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Rule 424(b)(2)
SEC File #333-47515
1st FRANKLIN FINANCIAL CORPORATION
INVESTMENTS
WEEK OF October 29, 1998 THRU November 4, 1998
VARIABLE RATE SUBORDINATED DEBENTURES
==============================================================
Effective Interest Interest Minimum
Yield (a) Rate (b) Adjustment (c) Amount
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5.39 5.25 1 Month $500
5.39 5.25 3 Months $500
5.92 5.75 6 Months $500
6.18 6.00 1 Year $500
6.50 6.30 2 Years $500
6.50 6.30 4 Years $500
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(a) Compounded daily based on a 365 day year.
(b) Interest is earned daily and will be payable at
anytime at the holder's request.
(c) At the end of this period, interest rate will be
adjusted to a new rate or the holder may redeem
without penalty. Redemptions at any other time
subject to interest penalty.
For a Prospectus, write or call 1st FRANKLIN FINANCIAL,
P.O. Box 880, Toccoa, Georgia 30577, (706) 886-7571 or
1-800-282-0709. Offer is made only by the Prospectus.
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PROSPECTUS SUPPLEMENT dated as of August 1, 1998
(1) INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE on page 2 of the
Prospectus is hereby changed to read in its entirety, as changed, as
follows:
"The Company incorporates herein by reference the following documents:
(a) The Company's Annual Report on Form 10-K dates as of December 31,
1997 and filed pursuant to Section 15(d) of the Exchange Act with
the Commission.
(b) From the Company's annual report to security holders dates as of
December 31, 1997 which is delivered with this Prospectus, the
following:
(i) Description of business furnished in accordance with the
provisions of Rule 14a-3(b)(6) under the Exchange Act;
(ii) Financial statements and information furnished in accordance
with the provisions of Rule 14a-3(b)(1);
(iii) Selected financial data furnished as required by Item 301 of
Regulation S-K;
(iv) Supplementary financial data furnished as required by Item
301 of Regulation S-K;
(v) Management's Discussion and Analysis of Financial Condition
and Results of Operations furnished as required by Item 303
of Regulation S-K."
(c) The Company's Quarterly Report on Form 10-Q dated as of March 31,
1998 filed pursuant to Section 15(d) of the Exchange Act with the
Commission.
(d) The Company's Quarterly Report on Form 10-Q dated as of June 30,
1998 and the quarterly report to security holders, included therein,
which is delivered with this Prospectus.
Any statement in the documents incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a
statement contained herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus or the
Registration Statement of which it is a part.
(2) APPENDIX I on page 11 of the Prospectus is hereby changed to read in its
entirety, as changed, as follows:
"Appendix I to Prospectus"
Information as of June 30, 1998
1. Ratio of Earnings to Fixed Charges (page 3):
June 30 December 31
------- ------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
2.11 1.72 1.95 2.06 2.73 2.58
==== ==== ==== ==== ==== ====
2. Unused borrowings under Credit Agreement (page 6): $21,000,000
3. Amount of Debentures outstanding under
Indenture (page 7) $37,064,877
4. Senior Debt outstanding (page 8): $100,045,799
A more current Appendix I, if appropriate, will be attached to the cover
page of the Prospectus as a supplement. If attached, that supplement
Appendix I supersedes this information."
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1st FRANKLIN FINANCIAL CORPORATION
PROSPECTUS dated May 8, 1998
$20,000,000 VARIABLE RATE SUBORDINATED DEBENTURES
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The Variable Rate Subordinated Debentures (the "Debentures") will be issued
in varying minimum purchase amounts established by 1st Franklin Financial
Corporation (the "Company") each Thursday, on a weekly basis. For each
respective purchase amount, the Company will establish an interest rate and
an interest adjustment period that may range from one month to four years
("established features"). The established features will be available for
the period from each Thursday through the following Wednesday and will be
applicable to all Debentures sold by the Company during that period. At the
end of each interest adjustment period, the interest rate will be adjusted
automatically to the then current rate or the holder may request redemption.
All other provisions will remain unchanged for the entire term of the
Debenture.
The established features will be published weekly in a newspaper of general
circulation and, in addition, may be obtained from the Company in Toccoa,
Georgia. A Rule 424(b)(2) prospectus supplement setting forth the
established features will be filed weekly with the Securities and Exchange
Commission.
The Debentures may be redeemed by the Company, upon at least 30 days written
notice, at any time prior to maturity for a redemption price equal to the
principal price equal to the principal amount plus any unpaid interest
thereon to the date of redemption. Holders of Debentures may request
redemption of the Debentures at the end of any interest adjustment period for
a redemption price equal to the principal amount plus any unpaid interest
thereon to the date of redemption. In addition, at the request of a holder
of Debentures, the Company may, at its option, redeem such holder's
Debentures during any interest adjustment period for a redemption price equal
to the principal amount plus interest thereon at the rate of one-half the
stated rate on such Debentures.
The Debentures mature four years from date of issue, subject to automatic
extension for one four year period, but may be redeemed by the holder without
penalty at the end of any interest adjustment period or at maturity.
There is not, nor is there likely to be, a market for these securities.
See "Risk Factors" beginning on page 3 for a discussion of certain factors
that should be considered by prospective purchasers of the Debentures
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT BANK DEPOSITS NOR BANK OBLIGATIONS AND ARE NOT
INSURED BY THE FDIC.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions (a) Company (b)
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Per Debenture........ 100% None 100%
Total.............. $20,000,000 None $20,000,000
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(a) None of the securities described above will be underwritten and no
commissions or other remunerations will be paid in connection with their
sale. They will be sold at face value by the Company through its
executive officers.
(b) Before deduction of the Company's expenses, estimated at $50,400.
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AVAILABLE INFORMATION
1st Franklin Financial Corporation is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth St., N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices or the public
reference offices thereof located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth St., N.W.,
Washington, D.C. 20549 at the rates prescribed by the Commission. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents:
(a) The Company's Annual Report on Form 10-K dated as of December 31, 1997,
as amended by Form 10-K/A (Amendment No. 1) on May 8, 1998
(collectively, the "Form 10-K"), filed pursuant to Section 15(d) of
the Exchange Act with the Commission.
(b) From the Company's annual report to security holders dated as of
December 31,1997, which is delivered with this Prospectus, the
following:
(i) Description of business furnished in accordance with the
provisions of Rule 14a-3(b)(6) under the Exchange Act;
(ii) Financial statements and information furnished in accordance with
the provisions of Rule 14a-3(b)(1);
(iii) Selected financial data furnished as required by Item 301 of
Regulation S-K;
(iv) Supplementary financial data furnished as required by Item 302 of
Regulation S-K; and
(v) Management's Discussion and Analysis of Financial Condition and
Results of Operations furnished as required by Item 303 of
Regulation S-K.
Any statement in the documents incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as modified or superseded,
to constitute a part of this Prospectus or the Registration Statement of
which it is a part.
Copies of the Forms 10-K (other than exhibits) will be provided without
charge upon request to the Company's Secretary at 213 East Tugalo Street,
Post Office Box 880, Toccoa, Georgia 30577, telephone number (706) 886-7571
or 1-(800)-282-0709.
REPORTS TO SECURITY HOLDERS
The Company provides each security holder with an annual report containing
financial information that has been examined and reported upon, with an
opinion expressed, by an independent public accountant. Additionally,
the Company provides each security holder with a quarterly report containing
unaudited financial information.
2
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RISK FACTORS
Prior to purchasing any of the securities offered hereby, prospective
investors should carefully consider the following factors relating to
the Company and the Debentures, together with the other information
and financial data included or incorporated by reference herein.
Government Regulation
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The operations of the Company are subject to regulation by federal, state
and local government authorities and are subject to various laws and judicial
and administrative decisions imposing various requirements and restrictions
which, among other things, require that the Company obtain and maintain
certain licenses and qualifications, limit the interest rates, fees and other
charges the Company is allowed to charge, limit or prescribe other terms of
the Company's loans, require specified disclosures to borrowers, govern the
sale and terms of insurance products offered by the Company and the insurers
for which it acts as agent, and define the Company's rights to repossess and
sell collateral. Although the Company believes that it is in compliance in
all material respects with applicable federal, state and local laws, rules
and regulations, there can be no assurance that a change in such laws, or in
the interpretation thereof, will not make the Company's compliance
therewith more difficult or expensive, restrict the Company's ability to
originate loans, further limit or restrict the amount of interest and
other charges earned under such loans, or otherwise adversely affect the
business or prospects of the Company.
Fluctuations in Interest Rates
- ------------------------------
The loans made by the Company in the ordinary course of its business are
subject to the interest rate and regulatory provisions of each applicable
state's lending laws and are made at fixed rates which are not adjustable
during the term of the loan. Since the loans are made at fixed interest
rates and are made using the proceeds from the sale of the Company's fixed
and variable rate securities (including the securities offered hereby), the
Company may experience a decrease in its net interest margin because
increased interest costs cannot be passed on to all of the Company's loan
customers. Net interest margin represents the difference between the amount
the Company earns on loans and investments and the amount the Company pays on
debt securities and other borrowings. An increase in prevailing interest
rates could adversely affect the Company's net interest margin.
Dependence on Continued Sales of Securities and Risk of Unanticipated
Redemptions
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Liquidity of the Company is dependent on the sale of its debt securities,
the continued availability of unused bank credit from its lenders and the
collection of its receivables. Numerous investment alternatives have caused
investors to evaluate more critically investment opportunities. The
securities offered hereby will have interest rates and redemption terms
which the Company believes will generate sufficient sales of debt securities
to meet the Company's liquidity requirements. Although all of the Company's
debt securities are subject to redemption prior to maturity at the option of
the holder thereof, the Company is not obligated to accept requests for
redemption of Debentures during any interest adjustment period, and any
requests for redemption during an interest adjustment period are subject to
interest at one-half the stated rate. Based upon the Company's experience,
management does not anticipate that redemptions will have a material adverse
effect on the Company's liquidity. However, there can be no assurance that
the Company will not experience unanticipated declines in sales of securities
or increases in redemption requests, either of which could have a material
adverse effect on the Company's liquidity or financial condition.
Liquidity and Capital Requirements; Collectibility of Receivables
- -----------------------------------------------------------------
The Company has a Credit Agreement with four major banks under which it
may make borrowings in order to meet the redemption requests of its
security holders and other liquidity and operating requirements of the
Company. The Credit Agreement provides for maximum borrowings of
$21,000,000 or 70% of the net finance receivables, whichever is less.
Borrowings are on an unsecured basis at 1/4% above the prime rate of
interest. In addition, there is a commitment fee of 5/8% of the
available line less average borrowings and an agent's fee of 1/8% of the
3
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total line. The Credit Agreement has a commitment termination date of
June 30 in any year in which written notice of termination is given by
the banks. If written notice is given in accordance with the agreement,
the outstanding balance of the loans shall be paid in full on the date
which is three and one half years after the commitment termination date.
The banks also may terminate the agreement upon the violation of
any of the financial ratio requirements or covenants contained in the
agreement or in June of any calendar year if the financial condition of
the Company becomes unsatisfactory to the banks. Such financial ratio
requirements include a minimum equity requirement, an interest expense
coverage ratio and a minimum debt to equity ratio.
The Company has another Credit Agreement that provides for an additional
$2,000,000 in borrowings for general operating purposes. This agreement
provides for borrowings on an unsecured basis at 1/8% above the prime rate
of interest. There can be no assurances that either of the Company's
Credit Agreements will continue to be available to the Company at their
present amounts, or at all, because each is subject to periodic reviews
by the lenders, which take into account the Company's profitability,
economic conditions and other lending criteria. Management believes the
available borrowings under the two aforementioned Credit Agreements will be
adequate to meet the Company's presently anticipated funding needs for the
foreseeable future.
The Company's liquidity is dependent, among other things, on the collection
of its receivables. The Company continually monitors the delinquency status
of its receivables and promptly institutes collection efforts on each
delinquent account. Delinquencies of the Company's consumer finance
receivables are likely to be affected by general economic conditions.
Although current economic conditions have not had a material adverse effect
on the Company's ability to collect its receivables, no assurances can be
given regarding future economic conditions or their effect on the Company's
ability to collect its receivables.
If one or more of the sources of funds discussed above are significantly
curtailed for any reason, the Company's ability to meet its obligations,
including its obligations with respect to the securities offered hereby,
could be adversely affected.
Unsecured Nature of the Debentures
- ----------------------------------
The Debentures will be general, unsecured obligations of the Company and
subordinated in right of payment to all of the Company's Senior Debt (as
defined in "Description of Variable Rate Subordinated Debentures -
Subordination"). The incurrence of additional Senior Debt or secured
obligations is not limited. For information regarding Senior Debt
outstanding as of a recent date, See Appendix I to this prospectus or the
most recent prospectus supplement.
In the event of any insolvency or bankruptcy proceeding, or of any
receivership, liquidation, reorganization or other similar proceeding
in connection therewith, relative to the Company or to its creditors,
as such, or to its property, or in the event of any proceeding for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy, then the holders of
Senior Debt shall be entitled to receive payment in full of all principal
and interest on all Senior Debt before the holders of the Debentures
are entitled to receive any payments.
Risk of Increased Credit Losses
- -------------------------------
Because the business of the Company consists mainly of the making of loans to
individuals who depend on their earnings to make their repayments, the
continued profitable operation of the Company will depend to a large extent on
the continued employment of those people and their ability to meet their
financial obligations as they become due. In the event of a sustained
recession or a significant downturn in business with consequent umemployment
or continued increases in the number of personal bankruptcies among the
Company's typical customer base, which events are beyond the Company's
control, the Company could experience increased credit losses and the
Company's collection ratios and profitability could be adversely affected.
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<PAGE>
SUMMARY DESCRIPTION OF SECURITIES OFFERED
The following is a summary of the principal features of the securities
being offered hereby. For a more detailed discussion, see "Description
of Variable Rate Subordinated Debentures".
Variable Rate Subordinated Debentures
Denominations Established weekly by the Company.
- -----------------------------------------------------------------------------
Indenture Trustee The Debentures will be issued pursuant to an
indenture between the Company and Synovus Trust
Company, an affiliate of Columbus Bank and Trust
Company, as trustee.
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Interest Rate Weekly offering rate, compounded daily, for each
established amount.
- -----------------------------------------------------------------------------
Interest Adjustment Rate adjusted at the end of each interest adjustment
period to the current interest rate, compounded daily.
- -----------------------------------------------------------------------------
Payment of Interest Interest will be earned daily and will be payable at
any time at the holder's request.
- -----------------------------------------------------------------------------
Maturity Four years from date of issue but may be redeemed at
the end of any interest adjustment period without
penalty.
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Redemption by Holder At the end of any interest adjustment period without
penalty; redemption at any other time subject to an
interest penalty.
- -----------------------------------------------------------------------------
Redemption by Company The Company may redeem prior to maturity upon 30 days
written notice to holder for a price equal to
principal plus interest accrued to date of redemption.
- -----------------------------------------------------------------------------
Extension of Maturity Maturity of each Debenture is automatically extended
on its original terms for one additional four-year
term subject to Interest Adjustment. Holder may
prevent such extension by redeeming the Debenture
within 15 days after maturity. The Company will
notify holders 30 days in advance of maturity date.
- -----------------------------------------------------------------------------
Compound Interest Debentures are offered at interest rates which are
compounded daily. Examples of annualized effective
yields for daily compounded rates are set forth below:
Example Effective
Nominal Annual
Rates Yield
5.0% 5.13%
6.0 6.18
7.0 7.25
8.0 8.33
9.0 9.42
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<PAGE>
THE COMPANY
1st Franklin Financial Corporation has been engaged in the consumer finance
business since 1941, particularly in making and servicing direct cash,
real estate and sales finance loans. The business is operated through 91
branch offices in Georgia, 31 in Alabama, 21 in South Carolina, 9 in
Mississippi and 5 in Louisiana. The Company funds its loan demand through
a combination of debt securities and a Credit Agreement with four major
banks. This Agreement provides for borrowings on an unsecured basis up to
$21,000,000 or 70% of the net finance receivables (as defined by the Credit
Agreement), whichever is less. Appendix I sets forth the amount of unused
borrowings under the Credit Agreement as of December 31, 1997.
USE OF PROCEEDS
Net proceeds from sales of the securities offered hereby, after payment of
estimated expenses of $50,400, will be placed in the general treasury of
the Company as sales are made. No segregation of proceeds will be made,
but the Company expects to use the net proceeds for the redemption of
senior and subordinated securities as such debtholders request redemption
over the next two years. Such subordinated securities include debentures
of the same series as the Debentures offered hereby; such senior
securities include senior demand notes of the Company, which are sold
from time to time in varying principal amounts and at various interest rates.
The Company can not presently estimate the amount of proceeds which will
be required to make mandatory redemption payments. Any proceeds not
used for redemptions will be used to repay bank borrowings and repay amounts
outstanding under the Company's commercial paper program as such amounts come
due, make additional consumer finance loans and for general operating
purposes.
PLAN OF DISTRIBUTION
The Debentures will be offered by the Company through its executive
officers. No selling commissions or other remunerations will be paid
directly or indirectly to any officers, directors or employees of the
Company in connection with the sale of the Debentures. All proceeds
from sales of the Debentures will be placed in the general treasury of
the Company as sales are made. (See "Use of Proceeds") All offering
expenses, including registration fees, printing, advertising, postage and
professional fees, will be paid by the Company.
The offering is to be conducted by the Company through its executive
officers and there is no assurance that all of the securities offered
herein will be sold. The offering, however, is not made contingent upon
any minimum amount of securities being sold.
The Debentures will be sold and redeemed at the Company's executive office
located at 213 East Tugalo Street, Post Office Box 880, Toccoa, Georgia 30577.
The telephone number is (706) 886-7571 or 1-(800)-282-0709.
FORWARD LOOKING INFORMATION
This registration statement contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to known and unknown risks,
uncertainties and other factors, including those identified in the filings
made by the Company from time to time with the Commission, which may cause
the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements.
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<PAGE>
DESCRIPTION OF VARIABLE RATE SUBORDINATED DEBENTURES
General
- -------
In January 1995, Columbus Bank and Trust Company (the prior trustee under the
Variable Rate Indenture) transferred its trust operations to its new separate
trust company affiliate named Synovus Trust Company, which has thereby become
the Trustee (hereinafter called the "Trustee") under the Variable Rate
Indenture. All references to the Trustee in this Prospectus and the
Registration Statement of which it is a part shall be deemed to refer to
Synovus Trust Company unless the context otherwise requires. The Company
has been informed that counsel to Columbus Bank and Trust Company believes
that pursuant to applicable banking regulations and by agreement with the
Company, Columbus Bank and Trust Company remains responsible to holders of
Debentures for all actions of Synovus Trust Company as if performed by
Columbus Bank and Trust Company itself. The following statements with respect
to the Debentures are subject to the detailed provisions of the Variable Rate
Indenture. Whenever any particular article or section of the Variable Rate
Indenture is referred to, the statement made in connection with such reference
is qualified in its entirety by such reference.
The Debentures are registered and issued without coupons in Series form.
Any amount of any Series may be issued. There is no limit on the principal
amount of Debentures of any Series, or of all Series issuable under the
Variable Rate Indenture. The dollar amount of Debentures outstanding under
the Variable Rate Indenture as of a recent date is set forth on Appendix I.
The Company and the Trustee may amend the Variable Rate Indenture to limit
the principal amount of a particular Series or to allow additional Series of
Debentures with no limitations as to the maximum amount of any increase or
to the number of increases which may be made. The Company may change the
interest rates and the maturities of the Debentures offered herein and of any
subsequent Series which may be offered, provided that no such change shall
affect any Debenture of any Series issued prior to the date of change.
The Debentures are direct obligations of the Company, but are not secured.
Principal and interest are payable at the executive office of the Company in
Toccoa, Georgia. The Debentures are executed by the Company and
authenticated and delivered to the purchaser by the Trustee upon written
order of the Company.
Established Features of Series 1 Debentures
- -------------------------------------------
The Variable Rate Subordinated Debentures Series 1 ("Series 1 Debentures")
offered herein are issued and dated as of the date when purchased. The
interest rate for a Series 1 Debenture is compounded daily and is payable at
any time at the holder's request. This request may be made to the Company
by phone, mail or in person at the Investment Center. The Series 1
Debentures mature four years from date of issue, and may be extended for one
additional four-year term as described under "Extension After Maturity".
Each Thursday, on a weekly basis, the Company establishes various minimum
purchase amounts with varying interest rates and interest adjustment periods
("established features") for each respective minimum purchase amount.
The purchase amount and the interest adjustment period thereby established
are maintained for the term of the Series 1 Debenture. The interest rate at
which the Series 1 Debenture is sold is set only for the initial interest
adjustment period. The Company anticipates that it will offer the Series 1
Debentures with interest rate adjustment periods ranging from one month to
four years.
At the end of each interest adjustment period, the Company will notify the
holder by mail of the new interest rate, which will be the same interest rate
that is applicable to all new Series 1 Debentures being offered during the
same week and at the same terms. The new interest rate will be determined
by the Company, in its discretion, based on general market rates of interest.
If the holder elects to retain the Series 1 Debenture at the new rate, no
action is required of the holder as the new rate will become effective as of
the first day of the interest adjustment period. If the holder elects not
to accept the new rate, the holder can redeem the Series 1 Debenture without
penalty at the end of the interest adjustment period. See "Redemption at
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<PAGE>
Request of Holder Prior to Maturity". Debentures with the current established
features are available for the period from Thursday through the following
Wednesday. The current established features are applicable to all Series 1
Debentures sold by the Company during that period. The Company publishes
this information in a newspaper of general circulation and, in addition, such
information may be obtained directly from the Company's executive offices in
Toccoa, Georgia. Established features are also set forth in Rule 424(b)
prospectus supplements that are filed weekly with the Securities and Exchange
Commission.
Subordination
- -------------
The payment of the principal of and interest on the Debentures is
subordinate in right of payment, as set forth in Article Ten of the
Variable Rate Indenture, to all Senior Debt of the Company.
The term "Senior Debt" means all indebtedness of the Company outstanding
at any time except debt of the Company that by its terms is not senior in
right of payment to the Debentures, and indebtedness represented by the
Company's outstanding Debentures, all of which are pari passu.
The indebtedness evidenced by the Debentures shall, in case the Debentures
are declared due and payable before their expressed maturity because of the
occurrence of a default under the Variable Rate Indenture, be entitled to
payment only after there shall have been paid in full all principal and
interest on such Senior Debt. Likewise, in the event of any insolvency or
bankruptcy proceeding, or of any receivership, liquidation, reorganization
or other similar proceeding in connection therewith, relative to the Company
or to its creditors, as such, or to its property, or in the event of any
proceeding for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, then the
holders of Senior Debt shall be entitled to receive payment in full of all
principal and interest on all Senior Debt before the holders of the
Debentures are entitled to receive any payments.
The amount of the Company's Senior Debt outstanding at a recent date is set
forth in Appendix I.
Redemption by Company Prior to Maturity
- ---------------------------------------
The Company may redeem any Debenture of any Series at any time prior to
maturity for a redemption price equal to the principal amount plus any
unpaid interest thereon to date of redemption. The Company will notify
Debentureholders whose Debentures are to be redeemed not less than 30 nor
more than 60 days prior to the date fixed for redemption. In the event
the entire Series is not called for redemption, the redemption call shall
be made pro rata.
Redemption at Request of Holder Prior to Maturity
- -------------------------------------------------
At the request of the holder, the Company will redeem any Series 1 Debenture
at the end of any interest adjustment period for a redemption price equal
to the principal amount plus any unpaid interest thereon to date of
redemption.
At the request of the holder, the Company may, at its option, redeem any
Series 1 Debenture during any interest adjustment period for a price equal
to the principal amount plus interest at one-half the stated rate on the
Series 1 Debenture.
If the holder dies before maturity, the Company may, at its option, redeem
any Series 1 Debenture for a redemption price equal to the principal amount
plus any unpaid interest thereon to date of redemption. Historically, the
Company has honored all such requests for early redemption.
All redemptions will be made at the Company's executive offices in Toccoa,
Georgia, either in person or by mail.
-8-
<PAGE>
Extension After Maturity
------------------------
The maturity of a Series 1 Debenture will be automatically extended from
the original maturity date for a period equal to the original term of such
Series 1 Debenture unless the holder submits the Series 1 Debenture for
redemption within 15 days after its maturity or the Company tenders the
amount due the holder within 15 days after maturity. In the event of such
an extension, all provisions of the Series 1 Debenture will remain unchanged
with the exception of the interest rate which will be changed in accordance
with the interest adjustment provision. If the Company does not elect to
tender payment, it will notify the holder of this extension provision at
least 30 days prior to the maturity date.
Restrictions Upon the Company
- -----------------------------
There are no restrictions in the Variable Rate Indenture against the issuance
of additional securities or the incurring of additional debt including Senior
Debt and secured obligations.
Modification of the Variable Rate Indenture
- -------------------------------------------
The Variable Rate Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than two-thirds of
the outstanding principal amount of the Debentures, to execute supplemental
indentures adding any provisions to or changing in any manner or eliminating
any of the provisions of the Variable Rate Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of such
Debentures; provided, however, that no such supplemental indenture shall
change the fixed maturity of any Debenture, reduce the principal amount
thereof, reduce the rate, change the time of payment of interest thereon,
reduce the amount of Debentures whose holders must consent to an amendment,
or make any changes regarding the Variable Rate Indenture that relate to
waiver of default, the rights of holders to receive payments, and the
requirements of consent of the Debentureholders, without the consent of the
holder of each Debenture so affected.
The Company and the Trustee may amend the Variable Rate Indenture to allow
the issuance of additional amounts of a particular Series or additional
Series of Debentures without the consent of the Debentureholders. There
are no limitations as to the maximum amount of any increase or to the
number of increases which may be made. The Company may change the interest
rates and the maturities of the Debentures offered hereby and of any
subsequent Series which may be offered without entering into a supplemental
indenture, provided that no such change will affect any Debenture of any
Series issued prior to the date of change.
Events of Default and Notice Thereof
- ------------------------------------
An Event of Default is defined by the Variable Rate Indenture to mean any of
the following: (a) failure to pay principal upon any Debenture when the same
becomes due; (b) failure to pay interest upon any Debenture when the same
becomes due and the Default continues for 30 days; (c) failure, after notice
from the Trustee or from the holders of at least 25% in principal amount of
the Debentures of the affected Series, to observe or perform within 30 days
any of the covenants contained in the Variable Rate Indenture or Debentures;
or (d) the occurrence of certain events of bankruptcy, insolvency or
reorganization.
The Variable Rate Indenture provides that the Trustee shall, within 90 days
after the occurrence thereof, give the registered holders of the Debentures
notice of any existing default known to the Trustee, but, except in case of a
default in the payment of principal or interest, the Trustee may withhold
such notice if and for so long as the Trustee in good faith determines that
the withholding of such notice is in the interest of such holders.
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Rights on Default
- -----------------
The Trustee by notice to the Company, or the holders of at least 25% in
principal amount of the Debentures of the affected Series, may declare
the principal of and accrued interest on all Debentures due upon the
happening of any of the Events of Default specified in the Variable Rate
Indenture, but the holders of a majority of the outstanding principal
amount of such Debentures may waive any default and rescind such
declaration if the default is cured within the 30 day period, except a
default in the payment of the principal of or interest on any Debenture
or a default on Senior Debt. The holders of a majority of the outstanding
principal amount of the Debentures of the affected Series may direct the
time, method and place of conducting any proceeding for any remedy available
to, or exercising any power or trust conferred upon, the Trustee, but the
Trustee may decline to follow any direction that conflicts with law,
provisions of the Variable Rate Indenture, or is unduly prejudicial to
the rights of the other Debentureholders or would involve the Trustee
in personal liability. Holders may not institute any proceeding to
enforce the Variable Rate Indenture unless the Trustee refuses to act
for 60 days after request from the holders of at least 25% in principal
amount of the Debentures of the affected Series and during such 60 day
period the holders of a majority in principal amount do not give the
Trustee a direction inconsistent with the request, and tender to the
Trustee of satisfactory indemnity against any loss, liability or expense.
Nevertheless, any holder may enforce the payment of the principal of and
interest on the holder's Debenture when due.
Concerning the Trustee
- ----------------------
The Trustee does not have any other business relationship with the Company.
The Trustee maintains its principal corporate trust office in Columbus,
Georgia.
Evidence to be Furnished Trustee
- --------------------------------
The Variable Rate Indenture provides that, as evidence of compliance with
the conditions precedent provided for in the Variable Rate Indenture
relating to any action to be taken by the Trustee upon the application or
demand of the Company, the Company shall furnish to the Trustee an officer's
certificate and an opinion of counsel stating that all such conditions
precedent have been met. Within 120 days after the end of each fiscal year,
the Company shall file with the Trustee an officer's certificate stating
whether or not, to the best knowledge of the signers, the Company is in
default in the performance of any covenant, agreement or condition
contained in the Variable Rate Indenture and, if so, specifying each such
default, and, with respect to each, the action taken or proposed to be
taken by the Company to remedy such default.
LEGAL OPINION
The validity of the securities offered hereby has been passed upon for the
Company by Jones, Day, Reavis & Pogue, Atlanta, Georgia.
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1st FRANKLIN FINANCIAL CORPORATION
Appendix I to Prospectus
Information as of December 31, 1997
1. Ratio of Earnings to Fixed Charges (page 3):
December 31
---------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
1.72 1.95 2.06 2.73 2.58
2. Unused borrowings under the $21,000,000 Credit
Agreement (page 6): ........................... $21,000,000
3. Debentures outstanding under Indenture (page 7): .. $37,246,521
4. Senior Debt (as defined under the caption
"Description of Variable Rate
Subordinated Debentures -
Subordination") outstanding (page 8): ......... $98,929,587
A more current Appendix I, if appropriate, will be attached to the cover
page of this Prospectus as a supplement. If attached, that supplemental
Appendix I supersedes this information.
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus in connection
with the offering contained herein, and if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities covered by this Prospectus
in any State to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create an implication that there
has been no change in the facts herein set forth since the date hereof.
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . 2
Reports to Security Holders . . . . . . . . . . . . . . 2
Risk Factors. . . . . . . . . . . . . . . . . . . . . . 3
Summary Description of Securities Offered . . . . . . . 5
The Company . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution. . . . . . . . . . . . . . . . . . 6
Forward Looking Informatin. . . . . . . . . . . . . . . 6
Description of Variable Rate Subordinated Debentures. . 7
Legal Opinion . . . . . . . . . . . . . . . . . . . . . 10
Appendix I. . . . . . . . . . . . . . . . . . . . . . . 11
$20,000,000
Variable Rate Subordinated Debentures -
Series 1
<PAGE>
