<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1996
Registration No. 33-98636
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO THE FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 6162 87-0418807
- ------------------------- -------------------------- ---------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(302) 478-6160
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
ANTHONY J. SANTILLI, JR.
Chairman, President, Chief Executive Officer,
Chief Operating Officer, Treasurer and Director
American Business Financial Services, Inc.
Balapointe Office Center
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
(610) 668-2440
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JANE K. STORERO, ESQUIRE
Blank Rome Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia Pennsylvania 19103
(215) 569-5500
_______________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
<PAGE>
If this Form is a post-effective registration statement filed pursuant
to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434 please check the following box. / /
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
PROSPECTUS
DATED SEPTEMBER __, 1996
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$50,000,000 PRINCIPAL AMOUNT
[LOGO]
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
THREE, SIX, EIGHTEEN AND THIRTY MONTH
SUBORDINATED INVESTMENT NOTES;
ONE, TWO, THREE, FOUR, FIVE, SEVEN AND TEN YEAR
SUBORDINATED INVESTMENT NOTES
This Prospectus relates to the offer and sale of up to $50,000,000 in
principal amount (the "Offering") of unsecured, subordinated notes (the
"Investment Notes" or the "Notes") of American Business Financial Services,
Inc., a Delaware corporation ("ABFS" or the "Issuer"). The Investment Notes
will be offered on an ongoing and continuous "best-efforts" basis by ABFS. The
Investment Notes will be subordinated to all "Senior Debt" of the Company (as
hereinafter defined), which includes the debt of ABFS and its subsidiaries.
See "Summary of the Terms -- Subordination of Investment Notes." As of the
date of this Prospectus, there was no Senior Debt outstanding. There is no
limitation on the amount of Senior Debt the Company can incur. As of the date
of the Prospectus, the Company had an aggregate of approximately $14.8 million
in principal amount of indebtedness outstanding which ranks pari passu (i.e.,
equally) in right of payment to the Investment Notes offered hereby.
Investment Notes will be issued in the minimum amount of $1,000. Purchasers
of the Investment Notes will elect a maturity when they subscribe for the
Investment Notes. The Notes may be extended by the Company, at its option, for
an identical term unless the holder thereof requests payment within seven (7)
days of the original maturity. Interest rates paid will depend on the term
maturity of the Investment Note. See "Summary of Terms -- Investment Notes."
The Notes will be issued pursuant to an Indenture of Trust between the Issuer
and First Trust, N.A., as Trustee. For a full description of the terms and
provisions of the Investment Notes offered hereby, see "Description of the
Investment Notes and The Indenture."
The Issuer reserves the right to reject any subscription hereunder, in
whole or in part, for any reason. Subscriptions will be irrevocable upon receipt
by ABFS. In the event a subscription is not accepted by the Company, the
proceeds of such subscription will be promptly refunded to the subscriber
without deduction of any costs and without interest. The Company expects that
such subscriptions will be refunded within 48 hours after the Company has
received the subscription. No minimum amount of Investment Notes must be sold in
the Offering. ABFS reserves the right to withdraw or cancel the Offering at
anytime. In the event of such withdrawal or cancellation, Investment Notes
previously sold will remain outstanding until maturity and pending subscriptions
will be irrevocable. See "Plan of Distribution."
The Notes will be issued in registered form. It is presently anticipated
that there will be no trading market for the Investment Notes. The Investment
Notes will not be transferable without the prior written consent of the Company.
Such consent will be withheld in the event that the Company determines that such
transfer might result in a violation of any state or Federal securities or other
applicable law. The Notes will be issued pursuant to an Indenture of Trust
between the Issuer and First Trust, N.A.. See "Description of the Investment
Notes and The Indenture."
ABFS is not subject to state or federal statutes or regulations applicable
to banks and/or savings and loan associations with regard to insurance, the
maintenance of reserves, the quality or condition of its assets or other
matters. THE INVESTMENT NOTES OFFERED HEREUNDER ARE NOT CERTIFICATES OF DEPOSIT
("CDs"). PAYMENT OF PRINCIPAL AND INTEREST ON THE INVESTMENT NOTES IS NOT
GUARANTEED BY ANY GOVERNMENTAL OR PRIVATE INSURANCE FUND OR ANY OTHER ENTITY.
THE COMPANY'S REVENUES FROM OPERATIONS, INCLUDING THE SALE OR SECURITIZATION OF
LOANS FROM ITS PORTFOLIO, THE COMPANY'S WORKING CAPITAL, AND CASH GENERATED FROM
ADDITIONAL DEBT FINANCING REPRESENT THE COMPANY'S SOURCES OF FUNDS FOR THE
REPAYMENT OF PRINCIPAL, AT MATURITY, AND THE ONGOING PAYMENT OF INTEREST ON THE
INVESTMENT NOTES.
THE NOTES ARE SPECULATIVE SECURITIES AND AN INVESTMENT HEREUNDER SHOULD BE
UNDERTAKEN ONLY AFTER CAREFUL EVALUATION OF THE RISK FACTORS AND THE OTHER
INFORMATION SET FORTH IN THE PROSPECTUS. FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE PURCHASING THE INVESTMENT NOTES, SEE "RISK
FACTORS" AT PAGE 6 HEREOF.
_________________________________
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF INVESTMENT NOTES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT SETTING FORTH THE INTEREST RATES
THEN BEING OFFERED ON THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE COMMISSIONS AND THE COMPANY
TO PUBLIC (1) DISCOUNTS (2) (2)(3)
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Per Note . . . . . . . . . 100% -0- 100%
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Total . . . . . . . . . . . $50,000,000 -0- $50,000,000
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(footnotes on following page)
<PAGE>
(1) The Investment Notes will be issued at their face principal value, without
discount.
(2) ABFS does not currently have any agreements concerning the use of the
services of any National Association of Securities Dealers, Inc. ("NASD")
member broker-dealer as an agent to assist in the sales of the Investment
Notes and, accordingly, is not presently obligated to pay any commissions
in connection with the sale of the Investment Notes. If an agreement
concerning the use of any broker-dealer is reached, ABFS may pay NASD
member broker-dealers, as agents, an estimated commission ranging from .5%
to 10% of the sale price of any Investment Note sold through any such
agent, depending on numerous factors. ABFS may agree to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. ABFS may also agree to reimburse such
broker-dealers for costs and expenses, up to a maximum percentage to be
determined, based upon a percentage of Investment Notes sold. See "Plan of
Distribution."
(3) Before deducting other expenses incurred in connection with the Offering
payable by ABFS estimated at approximately $1.4 million.
No ABFS employee, broker-dealer, salesman or other person has been
authorized to give any oral information or to make any oral representation other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by ABFS.
This Prospectus does not constitute an offer of any securities other than those
to which it relates or to any person in any jurisdiction where such offer would
be unlawful. The delivery of this Prospectus at any time does not imply that the
information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the registration of the Notes offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
such Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Issuer, the Notes offered by this
Prospectus and related matters, reference is made to such Registration
Statement, including the exhibits filed as a part thereof. Each statement in
this Prospectus referring to a document filed as an exhibit to such Registration
Statement is qualified by reference to the exhibit for a complete statement of
its terms and conditions.
The Issuer is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports
and other information with the Commission. Such reports and other information
filed by the Issuer can be inspected and copied at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located
as follows: Chicago Regional Office, Northwestern Atrium Center, 500 W. Madison
Street, Suite 1400, Chicago, IL 60661-2511; and New York Regional Office, 7
World Trade Center, New York, NY 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Issuer's Common Stock is
traded on the Philadelphia Stock Exchange under the symbol "AFX". Reports,
proxy statements and other information concerning the Issuer can be inspected at
the offices of the Philadelphia Stock Exchange located at 1900 Market Street,
Philadelphia, Pennsylvania 19103.
The Issuer intends to provide Noteholders with annual reports containing
audited financial statements and with such other periodic reports as the Issuer
may from time to time provide to stockholders of the Issuer or as otherwise
deemed appropriate or as may be required by law.
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<PAGE>
Unless otherwise indicated, all information in the Prospectus has been
adjusted to reflect a three for two stock split declared by the Board of
Directors of ABFS which was paid on November 1, 1995 to stockholders of record
of the Company on October 1, 1995.
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere herein.
THE ISSUER AND ITS PRINCIPAL OPERATING ENTITIES
The Company operates primarily throughout the Mid-Atlantic Region of the
United States. The Company began operations as a commercial finance company in
1988 and initially offered commercial loans to credit impaired customers whose
borrowing needs were not being serviced by commercial banks. Since its inception
ABFS has significantly expanded its product line and geographic scope.
Currently, ABFS, through its principal direct and indirect subsidiaries
American Business Credit, Inc. ("ABC"), HomeAmerican Credit, Inc., American
Business Leasing, Inc. and HomeAmerican Consumer Discount Company originates,
services and sells a full spectrum of financial services products, including
business, consumer and home equity loans and business leases. ABFS and its
direct and indirect subsidiaries are referred to herein collectively as the
"Company." As of June 30, 1996, the Company maintained a total loan and lease
portfolio of $18,966,927, with an average yield of 15.23%.
The Company's principal executive office is located at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810. The telephone number
at such address is (302) 478-6160. The Company's principal offices for its
operating subsidiaries are located at Balapointe Office Centre, 111 Presidential
Boulevard, Suite 215, Bala Cynwyd, PA 19004. Its telephone number at such
address is (610) 668-2440. See "Business."
SECURITIES OFFERED
This offering relates to $50,000,000 in principal amount of unsecured,
subordinated, term notes (the "Investment Notes" or the "Notes") issued by ABFS
pursuant to an Indenture of Trust between the Issuer and First Trust, N.A., as
trustee (the "Indenture"). The Notes are subordinated to the Senior Debt of the
Company and are not insured, guaranteed or secured by any lien on any assets of
ABFS.
The Investment Notes are offered with fixed maturities ranging from three
months to ten years. Individual Investment Notes will be issued as subscriptions
are accepted. The Investment Notes are offered in minimum denominations of
$1,000. Purchasers will be able to choose any of the following maturities: three
months, six months, one year, eighteen months, two years, thirty months, three
years, four years, five years, seven years or ten years.
The Investment Notes are non-negotiable instruments and will be issued in
fully registered form. Transfers of record ownership regarding Notes may be made
only with the prior written consent of ABFS. Such consent will be withheld in
the event that the Company determines that such transfer might result in a
violation of any state or Federal securities or other applicable law and
possibly under other circumstances.
The term of the Notes may, with the consent of the Company, be extended in
accordance with the procedure set forth below. The Company provides notice to
the holder of a Note regarding upcoming maturity
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<PAGE>
dates. The holder may request repayment for a period of up to seven (7) days
after the maturity date of the Note. As a courtesy, the Company provides a
request for repayment form with such notice. Use of such form by a holder is not
a condition of repayment. Requests for repayment may also be made to the Company
by letter. If the holder does not request repayment and the Company does not
notify the holder of its intention to repay the Note, the Note will be extended
for an identical term. If the Company intends to repay the Note and to not
permit the holder to extend the term it will notify the holder of its intention
at least seven (7) days prior to the expiration of the applicable term. Any
Notes which are so extended will be extended at the interest rate then being
offered by the Company, for newly issued Notes of like term and denomination. A
tabular summary of the terms of the Notes appears on the following page.
The Investment Notes will be subordinated to all Senior Debt of the
Company. As of the date of this Prospectus, there was no Senior Debt
outstanding. There is no limitation on the amount of Senior Debt the Company
can incur. Senior Debt is defined for this purpose to include any indebtedness
(whether outstanding on the date hereof or hereafter created) incurred in
connection with borrowings by the Company (including its subsidiaries) from a
bank, trust company, insurance company, or from any other institutional
lender, whether such indebtedness is or is not specifically designated by the
Company as being "Senior Debt" in its defining instruments. In addition, any
indebtedness of the subsidiaries of the ABFS, other than the Senior Debt,
will have rights upon liquidation or dissolution of the particular subsidiary
prior to payment being made to the Noteholders. See "Description of
Investment Notes and Indenture."
USE OF PROCEEDS
The net proceeds resulting from the sale of the Notes will be utilized by
the Company for its general corporate purposes, including possibly repaying
Senior Debt and debt which ranks pari passu (i.e., equally) with the Notes. See
"Use of Proceeds."
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<PAGE>
HIGHLIGHTS OF TERMS OF INVESTMENT NOTES OFFERED
<TABLE>
<CAPTION>
EIGHTEEN, THIRTY MONTHS AND ONE,
THREE AND SIX MONTH TWO, THREE, FOUR, FIVE, SEVEN
INVESTMENT NOTES AND TEN YEARS INVESTMENT NOTES
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TYPES OF NOTE OFFERED Unsecured, Subordinated Fixed Term Notes Unsecured, Subordinated Fixed term Notes
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<S> <C> <C>
DENOMINATION OF INITIAL Minimum purchase: $1,000 per Note or any amount Minimum purchase: $1,000 per Note or any
PURCHASE AND ADDITIONAL in excess thereof. amount in excess thereof.
PURCHASES
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ANNUAL INTEREST RATE Fixed upon issuance. Purchasers will elect a Fixed upon issuance. Purchasers will elect a
term length and the interest rate applicable to term length and the interest rate applicable
such Note will be based upon the term length to such Note will be based upon the term
chosen length chosen.
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PAYMENT OF INTEREST Interest will be compounded daily and paid at Interest will be compounded daily and, at the
maturity. election of the holder, paid at maturity,
monthly, quarterly, semi-annually or annually.
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REDEMPTION BY HOLDER May be redeemed by the holder only at maturity May be redeemed by the original holder upon
the occurrence of a Total Permanent
Disability, or by his/her estate after death,
at the principal amount plus accrued interest.
Otherwise, the holder will have no right to
cause redemption prior to maturity. (For joint
holders, see "Description of Notes and
Indenture".)
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REDEMPTION BY COMPANY Not redeemable until maturity. Not redeemable until maturity.
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FORM In fully registered form and non-negotiable. In fully registered form and non-negotiable.
Not transferable without the Company's prior Not transferable without the Company's prior
written consent. written consent.
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AUTOMATIC EXTENSION If the Company does not notify the holder of If the Company does not notify the holder of
its intention to repay the Note at least seven its intention to repay the Note at least seven
(7) days prior to maturity or if not redeemed (7) days prior to maturity or if not redeemed
by holder within seven (7) days after its by holder within seven (7) days after its
maturity date, the Note will be extended maturity date, the Note will be extended
automatically for a period equal to the automatically for a period equal to the
original term. Notes to be extended will be original term. Notes to be extended will be
extended at a fixed rate equal to the rate then extended at a fixed rate equal to the rate
being offered on newly-issued Notes of like then being offered on newly-issued Notes of
tenor, term and denomination at their like tenor, term and denomination at their
respective maturity dates. respective maturity dates.
</TABLE>
THE SECURITIES ARE UNSECURED OBLIGATIONS SUBORDINATED TO THE SENIOR DEBT OF
THE COMPANY. THE COMPANY IS NOT SUBJECT TO STATE OR FEDERAL STATUTES OR
REGULATIONS APPLICABLE TO COMMERCIAL BANKS AND/OR SAVINGS AND LOAN ASSOCIATIONS
WITH REGARD TO INSURANCE, THE MAINTENANCE OF RESERVES, THE QUALITY OR CONDITION
OF ITS ASSETS OR OTHER MATTERS. THE INVESTMENT NOTES OFFERED HEREUNDER ARE NOT
CERTIFICATES OF DEPOSIT. PAYMENT OF PRINCIPAL AND INTEREST ON THE INVESTMENT
NOTES IS NOT GUARANTEED BY ANY GOVERNMENTAL OR PRIVATE INSURANCE FUND OR OTHER
ENTITY. THE COMPANY'S REVENUES FROM OPERATIONS, INCLUDING THE SALE OR
SECURITIZATION OF LOANS FROM ITS PORTFOLIO, THE COMPANY'S WORKING CAPITAL AND
CASH GENERATED FROM ADDITIONAL DEBT FINANCING REPRESENT THE COMPANY'S SOURCES OF
FUNDS FOR THE REPAYMENT OF PRINCIPAL, AT MATURITY, AND THE ONGOING PAYMENT OF
INTEREST ON THE INVESTMENT NOTES.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Investment Notes.
ABSENCE OF INSURANCE AND REGULATION
The Investment Notes are not insured by any governmental or private agency
and they are not guaranteed by any public or private entity. Likewise, the
Company is not regulated or subject to examination as commercial banks and
thrift institutions are. The Company is not a commercial bank or
savings/thrift institution. The Company is dependent upon proceeds from the
continuing sale of Investment Notes and its institutional lines of credit to
conduct its ongoing operations. The Company's revenues from operations,
including the sale or securitization of loans from its portfolio, the Company's
working capital and cash generated from additional debt financing represent the
source of funds for repayment of principal at maturity and the ongoing payment
of interest on the Investment Notes. See "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RISKS OF MAKING LOANS SECURED BY REAL PROPERTY
The Company makes most of its loans based on independent appraiser
estimates of the fair market value of the real estate offered to collateralize
its loans. Current internal credit guidelines of the Company for business loans
to be kept in its portfolio generally provide for a maximum overall loan to
value ratio of 75% of the appraised value of the real estate collateral. It is
possible that the actual resale value of property collateralizing such loans may
decrease below appraised estimates of value. Notwithstanding the loan to value
ratios currently mantained by the Company, there can be no assurance that the
market value of the real estate underlying such loans will at any time be equal
to or in excess of the outstanding principal amount of such loans. Such a
decrease could result in some or all of such loans being under-collateralized,
presenting a greater risk of non-payment in the event of a default. See
"Business."
LENDING RISKS
The Company markets loans, in part, to borrowers who, for one reason or
another, are not able, or do not wish, to obtain financing from sources such as
commercial banks. To the extent that such loans may be considered to be of a
riskier nature than loans made by traditional sources of commercial financing,
holders of the Notes of the Company may be deemed to be at greater risk than if
the Company's business loans were made to other types of borrowers. In addition,
the Company makes its loans in a circumscribed geographic area. This practice
may subject the Company to the risk that a downturn in the economy in this area
of the country would more greatly affect the Company than if its lending
business and its portfolio were more diversified. While the Company has
historically experienced relatively little prepayment activity on its portfolio,
due principally to the pre-payment fees associated therewith, certain agreements
in connection with home equity loans sold to unaffiliated lenders require that
all or a portion of the fee be refunded if the loan is paid off during the first
six to twelve months after origination. See "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
Certain segments of the Company's lending businesses are highly
competitive. Certain lenders against which the Company competes have
substantially greater resources, greater experience, as well as a more
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<PAGE>
established market presence than the Company. The future profitability of the
Company will depend upon its ability to compete in the marketplace of which
there can be no assurance. See "Business."
SUBORDINATION OF DEBT REPRESENTED BY SECURITIES
The Notes will be subordinate in claim and right to all "Senior Debt" of the
Company. As of the date of this Prospectus there was no Senior Debt
outstanding. There is no limitation on the amount of Senior Debt the Company
can incur. Senior Debt is defined for this purpose to include any indebtedness
(whether outstanding on the date hereof or thereafter created) incurred in
connection with borrowings by the Company (including its subsidiaries) from a
bank, trust company, insurance company, or from any other institutional
lender, whether such indebtedness is or is not specifically designated by the
Company as being "Senior Debt" in its defining instruments. If the Company
were to become insolvent, such Senior Debt of the Company would have a
priority of right to payment in connection with the liquidation of the Company
and its assets. In addition, any indebtedness of the subsidiaries of ABFS,
other than the Senior Debt, will have rights upon liquidation or dissolution
of the particular subsidiary prior to payment being made to any Noteholders.
There can be no assurance that any holder of the Company's indebtedness would
be repaid upon a liquidation of the Company. See "Description of the
Investment Notes and the Indenture."
ABSENCE OF SINKING FUND
The Investment Notes are unsecured obligations of the Company and no
sinking fund (i.e. funds contributed on a regular basis to a separate account to
repay the Notes) exists for the benefit of noteholders.
RESIDENTIAL MORTGAGE FORECLOSURES
The ability of a lender to avoid losses in its loan portfolio when a
particular loan becomes delinquent or in default depends upon its ability to
foreclose on the collateral it has accepted to collateralize such loan. In the
case of the Company, the majority of that collateral is real estate. The
Company's ability to foreclose on such real estate mortgages securing its loans
is regulated by state law. While the precedents for such an action are extremely
rare, in the past, certain jurisdictions, not including Pennsylvania or New
Jersey, have, during difficult economic times, declared a moratorium on
principal residence mortgage foreclosures. To the Company's knowledge, no such
moratoriums are in effect at this time anywhere in the United States but there
can be no assurance that such moratorium(s) will not be enacted in the future.
Certain states may grant to mortgagors of foreclosed property a statutory right
of redemption. The Company does not view any such statutory right of redemption
as a material risk in foreclosing mortgaged property in the states in which it
conducts its business but there can be no assurances that such statutory right
of redemption will not be a material risk.
RELIANCE ON MANAGEMENT
The success of the Company's operations depend, to a large extent, upon the
management, lending, credit analysis and business skills of the senior level
management of the Company. If members of senior level management were for some
reason unable to perform their duties or were, for any reason, to leave the
Company, there can be no assurance that the Company would be able to find
capable replacements. Currently, the Company does not have employment agreements
with any of its executive officers. In addition, the Company does not hold
"key-man" insurance for its executive officers other than Anthony J. Santilli,
Jr. and Beverly Santilli. See "Management."
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<PAGE>
ENVIRONMENTAL CONCERNS
In the course of its business, the Company has acquired, and may acquire in
the future, properties securing loans which are in default. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or chemical releases at
such property, and may be held liable to a governmental entity or to third
parties for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. Such laws
typically impose cleanup responsibility and liability under such laws has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such property, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not the facility is owned or operated by such person. In addition,
the owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
The ability of the Company to foreclose on the real estate mortgages
collateralizing its loans, if at any time such a foreclosure would be otherwise
appropriate, may be limited by the above-referenced environmental laws. While
the Company would not make a mortgage loan collateralized by property as to
which it had knowledge of an environmental risk or problem, it is possible that
such a risk or problem could become known after the subject mortgage loan has
been made.
DEPENDENCE UPON DEBT FINANCING
For its ongoing operations, the Company is dependent upon borrowings such
as that represented by the Investment Notes and the Company's institutional
lines of credit as well as funds received from the securitization of loans. The
Company has a Revolving Credit and Security Agreement with a regional
commercial bank in the amount of $3,500,000 which expires in December 1996. In
addition, a subsidiary of the Company entered into an Interim Warehouse and
Security Agreement with another lender. This credit facility is in the amount
of $25,000,000 and expires in March 1997. This subsidiary also has a
$7,500,000 Loan and Security Agreement with a commercial bank which expires in
May 1998. At the present time, the Company intends to utilize the proceeds of
the sale of the Investment Notes offered hereunder to finance its lending
activities and as working capital. The Company's ability to continue to
operate at present and to expand its operations in the future will at least, in
part, be dependent upon the Company's continued access to such sources of debt
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
MANAGEMENT DISCRETION OVER SUBSTANTIAL AMOUNT OF THE PROCEEDS OF THE
OFFERING AND POSSIBLE USE FOR FUTURE UNSPECIFIED ACQUISITIONS
The net proceeds from the sale of the Notes will be utilized for general
corporate purposes, including possible unspecified acquisitions of related
businesses or assets (although none are currently contemplated). Proceeds
received to date were used to fund the origination of loans and operations and
it is currently anticipated that proceeds from the Offering will continue to be
used for such purposes. Management will have broad discretion in allocating the
proceeds of the Offering.
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<PAGE>
DEPENDENCE UPON SECURITIZATIONS AND FLUCTUATIONS IN OPERATING RESULTS
Since March 1995, the Company has pooled and sold through securitizations
an increasing percentage of the business loans which it originates. Accordingly,
adverse changes in the securitization market could impair the Company's ability
to sell loans through securitizations on a favorable or timely basis. The
Company is substantially dependent on sales of business loans as a source of
revenues and any such impairment could have a material adverse effect upon the
Company's results of operations and financial condition. Furthermore, the
strategy of selling loans through securitizations requires the Company to build
an inventory of loans over time, during which time the Company incurs costs and
expenses. Since the Company does not recognize gains on the sale of such loans
until it consummates a securitization thereof, which may not occur until a
subsequent fiscal period, the Company's operating results for a given period can
fluctuate significantly as a result of the timing and level of securitizations.
If securitizations do not close when expected, the Company's results of
operations may be adversely affected for that period.
The documents governing the Company's previous securitizations require the
Company to build over-collateralization levels through retention of excess
servicing distributions and application thereof to reduce the principal balances
of the senior interests issued by the related trust. This application causes
the aggregate principal amount of the loans in the related pool to exceed the
aggregate principal balance of the outstanding investor certificates. Such
excess amounts serve as credit enhancement for the related trust and therefore
fund losses realized on the loans held by such trust. The Company continues to
be subject to the risks of default and foreclosure following the sale of loans
through securitizations to the extent excess servicing distributions are
required to be retained or applied to reduce principal from time to time. In
addition, such retention diverts cash which would otherwise flow to the Company
through its retained interest in the transaction, thereby slowing the flow of
cash to the Company. In the event that the Company is unable to obtain
alternative sources of cash, such diversion could have a material adverse effect
on the Company's liquidity.
As a result of securitizations, the Company now derives a significant
portion of its income by realizing gains upon the sale of loans due to the
excess spread associated with such loans at the time of sale. Excess spread
represents the excess of the interest rate payable by an obligor on a loan over
the interest rate passed through to the purchaser acquiring an interest in such
loan, less the Company's servicing fee and other applicable recurring fees. When
loans are sold in securitizations, the Company recognizes as current revenue and
as an associated receivable the present value of the excess spread expected to
be realized over the anticipated average life of loans sold less future
estimated credit losses relating to the loans sold. These excess spreads and the
associated receivable are computed using prepayment, loss, delinquency and
discount rate assumptions that the Company believes are reasonable. The Company
periodically reviews these assumptions in relation to actual experience and, if
necessary, adjusts the receivable to the net present value of the estimated
remaining future excess spreads.
Although the Company believes that it has made reasonable estimates of the
excess spread receivables likely to be realized, the rate of prepayment and the
amount of defaults utilized by the Company are estimates and actual experience
may vary from its estimates. The gain recognized by the Company upon the sale of
loans will have been overstated if prepayments or losses are greater than
anticipated. Higher levels of future prepayments, delinquencies and/or
liquidations could result in decreased excess spreads and the write down of the
receivable, which would adversely affect the Company's income in the period of
adjustment. Should the estimated average loan life assumed for this purpose be
shorter than the actual life, the amount of cash actually received over the
lives of the loans would reduce the gain previously recognized at the time the
loans were sold. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<PAGE>
RECENT OPERATING INCOME LEVELS
During fiscal 1996, the Company experienced record levels of total revenues
and net income as a result of increases in loan originations and the
securitizations of loans. Total revenues increased approximately $6.7 million,
or 119%, between fiscal 1995 and 1996 while net income increased approximately
$1.2 million, or 299%, during the same fiscal period. The Company's ability to
sustain the level of growth in total revenues and net income experienced during
fiscal 1996 is dependent upon a variety of factors outside the control of the
Company, including interest rates, economic conditions in the Company's primary
market area, competition and regulatory restrictions. As a result, the rate of
growth experienced in fiscal 1996 may not be sustained in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTINGENT RISKS
Although the Company sells substantially all loans which it originates on a
nonrecourse basis, the Company retains some degree of risk on substantially all
loans sold. During the period of time that loans are held pending sale, the
Company is subject to the various business risks associated with the lending
business including the risk of borrower default, the risk of foreclosure and the
risk that a rapid increase in interest rates would result in a decline in the
value of loans to potential purchasers.
In addition, documents governing the Company's securitizations require the
Company to commit to repurchase or replace loans which do not conform to the
representations and warranties made by the Company at the time of sale. When
borrowers are delinquent in making monthly payments on loans included in a
securitization trust, the Company is required to advance interest payments with
respect to such delinquent loans to the extent that the Company deems such
advances ultimately recoverable. These advances require funding from the
Company's capital resources but have priority of repayment from the succeeding
month's collections.
In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. The Company believes that liability
with respect to any currently asserted claims or legal actions is not likely to
be material to the Company's results of operations or financial condition;
however, any claims asserted in the future may result in legal expenses or
liabilities which could have a material adverse effect on the Company's results
of operations and financial condition.
DIVERSIFICATION OF THE BUSINESS
The Company's involvement in consumer lending and commercial leasing is
relatively new. Therefore, the Company is not able to predict with any certainty
whether it will be able to operate such lines of business profitability either
in the short or long term. There are also risks inherent in such lines of
business which in some cases differ from those which exist in the Company's
principal line of business as a commercial finance company. Certain of the
smaller loans made by HomeAmerican Consumer Discount Company may be made on an
unsecured basis. The Company does not at this time intend to aggressively pursue
this line of business, but rather views this business as a complement to its
business and home equity lending operations. While the equipment leases made by
American Business Leasing, Inc. are secured by a lien on the equipment leased,
such equipment is subject to the risk of damage, destruction or technological
obsolescence prior to the termination of the lease. In the case of American
Business Leasing, Inc.'s fair market value leases, lessees may
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<PAGE>
choose not to exercise their option to purchase the equipment for its fair
market value at the termination of the lease, with the result that American
Business Leasing, Inc. may be required to sell such equipment to third party
buyers at a discount or otherwise dispose of such equipment. See "Business."
LIMITED LIQUIDITY -- LACK OF TRADING MARKET
The Investment Notes are non-negotiable and are therefor not transferable
without the prior written consent of the Company. Due to the length of the term
of certain of the Investment Notes, the non-negotiable nature of the Investment
Notes, and the lack of a market for the sale of the Investment Notes, even if
the Company permitted a transfer, investors may be unable to liquidate their
investment even if circumstances would otherwise warrant such a sale.
ECONOMIC CONDITIONS, CHANGES IN INTEREST RATES AND RELATED UNCERTAINTIES
Financial service companies are affected, directly and indirectly, by
economic conditions, and by governmental policies. Economic downturns could
result in decreased demand for credit, declining real estate values and the
delinquency of outstanding loans. Any material decline in real estate values
reduces the ability of borrowers to use home equity to support borrowing.
Because of the Company's focus on borrowers who are unable or unwilling to
obtain financing from sources such as commercial banks, the actual rates of
delinquencies, foreclosures and losses on such loans could be higher under
adverse economic conditions than those experienced in the commercial lending
business generally. The Company's operations are dependent to a large degree
on the interest rate spread which is the difference between interest from
loans and income from the securitization of loans and costs related to loan
securitizations. The Company's ability to generate revenues is dependent
upon its ability to make loans at rates in excess of and for amounts at least
equivalent to its outstanding indebtedness including the indebtedness of the
Notes and costs related to loan securitizations. The Company's profitability
will be affected by fluctuations in interest rates. For example, any future
rise in interest rates, while increasing the income yield on the Company's
assets, may adversely affect loan demand and the cost of funds. Conversely,
any future decrease in interest rates may reduce the amounts which the
Company may earn on its assets, but increase loan demand and reduce the cost
of funds. Management does not expect any one particular factor to affect the
Company's results of operations. However, a downtrend in several areas could
have an adverse impact on the Company's profitability.
REGULATORY RESTRICTIONS AND LICENSING REQUIREMENTS
The Company's consumer home equity lending business is subject to extensive
regulation, supervision and licensing by federal, state and local governmental
authorities and is subject to various laws and judicial and administrative
decisions imposing requirements and restrictions on part or all of its
operations. The Company's consumer home equity lending activities are subject to
the Federal Truth-in-Lending Act and Regulation Z (including the Home Ownership
and Equity Protection Act of 1994), the Federal Equal Credit Opportunity Act and
Regulation B, as amended ("ECOA"), the Federal Real Estate Settlement Procedures
Act ("RESPA") and Regulation X, the Home Mortgage Disclosure Act and the Federal
Debt Collection Practices Act, as well as other federal and state statutes and
regulations affecting the Company's activities. The Company is also subject to
examinations by state regulatory authorities with respect to originating,
processing, underwriting, selling, securitizing and servicing loans. These rules
and regulations, among other things, impose licensing obligations on the
Company, prohibit discrimination, regulate assessment, collection, foreclosure
and claims handling, payment features, mandate certain disclosures and notices
to borrowers and, in some cases, fix maximum interest rates, and fees. Failure
to comply with these requirements can lead to, termination or suspension of
licenses, certain rights of rescission for mortgage loans, class action lawsuits
and administrative enforcement actions.
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<PAGE>
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables summarize selected consolidated financial data for ABFS
and its subsidiaries and is qualified in its entirety by the more detailed
financial statements, including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . . . . . . . . . . . $ 1,720,506 $ 2,043,989 $ 2,632,667 $ 5,644,077 $12,378,733
Operating income (loss) before income taxes
(recoverable), extraordinary items and cumulative
effect of accounting change . . . . . . . . . . . . . (208,178) 66,532 334,140 893,903 3,120,663
Net income . . . . . . . . . . . . . . . . . . . . . . 31,634 41,322 84,644 581,037 2,318,696
Per common share data
Net income . . . . . . . . . . . . . . . . . . . . . . $ .02 $ .02 $ .04 $ .27 $ 1.01
Cash dividends declared . . . . . . . . . . . . . . . None None None None $0.03
Balance Sheet Data
<CAPTION>
June 30,
---------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . $5,367,774 $7,270,122 $12,283,829 $22,174,896 $46,894,163
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . $ 933,091 $1,529,459 $ 3,984,854 $ 8,958,618 $14,780,617
</TABLE>
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<PAGE>
USE OF PROCEEDS
The net proceeds resulting from the sale of the Notes (estimated to be
approximately $48.6 million net of estimated offering expenses if all of the
Notes offered hereby are sold) will be utilized by the Company for its general
corporate purposes. Corporate general purposes may include replacing some or
all of the Company's Senior Debt, and debt which ranks pari passu, (i.e.,
equally) in right of payment to the Notes, including maturing Notes; financing
of future growth; enlargement of the Company's business loan portfolio;
enlargement of a lease portfolio; enlargement of a small consumer loan
portfolio; the establishment of a warehouse portfolio of home equity loans as
well as other finance related activities; and possible future acquisitions of
related businesses or assets. The precise amounts and timing of the
application of such proceeds depends upon many factors, including, but not
limited to, the amount of any such proceeds, actual funding requirements and
the availability of other sources of funding. Until such time as the proceeds
are utilized, they will be invested in short and long-term investments,
including treasury bills, commercial paper, certificates of deposit,
securities issued by U.S. government agencies, money market funds and
repurchase agreements, depending on the Company's cash flow requirements. The
Company's investment policies permit significant flexibility as to the types
of such investments that may be made by the Company. The Company may also
maintain daily unsettled balances with certain broker-dealers. While the
Company may from time to time consider potential acquisitions, the Company as
of the date of this Prospectus had no commitments or agreements with respect
to any material acquisitions.
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<PAGE>
DESCRIPTION OF THE INVESTMENT NOTES AND THE INDENTURE
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company and First Trust, N.A., as trustee (the "Trustee"). The terms of the
Investment Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"), in effect on the date the Indenture is qualified thereunder.
The Investment Notes are subject to all such terms, and holders of Investment
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following includes a summary of certain provisions of the
Indenture, a copy of which is available from the Company. This summary does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
The Investment Notes will be general unsecured, subordinated term notes,
subordinated in right of payment to the prior payment in full of all Senior Debt
(as herein defined) of the Company, whether outstanding on the date of the
Indenture or thereafter incurred, and are offered by the Company at maturities
ranging from three months to ten years. The term of each Investment Note will be
chosen by the purchaser of such Note upon subscription.
The Investment Notes are not secured by any collateral or lien. There are
no provisions for a sinking fund applicable to the Notes.
FORM AND DENOMINATIONS
The Investment Notes will be issued in fully registered form. The Notes are
not negotiable instruments, and no rights of record ownership therein can be
transferred without the prior written consent of the Company. Ownership of an
Investment Note may be transferred on the Company register only by written
notice to the Company signed by the owner(s) or such owner's duly authorized
representative on a form to be supplied by the Company and with the prior
written consent by the Company (which consent shall not be unreasonably
withheld). The Company may also, in its discretion, require an opinion from such
Noteholder's counsel that the proposed transfer will not violate any applicable
securities laws. See "Summary of Terms." An Investment Note may be purchased in
the minimum amount of $1,000 or any amount in excess thereof. Separate purchases
may not be accumulated to satisfy the minimum denomination requirement.
INTEREST
The interest rates payable on the Investment Notes offered hereby will be
established by the Company from time to time based on market conditions and the
Company's financial requirements. The Company constantly re-evaluates its
interest rates based on such analysis. Once determined, the rate of interest
payable on an Investment Note will remain fixed for the original term of the
Investment Note. The interest rate payable on an Investment Note will be
determined based upon the maturity date and term established for such Note upon
subscription.
Interest on Investment Notes will be computed on the basis of an actual
calendar year and will compound daily. Interest on Investment Notes with terms
of less than twelve months will be paid at maturity. Purchasers of Investment
Notes with terms of one year or greater may elect to have interest paid monthly,
quarterly, semiannually, annually or at maturity. This election may be changed
one time by the holder during the term of these longer term Notes. Requests to
change such election are required to be made to the Company in writing. No
specific form of change of election is required to be submitted to the Company.
Any interest not otherwise paid on an interest payment date will be paid at
maturity.
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<PAGE>
The Company reserves the right to vary from time to time, in its
discretion, the interest rates it offers on the Investment Notes based on
numerous factors other than length of term to maturity. Such factors may
include, but are not limited to: the desire to attract new investors; Investment
Notes in excess of certain principal amounts; Investment Notes purchased for IRA
and/or Keough accounts; rollover investments; and Investment Notes beneficially
owned by persons residing in particular geographic localities. As of the date of
this Prospectus, the Company is not offering varying interest rates to investors
on Notes of identical maturity. However, the Company may make a decision to vary
interest rates in the future based on its fund raising objectives including, but
not limited to, the attraction of new investors in particular regions and the
encouragement of the rollover of Investment Notes by current holders,
circumstances in the financial markets and the economy and other factors,
including, but not limited to, any additional costs incurred by the Company in
selling Investment Notes in a particular jurisdiction which may at the time be
relevant to the Company's operations.
INTEREST ACCRUAL DATE
Interest on the Investment Notes will accrue from the date of purchase,
which is deemed to be, for accepted subscriptions, the date the Company receives
funds, if received prior to 3:00 p.m. on a business day, or the next business
day if the Company receives such funds on a non-business day or after 3:00 p.m.
on a business day. For this purpose, the Company's business days will be deemed
to be Monday through Friday, except for Pennsylvania legal holidays.
INTEREST WITHHOLDING
With respect to those investors who do not provide the Company with a fully
executed Form W-8 or Form W-9, the Company will withhold 31% of any interest
paid. Otherwise, no interest will be withheld, except on accounts held by
foreign business entities. It is the Company's policy that no sale will be made
to anyone refusing to provide a fully executed Form W-8 or Form W-9.
AUTOMATIC EXTENSION
At least seven (7) days prior to an Investment Note's stated maturity date,
the Company will notify the registered holder in writing of such maturity date
and of its intention to repay, or if the Company does not intend to repay,
reminding the holder of the automatic extension. If at such time, the Company
does not notify the holder of its intention to repay, subject to the holder's
demand for repayment, the term of such Note will be automatically extended. If,
within seven days after an Investment Note's maturity date, the holder thereof
has not demanded repayment of such Note, and the Company has not notified the
holder of its intention to repay such Note, such Note shall be extended for the
same term identical to the term of the original Investment Note. The Investment
Notes will continue to renew as described herein absent some action permitted
under the Indenture and the Notes by either the holder or the Company. Interest
shall continue to accrue from the first day of such renewed term. Such Note, as
renewed, will continue in all its provisions, including provisions relating to
payment, except that the interest rate payable during any renewed term shall be
the interest rate which is then being offered by the Company on similar
Investment Notes being offered as of the renewal date. If similar Investment
Notes are not then being offered, the interest rate upon renewal will be the
rate specified by the Company on or before the maturity date, or the Note's
current rate if no such rate is specified. If the Company gives notice to a
Noteholder of the Company's intention to repay an Investment Note at maturity,
no interest will accrue after the date of maturity. Otherwise, if a Noteholder
requests repayment within seven days after its maturity date, the Company will
pay interest during the period after its maturity date and prior to repayment at
the lower of (i) the lowest interest rate then being paid on debt securities
being offered by the Company to the general public or (ii) the rate being paid
on such Note immediately prior to its maturity. As a
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<PAGE>
courtesy, the Company provides a request for repayment form with such notice.
Use of such form by a holder is not a condition of repayment. Requests for
repayment may also be made to the Company by letter or telephone.
REDEMPTION BY THE COMPANY
The Company will have no right to prepay an Investment Note. The holder has
no right to require the Company to prepay any such Note prior to its maturity
date as originally stated or as it may be extended, except as indicated below.
REDEMPTION BY THE HOLDER UPON DEATH OR TOTAL PERMANENT DISABILITY
Except for Investment Notes with maturities of less than 12 months, an
Investment Note may be redeemed at the election of the holder following his
Total Permanent Disability, as established to the satisfaction of the Company,
or by his estate following his death. The redemption price, in the event of such
a death or disability, will be the principal amount of the Investment Note, plus
interest accrued and not previously paid, to the date of redemption. If spouses
are joint record owners of an Investment Note, the election to redeem will apply
when either record owner dies or becomes subject to a Total Permanent
Disability. In other cases of Investment Notes jointly held, the election will
not apply.
The Company may modify the foregoing policy on redemption after death or
disability. However, no such modification will affect the right of redemption
applicable to any then outstanding Investment Note. Should the Company modify
such policy at a future date, written notice of such modification will be sent
to all owners of those outstanding Investment Notes which were purchased while
the policy was in effect (but such notice will not affect the right to redeem
such outstanding Investment Notes after the owner's death or disability.)
For the purpose of determining the right of a holder to demand early
repayment of an Investment Note, Total Permanent Disability shall mean a
determination by a physician chosen by the Issuer that the holder, who was
gainfully employed on a full time basis at the time of purchase, is unable to
work on a full time basis, defined as working at least forty hours per week,
during the succeeding twenty-four months.
SUBORDINATION
The indebtedness evidenced by the Investment Notes, and any interest
thereon, are subordinated to all "Senior Debt" of the Company. Senior Debt is
defined for this purpose to include any indebtedness (whether outstanding on the
date hereof or thereafter created) incurred by the Company in connection with
borrowings by the Company (including its subsidiaries) from a bank, trust
company, insurance company, or from any other institutional lender, whether such
indebtedness is or is not specifically designated by the Company as being
"Senior Debt" in its defining instruments. As of the date of this Prospectus,
there was no Senior Debt outstanding. There is no limitation under the
Indenture on the amount of Senior Debt the Company can incur. The Notes are not
guaranteed by any subsidiaries of ABFS. Accordingly, in the event of a
liquidation or dissolution of a subsidiary of ABFS, the law requires that
creditors of that subsidiary be paid, or provision for such payment be made,
from the assets of that subsidiary prior to distributing any remaining assets
to ABFS as a shareholder of that subsidiary. Therefore, in the event of
liquidation or dissolution of a subsidiary, creditors of such subsidiary will
receive payment of their claims prior to any payment to the Noteholders. Any
indebtedness of ABFS, other than that described as Senior Debt, will have
rights upon liquidation or dissolution of ABFS which ranks parri passu in
right of payment to the Investment Notes offered hereby.
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<PAGE>
For a discussion of the Company's status as a holding company and the lack
of insurance or guarantees in support of the Notes, see "Risk Factors - Absence
of Insurance and Regulation."
In the event of any liquidation, dissolution or any other winding up of the
Company, or of any receivership, insolvency, bankruptcy, readjustment,
reorganization or similar proceeding under the Federal Bankruptcy Code or any
other applicable federal or state law relating to bankruptcy or insolvency, or
during the continuation of any Event of Default (as described below), no payment
may be made on the Investment Notes until all Senior Debt has been paid. In any
such event, holders of Senior Debt may also submit claims on behalf of
Noteholders and retain the proceeds for their own benefit until they have been
fully paid, and any excess will be turned over to the Noteholders. If any
distribution is nonetheless made to Noteholders, the money or property
distributed to them must be paid over to the holders of the Senior Debt to the
extent necessary to pay Senior Debt in full.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Investment Notes (whether or not prohibited by the subordination provisions of
the Indenture); (ii) default in payment when due of principal on the Investment
Notes (whether or not prohibited by the subordination provisions of the
Indenture) and continuation thereof for 30 days; (iii) failure by the Company to
observe or perform any covenant, condition or agreement with respect to the
liquidation, consolidation or merger or other disposition of substantially all
of the assets of the Company (after notice and provided such default is not
cured within 60 days after receipt of notice); (iv) failure by the Company for
60 days after notice to comply with certain other agreements in the Indenture or
the Investment Notes; and (v) certain events of bankruptcy or insolvency with
respect to the Company.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least a majority in principal amount of the then outstanding
Investment Notes may declare all of the Investment Notes to be due and payable
immediately; provided, however, that so long as any Senior Debt is outstanding,
such declaration shall not become effective until the earlier of (x) the day
which is five Business Days after the receipt by representatives of Senior Debt
of such written notice of acceleration or (y) the date of acceleration of any
Senior Debt. In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, all outstanding
Investment Notes will become due and payable without further action or notice.
Holders of the Investment Notes may not enforce the Indenture or the Investment
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Investment
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from holders of the Investment Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the Investment
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Investment Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Investment
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided herein, the Indenture or the Notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the Investment Notes then outstanding, and any existing Default or
compliance with any provision of the Indenture or the Investment Notes may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding Investment Notes.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Investment Notes held by a nonconsenting holder of
Investment Notes) (i) reduce the principal amount of Notes whose holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Note, (iii) reduce the rate of or change the
time for payment of interest, including default interest, on any Investment
Note, (iv) waive a Default or Event of Default in the payment of principal or
premium, if any, or interest on or redemption payment with respect to the
Investment Notes (except a rescission of acceleration of the Investment Notes by
the holders of at least a majority in aggregate principal amount of the
Investment Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Investment Note payable in money other than that
stated in the Investment Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of
Investment Notes to receive payments of principal of or interest on the
Investment Notes, (vii) make any change to the subordination provisions of the
Indenture that adversely affects holders of Investment Notes, (viii) modify or
eliminate holders redemption rights (provided that no modification or
elimination is permitted as to any securities issued with such right), or (ix)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Investment Notes, the Company and/or the Trustee may amend or supplement the
Indenture or the Investment Notes to cure any ambiguity, defect or
inconsistency; to provide for assumption of the Company's obligations to holders
of the Investment Notes in the case of a merger or consolidation; to make any
change that would provide any additional rights or benefits to the holders of
the Investment Notes or that does not adversely affect the legal rights under
the Indenture of any such holder, including an increase in the aggregate dollar
amount of Investment Notes which may be outstanding under the Indenture; to
modify the Company's policy to permit redemptions of Investment Notes upon the
death or Total Permanent Disability of any holder of Investment Notes (but such
modification shall not adversely affect any then outstanding Note); or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions with the Company.
The holders of a majority in principal amount of the then outstanding
Investment Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Investment Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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PLACE AND METHOD OF PAYMENT
Principal and interest on the Investment Notes will be payable at the
principal executive office of the Company, as it may be established from time to
time, or at such other place as the Company may designate for that purpose;
provided, however, that payments may be made at the option of the Company by
check or draft mailed to the person entitled thereto at his address appearing in
the register which the Company maintains for that purpose.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Investment Notes, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of the Investment
Notes by accepting an Investment Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Investment Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Securities and Exchange
Commission that such a waiver is against public policy.
REPORTS
The Company publishes annual reports containing audited financial
statements and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year. Copies of such reports will be
sent to Noteholders.
SERVICE CHARGES
The Company reserves the right to assess service charges for replacing lost
or stolen Investment Notes (for which an affidavit from the holder will be
required), changing the registration of any Investment Note when such change is
occasioned by a change in name of the holder, or a transfer (whether by
operation of law or otherwise) of the Investment Note by the holder to another
person.
ADDITIONAL SECURITIES
The Company may offer from time to time additional classes of Notes with
terms and conditions different from the Investment Notes offered hereby. The
Company will amend this Prospectus if and when it decides to offer to the public
any additional class of security hereunder.
VARIATIONS BY STATE
The Company reserves the right to offer different Investment Notes and to
vary the terms and conditions of the offer (including, but not limited to,
additional interest payments and service charges for all Investment Notes)
depending upon the state where the purchaser resides.
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BUSINESS
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
GENERAL. ABFS was incorporated in Delaware in 1985 under the name Kingsway
Enterprises, Inc., which name was subsequently changed to Geriaco. In early
1993, ABFS acquired one hundred percent ownership of ABC through a tender offer
to the equity security holders of ABC, offering shares of ABFS's common stock
in exchange for each share of ABC common stock and preferred stock
outstanding, pursuant to which the former shareholders of ABC gained control
of ABFS and the Geriaco name was changed to ABFS. ABFS's only activity as of
the date hereof has been: (i) acting as the holding company for the Company's
operating subsidiaries and (ii) raising capital for use in the Company's
lending operations and otherwise. The Company presently employs 120 people
on a full time basis and two people on a part-time basis.
ABFS, through its business lending subsidiary ABC, began its operations in
1988 as a privately-held enterprise offering commercial loans to credit impaired
customers whose borrowing needs were not being serviced by commercial banks.
Since its inception ABFS has significantly expanded its product line and
geographic scope. Currently, ABFS is a full service financial services company
operating primarily throughout the Mid-Atlantic Region of the United States.
ABFS, through direct and indirect subsidiaries described below, originates,
services, purchases and sells a full spectrum of financial services products,
including business, consumer and home equity loans and business leases.
ABFS is the parent holding company of ABC and its subsidiaries, American
Business Finance Corporation, HomeAmerican Credit, Inc., Processing Service
Center, Inc., HomeAmerican Consumer Discount Company, American Business Leasing,
Inc., and ABC Holdings Corporation (collectively, the "Company"). The Company's
subsidiaries, ABFS 1995-1, Inc., ABFS 1995-2, Inc., ABFS 1996-1 Inc., and ABFS
1996-2, Inc. were incorporated to facilitate the Company's securitizations and
do not engage in any business activity other than holding the subordinated
certificate and the residual. See "Securitizations." American Business Finance
Corporation was incorporated in connection with the issuance of subordinated
debentures in 1990 through 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." ABC Holdings Corporation was incorporated to hold properties
acquired through foreclosure. Processing Service Center, Inc. processes home
equity loan applications for local banks. The Company's principal businesses
are described herein.
ABFS's Common Stock is traded on the Philadelphia Stock Exchange under the
symbol "AFX".
BUSINESS STRATEGY. The Company's objective is to enhance its significance
as a participant in the financial services industry. The Company believes that
its growth has been sustained by its commitment to servicing segments of the
market which the Company believes are not adequately serviced by commercial
banks. In servicing its markets, the Company stresses the importance of
customer service, including prompt response to requests for loans or leases.
The Company remains committed to increasing revenues by: (i) developing new
financial services profit centers; (ii) broadening its geographic business base;
(iii) expanding its capabilities to service an expanding customer base and
portfolio of customer loans; and (iv) continuing to utilize securitizations of
its loan (the process of aggregating loans into pools that are used to
collateralize securities which are
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issued to third party investors) and possibly its lease portfolios. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SECURITIZATIONS. The sale of the Company's home equity and business loans
through securitizations is an important objective of the Company. In
furtherance of this objective, the Company, during fiscal year 1996, sold in the
secondary market senior interests in two pools of loans it securitized.
Generally, a securitization involves the transfer by the Company of receivables
representing a series of loans to a single purpose trust in exchange for
certificates or securities issued by the trust. The certificates represent an
undivided ownership interest in the loans transferred to the trust. The
certificates consist of a class of senior certificates, and a residual interest
and may include a class of subordinated certificates. In connection with
securitizations, the senior certificates are sold to investors and the
subordinate certificates, if any, and residual interest are typically retained
by the Company. As a result of the sale of the senior certificates, the Company
receives a cash payment representing a substantial portion of the principal
balance of the loans held by the trust. The senior certificates will entitle
the holder to be repaid the principal of its purchase price and the certificates
bear interest at a stated rate of interest. The stated rate of interest is
typically substantially less than the interest rate required to be paid by the
borrowers with respect to the underlying loans. As a consequence, the Company
is able to receive cash for a portion of its portfolio and to pay the principal
and interest required by the senior certificate with the cash flows from the
underlying loans owned by the trust. However, since the interest in the loans
held by the Company (the subordinate certificate and the residual interest) is
subordinate to the senior certificate, the Company retains a portion of the risk
that the full value of the underlying loans will not be realized. Additionally,
the holder of the senior certificates will receive certain additional payments
on account of principal in order to reduce the balance of the senior
certificates in proportion of the subordinated amount held by the Company. The
additional payments of principal are designed to increase the senior certificate
holder's protection against loan losses. In the typical subordination
structure, the Company, as the holder of the residual interest in the trust will
be entitled to receive all of the remaining interest in the loans at the time of
the termination of the trust.
The pooling and servicing agreements that govern the distribution of cash
flows from the loans included in the securitization trusts require the
overcollateralization of the senior interests by using interest receipts on the
mortgage loans to reduce the outstanding principal balance of the senior
interests to a pre-set percentage of the mortgage loans. The
overcollateralization percentage may be reduced over time according to the
delinquency and loss experience of the loans. The Company's interest in each
overcollateralized amount is reflected in the Company's financial statements as
a portion of the "residual". To the extent that a loss is realized on the
loans, losses will be paid first out of the excess interest spread received and
ultimately out of the overcollateralization amount available to the residual
certificates, and the subordinated certificate, if available. If losses exceed
the Company's projected amount, the excess losses will result in a reduction in
the value of the residual certificate held by the Company. See "Risk Factors -
Dependence upon Securitizations and Fluctuations in Operating Results."
The Company may be required either to repurchase or to replace loans which
do not conform to the representations and warranties made by the Company in the
pooling and servicing agreements entered into when the loans are pooled and sold
through securitizations.
The Company generally retains the servicing rights with respect to all
loans securitized . Such loans are serviced by ABC, a subsidiary of the
Company. See "American Business Credit, Inc."
As set forth in greater detail below, subject to market conditions, the
Company anticipates that it will continue to build portfolios of business
loans and home equity loans and enter into
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securitizations of these portfolios. The Company may also consider the
securitization of business leases in the future. The Company believes that a
securitization program provides a number of benefits by allowing the Company to
diversify its funding base, provide liquidity and lower its cost of funds.
AMERICAN BUSINESS CREDIT, INC.
GENERAL. ABC, a Pennsylvania corporation incorporated in 1988, is a
commercial finance company which originates, services and sells business loans
collateralized by real estate. ABC typically makes loans to owners of small
businesses who do not meet all of the credit criteria of commercial banks, but
who ABC determines has the business purpose, motivation and real estate
collateral required to repay his, her or its obligation. ABC has sustained
growth in this business by carefully identifying a niche market and building an
experienced organization capable of responding to customer needs and servicing
the loan portfolios.
LENDING. ABC operates in Pennsylvania, Delaware, New Jersey, New York,
Virginia and Maryland and plans to expand into the Southeastern Region of the
United States. ABC makes business loans to corporations, partnerships, sole
proprietors and other business entities. ABC primarily makes loans to borrowers
with non-perfect credit histories. As a result, ABC typically requires lower
loan-to-value ratios (amount of loan as compared to appraised value of
collateral securing the loan) than are typically required of borrowers with
unblemished credit histories. All loans are collateralized by a first or second
mortgage lien on a principal residence or some other parcel of real property,
such as office and apartment buildings and mixed use buildings, owned by the
borrower, a principal of the borrower, or a guarantor of the borrower. ABC,
generally, further collateralizes its loans by obtaining a lien on the
borrower's other tangible and intangible assets by filing appropriate Uniform
Commercial Code financing statements.
ABC makes loans for various business purposes including, but not limited
to, working capital, business expansion, equipment acquisition and debt-
consolidation. ABC does not target any particular industries or trade groups
and, in fact, takes precautions against concentrations of loans in any one
industry group.
Loans made by ABC generally range from $15,000 to $350,000 and have an
average balance of approximately $70,000.
STRATEGY. ABC markets its business loans through various forms of
advertising, and a direct sales force. The advertising includes large direct
mail campaigns directed at owners of small businesses located in its service
area. Newspaper and radio advertising are also utilized. ABC's marketing
efforts are principally undertaken by its commissioned sales staff, which
consists of full time professional sales persons who are responsible for
converting advertising leads into loan applications.
LENDING POLICIES AND PRACTICES. Summarized below are certain of the
lending policies and practices which ABC follows. It should be noted that such
policies and practices will be altered, amended and supplemented as conditions
warrant. ABC reserves the right to make changes in its day to day practices and
policies in its sole discretion. Such changes may be made by management without
a vote of the Company's shareholders.
ABC endeavors at all times to keep its interest and other charges
competitive with the lending rates of other finance companies. Generally, loans
are made at fixed rates for fixed terms ranging from one to fifteen years.
Generally, ABC computes interest due on its outstanding loans using the simple
interest method. ABC requires that title insurance be obtained in connection
with its loans. In all instances, ABC permits borrowers to prepay such loans.
Where permitted by applicable law, ABC may impose a prepayment penalty. Whether
a prepayment fee is imposed and the amount of such fee, if any, is negotiated
between ABC and the individual borrower prior to consummation of the loan.
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Generally, ABC will not make a loan collateralized by residential real
estate where the overall loan to value ratio (based on independent appraised
fair market value) on the properties collateralizing the loans is equal to or
greater than seventy-five (75%) percent. Generally, ABC will not make a loan
collateralized by commercial real estate where the overall loan to value ratio
(based on independent appraised fair market value) is equal to or greater than
sixty (60%) percent. Occasionally, exceptions to these maximum levels are made
if other collateral is available or if there are other compensating factors.
UNDERWRITING PROCEDURES. ABC's underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability
to repay the debt as well as sufficient income and equity, ABC obtains and
reviews an independent credit bureau report on the credit history of the
borrower and verification of the borrower's income by obtaining and reviewing
one or more of the borrower's pay stubs, income tax returns, checking
account statements, W-2 tax forms or verification of business or employment
forms.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by an independent qualified appraiser and generally includes pictures
of comparable properties and pictures of the subject property's interior.
Once all applicable employment, credit and property information is
obtained, a determination is made by ABC as to whether sufficient unencumbered
equity in the property exists and whether the prospective borrower has
sufficient monthly income available to meet the borrower's monthly obligations.
SERVICING OF LOANS. Generally, ABC will be responsible for servicing the
loans it maintains in its portfolio or which are securitized by the Company in
accordance with its established servicing procedures. In servicing its loans,
ABC initiates the collection process one day after a borrower misses a monthly
due date. When a loan becomes forty-five (45) to sixty (60) days delinquent, it
is transferred to ABC's loan work-out department. The work-out department
attempts to reinstate a delinquent loan, seek a payoff, or occasionally enter
into a loan modification agreement with the borrower to avoid foreclosure. If a
borrower declares bankruptcy, the matter is immediately referred to counsel.
ABC in its capacity as the servicer of securitized loans is obligated to advance
funds (an "Advance") in respect of each monthly loan interest payment that
accrued during the collection period for the loans but was not received, unless
ABC determines that such advances will not be recoverable from subsequent
collections in respect to the related loans.
PURCHASING OF EXISTING LOANS. In the normal course of business, ABC may in
the future purchase business/commercial loan portfolios from individuals, banks,
other commercial finance companies as well as other sources of commercial loans.
Any loans so purchased would be collateralized by real estate located in ABC's
market area. Each such individual loan would be reviewed by a lending officer
of ABC prior to acquisition to see if the loan and all related matters conform
to ABC's lending procedures and policies.
SALE AND SECURITIZATION OF LOANS. In the normal course of its business,
ABC sells loans which it has made to unrelated third party investors through the
(i) sale of individual loans; (ii) bulk sale of several loans; and (iii)
securitization of an entire portfolio of loans. Such sales may occur shortly
after the consummation of a loan by ABC, out of ABC's portfolio or after ABC has
built a portfolio of loans. In all instances, ABC sells such loans to unrelated
entities for a premium, thereby generating income for ABC. Since the Company
has recently
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emphasized the securitization of its loans, the sale of individual loans and the
bulk sale of loans have become, on a relative basis, a smaller portion of ABC's
day to day business.
COMPETITION. As a finance company, ABC competes against many other finance
companies and financial institutions. ABC competes with these entitles by
focusing on servicing a portion of this market which ABC believes is not
adequately serviced by banks and by providing highly responsive and quick
customer service. See "Risk Factors -Competition."
HOMEAMERICAN CREDIT, INC.
GENERAL. HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("HAC" or
"Upland"), which was incorporated in Pennsylvania in 1991, is principally a
consumer home equity lender currently operating in Pennsylvania, New Jersey,
Delaware, Maryland and Virginia.
In February of 1996, HAC acquired substantially all of the assets of Upland
Mortgage Corporation, a Pennsylvania, New Jersey and Delaware mortgage broker.
Believing Upland Mortgage's name had better recognition and marketing potential
HAC adopted Upland's name and now does business as "Upland Mortgage". HAC is
herein after referred to as Upland.
In recent years, Upland has experienced growth in its loan business in a
highly competitive business environment. Upland is expanding its professional,
service oriented infrastructure to accommodate and service an increasing volume
of home equity loans. The Processing Service Center, Inc., an ABC subsidiary
("PSC"), has recently entered into business arrangements with certain banks
pursuant to which PSC will process non-conforming first and second mortgage
loans generated by the banks for purchase by Upland. Upland intends to utilize
this relationship to expand its lending base.
LENDING. Upland primarily originates residential mortgages and consumer
home equity loans but will originate business loans in limited situations where
certain state licensing does not permit ABC to make such loans. Historically,
each of the non-business residential mortgages and home equity consumer loans
originated and funded by Upland were sold to one of several third party lenders,
at a premium. Currently, Upland builds portfolios of consumer home equity loans
for the purpose of selling or securitizing such loans.
STRATEGY. Upland primarily markets its residential mortgage and consumer
home equity loans through print advertisement in newspapers, radio
advertisements and through direct mail campaigns. Beginning in September of
1996, Upland embarked on a television advertising campaign for the marketing of
its home equity loan products. Supporting this television campaign will be
radio and print advertising designed to capitalize on the Company's television
ads.
LENDING POLICIES AND PRACTICES. Upland takes applications from potential
borrowers over the phone and in person. The loan request is then processed and
closed. Upland attempts to provide its home equity borrowers with a loan
approval within 24 hours and to close its home equity loans within five days of
obtaining a loan approval.
Upland attempts to maintain its interest and other charges competitive with
the lending rates of other finance companies and banks. Generally, its consumer
home equity loans are made at fixed rates for fixed terms and may extend for a
term of up to thirty (30) years. Its residential mortgage loans are offered in
varied forms. In all instances, Upland permits borrowers to prepay their loans.
Where permitted by applicable law, Upland may impose a prepayment penalty.
Whether a prepayment penalty is imposed and the amount of such
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penalty , if any, is negotiated between Upland and the individual borrower prior
to closing of the loan. In the majority of cases, Upland does not impose a
prepayment penalty.
UNDERWRITING PROCEDURES. Upland's underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability
to repay the debt as well as sufficient income and equity, Upland obtains and
reviews an independent credit bureau report on the credit history of the
borrower and verification of the borrower's income by obtaining and reviewing
one or more of the borrower's pay stubs, income tax returns, checking account
statements, W-2 tax forms or verification of business or employment forms.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by a qualified appraiser on a Federal National Mortgage Association
("FNMA") form including pictures of comparable properties.
Once all applicable employment, credit and property information is
obtained, a determination is made as to whether sufficient unencumbered equity
in the property exists and whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations.
SERVICE AREA. Upland is licensed to act and currently operates as a first
and second mortgage banker/lender in Pennsylvania, New Jersey, Delaware,
Maryland and Virginia. Upland has recently been granted licenses to act as a
mortgage lender in Georgia, North Carolina, Connecticut and Florida. Upland
anticipates beginning to lend on a limited basis in those states during
calendar year 1997. Upland currently conducts its business from two offices.
Its primary or main office is located at the Company's main offices and its
branch office is located in Cherry Hill, New Jersey. Upland may open additional
locations within or outside of its present service area as its markets develop
in such other areas.
REGULATION. The consumer home equity lending business is highly regulated
by both federal and state laws. All consumer loans must meet the requirements
of the federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act
and Federal Reserve Regulations X, Z and B. In addition to the federal laws,
Upland is licensed and regulated by the Departments of Banking in the various
states in which it is licensed. Upland maintains compliance with the various
federal and state laws through its in-house and outside counsel which
continually review Upland's documentation and procedures and monitor and apprise
Upland on various changes in the laws. See "Risk Factors - Regulatory
Restrictions and Licensing Requirements."
COMPETITION. Upland has significant competition in the consumer home
equity market. Upland competes with banks, thrift institutions and other
financial companies, which may have greater resources and name recognition.
Upland attempts to mitigate these factors through a highly trained staff of
professionals and rapid response to prospective borrowers' requests. See "Risk
Factors - Competition."
AMERICAN BUSINESS LEASING, INC.
GENERAL. American Business Leasing, Inc. ("ABL"), a Pennsylvania
corporation, was incorporated in December of 1994 for the purpose of offering
financing in the form of leasing to businesses for equipment acquisition
purposes. Since the commencement of its business in 1995, ABL has identified
and pursued a niche
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in the leasing market, small to medium-sized office and industrial equipment,
and has established a lease portfolio of approximately $4.5 million as of June
30, 1996.
LEASING. ABL markets its products and originates business equipment leases
throughout the United States with primary emphasis on the Northeast corridor of
the United States. ABL makes business leases to corporations, partnerships,
other entities and sole proprietors. All such lessees must meet certain
specified financial and credit criteria.
ABL leases various types of business equipment including, but not limited
to, computer equipment, phone systems, copiers, and construction equipment. ABL
does not target any particular industry or trade group and avoids the
concentration of leases in any one particular industry group. While ABL retains
a security interest in and to the equipment, it is not dependent on the value of
the equipment as the principal means of securing the lease. The primary
security for the lease is the borrower's financial strength and its credit
history.
Generally, ABL's leases are of two types: (i) finance leases which have a
term of twelve (12) to sixty (60) months and provide a purchase option
exercisable by the lessee at $1.00 at the termination of the lease and (ii) fair
market value or true leases which have a similar term but provide a purchase
option exercisable by the lessee at the fair market value of the equipment at
the termination of the lease.
ABL's leases generally range in size from $1,000 to $250,000, with an
average lease size of approximately $12,000.
STRATEGY. ABL primarily obtains its business leasing customers through
equipment manufacturers, brokers and vendors with whom it has a relationship and
through a direct sales force. The Company also believes that ABL will benefit
from the customer base and advertising efforts of ABC and that ABC may benefit
as well from ABL's network of vendors.
LEASING POLICIES AND PRACTICES. Generally, ABL's interest rate and other
terms and conditions of its leases are competitive with the leasing terms of
other leasing companies in the area. As stated above, the leases are for terms
of twelve (12) to sixty (60) months and are structured with purchase options
whose exercise prices range from $1.00 to the fair market value of the equipment
at the time of the lease termination.
ABL secures all of its leases with a lien on the leased equipment.
However, creditworthiness and financial strength of the lessee are the primary
criteria utilized by ABL in determining whether to enter into a lease
arrangement with a specific lessee. Currently, ABL retains all leases it makes
in its lease portfolio and services all such leases. It is anticipated that in
the future, ABL may develop relationships with third party purchasers of leases
and will sell a portion of the leases it makes to such third parties. The sale
of leases to third party purchasers may or may not require ABL to retain the
servicing rights to such leases.
It should be noted that the above policies and practices may and will be
altered, amended and supplemented as conditions and circumstances warrant. ABL
reserves the right to make changes in its day to day practices and policies in
its sole discretion.
SALE OF LEASES. The Company has and intends to continue to build its lease
portfolio which may be at the appropriate time sold in bulk. The Company may,
in the future, attempt to securitize its lease portfolio provided economic
conditions warrant such activity.
SERVICE AREA. ABL markets, services and originates business equipment
leases throughout the United States with particular emphasis on the Northeastern
corridor of the United States. ABL conducts its business
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operations from the Company's main offices. As markets develop in other areas,
ABL may open additional offices within or outside its present service area.
COMPETITION. ABL has significant competition in the equipment leasing
industry. ABL competes with banks, leasing and financial companies with
greater resources, capitalization and name recognition throughout its market
area. It is the intention of ABL to capitalize on its vendor relationships and
the efforts of its direct sales force to combat these competitive factors. See
"Risk Factors - Competition."
HOMEAMERICAN CONSUMER DISCOUNT COMPANY
HomeAmerican Consumer Discount Company ("HCDC"), a Pennsylvania
corporation, was incorporated in November 1993 for the purpose of offering
secured and unsecured small consumer loans (i.e., loans up to $15,000) to
residents of Pennsylvania and New Jersey. Currently, HCDC builds a portfolio
and periodically, sells such portfolio of loans to third party investors. As
of June 30, 1996, HCDC maintained a portfolio of small consumer loans of
approximately $100,000. The Company presently views this line of business as
ancillary to its principal lines of business and does not actively pursue small
consumer loans.
PROPERTY
Except for real estate acquired in foreclosure as part of the Company's
normal course of business, neither ABFS nor its subsidiaries presently hold
title to any real estate for operating purposes. The interests which the
Company presently holds in real estate are in the form of mortgages against
parcels of real estate owned by HAC's or ABC's borrowers or affiliates of HAC's
or ABC's borrowers and real estate acquired through foreclosure.
The Company presently leases office space at 111 Presidential Boulevard,
Bala Cynwyd, Pennsylvania, just outside the city limits of Philadelphia. The
Company is currently leasing its office space under a five (5) year lease with a
current year annual rental of approximately $431,000. The Company is currently
negotiating with its landlord to lease additional office space in the building
where its executive offices are located. In addition, the Company leases an
executive suite in Boca Raton, Florida, expiring in February, 1997.
Upland leases its New Jersey office in Cherry Hill, New Jersey.
LEGAL PROCEEDINGS
On or about February 17, 1995, American Business Leasing, Inc. was served
with a Writ of Summons captioned MONTGOMERY LEASING COMPANY V. AMERICAN BUSINESS
LEASING, INC., AMERICAN BUSINESS CREDIT, INC. AND AMERICAN BUSINESS FINANCIAL
SERVICES, INC., Court of Common Pleas of Montgomery County (Pennsylvania), No.
95-03554. In connection therewith, on or about May 18, 1995, American Business
Leasing, Inc. was served a complaint captioned MONTGOMERY LEASING COMPANY V.
AMERICAN BUSINESS LEASING, AMERICAN BUSINESS CREDIT, AMERICAN BUSINESS FINANCIAL
SERVICES, INC., DONNA WESEMANN AND CHRISTINE ADAMS, Court of Common Pleas of
Montgomery County (Pennsylvania) No. 95-07219. The complaint alleges that the
named defendants acted in a conspiracy to damage the plaintiff; misappropriated
assets of the plaintiff; interfered with the plaintiff's contractual
relationships and with plaintiff's prospective business opportunities.
Currently, the Company is in the process of negotiating a settlement agreement
with Montgomery Leasing Company.
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Additionally, on or about August 24, 1995, American Business Leasing, Inc.
filed a complaint against Montgomery Leasing Company, the above named plaintiff,
Uriel and Arlene Yogev, shareholders and officers of Montgomery Leasing Company,
and Mark Halpern, Georgeann Fusco and Furnan & Halpern, P.C. attorneys for
Montgomery Leasing Company. The complaint is captioned AMERICAN BUSINESS
LEASING V. MONTGOMERY LEASING COMPANY, URIEL YOGEV, ARLENE YOGEV, FURMAN &
HALPERN, P.C., MARK HALPERN AND GEORGEANN FUSCO, Court of Common Pleas of
Montgomery County (Pennsylvania). The American Business Leasing complaint seeks
damages from the defendants based on abuse of process as a result of their
malicious filing of their above referenced complaint and conspiracy to drive
American Business Leasing, Inc. out of business. The complaint also seeks
damages from Montgomery Leasing Company and the Yogevs for interfering with
contractual relationships and prospective business opportunities and defamation
based on statements made by the Yogev's and Montgomery Leasing Company as to
American Business Leasing, Inc. Upon settlement of the suit brought by
Montgomery Leasing Company, described above, it is anticipated that this suit
will be settled as well.
The Company is also involved in various legal proceedings of its business
loan borrowers. These actions were instituted in the normal course of business
to obtain repayment of monies under the terms of the business loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Set forth below is a discussion concerning the consolidated financial
condition and consolidated results of operations of the Company for the fiscal
years ended June 30, 1996 and 1995.
The following financial review and analysis is intended to assist
prospective investors in understanding and evaluating the financial condition
and earnings performance of the Company, for the years ended June 30, 1996 and
1995. The Company operates on a fiscal year ending June 30. The information
below should be read in conjunction with the financial statements and the
accompanying notes thereto, "Selected Consolidated Financial Data" and other
detailed information appearing elsewhere in this Prospectus. All operations of
the Company are conducted through ABC and its subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to fund its loans principally through
(i) institutional debt financing, (ii) the securitization and sales of loans
which it purchases or originates, (iii) the sale of the Company's registered
subordinated debentures, and (iv) retained earnings. The Company's cash
requirements include the funding of loan originations, payment of interest
expense, funding over-collateralization requirements, operating expenses and
capital expenditures.
To a limited extent, the Company presently intends to continue to augment
the interest and fee income it earns on its loan and lease portfolio, from time
to time, by selling loans either at the time of origination or from its
portfolio to unrelated third parties. These transactions also create additional
liquid funds available for lending activities.
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<PAGE>
Between November 1990 and February 1994, American Business Finance
Corporation ("ABFC"), an indirect subsidiary of ABFS, sold approximately
$1,700,000 in principal amount of subordinated debentures which mature at
varying times between September 1996 and June 1998. In February 1994, the
Company ceased selling subordinated debentures through ABFC. As of June 30,
1996, approximately $1,300,000 of subordinated debt was outstanding
In addition, between July 1993 and June 1996, ABFS sold $48,169,910 in
principal amount of subordinated notes, including the Investment Notes,
(including redemptions and repurchases by investors) pursuant to registered
offerings with varying maturities ranging between three months and ten years.
As of June 30, 1996, approximately $32,300,000 of subordinated debentures were
outstanding. The proceeds of such Note sales have been used to fund general
operating and lending activities. The Company intends to meet its obligations
to repay such debentures as they mature with income generated through its
lending activities and funds generated through repayment of its outstanding
loans. The repayment of such obligations should not effect the Company's
operations.
During the fiscal year 1996, the Company completed two loan
securitizations. These securitizations which were consummated in October 1995
and May 1996, involved $14,500,000 of business loans and $22,000,000 of business
and home equity loans, respectively. These securitizations resulted in proceeds
of approximately $34.2 million. The Company intends to utilize the proceeds of
the securitizations to fund the origination of new loans and leases. In
accordance with the terms of the securitizations, the Company will receive less
cash flow from the portfolios of loans securitized than it would otherwise
receive absent securitizations.
Additionally, pursuant to the terms of the securitizations, ABC will act as
the servicer of the loans and in that capacity will be obligated to advance
funds in certain circumstances in respect of each monthly loan interest payment
that accrued during the collection period for the loans but was not received,
unless ABC determines that such advances will not be recoverable from subsequent
collections in respect of the related loan. ABC's obligation to advance funds
in its capacity as servicer of the loans may create greater demands on the
Company's cash flow than either selling loans or maintaining a portfolio of
loans.
Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan
portfolios and may in the future securitize its lease portfolio. Adverse
conditions in the securitization market could impair the Company's ability to
sell loans through securitizations on a favorable or timely basis. Since the
sale of loans through securitizations is an important source of revenues, any
such delay or impairment could have a material adverse impact in the Company's
results of operations.
The Company's Revolving Credit and Security Agreement with CoreStates Bank,
N.A. (formerly Meridian Bank) was renewed as of December 1995 and expires in
December 1996. The credit facility is in the amount of $3,500,000, bears an
interest rate equal to the bank's prime rate plus 1.6%.
In April 1996, Upland entered into an Interim Warehouse and Security
Agreement with Prudential Securities Realty Funding Corporation. The credit
facility is for $25,000,000, bears interest at the 30 day LIBOR plus 1.25% and
expires in September 1996. Subsequent to fiscal year end, this credit facility
was extended to March 1997.
Additionally, in May 1996, Upland entered into a $7,500,000 Revolving Loan
and Security Agreement with BankAmerica Business Credit, Inc. The credit
facility bears interest at the bank's prime rate plus 1.25% and expires in May
1998.
-30-
<PAGE>
The Company is currently discussing the possibility of obtaining additional
lines of credit with other lenders and providers of credit.
As of June 30, 1996, the Company had $21,206,784 of debt scheduled to
mature during the fiscal year ending June 30, 1997, including approximately
$18.85 million of Investment Notes and approximately $2.35 million of debt under
a revolving credit facility. It is currently anticipated that the maturing
credit facility will be paid from the proceeds of the Company's next
securitization. The Company currently expects to refinance the $18.85 million
of maturing debt through extensions of maturing debentures or new debt financing
and, if necessary, may retire the debt through cash flow from operations and
loan sales or securitizations. Despite the Company's current use of
securitizations to fund loan growth, the Company continues to be dependent upon
borrowings to fund a portion of its operations. As a result, the Company's
ability to continue to expand its operations in the future will at least, in
part, be dependent on the Company's continuing access to debt financing.
The Company from time to time considers potential acquisitions of related
businesses or assets which could have a material impact upon the Company's
liquidity position.
The Company leases certain of its facilities under a five-year operating
lease expiring in November 2000 at a minimum annual rental of $430,637. The
lease contains a renewal option for an additional period at increased annual
rental. See "Property."
INTEREST RATE RISK MANAGEMENT
The Company is subject to interest rate risk to the extent it holds fixed
rate mortgage loans in its held for sale portfolio prior to securitization. In
August 1995, the Company implemented an "interest-rate lock" strategy in an
attempt to mitigate the effect of changes in interest rates on its fixed rate
mortgage loan portfolio between the date of origination and securitization.
This strategy involves short sales of a combination of U.S. Treasury securities
with an average life which closely matches the average life of the loans to be
securitized. The settlement date of the short sale, as well as, the buy back of
the Treasury securities coincides with the anticipated settlement date of the
underlying securitization. At June 30, 1996, the Company had sold short
$15,000,000 of U.S. Treasury securities. The deferred loss related to these
activities was approximately $27,000 at June 30, 1996. The Company also
prefunds loan originations in connection with its loan securitizations.
The nature and quantity of hedging transactions are determined by the
Company's management based on various factors, including market conditions and
the expected volume of mortgage loan originations and purchases.
The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of its
fixed-rate mortgage loans held for sale. However, an effective interest rate
risk management strategy is complex and no such strategy can completely insulate
the Company from interest rate changes. In addition, hedging involves
transaction and other costs, and such costs could increase as the period covered
by the hedging protection increases. In the event of a decrease in market
interest rates, the Company would experience a loss on the purchase of Treasury
securities involved in the interest rate lock transaction which would be
reflected on the Company's financial statements during the period in which the
buy back of the Treasury securities occurred. Such loss would be offset by the
income realized from the securitization in future periods. As a result, the
Company may be prevented from effectively hedging its fixed-rate loans held for
sale, without reducing the Company's income in current periods.
-31-
<PAGE>
In the future, the Company intends to continue to engage in short sales of
Treasury securities as part of its interest rate risk management strategy.
BALANCE SHEET INFORMATION
Total assets increased $24,719,267, or 111%, to $46,894,163 at June 30,
1996 from $22,174,896 at June 30, 1995. The primary reasons for the increase
were increases in loan and lease receivables, other receivables and other
assets. Loan and lease receivables increased $9,162,146, or 102%, from
$8,997,357 at June 30, 1995 to $18,159,503 at June 30, 1996 as a result of the
Company's strategy of holding loans in its portfolio prior to securitization.
Other receivables increased $9,853,470, or 233% , from $4,237,072 at June 30,
1995 to $14,090,542 at June 30, 1996 due to the Company's retention of the
residual interest in the trusts in connection with its loan securitizations.
Other assets increased $3,580,419, or 122%, from $2,924,375 to $6,504,794 at
June 30, 1996 due primarily to an increase in subordinated certificates obtained
as a result of the Company's securitizations.
Total liabilities increased $22,471,166, or 112%, from $20,031,482 to
$42,502,648 at June 30, 1996 primarily due to an increase in debt. The increase
in debt was due to sales of subordinated debentures (including the Investment
Notes) of $19,687,982 during fiscal 1996 and a net increase in institutional
debt of $2,348,465. At June 30, 1996, the Company had approximately $33,600,000
of subordinated debentures outstanding, (including the Investment Notes). The
Company's ratio of total debt (subordinated debentures plus credit facilities)
to equity at June 30, 1996 was 8.2:1.
Stockholders' equity increased $2,248,101, or 105%, due to an increase in
retained earnings net of dividends paid.
RESULTS OF OPERATIONS
OVERVIEW
The Company derives income from three basic sources: interest and other
charges paid on its loans, loan origination fees and the sale and securitization
of loans, not necessarily in that order.
All of the Company's loans and leases are made at fixed rates. Generally
due to such circumstances, a general rise or fall in interest rates in the
economy will have the effect of decreasing or increasing the "spread" which the
Company enjoys between its cost of funds on any variable rate source or short
term source of funds which it utilizes and the interest rates it earns on its
portfolio of loans.
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<PAGE>
The following table sets forth certain information concerning the
lending and loan and lease origination and sale activities of the Company for
fiscal 1996 and 1995.
<TABLE>
<CAPTION>
COMBINED
YEAR ENDED
YEAR ENDED JUNE 30, 1996 JUNE 30,
--------------------------------------------------------------------- -----------
ABL ABC(1) HAC(2) HACD COMBINED 1995
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dollars Amt. of Loans Originated (Net
of Refinances)
Business . . . . . . . . . . . . . . $5,967,126 $ 21,525,561 $ 7,346,836 -- $34,839,523 $20,390,122
Consumer . . . . . . . . . . . . . . -- -- $36,479,393 $ 240,049 $36,719,442 $18,071,345
Number of Loans/Leases Originated
Business . . . . . . . . . . . . . . 530 266 105 -- 901 450
Consumer . . . . . . . . . . . . . . -- -- 772 52 824 602
Average Loan/Lease Size
Business . . . . . . . . . . . . . . 11,259 80,923 69,970 -- 38,668 70,700
Consumer . . . . . . . . . . . . . . -- -- 47,253 4,616 44,562 30,109
Weighted Average Interest Rate
Business . . . . . . . . . . . . . . 17.22% 15.82% 15.88% -- 16.07% 16.05%
Consumer . . . . . . . . . . . . . . -- -- 9.94% 24.5% 10.06% 18.60%
Weighted Average Term (in months)
Business . . . . . . . . . . . . . . 42 169 171 -- 148 213
Consumer . . . . . . . . . . . . . . -- -- 194 50 193 132
Dollar Amount of Loans/Leases Sold
Business . . . . . . . . . . . . . . $2,258,829 $ 20,664,709 $ 7,587,956 -- $30,511,494 $24,761,552
Consumer . . . . . . . . . . . . . . -- -- $24,324,720 $1,107,788 $25,432,508 $16,962,883
Number of Loans/Leases Sold
Business . . . . . . . . . . . . . . 193 268 110 -- 571 384
Consumer . . . . . . . . . . . . . . -- -- 512 252 764 365
</TABLE>
- ---------------------------------------
(1) All ABC loans are business loans.
(2) All HAC loans, as indicated, are either (i) business loans or (ii)
conventional consumer home equity loans or consumer sales finance
transactions.
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<PAGE>
The Company's strategy of selling loans through securitizations requires
the Company to build an inventory of loans over time. Accordingly, the Company
may experience fluctuations in operating results as a consequence of incurring
costs and expenses in a fiscal period prior to the fiscal period in which the
securitization is consummated. As such, the results of operations for a given
period may not be indicative of results for subsequent comparable periods.
As a result of securitizations, the Company derives a significant portion
of its income by realizing gains upon the sale of loans due to the excess spread
associated with such loans at the time of sale. Excess spread represents the
excess of the interest rate payable by an obligator on a loan over the interest
rate passed through to the purchaser acquiring an interest in such loans, less
the Company's servicing fee and other applicable recurring fees. When loans are
sold in securitizations, the Company recognizes as current revenue and an
associated receivable the present value of the excess spread expected to be
realized over the anticipated average life of loans sold less future estimated
credit losses relating to the loans sold. These excess spreads and the
associated receivable are computed using prepayment, loss, delinquency and
discount rate assumptions that the Company believes are reasonable. The Company
periodically reviews these assumptions in relation to actual experience and, if
necessary, adjusts the receivable to the net present value of the estimated
remaining future excess spreads. The receivable is also reduced to reflect the
receipt of cash.
Although the Company believes that it has made reasonable estimates of the
excess spread receivables likely to be realized, the rate of prepayment and the
amount of defaults utilized by the Company are estimates and actual experience
may vary from its estimates. The gain recognized by the Company upon the sale
of loans will have been overstated if prepayments or losses are greater than
anticipated. Higher levels of future payments, delinquencies and/or
liquidations could result in decreased excess spreads and the write down of the
receivable which would adversely affect the Company's income in the period of
adjustment. Should the estimated average loan life assumed for this purpose be
shorter than the actual life, the amount of cash actually received over the
lives of the loans would reduce the gain previously recognized at the time the
loans were sold. If the Company's assumptions are correct or if prepayment,
delinquencies and/or liquidations are less than assumed, the Company would
realize additional income in the adjustment periods.
The following discussion provides information which management believes is
relevant to an understanding of the Company's results of operations. This
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto included herein.
FISCAL 1996 COMPARED WITH FISCAL 1995
Total revenues increased $6,734,656, or 119%, to $12,378,733 in fiscal 1996
from $5,644,077 in fiscal 1995. As described in more detail below, the increase
in revenues was primarily the result of higher gains on sales of loans through
securitizations.
Gain on sale of loans increased $7,562,232, or 524%, to $9,005,193 for the
year ended June 30, 1996 from $1,442,961 for the comparable period of 1995.
This increase was the result of increased loan sales through securitizations in
fiscal 1996. The Company consummated loan securitizations in October 1995 and
May 1996 generating gain on securitizations of $8,858,839 (representing the fair
value of residual certificates of $10,447,862 less $1,589,023 of costs
associated with the transactions) on the Company's participation in $36.5
million of loans sold through securitizations.
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<PAGE>
Interest and fee income consists of interest income, fee income and
amortization of origination costs. Interest and fee income decreased $706,927,
or 17%, to $3,350,716 in fiscal 1996 from $4,057,643 in fiscal 1995 due to a
decline in fee income as a result of the Company's securitization program
discussed below.
Interest income consists of interest income the Company earns on the loans
and leases it holds in its portfolio. Interest income from loans and leases
held in portfolio increased $777,609 to $2,180,816 in fiscal 1996 or a 55%
increase over the $1,403,901 reported for fiscal 1995. The Company's leasing
subsidiary, which commenced operations in January 1995 contributed $493,000 of
the increase. The remaining increase was attributable to increased originations
of consumer and business loans, as well as, management's decision to retain
home equity loans in portfolio in contemplation of securitization in the future.
During fiscal 1996, the Company originated approximately $37,000,000 of consumer
loans and $35,000,000 of business loans. During fiscal 1995, the Company
originated approximately $18,000,000 of consumer loans, the majority of which
were sold to third parties (with servicing released) . Beginning in October
1995, as part of the Company's securitization strategy, the Company placed loans
into its held for sale portfolio until sold as part of a securitization. As a
result of this strategy, the Company has the ability to hold a greater amount of
loans in its portfolio thereby generating an increase in interest income and a
decrease in fee income, as described below.
Fee income, includes primarily premium and points earned when loans are
closed, funded and immediately sold to unrelated third party purchases. Fee
income decreased $1,692,152 from $3,167,188 for fiscal 1995 to $1,475,036 for
fiscal 1996. The reduction in fee income was due to the Company's current
strategy of building a portfolio of loans and securitizing them . As a result
of this strategy, the Company is not selling as many loans upon origination
thereby reducing fee income in the form of premiums received on the sale of
loans.
Amortization of origination costs, the third component of interest and fee
income, decreased $207,616 from $512,752 to $305,136 at June 30, 1996.
Amortization of origination costs attributable to leasing activities increased
$166,830 as the leasing company was only in operation for six months of the
prior fiscal year. However, amortization of origination costs attributable to
mortgage loans decreased $374,446 in fiscal 1996. The amount of origination
cost recognized is in part determined by the length of time a loan is held in
portfolio. In fiscal 1995, the Company securitized its loan portfolio in March
1995 resulting in the average loan being held in portfolio for 5.5 months. In
fiscal 1996, loans were securitized in October 1995 and May 1996, reducing the
average holding period to three months.
Total expenses increased $4,507,896, or 95%, to $9,258,070 in 1996 from
$4,750,174 in 1995. As described in more detail below, this increase was
primarily a result of increases in interest and sales expenses attributable to
the Company's continued sale of the Investment Notes, and increased payroll,
sales and marketing and general and administrative expenses related to increased
loan originations during fiscal 1996.
Interest expense increased $1,454,747, or 120%, to $2,667,858 in fiscal
1996 from $1,213,111 in fiscal 1995. The increase was primarily attributable to
an increase in the amount of the Company's Investment Notes outstanding as
management utilized the proceeds from the sale of such Investment Notes to fund
the increase in loan originations experienced during fiscal 1996. Outstanding
subordinated debentures (including the Investment Notes) issued for terms
ranging from three months to ten years and rates ranges from 7% to 10.5%
increased from an average $12.0 million in fiscal 1995 to $25.0 million
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<PAGE>
during fiscal 1996. Average interest rate paid on the subordinated debt
(including the Investment Notes) increased from 8.75% to 9.02%, due to an
increase in market rates of interest.
The Company maintains an allowance for credit losses based upon
management's estimate of the expected collectibility of loans and leases
outstanding. The allowance is determined based upon management's estimate of
potential losses in the portfolio in light of economic conditions, the credit
history of the borrowers, and the nature and characteristics of the underlying
collateral as well as the Company's historical loss experience. Although the
Company's historical loss experience has been minimal, the increase in the
allowance reflects the increase in originations experienced during fiscal 1996.
Although the Company maintains its allowance for credit losses at the level it
considers adequate to provide for potential losses, there can be no assurances
that such losses will not exceed the estimated amounts or that additional
provisions will not be required. The allowance is increased through an increase
in the provision for credit losses. The Company had an allowance for credit
losses of $707,424 at June 30, 1996. The provision for credit losses increased
to $681,228 from $165,143 in the prior period. The increase in the provision
for credit losses was due to the increases in the Company's loan and lease
portfolios. The ratio of the allowance for credit losses to total net loan and
lease receivables, was 3.86% at June 30, 1996 as compared to 1.76% at June 30,
1995.
Payroll and related costs increased $208,045, or 21%, to $1,203,260 in
fiscal 1996 from $995,215 in fiscal 1995. This increase was primarily due to an
increase in the number of administrative employees as a result of the Company's
growth in loan originations, geographic expansion and increase in loans serviced
for others. Management anticipates that such expenses will continue to increase
in the future as the Company expands its service area.
Sales and marketing expenses increased $1,174,946, or 78%, to $2,685,173 in
fiscal 1996 from $1,510,227 in fiscal 1995. The increase was attributable to an
increase in advertising costs as a result of increased newspaper and direct mail
advertising related to the Company's sale of debentures and loan products and
the initiation of a radio advertising program for the home equity loan product.
In fiscal 1997, the Company intends to expand its home equity loan advertising
programs through the use of television. The increase in sales and marketing
expenses was also due to the expansion of the Company's service area during
fiscal 1996 into Maryland, New York City and Florida. During fiscal 1996, the
Company offered its subordinated debentures in Florida and business loan
products in Maryland and New York City. The Company plans to continue to expand
its service area along the Atlantic Coast subject to market conditions in the
future. As a result of the Company's planned expansion, it is anticipated that
sales and marketing expenses will continue to increase in future periods.
General and administrative expenses increased $1,154,073, or 133%, to
$2,020,551 in 1996 from $866,478 in 1995. The increase was primarily
attributable to increases in rent, telephone, office expense, professional fees
and other expenses incurred as a result of the previously discussed increase in
loan originations and loan servicing experienced during fiscal 1996.
Net income increased $1,737,659, or 299%, from $581,037 at June 30, 1995 to
$2,318,696. As a result of the increase in income, earnings per share increased
to $1.01 on weighted average common shares outstanding of 2,296,913 in fiscal
1996 compared to $.27 on weighted average common shares outstanding of 2,128,154
for fiscal 1995 representing a 274% increase for 1996 from 1995.
The Company's ability to sustain the level of growth in net income
experienced during fiscal 1996 is dependent upon a variety of factors outside
the control of the Company, including interest rates,
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<PAGE>
economic conditions in the Company's primary market area, competition and
regulatory restrictions. As a result, it is unlikely that the rate of growth
experienced in fiscal 1996 will be sustained in the future.
-37-
<PAGE>
ASSET QUALITY
The following table provides data concerning delinquency experience, real
estate owned ("REO") properties and loss experience for the Company's serviced
portfolios. Total Portfolio Serviced by ABC includes business loans originated
by HAC. Neither HAC, ABL nor HACD had REO for the periods presented.
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
--------------------------------- -----------------------------------
Delinquency by company $ Amount % $ Amount %
- ------------------------------------------------- --------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
AMERICAN BUSINESS CREDIT INC.
Total Portfolio Serviced . . . . . . . . . . . . $ 37,949,806 $ 14,677,938
--------------- -----------------
--------------- -----------------
Period of delinquency
31-60 Days . . . . . . . . . . . . . . $ 37,291 .10% $ 141,033 .96%
61-90 Days . . . . . . . . . . . . . . 180,942 .48 75,484 .51
Over 90 Days . . . . . . . . . . . . . 1,018,955 2.69 309,895 2.11
--------------- ----------- ----------------- -------------
Total Delinquencies . . . . . . . . . . $1,237,188 3.26% $ 526,412 3.59%
--------------- ----------- ----------------- -------------
--------------- ----------- ----------------- -------------
REO . . . . . . . . . . . . . . . . . . . . . . . $444,270 $ 641,287
HOMEAMERICAN CREDIT, INC.
Total Portfolio Serviced . . . . . . . . . . . . $ 17,223,996 $ --
--------------- -----------------
--------------- -----------------
Period of delinquency
31-60 Days . . . . . . . . . . . . . . -- -- -- --
61-90 Days . . . . . . . . . . . . . . -- -- -- --
Over 90 Days . . . . . . . . . . . . . -- -- -- --
--------------- ----------- ----------------- ----------
Total Delinquencies . . . . . . . . . . -- -- -- --
--------------- ----------- ----------------- ----------
--------------- ----------- ----------------- ----------
AMERICAN BUSINESS LEASING
Total Portfolio Serviced . . . . . . . . . . . . $ 4,607,367 $ 2,031,063
--------------- -----------------
--------------- -----------------
Period of delinquency
31-60 Days . . . . . . . . . . . . . . $ 23,309 .51% $ 48,649 2.40%
61-90 Days . . . . . . . . . . . . . . 13,503 .29 39,980 1.97
Over 90 Days . . . . . . . . . . . . . 41,109 .89 -- --
--------------- ----------- ----------------- ------------
Total Delinquencies . . . . . . . . . . $ 77,921 1.69% $ 88,629 4.37%
--------------- ----------- ----------------- ------------
--------------- ----------- ----------------- ------------
HOMEAMERCIAN CONSUMER DISCOUNT
Total Portfolio Serviced . . . . . . . . . . . . $ 109,726 $ 1,065,238
--------------- -----------------
--------------- -----------------
Period of delinquency
31-60 Days . . . . . . . . . . . . . . $ -- --% $ 16,114 1.51%
61-90 Days . . . . . . . . . . . . . . 18,163 16.55 30,000 2.82
Over 90 Days . . . . . . . . . . . . . 50,271 45.82 20,971 1.97
--------------- ----------- ----------------- ------------
Total Delinquencies . . . . . . . . . . $ 68,434 62.37% $ 67,085 6.30%
--------------- ----------- ----------------- ------------
--------------- ----------- ----------------- ------------
COMPANY COMBINED
Total Portfolio Serviced . . . . . . . . . . . . $ 59,890,895 $ 17,774,239
--------------- -----------------
--------------- -----------------
Period of delinquency
31-60 Days . . . . . . . . . . . . . . $ 60,600 .10% $ 205,796 1.16%
61-90 Days . . . . . . . . . . . . . . 212,608 .35 145,464 .82
Over 90 Days . . . . . . . . . . . . . 1,110,335 1.85 330,866 1.86
--------------- ----------- ----------------- ------------
Total Delinquencies . . . . . . . . . . $ 1,383,543 2.30% $ 682,126 3.84%
--------------- ----------- ----------------- ------------
--------------- ----------- ----------------- ------------
REO . . . . . . . . . . . . . . . . . . . . . . . $ 444,270 .74% $ 641,287 3.61%
--------------- ----------- ----------------- ------------
--------------- ----------- ----------------- ------------
Dollar Amount of Losses Experienced . . . . . . . $ 129,062 .22% $ 87,885 .49%
--------------- ----------- ----------------- ------------
--------------- ----------- ----------------- ------------
</TABLE>
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<PAGE>
MANAGEMENT
The present management structure of the Company is as follows:
Anthony J. Santilli, Jr. is Chairman, President, Chief Executive and Operating
Officer, Treasurer and a Director of the Company. Beverly Santilli is President
of ABC and an Executive Vice President of ABFS. Jeffrey M. Ruben, Senior Vice
President and General Counsel of the Company, is responsible for compliance and
other legal matters. David M. Levin, CPA, Senior Vice President - Finance and
Chief Financial Officer, is responsible for the Company's accounting functions.
Harold Sussman, Michael DeLuca, Richard Kaufman, and Leonard Becker are
directors of the Company but take no part in the day-to-day operating activities
of the Company. All directors and executive officers of the Company hold
office during the term for which they are elected and until their successors are
elected and shall qualify.
DIRECTORS
The Board of Directors of the Company is currently comprised of five (5)
persons who are serving for terms expiring at the next annual meeting of the
Company's shareholders. The following is a description of the business
experience of the Company's Board of Directors.
ANTHONY J. SANTILLI, JR. - CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER,
CHIEF OPERATING OFFICER, TREASURER AND DIRECTOR
Anthony J. Santilli, Jr., age 53 is the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Treasurer and a Director of the
Company and is an executive officer of its subsidiaries. He has held the
positions with the Company since early 1993 when the Company became the parent
company of American Business Credit, Inc. and the positions with the
subsidiaries since the formation of ABC in June 1988. In addition, Mr. Santilli
is a member of the Company's Executive and Finance Committees.
Prior to the founding of ABC in 1988, Mr. Santilli was Vice President and
Department Head of the Philadelphia Savings Fund Society ("PSFS"). As such,
Mr. Santilli was responsible for PSFS' commercial relationships with small and
middle market business customers. Mr. Santilli also served as the secretary of
PSFS' Asset/Liability Committee and Policy Committee from May, 1983 to June,
1985 and June, 1986 to June, 1987, respectively.
Mr. Santilli graduated with a Bachelor of Science Degree in Economics from
St. Joseph's University, Philadelphia, PA and with a Master of Business
Administration in Marketing from Drexel University, Philadelphia, PA.
LEONARD BECKER - DIRECTOR
Mr. Becker, age 73, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Becker is a member of the Company's Executive
and Finance Committees.
Mr. Becker is a former 50% owner and officer of the SBIC of the Eastern
States, Inc., a federally licensed small business corporation which made medium
term loans to small business concerns. For the last 30 years, Mr. Becker has
been heavily involved in the investment in and management of real estate; and,
has been involved in the ownership of numerous shopping centers, office building
and apartments. Mr. Becker formerly served as a Director for Eagle National Bank
and Cabot Medical Corp.
Mr. Becker graduated from Temple University with a Bachelor of Science
degree in Business Administration in 1968.
-39-
<PAGE>
MICHAEL DELUCA - DIRECTOR
Mr. DeLuca, age 65, has been a Director of the Company since 1993 and a
director of ABC since 1991. He is a member of the Company's Audit, Compensation
and Finance Committees.
Mr. DeLuca was President, Chairman of the Board and Chief Executive Officer
and a former owner of Bradford-White Corporation, a manufacturer of plumbing
products for a period of approximately thirty years. Presently, Mr. DeLuca
serves as a Director of BWC-West, Inc., Bradford-White International and is
Chief Executive Officer and a Director of Lux Products Corporation.
RICHARD KAUFMAN - DIRECTOR
Mr. Kaufman, age 54, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Kaufman is a member of the Company's
Compensation, Executive and Finance Committees.
Mr. Kaufman has been self employed since 1982 and involved in making and
managing investments for his own benefit. From 1976 to 1982, Mr. Kaufman was
President and Chief Operating Officer of Morland International, Inc., a cemetery
and financial services conglomerate. From 1970 to 1976 Mr. Kaufman served as a
Director and Vice President-Real Estate and Human Services Division of Texas
International, Inc., an oil and gas conglomerate.
Mr. Kaufman graduated from Michigan State University with a Bachelor of
Science degree in 1965.
HAROLD E. SUSSMAN - DIRECTOR
Mr. Sussman, age 71, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Sussman is a member of the Company's Audit and
Compensation Committees. Mr. Sussman is currently a principal in the real
estate firm of Lanard & Axilbund, Inc., a major commercial and industrial real
estate brokerage and management firm in the Philadelphia area with which he has
been associated since 1972.
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
The following is a description of the business experience of each executive
officer who is not also a director.
BEVERLY SANTILLI - EXECUTIVE VICE PRESIDENT AND SECRETARY OF ABFS
PRESIDENT OF AMERICAN BUSINESS CREDIT
Mrs. Santilli, age 37, is responsible for all sales, marketing and human
resources for ABC and for the day-to-day operation of ABC. Prior to joining ABC
and from September, 1984 to November, 1987, Mrs. Santilli was affiliated with
the Philadelphia Savings Fund Society initially as an Account Executive and
later as a Commercial Lending Officer with such institution's Private Banking
Group. Mrs. Santilli graduated from Temple University in 1982. Mrs. Santilli
is the wife of Anthony J. Santilli, Jr.
JEFFREY M. RUBEN - SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mr. Ruben, age 33, is responsible for the Company's legal and regulatory
compliance matters. From June 1990 until he joined the Company in April, 1992,
Mr. Ruben was an attorney with the law firm of Klehr, Harrison, Harvey,
Branzburg & Ellers in Philadelphia, Pennsylvania. From December, 1987 until
June, 1990, Mr. Ruben was employed as a credit analyst with the CIT Group
Equipment Financing, Inc. From July 1985 until December 1987, Mr. Ruben was a
Portfolio Administrator with LFC Financial Corp. in Radnor, Pennsylvania. Mr.
Ruben graduated with honors and distention from the Pennsylvania State
University with a degree in Economics in 1985 and received his Juris Doctorate
from Temple University Law School in 1990.
-40-
<PAGE>
Mr. Ruben is a member of the Pennsylvania and New Jersey Bar Associations.
Mr. Ruben holds both a New Jersey Mortgage Banker License and a New Jersey
Secondary Mortgage Banker License.
DAVID M. LEVIN - SENIOR VICE
PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
Mr. Levin, age 51, is Senior Vice President - Finance of the Company and
its subsidiaries. Mr. Levin is also Chief Financial Officer of the Company. He
has held these positions since May 1995 and October 1995, respectively. Prior
to joining the Company, Mr. Levin was associated with Fishbein & Company, P.C.,
Certified Public Accountants (previous auditors for the Company), as a staff
member from 1983 to 1988 and as a shareholder from 1989 to 1995. Mr. Levin
graduated with a Bachelor of Arts Degree in Business Administration from
Rutgers University, New Brunswick, New Jersey and with a Master of Business
Administration in Finance from Rutgers University, Newark, New Jersey.
Mr. Levin is licensed as a Certified Public Accountant in Pennsylvania and
New Jersey.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive an annual stipend of $5,000
and a monthly stipend of $1,000. No director may receive more than $17,000 per
year. Mr. Santilli, the only director who is also an officer of the Company,
does not receive any separate fee for acting as a director.
The Company adopted a Non-Employee Director Stock Option Plan pursuant to
which each Non-Employee director of the Company received an option to purchase
22,500 shares of ABFS Common Stock at an exercise price of $5.00 per share. The
Non-Employee Director Plan was adopted by the Board of Directors on
September 12, 1995 and became effective upon its ratification by the
stockholders at the Annual Meeting held on May 31, 1996.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation and By-laws
provide that to the fullest extent permitted by Delaware law, directors of the
Company shall not be personally liable to the Corporation or stockholders of the
Company for monetary damages for breach of fiduciary duty as a director. ABFS's
Amended and Restated Certificate of Incorporation and By-Laws also provide that,
if Delaware law is hereafter amended to authorize the further elimination or
limitation of the liability of the directors of ABFS, then the liability of such
directors shall be eliminated or limited to the fullest extent permitted by
applicable law.
The Amended and Restated Certificate of Incorporation and the Amended and
Restated Bylaws of ABFS provide that the Company shall, to the full extent
permitted by the laws of the State of Delaware, as amended from time to time,
indemnify all persons whom they may indemnify pursuant thereto, including
advancement of expenses. The Bylaws of ABFS also provide that the Company may
obtain insurance on behalf of such persons, which the Company currently
maintains.
EXECUTIVE COMPENSATION
ABFS has no direct salaried employees. Each of the executive officers of
ABFS is an executive officer of the Company's principal operating subsidiary,
ABC, and is a salaried employee of such entity.
-41-
<PAGE>
The following table sets forth information regarding compensation paid by
ABFS and its subsidiaries to the Chief Executive Officer and each other
executive officer who made in excess of $100,000 during fiscal 1996 (the "Named
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-----------------------------------------------------------------------------------------
RESTRICTE UNDERLYING
NAME AND FISCAL OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) SARs (#) COMPENSATION
- ------------------------------------- ------ -------- --------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 1996 $237,500 $300,000(1) -- -- 22,500(3) --
Chairman, President, Chief Executive 1995 191,667 -- -- -- -- --
Officer, Chief Operating Officer, 1994 175,000 -- -- -- -- --
Chairman, President Treasurer and
Director, ABFS
Beverly Santilli 1996 $120,000 $65,000 -- -- -- --
President, ABC and Executive Vice 1995 86,892 -- -- -- -- --
President, ABFS 1994 80,163 -- -- -- -- --
Jeffrey M. Ruben 1996 $96,125 $50,000 -- -- -- --
Sr. Vice President and 1995 80,353 -- -- -- 7,500(4) --
General Counsel, ABFS 1994 75,228 -- -- -- -- --
David M. Levin 1996 $85,000 $20,000 -- -- -- --
Senior Vice President - Finance and 1995(2) -- -- -- -- -- --
Chief Financial Officer, ABFS 1994(2) -- -- -- -- -- --
</TABLE>
____________________________________
(1) This represents Mr. Santilli's yearly bonus of $250,000 plus a one-time
bonus of $50,000 paid in October 1996.
(2) No disclosure of salary information is included for Mr. Levin for fiscal
1995 and 1994 as he was not an executive officer at such time.
(3) Represents an option to purchase 22,500 shares of Common Stock granted to
Mr. Santilli at an exercise price of $5.00 per share.
(4) Represents an option to purchase 7,500 shares of Common Stock granted to
Mr. Ruben at an exercise price of $2.67 per share.
-42-
<PAGE>
The Company currently has a stock option plan for officers and key
employees pursuant to which options to purchase 83,988 shares of Common Stock
were still remaining to be granted as of August 30, 1996. The following table
sets forth information regarding options exercised by the Named Officers during
fiscal 1996 and option values of options held by such individuals at fiscal year
end.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF UNEXERCISED OPTIONS/ VALUE OF UNEXERCISED
SARs AT IN-THE-MONEY OPTIONS/SARs AT
SHARES ACQUIRED ON VALUE FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE(#) REALIZED($) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ----------------------------------- ------------------ -------------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 225,012 0 22,500/0 $143,438/0(1)
Chairman, President, Chief
Executive Officer, Chief Operating
Officer, Treasurer and Director,
ABFS
Beverly Santilli President, ABC 0 0 N/A N/A
and Executive Vice President
Secretary of ABFS
Jeffrey M. Ruben 0 0 7,500/0 $ 65,288/0(2)
Vice President and General Counsel,
ABFS
David M. Levin 0 0 N/A N/A
Senior Vice President - Finance
and Chief Financial Officer, ABFS
</TABLE>
- --------------------------------------------
(1) This represents the aggregate market value (market price of the common
stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The exercise
price of the options held by Mr. Santilli is $5.00 per share.
(2) This represents the aggregate market value (market price of the common
stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The exercise
price of the options held by Mr. Ruben is $2.67 per share.
-43-
<PAGE>
The following table sets forth information regarding options granted to the
Named Officers during fiscal 1996. No stock appreciation rights ("SARs") were
granted in fiscal 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARs GRANTED
OPTIONS/SARs GRANTED TO EMPLOYEES IN EXERCISE OR BASE
NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- --------------------------------------------- -------------------- ---------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 22,500 100% $5.00 October 1, 2005
Chairman, President, Chief Executive Officer,
Chief Operating Officer, Treasurer and
Director of ABFS
Beverly Santilli -- -- -- --
President of ABC and Executive Vice President
and Secretary of ABFS
Jeffrey M. Ruben -- -- -- --
Senior Vice President and General Counsel of
ABFS
David M. Levin -- -- -- --
Sr. Vice President - Finance and Chief
Financial Officer
</TABLE>
-44-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 30, 1996 by the directors
of the Company, the Named Officers, each person known by the Company to be the
beneficial owners of five (5%) percent or more of the Common Stock of the
Company, and all directors and executive officers of the Company as a group.
NUMBER OF SHARES PERCENTAGE
NAME AND POSITION (IF APPLICABLE) BENEFICIALLY OWNED(1) OF CLASS
--------------------------------- --------------------- ----------
Anthony J. Santilli, Jr. 899,544 (2) (3) 37.9%
Chairman, President,
Chief Executive Officer, Chief
Operating Officer Treasurer and
Director of ABFS and Beverly Santilli,
President of ABC and Executive Vice
President of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
Leonard Becker, Director of ABFS 310,706 (4) 13.1%
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Michael DeLuca, Director of ABFS 189,735 (4) 8.0%
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 165,561 (4) 7.0%
c/o Presidential Securities
3 Bala Plaza
East Suite 415
Bala Cynwyd, PA 19004
Harold Sussman, Director of ABFS 96,711 (4) 4.1%
Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 7,500 (5) (6)
Senior Vice President and General
Counsel of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
David M. Levin -- --
Senior Vice President - Finance
and Chief Financial Officer of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
All executive officers and 1,669,757 67.5%
directors as a group
(eight persons)
_____________________________________
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly they may
include securities owned by or for, among others, the wife and/or minor children
or the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial ownership may
be disclaimed as to certain of the securities.
(2) Shares listed are held in joint tenancy by Mr. and Mrs. Santilli
-45-
<PAGE>
(3) Includes options to purchase 22,500 shares awarded to Mr. Santilli pursuant
to the Company's Employee Stock Option Plan.
(4) Includes options to purchase 22,500 shares awarded to each non-employee
director of the Company pursuant to the Company's 1995 Stock Option Plan for
Non-Employee Directors.
(5) Represents an option to purchase 7,500 shares of the Company's common
stock granted pursuant to the Company's Employee Stock Option Plan.
(6) Less than one percent.
-46-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company does not have any formal policy concerning the direct or
indirect pecuniary interest of any of its officers, directors, security holders
or affiliates in any investment to be acquired or disposed of by the Company or
in any transaction to which the Company is a party or has an interest. The
Company will not enter into any such transactions unless approved by a majority
of the entire Board of Directors, not including any interested director.
On September 29, 1995, the Company made a loan in the amount of $600,032 to
Anthony J. Santilli, President and Chief Executive. The proceeds of the loan
were used to exercise 225,012 stock options of the Company at a price of $2.67
per share. The loan bears interest at the rate of 6.46% with interest due
annually and the principal due September 2005. The loan is secured by the stock
purchased with the proceeds of the loan as well as an additional 225,000 shares
of ABFS common stock owned by Mr. Santilli.
Mr. Santilli is a limited guarantor on the Company's line of credit from
Meridian Bank. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Stock is traded on the Philadelphia Stock Exchange ("PHLX")
under the symbol "AFX". The Common Stock began trading on the PHLX on May 13,
1996. The average high and low sales prices of the Common Stock from the date
on which the Common Stock commenced trading on the PSE through June 30, 1996
were $17.00 and $10.00, respectively. Prior to the commencement of trading on
the PHLX, there was no active trading market for the Common Stock. As a result,
stock price information for the Common Stock is not available for any period
prior to May 13, 1996. On August 30, 1996, the closing sales price of the
Common Stock on the PHLX was $16.75.
As of August 30, 1996, there was approximately 120 record holders and
approximately 500 beneficial holders of the Common Stock.
During fiscal 1996, the Company paid dividends of $0.03 per share, for an
aggregate dividend payment of $70,595. Subsequent to fiscal year end, the
Company declared a dividend of $0.105 per share for the fourth quarter of fiscal
1996. The continuing payment by the Company of dividends in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. As a Delaware corporation, the
Company may not declare and pay dividends on its capital stock if the amount
paid exceeds an amount equal to the excess of the Company's net assets over
paid-in-capital or, if there is no excess, its net profits for the current
and/or immediately proceeding fiscal year. In addition, one of the Company's
loan agreements prohibits the payment of dividends in excess of the lesser of
33% of net income for the current year or $250,000.
PLAN OF DISTRIBUTION
It is presently anticipated that ABFS will not employ the services of a
broker-dealer or dealers as an agent to assist in the sales of the Investment
Notes. ABFS may in the future employ the services of an NASD member
broker-dealer for purposes of offering the Investment Notes on a "best-efforts"
or agency basis. If an agreement concerning the use of the services of any
broker-dealer is reached, ABFS may pay any such broker-dealers an estimated
commission ranging from .5% to 10% of the sale price of any Investment Note sold
through any such agent, depending on numerous factors. ABFS may also agree to
indemnify such broker-dealer against certain liabilities, including liabilities
under the Securities Act of 1933, as amended and to reimburse such broker-dealer
for its costs and expenses, up to a maximum to be determined, based upon the
total dollar
-47-
<PAGE>
value of Investment Notes sold. ABFS will otherwise offer the Investment Notes
through its employees in accordance with Rule 3a4-1 under the Securities
Exchange Act of 1934.
The Issuer reserves the right to reject any subscription hereunder, in
whole or in part, for any reason. Subscriptions will be irrevocable upon receipt
by ABFS. In the event a subscription is not accepted by ABFS, the proceeds of
such subscription will be promptly refunded to the subscriber, without deduction
of any costs and without interest. ABFS expects that such subscriptions will be
refunded within 48 hours after ABFS has received the subscription. Once a
subscriber's subscription has been accepted by ABFS, the applicable subscription
funds will be promptly deposited for benefit of the Company. An Investment Note
will be sent to the subscriber as soon as practicable thereafter. No minimum
number of Investment Notes must be sold in the Offering. A subscriber will not
know at the time of subscription whether ABFS will be successful in completing
the sale of any or all of the Investment Notes offered hereby. ABFS reserves
the right to withdraw or cancel the Offering at anytime. In the event of such
withdrawal or cancellation, subscriptions previously received will be
irrevocable and no subscription funds will be refunded.
LEGAL MATTERS
The validity of the Investment Notes being offered hereby have been passed
upon for the Company by Blank Rome Comisky & McCauley, Four Penn Center Plaza,
Philadelphia, Pennsylvania.
EXPERTS
The Consolidated Financial Statements of ABFS and subsidiaries as of June
30, 1996 and for the fiscal year ending June 30, 1996 included in this
Prospectus, have been audited by BDO Seidman, LLP, independent certified public
accountants, as set forth in their report appearing herein and have been
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The Consolidated Financial Statements of ABFS and subsidiaries as of June
30, 1995, and for the fiscal year ended June 30, 1995 included in this
Prospectus, have been audited by Fishbein & Company, P.C., independent certified
public accountants, as set forth in their report appearing herein and have been
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
On March 11, 1996, the Company engaged the firm of BDO Seidman, LLP as
independent certified public accountants replacing the firm of Fishbein &
Company, P.C. This change in independent certified public accountants was
recommended by the Audit Committee and subsequently approved by the Board of
Directors.
There have been no disagreements between the Company or its subsidiaries
and Fishbein & Company, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure in
connection with the audit of the consolidated financial statements for the two
years ended June 30, 1995 and subsequent period through March 11, 1996 which, if
not resolved to the satisfaction of Fishbein & Company, P.C., would have caused
them to make reference to the subject matter of the disagreement(s) in
connection with the reports of Fishbein & Company, P.C. on the consolidated
financial statements of the Company for the two years ended June 30, 1995 did
not contain an adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles. In
addition, there has not been any "reportable events" as defined by Item
304(a)(1)(iv)(B) of Regulation S-B during the periods referred to above.
-48-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORTS. . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND 1995 . . . . . . . . F-4
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
YEARS ENDED JUNE 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . .F-11
F-1
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
American Business Financial Services, Inc.
and Subsidiaries
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheet of American Business
Financial Services, Inc. and subsidiaries as of June 30, 1996, and the related
consolidated statements of income and stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1996, and
the consolidated results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
August 23, 1996
F-2
<PAGE>
Stockholders and Directors
American Business Financial Services, Inc.
Bala Cynwyd, Pennsylvania
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of AMERICAN
BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES as of June 30, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Business Financial Services, Inc. and Subsidiaries as of June 30, 1995,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Fishbein & Company, P.C.
FISHBEIN & COMPANY, P.C.
Elkins Park, Pennsylvania
September 20, 1995
F-3
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 5,345,269 $ 4,734,368
Loan and lease receivables, net
Available for sale 17,625,178 8,668,956
Other 534,325 328,401
Other receivables 14,090,542 4,237,072
Prepaid expenses 1,341,160 594,046
Property and equipment, net of accumulated
depreciation and amortization 1,452,895 687,678
Other assets 6,504,794 2,924,375
- --------------------------------------------------------------------------------
Total assets $ 46,894,163 $ 22,174,896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-4
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 35,987,401 $ 17,824,007
Accounts payable and accrued expenses 3,132,170 1,117,930
Deferred income taxes 1,506,271 704,304
Other liabilities 1,876,806 385,241
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 42,502,648 20,031,482
- --------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorized 1,000,000 shares
Issued and outstanding none - -
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding 2,353,166 shares in
1996 and 2,128,154 shares in 1995 2,353 2,128
Additional paid-in capital 1,931,699 1,331,892
Retained earnings 3,057,495 809,394
- --------------------------------------------------------------------------------
4,991,547 2,143,414
Less note receivable 600,032 -
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,391,515 2,143,414
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,894,163 $ 22,174,896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1996 1995
- --------------------------------------------------------------------------------
REVENUES
Gain on sales of loans $ 9,005,193 $ 1,442,961
Interest and fees 3,350,716 4,057,643
Other income 22,824 143,473
- --------------------------------------------------------------------------------
TOTAL REVENUES 12,378,733 5,644,077
- --------------------------------------------------------------------------------
EXPENSES
Interest 2,667,858 1,213,111
Provision for credit losses 681,228 165,143
Payroll and related costs 1,203,260 995,215
Sales and marketing 2,685,173 1,510,227
General and administrative 2,020,551 866,478
- --------------------------------------------------------------------------------
TOTAL EXPENSES 9,258,070 4,750,174
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,120,663 893,903
INCOME TAXES 801,967 312,866
- --------------------------------------------------------------------------------
NET INCOME $ 2,318,696 $ 581,037
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EARNINGS PER SHARE $ 1.01 $ .27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,296,913 2,128,154
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
COMMON STOCK
-------------------------
ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 2,128,154 $ 2,128 $ 1,331,892 $ 228,357 $ 1,562,377
Net income - - - 581,037 581,037
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1995 2,128,154 2,128 1,331,892 809,394 2,143,414
Options exercised 225,012 225 599,807 - 600,032
Cash dividends ($.03 per share) - - - (70,595) (70,595)
Net income - - - 2,318,696 2,318,696
- -----------------------------------------------------------------------------------------------------
Balance, June 30, 1996 2,353,166 $ 2,353 $ 1,931,699 $ 3,057,495 $ 4,991,547
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,318,696 $ 581,037
Adjustments to reconcile net income to net
cash (used in) provided by operating activities
Gain on sales of loans/leases (8,969,880) (1,442,961)
Amortization of origination fees and costs 305,136 528,554
Amortization of deferred servicing rights 69,489 -
Provision for credit losses 681,228 165,143
Accounts written off (129,063) (87,885)
Depreciation and amortization of property
and equipment 318,493 177,632
Amortization of financing and organization costs 505,012 436,260
(Increase) decrease in accrued interest
and fees on loan and lease receivables (268,010) 119,407
Increase in deferred income taxes 801,967 285,791
Decrease (increase) in other receivables 683,797 (328,081)
(Increase) in prepaid expenses (747,114) (241,164)
Decrease (increase) in other assets 332,009 (117,992)
Increase in accounts payable and accrued expenses 2,014,240 328,022
Increase in other liabilities 1,491,565 316,868
- -----------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (592,435) 720,631
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and leases originated (60,472,812) (15,408,775)
Loan and lease payments received 4,549,979 3,065,676
Proceeds of loans sold 40,627,246 8,747,265
Purchase of property and equipment (1,022,926) (382,154)
Decrease in securitization gain receivable 58,693 9,958
Principal receipts on investments 33,307 3,567
- -----------------------------------------------------------------------------------------------------
NET CASH (USED) IN INVESTING ACTIVITIES (16,226,513) (3,964,463)
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred $ (662,950) $ (483,732)
Net proceeds of (principal payments on)
revolving line of credit 2,348,465 (1,999,431)
Principal payments on term notes payable, bank - (245,555)
Dividends paid (70,595) -
Principal payments on note payable, other (5,606) (4,814)
Proceeds from issuance of subordinated debentures 19,687,982 12,049,581
Principal payments on subordinated debentures (3,867,447) (1,420,432)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,429,849 7,895,617
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 610,901 4,651,785
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,734,368 82,583
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,345,269 $ 4,734,368
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 1,183,745 $ 706,506
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Income taxes $ 78,475 $ 8,250
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Noncash transactions recorded in connection with
the sale of and foreclosure on loans receivable
Increase in other receivables, securitization gains $ 10,595,960 $ 3,271,770
Increase in other assets
Investment, held to maturity 2,332,247 684,380
Foreclosed real estate held for sale 111,890 448,801
Other holdings held for sale 308,933 -
Transfer from loans and leases, other (62,085) -
Deferred servicing rights 1,165,000 -
- -----------------------------------------------------------------------------------------------------
$ 14,451,945 $ 4,404,951
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Reclassification of other assets,
leased equipment to fixed assets $ 60,784 $ -
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Stock options for 225,012 shares of common stock were
exercised. Shares with a total price of $600,032 were
issued in exchange for a note receivable of the
same amount.
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-10
<PAGE>
AMERICAN BUSINESS FINANCIAL
SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
American Business Financial Services, Inc. ("ABFS") and its wholly-owned
subsidiaries (the "Company"). All significant intercompany transactions and
balances have been eliminated.
The Company makes secured loans in the Mid-Atlantic Region and is subject to the
risks of the real estate market in that area. The Company also makes business
equipment leases and unsecured consumer loans. The Company securitizes its
secured loans.
CASH EQUIVALENTS
Cash equivalents consist of short-term investments purchased with a maturity of
three months or less.
LOAN AND LEASE RECEIVABLES AVAILABLE FOR SALE
Loan and lease receivables available for sale represent receivables that the
Company generally intends to sell or securitize within the next twelve months.
These assets are stated at the lower of cost (principal balance including unam-
ortized origination costs/fees) or estimated market value in the aggregate.
Market value is determined by most recent sale or securitization transactions.
The Company sells loans through secondary market securitizations and is subject
to certain limited recourse provisions. Income is recorded at the time of sale
approximately equal to the present value of the anticipated future cash flows
("residuals"), offset by unamortized loan origination costs/fees, related
transaction expenses and estimated credit losses (see Note 3). Subsequent to
the initial sale, securitization income is recorded in proportion to the actual
cash flow received. To the extent that the anticipated cash flows exceed actual
cash flows, losses are recognized through the use of an allowance account. If
actual cash flows exceed anticipated cash flows, the allowance account is
adjusted.
F-11
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based upon the Company's estimate of expected
collectibility of loans and leases outstanding. The allowance is increased by
periodic charges to operations as necessary.
ORIGINATION COSTS AND FEES AND AMORTIZATION
Direct origination costs, net of origination fees, are deferred and amortized
over the contractual life of the receivable using the interest method.
Unamortized amounts are recognized as (expense) income when the receivable is
sold or paid in full.
PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line and declining balance methods over the
estimated useful lives of the assets (ranging from 5 to 10 years). Expenditures
for additions, renewals and betterments are capitalized; expenditures for
maintenance and repairs are charged to expense as incurred.
FINANCING COSTS AND AMORTIZATION
Costs incurred in obtaining revolving lines of credit are amortized using the
straight-line method over the terms of the agreements.
Financing costs incurred in connection with public offerings of debentures are
amortized using the interest method over the term of the related debentures.
INVESTMENTS, HELD TO MATURITY
The investments classified as held to maturity consist of mortgage-backed
securities that the Company has the positive intent and ability to hold to
maturity. These investments are stated at amortized cost, which approximates
market.
Foreclosed property held for sale is stated at the lower of cost or fair market
value.
F-12
<PAGE>
INTEREST INCOME
Interest income from loan and lease receivables is recognized using the interest
method. Accrual of interest income is suspended when the receivable is
contractually delinquent for ninety days or more. The accrual is resumed when
the receivable becomes contractually current, and past due interest income is
recognized at that time. In addition, a detailed review of receivables will
cause earlier suspension if collection is doubtful.
INCOME TAXES
The Company files a consolidated federal income tax return.
The Company uses the liability method in accounting for income taxes.
Principal differences between the Company's financial and income tax reporting
include amortization of loan and lease origination costs/fees, the allowance for
credit losses, depreciation and amortization of property and equipment,
securitization gains, servicing rights and net operating losses.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares out-
standing; the effect of outstanding stock options is not dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
F-13
<PAGE>
2. LOAN AND LEASE RECEIVABLES
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Real estate secured loans $ 12,960,229 $ 4,761,778
Leases (net of unearned income of
$1,136,621 and $557,880) 4,393,713 2,034,981
Other loans 109,726 1,134,742
Unamortized origination
costs/fees 868,934 892,713
- -------------------------------------------------------------------------------
Substantially all of the leases are sales-type leases whereby the lessee has
the night to purchase the leased equipment at lease expiration for a nominal
amount.
18,332,602 8,824,214
Less allowance for credit losses 707,424 155,258
- -------------------------------------------------------------------------------
LOAN AND LEASE RECEIVABLES, net $ 17,625,178 $ 8,668,956
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Substantially all of the leases are sales-type leases whereby the lessee has
the right to purchase the leased equipment at lease expiration for a nominal
amount.
The Company sells real estate secured loans through securitizations and retains
collection and administrative responsibilities as servicer for the trusts
holding the loans. Under terms of the sales, the purchasers have limited re-
course ($2,834,783 at June 30, 1996) should certain amounts of the loans prove
to be uncollectible. However, the Company believes that allowances established
for these off-balance sheet instruments are adequate to provide for any amounts
found to be uncollectible. At June 30, 1996, the uncollected balance of
receivables securitized was approximately $42,100,000.
At June 30, 1996, the accrual of interest income was suspended on real estate
secured loans of $599,564. Based on its evaluation of the collateral related to
these loans, the Company expects to collect all contractual interest and
principal.
At June 30, 1996, the contractual maturities of loan and lease receivables are
as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate
secured loans $1,175,085 $ 369,635 $ 422,257 $ 422,529 $ 477,495 $ 10,093,228 $ 12,960,229
Leases 1,785,696 1,280,863 767,481 415,126 144,547 - 4,393,713
Other loans 23,921 28,184 32,847 19,660 5,114 - 109,726
Unamortized origination
costs/fees 614,865 132,547 70,126 34,644 13,712 3,040 868,934
- -----------------------------------------------------------------------------------------------------------------------------
Total loans
receivable $3,599,567 $1,811,229 $1,292,711 $ 891,959 $ 640,868 $ 10,096,268 $ 18,332,602
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
3. ALLOWANCE FOR CREDIT LOSSES
BALANCE, July 1, 1994 $ 78,000
Provision for credit losses 165,143
Accounts written off (87,885)
- -------------------------------------------------------------------------------
BALANCE, June 30, 1995 155,258
Provision to credit losses 681,228
Accounts written off (129,062)
- -------------------------------------------------------------------------------
BALANCE, June 30, 1996 $ 707,424
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4.OTHER RECEIVABLES
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Sales of loans $ 86,090 $ 415,521
Home equity loan fees 121,874 506,236
Residuals 13,447,674 2,969,812
Other 434,904 345,503
- -------------------------------------------------------------------------------
$14,090,542 $4,237,072
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Computer equipment and software $ 1,296,769 $ 754,732
Office furniture and equipment 803,445 393,423
Leasehold improvements 171,542 49,999
- -------------------------------------------------------------------------------
2,271,756 1,198,154
Less accumulated depreciation
and amortization 818,861 510,476
- -------------------------------------------------------------------------------
$1,452,895 $ 687,678
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-15
<PAGE>
6. OTHER ASSETS
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Deposits $ 296,582 $ 113,483
Debt offerings, line of credit,
net of accumulated amortization
of $1,074,212 in 1996 and
$581,324 in 1995 1,138,455 968,393
Investments, held to maturity
(mature in September 2004
through April 2011) 2,834,783 680,813
Foreclosed property held for sale 607,905 761,523
Servicing rights 1,387,511 -
Other 239,558 400,163
- -------------------------------------------------------------------------------
$ 6,504,794 $2,924,375
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7. DEBT
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Subordinated debentures, due
September 1996 through June
1998; interest at rates ranging
from 8% to 12% payable quarterly;
subordinated to all of the
Company's senior indebtedness. $ 1,345,421 $ 1,422,421
Subordinated debentures, due
July 1996 through June 2006;
interest at rates ranging from
7% to 10.50%; subordinated to
all of the Company's senior
indebtedness. 32,275,058 16,377,523
Note payable, $25,000,000 revolving
line of credit expiring September
1996; interest at LIBOR plus 1 1/4%
(an effective rate of 6 3/4% at
June 30, 1996) payable monthly;
collateralized by loans receivable. 2,348,465 -
F-16
<PAGE>
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Note payable in monthly installments
of $655 including interest at 11.8%;
final payment due in March 1999;
collateralized by related equipment. $ 18,457 $ 24,063
- -------------------------------------------------------------------------------
$35,987,401 $17,824,007
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal payments on debt for the next five years are due as follows: year
ending June 30, 1997 - $21,206,784; 1998 - $4,329,462; 1999 - $2,884,971; 2000 -
$1,995,153 and 2001 - $2,557,366.
Effective December 18, 1995, the Company authorized the issuance through a
public offering of up to $50,000,000 of unsecured, subordinated debentures to be
offered on an ongoing and continuous basis. During the year ended June 30,
1996, subordinated debentures of $16,810,707 were issued through this offering.
At June 30, 1996, the Company has available unused revolving lines of credit of
$7,500,000 and $3,500,000, respectively. The lines expire in December 1996 and
May 1998, respectively. Advances under the lines, if any, are collateralized by
certain loans receivable. One of the loan agreements contains various re-
strictive covenants, including the following: the Company must maintain (on a
consolidated basis) a ratio of subordinated debt to bank debt (as defined) of
not less than 1.50:1, a ratio of senior indebtedness to capital funds (as
defined) of not more than .95:1, minimum capital funds (as defined) of
$23,200,000, and minimum pre-tax income of $3,000,000, and may not pay any divi-
dends in excess of the lesser of 33% of current year net income or $250,000.
8. COMMON AND PREFERRED STOCK
On May 31, 1996, the stockholders approved an amended and restated Certificate
of Incorporation which increased the authorized common shares from five million
shares to nine million shares and established a class of preferred shares with
one million shares authorized.
On September 12, 1995, the Board of Directors declared a 3 for 2 stock split of
common stock to stockholders of record on October 1, 1995. The stock split has
been reflected in the June 30, 1995 consolidated financial statements.
F-17
<PAGE>
9. STOCK OPTIONS
On May 31, 1996, the stockholders approved a non-employee director stock option
plan which authorizes the grant to non-employee directors of options to purchase
135,000 shares of common stock at a price equal to the market price of the stock
at the date of grant. Options are fully vested when granted and expire ten
years after grant. At June 30, 1996, 45,000 shares were available for future
grants under this plan. Transactions under this plan were as follows:
NUMBER OF PRICE PER
SHARES SHARE
- -------------------------------------------------------------------------------
Options granted and
outstanding, June 30,1996 90,000 $ 5.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company has an employee stock option plan which authorizes the grant to
employees of options to purchase 375,000 shares of common stock at a price equal
to the market price of the stock at the date of grant. Options are fully vested
when granted and expire five to ten years after grant. At June 30, 1996, 83,988
shares were available for future grants under this plan. Transactions under the
plan were as follows:
NUMBER OF PRICE PER
SHARES SHARE
- -------------------------------------------------------------------------------
Options outstanding, July 1, 1994 225,012 $2.67
Options granted 43,500 2.67
- -------------------------------------------------------------------------------
Options outstanding, June 30, 1995 268,512 2.67
Options granted 22,500 5.00
Options exercised (225,012) 2.67
- -------------------------------------------------------------------------------
Options outstanding, June 30, 1996 66,000 $2.67-$5.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
On September 29, 1995, options for 225,012 shares were exercised at $2.67 per
share by an officer of the Company. The purchase price of $600,032 was advanced
to the officer, by the Company, on a ten year loan with interest at 6.46%,
payable annually. The loan is secured by 450,000 shares of the
F-18
<PAGE>
Company's stock (at date of exercise, market value of collateral was
approximately $1,200,000) and is shown as a reduction of stockholders' equity on
the accompanying balance sheet.
10. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Current
Federal $ - $ 27,075
State - -
- -------------------------------------------------------------------------------
- 27,075
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Deferred
Federal 858,617 457,439
State (56,650) (171,648)
- -------------------------------------------------------------------------------
801,967 285,791
- -------------------------------------------------------------------------------
$ 801,967 $ 312,866
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The current provision for federal income taxes for the year ended June 30, 1995
is net of the tax benefit of approximately $249,000 from the utilization of net
operating loss carryforwards.
F-19
<PAGE>
The cumulative temporary differences resulted in net deferred income tax assets
or liabilities consisting primarily of:
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Deferred income tax assets
Allowance for credit losses $ 287,214 $ 62,568
Net operating loss carryforwards 461,954 126,435
Loan and lease receivables 68,058 -
Accrued expenses 246,500 -
- -------------------------------------------------------------------------------
1,063,726 189,003
Less valuation allowance 148,500 126,435
- -------------------------------------------------------------------------------
915,226 62,568
- -------------------------------------------------------------------------------
Deferred income tax liabilities
Loan and lease origination costs/fees, net 368,849 365,679
Book over tax basis of property
and equipment 131,751 54,965
Other receivables 1,548,423 346,228
Servicing rights 372,474 -
- -------------------------------------------------------------------------------
2,421,497 766,872
- -------------------------------------------------------------------------------
Net deferred income tax liabilities $ 1,506,271 $ 704,304
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The valuation allowance represents the income tax effect of State net operating
loss carryforwards of the Company which are not presently expected to be
utilized.
F-20
<PAGE>
A reconciliation of income taxes at federal statutory rates to the Company's tax
provision is as follows:
YEAR ENDED JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Federal income tax at statutory rates $ 1,061,005 $ 303,927
State income tax, net of federal tax benefit - (48,614)
Nondeductible expenses 13,545 11,080
Increase in state tax valuation allowance - 46,453
Other, net (272,583) 20
- -------------------------------------------------------------------------------
$ 801,967 $ 312,866
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
For income tax reporting, the Company has net operating loss carryforwards
aggregating approximately $1,650,000 available to reduce future state income
taxes for various states. If not used, substantially all of the carryforwards
will expire at various dates from June 30, 1997 to June 30, 1999.
11. COMMITMENT AND CONTINGENCIES
COMMITMENT
The Company leases certain of its facilities under a five-year operating lease
expiring in November 2000, at a minimum annual rental of $430,637. The lease
contains a renewal option for an additional five year period at an increased
annual rental. Rent expense under all operating leases for such facilities was
$373,694 and $199,368 for the years ended June 30, 1996 and 1995, respectively.
CONTINGENCIES
A subsidiary of the Company makes home equity loans on behalf of unaffiliated
lenders for a fee equal to a percentage of the loan amount. Certain agreements
require that all or a portion of the fee be refunded if the loan is paid off
during the first six to twelve months after origination. At June 30, 1996 and
1995, approximately $292,000 and $394,000, respectively, of fee income is
subject to this provision. The actual amount of the fee refunded during the
years ended June 30, 1996 and 1995, which was recorded as income prior to July
1, 1995 and 1994, was $138,187 and $14,267, respectively.
F-21
<PAGE>
The Company is a defendant in a lawsuit filed by one of its competitors for
alleged interference with existing contractual relations between the
competitor and its customers and vendors. Currently, the Company is
negotiating a settlement which is expected to be immaterial to the Company's
operations.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
No market exists for certain of the Company's assets and liabilities, therefore,
fair value estimates are based on judgments regarding credit risk, investor
expectation of future economic conditions, normal cost of administration and
other risk characteristics, including interest rates and prepayment risk. These
estimates are subjective in nature and involve uncertainties and matters of
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
In addition, the fair value estimates presented do not include the value of
assets and liabilities that are not considered financial instruments.
The table below summarizes the information about the fair value of the financial
instruments recorded on the Company's financial statements at June 30, 1996:
JUNE 30, 1996
- -------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
- -------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 5,345,269 $ 5,345,269
Loans and leases available
for sale 18,332,602 20,800,000
Residuals 13,447,674 13,447,674
F-22
<PAGE>
JUNE 30, 1996
- -------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
- -------------------------------------------------------------------------------
LIABILITIES
Borrowings under revolving
lines of credit $ 2,348,465 $ 2,348,965
Subordinated debentures 33,620,479 33,620,479
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:
CASH AND CASH EQUIVALENTS - For these short-term instruments the carrying
amount is a reasonable estimate of the fair value.
LOANS AND LEASES AVAILABLE FOR SALE - The Company has estimated the fair
values reported based upon recent sales and securitizations.
RESIDUALS - Fair value is determined using estimated discounted future cash
flows taking into consideration anticipated prepayment rates.
BORROWINGS UNDER REVOLVING LINES OF CREDIT - The carrying value reported
approximates the fair value due to the short-term nature of the borrowings,
and the variable rate of interest charged on the borrowings.
SUBORDINATED DEBT - The fair value of fixed maturity subordinated debentures
is estimated using the rates currently offered for debentures of similar
maturities.
13. HEDGING TRANSACTIONS
The Company regularly securitizes and sells fixed rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed rate
loans held for sale, the Company in certain cases will hedge its interest rate
risk related to the loans held for sale by selling U.S. Treasury securities
short. The Company classifies these sales as hedges of specific loans held for
sale and does not record the derivative securities on its financial statements.
The gain or loss derived from these sales is deferred and recognized as an
adjustment to gain on sale of loans when the loans are securitized.
F-23
<PAGE>
At June 30, 1996, the Company sold short $15,000,000 of U.S. Treasury securities
due June 30, 1998 to settle on September 30, 1996. The deferred loss at June
30, 1996 was approximately $27,000.
During the year ended June 30, 1996, the Company included a gain of $35,312 on
short sales of U.S. Treasury securities as part of gains on sales of loans.
F-24
<PAGE>
- ---------------------------------------------
- ---------------------------------------------
No person is authorized to give any
information or to make any representation
not contained or incorporated by reference
in this Prospectus, and if given or made,
such information or representation must
not be relied upon as having been
authorized by the Company. Neither the
delivery of this Prospectus nor any sale
made in connection herewith shall, under
any circumstances, create any implication
that there has been no change in the facts
set forth in this Prospectus or in the
affairs of the Company since the date
hereof. This Prospectus, even when
accompanied by an appropriate Prospectus
Supplement, does not constitute an offer
to sell or solicitation of any offer to
buy the Notes by anyone in any
jurisdictions in which such offer or
solicitation is not authorized, or in
which the person making such offer or
solicitation of any offer to buy the Notes
is not qualified to do so, or to any
person to whom it is unlawful to make such
an offer or solicitation.
___________________
TABLE OF CONTENTS
PAGE
Available Information. . . . . . . . . 2
Summary of Terms . . . . . . . . . . . 3
Highlights of Terms of Investment Notes
Offered. . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . 6
Selected Consolidated Financial Data .13
Use of Proceeds. . . . . . . . . . . .14
Description of the Investment Notes
and the Indenture . . . . . . . . .15
Business . . . . . . . . . . . . . . .21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . .29
Management . . . . . . . . . . . . . .39
Principal Stockholders . . . . . . . .45
Certain Relationships and Related
Transactions . . . . . . . . . . . . .47
Market for Common Equity and Related
Shareholder Matters . . . . . . . .47
Plan of Distribution . . . . . . . . .47
Legal Matters. . . . . . . . . . . . .48
Experts. . . . . . . . . . . . . . . .48
Index to Consolidated Financial
Statements . . . . . . . . . . . . . F-1
Consolidated Financial Statements. . F-2
SUBORDINATED
INVESTMENT NOTES
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
PROSPECTUS
___________________, 1996
- ---------------------------------------------
- ---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Amended and Restated Bylaws (the "Bylaws") of ABFS
provide for indemnification of its directors and officers to the full extent
permitted by Delaware law. In the event that the Delaware General Corporation
Law (the "Corporation Law") is amended to authorize corporate action further
eliminating or limiting the personal liability of directors and officers, the
Certificate of Incorporation and Bylaws provide the personal liability of the
directors and officers of ABFS shall be so eliminated or limited.
Section 145 of the Corporation Law provides, in substance, that Delaware
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions,
suits or proceedings brought against them by a third party or in the right of
the corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding.
Section 145 of the Corporation Law provides that a company may pay the
expenses incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon an undertaking by or
on behalf of such director or officer to repay such amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
The Certificate of Incorporation and Bylaws of ABFS provide that ABFS shall pay
such expenses.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Investment Notes, other than underwriting
discounts and commissions which ABFS does not anticipated paying:
SEC Registration Fee+ . . . . . . . . . . . . . . . . . $ 25,862
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . 5,500
Printing, Engraving and Mailing . . . . . . . . . . . . 21,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . 65,000
Accounting Fees and Expenses . . . . . . . . . . . . . 20,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . 11,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 1,300,000
-----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $1,448,362
-----------
-----------
________________________________
+ Exact; all other fees and expenses are estimates
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On or about November 10, 1992, Geriaco International Incorporated
("Geriaco") (as ABFS was then known) issued 500,000 shares of its common stock
to a certain entity in consideration of such entity's surrender of a previously
issued warrant to purchase 500,000 shares of Geriaco common stock and an
agreement by it that no accounts receivable were due from Geriaco. As a result
of Geriaco's 547.7 for 1 reverse stock split, such entity currently owns 1,370
shares of ABFS common stock.
On or about February 12, 1993, in connection with the consummation of a
tender offer made by ABFS for all the issued and outstanding shares of common
stock of ABC, ABFS issued an aggregate of 1,761,869 shares of its common stock,
par value $.001 to the shareholders of ABC. Each share of ABC Class A common
stock and Class B common stock was exchanged for 65.2 shares of the common stock
of ABFS. Each share of ABC preferred stock was exchanged for 22.5 shares of the
common stock of ABFS.
On September 29, 1995, ABFS issued 225,012 shares of Common Stock to
Anthony J. Santilli, President of ABFS, upon the exercise of stock options at a
price of $2.67 per share.
Exemption from registration for all issuances described above was claimed
pursuant to Section 4(2) of the Securities Act of 1933, as amended, in reliance
upon the fact that such sales did not involve a public offering. Therefore,
such securities are subject to certain transfer restrictions.
ITEM 27. FINANCIAL STATEMENTS AND EXHIBITS
The following documents were filed as part of this Registration Statement.
(a) Financial Statements:
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Independent Auditors Reports
Consolidated balance sheets as of June 30, 1996 and 1995
Consolidated statements of income for the years ended
June 30, 1996 and 1995
Consolidated statements of stockholders' equity for the years
ended June 30, 1996 and 1995
Consolidated statements of cash flows for the years ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements
(b) Exhibits:
Regulation S-B
Exhibit Number Description
-------------- -----------
3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference from Exhibit 3.1 of the
Annual Report on Form 10-KSB of ABFS for the fiscal
year ended
II-2
<PAGE>
Regulation S-B
Exhibit Number Description
-------------- -----------
June 30, 1996, File No. 0-22472, filed on September 27,
1996 ("the 1996 Form 10-KSB")).
3.2 Amended and Restated Bylaws of ABFS (Incorporated by
reference from Exhibit 3.2 of ABFS' Registration
Statement on Form S-11, Registration No. 33-59042,
filed on February 26, 1993 ("Form S-11")).
4.1 Form of Unsecured Investment Note (Incorporated by
reference to Exhibit 4.1 of Amendment No. 1 to Form SB-
2 Filed April 29, 1994, Registration Number 33-76390
(the "Form SB-2")).
4.2* Form of Unsecured Investment Note issued pursuant to
Indenture with First Trust National Association.
4.3* Form of Indenture by and between ABFS and First Trust
National Association.
5.1* Opinion of Blank Rome Comisky & McCauley.
10.1 Loan and Security Agreement between Upland Mortgage and
BankAmerica Business Credit, Inc. dated May 23, 1996
(Incorporated by reference from Exhibit 10.6 of the
1996 Form 10-KSB).
10.2 Stock Option Plan (Incorporated by reference to Exhibit
10.2 of Form S-11).
10.3 Stock Option Award Agreement (Incorporated by reference
to Exhibit 10.1 of Form S-11).
10.4 Line of Credit Agreement by and between American
Business Credit, Inc. and Eagle National Bank
(Incorporated by reference to Exhibit 10.4 of Amendment
No. 1 on Form SB-2, Registration No. 33-59042, filed on
April 29, 1993 (the "1993 SB-2")).
10.5 Agreement dated April 12, 1993 between American
Business Credit, Inc. and Eagle National Bank
(Incorporated by reference to Exhibit 10.5 of the 1993
SB-2).
10.6 1995 Stock Option Plan for Non-Employee Directors
(Incorporated by reference from Exhibit 10.12 of the
1996 Form 10-KSB).
10.7 Form of Option Award Agreement for Non-Employee
Directors Plan (Incorporated by reference from Exhibit
10.13 of the 1996 Form 10-KSB).
10.8 Interim Warehouse and Security Agreement between Upland
Mortgage and Prudential Securities Realty Funding
II-3
<PAGE>
Regulation S-B
Exhibit Number Description
-------------- -----------
Corporation dated April 25, 1996 (Incorporated by
reference from Exhibit 10.14 of the 1996 Form 10-KSB).
10.9 Lease dated January 7, 1994 by and between TWC Realty
Fund IV Pennsylvania Trust and ABFS (Incorporated by
reference from Registration Statement on Form SB-2
filed March 15, 1994, File No. 33-76390).
10.10 First Amendment to Agreement of Lease by and between
TCW Realty Fund IV Pennsylvania Trust and ABFS dated
October 24, 1994. (Incorporated by reference from
Exhibit 10.9 to ABFS' Form 10-KSB for the fiscal year
ended June 30, 1995 (the "1995 10-KSB")).
10.11 Second Amendment to Agreement of Lease by and between
TCW Realty Fund IV Pennsylvania Trust and ABFS dated
December 23, 1994 (Incorporated by reference from
Exhibit 10.10 to the 1995 10-KSB).
10.12 Third Amendment to Lease between TWC Realty Fund IV
Pennsylvania Trust and ABFS dated July 25, 1995
(Incorporated by reference from Exhibit 10.11 to the
1995 10-KSB).
10.13 Revolving Credit and Security Agreement dated
August 12, 1994 between ABFS, American Business Credit,
Inc., HomeAmerican Credit, Inc. and Meridian Bank
(Incorporated by reference from Exhibit 10.7 to the
1995 10-KSB).
10.14* Promissory Note of Anthony J. Santilli, Jr. and Stock
Pledge Agreement dated September 29, 1995.
16. Letter on Change in Certifying Accountant (Incorporated
by reference from ABFS' Current Report on Form 8-K
dated March 11, 1996, File No. 0-22472).
21. Subsidiaries of ABFS (Incorporated by reference from
Exhibit 21 to the 1996 Form 10-KSB).
23.1 Consent of Fishbein & Company, P.C.
23.2* Consent of Blank Rome Comisky & McCauley (See Exhibit
5.1).
23.3 Consent of BDO Seidman LLP.
24.1* Power of attorney (included on page II-6 of the
Registration Statement filed October 26, 1995).
25.1* Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 on Form T-1.
II-4
<PAGE>
Regulation S-B
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule.
99.1* Form of Prospectus Supplement.
Exhibit numbers correspond to the exhibits required by Item 601 of
Regulation S-B for a Registration Statement on Form SB-2.
- -------------------------------
* Previously filed.
ITEM 28. UNDERTAKINGS.
(a) As to Rule 415.
The Undersigned registrant will:
(1) File, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act.
(ii) to reflect in the Prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement.
(iii) to include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of such
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
person of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) (1) For determining any liability under the Securities Act, ABFS
will treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
II-5
<PAGE>
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, ABFS
will treat each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial bona
fide offering of these securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Philadelphia, Commonwealth of Pennsylvania.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Date: September 27, 1996 By: /s/ Anthony J. Santilli, Jr.
---------------------------------------------
Anthony J. Santilli, Jr., Chairman, President,
Chief Executive Officer, Chief Operating
Officer, Treasurer and Director (Duly
Authorized Officer)
----------------------------
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed below by the following persons in
the capacities and on September 27, 1996.
SIGNATURE CAPACITY DATE
/s/ Anthony J. Santilli, Jr. Chairman, President, September 27, 1996
--------------------------- Chief Executive
Anthony J. Santilli, Jr. Officer, Chief
Operating Officer,
Treasurer and
Director (Principal
Executive and
Operating Officer)
/s/ David M. Levin Senior Vice September 27, 1996
--------------------------- President-Finance and
David M. Levin Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ Leonard Becker Director September 27, 1996
----------------------------
Leonard Becker
/s/ Richard Kaufman Director September 27, 1996
----------------------------
Richard Kaufman
---------------------------- Director --------------------
Harold E. Sussman
---------------------------- Director --------------------
Michael DeLuca
II-7
<PAGE>
EXHIBIT INDEX
S-B EXHIBIT NUMBER DESCRIPTION
23.1 Consent of Fishbein & Company, P.C.
23.3 Consent of BDO Seidman LLP
27 Financial Data Schedule
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Business Financial Services, Inc.
We hereby consent to the use in this Post-effective Amendment No. 1 to the
Registration Statement on Form SB-2 of our report dated September 20, 1995,
relating to the consolidated financial statements of American Business Financial
Services, Inc. and subsidiaries. We also consent to the reference to our firm
under the caption "Experts" in the Prospectus.
/s/ Fishbein & Company, P.C.
FISHBEIN & COMPANY, P.C.
Elkins Park, Pennsylvania
September 27, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Business Financial Services, Inc.
Bala Cynwyd, PA
We hereby consent to the use in this Post-effective Amendment No. 1 to the
Registration Statement on Form SB-2 for our report dated August 23, 1996,
relating to the consolidated financial statements of American Business Financial
Services, Inc. and subsidiaries.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRATION'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,345,269
<SECURITIES> 0
<RECEIVABLES> 18,866,927
<ALLOWANCES> 707,424
<INVENTORY> 0
<CURRENT-ASSETS> 25,053,896
<PP&E> 2,271,756
<DEPRECIATION> 818,861
<TOTAL-ASSETS> 46,894,163
<CURRENT-LIABILITIES> 24,338,954
<BONDS> 0
0
0
<COMMON> 2,353
<OTHER-SE> 4,389,162
<TOTAL-LIABILITY-AND-EQUITY> 46,894,163
<SALES> 0
<TOTAL-REVENUES> 12,378,733
<CGS> 0
<TOTAL-COSTS> 8,576,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 681,228
<INTEREST-EXPENSE> 2,667,858
<INCOME-PRETAX> 3,120,663
<INCOME-TAX> 801,967
<INCOME-CONTINUING> 2,318,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,318,696
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
