Filed Pursuant to Rule 424(b)3
Registration No. 333-80415
FACTUAL DATA CORP.
351,116 SHARES OF COMMON STOCK
The 351,116 shares of Factual Data Corp.'s common stock covered by this
prospectus are all being offered for the account of selling shareholders of the
Company. We issued the shares to the selling shareholders in August and
December, 1998 in the acquisition of two businesses described under "Selling
Shareholders."
The selling shareholders may sell the shares from time to time on the
over-the-counter market in regular broker transactions, in transactions directly
with market makers or in privately-negotiated transactions. We will not receive
any proceeds from the sale of these shares.
Our common stock trades on the Nasdaq SmallCap Market under the symbol FDCC.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 3 BEFORE
PURCHASING ANY OF THE SHARES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is July 1, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our SEC filings are also available to the public at the
SEC's web site at HTTP://WWW.SEC.GOV.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference some of the documents we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934. This prospectus is part of a registration statement we filed with the
SEC (Registration No. 333-80415). The documents we incorporate by reference are:
- Our Annual Report on Form 10-KSB for the year ended December 31,
1998.
- Our Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999.
- Our Current Reports on Form 8-K describing three of our most
recent acquisitions filed April 12, 1999 (2) and May 18, 1999
(1).
- The description of our common stock which is contained in Items 1
and 2 of our Registration Statement on Form 8-A filed pursuant to
Section 12 of the Exchange Act on May 5, 1998.
- All documents we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the offering of the shares offered
hereby.
HOW TO REQUEST INFORMATION
We will provide at no cost to each person, including any beneficial owner, to
whom this prospectus is delivered, on the written or oral request of such
person, a copy of any or all of the documents we incorporate by reference, other
than exhibits to such documents. Requests should be directed to Factual Data
Corp., 5200 Hahns Peak Drive, Loveland, Colorado 80538, (970) 663-5700,
Attention: Investor Relations.
<PAGE>
ABOUT FACTUAL DATA CORP.
Factual Data Corp. is an information services provider to the mortgage and
consumer lending industries, employers, landlords, and other business customers
located throughout the United States. We specialize in preparing mortgage credit
reports ("MCRs") that we format and customize for each mortgage lender's
requirements and then transmit to those lenders via modem, network or facsimile.
We market our services nationally through 49 combined locations, including our
own offices and through our franchisees and licensees. Our franchisees and
licensees are collectively referred to as "System Affiliates." We are
implementing a consolidation plan in the mortgage credit report industry. Our
initial public offering took place in May 1998 and our common stock and warrants
trade on the Nasdaq SmallCap Market under the symbols FDCC and FDCCW.
Credit data provided directly from the three national major credit repositories,
Equifax, Inc., Experian, Inc., and TransUnion Corporation, is often
inconsistent, is not presented in a customized or consolidated format, and may
be relatively difficult to interpret. As such, our services are valuable to the
lending industry since MCR users can obtain credit reports from us which contain
verified credit information upon which such lenders can readily rely and users
can more easily interpret the credit data since we format and customize such
data.
Through the expertise we have developed in mortgage credit reporting, we
recently expanded our services to include employment screening services and
tenant screening services. Our MCR and other products and services are fully
automated, thereby allowing us to deliver our reports very quickly to our
customers' computers.
We were incorporated in Colorado in 1985. Our executive offices are located at
5200 Hahns Peak Drive, Loveland, Colorado 80538. Our telephone number is (970)
663-5700. We maintain a site on the World Wide Web at
HTTP://WWW.FACTUALDATA.COM. However, the information on our web site is not part
of this prospectus.
<PAGE>
RISK FACTORS
To inform investors of our future plans and objectives, this prospectus (and
other reports and statements issued by us and our officers from time to time)
contain certain statements concerning our future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements." Our ability to do this has been fostered by the
Private Securities Litigation Reform Act of 1995, which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. We believe it is in the
best interest of investors that we take advantage of the "safe harbor"
provisions of the Reform Act.
The forward-looking statements included herein and in our other reports are
based on expectations that involve a number of risks and uncertainties that
might adversely affect our operating results in the future in a material way.
Such risks and uncertainties include but are not limited to the following:
A DECREASE IN DEMAND FOR MORTGAGE CREDIT REPORTS WILL LIKELY DECREASE OUR
EARNINGS.
Our primary service is our mortgage credit report ("MCR"). The use of this
service is driven largely by consumer demand for credit for new home mortgages
and refinancings and, to a lesser extent, lenders' efforts to develop new, and
monitor existing, credit relationships. Consumer demand for mortgage credit
tends to vary due to interest rate fluctuations and general economic conditions.
We have found that MCR demand tends to increase during periods of economic
expansion or when interest rates are declining. Our expenses consist largely of
labor, repository and communication charges, and our ability to quickly control
these costs is critical if the demand for MCRs slackens. Also, our lack of
significant diversification in other services hinders our ability to withstand
the negative impact of a downturn in demand for MCRs.
OUR CONSOLIDATION PLAN INCLUDES OPERATIONAL AND FINANCIAL RISKS WHICH MAY
NEGATIVELY AFFECT OUR EARNINGS.
In mid-1998, we implemented a consolidation plan to acquire certain of our
System Affiliates and competitors engaged in providing MCR services that either
complement or will expand our business. This plan involves a number of risks
including:
- ability to retain acquired customers
- diversion of management time
- use of our financial resources in reviewing acquisition
candidates
- operational assimilation of the acquired companies
- amortization charges of acquired intangible assets
<PAGE>
There are over 30 System Affiliates that have exclusive territory rights which
expire at various times through the year 2005. We cannot compete or license
others in those areas. We will be required to purchase a System Affiliate, or
wait until the expiration of the applicable agreement with the System Affiliate,
before expanding into, or acquiring a competitor in, the same territory. The
success of our consolidation plan, both long-term and short-term, remains
unknown.
WE MAY BE UNABLE TO MANAGE OUR RECENT AND CONTINUED GROWTH, WHICH COULD
NEGATIVELY AFFECT OUR EARNINGS.
Since mid-1998, we have made over 20 acquisitions and our employees have grown
from about 37 to over 250. Our ability to manage these acquisitions, our new
employees and the increased business activity while continuing to make
additional acquisitions is critical to our success. Also critical is our ability
to
- attract and keep mid-level employees and managers
- implement internal cost controls, operating policies and
procedures
- implement our sales and marketing techniques
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR BUSINESS STRATEGY DUE TO THE
SIGNIFICANT COMPETITION WE FACE.
The MCR industry is highly fragmented. We believe there are approximately 1,400
competitors in the United States providing MCR services. We face both direct and
indirect competition for our services. There are large numbers of companies
engaged in the sale of one or more of the services we offer. A significant
number of these competitors are small companies operating on a local or regional
basis, while some are large companies operating on a national scale. Several
large companies have far greater financial resources than we do, including CBC
Companies, Inc., Equifax Credit Information Services, Inc., The First American
Financial Corp. and Trans Union Corporation. We face intense competition in MCR
services from these entities, and as to our other services, from companies
engaged in employment and tenant application verification activities.
<PAGE>
SIGNIFICANT GOVERNMENTAL REGULATION, PRIVACY ISSUES AND OTHER LEGAL
CONSIDERATIONS INCREASE OUR OPERATING COSTS.
Our business involves collecting consumer and business credit data and other
information and distributing this information to lenders and businesses making
credit and other decisions. Concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
substantial governmental regulation of the credit reporting industry. The
industry is regulated under the federal Fair Credit Reporting Act and by
legislation in many states. The industry has recently been subject to increased
legislative attention. There can be no assurance that pending or additional
federal or state consumer-oriented legislation will not significantly limit
demand for, or increase the costs of, our services. Under general legal concepts
and, in some instances, under specific federal and state statutes, we could be
held liable to customers or to the subjects of credit reports prepared by us for
inaccurate information or misuse of information. No assurance can be given that
we can successfully defend any claims made against us, that insurance will cover
these claims or that uninsured losses from these claims might arise, thereby
negatively impacting our operations and financial condition.
WE ARE DEPENDENT UPON THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER.
We are highly dependent on the services of our President and Chief Executive
Officer, Jerald H. Donnan, who is subject to an employment agreement which
expires on July 1, 2000. To the extent that Mr. Donnan's services become
unavailable, we may not be able to promote existing personnel or employ
qualified persons on favorable terms. We own a $1 million Key Man term life
insurance policy on the life of Mr. Donnan.
OUR RESELLER AGREEMENTS CAN BE CANCELLED ON SHORT NOTICE AND THEY EXPOSE US TO
CLAIMS OR LIABILITIES FROM THE USE OF INACCURATE INFORMATION.
We do not maintain our own consumer credit database. Instead, we obtain consumer
credit data from large, national credit repositories such as Experian, Inc.,
TransUnion Corporation and Equifax, Inc. under reseller agreements with these
entities. Generally, the reseller agreements are terminable without cause by
either party within a short period of time upon written notice. Also, the
agreements can be terminated if we were to use the information in violation of
the Fair Credit Reporting Act or other applicable laws, or in violation of the
reseller agreement. The reseller agreements typically do not provide any
warranties as to the accuracy or correctness of the information contained in the
databases maintained by credit repositories, and further provide that we will
hold the repositories harmless and indemnify them from claims or liabilities
arising from the use of inaccurate information contained in the databases.
OUR SUCCESS PARTLY DEPENDS UPON OUR ABILITY TO PROTECT OUR TECHNOLOGY FROM
MISAPPROPRIATION OR INFRINGEMENT.
We rely on a combination of trademark, servicemark, copyright, trade secret and
contract protection to establish and protect our proprietary rights in our
services and technology. Because there is little in the design, development or
delivery of our services that is protectable under law, competitors can
replicate our services. We generally enter into confidentiality agreements with
customers and limit access to and distribution of our proprietary information.
These steps may not be adequate to deter misappropriation or infringement of our
proprietary technologies and costly litigation may ensue. Although we believe
that our intellectual property and technologies do not infringe any proprietary
rights of others, third parties may assert claims of infringement in the future.
<PAGE>
WE MAY NOT BE ABLE TO MEET THE AUTOMATED LEVEL OF PERFORMANCE REQUIRED BY SOME
OF OUR LARGER CUSTOMERS.
The Federal National Mortgage Association and The Federal Home Loan Mortgage
Corporation provide a secondary market for residential mortgages. Both entities
require that any mortgage purchased be supported by a credit report on the
mortgagee and be prepared by an entity, such as us, independent from the lender.
We are aware that these and other entities are increasingly using "automated"
credit reporting techniques that require credit report providers to render
almost instantaneous responses, often within 60 seconds or less. We may not be
able to continue to provide the level of performance required by these or other
large institutional lenders. Additionally, we may not be able to match the level
of technological service provided, or developed in the future, by competitors.
A LOSS OF OPERATIONS IN OUR DATA CENTER COULD NEGATIVELY IMPACT OUR EARNINGS.
Our operations depend on our ability to protect our data center against damage
from fire, power loss, telecommunications failure, natural disasters or similar
events. We moved into a new facility in Loveland, Colorado in April 1998, that
is outfitted with backup power and duplicate telecommunication facilities;
nonetheless, in the event we experience a natural disaster, hardware or software
malfunction or other interruption of our data center operations, our business
could be hurt. Extended interruptions in our services could be particularly
detrimental, and our insurance may not be adequate to compensate us for
resulting losses that may occur.
IF OUR COMPUTER SYSTEMS, OR THE COMPUTER SYSTEMS OF OUR SUPPLIERS AND CUSTOMERS
ARE NOT YEAR 2000 COMPLIANT, OUR FINANCIAL CONDITION AND BUSINESS MAY BE
ADVERSELY AFFECTED.
We face a serious business issue because many computer programs use only two
digits to identify a year in a date field. We have reviewed our products and key
financial operational systems, and where required, have developed plans to
ensure that our products and computer systems continue to function properly. If
we fail to develop the necessary plans for our computer systems to continue to
function properly, our business, financial condition and results of operations
may be seriously affected. The Year 2000 date issue could also negatively impact
our financial condition and business if our suppliers, customers and other
businesses fail to address this issue successfully.
IMPEDIMENTS TO TAKEOVER ATTEMPTS AND REMOVAL OF DIRECTORS MAY DEPRESS THE PRICE
OF OUR COMMON STOCK.
Our Articles of Incorporation and Bylaws contain provisions that may discourage
or make it more difficult for a third party to acquire us. These provisions
include:
<PAGE>
- the ability of our Board of Directors to issue authorized but
unissued common and preferred stock without action by our
shareholders, although issuances are subject to approval by the
majority of our independent directors;
- the election of directors for three-year terms, with
approximately one-third of the Board of Directors standing for
election each year;
- limitations on alteration of the staggered board provisions and
the ability of shareholders to remove directors; and
- the affirmative vote of the holders of at least two-thirds of our
capital stock entitled to vote to approve a merger, dissolution
or sale of all or substantially all of our assets.
WE INTEND NOT TO DECLARE DIVIDENDS.
We have not declared nor paid, and we intend not to declare or pay, any cash or
other dividends in the foreseeable future. Earnings, if any, will be retained to
finance our operations and growth.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED DUE TO
OUTSTANDING OPTIONS AND WARRANTS THAT MAY HAVE EXERCISE PRICES LESS THAN THE
MARKET PRICE OF OUR STOCK.
We have reserved 1,380,000 shares of common stock for issuance on exercise of
warrants issued in our initial public offering and 200,000 shares of common
stock for issuance on exercise of options under our 1997 Stock Incentive Plan.
The representative of the underwriters in our initial public offering holds
options to purchase 120,000 shares of common stock and warrants to purchase
120,000 shares of common stock. Our agent in our March and April 1999 private
placements earned warrants to purchase 55,641 shares of common stock. Option
prices range from $5.50 to $9.15 per share. During the terms of the warrants and
the options, the holders have the opportunity to profit from a rise in the
market price of our common stock, and their exercise may dilute the ownership
interest of existing shareholders. Additionally, immediate resale of the
underlying shares may have a depressive effect on the market in our common
stock.
REGISTRATION RIGHTS HELD BY OTHERS COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK.
In addition to the above, we granted registration rights in connection with two
private placements completed in early 1999. Shares registerable in these
transactions have been registered, or may be registered, in other registration
statements. The holders ability to sell these approximately 1,912,451 shares
constitute market overhang and could depress the market price of our common
stock.
<PAGE>
USE OF PROCEEDS
The selling shareholders will receive all of the net proceeds from the sale of
the shares; accordingly, we will not receive any proceeds from sales of the
shares.
SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership of
our common stock by each selling shareholder. All information contained in the
table below is based upon beneficial ownership as of June 30, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Shares Beneficially Owned Shares
Name and Address Prior to Offering Shares Offered Beneficially Owned
of Selling Shareholder Number Percent Hereby After the Offering
- ---------------------- ------ ------- -------------- ------------------
Landmark Financial
Services, Inc.
2901 North Dallas Parkway
Suite 220
Plano, Texas 75093 53,782 * 53,782 -0-
David R. Tamuty
15311 Vantage Parkway
Suite 320
Houston, Texas 77032 107,041 1.96 107,041 -0-
Larry W. Knigge
15311 Vantage Parkway
Suite 320
Houston, Texas 77032 68,387 1.25 68,387 -0-
A. Wayne Wright
15311 Vantage Parkway
Suite 320
Houston, Texas 77032 98,120 1.80 98,120 -0-
Barbara Hahn
15311 Vantage Parkway
Suite 320
Houston, Texas 77032 11,893 * 11,893 -0-
Lanette McCoy
15311 Vantage Parkway
Suite 320
Houston, Texas 77032 11,893 * 11,893 -0-
- ----------------------
</TABLE>
*less than 1% of our outstanding shares.
<PAGE>
We issued the shares in two separate transactions as part of our ongoing
acquisition program in September and December, 1998. We issued 53,782 shares of
common stock to Landmark Financial Services, Inc. in connection with the
acquisition of what is now our Dallas, Texas office. The natural persons listed
above acquired up to 297,334 shares in our acquisition of Mortgage Credit
Services, Inc. Shares in that transaction were issued but escrowed and will be
released as sales under this registration statement are made, up to a maximum
aggregate sales proceeds of $1,784,000. Any shares remaining in escrow after
$1,784,000 sales proceeds have been realized by the natural persons will be
returned to us and cancelled.
As part of our acquisitions, we agreed to register all of the shares included in
this prospectus in order to permit the selling shareholders to sell the shares
from time to time in the public market or in privately-negotiated transactions.
We have agreed to prepare and file any amendments and supplements as may be
necessary to keep the registration of the shares effective until the earlier of
(i) two years following the date of this prospectus; or (ii) the date on which
all of the shares have been sold. We have also agreed to pay for all expenses of
this offering other than underwriting discounts and commissions and brokerage
commissions and fees.
This table assumes that all shares owned by the selling shareholders are being
sold. The selling shareholders may offer and sell less than the number of shares
indicated. The selling shareholders are not making any representation that any
shares will or will not be offered for sale.
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders, together with their donees or transferees, or by their
other successors in interest, may sell the shares in one or more transactions on
The Nasdaq Stock Market, in special offerings, exchange distributions, secondary
distributions, negotiated transactions, in settlement of short sales or a
combination or such methods. They may sell at market prices prevailing at the
time of sale, at prices related to the market price or at negotiated prices.
The selling shareholders may make such transactions by selling their shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the selling
shareholders for whom they may act as agent (which compensation may be in excess
of customary commissions). Broker-dealers purchasing shares from the selling
shareholders for their own account may resell such securities pursuant to this
prospectus.
The selling shareholders or any broker-dealers or other persons acting on their
behalf may be deemed to be underwriters and any commissions received or profit
realized by them on the resale of the shares may be deemed to be underwriting
discounts and commissions under the Securities Act. As of the date of this
prospectus, we are not aware of any agreement, arrangement or understanding
between any broker or dealer with the selling shareholders with respect to the
offer or sale of the shares.
At the time that any particular offering of shares is made, to the extent
required by the Securities Act, a prospectus supplement will be distributed
setting forth the terms of the offering, including the aggregate number of
shares being offered, the names of any underwriters, dealers or agents, and
discounts, commissions and other items constituting compensation from the
selling shareholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
We have advised the selling shareholders that during such time as they may be
engaged in a distribution of the shares, they are required to comply with
Regulation M under the Securities Exchange Act. With certain exceptions,
Regulation M prohibits any selling shareholder, any affiliated purchasers and
any other persons who participate in such a distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete.
We have agreed with the selling shareholders to indemnify each other (and each
other's controlling persons) against certain liabilities, including liabilities
under the Securities Act.
It is possible that a significant number of shares could be sold at the same
time. Such sales, or the perception that such sales could occur, may negatively
affect prevailing market prices for the common stock.
<PAGE>
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for us by Jones &
Keller, P.C., Denver, Colorado. Two members of that firm own an aggregate of
7,000 shares of our common stock.
EXPERTS
Ehrhardt Keefe Steiner & Hottman PC, independent certified public accountants,
have audited our consolidated financial statements included in our Annual Report
on Form 10-KSB for the year ended December 31, 1998, as set forth in their
report, which is incorporated in this prospectus by reference. Our consolidated
financial statements are incorporated by reference in reliance on their report,
given on their authority as experts in accounting and auditing. With respect to
the unaudited interim consolidated financial information for the three months
ended March 31, 1998 and 1999 included in Form 10-QSB, the independent certified
public accountants have not audited or reviewed such consolidated financial
information and have not expressed an opinion or any other form of assurance
with respect to such consolidated financial information.
<PAGE>
We have not authorized any person to make a statement that differs from what is
in this prospectus. If any person makes such a statement you should not rely on
it. This prospectus is not an offer to sell, nor is it seeking an offer to buy,
the shares in any state in which the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of its date, but the
information may change after that date.
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION..........................................1
INCORPORATION OF DOCUMENTS BY REFERENCE......................................1
HOW TO REQUEST INFORMATION...................................................1
ABOUT FACTUAL DATA CORP......................................................2
RISK FACTORS.................................................................3
USE OF PROCEEDS..............................................................8
SELLING SHAREHOLDERS.........................................................8
PLAN OF DISTRIBUTION........................................................10
LEGAL MATTERS...............................................................11
EXPERTS.....................................................................11
FACTUAL DATA CORP.
351,116 Shares
of Common Stock
PROSPECTUS
July 1, 1999
