<PAGE>
Registration No. 333-40231
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RESOURCE AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
72-0654145
(I.R.S. Employer Identification No.)
1521 Locust Street, Philadelphia, Pennsylvania 19102 (215-546-5005)
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael L. Staines, 1521 Locust Street, Philadelphia, Pennsylvania 19102
(215-546-5005)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
J. Baur Whittlesey, Esq. Dave Muchnikoff, P.C.
Ledgewood Law Firm, P.C. Silver, Freedman & Taff, L.L.P.
1521 Locust Street 1100 New York Avenue, N.W.
Philadelphia, PA 19102 Washington, D.C. 20005-3934
(215) 735-0663 (202) 682-0354
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the registration statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box [ ].
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 [ ]__________.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of each class of Proposed Proposed maximum
securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per note(1) price(1) registration fee(2)
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<S> <C> <C> <C> <C>
12% Senior Notes due 115,000 $1,000 $115,000,000 $34,848.48
2004
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933 based upon
the book value of the 12% Senior Notes as of November 14, 1997.
(2) The registration fee was paid in connection with the filing of the original
registration statement.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
[LOGO]
RESOURCE AMERICA, INC.
OFFER BY RESOURCE AMERICA, INC. TO EXCHANGE 12% SENIOR NOTES DUE 2004 (THE "NEW
NOTES"), WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY
AND ALL OF ITS CURRENTLY OUTSTANDING 12% SENIOR NOTES DUE 2004 (THE "OLD
NOTES").
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FEBRUARY 15, 1998, UNLESS EXTENDED.
Resource America, Inc., a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal and related
documents (which together constitute the "Exchange Offer"), to exchange up to
$115 million aggregate principal amount of its 12% Senior Notes due 2004 (the
"New Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein), of which this Prospectus is a part, for a like aggregate principal
amount of its currently outstanding 12% Senior Notes due 2004 (the "Old Notes"),
of which $115 million aggregate principal amount is outstanding. The Old Notes
and the New Notes are collectively sometimes referred to as the "Notes."
The terms of the New Notes are identical in all material respects
to the terms of the Old Notes, except that (i) the New Notes have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Notes, and (ii) the New Notes
will not provide for any increase in the interest rate thereon since the Old
Notes provided for such increases only in the event that the Old Notes were not
registered under the Securities Act within the period specified in the Old
Notes. See "Description of New Notes" and "Description of Old Notes." The New
Notes are being offered in exchange for the Old Notes in order to satisfy
certain obligations of the Company under the Registration Rights Agreement (the
"Registration Rights Agreement") dated July 22, 1997 between the Company and
Friedman, Billings, Ramsey & Co., Inc., the initial purchaser of the Old Notes
(the "Initial Purchaser"). In the event the Exchange Offer is consummated, any
Old Notes remaining outstanding after consummation of the Exchange Offer and the
New Notes issued in the Exchange Offer will vote together as a single class for
purposes of determining whether Holders of the requisite percentage in
<PAGE>
aggregate principal amount of Notes have taken certain actions or exercised
certain rights under the Indenture dated July 22, 1997 (the "Indenture")
pursuant to which the Old Notes were issued.
The New Notes will be unsecured general obligations of the Company
which will rank senior in right of payment to all subordinated debt of the
Company and pari passu with or senior to all existing and future general
unsecured indebtedness of the Company. The New Notes will be subordinate to all
liabilities under the Company's existing or future secured indebtedness or
indebtedness incurred under existing or future credit facilities. In addition,
the business operations of the Company are conducted through its Subsidiaries,
and accordingly, the New Notes will be effectively subordinated to all existing
and future obligations of the Company's Subsidiaries. As of September 30, 1997,
the Company and its Subsidiaries had outstanding $4.5 million of debt, with an
aggregate yearly debt service of $1.1 million, and $45 million available under
various credit facilities (which have an aggregate of $585,000 in outstanding
draws) which are senior to the New Notes, and an additional $4.2 million of
unsecured debt ranking pari passu with the New Notes. The Company has also
guaranteed performance by a Subsidiary of the Subsidiary's guarantee of a $5.5
million obligation of a special purpose financing entity.
The New Notes are not redeemable prior to August 1, 2002;
thereafter they are redeemable at the option of the Company at the redemption
prices set forth herein plus accrued interest to the redemption date. No sinking
fund is provided for the New Notes. Upon a Change in Control Event (as defined
in the Indenture), each Holder has the right to require the Company to
repurchase such Holder's Notes, in whole or in part, at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the
repurchase date. See "Description of Old Notes" and "Description of New Notes."
The New Notes will be represented by one or more "global notes"
registered in the name of a nominee of The Depository Trust Company, as
depositary (the "Depositary"). Beneficial interests in the global notes will be
shown on, and transfer thereof will be effected only through, records maintained
by the Depositary and its participants. Owners of beneficial interests in the
global notes will not be considered Holders of the New Notes. See "Description
of Notes - Book-Entry Delivery and Form."
SEE "RISK FACTORS" COMMENCING ON PAGE 25 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY HOLDERS WHO TENDER OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1997.
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Based upon certain interpretive letters issued by the staff of the
United States Securities and Exchange Commission (the "Commission") to third
parties in unrelated transactions, the Company is of the view that Holders of
the Old Notes (other than any Holder who is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) who exchange their Old Notes
pursuant to the Exchange Offer generally may offer such New Notes for resale,
resell such New Notes and otherwise transfer such New Notes without compliance
with the registration and prospectus-delivery provisions of the Securities Act,
provided such New Notes are acquired in the ordinary course of the Holder's
business and such Holder has no arrangement with any person to participate in a
distribution of such New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. (See "Plan of
Distribution"). In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or in
compliance with an available exemption from registration or qualification. The
Company has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
Holder of the New Notes reasonably requests in writing. If a Holder of Old Notes
does not exchange such Old Notes pursuant to the Exchange Offer, such Old Notes
will continue to be subject to the restrictions on transfer referred to in the
legend thereon. In general, the Old Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer. (See
"Risk Factors--Consequences of a Failure to Exchange Old Notes;" "The Exchange
Offer--Resales of New Notes.")
Each Holder of Old Notes who wishes to exchange Old Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such Holder is not
a broker-dealer, such Holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
In addition, the Company may require such Holder, as a condition of such
Holder's eligibility to participate in the Exchange Offer, to furnish to the
Company (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]) on behalf of whom such
Holder holds the Old Notes to be exchanged in the Exchange Offer. Each
broker-dealer
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that receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its own account as the result of
market-making activities or other trading activities, and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that, by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based upon the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that broker-dealers who acquired Old Notes for their
own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their
prospectus-delivery requirements with respect to the New Notes received upon
exchange of such Old Notes with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for the Exchange Offer so
long as it contains a description of the plan of distribution with respect to
the resale of such New Notes. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions of the Registration
Rights Agreement, the Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Notes for a period of 180
days after the Expiration Date (as defined herein), or, if earlier, when all
such New Notes have been disposed of by such Participating Broker-Dealer. (See
"Plan of Distribution.") Any Participating Broker-Dealer (or other person) who
is an "affiliate" of the Company, and any person acquiring New Notes in the
Exchange Offer with the intent of participating in a distribution of the New
Notes, cannot rely upon the interpretive letters of the commission referred to
above and must comply with the registration and prospectus-delivery requirements
of the Securities Act in connection with any resale transaction. (See "The
Exchange Offer--Resales of New Notes.")
Each Participating Broker-Dealer who surrenders Old Notes pursuant
to the Exchange Offer will be deemed to have agreed, by execution of the Letter
of Transmittal, that, upon receipt of notice from the Company of the occurrence
of any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect, or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the
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<PAGE>
sale of New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited
secondary market and no public market for the Old Notes. The New Notes will be a
new issue of securities for which there currently is no market. Although the
Initial Purchaser, has informed the Company that it currently intends to make a
market in the New Notes, it is not obligated to do so, and any such
market-making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the New
Notes. The Company does not currently intend to apply for listing of the New
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the Holders of Old Notes will
continue to be subject to all of the existing restrictions upon transfer
thereof, and the Company will have no further obligation to such Holders (other
than under certain limited circumstances) to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a Holder's ability to sell
untendered Old Notes could be adversely affected. (See "Risk
Factors--Consequences of a Failure to Exchange Old Notes.")
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m.,
New York City time, on February 15, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company (in which case, the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended). Tenders of Old Notes may
be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions, which may be waived by the Company, and to the terms and provisions
of the Registration Rights Agreement. Old Notes may be tendered in whole or in
part in a principal amount of not less than $1,000 or any integral multiple of
$1,000 in excess thereof. The
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Company has agreed to pay all expenses of the Exchange Offer. (See "The Exchange
Offer----Fees and Expenses.") Each New Note will pay interest from the most
recent Interest Payment Date (as defined herein) for the Old Notes surrendered
in exchange for such New Notes or, if no interest payments have been paid on
such Old Notes, from July 22, 1997. Holders of the Old Notes whose Old Notes are
accepted for exchange will not receive interest payments on such Old Notes for
any period from and after the last Interest Payment Date for such Old Notes, or,
if no such interest payments have been made, will not receive any interest
payments on such Old Notes, and will be deemed to have waived the right to
receive any interest payments on such Old Notes from and after such Interest
Payment Date or, if no such interest payments have been made or duly provided
for, from and after July 22, 1997. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered Holders of Old Notes as of November
1, 1997.
The Company will not receive any cash proceeds from the
issuance of the New Notes offered hereby. No dealer-manager is being
used in connection with this Exchange Offer. (See "Use of Proceeds"
and "Plan of Distribution.")
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
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<PAGE>
TABLE OF CONTENTS
PAGE
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Available Information..........................................................7
Incorporation of Certain Documents by Reference................................8
Forward Looking Statements.....................................................8
The Company...................................................................10
Summary of Exchange Offer.....................................................13
The New Notes.................................................................18
Risk Factors..................................................................21
Ratio of Earnings to Fixed Charges............................................32
Use of Proceeds...............................................................32
Capitalization................................................................33
The Exchange Offer............................................................33
Description of The New Notes..................................................46
Description of Old Notes......................................................74
Certain Federal Income Tax Consequences.......................................75
Plan of Distribution..........................................................78
Validity of The New Notes.....................................................78
Experts.......................................................................78
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, New York, New York 10048. Copies of such documents may also be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, copies of such documents may be obtained through the Commission's
Internet address at http://www.sec.gov. The Company's Common Stock is authorized
for quotation on Nasdaq and, accordingly, such materials and other information
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement
on Form S-4 (No. 333-40231) (together with any amendments thereto, the
"Registration Statement"), under the Securities Act, with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, omits certain information contained in the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information
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<PAGE>
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and financial statements, notes
and schedules filed as part thereof or incorporated by reference therein, which
may be inspected at the public reference facilities of the Commission, at the
addresses set forth above. Statements made in this Prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each instance are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement or incorporated by
reference therein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, previously filed with the Commission (File
No. 0-4408) pursuant to Section 13 of the Exchange Act, is incorporated by
reference herein and made a part hereof: the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. All information
appearing in this Prospectus should be read in conjunction with, and is
qualified in its entirety by, the information and financial statements
(including notes thereto) appearing in the documents incorporated herein by
reference, except to the extent set forth in the immediately preceding
statement.
The Company will provide without charge to each person to whom
this Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits not
specifically incorporated by reference therein). Written or oral requests for
such copies should be directed
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to: Secretary, Resource America, Inc., 1521 Locust Street, Philadelphia,
Pennsylvania 19102 (215) 546-5005.
FORWARD LOOKING STATEMENTS
This Prospectus, including any document incorporated herein by
reference, contains certain forward-looking statements that involve substantial
risks and uncertainties as more fully described below. When used in this
Prospectus or in any such documents incorporated herein by reference, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Commission, or in press releases or oral statements made
by or with the approval of an authorized executive officer of the Company. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Potential risks and uncertainties that could affect the Company's future
operating results include, without limitation, the effect of publicity on demand
for the Company's services, general economic conditions, the Company's ability
to attract and retain highly skilled managerial personnel, continued market
acceptance of the Company's services, the timing and complexity of large
transactions and competition in the marketplace. See "Risk Factors."
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THE COMPANY
General
The Company is a specialty finance company engaged primarily in
real estate finance and equipment leasing. For approximately 25 years prior to
1991, the Company was principally involved in the energy industry and it
continues to have energy industry operations, including natural gas and oil
production.
Since 1991, the Company's business strategy has focused on
locating and developing niche finance businesses in which the Company can
realize attractive returns by targeting well-defined financial services markets
and by developing specialized skills to service those markets on a
cost-effective basis. To date, the Company has developed two main businesses:
real estate finance and equipment leasing. Within its real estate finance
business, the Company has developed a commercial mortgage loan acquisition and
resolution business line and a non-conforming residential mortgage lending
business. Within its equipment leasing business, the Company focuses primarily
on small ticket equipment lease financing, although it also manages six
publicly-owned equipment leasing partnerships and has a lease finance placement
and advisory business.
The Company was organized in 1947. Its executive offices are
located at 1521 Locust Street, Philadelphia, Pennsylvania 19102, and its
telephone number is (215) 546-5005.
Real Estate Finance
Commercial Mortgage Loan Acquisition and Resolution. The Company's
commercial mortgage loan acquisition and resolution business involves the
purchase at a discount of troubled commercial real estate mortgage loans at
purchase prices generally ranging from $1 million to $10 million, and the
restructuring and refinancing of those loans. These loans are generally acquired
from private market sellers, primarily financial institutions. Loans acquired
by the Company typically involve legal and other disputes among the lender, the
borrower and/or other parties in interest, and generally are secured by
properties which are unable to produce sufficient cash flow to fully service the
loans in accordance with the original lender's loan terms. Since fiscal 1991
(when it entered the business), and through September 30, 1997, the Company's
aggregate commercial mortgage portfolio has grown to 38 loans with outstanding
loan balances (excluding discounts) of $233.7 million, acquired at an investment
cost (including subsequent advances, which had been anticipated by the Company
at the time of acquisition and were included in its analysis of loan costs and
yields) of $120.4 million. During the fiscal years ended September 30, 1997,
1996 and 1995, the Company's yield on its net investment in commercial mortgage
loans (including gains on sales of senior lien interests in, and gains, if any,
resulting from refinancings of commercial mortgage loans) equalled 34.7%, 36.2%
and 34.6%, respectively, while its gross profit
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(that is, revenues from loan activities minus costs attributable thereto,
including interest and provision for possible losses, and less depreciation and
amortization, without allocation of corporate overhead) from its commercial
mortgage loan activities for fiscal years 1997, 1996 and 1995 were million,
$16.5 million, $6.3 million and $5.3 million, respectively.
The Company seeks to reduce the amount of its own capital invested
in commercial mortgage loans after their acquisition, and to enhance its
returns, through sale at a profit of senior lien interests in its loans
(typically on a recourse basis) or through borrower refinancing of the
properties underlying its loans. For the three months ended September 30, 1997,
senior lenders held outstanding obligations of $55.5 million, secured by
properties with an aggregate appraised value of $125.0 million, resulting in a
ratio of senior lien obligations-to-appraised value of property of 44%. For the
three months ended September 30, 1997, the operating cash flow coverage on the
required debt service on refinancings and senior lien interests averaged 202%.
Such calculation excludes (i) proceeds from the sale of senior lien interests or
from refinancings and (ii) cash flow from and senior lien interests with respect
to nine loans acquired during the fourth quarter of fiscal 1997 as to which the
Company had less than three months' cash flow experience at September 30, 1997.
If such nine loans had been included (utilizing for this purpose their cash
flows for periods subsequent to September 30, 1997), the operating cash flow
coverage would have averaged 273%. The excess of operating cash flow over
required debt service on senior lien obligations is, pursuant to agreements with
the borrowers, retained by the Company as debt service on the outstanding
balance of the Company's loans.
Residential Mortgage Originations. The Company's residential
mortgage lending business consists of making first and second mortgage loans on
one-to four-family residences to borrowers who do not conform to guidelines
established by Fannie Mae due to past credit impairment or other reasons.
Through Fidelity Mortgage Funding, Inc. ("FMF") and Tri-Star Financial Services,
Inc. ("Tri-Star"), the Company is licensed as a mortgage lender in 19 states and
is currently originating loans in eleven states (Connecticut, Delaware, Indiana,
Kentucky, Maryland, Mississippi, New Jersey, North Carolina, Ohio, Pennsylvania
and Virginia). The Company began mortgage lending activities during fiscal 1997
and commenced originating loans in the first quarter of fiscal 1998. The
Company's operational strategy is to concentrate on mid-size mortgage loans with
a targeted average loan of approximately $75,000. The Company markets its
services directly to consumers and anticipates establishing "private label"
lending programs (that is, programs where the Company will process, fund and
service loans originated by an institution, under the institution's name) for
institutions which, because of a lack of expertise in the area or for other
reasons, do not otherwise make non-conforming loans.
Company's Sponsorship of Real Estate Investment Trust. The Company
has sponsored a real estate investment trust (the "REIT") and has undertaken to
sell 10 loans to the REIT (including one loan consisting of four related
obligations). The Company will not retain a junior lien interest in any of these
loans. In addition, the Company has undertaken to sell a senior participation in
another of its loans to the REIT. The aggregate price to be paid by the REIT for
the loans and the senior participation will be $27.7 million. The Company's
carried cost investment in these loans was $22.2 million at September 30, 1997.
The Company anticipates selling further loans to the REIT.
Equipment Leasing
The Company's equipment leasing business commenced in September
1995 with the acquisition of an equipment leasing subsidiary of a regional
insurance company. Through this acquisition, the Company assumed the management
of six publicly-held leasing partnerships involving $55.2 million (original
equipment cost) in leased assets at September 30, 1997. More importantly,
through this
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acquisition the Company acquired an infrastructure of operating systems,
computer hardware and proprietary software (generally referred to as a
"platform"), as well as personnel, which the Company utilized in fiscal 1996 as
a basis for the development of an equipment leasing business for its own
account. As a part of its development of this business, in early 1996 the
Company hired a team of four experienced leasing executives, including the
former chief executive officer of the U.S. leasing subsidiary of Tokai Bank, a
major Japanese banking institution. The Company's operational strategy for
equipment leasing is to focus on leases with equipment costs of between $5,000
and $100,000 ("small ticket leasing") with a targeted average transaction of
approximately $10,000 per lease. The Company markets its equipment leasing
products through vendor programs with equipment manufacturers, distributors and
other vendors such as Minolta Corporation and Lucent Technologies, Inc. The
Company believes that the small ticket leasing market is under-served by
equipment lessors, banks and other financial institutions, affording the Company
a niche market with significant growth potential. During fiscal 1997, the
Company received 8,344 lease proposals involving equipment with an aggregate
cost of $113.4 million, approved 5,054 such proposals involving equipment with
an aggregate cost of $67.2 milllion and entered into 3,214 transactions
involving equipment with an aggregate cost of $34.6 million. During fiscal 1997,
the Company sold, on a servicing retained basis, equipment leases with an
aggregate net book value of approximately $30.2 million to third parties. The
Company anticipates similar equipment lease sales in the future. The Company's
income from retained servicing was not material during fiscal 1997.
Energy Operations
The Company produces natural gas and, to a lesser extent, oil from
locations principally in Ohio, Pennsylvania and New York. At September 30, 1997,
the Company had a net investment of $11.4 million in its energy operations,
including interests in 1,129 individual wells (including overriding interests)
owned directly by the Company or through 64 partnerships and joint ventures
managed by the Company. While the Company has focused its business development
efforts on its specialty finance operations
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<PAGE>
over the past several years, its energy operations historically have provided a
steady source of cash flow and tax benefits.
SUMMARY OF EXCHANGE OFFER
The Exchange Offer........................... Up to $115,000,000 aggregate
principal amount of New Notes are
being offered in exchange for a
like aggregate principal amount of
Old Notes. Old Notes may be
tendered for exchange in whole or
in part in a principal amount of
not less than $1,000 or any
integral multiple of $1,000 in
excess thereof. The Company is
making the Exchange Offer in order
to satisfy its obligations under
the Registration Rights Agreement
related to the Old Notes.
(For a description of the
procedures for tendering Old
Notes, see "The Exchange Offer--
Procedures for Tendering Old
Notes.")
Expiration Date.............................. 5:00 p.m., New York City time, on
February 15, 1998 (such time on
such date being hereinafter called
the "Expiration Date") unless the
Exchange Offer is extended by the
Company (in which case the term
"Expiration Date" shall mean the
latest date and time to which the
Exchange Offer is extended). (See
"The Exchange Offer-Expiration
Date; Extensions; Amendments.")
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<PAGE>
Conditions to the Exchange
Offer...................................... The Exchange Offer is subject to
certain conditions, which may be
waived by the Company in its sole
discretion. The Exchange Offer is
not conditioned upon any minimum
principal amount of Old Notes
being tendered. (See "The Exchange
Offer--Conditions to the Exchange
Offer.")
The Company reserves the right in
its sole and absolute discretion,
subject to applicable law, at any
time and from time to time, (i) to
delay the acceptance of the Old
Notes for exchange, (ii) to
terminate the Exchange Offer if
certain specified conditions have
not been satisfied, (iii) to
extend the Expiration Date of the
Exchange Offer and retain all Old
Notes tendered pursuant to the
Exchange Offer, subject, however,
to the right of Holders of Old
Notes to withdraw their tendered
Old Notes, or (iv) to waive any
condition or otherwise amend the
terms of the Exchange Offer in any
respect. (See "The Exchange
Offer-Expiration Date; Extensions;
Amendments.")
Withdrawal Rights............................ Tenders of Old Notes may be
withdrawn at any time on or prior
to the Expiration Date by
delivering a written notice of
such withdrawal to the Exchange
Agent (as defined herein) in
conformity with certain procedures
set forth below under "The
Exchange Offer--Withdrawal
Rights."
Procedures for Tendering Old
Notes...................................... Tendering Holders of Old Notes
must complete and sign a Letter of
Transmittal in accordance with the
instructions contained therein and
forward the same by mail,
facsimile or hand delivery,
together with any other required
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<PAGE>
documents, to the Exchange Agent,
either with the Old Notes to be
tendered or in compliance with the
specified procedures for
guaranteed delivery of Old Notes.
Certain brokers, dealers,
commercial banks and other
nominees may also effect tenders
by book-entry transfer, including
delivery of a Letter of
Transmittal. Holders of Old Notes
registered in the name of a
broker, dealer, commercial bank,
trust company or other nominee are
urged to contact such person
promptly if they wish to tender
Old Notes pursuant to the Exchange
Offer. (See "The Exchange
Offer-Procedures for Tendering Old
Notes.") Letters of Transmittal
and certificates representing Old
Notes should not be sent to the
Company. Such documents should
only be sent to the Exchange
Agent. Questions regarding how to
tender and requests for
information should be directed to
the Exchange Agent. See "The
Exchange Offer--Exchange Agent."
Sales of New Notes........................... The Company believes that New
Notes issued pursuant to this
Exchange Offer in exchange for Old
Notes may be offered for resale,
resold and otherwise transferred
by a Holder thereof (other than a
Holder who is a broker-dealer)
without further compliance with
the registration and prospectus
delivery requirements of the
Securities Act, provided that such
New Notes are acquired in the
ordinary course of such Holder's
business and that such Holder is
not participating, and has no
arrangement or understanding, with
any person to participate, in a
distribution (within the meaning
of the Securities Act) of such New
Notes. However, any Holder of Old
Notes who is an "affiliate" of the
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<PAGE>
Company or who intends to
participate in the Exchange Offer
for the purpose of distributing
the New Notes, or any
broker-dealer who purchased the
Old Notes from the Company to
resell pursuant to Rule 144A or
any other available exemption
under the Securities Act, (a) will
not be permitted or entitled to
tender such Old Notes in the
Exchange Offer and (b) must comply
with the registration and
prospectus delivery requirements
of the Securities Act in
connection with any sale or other
transfer of such Old Notes unless
such sale is made pursuant to an
exemption from such requirements.
In addition, as described below,
if any broker-dealer holds Old
Notes acquired for its own account
as a result of market-making or
other trading activities
("Participating Broker-Dealers")
and exchanges such Old Notes for
New Notes, then such broker-dealer
must deliver a prospectus meeting
the requirements of the Securities
Act in connection with any resales
of such New Notes.
Each Holder of Old Notes who
wishes to exchange Old Notes for
New Notes in the Exchange Offer
will be required to represent that
(i) it is not an "affiliate" of
the Company, (ii) any New Notes to
be received by it are being
acquired in the ordinary course of
its business, (iii) it has no
arrangement or understanding with
any person to participate in a
distribution (within the meaning
of the Securities Act) of such New
Notes, and (iv) if such Holder is
not a broker-dealer, such Holder
is not engaged in, and does not
intend to engage in, a
distribution (within the meaning
of the Securities Act) of such New
Notes. Each broker-dealer that
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<PAGE>
receives New Notes for its own
account pursuant to the Exchange
Offer must acknowledge that it
acquired the Old Notes for its own
account as the result of market-
making activities or other trading
activities and must agree that it
will deliver a prospectus meeting
the requirements of the Securities
Act in connection with any resale
of such New Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, a broker-dealer will
not be deemed to admit that it is
an "underwriter" within the
meaning of the Securities Act.
Participating Broker-Dealers may
fulfill their prospectus-delivery
requirements with respect to the
New Notes received upon exchange
of such Old Notes with a
Prospectus meeting the
requirements of the Securities
Act, which may be this Prospectus,
as it may be amended or
supplemented from time to time,
for a period ending 180 days after
the Expiration Date or, if
earlier, when all such New Notes
have been disposed of by such
Participating Broker-Dealer. (See
"Plan of Distribution.") Any
Participating Broker-Dealer who is
an "affiliate" of the Company and
any Participating Broker who
purchased the Old Notes from the
Company for resale must comply
with the registration and
prospectus delivery requirements
of the Securities Act in
connection with any resale
transaction. (See "The Exchange
Offer-Resales of New Notes.")
Exchange Agent............................... The exchange agent with respect to
the Exchange Offer is The Bank of
New York (the "Exchange Agent").
The addresses, and telephone and
facsimile numbers of the Exchange
Agent are set forth in "The
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<PAGE>
Exchange Offer--Exchange Agent"
and in the Letter of Transmittal.
Use of Proceeds.............................. The Company will not receive any
cash proceeds from the issuance of
the New Notes offered hereby. (See
"Use of Proceeds.")
Certain United States Federal
Income Tax Considerations;
ERISA Considerations....................... Holders of Old Notes should review
the information set forth under
"Certain Federal Income Tax
Consequences" and "ERISA
Considerations" prior to tendering
Old Notes in the Exchange Offer.
THE NEW NOTES
Securities Offered........................... $115 million aggregate principal
amount of 12% Senior Notes due
August 1, 2004.
Interest Payment Dates....................... Semi-annually on February 1 and
August 1 of each year commencing
August 1, 1998.
Optional Redemption.......................... The New Notes will be redeemable,
in whole or in part, at the option
of the Company at any time on or
after August 1, 2002 at the
redemption prices set forth
herein, plus accrued and unpaid
interest, if any, to the
redemption date. See "Description
of Notes - Optional Redemption."
Mandatory Redemption......................... None.
Sinking Fund................................. None.
Ranking...................................... The New Notes will be senior
general unsecured obligations of
the Company ranking pari passu
with or senior to the Company's
existing and future general
unsecured indebtedness. Subject to
certain limitations, the Company
and its Subsidiaries may incur
additional indebtedness in the
future; however, the Company
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<PAGE>
may not issue any pari passu or
junior indebtedness with a
maturity date prior to the
maturity date of the New Notes.
Because the Company is a holding
company that currently conducts
substantially all of its
operations through its
Subsidiaries, the right of the
Company (and therefore the right
of the Company's creditors and
stockholders) to participate in
any distribution of the assets or
earnings of any Subsidiary is
subject to the prior claims of
creditors of such Subsidiaries,
including any claims of the
Company as a creditor to the
extent such claims may be
recognized. As a result, the New
Notes will be effectively
subordinate to the claims of
creditors of the Company's
Subsidiaries.
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<PAGE>
Repurchase at Option
of Holders Upon Change
of Control................................. Under the Indenture pursuant to
which the Old Notes were issued,
upon a Change of Control Event (as
defined herein; see "Description
of Notes - Certain Definitions"),
Holders of the New Notes will have
the option to require the Company
to repurchase all outstanding
Notes at 101% of their principal
amount, plus accrued interest to
the date of repurchase. A "Change
of Control Event" includes the
following events, among others:
the acquisition by any person or
group (other than the Existing
Management Group (as defined
herein) of the Company) of more
than 40% of the Company's voting
stock; a merger, consolidation or
other business combination between
the Company and another person in
which more than 40% of the voting
stock of the surviving or
transferee company is owned by
persons other than the Existing
Management Group of the Company or
a change in a majority of the
directors on the Board of
Directors of the Company within a
two-year period which is not
approved by the incumbent
directors. There can be no
assurance that the Company will
have the funds available to
repurchase the New Notes in the
event of a Change of Control
Event.
Certain Covenants............................ The Indenture contains certain
covenants that, among other
things, require the Company to
maintain certain levels of
Consolidated Net Worth (as defined
herein) and liquid assets, limit
the ability of the Company and its
Subsidiaries to incur certain
indebtedness (not including
secured indebtedness used to
acquire or refinance the
acquisition of loans, equipment
leases or other assets), pay
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<PAGE>
dividends or make other
distributions, engage in
transactions with affiliates,
dispose of Subsidiaries, create
certain liens and guarantees with
respect to pari passu or junior
indebtedness and enter into any
arrangement that would impose
certain restrictions on the
ability of Subsidiaries to make
dividend and other payments to the
Company. The Indenture also
restricts the Company's ability to
merge, consolidate or sell all of
its assets. See "Description of
New Notes--Certain Covenants."
Absence of Market
for New Notes.............................. The New Notes will be new
securities for which there is
currently no trading market.
Although the Company has been
advised by the Initial Purchaser
that, it presently intends to make
a market in the New Notes, the
Initial Purchaser is under no
obligation to do so and may
discontinue any market making
activities at any time without
notice. Accordingly, there can be
no assurance as to the development
or liquidity of any market for the
New Notes. The Company does not
intend to apply for listing of the
New Notes, on any securities
exchange or through the National
Association of Securities Dealers
Automated Quotation System.
Holders tendering the Old Notes in the Exchange Offer should carefully
consider the matters set forth under "Risk Factors."
For further information regarding the New Notes, see "Description
of New Notes."
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<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating the New Notes
before deciding whether to accept the Exchange Offer. The risk factors set forth
below are generally applicable to the Old Notes as well as the New Notes.
General
Consequences of a Failure to Exchange Old Notes. The Old Notes
have not been registered under the Securities Act or any state securities laws
and therefore may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act and any
other applicable securities laws, or pursuant to an exemption therefrom or in a
transaction not subject thereto, and in each case in compliance with certain
other conditions and restrictions. The Old Notes which remain outstanding after
consummation of the Exchange Offer will continue to bear a legend reflecting
such restrictions on transfer. In addition, upon consummation of the Exchange
Offer, Holders of the Old Notes which remain outstanding will not be entitled to
any rights to have such Old Notes registered under the Securities Act or to any
similar rights pursuant to the Registration Rights set forth in the Indenture.
The Company does not intend to register under the Securities Act any of the Old
Notes which remain outstanding after consummation of the Exchange Offer.
A Holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes have been designated for trading
in the Private Offerings, Resale and Trading through Automatic Linkages
("PORTAL") market, to the extent that the Old Notes are tendered and accepted in
connection with the Exchange Offer, any trading market for the Old Notes which
remain outstanding after the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after
the consummation of the Exchange Offer will vote together as a single
class. See "Description of New Notes."
The Old Notes provide that if (i) the Registration Statement is
not filed with the Commission on or prior to November 15, 1997, (ii) the
Registration Statement is not declared effective on or prior to December 30,
1997 or (ii) the Exchange Offer is not consummated on or prior to February 15,
1998, the interest rate borne by the Old Notes shall be increased by one-half
percent per annum following November 15, 1997 in the case of clause (i) above,
or following December 30, 1997 in the case of clause (ii) above, or following
February 15, 1998 in the case of clause (iii) above, which rate will be
increased by an additional one-half of one percent for each 90-day period that
such additional interest continues to accrue. The aggregate amount of such
increase from the original interest rate
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<PAGE>
pursuant to these provisions will in no event exceed one percent per annum.
Following consummation of the Exchange Offer, the Old Notes will not be entitled
to any increase in the interest rate thereon. The New Notes will not be entitled
to any such increase in the interest rate thereon. See "Description of Old Notes
- -- Registration Rights."
Absence of Public Market; Trading Characteristics of the Old
Notes. The Old Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for the New Notes.
Although the New Notes will generally be permitted to be resold or otherwise
transferred by the Holders (who are not affiliates of the Company) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
The Company has been advised by the Initial Purchaser that the Initial Purchaser
presently intends to make a market in the New Notes. However, the Initial
Purchaser is not obligated to do so and any market-making activity with respect
to the New Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limitations imposed by the
Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of or the trading
market for the New Notes. If an active public market does not develop, the
market price and liquidity of the New Notes may be adversely affected.
The Company does not intend to have the New Notes quoted on the
NASDAQ National Market System or listed on any securities exchange.
If a public trading market develops for the New Notes, future
trading prices of such securities will depend upon many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending upon prevailing
interest rates, the market for similar securities and other factors including
the financial condition of the Company, the New Notes may trade at a discount.
Notwithstanding the registration of the New Notes in the Exchange
Offer, Holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company may publicly offer for sale or resell the New Notes only in
compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in
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<PAGE>
connection with any resale of such New Notes. See "Plan of Distribution."
Exchange Offer Procedures. Issuance of the New Notes in exchange
for the Old Notes pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal, and all other required documents. Therefore,
Holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Company nor
the Exchange Agent is under any duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange.
Priority of Notes. As with the Old Notes, the New Notes will be
unsecured general obligations of the Company which will rank senior in right of
payment to all subordinated debt (that is, debt which by its terms is expressly
subordinated to the New Notes) and pari passu with or senior to all other
existing or future unsecured debt. Any current and future secured debt, and debt
under existing or future credit facilities, will have priority over the New
Notes with respect to the assets securing such debt. The Indenture permits the
Company to incur both secured and unsecured debt in the future, subject to
specific limitations (see "Description of the Old Notes--Certain Covenants"),
although the Indenture prohibits the Company from incurring pari passu or junior
debt with a maturity prior to that of the New Notes. As of September 30, 1997,
the Company and its Subsidiaries had outstanding $4.5 million of debt (excluding
the Old Notes), with an aggregate yearly debt service of $1.1 million, and $45
million available under various credit facilities (which have an aggregate of
$585,000 in outstanding draws) which will be senior to the New Notes, and an
additional $4.2 million of unsecured debt ranking pari passu with the New Notes.
The Company has also guaranteed performance by a Subsidiary of the Subsidiary's
guarantee of a $5.5 million obligation of a special purpose financing entity.
Ability to Service New Notes. The Company's ability to repay the
New Notes, and any other debt it incurs, will depend directly upon the Company's
future operating performance which is subject to numerous factors beyond the
Company's control including prevailing economic conditions, changes in interest
rate levels, the performance of the Company's mortgage loan and equipment lease
portfolios and other factors. Although the Company believes that cash available
from operations and financing activities will be sufficient to make required
debt service payments on the New Notes as and when due, a significant portion of
the Company's earnings derives from accretion of discount on its portfolio of
mortgage loans. It is anticipated that, in the future, the Company's earnings
will include amounts attributable to the amortization of the residual value of
leased equipment. The ability of the Company to realize accreted discounts and
residual values, and the timing of such realizations, may affect the Company's
ability to pay debt service on the New Notes or to
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<PAGE>
repurchase any New Notes tendered upon a Change in Control Event (as defined in
the Indenture), or repay principal and accrued interest on the New Notes on
their maturity or upon an Event of Default (as defined in the Indenture). See
"Description of Old Notes," "Risk Factors--Real Estate Finance Considerations:
Possible Fluctuations in Earnings from Asset Acquisition and Resolution
Business" and "-- Equipment Leasing Considerations: Financing for Equipment
Leasing Operations" and "--Residuals." In addition, the Company has pledged the
stock of its leasing Subsidiaries (Fidelity Leasing, Inc. and its holding
company, Resource Leasing, Inc.) as security for the credit facility relating to
its equipment leasing operations. A default on such facility, if it were to
result in foreclosure on the stock of either or both Subsidiaries, would
materially adversely affect the Company's ability to service the New Notes.
Holding Company Structure; Limitations on Access to Cash Flow of
Operating Companies; Effective Subordination. The New Notes will be obligations
solely of the Company, which is a holding company with no material business
operations of its own. The Company's assets consist primarily of its ownership
interests in its operating Subsidiaries through which all of the operations of
the Company are conducted. The Subsidiaries are separate and distinct legal
entities which have no obligation, contingent or otherwise, to pay any amounts
due under the New Notes or to make any funds available to the Company to enable
it to make payments on the New Notes. In addition, to the extent that any of the
operating Subsidiaries generates positive cash flow, the Company may be unable
to access such cash flow because of credit or other borrowing agreements to
which such Subsidiaries are or may become parties that restrict the payment of
dividends or other distributions to the Company. The New Notes also will be
effectively subordinated to all existing and future indebtedness and other
liabilities of the Company's Subsidiaries because the Company's right, as sole
or primary shareholder, to receive the assets of any such entities upon their
liquidation, dissolution or reorganization will be effectively subordinated to
the claims of such entities' creditors. To the extent that the Company is itself
recognized as a creditor of any such Subsidiary, the claims of the Company could
still be subordinated to the claims of such entities' trade creditors as well as
any indebtedness of such entity that is senior in right of payment to the
Company's claim or that is secured by the assets of any such entity. At
September 30, 1997, the Company's Subsidiaries had liabilities aggregating $3.8
million, all of which constituted indebtedness permitted under the Indenture.
Ability to Generate Funding for Growth. The success of the
Company's future operations will be largely dependent upon the continued
availability of funds for its real estate finance and equipment leasing
operations. Funding for the Company's real estate finance operations has
heretofore been derived from internally generated funds, a portion of the
proceeds from the sale of the Old Notes, prior financings which have heretofore
been repaid, sales by the Company of senior lien interests in its portfolio
loans,
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<PAGE>
borrowers' refinancing of their mortgage obligations and a portion of the
proceeds of the Company's sale of common stock in December 1996. Funding for the
Company's residential mortgage origination operations will be initially provided
by internally available funds. It is anticipated that funding for the Company's
real estate finance operations in the future will be derived from internally
generated funds and existing or future third-party sources.
Funding for the Company's equipment leasing operations has,
through the date of this Prospectus, been provided by internally generated
funds, a portion of the proceeds of the December 1996 common stock offering, a
portion of the proceeds from the sale of the Old Notes, by the sale of equipment
leases during the first six months of fiscal 1997 and the Company's existing
leasing credit facility. Future funding will be obtained through third-party
warehouse financing (full recourse, short-term borrowings secured by the
underlying equipment and repaid with the proceeds of permanent funding) and
third-party permanent funding (bank term loans, lease portfolio sales and
securitization of lease portfolios).
The availability of third-party financing for each of the
Company's specialty finance businesses will be dependent upon a number of
factors over which the Company has limited or no control, including general
conditions in the credit markets, the size, pricing and liquidity of the market
for the types of real estate loans or equipment leases in the Company's
portfolio and the financial performance of the loans and equipment leases in the
Company's portfolio. There can be no assurance that the Company will be able to
generate funding on satisfactory terms and in acceptable amounts.
Any failure to renew or obtain adequate funding under a warehouse
credit facility or other borrowing could have a material adverse effect on the
Company's results of operations and financial condition. To the extent the
Company is not successful in maintaining or replacing existing financing, the
Company would have to curtail its activities, thereby having a material adverse
effect on the Company's results of operations and financial condition.
Ability to Generate Growth Opportunities. The success of the
Company's operations will also depend on its continued ability to generate
attractive opportunities for acquiring commercial mortgage loans at a discount
and to originate equipment leases and its ability in the future to originate and
resell residential mortgage loans. In each area, the Company will rely primarily
upon the knowledge, experience and industry contacts of its senior management to
generate investment opportunities. There can be no assurance that the Company
will generate opportunities satisfactory to it or sufficient to sustain growth
or that, in its commercial mortgage loan acquisition and resolution activities,
the Company will be able to acquire loans in the same manner, on similar terms
or at similar levels of discount as its current portfolio loans. The
availability of commercial mortgage loans for acquisition on terms acceptable to
the Company, and
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<PAGE>
the ability of the Company to originate satisfactory equipment leases and
residential mortgage loans, will be dependent upon a number of factors over
which the Company has no control, including economic conditions, interest rates,
the market for and value of properties securing loans which the Company may seek
to acquire, and the willingness of financial institutions to dispose of troubled
or under-performing mortgage loans in their portfolios.
Risks Related to Management of Growth. The Company has undergone a
period of significant growth, and further expansion may significantly strain the
Company's management, financial and other resources. There is no assurance that
the Company can manage its growth effectively or that the Company will be able
to attract and retain the personnel necessary to meet its business objectives.
If the Company is unable to manage its growth effectively, the Company's
business, operating results and financial condition could be materially
adversely affected.
Credit Risks. Mortgage loans and equipment leases are subject to
the risk of default in payment by borrowers and lessees. Defaults by borrowers
and lessees could adversely affect the Company's financial position. Upon a
default, the Company will have the responsibility of seeking to recover
outstanding loan or lease balances through foreclosure, repossession of
equipment or similar procedures. With respect to any particular mortgage loan or
equipment lease, instituting any of these procedures could adversely impact the
Company's yield on such loan or lease. There can be no assurance that, in the
event of default, the amount realizable from the property securing a defaulted
loan or the equipment subject to a defaulted lease will be sufficient to recover
amounts invested by or owed to the Company. See "Risk Factors--Real Estate
Finance Considerations: Lien Priority" and "--Equipment Leasing Considerations:
Residuals."
The commercial mortgage loans acquired in the Company's asset
acquisition and resolution operations are typically not the general obligations
of the borrower and, accordingly, in seeking to collect amounts owed on a loan,
the Company must rely solely on the value of the property underlying the loan to
satisfy the obligation. This value will be affected by numerous factors beyond
the Company's control, including general or local economic conditions,
neighborhood real property values, interest rates, operating expenses (such as
real estate taxes and insurance costs), occupancy rates and the presence of
competitive properties. In addition, most of the Company's loans require a
substantial lump sum payment at maturity. The ability of a borrower to pay a
lump sum, and thus the ability of the Company to collect promptly all amounts
due upon maturity, may be dependent on the borrower's ability to obtain suitable
refinancing or otherwise raise a substantial amount of cash which, in turn, will
depend upon factors (such as those referred to previously) over which the
Company has no control. To the extent that the Company has sold a senior lien
position in a loan, or the loan has been refinanced, the Company will typically
retain a subordinated interest in the loan, which in certain
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instances may be unsecured. See "Risk Factors--Real Estate Finance
Considerations: Lien Priority." Such retained interests are subject to
materially increased risks of collection upon default.
The Company anticipates that many of the end-users of the
equipment it leases for its own account will be small businesses which may not
be able to supply the kinds of financial information available from larger
businesses, and which may be more susceptible to changes in economic conditions
or have lesser financial resources with which to meet lease obligations than
larger businesses. Although the Company will seek to mitigate this risk through
the use of its credit scoring, asset tracking and loan servicing and collection
systems and procedures, there can be no assurance that the Company will not be
subject to higher risks of default than firms leasing to larger entities.
Credit Facility Restrictions. The Company anticipates that it may
be required to provide credit enhancement for debt incurred as a part of any
warehouse or permanent financing utilized in its equipment leasing operations.
See "Risk Factors--General: Ability to Generate Funding for Growth." These
credit enhancements may include cash deposits, funding of subordinated tranches
of securitizations, the pledge of additional mortgage loans, equipment leases or
other collateral which are funded by the Company's capital, and/or (as is the
case with the Company's existing credit equipment leasing and residential
mortgage facilities) a guaranty by the Company of any facility obtained by a
Subsidiary. Each of the Company's existing credit facilities also contains
restrictive covenants concerning maintenance by the Company of minimum capital
levels or debt to equity ratios. Any such requirements may reduce the Company's
liquidity and require it to obtain additional capital.
The Company anticipates that warehouse financing (as is the case
with the Company's existing credit facilities) will bear interest at variable
rates while its permanent funding will typically be at fixed rates set at the
time the financing is provided. Accordingly, the Company will be subject to
interest rate risk to the extent interest rates increase between the time a
mortgage loan or equipment lease is funded by warehouse facilities and the time
of permanent funding. Increases in interest rates during this period could
narrow or eliminate the spread between the effective interest rates on the
Company's equipment leases and the rates on the Company's funding, or result in
a negative spread.
Competition. In each of its business operations, the Company is
subject to intense competition from numerous competitors, many of whom possess
far greater financial and other resources than the Company. The Company will
also have to compete for the capital necessary to fund both its real estate
finance and equipment leasing operations based largely upon the performance of
the mortgage loans and equipment leases it generates or acquires. See "Risk
Factors-- General: Credit Risks."
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Real Estate Finance Considerations
Troubled Status of Acquired Commercial Mortgage Loans and
Underlying Properties. The Company seeks to acquire commercial mortgage loans at
a discount from both the unpaid principal and interest amounts of the loans and
the appraised value of the underlying properties. As a consequence, the Company
will frequently be involved with loans which are the subject of contentious and
often complex disputes among various parties regarding application of cash flow
from the underlying properties, loan terms, lease terms or similar matters, or
which are secured by properties that, while income producing, are unable to
generate sufficient revenues to pay the full amount of debt service under the
original loan terms. Although, prior to acquisition of a loan, the Company will
generally negotiate with the borrower or other parties in interest and, where
appropriate, make financial accommodations to take into account the operating
conditions of an underlying property, resolve outstanding disputes and ensure
the Company's control of the cash flow from the underlying property, there can
be no assurance that the underlying property will not be subject to recurrence
of the problems which existed prior to the Company's acquisition of the loan, or
other problems.
Lien Priority. Although in its asset acquisition and resolution
operations the Company normally acquires first mortgage loans, it is not limited
as to the lien priority of a loan which it may acquire. Moreover, a lender
refinancing a loan in the Company's portfolio will typically require, as a
condition to its refinancing, that the Company's remaining interest in the loan
be subordinated to such lender's interest. The Company currently holds 32 junior
lien loans or subordinated lien interests. For seven prior loans, (constituting
8.3% by book value, of the Company's real estate loans), the refinancing lender
did not permit the loan to be formally secured by a recorded mortgage (although
the loans are secured by judgment liens, unrecorded deeds in lieu of
foreclosure, borrowers' covenants not to further encumber the property without
the Company's consent, or similar devices). In addition, in certain
circumstances, mortgage loans, including first mortgage loans, may be subject to
mechanics', materialmens' or government liens which may be prior in right of
payment to liens held by the Company. To the extent that either the lien
securing a loan is junior to other liens encumbering an underlying property or
the loan is not secured by a perfected mortgage lien, the Company will be
subject to greater risks of loss upon a default. See "Risk Factors--General:
Credit Risks." In the event of a default on a senior mortgage, the Company may
make payments, if it has the right to do so, in order to prevent foreclosure on
the senior mortgage, increasing its investment cost without necessarily
improving its lien position.
In the event of a foreclosure, the Company will only be entitled
to share in the net proceeds after the payment of all senior lienors, including
senior mortgagees, and holders of mechanics', materialmens' and government
liens. It is therefore possible that the
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total amount which may be recovered by the Company upon a foreclosure may be
less than the outstanding balance of the loan or the Company's investment in the
loan, with resultant loss to the Company. It is also possible that, in some
cases, a "due on sale" clause included in a senior mortgage, which accelerates
the amount due under the senior mortgage in case of the sale of the property,
may apply to the sale of the property upon foreclosure of a junior loan, and may
accordingly increase the risks to the Company in the event of a default by the
borrower on the junior loan.
Environmental Liabilities. In the event of a default on a
portfolio loan, the Company may acquire the underlying property through
foreclosure. There is a risk that hazardous substances, wastes, contaminants or
pollutants would be discovered on the foreclosed property after acquisition by
the Company. In such event, the Company might be required to remove such
substances from the property at its sole cost and expense. There can be no
assurance that the cost of such removal would not substantially exceed the value
of the affected property or the loan secured by the property, that the Company
would have adequate remedies against the prior owner or other responsible
parties or that the Company would not find it difficult or impossible to sell
the affected properties either prior to or following any such removal.
Disposition of Acquired Commercial Loan Interests. In its
commercial mortgage loan acquisition and resolution operations, after the
Company has acquired a loan, the Company will typically sell a senior lien
position in the loan, or assist the borrower in obtaining third-party
refinancing, while retaining a junior lien position in the loan. Although the
sale of a senior lien position or a refinancing often results in the return of
the entire amount of (or, in some cases, more than) the Company's investment in
the loan (including amounts advanced to the borrower after loan acquisition), in
most such sales or refinancings a reduced portion of the Company's investment in
the loan remains unrecovered. Based upon the appraised value of the properties
underlying the loans, the Company believes that it will recover amounts
substantially in excess of the Company's remaining invested capital; however,
there can be no assurance that, upon termination of the loan, the borrower will
be able to repay the loan in an amount equal to or in excess of the Company's
remaining investment in such loan or that, if the borrower is not able to do so,
the Company will be able to dispose of its remaining loan interest for an amount
equal to or in excess of its remaining investment or that the property
underlying the loan can be disposed of for an amount equal to or in excess of
the interests of senior lienors and the Company's remaining investment.
Sales of Senior Lien Positions to Institutional Investor. Senior
lien positions in nine of the Company's portfolio loans have been sold to an
institutional investor. Pursuant to the terms of these sales, if the borrower
under any such loan defaults in the payment of debt service, the Company is
required to replace the defaulted
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obligation with a performing one. Since the Company has sold senior positions
in, or refinanced, most of its current portfolio loans, if the Company were
required to replace a defaulted loan with a performing loan, it may not be able
to do so without acquiring additional commercial real estate loans. If the
Company could not fulfill its obligation, the institutional investor would have
various legal remedies including foreclosure on and sale of the underlying
property (see "Risk Factors--General: Credit Risks"), or requiring the Company
to repay its senior lien position. There can be no assurance that borrowers on
one or more of such loans will not default or that, in such event, the Company
would be able to acquire additional commercial real estate loans to substitute,
if a replacement loan is not so acquired and substituted, that the investor
would not seek to require the Company to repay it.
Loss Reserves. The Company records the investments in its loan
portfolio at cost, which is significantly discounted from the face value of, and
accrued interest and penalties on, the loans. The cost basis in the loans is
reviewed periodically to determine that it is not greater than the sum of the
projected cash flows and appraised values of the underlying properties. If the
cost basis is found to be greater, the Company provides an appropriate allowance
through a charge to operations. The Company did not establish any reserves with
respect to its portfolio loans for fiscal 1994, 1995 and 1996. For the year
ended September 30, 1997, the Company recorded an allowance of $400,000. There
can be no assurance that future charges to operations will not occur or that the
actual amount of such charges will not be materially greater than the amount of
the charge for the particular period.
Obligation of Company to Acquire Interest of, or Repay, Existing
Senior Lienors. The Company is required to repurchase three senior loans held by
a single lender in the event that the loans are not repaid, in accordance with
their terms, by June 27, 2002, September 29, 2002 and September 27, 2011,
respectively. These senior loans have an aggregate outstanding balance of $12.6
million at September 30, 1997. In addition, the Company is required to
repurchase a senior lien interest in one of the Company's portfolio loans held
by a single lender in the event that the senior lien interest is not repaid by
May 21, 2002.
Possible Fluctuations in Earnings from Asset Acquisition and
Resolution Business. A material portion of the Company's revenues from its
commercial mortgage loan acquisition and resolution business is derived from the
sale of senior lien positions in, or refinancings of, its portfolio loans. These
sales and refinancings are, with respect to any one loan, non-recurring.
Accordingly, the Company's ability to recognize these gains in the future will
depend upon its continuing ability to acquire loans and the sale of senior lien
positions in, or refinancings of, such loans. See "Risk Factors--General:
Ability to Generate Growth Opportunities." Moreover, depending upon the timing
of portfolio acquisitions and sales of
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senior lien positions or refinancings, the Company's revenues from its
commercial mortgage loan acquisition and resolution business could be subject to
significant fluctuations from period to period.
Residential Mortgage Loan Originations. In addition to the risks
usually associated with mortgage lending (see "Risk Factors -- General: Credit
Risks" and "Risk Factors - Real Estate Finance Considerations: Lien Priority"
and "--Real Estate Finance Considerations: Environmental Liability"), the
Company's residential mortgage loan origination business, may involve a number
of risks, including loan quality risks (principally involving the risk that
loans not conforming to FNMA and FHLMC guidelines or loans to credit impaired
borrowers may result in higher rates of default than conforming loans), the
potential dependence of the Company's revenues from residential mortgage lending
on its ability to sell or securitize its residential mortgage loans (and the
possible contingent liability of the Company in any such sale or securitization
for the repurchase of some or all defaulted loans sold or securitized) and
claims made against the Company for breaches of fiduciary duty,
misrepresentations, violations of federal or state laws relating to truth in
lending, equal credit opportunity, settlement procedures, mortgage disclosure,
debt collection practices or similar matters. As a new business line,
residential mortgage loan origination is also subject to the risks, expenses and
difficulties frequently encountered in the establishment of a new business which
may materially adversely affect the Company's ability to develop the business,
and the Company's investment in it.
Equipment Leasing Considerations
Limited Equipment Leasing Operating History. The Company acquired
the equipment leasing operations of The Fidelity Mutual Life Insurance Company
("Fidelity") in September 1995 and, in 1996, the Company expanded these leasing
operations to include small ticket equipment leasing for its own account.
Although the leasing business acquired by the Company has been in operation
since 1986, and the executives primarily responsible for developing the
Company's proprietary leasing program have had lengthy experience in the
equipment leasing industry, the Company has only a limited amount of direct
experience upon which an evaluation of its prospects in the equipment leasing
business can be based.
Demand for Company's Equipment Leasing Services. The demand for
the equipment leasing services provided by the Company is subject to numerous
factors beyond the control of the Company, including general economic
conditions, fluctuations in interest rate levels and fluctuations in demand for
the types of equipment as to which the Company provides equipment leases. In
addition, the demand for the Company's equipment lease services will be
materially affected by the ability of the Company to market its services to
manufacturers, regional distributors and other vendors.
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Residuals. The Company anticipates that a significant portion of
the Company's revenues from leasing operations may result from the sale or
re-leasing of equipment upon lease termination or from the extension of lease
terms beyond their initial expiration dates ("residuals"). The Company's
realization of residuals will be subject to numerous factors beyond the
Company's control, including the ability or willingness of a lessee to continue
a lease or acquire the equipment, equipment obsolescence, excessive supply of
similar equipment, reductions in manufacturer's prices for similar equipment and
similar matters, which could materially adversely affect the amount of residuals
obtainable by the Company and, accordingly, the operating results and financial
condition of the Company.
Energy Industry Considerations
Market for Production. Historically, the availability of a ready
market for oil and natural gas, and the price obtained therefor, has depended
upon numerous factors including the extent of domestic production, import of
foreign natural gas and/or oil, political instability in oil and gas producing
countries and regions, market demand, the effect of federal regulation on the
sale of natural gas and/or oil in interstate commerce, and other governmental
regulation of the production and transportation of natural gas and/or oil.
Certain other factors outside the Company's control, such as operational and
transportation difficulties of pipeline or oil purchasing companies, may also
limit sales. In addition, the marketability of natural gas depends upon the
needs of the purchasers to which the producer has access. Depending upon the
purchasers' needs, the price obtainable for natural gas produced by the Company,
or the amount of natural gas which the Company is able to sell, the revenues of
the Company may be materially adversely affected.
Possible Decline in Production. Production of oil and gas from a
particular well generally declines over time until it is no longer economical to
produce from the well, at which time the well is plugged and abandoned. The
Company's wells have been drilled at various times from 1966 to the present. The
Company's wells generally have productive lives of 15 to 20 years and have been
subject to normal production declines. To date, these declines have been offset
largely by the acquisition of additional wells and, to a materially lesser
extent, drilling of new wells. The Company cannot predict whether the Company
will acquire further energy assets or as to the timing or cost thereof.
Environmental Liabilities. Oil and gas operations are subject to
numerous hazards (such as seepage, spillage of well substances such as brine or
oil, and escape of oil or gas from wells, tanks or pipelines) which can cause
substantial pollution damage to the environment or severely damage the property
of others. While the Company maintains liability insurance coverage and has not
had a material environmental incident, there can be no assurance that
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incidents will not occur in the future or that the liability resulting therefrom
will not be substantial.
Importance of Key Employees
The Company's future success will depend upon the continued
services of the Company's senior management and, with respect to its leasing
operations, the Chairman and Chief Executive Officer of its leasing subsidiary.
The unexpected loss of the services of any of these management personnel could
have a material adverse effect upon the Company. The Company does not maintain
key man life insurance on, nor (except for employment agreements with Edward E.
Cohen, the Chairman, Chief Executive Officer and President of the Company,
Abraham Bernstein, the Chairman and Chief Executive Officer of its leasing
operations, and Daniel G. Cohen, the Chairman and Chief Executive Officer of the
Company's residential mortgage origination business and an Executive Vice
President of the Company) does it have employment agreements with, any of its
senior management.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed
charges of the Company for the respective periods indicated (unaudited).
For The
For The Years Ended September 30, Nine Months
--------------------------------- Ended
1992 1993 1994 1995 1996 June 30,1997
---- ---- ---- ---- ---- ------------
Ratio of Earnings to
Fixed Charges:.........(1) 16.45 4.89 4.07 9.44 6.95
- ----------------------
(1) Earnings in 1992 were inadequate to cover fixed charges by $506,000.
The ratio of earnings to fixed charges is calculated by dividing
income from continuing operations before income taxes, extraordinary gains and
cumulative effect of a change in accounting principal plus fixed charges by
fixed charges. Fixed charges represent total interest expense, including
amortization of debt expense and discount relating to indebtedness.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance
of the New Notes offered hereby.
CAPITALIZATION
The following table sets forth the consolidated capitalization of
the Company as of September 30, 1997, and as adjusted for the exchange of the
New Notes for the Old Notes. The following data should be read in
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conjunction with the consolidated financial statements and notes thereto of the
Company incorporated by reference herein. The issuance of the New Notes will
have no effect on the capitalization of the Company.
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Current portion of long-term debt $ 708 $ 708
Long-term debt:
Equipment lease credit facility 0 0
Other debt 3,786 3,786
Notes 0 115,000
Old Notes 115,000 0
-------- --------
Total long-term debt $119,494 $119,494
======== ========
Stockholders' equity
Preferred Stock, $1.00 par value, 1,000,000
shares authorized, none issued $ 0 $ 0
Common Stock, $.01 par value, 8,000,000
shares authorized, 5,410,645 shares issued
and outstanding 54 54
Additional paid-in capital 56,787 56,787
Retained earnings 22,005 22,005
Less cost of treasury shares (13,664) (13,664)
Less loan receivable from ESOP (353) (353)
-------- --------
Total stockholders' equity 64,829 64,829
-------- --------
Total capitalization $184,323 $184,323
======== ========
</TABLE>
THE EXCHANGE OFFER
Purpose and effect of the Exchange Offer
In connection with the sale of the Old Notes, and pursuant to the
Indenture, the Company granted certain Registration Rights to the Initial
Purchaser, pursuant to which the Company agreed, among other things, to file on
or before November 15, 1997 and to use its best efforts to cause to become
effective on or before December 30, 1997 with the Commission the Registration
Statement with respect to the exchange of New Notes with terms identical in all
material respects to the terms of the Old Notes. The Registration Rights
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual
obligations of the Company under the Registration Rights Agreement. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Old Notes and will not provide for any increase in the interest rate
thereon.
In that regard, the Old Notes provide, among other things, that, in
the event that either (i) the Registration Statement is not filed with the
Commission on or prior to November 15, 1997, (ii) the Registration Statement is
not declared effective on or prior to
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December 30, 1997, or (iii) the Exchange Offer is not consummated on or prior to
February 15, 1998 or a Shelf Registration Statement is not declared effective on
or prior to February 15, 1998, the interest rate borne by the Old Notes shall be
increased by one-half of one percent per annum following November 15, 1997 in
the case of clause (i) above, December 30, 1997 in the case of clause (ii) above
or February 15, 1998 in the case of clause (iii) above, which rate will be
increased by an additional one-half of one percent per annum for each 90-day
period that any such additional interest continues to accrue; provided that the
aggregate increase in such interest rate will in no event exceed one percent per
annum.
In the event that any changes in law or the applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer or if for any other reason the Registration Statement
is not declared effective on or prior to December 30, 1997, the Exchange Offer
is not consummated on or prior to February 15, 1998, any Holder of the Old Notes
(other than the Initial Purchaser) is not eligible to participate in the
Exchange Offer or upon the request of the Initial Purchaser under certain
circumstances, the Company will at its cost, (a) as promptly as practicable,
file with the Commission a Shelf Registration Statement covering resales of the
Old Notes, (b) use its best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act on or prior to February 15, 1998
(or promptly in the event of a request by the Initial Purchaser) and (c) use its
best efforts to keep effective the Shelf Registration Statement for a period of
two years after its effective date (or for a period of one year after such
effective date if such Shelf Registration Statement is filed at the request of
the Initial Purchaser or, for such shorter period, when all of the Old Notes
covered by the Shelf Registration Statement have been sold pursuant thereto).
The Company will, in the event of the filing of a Shelf Registration Statement,
provide to each Holder of the Old Notes copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Old Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Old Notes. A
Holder of Old Notes who sells such Old Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver the prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a Holder (including
certain indemnification obligations). In addition, each Holder of the Old Notes
will be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Notes included in the Shelf Registration Statement
and to benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
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Upon (x) the filing of the Registration Statement after November
15, 1997, (y) the effectiveness of the Registration Statement after December 30,
1997, or (z) the day before the date of the consummation of the Exchange Offer
or the effectiveness of a Shelf Registration Statement, as the case may be,
after February 15, 1998, the interest rate borne by the Old Notes from the date
of such filing, effectiveness or the day before the date of the consummation, as
the case may be, will be reduced by the full amount of such increase from the
original interest rate of the Old Notes; provided, however, that, if after any
such reduction in interest rate, a different event specified in clause (i), (ii)
or (iii) above occurs, the interest rate may again be increased and thereafter
reduced pursuant to the foregoing provisions.
If the Exchange Offer is consummated, Old Notes that remain
outstanding thereafter and the New Notes issued in connection with the Exchange
Offer will be treated as a single class of securities under the Indenture.
The Exchange Offer is not being made to, nor will the Company
accept tenders for exchange from, Holders of Old Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "Holder" with
respect to the Exchange Offer means any person in whose name the Old Notes are
registered on the books of the Company, or any person whose Old Notes are held
of record by The Depository Trust Company who desires to deliver such Old Notes
by book-entry transfer at The Depository Trust Company.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is an exhibit to the Registration Statement of which
this Prospectus is a part.
Terms of the Exchange
The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $115,000,000 aggregate principal amount of New
Notes for a like aggregate principal amount of Old Notes properly tendered on or
prior to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $115,000,000 of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer. Holders may tender their Old
Notes in whole or in part in denominations of not less than $1,000 or any
integral multiple thereof.
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The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered. As of the date of this Prospectus
$115,000,000 aggregate principal amount of the Old Notes is outstanding.
Holders of the Old Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Notes which are not tendered
for or are tendered but not accepted in connection with the Exchange Offer will
remain outstanding and be entitled to the benefits of the Indenture, but will
not be entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Risk Factors-- Consequences
of a Failure to Exchange Old Notes" and "Description of Old Notes."
If any tendered Old Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of the Old Notes in connection with the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer.
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO
HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR
ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER
AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF
ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
The term "Expiration Date" means 5:00 p.m., New York City time, on
February 15, 1998 unless the Exchange Offer is extended by the Company (in which
case the term "Expiration Date") shall mean the latest date and time to which
the Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any of
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<PAGE>
the Old Notes have theretofore been accepted for exchange) if the Company
determines in its sole and absolute discretion, that any of the events or
conditions referred to under "--Conditions to the Exchange Offer" have occurred
or exist or have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all of the Old Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of Holders of the Old Notes to withdraw
their tendered Old Notes as described under "--Withdrawal Rights," and (iv) to
waive any condition or otherwise amend the terms of the Exchange Offer in any
respect. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, or if the Company waives a material condition
of the Exchange Offer, the Company will promptly disclose such amendment by
means of a prospectus supplement that will be distributed to the registered
Holders of the Old Notes, and the Company will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment
will be followed promptly by oral or written notice thereof to the Exchange
Agent and by making a public announcement thereof, and such announcement in the
case of an extension will be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall not have any
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
Acceptance for the Exchange and Issuance of New Notes
Upon the terms and subject to the conditions of the Exchange Offer,
the Company will exchange, and will issue to the Exchange Agent, the New Notes
for the Old Notes validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "--Withdrawal Rights") promptly after the Expiration
Date.
In all cases, delivery of the New Notes in exchange for the Old
Notes tendered and accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of (i) the Old Notes or a
book-entry confirmation of a book-entry transfer of the Old Notes into the
Exchange Agent's account at The Depository Trust Company ("DTC"), including a
Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and (iii) any other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of the Old Notes into the Exchange Agent's account of DTC.
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Subject to the terms and conditions of the Exchange Offer, the
Company will be deemed to have accepted for exchange, and thereby exchanged, the
Old Notes validly tendered and not withdrawn as, if and when the Company gives
oral or written notice to the Exchange Agent of the Company's acceptance of such
Old Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will
act as agent for the Company for the purpose of receiving tenders of the Old
Notes, Letters of Transmittal and related documents, and as agent for tendering
Holders for the purpose of receiving the Old Notes, Letters of Transmittal and
related documents and transmitting the New Notes to validly tendering Holders.
Such exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Old Notes tendered
pursuant to the Exchange Offer is delayed (whether before or after the Company's
acceptance for exchange of the Old Notes) or the Company extends the Exchange
Offer or is unable to accept for exchange or exchange the Old Notes tendered
pursuant to the Exchange Offer, then, without prejudice to the Company's rights
set forth herein, the Exchange Agent may, nevertheless, on behalf of the Company
and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes
and such Old Notes may not be withdrawn except to the extent tendering Holders
are entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a Holder of the Old Notes
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes, that the
Company will acquire good, marketable and unencumbered title to the tendered Old
Notes free and clear of all liens, restrictions, charges and encumbrances, and
the Old Notes tendered for exchange are not subject to any adverse claims or
proxies. The Holder also will warrant and agree that it will, upon request,
execute and delivery any additional documents deemed by the Company or the
Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the Old Notes tendered pursuant to the Exchange
Offer.
Procedures for Tendering Old Notes
Valid Tender. Except as set forth below, in order for the Old
Notes to be validly tendered pursuant to the Exchange Offer whether by
book-entry tender or otherwise, a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees,
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and any other required documents, must be received by the Exchange Agent at one
of its addresses set forth under "--Exchange Agent," and either (i) tendered Old
Notes must be received by the Exchange Agent, or (ii) such Old Notes must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation, including an Agent's Message if the tendering Holder
has not delivered a Letter of Transmittal, must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, but in no case less
than $1,000 principal amount of Old Notes, a tendering Holder should fill in the
amount of the Old Notes being tendered in the appropriate box on the Letter of
Transmittal. The entire amount of the Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE
TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book Entry Transfer. The Exchange Agent will establish an account
with respect to the Old Notes at DTC for purposes of the Exchange Offer within
two business days after the date of this Prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Notes need not be
endorsed and signature guarantees on the Letter of Transmittal are unnecessary
unless (a) a certificate for the Old Notes is registered in a name other than
that of the person surrendering the certificate or (b) such registered Holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the
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Letter of Transmittal. In the case of (a) or (b) above, such certificates for
Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
Guaranteed Delivery. If a Holder desires to tender Old Notes
pursuant to the Exchange Offer and the certificates for such Old Notes are not
immediately available or time will not permit all required documents to reach
the Exchange Agent on or before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Old Notes may
nevertheless be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter
of Transmittal, is received by the Exchange Agent, as
provided below, on or prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing
all tendered Old Notes, in proper form for transfer, together
with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent
within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail, to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of the New
Notes in exchange for the Old Notes tendered and accepted for exchange pursuant
to the Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of the Old Notes, or of a
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book-entry confirmation with respect to such Old Notes, and a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), together with
any required signature guarantees and any other documents required by the Letter
of Transmittal. Accordingly, the delivery of the New Notes might not be made to
all tendering Holders at the same time, and will depend upon when the Old Notes,
book-entry confirmations with respect to the Old Notes and other required
documents are received by the Exchange Agent.
The Company's acceptance for exchange of the Old Notes tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Old
Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer as set forth under "--Conditions to
the Exchange Offer" or any condition or irregularity in any tender of the Old
Notes of any particular Holder whether or not similar conditions or
irregularities are waived in the case of other Holders.
The Company's interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of the Old Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of the Old Notes that are held by or registered
in the name of a broker, dealer, commercial bank, trust
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company or other nominee or custodian is urged to contact such entity promptly
if such beneficial Holder wishes to participate in the Exchange Offer.
Resales of New Notes
The Company is making the Exchange Offer for the Old Notes in
reliance upon the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff of the Division
of Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based upon these interpretations by the staff of the Division of
Corporation Finance, and subject to the two immediately following sentences, the
Company believes that New Notes issued pursuant to this Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a Holder thereof (other than a Holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holder's business and that such Holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any Holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing New Notes, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (a) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (b) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for New
Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each Holder of Old Notes who wishes to exchange Old Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such Holder is not
a broker-dealer, such Holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
In addition, the Company may require such Holder, as a
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condition to its participation in the Exchange Offer, to furnish to the Company
(or an agent thereof) in writing information as to the number of "beneficial
owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of
whom such Holder holds the Old Notes to be exchanged in the Exchange Offer. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Broker-dealers who acquired Old Notes for their
own accounts as a result of market-making activities or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received upon exchange of the Old
Notes with a prospectus meeting the requirements of the Securities Act, which
may be this Prospectus, as it may be amended or supplemented from time to time
for a period ending 180 days after the Expiration Date or, if earlier, when all
such New Notes have been disposed of by such Participating Broker-Dealer. See
"Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of
the Company and any Participating Broker-Dealer who purchased the Old Notes
specifically for resale may not use this Prospectus and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of the New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
Withdrawal Rights
Except as otherwise provided herein, tenders of the Old Notes may
be withdrawn at any time on or prior to the Expiration Date.
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In order for a withdrawal to be effective, a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of the Old Notes to be withdrawn, and, if certificates for such
Old Notes have been tendered, the name of the registered Holder of the Old Notes
as set forth on the Old Notes, if different from that of the person who tendered
the Old Notes. If the Old Notes have been delivered or otherwise identified to
the Exchange Agent, then prior to the physical release of such Old Notes, the
tendering Holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If the Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Old Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of the Old
Notes, in which case a notice of withdrawal will be effective if delivered to
the Exchange Agent by written or facsimile transmission. Withdrawals of tenders
of the Old Notes may not be rescinded. Old Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering Old Notes."
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
in its sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the Holder thereof
promptly after withdrawal.
Interest Payments on the New Notes
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accumulated interest on such Old Notes for any period from and after
the last Interest Payment Date with respect to such Old Notes prior to the
original issue date of the New Notes or, if no such interest payment has been
made, will not receive any accumulated interest on such Old Notes, and will be
deemed to have waived the right to receive any interest on such Old Notes
accumulated from and after such Interest Payment Date or, if no such interest
has been paid or duly provided for, from and after February 1, 1997. However,
because interest on the New Notes will accumulate from February 1,
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1997, the amount of the interest received by Holders whose Old Notes are
accepted for exchange will not be affected by the exchange.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions or amend the
Exchange Offer, if any of the following conditions have occurred or exists or
have not been satisfied:
(a) there shall occur a change in the current
interpretation by the staff of the Commission which
permits the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes to be offered for
resale, resold and otherwise transferred by Holders
thereof (other than broker-dealers and any such Holder
which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act provided that
such New Notes are acquired in the ordinary course of
such Holders' business and such Holders have no
arrangement or understanding with any person to
participate in the distribution of such New Notes; or
(b) any action or proceeding shall have been instituted or
threatened in any court or by or before any
governmental agency or body with respect to the
Exchange Offer which, in the Company's judgment, would
reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been
adopted or enacted which, in the Company's judgment,
would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer;
If the Company determines in its sole and absolute discretion that
any of the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such conditions or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to
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the Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered Holders of the
Old Notes, and the Company will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
By Hand or Overnight Delivery: By Registered or Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Reorganization Section
New York, New York 10286 Arwen Gibbons
Attention: Reorganization Section
Arwen Gibbons
By Facsimile Delivery:
(Eligible Institutions Only)
(212) 571-3080
Delivery to other than one of above addresses or the facsimile number will not
constitute a valid delivery.
Fees and Expenses
The Company has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Notes, and in handling and
tendering for their customers.
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Notes are to be delivered to, or are to be issued in the name of, any person
other than the registered Holder of the Old Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes in connection
with the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
taxes will be billed directly to such tendering Holder.
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The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
DESCRIPTION OF NEW NOTES
The terms of the New Notes are identical in all material respects
to the respective terms of the Old Notes except as otherwise set forth herein.
The New Notes are to be issued under the Indenture between the Company and The
Bank of New York, as Trustee (the "Trustee"). Upon issuance of the New Notes,
the Indenture will be subject to and governed by the provisions of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon request, the
Company will provide copies of the Indenture to Holders of the Old Notes. Copies
of the Indenture are also available for inspection at the corporate trust office
of the Trustee in New York, New York. Capitalized terms not otherwise defined
herein have the meanings specified in the Indenture. A glossary of such terms is
set forth at "Description of New Notes - Certain Definitions." Wherever a
defined term of the Indenture is referred to, the definition of such term set
forth in the Indenture is incorporated herein by such reference.
The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
therein of certain terms and those terms made part of the Indenture by reference
to the Trust Indenture Act. For purposes of this Section, the term "Company"
refers only to Resource America, Inc. and not any of its Subsidiaries.
General
The New Notes will be limited in aggregate original principal
amount to $115 million. The New Notes will mature on August 1, 2004 (the "Stated
Maturity"). The New Notes will rank pari passu with all other general unsecured
obligations of the Company.
The New Notes will bear interest from the date of their initial
issuance, at the rate of twelve percent (12%) per annum, payable semi-annually
in arrears on February 1 and August 1 of each year (each an "Interest Payment
Date"), commencing February 1, 1998, to the Holders of record at the close of
business on January 15 or July 15 (whether or not a business day), as the case
may be, next preceding such Interest Payment Date (each, a "Regular Record
Date"). Interest will be computed on the basis of a 360-day year of twelve
30-day months.
The New Notes will not be secured by the assets of the Company or
any of its Subsidiaries, or otherwise, and will not have the benefit of a
sinking fund for the retirement of principal or interest. Because the Company is
a holding company that currently conducts substantially all of its operations
through its Subsidiaries, the right of the Company to participate in any
distribution of assets of
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the Subsidiaries upon their liquidation or reorganization or otherwise (and thus
the ability of Holders of the New Notes to benefit indirectly from such
distribution) are subject to the prior claims of creditors of the Subsidiaries.
See "Risk Factors - General: Holding Company Structure; Limitations on Access to
Cash Flow of Operating Companies; Effective Subordination."
Book-Entry Delivery and Form
General. The certificates representing the New Notes will be issued
in fully registered form, without coupons. Except as described in the next
paragraph, the New Notes will be deposited with, or on behalf of, The Depository
Trust Company, New York, New York (the "Depositary"), and registered in the name
of Cede & Co., as the Depositary's nominee, in the form of a global Note
certificate (the "Global Certificate") or will remain in the custody of the
Trustee pursuant to a FAST Balance Certificate Agreement between the Depositary
and the Trustee. Unless and until it is exchangeable in whole or in part for New
Notes in definitive form, a Global Note may not be transferred except as a whole
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of the Depositary or a nominee of
such successor.
Book-Entry Securities. Ownership of beneficial interests in a
Global Note will be limited to persons that have accounts with the Depositary or
its nominee ("Participants") or persons that may hold interests through
Participants. The Company expects that upon the issuance of a Global Note, the
Depositary will credit, on its book-entry registration and transfer system, the
Participants' accounts with their respective principal amounts of the New Notes
represented by such Global Note. Ownership of beneficial interests in such
Global Note will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by the Depositary (with respect to
interests of Participants) and on the records of Participants (with respect to
interests of beneficial owners held through Participants). Beneficial owners
will not receive written confirmation from the Depositary of their purchase, but
are expected to receive written confirmations from the Participants through
which the beneficial owner entered into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting on
behalf of the beneficial owners.
So long as the Depositary, or its nominee, is the registered owner
of a Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or Holder of the New Notes represented by such Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to receive physical
delivery of the New Notes in definitive form and will not be considered the
owners or Holders thereof under the Indenture. Accordingly, each owner of a
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beneficial interest in such a Global Note must rely on the procedures of the
Depositary and, if such beneficial owner is not a Participant, on the procedures
of the Participant through which such beneficial owner owns its interest, to
exercise any rights of a Holder under the Indenture. The Company understands
that, under the Depositary's existing practices, in the event that the Company
requests any action of Holders, or an owner of a beneficial interest in such a
Global Note desires to take any action which a Holder is entitled to take under
the Indenture, the Depositary would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to the Depositary. If less than all
of the New Notes are being redeemed, the Company understands that it is the
Depositary's existing practice to determine by lot the amount of the interest of
each Participant to be redeemed.
Payment of principal of, and premium, if any, and interest on New
Notes registered in the name of the Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner of
the Global Note representing such New Notes. None of the Company, the Trustee or
any agent of the Company or the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note for such New Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. Disbursements of payments of principal, premium, if any,
and interest to Participants shall be the responsibility of the Depositary. The
Depositary's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on the Depositary's records
unless the Depositary has reason to believe that it will not receive payment on
such payable date. Payments by Participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of the
Depositary, the Company, the Trustee or any agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
The Depositary may discontinue providing its services as securities
depository with respect to the New Notes at any time by giving reasonable notice
to the Company or the Trustee. If the Depositary notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that the Depositary is no longer so registered, the Company will
issue the New Notes in definitive form upon registration of transfer of, or in
exchange for, such Global Note. In addition, the Company may at any time and in
its sole
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discretion determine not to have the New Notes represented by one or more Global
Notes and, in such event, will issue New Notes in definitive form in exchange
for all of the Global Notes representing such New Notes.
The Depositary has advised the Company as follows: it is a
limited-purpose trust company organized under the New York Banking Law, a "bank
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary was created to
hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions among its Participants in such securities
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's Participants include securities broker-dealers (such as the Initial
Purchaser), banks, trust companies, clearing corporations and certain other
organizations. Persons who are not Participants in the Depositary may
beneficially own securities held by the Depositary only through Persons who are
participants or who clear through or maintain a custodial relationship with a
Participant. The Depositary is owned by a number of its Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the NASD.
The regulations applicable to the Depositary and its Participants are on file
with the Commission.
Optional Redemption
The New Notes may not be redeemed prior to August 1, 2002. On or
after such date, the New Notes may be redeemed, in whole or in part, at the
following redemption prices (expressed as a percentage of the principal amount)
plus accrued and unpaid interest to (but excluding) the redemption date, if
redeemed during the 12-month period, beginning January 1, of the years indicated
below:
Year Redemption Price
---- ----------------
2002....................... 106%
2003....................... 103%
If at any time fewer than all of the New Notes then outstanding
are to be redeemed, the Trustee shall select the New Notes or portions thereof
to be redeemed by any method the Trustee shall deem fair and reasonable. New
Notes in denominations larger than $1,000 may be redeemed in part in integral
multiples of $1,000. Notice of redemption will be mailed to each Holder of New
Notes to be redeemed at such Holder's registered address at least 30, but not
more than 60, days before the redemption date. On or after the redemption date,
interest will cease to accrue on the New Notes or portions thereof called for
redemption.
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In addition to permitted redemptions, the Company may from time to
time purchase the New Notes in the open market, in private transactions or
otherwise, as permitted by applicable law.
No Sinking Fund or Mandatory Redemption
The New Notes will not be entitled to the benefit of any sinking
fund or mandatory redemption.
Certain Covenants
The Indenture contains, among others, the following covenants:
Net Worth Maintenance. Commencing on the date of issuance of the
Old Notes and at all times thereafter including upon the exchange of Old Notes
for New Notes, determined at the end of each fiscal quarter, the Company shall
maintain Consolidated Net Worth, equal to (i) $50.0 million plus (ii) a
cumulative amount equal to twenty-five percent (25%) of the Consolidated Net
Income (but not loss), if any, of the Company and its Subsidiaries for each
fiscal quarter commencing with the first full quarter ending after issuance of
the Old Notes.
Limitations on Indebtedness.
(a) Except for the issuance of the New Notes, the Company
shall not incur, directly or indirectly, any Indebtedness
or issue any Disqualified Capital Stock; provided,
however, that the Company may incur Indebtedness or issue
Disqualified Capital Stock if, on the date of such
incurrence or issuance and after giving effect thereto,
(i) no Default or Event of Default has occurred and is
continuing or would result therefrom and (ii) the
Leverage Ratio does not exceed 2.0 to 1.0.
(b) The Company will not create, incur, issue, assume,
guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to, or otherwise
permit to exist, any Junior Indebtedness or Pari Passu
Indebtedness (other than Acquired Indebtedness) unless
the Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund
payments) of such Junior Indebtedness or Pari Passu
Indebtedness is after the final Stated Maturity of
principal of the Notes.
(c) The Company will not permit any Subsidiary to, directly or
indirectly, incur any Indebtedness or issue any
Disqualified Capital Stock.
(d) The Company will not incur any Indebtedness which is
senior in right of payment to the Notes.
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(e) The foregoing provisions shall not apply to:
(1) Permitted Acquisition Indebtedness of the Company
and its Subsidiaries;
(2) Permitted Repurchase Facilities of the Company
and its Subsidiaries;
(3) Guarantees by the Company of (1) and (2);
(4) Intercompany Indebtedness owed by the Company to
any of its Subsidiaries or owed by any Subsidiary
to the Company;
(5) Incurrence by the Company of its obligations
under the Notes;
(6) Non-Recourse Indebtedness of the Company and its
Subsidiaries;
(7) Securities issued in a securitization by a
Securitization Entity formed by or on behalf of
the Company or its Subsidiaries, regardless of
whether such securities are treated as
indebtedness for tax purposes, provided that
neither the Company nor any Subsidiary (other
than the Securitization Entity formed solely for
the purpose of such securitization) is directly
or indirectly liable as a guarantor or otherwise
(excluding the provision of Credit Support) for
such securities or obligations of the
Securitization Entity;
(8) Unsecured working capital loans to Subsidiaries,
not to exceed $5.0 million in the aggregate,
provided, however, that such Indebtedness shall
be considered to be Indebtedness of the Company
for the purpose of the Leverage Ratio;
(9) Acquired Indebtedness of Subsidiaries, provided,
however, that such Acquired Indebtedness shall be
considered to be Indebtedness of the Company for
the purpose of the Leverage Ratio;
(10) Indebtedness secured by Permitted Liens; or
(11) Hedging Obligations directly related to:
(i) Indebtedness permitted to be incurred by
the Company or its Subsidiaries pursuant
to the Indenture;
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(ii) loans held by the Company or its
Subsidiaries pending sale; or
(iii) loans with respect to which the Company
or any Subsidiary has an outstanding
purchase offer or commitment, financing
commitment or security interest.
(f) For purposes of determining compliance with the foregoing
covenants:
(1) in the event that an item of Indebtedness meets
the criteria of more than one of the types of
Indebtedness described above, the Company, in
good faith, will classify such item of
Indebtedness and be required to include the
amount and type of such Indebtedness in one of
the above clauses; and
(2) an item of Indebtedness may be divided and
classified in more than one of the types of
Indebtedness described above.
Limitation on Issuances and Sales of Capital Stock of Subsidiaries. The
Company (a) will not permit any Subsidiary to issue or sell any shares of its
Capital Stock (other than to the Company or a Wholly Owned Subsidiary) and (b)
except pursuant to existing agreements, options or option plans, will not permit
any Person to own any shares of Capital Stock of any Subsidiary.
Liquidity Maintenance. The Company shall, at all times when the New Notes
are not rated in an investment grade category by one or more nationally
recognized statistical rating organizations, maintain Liquid Assets with a value
equal to at least 100% of the required interest payments due on the New Notes on
the next succeeding semi-annual Interest Payment Date. Liquid Assets of a
Subsidiary may be included in such calculation only to the extent that such
Liquid Assets may at such time be distributed to the Company without restriction
or notice to any Person. Such Liquid Assets shall not be the subject of any
pledge, Lien, encumbrance or charge of any kind and shall not be used as
collateral or security for Indebtedness for borrowed money or otherwise of the
Company or its Subsidiaries nor may such Liquid Assets be used as reserves for
any self-insurance maintained by the Company.
Limitations on Restricted Payments. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, make any
Restricted Payment if, at the time of such Restricted Payment or after
giving effect thereto,
(a) a Default or Event of Default shall have occurred and be
continuing; or
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(b) the Company would fail to maintain sufficient Liquid
Assets to comply with the terms of the covenant described
above under "Liquidity Maintenance"; or
(c) the aggregate amount of all Restricted Payments (the
amount of such payments, if other than in cash, having
been determined in good faith by the relevant Board of
Directors, whose determination shall be conclusive and
evidenced by a Board resolution filed with the Trustee)
declared and made after the issue date of the Old Notes
would exceed the sum of:
(i) 25% of the aggregate Consolidated Net Income (or,
if such Consolidated Net Income is a deficit,
100% of such deficit) of the Company accrued on a
cumulative basis during the period beginning on
the first day of the fiscal quarter during which
the issue date of the Old Notes occurred and
ending on the last day of the Company's last
fiscal quarter ending prior to the date of such
proposed Restricted Payment; plus
(ii) the aggregate Net Cash Proceeds received by the
Company as capital contributions (other than from
a Subsidiary) after the issue date of the Old
Notes; plus
(iii) the aggregate Net Cash Proceeds and the Fair
Market Value of property not constituting Net
Cash Proceeds received by the Company from the
issuance or sale (other than to a Subsidiary) of
Qualified Capital Stock after the issue date of
the Old Notes; plus
(iv) 100% of the amount of any Indebtedness of the
Company or a Subsidiary that is issued after the
issue date of the Old Notes that is thereafter
converted into or exchanged for Qualified Capital
Stock of the Company; or
(d) the Unsecured Debt Coverage Ratio for the Company for the
most recently ended four full fiscal quarters for which
internal financial statements are available immediately
preceding the date of such Restricted Payment is less
than 2.00 to 1.00, determined after giving effect to such
Restricted Payment; provided, however, that the foregoing
provisions will not prevent (y) the payment of a dividend
within 60 days after the date of its declaration if at
the date of declaration such payment was permitted by the
foregoing provisions, or (z) any Permitted Payment.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
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Subsidiaries (other than a Securitization Entity) to, create, assume or
otherwise cause or suffer to exist or to become effective any consensual
encumbrance or restriction on the ability of any such Subsidiary to
(a) pay any dividends or make any other distribution on its
Capital Stock;
(b) make payments in respect of any Indebtedness owed to the
Company or any other Subsidiary; or
(c) make loans or advances to the Company or any Subsidiary or
to guarantee Indebtedness of the Company or any other
Subsidiary; other than, in the case of (a), (b) and (c),
(1) restrictions imposed by applicable law;
(2) restrictions existing under agreements in effect
on the date of the Indenture or under renewals or
extensions thereof on substantially the same
terms and conditions;
(3) consensual encumbrances or restrictions binding
upon any Person at the time such Person becomes a
Subsidiary of the Company so long as such
encumbrances or restrictions are not created,
incurred or assumed in contemplation of such
Person becoming a Subsidiary;
(4) restrictions with respect to a Subsidiary imposed
pursuant to an agreement entered into for the
sale or disposition of all or substantially all
the assets (which term may include the Capital
Stock) of such Subsidiary;
(5) restrictions on the transfer of assets which are
subject to Liens;
(6) restrictions existing under agreements evidencing
Permitted Acquisition Indebtedness or Permitted
Repurchase Facilities if such Indebtedness (i) is
made without recourse to, and with no cross
collateralization (which shall not include
Guarantees) against the assets of the Company or
any other subsidiary, and (ii) upon complete or
partial liquidation of which the Indebtedness
must be correspondingly repaid in whole or in
part, as the case may be; and
(7) restrictions existing under any agreement that
renews, extends, increases, refinances or
replaces any of the agreements containing the
restrictions in
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clauses (2), (3) and (6); provided that the terms
and conditions of any such restrictions (except
for changes in interest rates related to changes
in market rates) are not less favorable to the
Holders than those under the agreement evidencing
or relating to the Indebtedness renewed,
extended, increased, refinanced or replaced.
Limitations on Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company (except that the Company and any of its Subsidiaries
may enter into any transaction or series of related transactions with any
Subsidiary of the Company without limitation under this covenant) unless: (i)
such transactions or series of related transactions is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than would be
available in a comparable transaction in an arm's length dealing with a Person
that is not such an Affiliate or, in the absence of such a comparable
transaction, on terms that the relevant Board of Directors determines in good
faith would be offered to a Person that is not an Affiliate; (ii) with respect
to any transaction or series of related transactions involving aggregate
payments in excess of $250,000, the Company delivers an officers' certificate to
the Trustee certifying that such transaction or series of transactions complies
with clause (i) above and has been approved by a majority of the Disinterested
Directors of the relevant Board of Directors of the Company or such Subsidiary,
as the case may be; and (iii) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $1.0 million, or
in the event that no members of the Board of Directors are Disinterested
Directors with respect to any transaction or series of transactions included in
clause (ii), (x) in the case of a transaction involving real property, the
aggregate rental or sale price of such real property shall be the fair market
rental or sale value of such real property as determined in a written opinion by
a nationally recognized expert with experience in appraising the terms and
conditions of the type of transaction or series of transactions for which
approval is required and (y) in all other cases, the Company delivers to the
Trustee a written opinion of a nationally recognized expert with experience in
appraising the terms and conditions of the type of transaction or series of
transactions for which approval is required to the effect that the transaction
or series of transactions are fair to the Company or such Subsidiary from a
financial point of view. The limitations set forth in this paragraph will not
apply to (i) transactions entered into pursuant to any agreement already in
effect on the date of the Indenture and any renewals or extensions thereof not
involving modifications materially adverse to the Company or any Subsidiary,
(ii) normal banking relationships with an Affiliate on an arms' length basis,
(iii) any employment agreement, stock option, employee benefit, indemnification,
compensation, business
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expense reimbursement or other employment-related agreement, arrangement or plan
entered into by the Company or any of its Subsidiaries which agreement,
arrangement or plan was adopted by the Board of Directors of the Company or such
Subsidiary (including a majority of the Disinterested Directors), as the case
may be, (iv) any Restricted Payment or Permitted Payment, (v) any transaction or
series of transactions in which the total amount involved does not exceed
$125,000, or (vi) services rendered and obligations incurred by the Company or
any of its Subsidiaries pursuant to existing agreements or agreements between
the Company and/or any of its Subsidiaries.
Limitations on Liens and Guarantees. The Company will not create, assume,
incur or suffer to exist any Lien (other than a Permitted Lien) upon any of the
Company's assets (including the Capital Stock of any Subsidiary) as security for
Indebtedness, without effectively providing that the Notes will be equally and
ratably secured with (or prior to) such Indebtedness.
In addition, the Company will not permit any Subsidiary of the Company,
directly or indirectly, to guarantee or assume, or subject any of its assets to
a Lien (other than a Permitted Lien) to secure any Pari Passu Indebtedness or
Junior Indebtedness unless (i) such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a guarantee of,
or pledge of assets to secure, the Notes by such Subsidiary on terms at least as
favorable to the Holders of the Notes as such guarantee or security interest in
such assets is to the Holders of such Pari Passu Indebtedness or Junior
Indebtedness, except that in the event of a guarantee or security interest in
such assets with respect to (x) Pari Passu Indebtedness, the guarantee or
security interest in such assets under the supplemental indenture shall be made
pari passu to the guarantee or security interest in such assets with respect to
such Pari Passu Indebtedness or (y) Junior Indebtedness, any such guarantee or
security interest in such assets with respect to such Junior Indebtedness shall
be subordinated to such Subsidiary's guarantee or security interest in such
assets with respect to the Notes to the same extent as such Junior Indebtedness
is subordinated to the Notes and (ii) such Subsidiary waives and will not in any
manner whatsoever claim, or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary of the Company as a result of any payment by such
Subsidiary under its guarantees.
Offer to Purchase upon a Change of Control. If a Change of Control Event
shall occur at any time, then each Holder will have the right to require the
Company to repurchase such Holder's Notes (pursuant to an offer made to all
Holders), in whole or in part, in integral multiples of $1,000 at a purchase
price in cash equal to 101% of the principal amount of such Notes, plus accrued
and unpaid interest, if any, to the date of repurchase. There can be no
assurance that the Company will have the funds available to repurchase the Notes
in the event of a Change of Control Event.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes upon the occurrence of a Change of Control Event. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
Additional Covenants. The Indenture also contains covenants with respect
to, among other things, the following matters: (i) payment of principal, premium
and interest; (ii) maintenance of corporate existence; (iii) payment of taxes
and other claims; (iv) maintenance of properties; and (v) maintenance of
insurance.
Merger and Consolidation
The Indenture provides that the Company may not, in a single transaction
or a series of transactions, consolidate with or merge into any other Person or
sell, assign, convey, transfer, lease all or substantially all of its assets to
any Person or group of affiliated Persons unless (a) either (i) the Company
shall be the continuing entity, or (ii) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or the Person
that acquires by sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the assets of the Company (the
"Surviving Entity") is organized under the laws of the United States or a state
thereof or the District of Columbia and such Surviving Entity assumes by
supplemental indenture, executed and delivered to the Trustee in form reasonably
satisfactory to the Trustee, all obligations of the Company on the Notes and
under the Indenture, (b) immediately after giving effect to such transaction or
series of transactions, no Default or Event of Default shall have occurred and
be continuing; (c) the Company or the Surviving Entity, as applicable, could
incur at least $1.00 of additional Indebtedness without violating the Leverage
Ratio described above under "Limitation on Indebtedness;" and (d) the Company or
the Surviving Entity, as applicable, shall have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officer's certificate and an opinion of counsel, each to the effect
that such consolidation, merger, sale, assignment, conveyance, transfer, lease
or other disposition and the supplemental indenture in respect thereto comply
with the Indenture and that all conditions precedent provided for relating to
such transaction have been complied with.
Modification of the Indenture; Waiver of Covenants
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of greater than 50% in aggregate
principal amount of the Notes then outstanding;
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provided, however, that no such modification or amendment may, without the
consent of the Holder of each outstanding Note affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of principal of or
interest on, any Note or reduce the principal amount thereof, premium, if any,
or the rate of interest thereon, or change the coin or currency in which any
Note or any premium or the interest thereon is payable or impair the right to
institute suit for the enforcement of any such payment after the Stated Maturity
thereof; (ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment or
modification, or the consent of whose Holders is required for any waiver; (iii)
modify any of the provisions relating to supplemental indentures requiring the
consent of Holders or relating to the waiver of past defaults or relating to the
waiver of certain covenants, except to increase the percentage in principal
amount of outstanding Notes required for such action or to provide that certain
other provisions of the Indenture may not be modified or waived without the
consent of the Holder of each Note affected thereby; or (iv) waive a default in
payment with respect to any Note (other than a default in payment that is due
solely because of acceleration of the maturity of the Notes).
Notwithstanding the foregoing, without the consent of any Holders of the
Notes, the Company and the Trustee may modify or amend the Indenture (i) to
evidence the succession of another Person to the Company and the assumption by
any such successor of the covenants of the Company in the Indenture and in the
Notes in accordance with the "Merger and Consolidation" provisions of the
Indenture; (ii) to add any additional Events of Default, to add to the covenants
of the Company for the benefit of the Holders of the Notes, or to surrender any
right or power herein conferred upon the Company in the Indenture or in the
Notes; (iii) to cure any ambiguity, to correct or supplement any provision in
the Indenture which may be defective or inconsistent with any other provision in
the Indenture or in the Notes, provided that any such action shall not adversely
affect in any material respect the interests of any Holder of any Note; (iv) to
secure the Notes or add a guarantor under the Indenture pursuant to the
provisions of the covenant on "Limitations on Liens and Guarantees" described
above; (v) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or (vi) to make any other provisions with
respect to matters or questions arising under the Indenture or the Notes,
provided that such provisions shall not adversely affect in any material respect
the interests of any Holder of any Note.
The Holders of greater than 50% in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Events of Default
An Event of Default is defined in the Indenture to include:
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(i) failure by the Company to pay interest on any Note when
due and payable, if such failure continues for a period of
30 days;
(ii) failure by the Company to pay the principal on any Note
when due and payable at maturity or upon redemption,
acceleration or otherwise;
(iii) failure by the Company to comply with any other agreement
or covenant contained in the Indenture if such failure
continues for a period of 30 days after notice to the
Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the
Notes then outstanding;
(iv) indebtedness of the Company or any Subsidiary of the
Company is not paid within any applicable grace period
after final maturity or in the event that final maturity
is accelerated because of a default and, in either case,
the total amount of such indebtedness unpaid or
accelerated is equal to or greater than 5% of the
Company's Consolidated Net Worth at the quarter end
preceding the end of such grace period or such
acceleration;
(v) occurrence of certain events of bankruptcy or insolvency
of the Company or any Significant Subsidiary; and
(vi) existence of one or more judgments against the Company or
any Subsidiary which remain undischarged 60 days after all
rights to directly review such judgment, whether by appeal
or writ, have been exhausted or have expired which are in
excess, either individually or in the aggregate, of 5% of
the Company's Consolidated Net Worth as of the quarter end
preceding the end of such 60-day period.
The Company has agreed in the Indenture to file annually with the Trustee a
statement regarding compliance by the Company with the terms of the Indenture
and specifying any defaults of which the signers may have knowledge.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Notes then outstanding may
declare all the Notes to be immediately due and payable by notice to the Company
(and to the Trustee if given by the Holders). Under certain circumstances, the
Holders of a majority in principal amount of the Notes then outstanding may
rescind such a declaration.
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Provision of Reports
The Company will furnish to the Holders of Notes, upon request, whether or
not required by the rules and regulations of the Commission, (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Form 10-Q and Form 10-K if the Company was
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its Subsidiaries, and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants, and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if the Company were required to file
such reports.
Defeasance or Covenant Defeasance of the Indenture
The Company may, at its option and at any time, elect to have its
obligations and the obligations of any of its Subsidiaries with respect to the
outstanding Notes discharged ("defeasance"). Such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due and certain
provisions of the Indenture with respect to the registration and transfer of the
Notes. In addition, the Company may, at its option and at any time, elect to
have its obligations and the obligations of any of its Subsidiaries with respect
to certain covenants described in the Indenture released ("covenant defeasance")
and thereafter any failure to comply with such covenants shall not constitute a
Default or an Event of Default. In the event of a covenant defeasance, certain
other events (not including prepayment, bankruptcy, receivership or insolvency
events) described under "Events of Default" will no longer constitute a Default
or an Event of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of Notes, cash in United States Dollars, U.S. Government Obligations
(as defined in the Indenture), or a combination thereof (collectively, the
"trust fund"), in such amounts as will be sufficient (without considering any
reinvestment of amounts earned on such U.S. Government Obligations), in the
opinion of a nationally recognized firm of independent public accountants, to
pay and discharge interest on the outstanding Notes as it becomes due and to pay
and discharge the principal of and premium, if any, on the outstanding Notes at
redemption or maturity; (ii) in the case of defeasance, the Company must deliver
to the Trustee an opinion of independent counsel in the United States stating
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
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has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel in the United States
shall confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company must
deliver to the Trustee an opinion of independent counsel in the United States to
the effect that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (iv) no Default or Event of Default may have
occurred and be continuing on the date of such deposit and after giving effect
thereto; (v) such defeasance or covenant defeasance may not cause the Trustee
for the Notes to have a conflicting interest with respect to any securities of
the Company; (vi) such defeasance or covenant defeasance may not result in a
breach or violation of, or constitute a Default under, the Indenture or any
material agreement or instrument to which the Company is a party or by which it
is bound; (vii) the Company must deliver to the Trustee an opinion of
independent counsel in the United States to the effect that the trust fund will
not be subject to the effect of any applicable bankruptcy, insolvency,
receivership, conservatorship, reorganization or similar laws affecting
creditors' rights generally (including, without limitation, fraudulent and
avoidable transfers); (viii) the Company must deliver to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of the Notes over the other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company; (ix) no event or condition may exist that would
prevent the Company from making payments of the principal of, premium, if any,
and interest on the Notes, on the date of such deposit; and (x) the Company must
deliver to the Trustee an officers' certificate and an opinion of independent
counsel in the United States, each stating that all conditions precedent
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of any Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable, or will become due and
payable or are to be called for redemption within one year, and the Company has
irrevocably deposited or caused to be deposited with the
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Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, and premium, if any, and interest on the Notes
to the date of deposit together with irrevocable instructions to the Trustee
from the Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
each stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
Trustee
The Bank of New York, the Trustee under the Indenture, may from time to
time enter into ordinary correspondent and other banking relationships with the
Company. The address of the principal corporate trust office of the Trustee is
101 Barclay Street - 21W, New York, New York 10286.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary of or is merged with or into any other
Person or (ii) assumed in connection with the acquisition of assets from such
Person, in each case, other than Indebtedness incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of such other Person or such
acquisition. Acquired Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from such Person or the date such Person
becomes a Subsidiary of or is merged with or into such other Person.
"Additional Interest" means any penalty associated with the registration
of the Old Notes pursuant to the Registration Rights Agreement and the interest,
if any, that shall accrue on any interest on the Old Notes the payment of which
has not been made on the applicable Interest Payment Date and which shall accrue
at the rate per annum specified or determined as specified in such Old Notes.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly Controlling or Controlled by or under direct or indirect
common Control with such specified Person and any legal or beneficial owner,
directly or indirectly, of 20% or more of the Voting Stock of such specified
Person. Notwithstanding the foregoing, no Securitization Entity shall be deemed
an Affiliate of the Company.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Capital Lease Obligation" of any Person means any obligations of such
Person under any capital lease for real or personal property
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which, in accordance with GAAP, is required to be recorded as a capitalized
lease obligation; and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents or interests
in (however designated) capital stock in such Person, including, with respect to
a corporation, common stock, Preferred Stock and other corporate stock and, with
respect to a partnership, partnership interests, whether general or limited, and
any rights (other than debt securities convertible into corporate stock,
partnership interests or other capital stock), warrants or options exchangeable
for or convertible into such corporate stock, partnership interests or other
capital stock.
"Change of Control Event" means an event or series of events by
which
(a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than
the Existing Management Group, is or becomes after the
date of issuance of the Notes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act
as in effect on the date of the Indenture), of more than
40% of the total voting power of all Voting Stock of the
Company then outstanding;
(b) (1) another corporation merges into the Company
or the Company consolidates with or merges into
any other corporation, or
(2) the Company conveys, transfers or leases all or
substantially all its assets to any person or
group, in one transaction or a series of
transactions other than any conveyance, transfer
or lease between the Company and a Wholly-Owned
Subsidiary of the Company, and, in the case of
each of clause (1) and clause (2), with the
effect that a person or group, other than the
Existing Management Group, is or becomes the
beneficial owner of more than 40% of the total
voting power of all Voting Stock of the surviving
or transferee corporation of such transaction or
series of transactions;
(c) during any period of two consecutive years, individuals
who at the beginning of such period constituted the
Company's Board of Directors, or whose nomination for
election by the Company's shareholders was approved by a
vote of a majority of the directors then still in office
who were either directors at the beginning of such period
or whose election or nomination for election was
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previously so approved, cease for any reason to
constitute a majority of the directors then in office; or
(d) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the
Company.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person for such period on a consolidated basis and otherwise
determined in accordance with GAAP.
"Consolidated Net Assets" of any Person as of any date means the total
amount of assets of such Person and its Subsidiaries (less applicable reserves)
on a consolidated basis at the end of the fiscal quarter immediately preceding
such date for which financial information is available, as determined in
accordance with GAAP.
"Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated Net Income (Loss) of such Person for such period plus (a)
provision for taxes based on income or profits of such Person for such period
deducted in computing Consolidated Net Income (Loss) plus (b) Consolidated
Interest Expense of such Person for such period, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income (Loss), plus (d) without duplication, any other non-cash
charges reducing Consolidated Net Income (Loss) of such Person for such period
less (e) without duplication, non-cash items increasing Consolidated Net Income
(Loss) of such Person for such period in each case, on a consolidated basis for
such Person in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum
of: (a) consolidated interest expense of such Person for such period, other than
interest expense on Permitted Acquisition Indebtedness and Permitted Repurchase
Facilities, whether paid or accrued (except to the extent accrued in a prior
period), to the extent such expense was deducted in computing Consolidated Net
Income (Loss) (including amortization of original issue discount, non-cash
interest payments and the interest component of Capitalized Lease Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person for such period, whether paid or accrued, to
the extent such expense was deducted in computing Consolidated Net Income
(Loss).
"Consolidated Net Income (Loss)" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income (loss), by excluding, without
duplication, (i) the portion of net income (or loss) of any other Person (other
than any of such Person's consolidated Subsidiaries) in which such Person or any
of its
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Subsidiaries has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to such Person or its
consolidated Subsidiaries in cash by such other Person during such period, (ii)
net income (or loss) of any Person combined with such Person or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (iii) any gain or loss, net of taxes, realized upon
the termination of any employee pension benefit plan and (iv) solely for the
purpose of determining Consolidated Net Income (Loss) in connection with the
calculation of Restricted Payments permitted to be made hereunder, the net
income of any consolidated Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that income is not at the time permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Subsidiary or its shareholders; provided that, upon the termination or
expiration of such dividend or distribution restrictions, the portion of net
income (or loss) of such consolidated Subsidiary allocable to such Person and
previously excluded shall be added to the Consolidated Net Income (Loss) of such
Person to the extent of the amount of dividends or other distributions available
to be paid to such Person in cash by such Subsidiary.
"Consolidated Net Worth" of any Person and its Subsidiaries mean as of the
date of determination all amounts that would be included under stockholders'
equity on a consolidated balance sheet of such Person and its Subsidiaries
determined in accordance with GAAP.
"Control" when used with respect to any specified Person means the power
to direct the management and policies of such Person directly or indirectly,
whether through ownership of voting securities (or pledge of voting securities
if the pledgee thereof may on the date of determination exercise or control the
exercise of the voting rights of the owner of such voting securities), by
contract or otherwise; and the terms "to Control," "Controlling" and
"Controlled" have meanings correlative to the foregoing.
"Credit Support" means credit support designed to enhance the likelihood
of payment on securities issued in connection with a securitization of loans or
other assets which are generally funded with the proceeds of such
securitization, including without limitation subordination of certain classes of
securities, insurance policies, representations and warranties, reserve funds,
liquidity reserves, lost- and missing- note reserves, letters of credit.
"Default" means an event or condition the occurrence of which would, with
the lapse of time or the giving of notice or both, become an Event of Default.
"Disqualified Capital Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or
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exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part on, or prior to, or is
exchangeable for debt securities of the Company or its Subsidiaries prior to,
the final Stated Maturity of principal of the Notes; provided that only the
amount of such Capital Stock that is redeemable prior to the Stated Maturity of
principal of the Notes shall be deemed to be Disqualified Capital Stock.
"Disinterested Director" of any Person means, with respect to any
transaction or series of related transactions, a member of the board of
directors of such Person who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of related
transactions.
"Existing Management Group" means, a majority of the executive officers of
the Company as of the date of the Indenture (see "Management"), members of their
immediate families, certain trusts for their benefit, and legal representatives
of, or heirs, beneficiaries or legatees receiving Common Stock (or securities
convertible or exchangeable for Common Stock) under any such person's estate.
"Fair Market Value" means, with respect to any asset, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any asset or assets shall be determined by the Board of Directors of
the Company, acting in good faith, and shall be evidenced by a resolution of
such Board of Directors delivered to the Trustee.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) Consolidated Interest Expense of such Person for such period, and (ii)
the product of (a) all cash dividend payments on any series of Preferred Stock
or Disqualified Capital Stock of such Person or its Subsidiaries for such
period, and (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then-current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles.
"Guaranteed Indebtedness" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the Holder of such Indebtedness against
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loss, (iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered), (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor, or (v) otherwise
to assure a creditor with respect to Indebtedness against loss; provided that
the term shall not include endorsements for collection of deposit, in either
case in the ordinary course of business.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement.
"Holders" means the registered holders of the Notes.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
and in connection with any agreement by such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
Person now or hereafter outstanding, (ii) all obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, but excluding trade payables arising in the ordinary course of business,
(iv) all obligations under Interest Rate Agreements of such Person, (v) all
Capital Lease Obligations of such Person, (vi) all Indebtedness referred to in
clauses (i) through (v) above of other Persons and all dividends payable by
other Persons, the payment of which is secured by (or for which the Holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligations being deemed to be the lesser of the value of such property or
asset or the amount of the obligations so secured), (vii) all guarantees by such
Person of Guaranteed Indebtedness, (viii) all Disqualified Capital Stock (valued
at the greater of book value and voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends) of such Person, and (ix) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing or any liability of the types referred to in clauses (i) through
(viii) above. For purposes hereof, (x) the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date
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on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value is to be
determined in good faith by the board of directors (or any duly authorized
committee thereof) of the issuer of such Disqualified Capital Stock, and (y)
Indebtedness is deemed to be incurred pursuant to a revolving credit facility
each time an advance is made thereunder.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Company or any Subsidiary
against fluctuations in interest rates.
"Junior Indebtedness" means any Indebtedness of the Company subordinated in
right of payment of either principal, premium (if any) or interest thereon to
the New Notes.
"Leverage Ratio" as of any date of determination means the ratio of (i)
the aggregate amount of all Indebtedness and Disqualified Capital Stock of the
Company, excluding (a) Indebtedness and Guarantees thereof permitted to be
incurred pursuant to clauses (d)(1), (2), (3), (4), (6) and (7) of "Certain
Covenants--Limitation on Indebtedness," (b) Hedging Obligations permitted to be
incurred pursuant to clause (e)(11) of the covenant described under "Certain
Covenants--Limitation on Indebtedness" and (c) Junior Indebtedness of the
Company to (ii) the Consolidated Net Worth of the Company.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Liquid Assets" shall include: (i) cash; (ii) any of the following
instruments that have a remaining term to maturity not in excess of 90 days from
the determination date: (a) repurchase agreements on obligations of, or are
guaranteed as to timely receipt of principal and interest by, the United States
or any agency or instrumentality thereof when such obligations are backed by the
full faith and credit of the United States provided that the party agreeing to
repurchase such obligations is a primary dealer in United States government
securities, (b) federal funds and deposit accounts, including but not limited to
certificates of deposit, time deposits and bankers' acceptances of any United
States depository institution or trust company incorporated under the laws of
the United States or any state, provided that the debt of such depository
institution or trust company at the date of acquisition thereof has been rated
by Standard & Poor's Corporation in the highest short-term rating category or
has an equivalent rating from another nationally recognized rating agency, or
(c) commercial paper of any corporation incorporated under the laws of the
United States or any state thereof that on the date of acquisition is rated
investment grade by Standard & Poor's Corporation or has an
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equivalent rating from another nationally recognized rating agency; (iii) any
debt instrument which is an obligation of, or is guaranteed as to the receipt of
principal and interest by the United States, its agencies or any U.S. government
sponsored enterprise, or (iv) any mortgage-backed or mortgage- related security
issued by the United States, its agencies, or any United States government
sponsored enterprise which the payment of principal and interest from the
mortgages underlying such securities will be passed through to the Holder
thereof and which such security has a remaining weighted average maturity of 15
years or less. Notwithstanding the foregoing, Liquid Assets shall not include
any debt instruments, securities or collateralized mortgage obligations (real
estate mortgage investment conduits) that would be classified as a "High-Risk
Mortgage Security" pursuant to the policy statement adopted by the Federal
Financial Institutions Examination Counsel on February 10, 1992, as reflected in
Volume I of the Federal Reserve Report Service, Part 3-1562.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, or options, warrants or rights to purchase Capital Stock, or debt
securities or Capital Stock that have been converted into or exchanged for
Capital Stock, or any capital contribution in respect of Capital Stock, as
referred to under "Certain Covenants, Limitation on Restricted Payments," the
proceeds of such issuance or sale or capital contribution in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed for, cash
or cash equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company), net of
attorney's fees, accountant's fees and brokerage, consulting, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale or capital contribution and net of taxes paid or payable by the Company as
a result thereof.
"Non-Recourse Indebtedness" is defined to mean, with respect to any
Person, Indebtedness of such Person for which (i) the sole recourse (excluding
certain exceptions relating to fraud, intentional misrepresentation, proceeds of
the assets, environmental liabilities and similar matters customary in
non-recourse indebtedness) for collection of principal and interest on such
Indebtedness is against the specific assets identified in the instruments
evidencing or securing such Indebtedness, (ii) such assets were acquired with
the proceeds of such Indebtedness or such Indebtedness was incurred concurrently
with the acquisition of such assets; and (iii) no other assets (other than
Credit Support) of such Person or of any other Person may be realized upon or in
collection of principal or interest on such Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment of principal, premium (if any) and interest
thereon to the Notes.
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"Permitted Acquisition Indebtedness" means any secured funding arrangement
with a financial institution or other lender to the extent (and only to the
extent) funding thereunder is used exclusively to finance or refinance the
purchase or origination of loans, real estate owned, equipment leases or other
assets by the Company or a Subsidiary, or to provide financing subsequent to
such purchase or origination.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings instituted and diligently conducted and for which
a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens imposed by law and arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made, (iii) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, surety and appeal bonds, progress
payments, development obligations, government contracts, performance and
return-of-money bonds and other obligations of a similar nature, in each case
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money or otherwise constituting a liability in accordance
with GAAP); (v) with respect to property of the Company or any Subsidiary, Liens
granted on such property or assets in favor of the Person from whom the Company
or such Subsidiary acquired such property or assets which Liens secure the
payment of a contingent portion of the purchase price of such property so long
as such Liens are granted and such arrangement is entered into in the ordinary
course of business of the Company; (vi) attachment or judgment Liens not giving
rise to a Default or Event of Default and which are being contested in good
faith by appropriate proceedings; (vii) easements, rights-of-way, restrictions,
homeowners association assessments and similar charges or encumbrances that do
not materially interfere with the ordinary course of business of the Company or
any of its Subsidiaries; (viii) zoning restrictions, licenses, restrictions on
the use of real property or minor irregularities in title thereto, which do not
materially impair the use of such property in the ordinary course of business of
the Company or any Subsidiary or the value of such real property for the purpose
of such business; (ix) Liens in favor of the Company or any Subsidiary that is a
Wholly Owned Subsidiary of the Company; (x) Liens existing on the Closing Date;
(xi) Liens securing Non-Recourse Indebtedness of the Company or a Subsidiary
thereof; (xii) Liens with respect to the property or assets of the Company or a
Subsidiary securing Indebtedness permitted to be
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incurred pursuant to clauses (d)(1), (2), (3), (4), (6) and (7) of "Certain
Covenants-- Limitations on Indebtedness," above; (xiii) Liens granted after the
Closing Date on any assets or Capital Stock of the Company or its Subsidiaries
created in favor of the Holders; (xiv) Liens with respect to the property or
assets of a Subsidiary granted by such Subsidiary to the Company to secure
Indebtedness owing to the Company; (xv) Liens securing Indebtedness which is
incurred to refinance Permitted Indebtedness, provided that such Liens
constitute Permitted Liens under this clause (xvi) Liens only to the extent that
they do not extend to or cover any property or assets of the Company or any
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (xvii) leases or subleases granted to others not materially
interfering with the ordinary course of business of the Company or any of its
Subsidiaries; (xviii) other Liens securing obligations not exceeding $1,000,000;
and (xix) Liens securing Hedging Obligations of the Company or such Subsidiary
so long as such Hedging Obligations relate to Indebtedness that is, and is
permitted under the Indenture to be, secured by a Lien on the same property
securing such Hedging Obligations.
"Permitted Payment" means, so long as no Default or Event of Default is
continuing,
(a) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Capital Stock of the
Company or any Affiliate (other than a Wholly-Owned
Subsidiary) of the Company, Junior Indebtedness or Pari
Passu Indebtedness in exchange for (including any such
exchange pursuant to the exercise of a conversion right
or privilege where, in connection therewith, cash is paid
in lieu of the issuance of fractional shares or scrip),
or out of the Net Cash Proceeds or Fair Market Value of
property not constituting Net Cash Proceeds of, a
substantially concurrent issue and sale (other than to a
Subsidiary of the Company or to an employee benefit plan
of the Company or any of its Subsidiaries) of Qualified
Capital Stock of the Company; provided that the Net Cash
Proceeds or Fair Market Value of such property received
by the Company from the issuance of such shares of
Qualified Capital Stock, to the extent so utilized, shall
be excluded from clause (d)(iii) of the covenant
described under "Covenants -Limitation on Restricted
Payments" above; and
(b) the repurchase, redemption, defeasance or other
acquisition or retirement for value of any Junior
Indebtedness or Pari Passu Indebtedness in exchange for,
or out of the Net Cash Proceeds of, a substantially
concurrent issue and sale (other than to a Subsidiary of
the Company) of new Indebtedness by the Company (such a
transaction, a "refinancing"); provided, that any such
new Indebtedness of the Company (i) shall be in a
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principal amount that does not exceed an amount equal to
the sum of (A) the principal amount of the Indebtedness so
refinanced and accrued but unpaid interest thereon less
any discount from the face amount of such Indebtedness to
be refinanced expected to be deducted from the amount
payable to the holders of such Indebtedness in connection
with such refinancing, (B) the amount of any premium
expected to be paid in connection with such refinancing
pursuant to the terms of the Junior Indebtedness or Pari
Passu Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer,
privately negotiated repurchase or otherwise and (C) the
amount of legal, accounting, printing and other similar
expenses of the Company incurred in connection with such
refinancing; provided, further, that for purposes of this
clause (i), the principal amount of any Indebtedness shall
be deemed to mean the principal amount thereof or, if such
Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as
of the date of determination; (ii) (A) if such refinanced
Indebtedness has an Average Life to Stated Maturity
shorter than that of the Notes or a final Stated Maturity
earlier than the final Stated Maturity of the New Notes,
such new Indebtedness shall have an Average Life to Stated
Maturity no shorter than the Average Life to Stated
Maturity of such refinanced Indebtedness and a final
Stated Maturity no earlier than the final Stated Maturity
of such refinanced Indebtedness or (B) in all other cases
each Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund
payments) of such new Indebtedness shall be after the
final Stated Maturity of principal of the New Notes; and
(iii) is (A) made expressly subordinated to or pari passu
with the New Notes to substantially the same extent as the
Indebtedness being refinanced or (B) expressly subordinate
to such refinanced Indebtedness.
"Permitted Repurchase Facilities" includes purchase and sale facilities
pursuant to which the Company or a Subsidiary sells loans, real estate owned or
other financial assets to a financial institution or other entity and agrees to
repurchase such loans, real estate owned or financial assets.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
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"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary liquidation or dissolution of such Person, over Capital Stock of any
other class in such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Reference Period" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the New Notes or the
Indenture for which financial information is available.
"Restricted Payment" means
(a) the declaration, payment or setting apart of any funds
for the payment of any dividend on, or making of any
distribution to holders of, the Capital Stock of the
Company or any Subsidiary of the Company (other than (i)
dividends or distributions in Qualified Capital Stock of
the Company and (ii) dividends or distributions payable
on or in respect of any class or series of Capital Stock
of a Subsidiary of the Company as long as the Company
receives at least its pro rata share of such dividends or
distributions in accordance with its ownership interests
in such class or series of Capital Stock);
(b) the purchase, redemption or other acquisition or
retirement for value, directly or indirectly, of any
Capital Stock of the Company or any Affiliate of the
Company (other than a Wholly-Owned Subsidiary, and other
than the purchase from a non-Affiliate of the Company of
Capital Stock of any joint venture or other Person which
is an Affiliate of the Company solely because of the
Company's direct or indirect ownership of 20% or more of
the Voting Stock of such joint venture or other Person)
except such as shall constitute a Permitted Payment; or
(c) the making of any principal payments on, or repurchase,
redemption, defeasance, retirement or other acquisition
for value, directly or indirectly, of any Junior
Indebtedness or Pari Passu Indebtedness, prior to any
Stated Maturity of principal or scheduled redemption or
defeasance of, or any scheduled sinking fund payment on,
such Junior Indebtedness or Pari Passu Indebtedness,
except such as shall constitute a Permitted Payment.
"Securitization Entity" means any pooling arrangement or entity formed or
originated for the purpose of holding, and/or issuing securities representing
interests in, one or more pools of mortgages,
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leases, credit card receivables, home equity loan receivables, automobile loans,
leases or installment sales contracts, other consumer receivables, real estate
owned or other financial assets of the Company or any Subsidiary, and shall
include, without limitation, any partnership, limited liability company,
liquidating trust, grantor trust, owner trust, real estate mortgage investment
conduit, real estate investment trust or collateralized bond obligation.
"Significant Subsidiary" means any Subsidiary of the Company which
accounted for 15% or more of the Consolidated Net Assets of the Company and its
Subsidiaries as of the end of the fiscal quarter preceding the date of
determination for which financial information is available or Consolidated
EBITDA of the Company and its Subsidiaries for the Reference Period.
"Stated Maturity" when used with respect to any Indebtedness (including,
without limitation, the New Notes) means the dates specified in the instrument
governing such Indebtedness as the fixed dates on which any principal amount of
such Indebtedness is due and payable (including, without limitation, by reason
of any required redemption, purchase, defeasance or sinking fund payment) and,
when used with respect to any installment of interest on Indebtedness, means the
date on which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of Voting Stock thereof is at the time owned or Controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Unsecured Debt Coverage Ratio" means, with respect to any Person for any
period, the ratio of Consolidated EBITDA of such Person for such period to the
Fixed Charges of such Person for such period. In the event that the Company
incurs, assumes, guarantees or redeems any Indebtedness (including any
Indebtedness which constitutes Acquired Indebtedness) subsequent to the
commencement of the period for which the Unsecured Debt Coverage Ratio is being
calculated but prior to the event for which the calculation of the Unsecured
Debt Coverage Ratio is made (the "Calculation Date"), then the Unsecured Debt
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, as if the same had occurred
at the beginning of the applicable four-quarter period, including an assumption
of investment returns at the rate equal to the higher of the six-month Treasury
bill rate or six-month LIBOR at the beginning of such four-quarter period. For
purposes of making the computation referred to above, investments in the equity
of, or other acquisitions or dispositions, which constitute all or substantially
all of an operating unit of a business and discontinued operations (as
determined in accordance with GAAP) that have been made by the Company or any of
its Subsidiaries, including all mergers, consolidations and dispositions, during
the four-quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date shall
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be calculated on a pro forma basis assuming that all such investments,
acquisitions, dispositions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
Consolidated EBITDA resulting therefrom) had occurred on the first day of the
four-quarter period. If since the beginning of such period any Person (that
subsequently became a Subsidiary or was merged with or into the Company or any
Subsidiary since the beginning of such period) shall have made any investment in
the equity of, or other acquisition or disposition, which constitutes all or
substantially all of an operating unit of a business, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Unsecured Debt Coverage Ratio shall be calculated giving
pro forma effect thereto for such period as if such investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period. Interest on a Capital Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capital Lease Obligation in accordance with GAAP.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate.
"Voting Stock" means Capital Stock of the class or classes of which the
holders have (i) in respect of a corporation, the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of such corporation (irrespective of whether or not at the
time Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency) or (ii) in respect of a
partnership, the general voting power under ordinary circumstances to elect the
board of directors or other governing board of such partnership or of the Person
which is a general partner of such partnership.
"Wholly-Owned Subsidiary" means a Subsidiary all of the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly-Owned Subsidiary.
DESCRIPTION OF OLD NOTES
The terms of the Old Notes are identical in all material respects to the
New Notes, except that (i) the Old Notes have not been
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registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the applicable Registration
Rights Agreement (which rights will terminate upon the consummation of this
Exchange Offer, except under limited circumstances); and (ii) the New Notes will
not provide for any increase in the Interest Rate thereon. The Old Notes provide
that, in the event that either (i) the Registration Statement is not filed with
the Commission on or prior to November 15, 1997, (ii) the Registration Statement
is not declared effective on or prior to December 30, 1997 or (iii) the Exchange
Offer is not consummated or a Shelf Registration Statement with respect to the
Old Notes is not declared effective on or prior to February 15, 1998, the
interest rate borne by the Old Notes shall be increased by one-half of one
percent per annum following November 15, 1997 in the case of clause (i) above,
following December 30, 1997 in the case of clause (ii) above, or following
February 15, 1998 in the case of clause (iii) above, which rate will be
increased by an additional one-half of one percent per annum for each 90-day
period that such additional interest continues to accrue. The aggregate amount
of such increase from the original interest rate pursuant to these provisions
will in no event exceed one percent per annum. Upon (x) the filing of the
Registration Statement for the Exchange Offer after November 15, 1997, (y) the
effectiveness of the Registration Statement after December 30, 1998 or (z) the
day before the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after February 15, 1998, the
interest rate borne by the Old Notes from the date of consummation or
effectiveness, as the case may be, will be reduced to the original interest rate
if the Company is otherwise in compliance with such requirements; provided that
if after any such reduction in interest rate, a different event specified in
clause (i), (ii) or (iii) above occurs, the interest rate may again be increased
and thereafter reduced pursuant to the foregoing provisions. The New Notes are
not, and upon consummation of the Exchange Offer the Old Notes will not be,
entitled to any such additional interest. See, "Risk Factors -- Certain
Consequences of a Failure to Exchange Old Notes" and "Description of the New
Notes."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
of the exchange of the Old Notes for the New Notes. This summary does not
address the tax consequences to a person that may be subject to special
treatment under the United States federal income tax law, such as banks,
insurance companies, thrift institutions, regulated investment companies, real
estate investment trusts, tax-exempt organizations, dealers in securities or
currencies, persons that hold the New Notes as part of a position in a
"straddle" or as part of a "hedging, "conversion" or other integrated investment
transaction for federal income tax purposes, persons whose functional currency
is not the United States dollar or persons that do not hold the New Notes as
capital assets.
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The statements of law or legal conclusions set forth in this summary
constitute the opinion of Ledgewood Law Firm, P.C. ("Ledgewood"), tax counsel to
the Company. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of the New
Notes. The authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the exchange of the Old Notes for the New Notes may differ from the
treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE EXCHANGE OF THE OLD NOTES FOR THE NEW NOTES, AS WELL AS THE EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS.
Exchange of Notes
The exchange of Old Notes for New Notes will not be a taxable event to
beneficial owners of the Old Notes for federal income tax purposes. The exchange
of Old Notes for New Notes pursuant to the Exchange Offer will not be treated as
an "exchange" for federal income tax purposes because the New Notes will not
differ materially in kind or extent from the Old Notes and because the exchange
will occur by operation of the terms of the Old Notes. Accordingly, a Holder
will have the same adjusted tax basis and holding period in the New Notes as the
Holder had in the Old Notes immediately before the exchange.
Sales or Redemption of the New Notes
Gain or loss will be recognized by a Holder on a sale of the New Notes
(including a redemption for cash) in an amount equal to the difference between
the amount realized and the Holder's adjusted tax basis in the New Notes (which
will equal the Holder's adjusted tax basis in the Old Notes) sold or so
redeemed. Gain or loss recognized by a Holder on New Notes held for more than
eighteen months (which holding period will include the time during which the
Holder held the Old Notes) will generally be taxable as long-term capital gain
or loss generally subject to a maximum federal income tax rate of 20%. New Notes
held for between twelve and eighteen months will generally be subject to a
maximum federal income tax rate of 28%.
A Holder that disposes of New Notes between record dates for payments of
interest (and consequently does not receive interest from the Company for the
period prior to such disposition) will nevertheless be required to include in
income as ordinary income accrued but unpaid interest on the New Notes through
the date of disposition.
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A Holder will recognize a capital loss on the disposition of New Notes to
the extent the selling price (which may not fully reflect the value of accrued
but unpaid interest) is less than the Holder's adjusted tax basis in the New
Notes (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law: (i) payments by the
Company or any of its paying agents to any Holder who or which is a United
States Alien Holder will not be subject to United States federal withholding
tax; provided, that (a) the Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (b) the Holder is not a controlled foreign corporation
that is related to the Company through stock ownership and (c) either (A) the
Holder certifies to the Company under penalties of perjury, that it is not a
Untied States Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") certifies to the Company, under penalties of perjury, that such
statement has been received from the Holder by it or by a financial Institution
holding such security for the Holder and furnishes the Company with a copy
thereof; and (ii) a United States Alien Holder of a New Note will not be subject
to United States federal withholding tax on any gain realized upon the sale or
other disposition of a New Note.
New Treasury regulations adopted on October 6, 1997 (the "New Regulations")
provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The New Regulations also require, in the case
of New Notes held by a foreign partnership, that (x) the certification described
in clause (i)(c) above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships. The New Regulations are to be effective for
payments made after December 31, 1998.
Backup Withholding
Payments made on, and proceeds from the sale of, New Notes may be subject
to a "backup" withholding tax of 31% unless the Holder
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complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the Holder's United States federal income tax,
provided the required information is provided to the Internal Revenue Service on
a timely basis.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it applies
("Plans") and on those persons who are fiduciaries with respect to such Plans.
Assuming the Old Notes were permitted investments for a Plan, the exchange of
the Old Notes for the New Notes will have no adverse consequences.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Notes for a
period ending 180 days after the Expiration Date (subject to extension under
certain limited circumstances described herein) or, if earlier, when all such
New Notes have been disposed of by such Participating Broker-Dealer. See "The
Exchange Offer--Resales of New Notes." The Company will not receive any cash
from proceeds from the issuance of the New Notes offered hereby. New Notes
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account in connection with the Exchange Offer
and any broker or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act,
and any profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to
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admit that it is an "underwriter" within the meaning of the Securities Act.
VALIDITY OF THE NEW NOTES
Certain matters of Delaware law relating to the validity of the New Notes
and the enforceability of the Indenture and certain matters relating to federal
income taxation will be passed upon by Ledgewood Law Firm, P.C., counsel to the
Company.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of the Company for the year ended
September 30, 1996 have been so incorporated in reliance on the report of Grant
Thornton LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
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<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's By-laws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, or otherwise, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Company maintains directors' and officers' liability insurance against
any actual or alleged error, misstatement, misleading statement, act, omission,
neglect or breach of duty by any director or officer, excluding certain matters
including fraudulent, dishonest or criminal acts or self-dealing.
Item 21. Exhibits and Financial Statement Schedules.
a. Exhibits.
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23. Consent of Grant Thornton LLP.
25. Statement of Eligibility of Trustee.
- --------------------
* Exhibit 3(a) appears as an exhibit to registrant's Annual Report on Form 10-K
("10-K Report") for its 1983 fiscal year and in its definitive proxy statement
for its September 9, 1996 Special Meeting of Shareholders; Exhibit 3(b) appears
as an exhibit to registrant's 10-K Report for its 1984 fiscal year; Exhibits
10(d), 10(g) and 10(m) appear as exhibits to registrant's 10-Q Report for the
quarter ended March 31, 1997; Exhibits 10(e) and 10(f) appear as exhibits to
registrant's 10-K Report for its 1996 fiscal year; Exhibit 10(h) appears as an
exhibit to registrant's 10-K Report for its 1984 fiscal year; Exhibits 10(i),
10(j), 10(k) and 10(l) appear as exhibits to registrant's 10-K Report for its
1995 fiscal year; Exhibit 10(m) appears as an exhibit to registrant's 10-K
Report for its 1989 fiscal year; Exhibits 11 and 21 appear as exhibits to
registrant's November, 1996 registration statement on Form S-1.
Item 22. Undertakings.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on December 19, 1997.
RESOURCE AMERICA, INC.
By: /s/ Edward E. Cohen
-----------------------------
Edward E. Cohen, Chairman of
the Board of Directors, Chief
Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Edward E. Cohen Date: December 19, 1997
- ---------------------------------
EDWARD E. COHEN, Chairman of the
Board of Directors, Chief
Executive Officer, President and
Director
(Chief Executive Officer)
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE>
/s/ Carlos C. Campbell Date: December 19, 1997
- ---------------------------------
CARLOS C. CAMPBELL, Director
/s/ Daniel G. Cohen Date: December 19, 1997
- ---------------------------------
DANIEL G. COHEN, Executive Vice
President and Director
/s/ Andrew M. Lubin Date: December 19, 1997
- ---------------------------------
ANDREW M. LUBIN, Director
/s/ Scott F. Schaeffer Date: December 19, 1997
- ---------------------------------
SCOTT F. SCHAEFFER, Executive Vice
President and Director
/s/ Alan D. Schrieber Date: December 19, 1997
- ---------------------------------
ALAN D. SCHREIBER, M.D., Director
/s/ Michael L. Staines Date: December 19, 1997
- ---------------------------------
MICHAEL L. STAINES, Senior Vice
President, Secretary and
Director
/s/ John S. White Date: December 19, 1997
- ---------------------------------
JOHN S. WHITE, Director
/s/ Steven Kessler Date: December 19, 1997
- ---------------------------------
STEVEN J. KESSLER, Senior Vice
President-Finance and Chief
Financial Officer
/s/ Nancy J. McGurk Date: December 19, 1997
- ---------------------------------
NANCY J. MCGURK, Vice President-
Finance
(Chief Accounting Officer)
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
By: /s/ Edward E. Cohen
---------------------------
Edward E. Cohen
Edward E. Cohen, as attorney-in-fact
for each such person pursuant to power of
attorney heretofore filed as part of this
Registration Statement
By: /s/ Michael L. Staines
---------------------------
Michael L. Staines
Michael L. Staines, as attorney-in-fact
for each such person pursuant to power of
attorney heretofore filed as part of this
Registration Statement
<PAGE>
Exhibit 23
CONSENT OF GRANT THORNTON LLP
We have issued our report dated November 6, 1997 accompanying the consolidated
financial statements of Resource America, Inc. and subsidiaries appearing in the
Annual Report on Form 10-K for the year ended September 30, 1997 which are
incorporated by reference in this Registration Statement. We consent to the
incorporation by reference in the Registration Statement of the aforementioned
reports and to the use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
--------------------------
GRANT THORNTON LLP
Cleveland, Ohio
December 18, 1997
<PAGE>
CONFORMED COPY
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
RESOURCE AMERICA, INC.
(Exact name of obligor as specified in its charter)
Delaware 72-0654145
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1521 Locust Street
Philadelphia, Pennsylvania 19102
(Address of principal executive offices) (Zip code)
----------------------
12% Senior Notes due 2004
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Washington, D.C. 20429
Corporation
New York Clearing House New York, New York 10005
Association
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
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<PAGE>
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 8th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ Thomas E. Tabor
----------------------------
Name: Thomas E. Tabor
Title: Assistant Treasurer
-4-
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin ................................ $ 7,769,502
Interest-bearing balances ........................ 1,472,524
Securities:
Held-to-maturity securities ...................... 1,080,234
Available-for-sale securities .................... 3,046,199
Federal funds sold and Securities
purchased under agreements to resell.............. 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned
income ......................................... 35,352,045
LESS: Allowance for loan and
lease losses ................................... 625,042
LESS: Allocated transfer risk
reserve ........................................ 429
Loans and leases, net of unearned
income, allowance, and reserve ................. 34,726,574
Assets held in trading accounts .................... 1,611,096
Premises and fixed assets (including
capitalized leases) .............................. 676,729
Other real estate owned ............................ 22,460
Investments in unconsolidated
subsidiaries and associated
companies ........................................ 209,959
Customers' liability to this bank on
acceptances outstanding .......................... 1,357,731
Intangible assets .................................. 720,883
Other assets ....................................... 1,627,267
------------
Total assets ....................................... $ 57,514,958
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LIABILITIES
Deposits:
In domestic offices .............................. $ 26,875,596
Noninterest-bearing .............................. 11,213,657
Interest-bearing ................................. 15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ................. 16,334,270
Noninterest-bearing .............................. 596,369
Interest-bearing ................................. 15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase .............. 1,583,157
Demand notes issued to the U.S. ....................
Treasury ......................................... 303,000
Trading liabilities ................................ 1,308,173
Other borrowed money:
With remaining maturity of one year
or less ........................................ 2,383,570
With remaining maturity of more than
one year through three years ................... 0
With remaining maturity of more than
three years .................................... 20,679
Bank's liability on acceptances
executed and outstanding ......................... 1,377,244
Subordinated notes and debentures .................. 1,018,940
Other liabilities .................................. 1,732,792
------------
Total liabilities .................................. 52,937,421
------------
EQUITY CAPITAL
Common stock ....................................... 1,135,284
Surplus ............................................ 731,319
Undivided profits and capital
reserves ......................................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ....................................... 1,948
Cumulative foreign currency
translation adjustments ......................... (12,272)
------------
Total equity capital ............................... 4,577,537
------------
Total liabilities and equity
capital .......................................... $ 57,514,958
============
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I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi |
J. Carter Bacot | Directors
Alan R. Griffith |
