
Franklin W.
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers
505 24th Street, S.W.
Roanoke, Virginia 24014
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as specified herein, there are no transactions involving the Company or
MCMI in which any director, officer, or shareholder or their spouses or other
relatives, have had or will have a direct or indirect material interest. Mr.
Blankemeyer's father and Mr. Akers' mother are current noteholders of MCMI which
notes and terms are more particularly described below:
40
<PAGE>
<TABLE>
<CAPTION>
Original Date of Interest Monthly Balance
Payee Amount Note Rate Payment Terms 12/31/96
- ----- ------ ---- ---- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. Franklin W. 49,500 variable 7% int. accrues Demand 49,500
Blankemeyer, Sr. 60,961 03/04/94 7% int. accrues Demand 60,961
15,000 04/05/95 15% $750 24 mos. 9,677
Mr. Franklin W. 12,681 variable 0% N/A Demand 12,681
Blankemeyer, Jr.
Mrs. Nancy 20,000 11/03/93 7% $396 60 mos. 8,500
Maddox 8,000 03/30/95 7% $158 60 mos. 6,254
</TABLE>
In addition, Mr. Akers' father is employed by MCMI on a full time basis. Mr.
Frank Aker's salary is based entirely on commission and averages $35,000.00 per
year.
Currently, Jeffrey W. Akers is indebted to MCMI in the amount of $4,850.00
representing a cash advance. The debt is evidenced by an unsecured, non-
interest bearing demand note.
LEGAL MATTERS
The validity of the Contracts offered hereby will be passed upon for the
Company by Magee, Foster, Goldstein & Sayers, P.C.
EXPERTS
The audited financial statements of Genesis Financial Group, Inc. as of
December 31, 1996 and 1995 and the audited financial statements of Mr. Car Man,
Inc. as of December 31, 1995 and for the period then ended included in this
Prospectus have been so included in reliance on the report and authority of Hope
Player And Associates, P.C., an expert in auditing and accounting.
GLOSSARY
The following are definitions of certain capitalized terms used in this
Prospectus:
AFFILIATE - an affiliate of, or person affiliated with, a specified person
shall mean a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
persons specified.
AUTOMOBILES - the used cars, vans, light trucks and other vehicles sold by
MCMI from time to time.
CODE - the Internal Revenue Code of 1986, as amended.
41
<PAGE>
COMMISSION - the Securities And Exchange Commission.
COMPANY - Genesis Financial Group, Inc., a Virginia corporation.
CONTRACTS - the Installment Sales Contracts originated by MCMI during the
normal course of its business operations of selling Automobiles to the general
public, specifically the Non-Prime Consumer, which Contracts are offered by the
Company hereunder.
EFFECTIVE DATE - the date upon which the registration statement, of which this
Prospectus is a part, registering the Notes and Contracts and filed with the SEC
on behalf of the Company is declared effective by the staff of the Commission.
EXCHANGE ACT - The Securities Exchange Act of 1934, as amended.
GUARANTEE - the Company's guarantee that all obligations due or owed to an
Investor under a defaulted Contract will be paid or fulfilled.
INVESTOR(S) - a purchaser of a Contract offered by the Company pursuant to the
offering.
MANAGEMENT - Messrs. Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers.
MCMI - Mr. Car Man, Inc., a Virginia corporation.
NON-PRIME CONSUMER - an Automobile buyer with limited access to traditional
sources of consumer credit.
NON-PRIME MARKET - the automobile finance market for Non-Prime Consumers.
NOTES - the corporate promissory notes offered by the Company to investors
pursuant to the Offering.
OFFERING - the offer for sale to investors by the Company of up to
$7,500,000.00 in Contracts, together with the Company's Guarantees, and Notes
for the purpose of raising, in the aggregate, $7,500,000.00 which Offering is
registered with the Commission on form SB-1.
PROSPECTUS - the offering document delivered to Investors interested in
purchasing the Contracts.
SECURITIES ACT - The Securities Act of 1933, as amended.
[Balance of this page intentionally left blank.]
42
<PAGE>
FINANCIAL STATEMENTS
--------------------
Page
----
Comparative Financial Statements for
Genesis Financial Group, Inc. and Mr. Car Man, Inc.
Comparative Balance Sheets for Genesis Financial Group, Inc. as of
December 31, 1993, 1994, 1995 and 1996 F-1
Comparative Income Statements for Genesis Financial Group, Inc.
for periods ended December 31, 1993, 1994, 1995 and 1996 F-2
Comparative Balance Sheets for Mr. Car Man, Inc. as of
December 31, 1993, 1994, 1995 and 1996 F-3
Comparative Income Statements for Mr. Car Man, Inc. for
periods ended December 31, 1993, 1994, 1995 and 1996 F-4
Audited Financial Statements of Genesis Financial Group, Inc.
December 31, 1996 and 1995 F-5
Report of Independent Auditors F-6
Balance Sheets as of December 31, 1996 and 1995 F-7
Statements of Income and Retained Earnings
for years ended December 31, 1996 and 1995 F-8
Statement of Cash Flows for years ended December 31, 1996 and 1995 F-9
Notes to Financial Statements F-10
Financial Statements for Mr. Car Man, Inc.
December 31, 1996 and 1995
Report of Independent Auditors F-11
Balance Sheets as of December 31, 1996 and 1995 F-12
Statements of Income and Retained Earnings for years ended
December 31, 1996 and 1995 F-13
Statements of Cash Flows for years ended December 31, 1996 and 1995 F-14
Notes to Financial Statements F-15
43
<PAGE>
FINANCIAL STATEMENTS
--------------------
(Continued)
-----------
Page
----
Projected Financial Statements for Genesis Financial Group, Inc.
and Mr. Car Man, Inc. F-16
Projected Balance Sheets for Genesis Financial Group, Inc. as of
Years One and Two F-19
Projected Income Statements for Genesis Financial Group, Inc.
for the Periods Ended Years One and Two F-20
Summary of Significant Projection Assumptions
for Genesis Financial Group, Inc. Years One and Two F-21
Projected Balance Sheets for Mr. Car Man, Inc. as of
Years One and Two F-23
Projected Income Statements for Mr. Car Man, Inc.
for the Periods Ended Years One and Two F-24
Summary of Significant Projection Assumptions
for Mr. Car Man, Inc. Years One and Two F-25
44
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED AUDITED
<S> <C> <C> <C> <C>
Assets
------
Current assets
Cash $ 50 - - -
----- --------- ------- -------
Total current assets 50 - - -
Organization costs, net 401 315 229 143
----- --------- ------- -------
Total assets 451 315 229 143
===== ========= ======= =======
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 9,224 9,174 9,174 11,600
Stockholders' equity
Common stock, no par value,
20 shares issued and 100
shares authorized 2,000 2,000 2,000 2,000
Retained earnings (10,773) (10,859) (10,945) (13,457)
------ ------ ------ ------
( 8,773) ( 8,859) ( 8,945) (11,457)
------ ------ ------ ------
Total liabilities and
stockholders' equity $ 451 315 229 143
======== ======= ======= =======
</TABLE>
F-1
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED AUDITED
<S> <C> <C> <C> <C>
Revenues, net $ - - - -
Expenses
Advertising 566 - - 2,000
Education 8,066 - - -
Supplies 470 - - -
Telephone 731 - - 376
Miscellaneous 789 - - 50
Meals 122 - - -
Amortization 29 86 86 86
-------- --------- ------- ------
Total expenses 10,773 86 86 2,512
-------- --------- ------- ------
Net loss $(10,773) ( 86) ( 86) (2,512)
======== ========= ======= ======
</TABLE>
F-2
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED UNAUDITED
<S> <C> <C> <C> <C>
Assets
------
Current assets
Cash $ 15,485 11,581 52,037 92,670
Accounts receivable, trade 19,784 74,187 162,873 319,860
Accounts receivable,
related party 2,200 12,983 11,447 5,345
Inventory 18,844 26,152 132,936 207,901
--------- -------- ------- -------
Total current assets 56,313 124,903 359,293 625,776
Fixed assets, net 3,131 7,245 29,529 36,609
Other assets 1,750 1,750 4,201 4,455
--------- -------- ------- -------
Total assets 61,194 133,898 393,023 666,840
========= ======== ======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable 1,283 - 1,332 7,196
Accrued expenses - 5,809 7,732 7,732
Current portion
long-term debt - 26,555 72,764 87,933
--------- -------- ------- -------
Total current liabilities 1,283 32,364 81,828 102,861
Long-term debt 72,000 134,086 152,725 163,122
Accrued interest payable - - 5,809 13,541
Stockholders' equity
Common stock, no par value,
20 shares issued and
100 shares authorized 100 20,100 20,100 20,100
Retained earnings ( 12,189) ( 52,652) 132,561 367,216
------- ------- ------- -------
Total stockholders' equity ( 12,089) ( 32,552) 152,661 387,316
------- ------- ------- -------
Total liabilities and
stockholders' equity $ 61,194 133,898 393,023 666,840
========= ======== ======= =======
</TABLE>
F-3
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE INCOME STATEMENTS
FOR PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED UNAUDITED
<S> <C> <C> <C> <C>
Revenues, net $ 120,392 559,637 1,135,664 1,994,475
Cost of merchandise sold 92,265 456,841 713,182 1,324,202
--------- -------- --------- ---------
28,127 102,796 422,482 670,273
Expenses
Salaries and wages - - - 97,385
Advertising 8,712 23,267 42,781 48,656
Legal and professional 1,476 15,825 24,963 16,346
Rent 6,250 15,896 23,645 38,681
Telephone and utilities 2,321 7,155 12,845 21,758
Supplies 2,121 9,177 10,365 11,108
Outside services 536 2,253 8,066 6,329
Collection costs - - 7,201 16,647
Bad debt expense - - 6,794 1,744
Travel and entertainment 110 6,027 6,412 5,694
Repairs and maintenance 3,366 1,321 2,801 218
Taxes - other 2,409 5,512 4,506 7,118
General insurance 888 3,210 4,571 8,822
Office expense 2,659 5,253 3,580 4,100
Education 5,709 8,981 2,558 2,118
Miscellaneous 1,167 6,254 3,790 10,381
Depreciation and
amortization 198 507 2,533 4,881
--------- -------- --------- ---------
37,922 110,638 167,411 301,986
--------- -------- --------- ---------
Income (loss) from
operations ( 9,795) ( 7,842) 255,071 368,287
Interest expense ( 2,394) ( 13,775) ( 31,328) ( 25,999)
Other income - - - 5,311
--------- -------- --------- ---------
Net income $( 12,189) ( 21,617) 223,743 347,599
======= ======= ======= =======
</TABLE>
F-4
<PAGE>
GENESIS FINANCIAL GROUP, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT)
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Genesis Financial Group, Inc.
We have audited the accompanying balance sheet of Genesis Financial Group, Inc.
as of December 31, 1996 and 1995, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genesis Financial Group, Inc.
as of December 31, 1996 and 1995, and the results of its operations and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 6, 1997
F-6
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
------
Current assets
Cash $ - -
-------- -------
Total current assets - -
Organization costs, net 143 229
-------- -------
Total assets 143 229
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 11,600 9,174
Stockholders' equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 2,000 2,000
Retained earnings (13,457) (10,945)
------ ------
(11,457) ( 8,945)
------ ------
Total liabilities and
stockholders' equity $ 143 229
====== ======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-7
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Statements of Income and Retained Earnings
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues, net $ - -
Expenses
Advertising 2,000 -
Education - -
Supplies - -
Telephone 376 -
Miscellaneous 50 -
Meals - -
Amortization 86 86
-------- -------
Total expenses 2,512 86
-------- -------
Net loss ( 2,512) ( 86)
Retained earnings, beginning (10,945) (10,859)
------ ------
Retained earnings, ending $(13,457) (10,945)
====== ======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-8
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,512) ( 86)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 86 86
------- ------
Net cash provided (used) by operating activities (2,426) -
Cash provide by financing activities
Increase in loans from stockholders 2,426 -
------- ------
Cash at beginning of year - -
------- ------
Cash at end of year $ - -
======= ======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-9
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Genesis Financial Group, Inc. (Genesis) was formed to provide
centralized funding, receivables, management, and collection services
for installment sales contracts originated by Mr. Car Man, Inc.
(MCMI), an affiliated company, from the sale of used automobiles, van,
light trucks and other vehicles. MCMI sells used automobiles to
individuals in the Roanoke, Virginia area who have limited access to
traditional sources of consumer credit. As of the date of these
financial statements, Genesis has a limited operating history.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquefied investments with an initial maturity of
three months or less to be cash equivalents.
Income Taxes
------------
The Company had originally elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under those provisions,
Genesis does not pay federal corporate income taxes on its taxable
income. Instead the stockholders are liable for individual federal
income taxes on their respective shares of the Company's profits.
Effective January 1, 1997, the Company terminated its S Corporation
status and is now a C Corporation.
Note 2. RELATED PARTY TRANSACTIONS
Notes payable to stockholders as of December 31, 1996 and 1995
represents amounts advanced by stockholders to fund initial working
capital requirements. The loans are due on demand and bear no
interest.
F-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Mr. Car Man, Inc.
We have audited the accompanying balance sheet of Mr. Car Man, Inc. as of
December 31, 1995, and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mr. Car Man, Inc. as of
December 31, 1995, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 22, 1996
F-11
<PAGE>
MR. CAR MAN, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- -------
UNAUDITED AUDITED
<S> <C> <C>
Assets
------
Current assets
Cash $ 92,670 52,037
Accounts receivable, trade 319,860 162,873
Accounts receivable, related party 5,345 11,447
Inventory 207,901 132,936
-------- -------
Total current assets 625,776 359,293
Fixed assets, net (Notes 2 and 3) 36,609 29,529
Other assets 4,455 4,201
-------- -------
Total assets 666,840 393,023
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade 7,196 1,332
Accrued expenses 7,732 7,732
Current portion long-term debt 87,933 72,764
-------- -------
Total current liabilities 102,861 81,828
Long-term debt (Notes 3 and 5) 163,122 152,725
Accrued interest payable 13,541 5,809
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100 20,100
Retained earnings 367,216 132,561
-------- -------
387,316 152,661
-------- -------
Total liabilities and stockholders' equity $666,840 393,023
======== =======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-12
<PAGE>
MR. CAR MAN, INC.
Statements of Income and Retained Earnings
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
UNAUDITED AUDITED
<S> <C> <C>
Revenues, net $1,994,475 1,135,664
Cost of merchandise sold 1,324,202 713,182
---------- ---------
Gross profit 670,273 422,482
Expenses
Salaries and wages 97,385 -
Advertising 48,656 42,781
Legal and professional 16,346 24,963
Rent 38,681 23,645
Telephone and utilities 21,758 12,845
Supplies 11,108 10,365
Outside services 6,329 8,066
Collection costs 16,647 7,201
Bad debt expense 1,744 6,794
Travel and entertainment 5,694 6,412
Repairs and maintenance 218 2,801
Taxes - other 7,118 4,506
General insurance 8,822 4,571
Office expense 4,100 3,580
Education 2,118 2,558
Miscellaneous expense 10,381 3,790
Depreciation and amortization 4,881 2,533
---------- ---------
301,986 167,411
---------- ---------
Income from operations 368,287 255,071
Interest expense ( 25,999) ( 31,328)
Other income 5,311 -
---------- ---------
( 20,688) ( 31,328)
---------- ---------
Net income 347,599 223,743
Retained earnings, beginning 132,561 ( 52,652)
Less shareholder distributions ( 112,944) ( 38,530)
----------- ---------
Retained earnings, ending $ 367,216 132,561
========== =========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-13
<PAGE>
MR. CAR MAN, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
UNAUDITED AUDITED
<S> <C> <C>
Cash flows from operating activities
Net income $ 347,599 223,743
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,881 2,533
Bad debt expense 1,744 6,794
(Increase) decrease in:
Trade accounts receivable (156,987) ( 88,686)
Inventories ( 74,965) (106,784)
Increase (decrease) in:
Trade accounts payable 5,864 1,332
Accrued liabilities 7,732 7,732
--------- --------
Net cash provided (used) by operating activities 135,868 46,664
Cash flows from investing activities
Purchases of property and equipment ( 11,960) ( 24,817)
Loans made to related party - ( 5,997)
Payments received loans to related
party, net of advances 4,358 739
Increase in refundable deposits ( 254) ( 2,451)
--------- ---------
Net cash provided (used) by investing activities ( 7,856) ( 32,526)
Cash flows from financing activities
Proceeds from notes payable 58,048 78,315
Principal repayment notes payable ( 32,483) ( 13,467)
Distributions to shareholders ( 112,944) ( 38,530)
--------- --------
Net cash provided (used) by financing activities ( 87,379) 26,318
--------- --------
Net increase in cash 40,633 40,456
Cash at beginning of year 52,037 11,581
--------- --------
Cash at end of year $ 92,670 52,037
========= ========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-14
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its
buyers. MCMI's customer base primarily consists of individuals in the
Roanoke, Virginia area who have limited access to traditional sources
of consumer credit. The financing contracts are generally sold to
third party investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquefied investments with an initial maturity of
three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized when
earned. Proceeds received from financing contracts sold reduce the
outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific identification
method. Repossessions are recorded at the lower of cost or market.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method of
depreciation for financial reporting purposes. The average estimated
useful lives of the principal property categories are summarized as
follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenance costs are charged to
expense as incurred.
F-15
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income.
Instead the stockholders are liable for individual federal income
taxes on their respective shares of the Company's profits.
Warranty Costs
--------------
The Company provides for warranty costs as products are repaired.
Note 2. FIXED ASSETS, NET
Fixed assets as of December 31, 1996 and 1995 are summarized by major
category as follows:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Leasehold improvements $ 8,983 8,983
Furniture and equipment 18,688 9,776
Assets under capital lease 17,335 14,287
-------- -------
45,006 33,046
Less accumulated depreciation
and amortization ( 8,397) ( 3,517)
-------- -------
$ 36,609 29,529
======== =======
</TABLE>
Note 3. LONG-TERM DEBT
As of December 31, 1996 and 1995, long-term debt is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Notes payable to individuals
due on demand; interest payable
monthly at varying interest
rates, unsecured $ 20,000 55,000
</TABLE>
F-16
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
<TABLE>
Note 3. LONG-TERM DEBT (Continued)
<S> <C> <C>
Note payable to individual due on
demand; no interest; secured by
inventory 30,000 -
Notes payable to individuals
due on demand after December 31,
1997; interest accrued and
payable at time of demand 123,142 123,142
Obligations under capital
leases due in monthly
installments of $575 including
interest ranging from 12% to
3.6% 10,007 11,597
Notes payable to individuals
due in monthly installments of
$3,203 including interest ranging
from 7% to 15%, maturities up
to March, 2000; unsecured 44,466 35,750
Note payable to individual due in
monthly installments of $899
including interest at 25%; secured
by installment obligations 23,440 -
--------- --------
221,055 225,489
Less current portion ( 87,933) ( 72,764)
--------- --------
Total long-term debt $ 163,122 152,725
========= ========
</TABLE>
F-17
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 3. LONG-TERM DEBT (Continued)
Annual maturities of long-term debt including capitalized leases are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 87,933
1998 24,033
1999 135,960
2000 3,129
-------
$ 251,055
=======
</TABLE>
Note 4. LEASES
The Company leases certain building and equipment under noncancellable
operating leases. Lease terms range from three to five years. The
following is a schedule of future minimum lease payments required
under the operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 32,174
1998 11,636
------
$ 43,810
======
</TABLE>
Rental expense recorded for the year ended December 31, 1996 and 1995
was $36,212 and $23,645, respectively.
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of December 31, 1996 and 1995
includes loans from stockholders and their family members totaling
$177,572 and $164,424, respectively. Certain loans accrue at various
interest rates with principal and interest due on demand. Certain
other loans are amortized monthly with maturities up to March, 2000.
Also as of December 31, 1996, there is an outstanding receivable from
a stockholder of $5,120.
F-18
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROJECTED BALANCE SHEETS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Assets
------
Current assets
Cash $ 3,505 224,266
Accounts receivable 1,089,249 3,356,238
Reserve for bad debts ( 65,480) ( 341,869)
---------- ----------
Total current assets 1,027,274 3,238,635
Fixed assets, net - 20,000
Organization costs, net 57 -
---------- ---------
Total assets 1,027,331 3,258,635
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Long-term debt 1,049,964 3,164,866
Stockholders' Equity
Common stock no par value,
20 shares issued and
100 shares authorized 2,000 2,000
Retained earnings
(deficit) ( 24,633) 91,769
--------- ---------
( 22,663) 93,769
--------- ---------
Total liabilities and
Stockholders' Equity $1,027,331 3,258,635
========== =========
</TABLE>
(See Summary of Significant Assumptions)
F-19
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROJECTED INCOME STATEMENTS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Revenues, net $ 322,677 1,202,034
Interest expense 90,329 373,146
--------- ---------
Gross profit 232,348 828,888
Expenses
Personnel 60,000 120,000
Occupancy - 12,000
Legal and professional 10,000 15,000
Bad debt 65,480 276,389
Collection costs 12,770 39,400
Commissions 75,000 150,000
Other expenses
Insurance 3,000 6,000
Travel and entertainment 7,500 11,250
Office expenses 10,000 15,000
Telephone 2,500 5,000
Depreciation and amortization 86 5,057
--------- ---------
Total expenses 246,336 655,096
--------- ---------
Income (loss) before taxes ( 13,988) 173,792
Income taxes ( 2,812) 57,390
--------- ---------
Net income (loss) $( 11,176) 116,402
========= ---------
</TABLE>
(See Summary of Significant Assumptions)
F-20
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
The financial projection is based on subscribing an offering of $6 million in
promissory notes and $1.5 million in installment sales contracts by the end of
year two, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of March 10, 1997, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained
and should not be considered to be a presentation of expected future results.
Accordingly, this presentation may not be useful for other purposes. The
assumptions disclosed herein are those management believes are significant to
the projections. Even if funds are obtained, there will usually be differences
between projected and actual results, because events and circumstances
frequently do not occur as expected and those differences may be material.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Genesis Financial Group, Inc. (Genesis) was formed to provide centralized
funding, receivables management, and collection services for installment sales
contracts originated by Mr. Car Man, Inc. (MCMI), an affiliated company, from
the sale of used automobiles, vans, light trucks and other vehicles. MCMI sells
used automobiles to individuals in the Roanoke, Virginia area who have limited
access to traditional sources of consumer credit. As of the date of these
financial statements, Genesis has a limited operating history.
Income Taxes
- ------------
The Company had originally elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, Genesis does not pay
federal corporate income taxes on its taxable income. Instead the stockholders
are liable for individual federal income taxes on their respective shares of the
Company's profits. Effective January 1, 1997, the Company terminated its S
Corporation status and is now a C Corporation.
F-21
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
Note A. REVENUES
The Company expects to purchase installment sales contracts from its
affiliated company, Mr. Car Man, Inc. (MCMI) in amounts of $1,500,000
and $3,000,000, in years one and two, respectively. Interest income
will be recorded as revenue as earned, and other revenues will be
recognized as received. Bad debt expense is estimated based on a
percentage of ending accounts receivable.
Note B. FIXED ASSETS
In year two, management plans to establish a separate office for the
Company operations. Depreciation expense is calculated based on the
assets estimated useful life of five years.
Note C. NOTES PAYABLE
The notes payable are anticipated to be subscribed over years one and
two, in the amounts of $1,166,664 and $2,666,664, respectively. These
projections include interest expense calculations based on an 18%
interest rate, assuming an equal amount of new notes on a monthly
basis, with the first payment to be made in the first month following
the issuance of the notes.
Note D. EXPENSES
The Company will be come fully operational in year one upon receipt of
initial funds under the offerings of $6 million in notes and $1.5
million in installment sales contracts. The expenses represent
management's estimate of the costs to operate and expand the business
of Genesis Financial Group, Inc.
Note E. INCOME TAX
State and federal income taxes are calculated at current tax rates,
and are assumed to be paid during the year for each of the years
presented.
F-22
<PAGE>
MR. CAR MAN, INC.
PROJECTED BALANCE SHEETS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Assets
------
Current assets
Cash $412,246 1,005,576
Accounts receivable, trade 255,888 204,710
Inventory 257,901 357,901
-------- ---------
Total current assets 926,035 1,568,187
Fixed assets, net 28,609 41,609
Other assets, net 4,455 4,455
-------- ---------
Total assets 959,099 1,614,251
======== =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Current portion long-term debt 24,033 135,960
-------- ---------
Total current liabilities 24,033 135,960
Long-term debt 139,089 3,129
Stockholders' equity
Common stock, no par value,
20 shares issued and
100 shares authorized 20,100 20,100
Retained earnings 775,877 1,455,062
-------- ---------
Total stockholders' equity 795,977 1,475,162
-------- ---------
Total liabilities and
stockholders' equity $959,099 1,614,251
======== =========
</TABLE>
(See Summary of Significant Assumptions)
F-23
<PAGE>
MR. CAR MAN, INC.
PROJECTED INCOME STATEMENTS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Revenues, net $1,750,400 3,500,800
Cost of merchandise sold 1,095,436 2,450,160
---------- ---------
Gross profit 654,964 1,050,640
Expenses
Personnel 20,000 32,000
Occupancy 46,900 70,350
Advertising 50,000 75,000
Legal and professional 24,000 36,000
Other expenses
Dues and fees 1,478 2,217
Education 2,557 3,836
Insurance 5,000 7,500
Miscellaneous 8,500 12,750
Operating supplies 6,400 9,600
Office supplies 6,400 9,600
Outside services 14,900 22,350
Office expense 2,668 4,002
Repairs and maintenance 8,500 12,750
Supplies 6,400 9,600
Taxes - other 4,600 6,900
Telephone 9,000 13,500
Travel and entertainment 5,000 7,500
Meals 4,000 6,000
Depreciation expense 8,000 12,000
---------- ---------
Total expenses 234,303 353,455
---------- ---------
Income from operations 420,661 697,185
Interest expense 12,000 18,000
---------- ---------
Net income $ 408,661 679,185
========== =========
</TABLE>
(See Summary of Significant Assumptions)
F-24
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
The financial projection is based on subscribing an offering of $6 million in
promissory notes and $1.5 million in installment sales contracts by the end of
year two, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly, the
projection reflects its judgement, as of March 10, 1997, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained
and should not be considered to be a presentation of expected future results.
Accordingly, this presentation may not be useful for other purposes. The
assumptions disclosed herein are those management believes are significant to
the projections. Even if funds are obtained, there will usually be differences
between projected and actual results, because events and circumstances
frequently do not occur as expected and those differences may be material.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its buyers.
MCMI's customer base primarily consists of individuals in the Roanoke, Virginia
area who have limited access to traditional sources of consumer credit. The
financing contracts have historically been sold to third party investors. These
projected financial statements reflect sales primarily to Genesis Financial
Group, Inc., an affiliated company.
Revenue Recognition
- -------------------
Revenue is recognized at time of sale. For company provided financing, interest
income on outstanding balance is recognized when earned. Proceeds received from
financing contracts sold reduce the outstanding receivable balance.
Inventory
- ---------
Inventory is recorded at historical cost plus cost of repairs, if required.
Cost of sales is determined on a specific identification method. Repossessions
are recorded at the lower of cost or market.
F-25
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
Fixed Assets
- ------------
Fixed assets are carried at cost. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method of depreciation for
financial reporting purposes. The average estimated useful lives of the
principal property categories are summarized as follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal income tax
purposes. Repairs and maintenance costs are charged to expense as incurred.
Income Taxes
- ------------
The Company has elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead the stockholders are
liable for individual federal income taxes on their respective shares of the
Company's profits.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
Note A. REVENUES, NET
The Management of Mr. Car Man, Inc. expects to sell installment sales
contracts to its affiliated company, Genesis Financial Group, Inc.
(Genesis) in amounts of $1,166,664 and $2,666,664 in years one and
two, respectively. Sales for each year include $333,334 in
installment sales contracts which will be sold to investors through an
offering to the general public by Genesis.
Note B. COST OF SALES
Cost of sales is expected to increase as the amount of sales
increases. The margins are projected to improve over historical
levels due to the increased volume.
Management anticipates opening a new car lot in years one and two
which is estimated to require a base inventory of $100,000 per lot.
F-26
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
Note C. FIXED ASSETS
Management anticipates opening a new car lot in years one and two at
an estimated cost of $25,000 in additional fixed assets per car lot.
Depreciation expense is calculated based on the assets' estimated
useful life of five years.
Note D. EXPENSES
Operating expenses are expected to increase as revenues increase due
to additional requirements of personnel and occupancy costs to support
the new proposed car lot and increased expenses due to increased
volume.
Note E. INCOME TAX
There is no provision for income tax expense in these financial
statements because Mr. Car Man, Inc. is an S Corporation, and the
stockholders have elected to report the taxable income or loss on
their individual returns.
F-27
<PAGE>
APPENDIX "A"
Retail Installment Sales Contract
---------------------------------
A-1
<PAGE>
RETAIL INSTALLMENT SALES CONTRACT
- --------------------------------------------------------------------------------
Buyer (and Co-Buyer) Name and Address Ceditor (Seller Name and Address)
(include County & Zip Code)
- --------------------------------------------------------------------------------
You, the Buyer (and Co-Buyer, if any), may buy the vehicle described below for
cash or on credit. The cash price is shown below as "Cash Price." The credit
price is shown below as "Total Sale Price." By signing this contract, you choose
to buy the vehicle on credit under the agreements on the front and back of this
contract. This contract is not contingent upon any financing terms which are
satisfactory to the parties.
Description of Vehicle. You agree to buy and the Creditor agrees to sell the
following vehicle.
- --------------------------------------------------------------------------------
New or Used Year Made and Model Body Type
- --------------------------------------------------------------------------------
Vehicle Identification No. Use for Which Purchased
[ ] personal [ ] agricutural
[ ] business [ ] _________________
- --------------------------------------------------------------------------------
If truck -- Describe body and major names of equipment sold:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERAL TRUTH-IN-LENDING DISCLOSURES
- --------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE FINANCE CHARGE Amount Financed
The cost of your credit The dollar amount the The amount of credit
as a yearly rate. credit will cost you. provided to you or on
your behalf
____________% $ ______________ $ _______________
- --------------------------------------------------------------------------------
Total of Payments Total Sale Price
The amount you will have paid The total cost of your purchase
after you have made all on credit, including your
payments as scheduled. downpayment of $______________ is.
$_______________________ $__________________________
- --------------------------------------------------------------------------------
Your Payment Schedule Will Be:
- --------------------------------------------------------------------------------
Number of Payments Amount of Payments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When Payments Are Due Or as Follows
- --------------------------------------------------------------------------------
Monthly beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
Late Charge. If a payment is not paid in full within 7 days after it is due, you
will pay a late charge of 5% of the late payment.
Prepayment. If you pay off all your debt early, you will not have to pay a
penalty and you may be entitled to a refund of part of the finance charge.
Security Interest. You are giving a security interest in the vehicle being
purchased.
Additional information. See the other side of this contract for more information
including information about nonpayment, default, any required repayment in full
before the scheduled date, prepayment refunds and security interest.
- --------------------------------------------------------------------------------
ITEMIZATION OF AMOUNT FINANCED
1. Cash Price (including any accessories,
services, and taxes)_______________________________________$ _____________(1)
2. Total Downpayment = Net Trade-in $ ________________ + Cash
Downpayment $_________________________
Your Trade-in is a _______________________________________ $ _____________(2)
Year Make Model
3. Unpaid Balance of Cash Price (1 minus 2)__________________ $ _____________(3)
4. Other Charges including Amounts Paid to Others on Your Behalf:
A Cost of Physical Damage Insurance Paid to the Insurance
Company Named Below -- Covering damage to the
Vehicle. _______________________________________________ $ _____________
B Cost of Optional Mechanical Repair Insurance Paid to the
Insurance Company Named Below -- Covering Certain
Mechanical Repairs. ____________________________________ $ _____________
C Cost of Optional Credit Insurance for the Term of this
Contract Paid to the Insurance Company or Companies
Named below. Life $________________ Disability, Accident
and Health $____________________________________________ $ _____________
D Official Fees Paid to Government Agencies ______________ $ _____________
E Taxes Not Included in Cash Price _______________________ $ _____________
F Government License and/or Registration Fees (Itemize)___ $ _____________
G Government Certificate of Title Fees ___________________ $______________
H Other Charges (Seller must identify who will receive
payment and describe purpose)
to ______________ for _______________________________ $ _____________
to ______________ for _______________________________ $ _____________
Total Other Charges and Amounts Paid to Others on Your
Behalf _________________________________________________ $ _____________(4)
5. Amount Financed -- Unpaid Balance (amount of credit you
will get) (3 + 4) ________________________________________ $ _____________(5)
- --------------------------------------------------------------------------------
Insurance. If any insurance is checked below, the policies or certificates
issued by the Companies named will describe the terms and conditions.
Physical Damage Insurance. You may obtain physical damage insurance from anyone
you want who is acceptable to the Creditor. If you get the insurance from the
seller, the cost shown in 4A of the itemization above is $_____________________
Insurance Company _______________________ Term _____________ months.
Optional Mechanical Repair Insurance. The cost of this insurance is shown in 4B
of the itemization above.
Insurance Company ____________________________________
Term: [ ] _____________ Months or ________________ Miles whichever occurs first.
- --------------------------------------------------------------------------------
Optional Credit Insurance. Credit line insurance and credit disability insurance
are not required to obtain credit and will not be provided unless you sign for
them and agree to pay the additional cost. If you want this insurance, check the
insurance desired and sign below. If you have chosen this insurance, the cost is
shown in 4C of the itemization above.
Check the insurance desired:
[ ] Life (Buyer [ ] Co-Buyer [ ] Both [ ])
[ ] Disability, Accident and Health (Buyer Only)
By signing here, you are stating that you are under age 65.
[ ] __________________________________________________
Name of Insurer
______________________________________________________
Home Office Address
This policy will pay your debt on this contract up to $____________________
Total policy coverage for this and other contracts is limited to $______________
NO LIABILITY INSURANCE INCLUDED.
_____________________________ _________________________________
Buyer signature Date Co-Buyer Signature Date
- --------------------------------------------------------------------------------
I (we) waive the benefit of my (our) Homestead Exemption as to this obligations.
You signed this contract and received a copy on
(Do not date on Sunday) ________________________, 19 ____________________
Buyer Signs __________________________ Co-Buyer Signs _________________________
Co-Buyers and Other Owners--A co-buyer is a person who is responsible for paying
the entire debt. An other owner is a person whose name is on the title to the
vehicle but does not have to pay the debt. The co-buyer or other owner knows
that the Creditor has a security interest in the vehicle and consents to the
security interest.
Other owner signs here __________________ Address ______________________________
Creditor Signs ___________________ By _______________ Title ____________________
- --------------------------------------------------------------------------------
This contract is assigned with recourse under the terms of the "Seller's
Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
This contract is assigned without recourse or with limited recourse under the
terms of the "Seller's Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
- --------------------------------------------------------------------------------
Notice: See Other Side
WHITE--ORIGINAL YELLOW--FILE COPY PINK--BUYERS COPY GOLDENROD--CO-BUYERS COPY
<PAGE>
Ownership and risk of loss. You agree to pay the creditor all you owe under this
contract even if the vehicle is damaged, destroyed or missing. You agree not to
sell, transfer, or remove the vehicles from the State of Virginia without the
Creditor's written permission. You agree not to expose the vehicle to misuse or
confiscation. You will make sure the Creditor's security interest (lien) on the
vehicle is shown on the title. If the Creditor pays any repair bills, storage
bills, losses, fines, or other charges on the vehicle, you agree to pay the
amount when the Creditor asks for it.
Security interests. You are giving the Creditor a security interest in the
vehicle being purchased and any accessories, equipment and replacement parts
being installed in the vehicle. The security interest also covers (1) insurance
premiums and charges for service contracts returned to the creditor (2) proceeds
of any insurance policies or service contract on the vehicle and (3) proceeds of
any insurance policies on your life or health which are financed in this
contract. This secures payment of all amounts you owe in this contract and in
any transfer, renewal, extension or assignment of this contract. It also secures
your other agreements in this contract.
Prepayment Refund. You can prepay all of your debt and get a refund or part of
the Finance Charge. This refund will be figured by the Rule of 78's - a method
commonly used to figure refunds on installment contracts, provided however the
creditor is entitled to receive a minimum of $25 in finance charges. There will
be no refund report to you if it is less than $1.00.
NOTICE IF YOU PAY THIS LOAN OR SALE ON CREDIT PARTIALLY OR IN FULL
BEFORE ITS DUE DATE, THE AMOUNT OF INTEREST YOU PAY WILL BE GREATER
THAN THE AMOUNT OF INTEREST YOU WOULD PAY FOR A SIMPLE INTEREST LOAN OF
THE SAME PRINCIPAL AMOUNT.
Right to Refinance a Balloon Payment. Any installment which is more than twice
the amount of an otherwise regularly scheduled equal installment is a Balloon
Payment. If the property described in this contract is to be used primarily for
consumer purposes, unless a separate agreement has been executed, the Buyer has
the right to refinance any payment which is more than 10% greater than the
regular or recurring installment payments on the basis of an extended period of
time and additional payments which shall allow the balance to be paid in as few
periodic payments not more than 10% greater than the regularly scheduled
installment payments as are required to pay such balances.
Required Physical Damage Insurance. You agree to have physical damage insurance
covering the loss or damage to the vehicle for the term of the contract. At any
time during the term of this contract, if you do not have physical damage
insurance which covers both the interest of you and the Creditor in the vehicle,
then the Creditor may buy it for you. If the Creditor does not buy physical
damage insurance which covers both interests in the vehicle, if may, if it
decides, buy insurance which covers only the Creditor's interest.
The Creditor is under no obligation to buy any insurance, but may do so
if it desires. If the Creditor buys either of these coverages, it will let you
know what type it is and the charge you must pay. The charge will consist of the
cost of the insurance and a finance charge, at the highest lawful contract rate.
You agree to pay the charge in equal installments along with the payments shown
on the payment schedule.
If the vehicle is lost or damaged, you agree that the Creditor can use
any insurance settlement either to repair the vehicle or to apply to your debt.
Late Charge. You will have to pay a late charge on each payment received by the
Creditor more than seven days late. The charge is shown on the front. You must
also pay any cost paid by the Creditor to collect any late payment. Acceptance
of a late payment or late charge does not excuse your late payment or mean that
you can keep making payments after they are due. The Creditor may also takes the
steps set forth below if there is any late payment.
Optional Insurance or Service Contracts. This contract may contain charges for
optional insurance or service contracts. If the vehicle is repossessed, you
agree that the Creditor may claim benefits under these contracts and terminate
them to obtain refunds for unearned charges.
Insurance or Service Contract Charges Returned to Creditor. If any charge for
required insurance is returned to the Creditor it may be credited to your
account or used to buy similar insurance or insurance which covers only the
Creditor's interest in the vehicles. Any refund on optional insurance or
service contracts obtained by the Creditor will be credited to your account.
Credits to your account will include both the amounts received by the
Creditor and the unearned Finance Charges on those amounts. These credits will
be applied to as many of your installments as they will cover beginning with
the final installment. You will be notified of what is done.
Required Repayment in Full Before the Scheduled Date. If you fail to pay any
payment within 10 days after it is due according to the payment schedule or if
you break any of the agreements in the contract (default), the Creditor can
demand that you pay all you owe on the contract at once. In figuring what you
owe, the Creditor will give you a refund of part of the Finance Charge figured
the dame as if you had prepaid in full.
Repossession of the Vehicle for Failure to Pay. Repossession means that if you
fail to pay any payment within 10 days after it is due according to the payment
schedule or if you break any of the agreements in this contract (default), the
Creditor can take the vehicle from you. To take the vehicle the Creditor can
enter your property or the property where it is stored, so long as it is done
peacefully. If there is any personal property in the vehicle, such as clothing,
the Creditor can store it for you. Any accessories, equipment or replacement
parts will remain with the vehicle.
Getting the Vehicle Back After Repossession. If the Creditor repossesses the
vehicle you have the right to get it back (redeem) by paying the entire amount
you owe on the contract (not just past due payments) plus any late charges, the
cost of taking and storing the vehicle and other expenses that the Seller or the
Creditor has had in figuring the entire amount you owe on the contract. The
Creditor will give your a refund for part of the Finance Charge figured the same
as if you had prepared your contract. Your right to redeem will end when the
vehicle is sold.
Sale of the Repossessed Vehicle. The Creditor will send you a written notice of
sale at least 10 days before selling the vehicle. If you do not redeem the
vehicle by the date on the notice the Creditor can sell it. The Creditor will
use the net proceeds of the sale to pay all or part of your debt.
The net proceeds of sale will be figured this way. Any late charges and any
charges for taking and storing the vehicle, cleaning and advertising, etc. and
any attorney fees and court costs will be subtracted from the selling price.
If you owe the Creditor less than the net proceeds of sale, the Creditor
will pay you the difference, unless required to pay it to someone else. For
example, the Creditor may be required to pay a lender who has given you a loan
and also taken a security interest in the vehicle.
If you owe more than the net proceeds of sales, you will pay the Creditor
the difference between the net proceeds of sale and what you owe when the
Creditor asks for it. If you do not pay this amount when asked, you may also be
charged interest at the highest lawful rate until you do pay all you owe to the
Creditor.
Collection Costs. If the Creditor hires an attorney to collect what you owe, you
will pay the attorney's reasonable fee and any court cost.
Delay in Enforcing Rights and Changes of this Contract. The Creditor can delay
or refrain from enforcing any of the rights under the contract without losing
them. For example, the Creditor can extend the time for making some payments
without extending others. ANY CHANGE IN TERMS OF THIS CONTRACT MUST BE IN
WRITING AND SIGNED BY THE CREDITOR. NO ORAL CHANGES ARE BINDING. If any part of
this contract is not valid all other parts will remain enforceable.
Warranties Seller Disclaims. You understand that the Seller is not offering any
warranties and that there are no implied warranties of merchantability, of
Fitness for a particular purpose, or any other warranties, express or implied by
the Seller, covering the vehicle unless the Seller extends a written warranty or
service contract within 90 days from the date of this contract.
An implied warranty of merchantability generally means first the vehicle is
fit for the ordinary purpose for which such vehicles are generally used. A
warranty of fitness for a particular purpose is a warranty that may arise when
the Seller has reason to know the particular purpose for which you require the
vehicle and you rely on the Seller's skill or judgement to furnish a suitable
vehicle.
This provision does not affect any warranties covering the vehicle which may
be provided by the Vehicle manufacturers.
NOTICE: ANY HOLDER OF THE CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
HEREUNDER.
The Preceding NOTICE applies only to goods or services obtained primarily for
personal, family, or household use. In all other cases Buyer will not assert
against any subsequent holder or assignee of this contract any claims or
defenses the Buyer (debtor) may have against the Seller, or against the
manufacturer of the vehicle or equipment obtained under this contract.
______________________________________________________________________________
SELLER'S AGREEMENT
Seller sells and assigns to __________________________________ all of its right,
title and interest in this contract.
Seller warrants and represents; (1) The contract across-from the sale of the
property described on the face of the contract; (2) Seller had title to the
property at the time of sale free of any liens; (3) All disclosures required by
the law were properly made to that buyer prior to the Buyer signing the
contract; (4) All insurance documentation will be delivered to the Buyer within
the time required by law; (5) To the best of Seller's knowledge, the Customer's
Statement attached is accurate. (6) The down-payment received by Seller is
exactly as stated; (7) The contract is enforceable, and (8) Seller is licensed
as required by law.
Each of these warranties and representations is material to assignee's
acceptance of this contract. If any of them is breached or is erroneous, Seller
unconditionally promises to accept reassignment of this contract and to pay
assignee, upon demand the full amount of the unpaid balance under this contract.
Seller also agrees to indemnify assignee to the full extent of all losses or
expenses incurred by assignee as a result of such breach or error.
Seller agrees to indemnify assignee for any judicial setoff or loss as incurred
as a result of a claim or defense of Buyer against Seller.
If this contract is rescinded by court order, Seller shall pay assignee the full
amount assignee paid to purchase it. Seller shall be liable even if a waiver,
compromise, settlement or variation of the terms of the contract releases the
Buyer.
Seller waives notice of acceptance of this guarantee and notices non-payment and
non-performance.
CONTRACTS ASSIGNED WITH RECOURSE
If this contract is assigned with recourse. In addition to the foregoing
guarantees, indemnities and obligations Seller unconditionally guarantees
payment on demand of the unpaid balance on this contract and all losses and
expenses incurred by assignee. In the event of a default in payment of any
installment, except as otherwise provided by the terms of the present assignee
Retail Plan.
CONTRACTS ASSIGNED WITHOUT RECOURSE OR WITH LIMITED RECOURSE
If this contract is assigned without a recourse or with limited recourse, such
assignment is without recourse to the Seller except to the circumstances set
forth above and in and to the extent that an amount is stated in the following
paragraph.
Seller unconditionally guarantees that if Buyer defaults in the payment of any
installment under this agreement, Seller will pay, upon demand by assignee, the
unpaid balance to the sum of $__________________________.
______________________________________________________________________________
<PAGE>
APPENDIX "B"
Guarantee And Replacement Agreement
-----------------------------------
B-1
<PAGE>
GUARANTEE AND REPLACEMENT AGREEMENT
-----------------------------------
FOR VALUE RECEIVED, and to induce ___________________________ ("Investor"),
to participate and invest in Genesis Financial Group, Inc. ("Corporation")
through the purchase of certain Installment Sales Contracts ("Contracts") sold
to the Investor pursuant to the Corporation's SB-1 registered offering
("Offering"), and to accept the Contracts so purchased pursuant to the aforesaid
Offering, the undersigned Corporation guarantees the following:
1. Replacement of Defaulted Contract. In the event the underlying
---------------------------------
consumer on the Contract defaults on his or her obligations thereunder, the
Corporation will replace the defaulted Contract with a new Contract having
comparable terms and provisions as soon as reasonably practicable.
2. Guarantee of Payments. In the event of a default under a Contract and
---------------------
a replacement Contract is not readily available, the Corporation guarantees the
payment when due of all sums currently or thereafter to be paid to the Investor
under the defaulted Contract until such time as a replacement Contract is
substituted therefor. The purpose of this Guarantee is to assure the Investor
of his receiving all regularly scheduled payments owed under the Contracts in
accordance with his investment in the Corporation pursuant to the aforesaid
Offering. Notwithstanding this Guarantee, no reserve fund will be established
by the Corporation for this purpose.
3. Interpretation. This Agreement shall be construed and interpreted in
--------------
accordance with the laws of the Commonwealth of Virginia.
In Witness Whereof, Corporation signs and delivers to Investor this
Agreement on the ___ day of __________________, 199____.
"CORPORATION"
Witness: Genesis Financial Group, Inc.,
a Virginia Corporation
_________________________
By: ___________________________
Its:___________________________
B-2
<PAGE>
APPENDIX "C"
ASSIGNMENT OF SALES CONTRACT
----------------------------
C-1
<PAGE>
ASSIGNMENT OF SALES CONTRACT
----------------------------
This Assignment Of Sales Contract ("Assignment"), dated as of
____________________, 199___, by and between Genesis Financial Group, Inc., a
Virginia corporation, (hereinafter referred to as "Corporation"), and
______________________________ (hereinafter individually or collectively
referred to as "Assignee").
RECITALS:
---------
A. In connection with a SB-1 registered offering ("Offering") by the
Corporation of its Retail Installment Sales Contracts ("Contracts"), Assignee
has previously executed a Subscription Letter ("Letter") subscribing for one or
more Contracts pursuant to his investment in the Corporation in the amount set
forth in the aforementioned Letter, to which reference is hereby made.
B. In furtherance of the Assignee's investment in the Corporation and for
the purpose of effectuating the terms and conditions set forth in the Letter and
the Offering, Corporation hereby executes this Assignment to evidence the
Contracts to be allocated to the Assignee's account pursuant to his investment
in the Corporation.
Corporation hereby warrants and represents as follows:
1. Corporation is the holder of all rights, title and interest in and to
those certain Contracts attached hereto as Exhibit "A" which documents have
arisen in the normal course of the Corporation's business.
2. In consideration of Assignee's investment in the Corporation pursuant
to the aforementioned Letter and Offering, the Corporation hereby grants,
transfers, and conveys to the Assignee all of its rights, title and interest in
and to those certain Contracts set forth on Exhibit "A" attached hereto until
such time as said Contracts are paid in full or the Assignee has otherwise
received a full refund of his investment in the Corporation, together with his
applicable return on investment as provided for in Paragraph 3 hereof.
Notwithstanding the foregoing, the Corporation shall have the right to
substitute any Contract assigned hereunder with a Contract of comparable value
in the event of a default under any such Contract pursuant to the terms of the
Letter and that certain Guarantee And Replacement Agreement executed in
conjunction with this Assignment for the benefit of Assignee.
3. Disclosed on Exhibit "B" hereto are the calculations of the Assignee's
rate of return on his investment in the Corporation as a function of the
specific Contracts assigned to him.
C-2
<PAGE>
4. Assignee hereby agrees to return to the Corporation any and all
Contracts, Certificates of Title and any other document delivered to Assignee
pursuant to his investment in the Corporation upon receipt thereby of cash,
and/or property, in the amount of his initial investment plus his calculated
return on his investment.
5. The Corporation agrees to execute this Assignment and Exhibits in
duplicate. One original counterpart shall be forwarded to the attention of the
Assignee. Copies of all amendments to Exhibits "A" and "B" hereunder that are
generated from time to time in connection with the Assignee's investment will
also be executed and forwarded as they arise.
WITNESS the following execution:
"Corporation"
Genesis Financial Group, Inc., a Virginia
corporation
By:______________________________________
Its:_____________________________________
"Assignee"
By:______________________________________
C-3
<PAGE>
EXHIBIT A
Assignment of Sales Contract
----------------------------
List of Assigned Vehicular Sales Contracts
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
"Assignor" "Assignee"
Genesis Financial Group, Inc., ___________________________
a Virginia Corporation
By:___________________________
Its:__________________________
C-4
<PAGE>
EXHIBIT B
Calculation Of Rate Of Return
-----------------------------
"Assignor" "Assignee"
Genesis Financial Group, Inc., ___________________________
a Virginia Corporation
By:___________________________
Its:__________________________
C-5
<PAGE>
APPENDIX "D"
Partial Assignment Of Sales Contract
------------------------------------
D-1
<PAGE>
PARTIAL ASSIGNMENT OF SALES CONTRACT
------------------------------------
This Partial Assignment of Sales Contract ("Assignment"), dated as of
____________________, 199___, by and between Genesis Financial Group, Inc., a
Virginia corporation, (hereinafter referred to as "Corporation"), and
______________________________ (hereinafter individually or collectively
referred to as "Assignee").
RECITALS:
---------
A. In connection with a SB-1 registered offering ("Offering") by the
Corporation of its Retail Installment Sales Contracts ("Contracts"), Assignee
has previously executed a Subscription Letter ("Letter") subscribing for partial
interests in one or more Contracts pursuant to his investment in the Corporation
in the amount set forth in the aforementioned Letter, to which reference is
hereby made.
B. In furtherance of the Assignee's investment in the Corporation and for
the purpose of effectuating the terms and conditions set forth in the Letter and
the Offering, Corporation hereby executes this Assignment to evidence the
Contracts to be allocated to the Assignee's account pursuant to his investment
in the Corporation.
Corporation hereby warrants and represents as follows:
1. Corporation is the holder of all rights, title and interest in and to
those certain Contracts attached hereto as Exhibit "A" which documents have
arisen in the normal course of the Corporation's business.
2. In consideration of Assignee's investment in the Corporation pursuant
to the aforementioned Letter and Offering, the Corporation hereby grants,
transfers, and conveys to the Assignee a partial interest in those certain
Contracts attached hereto as Exhibit "A" corresponding to the number of monthly
payments under each such Contract specifically allocated to the Assignee as
disclosed on Exhibit "B," until such time as all payments allocated to Assignee
under a Contract have been paid or until Assignee has received cash, and/or
property, in the amount of his initial investment in the Corporation, plus his
calculated return on his investment. Although Assignee has purchased only a
partial interest in one or more Contracts, the Corporation hereby agrees to
assign the entire Contract to the Assignee for the purpose of precluding the
assignment of multiple interests in a single Contract.
Notwithstanding the foregoing, the Corporation shall have the right to
substitute any Contract assigned hereunder with a Contract
D-2
<PAGE>
of comparable value in the event of a default under any such Contract pursuant
to the terms of the Letter and that certain Guarantee And Replacement Agreement
executed in conjunction with this Agreement for the benefit of Assignee.
3. Disclosed on Exhibit "B" hereto are the partial payments assigned under
each Contract identified in Exhibit "A" and the calculations of the Assignee's
rate of return on his investment in the Corporation.
4. Assignee hereby agrees to return to the Corporation any and all
Contracts, Certificates of Title and any other document delivered to Assignee
pursuant to his investment in the Corporation upon receipt thereby of cash,
and/or property, in the amount of his initial investment plus his calculated
return on his investment.
5. The Corporation and Assignee agree to execute this Assignment and
Exhibits in duplicate. One original counterpart shall be forwarded to the
attention of the Assignee. Copies of all amendments to Exhibits "A" and "B"
hereunder that are generated from time to time in connection with the Assignee's
investment will also be executed and forwarded as they arise.
WITNESS the following execution:
"Corporation"
Genesis Financial Group, Inc., a Virginia
corporation
By:______________________________________
Its:_____________________________________
"Assignee"
By:______________________________________
D-3
<PAGE>
EXHIBIT A
TO
Partial Assignment of Sales Contract
------------------------------------
List of Assigned Vehicular Sales Contracts
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
"Assignor" "Assignee"
Genesis Financial Group, Inc., ________________________
a Virginia Corporation
By:___________________________
Its:__________________________
D-4
<PAGE>
EXHIBIT B
Partial Payments And Calculation Of Rate Of Return
--------------------------------------------------
A. Partial Payments Assigned.
-------------------------
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
_________________________ ________________________
B. Rate Of Return.
--------------
"Assignor" "Assignee"
Genesis Financial Group, Inc., ________________________
a Virginia Corporation
By:___________________________
Its:__________________________
D-5
<PAGE>
APPENDIX "E"
Subscription Letter
-------------------
E-1
<PAGE>
SUBSCRIPTION LETTER
-------------------
Genesis Financial Group Total Offering: $7,500,000
4206 Williamson Road
Roanoke, Virginia 24012 Type of Investment Retail
Offered: Installment
Sales
Contracts
and Corporate
Guarantees
Price Per Contract: Variable
Total Investment: $____________
Commencement Date
of Offering: April __, 1997
Investment Option: _____ 20%
_____ 25%
Gentlemen:
This letter is furnished to Genesis Financial Group, a Virginia
corporation, ("Corporation"), in connection with the investment by the
undersigned on this date in the amount shown above for the acquisition of one or
more Retail Installment Sales Contracts ("Contracts") generated by Mr. Car Man,
Inc. ("MCMI") during the course of its normal business operations of selling
used vehicles, together with the Corporation's guarantee ("Guarantee") of the
contractual obligations under each Contract sold, which Contracts have been
purchased at a discount by the Corporation. In conjunction herewith, the
undersigned hereby delivers his check, payable to the Corporation, in the amount
equal to the total investment shown above. Since the Corporation's Guarantee
pertains to each Contract sold hereunder, future reference to the term
"Contract" shall be deemed to incorporate the underlying Guarantee which
securities are sold as a unit.
The undersigned hereby understands that the Contracts have been registered
under the Securities Act of 1933 ("1933 Act") and that the Corporation reserves
the right, in its sole discretion, to reject any subscription at any time.
Contemporaneously with the offering of its Contracts, the Corporation will also
offer for sale to selected investors its corporate promissory notes ("Notes").
Although the Corporation does not currently intend to sell more than
$1,500,000.00 in Contracts to investors, the Corporation reserves the right to
sell up to $7,500,000.00 in Contracts, as well as up to $7,500,000.00 in Notes.
In no event, however, will more than $7,500,000.00 in the aggregate of Contracts
and Notes be
E-2
<PAGE>
sold to Investors. If not sooner terminated by the Corporation, this offering
will terminate on the second anniversary date of the Effective Date of the
Registration Statement. The undersigned understands there is no minimum
offering amount required to be received before the Corporation may fully utilize
the undersigned's funds. In conjunction with the offering, the undersigned
agrees to execute the Power of Attorney form delivered with this Letter.
Nature, Type And Return On Investment
- -------------------------------------
The undersigned understands that the Corporation is in the business of
purchasing at a discount some or all of the Contracts generated by MCMI from
time to time as they arise. Accordingly, the number of Contracts assigned to a
particular investor will vary depending on his total investment, the value of
the Contracts allocated to his account, and the investment option selected by an
investor hereinabove. The 20% and 25% investment options offered to investors
represent an annual return on investment. The Corporation intends to pass
through to investors part or all of each customer's monthly payments under the
Contracts to satisfy the Corporation's obligations to its investors purchasing
Contracts. In the event a customer should default, the Corporation is obligated
to replace the defaulted contract with a new Contract having similar terms and
conditions. Until a replacement Contract is substituted for a defaulted
Contract, the Corporation will guarantee that all payments due and owing to an
Investor will be made on a timely basis. The Corporation intends to use its
capital reserves and other sources of revenue, including funds generated from
the sale of its Notes and customer payments on Contracts purchased from MCMI and
retained by the Corporation, to satisfy such obligations. The investment
options, return rates and the Corporation's obligations to replace defaulted
Contracts and guarantee payments are more particularly detailed in the
Prospectus to which reference is hereby made.
The undersigned acknowledges that he will receive a return of principal and
interest on a monthly basis corresponding with the monthly payments set forth
under the Contracts assigned to his account. The actual purchase price for a
Contract is based upon the original face value of the Contract, the interest
rate, the amortization schedule and the discounted purchase price paid to MCMI
by the Corporation. Reference is made to the Prospectus for a more detailed
discussion of how the purchase price for and investment return on a Contract is
calculated. The portion of the undersigned's investment attributable to a
particular Contract will be calculated in advance to correlate with the
investment option selected.
The Corporation will attempt to maintain at all times a portfolio of valid
and current Contracts for each investor to the extent of the investor's actual
outstanding investment in the Corporation. The undersigned understands that the
Corporation
E-3
<PAGE>
assumes the risk of any default under a Contract and will replace, as soon as
reasonably practicable, any defaulting Contract with a new Contract of
comparable value. Further, the undersigned acknowledges and understands that
the success of the Corporation's business depends upon the creation by MCMI of
new sale transactions on a continual basis and that his investment hereunder
will correlate with the availability of identifiable and executed Contracts.
The Corporation undertakes to notify and submit a copy to the undersigned of
each new Contract assigned to the undersigned's account. The undersigned
understands that the Corporation will cover the monthly payments on any
defaulting Contract until such time that a new Contract is substituted therefor.
However, the undersigned will not be entitled to receive any sum in excess of
his stated return. In addition, the Corporation reserves the right at any time
and from time to time to return an investor's funds without penalty.
Indenture
- ---------
The Contracts and Notes offered by the Corporation will be issued pursuant
to and subject to the terms of that certain Indenture agreement executed by the
Corporation in conjunction with this offering. The Indenture is required under
the Trust Indenture Act of 1939 and imposes additional obligations on the
Corporation in issuing the Contracts and Notes and servicing its debt
obligations thereunder. A copy of the Indenture will be provided to each
investor to which document reference is hereby made.
Delivery Of Original Documents
- ------------------------------
Once a Contract has been assigned to a particular investor's portfolio,
that Contract will remain in that investor's portfolio until the investor's
rights in that Contract are terminated or unless there is a default thereunder
at which time the Corporation will replace such Contract with a comparable one
as soon as possible. In the interim, the Corporation will continue any monthly
payments attributable to any such defaulting Contract until it is so replaced.
All original Contracts will be delivered to an investor as they are assigned.
Receipt And Review Of Information
- ---------------------------------
The undersigned acknowledges receipt of the Corporation's Prospectus filed
with the Securities And Exchange Commission, a copy of the form Contract used by
MCMI, a copy of the Indenture and a Subscriber Information Schedule
("Schedule"). In addition, the undersigned hereby acknowledges that he, or his
investment advisor, has had the opportunity to ask questions of the
Corporation's and MCMI's officers and receive and review all information and
documentation requested pertaining to the officers, the Corporation and MCMI.
The undersigned represents that he and/or his investment advisor: (i) is
familiar with the financial condition of the
E-4
<PAGE>
Corporation and MCMI and the proposed business activities of the Corporation and
MCMI; (ii) has discussed with the officers the current and proposed activities
of the Corporation and MCMI including, without limitation, the selling
operations of MCMI; (iii) has discussed with the officers of the Corporation the
method and manner for handling and safeguarding the Contracts and Titles; and
(iv) has conducted, to his sole satisfaction, all investigations and inquiries
pertaining to the Corporation, MCMI and the officers thereof that he deemed
necessary and expedient in making his investment decision. Accordingly, the
undersigned believes that the Contracts are securities of the kind he wishes to
purchase and hold for investment and that the nature and amount of his
investment are consistent with his investment program.
The undersigned further understands that the Corporation, or an affiliate
thereof, will act as the collection agency for all Contracts.
Acknowledgement Of Certain Facts
- --------------------------------
The undersigned hereby expressly acknowledges that he is aware of the
following facts;
(i) In addition to the risks summarized herein, there are other
substantial risks involved in investing in the Corporation and, therefore, the
risks set forth hereunder are not intended to be complete or relied upon by the
undersigned as a basis for making an investment in the Corporation;
(ii) Neither the Securities And Exchange Commission nor any state agency
has passed upon the adequacy of this offering or upon the accuracy of any
information or documentation provided to him or made any finding or
determination as to the fairness of an investment in the Corporation. Any
representation to the contrary is a criminal offense;
(iii) He should only invest in the Corporation based upon his particular
circumstances and should confer with and rely on his own investment and tax
advisors as to the substantial risks inherent in an investment in the
Corporation. He acknowledges that he has carefully read and completed, where
necessary, in its entirety the Prospectus, Schedule, Indenture and this Letter
and that neither the Corporation, its officers, nor any other party has made any
representation or warranty with respect to the Corporation, MCMI, the officers
thereof or the business conducted thereby except as otherwise specifically set
forth herein and in the Prospectus;
(iv) The Corporation and MCMI have provided him with an opportunity to
meet and confer with the officers thereof regarding all aspects of the
transactions contemplated by the Corporation including the creation and
assignment of the Contracts and will
E-5
<PAGE>
afford him the opportunity to obtain any additional information, to the extent
that the Corporation and MCMI possesses such information or can acquire it
without unreasonable effort or expense; and
(v) This offering will continue for a period of two years.
Representations Of Investors And Risks
- --------------------------------------
The undersigned understands that an investment in the Corporation involves
a high degree of risk. To induce the Corporation to issue and sell the
Contracts to the undersigned, the undersigned hereby warrants, represents and
covenants to the Corporation as follows:
(i) The undersigned can bear the economic risk of an investment in the
Corporation and the acquisition of the subscribed for Contracts for an
indefinite period of time;
(ii) The undersigned has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of his
investment hereunder without materially affecting his financial condition;
(iii) The undersigned has been furnished with all materials, documents and
information relating to the Corporation, MCMI and their activities, the offering
of the Contracts and anything set forth in this Letter and the Prospectus which
he has requested and the undersigned has been afforded the opportunity to obtain
any additional information necessary to verify the accuracy of any
representations or information set forth in said documents;
(iv) The Corporation, MCMI and their officers have answered all inquiries
that the undersigned has put to them concerning the Corporation, MCMI and their
activities and any other matters relating to the Corporation, MCMI and the
offering as well as with respect to the creation and assignment of the Contracts
and the safeguarding and disposition of the Contracts and Titles;
(v) The undersigned has not been furnished any offering literature other
than this Letter, the Prospectus, the Indenture and the form Contract and in
making his investment decision has relied only on the information contained
therein and his own investigations into the suitability of the investment, the
projected rate of return and the proposed business to be conducted by the
Corporation and MCMI. The undersigned is familiar with the methods and
procedures of the proposed business operations contemplated by the Corporation
and MCMI. The undersigned has carefully reviewed and understands this Letter,
the Prospectus, the Indenture and the form Contract and the risks of, and other
considerations relating to, an investment in the Corporation.
E-6
<PAGE>
Furthermore, as set forth above, no representations or warranties have been made
to the undersigned, or to his advisors, by the Corporation, MCMI, their officers
or any other person with respect to the proposed business of the Corporation or
MCMI, the financial condition of the Corporation or MCMI, and/or the economic,
tax or other aspects or consequences of a purchase of the Contracts, and the
undersigned has not relied upon any information concerning this offering,
written or oral, other than contained in this Letter, the Prospectus, the
Indenture, the form Contract and the information obtained through his own
investigations. The undersigned acknowledges that the officers have answered
all questions presented by the undersigned and/or his investment advisor and
provided all information requested pertaining to the past operating history and
financial condition of the Corporation and MCMI;
(vi) The undersigned has been represented by such legal counsel, tax
advisors, accountants and others selected by the undersigned as he has found
necessary to consult concerning this transaction and to review and evaluate the
tax, economic and other ramifications of an investment in the Corporation. No
representation, warranty or advice of any kind is made by the Corporation, the
officers or any other person with respect to any consequences relating to the
business of the Corporation or an investment in the Corporation, except to the
extent otherwise set forth in the Prospectus. (Please note that the provisions
of the federal securities laws, in the view of the Commission, are not subject
to disclaimer or waiver);
(vii) The undersigned, if a corporation, partnership, trust or other form
of business entity, is authorized and otherwise duly qualified to purchase and
hold the Contracts, and such entity has the principal place of business as set
forth in the signature page hereof and such entity has not been formed for the
specific purpose of acquiring the Contracts;
(viii) The undersigned understands that the Contracts have been registered
under the 1933 Act;
(ix) All the information which the undersigned has furnished to the
Corporation with respect to his financial position and business experience is
correct and complete as of the date of this Letter and, if there should be any
material change in such information prior to the consummation of this offering,
the undersigned will immediately furnish such revised or corrected information
to the Corporation;
(x) The undersigned hereby acknowledges that no state regulatory
authority has passed upon the adequacy or merits of this offering and has
expressed no opinion as to the quality of the Contracts offered hereunder; and
(xi) The undersigned hereby acknowledges that all financial
E-7
<PAGE>
and related projections pertaining to the Corporation and MCMI are merely
predictions which are dependent upon various assumptions including, but not
limited to, the cost of maintaining inventory, the cost of overhead, market
conditions, competition and general economic factors.
The undersigned acknowledges that his right to purchase the Contracts
hereunder is not transferable or assignable by him.
If the undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the representations and warranties
herein contained shall be deemed to be made by, and be binding upon, each such
person and his heirs, executors, administrators, successors and assigns.
Indemnification
- ---------------
The undersigned agrees to indemnify and hold harmless the Corporation
against any and all liabilities, losses, costs, damages, fees (including
attorney's fees) and other expenses which the Corporation may sustain or incur
by reason of the undersigned's breach of any representation or warranty
contained herein; or by reason of any action improperly taken by the undersigned
relating to the sale of the Contracts.
Date of Execution:
__________________ __________________________________
Signature
Date of Execution:
__________________ __________________________________
Signature
__________________________________
Printed or Typewritten Name
__________________________________
Printed or Typewritten Name
__________________________________
Street Address
__________________________________
City, State, Zip Code
__________________________________
Telephone
E-8
<PAGE>
______________________________________
Social Security Number or
Tax ID Number
The investments purchased hereunder shall be held as follows:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
E-9
<PAGE>
APPENDIX "F"
Indenture
---------
F-1
<PAGE>
___________________________________________________
GENESIS FINANCIAL GROUP, INC.
a Virginia Corporation
______________________________
Indenture
Dated as of March 28, 1997
____________________________
$7,500,000
Promissory Notes and Installment Sales Contracts
with Corporate Guarantees
3 1/2 Year Maturity Date For Notes
3 1/2 Year Average Term for Contracts
__________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Heading Page
<S> <C> <C> <C>
1 DEFINITIONS AND INCORPORATION 1
BY REFERENCE
1.01 Definitions 1
1.02 Other Definitions 2
1.03 Incorporation by Reference of Trust 3
Indenture Act
1.04 Rules of Construction 3
2 THE SECURITIES 3
2.01 Form and Dating 3
2.02 Execution and Authentication 3
2.03 Registrar 4
2.04 Corporation to Hold Money in Trust 4
2.05 Securityholder Lists 4
2.06 Registration, Transfer and Exchange 4
2.07 Replacement of Lost or Stolen 5
Securities
2.08 Outstanding Securities 5
2.09 Cancellation 5
2.10 Defaulted Interest 6
3 PREPAYMENT OF NOTES 6
3.01 Notices to Registrar 6
3.02 Selection of Notes to be Prepaid 6
3.03 Notice of Prepayment 6
3.04 Deposit of Prepayment Amount 7
3.05 Effect of Notice of Prepayment 7
3.06 Notes Prepaid in Part 7
4 COVENANTS 7
4.01 Certain Definitions 7
4.02 Payment of Securities 8
4.03 Limitation on Liens 8
4.04 Payment of Dividends 10
4.05 Corporate Existence 10
4.06 Maintenance of Principal Properties 10
4.07 Ownership of Restricted Subsidiaries 11
4.08 SEC Reports 11
4.09 No Lien Created 11
4.10 Compliance Certificate 11
5 SUCCESSOR CORPORATION 12
</TABLE>
i
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<TABLE>
<S> <C> <C> <C>
5.01 When Corporation May Merge, etc. 12
5.02 When Securities Must Be Secured 12
6 DEFAULTS AND REMEDIES 12
6.01 Events of Default 12
6.02 Acceleration 14
6.03 Other Remedies 14
6.04 Waiver of Past Defaults 14
6.05 Control by Majority 14
6.06 Limitation on Suits 15
6.07 Rights of Holders to Receive Payment 15
6.08 Collection Suit by Trustee 15
6.09 Trustee May File Proofs of Claim 15
6.10 Priorities 16
6.11 Undertaking for Costs 16
7 TRUSTEE 16
7.01 Duties of the Trustee 16
7.02 Rights of Trustee 17
7.03 Trustee's Disclaimer 18
7.04 Individual Rights of Trustee, etc. 18
7.05 Notice of Defaults 18
7.06 Reports by Trustee to Holders 18
7.07 Compensation and Indemnity 18
7.08 Replacement of Trustee 19
7.09 Successor Trustee by Merger, etc. 20
7.10 Preferential Collection of Claims 20
Against Corporation
8 DISCHARGE OF INDENTURE 20
9 AMENDMENTS, SUPPLEMENTS AND WAIVERS 20
9.01 Without Consent of Holders 20
9.02 With Consent of Holders 20
9.03 Compliance with Trust Indenture Act 21
9.04 Revocation and Effect of Consents 21
9.05 Notation on or Exchange of Securities 21
9.06 Trustee to Sign Amendments, etc. 22
10 MISCELLANEOUS 22
10.01 Trust Indenture Act Controls 22
10.02 Notices 22
10.03 Communication by Holders with Other 23
Holders
10.04 Certificate and Opinion as to 23
Conditions Precedent
</TABLE>
ii
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<TABLE>
<S> <C> <C>
10.05 Statements Required in Certificate or 23
Opinion
10.06 When Treasury Securities Disregarded 24
10.07 Rules by Trustee and Registrar 24
10.08 Legal Holidays 24
10.09 Governing Law 24
10.10 No Adverse Interpretation of Other 24
Agreements
10.11 Successors 24
SIGNATURES 25
</TABLE>
iii
<PAGE>
INDENTURE dated as of March 28, 1997, is entered into by and between
Genesis Financial Group, Inc. ("Corporation"), and Nancy Mattox
("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Corporation's Promissory Notes
and Installment Sales Contracts with corporate Guarantees (hereinafter
collectively referred to as the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
Section 1.01. Definitions.
-----------
"Contract" means the Corporation's Installment Sales Contracts issued
pursuant to this Indenture and the Registration Statement.
"Contract Securityholder" means any person who at the time is the holder of
any Contract.
"Corporation" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Guarantee" means the Corporation's guarantee to satisfy all obligations
arising under a defaulted Contract until such time as a replacement Contract is
substituted therefor.
"Holder" or "Securityholder" means the person who is the holder of any
Security and the person in whose name a Registered Security is registered on the
Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Note" means the Corporation's Promissory Notes issued pursuant to this
Indenture and the Registration Statement.
"Noteholder" means any person who at the time is the holder of any Note.
"Officer" means the Chairman of the Board, the President, any Vice-
President, the Treasurer or the Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Corporation.
(See Sections 10.04 and 10.05.)
1
<PAGE>
"Principal" of a Security means the amount stated as principal on the face
of the Security.
"Prospectus" means either the Notes Prospectus or Contracts Prospectus, as
the context dictates, being a part of the Corporation's SB-1 Registration
Statement filed with the SEC pursuant to which this Indenture has been issued.
"Registered Security" means Securities of the Corporation issued pursuant
to this Indenture and fully registered on the Registrar's books.
"Registered Securityholder" means the registered holder of any Registered
Security.
"Registration Statement" means the SB-1 Registration Statement filed by the
Corporation with the SEC pursuant to the Corporation's offer to sell up to
$7,500,000.00 in Notes and Contacts to investors.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Notes and Contracts with Guarantees, collectively,
issued pursuant to this Indenture and the Registration Statement, and as amended
or supplemented from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa et
seq.) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
replaces him and thereafter means the successor.
Section 1.02. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Bankruptcy Law" 6.01
"Board of Directors" 4.01
"Consolidated Net Tangible Assets" 4.01
"Custodian" 6.01
"Debt" 4.01
"Event of Default" 6.01
"Legal Holiday" 10.08
"Lien" 4.01
"Principal Property" 4.01
"Registrar" 2.03
"Restricted Property" 4.01
"Restricted Subsidiary" 4.01
"Subsidiary" 4.01
</TABLE>
2
<PAGE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them.
Section 1.04. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural include
the singular.
ARTICLE 2
THE SECURITIES
--------------
Section 2.01. Form and Dating.
---------------
The Securities shall be comprised of the Notes and Contracts, a copy of
which documents are appended hereto in Exhibits A and B, respectively. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Corporation shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security shall
be dated the date of its authentication.
3
<PAGE>
Section 2.02. Execution and Authentication.
----------------------------
One Officer shall sign the Securities for the Corporation. With respect to
the Contracts, the Officer shall sign the Assignment Of Sales Contract or the
Partial Assignment Of Sales Contract (hereinafter the "Assignment") to evidence
the transfer of this Security, all as more particularly described in the
Contracts Prospectus. The Corporation's seal shall be reproduced on the
Securities, if deemed necessary by the Trustee.
No Security shall be valid until the Officer manually signs the Note or the
Assignment. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Corporation shall authenticate Securities for original issue in the
aggregate principal amount of up to $7,500,000 as provided for in the
Registration Statement. The aggregate principal amount of Securities outstanding
at any time may not exceed that amount except as provided in Section 2.07.
Section 2.03. Registrar.
---------
The Corporation shall maintain an office where Securities may be presented
for registration of transfer or for exchange ("Registrar") and for payment. The
Registrar shall keep a register of the Registered Securities and of their
transfer and exchange. The Corporation may have one or more Co-Registrars, any
one or all of whom may be Officers.
Section 2.04. Corporation to Hold Money in Trust.
----------------------------------
The Corporation shall hold in trust for the benefit of Securityholders all
money held by the Corporation for the payment of principal and/or interest on
the Securities and shall notify the Trustee of any default by the Corporation in
making any such payment. The Corporation shall segregate the money and hold it
as a separate trust fund.
Section 2.05. Securityholder Lists.
--------------------
The Corporation shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Registered Securityholders and provide the Trustee with a copy of the list as
updated upon request in writing.
Section 2.06. Registration, Transfer and Exchange.
-----------------------------------
The Corporation will issue fully Registered Securities in the forms of
Exhibit A and Exhibit B attached hereto. With respect to the Contracts, the
Corporation will also issue an executed Assignment form.
4
<PAGE>
When a Contract is presented to the Registrar or a Co-Registrar with a
request to exchange it for a replacement Contract in the event of a default, the
Registrar shall register the exchange as requested. The obligations of the
Corporation to effectuate such exchanges is more particularly described in the
Contracts Prospectus. To permit exchanges, the Corporation shall authenticate
Securities at the Registrar's and/or Trustee's request. The Corporation will
not charge a fee for any such exchange.
Section 2.07. Replacement of Lost or Stolen Securities.
----------------------------------------
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Corporation shall issue and authenticate a
replacement Security corresponding to the Security that was lost, destroyed or
wrongfully taken, if the requirements of the Virginia Uniform Commercial Code
are met. In the event any lost, destroyed or wrongfully taken Security shall
have matured or is about to mature, the Corporation may pay the same if the
requirements of the applicable provisions of the Virginia Uniform Commercial
Code are met. An indemnity bond must be sufficient in the judgment of the
Corporation and Trustee to protect the Corporation, Trustee, the Registrar or
any Co-Registrar from any loss which any of them may suffer if a Security is
replaced. The Corporation may charge for its expenses in replacing a Security
for the reasons set forth herein.
Section 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all Securities authenticated by the
Corporation except for those canceled by it and those described in this Section.
Securities outstanding include those held by the Corporation or its affiliates.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Corporation receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Corporation pays in cash, by wire transfer, or by certified funds,
either by personal delivery or by certified mail to the last known address of
the Securityholder on a maturity date in an amount sufficient to pay Securities
payable on that date, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue. Such Securities carry no
rights except the right to receive payment.
Section 2.09. Cancellation.
------------
The Corporation at any time may deliver Securities to the Registrar for
cancellation. The Registrar shall cancel and destroy all Securities surrendered
for exchange, except defaulted
5
<PAGE>
Contracts, payment or cancellation. The Corporation may not issue new
Securities to replace Securities it has paid and delivered to the Registrar for
cancellation.
Section 2.10. Defaulted Interest.
------------------
If and to the extent the Corporation defaults in a payment of any principal
and/or interest due under any Registered Security, it shall pay the defaulted
installment plus interest to the persons who are Registered Securityholders in
accordance with the respective terms set forth under the Notes and Contracts.
ARTICLE 3
PREPAYMENT OF NOTES
-------------------
Section 3.01. Notices to Registrar.
--------------------
If the Corporation wants to prepay the Notes as provided therein, it shall
notify the Registrar and Trustee of the prepayment date and the principal amount
of Notes to be prepaid.
If the Corporation wants to prepay a portion of the principal amount of the
Notes on a pro-rata basis, it shall notify the Registrar and Trustee of the
amount of the reduction and the basis for it.
Section 3.02. Selection of Notes to be Prepaid.
--------------------------------
If less than all Notes are to be prepaid, the Registrar and Trustee shall
select the Notes to be prepaid by a method the Registrar and Trustee consider
fair and appropriate. The Registrar and Trustee shall make the selection from
Notes outstanding not previously prepaid in part. The Registrar and Trustee may
select for prepayment portions of the principal of Notes that have an
outstanding principal balance larger than $1,000. Notes and portions of them
they select shall be in amounts of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Notes selected for prepayment in full
also apply to portions of Notes selected for prepayment.
Section 3.03. Notice of Prepayment.
--------------------
At least 5 days but not more than 30 days before a prepayment date, the
Corporation shall mail and first publish notice of prepayment as provided in
Section 9.02.
The notice shall identify the Notes to be prepaid and shall state:
(1) the prepayment date;
(2) the prepayment amount;
6
<PAGE>
(3) the name and address of the Registrar;
(4) that Notes prepaid in full must be surrendered to the Registrar to
collect the prepayment amount;
(5) that interest on Notes prepaid in full ceases to accrue on and after
the prepayment date; and
(6) the remaining principal indebtedness outstanding under Notes to be
prepaid in part.
The Registrar shall give the notice of prepayment in the Corporation's name
and at its expense.
Section 3.04. Deposit of Prepayment Amount.
----------------------------
On or before the prepayment date, the Corporation shall deposit in a
separate corporate account money sufficient to pay the prepayment amount on all
Notes to be prepaid, in full or in part, on that date.
Section 3.05. Effect of Notice of Prepayment.
------------------------------
Once notice of prepayment is given, Notes called for prepayment in full
become due and payable on the prepayment date and at the prepayment amount
stated in the notice, unless a Noteholder shall provide Corporation with a
written objection as to the prepayment amount within five (5) days after receipt
of the notice of prepayment. Upon receipt of a written objection, the
Corporation shall recalculate the principal and interest outstanding under the
Note and shall pay the amount agreed upon by the Corporation and Noteholder.
Upon surrender of the Notes to the Registrar and after any prepayment adjustment
is made to a Note as provided herein, such Notes shall be paid as stated in the
notice.
Section 3.06. Notes Prepaid in Part.
---------------------
Upon prepayment of a Note in part only, the Registrar shall certify for the
Noteholder the principal balance remaining under the Note.
ARTICLE 4
COVENANTS
---------
Section 4.01. Certain Definitions.
-------------------
"Board of Directors" means the Board of Directors of the Corporation or any
committee of the Board.
"Consolidated Net Tangible Assets" means the consolidated net worth of the
Corporation, as determined under generally acceptable
7
<PAGE>
accounting principles, all as shown on the Corporation's most recent
consolidated balance sheet.
"Debt" means any debt for borrowed money or any guarantee of such a debt.
"Lien" means any mortgage, pledge, security interest or lien.
"Principal Property" means any property owned by the Corporation or a
Restricted Subsidiary except any such property which, in the opinion of the
Board of Directors, is not of material importance to the total business
conducted by the Corporation and its Subsidiaries.
"Restricted Property" means:
(1) any Principal Property,
(2) any Debt of a Restricted Subsidiary, or
(3) any shares of stock of a Restricted Subsidiary, not owned or hereafter
acquired by the Corporation or a Restricted Subsidiary.
"Restricted Subsidiary" means a Subsidiary deemed to be a significant
subsidiary under the Rules and Regulations of the SEC in effect at the time the
determination is made.
"Subsidiary" means a corporation of which the Corporation, the Corporation
and one or more Subsidiaries, or one or more Subsidiaries at the time own a
majority of the corporation's outstanding stock having voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors.
Section 4.02. Payment of Securities.
---------------------
The Corporation shall promptly pay the principal of, interest on and
amounts owing under the Securities on the dates and in the manner provided in
the Securities. An installment of principal, interest or other obligation due
and owing shall be considered paid on the date it is due if the Registrar pays
on that date money designated for and sufficient to pay the installment in the
manner provided in Section 2.08 of this Indenture. The Corporation shall pay
interest on overdue principal installments or on such other obligations owed by
the Corporation at the rate borne by the applicable Security.
Section 4.03. Limitation on Liens.
-------------------
The Corporation shall not, and it shall not permit any Restricted
Subsidiary to, create, incur or assume a Lien on Restricted Property to secure a
Debt unless:
8
<PAGE>
(1) the Lien equally and ratably secures the Securities and the Debt. The
Lien may equally and ratably secure the Securities and any other
obligation of the Corporation or a Subsidiary. The Lien may not secure
an obligation of the Corporation that is subordinated to the
Securities;
(2) the Lien is on property, Debt or shares of stock of a corporation at
the time the corporation becomes a Restricted Subsidiary;
(3) the Lien is on property at the time the Corporation or a Restricted
Subsidiary acquires the property. The Lien may not extend to any
other property owned by the Corporation or a Restricted Subsidiary at
the time the Lien is created, incurred or assumed;
(4) the Lien secures Debt incurred to finance all or some of the purchase
price or cost of construction of property of the Corporation or a
Restricted Subsidiary. The Lien may not extend to any other property
owned by the Corporation or a Restricted Subsidiary at the time the
Lien is created, incurred or assumed. In the case of any
construction, however, the Lien may extend to unimproved real property
for the construction. The Debt secured by the Lien may not be
incurred more than 120 days after the later of the acquisition,
completion of construction or commencement of full operation of the
property subject to the Lien;
(5) the Lien secures Debt of a Restricted Subsidiary owing to the
Corporation or another Restricted Subsidiary;
(6) the Lien is on property of a corporation at the time the corporation
merges into or consolidates with the Corporation or a Restricted
Subsidiary;
(7) the Lien is on property of a person at the time the person transfers
or leases all or substantially all of its assets to the Corporation or
a Restricted Subsidiary;
(8) the Lien is in favor of a government or governmental entity and
secures payments pursuant to a contract or statute or secures Debt
incurred to finance all or some of the purchase price or cost of
construction of the property subject to the Lien;
(9) the Lien extends, renews or replaces in whole or in part a Lien
("existing Lien") enumerated in Clauses (1) though (8) above. The
Lien may not extend beyond (i) the property subject to the existing
Lien, and (ii) improvements and construction on such property. The
Debt
9
<PAGE>
secured by the Lien may not exceed the Debt secured at the time by the
existing Lien;
(10) the Lien arises out of a judgment, decree or court order, so long as
any appropriate legal proceeding which may have been initiated for
review shall not have been finally terminated or so long as the period
within which such proceeding may be initiated shall not have expired;
(11) the Lien secures Debt of the Corporation or a Restricted Subsidiary if
such Debt plus all other Debt of the Corporation and its Restricted
Subsidiaries secured by Liens on Restricted Property, excluding Debt
secured by a Lien existing as of the date of this Indenture or
permitted by clauses (1) through (10) above, at the time does not
exceed 5% of Consolidated Net Tangible Assets; or
(12) the Lien pertains to the underlying vehicles securing the Contracts,
as more particularly described in the Contracts Prospectus.
Section 4.04. Payment of Dividends.
--------------------
The Corporation shall not: (a) declare or pay any dividend or make any
distribution on its capital stock or to its stockholders (other than dividends
or distributions payable solely in shares of the capital stock of the
Corporation); (b) purchase, redeem or otherwise acquire or retire for value any
shares of its capital stock; or (c) permit a Subsidiary to purchase, redeem or
otherwise acquire or retire for value any share of capital stock of the
Corporation until the Securities are satisfied in full.
Section 4.05. Corporate Existence.
-------------------
Subject to Article 5, the Corporation will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights and franchises; provided, however, that the Corporation shall
not be required to preserve any right or franchise if it shall determine that
the preservation is no longer desirable in the conduct of the Corporation's
business and that the loss will not be disadvantageous in any material respect
to the Holders.
Section 4.06. Maintenance of Principal Properties.
-----------------------------------
The Corporation will cause all Principal Properties to be maintained and
kept in good condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the
10
<PAGE>
judgment of the Corporation may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that neither the Corporation nor any Restricted Subsidiary
shall be prevented from discontinuing the operation and maintenance of any of
such Principal Properties or from omitting to make any repairs, renewals,
replacements, betterments or improvements thereof if such discontinuance or
omission is, in the judgment of the Corporation, desirable in the conduct of the
business of the Corporation and its Restricted Subsidiaries taken as a whole.
Section 4.07. Ownership of Restricted Subsidiaries.
------------------------------------
So long as any of the Securities shall be outstanding:
(a) the Corporation will own directly, or indirectly, through one or
more wholly-owned Subsidiaries, more than 80% of the voting shares, of each
Restricted Subsidiary; and
(b) the Corporation will not permit any Restricted Subsidiary to
merge or consolidate with or into, or to sell, assign, transfer or
otherwise dispose of the assets of such Restricted Subsidiary substantially
as an entirety to any corporation or other person, except where the
corporation surviving in such merger or consolidation, or the person to
which such sale, assignment, transfer or other disposition is made, upon
consummation of such transaction, will be a Restricted Subsidiary.
Section 4.08. SEC Reports.
-----------
The Corporation shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports, information, documents, and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which the Corporation is required to file
with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. The Corporation also shall comply with the other provisions of TIA (S)
314(a) to the extent applicable.
Section 4.09. No Lien Created.
---------------
This Indenture and the Securities do not create a Lien, charge or
encumbrance on any property of the Corporation or any Subsidiary.
Section 4.10. Compliance Certificate.
----------------------
The Corporation shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Corporation an Officers' Certificate stating whether
or not the signers know of any default by the Corporation in performing its
covenants in Article 4. If
11
<PAGE>
they do know of such a default, the Certificate shall describe the default. The
Certificate need not comply with Section 10.05. The first Certificate shall be
delivered to the Trustee by April 30, 1998.
ARTICLE 5
SUCCESSOR CORPORATION
---------------------
Section 5.01. When Corporation May Merge, etc.
--------------------------------
The Corporation shall not consolidate with or merge into, or transfer all
or substantially all of its assets to another corporation unless the resulting,
surviving or transferee corporation assumes by supplemental indenture all the
obligations of the Corporation under the Securities and this Indenture.
Thereafter all such obligations of the predecessor corporation shall terminate.
Section 5.02. When Securities Must Be Secured.
-------------------------------
If, upon any such consolidation, merger or transfer, a Restricted Property
would become subject to an attaching Lien that secures Debt, then before the
consolidation, merger, or transfer occurs, the Corporation by supplemental
indenture shall secure the Securities by a direct Lien on the Restricted
Property. The direct Lien shall have priority over all Liens on the Restricted
Property except those already on it. The direct Lien may equally and ratably
secure the Securities and any other obligation of the Corporation or a
Subsidiary. The Corporation, however, need not comply with this Section if:
(a) upon the consolidation, merger or transfer the attaching Lien will
secure the Securities equally and ratably with Debt secured by the
attaching Lien; or
(b) The Corporation or a Restricted Subsidiary under clauses (2) through
(11) of Section 4.03 could create a Lien on the Restricted Property to
secure Debt at least equal in amount to that secured by the attaching
Lien.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
Section 6.01. Events of Default.
-----------------
Subject to Section 6.02, an "Event of Default" occurs if:
(1) the Corporation defaults in the payment of an installment due under
any Note when the same becomes due and payable, whether of maturity or
otherwise, and the default continues after the expiration of any cure
period provided for under the terms of the Note;
12
<PAGE>
(2) the Corporation defaults in the payment of any principal installment
and/or other financial obligation due under any Contract when the same
becomes due and payable, whether at maturity or otherwise, and the
default continues after the expiration of any cure period provided for
under the terms of the Contract;
(3) the Corporation fails to comply with any of its other agreements in
the Securities or this Indenture and the default continues for the
period and after the notice specified below;
(4) the Corporation pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) fails generally to pay its debts as they become due; or
(5) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Corporation in an involuntary case;
(B) appoints a Custodian of the Corporation or for any substantial
part of its property; or
(C) orders the liquidation of the Corporation;
and the order or decree remains unstayed and in effect for 90
days.
The term "Bankruptcy Law" means title 11, United States Code or any similar
Federal or State law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Corporation of the default and the Corporation does not cure the
default within 90 days after
13
<PAGE>
receipt of the notice. The notice must specify the default, demand that it be
remedied and state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
------------
If an Event of Default occurs and is continuing, the Trustee by notice to
the Corporation or the Holders of at least 25% in principal amount of the
Security of the type in default may declare the principal of and accrued
interest on all of the Securities of the type in default to be due and payable
immediately. Notwithstanding anything herein to the contrary, no Event of
Default shall occur if the Corporation and the effected Securityholders shall
negotiate a settlement of any outstanding default.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal, interest and/or other financial obligations due under the terms of
the applicable Securities or to enforce the performance of any provision of the
applicable Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.04. Waiver of Past Defaults.
-----------------------
Subject to Section 9.02, the Holders of a majority in principal amount of
the Securities of the type in default by notice to the Trustee may waive an
existing Default or Event of Default and its consequences. When a Default or
Even of Default is waived, it is cured and stops continuing.
Section 6.05 Control by Majority.
-------------------
The Holders of a majority in principal amount of the Securities may 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 it. The Trustee,
however, may refuse to follow any direction that conflicts with law or this
Indenture, that is unduly prejudicial to the rights of other Securityholders or
that may involve the Trustee in personal liability.
14
<PAGE>
Section 6.06. Limitation on Suits.
-------------------
Subject to Section 6.02, the Securityholders of the Security of the type in
default may not pursue any remedy with respect to this Indenture or the
applicable Security unless:
(1) the Securityholder(s) holding the Security in default gives the
Trustee written notice of a continuing Event of Default as may be
provided for under the terms of the applicable Security;
(2) the applicable Securityholders holding at least 25% in principal
amount of the Security of the type in default make a written request
to the Trustee to pursue the remedy;
(3) such Securityholder or Securityholders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
and
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder holding a similar Security or to obtain a preference or
priority over such a Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and/or interest on any
Security, or to bring suit for the enforcement of any such payment on or after
the respective due dates, shall not be impaired or affected without the consent
of the Holder of the Security.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of interest, principal, or any other
obligation as specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest remaining
unpaid to all Securityholders of the Security of the type in default.
Section 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proof of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property.
15
<PAGE>
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to the applicable Securityholders for amounts due and unpaid on the
Securities of the type in default for principal and interest, 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: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Registered Securityholders.
Section 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of Securities pursuant to
Section 6.07, or a suit by Holders of more than 10% in principal amount of the
Securities.
ARTICLE 7
TRUSTEE
-------
Section 7.01 Duties of the Trustee.
---------------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care
and skill in its exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of
16
<PAGE>
the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture. The
Trustee, however, shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section.
(2) The Trustee shall not be liable for any error of judgment made in
good faith, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as otherwise agreed with the Corporation.
Section 7.02. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an opinion of counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on the Certificate or opinion.
17
<PAGE>
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its
rights or powers.
Section 7.03. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Corporation's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities, other than its certificate of authentication, or in
any prospectus used in the sale of the Securities, other than statements
provided in writing by the Trustee for use in such prospectus.
Section 7.04. Individual Rights of Trustee, etc.
----------------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Corporation with the same
rights it would have if it were not Trustee. Any Registrar or Co-registrar may
do the same with like rights. The Trustee, however, must comply with Section
7.10.
Section 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail and first publish as provided in Section 10.02 notice of
the Default within 90 days after it occurs. Except in the case of a default in
payment on any Security, the Trustee may withhold the notice if it in good faith
determines that withholding the notice is in the interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each December 31 beginning with the December 31
following the date of this Indenture, the Trustee shall provide to the
Securityholders specified in TIA (S) 313(c) a brief report dated as of such
December 31 that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA (S) 313(b).
Section 7.07. Compensation and Indemnity.
--------------------------
The Corporation may pay to the Trustee from time to time reasonable
compensation for its services as negotiated between the Trustee and the
Corporation. The Corporation shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses may include the
reasonable
18
<PAGE>
compensation and expenses of the Trustee's agents and attorneys. The
Corporation shall indemnify the Trustee against any loss or liability incurred
by it. The Trustee shall notify the Corporation promptly of any claim for which
it may seek indemnity. The Corporation shall defend the claims and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Corporation shall pay the reasonable fees and expenses of such counsel. The
Corporation need not pay for any settlement made without its consent. The
Corporation need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
Section 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the removed Trustee and may appoint a successor Trustee with the
Corporation's consent. The Corporation may remove the Trustee if:
(1) the Trustee is adjudged a bankrupt or an insolvent;
(2) a receiver or other public officer takes charge of the Trustee or its
property; or
(3) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Corporation. Immediately after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers an
duties of the Trustee under this Indenture. A successor Trustee shall give
notice of its succession to each Securityholder as provided in Section 10.02.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of a majority in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
19
<PAGE>
Section 7.09. Successor Trustee by Merger, etc.
---------------------------------
If a corporate Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
Section 7.10. Preferential Collection of Claims Against Corporation.
------------------------------------------------------
The Trustee shall comply with TIA (S)311(a), excluding any creditor
relationship listed in TIA (S)311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S)311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
This Indenture and all obligations of the Corporation hereunder shall
terminate upon the payment of all obligations due and owing under the
Securities, as the same may be amended and/or adjusted from time to time.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
Section 9.01. Without Consent of Holders.
--------------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place of
certificated Securities; or
(4) to make any change that does not adversely affect the rights of any
Securityholder.
Section 9.02. With Consent of Holders.
-----------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to any Securityholder but with the written consent of the Holders
of not less than a majority in principal amount of the Securities. The Holders
of a majority in principal amount of the Securities may waive compliance by the
Corporation with any provision of this Indenture or the Securities without
notice to any Securityholder. Without the consent of each
20
<PAGE>
Securityholder specifically affected, however, an amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate or extend the time for payment of interest on any
Security;
(3) reduce the principal of or extend the fixed maturity of any Security;
(4) make any Security payable in money other than that stated in the
Security; or
(5) waive a default in payment of principal or interest on any Security.
Section 9.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect, if applicable.
Section 9.04. Revocation and Effect of Consents.
---------------------------------
A consent to an amendment, supplement or waive by a Holder of a Security
shall bind the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holer's Security, even
if notation of the consent is not made on any Security. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Security or portion
of a Security. The Trustee must receive the notice of revocation before the
date the amendment, supplement or waiver becomes effective. After an amendment,
supplement or waiver becomes effective, it shall bind every Securityholder.
Section 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Corporation or the
Trustee so determine, the Corporation in exchange for the Security shall issue
and the Trustee shall authorize a new Security that reflects the changed terms.
21
<PAGE>
Section 9.06. Trustee to Sign Amendments, etc.
--------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Corporation may not sign an amendment or supplement until
the Board of Directors approves it.
ARTICLE 10
MISCELLANEOUS
-------------
Section 10.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 10.02. Notices.
-------
Any notice or communication shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail addressed as follows:
If to the Corporation: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: President
If to the Registrar: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: Registrar
If to the Trustee: Nancy Mattox
1200 Allen Street
New Castle, VA 24127
Any notice or communication to Securityholders shall be sufficiently given
if mailed by first-class mail to each Registered Securityholder at his address
as it appears on the lists or registration books of the Registrar and shall be
sufficiently given to him if so mailed within the time prescribed.
Failure to give notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the Securityholder receives or reads it.
22
<PAGE>
Section 10.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Corporation, the Trustee, the Registrar and anyone else shall
have the protection of TIA (S)312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Corporation to the Trustee to take
any action under this Indenture, the Corporation shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an opinion of counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Each opinion of counsel shall be in writing. The legal counsel who renders
it may be an employee of or counsel to the Corporation. The legal counsel shall
be acceptable to the Trustee.
Section 10.05. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) 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;
(3) a statement that, in the opinions of such person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
23
<PAGE>
Section 10.06. When Treasury Securities Disregarded.
------------------------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Corporation or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Also, subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
Section 10.07. Rules by Trustee and Registrar.
------------------------------
The Trustee may make reasonable rules for the administration of this
Indenture. Such rules may cover matters relating to action by or a meeting of
Securityholders. The Registrar may make reasonable rules for its functions.
Section 10.08. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday or a day on
which banking institutions are not required to be open. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
Section 10.09. Governing Law.
-------------
This Indenture and the Securities shall be governed by the laws of the
State of Virginia.
Section 10.10. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Corporation or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 10.11. Successors.
----------
All agreements of the Corporation in this Indenture and the Securities
shall bind its successors.
24
<PAGE>
Dated: March ___, 1997 Genesis Financial Group, Inc.,
a Virginia corporation
By: ___________________________
Its: __________________________
Attest: _________________________
Secretary
25
<PAGE>
APPENDIX "G"
Articles Of Incorporation And Bylaws
------------------------------------
Of Genesis Financial Group, Inc.
--------------------------------
G-1
<PAGE>
APPENDIX G
ARTICLES OF INCORPORATION
OF
GENESIS FINANCIAL GROUP, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as
Genesis Financial Group, Inc..
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purpose for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general
powers accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corpoation shall have authority to issue are as follows:
The aggregate number of shares which the corporation
shall have authority to issue are as follows:
Class Number of Shares
[LOGO OF BOUNDS ----- ----------------
& DORSEY\PC\]
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015, which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors consituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimited.
Given under my hand this 11th day of June, 1993.
/s/ Charles N. Dorsey,
_______________________________
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
& DORSEY \PC\]
<PAGE>
BYLAWS OF
GENESIS FINANCIAL GROUP, INC.
ARTICLE 1 - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section I - Annual Meeting:
---------------------------
The Annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meetings:
-----------------------------
Special meetings of the Shareholders for any purpose or
purposes may be called by the President, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meetings of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
[lOGO OF BOUNDS Section 4 - Quorum:
& DORSEY \PC\] -------------------
At any meeting of the Shareholders, the holders of a
majority of the shares entitled to vote shall constitute a
quorum, except as otherwise provided by law. The law holders
of such shares may be present in person or represented by
proxy to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by the statute or by
the Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
Shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action requires by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Director shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at such
time and place as may be specified in the respective notices
or waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\] number of shares of stock, if any, which he or she may hold.
The action of a majority of the Directors present at the
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places or
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
[LOGO OF BOUNDS such shares. The Secretary shall further deep a record of
& DORSEY /PC/ the proceedings of the meetings of the Shareholders and
APPEARS HERE] Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
-----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by (S)13.1-3.1 of the
Code of Virginia of 1950, as amended.
ARTICLE XII- FISCAL YEAR
------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Genesis Financial Group, Inc.
were duly adopted by unanimous consent of the Board of
Directors of the Corporation in lieu of the Organizational
Meeting.
/s/ Jeff Akers,
-------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY\PC\]
<PAGE>
APPENDIX "H"
Articles Of Incorporation And Bylaws Of
---------------------------------------
Mr. Car Man, Inc.
-----------------
H-1
<PAGE>
APPENDIX H
ARTICLES OF INCORPORATION
OF
MR. CAR MAN, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as Mr.
Car Man, Inc.,
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all general powers
accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corporation shall have authority to issue are as follows:
[LOGO BOUNDS
& DORSEY /PC/
APPEARS HERE] Class Number of Shares
----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
is 19 West Church Avenue, Roanoke, Virginia 24011-2015,
which located in the City Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corportion is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors constituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 142 Sherwood Avenue
Roanoke, Virginia 24
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimted.
Given under my hand this 11th day of June, 1993
/s/ Charles N. Dorsey
---------------------------------
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
AND DORSEY /PC/]
<PAGE>
BYLAWS OF
MR.CAR MAN, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the Untied States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meeting:
----------------------------
Special meeting of the Shareholders for any purpose or
purposes may be called by the president, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notices of meeting of the Shareholders and waivers of
such notices shall be given or accepted with the appropriate
provisions of the Virginia Stock Corporation Act.
Section 4 - Quorum:
-------------------
At any meeting of the shareholders, the holders of a
[LOGO OF BOUNDS majority of the shares entitled to vote shall constitute a
& DORSEY/PC/ quorum, except as otherwise provided by law. The holders of
APPEARS HERE] such shares may be present in person or presented by proxy
to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by statute or by the
Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Directors shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at
such time and place as may be specified in the respective
notices or waivers of notice.
Section 4 - Manner of Acting:
----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\ number of shares of stock, if any, which he or she may hold.
APPEARS HERE] The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pretaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
[LOGO OF BOUNDS become Shareholders of the Company, showing their places of
AND DORSEY APPEARS residence, the number of shares held by them respectively,
HERE \PC\] and the time when they respectively became the owners of
such shares. The Secretary shall further keep a record of
the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX- DIVIDENDS
---------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to
full extent provided and permitted by(S)13.1-3.1 of the Code
of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Mr. Car Man, Inc. were duly
adopted by unanimous consent of the Board of Directors of
the Corporation in lieu of the Organizational Meeting.
/s/ Jeff W. Akers
---------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
AND DORSEY\PC\
APPEARS HERE]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
THIS PRELIMINARY PROSPECTUS IS DATED March 28, 1997
SUBJECT TO COMPLETION
PROSPECTUS
GENESIS FINANCIAL GROUP, INC.
A Virginia Corporation (the "Company")
4206 Williamson Road
Roanoke, Virginia 24012
$7,500,000.00 Corporate Promissory Notes
Promissory Notes ("Notes") in the aggregate amount of $7,500,000.00
in increments of $2,500.00 with an
initial minimum investment of $10,000.00
_________________
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES 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.
_________________________________
Offerees will be initially restricted to a minimum purchase
requirement of one Note for $10,000.00. Thereafter, purchases
shall be in increments of $2,500.00.
<TABLE>
<CAPTION>
=======================================================================================
PRICE TO PUBLIC AGENT'S PROCEEDS TO
COMMISSIONS/1/ ISSUER/2/
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Per Note/3/ $ 10,000.00 $ 500.00 $ 9,500.00
- ---------------------------------------------------------------------------------------
$7,500,000.00 $7,500,000.00 $375,000.00 $7,125,000.00
Promissory Notes/4/
- ---------------------------------------------------------------------------------------
Total $7,500,000.00 $375,000.00 $7,125,000.00
=======================================================================================
</TABLE>
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of the registration statement.
This Prospectus is dated March 28, 1997.
________________________
/1/ This estimate assumes a 5% commission and the sale of all securities
offered hereby by the Company's agents. The Company does not intend to pay
more than a 5% commission fee to its selling agents. There are no formal
arrangements or agreements with any broker or dealer for the placement of
the Notes. The Company reserves the right to enter into such arrangements
during the offering period. Principals of the Company will not receive any
commissions or other remuneration for selling the Company's securities.
/2/ Before deducting estimated Offering expenses of $45,269.00.
/3/ Notes will be sold on a best efforts basis; however, there is no minimum
amount of Notes that must be sold to close this offering.
/4/ Contemporaneously with this offering, the Company intends to offer for sale
up to $7,500,000.00 in corporate promissory notes ("Notes"). However, the
Company will not sell more than $7,500,000.00 of Contracts and Notes in the
aggregate pursuant to its SB-1 Offering. (See "Description Of The
Securities" and "Description Of The Business.")
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form SB-
1 under the Securities Act with respect to the Notes offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Notes
offered hereby, reference is hereby made to the Registration Statement,
including the exhibits and schedules thereto. Statements made in this
Prospectus concerning the contents of any contract, agreement or other document
filed with the Commission are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
As a result of the offering of the Notes described herein, the Company will
become subject to the periodic reporting and other informational requirements of
the Exchange Act. As long as the Company is subject to such periodic reporting
and information requirements, it will file with the Commission all reports,
proxy statements and other information required thereby. The Registration
Statement and the exhibits and schedules thereto, as well as such reports and
other information filed by the Company with the Commission, may be inspected at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
office located at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference Branch
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or from the
regional office at prescribed rates. The Commission's Web site address is
"http://www.sec.gov".
The Company intends to distribute to its investors an annual report shortly
after the end of each fiscal year.
Until _________________ all dealers, if any, effecting transactions in the
Notes, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Company currently has a minimal operating history. It intends to engage
primarily in purchasing and servicing installment sales contracts ("Contracts")
originated by Mr. Car Man, Inc., ("MCMI") a Virginia corporation and an
Affiliate of the Company, in the sale of used automobiles, vans, light trucks
and other vehicles. (See "PROSPECTUS SUMMARY" and "DESCRIPTION OF THE
BUSINESS.")
Please refer to the "Glossary" section of this Prospectus for the meaning of
capitalized terms used throughout the text.
This Offering Involves Certain Material Risk Factors
----------------------------------------------------
In addition to the general risks in investing in a relatively new enterprise,
potential investors should consider other major risks, including:
(i) competition in the used car business;
(ii) the inability of investors to liquidate their investments;
(iii) the inability of customers to fulfill their contractual obligations
under the Contracts;
2
<PAGE>
(iv) recession or other economic downturn in the economy adversely
impacting MCMI's potential customer base;
(v) increase in charge-offs and delinquencies with respect to the
Contracts which could materially and adversely affect the Company's
profitability;
(vi) the loss of one or both of the Company's two principal executives; and
(vii) the failure or liquidation of MCMI.
There is no trading market for the Notes and there are no assurances, should
transfer of such Notes be authorized, that a market will develop, or if any such
market does develop, that it will continue. (See "RISK FACTORS.")
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
3
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION.............................................................................. 2
PROSPECTUS SUMMARY................................................................................. 7
The Company and Affiliates........................................................................ 7
Securities Offered................................................................................ 8
Risk Factors...................................................................................... 8
RISK FACTORS....................................................................................... 9
I. Risks of Credit Business..................................................................... 9
General Risks............................................................................ 9
Financing Risks.......................................................................... 9
Operational Risks........................................................................ 10
II. Operating Risks.............................................................................. 11
Short Operating History.................................................................. 11
Limited Capital and Need for Additional Financing........................................ 11
Key Personnel............................................................................ 11
Default Risks............................................................................ 11
Failure of MCMI.......................................................................... 11
Repossession and Casualty Risks.......................................................... 12
Lack of Financial Statements............................................................. 12
Dependence on Certain Principals......................................................... 12
Determination of Offering Price.......................................................... 12
Tax Risks................................................................................ 12
Lack of Liquidity........................................................................ 12
Debt Service Obligations................................................................. 13
Company's Competition and Affiliation.................................................... 13
MCMI's Competition....................................................................... 13
Management's Conflict of Interest and Lack of Agreement to Sell Contracts................ 13
Termination of Common Ownership.......................................................... 14
Prepayment and Unsecured Status of Notes................................................. 14
Minimum Sale Requirements................................................................ 14
MCMI's Obligation to Replace Contracts................................................... 15
III. Investment Risks............................................................................. 15
No Public Market......................................................................... 15
Limitations on Liability of Officers and Directors....................................... 15
No Independent Counsel to Investors...................................................... 15
Subscription of Securities and Shelf Registration........................................ 15
Change in Economic Conditions............................................................ 16
USE OF PROCEEDS.................................................................................... 16
SUMMARY OF FINANCIALS.............................................................................. 18
INVESTMENT HIGHLIGHTS.............................................................................. 19
DETERMINATION OF OFFERING PRICE.................................................................... 20
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
CAPITALIZATION..................................................................................... 20
DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.................................................. 21
DESCRIPTION OF THE SECURITIES...................................................................... 22
Notes............................................................................................ 22
Solicitations and Commission..................................................................... 22
DESCRIPTION OF THE BUSINESS........................................................................ 22
Genesis Financial Group, Inc..................................................................... 22
Mr. Car Man, Inc................................................................................. 24
COMPETITION........................................................................................ 25
EMPLOYEES.......................................................................................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................... 27
I. Genesis Financial Group, Inc,............................................................... 27
Operating History......................................................................... 27
Liquidity and Capital Resources........................................................... 27
Purchase of Contracts from MCMI........................................................... 27
Source of Revenues........................................................................ 27
Factors Affecting Operations.............................................................. 28
Projections............................................................................... 28
II. Mr. Car Man, Inc............................................................................ 28
Operating History - Overview.............................................................. 28
Analysis of Financials for the Year Ended December 31, 1996............................... 29
Liquidity and Capital Reserves........................................................... 29
Results of Operations.................................................................... 29
Analysis of Financials for the Three and One-Half Years Ended
December 31, 1996........................................................................ 30
Liquidity and Capital Reserves........................................................... 30
Results of Operations.................................................................... 30
Prospective Information................................................................... 31
Benefits of Affiliation................................................................... 32
Refining the Showroom..................................................................... 32
Warranty.................................................................................. 32
PROPERTIES......................................................................................... 33
LEGAL PROCEEDINGS.................................................................................. 33
MANAGEMENT......................................................................................... 33
Directors........................................................................................ 33
Officers......................................................................................... 34
Biographies of Directors and Officers............................................................ 34
Executive Compensation........................................................................... 34
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL STOCKHOLDERS.............................................................................. 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................... 35
LEGAL MATTERS....................................................................................... 36
EXPERTS............................................................................................. 36
GLOSSARY............................................................................................ 37
INDEX TO FINANCIAL STATEMENTS....................................................................... 38
APPENDIX A: Promissory Note........................................................................ A-1
APPENDIX B: Subscription Letter.................................................................... B-1
APPENDIX C: Indenture.............................................................................. C-1
APPENDIX D: Articles of Incorporation And
Bylaws Of Genesis Financial Group, Inc................................................. D-1
APPENDIX E: Articles Of Incorporation And Bylaws Of Mr. Car Man, Inc............................... E-1
</TABLE>
6
<PAGE>
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the information and financial statements included
elsewhere in this Prospectus.
The Company and Affiliates
--------------------------
The headquarters of the Company is located at 4206 Williamson Road, Roanoke,
Virginia 24012. The telephone number is (540) 265-1368. The Company has a
minimal operating history to date.
The Company will engage primarily in purchasing and servicing installment
sales contracts ("Contracts") originated by Mr. Car Man, Inc. ("MCMI"), a
Virginia corporation and an Affiliate of the Company, from the sale of used
automobiles, vans, light trucks and other vehicles (collectively referred to as
"Automobiles"). The principals and 100% shareholders of the Company are Jeffrey
W. Akers and Franklin W. Blankemeyer, Jr., both of Roanoke, Virginia. Messrs.
Akers and Blankemeyer also are the 100% shareholders and principals in MCMI.
Although the Company and MCMI were formed simultaneously on June 15, 1993, the
principals concentrated exclusively on developing and expanding MCMI's used
Automobile business during the past three years. Having established MCMI's
market niche in the Roanoke Valley, the principals are ready to implement the
second phase of their business plan to establish a funding vehicle for MCMI's
business operations. The Company was formed for this purpose and will provide
centralized funding, receivables management, and collection services for the two
business locations which MCMI currently owns and operates and for its future
operations in the used Automobile industry. MCMI's customer base primarily
consists of individuals having limited access to traditional sources of consumer
credit (the "Non-Prime Consumer"). The Company assists MCMI with the sale of
used vehicles by providing an indirect source of funding for such buyers.
Contracts which meet the Company's underwriting standards are purchased from
MCMI after the Company has reviewed and approved the Automobile purchaser's
credit application. In order to achieve an acceptable rate of return on its
funding and adjust for credit risks, Contracts are purchased from MCMI at a
discount to the remaining principal balance. (See "DESCRIPTION OF THE
BUSINESS".)
MCMI will offer its Contracts for sale exclusively to the Company. Depending
upon its capital resources, the Company intends to purchase some or all of the
Contracts offered by MCMI from time to time. (See "RISK FACTORS".) MCMI has
been engaged in purchasing, servicing, selling, and financing used Automobiles
since August 2, 1993. MCMI and the Company have targeted the Non-Prime Consumer
as its primary customer base. In the past, this segment of the used car market
has been very poorly serviced since the consumer had few dealerships from which
to choose. MCMI's goal is to establish a new marketing niche in the used car
industry in the Roanoke Valley, located in Southwest Virginia, and beyond
through a very heavy emphasis on customer service, proper marketing, and sound
business management. MCMI currently has two locations serving the Roanoke Valley
area, and future expansion is planned targeting additional market areas outside
the Roanoke Valley.
Contemporaneously with the offering of its Notes, the Company will also package
and offer for sale to selected investors some or all of the Contracts it
purchases from MCMI for the purpose of raising additional capital. All
obligations arising under the Contracts sold to investors will be guaranteed by
the Company (the "Guarantee"). Although the Company does not intend to sell
more than $6,000,000.00 of its Notes to Investors, the Company reserves the
right to sell up to $7,500,000.00 in Notes, as well as up to $7,500,000.00 in
Contracts. In no event,
7
<PAGE>
however, will more than $7,500,000.00 in the aggregate of Notes and Contracts be
sold to Investors. The Offering will be conducted over a two (2) year period,
and the proceeds will be used to fund the purchase of additional Contracts
generated by MCMI and the Company's other business operations. Because of the
nature of MCMI's business, the entire Offering will continue over an extended
period of time to allow MCMI the time it will need to generate a sufficient
number of Contracts for sale to the Company in order to consummate this
offering. The Company anticipates that the Offering will be consummated in two
years. (See "INVESTMENT HIGHLIGHTS.") In addition, in order to adapt to
changing market conditions and maximize its opportunities to capitalize on
investors' investment objectives and goals, the Company reserves the right to
adjust from time to time the amount of Notes and Contracts it will offer for
sale subject to the $7,500,000.00 offering limit. Accordingly, the Company may
file amendments to this Prospectus in conjunction with its other periodic
reporting requirements.
The Company's strategy is to grow its portfolio of contract receivables by
assisting MCMI in growing its business. The Company and MCMI believe that the
nature of their business present significant opportunities for growth for the
following reasons: (1) the automobile finance market, with approximately $325
billion in outstanding automobile installment credit as of March 31, 1995, is
the second largest consumer credit market in the United States; (2) the Non-
Prime Consumer portion of the automobile finance market is estimated to be
between $30.0 and $50.0 billion; (3) the used automobile market has grown over
the past five years at four times the rate of the new automobile market; and (4)
there is not a dominant used car dealer which focuses on the Non-Prime Consumer
in the Roanoke Valley or in the other major cities and towns surrounding
Roanoke.
MCMI has successfully concluded a private placement of its Contracts under
Rule 504 of Regulation D promulgated under the Securities Act of 1933. Through
the private placement of such Contracts, MCMI has raised capital in excess of
$950,000.00. Because of the success of MCMI's business and the private offering,
the principals of the Company and MCMI look to expand their business and
customer base through additional capital infusion. (See "DESCRIPTION OF THE
BUSINESS"; "USE OF PROCEEDS"; "DESCRIPTION OF THE SECURITIES; and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.")
Securities Offered
------------------
The securities described by this Prospectus are comprised of corporate
promissory notes ("Notes") to be issued by the Company. The Notes will bear
interest at 18% per annum and will be amortized over a period of three and one-
half years. Investors will be subject to an initial minimum investment of
$10,000.00. Thereafter, the Notes must be purchased in increments of $2,500.00.
If the Offering is oversubscribed, the Company, at its discretion, may reduce an
Investor's subscription to accommodate other subscriptions. The bulk of the net
proceeds of the offering will be used to purchase Contracts from MCMI on an
ongoing basis. MCMI will use the funds to replenish its inventory of Automobiles
and for working capital. (See "USE OF PROCEEDS"; "DESCRIPTION OF THE
SECURITIES"; and the form Note in Appendix "A".)
[ ]
Risk Factors
------------
An investment in the Notes offered hereby will involve certain substantial
risks. These risks include a lack of financial flexibility and liquidity,
absence of a significant operating history for the Company, potential federal
and state regulations of financing institutions, competition, the
8
<PAGE>
nature of MCMI's business, the higher risk customer base, and the lack of an
existing market for the Notes. (See "RISK FACTORS.")
RISK FACTORS
An investment in the Company involves significant risks and is suitable only
for persons of substantial means who have no need for liquidity in their
investments. The following is not intended as a comprehensive discussion of all
risks that might be encountered by an Investor in the Company. Investors are
urged to consult with independent advisors and tax counsel for the possible
personal and tax consequences of an investment in the Company.
In addition to the other factors and information set forth in this Prospectus,
Investors should carefully consider and evaluate the following specific risk
factors:
I. Risks of Credit Business
------------------------
A. General Risks. The operation of a credit business primarily engaged in
-------------
purchasing and servicing installment sales contracts ("Contracts") for used
Automobiles originated by an affiliated company involves certain risks,
including those described in this Prospectus. By way of example and not
limitation, an investment in the Company is subject to the risk of adverse
changes in general or local economic conditions, such as: (i) inability to
compete with other consumer funding sources in a competitive market; (ii)
inability to raise and/or maintain sufficient capital reserves to finance the
purchase of new Contracts originated by MCMI; (iii) inability of MCMI's
customers to service their debt; (iv) inability of MCMI's customers to maintain
gainful employment; and (v) inability of MCMI to maintain high patronage levels.
In addition, certain expenditures associated with investments in the Company
(principally debt payments, lease obligations and maintenance costs) are not
normally decreased by events adversely affecting the Company's income. In the
event debt payments are not met, the Company may lose its leasehold interest in
some or all of its current business locations and may sustain as a result of a
foreclosure a loss of an asset collateralizing a secured debt. To the extent the
Company purchases real property in the future and defaults on any debt secured
by such real property, it could suffer a loss of its equity investment in such
real estate as a result of a foreclosure.
The success of the Company also depends upon the management skills of the
principal executive officers. The principal executive officers have prior
experience in collateral financing and have operated MCMI since its inception.
(See "MANAGEMENT" for a more thorough description of the background of the
principal executive officers.)
B. Financing Risks. The Company will incur substantial indebtedness through
---------------
the issuance of the Notes offered hereunder. Such indebtedness is required to be
paid within 3.5 years of the issue dates. The Company has the right to prepay
the Notes at any time without penalty. Although the Company anticipates that
the indebtedness will be spread out over a period of years, there can be no
guarantee that the Company will be able to service all of its indebtedness as it
arises which could result in the loss of some or all of the Company's assets
which in turn may force the Company into bankruptcy and/or liquidation. Without
incurring such debt, the Company may be unable to adequately finance the
purchase of the Contracts from MCMI. Without such financing, MCMI may be unable
to obtain, through operating cash flow and/or
9
<PAGE>
from other sources, the funds it needs to meet operating expenses and/or to
replenish its inventory of Automobiles. (See "USE OF PROCEEDS.")
As previously described, the Company will purchase at a discount, ranging from
25% to 50%, from MCMI from time to time some or all of the Contracts generated
through MCMI's business operations to help fund MCMI's capital needs for
operating expenses and new inventory. The Company intends to use the bulk of the
proceeds from the sale of the Notes for such purposes. (See "USE OF PROCEEDS"
and "DESCRIPTION OF THE BUSINESS.") In addition, the Company will package from
time to time some of the Contracts it purchases from MCMI for resale to
investors to provide additional funds for the purchase of new Contracts. The
Company will be responsible for collecting payments and servicing the Contracts
it sells to the investors. Although the Company anticipates that customer
payments under the Contracts will be sufficient to service its obligations to
its investors arising under the Notes and Contracts, there can be no assurance
that a customer will not default under his or her Contract. (See "DESCRIPTION OF
THE BUSINESS.") In the event of a customer default on a Contract within an
investor's portfolio, the Company intends to replace the defaulted Contract with
a new Contract having similar terms and provisions as soon as practicable.
Absent such a replacement Contract or until such a Contract is generated, the
Company will be obligated, pursuant to its Guarantee, to make all payments due
under the defaulted Contract to the investor. There can be no guarantee that a
replacement Contract will become available, or if one becomes available that
another default will not occur, and/or the Company will have sufficient capital
to satisfy all of its payment obligations under the Notes and/or Contracts.
Although the Company does not anticipate incurring any debt obligations
pertaining to its Guarantee of the Contracts since the Company will pass through
to investors a sufficient portion of each payment made by the underlying
customer on each Contract to satisfy such obligations, there can be no assurance
that the Company will have sufficient Contracts available to replace a defaulted
Contract to relieve the Company of its obligations to service the indebtedness
arising and payable to Investors under a defaulted Contract. Any such
additional debt obligations would further burden the Company's cash flow and
reserves and could adversely impact its financial viability. (See "DESCRIPTION
OF THE SECURITIES" and "DESCRIPTION OF THE BUSINESS.")
C. Operational Risks. If the expenses of operating the Company's business
-----------------
exceed the Company's income, the Company may have to obtain additional sources
of financing or dispose of some of its assets under disadvantageous terms. In
addition, in the event the operation of the Company's business does not generate
sufficient operating income to pay all of its operating expenses, taxes and debt
service requirements, MCMI may not be able to sustain its business operations
for lack of financing for new inventory. There can be no assurance that the
Company will not incur operating deficits. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.")
Should the Company's revenues be insufficient to service its debt and pay
taxes and other operating expenses, the Company will be required to utilize
working capital and/or seek additional funds or financing. There can be no
assurance that additional funds will be available to the Company if needed, or,
if available, will be on terms acceptable or advantageous to the Company.
10
<PAGE>
II. Operating Risks
---------------
A. Short Operating History. Even though the Company was organized on June 15,
-----------------------
1993, the Company has a minimal operating history. However, MCMI has been
operating since August 2, 1993, and has successfully conducted a private
placement of its Contracts under Rule 504 of Regulation D, promulgated by the
Securities Act, through which it raised in excess of $950,000.00. The Company
anticipates that MCMI's business will continue to grow and that MCMI will
continue to generate Contracts that will be purchased by the Company and
subsequently packaged for resale to investors. Although the Company believes its
commercial paper financing and MCMI's used car business will be profitable,
there can be no assurance that the Company will generate sufficient revenues to
service all of its debt and other obligations to make the Company profitable.
B. Limited Capital and Need for Additional Financing. Although the Company
-------------------------------------------------
believes it will have sufficient capital from the Offering to commence and
continue its business operations on a profitable basis, there can be no
assurance that the Company's activities will be successful or will generate
adequate cash flow to meet its capital and operational needs as they arise.
Therefore, additional capital may have to be raised internally and/or externally
from time to time to finance the Company's continuing and expanding business and
its capital requirements. Such additional financing may not be available at all
or at the time needed or may be available only on adverse terms. If the Company
is unable to raise sufficient capital by whatever means, the Company's ability
to maintain and/or expand its business operations and MCMI's ability to obtain
funding for new inventory may be severely hindered.
C. Key Personnel. The Company and MCMI are dependent upon the continued
-------------
services of Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers. The loss of the
services of Mr. Blankemeyer or Mr. Akers could have a significant adverse effect
on the Company and/or MCMI.
D. Default Risks. As customary with any consumer credit business, there is
-------------
substantial risk involved with customers defaulting on their obligations under
the Contracts. Since the Company will primarily operate to fund the operations
of MCMI and since MCMI will target "higher risk" consumers for the purchase of
its inventory, the risks of default are enhanced. There can be no guarantee that
the Company or MCMI will be able to absorb such losses through repossessions and
continued operations. Currently, MCMI experiences a 25% repossession rate based
upon the total number of Contracts generated which is within the non-prime
industry's national average. The Company anticipates that its credit review
policies and the cash flow generated from the auction or resale of repossessed
cars will significantly curtail potential losses from customer defaults. (See
"INVESTMENT HIGHLIGHTS.")
E. Failure of MCMI. Currently, the Company is solely dependent upon MCMI to
---------------
generate the Contracts that it intends to purchase, package and resell to
investors. Conversely, MCMI will be primarily dependent upon the Company to
provide the funding needed for its operating expenses and new inventory. There
can be no assurance MCMI will continue to be successful in the used car
business. In the event MCMI experiences a protracted downturn in its used car
business or goes out of business, the Company's primary source of Contracts
would be materially and adversely impacted. Presently, the Company has no plans
for financing other used car dealerships or any other related business. There
can be no guarantee that the Company will be able to sustain any such loss of
MCMI's level of business and/or its affiliation and/or develop new business
relationships to satisfy its operating expenses and other obligations, including
its
11
<PAGE>
obligations to investors under the Notes and Contracts, or to continue its
operations on a profitable basis.
F. Repossession and Casualty Risks. Repossession of an Automobile sold on an
-------------------------------
installment basis is an inherent risk of the used car business. However, the
Company and MCMI have established credit guidelines which are stringently
enforced to help alleviate this risk. Company will vigorously enforce its
repossession rights and resell the repossessed Automobile in accordance with
applicable law. On average, twenty-five percent (25%) of all Contracts purchased
by Company each year will end in default resulting in repossession of the
underlying Automobile. An additional five percent (5%) of Automobiles sold each
year are damaged beyond repair. Based upon these assumptions, the Company
anticipates that the 25% repossession rate and 5% damage rate will total
approximately ten percent (10%) of the Company's accounts receivable on an
annual basis. (See "INVESTMENT HIGHLIGHTS.") However, in most cases involving a
casualty, the Company's investment is protected by casualty insurance. (See
"DESCRIPTION OF THE BUSINESS.")
G. Lack of Financial Statements. Although the Company has had a minimal
----------------------------
operating history since incorporating in 1993, a comparative balance sheet has
been prepared as of December 31, 1993, 1994, 1995 (audited) and 1996 (audited).
In addition, a comparative balance sheet and income statement for the same
periods have been prepared for MCMI. Audited financial statements for the year
ended December 31, 1995 and an unaudited balance sheet and income statement for
the year ended December 31, 1996 for MCMI have also been prepared and are
included in this Prospectus (See the "FINANCIAL STATEMENTS.")
H. Dependence on Certain Principals. Franklin W. Blankemeyer, Jr. and Jeffrey
--------------------------------
W. Akers intend to devote their full time to promote, market and develop the
business of the Company and MCMI. There can be no guarantee that all principals
will remain with the Company and/or MCMI, and the departure of one or more could
adversely affect the future success of the Company and/or MCMI.
I. Determination of Offering Price. The offering price of the Notes is solely
-------------------------------
predicated upon the face value of the Notes. (See "DESCRIPTION OF THE
SECURITIES"; and "DETERMINATION OF OFFERING PRICE.")
J. Tax Risks. All prospective Investors should retain their own tax counsel
---------
or advisor to discuss the possible tax effects ensuing from an investment in the
Company.
K. Lack of Liquidity. The Company will service the debt obligations evidenced
-----------------
by its Notes through normal business operations in conjunction with MCMI. The
Company anticipates that the payments made by customers under the Contracts will
be sufficient to satisfy the investment return to investors of the Contracts.
Proceeds from this offering will be used primarily to fund the Company's working
capital needs including the purchase of additional Contracts and to provide a
source of funding for MCMI's business operations. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.") In the event the Company's operating revenues
are insufficient to meet its obligations, additional cash requirements must be
funded through additional borrowings or credit extensions which may be
unavailable. Since the Company will not have substantial assets that can be
pledged as collateral for financing purposes, obtaining additional secured
financing may not be possible. This lack of financial flexibility and liquidity
could adversely impact an investment in the Company.
12
<PAGE>
L. Debt Service Obligations. Pursuant to the Offering, the Company will be
------------------------
obligated on a significant level of indebtedness. In addition to the Notes sold
hereunder, the Company will be obligated to service the Contracts sold to
investors in the event a customer defaults and there are no replacement
Contracts available. In servicing this indebtedness, the Company may be
vulnerable to various risks, including, without limitation, the impairment of
the Company's ability to obtain additional financing for working capital,
capital improvements or other purposes and a possible downturn in the economy.
(See "PROSPECTUS SUMMARY"; "DESCRIPTION OF THE SECURITIES"; and "DESCRIPTION OF
THE BUSINESS.")
M. Company's Competition and Affiliation. Currently, the Company intends to
-------------------------------------
purchase Contracts generated solely by its Affiliate, MCMI. Since the Company
and MCMI share the same principals and management, MCMI will not offer its
Contracts to any other funding source or company. Accordingly, the Company does
not anticipate any competition as long as MCMI remains viable and an Affiliate
of the Company. There can be no guarantee that MCMI will continue its successful
operations and/or remain in business or that the principals and management of
the Company and MCMI will remain the same. In such event, the Company would
have to contract with one or more alternative sources for such Contracts to
continue its business operations. There can be no assurance that such
alternative sources can be found, or that the Company will be successful in
obtaining a sufficient source of new Contracts to continue operating. (See
"DESCRIPTION OF THE BUSINESS.")
N. MCMI's Competition. In general, the used car business is highly
------------------
competitive. There are numerous competitors in the industry who are more
established and who have substantially greater financial resources than the
Company and MCMI. In addition, there are numerous competitors having greater
name recognition, better capitalization, equivalent or lower pricing guidelines,
more experienced organization, and a larger employee base. Also, the Company and
MCMI must contend with those competitors having better facilities and/or
equipment. Although Management believes MCMI has a significant advantage in the
Roanoke Valley at the present time due to the absence of any other dominant used
car dealer targeting the Non-Prime Consumer, the high degree of competition in
the used car business in general will remain a primary factor affecting both
MCMI's and the Company's profitability. The used car business will also continue
to be highly susceptible to changes in the economy and the buying habits of the
general public. (See "INVESTMENT HIGHLIGHTS"; "DESCRIPTION OF THE BUSINESS"; and
"COMPETITION.") In such event, the Company would have to contract with one or
more alternative sources for such Contracts to continue its business operations.
There can be no assurance that such alternative sources can be found, or that
the Company will be successful in obtaining a sufficient source of new Contracts
to continue operating. (See "DESCRIPTION OF THE BUSINESS.")
O. Management's Conflict of Interest and Lack of Agreement to Sell Contracts.
-------------------------------------------------------------------------
Since the Company and MCMI are owned and managed by the same principals, the
determination of the discount and purchase price for a Contract purchased by the
Company from MCMI is not arrived at in an arms-length transaction. On average,
the face value of a Contract is discounted between 25% and 50% when sold to the
Company. Currently, the Company is solely dependent upon MCMI to generate the
Contracts. Because of the commonality of ownership, there is no separate
agreement between the Company and MCMI obligating MCMI to offer the Contracts to
the Company at the discounted value, or any other price, or obligating the
Company to purchase same. The affiliation of the two companies allow the
principals to internalize all business operations. Such an arrangement bestows
a significant benefit on the principals in that they are able to offer to its
customers through their wholly owned entities both the Automobile and the
financing. In addition, the affiliation of the principals and the companies
maximize other
13
<PAGE>
cost efficiencies by allowing the principals to streamline managerial and
administrative functions and financial accounting procedures. The principals
will have sole discretion in determining which Contracts will be bought and sold
as well as the discounted purchase price. However, since the two companies will
rely exclusively on the other for their respective business operations, the
principals do not believe a written agreement is necessary at this time.
Further, since the principals control all decisions in this regard, the
principals do not anticipate any adverse impact to Investors since the
calculation of an Investor's return is predicated upon the principal and
interest payments of the underlying customers which figure remains constant
throughout the calculations. Although the principals do not plan on selling
their interest in either company, there can be no guarantee that they will
continue to jointly own both. In the event of an ownership change in one or
both companies, the existing business relationship may be curtailed or severed
entirely. In such event, the Company may not have sufficient reserves of
replacement Contracts and/or be able to develop new sources for such Contracts
to replace defaulted Contracts, and/or be able to continue business operations
on a profitable basis. Under such circumstances, the Company may be forced: (i)
to assume all the obligations under the defaulted Contracts for their respective
terms which obligations would have an adverse impact on the Company's financial
resources and viability as a going concern; or (ii) to cease business operations
altogether. (See "DESCRIPTION OF THE SECURITIES"; "DESCRIPTION OF THE
BUSINESS"; "DETERMINATION OF THE OFFERING PRICE" and "MANAGEMENT".)
P. Termination of Common Ownership. Because of the commonality of ownership
-------------------------------
of the Company and MCMI, there is no written contract or agreement between the
companies obligating MCMI to sell or offer to sell all of its Contracts to the
Company, or obligating the Company to buy same, for the reasons specified in
Paragraph O above. In addition, since MCMI is currently obligated to replace
defaulted Contracts under its previous offering under Rule 504 of Regulation D,
MCMI may be required from time to time to maintain a reserve of Contracts for
such purposes until the prior investors are paid in full. The risks to
Investors upon termination of the common ownership of the companies and for the
lack of a contractual obligation on the part of MCMI to sell the Contracts
solely to the Company are the same as set forth in Paragraph O above. (See
"DESCRIPTION OF THE BUSINESS" and "MANAGEMENT.")
Q. Prepayment and Unsecured Status of Notes. The Notes issued pursuant to
----------------------------------------
this offering are unsecured and subject to being prepaid, in whole or in part,
at any time without penalty. The Notes will not be subordinated to any other
debt of the Company. (See "DESCRIPTION OF THE SECURITIES" and the form
Indenture appended hereto as Appendix "C".)
R. Minimum Sale Requirements. The Company will have to sell a minimum of 5
-------------------------
Notes at an average of $10,000.00 each to satisfy the closing costs incurred in
conjunction with this offering which costs are set forth in items (a) through
(c) and (e) in the section captioned "Use Of Proceeds" and before it will have
excess funds available to fund its working capital account, assuming a minimum
of 3 Contracts at $5,000.00 each are sold to cover the approximately $12,000.00
in closing costs allocated to that offering. In addition, the Company estimates
it will need to sale $2.5 million in Contracts and/or Notes over the twelve
month period following the Effective Date to continue its business operations.
There can be no guarantee that the Company will be successful in raising these
funds within the allocated time or that it will be able to continue operations
on a profitable basis irrespective of the amount of funds raised during the
Offering.
14
<PAGE>
S. MCMI's Obligation to Replace Contracts. Pursuant to MCMI's prior
--------------------------------------
Regulation D offering under Rule 504, MCMI is also obligated to replace a
defaulted Contract with a new one on similar terms as the Company's obligations
to its Contract Investors. Notwithstanding MCMI's obligation, the Company's
needs shall be given priority over MCMI's in the event both companies need a
Contract for replacement purposes. MCMI does not operate under any time
restraints for replacing its defaulted Contracts allowing the principals to
prioritize the Company's obligations. The principals do not anticipate the
occurrence of any such competing circumstances since both MCMI and the Company
intend to maintain a pool of valid Contracts for replacement purposes and since
MCMI will not be selling Contracts to Investors. Although Management anticipates
little or no adverse effects on the supply of Contracts based upon the
historical and projected operations of the two companies and the rate of default
experienced by MCMI, there can be no assurance that the Company will be able to
purchase a sufficient number of Contracts on a timely basis to avoid incurring
liability pursuant to its Guarantee of a defaulted Contract and/or continue
operations on a profitable basis.
III. Investment Risks
----------------
A. No Public Market. No public market exists for the Notes, and it is
----------------
unlikely that a ready market will exist at any time in the future. Accordingly,
if an Investor wishes to transfer or sell his Notes, he may be unable to
liquidate his investment promptly at a reasonable price due to market conditions
and/or the general illiquidity of such an interest. The Company also reserves
the right to prepay one or more of the Notes at any time without penalty.
B. Limitations on Liability of Officers and Directors. The bylaws of the
--------------------------------------------------
Company provide that the officers and directors of the Company shall be
indemnified to the extent allowed by law. Therefore, an Investor may have a more
limited right of action against the officers and/or directors than he would have
if there were no such limitations.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED WITH RESPECT TO AN OFFICER'S OR DIRECTOR'S ACTION, THE
SECURITIES AND EXCHANGE COMMISSION HAS TAKEN THE POSITION THAT SUCH
INDEMNIFICATION PROVISION IS AGAINST PUBLIC POLICY AND, THEREFORE, IS
UNENFORCEABLE. (SEE "DISCLOSURE OF COMMISSIONS'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.")
C. No Independent Counsel to Investors. No independent counsel has been
-----------------------------------
retained to represent the interests of the Investors. This Prospectus was
drafted, in part, by counsel retained by or whose fees are paid, directly or
indirectly by the Company. These documents have not been reviewed by any
independent attorney on behalf of the Investors. Each Investor should,
therefore, consult with his own counsel and accountants as to the terms and
provisions of this Prospectus and all other documents relating thereto.
D. Subscription of Securities and Shelf Registration. The Company intends to
-------------------------------------------------
offer the Notes over a period of two (2) years. Accordingly, the Company cannot
predict with any degree of certainty how successful the offering will be or if
the Notes will be fully subscribed. The Company anticipates that it will take
approximately two (2) years to fully subscribe the Notes. Although the Company
anticipates that a successful Offering will provide sufficient revenues to
satisfy the Company's financial needs for at least six months following the
consummation of the Offering, there can be no guarantee that the Company will be
successful even if the Notes and
15
<PAGE>
Contracts are fully subscribed and/or will be able to pursue additional
financing as and when needed.
E. Change in Economic Conditions. Since the offering will be conducted over
-----------------------------
a two year period, the Company will be more susceptible to local and national
economic changes. Although the Company believes the return options offered on
its Contracts will remain attractive during the offering, there can be no
guarantee that certain conditions or events will not occur during this period
which will have a major impact on the Company's and/or MCMI's business
operations. Such events may include a loss of a major employer in the market
area of MCMI, especially if the job loss adversely impacts the Non-Prime
Consumer, and a major shift in the interest rates. Although an increase in such
rates would probably not impact the Non-Prime Consumer since he is accustomed to
paying higher interest rates because of his credit history, it could have a
deleterious effect on the marketability of the Contracts and/or Notes to
Investors by reducing their return on borrowed funds used to purchase the
Contracts and/or Notes or by rendering their investment return less competitive
in light of current market rates.
USE OF PROCEEDS
Currently, the Company has a minimal capitalization. A portion of the proceeds
of this offering will be used to pay certain costs and expenses associated with
this offering. The following table sets forth the proposed use of proceeds from
the sale of the Notes. Although the Company has the option to sell up to
$7,500,000.00 in Notes, the table assumes that only $6,000,000.00 in Notes are
subscribed. Since the Notes are being offered to Investors contemporaneously
with its Contracts, the costs associated with both offerings have been pro rated
predicated upon the percentage each offering bears to the aggregate
$7,500,000.00 offering limit, assuming $6,000,000.00 in Notes and $1,500,000.00
in Contracts are offered and fully subscribed. (See "PROSPECTUS SUMMARY"; and
"DESCRIPTION OF THE SECURITIES.") The following figures represent the Company's
best estimate as to the needs of the Company. Accordingly, such estimates are
subject to change as circumstances dictate and should not be relied upon as a
definitive account of the ultimate use of the funds. All proceeds of the
offering will be held by the Company for the benefit of the Investors.
<TABLE>
<CAPTION>
<S> <C>
Proceeds from Offering: $6,000,000.00/1/
- ----------------------- ----------------
LESS:
- -----
(a) Registration Fee: 2,069.00/2/
(b) State Securities Filing Fees: 5,200.00/3/
(c) Non-Refundable Legal Fees, Printing and 32,000.00/4/
Copying Costs; and Miscellaneous
Closing Costs Attributable to the
offering:
(d) Compensation of Selling Agents: 300,000.00/5/
(e) Accounting Fees: 6,000.00/6/
(f) Working Capital and Reserve: 5,654,731.00/7/
Total Application of Proceeds: $6,000,000.00/8/
-------------------------------- ----------------
</TABLE>
16
<PAGE>
Notes to Use of Proceeds:
- ------------------------
1. Based on an offering of Notes in the amount of $6,000,000.00 being fully
subscribed. The Company has the right to sell up to $7,500,000.00 in Notes
but currently does not anticipate selling more than $6,000,000.00 during the
offering period. The Company may also sell less than $6,000,000.00. This
offering is being made in conjunction with the offering of the Company's
Contracts. However, the total aggregate amount of Notes and Contracts that
may be sold is $7,500,000.00. The Company anticipates this offering will
continue for a period of two (2) years. However, all fees and costs listed
herein are to be paid whether this offering is successful. (See "DESCRIPTION
OF THE SECURITIES.")
2. Based on 1/29 of 1% of the $6,000,000.00 aggregate offering price of the
Notes. Total registration fee for both Notes and Contracts will be
approximately $2,587.00. If the offering of the Contracts is unsuccessful,
the Company will pay the full registration fee from this offering. Such fee
is payable before the Effective Date of this Offering.
3. Represents 80% ($6,000,000.00 Notes offering/$7,500,000.00 aggregate offering
amount) of $6,500.00, the estimated cost of registering the Notes and
Contracts in the applicable states. This figure is subject to change
depending upon the amount of securities offered per state; the registration
fee of each applicable state; and the final number of states in which the
securities are registered. Such fee is payable on or before the Effective
Date of this Prospectus.
4. Represents 80% (calculated as above) of $40,000.00, the estimated costs to be
incurred in connection with the offering including: (i) legal fees; (ii)
recording, printing, and travel expenses, and any other organizational or
closing costs and fees; and (iii) reimbursement of certain out-of-pocket
expenses for filing and other fees incurred in complying with federal and
state securities laws. All such fees and costs are non-refundable and shall
be paid on or before the Effective Date of this Prospectus. A substantial
portion of these expenses have been prepaid. Any excess funds remaining
after the payment of the foregoing expenses will be added to the working
capital account.
5. Represents the aggregate amount of compensation to be paid to selling agents
of the Company based on a 5% commission scale. Assumes the Notes are fully
subscribed solely upon the efforts of the Company's agents. The Company
reserves the right to sell some or all of the Notes through its own efforts
without compensation. Any funds not used for commissions will be added to
the working capital account.
6. Represents 80% (calculated as above) of $7,500.00, the estimated cost of
accounting fees to be incurred with respect to the Offering of the Notes and
Contracts. A substantial portion of these expenses have been prepaid. The
balance of such fees will be paid on or before the Effective Date of this
Prospectus.
7. Represents the balance of the offering proceeds to be used for working
capital and reserves. The Company projects that 90% ($5,089.258.00) of such
funds will be used for the purchase of additional Contracts generated by
MCMI. The remaining 10% ($565,473.00) of these funds will be used: (i) to
service the Company's debt obligations under its Notes; (ii) to satisfy the
Company's operating expenses; and (iii) to fund its reserve account for
capital improvements and similar needs.
8. Pursuant to the costs set forth in items (a) through (c) and (e) above, the
Company will have to sell a minimum of five (5) Notes at $10,000.00 each to
satisfy these obligations and before it will
17
<PAGE>
have excess funds available to fund its working capital account assuming a
minimum of 3 Contracts at an average of $5,000.00 each are sold to cover the
approximately $12,000.00 in closing costs allocated to that offering. Since
there is no existing or formal agreement with a broker or dealer and since
there is no fee or commission obligation in effect, the costs do not include
item (d) above regarding commission fees. The Company intends to utilize its
working capital account to purchase additional Contracts from MCMI and to
satisfy its normal operating expenses, including, without limitation, taxes,
rent, utilities, salaries and general overhead expenses. Whether the Company
is successful in fully subscribing the Notes, it also intends to utilize the
proceeds from the sale of its Contracts for such purposes. The Company
estimates it will need to sell $2.5 million in Notes and/or Contracts over
the next twelve (12) months following the Effective Date to continue its
business operations. Because of the nature of MCMI's business, Contracts
will be generated over a period of time. Accordingly, such Contracts can not
be purchased from MCMI and resold to investors until they are generated. The
Company's business is predicated upon the continuous flow of Contracts from
MCMI. See the section captioned "RISK FACTORS" for a more detailed
explanation of the risks involved with an investment in the Company. It
should be noted that the Company intends to sell a substantial portion of its
Notes over a period of time to correlate with the generation of Contracts by
MCMI. (See "DESCRIPTION OF THE BUSINESS.")
SUMMARY OF FINANCIALS
The selected financial data presented below for the periods ended December 31,
1993, 1994 have been derived from the unaudited financial statements of the
Company and MCMI. The financial data for the year ended December 31, 1996 and
1995 have been derived from the audited financial statements of the Company and
the notes thereto. The financial statements of MCMI as of December 31, 1995 and
for the year then ended were audited. The financial statements of MCMI as of
December 31, 1996 were unaudited. The unaudited financial statements reflect
all adjustments of a normal recurring nature which management considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. The data set forth below should be read in
conjunction with the section captioned "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the "FINANCIAL STATEMENTS,"
notes thereto and other financial and statistical information appearing
elsewhere in this Prospectus.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
18
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1994 1995 1996
<S> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA
- ---------------------
Net Sales $ 120,392 559,637 1,135,664 1,994,475
Cost of Sales 92,265 456,841 713,182 1,324,202
---------- --------- ----------- ----------
Gross Profit 28,127 102,796 422,482 670,273
Operating Expenses 48,695 110,724 167,497 304,498
---------- --------- ----------- ----------
Operating Income (20,568) (7,928) 254,985 365,775
Other Expense, Net 2,394 13,775 31,328 20,688
---------- --------- ----------- ----------
Net Income (Loss) (22,962) (21,703) 223,657 345,087
========== ========= =========== ==========
STATISTICAL
DATA
- ---------------------
Gross Profit 23.36% 18.37% 37.20% 33.61%
-----
Margin
Operating Margin -17.08% -1.42% 22.45% 18.34%
-----
BALANCE SHEET
DATA
- ---------------------
Working Capital 55,080 92,539 277,465 522,915
-------
Total Assets 61,645 134,213 393,252 666,983
-------
Long-Term Debt
and Capital Leases 81,224 143,260 167,708 188,263
-------
Stockholders' ($20,862) ($41,411) $ 143,716 $355,759
-------
Equity
</TABLE>
This financial information is prepared on a proforma basis as if the two
companies, Genesis Financial Group, Inc. and Mr. Car Man, Inc., were combined
during the periods presented. The companies were S Corporations during the
periods presented, therefore no provision for income taxes is reported.
Effective January 1, 1997, the S Corporation status of Genesis Financial Group,
Inc. was terminated, and the Company became subject to corporate income
taxes.
INVESTMENT HIGHLIGHTS
The Company has projected revenues to be approximately $1.2 million by year
two. Net income for that year is projected at $116,400.00. (The complete set
of projections is included in the section captioned "Financial Statements.")
The growth of the Company will be financed by the placement of Notes payable up
to $6 million by the end of year two, although the Company may sell up to $7.5
million in Notes pursuant to the offering. These Notes bear interest at 18% for
forty-two months.
19
<PAGE>
The proceeds of these Notes will be used to acquire Contracts from its
Affiliate, MCMI, of up to $7.5 million by the end of year two. The Company will
recognize income as interest income is earned, and other fees as collected.
The projections include a provision for bad debt expense to maintain an
average reserve equal to ten percent (10%) of outstanding accounts receivable.
These calculations are based on the assumptions that there is a (i) 25% default
rate on all Contracts purchased from MCMI, (ii) as well as a 5% casualty rate.
It should be noted that in a majority of cases casualty claims will be fully
covered by insurance.
During the first full year of operations, Management plans to establish a
separate office and expand its staff to handle the increased volume. To support
the growth of the Company, Management must also work to expand the operations of
MCMI. The proceeds from the sale of the Notes will be used to purchase
Contracts from MCMI on an ongoing basis. To generate the volume of sales
necessary, MCMI will manage an aggressive marketing campaign to attract the
buyers to the lots. Management is planning to open one new car lot in each of
years one and two which will require an additional investment of approximately
$100,000 per lot for inventory, and $25,000 per lot for furniture and fixtures.
MCMI intends to fund its growth and expansion plans through cash flow generated
during normal business operations; revenues received from the sale of its
Contracts to the Company; and/or funds obtained from traditional funding
sources, such as financial institutions.
As MCMI expands, other expenses will increase accordingly. The projections
included in the section captioned "Financial Statements" reflect Management's
estimate of other operating expenses for years one and two.
DETERMINATION OF OFFERING PRICE
The offering price for the Notes is predicated upon the face value of the
respective Notes. (See "DESCRIPTION OF THE SECURITIES.")
CAPITALIZATION
The following table sets forth the capitalization of the Company at December 31,
1996, on an actual basis.
<TABLE>
<CAPTION>
December 31,
1996 Actual/(1)/
----------------
<S> <C>
Short-term debt -0-
Long-term debt 11,600
Stockholders' equity:
Common Stock, no par 2,000
value (100 shares
authorized; 20 shares
outstanding
Retained Earnings (13,457)
------
Total Stockholders' Equity (11,457)
------
</TABLE>
20
<PAGE>
_____________________
(1) Please see the "Financial Statements" set forth in this Prospectus.
DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 13.1-697 and 13.1-702 of the Code of Virginia, as amended, permit any
Virginia Corporation to indemnify its directors and officers against liability
incurred in a proceeding if he conducted himself in good faith and believed (a)
in the case of conduct in his official capacity with the Corporation that his
conduct was in its best interests and (b) in all other cases that his conduct
was at least not opposed to its best interests. In the case of a criminal
proceeding, a Corporation may indemnify a director made party to such proceeding
if he had no reasonable cause to believe his conduct was unlawful. A
Corporation may not indemnify a director under those Sections in connection with
a proceeding by or in the right of the Corporation in which the director was
adjudged liable to the Corporation or in connection with any other proceeding
charging improper personal benefit to the director, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him. Indemnification permitted
under those Sections in connection with a proceeding by or in the right of the
Corporation is limited to reasonable expenses incurred in connection with the
proceeding. Unless limited by its Articles of Incorporation, the Corporation is
required to provide mandatory indemnification to an officer or director who
entirely prevails in the defense of any proceeding to which he was a party
because he is or was an officer or director of the Corporation against
reasonable expenses incurred by him in connection with the proceeding. Also,
unless limited by the Corporation's Articles of Incorporation, an officer or
director of the Corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or seek indemnification
in another court of competent jurisdiction. The court may order indemnification
if it determines the officer or director is entitled to mandatory
indemnification as described above, in which case the court shall also order the
Corporation to pay the officers, or directors' reasonable expenses incurred in
obtaining court-ordered indemnification, or, with respect to a proceeding by or
in the right of the Corporation, the officer or director is found by the court
to be fairly and reasonably entitled to indemnification in view of all the
relevant circumstances even though he was adjudged liable, but any
indemnifications shall be limited to reasonable expenses incurred. The
Corporation is given the power to make further indemnity to any officers or
directors that may be authorized by the Articles of Incorporation or any Bylaw
made by the stockholders or any resolution adopted, before or after the event,
by the stockholders, except an indemnity against gross negligence or willful
misconduct.
The Articles of Incorporation of Genesis Financial Group, Inc. provides that
the directors and officers of the Company may be indemnified in the manner,
against the matters, and to the full extent provided by the Code of Virginia.
The Company may purchase directors and officers insurance for such purposes.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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. (See "RISK FACTORS - Limitations On Liability Of
Officers And Directors.")
21
<PAGE>
DESCRIPTION OF THE SECURITIES
A. Notes. The Company intends to offer to Investors over a two (2) year
-----
period not less than $6,000,000.00 in promissory notes ("Notes") at a fixed rate
of interest of 18% per annum amortized over a three and one-half (3 1/2) year
period. The Company has the right to sell up to $7,500,000.00 in Notes under
the rules and regulations of the Commission pursuant to an SB-1 offering.
Contemporaneously with this offering, the Company intends to offer up to
$1,500,000.00 in Contracts to investors. In no event may the Company sell more
than $7,500,000.00 in Notes and Contracts in the aggregate pursuant to this SB-1
offering. The Notes will be payable on a monthly basis with the first
installment of principal and interest due and payable on the first day of the
second calendar month following the date of the Note if the Note is issued on
any day other than the first day of a month. If the Note is issued on the first
day of a month, the first installment of principal and interest will be due on
the first day of the following month. Except for the first monthly installment
which may have additional accrued interest depending upon the issue date of the
Note, principal and interest shall be payable in forty-one (41) equal monthly
installments. The remaining principal balance of each Note together with all
accrued interest shall be due and payable on the forty-second (42nd)
installment. The Notes will be unsecured and may be prepaid, in whole or in
part, at any time without penalty.
B. Solicitations and Commissions. Solicitations and sales of the Notes will
-----------------------------
be made by the principals and/or agents of the Company. The Company anticipates
paying commissions associated with this offering on agents' sales only. The
principals of the Company will not receive any commissions or other remuneration
on the sale of Notes. Total estimated commissions would be $300,000.00 assuming
a 5% commission, a fully subscribed offering, and agent solicitation only.
Currently, the Company has no written or verbal agreement or understanding with
any brokerage firm or sales agent. The Company may retain such services during
this offering and will use its best efforts in negotiating a 5% commission rate.
In the absence of such brokers-dealers, the two principals of the Company,
Jeffrey W. Akers and Franklin W. Blankemeyer, Jr., will conduct such activities
on behalf of the Company in reliance upon Rule 3 a 4-1 promulgated under the
Exchange Act. The Company will issue a Note directly to an Investor upon
receipt of a validly executed Subscription Letter, a copy of which form is
appended hereto in Appendix "B", collected funds in the face amount of the Note,
and any other document required by the Company for an investment hereunder. A
form Note is appended hereto in Appendix "A".
DESCRIPTION OF THE BUSINESS
A. Genesis Financial Group, Inc.
-----------------------------
The Company was incorporated on June 15, 1993, under the laws of the
Commonwealth of Virginia as an S Corporation under the Internal Revenue Code
("Code"). Effective January 1, 1997, the Company terminated its S Corporation
status and is now a C Corporation under the Code. The Company was formed
specifically to provide a ready funding source for Mr. Car Man, Inc. ("MCMI"), a
used car dealership and an Affiliate of the Company. The Company is 100% owned
by Jeffrey W. Akers and Franklin W. Blankemeyer, Jr. The principals in the
Company are the same as in MCMI. The Company has a minimal operating history to
date but anticipates capitalizing on a significant business opportunity by
actively participating as the financial arm of MCMI's business. As previously
discussed, the Company will purchase at a discount some or all of the Contracts
generated by MCMI from time to time upon the sale of
22
<PAGE>
its Automobiles. The purchase price of a Contract purchased by the Company will
usually be the face value of the Contracts discounted between 25% and 50%. The
Company intends to package the Contracts and offer them to investors on an
ongoing basis to generate revenues for business operations, including the
purchase of additional Contracts from MCMI.
In conjunction with the underlying offering of Notes, the Company will also
register up to $7,500,000.00 in Contracts for sale to investors. However, the
Company cannot sell more than $7,500,000.00 in Notes and Contracts in the
aggregate pursuant to its SB-1 offering. MCMI's targeted market will primarily
consist of those individuals who are unable to obtain financing through
traditional sources because of poor credit or other salient risks, including,
without limitation, divorce, medical emergencies, and job loss ("Non-Prime
Consumers"). Such customers are generally deemed to be in a "high risk"
classification by most conventional lenders giving them little opportunity to
reestablish their credit status and to redeem themselves in the consumer market
place. The Company will follow strict guidelines before approving any such
financing, including, without limitation, reviewing credit reports and verifying
employment and residence status. In addition, the Company must be reasonably
assured that the customer has the ability to pay without adversely impacting the
customer's standard of living. The Company retains the right to review and
revise its credit terms as and when it deems necessary or appropriate under the
circumstances. Although strict adherence to these guidelines will not prevent
non-performance of every Contract, the Company reasonably believes that it will
reduce the exposure of the Company to customer defaults. (See "RISK FACTORS";
"INVESTMENT HIGHLIGHTS"; and the "FINANCIAL STATEMENTS" in this
Prospectus.)
MCMI will assign and transfer to the Company all Contracts purchased by the
Company and the motor vehicle titles to the Automobiles covered by such
Contracts. The Company intends to use the bulk of the funds received from the
sale of the Notes to Investors to purchase additional Contracts. MCMI will use
the funds it receives from the sale of its Contracts to Company to finance its
business operations including, without limitation, the replenishment of its
inventory. The Company anticipates a steady stream of Contracts since the
targeted customer base for MCMI will be comprised of individuals who are unable
to obtain financing through traditional or other sources. (See "USE OF PROCEEDS"
and "INVESTMENT HIGHLIGHTS.")
The Company will service all Contracts for the benefit of investors just as if
the Company had retained its interest in the Contracts. Accordingly, the
Company will collect all payments due from the underlying customers, and fulfill
any and all obligations originally imposed upon and enforce all rights
originally granted to MCMI thereunder, including, without limitation, the
commencement of collection and/or repossession actions in the event a customer
defaults. A majority of repossessed cars will be auctioned or resold by the
Company.
Although the Company will provide a funding source for MCMI's business
operations, it is not subject to any lending or consumer credit licensing
requirements under the laws of the Commonwealth of Virginia since it is an
Affiliate of MCMI and purchases the consumer Notes at a discount.
Pursuant to the closing costs set forth in items (a) through (c) and (e) in
the section captioned "Use Of Proceeds," the Company will have to sell a minimum
of 5 Notes at an average of $10,000.00 each to satisfy these obligations at
closing. In addition, the Company will have to sell a minimum of 3 Contracts at
$5,000.00 each to satisfy the closing costs associated with that offering before
the Company will have excess funds to fund its working capital account. The
Company estimates that it will need to sell $2.5 million in Contracts
and/or
23
<PAGE>
Notes over the twelve month period following the Effective Date to commence its
business operations. (See "RISK FACTORS - Minimum Sale Requirements.")
Upon the consummation of the Offering, Management believes the Company will
have sufficient revenues to meet its future operating needs for the next six
months. Accordingly, after the Offering is closed the Company may have to seek
additional capital or financing from time to time in the future.
The Company will be contractually obligated under that certain Guarantee And
Replacement Agreement to replace defaulted Contracts with new ones as soon as
reasonably practicable. The Company anticipates accomplishing this task either
by maintaining a limited reserve of viable Contracts and/or through the purchase
of new Contracts from MCMI. The Company intends to purchase as many Contracts
from MCMI as funds allow. However, there is no written contractual agreement
obligating MCMI to sell its Contracts to Company. Management believes this is
unnecessary since both companies are owned by the same principals and since MCMI
will be dependent upon the Company to finance its business operations. No
Contract will be originated by MCMI or purchased by Company unless the
underlying customer satisfies the companies' credit requirements discussed
herein. MCMI will retain some of its Contracts to satisfy its obligations to
replace defaulted Contracts under its previous private placement under Rule 504
of Regulation D of the Securities Act. Except for this obligation, Management
anticipates MCMI will offer for sale to Company all of its Contracts as they
arise. (See "RISK FACTORS.") The Company does not use any type or form of
selection process in determining which Contracts it will purchase once they
arise; subject, however, to the availability of cash or other resources for such
purposes.
In addition to the funds raised from the sale of the Notes hereunder, the
Company intends to use the bulk of the proceeds received from the sale of its
Contracts to fund the purchase of additional Contracts from MCMI. The Company
will generate revenues from the purchase of the Contracts in two ways. The
Company may retain one or more of such Contracts as they are purchased. By
retaining the Contract and with interest on a Note at 18%, the Company retains
the spread on each monthly payment equal to the difference between the principal
and interest installments made by the customer under the Contract and the
principal and interest installments paid by the Company under the Note. By
selling the Contract to an investor, the Company makes its profit up front
represented by the difference between the purchase price of the Contract paid by
the investor and the discounted purchase price paid by the Company for the same
Contract.
The Company will undertake to repossess an Automobile in the event a customer
defaults. All such repossessed Automobiles will be sold at auction or, to the
extent allowed by law, resold by the Company. The opportunity to resell such
Automobiles is also dependant upon the condition of the vehicle upon
repossession. There can be no guarantee that all repossessed Automobiles will be
in the same or similar condition as of the time of original sale.
B. Mr. Car Man, Inc.
-----------------
Mr. Car Man, Inc. ("MCMI") is a Virginia corporation duly organized on June
15, 1993, as an S Corporation under the Code. MCMI began business on August 2,
1993, at which time it sold its first used vehicle. Franklin W. Blankemeyer,
Jr., and Jeffrey W. Akers own all the issued and outstanding stock of MCMI and
each play an integral part in the business operations of both companies. MCMI
presently has two locations in the City of Roanoke, Virginia.
24
<PAGE>
MCMI has established its reputation through fresh marketing ideas, a strong
emphasis on customer service and a sound financial base. MCMI strives to focus
on its customers and their needs. In addition, MCMI believes it has implemented
the best service program for its customers. Currently, MCMI offers all
customers a service agreement based on dealer's cost. Such a program covers the
actual cost of all parts needed with labor under warranty currently charged at
$22.50 per hour. This service agreement continues as long as the Contract is
outstanding.
Prior to this Offering, MCMI successfully concluded a limited private
placement offering under Rule 504 of Regulation D of the Securities Act of 1933.
Through this offering, MCMI raised funds in excess of $950,000.00. MCMI targets
the higher risk, Non-Prime Consumer, since there is a tremendous market for this
type consumer. MCMI anticipates that the majority of the Contracts it generates
will be sold at a discount to the Company through which it will obtain the
financing it needs to replenish its inventory and meet its other operating
capital needs. MCMI will retain some Contracts from time to time to fulfill its
obligations to its previous investors under the 504 offering with respect to
defaulted Contracts. There is no written agreement between MCMI and the Company
obligating MCMI to sell its Contracts exclusively to the Company. However,
because of the commonality of ownership of the two companies, the success of the
companies' business operations will depend upon such an arrangement.
Accordingly, Management has no intention to deviate from this course of action.
MCMI's future goals include the development of a new showroom concept to
augment its customer base and additional expansion. MCMI intends to install
video monitors which will play segments of movies and comedy routines poking fun
at the used car industry. Inter-mixed between these segments will be songs and
other musical themes about cars in general which will be played through a
computerized sound system. MCMI intends to package this media presentation in
displays incorporating parts of cars. This concept will provide a more
captivating and entertaining experience for the consumer. MCMI intends to
implement this new showroom concept at its second location at 4206 Williamson
Road. MCMI's goal is to open a new lot at a rate of one per year for the next
three years. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.")
MCMI has implemented strict credit guidelines for its potential customers.
MCMI does not utilize loan-to-value ratios in determining credit worthiness.
Instead, it scrutinizes a customer's job retention, residence history, debt
service requirements, income potential and other similar factors. Because MCMI
targets the Non-Prime Consumer, standard loan-to-value ratios are not
emphasized.
COMPETITION
Since the Company intends to purchase all of its Contracts from its Affiliate,
MCMI, the Company has no direct competition for such Contracts. However, if
MCMI experiences a downturn in its business, becomes insolvent, or goes out of
business, or if the common ownership of the Company and MCMI should change for
whatever reason, the Company may be forced to pursue other dealerships and/or
consumer related businesses to continue its business operations. In such event
the Company could encounter significant competition in its market area which
competition could have an adverse impact on its financial viability and business
operations. (See "RISK FACTORS - Company's Competition and Affiliation.")
25
<PAGE>
Management estimates that MCMI has 5 major direct competitors in the Non-Prime
Market in its existing market area in Southwest Virginia which includes Roanoke
City, Salem City, Roanoke County, Botetourt County, Montgomery County and the
Town of Vinton. In addition, there are numerous new and used car dealers in the
market area in general. Because of the difficulties in ascertaining the sales
volume of its competitors, Management is not able to determine its percentage
share of the used car market at this time.
The Non-Prime Market is very fragmented and highly competitive. Despite
significant opportunities, many financial entities, such as banks, savings and
loans, credit unions, captive finance companies, and leasing companies, do not
consistently provide financing to this market. These organizations, which have
consistently serviced the automobile finance business, have migrated toward
higher credit quality consumers. The entities which do provide consistent
financing for Non-Prime Consumers can be broken into two primary categories:
(i) publicly traded specialty automobile finance companies; and (ii) dealers who
provide financing programs directly to the consumer. The remainder is comprised
of smaller finance organizations that solicit business when their capital
resources permit.
Due to the fact that specialty finance companies must compete with one another
for each car dealer's business, the Company believes it has a significant
advantage because MCMI will sell its Contracts exclusively to the Company. The
dealer who finances his own vehicles and does not sell off his contracts finds
himself at a disadvantage due to the substantial amount of capital that the
car/finance business requires. These dealers typically do not have large
resources of capital and typically sell their vehicles AS/IS without offering
any kind of extended service warranty.
Because of its affiliation with the Company, MCMI anticipates having
sufficient capital to implement fresh marketing ideas, provide for a clean
atmosphere and retain friendly sales associates which, in turn, will separate it
from its competitors. MCMI's dedication to the customer, its exclusive bumper to
bumper warranty (which is a dealer cost warranty and lasts for the entire term
of the Contract) and its five day money back guarantee will help MCMI, and
therefore the Company, to prosper in this large and growing segment of the
industry. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "DESCRIPTION OF THE BUSINESS.")
EMPLOYEES
Currently, the Company and MCMI have eight (8) employees in addition to the
two (2) principals who are full-time employees. There are no employment
agreements or other similar arrangements with the employees. None of the
employees are currently covered by collective bargaining agreements. Management
for both corporations believes that its employee relations are satisfactory.
(See "MANAGEMENT.")
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
I. Genesis Financial Group, Inc.
-----------------------------
A. Operating History. The Company has a minimal operating history to date.
-----------------
Although the Company and MCMI were incorporated at the same time, the principals
of the Company realized that they had to concentrate exclusively on building
MCMI's business in the initial years to generate the customer base and sales
volume needed to support the financing arm of their used car business. The
principals have successfully completed this part of their business plan and now
seek to expand their business to incorporate the credit side of the used car
industry. By providing customers with well-maintained used cars and favorable
credit terms not readily available elsewhere, Management believes the Company
and MCMI will become firmly entrenched in its market area. Through the Offering,
the Company should become sufficiently capitalized to maintain its market niche.
B. Liquidity and Capital Resources. Although the Company currently has no
-------------------------------
lines of credit and the availability of credit in the foreseeable future is
uncertain, Management believes that the Company will be able to meet its future
obligations after the Offering through internally generated funds, primarily the
collection of payments due and owing under the Contracts, and/or externally
generated funds, primarily the continued placement of its Contracts. However,
there is no assurance that such collections will be sufficient to: (i) cover all
future obligations of the Company; (ii) purchase Contracts as they arise; and/or
(iii) meet the operating needs of MCMI. Under such circumstances, the Company
may have to seek additional sources of financing and/or credit which it may not
be able to obtain or which may be available only on unfavorable terms.
The Company will generate revenues from the purchase of Contracts in two
ways. The Company may retain one or more of such Contracts as they are
purchased. By retaining the Contract and with interest on a Note at 18%, the
Company retains the spread on each monthly payment equal to the difference
between the principal and interest installments made by the customer under the
Contract and the principal and interest installments paid by the Company under
the Note. By selling the Contract to an investor, the Company makes its profit
up front represented by the difference between the purchase price of the
Contract paid by the investor and the discounted purchase price paid by the
Company for the same Contract.
C. Purchase of Contracts from MCMI. The Company was formed to be the
-------------------------------
financing arm for the principals' used car business conducted by MCMI. Although
the two companies are owned by the same principals and will rely significantly
on the successful operations of each other, the companies will operate as
separate and distinct entities. MCMI has been successfully operating on its own
since its inception. The Company intends to utilize the funds raised from the
sale of the Contracts and Notes to purchase additional Contracts from MCMI as
they become available. The Company will purchase such Contracts at a discount
of the original face value. (See "DESCRIPTION OF THE SECURITIES.")
D. Source of Revenues. As aforementioned, the Company anticipates
------------------
generating the revenues it will need to satisfy its operational needs,
including, the payment of normal operating costs, such as utilities, rent,
payroll, bad debt, repossession costs, debt services, etc., with its working
capital reserves which will be funded primarily through the sale of its
Contracts and Notes and through the excess funds generated from customer
payments under the Contracts.
27
<PAGE>
(See "DESCRIPTION OF THE BUSINESS" and "DESCRIPTION OF THE SECURITIES.")
Investment and similar income will also be available for such purposes. The
Company intends to sell the Notes as Contracts arise from MCMI's business
operations. Accordingly, as a general rule, the Company will not incur the debt
under the Notes until such time as Contracts become available. MCMI has been
successful in selling its Contracts to investors in the past. The Company
intends to target this existing group of investors for its Contracts as well.
E. Factors Affecting Operations. Currently, the Company will rely
----------------------------
exclusively on MCMI to generate the Contracts. If MCMI's volume of business
should become stagnant or decrease, or if it should become insolvent, the
Company would have to find other sources for such Contracts to continue its
business operations. See the section captioned "RISK FACTORS" for a more
detailed discussion of the various risks involved regarding the affiliation of
MCMI and the Company and the proposed business operations of both entities. In
addition, a significant change in the local economy, such as a loss of a major
employer, could also adversely impact the Company's business operations if the
jobs lost have an inordinate impact on the Non-Prime Consumer workforce. In
addition, an increase in interest rates could also impact the Company's
viability. However, the Company would not anticipate a significant impact to
MCMI's business since the bulk of the Contracts represent the Non-Prime Consumer
who, because of his status, is accustomed to paying higher interest rates. Such
changes could affect the marketability of the Contracts and/or Notes to
Investors by reducing their return on borrowed funds used to purchase the
Contracts and/or Notes or by rendering their investment return less competitive
in light of current market rates. (See "RISK FACTORS.")
F. Projections. Management is optimistic about the business opportunities
-----------
available to the Company and MCMI in the Non-Prime Market. Based upon the growth
of MCMI since its inception and the forecasts for future growth and expansion
described below, Management believes the Company will experience continuous
growth as the number of Contracts generated by MCMI increases. The projections
for growth of MCMI are based on historic amounts and plans for the next two
years. For the year ended December 31, 1996, MCMI sold 317 Automobiles at an
average price of $5,630 per vehicle from their primary car lot, which opened in
October, 1995, and a second smaller lot. Total number of sales in 1994 and 1995
were 114 and 192, respectively. Based on the 1996 average price of a car sale,
MCMI projects sales of approximately 310 vehicles for 1997 and 620 for 1998. To
accomplish this sales volume, MCMI plans an aggressive marketing campaign to
reach its target market. Projections include advertising expense at
approximately 2.8 percent of sales volume, where industry averages are less than
one-half of that percentage. MCMI has experienced an average growth rate over
200 percent since its first year in business. Management anticipates this
growth rate to continue through the first year of its Offering of Notes and
Contracts. In the first year of the Offering, MCMI plans to open its third car
lot to provide the additional inventory and sales staff to handle the increased
volume. Later in the second year, a fourth car lot will be opened.
Accordingly, the Company's growth and profitability are inextricably
interrelated with MCMI's. See the sections captioned "INVESTMENT HIGHLIGHTS"
and "DESCRIPTION OF THE BUSINESS" for a more detailed description of the
business operations of the Company and MCMI.
II. Mr. Car Man, Inc.
----------------
A. Operating History-Overview. MCMI has grown rapidly since its inception
--------------------------
in mid-1993, increasing its revenues from $120,392 for the six months ended
December 31, 1993 to $1,125,664 for the year ended December 31, 1995 to
$1,994,475 for the year ended December 31, 1996. MCMI has averaged gross profit
of 29.7% and net profit of 11.1%. The operations of MCMI have evolved from the
basic premise of selling and leasing Automobiles to the
28
<PAGE>
financing of the purchase price and the successful completion of a limited
private placement offering of its Contracts.
The growth of MCMI has been realized through aggressive advertising campaigns
targeted at its potential customer base. Automobiles sold in the year ended
December 31,1995 totaled 192 and has climbed to 317 through the fourth quarter,
1996. To maintain the growth in volume, MCMI expanded its employee base from
the two founding stockholders to include sales positions, mechanics and
administrative staff. In 1995, MCMI opened it second car lot which also houses
its administrative offices. MCMI financed its growth initially through funds
borrowed from individuals. With the successful limited private placement
offering of its Contracts, funds in excess of $950,000.00 were raised. The
future expansion of MCMI to one additional car lot per year for the next three
years will be financed from the growth of MCMI's Contracts volume the bulk of
which Contracts will be acquired by the Company with funds generated through the
SB-1 offering of its Notes and Contracts in the aggregate amount of
$7,500,000.00.
B. Analysis of Financials for the Year Ended December 31, 1996.
-----------------------------------------------------------
(i) Liquidity and Capital Resources. For the year ended December 31,
-------------------------------
1996, working capital increased by $245,450. Cash flow from
operations was primarily affected by a net profit of $347,599, less
an increase in accounts receivable and inventory of $231,952. Cash
provided by operations of $135,868 was used generally to fund
distributions to shareholders and reduce balances of outstanding
liabilities. MCMI also received proceeds from new loans of $58,048
during 1996, when combined with operations generated an increase in
cash of $40,633.
MCMI's quick ratio increased from .64 to 1 in 1995 to .90 to 1 in
1996. The increase in the ratio is attributable to the increase in
cash as a result of the 75% increase in volume in the most recent
year. Historically, MCMI's growth rate has been financed in part by
loans from related parties and other third party individuals. Funds
were also received from the placement of installment contracts in a
successful limited private placement offering.
(ii) Results of Operations.
---------------------
(a) Resources and Net Income. MCMI's revenues for 1996 increased 75%
------------------------
over what was reported in 1995. The increase is attributable to
a full year's operation of a larger second car lot that was
established in October, 1995. The new lot accommodates more than
double the number of Automobiles handled at the original lot.
Also, additional sales persons were added during 1996 to
generate increased sales volume. The average price per car sold
in 1996 was relatively consistent with that in previous years,
so the increase is due to the number of Automobiles that were
sold.
(b) Income from Operations. As a percentage of revenues, income from
----------------------
operations was 15% for the year ended December 31, 1996, which
is comparable to that in 1995. As MCMI has grown, expenses
remained relatively consistent between 1995 and 1996 when
analyzed as a percentage of revenue. Advertising expense
increased only 13.7% in 1996, due to the effectiveness of the
marketing efforts in place.
29
<PAGE>
C. Analysis of Financials for the Three and One-Half Years Ended December 31,
--------------------------------------------------------------------------
1996.
----
(i) Liquidity and Capital Resources. MCMI began operations in June
1993, financing its start up with funds borrowed from individuals
who were generally related parties. Cash was used for operations
in 1993 and 1994. In 1995, cash flow provided by operations was
primarily affected by a net profit of $223,743, less an increase
in accounts receivable and inventory of $195,470. Cash provided
by operations of $46,664 was used generally to fund distributions
to shareholders and acquire property and equipment. MCMI also
received proceeds from new loans of $78,315 during 1995, when
combined with operations generated an increase in cash of
$40,456.
Stockholders' equity has increased from a deficit of ($12,189)
in 1993 to a balance of $367,216 in 1996. This growth has
occurred primarily from the increased volume of sales of
Automobiles during the existence of MCMI.
(ii) Results of Operations.
---------------------
(a) Revenues and Net Income. Since inception in 1993, MCMI's
-----------------------
revenues have experienced an average growth rate of 181%. As
a percentage of revenues, net income has grown from a loss of
(10.1%) in 1993 to its current level in 1996 of 17.4%. Net
income for 1996 was $347,599, a fifty-five percent increase
from 1994.
Revenues for the year ended December 31, 1995 increased
102.9% over 1994, and revenues in 1994 increased 364.8% over
the short period of operations in 1993. The overall increase
in revenues and net income is due to the increased number of
Automobiles sold.
(b) Income from Operations. As a percentage of revenues, income
----------------------
from operations was 14.7%, 19.8% and 31.5% in 1995, 1994 and
1993, respectively. From the date of incorporation through
1995, expenses have not remained consistent as a percentage
of revenues because MCMI was not a mature business and was
establishing itself in the marketplace. In 1996, its
operations settled and remained relatively consistent with
1995.
D. Prospective Information. A key element of MCMI's business plan is
-----------------------
solidifying its source for capital funding to maintain and satisfy its
increasing demand for inventory. As MCMI expands with additional lots, the
demand for additional inventory will also increase. Coupled with the historical
growth in sales volume, MCMI's need for capital will become of paramount
importance. The principals foresaw this need which precipitated the formation
of the Company and the Offering. With the affiliated status of both entities,
MCMI will have an exclusive source in the Company for marketing its Contracts.
Having a ready buyer for its Contracts will allow MCMI to replenish its
inventory on an ongoing basis and continue business operations. Through the
Offering, the Company will have the funds to purchase the Contracts as they are
generated by MCMI. (See "DESCRIPTION OF THE BUSINESS.")
Management believes MCMI has established a strong reputation in its market
area for providing good service and dependable Automobiles. In targeting the
Non-Prime Consumer,
30
<PAGE>
Management expects MCMI to increase its market share because of the lack of
dealers and finance companies competing for this consumer class. (See
"COMPETITION.")
Management anticipates achieving its principal goal of enhanced sales
volume through a number of initiatives. First, MCMI plans on implementing an
aggressive marketing campaign targeting the Non-Prime Market. Second,
Management intends to expand its business and market exposure by opening one new
car lot each year for the next two years. Additional inventory and sales staff
will be added to meet the increasing demand for Automobiles and to handle the
increase in customer traffic. Third, through MCMI's affiliation with the
Company, MCMI has an exclusive buyer for its Contracts, thereby converting its
accounts receivable into immediate cash. By maintaining a steady stream of cash
flow, MCMI will be able to replenish its inventory and meet its operating needs
of an ongoing basis which, in turn, reduces or eliminates MCMI's reliance on
future borrowings. Fourth, with a successful Offering by the Company, the
Company will have the capital it needs to fund the purchase of MCMI's Contracts
as they become available. This alleviates MCMI's dependence on outside sources
of financing to satisfy its capital requirements and to continue business
operations.
E. Results of Operations. The following discussion is qualified in its
---------------------
entirety by and should be read in conjunction with the Financial Statements,
including the notes thereto, appearing elsewhere in this Prospectus.
(i) Introduction. MCMI's primary source of cash flows are the principal
------------
and interest payments arising under the Contracts. To date, MCMI has been
successful in maintaining its business on a profitable basis through a
successful private placement of its Contracts under Rule 504 of Regulation D
promulgated under the Securities Act and normal business operations. In selling
its Contracts to the Company, MCMI will be relieved of having to negotiate and
contract with third party financial services from time to time to raise capital
for its operations. This will also allow MCMI to concentrate on its primary
business of selling Automobiles and to maintain a minimal debt structure.
(ii) Increase in Sales Volume. MCMI has experienced an average growth rate
------------------------
of over two hundred percent (200%) since its first year in business. (See
"DESCRIPTION OF THE BUSINESS.") Based on the initiatives set forth above,
Management is confident that MCMI's sales volume and revenues will continue to
grow. Management expects this trend will continue irrespective of the impact of
future market conditions on interest rates since the Non-Prime Consumer is
already accustomed to higher market rates as a factor of the higher level of
risk exposure he represents. However, higher interest rates may have a material
impact on an Investor's investment decision by rendering his return on
investment less competitive with other alternative investment opportunities
and/or reducing the profit margin on funds borrowed to purchase a Contract.
(iii) Capital Expenditures. Management plans to open two (2) new car lots
--------------------
over the next two years in the Roanoke Valley which is in the State of Virginia.
As a result, MCMI expects the trend of higher sales volume in fiscal 1997 and
1998 to continue with projected sales of 310 and 620, respectively. Management
estimates that approximately $250,000.00 will be required to finance MCMI's cost
of opening the two lots. Each lot will require approximately $100,000.00 in
inventory and $25,000.00 in furniture and fixtures. MCMI intends to finance its
expansion program principally from cash flow generated during normal business
operations, revenues received from the sale of its Contracts to the Company,
and/or funds obtained from conventional funding sources. (See "INVESTMENT
HIGHLIGHTS.") Presently, MCMI does
31
<PAGE>
not intend to seek or incur additional credit facilities or debt since the
Company will provide the financing needed by MCMI through the Offering.
(iv) Affiliated Status. A critical component of both MCMI's and the Company's
-----------------
success is the exclusivity of their business relationship. MCMI will depend
solely on the Company to purchase its Contracts which will generate the funds it
needs to meet its expansion goals and operating expenses. The Company, in turn,
will depend solely on MCMI to generate the Contracts it will purchase for resale
to Investors. Accordingly, Investors' funds will be used by the Company
primarily to purchase additional Contracts from MCMI and ultimately by MCMI to
purchase new inventory used to fund its operating expenses and expansion
program. This business relationship is primarily predicated upon the continued
commonality of ownership of the two entities and the success of the Offering.
(See "RISK FACTORS" and "DESCRIPTION OF THE BUSINESS.") There are no written
agreements or arrangements memorializing this relationship at this time because
of the existing commonality of ownership of the two entities and the significant
advantage such relationship bestows on each entity over its competitors. (See
"RISK FACTORS" and "COMPETITION.")
F. Benefits of Affiliation. To remain competitive in the used car
------------------------
industry, MCMI must maintain sufficient operating capital to replenish its
inventory. This cannot be accomplished if it finances the majority of its sales
without the assistance of a finance company. The Company provides a ready market
for MCMI's "car paper" (i.e., the Contracts), which generates the cash flow MCMI
needs to satisfy its ongoing capital requirements. With a successful Offering,
the Company anticipates it will have the capital reserves necessary to purchase
MCMI's Contracts on a continual basis. Management's long term goal is to
establish: (i) a market for MCMI's Contracts with large financial institutions,
pension funds and/or insurance companies; and/or (ii) sufficient lines of
credit, thereby reducing the need for individual investors.
G. Refining the Showroom. Management will develop a new showroom concept
---------------------
which will be stimulating to the eye as well as the ear. On display will be
video monitors replaying segments of movies and comedy stand-up routines, all of
which poke fun or in some way humorously relate to the car industry. Intermixed
between these segments will be portions of songs and other musical themes about
cars, all being played through a computerized sound system. Management will
emphasize the car theme in packaging this media by incorporating parts of cars
into the display. For example, a video monitor could be installed inside the
headlight and grill section of a '55 Chevy and hung from the ceiling. The car
buying process then truly becomes a captivating and entertaining experience.
Psychological research proves that humor lowers anxiety. By lowering a potential
customer's anxiety level, his level of trust rises which increases the chances
of selling more cars.
H. Warranty. MCMI currently offers to its customers a five (5) day money
--------
back guarantee and a bumper to bumper dealer cost warranty. If a customer does
not like the Automobile for any reason, MCMI will give the customer his down
payment back less mileage. With the warranty, which lasts for the full length of
the financed contract term, MCMI only charges the customer what MCMI paid for
the part (no markup). Labor under warranty is currently priced at $22.50 per
hour. These features are unmatched in MCMI's market area, and Management
believes few if any independent car companies offer these services in other
regions of the United States.
32
<PAGE>
PROPERTIES
The following table describes the principal office and business locations of
the Company and MCMI and the monthly rental as of December 31, 1996:
<TABLE>
<CAPTION>
Location Description Rent/Month
- -------- ----------- ----------
<S> <C> <C>
3733 Williamson Road Service and Collections Lot/1/ $1,326
Roanoke, Virginia
4206 Williamson Road Sales Lot and Executive and $1,650
Roanoke, Virginia Administrative
Offices for MCMI and the Company/2/
</TABLE>
Management projects to open an additional car lot per year for each of the next
three years. Rental projections are based on lease rates that are comparable to
existing lease agreements.
_______________
/1/ Leased (term expires July 31, 1998; no renewal option)
/2/ Leased (term expires August 31, 1997; unlimited one year renewal options)
LEGAL PROCEEDINGS
Currently, neither Company nor MCMI is a party to any legal proceeding.
Although there have been no such proceedings to date, there is no guarantee that
such proceedings will not arise in the future in the ordinary course of
business, especially with respect to collection efforts necessitated by customer
defaults.
MANAGEMENT
A. Directors
---------
The table below sets forth the name, age, and position of the Company's and
MCMI's Directors:
<TABLE>
<CAPTION>
Name Age Position/Status
- ---- --- ---------------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 Director; 50% Shareholder
Jeffrey W. Akers 32 Director; 50% Shareholder
</TABLE>
Messrs. Blankemeyer and Akers are the sole shareholders and directors of MCMI
and the Company and are serving terms that will expire at the date of the annual
shareholders' meeting in 1996.
33
<PAGE>
B. Officers
--------
The table below sets forth the name, age and position of the Company's and
MCMI's executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 President and Secretary
Jeffrey W. Akers 32 Vice-President and Treasurer
</TABLE>
C. Biographies of Directors and Officers
-------------------------------------
Franklin W. Blankemeyer, Jr. Mr. Franklin W. Blankemeyer, Jr., co-founder and
----------------------------
Director of the Company and MCMI, has served as the President and Secretary for
both companies since June 1993. Prior to founding the Company, Mr. Blankemeyer
was employed by Valleydale Foods, Inc. and Valleydale Packers, Inc.
(collectively "Valleydale") and served as plant manager of Valleydale's Salem,
Virginia, sales/production facility directing the efforts of 225 employees.
Valleydale had annual sales of $40,000,000. Mr. Blankemeyer was with both
companies for a total of 8 years. Mr. Blankemeyer also served as program
director for Southwestern Virginia's International Trade Association during his
employment at Valleydale Packers, Inc. Mr. Blankemeyer graduated from Hampden-
Sydney College in 1986, cum laude, with a B.S. in Economics.
Jeffrey W. Akers. Mr. Jeffrey W. Akers graduated from Virginia Tech in 1987
----------------
with a B. S. in Civil Engineering. He worked at Richard L. Williams Consulting
Engineers as a Project Structural Engineer for three years designing small to
medium sized commercial buildings before turning to the field of finance and
investments. After two years serving as a Financial Consultant and a training
manager for IDS Financial Services (now American Express Financial Advisors)
where he qualified for the Mercury Award, presented to the top 20% performers,
he founded the Company and MCMI with Franklin Blankemeyer. Mr. Akers is
currently a Director and the Vice-President and Treasurer of both companies.
D. Executive Compensation
----------------------
Compensation of Directors. Neither the Company's nor MCMI's Board of
-------------------------
Directors receive any compensation or remuneration of any kind.
The following table sets forth the aggregate annual compensation of the
executive officers of MCMI and the Company for the last fiscal year:
<TABLE>
<CAPTION>
Principal Salary/Other Annual
Name of Officer Position Year Distributions/1/ Compensation/2/
- --------------- --------- ---- ---------------- ---------------
<S> <C> <C> <C> <C>
Franklin W. President/ 1996 56,472.00 NONE
Blankemeyer, Jr. Secretary
Jeffrey W. Akers Vice- 1996 56,472.00 NONE
President/
Treasurer
</TABLE>
34
<PAGE>
(1) The two principal officers received stockholder distributions in the amount
of $56,472.00 each during 1996. No bonuses were paid during this time. The
Company anticipates implementing a monthly salary in the amount of $2,000.00
for the two principals commencing in 1997, in addition to stockholder
distributions.
(2) Neither officer received any other compensation or benefit of any kind
during 1996.
Cash Incentive Compensation. At the present time there is no management
---------------------------
incentive plan or any other type of remuneration or compensation plan
benefitting solely the executive officers of MCMI or the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the common stock of the Company as of the Effective
Date, (i) by each director and officer, (ii) by each person known by the Company
to be the beneficial owner of ten percent or more of the outstanding shares of
common stock of the Company, and (iii) by all directors and officers as a group.
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percent of Class
---------------- ------------------ ----------------
<S> <C> <C>
Franklin W. 10 50%
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers 10 50%
505 24th Street, S.W.
Roanoke, Virginia 24014
Directors and Officers 20 100%
as a Group (2 persons)
Franklin W.
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers
505 24th Street, S.W.
Roanoke, Virginia 24014
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as specified herein, there are no transactions involving the Company or
MCMI in which any director, officer, or shareholder or their spouses or other
relatives, have had or will
35
<PAGE>
have a direct or indirect material interest. Mr. Blankemeyer's father and Mr.
Akers' mother are current noteholders of MCMI which notes and terms are more
particularly described below:
<TABLE>
<CAPTION>
Payee Original Date of Interest Monthly Terms Balance
- ------------------- Amount Note Rate Payment ------- 12/31/96
-------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. Franklin W. 49,500 variable 7% int. accrues Demand 49,500
Blankemeyer, Sr. 60,961 03/04/94 7% int. accrues Demand 60,961
15,000 04/05/95 15% $750 24 mos. 9,677
Mr. Franklin W. 12,681 variable 0% N/A Demand 12,681
Blankemeyer, Sr.
Mrs. Nancy 20,000 11/03/93 7% $396 60 mos. 8,500
Maddox 8,000 03/30/95 7% $158 60 mos. 6,254
</TABLE>
In addition, Mr. Akers' father is employed by MCMI on a full time basis. Mr.
Frank Akers' salary is based entirely on commission and averages $35,000.00 per
year.
Currently, Jeffrey W. Akers is indebted to MCMI in the amount of $4,850.00
representing a cash advance. The debt is evidenced by an unsecured, non-
interest bearing demand note.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Magee, Foster, Goldstein & Sayers, P.C.
EXPERTS
The audited financial statements of Genesis Financial Group, Inc., as of
December 31, 1996 and 1995, and the audited financial statements of Mr. Car Man,
Inc. as of December 31, 1995 and for the period then ended included in this
Prospectus have been so included in reliance on the report and authority of Hope
Player And Associates, P.C., an expert in auditing and accounting.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
36
<PAGE>
GLOSSARY
The following are definitions of certain capitalized terms used in this
Prospectus:
AFFILIATE - an affiliate of, or person affiliated with, a specified person
shall mean a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
persons specified.
AUTOMOBILES - the used cars, vans, light trucks and other vehicles sold by
MCMI from time to time.
CODE - the Internal Revenue Code of 1986, as amended.
COMMISSION - the Securities And Exchange Commission.
COMPANY - Genesis Financial Group, Inc., a Virginia corporation.
CONTRACTS - the Installment Sales Contracts originated by MCMI during the
normal course of its business operations of selling Automobiles to the general
public, specifically the Non-Prime Consumer.
EFFECTIVE DATE - the date upon which the registration statement, of which this
Prospectus is a part, registering the Notes and Contracts and filed with the SEC
on behalf of the Company is declared effective by the staff of the Commission.
EXCHANGE ACT - The Securities Exchange Act of 1934, as amended.
INVESTOR(S) - a purchaser of a Note offered by the Company pursuant to the
Offering.
MANAGEMENT - Messrs. Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers.
MCMI - Mr. Car Man, Inc., a Virginia corporation.
NON-PRIME CONSUMER - an Automobile buyer with limited access to traditional
sources of consumer credit.
NON-PRIME MARKET - the automobile finance market for Non-Prime Consumers.
NOTES - the corporate promissory notes offered by the Company hereunder.
OFFERING - the offer for sale to investors by the Company of up to
$7,500,000.00 in Notes and Contracts together with the Company's Guarantee, for
the purpose of raising, in the aggregate, $7,500,000.00 which Offering is
registered with the Commission on form SB-1.
PROSPECTUS - the offering document delivered to Investors interested in
purchasing the Notes.
SECURITIES ACT - The Securities Act of 1933, as amended.
37
<PAGE>
FINANCIAL STATEMENTS
--------------------
Page
----
Comparative Financial Statements for
Genesis Financial Group, Inc. and Mr. Car Man, Inc.
Comparative Balance Sheets for Genesis Financial Group, Inc. as of
December 31, 1993, 1994, 1995 and 1996 F-1
Comparative Income Statements for Genesis Financial Group, Inc.
for periods ended December 31, 1993, 1994, 1995 and 1996 F-2
Comparative Balance Sheets for Mr. Car Man, Inc. as of
December 31, 1993, 1994, 1995 and 1996 F-3
Comparative Income Statements for Mr. Car Man, Inc. for
periods ended December 31, 1993, 1994, 1995 and 1996 F-4
Audited Financial Statements of Genesis Financial Group, Inc.
December 31, 1996 and 1995 F-5
Report of Independent Auditors F-6
Balance Sheets as of December 31, 1996 and 1995 F-7
Statements of Income and Retained Earnings
for years ended December 31, 1996 and 1995 F-8
Statement of Cash Flows for years ended December 31, 1996 and 1995 F-9
Notes to Financial Statements F-10
Financial Statements for Mr. Car Man, Inc.
December 31, 1996 and 1995
Report of Independent Auditors F-11
Balance Sheets as of December 31, 1996 and 1995 F-12
Statements of Income and Retained Earnings for years ended
December 31, 1996 and 1995 F-13
Statements of Cash Flows for years ended December 31, 1996 and 1995 F-14
Notes to Financial Statements F-15
38
<PAGE>
FINANCIAL STATEMENTS
--------------------
(CONTINUED)
-----------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Projected Financial Statements for Genesis Financial Group, Inc.
and Mr. Car Man, Inc. F-16
Projected Balance Sheets for Genesis Financial Group, Inc. as of
Years One and Two F-19
Projected Income Statements for Genesis Financial Group, Inc.
for the Periods Ended Years One and Two F-20
Summary of Significant Projection Assumptions
for Genesis Financial Group, Inc. Years One and Two F-21
Projected Balance Sheets for Mr. Car Man, Inc. as of
Years One and Two F-23
Projected Income Statements for Mr. Car Man, Inc.
for the Periods Ended Years One and Two F-24
Summary of Significant Projection Assumptions
for Mr. Car Man, Inc. Years One and Two F-25
</TABLE>
39
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED AUDITED
<S> <C> <C> <C> <C>
Assets
------
Current assets
Cash $ 50 - - -
----- --------- ------- -------
Total current assets 50 - - -
Organization costs, net 401 315 229 143
----- --------- ------- -------
Total assets 451 315 229 143
===== ========= ======= =======
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 9,224 9,174 9,174 11,600
Stockholders' equity
Common stock, no par value,
20 shares issued and 100
shares authorized 2,000 2,000 2,000 2,000
Retained earnings (10,773) (10,859) (10,945) (13,457)
-------- -------- -------- --------
( 8,773) ( 8,859) ( 8,945) (11,457)
-------- -------- -------- --------
Total liabilities and
stockholders' equity $ 451 315 229 143
======== ======== ======== ========
</TABLE>
F-1
GENESIS FINANCIAL GROUP, INC.
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED AUDITED
<S> <C> <C> <C> <C>
Revenues, net $ - - - -
Expenses
Advertising 566 - - 2,000
Education 8,066 - - -
Supplies 470 - - -
Telephone 731 - - 376
Miscellaneous 789 - - 50
Meals 122 - - -
Amortization 29 86 86 86
-------- --------- ------- ------
Total expenses 10,773 86 86 2,512
-------- --------- ------- ------
Net loss $(10,773) ( 86) ( 86) (2,512)
======== ========= ======= ======
</TABLE>
F-2
MR. CAR MAN, INC.
COMPARATIVE BALANCE SHEETS
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED UNAUDITED
<S> <C> <C> <C> <C>
Assets
------
Current assets
Cash $ 15,485 11,581 52,037 92,670
Accounts receivable, trade 19,784 74,187 162,873 319,860
Accounts receivable,
related party 2,200 12,983 11,447 5,345
Inventory 18,844 26,152 132,936 207,901
--------- -------- ------- -------
Total current assets 56,313 124,903 359,293 625,776
Fixed assets, net 3,131 7,245 29,529 36,609
Other assets 1,750 1,750 4,201 4,455
--------- -------- ------- -------
Total assets 61,194 133,898 393,023 666,840
========= ======== ======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable 1,283 - 1,332 7,196
Accrued expenses - 5,809 7,732 7,732
Current portion
long-term debt - 26,555 72,764 87,933
--------- -------- ------- -------
Total current liabilities 1,283 32,364 81,828 102,861
Long-term debt 72,000 134,086 152,725 163,122
Accrued interest payable - - 5,809 13,541
Stockholders' equity
Common stock, no par value,
20 shares issued and
100 shares authorized 100 20,100 20,100 20,100
Retained earnings ( 12,189) ( 52,652) 132,561 367,216
--------- --------- ------- -------
Total stockholders' equity ( 12,089) ( 32,552) 152,661 387,316
--------- --------- ------- -------
Total liabilities and
stockholders' equity $ 61,194 133,898 393,023 666,840
========= ======== ======= =======
</TABLE>
F-3
MR. CAR MAN, INC.
COMPARATIVE INCOME STATEMENTS
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE INCOME STATEMENTS
FOR PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996
UNAUDITED UNAUDITED AUDITED UNAUDITED
<S> <C> <C> <C> <C>
Revenues, net $ 120,392 559,637 1,135,664 1,994,475
Cost of merchandise sold 92,265 456,841 713,182 1,324,202
--------- -------- --------- ---------
28,127 102,796 422,482 670,273
Expenses
Salaries and wages - - - 97,385
Advertising 8,712 23,267 42,781 48,656
Legal and professional 1,476 15,825 24,963 16,346
Rent 6,250 15,896 23,645 38,681
Telephone and utilities 2,321 7,155 12,845 21,758
Supplies 2,121 9,177 10,365 11,108
Outside services 536 2,253 8,066 6,329
Collection costs - - 7,201 16,647
Bad debt expense - - 6,794 1,744
Travel and entertainment 110 6,027 6,412 5,694
Repairs and maintenance 3,366 1,321 2,801 218
Taxes - other 2,409 5,512 4,506 7,118
General insurance 888 3,210 4,571 8,822
Office expense 2,659 5,253 3,580 4,100
Education 5,709 8,981 2,558 2,118
Miscellaneous 1,167 6,254 3,790 10,381
Depreciation and
amortization 198 507 2,533 4,881
--------- -------- --------- ---------
37,922 110,638 167,411 301,986
--------- -------- --------- ---------
Income (loss) from
operations ( 9,795) ( 7,842) 255,071 368,287
Interest expense ( 2,394) ( 13,775) ( 31,328) ( 25,999)
Other income - - - 5,311
--------- -------- --------- ---------
Net income $( 12,189) ( 21,617) 223,743 347,599
========= ======== ========= =========
</TABLE>
F-4
<PAGE>
GENESIS FINANCIAL GROUP, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT)
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Genesis Financial Group, Inc.
We have audited the accompanying balance sheet of Genesis Financial Group, Inc.
as of December 31, 1996 and 1995, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genesis Financial Group, Inc.
as of December 31, 1996 and 1995, and the results of its operations and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 6, 1997
F-6
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Assets
------
Current assets
Cash $ - -
-------- -------
Total current assets - -
Organization costs, net 143 229
-------- -------
Total assets 143 229
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 11,600 9,174
Stockholders' equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 2,000 2,000
Retained earnings (13,457) (10,945)
--------- --------
(11,457) ( 8,945)
--------- --------
Total liabilities and
stockholders' equity $ 143 229
========= ========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-7
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Statements of Income and Retained Earnings
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues, net $ - -
Expenses
Advertising 2,000 -
Education - -
Supplies - -
Telephone 376 -
Miscellaneous 50 -
Meals - -
Amortization 86 86
-------- -------
Total expenses 2,512 86
-------- -------
Net loss ( 2,512) ( 86)
Retained earnings, beginning (10,945) (10,859)
Retained earnings, ending $(13,457) (10,945)
</TABLE>
The notes to financial statements are an integral part of these statements.
F-8
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,512) ( 86)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 86 86
------- ------
Net cash provided (used) by operating activities (2,426) -
Cash provide by financing activities
Increase in loans from stockholders 2,426 -
------- ------
Cash at beginning of year - -
------- ------
Cash at end of year $ - -
======= ======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-9
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Genesis Financial Group, Inc. (Genesis) was formed to provide
centralized funding, receivables, management, and collection services
for installment sales contracts originated by Mr. Car Man, Inc.
(MCMI), an affiliated company, from the sale of used automobiles, van,
light trucks and other vehicles. MCMI sells used automobiles to
individuals in the Roanoke, Virginia area who have limited access to
traditional sources of consumer credit. As of the date of these
financial statements, Genesis has a limited operating history.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquefied investments with an initial maturity of
three months or less to be cash equivalents.
Income Taxes
------------
The Company had originally elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under those provisions,
Genesis does not pay federal corporate income taxes on its taxable
income. Instead the stockholders are liable for individual federal
income taxes on their respective shares of the Company's profits.
Effective January 1, 1997, the Company terminated its S Corporation
status and is now a C Corporation.
Note 2. RELATED PARTY TRANSACTIONS
Notes payable to stockholders as of December 31, 1996 and 1995
represents amounts advanced by stockholders to fund initial working
capital requirements. The loans are due on demand and bear no
interest.
F-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Mr. Car Man, Inc.
We have audited the accompanying balance sheet of Mr. Car Man, Inc. as of
December 31, 1995, and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mr. Car Man, Inc. as of
December 31, 1995, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 22, 1996
F-11
<PAGE>
MR. CAR MAN, INC.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
UNAUDITED AUDITED
<S> <C> <C>
Assets
------
Current assets
Cash $ 92,670 52,037
Accounts receivable, trade 319,860 162,873
Accounts receivable, related party 5,345 11,447
Inventory 207,901 132,936
-------- -------
Total current assets 625,776 359,293
Fixed assets, net (Notes 2 and 3) 36,609 29,529
Other assets 4,455 4,201
-------- -------
Total assets 666,840 393,023
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade 7,196 1,332
Accrued expenses 7,732 7,732
Current portion long-term debt 87,933 72,764
-------- -------
Total current liabilities 102,861 81,828
Long-term debt (Notes 3 and 5) 163,122 152,725
Accrued interest payable 13,541 5,809
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100 20,100
Retained earnings 367,216 132,561
-------- -------
387,316 152,661
-------- -------
Total liabilities and stockholders' equity $666,840 393,023
======== =======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-12
<PAGE>
MR. CAR MAN, INC.
Statements of Income and Retained Earnings
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
UNAUDITED AUDITED
<S> <C> <C>
Revenues, net $1,994,475 1,135,664
Cost of merchandise sold 1,324,202 713,182
---------- ---------
Gross profit 670,273 422,482
Expenses
Salaries and wages 97,385 -
Advertising 48,656 42,781
Legal and professional 16,346 24,963
Rent 38,681 23,645
Telephone and utilities 21,758 12,845
Supplies 11,108 10,365
Outside services 6,329 8,066
Collection costs 16,647 7,201
Bad debt expense 1,744 6,794
Travel and entertainment 5,694 6,412
Repairs and maintenance 218 2,801
Taxes - other 7,118 4,506
General insurance 8,822 4,571
Office expense 4,100 3,580
Education 2,118 2,558
Miscellaneous expense 10,381 3,790
Depreciation and amortization 4,881 2,533
---------- ---------
301,986 167,411
---------- ---------
Income from operations 368,287 255,071
Interest expense ( 25,999) ( 31,328)
Other income 5,311 -
---------- ---------
( 20,688) ( 31,328)
Net income 347,599 223,743
Retained earnings, beginning 132,561 ( 52,652)
Less shareholder distributions ( 112,944) ( 38,530)
Retained earnings, ending $ 367,216 132,561
========== =========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-13
<PAGE>
MR. CAR MAN, INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
UNAUDITED AUDITED
<S> <C> <C>
Cash flows from operating activities
Net income $ 347,599 223,743
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,881 2,533
Bad debt expense 1,744 6,794
(Increase) decrease in:
Trade accounts receivable (156,987) ( 88,686)
Inventories ( 74,965) (106,784)
Increase (decrease) in:
Trade accounts payable 5,864 1,332
Accrued liabilities 7,732 7,732
-------- --------
Net cash provided (used) by operating activities 135,868 46,664
Cash flows from investing activities
Purchases of property and equipment ( 11,960) ( 24,817)
Loans made to related party - ( 5,997)
Payments received loans to related
party, net of advances 4,358 739
Increase in refundable deposits ( 254) ( 2,451)
------- -------
Net cash provided (used) by investing activities ( 7,856) ( 32,526)
Cash flows from financing activities
Proceeds from notes payable 58,048 78,315
Principal repayment notes payable ( 32,483) ( 13,467)
Distributions to shareholders (112,944) ( 38,530)
------- -------
Net cash provided (used) by financing activities ( 87,379) 26,318
------- --------
Net increase in cash 40,633 40,456
Cash at beginning of year 52,037 11,581
------- --------
Cash at end of year $ 92,670 52,037
========= ========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-14
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its
buyers. MCMI's customer base primarily consists of individuals in the
Roanoke, Virginia area who have limited access to traditional sources
of consumer credit. The financing contracts are generally sold to
third party investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquefied investments with an initial maturity of
three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized when
earned. Proceeds received from financing contracts sold reduce the
outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific identification
method. Repossessions are recorded at the lower of cost or market.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method of
depreciation for financial reporting purposes. The average estimated
useful lives of the principal property categories are summarized as
follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenance costs are charged to
expense as incurred.
F-15
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income.
Instead the stockholders are liable for individual federal income
taxes on their respective shares of the Company's profits.
Warranty Costs
--------------
The Company provides for warranty costs as products are repaired.
Note 2. FIXED ASSETS, NET
Fixed assets as of December 31, 1996 and 1995 are summarized by major
category as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 8,983 8,983
Furniture and equipment 18,688 9,776
Assets under capital lease 17,335 14,287
-------- -------
45,006 33,046
Less accumulated depreciation
and amortization ( 8,397) ( 3,517)
$ 36,609 29,529
======== =======
</TABLE>
Note 3. LONG-TERM DEBT
As of December 31, 1996 and 1995, long-term debt is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Notes payable to individuals
due on demand; interest payable
monthly at varying interest
rates, unsecured $ 20,000 55,000
</TABLE>
F-16
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
<TABLE>
Note 3. LONG-TERM DEBT (Continued)
<S> <C> <C> <C>
Note payable to individual due on
demand; no interest; secured by
inventory 30,000 -
Notes payable to individuals
due on demand after December 31,
1997; interest accrued and
payable at time of demand 123,142 123,142
Obligations under capital
leases due in monthly
installments of $575 including
interest ranging from 12% to
3.6% 10,007 11,597
Notes payable to individuals
due in monthly installments of
$3,203 including interest ranging
from 7% to 15%, maturities up
to March, 2000; unsecured 44,466 35,750
Note payable to individual due in
monthly installments of $899
including interest at 25%; secured
by installment obligations 23,440 -
--------- --------
221,055 225,489
Less current portion ( 87,933) ( 72,764)
Total long-term debt $ 163,122 152,725
========= ========
</TABLE>
F-17
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1996 and 1995
Note 3. LONG-TERM DEBT (Continued)
Annual maturities of long-term debt including capitalized leases are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 87,933
1998 24,033
1999 135,960
2000 3,129
--------
$ 251,055
========
</TABLE>
Note 4. LEASES
The Company leases certain building and equipment under noncancellable
operating leases. Lease terms range from three to five years. The
following is a schedule of future minimum lease payments required
under the operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 32,174
1998 11,636
------
$ 43,810
======
</TABLE>
Rental expense recorded for the year ended December 31, 1996 and 1995
was $36,212 and $23,645, respectively.
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of December 31, 1996 and 1995
includes loans from stockholders and their family members totaling
$177,572 and $164,424, respectively. Certain loans accrue at various
interest rates with principal and interest due on demand. Certain
other loans are amortized monthly with maturities up to March, 2000.
Also as of December 31, 1996, there is an outstanding receivable from
a stockholder of $5,120.
F-18
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROJECTED BALANCE SHEETS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Assets
------
Current assets
Cash $ 3,505 224,266
Accounts receivable 1,089,249 3,356,238
Reserve for bad debts ( 65,480) ( 341,869)
--------- ---------
Total current assets 1,027,274 3,238,635
Fixed assets, net - 20,000
Organization costs, net 57 -
---------- ---------
Total assets 1,027,331 3,258,635
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Long-term debt 1,049,964 3,164,866
Stockholders' Equity
Common stock no par value,
20 shares issued and
100 shares authorized 2,000 2,000
Retained earnings
(deficit) ( 24,633) 91,769
--------- -------
( 22,663) 91,769
--------- -------
Total liabilities and
Stockholders' Equity $1,027,331 3,258,635
========= =========
</TABLE>
(See Summary of Significant Assumptions)
F-19
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROJECTED INCOME STATEMENTS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Revenues, net $ 322,677 1,202,034
Interest expense 90,329 373,146
--------- ---------
Gross profit 232,348 828,888
Expenses
Personnel 60,000 120,000
Occupancy - 12,000
Legal and professional 10,000 15,000
Bad debt 65,480 276,389
Collection costs 12,770 39,400
Commissions 75, 000 150,000
Other expenses
Insurance 3,000 6,000
Travel and entertainment 7,500 11,250
Office expenses 10,000 15,000
Telephone 2,500 5,000
Depreciation and amortization 86 5,057
--------- ---------
Total expenses 246,336 655,096
--------- ---------
Income (loss) before taxes ( 13,988) 173,792
Income taxes ( 2,812) 57,390
-------- ---------
Net income (loss) $( 11,176) 116,402
======= =========
</TABLE>
(See Summary of Significant Assumptions)
F-20
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
The financial projection is based on subscribing an offering of $6 million in
promissory notes and $1.5 million in installment sales contracts by the end of
year two, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of March 10, 1997, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained
and should not be considered to be a presentation of expected future results.
Accordingly, this presentation may not be useful for other purposes. The
assumptions disclosed herein are those management believes are significant to
the projections. Even if funds are obtained, there will usually be differences
between projected and actual results, because events and circumstances
frequently do not occur as expected and those differences may be material.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Genesis Financial Group, Inc. (Genesis) was formed to provide centralized
funding, receivables management, and collection services for installment sales
contracts originated by Mr. Car Man, Inc. (MCMI), an affiliated company, from
the sale of used automobiles, vans, light trucks and other vehicles. MCMI sells
used automobiles to individuals in the Roanoke, Virginia area who have limited
access to traditional sources of consumer credit. As of the date of these
financial statements, Genesis has a limited operating history.
Income Taxes
- ------------
The Company had originally elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, Genesis does not pay
federal corporate income taxes on its taxable income. Instead the stockholders
are liable for individual federal income taxes on their respective shares of the
Company's profits. Effective January 1, 1997, the Company terminated its S
Corporation status and is now a C Corporation.
F-21
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
Note A. REVENUES
The Company expects to purchase installment sales contracts from its
affiliated company, Mr. Car Man, Inc. (MCMI) in amounts of $1,500,000
and $3,000,000, in years one and two, respectively. Interest income
will be recorded as revenue as earned, and other revenues will be
recognized as received. Bad debt expense is estimated based on a
percentage of ending accounts receivable.
Note B. FIXED ASSETS
In year two, management plans to establish a separate office for the
Company operations. Depreciation expense is calculated based on the
assets estimated useful life of five years.
Note C. NOTES PAYABLE
The notes payable are anticipated to be subscribed over years one and
two, in the amounts of $1,166,664 and $2,666,664, respectively. These
projections include interest expense calculations based on an 18%
interest rate, assuming an equal amount of new notes on a monthly
basis, with the first payment to be made in the first month following
the issuance of the notes.
Note D. EXPENSES
The Company will be come fully operational in year one upon receipt of
initial funds under the offerings of $6 million in notes and $1.5
million in installment sales contracts. The expenses represent
management's estimate of the costs to operate and expand the business
of Genesis Financial Group, Inc.
Note E. INCOME TAX
State and federal income taxes are calculated at current tax rates,
and are assumed to be paid during the year for each of the years
presented.
F-22
<PAGE>
MR. CAR MAN, INC.
PROJECTED BALANCE SHEETS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Assets
------
Current assets
Cash $412,246 1,005,576
Accounts receivable, trade 255,888 204,710
Inventory 257,901 357,901
-------- ---------
Total current assets 926,035 1,568,187
Fixed assets, net 28,609 41,609
Other assets, net 4,455 4,455
-------- ---------
Total assets 959,099 1,614,251
======== =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Current portion long-term debt 24,033 135,960
-------- ---------
Total current liabilities 24,033 135,960
Long-term debt 139,089 3,129
Stockholders' equity
Common stock, no par value,
20 shares issued and
100 shares authorized 20,100 20,100
Retained earnings 775,877 1,455,062
-------- ---------
Total stockholders' equity 795,977 1,475,162
-------- ---------
Total liabilities and
stockholders' equity $959,099 1,614,251
======== =========
</TABLE>
(See Summary of Significant Assumptions)
F-23
<PAGE>
MR. CAR MAN, INC.
PROJECTED INCOME STATEMENTS
YEARS ONE AND TWO
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR
ONE TWO
<S> <C> <C>
Revenues, net $1,750,400 3,500,800
Cost of merchandise sold 1,095,436 2,450,160
---------- ---------
Gross profit 654,964 1,050,640
Expenses
Personnel 20,000 32,000
Occupancy 46,900 70,350
Advertising 50,000 75,000
Legal and professional 24,000 36,000
Other expenses
Dues and fees 1,478 2,217
Education 2,557 3,836
Insurance 5,000 7,500
Miscellaneous 8,500 12,750
Operating supplies 6,400 9,600
Office supplies 6,400 9,600
Outside services 14,900 22,350
Office expense 2,668 4,002
Repairs and maintenance 8,500 12,750
Supplies 6,400 9,600
Taxes - other 4,600 6,900
Telephone 9,000 13,500
Travel and entertainment 5,000 7,500
Meals 4,000 6,000
Depreciation expense 8,000 12,000
---------- ---------
Total expenses 234,303 353,455
---------- ---------
Income from operations 420,661 697,185
Interest expense 12,000 18,000
---------- ---------
Net income $ 408,661 679,185
========== =========
</TABLE>
(See Summary of Significant Assumptions)
F-24
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
The financial projection is based on subscribing an offering of $6
million in promissory notes and $1.5 million in installment sales contracts by
the end of year two, and presents to the best of management's knowledge and
belief, a summary of the Company's expected results of operations and changes in
financial position for the projection period, if such funds are obtained.
Accordingly, the projection reflects its judgement, as of March 10, 1997, the
date of this projection, of the expected conditions and its expected course of
action if the financing were obtained. The presentation is designed to provide
information to potential lenders and investors concerning results if the funds
were obtained and should not be considered to be a presentation of expected
future results. Accordingly, this presentation may not be useful for other
purposes. The assumptions disclosed herein are those management believes are
significant to the projections. Even if funds are obtained, there will usually
be differences between projected and actual results, because events and
circumstances frequently do not occur as expected and those differences may be
material.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its buyers.
MCMI's customer base primarily consists of individuals in the Roanoke, Virginia
area who have limited access to traditional sources of consumer credit. The
financing contracts have historically been sold to third party investors. These
projected financial statements reflect sales primarily to Genesis Financial
Group, Inc., an affiliated company.
Revenue Recognition
- -------------------
Revenue is recognized at time of sale. For company provided financing, interest
income on outstanding balance is recognized when earned. Proceeds received from
financing contracts sold reduce the outstanding receivable balance.
Inventory
- ---------
Inventory is recorded at historical cost plus cost of repairs, if required.
Cost of sales is determined on a specific identification method. Repossessions
are recorded at the lower of cost or market.
F-25
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
Fixed Assets
- ------------
Fixed assets are carried at cost. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method of depreciation for
financial reporting purposes. The average estimated useful lives of the
principal property categories are summarized as follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal income tax
purposes. Repairs and maintenance costs are charged to expense as incurred.
Income Taxes
- ------------
The Company has elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead the stockholders are
liable for individual federal income taxes on their respective shares of the
Company's profits.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
Note A. REVENUES, NET
The Management of Mr. Car Man, Inc. expects to sell installment sales
contracts to its affiliated company, Genesis Financial Group, Inc.
(Genesis) in amounts of $1,166,664 and $2,666,664 in years one and
two, respectively. Sales for each year include $333,334 in
installment sales contracts which will be sold to investors through an
offering to the general public by Genesis.
Note B. COST OF SALES
Cost of sales is expected to increase as the amount of sales
increases. The margins are projected to improve over historical
levels due to the increased volume.
Management anticipates opening a new car lot in years one and two
which is estimated to require a base inventory of $100,000 per lot.
F-26
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE AND TWO
(Continued)
Note C. FIXED ASSETS
Management anticipates opening a new car lot in years one and two at
an estimated cost of $25,000 in additional fixed assets per car lot.
Depreciation expense is calculated based on the assets' estimated
useful life of five years.
Note D. EXPENSES
Operating expenses are expected to increase as revenues increase due
to additional requirements of personnel and occupancy costs to support
the new proposed car lot and increased expenses due to increased
volume.
Note E. INCOME TAX
There is no provision for income tax expense in these financial
statements because Mr. Car Man, Inc. is an S Corporation, and the
stockholders have elected to report the taxable income or loss on
their individual returns.
F-27
<PAGE>
APPENDIX "A"
Promissory Note
---------------
A-1
<PAGE>
PROMISSORY NOTE
---------------
$______________ Roanoke, Virginia Date: __________, 199__
FOR VALUE RECEIVED, Genesis Financial Group, Inc., a Virginia corporation,
promises to pay, without offset, to the order of_____________________________
("Payee") the principal sum of____________ Dollars ($___________________)
together with interest on the unpaid balance from time to time remaining at the
annual rate of eighteen percent (18%). Principal and interest shall be due and
payable in equal monthly installments, commencing ____________, 199__ and on the
first day of each month thereafter until _______________, _____, when the entire
aggregate principal amount and accrued but unpaid interest shall be due and
payable.
Interest shall accrue on a 30/360 day basis. Each payment shall be applied
first to interest then accrued, and the balance shall be credited to principal.
Principal and interest are payable at such place as the holder hereof may
designate in writing.
If any payment herein provided for is not made within ten (10) days of the
date when due, then before having recourse with respect to such nonpayment, the
holder hereof shall give notice to the maker hereof of such nonpayment, and if
the delinquent payment specified in such notice is not made within thirty (30)
days of the effective date of such notice then the entire, unpaid principal sum
evidenced by this note and all accrued, but unpaid interest shall at the option
of the holder become immediately due and payable. No failure of the holder to
exercise the right of accelerating the maturity of this indebtedness and no
indulgence or forbearance granted from time to time shall be construed as a
waiver of such right of acceleration or estop the holder from exercising such
right at any time.
Any notice required or desired to be given hereunder shall be in writing
and shall be delivered by hand, or by U. S. certified mail and shall be properly
addressed with sufficient postage delivery charge prepaid as follows:
If to maker: Genesis Financial Group, Inc.
c/o Jeffrey W. Akers
4206 Williamson Road
Roanoke, Virginia 24012
If to holder: ________________________________
________________________________
________________________________
Any such notice shall be effective when actually received by the party to whom
addressed. Either party may change its effective
<PAGE>
address by notice to that effect to the other party.
Notwithstanding any other provision of this note to the contrary, the holder
hereof or his assignee or transferee or any other person from time to time
entitled to receive payment hereunder, as the case may be, shall look solely to
the assets of the maker of this note, both real and personal, in satisfaction of
each and every obligation hereunder; in no event shall the officers or directors
of maker have personal liability with respect to this obligation or any other
obligation of maker.
The maker and endorsers, guarantors and others from time to time obligated
hereunder hereby severally waive and renounce the benefit of homestead and all
other exemption rights as against this indebtedness or any renewal or extension
hereof; and further waive demand, protest, notice of protest, presentment for
payment, notice of dishonor and all defenses on the ground of extension of time
for payment hereof.
The maker hereof reserves the right to prepay the indebtedness evidenced
hereby, in whole or in part, at any time or from time to time without penalty.
Notwithstanding anything herein to the contrary, this Note shall be subject
to the terms and conditions set forth in that certain Indenture issued to the
Payee hereof to which Indenture reference is hereby made for a more detailed
explanation of the additional obligations and responsibilities of the maker
hereof and the additional rights of the holder.
This note shall be governed and construed in all respects and enforced
according to the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned has caused this note to be executed as
of the day and year first above set forth.
Genesis Financial Group, Inc.,
a Virginia Corporation
By: _______________________________
Its: _______________________________
<PAGE>
APPENDIX "B"
Subscription Letter
-------------------
B-1
<PAGE>
SUBSCRIPTION LETTER
-------------------
Genesis Financial Group Total Offering: $7,500,000
4206 Williamson Road
Roanoke, Virginia 24012 Type of Investment 3 1/2 Year
Offered: Promissory
Notes
Initial Minimum
Investment: $10,000.00
Total Investment: $____________
Commencement Date
of Offering: April __, 1997
Gentlemen:
This letter is furnished to Genesis Financial Group, a Virginia
corporation, ("Corporation"), in connection with the investment by the
undersigned on this date in the amount shown above for the acquisition of one or
more unsecured corporate promissory notes amortized over a three and one-half (3
1/2) year period at 18% per annum. In conjunction herewith, the undersigned
hereby delivers his check, payable to the Corporation, in the amount equal to
the total investment shown above.
The undersigned hereby understands that the Notes have been registered
under the Securities Act of 1933 ("1933 Act") and that the Corporation reserves
the right, in its sole discretion, to reject any subscription at any time.
Contemporaneously with the offering of its Notes, the Corporation will also
offer for sale to investors Installment Sales Contracts ("Contracts") generated
by and purchased from its Affiliate, Mr. Car Man, Inc. Although the Corporation
does not currently intend to sell more than $6,000,000.00 in Notes to investors,
the Corporation reserves the right to sell up to $7,500,000.00 in Notes, as well
as up to $7,500,000.00 in Contracts. In no event, however, will more than
$7,500,000.00 in the aggregate of Notes and Contracts be sold to investors. If
not sooner terminated by the Corporation, this offering will terminate on the
second anniversary date of the Effective Date of the Registration Statement. The
undersigned understands there is no minimum offering amount required to be
received before the Corporation may fully utilize the undersigned's funds. In
conjunction with the offering, the undersigned agrees to execute the Power of
Attorney form delivered with this Letter.
B-2
<PAGE>
Nature, Type And Return On Investment
- -------------------------------------
The undersigned understands that the Corporation is in the business of
purchasing at a discount some or all of the Retail Installment Sales Contracts
("Contracts") generated by its affiliate, Mr. Car Man, Inc. ("MCMI"), from time
to time as they arise during the course of its normal business operations of
selling used vehicles.
The initial minimum investment is one Note for $10,000.00. Thereafter, the
undersigned may purchase additional Notes in increments of $2,500.00. Interest
shall accrue at the rate of 18% per annum, and the Notes shall be amortized on a
3 1/2 year basis. Principal and interest shall be payable on a monthly basis as
provided for in the Notes.
The undersigned acknowledges and understands that the Notes are unsecured
and that the success of the Corporation's business depends upon the creation by
MCMI of new sale transactions on a continual basis. The Corporation reserves
the right at any time and from time to time to prepay, in whole or in part, any
Note without penalty.
Indenture
- ---------
The Notes and Contracts offered by the Corporation will be issued pursuant
to and subject to the terms of that certain Indenture agreement executed by the
Corporation in conjunction with this offering. The Indenture is required under
the Trust Indenture Act of 1939 and imposes additional obligations on the
Corporation in issuing the Notes and Contracts and servicing its debt
obligations thereunder. A copy of the Indenture will be provided to each
investor to which document reference is hereby made.
Receipt And Review Of Information
- ---------------------------------
The undersigned acknowledges receipt of the Corporation's Prospectus filed
with the Securities And Exchange Commission, a copy of the form Note, a copy of
the Indenture, and a Subscriber Information Schedule ("Schedule"). In addition,
the undersigned hereby acknowledges that he, or his investment advisor, has had
the opportunity to ask questions of the Corporation's and MCMI's officers and
receive and review all information and documentation requested pertaining to the
officers, the Corporation and MCMI. The undersigned represents that he and/or
his investment advisor: (i) is familiar with the financial condition of the
Corporation and MCMI and the proposed business activities of the Corporation and
MCMI; (ii) has discussed with the officers the current and proposed activities
of the Corporation and MCMI including, without limitation, the selling
operations of MCMI; and (iii) has conducted, to his sole satisfaction, all
investigations and inquiries pertaining to the Corporation, MCMI and the
officers
B-3
<PAGE>
thereof that he deemed necessary and expedient in making his investment
decision. Accordingly, the undersigned believes that the Notes are securities of
the kind he wishes to purchase and hold for investment and that the nature and
amount of his investment are consistent with his investment program.
Acknowledgement Of Certain Facts
- --------------------------------
The undersigned hereby expressly acknowledges that he is aware of the
following facts;
(i) In addition to the risks summarized herein, there are other
substantial risks involved in investing in the Corporation and, therefore, the
risks set forth hereunder are not intended to be complete or relied upon by the
undersigned as a basis for making an investment in the Corporation;
(ii) Neither the Securities And Exchange Commission nor any state
agency has passed upon the adequacy of this offering or upon the accuracy of any
information or documentation provided to him or made any finding or
determination as to the fairness of an investment in the Corporation. Any
representation to the contrary is a criminal offense;
(iii) He should only invest in the Corporation based upon his
particular circumstances and should confer with and rely on his own investment
and tax advisors as to the substantial risks inherent in an investment in the
Corporation. He acknowledges that he has carefully read and completed, where
necessary, in its entirety the Prospectus, Schedule, Indenture and this Letter
and that neither the Corporation, its officers, nor any other party has made any
representation or warranty with respect to the Corporation, MCMI, the officers
thereof or the business conducted thereby except as otherwise specifically set
forth herein and in the Prospectus;
(iv) The Corporation and MCMI have provided him with an opportunity to
meet and confer with the officers thereof regarding all aspects of the
transactions contemplated by the Corporation including the creation of the
Contracts and will afford him the opportunity to obtain any additional
information, to the extent that the Corporation and MCMI possesses such
information or can acquire it without unreasonable effort or expense; and
(v) This offering will continue for a period of two years.
B-4
<PAGE>
Representations Of Investors And Risks
- --------------------------------------
The undersigned understands that an investment in the Corporation involves
a high degree of risk. To induce the Corporation to issue and sell the Notes to
the undersigned, the undersigned hereby warrants, represents and covenants to
the Corporation as follows:
(i) The undersigned can bear the economic risk of an investment in
the Corporation and the acquisition of the subscribed for Notes for an
indefinite period of time;
(ii) The undersigned has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of his
investment hereunder without materially affecting his financial condition;
(iii) The undersigned has been furnished with all materials, documents
and information relating to the Corporation, MCMI and their activities, the
offering of the Notes and anything set forth in this Letter and the Prospectus
which he has requested and the undersigned has been afforded the opportunity to
obtain any additional information necessary to verify the accuracy of any
representations or information set forth in said documents;
(iv) The Corporation, MCMI and their officers have answered all
inquiries that the undersigned has put to them concerning the Corporation, MCMI
and their activities and any other matters relating to the Corporation, MCMI and
the offering;
(v) The undersigned has not been furnished any offering literature
other than this Letter, the Prospectus, the Indenture and the form Note and in
making his investment decision has relied only on the information contained
therein and his own investigations into the suitability of the investment, the
projected rate of return and the proposed business to the conducted by the
Corporation and MCMI. The undersigned is familiar with the methods and
procedures of the proposed business operations contemplated by the Corporation
and MCMI. The undersigned has carefully reviewed and understands this Letter,
the Prospectus, the Indenture and the form Note and the risks of, and other
considerations relating to, an investment in the Corporation. Furthermore, as
set forth above, no representations or warranties have been made to the
undersigned, or to his advisors, by the Corporation, MCMI, their officers or any
other person with respect to the proposed business of the Corporation or MCMI,
the financial condition of the Corporation or MCMI, and/or the economic, tax or
other aspects or consequences of a purchase of the Notes, and the undersigned
has not relied upon any information concerning this offering, written or oral,
other than contained in this Letter, the Prospectus, the Indenture, the form
Note and the information
B-5
<PAGE>
obtained through his own investigations. The undersigned acknowledges that the
officers have answered all questions presented by the undersigned and/or his
investment advisor and provided all information requested pertaining to the past
operating history and financial condition of the Corporation and MCMI;
(vi) The undersigned has been represented by such legal counsel, tax
advisors, accountants and others selected by the undersigned as he has found
necessary to consult concerning this transaction and to review and evaluate the
tax, economic and other ramifications of an investment in the Corporation. No
representation, warranty or advice of any kind is made by the Corporation, the
officers or any other person with respect to any consequences relating to the
business of the Corporation or an investment in the Corporation, except to the
extent otherwise set forth in the Prospectus. (Please note that the provisions
of the federal securities laws, in the view of the Commission, are not subject
to disclaimer or waiver);
(vii) The undersigned, if a corporation, partnership, trust or other
form of business entity, is authorized and otherwise duly qualified to purchase
and hold the Notes, and such entity has the principal place of business as set
forth in the signature page hereof and such entity has not been formed for the
specific purpose of acquiring the Notes;
(viii) The undersigned understands that the Notes have been registered
under the 1933 Act;
(ix) All the information which the undersigned has furnished to the
Corporation with respect to his financial position and business experience is
correct and complete as of the date of this Letter and, if there should be any
material change in such information prior to the consummation of this offering,
the undersigned will immediately furnish such revised or corrected information
to the Corporation;
(x) The undersigned hereby acknowledges that no state regulatory
authority has passed upon the adequacy or merits of this offering and has
expressed no opinion as to the quality of the Notes offered hereunder; and
(xi) The undersigned hereby acknowledges that all financial and
related projections pertaining to the Corporation and MCMI are merely
predictions which are dependent upon various assumptions including, but not
limited to, the cost of maintaining inventory, the cost of overhead, market
conditions, competition and general economic factors.
The undersigned acknowledges that his right to purchase the Notes hereunder
is not transferable or assignable by him.
B-6
<PAGE>
If the undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the representations and warranties
herein contained shall be deemed to be made by, and be binding upon, each such
person and his heirs, executors, administrators, successors and assigns.
Indemnification
- ---------------
The undersigned agrees to indemnify and hold harmless the Corporation
against any and all liabilities, losses, costs, damages, fees (including
attorney's fees) and other expenses which the Corporation may sustain or incur
by reason of the undersigned's breach of any representation or warranty
contained herein; or by reason of any action improperly taken by the undersigned
relating to the sale of the Notes.
Date of Execution:
__________________ ___________________________________
Signature
Date of Execution:
__________________ ___________________________________
Signature
___________________________________
Printed or Typewritten Name
___________________________________
Printed or Typewritten Name
___________________________________
Street Address
___________________________________
City, State, Zip Code
___________________________________
Telephone
___________________________________
Social Security Number or
Tax ID Number
B-7
<PAGE>
The investments purchased hereunder shall be held as follows:
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
B-8
<PAGE>
APPENDIX "C"
Indenture
---------
C-1
<PAGE>
________________________________________________
GENESIS FINANCIAL GROUP, INC.
a Virginia Corporation
____________________________
Indenture
Dated as of March 28, 1997
____________________________
$7,500,000
Promissory Notes and Installment Sales Contracts
with Corporate Guarantees
3 1/2 Year Maturity Date For Notes
3 1/2 Year Average Term for Contracts
________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Heading Page
<S> <C> <C>
1 DEFINITIONS AND INCORPORATION 1
BY REFERENCE
1.01 Definitions 1
1.02 Other Definitions 2
1.03 Incorporation by Reference of Trust 3
Indenture Act
1.04 Rules of Construction 3
2 THE SECURITIES 3
2.01 Form and Dating 3
2.02 Execution and Authentication 3
2.03 Registrar 4
2.04 Corporation to Hold Money in Trust 4
2.05 Securityholder Lists 4
2.06 Registration, Transfer and Exchange 4
2.07 Replacement of Lost or Stolen 5
Securities
2.08 Outstanding Securities 5
2.09 Cancellation 5
2.10 Defaulted Interest 6
3 PREPAYMENT OF NOTES 6
3.01 Notices to Registrar 6
3.02 Selection of Notes to be Prepaid 6
3.03 Notice of Prepayment 6
3.04 Deposit of Prepayment Amount 7
3.05 Effect of Notice of Prepayment 7
3.06 Notes Prepaid in Part 7
4 COVENANTS 7
4.01 Certain Definitions 7
4.02 Payment of Securities 8
4.03 Limitation on Liens 8
4.04 Payment of Dividends 10
4.05 Corporate Existence 10
4.06 Maintenance of Principal Properties 10
4.07 Ownership of Restricted Subsidiaries 11
4.08 SEC Reports 11
4.09 No Lien Created 11
4.10 Compliance Certificate 11
5 SUCCESSOR CORPORATION 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
5.01 When Corporation May Merge, etc. 12
5.02 When Securities Must Be Secured 12
6 DEFAULTS AND REMEDIES 12
6.01 Events of Default 12
6.02 Acceleration 14
6.03 Other Remedies 14
6.04 Waiver of Past Defaults 14
6.05 Control by Majority 14
6.06 Limitation on Suits 15
6.07 Rights of Holders to Receive Payment 15
6.08 Collection Suit by Trustee 15
6.09 Trustee May File Proofs of Claim 15
6.10 Priorities 16
6.11 Undertaking for Costs 16
7 TRUSTEE 16
7.01 Duties of the Trustee 16
7.02 Rights of Trustee 17
7.03 Trustee's Disclaimer 18
7.04 Individual Rights of Trustee, etc. 18
7.05 Notice of Defaults 18
7.06 Reports by Trustee to Holders 18
7.07 Compensation and Indemnity 18
7.08 Replacement of Trustee 19
7.09 Successor Trustee by Merger, etc. 20
7.10 Preferential Collection of Claims 20
Against Corporation
8 DISCHARGE OF INDENTURE 20
9 AMENDMENTS, SUPPLEMENTS AND WAIVERS 20
9.01 Without Consent of Holders 20
9.02 With Consent of Holders 20
9.03 Compliance with Trust Indenture Act 21
9.04 Revocation and Effect of Consents 21
9.05 Notation on or Exchange of Securities 21
9.06 Trustee to Sign Amendments, etc. 22
10 MISCELLANEOUS 22
10.01 Trust Indenture Act Controls 22
10.02 Notices 22
10.03 Communication by Holders with Other Holders 23
10.04 Certificate and Opinion as to 23
Conditions Precedent
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
10.05 Statements Required in Certificate or Opinion 23
10.06 When Treasury Securities Disregarded 24
10.07 Rules by Trustee and Registrar 24
10.08 Legal Holidays 24
10.09 Governing Law 24
10.10 No Adverse Interpretation of Other Agreements 24
10.11 Successors 24
SIGNATURES 25
</TABLE>
iii
<PAGE>
INDENTURE dated as of March 28, 1997, is entered into by and between
Genesis Financial Group, Inc. ("Corporation"), and Nancy Mattox
("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Corporation's Promissory Notes
and Installment Sales Contracts with corporate Guarantees (hereinafter
collectively referred to as the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
Section 1.01. Definitions.
-----------
"Contract" means the Corporation's Installment Sales Contracts issued
pursuant to this Indenture and the Registration Statement.
"Contract Securityholder" means any person who at the time is the holder of
any Contract.
"Corporation" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Guarantee" means the Corporation's guarantee to satisfy all obligations
arising under a defaulted Contract until such time as a replacement Contract is
substituted therefor.
"Holder" or "Securityholder" means the person who is the holder of any
Security and the person in whose name a Registered Security is registered on the
Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Note" means the Corporation's Promissory Notes issued pursuant to this
Indenture and the Registration Statement.
"Noteholder" means any person who at the time is the holder of any Note.
"Officer" means the Chairman of the Board, the President, any Vice-
President, the Treasurer or the Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Corporation.
(See Sections 10.04 and 10.05.)
1
<PAGE>
"Principal" of a Security means the amount stated as principal on the face
of the Security.
"Prospectus" means either the Notes Prospectus or Contracts Prospectus, as
the context dictates, being a part of the Corporation's SB-1 Registration
Statement filed with the SEC pursuant to which this Indenture has been issued.
"Registered Security" means Securities of the Corporation issued pursuant
to this Indenture and fully registered on the Registrar's books.
"Registered Securityholder" means the registered holder of any Registered
Security.
"Registration Statement" means the SB-1 Registration Statement filed by the
Corporation with the SEC pursuant to the Corporation's offer to sell up to
$7,500,000.00 in Notes and Contacts to investors.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Notes and Contracts with Guarantees, collectively,
issued pursuant to this Indenture and the Registration Statement, and as amended
or supplemented from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa et
seq.) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
replaces him and thereafter means the successor.
Section 1.02. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Bankruptcy Law" 6.01
"Board of Directors" 4.01
"Consolidated Net Tangible Assets" 4.01
"Custodian" 6.01
"Debt" 4.01
"Event of Default" 6.01
"Legal Holiday" 10.08
"Lien" 4.01
"Principal Property" 4.01
"Registrar" 2.03
"Restricted Property" 4.01
"Restricted Subsidiary" 4.01
"Subsidiary" 4.01
</TABLE>
2
<PAGE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them.
Section 1.04. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural include
the singular.
ARTICLE 2
THE SECURITIES
--------------
Section 2.01. Form and Dating.
---------------
The Securities shall be comprised of the Notes and Contracts, a copy of
which documents are appended hereto in Exhibits A and B, respectively. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Corporation shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security shall
be dated the date of its authentication.
3
<PAGE>
Section 2.02. Execution and Authentication.
----------------------------
One Officer shall sign the Securities for the Corporation. With respect to
the Contracts, the Officer shall sign the Assignment Of Sales Contract or the
Partial Assignment Of Sales Contract (hereinafter the "Assignment") to evidence
the transfer of this Security, all as more particularly described in the
Contracts Prospectus. The Corporation's seal shall be reproduced on the
Securities, if deemed necessary by the Trustee.
No Security shall be valid until the Officer manually signs the Note or the
Assignment. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Corporation shall authenticate Securities for original issue in the
aggregate principal amount of up to $7,500,000 as provided for in the
Registration Statement. The aggregate principal amount of Securities outstanding
at any time may not exceed that amount except as provided in Section 2.07.
Section 2.03. Registrar.
---------
The Corporation shall maintain an office where Securities may be presented
for registration of transfer or for exchange ("Registrar") and for payment. The
Registrar shall keep a register of the Registered Securities and of their
transfer and exchange. The Corporation may have one or more Co-Registrars, any
one or all of whom may be Officers.
Section 2.04. Corporation to Hold Money in Trust.
----------------------------------
The Corporation shall hold in trust for the benefit of Securityholders all
money held by the Corporation for the payment of principal and/or interest on
the Securities and shall notify the Trustee of any default by the Corporation in
making any such payment. The Corporation shall segregate the money and hold it
as a separate trust fund.
Section 2.05. Securityholder Lists.
--------------------
The Corporation shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Registered Securityholders and provide the Trustee with a copy of the list as
updated upon request in writing.
Section 2.06. Registration, Transfer and Exchange.
-----------------------------------
The Corporation will issue fully Registered Securities in the forms of
Exhibit A and Exhibit B attached hereto. With respect to the Contracts, the
Corporation will also issue an executed Assignment form.
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When a Contract is presented to the Registrar or a Co-Registrar with a
request to exchange it for a replacement Contract in the event of a default, the
Registrar shall register the exchange as requested. The obligations of the
Corporation to effectuate such exchanges is more particularly described in the
Contracts Prospectus. To permit exchanges, the Corporation shall authenticate
Securities at the Registrar's and/or Trustee's request. The Corporation will
not charge a fee for any such exchange.
Section 2.07. Replacement of Lost or Stolen Securities.
----------------------------------------
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Corporation shall issue and authenticate a
replacement Security corresponding to the Security that was lost, destroyed or
wrongfully taken, if the requirements of the Virginia Uniform Commercial Code
are met. In the event any lost, destroyed or wrongfully taken Security shall
have matured or is about to mature, the Corporation may pay the same if the
requirements of the applicable provisions of the Virginia Uniform Commercial
Code are met. An indemnity bond must be sufficient in the judgment of the
Corporation and Trustee to protect the Corporation, Trustee, the Registrar or
any Co-Registrar from any loss which any of them may suffer if a Security is
replaced. The Corporation may charge for its expenses in replacing a Security
for the reasons set forth herein.
Section 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all Securities authenticated by the
Corporation except for those canceled by it and those described in this Section.
Securities outstanding include those held by the Corporation or its affiliates.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Corporation receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Corporation pays in cash, by wire transfer, or by certified funds,
either by personal delivery or by certified mail to the last known address of
the Securityholder on a maturity date in an amount sufficient to pay Securities
payable on that date, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue. Such Securities carry no
rights except the right to receive payment.
Section 2.09. Cancellation.
------------
The Corporation at any time may deliver Securities to the Registrar for
cancellation. The Registrar shall cancel and destroy all Securities surrendered
for exchange, except defaulted
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Contracts, payment or cancellation. The Corporation may not issue new
Securities to replace Securities it has paid and delivered to the Registrar for
cancellation.
Section 2.10. Defaulted Interest.
------------------
If and to the extent the Corporation defaults in a payment of any principal
and/or interest due under any Registered Security, it shall pay the defaulted
installment plus interest to the persons who are Registered Securityholders in
accordance with the respective terms set forth under the Notes and Contracts.
ARTICLE 3
PREPAYMENT OF NOTES
-------------------
Section 3.01. Notices to Registrar.
--------------------
If the Corporation wants to prepay the Notes as provided therein, it shall
notify the Registrar and Trustee of the prepayment date and the principal amount
of Notes to be prepaid.
If the Corporation wants to prepay a portion of the principal amount of the
Notes on a pro-rata basis, it shall notify the Registrar and Trustee of the
amount of the reduction and the basis for it.
Section 3.02. Selection of Notes to be Prepaid.
--------------------------------
If less than all Notes are to be prepaid, the Registrar and Trustee shall
select the Notes to be prepaid by a method the Registrar and Trustee consider
fair and appropriate. The Registrar and Trustee shall make the selection from
Notes outstanding not previously prepaid in part. The Registrar and Trustee may
select for prepayment portions of the principal of Notes that have an
outstanding principal balance larger than $1,000. Notes and portions of them
they select shall be in amounts of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Notes selected for prepayment in full
also apply to portions of Notes selected for prepayment.
Section 3.03. Notice of Prepayment.
--------------------
At least 5 days but not more than 30 days before a prepayment date, the
Corporation shall mail and first publish notice of prepayment as provided in
Section 9.02.
The notice shall identify the Notes to be prepaid and shall state:
(1) the prepayment date;
(2) the prepayment amount;
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(3) the name and address of the Registrar;
(4) that Notes prepaid in full must be surrendered to the Registrar to
collect the prepayment amount;
(5) that interest on Notes prepaid in full ceases to accrue on and after
the prepayment date; and
(6) the remaining principal indebtedness outstanding under Notes to be
prepaid in part.
The Registrar shall give the notice of prepayment in the Corporation's name
and at its expense.
Section 3.04. Deposit of Prepayment Amount.
----------------------------
On or before the prepayment date, the Corporation shall deposit in a
separate corporate account money sufficient to pay the prepayment amount on all
Notes to be prepaid, in full or in part, on that date.
Section 3.05. Effect of Notice of Prepayment.
------------------------------
Once notice of prepayment is given, Notes called for prepayment in full
become due and payable on the prepayment date and at the prepayment amount
stated in the notice, unless a Noteholder shall provide Corporation with a
written objection as to the prepayment amount within five (5) days after receipt
of the notice of prepayment. Upon receipt of a written objection, the
Corporation shall recalculate the principal and interest outstanding under the
Note and shall pay the amount agreed upon by the Corporation and Noteholder.
Upon surrender of the Notes to the Registrar and after any prepayment adjustment
is made to a Note as provided herein, such Notes shall be paid as stated in the
notice.
Section 3.06. Notes Prepaid in Part.
---------------------
Upon prepayment of a Note in part only, the Registrar shall certify for the
Noteholder the principal balance remaining under the Note.
ARTICLE 4
COVENANTS
---------
Section 4.01. Certain Definitions.
-------------------
"Board of Directors" means the Board of Directors of the Corporation or any
committee of the Board.
"Consolidated Net Tangible Assets" means the consolidated net worth of the
Corporation, as determined under generally acceptable
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accounting principles, all as shown on the Corporation's most recent
consolidated balance sheet.
"Debt" means any debt for borrowed money or any guarantee of such a debt.
"Lien" means any mortgage, pledge, security interest or lien.
"Principal Property" means any property owned by the Corporation or a
Restricted Subsidiary except any such property which, in the opinion of the
Board of Directors, is not of material importance to the total business
conducted by the Corporation and its Subsidiaries.
"Restricted Property" means:
(1) any Principal Property,
(2) any Debt of a Restricted Subsidiary, or
(3) any shares of stock of a Restricted Subsidiary, not owned or hereafter
acquired by the Corporation or a Restricted Subsidiary.
"Restricted Subsidiary" means a Subsidiary deemed to be a significant
subsidiary under the Rules and Regulations of the SEC in effect at the time the
determination is made.
"Subsidiary" means a corporation of which the Corporation, the Corporation
and one or more Subsidiaries, or one or more Subsidiaries at the time own a
majority of the corporation's outstanding stock having voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors.
Section 4.02. Payment of Securities.
---------------------
The Corporation shall promptly pay the principal of, interest on and
amounts owing under the Securities on the dates and in the manner provided in
the Securities. An installment of principal, interest or other obligation due
and owing shall be considered paid on the date it is due if the Registrar pays
on that date money designated for and sufficient to pay the installment in the
manner provided in Section 2.08 of this Indenture. The Corporation shall pay
interest on overdue principal installments or on such other obligations owed by
the Corporation at the rate borne by the applicable Security.
Section 4.03. Limitation on Liens.
-------------------
The Corporation shall not, and it shall not permit any Restricted
Subsidiary to, create, incur or assume a Lien on Restricted Property to secure a
Debt unless:
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(1) the Lien equally and ratably secures the Securities and the Debt. The
Lien may equally and ratably secure the Securities and any other
obligation of the Corporation or a Subsidiary. The Lien may not secure
an obligation of the Corporation that is subordinated to the
Securities;
(2) the Lien is on property, Debt or shares of stock of a corporation at
the time the corporation becomes a Restricted Subsidiary;
(3) the Lien is on property at the time the Corporation or a Restricted
Subsidiary acquires the property. The Lien may not extend to any
other property owned by the Corporation or a Restricted Subsidiary at
the time the Lien is created, incurred or assumed;
(4) the Lien secures Debt incurred to finance all or some of the purchase
price or cost of construction of property of the Corporation or a
Restricted Subsidiary. The Lien may not extend to any other property
owned by the Corporation or a Restricted Subsidiary at the time the
Lien is created, incurred or assumed. In the case of any
construction, however, the Lien may extend to unimproved real property
for the construction. The Debt secured by the Lien may not be
incurred more than 120 days after the later of the acquisition,
completion of construction or commencement of full operation of the
property subject to the Lien;
(5) the Lien secures Debt of a Restricted Subsidiary owing to the
Corporation or another Restricted Subsidiary;
(6) the Lien is on property of a corporation at the time the corporation
merges into or consolidates with the Corporation or a Restricted
Subsidiary;
(7) the Lien is on property of a person at the time the person transfers
or leases all or substantially all of its assets to the Corporation or
a Restricted Subsidiary;
(8) the Lien is in favor of a government or governmental entity and
secures payments pursuant to a contract or statute or secures Debt
incurred to finance all or some of the purchase price or cost of
construction of the property subject to the Lien;
(9) the Lien extends, renews or replaces in whole or in part a Lien
("existing Lien") enumerated in Clauses (1) though (8) above. The
Lien may not extend beyond (i) the property subject to the existing
Lien, and (ii) improvements and construction on such property. The
Debt
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secured by the Lien may not exceed the Debt secured at the time by the
existing Lien;
(10) the Lien arises out of a judgment, decree or court order, so long as
any appropriate legal proceeding which may have been initiated for
review shall not have been finally terminated or so long as the period
within which such proceeding may be initiated shall not have expired;
(11) the Lien secures Debt of the Corporation or a Restricted Subsidiary if
such Debt plus all other Debt of the Corporation and its Restricted
Subsidiaries secured by Liens on Restricted Property, excluding Debt
secured by a Lien existing as of the date of this Indenture or
permitted by clauses (1) through (10) above, at the time does not
exceed 5% of Consolidated Net Tangible Assets; or
(12) the Lien pertains to the underlying vehicles securing the Contracts,
as more particularly described in the Contracts Prospectus.
Section 4.04. Payment of Dividends.
--------------------
The Corporation shall not: (a) declare or pay any dividend or make any
distribution on its capital stock or to its stockholders (other than dividends
or distributions payable solely in shares of the capital stock of the
Corporation); (b) purchase, redeem or otherwise acquire or retire for value any
shares of its capital stock; or (c) permit a Subsidiary to purchase, redeem or
otherwise acquire or retire for value any share of capital stock of the
Corporation until the Securities are satisfied in full.
Section 4.05. Corporate Existence.
-------------------
Subject to Article 5, the Corporation will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights and franchises; provided, however, that the Corporation shall
not be required to preserve any right or franchise if it shall determine that
the preservation is no longer desirable in the conduct of the Corporation's
business and that the loss will not be disadvantageous in any material respect
to the Holders.
Section 4.06. Maintenance of Principal Properties.
-----------------------------------
The Corporation will cause all Principal Properties to be maintained and
kept in good condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the
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<PAGE>
judgment of the Corporation may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that neither the Corporation nor any Restricted Subsidiary
shall be prevented from discontinuing the operation and maintenance of any of
such Principal Properties or from omitting to make any repairs, renewals,
replacements, betterments or improvements thereof if such discontinuance or
omission is, in the judgment of the Corporation, desirable in the conduct of the
business of the Corporation and its Restricted Subsidiaries taken as a whole.
Section 4.07. Ownership of Restricted Subsidiaries.
------------------------------------
So long as any of the Securities shall be outstanding:
(a) the Corporation will own directly, or indirectly, through one or
more wholly-owned Subsidiaries, more than 80% of the voting shares, of each
Restricted Subsidiary; and
(b) the Corporation will not permit any Restricted Subsidiary to merge
or consolidate with or into, or to sell, assign, transfer or otherwise
dispose of the assets of such Restricted Subsidiary substantially as an
entirety to any corporation or other person, except where the corporation
surviving in such merger or consolidation, or the person to which such
sale, assignment, transfer or other disposition is made, upon consummation
of such transaction, will be a Restricted Subsidiary.
Section 4.08. SEC Reports.
-----------
The Corporation shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports, information, documents, and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which the Corporation is required to file
with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. The Corporation also shall comply with the other provisions of TIA (S)
314(a) to the extent applicable.
Section 4.09. No Lien Created.
---------------
This Indenture and the Securities do not create a Lien, charge or
encumbrance on any property of the Corporation or any Subsidiary.
Section 4.10. Compliance Certificate.
----------------------
The Corporation shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Corporation an Officers' Certificate stating whether
or not the signers know of any default by the Corporation in performing its
covenants in Article 4. If
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they do know of such a default, the Certificate shall describe the default. The
Certificate need not comply with Section 10.05. The first Certificate shall be
delivered to the Trustee by April 30, 1998.
ARTICLE 5
SUCCESSOR CORPORATION
---------------------
Section 5.01. When Corporation May Merge, etc.
--------------------------------
The Corporation shall not consolidate with or merge into, or transfer all
or substantially all of its assets to another corporation unless the resulting,
surviving or transferee corporation assumes by supplemental indenture all the
obligations of the Corporation under the Securities and this Indenture.
Thereafter all such obligations of the predecessor corporation shall terminate.
Section 5.02. When Securities Must Be Secured.
-------------------------------
If, upon any such consolidation, merger or transfer, a Restricted Property
would become subject to an attaching Lien that secures Debt, then before the
consolidation, merger, or transfer occurs, the Corporation by supplemental
indenture shall secure the Securities by a direct Lien on the Restricted
Property. The direct Lien shall have priority over all Liens on the Restricted
Property except those already on it. The direct Lien may equally and ratably
secure the Securities and any other obligation of the Corporation or a
Subsidiary. The Corporation, however, need not comply with this Section if:
(a) upon the consolidation, merger or transfer the attaching Lien will
secure the Securities equally and ratably with Debt secured by the
attaching Lien; or
(b) The Corporation or a Restricted Subsidiary under clauses (2) through
(11) of Section 4.03 could create a Lien on the Restricted Property to
secure Debt at least equal in amount to that secured by the attaching
Lien.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
Section 6.01. Events of Default.
-----------------
Subject to Section 6.02, an "Event of Default" occurs if:
(1) the Corporation defaults in the payment of an installment due under
any Note when the same becomes due and payable, whether of maturity or
otherwise, and the default continues after the expiration of any cure
period provided for under the terms of the Note;
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(2) the Corporation defaults in the payment of any principal installment
and/or other financial obligation due under any Contract when the same
becomes due and payable, whether at maturity or otherwise, and the
default continues after the expiration of any cure period provided for
under the terms of the Contract;
(3) the Corporation fails to comply with any of its other agreements in
the Securities or this Indenture and the default continues for the
period and after the notice specified below;
(4) the Corporation pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) fails generally to pay its debts as they become due; or
(5) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Corporation in an involuntary case;
(B) appoints a Custodian of the Corporation or for any substantial
part of its property; or
(C) orders the liquidation of the Corporation;
and the order or decree remains unstayed and in effect for 90 days.
The term "Bankruptcy Law" means title 11, United States Code or any similar
Federal or State law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Corporation of the default and the Corporation does not cure the
default within 90 days after
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receipt of the notice. The notice must specify the default, demand that it be
remedied and state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
------------
If an Event of Default occurs and is continuing, the Trustee by notice to
the Corporation or the Holders of at least 25% in principal amount of the
Security of the type in default may declare the principal of and accrued
interest on all of the Securities of the type in default to be due and payable
immediately. Notwithstanding anything herein to the contrary, no Event of
Default shall occur if the Corporation and the effected Securityholders shall
negotiate a settlement of any outstanding default.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal, interest and/or other financial obligations due under the terms of
the applicable Securities or to enforce the performance of any provision of the
applicable Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.04. Waiver of Past Defaults.
-----------------------
Subject to Section 9.02, the Holders of a majority in principal amount of
the Securities of the type in default by notice to the Trustee may waive an
existing Default or Event of Default and its consequences. When a Default or
Even of Default is waived, it is cured and stops continuing.
Section 6.05 Control by Majority.
-------------------
The Holders of a majority in principal amount of the Securities may 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 it. The Trustee,
however, may refuse to follow any direction that conflicts with law or this
Indenture, that is unduly prejudicial to the rights of other Securityholders or
that may involve the Trustee in personal liability.
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Section 6.06. Limitation on Suits.
-------------------
Subject to Section 6.02, the Securityholders of the Security of the type in
default may not pursue any remedy with respect to this Indenture or the
applicable Security unless:
(1) the Securityholder(s) holding the Security in default gives the
Trustee written notice of a continuing Event of Default as may be
provided for under the terms of the applicable Security;
(2) the applicable Securityholders holding at least 25% in principal
amount of the Security of the type in default make a written request
to the Trustee to pursue the remedy;
(3) such Securityholder or Securityholders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
and
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder holding a similar Security or to obtain a preference or
priority over such a Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and/or interest on any
Security, or to bring suit for the enforcement of any such payment on or after
the respective due dates, shall not be impaired or affected without the consent
of the Holder of the Security.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of interest, principal, or any other
obligation as specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest remaining
unpaid to all Securityholders of the Security of the type in default.
Section 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proof of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property.
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Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to the applicable Securityholders for amounts due and unpaid on the
Securities of the type in default for principal and interest, 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: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Registered Securityholders.
Section 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of Securities pursuant to
Section 6.07, or a suit by Holders of more than 10% in principal amount of the
Securities.
ARTICLE 7
TRUSTEE
-------
Section 7.01 Duties of the Trustee.
---------------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care
and skill in its exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of
16
<PAGE>
the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture. The
Trustee, however, shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section.
(2) The Trustee shall not be liable for any error of judgment made in
good faith, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as otherwise agreed with the Corporation.
Section 7.02. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an opinion of counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on the Certificate or opinion.
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<PAGE>
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its
rights or powers.
Section 7.03. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Corporation's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities, other than its certificate of authentication, or in
any prospectus used in the sale of the Securities, other than statements
provided in writing by the Trustee for use in such prospectus.
Section 7.04. Individual Rights of Trustee, etc.
----------------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Corporation with the same
rights it would have if it were not Trustee. Any Registrar or Co-registrar may
do the same with like rights. The Trustee, however, must comply with Section
7.10.
Section 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail and first publish as provided in Section 10.02 notice of
the Default within 90 days after it occurs. Except in the case of a default in
payment on any Security, the Trustee may withhold the notice if it in good faith
determines that withholding the notice is in the interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each December 31 beginning with the December 31
following the date of this Indenture, the Trustee shall provide to the
Securityholders specified in TIA (S) 313(c) a brief report dated as of such
December 31 that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA (S) 313(b).
Section 7.07. Compensation and Indemnity.
--------------------------
The Corporation may pay to the Trustee from time to time reasonable
compensation for its services as negotiated between the Trustee and the
Corporation. The Corporation shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses may include the
reasonable
18
<PAGE>
compensation and expenses of the Trustee's agents and attorneys. The
Corporation shall indemnify the Trustee against any loss or liability incurred
by it. The Trustee shall notify the Corporation promptly of any claim for which
it may seek indemnity. The Corporation shall defend the claims and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Corporation shall pay the reasonable fees and expenses of such counsel. The
Corporation need not pay for any settlement made without its consent. The
Corporation need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
Section 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the removed Trustee and may appoint a successor Trustee with the
Corporation's consent. The Corporation may remove the Trustee if:
(1) the Trustee is adjudged a bankrupt or an insolvent;
(2) a receiver or other public officer takes charge of the Trustee or its
property; or
(3) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Corporation. Immediately after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers an
duties of the Trustee under this Indenture. A successor Trustee shall give
notice of its succession to each Securityholder as provided in Section 10.02.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of a majority in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
19
<PAGE>
Section 7.09. Successor Trustee by Merger, etc.
---------------------------------
If a corporate Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
Section 7.10. Preferential Collection of Claims Against Corporation.
------------------------------------------------------
The Trustee shall comply with TIA (S)311(a), excluding any creditor
relationship listed in TIA (S)311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S)311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
This Indenture and all obligations of the Corporation hereunder shall
terminate upon the payment of all obligations due and owing under the
Securities, as the same may be amended and/or adjusted from time to time.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
Section 9.01. Without Consent of Holders.
--------------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place of
certificated Securities; or
(4) to make any change that does not adversely affect the rights of any
Securityholder.
Section 9.02. With Consent of Holders.
-----------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to any Securityholder but with the written consent of the Holders
of not less than a majority in principal amount of the Securities. The Holders
of a majority in principal amount of the Securities may waive compliance by the
Corporation with any provision of this Indenture or the Securities without
notice to any Securityholder. Without the consent of each
20
<PAGE>
Securityholder specifically affected, however, an amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate or extend the time for payment of interest on any
Security;
(3) reduce the principal of or extend the fixed maturity of any Security;
(4) make any Security payable in money other than that stated in the
Security; or
(5) waive a default in payment of principal or interest on any Security.
Section 9.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect, if applicable.
Section 9.04. Revocation and Effect of Consents.
---------------------------------
A consent to an amendment, supplement or waive by a Holder of a Security
shall bind the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holer's Security, even
if notation of the consent is not made on any Security. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Security or portion
of a Security. The Trustee must receive the notice of revocation before the
date the amendment, supplement or waiver becomes effective. After an amendment,
supplement or waiver becomes effective, it shall bind every Securityholder.
Section 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Corporation or the
Trustee so determine, the Corporation in exchange for the Security shall issue
and the Trustee shall authorize a new Security that reflects the changed terms.
21
<PAGE>
Section 9.06. Trustee to Sign Amendments, etc.
--------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Corporation may not sign an amendment or supplement until
the Board of Directors approves it.
ARTICLE 10
MISCELLANEOUS
-------------
Section 10.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 10.02. Notices.
-------
Any notice or communication shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail addressed as follows:
If to the Corporation: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: President
If to the Registrar: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: Registrar
If to the Trustee: Nancy Mattox
1200 Allen Street
New Castle, VA 24127
Any notice or communication to Securityholders shall be sufficiently given
if mailed by first-class mail to each Registered Securityholder at his address
as it appears on the lists or registration books of the Registrar and shall be
sufficiently given to him if so mailed within the time prescribed.
Failure to give notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the Securityholder receives or reads it.
22
<PAGE>
Section 10.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Corporation, the Trustee, the Registrar and anyone else shall
have the protection of TIA (S)312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Corporation to the Trustee to take
any action under this Indenture, the Corporation shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an opinion of counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Each opinion of counsel shall be in writing. The legal counsel who renders
it may be an employee of or counsel to the Corporation. The legal counsel shall
be acceptable to the Trustee.
Section 10.05. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) 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;
(3) a statement that, in the opinions of such person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
23
<PAGE>
Section 10.06. When Treasury Securities Disregarded.
------------------------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Corporation or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Also, subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
Section 10.07. Rules by Trustee and Registrar.
------------------------------
The Trustee may make reasonable rules for the administration of this
Indenture. Such rules may cover matters relating to action by or a meeting of
Securityholders. The Registrar may make reasonable rules for its functions.
Section 10.08. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday or a day on
which banking institutions are not required to be open. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
Section 10.09. Governing Law.
-------------
This Indenture and the Securities shall be governed by the laws of the
State of Virginia.
Section 10.10. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Corporation or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 10.11. Successors.
----------
All agreements of the Corporation in this Indenture and the Securities
shall bind its successors.
24
<PAGE>
Dated: March ___, 1997 Genesis Financial Group, Inc.,
a Virginia corporation
By: ___________________________
Its: __________________________
Attest: _______________________________
Secretary
25
<PAGE>
APPENDIX "D"
Articles of Incorporation And Bylaws Of Genesis Financial Group, Inc.
---------------------------------------------------------------------
D-1
<PAGE>
APPENDIX D
ARTICLES OF INCORPORATION
OF
GENESIS FINANCIAL GROUP, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as
Genesis Financial Group, Inc..
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purpose for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general
powers accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corpoation shall have authority to issue are as follows:
The aggregate number of shares which the corporation
shall have authority to issue are as follows:
Class Number of Shares
[LOGO OF BOUNDS ----- ----------------
& DORSEY\PC\]
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015, which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors consituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimited.
Given under my hand this 11th day of June, 1993.
/s/ Charles N. Dorsey,
_______________________________
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
& DORSEY \PC\]
<PAGE>
BYLAWS OF
GENESIS FINANCIAL GROUP, INC.
ARTICLE 1 - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section I - Annual Meeting:
---------------------------
The Annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meetings:
-----------------------------
Special meetings of the Shareholders for any purpose or
purposes may be called by the President, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meetings of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
[lOGO OF BOUNDS Section 4 - Quorum:
& DORSEY \PC\] -------------------
At any meeting of the Shareholders, the holders of a
majority of the shares entitled to vote shall constitute a
quorum, except as otherwise provided by law. The law holders
of such shares may be present in person or represented by
proxy to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by the statute or by
the Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
Shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action requires by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Director shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at such
time and place as may be specified in the respective notices
or waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\] number of shares of stock, if any, which he or she may hold.
The action of a majority of the Directors present at the
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places or
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
[LOGO OF BOUNDS such shares. The Secretary shall further deep a record of
& DORSEY /PC/ the proceedings of the meetings of the Shareholders and
APPEARS HERE] Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
-----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by (S)13.1-3.1 of the
Code of Virginia of 1950, as amended.
ARTICLE XII- FISCAL YEAR
------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Genesis Financial Group, Inc.
were duly adopted by unanimous consent of the Board of
Directors of the Corporation in lieu of the Organizational
Meeting.
/s/ Jeff Akers,
-------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY\PC\]
<PAGE>
APPENDIX "E"
Articles of Incorporation and Bylaws
------------------------------------
of Mr. Car Man, Inc.
--------------------
E-1
<PAGE>
APPENDIX D
ARTICLES OF INCORPORATION
OF
MR. CAR MAN, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as Mr.
Car Man, Inc.,
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all general powers
accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corporation shall have authority to issue are as follows:
[LOGO BOUNDS
& DORSEY /PC/
APPEARS HERE] Class Number of Shares
----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
is 19 West Church Avenue, Roanoke, Virginia 24011-2015,
which located in the City Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corportion is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors constituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 142 Sherwood Avenue
Roanoke, Virginia 24
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimted.
Given under my hand this 11th day of June, 1993
/s/ Charles N. Dorsey
---------------------------------
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
AND DORSEY /PC/]
<PAGE>
BYLAWS OF
MR.CAR MAN, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the Untied States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meeting:
----------------------------
Special meeting of the Shareholders for any purpose or
purposes may be called by the president, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notices of meeting of the Shareholders and waivers of
such notices shall be given or accepted with the appropriate
provisions of the Virginia Stock Corporation Act.
Section 4 - Quorum:
-------------------
At any meeting of the shareholders, the holders of a
[LOGO OF BOUNDS majority of the shares entitled to vote shall constitute a
& DORSEY/PC/ quorum, except as otherwise provided by law. The holders of
APPEARS HERE] such shares may be present in person or presented by proxy
to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by statute or by the
Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Directors shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at
such time and place as may be specified in the respective
notices or waivers of notice.
Section 4 - Manner of Acting:
----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\ number of shares of stock, if any, which he or she may hold.
APPEARS HERE] The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pretaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
[LOGO OF BOUNDS become Shareholders of the Company, showing their places of
AND DORSEY APPEARS residence, the number of shares held by them respectively,
HERE \PC\] and the time when they respectively became the owners of
such shares. The Secretary shall further keep a record of
the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX- DIVIDENDS
---------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to
full extent provided and permitted by(S)13.1-3.1 of the Code
of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Mr. Car Man, Inc. were duly
adopted by unanimous consent of the Board of Directors of
the Corporation in lieu of the Organizational Meeting.
/s/ Jeff W. Akers
---------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
AND DORSEY\PC\
APPEARS HERE]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 1. Indemnification of Directors and Officers
-----------------------------------------
Sections 13.1-697 and 13.1-702 of the Code of Virginia, as amended, permit
any Virginia Corporation to indemnify its directors and officers against
liability incurred in a proceeding if he conducted himself in good faith and
believed (a) in the case of conduct in his official capacity with the
Corporation that his conduct was in its best interests and (b) in all other
cases that his conduct was at least not opposed to its best interests. In the
case of a criminal proceeding, a Corporation may indemnify a director made party
to such proceeding if he had no reasonable cause to believe his conduct was
unlawful. A Corporation may not indemnify a director under those Sections in
connection with a proceeding by or in the right of the Corporation in which the
director was adjudged liable to the Corporation or in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. Indemnification
permitted under those Sections in connection with a proceeding by or in the
right of the Corporation is limited to reasonable expenses incurred in
connection with the proceeding. Unless limited by its Articles of
Incorporation, the Corporation is required to provide mandatory indemnification
to an officer or director who entirely prevails in the defense of any proceeding
to which he was a party because he is or was an officer or director of the
Corporation against reasonable expenses incurred by him in connection with the
proceeding. Also, unless limited by the Corporation's Articles of
Incorporation, an officer or director of the Corporation who is a party to a
proceeding may apply for indemnification to the court conducting the proceeding
or seek indemnification in another court of competent jurisdiction. The court
may order indemnification if it determines the officer or director is entitled
to mandatory indemnification as described above, in which case the court shall
also order the Corporation to pay the officers, or directors' reasonable
expenses incurred in obtaining court-ordered indemnification, or, with respect
to a proceeding by or in the right of the Corporation, the officer or director
is found by the court to be fairly and reasonably entitled to indemnification in
view of all the relevant circumstances even though he was adjudged liable, but
any indemnification shall be limited to reasonable expenses incurred. The
Corporation is given the power to make further indemnity to any officers or
directors that may be authorized by the Articles of Incorporation or any By-law
made by the stockholders or any resolution adopted, before or after the event,
by the stockholders, except an indemnity against gross negligence or willful
misconduct.
The Articles of Incorporation of Genesis Financial Group, Inc. provides
that the directors and officers of the Company may be indemnified in the manner,
against the matters, and to the full extent provided by the Code of Virginia.
Item 2. Other Expenses of Income and Distribution
-----------------------------------------
All costs and expenses relating to the issuance and distribution of the
Notes and Contracts by the Company pursuant to the Offering are set forth in the
Prospectus in the section captioned "Use Of Proceeds" to which section reference
is hereby made.
Item 3. Undertakings
------------
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to provisions of the Code of Virginia or the Articles of Incorporation
or Bylaws of the Company or resolution of the Company's stockholders adopted
pursuant thereto, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
<PAGE>
Page 2
December 27, 1996
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
of the Company in connection with the securities being registered, the Company
will, unless in the option of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales 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 set forth in the Registration
Statement;
(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 any 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.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Item 4. Unregistered Securities Issued or Sold Within the Past Two Years
----------------------------------------------------------------
Mr. Car Man, Inc. ("MCMI") has sold in excess of $950,000.00 of Contracts
within two years prior to the filing of this Registration Statement. The
offering was consummated in December of 1995. The offering price and the basis
for computing same were based on the same conditions and terms as set forth in
the Contracts' Prospectus which is a part of this Registration Statement. The
Company intends to sell the Contracts offered pursuant to this registered
offering solely to MCMI's existing Contract holders. MCMI conducted the prior
offering in reliance upon Rule 504 of Regulation D promulgated under the
Securities Act of 1933 which permits offerings of securities not in excess of
$1,000,000.00.
Items 5 and 6. Exhibit Index and Description:
-----------------------------
Exhibit No. Description
- ----------- -----------
(2) Articles of Incorporation and Bylaws of Genesis Financial Group,
Inc. and Mr. Car Man, Inc.
II-2
<PAGE>
(3) Specimen copy of Note and form Contract to be issued to
investors; Assignment Of Sales Contract; Partial Assignment Of
Sales Contract; Guarantee And Replacement Agreement; and
Indenture
(4) Specimen copy of Letter
(6) Lease dated July 14, 1994, and Addenda by and between Rebecca L.
Grasse and Mr. Car Man, Inc. and Lease dated July 17, 1995, and
Addenda by and between J. D. Fralin and Mr. Car Man, Inc.
10(a) Consent of Hope Player and Associates, P.C.
10(a) Consent of Magee, Foster, Goldstein & Sayers, P.C. (included in
Exhibit No. 11)
(11) Opinion of Magee, Foster, Goldstein & Sayers, P.C.
/s/ Franklin W. Blankemeyer
--------------------------------
FRANKLIN W. BLANKEMEYER, JR.
/s/ Jeffery W, Akers
--------------------------------
JEFFREY W. AKERS
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-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Roanoke,
State of Virginia, on December 24, 1996.
(Registrant) Genesis Financial Group, Inc., a Virginia corporation
By (Signature and Title) /s/ Franklin W. Blakemeyer, Jr. President
-----------------------------------------
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
(Signature) /s/ Franklin W. Blakemeyer, Jr.
-----------------------------------------
Franklin W. Blankemeyer, Jr.
(Title) President, Secretary, Director
--------------------------------------------
Signature) /s/ Jeffery W, Akers
------------------------------------------
Jeffrey W. Akers
(Title) Vice-President, Treasurer, Director
--------------------------------------------
II-3
<PAGE>
GENESIS FINANCIAL GROUP, INC.
Exhibit Index
<TABLE>
<CAPTION>
Page No.
Exhibit In Sequential
No. Description System
- --- ----------- ------
<S> <C> <C>
(2) Articles of Incorporation and Bylaws of Genesis 2.1
Financial Group, Inc.
Articles of Incorporation and Bylaws of Mr. Car 2.2
Man, Inc.
(3) Specimen copy of Note 3.1
Specimen copy of form Contract 3.2
Assignment Of Sales Contract 3.3
Partial Assignment Of Sales Contract 3.4
Guarantee and Replacement Agreement 3.5
Indenture 3.6
(4) Specimen copy of Subscription Letter 4.1
(6) Lease dated July 14, 1994, and Addenda by and 6.1
between Rebecca L. Grasse and Mr. Car Man, Inc.
Lease dated July 17, 1995, and Addenda by and 6.2
between J. D. Fralin and Mr. Car Man, Inc.
10(a) Consent of Hope Player and Associates, P.C. 10.1
10(a) Consent of Magee, Foster, Goldstein & Sayers, P.C.
(included in Exhibit No. 11)
(11) Opinion of Magee, Foster, Goldstein & Sayers, P.C. 11.1
</TABLE>
<PAGE>
Exhibit No. 2.1
<PAGE>
ARTICLES OF INCORPORATION
OF
GENESIS FINANCIAL GROUP, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as
Genesis Financial Group, Inc..
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purpose for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general
powers accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corpoation shall have authority to issue are as follows:
The aggregate number of shares which the corporation
shall have authority to issue are as follows:
Class Number of Shares
[LOGO OF BOUNDS ----- ----------------
& DORSEY\PC\]
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015, which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors consituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimited.
Given under my hand this 11th day of June, 1993.
/s/ Charles N. Dorsey,
_______________________________
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
& DORSEY \PC\]
<PAGE>
BYLAWS OF
GENESIS FINANCIAL GROUP, INC.
ARTICLE 1 - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section I - Annual Meeting:
---------------------------
The Annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meetings:
-----------------------------
Special meetings of the Shareholders for any purpose or
purposes may be called by the President, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meetings of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
[lOGO OF BOUNDS Section 4 - Quorum:
& DORSEY \PC\] -------------------
At any meeting of the Shareholders, the holders of a
majority of the shares entitled to vote shall constitute a
quorum, except as otherwise provided by law. The law holders
of such shares may be present in person or represented by
proxy to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by the statute or by
the Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
Shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action requires by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Director shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at such
time and place as may be specified in the respective notices
or waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\] number of shares of stock, if any, which he or she may hold.
The action of a majority of the Directors present at the
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places or
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
[LOGO OF BOUNDS such shares. The Secretary shall further deep a record of
& DORSEY /PC/ the proceedings of the meetings of the Shareholders and
APPEARS HERE] Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
-----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by (S)13.1-3.1 of the
Code of Virginia of 1950, as amended.
ARTICLE XII- FISCAL YEAR
------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Genesis Financial Group, Inc.
were duly adopted by unanimous consent of the Board of
Directors of the Corporation in lieu of the Organizational
Meeting.
/s/ Jeff Akers,
-------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY\PC\]
<PAGE>
Exhibit No. 2.2
<PAGE>
APPENDIX D
ARTICLES OF INCORPORATION
OF
MR. CAR MAN, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as Mr.
Car Man, Inc.,
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all general powers
accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corporation shall have authority to issue are as follows:
[LOGO BOUNDS
& DORSEY /PC/
APPEARS HERE] Class Number of Shares
----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
is 19 West Church Avenue, Roanoke, Virginia 24011-2015,
which located in the City Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corportion is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors constituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 142 Sherwood Avenue
Roanoke, Virginia 24
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimted.
Given under my hand this 11th day of June, 1993
/s/ Charles N. Dorsey
---------------------------------
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
AND DORSEY /PC/]
<PAGE>
BYLAWS OF
MR.CAR MAN, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the Untied States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meeting:
----------------------------
Special meeting of the Shareholders for any purpose or
purposes may be called by the president, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notices of meeting of the Shareholders and waivers of
such notices shall be given or accepted with the appropriate
provisions of the Virginia Stock Corporation Act.
Section 4 - Quorum:
-------------------
At any meeting of the shareholders, the holders of a
[LOGO OF BOUNDS majority of the shares entitled to vote shall constitute a
& DORSEY/PC/ quorum, except as otherwise provided by law. The holders of
APPEARS HERE] such shares may be present in person or presented by proxy
to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by statute or by the
Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Directors shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at
such time and place as may be specified in the respective
notices or waivers of notice.
Section 4 - Manner of Acting:
----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\ number of shares of stock, if any, which he or she may hold.
APPEARS HERE] The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pretaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
[LOGO OF BOUNDS become Shareholders of the Company, showing their places of
AND DORSEY APPEARS residence, the number of shares held by them respectively,
HERE \PC\] and the time when they respectively became the owners of
such shares. The Secretary shall further keep a record of
the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX- DIVIDENDS
---------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to
full extent provided and permitted by(S)13.1-3.1 of the Code
of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Mr. Car Man, Inc. were duly
adopted by unanimous consent of the Board of Directors of
the Corporation in lieu of the Organizational Meeting.
/s/ Jeff W. Akers
---------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
AND DORSEY\PC\
APPEARS HERE]
<PAGE>
Exhibit No. 3.1
<PAGE>
PROMISSORY NOTE
---------------
$ ______________ Roanoke, Virginia Date: __________, 199__
FOR VALUE RECEIVED, Genesis Financial Group, Inc., a Virginia corporation,
promises to pay, without offset, to the order of
___________________________________________ ("Payee") the principal sum of
____________ Dollars ($___________________) together with interest on the unpaid
balance from time to time remaining at the annual rate of eighteen percent
(18%). Principal and interest shall be due and payable in equal monthly
installments, commencing ____________, 199__ and on the first day of each month
thereafter until _______________, _____, when the entire aggregate principal
amount and accrued but unpaid interest shall be due and payable.
Interest shall accrue on a 30/360 day basis. Each payment shall be applied
first to interest then accrued, and the balance shall be credited to principal.
Principal and interest are payable at such place as the holder hereof may
designate in writing.
If any payment herein provided for is not made within ten (10) days of the
date when due, then before having recourse with respect to such nonpayment, the
holder hereof shall give notice to the maker hereof of such nonpayment, and if
the delinquent payment specified in such notice is not made within thirty (30)
days of the effective date of such notice then the entire, unpaid principal sum
evidenced by this note and all accrued, but unpaid interest shall at the option
of the holder become immediately due and payable. No failure of the holder to
exercise the right of accelerating the maturity of this indebtedness and no
indulgence or forbearance granted from time to time shall be construed as a
waiver of such right of acceleration or estop the holder from exercising such
right at any time.
Any notice required or desired to be given hereunder shall be in writing
and shall be delivered by hand, or by U. S. certified mail and shall be properly
addressed with sufficient postage delivery charge prepaid as follows:
If to maker: Genesis Financial Group, Inc.
c/o Jeffrey W. Akers
4206 Williamson Road
Roanoke, Virginia 24012
If to holder: ________________________________
________________________________
________________________________
Any such notice shall be effective when actually received by the party to whom
addressed. Either party may change its effective
<PAGE>
address by notice to that effect to the other party.
Notwithstanding any other provision of this note to the contrary, the holder
hereof or his assignee or transferee or any other person from time to time
entitled to receive payment hereunder, as the case may be, shall look solely to
the assets of the maker of this note, both real and personal, in satisfaction of
each and every obligation hereunder; in no event shall the officers or directors
of maker have personal liability with respect to this obligation or any other
obligation of maker.
The maker and endorsers, guarantors and others from time to time obligated
hereunder hereby severally waive and renounce the benefit of homestead and all
other exemption rights as against this indebtedness or any renewal or extension
hereof; and further waive demand, protest, notice of protest, presentment for
payment, notice of dishonor and all defenses on the ground of extension of time
for payment hereof.
The maker hereof reserves the right to prepay the indebtedness evidenced
hereby, in whole or in part, at any time or from time to time without penalty.
Notwithstanding anything herein to the contrary, this Note shall be subject
to the terms and conditions set forth in that certain Indenture issued to the
Payee hereof to which Indenture reference is hereby made for a more detailed
explanation of the additional obligations and responsibilities of the maker
hereof and the additional rights of the holder.
This note shall be governed and construed in all respects and enforced
according to the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned has caused this note to be executed as
of the day and year first above set forth.
Genesis Financial Group, Inc.,
a Virginia Corporation
By: ________________________________
Its: _______________________________
<PAGE>
Exhibit No. 3.2
<PAGE>
RETAIL INSTALLMENT SALES CONTRACT
- --------------------------------------------------------------------------------
Buyer (and Co-Buyer) Name and Address Ceditor (Seller Name and Address)
(include County & Zip Code)
- --------------------------------------------------------------------------------
You, the Buyer (and Co-Buyer, if any), may buy the vehicle described below for
cash or on credit. The cash price is shown below as "Cash Price." The credit
price is shown below as "Total Sale Price." By signing this contract, you choose
to buy the vehicle on credit under the agreements on the front and back of this
contract. This contract is not contingent upon any financing terms which are
satisfactory to the parties.
Description of Vehicle. You agree to buy and the Creditor agrees to sell the
following vehicle.
- --------------------------------------------------------------------------------
New or Used Year Made and Model Body Type
- --------------------------------------------------------------------------------
Vehicle Identification No. Use for Which Purchased
[ ] personal [ ] agricutural
[ ] business [ ] _________________
- --------------------------------------------------------------------------------
If truck -- Describe body and major names of equipment sold:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERAL TRUTH-IN-LENDING DISCLOSURES
- --------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE FINANCE CHARGE Amount Financed
The cost of your credit The dollar amount the The amount of credit
as a yearly rate. credit will cost you. provided to you or on
your behalf
____________% $ ______________ $ _______________
- --------------------------------------------------------------------------------
Total of Payments Total Sale Price
The amount you will have paid The total cost of your purchase
after you have made all on credit, including your
payments as scheduled. downpayment of $______________ is.
$_______________________ $__________________________
- --------------------------------------------------------------------------------
Your Payment Schedule Will Be:
- --------------------------------------------------------------------------------
Number of Payments Amount of Payments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When Payments Are Due Or as Follows
- --------------------------------------------------------------------------------
Monthly beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
Late Charge. If a payment is not paid in full within 7 days after it is due, you
will pay a late charge of 5% of the late payment.
Prepayment. If you pay off all your debt early, you will not have to pay a
penalty and you may be entitled to a refund of part of the finance charge.
Security Interest. You are giving a security interest in the vehicle being
purchased.
Additional information. See the other side of this contract for more information
including information about nonpayment, default, any required repayment in full
before the scheduled date, prepayment refunds and security interest.
- --------------------------------------------------------------------------------
ITEMIZATION OF AMOUNT FINANCED
1. Cash Price (including any accessories,
services, and taxes)_______________________________________$ _____________(1)
2. Total Downpayment = Net Trade-in $ ________________ + Cash
Downpayment $_________________________
Your Trade-in is a _______________________________________ $ _____________(2)
Year Make Model
3. Unpaid Balance of Cash Price (1 minus 2)__________________ $ _____________(3)
4. Other Charges including Amounts Paid to Others on Your Behalf:
A Cost of Physical Damage Insurance Paid to the Insurance
Company Named Below -- Covering damage to the
Vehicle. _______________________________________________ $ _____________
B Cost of Optional Mechanical Repair Insurance Paid to the
Insurance Company Named Below -- Covering Certain
Mechanical Repairs. ____________________________________ $ _____________
C Cost of Optional Credit Insurance for the Term of this
Contract Paid to the Insurance Company or Companies
Named below. Life $________________ Disability, Accident
and Health $____________________________________________ $ _____________
D Official Fees Paid to Government Agencies ______________ $ _____________
E Taxes Not Included in Cash Price _______________________ $ _____________
F Government License and/or Registration Fees (Itemize)___ $ _____________
G Government Certificate of Title Fees ___________________ $______________
H Other Charges (Seller must identify who will receive
payment and describe purpose)
to ______________ for _______________________________ $ _____________
to ______________ for _______________________________ $ _____________
Total Other Charges and Amounts Paid to Others on Your
Behalf _________________________________________________ $ _____________(4)
5. Amount Financed -- Unpaid Balance (amount of credit you
will get) (3 + 4) ________________________________________ $ _____________(5)
- --------------------------------------------------------------------------------
Insurance. If any insurance is checked below, the policies or certificates
issued by the Companies named will describe the terms and conditions.
Physical Damage Insurance. You may obtain physical damage insurance from anyone
you want who is acceptable to the Creditor. If you get the insurance from the
seller, the cost shown in 4A of the itemization above is $_____________________
Insurance Company _______________________ Term _____________ months.
Optional Mechanical Repair Insurance. The cost of this insurance is shown in 4B
of the itemization above.
Insurance Company ____________________________________
Term: [ ] _____________ Months or ________________ Miles whichever occurs first.
- --------------------------------------------------------------------------------
Optional Credit Insurance. Credit line insurance and credit disability insurance
are not required to obtain credit and will not be provided unless you sign for
them and agree to pay the additional cost. If you want this insurance, check the
insurance desired and sign below. If you have chosen this insurance, the cost is
shown in 4C of the itemization above.
Check the insurance desired:
[ ] Life (Buyer [ ] Co-Buyer [ ] Both [ ])
[ ] Disability, Accident and Health (Buyer Only)
By signing here, you are stating that you are under age 65.
[ ] __________________________________________________
Name of Insurer
______________________________________________________
Home Office Address
This policy will pay your debt on this contract up to $____________________
Total policy coverage for this and other contracts is limited to $______________
NO LIABILITY INSURANCE INCLUDED.
_____________________________ _________________________________
Buyer signature Date Co-Buyer Signature Date
- --------------------------------------------------------------------------------
I (we) waive the benefit of my (our) Homestead Exemption as to this obligations.
You signed this contract and received a copy on
(Do not date on Sunday) ________________________, 19 ____________________
Buyer Signs __________________________ Co-Buyer Signs _________________________
Co-Buyers and Other Owners--A co-buyer is a person who is responsible for paying
the entire debt. An other owner is a person whose name is on the title to the
vehicle but does not have to pay the debt. The co-buyer or other owner knows
that the Creditor has a security interest in the vehicle and consents to the
security interest.
Other owner signs here __________________ Address ______________________________
Creditor Signs ___________________ By _______________ Title ____________________
- --------------------------------------------------------------------------------
This contract is assigned with recourse under the terms of the "Seller's
Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
This contract is assigned without recourse or with limited recourse under the
terms of the "Seller's Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
- --------------------------------------------------------------------------------
Notice: See Other Side
WHITE--ORIGINAL YELLOW--FILE COPY PINK--BUYERS COPY GOLDENROD--CO-BUYERS COPY
<PAGE>
Ownership and risk of loss. You agree to pay the creditor all you owe under this
contract even if the vehicle is damaged, destroyed or missing. You agree not to
sell, transfer, or remove the vehicles from the State of Virginia without the
Creditor's written permission. You agree not to expose the vehicle to misuse or
confiscation. You will make sure the Creditor's security interest (lien) on the
vehicle is shown on the title. If the Creditor pays any repair bills, storage
bills, losses, fines, or other charges on the vehicle, you agree to pay the
amount when the Creditor asks for it.
Security interests. You are giving the Creditor a security interest in the
vehicle being purchased and any accessories, equipment and replacement parts
being installed in the vehicle. The security interest also covers (1) insurance
premiums and charges for service contracts returned to the creditor (2) proceeds
of any insurance policies or service contract on the vehicle and (3) proceeds of
any insurance policies on your life or health which are financed in this
contract. This secures payment of all amounts you owe in this contract and in
any transfer, renewal, extension or assignment of this contract. It also secures
your other agreements in this contract.
Prepayment Refund. You can prepay all of your debt and get a refund or part of
the Finance Charge. This refund will be figured by the Rule of 78's - a method
commonly used to figure refunds on installment contracts, provided however the
creditor is entitled to receive a minimum of $25 in finance charges. There will
be no refund report to you if it is less than $1.00.
NOTICE IF YOU PAY THIS LOAN OR SALE ON CREDIT PARTIALLY OR IN FULL
BEFORE ITS DUE DATE, THE AMOUNT OF INTEREST YOU PAY WILL BE GREATER
THAN THE AMOUNT OF INTEREST YOU WOULD PAY FOR A SIMPLE INTEREST LOAN OF
THE SAME PRINCIPAL AMOUNT.
Right to Refinance a Balloon Payment. Any installment which is more than twice
the amount of an otherwise regularly scheduled equal installment is a Balloon
Payment. If the property described in this contract is to be used primarily for
consumer purposes, unless a separate agreement has been executed, the Buyer has
the right to refinance any payment which is more than 10% greater than the
regular or recurring installment payments on the basis of an extended period of
time and additional payments which shall allow the balance to be paid in as few
periodic payments not more than 10% greater than the regularly scheduled
installment payments as are required to pay such balances.
Required Physical Damage Insurance. You agree to have physical damage insurance
covering the loss or damage to the vehicle for the term of the contract. At any
time during the term of this contract, if you do not have physical damage
insurance which covers both the interest of you and the Creditor in the vehicle,
then the Creditor may buy it for you. If the Creditor does not buy physical
damage insurance which covers both interests in the vehicle, if may, if it
decides, buy insurance which covers only the Creditor's interest .
The Creditor is under no obligation to buy any insurance, but may do so
if it desires. If the Creditor buys either of these coverages, it will let you
know what type it is and the charge you must pay. The charge will consist of the
cost of the insurance and a finance charge, at the highest lawful contract rate.
You agree to pay the charge in equal installments along with the payments shown
on the payment schedule.
If the vehicle is lost or damaged, you agree that the Creditor can use
any insurance settlement either to repair the vehicle or to apply to your debt.
Late Charge. You will have to pay a late charge on each payment received by the
Creditor more than seven days late. The charge is shown on the front. You must
also pay any cost paid by the Creditor to collect any late payment. Acceptance
of a late payment or late charge does not excuse your late payment or mean that
you can keep making payments after they are due. The Creditor may also takes the
steps set forth below if there is any late payment.
Optional Insurance or Service Contracts. This contract may contain charges for
optional insurance or service contracts. If the vehicle is repossessed, you
agree that the Creditor may claim benefits under these contracts and terminate
them to obtain refunds for unearned charges.
Insurance or Service Contract Charges Returned to Creditor. If any charge for
required insurance is returned to the Creditor it may be credited to your
account or used to buy similar insurance or insurance which covers only the
Creditor's interest in the vehicles. Any refund on optional insurance or
service contracts obtained by the Creditor will be credited to your account.
Credits to your account will include both the amounts received by the
Creditor and the unearned Finance Charges on those amounts. These credits will
be applied to as many of your installments as they will cover beginning with
the final installment. You will be notified of what is done.
Required Repayment in Full Before the Scheduled Date. If you fail to pay any
payment within 10 days after it is due according to the payment schedule or if
you break any of the agreements in the contract (default), the Creditor can
demand that you pay all you owe on the contract at once. In figuring what you
owe, the Creditor will give you a refund of part of the Finance Charge figured
the dame as if you had prepaid in full.
Repossession of the Vehicle for Failure to Pay. Repossession means that if you
fail to pay any payment within 10 days after it is due according to the payment
schedule or if you break any of the agreements in this contract (default), the
Creditor can take the vehicle from you. To take the vehicle the Creditor can
enter your property or the property where it is stored, so long as it is done
peacefully. If there is any personal property in the vehicle, such as clothing,
the Creditor can store it for you. Any accessories, equipment or replacement
parts will remain with the vehicle.
Getting the Vehicle Back After Repossession. If the Creditor repossesses the
vehicle you have the right to get it back (redeem) by paying the entire amount
you owe on the contract (not just past due payments) plus any late charges, the
cost of taking and storing the vehicle and other expenses that the Seller or the
Creditor has had in figuring the entire amount you owe on the contract. The
Creditor will give your a refund for part of the Finance Charge figured the same
as if you had prepared your contract. Your right to redeem will end when the
vehicle is sold.
Sale of the Repossessed Vehicle. The Creditor will send you a written notice of
sale at least 10 days before selling the vehicle. If you do not redeem the
vehicle by the date on the notice the Creditor can sell it. The Creditor will
use the net proceeds of the sale to pay all or part of your debt.
The net proceeds of sale will be figured this way. Any late charges and any
charges for taking and storing the vehicle, cleaning and advertising, etc. and
any attorney fees and court costs will be subtracted from the selling price.
If you owe the Creditor less than the net proceeds of sale, the Creditor
will pay you the difference, unless required to pay it to someone else. For
example, the Creditor may be required to pay a lender who has given you a loan
and also taken a security interest in the vehicle.
If you owe more than the net proceeds of sales, you will pay the Creditor
the difference between the net proceeds of sale and what you owe when the
Creditor asks for it. If you do not pay this amount when asked, you may also be
charged interest at the highest lawful rate until you do pay all you owe to the
Creditor.
Collection Costs. If the Creditor hires an attorney to collect what you owe, you
will pay the attorney's reasonable fee and any court cost.
Delay in Enforcing Rights and Changes of this Contract. The Creditor can delay
or refrain from enforcing any of the rights under the contract without losing
them. For example, the Creditor can extend the time for making some payments
without extending others. ANY CHANGE IN TERMS OF THIS CONTRACT MUST BE IN
WRITING AND SIGNED BY THE CREDITOR. NO ORAL CHANGES ARE BINDING. If any part of
this contract is not valid all other parts will remain enforceable.
Warranties Seller Disclaims. You understand that the Seller is not offering any
warranties and that there are no implied warranties of merchantability, of
Fitness for a particular purpose, or any other warranties, express or implied by
the Seller, covering the vehicle unless the Seller extends a written warranty or
service contract within 90 days from the date of this contract.
An implied warranty of merchantability generally means first the vehicle is
fit for the ordinary purpose for which such vehicles are generally used. A
warranty of fitness for a particular purpose is a warranty that may arise when
the Seller has reason to know the particular purpose for which you require the
vehicle and you rely on the Seller's skill or judgement to furnish a suitable
vehicle.
This provision does not affect any warranties covering the vehicle which may
be provided by the Vehicle manufacturers.
NOTICE: ANY HOLDER OF THE CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
HEREUNDER.
The Preceding NOTICE applies only to goods or services obtained primarily for
personal, family, or household use. In all other cases Buyer will not assert
against any subsequent holder or assignee of this contract any claims or
defenses the Buyer (debtor) may have against the Seller, or against the
manufacturer of the vehicle or equipment obtained under this contract.
______________________________________________________________________________
SELLER'S AGREEMENT
Seller sells and assigns to __________________________________ all of its right,
title and interest in this contract.
Seller warrants and represents; (1) The contract across-from the sale of the
property described on the face of the contract; (2) Seller had title to the
property at the time of sale free of any liens; (3) All disclosures required by
the law were properly made to that buyer prior to the Buyer signing the
contract; (4) All insurance documentation will be delivered to the Buyer within
the time required by law; (5) To the best of Seller's knowledge, the Customer's
Statement attached is accurate. (6) The down-payment received by Seller is
exactly as stated; (7) The contract is enforceable, and (8) Seller is licensed
as required by law.
Each of these warranties and representations is material to assignee's
acceptance of this contract. If any of them is breached or is erroneous, Seller
unconditionally promises to accept reassignment of this contract and to pay
assignee, upon demand the full amount of the unpaid balance under this contract.
Seller also agrees to indemnify assignee to the full extent of all losses or
expenses incurred by assignee as a result of such breach or error.
Seller agrees to indemnify assignee for any judicial setoff or loss as incurred
as a result of a claim or defense of Buyer against Seller.
If this contract is rescinded by court order, Seller shall pay assignee the full
amount assignee paid to purchase it. Seller shall be liable even if a waiver,
compromise, settlement or variation of the terms of the contract releases the
Buyer.
Seller waives notice of acceptance of this guarantee and notices non-payment and
non-performance.
CONTRACTS ASSIGNED WITH RECOURSE
If this contract is assigned with recourse. In addition to the foregoing
guarantees, indemnities and obligations Seller unconditionally guarantees
payment on demand of the unpaid balance on this contract and all losses and
expenses incurred by assignee. In the event of a default in payment of any
installment, except as otherwise provided by the terms of the present assignee
Retail Plan.
CONTRACTS ASSIGNED WITHOUT RECOURSE OR WITH LIMITED RECOURSE
If this contract is assigned without a recourse or with limited recourse, such
assignment is without recourse to the Seller except to the circumstances set
forth above and in and to the extent that an amount is stated in the following
paragraph.
Seller unconditionally guarantees that if Buyer defaults in the payment of any
installment under this agreement, Seller will pay, upon demand by assignee, the
unpaid balance to the sum of $__________________________.
______________________________________________________________________________
<PAGE>
Exhibit No. 3.3
<PAGE>
ASSIGNMENT OF SALES CONTRACT
----------------------------
This Assignment Of Sales Contract ("Assignment"), dated as of
____________________, 199___, by and between Genesis Financial Group, Inc., a
Virginia corporation, (hereinafter referred to as "Corporation"), and
______________________________ (hereinafter individually or collectively
referred to as "Assignee").
RECITALS:
---------
A. In connection with a SB-1 registered offering ("Offering") by the
Corporation of its Retail Installment Sales Contracts ("Contracts"), Assignee
has previously executed a Subscription Letter ("Letter") subscribing for one or
more Contracts pursuant to his investment in the Corporation in the amount set
forth in the aforementioned Letter, to which reference is hereby made.
B. In furtherance of the Assignee's investment in the Corporation and for
the purpose of effectuating the terms and conditions set forth in the Letter and
the Offering, Corporation hereby executes this Assignment to evidence the
Contracts to be allocated to the Assignee's account pursuant to his investment
in the Corporation.
Corporation hereby warrants and represents as follows:
1. Corporation is the holder of all rights, title and interest in and to
those certain Contracts attached hereto as Exhibit "A" which documents have
arisen in the normal course of the Corporation's business.
2. In consideration of Assignee's investment in the Corporation pursuant
to the aforementioned Letter and Offering, the Corporation hereby grants,
transfers, and conveys to the Assignee all of its rights, title and interest in
and to those certain Contracts set forth on Exhibit "A" attached hereto until
such time as said Contracts are paid in full or the Assignee has otherwise
received a full refund of his investment in the Corporation, together with his
applicable return on investment as provided for in Paragraph 3 hereof.
Notwithstanding the foregoing, the Corporation shall have the right to
substitute any Contract assigned hereunder with a Contract of comparable value
in the event of a default under any such Contract pursuant to the terms of the
Letter and that certain Guarantee And Replacement Agreement executed in
conjunction with this Assignment for the benefit of Assignee.
3. Disclosed on Exhibit "B" hereto are the calculations of the Assignee's
rate of return on his investment in the Corporation as a function of the
specific Contracts assigned to him.
C-2
<PAGE>
4. Assignee hereby agrees to return to the Corporation any and all
Contracts, Certificates of Title and any other document delivered to Assignee
pursuant to his investment in the Corporation upon receipt thereby of cash,
and/or property, in the amount of his initial investment plus his calculated
return on his investment.
5. The Corporation agrees to execute this Assignment and Exhibits in
duplicate. One original counterpart shall be forwarded to the attention of the
Assignee. Copies of all amendments to Exhibits "A" and "B" hereunder that are
generated from time to time in connection with the Assignee's investment will
also be executed and forwarded as they arise.
WITNESS the following execution:
"Corporation"
Genesis Financial Group, Inc., a Virginia
corporation
By:______________________________________
Its:_____________________________________
"Assignee"
By:______________________________________
C-3
<PAGE>
EXHIBIT A
Assignment of Sales Contract
----------------------------
List of Assigned Vehicular Sales Contracts
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
"Assignor" "Assignee"
Genesis Financial Group, Inc., ___________________________
a Virginia Corporation
By:___________________________
Its:__________________________
C-4
<PAGE>
EXHIBIT B
Calculation Of Rate Of Return
-----------------------------
"Assignor" "Assignee"
Genesis Financial Group, Inc., ___________________________
a Virginia Corporation
By:___________________________
Its:__________________________
C-5
<PAGE>
Exhibit No. 3.4
<PAGE>
PARTIAL ASSIGNMENT OF SALES CONTRACT
------------------------------------
This Partial Assignment of Sales Contract ("Assignment"), dated as of
____________________, 199___, by and between Genesis Financial Group, Inc., a
Virginia corporation, (hereinafter referred to as "Corporation"), and
______________________________ (hereinafter individually or collectively
referred to as "Assignee").
RECITALS:
---------
A. In connection with a SB-1 registered offering ("Offering") by the
Corporation of its Retail Installment Sales Contracts ("Contracts"), Assignee
has previously executed a Subscription Letter ("Letter") subscribing for partial
interests in one or more Contracts pursuant to his investment in the Corporation
in the amount set forth in the aforementioned Letter, to which reference is
hereby made.
B. In furtherance of the Assignee's investment in the Corporation and for
the purpose of effectuating the terms and conditions set forth in the Letter and
the Offering, Corporation hereby executes this Assignment to evidence the
Contracts to be allocated to the Assignee's account pursuant to his investment
in the Corporation.
Corporation hereby warrants and represents as follows:
1. Corporation is the holder of all rights, title and interest in and to
those certain Contracts attached hereto as Exhibit "A" which documents have
arisen in the normal course of the Corporation's business.
2. In consideration of Assignee's investment in the Corporation pursuant
to the aforementioned Letter and Offering, the Corporation hereby grants,
transfers, and conveys to the Assignee a partial interest in those certain
Contracts attached hereto as Exhibit "A" corresponding to the number of monthly
payments under each such Contract specifically allocated to the Assignee as
disclosed on Exhibit "B," until such time as all payments allocated to Assignee
under a Contract have been paid or until Assignee has received cash, and/or
property, in the amount of his initial investment in the Corporation, plus his
calculated return on his investment. Although Assignee has purchased only a
partial interest in one or more Contracts, the Corporation hereby agrees to
assign the entire Contract to the Assignee for the purpose of precluding the
assignment of multiple interests in a single Contract.
Notwithstanding the foregoing, the Corporation shall have the right to
substitute any Contract assigned hereunder with a Contract
D-2
<PAGE>
of comparable value in the event of a default under any such Contract pursuant
to the terms of the Letter and that certain Guarantee And Replacement Agreement
executed in conjunction with this Agreement for the benefit of Assignee.
3. Disclosed on Exhibit "B" hereto are the partial payments assigned
under each Contract identified in Exhibit "A" and the calculations of the
Assignee's rate of return on his investment in the Corporation.
4. Assignee hereby agrees to return to the Corporation any and all
Contracts, Certificates of Title and any other document delivered to Assignee
pursuant to his investment in the Corporation upon receipt thereby of cash,
and/or property, in the amount of his initial investment plus his calculated
return on his investment.
5. The Corporation and Assignee agree to execute this Assignment and
Exhibits in duplicate. One original counterpart shall be forwarded to the
attention of the Assignee. Copies of all amendments to Exhibits "A" and "B"
hereunder that are generated from time to time in connection with the Assignee's
investment will also be executed and forwarded as they arise.
WITNESS the following execution:
"Corporation"
Genesis Financial Group, Inc., a Virginia
corporation
By:______________________________________
Its:_____________________________________
"Assignee"
By:______________________________________
D-3
<PAGE>
EXHIBIT A
TO
Partial Assignment of Sales Contract
------------------------------------
List of Assigned Vehicular Sales Contracts
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
"Assignor" "Assignee"
Genesis Financial Group, Inc., ___________________________
a Virginia Corporation
By:___________________________
Its:__________________________
D-4
<PAGE>
EXHIBIT B
Partial Payments And Calculation Of Rate Of Return
--------------------------------------------------
A. Partial Payments Assigned.
-------------------------
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
B. Rate Of Return.
--------------
"Assignor" "Assignee"
Genesis Financial Group, Inc., _____________________________
a Virginia Corporation
By:___________________________
Its:__________________________
D-5
<PAGE>
Exhibit No. 3.5
<PAGE>
GUARANTEE AND REPLACEMENT AGREEMENT
-----------------------------------
FOR VALUE RECEIVED, and to induce ___________________________ ("Investor"),
to participate and invest in Genesis Financial Group, Inc. ("Corporation")
through the purchase of certain Installment Sales Contracts ("Contracts") sold
to the Investor pursuant to the Corporation's SB-1 registered offering
("Offering"), and to accept the Contracts so purchased pursuant to the aforesaid
Offering, the undersigned Corporation guarantees the following:
1. Replacement of Defaulted Contract. In the event the underlying
---------------------------------
consumer on the Contract defaults on his or her obligations thereunder, the
Corporation will replace the defaulted Contract with a new Contract having
comparable terms and provisions as soon as reasonably practicable.
2. Guarantee of Payments. In the event of a default under a Contract and
---------------------
a replacement Contract is not readily available, the Corporation guarantees the
payment when due of all sums currently or thereafter to be paid to the Investor
under the defaulted Contract until such time as a replacement Contract is
substituted therefor. The purpose of this Guarantee is to assure the Investor
of his receiving all regularly scheduled payments owed under the Contracts in
accordance with his investment in the Corporation pursuant to the aforesaid
Offering. Notwithstanding this Guarantee, no reserve fund will be established
by the Corporation for this purpose.
3. Interpretation. This Agreement shall be construed and interpreted in
--------------
accordance with the laws of the Commonwealth of Virginia.
In Witness Whereof, Corporation signs and delivers to Investor this
Agreement on the ___ day of __________________, 199____.
"CORPORATION"
Witness: Genesis Financial Group, Inc.,
a Virginia Corporation
_________________________
By: ___________________________
Its: ___________________________
B-2
<PAGE>
Exhibit No. 3.6
<PAGE>
________________________________________________
GENESIS FINANCIAL GROUP, INC.
a Virginia Corporation
___________________________
Indenture
Dated as of March 28, 1997
___________________________
$7,500,000
Promissory Notes and Installment Sales Contracts
with Corporate Guarantees
3 1/2 Year Maturity Date For Notes
3 1/2 Year Average Term for Contracts
_______________________________________________
<PAGE>
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1 DEFINITIONS AND INCORPORATION 1
BY REFERENCE
1.01 Definitions 1
1.02 Other Definitions 2
1.03 Incorporation by Reference of Trust 3
Indenture Act
1.04 Rules of Construction 3
2 THE SECURITIES 3
2.01 Form and Dating 3
2.02 Execution and Authentication 3
2.03 Registrar 4
2.04 Corporation to Hold Money in Trust 4
2.05 Securityholder Lists 4
2.06 Registration, Transfer and Exchange 4
2.07 Replacement of Lost or Stolen 5
Securities
2.08 Outstanding Securities 5
2.09 Cancellation 5
2.10 Defaulted Interest 6
3 PREPAYMENT OF NOTES 6
3.01 Notices to Registrar 6
3.02 Selection of Notes to be Prepaid 6
3.03 Notice of Prepayment 6
3.04 Deposit of Prepayment Amount 7
3.05 Effect of Notice of Prepayment 7
3.06 Notes Prepaid in Part 7
4 COVENANTS 7
4.01 Certain Definitions 7
4.02 Payment of Securities 8
4.03 Limitation on Liens 8
4.04 Payment of Dividends 10
4.05 Corporate Existence 10
4.06 Maintenance of Principal Properties 10
4.07 Ownership of Restricted Subsidiaries 11
4.08 SEC Reports 11
4.09 No Lien Created 11
4.10 Compliance Certificate 11
5 SUCCESSOR CORPORATION 12
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5.01 When Corporation May Merge, etc. 12
5.02 When Securities Must Be Secured 12
6 DEFAULTS AND REMEDIES 12
6.01 Events of Default 12
6.02 Acceleration 14
6.03 Other Remedies 14
6.04 Waiver of Past Defaults 14
6.05 Control by Majority 14
6.06 Limitation on Suits 15
6.07 Rights of Holders to Receive Payment 15
6.08 Collection Suit by Trustee 15
6.09 Trustee May File Proofs of Claim 15
6.10 Priorities 16
6.11 Undertaking for Costs 16
7 TRUSTEE 16
7.01 Duties of the Trustee 16
7.02 Rights of Trustee 17
7.03 Trustee's Disclaimer 18
7.04 Individual Rights of Trustee, etc. 18
7.05 Notice of Defaults 18
7.06 Reports by Trustee to Holders 18
7.07 Compensation and Indemnity 18
7.08 Replacement of Trustee 19
7.09 Successor Trustee by Merger, etc. 20
7.10 Preferential Collection of Claims 20
Against Corporation
8 DISCHARGE OF INDENTURE 20
9 AMENDMENTS, SUPPLEMENTS AND WAIVERS 20
9.01 Without Consent of Holders 20
9.02 With Consent of Holders 20
9.03 Compliance with Trust Indenture Act 21
9.04 Revocation and Effect of Consents 21
9.05 Notation on or Exchange of Securities 21
9.06 Trustee to Sign Amendments, etc.
10 MISCELLANEOUS 22
10.01 Trust Indenture Act Controls 22
10.02 Notices 22
10.03 Communication by Holders with Other 23
Holders
10.04 Certificate and Opinion as to 23
Conditions Precedent
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10.05 Statements Required in Certificate or 23
Opinion
10.06 When Treasury Securities Disregarded 24
10.07 Rules by Trustee and Registrar 24
10.08 Legal Holidays 24
10.09 Governing Law 24
10.10 No Adverse Interpretation of Other 24
Agreements
10.11 Successors 24
SIGNATURES 25
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INDENTURE dated as of March 28, 1997, is entered into by and between
Genesis Financial Group, Inc. ("Corporation"), and Nancy Mattox
("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Corporation's Promissory Notes
and Installment Sales Contracts with corporate Guarantees (hereinafter
collectively referred to as the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
Section 1.01. Definitions.
-----------
"Contract" means the Corporation's Installment Sales Contracts issued
pursuant to this Indenture and the Registration Statement.
"Contract Securityholder" means any person who at the time is the holder of
any Contract.
"Corporation" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Guarantee" means the Corporation's guarantee to satisfy all obligations
arising under a defaulted Contract until such time as a replacement Contract is
substituted therefor.
"Holder" or "Securityholder" means the person who is the holder of any
Security and the person in whose name a Registered Security is registered on the
Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Note" means the Corporation's Promissory Notes issued pursuant to this
Indenture and the Registration Statement.
"Noteholder" means any person who at the time is the holder of any Note.
"Officer" means the Chairman of the Board, the President, any Vice-
President, the Treasurer or the Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Corporation.
(See Sections 10.04 and 10.05.)
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"Principal" of a Security means the amount stated as principal on the face
of the Security.
"Prospectus" means either the Notes Prospectus or Contracts Prospectus, as
the context dictates, being a part of the Corporation's SB-1 Registration
Statement filed with the SEC pursuant to which this Indenture has been issued.
"Registered Security" means Securities of the Corporation issued pursuant
to this Indenture and fully registered on the Registrar's books.
"Registered Securityholder" means the registered holder of any Registered
Security.
"Registration Statement" means the SB-1 Registration Statement filed by the
Corporation with the SEC pursuant to the Corporation's offer to sell up to
$7,500,000.00 in Notes and Contacts to investors.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Notes and Contracts with Guarantees, collectively,
issued pursuant to this Indenture and the Registration Statement, and as amended
or supplemented from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa et
seq.) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
replaces him and thereafter means the successor.
Section 1.02. Other Definitions.
-----------------
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Term Defined in Section
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"Bankruptcy Law" 6.01
"Board of Directors" 4.01
"Consolidated Net Tangible Assets" 4.01
"Custodian" 6.01
"Debt" 4.01
"Event of Default" 6.01
"Legal Holiday" 10.08
"Lien" 4.01
"Principal Property" 4.01
"Registrar" 2.03
"Restricted Property" 4.01
"Restricted Subsidiary" 4.01
"Subsidiary" 4.01
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Section 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them.
Section 1.04. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural include
the singular.
ARTICLE 2
THE SECURITIES
--------------
Section 2.01. Form and Dating.
---------------
The Securities shall be comprised of the Notes and Contracts, a copy of
which documents are appended hereto in Exhibits A and B, respectively. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Corporation shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security shall
be dated the date of its authentication.
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Section 2.02. Execution and Authentication.
----------------------------
One Officer shall sign the Securities for the Corporation. With respect to
the Contracts, the Officer shall sign the Assignment Of Sales Contract or the
Partial Assignment Of Sales Contract (hereinafter the "Assignment") to evidence
the transfer of this Security, all as more particularly described in the
Contracts Prospectus. The Corporation's seal shall be reproduced on the
Securities, if deemed necessary by the Trustee.
No Security shall be valid until the Officer manually signs the Note or the
Assignment. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Corporation shall authenticate Securities for original issue in the
aggregate principal amount of up to $7,500,000 as provided for in the
Registration Statement. The aggregate principal amount of Securities outstanding
at any time may not exceed that amount except as provided in Section 2.07.
Section 2.03. Registrar.
---------
The Corporation shall maintain an office where Securities may be presented
for registration of transfer or for exchange ("Registrar") and for payment. The
Registrar shall keep a register of the Registered Securities and of their
transfer and exchange. The Corporation may have one or more Co-Registrars, any
one or all of whom may be Officers.
Section 2.04. Corporation to Hold Money in Trust.
----------------------------------
The Corporation shall hold in trust for the benefit of Securityholders all
money held by the Corporation for the payment of principal and/or interest on
the Securities and shall notify the Trustee of any default by the Corporation in
making any such payment. The Corporation shall segregate the money and hold it
as a separate trust fund.
Section 2.05. Securityholder Lists.
--------------------
The Corporation shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Registered Securityholders and provide the Trustee with a copy of the list as
updated upon request in writing.
Section 2.06. Registration, Transfer and Exchange.
-----------------------------------
The Corporation will issue fully Registered Securities in the forms of
Exhibit A and Exhibit B attached hereto. With respect to the Contracts, the
Corporation will also issue an executed Assignment form.
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When a Contract is presented to the Registrar or a Co-Registrar with a
request to exchange it for a replacement Contract in the event of a default, the
Registrar shall register the exchange as requested. The obligations of the
Corporation to effectuate such exchanges is more particularly described in the
Contracts Prospectus. To permit exchanges, the Corporation shall authenticate
Securities at the Registrar's and/or Trustee's request. The Corporation will
not charge a fee for any such exchange.
Section 2.07. Replacement of Lost or Stolen Securities.
----------------------------------------
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Corporation shall issue and authenticate a
replacement Security corresponding to the Security that was lost, destroyed or
wrongfully taken, if the requirements of the Virginia Uniform Commercial Code
are met. In the event any lost, destroyed or wrongfully taken Security shall
have matured or is about to mature, the Corporation may pay the same if the
requirements of the applicable provisions of the Virginia Uniform Commercial
Code are met. An indemnity bond must be sufficient in the judgment of the
Corporation and Trustee to protect the Corporation, Trustee, the Registrar or
any Co-Registrar from any loss which any of them may suffer if a Security is
replaced. The Corporation may charge for its expenses in replacing a Security
for the reasons set forth herein.
Section 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all Securities authenticated by the
Corporation except for those canceled by it and those described in this Section.
Securities outstanding include those held by the Corporation or its affiliates.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Corporation receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Corporation pays in cash, by wire transfer, or by certified funds,
either by personal delivery or by certified mail to the last known address of
the Securityholder on a maturity date in an amount sufficient to pay Securities
payable on that date, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue. Such Securities carry no
rights except the right to receive payment.
Section 2.09. Cancellation.
------------
The Corporation at any time may deliver Securities to the Registrar for
cancellation. The Registrar shall cancel and destroy all Securities surrendered
for exchange, except defaulted
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Contracts, payment or cancellation. The Corporation may not issue new
Securities to replace Securities it has paid and delivered to the Registrar for
cancellation.
Section 2.10. Defaulted Interest.
------------------
If and to the extent the Corporation defaults in a payment of any principal
and/or interest due under any Registered Security, it shall pay the defaulted
installment plus interest to the persons who are Registered Securityholders in
accordance with the respective terms set forth under the Notes and Contracts.
ARTICLE 3
PREPAYMENT OF NOTES
-------------------
Section 3.01. Notices to Registrar.
--------------------
If the Corporation wants to prepay the Notes as provided therein, it shall
notify the Registrar and Trustee of the prepayment date and the principal amount
of Notes to be prepaid.
If the Corporation wants to prepay a portion of the principal amount of the
Notes on a pro-rata basis, it shall notify the Registrar and Trustee of the
amount of the reduction and the basis for it.
Section 3.02. Selection of Notes to be Prepaid.
--------------------------------
If less than all Notes are to be prepaid, the Registrar and Trustee shall
select the Notes to be prepaid by a method the Registrar and Trustee consider
fair and appropriate. The Registrar and Trustee shall make the selection from
Notes outstanding not previously prepaid in part. The Registrar and Trustee may
select for prepayment portions of the principal of Notes that have an
outstanding principal balance larger than $1,000. Notes and portions of them
they select shall be in amounts of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Notes selected for prepayment in full
also apply to portions of Notes selected for prepayment.
Section 3.03. Notice of Prepayment.
--------------------
At least 5 days but not more than 30 days before a prepayment date, the
Corporation shall mail and first publish notice of prepayment as provided in
Section 9.02.
The notice shall identify the Notes to be prepaid and shall state:
(1) the prepayment date;
(2) the prepayment amount;
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(3) the name and address of the Registrar;
(4) that Notes prepaid in full must be surrendered to the Registrar to
collect the prepayment amount;
(5) that interest on Notes prepaid in full ceases to accrue on and after
the prepayment date; and
(6) the remaining principal indebtedness outstanding under Notes to be
prepaid in part.
The Registrar shall give the notice of prepayment in the Corporation's name
and at its expense.
Section 3.04. Deposit of Prepayment Amount.
----------------------------
On or before the prepayment date, the Corporation shall deposit in a
separate corporate account money sufficient to pay the prepayment amount on all
Notes to be prepaid, in full or in part, on that date.
Section 3.05. Effect of Notice of Prepayment.
------------------------------
Once notice of prepayment is given, Notes called for prepayment in full
become due and payable on the prepayment date and at the prepayment amount
stated in the notice, unless a Noteholder shall provide Corporation with a
written objection as to the prepayment amount within five (5) days after receipt
of the notice of prepayment. Upon receipt of a written objection, the
Corporation shall recalculate the principal and interest outstanding under the
Note and shall pay the amount agreed upon by the Corporation and Noteholder.
Upon surrender of the Notes to the Registrar and after any prepayment adjustment
is made to a Note as provided herein, such Notes shall be paid as stated in the
notice.
Section 3.06. Notes Prepaid in Part.
---------------------
Upon prepayment of a Note in part only, the Registrar shall certify for the
Noteholder the principal balance remaining under the Note.
ARTICLE 4
COVENANTS
---------
Section 4.01. Certain Definitions.
-------------------
"Board of Directors" means the Board of Directors of the Corporation or any
committee of the Board.
"Consolidated Net Tangible Assets" means the consolidated net worth of the
Corporation, as determined under generally acceptable
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accounting principles, all as shown on the Corporation's most recent
consolidated balance sheet.
"Debt" means any debt for borrowed money or any guarantee of such a debt.
"Lien" means any mortgage, pledge, security interest or lien.
"Principal Property" means any property owned by the Corporation or a
Restricted Subsidiary except any such property which, in the opinion of the
Board of Directors, is not of material importance to the total business
conducted by the Corporation and its Subsidiaries.
"Restricted Property" means:
(1) any Principal Property,
(2) any Debt of a Restricted Subsidiary, or
(3) any shares of stock of a Restricted Subsidiary, not owned or hereafter
acquired by the Corporation or a Restricted Subsidiary.
"Restricted Subsidiary" means a Subsidiary deemed to be a significant
subsidiary under the Rules and Regulations of the SEC in effect at the time the
determination is made.
"Subsidiary" means a corporation of which the Corporation, the Corporation
and one or more Subsidiaries, or one or more Subsidiaries at the time own a
majority of the corporation's outstanding stock having voting power under
ordinary circumstances to elect a majority of that corporation's board of
directors.
Section 4.02. Payment of Securities.
---------------------
The Corporation shall promptly pay the principal of, interest on and
amounts owing under the Securities on the dates and in the manner provided in
the Securities. An installment of principal, interest or other obligation due
and owing shall be considered paid on the date it is due if the Registrar pays
on that date money designated for and sufficient to pay the installment in the
manner provided in Section 2.08 of this Indenture. The Corporation shall pay
interest on overdue principal installments or on such other obligations owed by
the Corporation at the rate borne by the applicable Security.
Section 4.03. Limitation on Liens.
-------------------
The Corporation shall not, and it shall not permit any Restricted
Subsidiary to, create, incur or assume a Lien on Restricted Property to secure a
Debt unless:
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(1) the Lien equally and ratably secures the Securities and the Debt. The
Lien may equally and ratably secure the Securities and any other
obligation of the Corporation or a Subsidiary. The Lien may not secure
an obligation of the Corporation that is subordinated to the
Securities;
(2) the Lien is on property, Debt or shares of stock of a corporation at
the time the corporation becomes a Restricted Subsidiary;
(3) the Lien is on property at the time the Corporation or a Restricted
Subsidiary acquires the property. The Lien may not extend to any
other property owned by the Corporation or a Restricted Subsidiary at
the time the Lien is created, incurred or assumed;
(4) the Lien secures Debt incurred to finance all or some of the purchase
price or cost of construction of property of the Corporation or a
Restricted Subsidiary. The Lien may not extend to any other property
owned by the Corporation or a Restricted Subsidiary at the time the
Lien is created, incurred or assumed. In the case of any
construction, however, the Lien may extend to unimproved real property
for the construction. The Debt secured by the Lien may not be
incurred more than 120 days after the later of the acquisition,
completion of construction or commencement of full operation of the
property subject to the Lien;
(5) the Lien secures Debt of a Restricted Subsidiary owing to the
Corporation or another Restricted Subsidiary;
(6) the Lien is on property of a corporation at the time the corporation
merges into or consolidates with the Corporation or a Restricted
Subsidiary;
(7) the Lien is on property of a person at the time the person transfers
or leases all or substantially all of its assets to the Corporation or
a Restricted Subsidiary;
(8) the Lien is in favor of a government or governmental entity and
secures payments pursuant to a contract or statute or secures Debt
incurred to finance all or some of the purchase price or cost of
construction of the property subject to the Lien;
(9) the Lien extends, renews or replaces in whole or in part a Lien
("existing Lien") enumerated in Clauses (1) though (8) above. The
Lien may not extend beyond (i) the property subject to the existing
Lien, and (ii) improvements and construction on such property. The
Debt
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secured by the Lien may not exceed the Debt secured at the time by the
existing Lien;
(10) the Lien arises out of a judgment, decree or court order, so long as
any appropriate legal proceeding which may have been initiated for
review shall not have been finally terminated or so long as the period
within which such proceeding may be initiated shall not have expired;
(11) the Lien secures Debt of the Corporation or a Restricted Subsidiary if
such Debt plus all other Debt of the Corporation and its Restricted
Subsidiaries secured by Liens on Restricted Property, excluding Debt
secured by a Lien existing as of the date of this Indenture or
permitted by clauses (1) through (10) above, at the time does not
exceed 5% of Consolidated Net Tangible Assets; or
(12) the Lien pertains to the underlying vehicles securing the Contracts,
as more particularly described in the Contracts Prospectus.
Section 4.04. Payment of Dividends.
--------------------
The Corporation shall not: (a) declare or pay any dividend or make any
distribution on its capital stock or to its stockholders (other than dividends
or distributions payable solely in shares of the capital stock of the
Corporation); (b) purchase, redeem or otherwise acquire or retire for value any
shares of its capital stock; or (c) permit a Subsidiary to purchase, redeem or
otherwise acquire or retire for value any share of capital stock of the
Corporation until the Securities are satisfied in full.
Section 4.05. Corporate Existence.
-------------------
Subject to Article 5, the Corporation will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights and franchises; provided, however, that the Corporation shall
not be required to preserve any right or franchise if it shall determine that
the preservation is no longer desirable in the conduct of the Corporation's
business and that the loss will not be disadvantageous in any material respect
to the Holders.
Section 4.06. Maintenance of Principal Properties.
-----------------------------------
The Corporation will cause all Principal Properties to be maintained and
kept in good condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the
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judgment of the Corporation may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that neither the Corporation nor any Restricted Subsidiary
shall be prevented from discontinuing the operation and maintenance of any of
such Principal Properties or from omitting to make any repairs, renewals,
replacements, betterments or improvements thereof if such discontinuance or
omission is, in the judgment of the Corporation, desirable in the conduct of the
business of the Corporation and its Restricted Subsidiaries taken as a whole.
Section 4.07. Ownership of Restricted Subsidiaries.
------------------------------------
So long as any of the Securities shall be outstanding:
(a) the Corporation will own directly, or indirectly, through one or
more wholly-owned Subsidiaries, more than 80% of the voting shares, of each
Restricted Subsidiary; and
(b) the Corporation will not permit any Restricted Subsidiary to
merge or consolidate with or into, or to sell, assign, transfer or
otherwise dispose of the assets of such Restricted Subsidiary substantially
as an entirety to any corporation or other person, except where the
corporation surviving in such merger or consolidation, or the person to
which such sale, assignment, transfer or other disposition is made, upon
consummation of such transaction, will be a Restricted Subsidiary.
Section 4.08. SEC Reports.
-----------
The Corporation shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports, information, documents, and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which the Corporation is required to file
with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. The Corporation also shall comply with the other provisions of TIA (S)
314(a) to the extent applicable.
Section 4.09. No Lien Created.
---------------
This Indenture and the Securities do not create a Lien, charge or
encumbrance on any property of the Corporation or any Subsidiary.
Section 4.10. Compliance Certificate.
----------------------
The Corporation shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Corporation an Officers' Certificate stating whether
or not the signers know of any default by the Corporation in performing its
covenants in Article 4. If
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they do know of such a default, the Certificate shall describe the default. The
Certificate need not comply with Section 10.05. The first Certificate shall be
delivered to the Trustee by April 30, 1998.
ARTICLE 5
SUCCESSOR CORPORATION
---------------------
Section 5.01. When Corporation May Merge, etc.
--------------------------------
The Corporation shall not consolidate with or merge into, or transfer all
or substantially all of its assets to another corporation unless the resulting,
surviving or transferee corporation assumes by supplemental indenture all the
obligations of the Corporation under the Securities and this Indenture.
Thereafter all such obligations of the predecessor corporation shall terminate.
Section 5.02. When Securities Must Be Secured.
-------------------------------
If, upon any such consolidation, merger or transfer, a Restricted Property
would become subject to an attaching Lien that secures Debt, then before the
consolidation, merger, or transfer occurs, the Corporation by supplemental
indenture shall secure the Securities by a direct Lien on the Restricted
Property. The direct Lien shall have priority over all Liens on the Restricted
Property except those already on it. The direct Lien may equally and ratably
secure the Securities and any other obligation of the Corporation or a
Subsidiary. The Corporation, however, need not comply with this Section if:
(a) upon the consolidation, merger or transfer the attaching Lien will
secure the Securities equally and ratably with Debt secured by the
attaching Lien; or
(b) The Corporation or a Restricted Subsidiary under clauses (2) through
(11) of Section 4.03 could create a Lien on the Restricted Property to
secure Debt at least equal in amount to that secured by the attaching
Lien.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
Section 6.01. Events of Default.
-----------------
Subject to Section 6.02, an "Event of Default" occurs if:
(1) the Corporation defaults in the payment of an installment due under
any Note when the same becomes due and payable, whether of maturity or
otherwise, and the default continues after the expiration of any cure
period provided for under the terms of the Note;
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(2) the Corporation defaults in the payment of any principal installment
and/or other financial obligation due under any Contract when the same
becomes due and payable, whether at maturity or otherwise, and the
default continues after the expiration of any cure period provided for
under the terms of the Contract;
(3) the Corporation fails to comply with any of its other agreements in
the Securities or this Indenture and the default continues for the
period and after the notice specified below;
(4) the Corporation pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) fails generally to pay its debts as they become due; or
(5) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Corporation in an involuntary case;
(B) appoints a Custodian of the Corporation or for any substantial
part of its property; or
(C) orders the liquidation of the Corporation;
and the order or decree remains unstayed and in effect for 90
days.
The term "Bankruptcy Law" means title 11, United States Code or any similar
Federal or State law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Corporation of the default and the Corporation does not cure the
default within 90 days after
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receipt of the notice. The notice must specify the default, demand that it be
remedied and state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
------------
If an Event of Default occurs and is continuing, the Trustee by notice to
the Corporation or the Holders of at least 25% in principal amount of the
Security of the type in default may declare the principal of and accrued
interest on all of the Securities of the type in default to be due and payable
immediately. Notwithstanding anything herein to the contrary, no Event of
Default shall occur if the Corporation and the effected Securityholders shall
negotiate a settlement of any outstanding default.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal, interest and/or other financial obligations due under the terms of
the applicable Securities or to enforce the performance of any provision of the
applicable Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.04. Waiver of Past Defaults.
-----------------------
Subject to Section 9.02, the Holders of a majority in principal amount of
the Securities of the type in default by notice to the Trustee may waive an
existing Default or Event of Default and its consequences. When a Default or
Even of Default is waived, it is cured and stops continuing.
Section 6.05 Control by Majority.
-------------------
The Holders of a majority in principal amount of the Securities may 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 it. The Trustee,
however, may refuse to follow any direction that conflicts with law or this
Indenture, that is unduly prejudicial to the rights of other Securityholders or
that may involve the Trustee in personal liability.
14
<PAGE>
Section 6.06. Limitation on Suits.
-------------------
Subject to Section 6.02, the Securityholders of the Security of the type in
default may not pursue any remedy with respect to this Indenture or the
applicable Security unless:
(1) the Securityholder(s) holding the Security in default gives the
Trustee written notice of a continuing Event of Default as may be
provided for under the terms of the applicable Security;
(2) the applicable Securityholders holding at least 25% in principal
amount of the Security of the type in default make a written request
to the Trustee to pursue the remedy;
(3) such Securityholder or Securityholders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
and
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder holding a similar Security or to obtain a preference or
priority over such a Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and/or interest on any
Security, or to bring suit for the enforcement of any such payment on or after
the respective due dates, shall not be impaired or affected without the consent
of the Holder of the Security.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of interest, principal, or any other
obligation as specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Corporation for the whole amount of principal and interest remaining
unpaid to all Securityholders of the Security of the type in default.
Section 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proof of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property.
15
<PAGE>
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to the applicable Securityholders for amounts due and unpaid on the
Securities of the type in default for principal and interest, 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: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Registered Securityholders.
Section 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of Securities pursuant to
Section 6.07, or a suit by Holders of more than 10% in principal amount of the
Securities.
ARTICLE 7
TRUSTEE
-------
Section 7.01 Duties of the Trustee.
---------------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers and use the same degree of care
and skill in its exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of
16
<PAGE>
the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture. The
Trustee, however, shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section.
(2) The Trustee shall not be liable for any error of judgment made in
good faith, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as otherwise agreed with the Corporation.
Section 7.02. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an opinion of counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on the Certificate or opinion.
<PAGE>
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its
rights or powers.
Section 7.03. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Corporation's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities, other than its certificate of authentication, or in
any prospectus used in the sale of the Securities, other than statements
provided in writing by the Trustee for use in such prospectus.
Section 7.04. Individual Rights of Trustee, etc.
----------------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Corporation with the same
rights it would have if it were not Trustee. Any Registrar or Co-registrar may
do the same with like rights. The Trustee, however, must comply with Section
7.10.
Section 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail and first publish as provided in Section 10.02 notice of
the Default within 90 days after it occurs. Except in the case of a default in
payment on any Security, the Trustee may withhold the notice if it in good faith
determines that withholding the notice is in the interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each December 31 beginning with the December 31
following the date of this Indenture, the Trustee shall provide to the
Securityholders specified in TIA (S) 313(c) a brief report dated as of such
December 31 that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA (S) 313(b).
Section 7.07. Compensation and Indemnity.
--------------------------
The Corporation may pay to the Trustee from time to time reasonable
compensation for its services as negotiated between the Trustee and the
Corporation. The Corporation shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses may include the
reasonable
18
<PAGE>
compensation and expenses of the Trustee's agents and attorneys. The Corporation
shall indemnify the Trustee against any loss or liability incurred by it. The
Trustee shall notify the Corporation promptly of any claim for which it may seek
indemnity. The Corporation shall defend the claims and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the
Corporation shall pay the reasonable fees and expenses of such counsel. The
Corporation need not pay for any settlement made without its consent. The
Corporation need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
Section 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the removed Trustee and may appoint a successor Trustee with the
Corporation's consent. The Corporation may remove the Trustee if:
(1) the Trustee is adjudged a bankrupt or an insolvent;
(2) a receiver or other public officer takes charge of the Trustee or its
property; or
(3) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Corporation. Immediately after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers an
duties of the Trustee under this Indenture. A successor Trustee shall give
notice of its succession to each Securityholder as provided in Section 10.02.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of a majority in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
19
<PAGE>
Section 7.09. Successor Trustee by Merger, etc.
---------------------------------
If a corporate Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
Section 7.10. Preferential Collection of Claims Against Corporation.
------------------------------------------------------
The Trustee shall comply with TIA (S)311(a), excluding any creditor
relationship listed in TIA (S)311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S)311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
This Indenture and all obligations of the Corporation hereunder shall
terminate upon the payment of all obligations due and owing under the
Securities, as the same may be amended and/or adjusted from time to time.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
Section 9.01. Without Consent of Holders.
--------------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place of
certificated Securities; or
(4) to make any change that does not adversely affect the rights of any
Securityholder.
Section 9.02. With Consent of Holders.
-----------------------
The Corporation may amend or supplement this Indenture or the Securities
without notice to any Securityholder but with the written consent of the Holders
of not less than a majority in principal amount of the Securities. The Holders
of a majority in principal amount of the Securities may waive compliance by the
Corporation with any provision of this Indenture or the Securities without
notice to any Securityholder. Without the consent of each
20
<PAGE>
Securityholder specifically affected, however, an amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate or extend the time for payment of interest on any
Security;
(3) reduce the principal of or extend the fixed maturity of any Security;
(4) make any Security payable in money other than that stated in the
Security; or
(5) waive a default in payment of principal or interest on any Security.
Section 9.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect, if applicable.
Section 9.04. Revocation and Effect of Consents.
---------------------------------
A consent to an amendment, supplement or waive by a Holder of a Security
shall bind the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holer's Security, even
if notation of the consent is not made on any Security. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Security or portion
of a Security. The Trustee must receive the notice of revocation before the
date the amendment, supplement or waiver becomes effective. After an amendment,
supplement or waiver becomes effective, it shall bind every Securityholder.
Section 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Corporation or the
Trustee so determine, the Corporation in exchange for the Security shall issue
and the Trustee shall authorize a new Security that reflects the changed
terms.
21
<PAGE>
Section 9.06. Trustee to Sign Amendments, etc.
--------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Corporation may not sign an amendment or supplement until
the Board of Directors approves it.
ARTICLE 10
MISCELLANEOUS
-------------
Section 10.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 10.02. Notices.
-------
Any notice or communication shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail addressed as follows:
If to the Corporation: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: President
If to the Registrar: Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, VA 24012
Attention: Registrar
If to the Trustee: Nancy Mattox
1200 Allen Street
New Castle, VA 24127
Any notice or communication to Securityholders shall be sufficiently given
if mailed by first-class mail to each Registered Securityholder at his address
as it appears on the lists or registration books of the Registrar and shall be
sufficiently given to him if so mailed within the time prescribed.
Failure to give notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the Securityholder receives or reads it.
22
<PAGE>
Section 10.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Corporation, the Trustee, the Registrar and anyone else shall
have the protection of TIA (S)312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Corporation to the Trustee to take
any action under this Indenture, the Corporation shall furnish to the
Trustee:
(1) an Officers' Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an opinion of counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Each opinion of counsel shall be in writing. The legal counsel who renders
it may be an employee of or counsel to the Corporation. The legal counsel shall
be acceptable to the Trustee.
Section 10.05. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) 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;
(3) a statement that, in the opinions of such person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
23
<PAGE>
Section 10.06. When Treasury Securities Disregarded.
------------------------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Corporation or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Also, subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
Section 10.07. Rules by Trustee and Registrar.
------------------------------
The Trustee may make reasonable rules for the administration of this
Indenture. Such rules may cover matters relating to action by or a meeting of
Securityholders. The Registrar may make reasonable rules for its
functions.
Section 10.08. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday or a day on
which banking institutions are not required to be open. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
Section 10.09. Governing Law.
-------------
This Indenture and the Securities shall be governed by the laws of the
State of Virginia.
Section 10.10. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Corporation or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 10.11. Successors.
----------
All agreements of the Corporation in this Indenture and the Securities
shall bind its successors.
24
<PAGE>
Dated: March ___, 1997 Genesis Financial Group, Inc.,
a Virginia corporation
By: ___________________________
Its: __________________________
Attest: _________________________
Secretary
25
<PAGE>
Exhibit No. 4.1
<PAGE>
SUBSCRIPTION LETTER
-------------------
Genesis Financial Group Total Offering: $7,500,000
4206 Williamson Road
Roanoke, Virginia 24012 Type of Investment Retail
Offered: Installment
Sales
Contracts
and Corporate
Guarantees
Price Per Contract: Variable
Total Investment: $____________
Commencement Date
of Offering: April __, 1997
Investment Option: _____ 20%
_____ 25%
Gentlemen:
This letter is furnished to Genesis Financial Group, a Virginia
corporation, ("Corporation"), in connection with the investment by the
undersigned on this date in the amount shown above for the acquisition of one or
more Retail Installment Sales Contracts ("Contracts") generated by Mr. Car Man,
Inc. ("MCMI") during the course of its normal business operations of selling
used vehicles, together with the Corporation's guarantee ("Guarantee") of the
contractual obligations under each Contract sold, which Contracts have been
purchased at a discount by the Corporation. In conjunction herewith, the
undersigned hereby delivers his check, payable to the Corporation, in the amount
equal to the total investment shown above. Since the Corporation's Guarantee
pertains to each Contract sold hereunder, future reference to the term
"Contract" shall be deemed to incorporate the underlying Guarantee which
securities are sold as a unit.
The undersigned hereby understands that the Contracts have been registered
under the Securities Act of 1933 ("1933 Act") and that the Corporation reserves
the right, in its sole discretion, to reject any subscription at any time.
Contemporaneously with the offering of its Contracts, the Corporation will also
offer for sale to selected investors its corporate promissory notes ("Notes").
Although the Corporation does not currently intend to sell more than
$1,500,000.00 in Contracts to investors, the Corporation reserves the right to
sell up to $7,500,000.00 in Contracts, as well as up to $7,500,000.00 in Notes.
In no event, however, will more than $7,500,000.00 in the aggregate of Contracts
and Notes be
E-2
<PAGE>
sold to Investors. If not sooner terminated by the Corporation, this offering
will terminate on the second anniversary date of the Effective Date of the
Registration Statement. The undersigned understands there is no minimum
offering amount required to be received before the Corporation may fully utilize
the undersigned's funds. In conjunction with the offering, the undersigned
agrees to execute the Power of Attorney form delivered with this Letter.
Nature, Type And Return On Investment
- -------------------------------------
The undersigned understands that the Corporation is in the business of
purchasing at a discount some or all of the Contracts generated by MCMI from
time to time as they arise. Accordingly, the number of Contracts assigned to a
particular investor will vary depending on his total investment, the value of
the Contracts allocated to his account, and the investment option selected by an
investor hereinabove. The 20% and 25% investment options offered to investors
represent an annual return on investment. The Corporation intends to pass
through to investors part or all of each customer's monthly payments under the
Contracts to satisfy the Corporation's obligations to its investors purchasing
Contracts. In the event a customer should default, the Corporation is obligated
to replace the defaulted contract with a new Contract having similar terms and
conditions. Until a replacement Contract is substituted for a defaulted
Contract, the Corporation will guarantee that all payments due and owing to an
Investor will be made on a timely basis. The Corporation intends to use its
capital reserves and other sources of revenue, including funds generated from
the sale of its Notes and customer payments on Contracts purchased from MCMI and
retained by the Corporation, to satisfy such obligations. The investment
options, return rates and the Corporation's obligations to replace defaulted
Contracts and guarantee payments are more particularly detailed in the
Prospectus to which reference is hereby made.
The undersigned acknowledges that he will receive a return of principal and
interest on a monthly basis corresponding with the monthly payments set forth
under the Contracts assigned to his account. The actual purchase price for a
Contract is based upon the original face value of the Contract, the interest
rate, the amortization schedule and the discounted purchase price paid to MCMI
by the Corporation. Reference is made to the Prospectus for a more detailed
discussion of how the purchase price for and investment return on a Contract is
calculated. The portion of the undersigned's investment attributable to a
particular Contract will be calculated in advance to correlate with the
investment option selected.
The Corporation will attempt to maintain at all times a portfolio of valid
and current Contracts for each investor to the extent of the investor's actual
outstanding investment in the Corporation. The undersigned understands that the
Corporation
E-3
<PAGE>
assumes the risk of any default under a Contract and will replace, as soon as
reasonably practicable, any defaulting Contract with a new Contract of
comparable value. Further, the undersigned acknowledges and understands that
the success of the Corporation's business depends upon the creation by MCMI of
new sale transactions on a continual basis and that his investment hereunder
will correlate with the availability of identifiable and executed Contracts.
The Corporation undertakes to notify and submit a copy to the undersigned of
each new Contract assigned to the undersigned's account. The undersigned
understands that the Corporation will cover the monthly payments on any
defaulting Contract until such time that a new Contract is substituted therefor.
However, the undersigned will not be entitled to receive any sum in excess of
his stated return. In addition, the Corporation reserves the right at any time
and from time to time to return an investor's funds without penalty.
Indenture
- ---------
The Contracts and Notes offered by the Corporation will be issued pursuant
to and subject to the terms of that certain Indenture agreement executed by the
Corporation in conjunction with this offering. The Indenture is required under
the Trust Indenture Act of 1939 and imposes additional obligations on the
Corporation in issuing the Contracts and Notes and servicing its debt
obligations thereunder. A copy of the Indenture will be provided to each
investor to which document reference is hereby made.
Delivery Of Original Documents
- ------------------------------
Once a Contract has been assigned to a particular investor's portfolio,
that Contract will remain in that investor's portfolio until the investor's
rights in that Contract are terminated or unless there is a default thereunder
at which time the Corporation will replace such Contract with a comparable one
as soon as possible. In the interim, the Corporation will continue any monthly
payments attributable to any such defaulting Contract until it is so replaced.
All original Contracts will be delivered to an investor as they are assigned.
Receipt And Review Of Information
- ---------------------------------
The undersigned acknowledges receipt of the Corporation's Prospectus filed
with the Securities And Exchange Commission, a copy of the form Contract used by
MCMI, a copy of the Indenture and a Subscriber Information Schedule
("Schedule"). In addition, the undersigned hereby acknowledges that he, or his
investment advisor, has had the opportunity to ask questions of the
Corporation's and MCMI's officers and receive and review all information and
documentation requested pertaining to the officers, the Corporation and MCMI.
The undersigned represents that he and/or his investment advisor: (i) is
familiar with the financial condition of the
E-4
<PAGE>
Corporation and MCMI and the proposed business activities of the Corporation and
MCMI; (ii) has discussed with the officers the current and proposed activities
of the Corporation and MCMI including, without limitation, the selling
operations of MCMI; (iii) has discussed with the officers of the Corporation the
method and manner for handling and safeguarding the Contracts and Titles; and
(iv) has conducted, to his sole satisfaction, all investigations and inquiries
pertaining to the Corporation, MCMI and the officers thereof that he deemed
necessary and expedient in making his investment decision. Accordingly, the
undersigned believes that the Contracts are securities of the kind he wishes to
purchase and hold for investment and that the nature and amount of his
investment are consistent with his investment program.
The undersigned further understands that the Corporation, or an affiliate
thereof, will act as the collection agency for all Contracts.
Acknowledgement Of Certain Facts
- --------------------------------
The undersigned hereby expressly acknowledges that he is aware of the
following facts;
(i) In addition to the risks summarized herein, there are other
substantial risks involved in investing in the Corporation and, therefore, the
risks set forth hereunder are not intended to be complete or relied upon by the
undersigned as a basis for making an investment in the Corporation;
(ii) Neither the Securities And Exchange Commission nor any state agency
has passed upon the adequacy of this offering or upon the accuracy of any
information or documentation provided to him or made any finding or
determination as to the fairness of an investment in the Corporation. Any
representation to the contrary is a criminal offense;
(iii) He should only invest in the Corporation based upon his particular
circumstances and should confer with and rely on his own investment and tax
advisors as to the substantial risks inherent in an investment in the
Corporation. He acknowledges that he has carefully read and completed, where
necessary, in its entirety the Prospectus, Schedule, Indenture and this Letter
and that neither the Corporation, its officers, nor any other party has made any
representation or warranty with respect to the Corporation, MCMI, the officers
thereof or the business conducted thereby except as otherwise specifically set
forth herein and in the Prospectus;
(iv) The Corporation and MCMI have provided him with an opportunity to
meet and confer with the officers thereof regarding all aspects of the
transactions contemplated by the Corporation including the creation and
assignment of the Contracts and will
E-5
<PAGE>
afford him the opportunity to obtain any additional information, to the extent
that the Corporation and MCMI possesses such information or can acquire it
without unreasonable effort or expense; and
(v) This offering will continue for a period of two years.
Representations Of Investors And Risks
- --------------------------------------
The undersigned understands that an investment in the Corporation involves
a high degree of risk. To induce the Corporation to issue and sell the
Contracts to the undersigned, the undersigned hereby warrants, represents and
covenants to the Corporation as follows:
(i) The undersigned can bear the economic risk of an investment in the
Corporation and the acquisition of the subscribed for Contracts for an
indefinite period of time;
(ii) The undersigned has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of his
investment hereunder without materially affecting his financial condition;
(iii) The undersigned has been furnished with all materials, documents and
information relating to the Corporation, MCMI and their activities, the offering
of the Contracts and anything set forth in this Letter and the Prospectus which
he has requested and the undersigned has been afforded the opportunity to obtain
any additional information necessary to verify the accuracy of any
representations or information set forth in said documents;
(iv) The Corporation, MCMI and their officers have answered all inquiries
that the undersigned has put to them concerning the Corporation, MCMI and their
activities and any other matters relating to the Corporation, MCMI and the
offering as well as with respect to the creation and assignment of the Contracts
and the safeguarding and disposition of the Contracts and Titles;
(v) The undersigned has not been furnished any offering literature other
than this Letter, the Prospectus, the Indenture and the form Contract and in
making his investment decision has relied only on the information contained
therein and his own investigations into the suitability of the investment, the
projected rate of return and the proposed business to be conducted by the
Corporation and MCMI. The undersigned is familiar with the methods and
procedures of the proposed business operations contemplated by the Corporation
and MCMI. The undersigned has carefully reviewed and understands this Letter,
the Prospectus, the Indenture and the form Contract and the risks of, and other
considerations relating to, an investment in the Corporation.
E-6
<PAGE>
Furthermore, as set forth above, no representations or warranties have been made
to the undersigned, or to his advisors, by the Corporation, MCMI, their officers
or any other person with respect to the proposed business of the Corporation or
MCMI, the financial condition of the Corporation or MCMI, and/or the economic,
tax or other aspects or consequences of a purchase of the Contracts, and the
undersigned has not relied upon any information concerning this offering,
written or oral, other than contained in this Letter, the Prospectus, the
Indenture, the form Contract and the information obtained through his own
investigations. The undersigned acknowledges that the officers have answered
all questions presented by the undersigned and/or his investment advisor and
provided all information requested pertaining to the past operating history and
financial condition of the Corporation and MCMI;
(vi) The undersigned has been represented by such legal counsel, tax
advisors, accountants and others selected by the undersigned as he has found
necessary to consult concerning this transaction and to review and evaluate the
tax, economic and other ramifications of an investment in the Corporation. No
representation, warranty or advice of any kind is made by the Corporation, the
officers or any other person with respect to any consequences relating to the
business of the Corporation or an investment in the Corporation, except to the
extent otherwise set forth in the Prospectus. (Please note that the provisions
of the federal securities laws, in the view of the Commission, are not subject
to disclaimer or waiver);
(vii) The undersigned, if a corporation, partnership, trust or other form
of business entity, is authorized and otherwise duly qualified to purchase and
hold the Contracts, and such entity has the principal place of business as set
forth in the signature page hereof and such entity has not been formed for the
specific purpose of acquiring the Contracts;
(viii) The undersigned understands that the Contracts have been registered
under the 1933 Act;
(ix) All the information which the undersigned has furnished to the
Corporation with respect to his financial position and business experience is
correct and complete as of the date of this Letter and, if there should be any
material change in such information prior to the consummation of this offering,
the undersigned will immediately furnish such revised or corrected information
to the Corporation;
(x) The undersigned hereby acknowledges that no state regulatory
authority has passed upon the adequacy or merits of this offering and has
expressed no opinion as to the quality of the Contracts offered hereunder; and
(xi) The undersigned hereby acknowledges that all financial
E-7
<PAGE>
and related projections pertaining to the Corporation and MCMI are merely
predictions which are dependent upon various assumptions including, but not
limited to, the cost of maintaining inventory, the cost of overhead, market
conditions, competition and general economic factors.
The undersigned acknowledges that his right to purchase the Contracts
hereunder is not transferable or assignable by him.
If the undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the representations and warranties
herein contained shall be deemed to be made by, and be binding upon, each such
person and his heirs, executors, administrators, successors and assigns.
Indemnification
- ---------------
The undersigned agrees to indemnify and hold harmless the Corporation
against any and all liabilities, losses, costs, damages, fees (including
attorney's fees) and other expenses which the Corporation may sustain or incur
by reason of the undersigned's breach of any representation or warranty
contained herein; or by reason of any action improperly taken by the undersigned
relating to the sale of the Contracts.
Date of Execution:
__________________ ___________________________________
Signature
Date of Execution:
__________________ ___________________________________
Signature
_____________________________________
Printed or Typewritten Name
_____________________________________
Printed or Typewritten Name
____________________________________
Street Address
____________________________________
City, State, Zip Code
____________________________________
Telephone
E-8
<PAGE>
____________________________________
Social Security Number or
Tax ID Number
The investments purchased hereunder shall be held as follows:
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
E-9
<PAGE>
Exhibit No. 6.1
<PAGE>
LEASE
THIS LEASE AGREEMENT, entered into this 14th day of July, 1994, by and between
---- ---- --
Rebecca L. Grasse, herein called "Landlord", and Mr. Car Man Inc., herein called
- ----------------- ----------------
"Tenant", and Waldvogel, Poe & Cronk Real Estate Group, Inc., herein called
"Leasing Agent".
W I T N E S S E T H :
That for and in consideration of the rents and covenants hereinafter set forth,
Landlord hereby agrees to Lease, and Tenant hereby rents from Landlord, the
following described premises together with all improvements thereon called the
"Leased Premises" to-wit: 3733 Williamson Road, Roanoke, VA.
TO HAVE AND TO HOLD said Leased Premises and the privileges and
appurtenances thereunto belonging unto the Tenant, its successors and assigns,
for the terms hereinafter provided, and upon the following terms and conditions,
to which the parties mutually covenant and agree:
(1) TERM:
(A) The term of this Lease shall commence on August 1, 1994 and end on
--------------
July 31, 1995.
- -------------
(B) Tenant shall give Landlord written notice of its intention to
terminate this Lease at least 90 days before the end of the original or any
--
renewal period of this Lease, provided that until terminated by such notice this
Lease shall renew itself from month to month, at the highest rental rate and
----- -----
subject to all covenants, provisions and conditions herein contained.
(C) Except where the context clearly requires otherwise, the word "term"
whenever used in this Lease with reference to the duration hereof, shall be
construed to include any renewal terms as well as the original term.
(2) BASE RENT:
(A) During the original term of this Lease, Tenant covenants to pay a base
annual rental to Landlord of fifteen thousand four hundred fifty and 00/100
Dollars ($15,450), payable in monthly installments in advance on the first day
of each month in the amount of one thousand two hundred eighty seven and 50/100
Dollars ($1,287.50). In the event rent payments are late and any installment of
the rent is not paid within ten (10) days after it becomes due, a late fee of
five (5%) percent of the monthly rent shall be charged for each monthly
installment not paid on time.
(B) If the original term does not commence on the first day of the month,
Tenant shall pay for the period from the commencement date to the first day of
the following calendar month a sum equal to one-thirtieth (1/30) of the monthly
rental due hereinafter for each day of such period. All rents thereafter shall
be payable when due to:
Waldvogel, Poe & Cronk Real Estate Group, Inc.
Professional Arts Building
30 West Franklin Road, Suite 800
Roanoke, Virginia 24011
or such place as Landlord may designate in writing to Tenant.
Page 1 of 15
<PAGE>
(3) SECURITY:
The Tenant has deposited with the Landlord $1,250,00 as security for
--------
Tenant's full and faithful performance of all the terms of this Lease. Landlord
shall return such sum when this Lease expires if Tenant has fully and faithfully
carried out all of its terms. If there is a bona fide sale of the property of
which the Leased Premises are a part, Landlord shall transfer to the purchaser
the security to be held under the terms of this lease, and the Landlord shall be
released from all liability for the return of such security to the Tenant.
(4) ADDITIONAL RENT:
Additional rent (hereinafter referred to as "Additional Rent") is the
amount of any payment referred to as such in any provision of this Lease or in
any Addendum hereto which accrues while this Lease is in effect.
(5) USE OF LEASED PREMISES:
Tenant shall use the Leased Premises for sales and servicing of automobiles
----------------------------------
and in strict accordance with all applicable laws and regulation of governmental
authorities. Tenant shall use the Leased Premises for no other purpose without
the prior written consent of Landlord. Tenant will not use or permit or suffer
the use of the Leased Premises for any unlawful or offensive business or
purpose. Tenant will not, without prior written consent of Landlord, use or
permit the outside walls, fences or roof of the Leased Premises to be used for
advertising purposes.
(6) CONDITION OF LEASED PREMISES
Tenant has examined and knows the present condition of the Leased Premises
and the equipment thereon, if any. No representation, either verbally or
written, has been made to Tenant, or Tenant's agents, by Landlord, or Landlord's
agents, concerning the condition of the Leased Premises and the equipment
thereto, if any, or that any particular use can be made thereof except as
specifically set forth in writing in this Lease or any Addendum thereto. Neither
Landlord nor Leasing Agent shall be under any duty to instruct Tenant or others
as to the use of any equipment on the Leased Premises.
(7) WRITTEN NOTICE AS TO DEFECTS:
Attached hereto as "Addendum A" is a written statement of all defects in
the property existing as of the commencement of the lease. Said Addendum shall
be signed by both parties. If no such signed Addendum exists, the parties
acknowledge that the property is accepted "as is" as of the commencement of the
lease and the parties agree that the property is accepted with no defects
existing as of the date of the commencement of the Lease.
(8) TENANT'S ACCEPTANCE OF PROPERTY
At the commencement of the term, the Tenant shall accept the building,
improvements, and any equipment on or in the leased premises, in their existing
condition. No representation, statement, or warranty, express or implied, has
been made by or on behalf of the Landlord as to such condition, or as to the use
that may be made of such property. In no event shall the Landlord be liable for
any defect in such property or for any limitation on its use.
Page 2 of 15
<PAGE>
(9) ASSIGNMENT, SUBLETTING AND MORTGAGING
Tenant shall not assign this Lease nor sublet the Leased Premises, in whole
or in part, without Landlord's prior written consent which shall not be
unreasonably withheld. If consent to assign or sublease is obtained, no such
assignment or sublease shall in any way release or relieve Tenant from any of
its covenants or undertakings contained in this Lease, and in all cases under
this paragraph, Tenant shall remain liable on this Lease during the original and
all renewal terms.
(10) UTILITIES
Tenant shall promptly pay all fuel, water, gas, electricity, sewage,
telephone and other utility bills, as the same become due, it being understood
and agreed that the Tenant shall promptly make all required deposits for meters
and utilities services. Charges for the foregoing shall commence on the date of
the commencement of the original term of this Lease. Landlord shall not be
liable for any interruption or failure in the supply of any utility to the
Leased Premises for any reason whatsoever.
(11) INSURANCE AND INDEMNIFICATION:
(11.1) INCREASE IN RISK. The Tenant
(A) shall not do or permit to be done any act or thing as a result of
which either (i) any policy of insurance of any kind covering any or all of the
Leased Premises or any liability of the Landlord in connection therewith may
become void or suspended, or (ii) the insurance risk under any such policy would
(in the opinion of the insurer thereunder) be made greater; and
(B) shall pay as Additional Rent the amount of any increase in any premium
for such insurance resulting from any breach of such covenant, or shall pay
Landlord for any loss sustained by Landlord as a result of any uninsured loss
caused by Tenant's breach of covenants.
(11.2) INSURANCE TO BE MAINTAINED BY TENANT
(A) The Tenant shall maintain at its expense, throughout the term, and all
extension thereof, insurance against loss on liability in connection with bodily
injury and destruction, property damage, personal injury and destruction,
occurring within the Leased Premises or arising out of the use thereof by the
Tenant or its agents, employees, officers or invitees, visitors or guest under
one or more policies of general public liability insurance having such limits as
are reasonably required by Landlord from time to time (but in any event of not
less than $2,000,000.00 general aggregate, $2,000,000.00 products-comp/ops
aggregate, $1,000,000.00 personal and advertising injury, $1,000,000.00 each
occurrence, $50,000.00 fire damage (any one fire) and $5,000.00 medical expense
(any one person)). Such policies shall name the Landlord, Leasing Agent and
Tenant (and at Landlord's request, any mortgagee) as insured parties, shall
provide that they shall not be cancelable without at least sixty (60) days prior
written notice to the Landlord and Landlord's Agent (and at the Landlord's
request any mortgagee) and shall be issued by company with a rating of at least
class VIII and an excellent rating from A.M. Best Insurance Reporting.
(B) The Tenant shall maintain at Tenant's expense a plate glass insurance
policy, for coverage of all glass contained in the Leased Premises.
(C) If Tenant shall not comply with this covenant to maintain insurance as
provided herein, Landlord may, at its option, cause insurance as aforesaid to be
issued and in such event, Tenant shall pay when due the premiums for such
insurance as Additional Rent hereunder.
Page 3 of 15
<PAGE>
(D) Tenant will pay all excess insurance premiums (i.e. premiums in excess
of the usual premiums for a nonhazardous risk) required to be paid by Landlord
on the Leased Premises by reason of Tenant's use or occupancy thereof.
(11.3) INSURANCE TO BE MAINTAINED BY TENANT
The Tenant shall maintain throughout the term of the Lease and extensions
thereof, replacement cost with the agreed amount endorsed (no co-insurance) risk
of direct physical loss coverage insurance with respect to the Leased Premises.
(11.4) WAIVER OF SUBROGATION
In the event of loss or other perils named in replacement cost with the
agreed amount endorsed (no co-insurance) risk of direct physical loss coverage
insurance, neither Landlord nor Tenant shall have or exercise any right of
subrogation against each other, either themselves or through any subrogation
right under any policy of replacement cost coverage covering material or
consequential loss and each of the parties agrees to instruct their insurance
company to have their policies endorsed to waive the right of subrogation by
the insurance company against either of them.
(11.5) LIABILITY OF PARTIES
Except if any to the extent that such party is released from liability to
the other party hereto pursuant to the provisions of subsection 11.4;
(A) The Landlord (i) shall be responsible for, and shall indemnify and
hold harmless the Tenant against and from any and all liability arising out of,
any injury to or death of any person or damage to any property, occurring
anywhere upon the Leased Premises, if, and only if to the extent that such
injury, death or damage is proximately caused by gross negligence or
intentionally tortious act or omission of the Landlord (ii) or be obligated to
indemnify or hold harmless the Tenant against or from any liability for any such
injury, death or damage occurring anywhere upon the Leased Premises, by reason
of the Tenant's occupancy or use of the Leased Premises because of fire,
windstorm, act of God or other cause unless proximately caused by such gross
negligence or intentionally tortious act or omission, as aforesaid.
(B) Subject to the operation and effect of the foregoing provisions of
this subsection, the Tenant shall be responsible for, and shall indemnify and
hold harmless the Landlord against and from, any and all liability arising out
of any injury to or death of any person or damage to the property, occurring
within the Leased Premises or as the result of Tenant's use and occupancy of the
Leased Premises.
(12) TAXES AND ASSESSMENTS
(A) Tenant agrees that as Additional Rent for the Leased Premises, it will
during each calendar year of all the original and all renewal terms, reimburse
Landlord for all real estate taxes, charges and assessments levied or assessed
during the original and all renewal terms upon and against the Leased Premises.
(B) Tenant shall promptly pay when due all taxes and assessments levied by
public authority on its trade fixtures, equipment and other property of Tenant
located on or about the Leased Premises and all other taxes occasioned by its
business or use of the Leased Premises.
Page 4 of 15
<PAGE>
(C) It shall be the Landlord's responsibility to furnish this information
to the Agent if the Agent is to collect taxes from Tenant.
(13) PERSONAL PROPERTY
Tenant covenants that the furniture, fixtures and all other personal
property (except that used to sell in the usual course of trade) which Tenant
places on the Leased Premises are owned by Tenant, are fully paid for, and are
not encumbered except as expressly disclosed in writing to Landlord prior to the
execution of this Lease. Except by sale in the usual course of trade, Tenant
shall not remove furniture, fixtures or property from the Leased Premises
without first obtaining the consent of Landlord, which consent shall not be
unreasonably withheld; and in addition to all the other remedies provided by
law, Landlord shall have a lien against all personal property and fixtures on
the Leased Premises, insurance if any collected therefore, as security for the
payment of rent and default in obligations hereunder. Tenant shall repair or
reimburse Landlord for the cost of repairing any damages to the Leased Premises
resulting from the installation or removal of Tenant's personal property and
fixtures if written permission is granted.
(14) REPAIRS AND ALTERATIONS
(14.1) Tenants shall keep and maintain the Leased Premises in good repair
and condition; keep in good running order the heating and air conditioning
systems, electric wiring, toilets, water pipes, water, gas and electric
fixtures; replace all locks and deliver keys to Landlord after replacement of
locks, trimmings, glass and plate glass broken during the tenancy, regardless of
the manner in which same may have been broken, unstop all water fixtures that
may become choked and repair all water pipes and plumbing that may burst. If any
elevators, escalators, lifts, machinery of appliances (herein called
"equipment") are situate on the Leased Premises, Tenant shall care for, maintain
and repair same, and shall indemnify and save harmless Landlord from any
liability or claims for damages or injuries to persons and property arising
therefrom. Tenant shall not make any alterations of, additions to or changes in
the Leased Premises or equipment without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, and all alterations, changes
and improvements, by whomsoever made, shall be the property of Landlord.
(14.2) Tenant agrees that all additions and improvements and attached
equipment and fixtures installed in or on the Leased Premises by the Tenant,
including but not being limited to, electric wiring, electric fixtures, show
window reflectors, screens, screen doors, awnings, awning frames, floor
coverings, landscaping, furnaces and air conditioning machinery and equipment,
shall immediately become the property of the Landlord and shall not be removed
by Tenant at the termination of this Lease, unless requested to do so by the
Landlord, in which event Tenant agrees to do so and to repair promptly any
damage caused by such removal.
(14.3) Nothing contained in this Lease shall be construed as requiring
Landlord to make any repairs, except of a structural nature, Landlord shall
maintain and make all necessary structural repairs to the foundations, load
bearing walls and roof. This does not include the repairing of any glass or
moving parts such as passage and overhead doors. (The Tenant will maintain
the common areas as outlined in the Addendum.)
(14.4) Tenant shall, on the last day of the original or renewal term, or
upon the sooner termination of this Lease, peaceably and quietly surrender the
Leased Premises and equipment to Landlord, broom-clean, including all
improvements, alterations, rebuildings, replacements, changes or additions
placed by Tenant thereon, in as good condition and repair as the same were in at
the commencement
Page 5 of 15
<PAGE>
of the original term, normal wear and tear excepted; provided, however, Tenant
shall not be required to return the Leased Premises and equipment in as good
condition as aforesaid if the same are damaged or destroyed by fire or
otherwise, unless caused by Tenant's fault or negligence which is not adequately
covered by insurance.
(14.5) Tenant shall maintain a preventative maintenance contract on all
HVAC units contained in the Leased Premises. Contract is to be maintained with a
licensed and qualified HVAC Contractor. Maintenance on the HVAC is to be
performed on a minimum of four (4) times per year.
(14.6) Tenant shall keep the Leased Premises, including the storefront
thereof, in good repair, but Tenant shall not paint or change the decorative or
architectural treatment of the storefront, the interior or the exterior of the
Leased Premises without Landlord's written consent. Tenant shall promptly remove
upon order from the Landlord any decoration or architectural change which has
been applied to or installed upon the leased Premises without Landlord's written
consent or take such other action with the reference thereto as Landlord may
direct.
(14.7) Tenant shall not place or permit to be placed or maintained any
sign, awning, advertising matter, decoration, lettering, or other item of any
kind on the interior or the exterior of the Leased Premises or on the glass of
any window or door of the Leased Premises without first obtaining Landlord's
written approval thereof. Tenant shall promptly remove upon receipt of any order
from Landlord, any sign, awning, advertising matter or other thing of any kind
which has been applied to or installed upon the interior or exterior of Leased
Premises without Landlord's written consent or take such other action with
reference thereto as Landlord may direct.
(15) DESTRUCTION OF LEASED PREMISES
(A) If the Leased Premises are damaged or destroyed by fire or other
casualty covered by insurance, then (1) if totally destroyed or so that the
Leased Premises are rendered unleaseable, this Lease shall terminate as of the
date of such destruction and Tenant shall be liable for the rent only to the
date of such destruction and awards for the Leased Premises shall belong to and
be payable to Landlord; or (2) if only partially destroyed and still leasable,
Landlord shall, within a reasonable time, repair the Leased Premises with a
reasonable reduction in rent from the date of such partial destruction until
there be again premises substantially similar in value to Tenant as the Leased
Premises partially destroyed. Landlord's obligation to repair or restore the
Leased Premises are stated herein as conditioned upon (a) all insurance proceeds
and award for the Leased Premises being paid to Landlord, which are sufficient
to cover the cost of said repairs and restorations, and (b) there remaining at
least twenty four (24) months in the then existing term of this Lease. If
Landlord does not repair the Leased Premises because either conditions (a) or
(b) are nor met, Landlord shall notify Tenant and this Lease shall terminate as
of the date of such partial destruction and Tenant shall be liable for rent only
to the date of such partial destruction.
(B) If the Leased Premises shall be damaged or destroyed by any hazard not
covered by insurance, Landlord shall have the option to cancel this Lease by
giving written notice of such cancellation to Tenant within thirty (30) days
after the happening of such damage or destruction, but if such option not be
exercised and if such damage is not the result of the actor omission of the
Tenant, Tenant's employee or agent or invitee, then Landlord at its own expense
shall proceed with due diligence to repair and restore the Leased Premises to
their condition as existed before such damage or destruction with rent being
reduced pro rata in proportion to the decrease in usefulness of the Leased
Premises during repairs and restoration. If such damage is the result of the
act or omission of the Tenant or Tenant's employee or agent or invitee, then
Landlord at it's option may repair or restore the Leased
Page 6 of 15
<PAGE>
Premises, the cost of which shall be paid for by Tenant in installments or in
whole upon notice thereof being given to Tenant by Landlord.
(C) Tenant shall give immediate written notice to Landlord or Leasing
Agent, of any damage or destruction of the Leased Premises whether it be total
or partial.
(16) INSPECTION BY LANDLORD
Tenant shall permit Landlord, its agents, or employees to inspect the
Leased Premises and all parts thereof during normal business hours and to
enforce and carry out any provision of this Lease and for the future purpose of
showing the Leased Premises to prospective tenants and purchasers and
representatives of lending institutions. During the last three (3) months of the
original term and all renewals or extensions thereof, Landlord shall have the
right to place "For Rent" and/or "For Sale" signs in conspicuous places on the
Leased Premises and to otherwise advertise the Leased Premises "For Rent" and/or
"For Sale", in addition to having the rights of entry and inspection set forth
herein. Tenant shall do no act or omission which interferes with Landlord's
rights to reentry and inspection.
(17) EMINENT DOMAIN
(17.1) RIGHT TO AWARD
(A) If any or all of the Leased Premises are taken by the exercise of any
power of eminent domain or are conveyed to or at the direction of any
governmental entity under a threat of any such taking (each of which is
hereinafter referred to as a "Condemnation"), the Landlord shall be entitled to
collect from the condemning authority thereunder the entire amount of any award
made in any such proceeding or as consideration for such Deed, without deduction
therefrom for any leasehold or other estate held by the Tenant by virtue of this
Lease.
(B) The Tenant hereby (i) assigns to the Landlord all of the Tenant's
right, title and interest, if any, in and to any such award, (ii) waives any
right which it may otherwise have in connection with such Condemnation, against
the Landlord or such condemning authority, to any payment for (a) the value of
the then unexpired portion of the term, (b) leasehold damages, and (c) any
damage to or diminution of the value of the Tenant's leasehold interest
hereunder or any portion of the Premises not covered by such Condemnation; and
(iii) agrees to execute any and all further documents which may be required in
order to facilitate the Landlord's collection of any and all such awards.
(C) Subject to the operation and effect of the foregoing provisions of
this section, the Tenant may seek, in a separate proceeding, a separate award on
account of any damages of costs incurred by the Tenant as a result of such
Condemnation, so long as such separate award in no way diminishes any award or
payment which the Landlord would otherwise receive as a result of such
Condemnation.
(17.2) EFFECT OF CONDEMNATION
(A) If (i) all of the Leased Premises are covered by a Condemnation, or
(ii) if any part of the Leased Premises is covered by a Condemnation and the
remainder thereof is insufficient for the reasonable operation therein of the
Tenant's business, or (iii) any of the Leased Premises is covered by a
Condemnation and, in the Landlord's reasonable opinion, it would be impractical
to restore the remainder thereof, then, in any such event, the Lease shall
terminate on the date upon which
Page 7 of 15
<PAGE>
possession of so much of the Leased Premises as is covered by such Condemnation
is taken by the condemning authority thereunder, and all rent (including, by way
of example rather then of limitation, any Additional Rent payable pursuant to
any Addendum regarding Additional Rent), taxes, and other charges payable
hereunder shall be prorated and paid to such date.
(B) If there is a Condemnation and the Term does not terminate pursuant to
the foregoing provisions of this subsection, the operation and effect of this
Lease shall be unaffected by such Condemnation, except that the Base Rent and
the Additional Rent shall be reduced in proportion to the square footage of
floor area, if any, of the Leased Premises covered by such Condemnation.
(17.3) If there is Condemnation, the Landlord shall have no liability to
the Tenant on account of any (i) interruption of the Tenant's business upon the
Leased Premises, (ii) diminution in the Tenant's ability to use the Leased
Premises, or (iii) other injury or damage sustained by the Tenant as a result of
such Condemnation.
(17.4) Except for any separate proceeding brought by the Tenant under the
provisions of paragraph 17.1 (C), the Landlord shall be entitled to conduct any
such Condemnation proceeding and any settlement thereof free of interference
from the Tenant, and the Tenant hereby waives any right it might otherwise have
to participate therein.
(18) DEFAULTS BY THE TENANT
(18.1) DEFINITION. As used in the provisions of this Lease, each of the
following events shall constitute, and is hereunder referred to as, an "Event of
Default":
(A) If the Tenant (i) fails to pay the Rent or any other sum which the
Tenant is obligated to pay by any provision of this Lease, when and as it is
due and payable hereunder and without demand therefor, or (ii) in any respect
violates any of the terms, conditions or covenants set forth in the provisions
of this Lease; or
(B) If the Tenant (i) applies for or consents to the appointment of a
Receiver, Trustee or Liquidator of the Tenant or of all or a substantial part of
its assets, (ii) files a voluntary petition in bankruptcy or admits in writing
its inability to pay its debts as they come due, (iii) makes an assignment for
the benefit of its creditors, (iv) files a petition or an answer seeking a
reorganization or an arrangement with creditors, or seeks to take advantage of
any insolvency law, (v) performs any other act of bankruptcy, reorganization or
insolvency proceeding; or
(C) If (i) an order, judgment or decree is entered by any court of
competent jurisdiction adjudicating the Tenant a bankrupt or an insolvent,
approving a petition seeking such a reorganization, or appointing a Receiver,
Trustee or Liquidator of the Tenant or of all or a substantial part of its
assets, or (ii) there otherwise commences with respect to the Tenant or any of
its assets any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment, receivership or similar law, and if such order,
judgment, decree or proceeding continues in effect for more than sixty (60)
consecutive days after the expiration of any stay thereof; or
(D) If the Tenant vacates the Leased Premises or Tenant advertises in any
manner that would indicate or lead the public to believe that Tenant was going
out of business or intending to vacate Leased Premises.
(18.2) NOTICE TO TENANT: GRACE PERIOD
Anything contained in the provisions of this section to the contrary
notwithstanding, upon the occurrence of an Event of Default the Landlord shall
not
Page 8 of 15
<PAGE>
exercise any right or remedy which it holds under any provision of this Lease or
under applicable law unless and until:
(A) The Landlord has given written notice thereof to the Tenant and
(B) If such Event of Default consists of failure to pay money, the
Landlord has given five (5) days written notice thereof to the Tenant and the
Tenant has failed to make such payment in said five (5) day period of time or,
if such Event of Default consists of something other then failure to pay money,
the Landlord has given thirty (30) days notice of the default and the Tenant has
failed to proceed to diligently and in good faith to cure such Event of Default.
(C) No such notice shall be required, and the Tenant shall be entitled to
no such grace period, (i) if the Event of Default has occurred more than twice
during any twelve (12) month period, or (ii) if the Tenant has substantially
terminate or is in the process of substantially terminating its continuous
occupancy and use of the Leased Premises for the purpose set forth in the
provisions of Paragraph 5, or (iii) if any Event of Default enumerated in the
provisions of Paragraph 18.1 (B) or 18.1 (C) has occurred or (iv) if the Event
of Default constitutes an eminent danger to the destruction or diminution of
value of the Landlord's property, real or personal, or to that of any other
Tenant or adjoining property owner.
(18.3) LANDLORD'S RIGHTS UPON EVENT OF DEFAULT
Upon the occurrence of any Event of Default, the Landlord may:
(A) Re-enter and repossess the Leased Premises and any and all
improvements thereon and additions thereto without necessity of judicial
proceedings:
(B) Declare the entire balance of the Rent and Additional Rent, if any,
for the remainder of the Term to be due and payable, and collect such balance in
any manner not inconsistent with applicable law;
(C) Relet any or all of the Leased Premises for the Tenant's account for
any or all of the remainder of the Term as hereinabove defined, or for a period
exceeding such remainder, in which event the Tenant shall pay to the Landlord
any deficiency in the Base Rent and Additional Rent resulting, with respect to
such remainder, from such reletting, as well as the cost to the Landlord of any
attorney's fees which fees the Tenant is hereby deemed to agree are reasonable
or of any repairs or other action (including those taken in exercising the
Landlord's rights under any provisions of this Lease) taken by the Landlord on
account of such Event of Default. The parties agree that the sum of 33-1/3% of
the unpaid rental shall be deemed to be reasonable attorney's fees pursuant to
the provisions of this Lease;
(D) Pursue any combination of such remedies and/or any other remedy
available to the Landlord on account of such Event of Default under applicable
law.
(18.4) LANDLORD'S RIGHT TO CURE
Upon the occurrence of an Event of Default, the Landlord shall be entitled
(but shall not be obligated), in addition to any other rights which it may have
hereunder or under applicable law as a result thereof, and after giving the
Tenant written notice of the Landlord's intention to do so except in the case of
emergency, to cure such Event of Default, and the Tenant shall reimburse the
Landlord for all expenses incurred by the Landlord in doing so, plus interest
thereon at the highest rate then permitted on account thereof by applicable law,
which expenses and interest shall be Additional Rent and shall be payable by the
Tenant immediately upon demand therefore by the Landlord.
Page 9 of 15
<PAGE>
(19) SEVERABILITY:
If any provision of this Lease or any application thereof shall be invalid
or unenforceable, the remainder of this Lease and any other application of such
provision shall not be affected thereby.
(20) RELATIONSHIP OF PARTIES:
Landlord and Tenant shall not be considered or deemed to be joint venturers
or partners and neither shall have the power to bind or obligate the other
except as set forth herein.
(21) RULES AND REGULATIONS
The Landlord hereby reserves the right to prescribe, as its sole
discretion, reasonable rules and regulations (hereinafter referred to as the
"Rules and Regulations"), having uniform applicability to all tenants of 3733
----
Williamson Road and governing the use and enjoyment of 3733 Williamson Road and
- --------------- --------------------
the remainder of the Property; provided, that the Rules and Regulations shall
not materially interfere with the Tenant's use and enjoyment of the Leased
Premises, in accordance with the provisions of this Lease. The Tenant shall
adhere to the Rules and Regulations and shall cause its agents, employees,
invitees, visitors and guests to do so.
(22) NO REPRESENTATIONS BY LANDLORD:
Neither Landlord nor its agents have made any representations or promises
with respect to the Building, the Land, or the Leased Premises except as
expressly set forth herein. No rights, easements, or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this Lease. The taking possession of the Leased Premises by Tenant
shall be conclusive evidence as against it, that Tenant accepts the premises and
the Building and that they were in good and satisfactory condition when
possession was so taken.
(23) LEASING AGENT
(A) In consideration of the Leasing Agent's services in procuring this
Lease, Landlord covenants with and for the benefit of the Leasing Agent as
follows: The Leasing Agent is to receive a commission of ten percent (10%) of
--- ---
the Rent during the original term and all renewals, extensions or expansions
thereof or any new Lease of the Leased Premises between any person and "Tenant,
its successors or assigns" (such phrase used herein to include such entity in
which Tenant, its successors or assigns may have an interest as a stockholder,
partner, lender of money or otherwise); and no sale, transfer, assignment,
cancellation or release, including a sale or conveyance to Tenant, its
successors or assigns, shall affect the Leasing Agent's right to such commission
which is hereby made a lien on the Leased Premises and all equipment thereon, if
any. The Leasing Agent shall have the right to collect all rents due hereunder
so that its commission may be paid in installments as the rent is received, and
retained by the Leasing Agent before remitting the rent (less commissions) to
Landlord, but if any act be done to deprive the Leasing Agent of its right to
collect the rent, then the whole amount of its commission then unpaid shall, at
the Leasing Agent's option, immediately become due and payable.
(B) Landlord further covenants with and for the benefit of the Leasing
Agent that if Tenant, its successors or assigns shall at any time during the
original term and all renewals or extensions thereof (or during any new Lease of
the Leased Premises between any person and Tenant, its successors or assigns),
purchase the Leased Premises, the Leasing Agent shall receive on the date of the
Leased Premises are transferred a commission of ten percent (10%) of the gross
--- ---
amount of the purchase price.
Page 10 of 15
<PAGE>
(C) Such a sales commission shall be in addition to the rental commissions
provided for in the immediately preceding paragraph up to the transfer of said
property and is hereby made a lien on the Leased Premises.
(D) In connection with all acts done or suffered by the Leasing Agent for
Landlord concerning the Leased Premises, Landlord further agrees to indemnify
and save the Leasing Agent harmless from all fines, judgments, suits, claims,
demands and actions of any KIND (including any costs and attorney's fees), and
from liability suffered by an employee or contractor (not in the permanent
employ of the Leasing Agent) engaged by the Leasing Agent for the benefit of
Landlord.
(24) SUBORDINATION
Tenant accepts this Lease subject and subordinate to the present state of
the Leased Premises and to any recorded mortgage, deed of trust or any other
lien presently existing upon the Leased Premises and to any renewal, extension
or modification thereof. Tenant agrees upon demand to execute such instruments
subordinating this Lease to any future mortgage, deed of trust or other security
instruments as Landlord may request, provided such further subordination shall
be upon the express condition that this Lease shall be recognized by the
mortgagee and that the rights of Tenant shall remain in full force and effect
during the term of this Lease, so long as Tenant shall continue to perform all
of the covenants hereof.
(25) SUCCESSORS AND ASSIGNS
All parties to this Lease agree that all of the provisions hereof shall
bind and inure to the benefit of the parties hereto, their heirs, legal
representatives, successors and assigns.
(26) TENANT'S OBLIGATION TO COMPLY WITH APPLICABLE LAWS - TENANT TO OBTAIN
NECESSARY LICENSE
Tenant, at its expense, shall promptly comply with all federal, state, and
municipal laws, orders, and regulations, and with all lawful directives of
public officers, which impose any duty upon it or Landlord with respect to the
leased property. The Tenant, at its expense, shall obtain all required licenses
or permits for the conduct of its business within the terms of this Lease, or
for the making of repairs, alterations, improvements, or additions, and the
Landlord, when necessary, will join with the Tenant in applying for all such
permits or licenses.
(27) APPLICABLE LAW, CONSTRUCTION
(A) This Lease shall be construed in accordance with the laws of the
Commonwealth of Virginia.
(B) Whenever used the singular number shall include the plural, the
singular, and the use of any gender shall include all other genders.
(28) ENVIRONMENTAL REQUIREMENTS
Tenant shall not cause, commit or allow to exist or to continue any
violation of any environmental requirement imposed by any local, federal or
state agency with respect to the Leased Premises or any use or activity on the
Leased Premises. Tenant will not place, install, dispose of or release or cause,
permit or allow to be placed, installed, disposed of or released any Hazardous
Material on the leased premises. If any Hazardous Material is discovered on the
Leased Premises at any time, which Hazardous Material has been placed thereon by
Tenant, its employees or agents, Tenant shall promptly, at Tenant's sole risk
and expense, remove, treat and dispose of the Hazardous Material in compliance
with all applicable environmental regulations and laws.
Page 11 of 15
<PAGE>
(29) NOTICES
(A) Whenever in this Lease it shall be required or permitted that notice
or demand be given or served by either party to this Lease to or on the other,
such notices or demand shall be given or served and shall not be deemed to have
been given or served unless in writing and forwarded by registered or certified
mail addressed as follows:
(B) TO LANDLORD: (D) TO TENANT:
c/o Agent At Leased Premises
--------------------- -----------------------
_____________________ _______________________
_____________________ _______________________
(C) TO LEASING AGENT:
Waldvogel, Poe & Cronk
Real Estate Group, Inc.
800 Professional Arts Building
30 West Franklin Road
Roanoke, Virginia 24011
(30) FINAL UNDERSTANDING
(A) This Lease represents the final understanding between Landlord, Tenant
and Leasing Agent, and the obligations of each party hereunder cannot be changed
or modified unless by written Addendum signed by the parties whose obligations
are to be modified and endorsed hereon or attached hereto.
(31) AGENCY DISCLOSURE
(A) Unless otherwise disclosed in writing, all parties acknowledge that
WALDVOGEL, POE & CRONK REAL ESTATE GROUP, INC. is the Agent of the LANDLORD not
the TENANT. Waldvogel, Poe & Cronk Real Estate Group, Inc.'s fiduciary duties of
loyalty and faithfulness are owed to the LANDLORD who is their principal. All
commissions will be paid by the LANDLORD and not the TENANT.
(32) SPECIAL PROVISIONS
(A) Special provisions of this Lease are attached hereto as part hereof as
Addendum to pages numbered 15 through 15.
-- --
_____________________________,
By ****************
-------------------(SEAL)
THE LANDLORD
_____________________________,
By ****************
-------------------(SEAL)
THE TENANT
President
- -----------------------------,
By ****************
-------------------(SEAL)
THE TENANT
WALDVOGEL, POE & CRONK REAL ESTATE GROUP, INC.
By ****************
------------------------,
THE LEASING AGENT
Page 12 of 15
<PAGE>
GUARANTY
In consideration of Landlord agreeing to lease to Tenant the Leased
Premises, the undersigned, hereby waiving the obligations of the homestead
exemption laws as to this Lease, jointly and severally if there be more than one
undersigned, guarantee the payment of rent and the performance of all the
provisions of this Lease by Tenant, its successors and assigns, and agree that
mere nonpayment of rent and nonperformance of said provisions by Tenant or its
successors and assigns shall create an immediate liability on the part of the
undersigned to Landlord and its successors and assigns and to Leasing Agent.
Landlord or Leasing Agent is required to notify the undersigned of any default
of Tenant under the provisions of this Lease.
WITNESS the following signatures and seals
/s/ Jeffrey W. Akers /s/ Franklin W. Blankemeyer, Jr. (SEAL)
- -------------------- -----------------------------------
Jeffrey W. Akers Franklin William Blankemeyer, Jr.
353 A Woods Avenue 1424 Sherwood Avenue
Roanoke, VA 24016 Roanoke, VA 24015
STATE OF ILLINOIS
CITY/COUNTY OF Roanoke TO-WIT: (LANDLORD)
I, the undersigned, a Notary Public in and for the City of Roanoke
---------------
aforesaid, in the State of Virginia, do hereby certify that Rebecca L. Grasse
-----------------
whose name is signed to the foregoing Lease bearing date of 14th day of August
----
1995 have acknowledged the same before me. Given under my hand this 14th day of
----
August, 1995
- ------
My commission expires:
5-25-96
- --------------------------------
[OFFICIAL SEAL APPEARS HERE] /s/ Sandra G. Nelson
--------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF Roanoke TO-WIT:(TENANT)
I, the undersigned, a Notary Public in and for the City of Roanoke
---------------
aforesaid, in the State of Virginia, do hereby certify that Franklin W.
-----------
Blankemeyer Jr. whose name is signed to the foregoing Lease bearing date of 7th
- --------------- ---
day of July 1994, have acknowledged the same before me. Given under my hand this
----
3rd day of August, 1995.
- --- -------
My commission expires:
9/30/95
- -------------------------------
******************
------------------------
Notary Public
Page 13 of 15
<PAGE>
STATE OF VIRGINIA
CITY/COUNTY OF Roanoke, TO-WIT:(TENANT)
-------
I, the undersigned, a Notary Public in and for the City of Roanoke,
---------------
aforesaid, in the State of Virginia, do hereby certify that Jeffrey W. Akers,
----------------
whose name is signed to the foregoing Lease bearing date of 14th day of July,
---- ----
1994, have acknowledged the same before me. Given under my hand this 3rd day of
---
August, 1995.
- ------
My commission expires:
9/30/95
- --------------------------------
***************
-----------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF Roanoke, TO-WIT: (LEASING AGENT)
-------
I, the undersigned, a Notary Public in and for the City of Roanoke,
---------------
aforesaid, in the State of Virginia, do hereby certify that Thomas M. Hubard,
----------------
whose name is signed to the foregoing Lease bearing date of 14th day of July,
---- ----
1994, have acknowledged the same before me. Given under my hand this 25th day of
----
August, 1995.
- ------
My commission expires:
1/31/98
- --------------------------------
Sherry M. Lawrence
-----------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF Roanoke, TO-WIT:(GUARANTORS)
-------
I, the undersigned, a Notary Public in and for the City of Roanoke,
---------------
aforesaid, in the State of Virginia, do hereby certify that Franklin W.
-----------
Blankemeyer Jr. whose name is signed to the foregoing Lease bearing date of
- --------------
14th day of July, 1994, have acknowledged the same before me. Given under my
- ---- ----
hand this 3rd day of
---
August, 1995.
- ------
My commission expires:
7/30/95
- --------------------------------
**************
-------------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF Roanoke, TO-WIT:(GUARANTORS)
-------
I, the undersigned, a Notary Public in and for the City of Roanoke,
---------------
aforesaid, in the State of Virginia, do hereby certify that Jeffrey W. Akers,
----------------
whose name is signed to the foregoing Lease bearing date of 14th day of July,
---- ----
1994, have acknowledged the same before me. Given under my hand this 3rd day of
---
August, 1995
- ------
My commission expires:
9/30/95
- --------------------------------
***********
-------------------------
Notary Public
Page 14 of 15
<PAGE>
ADDENDUM
OPTION: Tenant shall have the option to renew said lease for three (3)
additional one (1) year lease periods, under the same terms and
conditions as said Lease with the following rent schedules:
Option #1: August 1, 1995 through July 31, 1996 with rent being
fifteen thousand nine hundred twelve and 00/100 Dollars
($15,912.00), payable in monthly installments of one
thousand three hundred twenty six and 00/100 Dollars
($1,326.00).
Option #2: August 1, 1996 through July 31, 1997 with rent being
sixteen thousand three hundred ninety two and 00/100
Dollars ($16,392.00), payable in monthly installments of
one thousand three hundred sixty six and 00/100 Dollars
($1,366.00).
Option #3: August 1, 1997 through July 31, 1998 with rent being
sixteen thousand eight hundred eighty four and 00/100
Dollars ($16,884.00), payable in monthly installments of
one thousand four hundred seven and 00/100
Dollars($1,407.00).
********************
- -----------------------------------
Tenant
********************
- -----------------------------------
Tenant
********************
- -----------------------------------
Landlord
Page 15 of 15
<PAGE>
ADDENDUM TO LEASE
-----------------
This Addendum to Lease ("Addendum"), made and entered into this 3rd day of
January, 1995, by and between Rebecca L. Grasse, hereinafter collectively
referred to as "Landlord" and Mr. Car Man, Inc., a Virginia corporation,
hereinafter collectively referred to as "Tenant", and Waldvogel, Poe & Cronk
Real Estate Group, Inc., hereinafter called "Leasing Agent".
RECITALS
--------
A. The parties hereto have executed a Lease Agreement dated January 3,
1995, for the lease of certain commercial space located at 3733 Williamson Road,
Roanoke, Virginia.
B. The parties hereto have agreed to modify the Lease as set forth
hereinafter.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto covenant and agree as follows:
1. Security. Landlord shall be released from all liability with respect
--------
to the security; provided, however, the new purchaser agrees to be bound by all
of the conditions and provisions of the Lease.
2. Use of Leased Premises. Tenant shall have the right to use the Leased
----------------------
Premises for sales and for leasing and servicing of automobiles and for an
automobile pawn shop.
3. Insurance to be Maintained by Tenant. Subparagraph (B) of 11.2 shall
------------------------------------
be deleted in its entirety. Tenant shall be responsible for the cost of repair
and replacement in accordance with the terms of the Lease.
4. Repairs and Alterations. Tenant shall have the right to place
-----------------------
additional gravel in the back parking lot at its sole cost and expense.
Notwithstanding anything to the Lease to the contrary, Tenant shall have the
right to remove the following items of property which shall be deemed to be
items of personal property for purposes of this Lease:
(a) western electric hydraulic Lift to be located in the front
bay;
(b) air compressor for rear hydraulic lift; and
(c) 21,000 BTU air condition unit.
With respect to Subparagraph 14.7, Landlord hereby accepts and approves
the following signs installed or to be installed by Tenant on the Leased
Premises:
<PAGE>
(a) Company sign on the gable on the front of the building on
the Leased Premises;
(b) signs and advertisements located on the front and sides of
the border around the flashing on the roof;
(c) the existing window sign regarding the bumper-to-bumper
warranty;
(d) a lighted sign post to be installed by the Tenant and
approved by the Landlord; and
(e) general advertisements which may from time to time be placed
in the front window of the building located on the Leased Premises.
5. Destruction of Leased Premises. In the event the Leased Premises are
------------------------------
damaged or destroyed by any hazard not covered by insurance and Landlord
exercises its option to cancel the Lease, rent shall be reduced pro-rata in
proportion to the decrease in usefulness of the Leased Premises from the date of
the damage to the date of termination of the Lease. Subparagraph (b) of
Paragraph 15(A) shall be deleted in its entirety.
6. Inspection by Landlord. Landlord shall provide Tenant with prior
----------------------
notice of any inspection or examination of the Leased Premises as provided by
Paragraph (16).
7. Eminent Domain. With respect to Subpart (B) of Subparagraph (17.1) of
--------------
Paragraph (17) of the Lease, the parties hereto agree that the obligation of the
Tenant thereunder pertain solely to the Landlord's condemnation proceeding and
does not offset in any way the Tenant's right to pursue a separate proceeding
to collect any damages or costs incurred by the Tenant. No provision of this
Lease shall be deemed or construed for the benefit of any third party, including
without limitation, any condemning authority.
8. Effect of Condemnation. With respect to Subparagraph 17.2(B), the
----------------------
abatement of rent shall also pertain to the reduction in the square footage of
the parking area which the parties hereto acknowledge to be critical to the
success of Tenant's business.
9. Tenant's Obligation to Comply With Applicable Laws-Tenant to Obtain
-------------------------------------------------------------------
Necessary License. The first sentence of this paragraph shall be amended to
- -----------------
read as follows:
Tenant at its expense, shall properly comply with all federal,
state and municipal laws, orders and regulations, and with all lawful
directives of public officers, which impose any duty upon it with
respect to the conduct of its business.
2
<PAGE>
10. Environmental Requirements. Notwithstanding anything in Paragraph
--------------------------
(28) to the contrary, the parties hereto agree that Tenant shall have no
liability or responsibility to the Landlord for any pre-existing hazards or
conditions located on or affecting the Leased Premises. In addition, Landlord
hereby acknowledges and approves of the insulation of the following items:
(a) three above-ground 55 gallon drums which are to be used the
Tenant for the storage of used motor oil;
(b) one above-ground 55 gallon drum used by the Tenant for the
storage of anti-freeze; and
(c) one above-ground 30-35 gallon drum used by Tenant for
cleaning fluids and solvents.
Tenant shall be responsible for any damages and clean up directly related
to the use of the foregoing items.
11. Quiet Enjoyment. For so long as Tenant observes the terms and
---------------
conditions of the Lease and Addendum required to be observed by the Tenant,
Tenant shall have quiet enjoyment of the Leased Premises and Landlord shall
defend Tenant's right thereto.
12. Affirmation of Lease. Except for the terms set forth hereunder, the
--------------------
parties hereto hereby agree that this Addendum shall be subject to all terms,
revisions and conditions set forth under the Lease.
IN WITNESS WHEREOF, the following signatures as set forth as of the day,
month, and year first hereinabove written.
"LANDLORD"
/s/ Rebecca L. Grasse
----------------------------------------
Rebecca L. Grasse
"TENANT"
Mr. Car Man, Inc., a Virginia
corporation
By: /s/ Jeff W. Akers /s/ Franklin Blankemery Jr.
----------------------------------------------
Its: Vice President President
----------------------------------------------
3
<PAGE>
"LEASING AGENT"
Waldvogel, Poe & Cronk Real Estate
Group, Inc., a Virginia corporation
By: *********
----------------------------------
Its: Agent
--------------------------------
STATE OF ILLINOIS )
) to-wit:
CITY OF KANKAKEE )
The foregoing instrument was acknowledged before me this 14th day of
----
August, 1995, by Rebecca L. Grasse.
**********
------------------------------------
Notary Public
[OFFICIAL SEAL]
My commission expires: 5-25-96
------------------------------------
STATE OF VIRGINIA )
) to-wit:
CITY OF ROANOKE )
The foregoing instrument was acknowledged before me this 3rd day of August,
---
1995, by Franklin Blankemeyer Jr. & Jeffery W. Akers the President & Vice
------------------------------------------- ----------------
President of Mr. Car Man, Inc., a Virginia corporation.
- ---------
**********
------------------------------------
Notary Public
My commission expires: ____________________________________
STATE OF VIRGINIA )
) to-wit:
CITY OF ROANOKE )
The foregoing instrument was acknowledged before me this ________ day of
December, 1994, by _____________________ the ________________________ of
Waldvogel, Poe & Cronk Real Estate Group, Inc., a Virginia corporation.
____________________________________
Notary Public
My commission expires: ____________________________________
4
<PAGE>
ADDENDUM "A"
------------
This Addendum A is provided pursuant to paragraph 7 of the Lease
Agreement by and between Robert L. Grasse and Mr. Car Man, Inc.
The following defects are currently existing on the leased premises:
1. Five electrical outlets located in the front two bays are inoperable.
2. Fluorescent light above both bathrooms are inoperable.
3. Flag pole on top of building is unstable and a potential hazard.
4. Treelight unit on left side of building is leaning noticeably and is a
potential hazard.
<PAGE>
Exhibit No. 6.2
<PAGE>
LEASE
THIS LEASE AGREEMENT, entered into this 17th day of July, 1995, by and between
---- ---- ----
J.D. Fralin, here called "Landlord", and Mr. Car Man, Inc., herein called
- ----------- ------------------
"Tenant", and Waldvogel, Poe & Cronk Real Estate Group, Inc., herein called
"Leasing Agent".
WITNESSETH:
That for and in consideration of the rents and covenants hereinafter set forth,
Landlord hereby agrees to Lease, and Tenant hereby rents from Landlord, the
following described premises together with all improvements thereon called the
"Leased Premises" to-wit: the approximately 2329 square foot building located at
4206 Williamson Road, Roanoke, VA - Also identified as Roanoke Tax Map #
2160621.
TO HAVE AND TO HOLD said Leased Premises and the privileges and
appurtenances thereunto belonging unto the Tenant, its successors and assigns,
for the terms hereinafter provided, and upon the following terms and conditions,
to which the parties mutually covenant and agree:
(1) TERM:
(A) The term of this Lease shall commence on September 1, 1995 and end on
-----------------
August 31, 1997.
- ---------------
(B) Either party desiring to terminate this Lease at the end of its term
shall give the other party written notice of its intention to terminate this
Lease at least 90 days before the end of the original or any renewal period of
--
this Lease, provided that until terminated by such notice this Lease shall renew
itself from month to month, at the highest rental rate and subject to all
----- -----
covenants, provisions and conditions herein contained.
(C) Except where the context clearly requires otherwise, the word "term"
whenever used in this Lease with reference to the duration hereof, shall be
construed to include any renewal terms as well as the original term.
(2) BASE RENT:
(A) During the original term of this Lease, Tenant covenants to pay a base
annual rental to Landlord of See Addendum Dollars
------------------------------------------
($ ), payable in monthly installments in advance on the first day of each
-------
month in the amount of See Addendum Dollars ($ ). In the event
------------------------- ------
rent payments are late and any installment of the rent is not paid within ten
---
(10) days after it becomes due, a late fee of five (5%) percent of the monthly
- ----
rent shall be charged for each monthly installment not paid on time.
(B) If the original term does not commence on the first day of the month,
Tenant shall pay for the period from the commencement date to the first day of
the following calendar month a sum equal to one-thirtieth (1/30) of the monthly
rental due hereunder for each day of such period. All rents thereafter shall be
payable when due to:
Waldvogel, Poe & Cronk Real Estate Group, Inc.
Professional Arts Building
30 West Franklin Road, Suite 800
Roanoke, Virginia 24011
or such place as Landlord may designate in writing to Tenant.
Page 1 of 15
<PAGE>
(3) SECURITY:
The Tenant has deposited with the Landlord $1500,00 as security for
Tenant's full and faithful performance of all the terms of this Lease. Landlord
shall return such sum when this Lease expires if Tenant has fully and faithfully
carried out all of its terms. If there is a bona fide sale of the property of
which the Leased Premises are a part, Landlord shall transfer to the purchaser
the security to be held under the terms of this Lease, and the Landlord shall be
released from all liability for the return of such security of the Tenant.
(4) ADDITIONAL RENT:
Additional rent (hereinafter referred to as "Additional Rent") is the
amount of any payment referred to as such in any provision of this Lease or in
any Addendum hereto which accrues while this Lease is in effect.
(5) USE OF LEASED PREMISES:
Tenant shall use the Leased Premises for Automobile Sales, Leasing,
Financing & Office and in strict accordance with all applicable laws and
regulation of governmental authorities. Tenant shall use the Leased Premises for
no other purpose without the prior written consent of Landlord. Tenant will not
use or permit or suffer the use of this Leased Premises for any unlawful or
offensive business or purpose. Tenant will not, without prior written consent of
Landlord, use or permit the outside walls, fences or roof of the Leased Premises
to be used for advertising purposes.
(6) CONDITION OF LEASED PREMISES
Tenant has examined and knows the present condition of the Leased Premises
and the equipment thereon, if any. No representation, either verbally or
written, has been made to Tenant, or Tenant's agents, by Landlord, or Landlord's
agents, concerning the condition of the Leased Premises and the equipment
thereto, if any or that any particular use can be made thereof except as
specifically set forth in writing on this Lease or any Addendum thereto.
Neither Landlord nor Leasing Agent shall be under any duty to instruct Tenant or
others as to the use of any equipment on the Leased Premises.
(7) WRITTEN NOTICE AS TO DEFECTS:
Attached hereto as "Addendum A" is a written statement of all defects in
the property existing as of the commencement of the lease. Said Addendum shall
be signed by both parties. If no such signed Addendum exists, the parties
acknowledge that the property is accepted "as is" as of the commencement of the
lease and the parties agree that the property is accepted with no defects
existing as of the date of the commencement of the Lease.
(8) TENANT'S ACCEPTANCE OF PROPERTY
At the commencement of the term, the Tenant shall accept the building,
improvements, and any equipment on or in the leased premises, in their existing
condition. No representation, statement, or warranty, express or implied, has
been made by or on behalf of the Landlord as to such condition, or as to the use
that may be made of such property. In no event shall the Landlord be liable for
any defect in such property or for any limitation on its use
<PAGE>
(9) ASSIGNMENT, SUBLETTING AND MORTGAGING
Tenant shall not assign this Lease nor sublet the Leased Premises, in whole
or in part, without Landlord's prior written consent which shall not be
unreasonably withheld. If consent to assign or sublease is obtained, no such
assignment or sublease shall in any way release or relieve Tenant from any of
its covenants or undertakings contained in this Lease, and in all cases under
this paragraph, Tenant shall remain liable on this Lease during the original and
all renewal terms.
(10) UTILITIES
Tenant shall promptly pay all fuel, water, gas, electricity, sewage,
telephone and other utility bills, as the same become due, it being understood
and agreed that the Tenant shall promptly make all required deposits for meters
and utilities services. Charges for the foregoing shall commence on the date of
the commencement of the original term of this Lease. Landlord shall not be
liable for any interruption or failure in the supply of any utility to the
Leased Premises for any reason whatsoever.
(11) INSURANCE AND INDEMNIFICATION:
(11.1) INCREASE IN RISK. The Tenant
(A) shall not do or permit to be done any act or thing as a result of
which either (i) any policy of insurance of any kind covering any or all of the
Leased Premises or any liability of the Landlord in connection therewith may
become void or suspended, or (ii) the insurance risk under any such policy would
(in the opinion of the insurer thereunder) be made greater; and
(B) shall pay as Additional Rent the amount of any increase in any premium
for such insurance resulting from any breach of such covenant, or shall pay
Landlord for any loss sustained by Landlord as a result of any uninsured loss
caused by Tenant's breach of covenants.
(11.2) INSURANCE TO BE MAINTAINED BY TENANT
(A) The Tenant shall maintain at its expense, throughout the term, and all
extension thereof, insurance against loss on liability in connection with bodily
injury and destruction, property damage, personal injury and destruction,
occurring within the Leased Premises or arising out of the use thereof by the
Tenant or its agents, employees, officers or invitees, visitors or guest under
one or more policies of general public liability insurance having such limits as
are reasonably required by Landlord from time to time (but in any event of not
less than $2,000,000.00 general aggregate, $2,000,000.00 products-comp/ops
aggregate, $1,000,000.00 personal and advertising injury, $1,000,000.00 each
occurrence, $50,000.00 fire damage (any one fire) and $5,000.00 medical expense
(any one person)). Such policies shall name the Landlord, Leasing Agent and
Tenant (and at Landlord's request, any mortgagee) as insured parties, shall
provide that they shall not be cancelable without at least sixty (60) days prior
written notice to the Landlord and Landlord's Agent (and at the Landlord's
request any mortgagee) and shall be issued by a company with a rating of at
least class VIII and an excellent rating from A.M. Best Insurance Reporting.
(B) The Tenant shall maintain at Tenant's expense a plate glass insurance
policy, for coverage of all glass contained in the Leased Premises.
(C) If Tenant shall not comply with this covenant to maintain insurance as
provided herein, Landlord may, at its option, cause insurance as aforesaid to be
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<PAGE>
(C) It shall be the Landlord's responsibility to furnish this information
to the Agent if the Agent is to collect taxes from Tenant.
(13) PERSONAL PROPERTY
Tenant covenants that the furniture, fixtures and all other personal
property (except that used to sell in the usual course of trade) which Tenant
places on the Leased Premises are owned by Tenant, are fully paid for, and are
not encumbered except as expressly disclosed in writing to Landlord prior to the
execution of this Lease. Except by sale in the usual course of trade, Tenant
shall not remove furniture, fixtures or property from the Leased Premises
without first obtaining the consent of Landlord, which consent shall not be
unreasonably withheld; and in addition to all the other remedies provided by
law, Landlord shall have a lien against all personal property and fixtures on
the Leased Premises, insurance if any collected therefore, as security for the
payment of rent and default in obligations hereunder. Tenant shall repair or
reimburse Landlord for the cost of repairing any damages to the Leased Premises
resulting from the installation or removal of Tenant's personal property and
fixtures.
(14) REPAIRS AND ALTERATIONS
(14.1) Tenant shall keep and maintain the Leased Premises in good repair
and condition; keep in good running order the heating and air conditioning
systems, electric wiring, toilets, water pipes, water, gas and electric
fixtures; replace all locks and deliver keys to Landlord after replacement of
locks, trimmings, glass and plate glass broken during the tenancy, regardless of
the manner in which same may have been broken, unstop all water fixtures that
may become choked and repair all water pipes and plumbing that may burst. If any
elevators, escalators, lifts, machinery or appliances (herein called
"equipment") are situate on the Leased Premises, Tenant shall care for, maintain
and repair same, and shall indemnify and save harmless Landlord from any
liability or claims for damages or injuries to persons and property arising
therefrom. Tenant shall not make any alterations of, additions to or changes in
the Leased Premises or equipment without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, and all alterations, changes
and improvements, by whomsoever made, shall be the property of Landlord.
(14.2) Tenant agrees that all additions and improvements and attached
equipment and fixtures installed in or on the Leased Premises by the Tenant,
including but not being limited to, electric wiring, electric fixtures, show
window reflectors, screens, screen doors, awnings, awnings frames floor
coverings, landscaping, furnaces and air conditioning machinery and equipment,
shall immediately become the property of the Landlord and shall not be removed
by Tenant at the termination of this Lease, unless requested to do so by the
Landlord, in which event Tenant agrees to do so and to repair promptly any
damage caused by such removal.
(14.3) Nothing contained in this Lease shall be construed as requiring
Landlord to make any repairs, except of a structural nature. Landlord shall
maintain and make all necessary structural repairs to the foundations, load
bearing walls and roof. This does not include the repairing of any glass or
moving parts such as passage and overhead doors. (The Tenant will maintain the
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common areas as outlined in the Addendum.)
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<PAGE>
alterations, rebuilding, replacements, changes or additions placed by Tenant
thereon, in as good condition and repair as the same were in at the commencement
of the original term, normal wear and tear excepted; provided, however, Tenant
shall not be required to return the Leased Premises and equipment in as good
condition as aforesaid if the same are damaged or destroyed by fire or
otherwise, unless caused by Tenant's fault or negligence which is not adequately
covered by insurance.
(14.5) Tenant shall maintain a preventative maintenance contract on all
HVAC units contained in the Leased Premises. Contract is to be maintained with a
licensed and qualified HVAC Contractor. Maintenance on the HVAC is to be
performed on a minimum of four (4) times per year.
(14.6) Tenant shall keep the Leased Premises, including the storefront
thereof, in good repair, but Tenant shall not paint or change the decorative or
architectural treatment of the storefront, the interior or the exterior of the
Leased Premises without Landlord's written consent. Tenant shall promptly remove
upon order from the Landlord any decoration or architectural change which has
been applied to or installed upon the Leased Premises without Landlord's written
consent or take such other action with reference thereto as Landlord may direct.
(14.7) Tenant shall not place or permit to be placed or maintained any
sign, awning, advertising matter, decoration, lettering, or other item of any
kind on the interior or the exterior of the Leased Premises or on the glass of
any window or door of the Leased Premises without first obtaining Landlord's
written approval thereof. Tenant shall promptly remove upon receipt of any order
from Landlord, any sing, awning, advertising matter or other thing of any kind
which has been applied to or installed upon the interior or exterior of Leased
Premises without Landlord's written consent or take such other action with
reference thereto as Landlord may direct.
(15) DESTRUCTION OF LEASED PREMISES
(A) If the Leased Premises are damaged or destroyed by fire or other
casualty covered by insurance, then (1) if totally destroyed or so that the
Leased Premises are rendered unleaseable, this Lease shall terminate as of the
date of such destruction and Tenant shall be liable for the rent only to the
date of such destruction and awards for the Leased Premises shall belong to and
be payable to Landlord; or (2) if only partially destroyed an still leaseable,
Landlord shall, within a reasonable time, repair the Leased Premises with a
reasonable reduction in rent from the date of such partial destruction until
there be again premises substantially similar in value to Tenant as the Leased
Premises partially destroyed. Landlord's obligation to repair or restore the
Leased Premises are stated herein as conditioned upon (a) all insurance proceeds
and award for the Leased Premises being paid to Landlord, which are sufficient
to cover the cost of said repairs and restorations, and (b) there remaining at
least twenty four (24) months in the then existing term of this Lease. If
Landlord does not repair the Leased Premises because either conditions (a) or
(b) are not met, Landlord shall notify Tenant and this Lease shall terminate as
of the date of such partial destruction and Tenant shall be liable for rent only
to the date of such partial destruction.
(B) If the Leased Premises shall be damaged or destroyed by any hazard
not covered by insurance, Landlord shall have the option to cancel this Lease by
giving written notice of such cancellation to Tenant within thirty (30) days
after the happening of such damage or destruction, but if such option not be
exercised and if such damage is not the result of the act or omission of the
Tenant, Tenant's employee or agent or invitee, then Landlord at its own expense
shall proceed with
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<PAGE>
due diligence to repair and restore the Leased Premises to their condition as
existed before such damage or destruction with rent being reduced pro rata in
proportion to the decrease in usefulness of the Leased Premises during repairs
and restoration. If such damage is the result of the act or omission of the
Tenant or Tenant's employee or agent or invitee, then Landlord at it's option
may repair or restore the Leased Premises, the cost of which shall be paid for
by Tenant in installments or in whole upon notice thereof being given to
Tenant by Landlord.
(C) Tenant shall give immediate written notice to Landlord or Leasing
Agent, of any damage or destruction of the Leased Premises whether it be total
or partial.
(16) INSPECTION BY LANDLORD
Tenant shall permit Landlord, its agents, or employees to inspect the
Leased Premises and all parts thereof during normal business hours and to
enforce and carry out any provision of this Lease and for the future purpose of
showing the Leased Premises to prospective tenants and purchasers and
representatives of leading institutions. During the last three (3) months of the
original term and all renewals or extensions thereof, Landlord shall have the
right to place "For Rent" and/or "For Sale" signs in conspicuous places on the
Leased Premises and to otherwise advertise the Leased Premised "For Rent" and/or
"For Sale", in addition to having the rights of entry and inspection set forth
herein. Tenant shall do no act or omission which interferes with Landlord's
rights to reentry and inspection.
(17) EMINENT DOMAIN
(17.1) RIGHT TO AWARD
(A) If any or all of the Leased Premises are taken by exercise of any
power of eminent domain or are conveyed to or at the direction of any
governmental entity under a threat of any such taking (each of which is
hereinafter referred to as a "Condemnation"), the Landlord shall be entitled to
collect from the condemning authority thereunder the entire amount of any award
made in any such proceeding or as consideration for such Deed, without deduction
therefrom for any Leasehold or other estate held by the Tenant by virtue of this
Lease.
(B) The Tenant hereby (i) assigns to the Landlord all of the Tenant's
right, title and interest, if any, in and to any such award, (ii) waives any
right which it may otherwise have in connection with such Condemnation, against
the Landlord or such condemning authority, to any payment for (a) the value of
the then unexpired portion of the term, (b) leasehold damages, and (c) any
damage to or diminution of the value of the Tenant's leasehold interest
hereunder or any portion of the Premises not covered by such Condemnation; and
(iii) agrees to execute any and all further documents which may be required in
order to facilitate the Landlord's collection of any and all such awards.
(C) Subject to the operation and effect of the foregoing provisions of
this section, the Tenant may seek, in a separate proceeding, a separate award on
account of any damages of costs incurred by the Tenant as a result of such
Condemnation, so long as such separate award in no way diminishes any award or
payment which the Landlord would otherwise receive as a result of such
Condemnation.
(17.2) EFFECT OF CONDEMNATION
(A) If (i) all of the Leased Premises are covered by a Condemnation,
or (ii) if any part of the Leased Premises is covered by a Condemnation and the
remainder
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<PAGE>
thereof is insufficient for the reasonable operation therein of the Tenant's
business, or (iii) any of the Leased Premises is covered by a Condemnation and,
in the Landlord's reasonable opinion, it would be impractical to restore the
remainder there of then, in any such event, the Lease shall terminate on the
date upon which possession of so much of the Leased Premises as is covered by
such Condemnation is taken by the condemning authority thereunder, and all rent
(including, by way of example rather then of limitation, and Additional Rent
payable pursuant to any Addendum regarding Additional Rent), taxes, and other
charges payable hereunder shall be prorated and paid to such date.
(B) If there is a Condemnation and the Term does not terminate pursuant
to the foregoing provisions of this subsection, the operation and effect of this
Lease shall be unaffected by such Condemnation, except that the Base Rent and
the Additional Rent shall be reduced in proportion to the square footage of
floor area, if any, of the Leased Premises covered by such Condemnation.
(17.3) If there is Condemnation, the Landlord shall have no liability to
the Tenant on account of any (i) interruption of the Tenant's business upon the
Leased Premises, (ii) diminution in the Tenant's ability to use the Leased
Premises, or (iii) other injury or damage sustained by the Tenant as a result of
such Condemnation.
(17.4) Except for any separate proceeding brought by the Tenant under the
provisions of paragraph 17.1 (C), the Landlord shall be entitled to conduct any
such Condemnation proceeding and any settlement thereof free of interference
from the Tenant, and the Tenant hereby waives any right it might otherwise have
to participate therein.
(18 DEFAULTS BY THE TENANT
(18.1) DEFINITION. As used in the provisions of this Lease, each of the
following events shall constitute, and is hereunder referred to as, an "Event of
Default":
(A) If the Tenant (i) fails to pay the Rent or any other sum which
the Tenant is obligated to pay by any provision of this Lease, when and as it is
due and payable hereunder and without demand therefor, or (ii) in any respect
violates any of the terms, conditions or covenants set forth in the provisions
of this Lease; or
(B) If the Tenant (i) applies for or consents to the appointment of a
Receiver, Trustee or Liquidator of the Tenant or of all or a substantial part of
its assets, (ii) files a voluntary petition in bankruptcy or admits in writing
its inability to pay its debts as they come due, (iii) makes an assignment for
the benefit of its creditors, (iv) files a petition or an answer seeking a
reorganization or an arrangement with creditors, or seeks to take advantage of
any insolvency law, (v) performs any other act of bankruptcy, reorganization or
insolvency proceeding; or
(C) If (i) an order, judgment or decree is entered by any court of
competent jurisdiction adjudicating the Tenant a bankrupt or an insolvent,
approving a petition seeking such a reorganization, or appointing a Receiver,
Trustee or Liquidator of the Tenant or of all or a substantial part of its
assets, or (ii) there otherwise commences with respect to the Tenant or any of
its assets any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment, receivership or similar law, and if such order,
judgment, decree or proceeding continues in effect for more than sixty (60)
consecutive days after the expiration of any stay thereof; or
(D) If the Tenant vacates the Leased Premises or Tenant advertises in
any manner that would indicate or lead the public to believe that Tenant was
going out of business or intending to vacate Leased Premises.
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<PAGE>
exercise any right or remedy which it holds under any provision of this Lease or
under applicable law unless and until:
(A) The Landlord has given written notice thereof to the Tenant and
(B) If such Event of Default consists of failure to pay money, the
Landlord has given five (5) days written notice thereof to the Tenant and the
Tenant has failed to make such payment in the said five (5) day period of time
or, if such Event of Default consists of something other then failure to pay
money, the Landlord has given thirty (30) days notice of the default and the
Tenant has failed to proceed to diligently and in good faith to cure such Event
of Default.
(C) No such notice shall be required, and the Tenant shall be entitled
to no such grace period, (i) if the Event of Default has occurred more than
twice during any twelve (12) month period, or (ii) if the Tenant has
substantially terminate or is in the process of substantially terminating its
continuous occupancy and use of the Leased Premises for the purpose set forth in
the provisions of Paragraph 5, or (iii) if any Event of Default enumerated in
the provisions of Paragraphs 18.1 (B) or 18.1 (C) has occurred or (iv) if the
Event of Default constitutes an eminent danger to the destruction or diminution
of value of the Landlord's property, real or personal, or to that of any other
Tenant or adjoining property owner.
(18.3) LANDLORD'S RIGHTS UPON EVENT OF DEFAULT
Upon the occurrence of any Event of Default, the Landlord may:
(A) Re-enter and repossess the Leased Premises and any and all
improvements thereon and additions thereto without necessity of judicial
proceedings:
(B) Declare the entire balance of the Rent and Additional Rent, if any,
for the remainder of the Term to be due and payable, and collect such balance in
any manner not inconsistent with applicable law;
(C) Relet any or all of the Leased Premises for the Tenant's account for
any or all of the remainder of the Term as hereinabove defined, or for a period
exceeding such remainder, in which event the Tenant shall pay to the Landlord
any deficiency in the Base Rent and Additional Rent resulting, with respect to
such remainder, from such releting, as well as the cost to the Landlord of any
attorney's fees which fees the Tenant is hereby deemed to agree are reasonable
or of any repairs or other action (including those taken in exercising the
Landlord's rights under any provisions of this Lease) taken by the Landlord on
account of such Event of Default. The parties agree that the sum of 33-1/3% of
the unpaid rental shall be deemed to be reasonable attorney's fees pursuant to
the provisions of this Lease;
(D) Pursue any combination of such remedies and/or any other remedy
available to the Landlord on account of such Event of Default under applicable
law.
(18.4) LANDLORD'S RIGHT TO CURE
Upon the occurrence of an Event of Default, the Landlord shall be entitled
(but shall not be obligated), in addition to any other rights which it may have
hereunder or under applicable law as a result thereof, and after giving the
Tenant written notice of the Landlord's intention to do so except in the case of
emergency, to cure such Event of Default, and the Tenant shall reimburse the
Landlord for all
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<PAGE>
(19) SEVERABILITY:
If any provision of this Lease or any application thereof shall be invalid
or unenforceable, the remainder of this Lease and any other application of such
provision shall not be affected thereby.
(20) RELATIONSHIP OF PARTIES:
Landlord and Tenant shall not be considered or deemed to be joint ventures
or partners and neither shall have the power to bind or obligate the other
except as set forth herein.
(21) RULES AND REGULATIONS
The Landlord hereby reserves the right to prescribe, at its sole
discretion, reasonable rules and regulations (hereinafter referred to as the
"Rules and Regulations"), having uniform applicability to all tenants of 4206
----
Williamson Road and governing the use and enjoyment of 4206 Williamson Road and
- --------------- --------------------
the remainder of the Property; provided, that the Rules and Regulations shall
not materially interfere with the Tenant's use and enjoyment of the Leased
Premises, in accordance with the provisions of this Lease. The Tenant shall
adhere to the Rules and Regulations and shall cause its agents, employees,
invitees, visitors and guests to do so.
(22) NO REPRESENTATIONS BY LANDLORD:
Neither Landlord nor its agents have made any representations or promises
with respect to the Building, the Land, or the Leased Premises except as
expressly set forth herein. No rights, easements, or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this Lease. The taking possession of the Leased Premises by Tenant
shall be conclusive evidence as against it, that Tenant accepts the premises and
the Building and that they were in good and satisfactory condition when
possession was so taken.
(23) LEASING AGENT
(A) In consideration of the Leasing Agent's services in procuring this
Lease, Landlord covenants with and for the benefit of the Leasing Agent as
follows: The Leasing Agent is to receive a commission of eight percent(8%) of
-----
the Rent during the original term and all renewals, extensions or expansions
thereof or any new Lease of the Leased Premises between any person and "Tenant,
its successors or assigns" (such phrase used herein to include such entity in
which Tenant, its successors or assigns may have an interest as a stockholder,
partner, lender of money or otherwise); and no sale, transfer, assignment,
cancellation or release, including a sale or conveyance to Tenant, its
successors or assigns, shall affect the Leasing Agent's right to such commission
which is hereby made a lien on the Leased Premises and all equipment thereon, if
any. The Leasing Agent shall have the right to collect all rents due hereunder
so that its commission may be paid in installments as the rent is received, and
retained by the Leasing Agent before remitting the rent (less commissions) to
Landlord, but if any act be done to deprive the Leasing Agent of its right to
collect the rent, then the whole amount of its commission then unpaid shall, at
the Leasing Agent's option, immediately become due and payable.
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<PAGE>
(C) Such a sales commission shall be in addition to the rental commissions
provided for in the immediately preceding paragraph up to the transfer of said
property and is hereby made a lien on the Leased Premises.
(D) In connection with all acts done or suffered by the Leasing Agent for
Landlord concerning the Leased Premises, Landlord further agrees to indemnify
and save the Leasing Agent harmless from all fines, judgments, suits, claims,
demands and actions of any KIND (including any costs and attorney's fees), and
from liability suffered by an employee or contractor (not in the permanent
employ of the Leasing Agent) engaged by the Leasing Agent for the benefit of
Landlord.
(24) SUBORDINATION
Tenant accept this Lease subject and subordinate to the present state of
the Leased Premises and to any recorded mortgage, deed of trust or any other
lien presently existing upon the Leased Premises and to any renewal, extension
or modification thereof. Tenant agrees upon demand to execute such instruments
subordinating this Lease to any future mortgage, deed of trust or other security
instruments as Landlord may request, provided such further subordination shall
be upon the express condition that this Lease shall be recognized by the
mortgagee and that the rights of Tenant shall remain in full force and effect
during the term of this Lease, so long as Tenant shall continue to perform all
of the covenants hereof.
(25) SUCCESSORS AND ASSIGNS
All parties to this Lease agree that all of the provisions hereof shall
bind and inure to the benefit of the parties hereto, their heirs, legal
representatives, successors and assigns.
(26) TENANTS OBLIGATION TO COMPLY WITH APPLICABLE LAWS - TENANT TO OBTAIN
NECESSARY LICENSE
Tenant, at its expense, shall promptly comply with all federal, state, and
municipal laws, orders, and regulations, and with all lawful directives of
public officers, which impose and duty upon it or Landlord with respect to the
leased property. The Tenant, at its expense, shall obtain all required licenses
or permits for the conduct of its business within the terms of this Lease, or
for the making of repairs, alterations, improvements, or additions, and the
Landlord, when necessary, will join with the Tenant in applying for all such
permits or licenses.
(27) APPLICABLE LAW, CONSTRUCTION
(A) This Lease shall be construed in accordance with the laws of the
Commonwealth of Virginia.
(B) Whenever used the singular number shall include the plural, the
singular, and the use of any gender shall include all other genders.
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with respect to the Leased Premises or any use or activity on the Leased
Premises, Tenant will not place, install, dispose of or release or cause,
permit or allow to be placed, installed, disposed of or released any Hazardous
Material on the Leased premises. If any Hazardous Material is discovered on the
Leased Premises at any time, which Hazardous Material has been placed thereon by
Tenant, its employees or agents, Tenant shall promptly, at Tenant's sole risk
and expense, remove, treat and dispose of the Hazardous Material in compliance
with all applicable environmental regulations and laws.
(29) NOTICES
(A) Whenever in this Lease it shall be required or permitted that notice
or demand be given or served by either party to this Lease to or on the other,
such notices or demand shall be given or served and shall not be deemed to have
been given or served unless in writing and forwarded by registered or certified
mail addressed as follows:
(B) TO LANDLORD: (D) TO TENANT:
c/o Agent At Leased Premises
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_________________ _________________________
_________________ _________________________
(C) TO LEASING AGENT:
Waldvogel, Poe & Cronk
Real Estate Group, Inc.
800 Professional Arts Building
30 West Franklin Road
Roanoke, Virginia 24011
(30) FINAL UNDERSTANDING
(A) This Lease represents the final understanding between Landlord, Tenant
and Leasing Agent, and the obligations of each party hereunder cannot be changed
or modified unless by written Addendum signed by the parties whose obligations
are to be modified and endorsed hereon or attached hereto.
(31) AGENCY DISCLOSURE
(A) Unless otherwise disclosed in writing, all parties acknowledge that
WALDVOGEL, POE & CRONK REAL ESTATE GROUP, INC. is the Agent of the LANDLORD not
the TENANT. Waldvogel, Poe & Cronk Real Estate Group, Inc.'s fiduciary duties of
loyalty and faithfulness are owed to the LANDLORD who is their principal. All
commissions will be paid by the LANDLORD and not the TENANT.
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_________________________________,
By ************
----------------------(SEAL)
THE LANDLORD
_________________________________,
By /s/ Franklin W. Blankemeyer, Jr.
----------------------(SEAL)
THE TENANT
_________________________________,
By /s/ Jeff W. Akers
----------------------(SEAL)
THE TENANT
WALDVOGEL, POE & CRONK REAL ESTATE GROUP, INC.
By ****************
----------------------------,
THE LEASING AGENT
Rev 12/94
GUARANTY
In consideration of Landlord agreeing to Tenant the Leased Premises, the
undersigned, hereby waiving the obligations of the homestead exemption laws as
to this Lease, jointly and severally if there be more than one undersigned,
guarantee the payment of rent and the performance of all the provisions of this
Lease by Tenant, its successors and assigns, and agree that mere nonpayment of
rent and nonperformance of said provisions by Tenant or its successors and
assigns shall create an immediate liability on the part of the undersigned to
Landlord and its successors and assigns and to Leasing Agent. Landlord or
Leasing Agent is required to notify the undersigned of any default of Tenant
under the provisions of this Lease.
WITNESS the following signatures and seals:
Jeffrey W. Akers (SEAL) Franklin W. Blankemeyer (SEAL)
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JEFFREY W. AKERS FRANKLIN W.BLANKEMEYER, JR.
353-A Woods Avenue 1424 Sherwood Avenue
Roanoke, VA 24016 Roanoke, VA 24015
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<PAGE>
in the state of Virginia, do hereby certify that Roanoke whose name is signed to
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the foregoing Lease bearing date of 17th day of July, 1995, have acknowledged
---- ----
the same before me. Given under my hand this 16th day of August, 1995.
------
My commission expires:
Sept 30, 1996
- ------------------------------
************
----------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF ROANOKE TO-WIT: (TENANT)
-------
I, the undersigned, a Notary Public in and for the City, aforesaid, in the
----
State of Virginia, do hereby certify that Franklin Blankemeyer & Jeffrey Akers
------------------------------------
whose name is signed to the foregoing Lease bearing date of 17th day of July,
---- ----
1995, have acknowledged the same before me. Given under my hand this 9th day of
---
August, 1995.
- ------
My commission expires:
9/30/95
- ------------------------------
*************
----------------------
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF____________ TO-WIT:(LEASING AGENT)
I, the undersigned, a Notary Public in and for the_________ aforesaid,
in the State of Virginia, do hereby certify that ______________, whose
name is signed to the foregoing Lease bearing date of_________________ day of
________________, 1995, have acknowledged the same before me. Given under my
hand this __________ day of_________________, 1995.
My commission expires:
___________________________________
_____________________
Notary Public
STATE OF VIRGINIA
CITY/COUNTY OF ROANOKE, TO-WIT: (GUARANTORS)
-------
I, the undersigned, a Notary Public in and for the City, aforesaid, in the
----
State of Virginia, do hereby certify that Franklin Blankemeyer & Jeffery Akers
------------------------------------
whose name is signed to the foregoing Lease bearing date of 17th day of July,
---- ----
1995, have acknowledged the same before me. Given under my hand this 9th day of
---
August, 1995.
- ------
My commission expires:
9/30/95
- -----------------------------------
*************
_____________________
Notary Public
Page 14 of 15
<PAGE>
ADDENDUM
BASE RENT
---------
There will be no rent charged for the first month (September 1, 1995
------------------
through September 30, 1995). If Landlord has not completed the below listed work
------------------
by September 1, 1995, Tenant shall still be entitled to 30 days free rent, which
will begin after work has been completed.
Rent for October 1, 1995 through February 29, 1996 shall be $1600.00 per
--------------- ----------------- --------
month.
Rent for March 1, 1996 through August 31, 1996 shall be $1650.00 per month.
------------- --------------- --------
Rent for September 1, 1996 through August 31, 1997 shall be $1750.00 per
----------------- --------------- --------
month.
OPTION TO RENEW LEASE
---------------------
Tenant shall have the option to renew said Lease under the same terms and
conditions with the exception of rent. Rent shall increase at 4% per year for
every year of the new term, with NEW TERM BEING A MAXIMUM OF ONE (1) YEAR.
IMPROVEMENTS
------------
Landlord agrees at his expense to remove the stove, hood, and sink in the
kitchen area and all customer tables and benches in the dining area and repair
flooring where tables and benches were removed.
Landlord also agrees to remove the drive-thru sign board at owner's
expense.
Landlord shall deliver the leased premises with all electrical plumbing and
HVAC systems in working order.
Landlord shall allow Tenant at Tenant's expense to build dividing walls for
office space.
DMV APPROVAL
------------
This Lease is subject to the approval of the Division of Motor Vehicles
allowing Mr. Car Man to run a automobile sales, leasing and financing office
from said premises.
**************************
- --------------------------
Tenant
**************************
- --------------------------
Tenant
**************************
- --------------------------
Landlord
Page 15 of 15
<PAGE>
ADDENDUM TO LEASE
-----------------
This Addendum to Lease ("Addendum"), made and entered into this 3rd day of
August, 1995, by and between J.D. Fralin hereinafter collectively referred to as
"Landlord" and Mr. Car Man, Inc., a Virginia corporation, hereinafter
collectively referred to as "Tenant", and Waldvogel, Poe & Cronk Real Estate
Group, Inc., hereinafter called "Leasing Agent".
RECITALS
--------
A. The parties hereto have executed a Lease Agreement dated July 17,
1995, for the lease of certain commercial space located at 4206 Williamson Road,
Roanoke, Virginia.
B. The parties hereto have agreed to modify the Lease as set forth
hereinafter.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto covenant and agree as follow:
1. Insurance to be Maintained by Tenant. Subparagraph (B) of 11.2 shall
------------------------------------
be deleted in its entirety. Tenant shall be responsible for the cost of repair
and replacement in accordance with the terms of the Lease.
2. Destruction of Lease Premises. In the event the Lease Premises are
-----------------------------
damaged or destroyed by any hazard not covered by insurance and Landlord
exercises its option to cancel the Lease, rent shall be reduced pro-rata in
proportion to the decrease in usefulness of the Leased Premises from the date of
the damage to the date of termination of the Lease. Subparagraph (b) of
Paragraph 15(A) shall be deleted in its entirety.
3. Inspection by Landlord. Landlord shall provide Tenant with prior
----------------------
notice of any inspection or examination of the Leased Premises as provided by
Paragraph (16).
4. Eminent Domain. With respect to Subpart (B) of Subparagraph (17.1) of
--------------
Paragraph (17) of the Lease, the parties hereto agree that the obligation of the
Tenant thereunder pertain solely to the Landlord's condemnation proceeding and
does not offset in any way the Tenant's right to pursue a separate proceeding to
collect any damages or costs incurred by the Tenant. No provision of this Lease
shall be deemed or construed for the benefit of any third party, including
without limitation, any condemning authority.
5. Effect of Condemnation. With respect to Sudparagraph 17.2(B), the
----------------------
abatement of rent shall also pertain to the reduction in the square footage of
the parking area which the parties hereto acknowledge to be critical to the
success of Tenant's business.
1
<PAGE>
6. Tenant's Obligation to Comply With Applicable Laws-Tenant to Obtain
-------------------------------------------------------------------
Necessary License. The first sentence of this paragraph shall be amended to
- ------------------
read as follows:
Tenant, at its expense, shall properly comply with all
federal regulations, and with all lawful directives of
public offices, which impose any duty upon it with
respect to the conduct of its business.
7. Quiet Enjoyment. For so long as Tenant observes the terms and
----------------
conditions of the Lease and Addendum required to be observed by the Tenant,
Tenant shall have quiet enjoyment of the Leased Premises and Landlord shall
defend Tenant's right thereto.
8. Affirmation of Lease. Except for the terms set forth thereunder, the
---------------------
parties hereto hereby agree that this Addendum shall be subject to all terms,
revisions and conditions set forth under the Lease.
IN WITNESS WHEREOF, the following signatures as set forth as of the day,
month, and year first hereinabove written.
"LANDLORD"
/s/ J.D. Fralin
-----------------------------------------
J.D. Fralin
"TENANT"
Mr. Car Man, Inc., a Virginia corporation
By: ************
-------------------------------------
Its: President
------------------------------------
2
<PAGE>
Exhibit No. 10.1
<PAGE>
[LETTERHEAD OF HOPE PLAYER APPEARS HERE]
March 26, 1997
Mr. Richard Sayers
Magee, Foster, Goldstein & Sayers
P.O. Box 404
Roanoke, Virginia 24003-0404
Dear Mr. Sayers:
This letter is to authorize you to include the audited financial statements for
Genesis Financial Group, Inc. as of December 31, 1996 and 1995 and for the years
then ended and the audited financial statements of Mr. Car Man, Inc. as of
December 31, 1995 and complied financial statements as of December 31, 1996 and
for the years then ended in the securities registration statements for Genesis
Financial Group, Inc. for $6 million in notes and $1.5 million in contracts.
If you should need any additional information, please do not hesitate to contact
me.
Sincerely,
HOPE PLAYER AND ASSOCIATES, P.C.
/s/ W. HOPE PLAYER
W. Hope Player, CPA, CFP
<PAGE>
[LETTERHEAD OF MAGEE, FOSTER, GOLDSTEIN & SAYERS]
Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, Virginia 24012
RE: Form SB-1 Registration Statement/Offering of Promissory Notes and
Installment Sales Contracts Totalling $10,000,000.00
Gentlemen:
This letter is delivered to you in connection with Genesis Financial Group,
Inc.'s (the "Company") registration on Form SB-1 of up to $10,000,000.00 in
corporate promissory notes ("Notes") and Installment Sales Contracts
("Contracts"), together with the Company's guarantee thereof ("Guarantee").
The aggregate offering price for the Notes and Contracts combined may not exceed
$10,000,000.00 pursuant to an SB-1 Offering.
We have acted as special counsel to the Company in connection with the
offering of the Notes and Contracts all of which transactions are more
particularly detailed and described in a separate preliminary prospectus
("Prospectus") being part of the Registration Statement filed with the
Securities and Exchange Commission to which reference is hereby made. In
connection with rendering this opinion, we have examined drafts, originals, or
copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments and documents as we have
deemed necessary or appropriate for the purposes of this opinion, including:
(a) Copy of the Registration Statement and Pre-Effective Amendments
No. 1 and 2 thereto and accompanying forms of Prospectus;
(b) Form of Note and Contract;
(c) Articles of Incorporation and Bylaws of the Company;
(d) Indenture;
(e) Certificate of Good Standing of the Company from the State
Corporation Commission of the Commonwealth of Virginia; and
<PAGE>
Page 2
March 28, 1997
(f) Certified Resolutions of the Board of Directors of the Company.
In rendering this opinion, we have relied, as to all matters of fact
material to this opinion, upon certificates of public officials and upon
representations and warranties of the officers and directors of the Company
contained in the aforementioned documents. This opinion is limited to the laws
of the Commonwealth of Virginia and the federal laws of the United States and we
express no opinion as to the laws of any other jurisdiction.
Insofar as the opinion herein makes reference to our knowledge or
awareness, they are given subject to the express understanding that we have made
no independent investigation or file or docket search in connection with such
opinions, that "knowledge" or "awareness" does not include constructive notice
or knowledge of any matters or facts and that our "awareness" refers solely to
the actual awareness of attorneys presently with our firm who have worked on
substantive matters for the Company. The statement that something is the case,
"insofar as we are aware" or "to our knowledge" means only that we have made no
independent investigation or file or docket search in connection with such
opinions, that our "knowledge" or "awareness" does not include constructive
notice or knowledge of any matters or facts and that our "awareness" refers
solely to the actual awareness of attorneys presently with our firm who have
worked on substantive matters for the Company. The statement that something is
the case, "insofar as we are aware" or "to our knowledge", means only that we
are not aware of any facts or circumstances which would render such statements
false, and does not imply that we know or have reason to believe that the
statement is true.
For purposes of this opinion, we have assumed, without independent
verification:
(i) The genuineness of all signatures, except those of the executive
officers of the Company;
(ii) The legal capacity of all natural persons who have signed
documents examined by us;
(iii) The authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents
submitted to us as certified or photostatic copies;
(iv) That all drafts of documents submitted to us for review will
constitute the final documents to be executed by
<PAGE>
Page 3
March 28, 1997
the parties with the exception of minor, immaterial changes and
that we have received all material changes and amendments to the
documents previously submitted in unexecuted, draft form;
(v) The factual accuracy and completeness of all certificates
submitted to us and the factual accuracy and completeness of each
of the representations and warranties as to matters of fact made
in the Prospectus.
Based upon and subject to the foregoing, and subject also to the
qualifications set forth below, we are of the following opinion:
1. The Company is a corporation validly existing and in good
standing under the laws of the Commonwealth of Virginia. The
Company has the corporate power and authority to own, use and
lease its properties and to carry on its business as currently
conducted and as proposed to be conducted under the Prospectus.
The company is qualified to do business as a corporation in those
jurisdictions in which the conduct of its business as described
in the Prospectus requires such qualification.
2. The Notes, when issued and sold by the Company, will be validly
and legally issued; will constitute binding obligations of the
Company; and have been duly authorized by the Company.
3. The Contracts are valid and binding obligations of the underlying
consumer, and when issued and sold by the Company, will be
validly and legally issued. The offering of the Contracts, as
contemplated by the Prospectus, has been duly authorized by the
Company.
4. the Guarantee, when issued in conjunction with the Contracts,
will be validly and legally issued; will constitute binding
obligations of the Company; and have been duly authorized by the
Company.
5. The execution and/or issuance of the Notes and Contracts,
together with the Guarantees, and the consummation of the
transactions contemplated under the Prospectus will not result in
any breach of any of the terms and conditions of, or constitute a
default under the provisions of: (a) the Company's Articles of
<PAGE>
Page 4
March 28, 1997
Incorporation or Bylaws; (b) to the best of our knowledge, any
mortgage, loan, commitment, indenture, agreement or other instrument
of which we have knowledge and to which the Company is a party; or (c)
to the best of our knowledge, violate, insofar as it is directed to
the Company, any order of any court or any federal or state regulatory
body or administrative agency having jurisdiction over it.
The opinions contained herein are subject to the following conditions and
qualifications:
(A) The opinion expressed in Paragraph 1, insofar as it relates to the
validity, good standing and corporate existence of the Company in the
Commonwealth of Virginia, is based solely upon the Certificate
referred to in clause (e) above.
The opinions set forth in this letter are limited to the specific issues
addressed herein and to statutes, regulations, rules, decisions, decrees and
facts existing on the date hereof. By rendering such opinions, we disclaim any
obligation to advise any party to whom this opinion is addressed of any change
in any of these sources of law or of any subsequent legal or factual
developments which might effect any matters addressed or opinions set forth
herein.
The opinions set forth herein are rendered for the use by the Company in
filing a Registration Statement on Form SB-1 with the Securities and Exchange
Commission. We hereby consent to the references to this firm under the heading
"Legal Matters" and to the filing of this opinion as an exhibit to the
Registration Statement.
Yours very truly,
MAGEE, FOSTER, GOLDSTEIN & SAYERS, P.C.
By:/s/ Richard R. Sayers, Vice-President
---------------------------------------
Richard R. Sayers Vice-President
