<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-19420
---------
CREDIT DEPOT CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1909265
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 Wachovia Center
Gainesville, Georgia
--------------------
(Address of principal executive offices)
30501
-----
(Zip code)
(770) 531-9927
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent practicable date.
Class Outstanding at March 31, 1997
- ------------------ -----------------------------
Common Stock $.001 Par Value 3,741,861
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
1
<PAGE> 2
CREDIT DEPOT CORPORATION
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1 -- Financial Statements (Unaudited)
Condensed Consolidated Balance 3
Sheets as of June 30, 1996 and
March 31, 1997
Pro Forma Condensed Consolidated
Balance Sheet as of March 31, 1997 4
Condensed Consolidated Statements
of Operations for the Three Months
Ended March 31, 1996 and 1997
and the Nine Months ended
March 31, 1996 and 1997 5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended March 31, 1996 and 1997 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2 -- Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION
Item 1 -- Legal Proceedings 13
Item 2 -- Changes in Securities 13
Item 3 -- Defaults upon Senior Securities 13
Item 4 -- Submission of Matters to Vote of
Security Holders 13
Item 5 -- Other Information 13
Item 6 -- Exhibit and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
CREDIT DEPOT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, MARCH 31,
1996 1997
-----------------------------
<S> <C> <C>
ASSETS
Loans receivable
Consumer, collateralized by real estate $ 6,958,903 $ 5,158,712
Allowance for credit losses (250,260) (141,290)
------------ ------------
Net loans receivable 6,708,643 5,017,422
Cash 1,707,320 136,156
Property and equipment, net 493,560 521,614
Real estate held for resale 42,397 234,662
Other assets:
Receivables due from related parties 222,209 224,209
Prepaid expenses and other assets 345,064 299,309
Excess servicing asset net of reserve 193,038 116,844
Interest-only strips receivable 1,317,577 7,008,499
Accrued interest receivable 113,577 69,687
Deferred financing costs 957,158 1,294,665
------------ ------------
Total Assets $ 12,100,041 $ 14,923,067
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible notes payable $ 8,500,000 $ 10,892,250
Other borrowings 1,925,000 3,013,069
Accounts payable 54,393 861
Accrued liabilities 329,322 392,842
Dividends payable 144,000 141,750
------------ ------------
Total liabilities 10,952,715 14,440,772
Stockholders Equity
Preferred stock, $.001 par value: 2,000,000
shares authorized, 320,000 shares issued and outstanding
at June, 1996, and 315,000 shares issued and outstanding
at March 31, 1997 320 315
Common stock, $.001 par value: 35,000,000 shares
authorized, 3,378,761 shares issued and outstanding
at June 30, 1996 and 3,741,861 issued and outstanding
at March 31, 1997 3,379 3,742
Additional paid-in capital 13,242,231 14,028,623
Accumulated deficit (12,098,604) (13,550,385)
------------ ------------
Total stockholders' equity 1,147,326 482,295
------------ ------------
Total liabilities and stockholders' equity $ 12,100,041 $ 14,923,067
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
CREDIT DEPOT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (1)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------
(Unaudited)
Actual Adjustments Pro forma
------ ----------- ---------
<S> <C> <C> <C>
ASSETS
Loans receivable
Consumer, collateralized by real estate $ 5,158,712 $ 5,158,712
Allowance for credit losses (141,290) (141,290)
------------ ------------
Net loans receivable 5,017,422 5,017,422
Cash 136,156 1,448,000 1,584,156
Property and equipment, net 521,614 521,614
Real estate held for resale 234,662 234,662
Other assets:
Receivables due from related parties 224,209 224,209
Prepaid expenses and other assets 299,309 299,309
Excess servicing asset net of reserve 116,844 116,844
Interest-only strips receivable 7,008,499 7,008,499
Accrued interest receivable 69,687 69,687
Deferred financing costs 1,294,665 (38,000) 1,256,665
------------ ------------ ------------
Total Assets $ 14,923,067 $ 1,410,000 $ 16,333,067
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible notes payable $ 10,892,250 $ 10,892,250
Other borrowings 3,013,069 3,013,069
Accounts payable 861 861
Accrued liabilities 392,842 392,842
Dividends payable 41,750 41,750
------------ ------------
Total liabilities 14,440,772 14,440,772
------------ ------------
Stockholders Equity
Preferred stock, $.001 par value: 2,000,000
shares authorized, 320,000 shares issued and outstanding
at June, 1996, and 315,000 shares issued and outstanding
at March 31, 1997 315 315
Preferred stock, Series B, $.001 par value: 60,000 shares
authorized, 16,740 shares issued and outstanding 17 17
Common stock, $.001 par value: 35,000,000 shares
authorized, 3,378,761 shares issued and outstanding
at June 30, 1996 and 3,741,861 issued and outstanding
at March 31, 1997 3,742 3,742
Additional paid-in capital 14,028,623 1,409,983 15,438,606
Accumulated deficit (13,550,385) (13,550,385)
------------ ------------ ------------
Total stockholders' equity 482,295 1,410,000 1,892,295
------------ ------------ ------------
Total liabilities and stockholders' equity $ 14,923,067 $ 1,410,000 $ 16,333,067
============ ============ ============
</TABLE>
(1) To give effect to the issuance of preferred stock as discussed in Note 7 to
the condensed financial statements.
See accompanying notes.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1997 1996 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Finance income and fees earned $ 332,128 $ 16,991 $ 627,622 $ 277,541
Gain on sale of receivable 754,402 1,370,208 308,342 4,654,474
Other 51,660 7,793 1,062,744 41,107
----------- ----------- ----------- -----------
1,138,190 1,394,992 77,968 4,973,122
Expenses:
Salaries and employee benefits 712,477 1,079,988 1,984,371 2,741,662
Legal and professional fees 55,782 173.749 236,382 368,446
Other operating expenses 532,084 638,280 1,433,571 1,736,876
Provision for credit losses -- 10,000 75,000 75,000
Interest expense and amortization of
financing costs 312,149 365,013 798,246 1,073,421
----------- ----------- ----------- -----------
1,612,492 2,267,030 2,915,078 5,995,405
Income (loss) before provision for income taxes (474,302) (872,038) (2,759,236) (1,022,283)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (474,302) $ (872,038) $(2,759,236) $(1,022,283)
=========== =========== =========== ===========
Dividends on preferred stock 144,000 141,750 271,677 427,500
Net loss per share of common stock $ (0.18) $ (0.27) $ (.90) $ (.40)
=========== =========== =========== ===========
Weighted average shares outstanding 3,378,761 3,753,328 3,378,761 3,594,539
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
CREDIT DEPOT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31, MARCH 31,
1996 1997
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,759,236) $ (1,022,283)
Adjustments to reconcile net loss
to cash used in operating activities:
Provision for credit losses 75,000 75,000
Depreciation and amortization 341,871 273,583
Changes in operating assets and liabilities:
Due from related parties -- (2,000)
Prepaid expenses and other 166,634 89,645
Loans originated (26,305,357) (64,583,876)
Loans repurchased (942,821) (1,855,639)
Deferred fee income (7,251) --
Excess servicing asset, net (649,670) 76,194
Interest-only strips receivable -- (5,691,424)
Proceeds from loans sold 24,829,783 65,859,844
Principal collections on loans not sold 1,033,453 1,079,743
Accounts payable and accrued liabilities (80,131) 9,988
------------ ------------
Net cash used in operating activities (4,297,725) (5,691,424)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (82,372) (151,413)
------------ ------------
Net cash used in investing activities (82,372) (151,413)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on preferred stock -- (427,500)
Proceeds from issuance of convertible notes -- 2,800,000
Proceeds from issuance of preferred stock 5,447,767 --
Deferred financing costs paid -- 487,098
Payments on other borrowings (1,500,000) (977,373)
Proceeds from issuance of notes payable 1,050,000 725,000
Advance on interest-only strip receivable -- 1,664,249
------------ ------------
Net cash provided by financing activities 4,997,767 4,271,474
------------ ------------
Net increase (decrease) in cash (617,670) (1,571,164)
Cash at beginning of period 1,758,440 1,707,320
------------ ------------
Cash at end of period $ 2,376,110 $ 136,156
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 407,217 $ 641,541
============ ============
Conversion of loans receivable to real estate held for sale $ 431,130 $ 763,024
============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
CREDIT DEPOT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial information includes the accounts of Credit
Depot Corporation ("CDC") and its wholly owned subsidiaries Credit
Depot Corporation of Georgia, Credit Depot Corporation of South
Carolina, Credit Depot Corporation of North Carolina, Credit Depot
Corporation of Ohio, Credit Depot Corporation of Tennessee, Credit
Depot Corporation of Florida, Credit Depot Corporation of Indiana, and
Credit Depot Corporation of Illinois. Reference to "the Company"
includes CDC and its subsidiaries. The financial information is
unaudited but includes all adjustments consisting only of normal
recurring adjustments which the Company's management believes to be
necessary for fair presentation of the periods presented. Interim
results are not necessarily indicative of results for a full year.
Dollar figures rounded to the nearest $1,000 in the following
discussion are approximate unless otherwise noted. The financial
statements should be read in conjunction with the Company's audited
financial statements for the year ended June 30, 1996.
2. NET INCOME (LOSS) PER SHARE
Dividends on preferred stock are subtracted from net income (or loss)
to arrive at the numerator for this calculation. The denominator is the
weighted average number of common shares and, when dilutive, common
equivalent shares (convertible securities, warrants and stock options)
outstanding during each of the periods. Dilutive shares are not
considered if the numerator (net income or loss less preferred
dividends) is negative.
3. GAIN ON SALE OF RECEIVABLES
Gains on the sale of loans to third parties wherein the Company retains
an interest in the loan are calculated as the present value of the
interest rate differential between the rate charged to the borrower and
the rate earned by the third party, after taking into consideration the
Company's estimate for early prepayments and ongoing servicing costs,
if any. If the Company also retains the servicing rights on loans sold
with a retained interest, a servicing fee is earned. The corresponding
asset recorded at the time of the gain on sale of loans with a retained
interest is amortized in proportion to the income received from the
rate differential retained by the Company over the estimated lives of
the underlying loans. The amount of any impairment recognized shall be
the amount by which the capitalized mortgage servicing rights exceed
their fair value.
Gains on sales of loans wherein the Company does not have any further
interest in the loan and does not retain the servicing rights are
calculated as the difference between the cash price paid by the third
party and the principal balance of the loan plus accrued interest.
4. OTHER BORROWINGS
In August 1996, term debt with a principal balance of $875,000 was
paid-off with proceeds from the sale of mortgage loans. In March 1997,
several additional borrowings secured by mortgage loans were obtained
totaling $725,000.
7
<PAGE> 8
5. CONVERTIBLE SECURITIES
On September 30, 1996, convertible mortgage participation holders
having $400,000 of participations exercised their conversion option and
exchanged their participations for 160,000 shares of common stock.
During the quarter ending December 31, 1996, a holder of preferred
stock converted 5,000 shares of preferred stock into 40,000 shares of
common stock, and holders of convertible debt converted $345,750 of
notes into 138,300 shares of common stock, as per the conversion terms
of their respective securities. In the quarter ending March 31, 1997,
convertible debt holders converted an additional $62,000 of debt into
24,800 shares of common stock.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". The statement revises standards for computing and
presenting net income per share by (a) replacing primary net income per
share with basic net income per share, (b) requiring dual presentation
of basic and diluted net income per share for entities with complex
capital structures and (c) requiring a reconciliation of basic net
income per share computation to diluted net income per share. basic net
income per share is calculated by dividing net income available to
common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted net income per share includes the
effect of potential stock dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common shares. The impact of the adoption of SFAS No. 128 on the
Company's earnings per share calculations has not yet been determined.
In June 1996, the Financial Accounting Standards Board issued
"Accounting For Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," SFAS No. 125, which provides new
accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets and extinguishment
of liabilities and amended SFAS No. 122 "Accounting for Mortgage
Servicing Rights". SFAS No. 125 is effective for transactions occurring
after December 31, 1996, except those provisions relating to repurchase
agreements, securities lending and other similar transactions and
pledged collateral, which have been delayed until after December 31,
1997, by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of Statement No. 125, an amendment of FASB Statement No.
125." The standards were or will be adopted as required effective
January 1, 1997 and in 1998, respectively, and did not and are not,
respectively, expected to have a material impact on the Company's
financial position or results of operations.
7. SUBSEQUENT EVENTS
On April 21, 1997, the Company issued of $1,674,000 of a Series B 11%
Convertible Redeemable Preferred Stock, the terms of which are more
fully described in the April 27,1997 filing on Form 8-K . The Pro Forma
Condensed Consolidated Balance Sheet reflects the issuance of this
class of preferred stock as if the transaction was completed on March
31, 1997.
In April 1997, the Company completed the acquisition of Cash Back
Mortgage Corporation, which is also more fully described in the April
27, 1997 filing on Form 8-K . The acquisition was a purchase of
substantially all of the assets of Cash Back Mortgage Corporation by a
newly-organized wholly-owned subsidiary of the Company. The activities
of the new subsidiary will be consolidated into the results of the
Company beginning in April 1997.
8
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
CERTAIN ACCOUNTING CONSIDERATIONS
Most of the Company's revenue in both the three months and nine months
ended March 31, 1997 (the "1997 Three Months" and the "1997 Nine Months")
consisted of loans sold by the Company with an interest retained as a gain on
sale of loans. The gain principally represents the present value of the
difference between the interest rate charged by the Company to a borrower and
the interest rate received by the investor who purchased the loans, adjusted for
estimated prepayments and bad debt expense, which is also referred to as the
"Spread". The corresponding asset used to record this gain is referred to as an
"Interest-Only Strip Receivable". In previous years, the Company has sold loans
in a similar manner but also retained the servicing rights to the loans,
creating a gain wherein the corresponding asset is referred to as the "Excess
Servicing Asset", and additionally providing revenue in the form of servicing
income. The Company recognizes such gain on sale of loans in the fiscal year in
which such loans are sold, although cash (representing the Interest-Only Strip
Receivable or Excess Servicing Asset and servicing fees) is received by the
Company over the lives of the loans. Both the Interest-Only Strip Receivable and
the Excess Servicing Asset computations are in part based upon, and amortized
over, the estimated lives of the loans using certain prepayment assumptions.
Because the gain recognized in the year of sale is equal to the present
value of the estimated future cash flows from the Spread, the amount of cash
actually received over the lives of the loans can exceed the gain previously
recognized at the time the loans were sold. In subsequent years, the Company
would recognize additional income and fees to the extent actual cash flows from
such loans exceed the amortization of the Interest-Only Strip Receivable or
Excess Servicing Asset. If actual prepayments with respect to sold loans occur
faster than were projected at the time such loans were sold, the carrying value
of the Interest-Only Strip Receivable or Excess Servicing Asset is written down
through a charge to earnings in the period of adjustment. During the three
months ended March 31, 1996 (the "1996 Three Months"), the Company charged
$20,000 to earnings for anticipated prepayments, compared to a charge of $7,100
for the 1997 Three Months.
RESULTS OF OPERATIONS
The Company had a net loss of $872,000 for the 1997 Three Months, as
compared to a profit of $123,000 for the quarter ending December 30, 1996 (the
"Previous Quarter") and a loss of $474,000 in the 1996 Three Months, despite a
relatively small reduction in loan originations from $24,937,000 in the Previous
Quarter to $23,475,000 in the 1997 Three Months. Several factors contributed to
the net loss for the 1997 Three Months. The gross gain on sale of loans
percentage was lower in the 1997 Three Months as compared to the Previous
Quarter due to a relatively sharp rise in interest rates during the 1997 Three
Months. The Company was unable to increase the rates on the mortgage loans that
it originated in time to offset the decrease in rate it received on the mortgage
loans sold during the quarter. Additionally, a higher percentage of the
Company's total loan volume in the 1997 Three Months consisted of bulk purchases
of loans. Since bulk purchases have a higher acquisition cost than originated
loans, this also resulted in reduced gain on sale margins for the 1997 Three
Months. The Company continued to expand its operations during the 1997 Three
Months, resulting in increased expenses which contributed to the net loss for
the quarter. In addition, as a result of insufficient working capital during the
1997 Three Months and the absence of a substantial warehouse line of credit, the
Company was unable to increase loan volume sufficiently to offset the decreased
gain on sale margins and increased expenses noted above.
The Company continued with its expansion effort in the 1997 Three
Months by opening new offices Missouri, Colorado, Mississippi, Wisconsin, and
Virginia. The Company also completed the acquisition of mortgage broker in Ohio
during the month of April to diversify its marketing base and provide additional
loan volume. As a result of the loss for the quarter, all expansion efforts have
been suspended until such time as additional capital becomes available.
9
<PAGE> 10
Three Months Ended March 31, 1996 and 1997
During the 1997 Three Months, the Company recorded a net loss of
$872,000, as compared to a net loss of $474,000 for the 1996 Three Months. Net
loss per share of Common Stock after deducting dividends on Preferred Stock was
$(0.27) during the 1997 Three Months compared to a net loss of $(0.18) per share
during the 1996 Three Months. Total expenses increased 41%, from $1,612,000 to
$2,267,000, during the 1996 Three Months to the 1997 Three Months. The largest
increase was in labor costs, which increased 51% from $712,000 to $1,080,000
during the comparable periods. This increase was the result of a planned
expansion program by the Company primarily to increase its sales and field
operations. At March 31, 1996, the Company had 57 employees in eleven offices as
compared to 83 employees in twenty-two offices at March 31, 1997. The additional
personnel and offices also contributed to the 20% increase in operating expense
between the periods, from $532,000 to $638,000.
The second largest expense increase between the quarters was in legal
and professional fees, which increased from $56,000 to $174,000, or 211% between
the comparable periods, primarily due to the increase in consulting fees paid.
Net revenues increased 23%, from $1,138,000 in the 1996 Three Months to
$1,395,000 in the 1997 Three Months, on sales of $10,570,000 and $23,555,000,
respectively. While revenue from the gain on sale of loans increased from
$754,000 to $1,370,000 between the comparable periods, the net gain on sale
percentage between those periods decreased from 7.1% to 5.8%, primarily as a
result of higher loan acquisitions costs in the 1997 Three Months. Another
component of net revenues, finance and fee income, declined sharply between the
comparable quarters, from $332,000 to $17,000. There are two primary reasons for
this decline. As the Company nears completion its planned program of divesting
itself of "non-securitizable" loans, the interest derived from loans held in its
portfolio has declined substantially. The Company now holds very few unpledged
loans in its portfolio. In addition, many of the loans the Company disposed of
during the 1997 Three Months, as the Company had already disposed of most of the
"non-securitizable" loans pursuant to this divestiture program, were sold at a
discount. As a result the Company recorded certain charges to interest and fee
income.
Nine Months Ended March 31, 1996 and 1997
During the 1997 Nine Months, the Company had a net loss of $1,022,000,
as compared to a net loss of $2,759,000 for the nine months ended March 31, 1996
(the "1996 Nine Months). Net loss per share of Common Stock after deducting
dividends on Preferred Stock was $(0.40) during the 1997 Nine Months compared to
a net loss of $(0.90) per share during the 1996 Nine Months. The $1,737,000
improvement in net loss between the periods was a result of increased gain on
sale of loans, from $1,063,000 in the 1996 Nine Months to $4,654,000 during the
1997 Nine Months. Loans sold increased from $24,830,000 to $65,860,000 between
the periods, and the net gain on sale of loans percentage improved from 4.3% to
7.2%.
Total expenses increased 32%, from $4,528,000 to $5,995,000, during the
1996 Nine Months as compared to the 1997 Nine Months. The largest increase was
in salaries and employee benefits, which increased 38% from $1,984,000 to
$2,742,000 during the comparable periods as the number of employees increased
from 57 people to 83 people, or 46% from March 31, 1996 to March 31, 1997, in
conjunction with a planned expansion program. This increase in employees and
offices also accounts for most of the second largest increase between the
comparable periods, other operating expenses. These expenses increased by
$303,000 or 21% from the 1996 to the 1997 period.
Interest expense and financing amortization also increased by $275,000
or 35% from the 1996 Nine Months to the 1997 Nine Months, primarily due to the
increased interest expense on the placement of $9,000,000 of convertible debt at
the end of the 1996 fiscal year. Legal and professional fees also increased by
$132,000 or 56% between the comparable periods primarily due to an increase in
consulting fees paid.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Loans receivable decreased by $1,800,000 from June 30, 1996 to March
31, 1997, despite increased originations during the period, as a result of the
sale by the Company of "non-securitizable" loans pursuant to the program
referred to above. The Company does not anticipate any large sales of
non-securitizable loans in the future. Cash also decreased by $1,571,000 during
this period, to $136,000, due to continued operating losses, the continued need
to fund loan production with working capital, and because substantially all of
the gain on sale of the Company's loans is in the form of an Interest-Only Strip
Receivable, which is not received immediately in cash. The Interest-Only Strip
Receivable increased from $1,317,000 to $7,008,000 net of amortization during
the nine months. Additionally, the higher percentage of bulk loans purchases
during the 1997 Three Months required payment of premiums in cash, which further
reduced the Company's cash.
By its nature, the Company's business requires continual access to
short-term and long-term sources of debt and equity capital. The Company's
capital requirements arise principally from loan originations and loan
repurchases, payments of operating and interest expenses, capital expenditures,
premiums paid for the purchase of loans, and start-up expenses for expansion
into new geographic markets. Additionally, even if the Company is generating net
income, a substantial portion of its revenues will consist of gain on sale of
loans in the form of an Interest-Only Strip Receivable wherein cash is not
received at the time of sale, but over the life of the mortgage loans.
Additionally, in April 1997, a newly-organized subsidiary of the Company
acquired substantially all of the assets of a retail mortgage broker located in
Cleveland, Ohio. While none of the acquisition price was paid in cash, the
Company is obligated to loan the subsidiary up to $500,000 over the next three
years for agreed-upon expenditures. The Company has never generated and does not
expect to generate a positive cash flow for some time, and it has required and
expects to continue to require additional financing to fund additional
geographical expansion and to support its infrastructure until such time as it
can increase the volume of loan origination to a point of positive cash flow,
and to realize greater returns on sales of loans. The cash outlay for the
current fiscal year was funded primarily out of the proceeds of the convertible
debt offering completed in August 1996 described below. Capital restraints have
from time to time adversely affected the volume of mortgage loans the Company
originates, and have negatively impacted its ability to hold such loans until a
sale could be arranged for on more favorable terms. This has resulted in the
Company selling many loans Whole simply to receive the gain on sale in cash at
the time of sale. To the extent that the Company is unable to obtain periodic
infusions of capital, the Company could be required to sell mortgage loans on
less favorable terms than it might otherwise be available or curtail lending
activities. To date, in addition to the Company's capital raising efforts, the
sources of liquidity have been (1) sales of the loans the Company originates and
purchases into secondary markets, (2) borrowings under a mortgage warehouse line
of credit secured by its loans, (3) finance income earned on Company owned loans
and servicing fees generated on the loan servicing portfolio, (4) borrowings
under a repurchase line of credit (discussed below), (5) other borrowings
(discussed below), (6) the conversion of the Excess Servicing Asset and
Interest-Only Strip Receivable into cash over the lives of the loans in the
servicing portfolio, and (7) advances against the cash normally received over
the life of the loan as noted in #6 above (discussed below).
In July 1994, the Company completed the placement of $5,550,000 of 8%
Senior Subordinated Convertible Notes due 2004 (the "8% Notes"). In October
1995, the Company agreed to certain conditions as a prerequisite for obtaining a
waiver for technical covenant violations contained in the indenture relating to
the 8% Notes at September 30, 1995. When these conditions were not met at
December 31, 1995, the maturity date of 8% Notes was accelerated to March 30,
1996. The Company repaid $3,250,000 of the 8% Notes in June 1996 ($2,250,000 of
which was paid out of the proceeds of the sale of the 10% Notes described below)
and the remaining $2,300,000 of 8% Notes was exchanged for loans under a secured
warehouse lending facility.
In 1995, the Company completed an offering of $3,000,000 of convertible
mortgage participations and warrants to purchase common stock to be used solely
for the purpose of originating and acquiring mortgage loans. Those borrowings
bear an interest rate of 10% per annum, payable monthly, and are secured by the
underlying mortgage loans. The proceeds from the sale of any assigned mortgage
loans can be used to originate new mortgage loans in which the holders will have
participations. The participations granted to the holders must be repaid on June
16, 1997. In October 1995, $2,500,000 of the borrowings were converted by the
holders of these participations into Preferred Stock and warrants as part of a
placement of $6,400,000 of 9% Convertible Preferred Stock and warrants to
purchase common stock. On September 30, 1996, $400,000 of the participations
were converted into common stock, leaving one holder with a $100,000
participation from the original $3,000,000 offering still outstanding. As of
March 31, 1997, $100,000 of the preferred stock had been converted into 40,000
shares of common stock.
11
<PAGE> 12
In January 1996, the Company obtained a $1,050,000 term loan at a 10%
interest rate secured by certain mortgage loans of the Company. The loan, which
was scheduled to mature in February 1997, was repaid in August 1996 primarily
from the proceeds of the sale of loans. In February 1996, the Company sold
$500,000 of convertible mortgage participations on similar terms to the
$3,000,000 of participations sold in June 1995 described above, all of which is
still outstanding.
In June through August of 1996, the Company sold $9,000,000 of 10%
Convertible Secured Notes due 2001 (the "10% Notes"), resulting in net proceeds
of approximately $8,000,000. The 10% Notes are partially secured by essentially
all otherwise unpledged assets of the Company and are convertible into common
stock. As of March 31, 1997, $407,750 of the 10% Notes had been converted into
163,100 shares of common stock.
In March 1997, the Company sold $600,000 of 10% secured promissory
notes which mature in one year or such earlier time as the Company obtains a
warehouse line of credit or issues at least $2,000,000 of the preferred stock in
the offering discussed below. The Company also sold $125,000 of secured term
notes in February 1997 due May 20, 1997.
In April 1997, the Company sold $1,674,000 or 16,740 shares of a Series
B 11% Convertible Redeemable Preferred Stock ("Series B Preferred Stock") having
a liquidation preference of $100 per share. The preferred stock is convertible
into shares of common stock at a rate of $2.50 per share. Purchasers of the
Series B Preferred Stock received warrants to purchase 669,000 shares of common
stock at $2.50 per share. The Company received net proceeds from the offering of
approximately $1,498,000.
As part of its agreement with a national financial institution, this
institution has been purchasing mortgage loans originated or acquired by the
Company on a regular basis. In addition, as part of this agreement, this
institution has agreed to make advances against a portion of the Interest-Only
Strip Receivable and, since the inception of the agreement, has advanced
$1,664,000 (net of repayments) against the Interest-Only Strip Receivable. While
these arrangements have provided additional sources of liquidity for the
Company, they were not sufficient during the 1997 Three Months to offset the
Company's net losses and the other factors which adversely affected the
Company's liquidity during this period.
Subsequent to the end of the 1997 Three Months the Company raised
additional funds in debt and equity financings referred to above. However, the
Company continues to require additional equity capital and/or a substantial
warehouse financing facility to provide funds to increase the volume of its loan
originations and the resulting gain on sale of mortgages from present levels in
order to improve its operating results. The Company is currently seeking
additional equity financing and/or a warehouse financing facility to provide the
required funds. Should the Company fail to obtain additional financing
sufficient to fund such increased production, then the Company could be forced
to curtail its lending operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations", 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 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; and market conditions and other factors relating
to the mortgage lending business. Investors are also directed to the other risks
discussed herein and in other documents filed by the Company with the
Commission.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any material legal
proceedings. The Company from time to time commences foreclosure proceedings
against borrowers who have defaulted on their loans.
Item 2. CHANGES IN SECURITIES
In March 1997, the Company sold $600,000 of 10% notes secured by
mortgage loans to two accredited investors. The notes mature in one year or such
earlier time as the Company obtains a warehouse line or issues at least
$2,000,000 of the Series B Preferred Stock. Warrants to purchase 15,000 shares
of the Company's common stock at a conversion price of $3.25 per share were also
issued to the purchasers. The sale was arranged by Taglich Brothers, D'Amadeo,
Wagner & Co., Inc., which received a nominal cash commission and warrants to
purchase 18,750 shares of the Company's common stock under the same terms as the
warrants issued to the purchasers. The sales were made in a private transaction
pursuant to Section 4 (2) of the Securities Act.
In February 1997, the Company sold $125,000 of 12% notes secured by
mortgage loans to an existing holder of convertible mortgage participations. The
note matures in May 1997, and no commission was paid.
Item 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Certificate of Designation for Series B Preferred Stock
4.2 Form of Warrants dated April 17, 1997
4.3 Form of Placement Agent Warrants dated April 17, 1997
27.1 Financial data schedule (for SEC use only).
(b) Reports on Form 8-K
Not applicable
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDIT DEPOT CORPORATION
------------------------
(Registrant)
Date: May 14, 1997 /s/ Gerald F. Sullivan
--------------------------------------------
Gerald F. Sullivan
(President and Chief Executive Officer)
Date: May 14, 1997 /s/ Charles D. Farrahar
--------------------------------------------
Charles D. Farrahar
(Vice President and Chief Financial Officer)
14
<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF DESIGNATION, PREFERENCES
---------------------------------------
AND RIGHTS OF SERIES B 11% CONVERTIBLE REDEEMABLE
-------------------------------------------------
PREFERRED STOCK
---------------
-OF-
CREDIT DEPOT CORPORATION
CREDIT DEPOT CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Company"), by
its President and Secretary, does hereby certify that, pursuant to authority
conferred upon the Board of Directors by Paragraph 4.2 of Article Fourth of the
Certificate of Incorporation, as amended, of the Company, authorizing a class
of 2,000,000 shares of preferred stock of the Company and pursuant to the
provisions of Section 151 of the Delaware General Corporation Law, as amended,
the Board of Directors of the Company, at meetings duly held on April 4, 1997
and April 18, 1997, has duly adopted resolutions providing for the issuance out
of such class of a series of up to 60,000 shares of Series B 11% Convertible
Redeemable Preferred Stock at an issuance price of $100 per share (the "Stated
Value") and setting forth the voting powers, designation, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, which resolution is as
follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Company in accordance with the provisions of its
Certificate of Incorporation, as amended, there be, and hereby is, created out
of the class of 2,000,000 shares of preferred stock of the Company authorized
in Paragraph 4.2 of Article Fourth of its Certificate of Incorporation, as
amended, a series of preferred stock of the Company with the following voting
powers, designation, preferences and
<PAGE> 2
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions:
1. Designation and Number of Shares. 60,000 shares of
preferred stock are hereby designated as Series B 11% Convertible Redeemable
Preferred Stock (the "Preferred Stock").
2. Dividends.
(A) Each issued and outstanding share of Preferred
Stock shall entitle the holder of record thereof to receive, when, as and if
declared by the Board of Directors, out of any funds legally available
therefor, dividends at the annual rate of 11% ($11) per annum per share of
Preferred Stock, subject to adjustment as hereinafter set forth, for the
quarterly period (or, in the case of the first dividend period, the period
commencing on the date of issuance) ending on the date immediately preceding
the Dividend Payment Date payable quarterly on each January 2, April 1, July 1
and October 1 (the "Dividend Payment Date"), commencing on the date of issuance
(the "Issuance Date"), to holders of record on December 15, March 15, June 15
and September 15 ("Dividend Record Date"). During the period from the Issuance
Date to July 1, 1998 (the "Initial Period"), dividends per share shall be
payable, at the Company's option, either (i) in cash or (ii) in shares of
Preferred Stock convertible, for the amount of the dividend payable per share,
into shares of Common Stock of the Company, par value $.001 ("Common Stock"),
at a rate (the "Dividend Rate") equal to the lower of (a) the Conversion Price
(as hereinafter defined) per share or (b) the average closing bid price of the
Common Stock, as reported on the Nasdaq SmallCap Market, or, if the Company's
Common Stock is not listed thereon, such other market on which the Common Stock
is then listed for trading ("Nasdaq"), for the period of twenty (20)
consecutive trading days ending five (5) days prior to the Dividend Record Date
(the "Market Price"). Thereafter, dividends
-2-
<PAGE> 3
are payable in cash. In the event that the Company does not pay dividends in
cash at any time after the Initial Period, the Company shall pay dividends in
shares of Preferred Stock as set forth above except that the Dividend Rate
shall equal 80% of the lesser of the Conversion Price or the Market Price.
Commencing April 1, 2000, the dividend payable shall increase at a rate of 2%
per quarter, up to a maximum dividend of 24% per annum or the maximum rate
permitted by law, whichever is less.
(B) Dividends shall accrue from the date of
issuance and shall accrue from day to day, whether or not earned or declared.
Dividends shall be paid on the Preferred Stock only when, as and if declared by
the Board of Directors, out of funds legally available therefor. Such
dividends shall be cumulative so that, if such dividends in respect of any
previous or current quarterly period, at the annual rate specified above
(subject to adjustment as herein provided), shall not have been paid or
declared and a sum sufficient for payment thereof set apart, the deficiency
shall first be fully paid before any dividend or other distribution shall be
paid on or set apart for any equity securities of the Company which is junior
to the Preferred Stock. Any accumulation of dividends on the Preferred Stock
shall not bear interest.
(C) Unless full cumulative dividends on the
Preferred Stock for all past dividend periods and the then current dividend
period shall have been paid or declared and a sum sufficient for the payment
thereof set apart: (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on any equity security of the Company which is
junior to the Preferred Stock, and (ii) no shares of any equity security which
is junior to the Preferred Stock of the
-3-
<PAGE> 4
Company shall be purchased, redeemed, or acquired by the Company and no funds
shall be paid into or set aside or made available for a sinking fund for the
purchase, redemption, or acquisition thereof.
(D) As set forth in the Company's Certificate of
Incorporation, as amended, the par value of the Preferred Stock is $.001 per
share.
(E) If any dividend previously due on the
Preferred Stock has not been paid in full, then no dividends shall be paid or
declared upon any shares of any class or series of stock of the Company ranking
on a parity with the Preferred Stock in the payment of dividends for any period
unless a like proportionate dividend for the current period, ratably in
proportion to the respective annual dividend rates fixed thereupon, shall be
paid upon or declared for the Preferred Stock then issued and outstanding.
(F) In the event of a split or subdivision of the
outstanding shares of Preferred Stock, or the combination or the outstanding
shares of Preferred Stock, as the case may be, the dividends provided for in
this Section 2 shall automatically and without any further action be decreased,
in the case of a split or subdivision, or increased, in the case of a
combination, in proportion to the increase or decrease in the number of shares
of Preferred Stock outstanding immediately before such split, subdivision or
combination.
3. Redemption.
(A) The Company may, at the option of the Board
of Directors, at any time or from time to time, commencing thirty (30) days
after the registration statement with the United States Securities and Exchange
Commission (the "SEC"), as provided in Paragraph 7 of the Stock Purchase
Agreement, registering the shares of Common Stock underlying the Preferred
Stock (the
-4-
<PAGE> 5
"Registration Statement") is declared effective under the Act, redeem the whole
or any part of the then outstanding shares of the Preferred Stock upon not less
than thirty (30) and not more than forty-five (45) days prior written notice
(the "Redemption Notice"), at a redemption price of $.01 per share payable in
cash, subject to appropriate adjustment in the event of a stock split or
subdivision or a stock combination of the Common Stock, plus accrued and unpaid
dividends through the date of redemption (collectively, the "Redemption
Price"), except to the extent restricted by applicable law, provided that i)
the Common Stock underlying the Preferred Stock shall have been registered
under the Securities Act of 1933, as amended (the "Act"), as provided for in
Paragraph 7 of the Preferred Stock Purchase Agreement, dated April 21, 1997
(the "Stock Purchase Agreement"), among the Company, Taglich Brothers,
D'Amadeo, Wagner & Company, Incorporated (the "Placement Agent") and the
holders of the Preferred Stock, and such registration shall be currently
effective, and ii) the average of the closing bid price of the Common Stock as
reported by Nasdaq shall, for twenty (20) out of thirty (30) consecutive
trading days ending within ten (10) days of the date of the Redemption Notice,
equal or exceed 200% of the then current Conversion Price.
(B) The Company shall have the right at any time
after 913 days from the final closing date (the "Final Closing") of the private
placement of the Preferred Stock pursuant to a Confidential Placement
Memorandum, dated March 24, 1997, as amended (the "Private Placement"), to
redeem for cash all of the outstanding shares of Preferred Stock (including all
shares as issued as dividends) for the Stated Value per share (the "Purchase
Price"). All accrued and unpaid dividends shall be paid in cash.
-5-
<PAGE> 6
(C) In case of any redemption of only a part of
the Preferred Stock at the time outstanding, the Company shall effect such
redemption ratably among the holders of the Preferred Stock in proportion to
the aggregate number of shares held by each holder of Preferred Stock.
(D) The Redemption Notice shall be mailed by
overnight courier to each holder of record of such shares (at the close of
business on the business day next preceding the day on which notice is given)
at the address for such holder shown on the Company's records, at least 30 days
but not more than 45 days prior to the date fixed for redemption (the
"Redemption Date"); provided, however, that neither the failure to so send any
such notice nor any defects contained in any such notice shall affect the
validity of the proceedings for the redemption of any of the shares of
Preferred Stock to be redeemed with respect to the holders of which proper
notice was given. The Redemption Notice shall notify each such holder of the
Preferred Stock subject to redemption to be effected, specifying the Redemption
Date, the number of shares of Preferred Stock and the certificate numbers
thereof which are to be redeemed, the Redemption Price, the place at which
payment may be obtained and the date on which such holder's Conversion Rights
(as discussed in Section 6 below) as to such shares terminate and calling upon
such holder to surrender to the Company, in the manner and at the place
designated, such holder's certificate or certificates so redeemed. Upon
sending the Redemption Notice, the Company shall become obligated to redeem at
the time of redemption specified therein all shares specified therein. In case
less than all of the shares of Preferred Stock represented by any certificate
are redeemed pursuant to this Section 3, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
-6-
<PAGE> 7
(E) From and after the close of business on the
Redemption Date, the shares called for redemption shall no longer be deemed
outstanding, the right to thereafter receive dividends thereon shall cease to
accrue, and all rights of holders of the shares of Preferred Stock so called
for redemption shall forthwith, after such Redemption Date, cease and
terminate, excepting only the right of the holders thereof to receive the
Redemption Price therefor, without interest and such shares shall not
thereafter be transferred on the books of the Company or deemed to be
outstanding for any purpose whatsoever. Three days prior to any Redemption
Date, the Company shall deposit the Redemption Price of all shares of Preferred
Stock designated for redemption in the Redemption Notice and not yet redeemed
or converted with the transfer agent for the Preferred Stock or if no transfer
agent shall have been appointed or shall be in existence, with a bank or trust
corporation (the "Paying Agent") as a trust fund for the benefit of the
respective holders of the shares of Preferred Stock designated for redemption
and not yet redeemed or converted, with irrevocable instructions and authority
to the Paying Agent to pay the Redemption Price for such shares to their
respective holders on or after the Redemption Date, upon surrender of such
holders' share certificate or certificate representing its shares so redeemed.
Any monies deposited by the Company pursuant to this paragraph for the
redemption of shares of Preferred Stock which are thereafter converted into
Common Stock pursuant to Section 6 hereof, no later than the close of business
on the day preceding the Redemption Date shall be returned to the Company
forthwith upon conversion. Any moneys set aside by the Company for a
redemption and unclaimed at the end of six years from such Redemption Date
shall revert to the general funds of the Company, provided that a shareholder
to which such monies would be payable hereunder shall be entitled upon proof of
its
-7-
<PAGE> 8
ownership of shares of Preferred Stock to receive the Redemption Price (without
interest). Any interest accrued on funds so deposited shall be paid to the
Company from time to time.
(F) Unless provision has been made for payment in
full of dividends on all shares of the Preferred Stock for all past dividend
periods and the current period, no sum shall be set aside for the redemption of
any shares of the Preferred Stock, nor shall any shares of capital stock,
including the Preferred Stock, be purchased or otherwise acquired by the
Company, other than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Preferred Stock or unless all outstanding shares of
Preferred Stock are simultaneously redeemed.
4. Liquidation.
Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary ("Liquidation"), the holders of
record of the shares of the Preferred Stock shall be entitled to receive,
before and in preference to any distribution or payment of assets of the
Company or the proceeds thereof may be made or set apart for the holders of
Common Stock or any other security junior to the Preferred Stock in respect of
distributions upon Liquidation out of the assets of the Company legally
available for distribution to its stockholders, an amount in cash equal to the
greater of i) Stated Value per share (subject to adjustment if the Preferred
Stock has been adjusted pursuant to Paragraph 2(F) hereof) or ii) the amount
that would have been paid to the holders of the Preferred Stock had the
Preferred Stock been converted into shares of Common Stock immediately prior to
such an event (the "Liquidation Preference"), plus accrued and unpaid dividends
on each such share on the date fixed for the distribution of assets of the
Company. If, upon such Liquidation,
-8-
<PAGE> 9
the assets of the Company available for distribution to the holders of
Preferred Stock and any other series of preferred stock then outstanding
ranking on parity with the Preferred Stock upon liquidation ("Parity Stock")
shall be insufficient to permit payment in full to the holders of the Preferred
Stock and Parity Stock, then the entire assets and funds of the Company legally
available for distribution to such holders and the holders of the Parity Stock
then outstanding shall be distributed ratably among the holders of the
Preferred Stock and Parity Stock based upon the proportion the total amount
distributable on each share upon liquidation bears to the aggregate amount
available for distribution on all shares of the Preferred Stock and of such
Parity Stock, if any. A merger or consolidation shall be considered a
Liquidation except in the event that in such a transaction, the holders of the
Preferred Stock receive securities of the surviving corporation having
substantially similar rights as the Preferred Stock and the stockholders of the
Company immediately prior to such transaction are holders of at least a
majority of the voting securities of the surviving corporation immediately
thereafter. Notwithstanding Section 7 hereof, such provision may be waived in
writing by a majority of the holders of the then outstanding Preferred Stock.
5. Priority.
(A) So long as any shares of Preferred Stock
shall be outstanding, no dividends, whether in cash or property, shall be paid
or declared, nor shall any other distribution be made, on the Common Stock of
the Company or any other security junior to the Preferred Stock as to dividend
rights, unless all dividends on the Preferred Stock for all past quarterly
dividend periods and the full dividends for the then current quarterly period
shall have been paid or declared and duly provided for. The provisions of this
Section 5 shall not, however, apply to a dividend payable in
-9-
<PAGE> 10
Common Stock or any other security of the Company junior to the Preferred
Stock. If any dividend previously due on the Preferred Stock has not been paid
in full, then no dividends shall be paid or declared upon any shares of any
class or series of stock of the Company ranking on a parity with the Preferred
Stock in the payment of dividends for any period unless a like proportionate
dividend for the current period, ratably in proportion to the respective annual
dividend rates fixed thereupon, shall be paid upon or declared for the
Preferred Stock then issued and outstanding.
(B) The Company may issue, in the future, without
the consent of holders of the Preferred Stock, other series of preferred stock
which rank on parity with or junior to the Preferred Stock as to dividend
and/or liquidation rights. In accordance with Paragraph 7(C) hereof, the
consent of the holders of two-thirds of the outstanding shares of the Preferred
Stock is required for the issuance of any series of preferred stock which is
senior as to dividend and/or liquidation rights to the Preferred Stock.
6. Conversion Rights.
Each holder of record of shares of the Preferred
Stock shall have the right to convert all or any part of such holder's share of
Preferred Stock into Common Stock as follows:
(A) Each share of the Preferred Stock shall be
convertible, at the option of the respective holders thereof, at any time after
the Issuance Date and prior to redemption, at the office of any transfer agent
for the Preferred Stock, or if there is none, then at the office of the
transfer agent for the Common Stock, or if there is no such transfer agent, at
the principal executive office of the Company, into fully paid and
non-assessable shares of Common Stock of the Company into that number of shares
of Common Stock equal to the Stated Value divided by the conversion
-10-
<PAGE> 11
price (the "Conversion Price") in effect at the time of conversion, determined
as hereinafter provided. The Conversion Price shall initially be $2.50,
subject to reduction by the Company during a 60 day period following the
commencement of the Private Placement, which reduction shall apply
retroactively to shares of Preferred Stock purchased prior to the date of such
reduction. The right to convert the Preferred Stock called for redemption
shall terminate at the close of business on the last business day prior to the
date fixed for redemption, unless default is made in payment of the Redemption
Price. Dividends accrued and payable at the time of Conversion shall be paid,
at the Company's option, either i) in cash or ii) in such number of shares of
Common Stock equal to the quotient resulting from dividing the amount of any
unpaid and accrued dividends by the lesser of the Conversion Price or the
average closing bid price of the Common Stock, as reported on Nasdaq, for the
period of twenty (20) consecutive trading days ending five (5) days prior to
the conversion date.
(B) Each conversion of shares of the Preferred
Stock shall be effected by the surrender of the certificate or certificates
("Certificates") representing the shares to be converted, duly endorsed, at the
office of any transfer agent for the Preferred Stock, and if there is no such
transfer agent at the office of any transfer agent for the Common Stock, or if
there is no such transfer agent, at the principal executive office of the
Company, at any time during its usual business hours, together with written
notice by the holder of such shares stating that such holder desires to convert
the shares, or a stated number of the shares, represented by the
Certificate(s), which notice ("Notice of Conversion") shall also specify the
name or names (with addresses) and denominations in which the Certificate(s)
representing the Common Stock issuable upon conversion shall be issued and
shall
-11-
<PAGE> 12
include instructions for delivery thereof. The Notice of Conversion may be
sent by first-class mail, postage prepaid, or telecopied to the Corporation,
provided that the original Notice of Conversion and the Certificate(s) are
delivered to the Corporation by express courier within 72 hours. Such
conversion shall be deemed to have been effected as of the close of business on
the date on which (i) the Certificate(s) has been surrendered and the Notice of
Conversion has been received or (ii) the Notice of Conversion has been received
by the Corporation via first-class mail or telecopier (provided that if by
telecopier, the Certificate(s) have been received within 72 hours), and, at
such time, the rights of the holder of such shares (or specified portion
thereof) as such holder shall cease and the person or persons in whose name or
names the Certificate(s) for shares of Common Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby. The Company shall advise the
holders of the Preferred Stock of the name and location of the transfer agent
to which the shares of the Preferred Stock shall be submitted for conversion
and from time to time thereafter advise such holders of any change in such name
and/or location. The Corporation will transmit the Common Stock certificates
issuable upon conversion of the Preferred Stock and a certificate representing
the balance of the Preferred Stock, if any, to such holder via express courier
within three (3) business days after the date of conversion.
(C) All Common Stock which may be issued upon
conversion of the Preferred Stock will, upon issuance, be duly issued, fully
paid and non-assessable and free from all taxes, liens, and charges with
respect to the issuance thereof. At all times that any shares of Preferred
Stock are outstanding, the Corporation shall have authorized and shall have
reserved for
-12-
<PAGE> 13
the purpose of issuance upon such conversion into Common Stock of all Preferred
Stock, a sufficient number of shares of Common Stock to provide for the
conversion of all outstanding shares of Preferred Stock at the then effective
Conversion Price. Without limiting the generality of the foregoing, if, at any
time, the Conversion Price is decreased, the number of shares of Common Stock
authorized and reserved for issuance upon the conversion of the Preferred Stock
shall be proportionately increased.
(D) The Conversion Price shall be subject to
adjustment from time to time as follows:
(i) (a) The Conversion Price of the Preferred
Stock shall be adjusted to a price equal to the weighted average of the price
or prices of any shares of Common Stock issued by the Company (the "Weighted
Average Price"), other than "Excluded Securities" (as defined below), on a
cumulative basis, sold by the Company on or after the date hereof; provided
that there shall be no adjustment for any Common Stock issued on or after April
16, 1998. The Weighted Average Price shall be computed by dividing (A) the
sum of the product of (i) the sales price of each such issuance of Common
Stock and (ii) the number of shares of Common Stock in each such issuance by
(B) the aggregate number of shares of such Common Stock issued; provided
however that no price adjustment which increases the conversion price from the
conversion price in effect immediately prior to such adjustment shall be
effective as to any holder until 20 days after written notice thereof has been
furnished to the holder. The provisions of this subsection shall not apply
retroactively to any Preferred Stock which has been converted prior to the date
of the
-13-
<PAGE> 14
adjustment. No adjustment shall be made hereunder until an aggregate of 34,000
shares of Common Stock (other than Excluded Securities) shall have been issued
by the Company after the date hereof.
(b) In no event shall the
Conversion Price be increased above the initial Conversion Price, as otherwise
adjusted pursuant to this Section 6.
(c) Upon each adjustment of the
Conversion Price pursuant to this subsection 6(D), the total number of shares
of Common Stock purchasable upon the conversion of each share of Preferred
Stock shall be such number of shares (calculated to the nearest one-hundredth
and pursuant to the terms of subsection 6(G); provided, however, that in no
event shall the Conversion Price increase as a result of such rounding
calculation) purchasable at the Conversion Price in effect immediately prior to
such adjustment multiplied by a fraction, the numerator of which shall be the
Conversion Price in effect immediately prior to such adjustment and the
denominator of which shall be the Conversion Price in effect immediately after
such adjustment.
(d) No adjustment in the Conversion
Price or the number of shares of Common Stock into which a share of Preferred
Stock may be converted shall be required unless such adjustment (plus any
adjustments not previously made by reason of this paragraph (d)) would require
an increase or decrease of at least 5% in the number of shares of Common Stock
into which each share of the Preferred Stock is then convertible, provided,
however, that any adjustments which are not required to be made by reason of
this paragraph (d) shall be carried forward and taken into account in any
subsequent adjustment. All calculations and adjustments shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
-14-
<PAGE> 15
(e) After each adjustment of the
Conversion Price the Company shall promptly prepare a certificate signed by its
President or Chief Financial Officer and a Secretary or Assistant Secretary
setting forth the Conversion Price, as so adjusted; the number of shares of
Common Stock into which the Preferred Stock may be converted, and a statement
of the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent, if any, for the Preferred Stock,
and the Company shall cause such a copy of statement to be sent by ordinary
first class mail to each holder of Preferred Stock.
(f) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this Corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(g) In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors.
(h) In the case of the issuance
after the Issuance Date of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 6(D)(i) and subsection 6(D)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon
exercise (assuming the satisfaction
-15-
<PAGE> 16
of any conditions to exercisability,
including without limitation, the passage of
time, but without taking into account
potential antidilution adjustments) of such
options to purchase or rights to subscribe
for Common Stock shall be deemed to have been
issued at the time such options or rights
were issued and for a consideration
(determined in the manner provided in
subsections 6(D)(i)(f) and 6(D)(i)(g)), if
any, received by the Corporation upon the
issuance of such options or rights plus the
minimum exercise price provided in such
options or rights (without taking into
account potential antidilution adjustments)
for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon
conversion of or in exchange for (assuming
the satisfaction of any conditions to
convertibility or exchangeability, including,
without limitation, the passage of time, but
without taking into account potential
antidilution adjustments) any such
convertible or exchangeable securities or
upon the exercise of options to purchase or
rights to subscribe for such convertible or
exchangeable securities and subsequent
conversion or exchange thereof, shall be
deemed to have been issued at the time such
securities were issued or such options or
rights were issued and for a consideration
equal to the consideration, if any, received
by the
-16-
<PAGE> 17
Corporation for any such securities and
related options or rights (excluding any
cash received on account of accrued interest
or accrued dividends), plus the minimum
additional consideration, if any, to be
received by the Corporation (without taking
into account potential antidilution
adjustments) upon the conversion or exchange
of such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subsections 6(D)(i)(f) and 6(D)
(i)(g)).
(3) In the event of any change in
the number of shares of Common Stock
deliverable or in the consideration payable
to the Corporation upon exercise of such
options or rights or upon conversion of or in
exchange for such convertible or exchangeable
securities (excluding a change resulting
solely from the antidilution provisions
thereof if such change results from an event
which gives rise to an antidilution
adjustment under this subsection 6(D)), the
Conversion Price of the Preferred Stock, to
the extent in any way affected by or computed
using such options, rights or securities,
shall be recomputed to reflect such change,
but no further adjustment shall be made for
the actual issuance of Common Stock or any
payment of such consideration upon the
exercise of any such options or rights or the
conversion or exchange of such securities.
-17-
<PAGE> 18
(4) Upon the expiration of any
such options or rights, the termination of
any such rights to convert or exchange or the
expiration of any options or rights related
to such convertible or exchangeable
securities, the Conversion Price of the
Preferred Stock, to the extent in any way
affected by or computed using such options,
rights or securities or options or rights
related to such securities, shall be
recomputed to reflect the issuance of only
the number of shares of Common Stock (and
convertible or exchangeable securities which
remain in effect) actually issued upon the
exercise of such options or rights, upon the
conversion or exchange of such securities or
upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration
deemed paid therefor pursuant to subsections
6(D)(i)(h)(1) and (2) shall be appropriately
adjusted to reflect any change, termination
or expiration of the type described in
either subsection 6(D)(i)(h)(3) or (4).
(6) Notwithstanding the provisions
of subsections 6(D)(i)(h)(1)- (5) above, in
the event that on or after the date hereof
the Company issues any options to purchase or
rights to subscribe for Common Stock,
securities by their terms convertible into or
exchangeable for Common Stock or options to
purchase or rights to
-18-
<PAGE> 19
subscribe for such convertible or
exchangeable securities, if the
conversion or exercise price is not
then determinable or is based on
future events, such shares of Common
Stock shall not be deemed to be
issued until the price is
determinable or such event has
occurred and the conversion or
exercise price shall be subject to
adjustment pursuant to subsection
6(D)(i) above as a result of any
such issuance occurring prior to
April 16, 1998 at the time of such
determination or the occurrence of
such event even if the price is
determined or such event occurs
after such date.
(ii) The following issuances of Common
Stock ("Excluded Securities") shall be excluded from the adjustments set forth
in this Section 6(D):
(a) shares of capital stock issued
pursuant to a stock dividend or a stock split or other subdivision or
recombination of shares;
(b) Common Stock issued upon
exercise of any warrants, options or other securities outstanding at the date
hereof;
(c) securities issued by the
Corporation in an underwritten public offering at not less than 87.5% of the
then effective Conversion Price;
(d) securities issued pursuant to
the direct or indirect bona fide acquisition by the Corporation of any Person,
whether by merger, purchase of stock, purchase of assets or otherwise;
(e) securities issued upon
exercise, conversion or exchange of capital stock, rights, options or
subscription calls, warrants or other securities;
-19-
<PAGE> 20
(f) Common Stock or options to
purchase Common Stock issued to officers, directors or employees of or
consultants to the Corporation pursuant to any compensation agreement, plan or
arrangement or the issuance of Common Stock upon the exercise of any such
options; and
(g) securities issued in connection
with bona fide loans or warehouse facilities with banks, trust companies or
other financial institutions regularly engaged in the business of making
commercial loans.
(iii) In case the Company shall (a) issue
Common Stock as a dividend or distribution on any class of the capital stock of
the Company, (b) split or otherwise subdivide its outstanding Common Stock, (c)
combine the outstanding Common Stock into a smaller number of shares, or (d)
issue by reclassification of its Common Stock (except in the case of a merger,
consolidation or sale of all or substantially all of the assets of the Company
as set forth in paragraph 6(D)(v) below) any shares of the capital stock of the
Company, any shares of the capital stock of the Company, the Conversion Price
in effect on the record date for any stock dividend or the effective date of
any such other event shall be increased (or decreased in the case of a reverse
stock split) so that the holder of each share of the Preferred Stock shall
thereafter be entitled to receive, upon the conversion of such share, the
number of shares of Common Stock or other capital stock which it would own or
be entitled to receive immediately after the happening of any of the events
mentioned above had such share of the Preferred Stock been converted
immediately prior to the close of business on such record date or effective
date. The adjustments herein provided shall become effective immediately
following the record date for any such stock dividend or the effective
-20-
<PAGE> 21
date of any such other events. There shall be no reduction in the Conversion
Price in the event that the Corporation pays a cash dividend.
(iv) In case of any reclassification or
similar change of outstanding shares of Common Stock of the Company, or in case
of the consolidation or merger of the Company with another corporation, or the
conveyance of all or substantially all of the assets of the Company in a
transaction in which holders of the Common Stock receive shares of stock or
other property including cash, each share of the Preferred Stock shall, after
such event and subject to the other rights of the Preferred Stock as set forth
elsewhere herein, be convertible only into the number of shares of stock or
other securities or property, including cash, to which a holder of the number
of shares of Common Stock of the Company deliverable upon conversion of such
shares of the Preferred Stock would have been entitled upon such
reclassification, change, consolidation, merger or conveyance had such share
been converted immediately prior to the effective date of such event.
(v) In the event of a merger,
consolidation or sale of all or substantially all of the assets of the Company
or other change of control transaction (collectively, a "Change of Control
Transaction"), the holders of the Preferred Stock shall have a right to
convert such Preferred Stock into shares of Common Stock immediately prior to
the Change of Control Transaction at a Conversion Price equal to the lesser of
(i) the Conversion Price or (ii) the price per share of the Common Stock
Pursuant to such Change of Control Transaction.
(E) If the Company does not file a registration
statement with the United States Securities and Exchange Commission (the "SEC")
pursuant to the Act (the "Registration Statement"), as provided in Paragraph 7
of the Stock Purchase Agreement, to register the shares of Common Stock
underlying the Preferred Stock within the 180 day period following the Final
-21-
<PAGE> 22
Closing and such Registration Statement is not declared effective by the SEC
within 270 days after the Final Closing, the Conversion Price shall be reduced
at a rate of 2% per month, or any part thereof, up to a maximum reduction of
24%, until the Registration Statement is filed and/or declared effective, as
applicable.
(F) The Company shall at all times reserve and
keep available, out of its authorized but unissued shares of Common Stock or
out of shares of Common Stock held in its treasury, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of all shares of the
Preferred Stock from time to time outstanding. The Company shall from time to
time in accordance with Delaware law take all steps necessary to increase the
authorized amount of its Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of the Preferred Stock.
(G) (i) No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon the
conversion of the Preferred Stock. In lieu of any fractional shares to which a
holder would otherwise be entitled, the Company shall pay cash, equal to such
fraction multiplied by the closing price (determined as provided in
subparagraph (ii) of this Paragraph 6(G) of the Common Stock on the day of
conversion.
(ii) For the purposes of any computation
under the preceding paragraph of this Paragraph 6(G), the current market price
per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the 30 consecutive full business days commencing 45
business days before the day in question. The closing price for each day shall
be the last sales price regular way or in case no sale takes place on such day,
the average of the closing
-22-
<PAGE> 23
high bid and low asked prices regular way, in either case (a) as officially
quoted by the Nasdaq SmallCap Market or the Nasdaq National Market or such
other market on which the Common Stock is then listed for trading, or (b) if,
in the reasonable judgment of the Board of Directors of the Company, the Nasdaq
SmallCap Market or the Nasdaq National Market is no longer the principal United
States market for the Common Stock, then as quoted on the principal United
States market for the Common Stock, as determined by the Board of Directors of
the Company, or (c) if, in the reasonable judgment of the Board of Directors of
the Company, there exists no principal United States market for the Common
Stock, then as reasonably determined by the Board of Directors of the Company.
(H) The Company will pay any taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of the Preferred Stock. However, the Company shall not be
required to pay any tax which may be payable in respect to any transfer
involved in the issue and delivery of shares of Common Stock upon conversion in
a name other than that in which the shares of the Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue or delivery has paid to the Company the amount
of any such tax, or has established, to the satisfaction of the Company, that
such tax has been paid.
(I) The Company will not, by amendment of its
Certificate of Incorporation, as amended, or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the
-23-
<PAGE> 24
provisions of this Section 6 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against impairment.
(J) No shares of Preferred Stock which have been
converted to Common Stock shall be reissued by the Company, provided, however,
that any such share, upon being converted and cancelled, shall be restored to
the status of an authorized but unissued share of preferred stock without
designation as to series, rights or preferences and may thereafter be issued as
a share of preferred stock not designated as Preferred Stock.
7. Voting Rights.
The holders of the Preferred Stock shall have no right to vote
for any purpose, except as specifically required by the General Corporation Law
of the State of Delaware and except as follows:
(A) In the event that Dividends are not paid in
cash on July 1, 1998 or at any subsequent Dividend Payment Date, as set forth
in Section 2, the holders of the Preferred Stock shall thereafter be entitled
to vote together with the holders of the Common Stock on all matters presented
to the holders of the Common Stock. In such event, each share of Preferred
Stock shall have a number of votes equal to the number of votes entitled to the
shares of Common Stock underlying each share of Preferred Stock on the
applicable record date for a meeting of the stockholders.
(B) For so long as at least one-half or more of
the shares of Preferred Stock remain issued and outstanding (the "Threshold"),
the Placement Agent shall have the right to nominate one person to serve as a
member of the Board of Directors and the Company shall use its
-24-
<PAGE> 25
best efforts to cause the election of such person in all meetings of
shareholders thereafter until the Threshold is no longer met.
(C) In the event that the holders of the
Preferred Stock are required to vote as a class, the affirmative vote of
holders of not less than two-thirds of the outstanding shares of Preferred
Stock shall be required to approve each such matter to be voted upon and if any
matter is approved by such requisite percentage of holders of Preferred Stock,
such matter shall bind all holders of Preferred Stock.
(D) So long as any shares of the Preferred Stock
remain outstanding, the consent of the holders of a two-thirds of the then
outstanding Preferred Stock, voting as one class, together with any other
series of preferred stock then entitled to vote on such matter, regardless of
series, either expressed in writing or at a meeting called for that purpose,
shall be necessary to permit, effect or validate the creation and issuance of
any series of preferred stock of the Company which is senior as to liquidation
and/or dividend rights to the Preferred Stock.
(E) So long as any shares of the Preferred Stock
remain outstanding, the consent of two-thirds of the holders of the then
outstanding Preferred Stock, voting as one class, either expressed in writing
or at a meeting called for that purpose, shall be necessary to repeal, amend or
otherwise change this Certificate of Designation, Preferences and Rights or the
Certificate of Incorporation of the Company, as amended, in a manner which
would alter or change the powers, preferences, rights privileges, restrictions
and conditions of the Preferred Stock so as to adversely affect the Preferred
Stock.
(F) Each share of the Preferred Stock shall
entitle the holder thereof to one vote on all matters to be voted on by the
holders of the Preferred Stock, as set forth above.
-25-
<PAGE> 26
8. Miscellaneous.
(A) All shares of the Preferred Stock redeemed,
purchased or otherwise acquired by the Company or surrendered to it for
conversion into Common Stock as provided above shall be cancelled and shall not
be restored to the status of authorized but unissued preferred stock.
(B) There is no sinking fund with respect to
Preferred Stock.
(C) The shares of the Preferred Stock shall not
have any preferences, voting powers or relative, participating, optional,
preemptive or other special rights except as set forth above in this
Certificate of Designation, Preferences and Rights and in the Certificate of
Incorporation of the Company, as amended.
(D) The holders of the Preferred Stock shall be
entitled to receive all communications sent by the Company to the holders of
the Common Stock.
-26-
<PAGE> 27
IN WITNESS WHEREOF, Credit Depot Corporation has caused this
Certificate to be signed by Gerald F. Sullivan, its President, on this 21st
day of April, 1997, and such person hereby affirms under penalty of perjury
that this Certificate is the act and deed of Credit Depot Corporation and that
the facts stated herein are true and correct.
CREDIT DEPOT CORPORATION
By:
------------------------------------
Gerald F. Sullivan, President
Attest:
- -------------------------------------
Charles Farrahar, Assistant Secretary
-27-
<PAGE> 28
State of GEORGIA )
: ss.:
County of Hall )
On this ____ day of _____, 1997, before me, the undersigned, a
Notary Public of the State of New York, personally appeared Gerald F.
Sullivan, known to me to be the President of CREDIT DEPOT CORPORATION, the
corporation that executed the within instrument, and known to me to be the
person who executed the within instrument on behalf of said corporation and
acknowledged to me that such corporation executed the same pursuant to its
By-Laws and a resolution of its Board of Directors.
WITNESS my hand and official seal the day and year first above written.
------------------------
Notary Public
-28-
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE COMMON STOCK ISSUABLE
ON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OF THE UNITED STATES OF AMERICA (THE "ACT")
AND MAY NOT BE TRANSFERRED UNTIL
(1) THE SECURITIES ARE REGISTERED
UNDER THE ACT AND A REGISTRATION THEREUNDER
HAS BECOME EFFECTIVE WITH RESPECT THERETO OR
(2) THE ISSUER RECEIVES AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH PROPOSED TRANSFER IN VIOLATION OF
ANY APPLICABLE STATE SECURITIES LAWS.
Void after 5:00 p.m. Atlanta Time, on April 21, 2000
Warrant to Purchase ________________________ Shares of Common Stock.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
OF
CREDIT DEPOT CORPORATION
This is to Certify That, FOR VALUE RECEIVED,
___________________________________________________________
________________________________________________________________________
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Credit Depot Corporation, a Delaware corporation ("Company"),
______________________ _______________________________________ (__________)
fully paid, validly issued, nonassessable shares of Common Stock, par value $
.001 per share, of the Company ("Common Stock") at a price of $2.50 per share
at any time or from time to time during the period from April 21, 1997 until
5:00 p.m., Atlanta Time on April 21, 2000, subject to the Company's right to
redeem this Warrant pursuant to Section 11 hereof. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
<PAGE> 2
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time
or from time to time on or after April 21, 1997 and until April 21, 2000,
subject to the Company's right to redeem this Warrant pursuant to Section 11
hereof, (the "Exercise Period") provided, however, that (i) if either such day
is a day on which banking institutions in the State of Georgia are authorized
by law to close, then on the next succeeding day which shall not be such a day,
and (ii) in the event of a merger, consolidation or sale of all or
substantially all of the assets of the Company or other change of control
transaction (collectively, a "Change of Control Transaction"), the holders of
the Warrants shall have a right to exercise such Warrants into shares of Common
Stock immediately prior to the Change of Control Transaction at a Exercise
Price equal to the lesser of (i) the Exercise Price or (ii) the price per share
of the Common Stock Pursuant to such Change of Control Transaction. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office, or at the office of its stock transfer agent, if any,
with the Purchase Form annexed hereto duly executed and accompanied by payment
of the Exercise Price for the number of Warrant Shares specified in such form.
As soon as practicable after each such exercise of the warrants, but not later
than seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant, such warrant to be in substantially the same form as this Warrant,
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
The Company will at no time close its transfer books against
the transfer of any shares of Common Stock issued or issuable upon the exercise
of this Warrant in any manner which interferes with the timely exercise of this
Warrant.
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or
delivery upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance and delivery upon exercise of the
Warrants.
-2-
<PAGE> 3
SECTION 3. FRACTIONAL SHARES.
(A) No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the
current market value of a share, determined as follows:
(B) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market system, the current market
value shall be the last reported sale price of the Common Stock on such
exchange or system on the last business day prior to the date of exercise of
this Warrant or if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or system; or
(C) If the Common Stock is not so listed or admitted to
unlisted trading privileges but bid and asked prices are reported by the
National Quotation Bureau, Inc. or the OTC Bulletin Board, the current market
value shall be the mean of the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. or the OTC Bulletin Board on the last
business day prior to the date of the exercise of this Warrant; or
(D) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the date
of the exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option
of the Holder, upon presentation and surrender hereof to the Company or at the
office of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
-3-
<PAGE> 4
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any
rights of a shareholder in the Company, either at law or equity, and the rights
of the Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein. No
provision of this Warrant, in the absence of affirmative action by the Holder
to purchase the Warrant Shares, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for
the Exercise Price or as a shareholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
SECTION 6. ADJUSTMENTS
(A) Subject to the provisions of this Section 6, the
Exercise Price in effect from time to time shall be subject to adjustment, as
follows:
(i) (a) The Exercise Price of this Warrant
shall be adjusted to a price equal to the weighted average of the price or
prices of any shares of Common Stock issued by the Company (the "Weighted
Average Price"), other than "Excluded Securities" (as defined below), on a
cumulative basis, sold by the Company on or after the date hereof; provided
that there shall be no adjustment for any Common Stock issued on or after April
16, 1998. The Weighted Average Price shall be computed by dividing (A) the sum
of the product of (i) the sales price of each such issuance of Common Stock and
(ii) the number of shares of Common Stock in each such issuance by (B) the
aggregate number of shares of such Common Stock issued; provided however that
no price adjustment which increases the Exercise price from the Exercise price
in effect immediately prior to such adjustment shall be effective as to any
holder until 20 days after written notice thereof has been furnished to the
holder. The provisions of this subsection shall not apply retroactively to any
Warrant which has been exercised prior to the date of the adjustment. No
adjustment shall be made hereunder until an aggregate of 34,000 shares of
Common Stock (other than Excluded Securities) shall have been issued by the
Company after the date hereof.
(b) In no event shall the Exercise Price
be increased above the initial Exercise Price, as otherwise adjusted pursuant
to this Section 6.
(c) Upon each adjustment of the Exercise
Price pursuant to this subsection 6(A), the total number of shares of Common
Stock purchasable upon the exercise of Warrant shall be such number of shares
(calculated to the nearest one-hundredth and pursuant to the terms of Section
3; provided, however, that in no event shall the Exercise Price increase as a
result of such rounding calculation) purchasable at the Exercise Price in
effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the Exercise Price in effect immediately prior to
such adjustment and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment.
(d) No adjustment in the Exercise Price
or the number of shares of Common Stock into which a Warrant may be exercised
shall be required unless such adjustment
-4-
<PAGE> 5
(plus any adjustments not previously made by reason of this paragraph (d))
would require an increase or decrease of at least 5% in the number of
shares of Common Stock into which each Warrant is then exercisable, provided,
however, that any adjustments which are not required to be made by reason of
this paragraph (d) shall be carried forward and taken into account in any
subsequent adjustment. All calculations and adjustments shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(e) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this Corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(f) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors.
(g) In the case of the issuance after
the Issuance Date of options to purchase or rights to subscribe for Common
Stock, securities by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all purposes
of this subsection 6(A)(i) and subsection 6(A)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise
(assuming the satisfaction of any conditions to
exercisability, including without limitation, the
passage of time, but without taking into account
potential anti-dilution adjustments) of such options
to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such
options or rights were issued and for a consideration
(determined in the manner provided in subsections
6(A)(i)(e) and 6(A)(i)(f)), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum exercise price provided in
such options or rights (without taking into account
potential anti-dilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of
or in exchange for (assuming the satisfaction of any
conditions to convertibility or exchangeability,
including, without limitation, the passage of time,
but without taking into account potential
anti-dilution adjustments) any such convertible or
exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were
issued or such options or rights were issued and for
a consideration equal to the
-5-
<PAGE> 6
consideration, if any, received by the
Corporation for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the minimum additional consideration, if any, to
be received by the Corporation (without taking into
account potential anti-dilution adjustments) upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in subsections 6(A)(i)(e) and
6(A)(i)(f)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in
the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion
of or in exchange for such convertible or
exchangeable securities (excluding a change resulting
solely from the anti-dilution provisions thereof if
such change results from an event which gives rise to
an anti-dilution adjustment under this subsection
6(A)), the Exercise Price of the Warrants, to the
extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall
be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise
of any such options or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such
rightsto convert or exchange or the expiration of any
options or rights related to such convertible or
exchangeable securities, the Exercise Price of the
Warrants, to the extent in any way affected by or
computed using such options, rights or securities or
options or rights related to such securities, shall
be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect)
actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such
securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid
therefor pursuant to subsections 6(A)(i)(g)(1) and
(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type
described in either subsection 6(A)(i)(g)(3) or (4).
(6) Notwithstanding the provisions of
subsections 6(A)(i)(g)(1)-(5) above, in the event
that on or after the date hereof the Company issues
any options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible
or exchangeable
-6-
<PAGE> 7
securities, if the conversion or exercise price
is not then determinable or is based on future
events, such shares of Common Stock shall not be
deemed to be issued until the price is determinable
or such event has occurred and the conversion or
exercise price shall be subject to adjustment
pursuant to subsection 6(A)(i) above as a result of
any such issuance occurring prior to April 16, 1998
at the time of such determination or the occurrence
of such event even if the price is determined or such
event occurs after such date.
(ii) The following issuances of Common Stock
("Excluded Securities") shall be excluded from the adjustments set forth in
this Section 6(A):
(a) shares of capital stock issued
pursuant to a stock dividend or a stock split or other subdivision or
recombination of shares;
(b) Common Stock issued upon exercise
of any warrants, options or other securities outstanding at the date hereof;
(c) securities issued by the
Corporation in an underwritten public offering at not less than 87.5% of the
then effective Exercise Price;
(d) securities issued pursuant to the
direct or indirect bona fide acquisition by the Corporation of any Person,
whether by merger, purchase of stock, purchase of assets or otherwise;
(e) securities issued upon exercise,
conversion or exchange of capital stock, rights, options or subscription calls,
warrants or other securities;
(f) Common Stock or options to
purchase Common Stock issued to officers, directors or employees of or
consultants to the Corporation pursuant to any compensation agreement, plan or
arrangement or the issuance of Common Stock upon the exercise of any such
options; and
(g) securities issued in connection
with bona fide loans or warehouse facilities with banks, trust companies or
other financial institutions regularly engaged in the business of making
commercial loans.
(iii) In case the Company shall (a) issue Common
Stock as a dividend or distribution on any class of the capital stock of the
Company, (b) split or otherwise subdivide its outstanding Common Stock, (c)
combine the outstanding Common Stock into a smaller number of shares, or (d)
issue by reclassification of its Common Stock (except in the case of a merger,
consolidation or sale of all or substantially all of the assets of the Company
as set forth in paragraph 6(A)(iv) below) any shares of the capital stock of
the Company, any shares of the capital stock of the Company, the Exercise Price
in effect on the record date for any stock dividend or the effective date of
any such other event shall be increased (or decreased in the case of a reverse
stock split) so
-7-
<PAGE> 8
that the holder of each Warrant shall thereafter be entitled to receive, upon
the exercise of such Warrant, the number of shares of Common Stock or other
capital stock which it would own or be entitled to receive immediately after
the happening of any of the events mentioned above had such Warrant been
exercised immediately prior to the close of business on such record date or
effective date. The adjustments herein provided shall become effective
immediately following the record date for any such stock dividend or the
effective date of any such other events. There shall be no reduction in the
Exercise Price in the event that the Company pays a cash dividend.
(B) If the Company does not file a registration statement
with the United States Securities and Exchange Commission (the "SEC") pursuant
to the Act (the "Registration Statement"), as provided in Paragraph 7 of the
Stock Purchase Agreement, to register the shares of Common Stock underlying the
Warrants within the 180 day period following the Final Closing and such
Registration Statement is not declared effective by the SEC within 270 days
after the Final Closing, the Exercise Price shall be reduced at a rate of 2%
per month, or any part thereof, up to a maximum reduction of 24%, until the
Registration Statement is filed and/or declared effective, as applicable.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever the Exercise Price shall be adjusted as required by
the provisions of the foregoing Section, the Company shall forthwith file in
the custody of its Secretary or an Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 1 and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate
to the Holder or any such holder.
SECTION 8. REGISTRATION RIGHTS
The holder of this Warrant shall have the registration rights
governing the shares of Common Stock underlying the Warrants as set forth in
the Preferred Stock Agreement dated April 21, 1997 ("Purchase Agreement") by
and among the Company and Taglich Brothers, D'Angleo, Wagner & Company,
Incorporated, either on its own behalf or on behalf of other purchasers, and
the Investors listed on Exhibit A thereto. Such registration rights are
incorporated herein by reference as if such provisions had been set forth
herein in full.
-8-
<PAGE> 9
SECTION 9. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding, (i) if the
Company shall pay any dividend or make any distribution upon the Common Stock,
(ii) if the Company shall offer to the holders of its Common Stock rights to
subscribe for, purchase, or exchange property for any shares of any class of
stock, or any other rights or options or (iii) if any capital reorganization of
the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another corporation, sale,
lease or transfer of all or substantially all of the property and assets of the
Company to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then in any such
case, the Company shall cause to be mailed by certified mail to the Holder, at
least fifteen days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or subscription rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION 10. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Company, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the class issuable upon exercise of this Warrant) or in case of any sale, lease
or conveyance to another corporation of the property of the Company as an
entirety (collectively such actions being hereinafter referred to as
"Reorganizations"), the Company shall, as a condition precedent to such
Reorganization transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to receive in lieu of the number of
shares of Common Stock otherwise deliverable, the kind and amount of shares of
stock and other securities and property receivable upon such Reorganization by
a holder of the number of shares of Common Stock which might have been
purchased upon exercise of this Warrant immediately prior to such
Reorganization. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 9 shall
similarly apply to successive Reorganizations.
SECTION 11. REDEMPTION.
(A) At any time, on not less than thirty (30) days notice,
commencing thirty (30) days after a registration statement with the United
States Securities and Exchange Commission (the "SEC"), as provided in Paragraph
7 of the Stock Purchase Agreement, registering the shares of Common Stock
underlying the Warrants (the "Registration Statement") is declared effective
under
-9-
<PAGE> 10
the Act, this Warrant may be redeemed, at the option of the Company, at a
redemption price of $0.01 per Warrant, provided the market price of the Common
Stock receivable upon exercise of such Warrant shall exceed two hundred percent
(200%) per share of the Warrant Exercise Price (the "Target Price") and
provided further that on the effective date of the redemption a registration
statement relating to the issuance of the Common Stock on exercise of the
Warrant shall be effective and current under the Securities Act of 1933, as
amended.
(B) The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, (iii) the place where the
Warrant shall be delivered and the redemption price paid, (iv) that the right
to exercise the Warrant shall terminate at 5:00 P.M. (Atlanta time) on the
business day immediately preceding the date fixed for redemption, and (v) the
Company's calculation demonstrating that the Target Price is met. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No
failure to send the notice in accordance with Section 11(A) nor any defect
therein or in the sending of such notice shall affect the validity of the
proceedings for such redemption except as to a holder (x) to whom notice was
not sent or (y) whose notice was defective. An affidavit of the Company that
notice of redemption has been sent in accordance with Section 11(A) shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(C) Any right to exercise this Warrant shall terminate
at 5:00 P.M. (Atlanta time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, the Holder of the Warrant
shall have no further rights except to receive, upon surrender of the Warrant,
the Redemption Price.
(D) From and after the Redemption Date, the Company
shall, at the place specified in the notice of redemption, upon presentation
and surrender to the Company by or on behalf of the Holder thereof of one or
more Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the redemption price of
each such Warrant. From and after the Redemption Date such Warrants shall
expire and become void and all rights hereunder, except the right to receive
payment of the redemption price, shall cease.
(E) If any event set forth in Section 6 has occurred,
the Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
-10-
<PAGE> 11
SECTION 12. ISSUE TAX.
The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof.
SECTION 13. GOVERNING LAW.
This Warrant shall be governed by and construed and enforced
in accordance with the laws of the State of Georgia.
SECTION 14. MISCELLANEOUS
(A) Approvals. If this Warrant or any shares of
Common Stock issuable hereunder require declaration, qualifications or
registration with or approval of any governmental official or authority (other
than registration under the 1933 Act, but not including declaration,
qualification or registration under any blue sky law that the holder hereof may
request) before this Warrant or shares of Common Stock issued pursuant hereto
may be issued, the Company shall at its sole cost and expense take all
requisite action in connection with such declaration, qualification,
registration or approval and shall use its best efforts to cause such shares of
Common Stock or this Warrant, or both, to be duly declared, qualified,
registered or approved as may be required.
(B) 1934 Act Reports; Information. The Company agrees
to use its best efforts to file timely all reports required to be filed by it
pursuant to Section 13 or 15 of the Securities Exchange Act of 1934, as amended
("1934 Act") and to provide such information as will permit the registered
holder to sell any shares of Common Stock acquired upon exercise of this
Warrant in accordance with Rule 144 under the 1934 Act.
CREDIT DEPOT CORPORATION
By: /s/ Gerald Sullivan
--------------------------------
Gerald Sullivan, President
[SEAL]
Dated: As of April 21, 1997
Attest:
- -------------------
Assistant Secretary
-11-
<PAGE> 12
PURCHASE FORM
Dated _____________, 19__
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing ___ _____________ shares of Common
Stock and hereby makes payment of $ _________________ in payment of the actual
exercise price thereof.
__________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
----------------------------------------------------------------------
Signature
---------------------------------------------------------------------
-------------
<PAGE> 1
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED OR SOLD
AS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
Void after 5:00 P.M., Atlanta Time, on April __, 2002
(the "Termination Date")
Warrant to Purchase Shares.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
TO BE ISSUED BY
CREDIT DEPOT CORPORATION
This is to Certify That, FOR VALUE RECEIVED, Taglich Brothers,
D'Amadeo, Wagner & Company (the "Holder"), is entitled to purchase, subject to
the provisions of this Warrant, from Credit Depot Corporation, a Delaware
corporation, (the "Company"), One Hundred Eighty-Four Thousand Six Hundred
Fifteen (184,615) Shares (the "Shares") to be issued pursuant to and as
described in that certain Placement Agent Agreement dated as of February 13,
1997 between the Holder and the Company, as such Agreement may, from time to
time, be amended (the "Placement Agreement"), at a price of $3.25 per Share, at
any time or from time to time during the period from the date hereof until 5:00
P.M., Atlanta Time on the Termination Date. The number of Shares to be
received upon the exercise of this Warrant and the price to be paid for each
such shall be adjusted (an "Adjustment") from time to time in the identical
manner as shall the shares of Series B 9% Convertible Redeemable Preferred
Stock (the "Preferred Stock") and the Conversion Price pursuant to the
Certificate of Designation, Preferences and Rights, as filed with the state of
Delaware on April ___, 1997 by the Company (the "Certificate of Designation").
The Shares deliverable upon such exercise, as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
this Warrant as in effect at any time and adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price."
<PAGE> 2
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time or from
time to time on or after the date hereof and until 5:00 P.M., Atlanta Time on
the Termination Date (the "Exercise Period") provided, however, that (i) if
either such day is a day on which banking institutions in the State of Georgia
are authorized by law to close, then on the next succeeding day which shall not
be such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's stockholders, on or before the Termination Date,
the Holder shall have the right to exercise this Warrant commencing at such
time through the Termination Date which shall entitle the Holder to receive, in
lieu of Shares, the kind and amount of securities and property (including cash)
receivable by a holder of the number of shares of Shares into which this
Warrant might have been exercisable immediately prior thereto. This Warrant
may be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment of
the Exercise Price for the number of Warrant Shares specified in such form. As
soon as practicable after each such exercise of the Warrants, but not later
than seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder certificates representing the securities constituting the
Warrant Shares issuable upon such exercise, registered in the name of the
Holder or its designee. This Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
<PAGE> 3
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or delivery
upon exercise of this Warrant such number of shares of its Common Stock as
shall be required for issuance and delivery upon exercise of this Warrant and
the shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Share Warrants issuable upon exercise of this Warrant.
SECTION 3. FRACTIONAL SHARES
(a) No fractional shares or scrip representing fractional shares
shall be issued upon exercise of this Warrant. With respect to any fraction
of a share called for upon any exercise hereof, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current
market value of a share, determined as follows:
(b) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market system, the current market value shall
be the last reported sale price of the Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for
such day on such exchange or system; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges but bid and asked prices are reported by the National
Quotation Bureau, Inc., the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this Warrant; or
(d) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such
<PAGE> 4
reasonable manner as may prescribed by the Board of Directors of the Company.
SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" has used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Shares, and no mere enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of the Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
<PAGE> 5
SECTION 6. NOTICE PROVISIONS AND RESTRICTIONS ON ISSUANCE OF ADDITIONAL
SECURITIES.
(a) Verification of Computations. The Company shall select a firm
of independent public accountants, which may be the Company's independent
auditors, and which selection may be changed from time to time, to verify the
computations utilized with respect to each Adjustment. The certificate, report
of other written statement of any such firm shall be conclusive evidence of the
correctness of any computation made under this Section 6. Promptly upon its
receipt of such certificate, report or statement from such firm of independent
public accountants, the Company shall deliver a copy thereof to the Holder.
(b) Warrant Certificate Amendments. Irrespective of any
Adjustment, Warrant Certificates theretofore or thereafter issued need not be
amended or replaced, but Warrant Certificates thereafter issued shall bear an
appropriate legend or other notice of any adjustments and which legend and/or
notice has been provided by the Company to the Holder, provided the Company
may, at its option, issue new Warrant Certificates evidencing Warrants in the
form attached hereto to reflect any adjustment in the Exercise Price and the
number of Warrant Shares evidenced by such Warrant Certificates and deliver the
same to the Holder in substitution for existing Warrant Certificates.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever an Adjustment shall occur, the Company shall forthwith file
in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting
forth in reasonable detail the facts requiring such adjustment, including a
statement of the number of additional shares of Common Stock, if any, and such
other facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder or any holder of
a Warrant executed and delivered pursuant to Section 1 and the Company shall,
forthwith after each such adjustment,
<PAGE> 6
mail a copy by certified mail of such certificate to the Holder or any such
holder.
SECTION 8. ISSUE TAX.
The issuance of certificates representing the Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof.
SECTION 9. REGISTRATION RIGHTS.
The Holder shall have the same registration rights and obligations
with respect to the registration of the Warrant Shares under the Act as do the
holders of the Preferred Stock with respect to the shares underlying such
Preferred Stock pursuant to the Preferred Stock Purchase Agreement between the
Company and such holders in connection with the purchase by such holders of
such Preferred Stock.
SECTION 10. GOVERNING LAW.
This Warrants shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.
CREDIT DEPOT CORPORATION
By:___________________________
Gerald Sullivan, President
[SEAL]
Dated: April ___, 1997
Attest:
__________________________________
Secretary
<PAGE> 7
PURCHASE FORM
Dated ___________________, 19___
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing ___________ Shares and hereby makes payment of
___________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------
Signature
---------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 136,156
<SECURITIES> 0
<RECEIVABLES> 5,158,712
<ALLOWANCES> 141,290
<INVENTORY> 0
<CURRENT-ASSETS> 7,392,954
<PP&E> 521,614
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,923,067
<CURRENT-LIABILITIES> 535,453
<BONDS> 13,905,319
0
315
<COMMON> 3,742
<OTHER-SE> 478,238
<TOTAL-LIABILITY-AND-EQUITY> 14,923,067
<SALES> 0
<TOTAL-REVENUES> 4,973,122
<CGS> 0
<TOTAL-COSTS> 4,686,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 1,073,421
<INCOME-PRETAX> (1,022,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,022,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,022,283)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
