As filed with the Securities and Exchange Commission on August 13, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CREDIT DEPOT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-1909265
(State or other jurisdiction (I.R.S. employer
of organization) identification no.)
700 Wachovia Center
Gainesville, Georgia 30501
(770) 531-9927
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
Gerald F. Sullivan, President,
Chief Executive Officer and Director
Credit Depot Corporation
700 Wachovia Center
Gainesville, Georgia 30501
(770) 531-9927
(Name, address, including zip code, and telephone number
including area code, of agent for service)
Copies to:
Steven A. Fishman, Esq.
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
(212) 687-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _____
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to Proposed Maximum
Securities to be Registered be Registered (1) Offering Price Per Unit (2)
Fee
- ------------------------------------------------------------------------------
Common Stock, $.001 par
value/share 10,505,718 $3.0625
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price (2) Registration
Fee
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Common Stock, $.001 par
value/share $32,173,761 $11,094.40
(1) Pursuant to Rule 416 promulgated under the Securities Act of
1933, as amended, there are also being registered such additional shares of
Common Stock as may become issuable pursuant to the anti-dilution provisions.
(2) Based on the average of the high and low price of the Common
Stock as reported on the Nasdaq stock market on August 7, 1996.
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 1993 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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Subject to Completion, dated __________, 1996
PROSPECTUS
CREDIT DEPOT CORPORATION
10,505,718 shares of Common Stock
This Prospectus relates to the public offering of up to 10,505,718
shares of Common Stock, $.001 par value (the "Common Stock") by the holders
thereof (the "Selling Stockholders"). The Common Stock offered by the Selling
Stockholders hereunder are issuable upon conversion or exercise of currently
outstanding shares of 9% Convertible Preferred Stock (the "Preferred Stock"),
Convertible Secured Notes due June 30, 2001 (the "Convertible Secured Notes"), a
convertible warehouse line of credit, convertible mortgage loan participations
(the "Participations") and warrants to purchase Common Stock. See "Selling
Stockholders" herein. The Selling Stockholders directly, through agents
designated from time to time, or through dealers or underwriters also to be
designated, may sell the Common Stock from time to time on terms to be
determined at the time of sale. To the extent required, the specific Common
Stock to be sold, names of the Selling Stockholders, purchase price, public
offering price, the names of any such agent, dealer or underwriter, and any
applicable commission or discount with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement. See "Plan of Distribution."
The Selling Stockholders and any broker-dealer, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act and any commission received by them and any profit on the resale of the
Common Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" herein for
indemnification arrangements.
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
NOR 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 _______, 1996
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The Common Stock of the Company is traded in the over-the-counter
market and is quoted through the National Association of Securities Dealers
Automated Quotation Systems Small-Cap Market ("Nasdaq"). The last sale price of
the Company's Common Stock as reported by Nasdaq on August 7, 1996 was $3.125
per share.
The Company is paying all the expenses of registering the Common Stock
under the Securities Act (including filing, legal, and miscellaneous expenses in
connection with the registration) which are estimated at $85,000. The Company
will not receive any of the proceeds from any sale of the Common Stock by the
Selling Stockholders. Each of the Selling Stockholders will severally pay or
assume underwriting discounts, brokerage commissions or other charges incurred
in any respective sale by them of the Common Stock.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the Commission's public reference rooms located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed a registration statement on Form S-3 (herein
together with all amendments and exhibits thereto, called the "Registration
Statement") under the Securities Act with respect to the underlying Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in the Prospectus concerning
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such references.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission and are hereby incorporated by reference into this Prospectus:
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(i) the Company's Annual Report on Form 10-KSB for the year ended June
30, 1995 as amended by Form 10KSB/A, including any documents or
portions thereof incorporated by reference therein;
(ii) the Company's Proxy Statement for the annual meeting of December
19, 1995;
(iii)the Company's Quarterly Report on Form 10-QSB for the quarters
ended September 30, 1995, December 31, 1995 and March 31, 1996;
(iv) All other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of this
offering.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained herein, in any supplement or
amendment hereof or in a document all or any portion of which is 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 supplement or amendment hereof modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any supplement or amendment hereof.
Neither the delivery of this Prospectus nor any sale of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or its affiliates since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
Copies of documents incorporated by reference herein are available from
the Company without charge (other than exhibits to such document, unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates) to any person to whom this Prospectus is
delivered, upon written or oral request of such person. Requests for such copies
should be directed to Charles Farrahar, Chief Financial Officer of the Company,
at the Company's offices located at 700 Wachovia Center, Gainesville, Georgia
30501. The Company's telephone number is (770) 531-9927.
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PROSPECTUS SUMMARY
THE COMPANY
Credit Depot Corporation (the "Company") is a mortgage finance company
engaged in originating, purchasing, servicing, and selling first mortgage loans
secured by single family (one to four family) residences made to credit-impaired
individuals who are generally unable to obtain financing from conventional
lending sources. The Company's customers borrow funds generally for debt
consolidation or to refinance first mortgages on the customer's primary
residence. The Company's mortgage loans are at higher interest rates than
conventional mortgage loans, which the Company's customers are willing to incur
because of their inability to obtain financing from conventional sources. While
the typical borrowers from the Company may not have attractive credit histories
due to a pattern of credit weakness, unverifiable income, insufficient credit
history or a previous bankruptcy or insolvency, it is the Company's experience
that these borrowers nevertheless have generally demonstrated an ability to make
payments due under their loans because the loans are secured by first mortgages
on their primary residences, and the Company generally requires that such
borrowers have significant equity in their residences. The Company believes its
underwriting procedures generally enable it to determine which borrowers with
substandard credit histories are likely to meet their mortgage obligations.
The Company believes that the lending practices of conventional
financing sources (such as commercial banks and savings and loan associations)
have made access to credit more difficult for the Company's target customer
base. In addition, the emergence of secondary mortgage markets has resulted in a
reduced willingness on the part of traditional financing sources to offer
mortgages that depart from the strict underwriting and documentation standards
required by government sponsored enterprises such as the Government National
Mortgage Association ("GNMA") and the Federal National Mortgage Association
("FNMA"). The Company believes that the tightening of underwriting guidelines
from traditional financing sources has resulted in a large population of
creditworthy borrowers seeking alternative sources of financing.
Generally, mortgage lenders evaluate a borrower according to four
primary criteria: (i) the ratio of the borrower's debt to his gross income; (ii)
the loan-to-value ratio of the property securing the loan; (iii) the borrower's
credit history; and (iv) the responses to requests for third-party documentation
(such as employment and other verifications and credit references). Although the
Company typically requires that the loan-to-value (as reflected in an appraisal)
ratio for mortgage loans that it originates or acquires be no greater than 80%,
the Company's standards with respect to the other three criteria have been lower
than those typically applied by conventional lenders.
The Company's target customer base consists of homeowners with equity
of at least 20% in their homes (typically with values ranging from $35,000 to
$200,000), a debt-to-gross-income ratio not exceeding 50% (as compared to
approximately 36%, for conventional lenders), and stable employment. During the
fiscal years ended June 30, 1993, 1994 and 1995 and the nine months ended March
31, 1995 and 1996, the Company originated approximately $4,909,000, $15,798,000,
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$29,542,000, $23,320,000 and $26,305,000 of loans, respectively. The average
original principal balance of the loans originated by the Company during the
year ended June 30, 1995, and during the nine months ended March 31, 1996, was
approximately $41,000 and $48,000, respectively, with an average annual interest
rate to the Company of approximately 13.0% and 11.6%, respectively. During the
year ended June 30, 1995, and the nine months ended March 31, 1996,
approximately 93% and 84%, respectively, of the Company's loans originated for
each period had an original principal balance of between approximately $10,000
and $100,000. For the year ended June 30, 1995, and the nine months ended March
31, 1996, the weighted average loan-to-value ratio at the time of origination of
the Company's loans originated during those periods was 70% and 74%,
respectively, and the weighted average debt-to-gross-income ratio for the
Company's borrowers was 35% and 39%, respectively.
Prior to October 1994, substantially all of the mortgage loans
originated by the Company were balloon loans, with periodic payments based
generally on a 15-year amortization schedule and a single payment of the
remaining balance of the balloon loan due five years after origination. In
October 1994, the Company changed its mortgage product line from balloon to
self-amortizing mortgages, and, currently, the loans originated by the Company
are generally for 15- 20- or 30- year terms. In 1995, the Company also began to
originate somewhat higher quality loans (although its target customers remain
credit-impaired borrowers who are unable to obtain loans from conventional
lenders), which results in slightly lower average annual interest rates and
slightly higher loan-to-value ratios. The Company believes that these changes in
the Company's product mix will make its loan portfolio more suitable for sales
to pools which may issue mortgage-backed certificates securitized by these
mortgage loans.
The Company's strategy is to sell the loans originated by it while
retaining the servicing rights. To date, most of these servicing-retained sales
have been made to commercial banks, finance companies and thrift institutions
and to institutional investors. When loans are sold on a servicing-retained
basis, the Company has recognized revenues in the form of "excess servicing
spread" (representing the present value of the difference between the interest
receivable on the mortgage loans sold and the interest payable to the purchasers
of the mortgage loans) and servicing fees. The Company has also sold mortgage
loans on a servicing-released basis where it was necessary to meet its cash
requirements. Sales of loans on this basis have resulted in less total gain to
the Company than the sales on a servicing-retained basis. Most of the sales of
loans made by the Company in fiscal 1995 were made on a servicing-released basis
because of the Company's limited capital. See "Recent Developments."
In March 1996, the Company commenced selling mortgage loans originated
or acquired by it to Access Financial Corporation ("Access"), which will include
mortgage loans in pools to be serviced by Access, interests in which are
intended to be sold to investors in securitization transactions. Through June
30, 1996, the Company has sold approximately $19,322,000 of mortgage loans to
Access. See "Recent Developments". These sales enable the Company to share in
the profits from securitizations, although at lower profit margins than the
Company believes it could receive if the mortgage loans were sold to a mortgage
pool serviced by the Company. The Company's revenues
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on these sales are based on a portion of the spread between the interest
receivable on the mortgage loans and the interest paid to investors in the
mortgage pools.
The Company's long-term strategy is to engage directly in
securitizations by selling mortgage loans originated or acquired by it to
mortgage pools serviced by the Company. The Company will be required to increase
significantly its volume of originations and/or purchases of mortgage loans to
enable it to sell mortgage loans to mortgage pools on a servicing-retained
basis. If it can do so, the Company expects that interests in these pools (which
generally will be in the form of trusts) will be offered as mortgage
pass-through securities, which will be rated by a rating agency and are
generally expected to be insured. There is no assurance that the Company will be
successful in meeting these goals.
Since 1993, the Company has expanded the geographic scope of its
mortgage activities from a single office in Gainesville, Georgia to offices
located in seven additional states (Ohio, South Carolina, Tennessee, Indiana,
Florida, North Carolina and Kentucky) from which mortgage loans are originated.
The Company currently plans to continue to expand geographically by opening
offices with sales representatives, which will not have loan processing
capabilities, in additional states and to have regional processing offices as
required in connection with the growth of the Company.
The Company was incorporated in Delaware in 1990 and is the successor
by merger to a corporation organized in 1986. Unless the context otherwise
requires, reference to the "Company" includes the operations of the Company, its
predecessor and its wholly-owned subsidiaries. The Company's executive offices
are located at Wachovia Center, Suite 700, Gainesville, Georgia 30501, telephone
(770) 531-9927.
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RECENT DEVELOPMENTS
Pursuant to an agreement between the Company and Greenwich Capital
Financial Products, Inc. ("Greenwich") entered into in October 1994, the Company
agreed to offer to Greenwich all mortgage loans originated or acquired by the
Company and Greenwich agreed to purchase all such mortgage loans which meet the
conditions set forth in the Agreement at their fair market value. Pursuant to a
separate agreement, Greenwich provided the Company with a discretionary
repurchase credit facility. The Company has not sold any mortgage loans to
Greenwich or obtained any credit under the repurchase facility since February
1996. Instead, the Company has been selling mortgage loans to Access under the
arrangement set forth below. The repurchase facility has expired.
Certain conditions set forth in a supplement to the Indenture pursuant
to which the Company issued Convertible Subordinated Notes were not met at
December 31, 1995. As a result, pursuant to the terms of the supplement to the
Indenture, $5,550,000 of Convertible Subordinated Notes issued under the
Indenture became due and payable on March 30, 1996. The holders of the
Convertible Subordinated Notes did not take any action to enforce the
Subordinated Notes. In July, 1996, holders of $2,300,000 of the Convertible
Subordinated Notes exchanged their Convertible Subordinated Notes for
indebtedness of the Company pursuant to a convertible secured warehouse line and
the holders of $3,250,000 of the Convertible Subordinated Notes were repaid out
of the proceeds of the private placement of Convertible Secured Notes referred
to below. The indebtedness under the convertible secured warehouse line is
convertible into Common Stock at a conversion price of $2.50 per share subject
to adjustment under certain circumstances.
The Company has entered into an agreement with Access pursuant to which
it has been selling to Access mortgage loans on a servicing-released basis.
Pursuant to the agreement, the Company has entered into two commitments pursuant
to which the Company committed to sell to Access $15,000,000 and $10,000,000,
respectively, of mortgage loans during a stated period. During the period from
March 1996 through June 30, 1996, Access purchased approximately $19,322,000 of
mortgage loans from the Company for inclusion in mortgage loan pools serviced by
Access. $7,612,000 of the proceeds from these sales were used to repay
outstanding indebtedness to Greenwich. The Company retains the credit risk and
the risk of prepayment on mortgage loans sold to Access and has received a
purchase price greater than the Company would have normally received on sales of
mortgage loans on a servicing-released basis, although less than the margins the
Company believes it could receive if it did its own securitization. The premium
received by the Company above the principal amount of the mortgage loans sold is
in the form of an Excess Servicing Asset. Access is not obligated to purchase
any mortgage loans from the Company under the agreement.
In July 1996, the Company issued $8,400,000 of Convertible Secured
Notes in a private placement. The Convertible Secured Notes are convertible into
Common Stock at an exercise price of $2.50 per share. The conversion price is
subject to decrease based on the weighted average of the price of Common Stock
issued, or issuable on conversion or exercise of securities convertible or
exercisable for Common Stock, through April 16, 1998, subject to certain
exclusions.
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The Company in October 1995 entered into an agreement with Heiko Thieme
pursuant to which it has agreed, under certain conditions, to adjust the
conversion price of certain securities under which 2,900,418 shares of Common
Stock were reserved for issuance upon conversion or exercise at an average
exercise or conversion price per share of $4.00. Pursuant to the agreement, the
conversion or exercise price is subject to decrease based on the weighted
average of the price of Common Stock issued or issuable on conversion or
exercise of securities convertible or exercisable for Common Stock, through
April 16, 1998, subject to certain exclusions. At July 17, 1996, as a result of
the issuance of the Convertible Secured Notes pursuant to the private
placements, the exercise or conversion price of the securities covered by this
Agreement was adjusted to $2.50 per share and the number of shares issuable on
exercise or conversion thereof was adjusted to 2,960,000. In addition, also as a
result of the issuance of the Convertible Secured Notes, the exercise price of
warrants to purchase 347,639 shares of Common Stock was reduced from $4.00 per
share to $2.50 per share.
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RISK FACTORS
An investment in the Common Stock offered hereby involves
certain risks. Prospective purchasers of the Common Stock offered hereby should
carefully consider the following risk factors in addition to the other
information included or incorporated by reference in this Prospectus before
purchasing the Common Stock offered hereby.
LIMITED REVENUES AND OPERATING LOSSES; ACCUMULATED DEFICIT.
During the fiscal year ended June 30, 1995, the Company incurred losses of
$4,791,000 compared to losses of $2,536,000 for the fiscal year ended June 30,
1994. The Company's revenues increased to $1,578,000 for the year ended June 30,
1995, from $870,000 for the year ended June 30, 1994. For the nine months ended
March 31, 1996, the Company incurred losses of $2,759,000 compared to losses of
$3,062,000 for the nine months ended March 31, 1995, on revenues of $1,768,000
compared to $1,438,000 in the comparable prior period. In addition, at June 30,
1995, and March 31, 1996, the Company had accumulated deficits of $7,568,000 and
$10,599,000, respectively. Although the Company had modest earnings for its 1992
fiscal year, it has incurred losses during all of its other years since 1991. In
view of its geographic expansion and the increased size of its corporate
infrastructure in connection therewith, the Company has been unable to generate
sufficient gain on sales of its mortgage loans in either individual or bulk
sales to provide sufficient revenues to achieve appropriate returns. The Company
believes that the sale of its mortgage loans to pools which will issue mortgage
pass-through securities could result in increased revenues. However, there can
be no assurance that the Company will be successful in this regard, or that the
Company will not continue to incur losses. See " --Securitization of Mortgages."
LEVERAGE AND DEBT SERVICE. As of March 31, 1996, the Company's
long-term debt was approximately $12,300,000, after giving effect to the
issuance of the Convertible Secured Notes in a private placement, the repayment
of a portion of the Convertible Subordinated Notes out of the proceeds thereof,
and the exchange of a portion of the Convertible Subordinated Notes for a
convertible warehouse line of credit. The Company may incur additional
indebtedness in the future, subject to certain limitations imposed by law and
contained in the instruments governing its indebtedness. The degree to which the
Company is leveraged could have important consequences to the Company,
including, but not limited to, the following: (i) the Company's ability to
obtain additional financing in the future for working capital, general corporate
purposes or other purposes may be limited or become impaired; (ii) certain of
the Company's borrowings may be at variable rates of interest, which could
result in higher interest expenses in the event of increases in interest rates;
and (iii) the instruments governing such indebtedness contain and will contain
covenants, the failure to comply with which may result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company.
DEFAULTS ON CUSTOMER LOANS; HIGH DELINQUENCY RATE. The lending
business is subject to the risk that borrowers will not satisfy their debt
service payments, including interest charges and principal amortization
obligations. The Company's borrowers typically do not meet the credit standards
established by commercial banks and other conventional lenders, because of the
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borrowers' credit histories (due to circumstances such as a pattern of credit
weakness, unverifiable income, insufficient credit history or previous
bankruptcies or insolvencies) or other factors. Thus, there can be no assurance
that such borrowers will be able to meet their repayment obligations to the
Company. If the Company experiences defaults on its loans and if the properties
securing such loans cannot be sold for amounts sufficient to repay the balances
of the outstanding loans and expenses related thereto, the Company will not
recover the balances of the originated loans. Further, in the event of a default
by a borrower, the Company may experience procedural or other delays in
enforcing its rights as a mortgagee and may incur significant costs associated
with protecting its investment. Of the 113 mortgage loans originated by the
Company from July 1, 1994, through March 31, 1996, which were held by the
Company on March 31, 1996, or sold prior thereto on a service-retained basis,
having an aggregate principal balance of $4,738,000, two mortgage loans have
been foreclosed (2% of such aggregate principal balance) and borrowers under
four mortgage loans, with an aggregate principal balance of $145,000 (3.1% of
such aggregate principal balance), have sought protection from creditors
pursuant to Federal bankruptcy laws. In addition, at March 31, 1996,
approximately $505,000 aggregate principal balance outstanding (2.23% of the
principal balance of loans outstanding at such date) were overdue by more than
60 days. The following sets forth delinquency rates on mortgage loans originated
by the Company which were held on the dates indicated or sold prior thereto on a
servicing-retained basis:
<TABLE>
March 31, December 31
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
DELINQUENCY RATES
30-59 days 1.37% 4.38% 10.40% 6.53% 7.94%
60-89 days 0.40% 2.30% 1.71% 2.57% 0.90%
90-119 days 0.00% 1.40% 0.82% 3.60% 0.95%
120 days & over 3.75% 5.00% 3.74% 3.75% 4.15%
</TABLE>
LOWER CREDIT STANDARDS FOR BORROWERS. Although the Company has
maintained a policy of originating mortgage loans only to borrowers whom it
believes will make payments on such loans, the Company's credit standards are
lower than the credit standards typically established by commercial banks and
other conventional lenders. The Company's borrowers typically would not have
satisfied the creditworthiness standards established by commercial banks and
other conventional lenders because of the borrowers' credit histories, income
levels, or a combination of these factors, and many of such borrowers would be
categorized as "high risk" by conventional lenders and would generally be unable
to obtain mortgage financing from such lenders. Thus, there can be no assurance
that the Company's borrowers will be able to pay all sums due under their loans,
including scheduled principal and interest payments thereunder. In addition, the
Company does not typically restrict a borrower from incurring indebtedness
secured by the property subject to the Company's mortgage which is subordinate
to the Company's first mortgage. Accordingly, borrowers may incur
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indebtedness in excess of their abilities to pay, thereby impairing their
ability to repay the mortgage loans.
EXCESS SERVICING ASSET. Prior to December 1994, the Company sold the
majority of its loans with the servicing retained and received a servicing fee
and the right to receive a portion of the interest to be received on the
mortgage loans. In addition, loans sold servicing-released may also be sold with
a retained ownership in a portion of the interest to be received on the mortgage
loans. The Company's sales to Access (see "Recent Developments"), while
servicing-released, are being sold on the basis where the Company has retained
an ownership interest in a portion of the interest to be received on the
mortgage loans. A large portion of the Company's revenue on both of these types
of sales is recognized as a gain on sale of mortgage loan receivables, which
primarily represents the present value of the cash flow resulting from the
difference between the interest rate charged by the Company to a borrower and
the interest rate received by the purchaser of the loan receivable, in excess of
normal loan servicing fees (in the case of sales on a servicing-retained basis)
(the "Excess Servicing Spread"). The Company recognizes such gain on sale of
loans in the fiscal year in which such loans are sold, although cash
(representing the Excess Servicing Spread and servicing fees, where applicable)
is received by the Company over the lives of the loans. Concurrently with
recognizing such gain on sale, the Company records a corresponding asset on its
consolidated balance sheet in an initial amount equal to such gain on sale (the
"Excess Servicing Asset"). The Excess Servicing Asset is computed in part based
upon, and amortized over, the estimated lives of the loans.
Because the gain recognized in the year of sale is equal to the present
value of the estimated future cash flows from the Excess Servicing Spread, the
amount of cash which the Company is entitled to receive over the lives of the
loans normally exceeds the gain recognized at the time the loans were sold. In
the subsequent years, the Company recognizes additional income and fees to the
extent actual cash flows from such loans exceed the amortization of the Excess
Servicing Asset. If actual prepayments with respect to sold loans occur faster
than they were projected at the time such loans were sold or loans go into
foreclosure, the carrying value of the Excess Servicing Asset is written down
through a charge to earnings in the period of adjustment. In the year ended June
30, 1995 and the nine months ended March 31, 1996, actual prepayments exceeded
those previously anticipated at the time of the sale of the loans. Accordingly,
the Company adjusted the value of the Excess Servicing Asset previously recorded
by approximately $428,000 and $110,000, respectively, at June 30, 1995 and March
31, 1996 to reflect the actual prepayments incurred. In addition, the Company
recorded adjustments totalling approximately $201,000 and $0 for the year ended
June 30, 1995 and the nine month period ended March 31, 1996, respectively, to
reduce the Excess Servicing Asset to the estimated net realizable value.
POSSIBLE DECLINE IN REAL ESTATE VALUES; ECONOMIC CONDITIONS. An overall
decline in the residential real estate market or in the residential real estate
market in particular states in which the Company originates mortgage loans or
the general condition of particular properties, together with other related
factors, could adversely affect the values of the properties securing the
Company's mortgage loans. Therefore, in a continuing period of economic decline,
the rates of delinquencies, foreclosures and losses on mortgage loans could be
higher than those heretofore experienced by the
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Company and in the mortgage lending industry in general. In addition, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by borrowers of scheduled payments of principal and
interest on the mortgage loans. To the extent real estate values may decline,
the amount which may be recovered on the foreclosure and sale of properties upon
mortgage loan defaults may also decline, and the Company may be unable to sell
such foreclosed properties on a timely basis or on terms acceptable to the
Company. As of March 31, 1996, the Company held real estate acquired as a result
of foreclosures representing a principal balance of defaulted loans of
approximately $265,000. The underlying properties may or may not be sold at
prices equal to the value of the principal and accrued interest on the
foreclosed loans. There can be no assurance that the loan-to-value ratios of
such loans, determined as of a date subsequent to the origination date, will be
the same or lower than the loan-to-value ratios for such loans, determined as of
the origination date.
RISKS OF EXPANSION. The Company is pursuing a growth strategy, has
opened nine new offices in the last 30 months, and intends to open additional
branch offices in the future. The success of the Company's planned expansion
will depend on numerous factors, many of which are beyond the Company's control,
including, among other factors, the securing of necessary governmental permits
and regulatory approvals, the hiring and training of management personnel, the
terms and availability of financing and other general economic and business
conditions. Any problems or delays encountered in any one or more of these areas
can result in delays in the opening of branch offices. There can be no assurance
that the Company will effectively manage its expanding operations and anticipate
all of the changing demands that its planned expansion will impose on its
resources.
RISKS ASSOCIATED WITH BALLOON MORTGAGES. Until October 1994,
substantially all of the Company's mortgage loans had been balloon loans that
provided for equal monthly payments, consisting of principal and interest, based
generally on a 15-year amortization schedule, and a single payment of the
remaining balance of the balloon loan five years after origination. Amortization
of a balloon loan based on a scheduled period that is longer than the term of
the loan results in a remaining principal balance at maturity that is
substantially larger than the regular scheduled payments. If borrowers are
unable to refinance the amounts due upon the maturity date of the balloon
mortgage loans, borrowers may default on the "balloon" principal payments due at
maturity. At March 31, 1996, the Company was servicing approximately $4,219,000
of balloon loans either in the Company's own portfolio or for other entities.
DEPENDENCE ON SECONDARY MARKETS. The Company originates and acquires
mortgage loans with a view to selling the mortgage loans to third parties rather
than holding such mortgage loans for its own account. Accordingly, the Company
is dependent upon its ability to sell its loans to third party investors. The
Company's current plan is to sell such mortgage loans to mortgage loan pools for
securitization transactions, although the Company may also under appropriate
circumstances make individual or bulk sales of mortgages. In the event that the
Company's loans or any mortgage pass-through securities securitized by the
Company's mortgage loans are or become unattractive to investors or investors
choose not to purchase the Company's loans (or such mortgage pass-through
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certificates) for any other reason, the Company's inability to sell its loans
would have a material adverse effect on the business and operations of the
Company. See " -- Securitization of Mortgages."
SECURITIZATION OF MORTGAGES. The Company's business strategy is
dependent on its ability to sell mortgage loans originated or acquired by it to
mortgage loan pools as to which the Company will act as a servicer and which
will issue mortgage pass-through securities. The Company's ability to sell
mortgage loans in securitization transactions is dependent, among other things,
on the Company's ability to meet the requirements of insurance companies that
insure the mortgages in the pools and the marketability to potential purchasers
of pools consisting of mortgage loans originated and serviced by the Company.
There can be no assurance that the Company will be able to meet the criteria for
sales of mortgage loans to mortgage loan pools or that such mortgage loan pools
will be marketable. To the extent that the Company is unable to sell its
mortgage loans to pools, the return realized by the Company on the sale of its
mortgage loans will be materially adversely affected. Formation of a mortgage
loan pool will require that the Company deposit at least approximately
$20,000,000 of mortgage loans meeting specified standards in the pool. This will
require the Company to increase substantially the volume of the mortgage loans
originated or acquired by the Company. In the past, the Company has not had
sufficient capital and financing to permit it to access directly the
securitization market. While the Company has obtained additional financing in a
private placement of Convertible Secured Notes, there can be no assurance that
the Company will not require additional financing to enable it to access the
securitization market directly. See "-- Liquidity and Financing Requirements."
If the Company is able to sell its mortgage loans to securitized mortgage pools,
the Company expects that a substantial portion of the revenues recognized by the
Company at the time of the sale will be in the form of an Excess Servicing Asset
and not cash. See "-- Excess Servicing Asset". Additionally, it is anticipated
that, to the extent that there are losses in the mortgage loan pools as a result
of defaults and foreclosures, the losses will be first charged against the
Company's residual interests in the mortgage loan pools.
LIQUIDITY AND FINANCING REQUIREMENTS. The Company will require
additional capital through financings in order to meet its operating expenses,
obtain sufficient funds to originate or acquire mortgage loans to establish
mortgage pools and do its own securitizations and to finance its operations
prior to the time that the Company's operations are anticipated to result in
positive cash flow. In July 1996, the Company completed a private placement of
$9,000,000 of Convertible Secured Notes, which is secured by substantially all
of the assets of the Company. The Company also has outstanding approximately
$3,300,000 of other long-term indebtedness at March 31, 1996 (after giving
effect to the repayment of a portion of the Convertible Subordinated Notes out
of the proceeds of the private placement of Convertible Secured Notes and the
exchange of the balance of the Convertible Subordinated Notes for a convertible
warehouse line of credit), which is secured by mortgage loans. There can be no
assurance that the amount of outstanding indebtedness will not impact the
Company's ability to obtain debt financing in the future. See "--Leverage and
Debt Service." To the extent that sufficient financing is not available in the
future, it could affect the Company's ability to originate and acquire a
sufficient volume of mortgage loans to enable it to establish mortgage loan
pools.
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The Company will also require additional short-term credit facilities.
The Company had a warehouse line of credit with TransAmerica Consumer Receivable
Funding, Inc. ("TransAmerica") which expired in June 1995. The Company expects
to seek a replacement warehouse line of credit in the future. The Company's
agreements with Greenwich have been an important component of the Company's
financing arrangements, although the Company is not currently obtaining
financing or selling mortgage loans under these agreements and has not obtained
financing from Greenwich or sold mortgage loans to Greenwich since February
1996. The Greenwich repurchase line of credit has expired.
From time to time, the Company has experienced cash shortages resulting
from the substantial outlays of cash required for its financing operations and
the Company is continuing to incur significant losses from its operations.
Additionally, even if the Company can reduce its operating losses and generate
net income a substantial portion of its revenues will consist of the Excess
Servicing Asset, which does not result in cash at the time the gain is
recognized. See "-- Excess Servicing Asset." In the past, the Company has sought
equity or debt financing or sold mortgage loans on a servicing-released basis to
meet its capital requirements under these circumstances. The Company expects to
continue to seek additional financing to meet its cash requirements and to
expand the volume of its mortgage loans. There can be no assurance that the
Company will be able to obtain necessary financing or will not require
additional capital in the future. To the extent that the Company experiences
cash shortages in the future, it may be required to sell off mortgage loans on
less favorable terms than it might otherwise be able to obtain. If the Company
is unable to obtain financing, when needed, the Company could be required to
curtail its lending activities and could be unable to comply with the terms of
covenants contained in the agreements relating to indebtedness.
RESTRICTIVE COVENANTS. The Company's Loan Agreement (the "Loan
Agreement") pursuant to which $8,400,000 of Convertible Secured Notes were
issued contains certain covenants including, among others, restrictions on the
ability of the Company to create liens or other encumbrances, to make certain
payments and investments, to pay dividends on Common Stock and Preferred Stock
(other than regular dividends on Preferred Stock) and to sell or otherwise
dispose of assets and merge or consolidate with another entity. Any failure of
the Company to comply with the covenants contained in the Loan Agreement could
result in an event of default under the Loan Agreement which could permit
acceleration of the obligations thereunder and acceleration of debt under other
instruments that may contain cross-acceleration or cross-default provisions.
Other indebtedness of the Company in the future could contain financial and
other covenants more restrictive than those contained in the Loan Agreement.
LEGAL CONSIDERATIONS. State laws generally regulate interest rates and
other charges in addition to requiring certain disclosure to borrowers. In
addition, states have other laws, regulations, public policies and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices which may apply to the origination, servicing and collection
of the mortgage loans. Violations of or changes to these laws, policies and
principles may limit the ability of the Company to collect all or part of the
interest on the mortgage loans or fees and other charges relating thereto, may
entitle the borrower to a refund of amounts previously paid and, in addition,
could
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subject the Company to damages and administrative sanctions. The mortgage loans
are also subject to federal laws, including: (i) the Federal Truth-in-Lending
Act and Regulation Z promulgated thereunder, which require certain disclosures
to the borrowers regarding the terms of the mortgage loans; (ii) the Equal
Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit
discrimination on the basis of age, race, color, sex, religion, marital status,
national origin, receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit; and (iii) the
Fair Credit Reporting Act, which regulates the use and reporting of information
related to the borrower's credit experience.
RISKS ASSOCIATED WITH TRUTH-IN-LENDING ACT LAWSUITS. Borrower's are
bringing lawsuits against lenders, many in the form of class action suits,
asserting violations of the Truth-In-Lending Act ("TILA") including the alleged
failure of mortgage lenders to properly disclose to the borrowers certain fees
associated with the subject mortgage loans. Judgments entered against lenders
have been harsh, including mandatory civil penalties and rescinding mortgage
loans. There can be no assurance that the Company will not be involved in
similar lawsuits in the future, the result of which could have an adverse affect
on the future of the Company. To date, the Company has not been involved in any
such action. In addition, the Company is actively pursuing measures to comply
with all federal and state laws, including TILA.
GOVERNMENT REGULATIONS. The Company's mortgage banking business is
subject to extensive regulation, supervision and licensing by federal and state
authorities. Regulated matters include, without limitation, maximum interest
rates and fees which may be charged by the Company, disclosures in connection
with loan originations, credit reporting requirements, servicing requirements,
federal and state taxation, and multiple qualification and licensing
requirements for doing business in various jurisdictions. While the Company
believes that it maintains all requisite licenses, permits and approvals and is
in compliance in all material respects with applicable federal and state
regulations, there can be no assurance that more restrictive laws or regulations
will not be adopted which could make compliance in the future more difficult
and/or more expensive. Legislative and regulatory proposals are frequently
advanced which, if adopted, could adversely affect the Company's profitability
or the manner in which the Company conducts its activities.
ENVIRONMENTAL CONSIDERATIONS. In certain circumstances state and
federal laws may impose statutory liens for the cleanup costs expended by state
or federal governments on account of hazardous wastes or hazardous substances
released or disposed of improperly. Such a lien generally will have priority
over all subsequent liens on the property and, in certain instances may have
priority over prior recorded liens, including the lien of a mortgage. In
addition, under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), owners and operators of a contaminated property are
among the class of persons and entities liable for such cleanup costs. However,
CERCLA provides a "security interest exemption" under Section 101(20) for
persons who, without participating in the management of a contaminated facility,
hold an "indicia of ownership" in the property primarily to protect a security
interest. However, such a party may lose this exemption in the event that: (i)
the party participates in management activities to an extent beyond merely
protecting its security interest; or (ii) the party forecloses on the
contaminated property and thereafter conducts itself in such a way as to engage
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in management beyond mere protection of a security interest. While the Company
intends to make every effort to comply with the foregoing guidelines, there can
be no assurance that the Company may not engage in activities which may cause it
to lose its security interest exemption with respect to specific properties.
INTEREST RATE FLUCTUATIONS AND PREPAYMENT. Profitability of the Company
is directly affected by the level of and fluctuations in interest rates and is
dependent upon the Company's ability to earn a spread between the earnings on
its assets and the costs of its liabilities, including the interest rates
payable on the indebtedness incurred by the Company to provide funds for the
origination or acquisition of mortgage loans. Additionally, the value and
effective maturity of the Company's assets and the cost and duration of its
liabilities are affected by changes in interest rates. While the Company
monitors the interest rate environment, there can be no assurance that the
profitability and/or liquidity of the Company would not be adversely affected
during any period of unexpected volatility in the interest rate environment. A
significant reduction in interest rates also could decrease the size of the loan
servicing portfolio by increasing the level of loan prepayments and thereby
result in write-down of the Excess Servicing Asset.
LOAN REPURCHASE OBLIGATIONS. The Company has sold loans to investors
which contain provisions that the Company will repurchase at the request of the
investor any loan that becomes past due by over 90 days. At March 31, 1996, the
aggregate principal amount of loans outstanding subject to these repurchase
provisions was $3,842,000, of which $84,000 was past due by over 90 days and
subject to repurchase by the Company at the option of the investor. The Company
also sold loans on a servicing-released basis during fiscal 1995 which contained
a limited term repurchase option. Essentially, if these loans become 90 days
delinquent during the first 120 days after the sale, the purchaser may require
that the Company buy back the loan. This repurchase option expires on the 121st
day after the sale. At March 31, 1996, the Company had sold approximately
$1,348,000 of loans that were still within the 120 day repurchase period. Of the
$22,309,000 of loans sold in fiscal 1995 with this option, $249,000 were
repurchased by the Company. The Company maintains a loan loss reserve which, in
the opinion of management, is adequate to cover losses both from loans held by
the Company for its own portfolio and for loans sold subject to these repurchase
obligations. In the event, however, of increased rates of default, the Company
may be required to repurchase additional loans, which could have a material
adverse effect on the Company's ability to originate or acquire new mortgage
loans and on the financial condition and operations of the Company. There can be
no assurance that the Company will have sufficient available cash to meet its
repurchase obligations.
COMPETITION. As a marketer of credit products, the Company faces
intense competition. Traditional competitors in the financial services business
include commercial banks, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these competitors in the financial
services sector are substantially larger and have more capital and other
resources than the Company. Competition can take many forms including
convenience in obtaining a loan, customer service, marketing and distribution
channels and interest or credit terms.
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MARKET FOR COMMON STOCK. The market price of the Common Stock could be
subject to significant fluctuations in response to variations in quarterly
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
broad fluctuations may adversely affect the market price of the Common Stock.
Moreover, the trading volume for the Company's Common Stock is not significant
and this could affect the ability of Common Stockholders to sell the Common
Stock when they desire to do so and the extent of the volatility of the market
price of the Common Stock.
DIVIDEND POLICY. The Company has not paid any cash dividends on its
Common Stock, nor does it anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Loan Agreement issued in connection with
the Convertible Secured Notes restricts the ability of the Company and its
Subsidiaries to pay dividends or make other distributions on its Common Stock.
The Company intends to use any earnings which it may generate to finance its
business. There can be no assurance that the Company will ever be in a position
to pay dividends on its Common Stock.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance is
dependent to a significant degree upon the services of its key executive
officers. The loss of the services of any of these officers could have a
material adverse effect on the Company. In addition, the proposed expansion of
the Company through the opening of branch offices is dependent upon the ability
of the Company to recruit qualified personnel capable of managing such branch
offices.
CONTROL BY OFFICERS AND DIRECTORS. The Company's executive officers and
directors owned 376,348 shares of Common Stock as of April 30, 1996,
representing approximately 11% of the Company's shares of Common Stock
outstanding at such date. As a result of such ownership, they will as a
practical matter have the ability to direct substantially all matters requiring
approval by the stockholders of the Company, including the election of
directors. Furthermore, such ownership could discourage the possible takeover of
the Company or make the removal of management of the Company more difficult,
discourage hostile bids for control of the Company in which stockholders may
receive premiums for their shares of Common Stock, or otherwise dilute the
rights of holders of Common Stock and the market price of Common Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS. The Company is governed by the
provisions of Section 203 of the General Corporation Law of the State of
Delaware, anti-takeover law enacted in 1988. In general, the law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of a
corporation's voting stock. As a result of the application of Section 203,
potential acquirers of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
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of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such transactions.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT 1995
Certain statements contained in "Summary -- the Company" and "Risk
Factors," such as statements concerning the Company's future cash and financing
requirements, the Company's ability to originate and/or acquire mortgage loans,
the Company's ability to enter into securitization transactions and/or otherwise
sell mortgage loans to the third parties and the returns therefrom and other
statements contained herein and in the documents incorporated by reference
regarding matters that are not historical facts are forward looking statements;
actual results may differ materially from those projected in the forward looking
statements, which statements involve risks and uncertainties, including but not
limited to, the following: the Company's ability to obtain future financings;
the uncertainties relating to the Company's ability to participate in
securitizations, including those described under "Risk Factors --
Securitizations of Mortgages;" and market conditions and other factors relating
to the mortgage lending business. Investors are also directed to the other risks
discussed herein under "Risk Factors," in the Company's Annual Report on Form
10-KSB and in other documents filed by the Company with the Commission and
incorporated herein by reference.
USE OF PROCEEDS
The Common Stock offered hereby are offered by the Selling
Stockholders. See "Selling Securityholders" and "Plan of Distribution". The
Company will not receive any proceeds from the sale of the Common Stock.
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SELLING SECURITYHOLDERS
The following table sets forth certain information as of the date
hereof, with respect to the Common Stock held by each Selling Stockholder.
Except as set forth below, none of the Selling Shareholders has had a material
relationship with the Company within the past three years other than as a result
of the ownership of the Common Stock. The Common Stock offered by this
Prospectus may be offered from time to time by the Selling Stockholders named
below:
<TABLE>
<S> <C> <C> <C>
Number of Shares of
Name Beneficially Owned Percentage of Number of Shares
AND ADDRESS COMMON STOCK(1) SHARES OUTSTANDING(2)(3) BEING OFFERED
- --------------------------------------------------------------------------------------------------------------
Josephthal, Lyon & Ross
200 Park Avenue
New York, NY 10166 492,800 12.73% 492,800
EASTA. Inc.
c/o Thomas D. Wright
Weil, Gottshall & Manges
767 Fifth Avenue
New York, NY 10153 100,000 2.87% 100,000
Somerset Capital Partners
c/o Thomas D. Wright
Weil, Gottshall & Manges
767 Fifth Avenue
New York, NY 10153 100,000 2.87% 100,000
Greenwich Capital Financial
Products, Inc.(4)
600 Steamboat Road
Greenwich, CT 06830 300,000 8.15% 300,000
Neil Rand
11024 North 28th Drive
Suite 200
Phoenix, AZ 85029 40,000 1.17% 40,000
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Averell Satloff
30 River Road
Apartment 12L
New York, NY 10044-1120 35,000 1.03% 35,000
The Robinson-Humphrey
Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, GA 30329 92,500 2.66% 92,500
John Kehoe
Kehoe, White, Savage & Co.
685 Fifth Avenue
New York, NY 10022 100,000 2.87% 100,000
Van Negris
Kehoe, White, Savage & Co.
685 Fifth Avenue
New York, NY 10022 50,000 1.46% 50,000
NewSouth Special Equities, L.P.
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 500,000 12.89% 500,000
Midland Financial Group, Inc.
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 80,000 2.31% 80,000
James A. Haslam, III
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
D. Stephen Morrow
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
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Charles K. Slatery
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
Kenneth Slutsky
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
NFC Corporation
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
Kyler Investments, L.P.-1994
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 20,000 0.59% 20,000
Kyler Investments 85-1, L.P.
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
NewSouth Capital Mgmt.
Profit Sharing Plan
c/o NewSouth Equities
1000 Ridgeway Loop Road
Memphis, TN 38120-4023 40,000 1.17% 40,000
Neal M. Allen
P.O. Box 71974
Marietta, GA 30007 40,000 1.17% 40,000
Donald Sallee
900 S. Powers Court
Atlanta, GA 30327 40,000 1.17% 40,000
Wendell Starke
1315 Peachtree St, N.E.
Suite 500
Atlanta, GA 30309 80,000 2.31% 80,000
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Cidronela Real
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 40,000 1.17% 40,000
Jackt Holdings Corp.
c/o Promena AG
Rheinstrasse 81
CH-4133 Pratteln 1
Switzerland 200,000 5.59% 200,000
VPM Verwaltungs AG(5)
Therwilerstr. 10
CH-4103 Bottmingen
Switzerland 854,639 20.19% 854,639
Thieme Consulting(6)
1370 Avenue of the Americas
31st Floor
New York, NY 10019 11,219 0.33% 11,219
J. Michael Reisert, Inc.(7)
2455 East Sunrise Boulevard
#609
Fort Lauderdale, FL 33304 69,600 2.02% 69,600
Irene Penix
10 River Road, 3L
Roosevelt Island, NY 10044 12,000 0.35% 12,000
Marvin Bolt
10 River Road, 3L
Roosevelt Island, NY 10044 10,000 0.30% 10,000
Ranier Heubach
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 551,250 14.03% 551,250
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Kingsley & Company
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 393,750 10.44% 393,750
Muico & Company
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 315,000 8.53% 315,000
Von Graffenried Privatbank
Marktgass-Passage 3
Postface 3000 Bern 7
Switzerland 315,000 8.53% 315,000
Ball Asset Management, Ltd.
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 157,500 4.45% 157,500
Dr. Uwe Thieme
1370 Avenue of the Americas
31st Floor
New York, NY 10019 157,500 4.45% 157,500
George Unbehaun
Reinberger Felbermaier
& Partner
Bahnhofplatz 5
D-89073 Ulm
Germany 157,500 4.45% 157,500
Thieme Fonds
1370 Avenue of the Americas
31st Floor
New York, NY 10019 131,250 3.74% 131,250
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Dip. Ing. Roland Agne
Informationsbuero-Thieme
c/o Ingo Soriano-Eupen
Friesenplatz 5
D-50672 Cologne
Germany 185,000 5.19% 185,000
Sydney Investments Corp.
Ltd., Panama
Calle 53
Urbanizacion Obarrio
Torre Swiss Bank, Piso 16
Panama, Republic of Panama 105,000 3.01% 105,000
Aeur Von Welsbach
Aktiengesellschaft
Schaanerstr. 13
FL-9490 Vaduz
Germany 78,750 2.28% 78,750
Alfredo Ambrosetti
c/o Thieme Consulting
1370 Avenue of the Americas
31st Floor
New York, NY 10019 52,500 1.53% 52,500
Dipl. Ing. Friedel Kellermann
Informationsbuero-Thieme
c/o Ingo Soriano-Eupen
Friesenplatz 5
D-50672 Cologne
Germany 52,500 1.53% 52,500
Dipl. Ing. Friedrich Forstbach
Informationsbuero-Thieme
c/o Ingo Soriano-Eupen
Friesenplatz 5
D-50672 Cologne
Germany 52,500 1.53% 52,500
H:\DOCS\BTPM_NY_\1010\0051774.04
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<PAGE>
Dr. Argil J. Wheelock
fbo Associated Urologists of
Chattanooga Deferred PSP
1000 Scenic Highway
Lookout Mountain, TN 37350 52,500 1.53% 52,500
Dr. Dieter Quast
Informationsbuero-Thieme
c/o Ingo Soriano-Eupen
Friesenplatz 5
D-50672 Cologne
Germany 452,500 11.81% 452,500
Franz Sveceny
Jorgerstr. 14
1180 Vienna
Austria 52,500 1.53% 52,500
Maria Conte
c/o Thieme Consultants
1370 Avenue of the Americas
31st Floor
New York, NY 10019 52,500 1.53% 52,500
Michael Stern(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 694 0.02% 694
Mark Levine(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 694 0.02% 694
Michael Brunone(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 1,385 0.04% 1,385
H:\DOCS\BTPM_NY_\1010\0051774.04
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<PAGE>
Richard Oh(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 2,000 0.06% 2,000
Vincent Palmieri(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 2,200 0.07% 2,000
Richard Groberg(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 2,200 0.07% 2,000
Thai Thai(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 3,054 0.09% 3,054
Thomas Wagner(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 9,109 0.27% 9,109
Joseph D'Amedeo(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 17,440 0.51% 17,440
Karl Reeves(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 18,749 0.55% 18,749
H:\DOCS\BTPM_NY_\1010\0051774.04
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<PAGE>
Robert Taglich(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 111,037 3.18% 111,037
Michael Taglich(8)
Taglich Brothers, D'Amadeo
Wagner & Co., Inc.
100 Wall Street
New York, NY 10005 111,038 3.18% 111,038
Arkansas Teachers Retirement
System
c/o KCM
10829 Olive Boulevard
St. Louis, MO 63141-7739 400,000 10.59% 400,000
Michigan Municipal Employee
Retirement System
c/o KCM
10829 Olive Boulevard
St. Louis, MO 63141-7739 800,000 19.14% 800,000
Lancer Partners, LP
237 Park Avenue
New York, NY 10017 660,000 16.34% 660,000
Lancer Offshore, Inc.
c/o CITCO
Kaya Flamboyan 9
Curaco
Netherlands Antilles 140,000 3.98% 140,000
Dietrich Frhr. V.D. Recke
An der Trift 17
D-31515 Steinhude
Germany 120,000 3.43% 120,000
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<PAGE>
Herrn Dr. Lutz Wolfram
Vieringhausen 51
D-42857 Remscheid
Germany 40,000 1.17% 40,000
Thomas M. Flynn
471 E. Broad Street
#1200
Columbus, OH 43215 20,000 0.59% 20,000
John & Elizabeth Barrott
8525 St. Ives Place
Cincinnati, OH 45255 20,000 0.59% 20,000
O. Bierne Chisolm
21 Stepping Stone Lane
Greenwich, CT 06830 40,000 1.17% 40,000
Barbara B. Chisolm
21 Stepping Stone Lane
Greenwich, CT 06830 20,000 0.59% 20,000
O. Bierne & Barbara B. Chisolm
21 Stepping Stone Lane
Greenwich, CT 06830 20,000 0.59% 20,000
Richard P. McKibben, Trustee
Martha McKibben, Trustee
1167 W. Samalayuca
Tucson, AZ 85704 40,000 1.17% 40,000
Larson Family Trustee
Miles & Joan Larson, Trustee
115-44th Street
Newport Beach, CA 92663 20,000 0.59% 20,000
John DeBello
50 Columbus Avenue, #516
Tuckahoe, NY 10707 10,000 0.30% 10,000
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<PAGE>
James E. Foy
CFH Laboratories
114 American Road
Morris Plains, NJ 07950 20,000 0.59% 20,000
Celia R. Klein
215 Beaumont Street
Brooklyn, NY 11235-4120 20,000 0.59% 20,000
Jaya Petschek
87 Sheldrake Road
Scarsdale, NY 10583 10,000 0.30% 10,000
Thea C. Petschek, Trustee
Jay Petschek, Trustee
87 Sheldrake Road
Scarsdale, NY 10583 30,000 0.30% 30,000
Kadri T. Zale
53 First Street
W. Keansburg, NJ 07734 14,000 0.41% 14,000
Russell & Jeannine Kuhn
9366 Fox Run Way
Elk Grove, CA 95758 10,000 0.30% 10,000
Robert Sanville
1514 Old York Road
Abington, PA 19001 10,000 0.30% 10,000
Hui Qun Zhou
61-03 60th Drive
Maspeth, NY 11378 10,000 0.30% 10,000
Robert Riccio
78 Chelsea Road
Garden City, NY 11530 12,000 0.35% 12,000
John C. Clifforn
5305 S. Van Marter Court
Spokane, WA 99206 120,000 3.43% 120,000
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<PAGE>
Ching-Chang & Debra Dhang
2023 Jericho Turnpike
East Northport, NY 11731 20,000 0.59% 20,000
Howard Hall, Sr.
c/o Howard Hall, Jr.
3539 Mary Taylor Road
Birmingham, AL 35235 40,00 1.17% 40,00
Howard Hall, Jr.
3539 Mary Taylor Road
Birmingham, AL 35235 20,000 0.59% 20,000
Shelby Springs Stock Farm
c/o Howard Hall, Mr.
3539 Mary Taylor Road
Birmingham, AL 35235 20,000 0.59% 20,000
Donald B. & Jacqueline M.
McCulloch
820 Oakmere Place
North Muskegon, MI 49445 6,000 0.18% 6,000
Jeffrey L. & Barbara A. Sadar
6640 Ridgebury Boulevard
Mayfield Heights, OH 44124 10,000 0.30% 10,000
Richard Kraemer
837 Appleridge Road
Franklin Lakes, NJ 07417 10,000 0.30% 10,000
Santa Fe Financial
2121 Avenue of the Stars
#2020
Los Angeles, CA 90067 80,000 2.31% 80,000
Tamar Valenta
2121 Avenue of the Stars
#2020
Los Angeles, CA 90067 20,000 0.59% 20,000
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<PAGE>
Intergroup Corporation
2121 Avenue of the Stars
#2020
Los Angeles, CA 90067 40,000 1.17% 40,000
John Winfield IRA
2121 Avenue of the Stars
#2020
Los Angeles, CA 90067 40,000 1.17% 40,000
Portsmouth Square, Inc.
2121 Avenue of the Stars
#2020
Los Angeles, CA 90067 20,000 0.59% 20,000
Charles Brand
175 Boundary Road
Colts Neck, NJ 07722 16,000 0.47% 16,000
Thomas & Elizabeth Reisdorf
418 Garden Drive
Batavia, NY 14020 8,000 0.24% 8,000
Vandergrift Fwd Co., Inc.
1 Evertrust Plaza
Jersey City, NJ 07302 6,000 0.18% 6,000
Eugene Szczepanski
35 Highland Avenue
Worthington, OH 43085 10,000 0.30% 10,000
Stephen Radocchia
100 San Rico Drive
Manchester, CT 06050 4,000 0.12% 4,000
Latin Video, Inc.
100 Merrick Parkway, #103E
Rockville Center, NY 11570 40,000 1.17% 40,000
Thomas DeFazio
750 Lexington Avenue
New York, NY 10022 4,000 0.12% 4,000
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<PAGE>
Horst Gruter
Informationsbuero-Thieme
c/o Ingo Soriano-Eupen
Friesenplatz 5
D-50672 Cologne
Germany 40,000 1.17% 40,000
William Bolt
Thieme Consultants
1370 Avenue of the Americas
31st Floor
New York, NY 10019 4,000 0.12% 4,000
Arthur & Marie Sterling
3000 Northern Moor Tr.
Long Beach, IN 46360 32,000 0.94% 32,000
------ ----- ------
Total 13,884,479 13,884,479
</TABLE>
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<PAGE>
The Selling Stockholders may offer all or part of the Common Stock which they
hold pursuant to the offering contemplated by this Prospectus. Therefore, no
estimate can be given as to the amount of Common Stock that will be held by the
Selling Stockholders upon completion of such offering.
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<PAGE>
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time to purchasers directly
by any of the Selling Stockholders. Alternatively, the Selling Stockholders may
from time to time offer the Common Stock through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of Common Stock for whom they may act as agent. The Selling Stockholders and any
underwriters, dealers or agents that participate in the distribution of Common
Stock may be deemed to be underwriters, and any profit on the sale of Common
Stock by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of Common
Stock is made, to the extent required, a Prospectus Supplement will be
distributed which will set forth the terms of the offering, including the name
or names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The Common Stock may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices.
The Company will pay substantially all of the expenses incident to the
offering and sale of the Common Stock to the public other than commissions and
discounts of underwriters, dealers or agents. Under agreements entered into with
the Company, the Selling Stockholders, and any underwriter they may utilize,
will be indemnified by the Company against certain civil liabilities, including
liabilities under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Set forth below is a description of the material terms and provisions
of the capital stock of the Company.
COMMON STOCK
General. The holders of Common Stock are entitled to one vote at all
meetings of stockholders for each share held by them with respect to all matters
upon which they have a right to vote. Shares of Common Stock have no preemptive
rights and have no other rights to subscribe for additional shares of the
Company, nor do the shares of Common Stock have any conversion rights or rights
of redemption. All shares of Common Stock will participate equally in dividends,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, and in net assets
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upon liquidation, subject to the rights of holders of preferred stock, if any.
All shares of Common Stock currently outstanding and those which may be issued
upon conversion or exercise of the Preferred Stock, Convertible Secured Notes,
Participations, convertible warehouse facility or Warrants are and will be duly
authorized, validly issued, fully paid and nonassessable by the Company upon
issuance. At March 31, 1996, there were 3,378,761 shares of Common Stock
outstanding.
Shares Eligible for Future Sale. At March 31, 1996, the Company had
3,378,761 shares of Common Stock outstanding. Of these shares, 2,551,009 are
freely transferable without restriction or further registration under the
Securities Act. The remaining 827,752 shares of Common Stock currently
outstanding are "restricted securities" or owned by affiliates within the
meaning of Rule 144 promulgated under the Securities Act, and are currently
eligible for sale in the public market in reliance upon Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least two years that does not exceed the greater of (i) one percent of
the then outstanding shares of Common Stock, or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and the availability of current public information about the
Company. Sales of substantial amounts of Common Stock in the public market under
Rule 144, pursuant to registration statements or otherwise could adversely
affect the prevailing market price of the Common Stock.
Transfer Agent. The Company's transfer agent is Continental Stock
Transfer & Trust Company, New York, New York.
PREFERRED STOCK
General. The Certificate of Incorporation of the Company authorizes the
issuance of 2,000,000 shares of preferred stock. The Board of Directors, within
the limitations and restrictions contained in the Certificate of Incorporation,
as amended, and without further action by the Company's stockholders, has the
authority to issue shares of preferred stock from time to time in one or more
series and to fix the number of shares and the relative rights, conversion
rights, voting rights, and terms of redemption, liquidation preferences and any
other preferences, special rights and qualifications of any such series. An
issuance of preferred stock could, under certain circumstances, have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock.
9% Convertible Preferred Stock. Pursuant to a Certificate of
Designation filed with the Secretary of State of Delaware, the Company has been
authorized to issue a series of up to 320,000 shares of 9% Convertible Preferred
Stock, all of which were issued and outstanding at March 31, 1996. The following
is a summary of the terms of the Preferred Stock.
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<PAGE>
Dividends
The holders of the Preferred Stock are entitled to receive, if, when
and as declared by the Board of Directors out of funds legally available as
prescribed by statute, cumulative dividends at the rate of 9% per annum per
share on the liquidation preference of the Preferred Stock, payable quarterly.
Dividends will accrue and be cumulative to the extent not paid on any dividend
payment date. No dividends may be paid on any shares of capital stock ranking
junior to the Preferred Stock (including Common Stock) unless and until all
accumulated and unpaid dividends on the Preferred Stock have been declared and
paid in full.
Conversion
Each share of Preferred Stock is convertible, at any time prior to
redemption, at the option of the holder, into shares of Common Stock at a
conversion price per share initially equivalent to $4.00. The number of shares
of Common Stock to be received upon conversion of Preferred Stock and the
conversion price per share of Common Stock are subject to adjustment from time
to time in the event of (i) the combination, subdivision or reclassification of
the Common Stock; (ii) the issuance of Common Stock as a dividend or
distribution on any class of capital stock of the Company; and (iii) the
distribution to all holders of Common Stock of evidences of the Company's
indebtedness or assets (including securities, but excluding cash dividends or
distributions paid out of earned surplus). Payment of accumulated and unpaid
dividends will be made upon conversion to the extent of legally available funds.
The conversion price of the Preferred Stock is subject to decrease based on the
weighted average of the price of Common Stock issued or issuable on conversion
or exercise of securities convertible or exercisable for Common Stock, through
April 16, 1998, subject to certain exclusions. At July 17, 1996, the conversion
price of the Preferred Stock was adjusted to $2.50 per share. The right to
convert the Preferred Stock terminates on the date fixed for redemption.
Redemption
The Company may at its option, commencing in October 1997, redeem the
shares of Preferred Stock, in whole or in part, at a redemption price of $20.00
per share plus accrued and unpaid dividends on 30 days notice to the holders
thereof, provided the average of the closing bid prices of the Common Stock as
reported by Nasdaq shall have for 20 consecutive trading days ending within 10
days of the date of the notice of redemption is given by the Company equalled or
exceeded two hundred fifty percent (250%) of the then conversion price and a
registration statement covering the underlying Common Stock is then in effect
and current or the Common Stock is freely transferable without registration.
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<PAGE>
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, before any payment or distribution of the assets
of the Company (whether capital or surplus), or the proceeds thereof, may be
made or set apart for the holders of Common Stock or any series or class of
stock ranking junior to the Preferred Stock, the holders of Preferred Stock will
be entitled to receive, out of the assets of the Company available for
distribution to stockholders, a liquidating distribution of $20.00 per share,
plus any accumulated and unpaid dividends.
Delaware Anti-Takeover Law. The Company is governed by the provisions
of Section 203 of the General Corporation Law of the State of Delaware ("DGCL"),
an anti-takeover law enacted in 1988. In general, this law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is defined as
a person who, together with affiliates and associates, owns (or, within the
prior three years, did own) 15% or more of the corporation's voting stock. The
DGCL contains provisions enabling a corporation to avoid the statutory
restrictions described above through an amendment to its certificate of
incorporation. The Company has not elected out of Section 203 and, therefore,
the restrictions imposed by the statute apply to the Company.
DISCLOSURE OF COMMISSION POSITION AND INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
INDEMNIFICATION OF DIRECTORS AND OFFICERS. ARTICLE Seven of the Registrant's
Certificate of Incorporation, as amended, provides as follows:
SEVENTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is or
was serving a the request of the Corporation as a director, officer,
incorporator, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall be entitled to be indemnified by the
Corporation to the full extent then permitted by law or to the extent that a
court of competent jurisdiction shall deem proper or permissible under the
circumstances, whichever is greater against expenses (including attorneys'
fees), judgments, fines and amount paid in settlement incurred by him in
connection with such action, suit or proceeding. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which antedate
the adoption of this Article SEVENTH. Such right of indemnification shall
continue as to a person who has ceased to be a director, officer, incorporator,
employee, or agent and shall inure to the benefit of the heirs and personal
representatives of such person.
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<PAGE>
Section 145 of the DGCL empowers a Delaware corporation to indemnify
any person who is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of any other corporation
or enterprise. The indemnity may include expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and , with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A Delaware corporation, may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which he actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under a corporation's by-laws, by agreement, vote, or otherwise.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-KSB) for the year ended June 30, 1995, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Common Stock will be passed upon
for the Company by Bachner, Tally, Polevoy & Misher LLP ("BTPM"), 380 Madison
Avenue, New York, New York 10017. Certain members of BTPM own shares of the
Company's Common Stock.
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<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized in connection with
this offering to give any information or to make any representations other than
those contained in this Prospectus. This Prospectus does not constitute an offer
or a solicitation in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the circumstances of the Company or its
affiliates or the facts herein set forth since the date hereof.
TABLE OF CONTENTS
PAGE
Available Information..............................................2
Incorporation of Certain
Documents by Reference..........................................2
Prospectus Summary.................................................4
Recent Developments................................................7
Risk Factors.......................................................9
Use of Proceeds...................................................18
Selling Securityholders...........................................19
Plan of Distribution..............................................34
Description of Capital Stock......................................34
Disclosure of Commission Position and
Indemnification for Securities Act Liabilities.................37
Experts...........................................................38
Legal Matters.....................................................38
- ------------------------------------------------------------------------------
CREDIT DEPOT
CORPORATION
10,505,718 Shares of
Common Stock
----------------
PROSPECTUS
----------------
___________, 1996
- -------------------------------------------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
S.E.C. Registration Fee $11,094
Legal Fees and Expenses 50,000
Accountants' Fees and Expenses 15,000
Miscellaneous 8,916
---------
Total $85,000
=======
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ARTICLE Seven of the Registrant's Certificate of Incorporation, as
amended to provide as follows:
SEVENTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is or
was serving a the request of the Corporation as a director, officer,
incorporator, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall be entitled to be indemnified by the
Corporation to the full extent then permitted by law or to the extent that a
court of competent jurisdiction shall deem proper or permissible under the
circumstances, whichever is greater against expenses (including attorneys'
fees), judgments, fines and amount paid in settlement incurred by him in
connection with such action, suit or proceeding. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which antedate
the adoption of this Article SEVENTH. Such right of indemnification shall
continue as to a person who has ceased to be a director, officer, incorporator,
employee, or agent and shall inure to the benefit of the heirs and personal
representatives of such person.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of any other
corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and ,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A Delaware corporation, may indemnify
H:\DOCS\BTPM_NY_\1010\0051774.04
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<PAGE>
officers and directors in an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which he actually and reasonably incurred in connection
therewith. The indemnification provided is not deemed to be exclusive of any
other rights to which an officer or director may be entitled under a
corporation's by-laws, by agreement, vote, or otherwise.
Item 16. EXHIBITS
EXHIBITS DESCRIPTION
3.1 Certificate of Incorporation of the Registrant, as amended (1)
3.2 Certificate of Merger of Equithrift, Inc., a Georgia corporation, with
and into the Registrant (1)
3.2 By-Laws of the Registrant (1)
4.1 Specimen Common Stock certificate (1)
4.2 Certificate of Designation of the Registrant relating to 9%
Convertible Preferred Stock (2)
5.1 Opinion of Bachner, Tally, Polevoy & Misher LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Bachner, Tally, Polevoy & Misher (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
- -------------
(1) These exhibits were filed as exhibits to the Company's Registration
Statement on Form S-1 (No. 33-37416) and are incorporated herein by
reference.
(2) This exhibit was filed as an exhibit to the Company's Quarterly Report
on Form 10-QSB for the Quarter Ended September 30, 1995 and is
incorporated herein by reference.
Item 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statements to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
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(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii)include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Gainesville, State of Georgia, on this
12th day of August, 1996.
CREDIT DEPOT CORPORATION
By: S/GERALD F. SULLIVAN
Gerald F. Sullivan, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures
appears below under the heading "Signature" constitutes and appoints Gerald F.
Sullivan and Charles Farrahar, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign any or all amendments to this
registration statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
S/GERALD F. SULLIVAN President, Chief Executive August 12, 1996
- ------------------------
Gerald F. Sullivan Officer and Director (Principal
Executive Officer)
S/CHARLES FARRAHAR Chief Financial Officer August 12, 1996
- ------------------------
Charles Farrahar and Vice President (Principal
Financial & Accounting Officer)
S/SAMUEL R. DUNLAP, JR. Director August 12, 1996
- ------------------------
Samuel R. Dunlap, Jr.
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- ------------------------ Director __________, 1996
Joel C. Williams, Jr.
S/SAMUEL S. HEMMINGWAY Director August 12, 1996
- ------------------------
Samuel S. Hemingway
S/CRAIG J. BRUNET Director August 12, 1996
- ------------------------
Craig J. Brunet
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EXHIBIT 5.1
Bachner, Tally, Polevoy & Misher Letterhead
August 13, 1996
Credit Depot Corporation
700 Wachovia Center
Gainesville, Georgia 30501
Ladies & Gentlemen:
We have acted as counsel to Credit Depot Corporation (the
"Company") in connection with its filing of a registration statement on Form S-3
(the "Registration Statement"), under the Securities Act of 1933, as amended
(the "Act") covering 10,505,718 shares (the "Shares") of Common Stock, $.001 par
value (the " Common Stock").
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation, as amended and By-laws and the minutes
and other corporate proceedings of the Company. With respect to factual matters,
we have relied upon statements and certificates of officers of the Company. We
have also reviewed such other matters of law and examined and relied upon such
other documents, records and certificates as we have deemed relevant hereto. In
all such examinations we have assumed conformity with the original documents of
all documents submitted to us as originals and the genuineness of all signatures
on all documents submitted to us.
On the basis of the foregoing, it is our opinion that the Shares
covered by and included in the Registration Statement have been duly and validly
authorized and will, when sold, paid for and issued as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement. In giving this consent, we do not thereby concede that we come within
the categories of persons whose consent is required by the Act or the General
Rules and Regulations promulgated thereunder.
Very truly yours,
s/Bachner, Tally, Polevoy & Misher LLP
BACHNER, TALLY, POLEVOY & MISHER LLP
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Credit Depot
Corporation for the registration of 10,505,718 shares of its common stock and to
the incorporation by reference therein of our report dated August 30, 1995,
except for Note 12, as to which the date is October 10, 1995, with respect to
the consolidated financial statements of Credit Depot Corporation included in
the Annual Report (on Form 10-KSB as amended by Form 10-KSB/A) for the year
ended June 30, 1995, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Atlanta, Georgia
August 12, 1996
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August 13, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Credit Depot Corporation (the "Company")
Registration Statement on Form S-3,
(THE "REGISTRATION STATEMENT")
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of
1933, as amended, is a conformed copy of the Company's Registration Statement
relating to a public offering of 10,505,718 shares of Common Stock of the
Company, including 10,505,718 shares issuable upon conversion or exercise of
outstanding convertible securities or warrants, to be sold by certain selling
stockholders. Manually executed signatures pages and consents have been executed
prior to the time of this electronic filing.
In payment of the registration fee, $11,094.40 was transferred to the
Commission's account by federal wire transfer as required pursuant to rule 13(c)
of Regulation S-T on August 13, 1996 prior to 11:30 a.m. Eastern Standard Time
and was assigned reference number 878.
If you have any questions concerning the enclosed materials or require
any further information, please call Steven A. Fishman at (212) 503-2051.
Very truly yours,
BACHNER, TALLY, POLEVOY & MISHER LLP
By: S/STEVEN A. FISHMAN
Steven A. Fishman
SAF/js
Enclosures
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