<PAGE>
FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 333-24807
SUBJECT TO COMPLETION--DATED NOVEMBER 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 10, 1997)
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$250,000,000
[LOGO OF THE MONEY STORE(R)]
$150,000,000 % Subordinated Notes Due 2002
$100,000,000 % Subordinated Notes Due 2007
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The % Subordinated Notes Due 2002 (the "Five Year Notes") of The Money
Store Inc. (the "Company") will mature on , 2002 and are not redeemable
prior to maturity. The % Subordinated Notes Due 2007 (the "Ten Year Notes"
and, collectively with the Five Year Notes, the "Notes") of the Company will
mature on , 2007 and are not redeemable prior to maturity. Each of the
Five Year Notes and the Ten Year Notes are sometimes referred to herein as a
"Series." Interest on each Series of Notes will be payable semiannually on
and each year, commencing , 1998. The Notes of each
Series will be unsecured, subordinated to all existing and future Senior
Indebtedness (as defined in the accompanying Prospectus) and effectively
subordinated to all indebtedness and other liabilities of the Company's
subsidiaries. Under the Indenture (as defined herein), there is no limitation
on the amount of Senior Indebtedness or other indebtedness or liabilities that
the Company or its subsidiaries may incur in the future. At September 30,
1997, the Company had approximately $1.6 billion of Senior Indebtedness
outstanding. See "Description of the Notes."
Each Series of Notes will be represented by one or more Global Notes
registered in the name of the nominee of The Depository Trust Company ("DTC").
Beneficial interests in the Global Notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. Except as described herein, Notes in definitive form will not be
issued. Each Series of Notes will trade in DTC's Same-Day Funds Settlement
System until maturity, and secondary market trading activity for the Notes
will, therefore, settle in immediately available funds. All payments of
principal and interest will be made by the Company in immediately available
funds. See "Description of the Notes--Same-Day Settlement and Payment."
SEE "INVESTMENT CONSIDERATIONS" ON PAGES S-6 TO S-10 FOR A DISCUSSION OF
CERTAIN MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Five Year Note......................... % % %
Total ..................................... $ $ $
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Per Ten Year Note.......................... % % %
Total...................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated to be
$ .
- -------------------------------------------------------------------------------
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Global Notes will be made through the facilities
of DTC on or about December , 1997.
PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY
SALOMON BROTHERS INC
November , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE RELATED
PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND THEREIN
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVES
THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS
IN "INVESTMENT CONSIDERATIONS" ON PAGES S-6 TO S-9 OF THIS PROSPECTUS
SUPPLEMENT CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH STATEMENTS
THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
S-2
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere and
incorporated by reference in the Prospectus and this Prospectus Supplement.
Unless the context otherwise requires, all references herein to the "Company"
include The Money Store Inc. and its wholly-owned subsidiaries. Capitalized
terms used in this Prospectus Supplement but not defined herein shall have the
meanings set forth in the Prospectus unless otherwise provided herein.
THE COMPANY
The Company is a financial services company engaged, through its
subsidiaries, in the business of originating (including purchasing), selling
and servicing consumer and commercial loans of specified types and offering
related services. Loans originated by the Company primarily consist of (i)
fixed and adjustable rate loans secured by mortgages on residential real estate
("Mortgage Loans") and loans which allow consumers to borrow up to 125% of the
value of their homes ("125 LTV Loans" and, collectively with Mortgage Loans,
"Home Equity Loans"), which include FHA Title I home improvement loans ("FHA
Title I Loans") insured by the Federal Housing Authority (the "FHA") of the
United States Department of Housing and Urban Development ("HUD") and other
home improvement loans not insured by the FHA ("Conventional Home Improvement
Loans" and, collectively with FHA Title I Loans, "Home Improvement Loans"),
(ii) loans guaranteed in part ("SBA Loans") by the United States Small Business
Administration (the "SBA") and commercial loans generally secured by first
mortgages ("Small Business Loans" and, together with SBA Loans, "Commercial
Loans"), (iii) government-guaranteed student loans ("Student Loans") and
(iv) motor vehicle retail installment sale contracts purchased from automotive
dealers ("Auto Loans").
For the years ended December 31, 1996 and 1995, the Company originated or
purchased approximately $5.7 billion and $3.8 billion of loans, respectively.
Of these loans, approximately 73% and 75%, respectively, by principal amount
were Home Equity Loans, approximately 11% and 12%, respectively, by principal
amount were Commercial Loans, approximately 8% and 10%, respectively, by
principal amount were Student Loans and approximately 8% and 3%, respectively,
by principal amount were Auto Loans. For the nine months ended September 30,
1997, the Company originated or purchased approximately $5.5 billion of loans,
of which approximately 74%, 9%, 8% and 9% by principal amount were Home Equity
Loans, Commercial Loans, Student Loans and Auto Loans, respectively. Management
believes that during 1996 the Company was among the largest originators, by
principal amount, of Home Equity Loans and Student Loans in the United States.
Based upon government agency sources, management believes that during each of
the last 14 SBA fiscal years the Company originated a greater principal amount
of SBA Loans than any other originator of SBA Loans in the United States.
Substantially all of the loans originated and purchased by the Company are
sold to institutional investors or pledged to the Company's lenders until the
loans can be sold and the lenders repaid. The principal components of the
Company's revenues are gain on sale of receivables, including net unrealized
gain on valuation of interest-only strips ("Gain on Sale of Receivables"), and
finance income. Gain on Sale of Receivables represents the difference between
the proceeds (including premiums) from the sale of loans, net of related
transaction costs, and the allocated carrying amount of the loans sold, where
the allocated carrying amount is determined by allocating the original amount
of the loans (including premiums paid on loans purchased) between the portion
sold and any retained interests (interest-only strip receivables) based on
their relative fair values at the date of sale. The net unrealized gains on
valuation of interest-only strips include the recognition of unrealized gains
which represents the initial difference between the allocated carrying amount
of loans sold and their fair market value. In addition, Gain on Sale of
Receivables includes non-refundable fees on loans sold and gains or losses on
certain transactions structured as an economic hedge. The Company recognizes
such Gain on Sale of Receivables in the reporting period that the loans are
sold, although cash is received by the Company over the lives of the loans. The
Company's practice of selling its loans is designed to increase the Company's
liquidity, reduce the need to access markets for capital and reduce certain
risks associated with interest rate fluctuations.
S-3
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The Company generally retains the right to service loans it sells or pledges.
In addition to the Gain on Sale of Receivables, the Company receives fees in
connection with its loan origination and servicing activities, which are
included in the Company's income statement as finance income, fees earned and
other. Finance income includes (i) servicing compensation, (ii) the difference
between the present value of the interest-only strip receivable and the actual
cash collected, (iii) interest income on loans retained by the Company, and
(iv) miscellaneous fee income. The total portfolio of loans which the Company
services (the "Serviced Loan Portfolio") was approximately $15.3 billion, $12.2
billion and $8.6 billion at September 30, 1997, December 31, 1996 and 1995,
respectively, consisting of approximately $14.1 billion, $11.2 billion and $7.8
billion, respectively, of loans that had been sold with servicing rights
retained, approximately $1.1 billion, $1.0 billion and $807.7 million,
respectively, of loans (the "Retained Loan Portfolio") which the Company had
not sold and approximately $16.5 million, $24.4 million and $29.2 million,
respectively, of loans (the "Repurchased Loan Portfolio") which the Company had
repurchased from investors pursuant to contractual commitments. At September
30, 1997, December 31, 1996 and December 31, 1995, the Company's allowance for
credit losses was $355.2 million, $240.0 million and $140.7 million,
respectively. The Retained Loan Portfolio consists of (i) Home Equity Loans,
Commercial Loans, Student Loans, Auto Loans and other loans that are held
pending their sale, (ii) the unsold, unguaranteed portion of SBA Loans for
which the related guaranteed portions have been sold, and (iii) certain Student
Loans during the period prior to the commencement of the borrower's repayment
obligation.
At September 30, 1997, the Company operated out of 213 branch offices and was
doing business in 50 states, the District of Columbia and the Commonwealth of
Puerto Rico.
The Company was incorporated in New Jersey in 1974. The predecessor of the
Company, which is now a wholly-owned subsidiary of the Company, began making
Home Equity Loans in 1967. The Company's principal executive offices are
located at 2840 Morris Avenue, Union, New Jersey 07083. Its telephone number is
(908) 686-2000.
THE OFFERING
Securities Offered:
Five Year Notes............ $150,000,000 aggregate principal amount of
% Subordinated Notes due 2002.
Ten Year Notes............. $100,000,000 aggregate principal amount of
% Subordinated Notes due 2007.
Maturity:
Five Year Notes............ , 2002.
Ten Year Notes............. , 2007.
Interest Payment Dates...... and of each year,
commencing , 1998.
Sinking Fund................ There will be no sinking fund payments for
either Series of Notes.
Optional Redemption......... Neither Series of Notes will be redeemable
prior to maturity.
S-4
<PAGE>
Ranking..................... The Notes of each Series will constitute
unsecured general obligations of the Company,
will be subordinated to all existing and
future Senior Indebtedness of the Company and
will be effectively subordinated to all
existing and future indebtedness and other
obligations of the Company's subsidiaries. At
September 30, 1997, the Company had
approximately $1.6 billion of Senior
Indebtedness outstanding, approximately $1.3
billion of which was guaranteed by
substantially all of the Company's
subsidiaries and approximately $353.0 million
of which was secured. Under the Indenture,
there is no limitation on the amount of
Senior Indebtedness or other indebtedness
that the Company may incur, nor is there any
limitation on the amount of indebtedness or
other obligations that the Company's
subsidiaries may incur. To the extent and in
the manner provided in the Indenture between
the Company and The Bank of New York, as
trustee (the "Trustee"), Senior Indebtedness
must be paid before any payment may be made
to holders of the Notes. See "Description of
the Notes--General" and "--Subordination"
herein and "Description of Securities--Debt
Securities--Subordination" in the
accompanying Prospectus.
Covenants................... Neither Series of Notes contains any
provisions which will restrict the Company or
any of its subsidiaries from incurring,
assuming or becoming liable with respect to
any indebtedness or other obligations,
whether secured or unsecured, and whether
senior or junior to, or pari passu with, the
Notes. Neither Series of Notes contains any
provisions which will restrict the Company or
any of its subsidiaries from paying dividends
or making other distributions on its or their
capital stock or purchasing or redeeming its
or their capital stock. Neither Series of
Notes contains any financial ratios or
specified levels of liquidity to which the
Company must adhere. In addition, neither
Series of Notes contains any provision which
requires the Company to repurchase, redeem or
modify the terms of the Notes upon a change
of control or other events involving the
Company which may adversely affect the
creditworthiness of the Notes. See
"Description of the Notes--Covenants."
Use of Proceeds............. The Company intends to use the net proceeds
from the sale of the Notes to repay a portion
of indebtedness outstanding under the Credit
Facility (as defined herein) and existing
warehouse lines. See "Use of Proceeds."
S-5
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus Supplement, the
accompanying Prospectus and the documents incorporated by reference herein, in
connection with an investment in the Notes offered hereby.
GENERAL LENDING RISKS. Since its initial public offering in 1991, the
Company has achieved rapid growth in revenues and net income. The financial
services business is subject to various business risks, including, but not
limited to, the following: the risk that borrowers will not satisfy their
payment obligations; the risk that, in the case of Home Equity Loans and
Commercial Loans secured by real property, appraisals of property securing
loans will not reflect the property's actual value, either due to valuation
errors or fluctuations in the value of real estate and that, upon liquidation
of real estate owned or properties securing loans, the Company may suffer a
loss; the risk that, in the case of Auto Loans, upon a default by the
borrower, the Company may not be able to repossess the related vehicle and, if
it is able to repossess the vehicle, the value of the vehicle may be
insufficient to satisfy the loan in full; and the risk that changes in
interest rates after the origination of a loan and prior to its sale may
narrow the spread between the variable interest rates the Company pays under
its warehouse lines and the interest rates paid by the borrowers, and may
reduce the Gain on Sale of Receivables which is not locked in until the loans
are sold. A decrease in interest rates also could cause an increase in the
rate at which outstanding loans are prepaid, reducing the period of time
during which the Company collects the interest-only strip receivables and
other servicing income with respect to such prepaid loans. See "--Impact of
Prepayment on Interest-Only Strip Receivables." In addition, with respect to
Home Equity Loans that are junior mortgage loans, the Company's security
interest in the property securing its loan is subordinated to the interest of
a senior mortgage lender, if any. If the value of the property securing a Home
Equity Loan that is a junior mortgage loan is not sufficient to repay the
borrower's obligation to the senior mortgage holders upon foreclosure, as will
typically be the case with 125 LTV Loans, there will be no realizable value in
such property to satisfy the borrower's obligation to the Company. Similarly,
if the value of the property securing a senior mortgage loan declines
sufficiently over time, the realizable value in such property may be less than
the borrower's obligation to the Company.
Many of the foregoing business risks become more acute in an economic
slowdown or recession, which may be accompanied by decreased demand for credit
and declining real estate and other asset values. Specifically, in the
mortgage business, any material decline in real estate values reduces the
ability of borrowers to use home equity to support borrowings and increases
the loan-to-value ratios of loans previously made by the Company, thereby
weakening collateral coverage and increasing the possibility of a loss in the
event of a default. Delinquencies, foreclosures, repossessions and losses
generally increase during economic slowdowns or recessions. Because certain of
the Company's borrowers may have had past credit problems, in the home equity
loan market, the auto loan market and certain other markets, the actual rates
of delinquencies, foreclosures, repossessions and losses, as applicable, could
be higher under adverse economic conditions than those experienced in such
markets in general. In addition, in an economic slowdown or recession, the
Company's servicing costs may increase. Any sustained period of increased
delinquencies, foreclosures, repossessions, losses or costs could adversely
affect the Company's ability to sell loans or other assets through
securitization and could increase the cost of selling loans or other assets
through securitization, which could adversely affect the Company's financial
condition and results of operations.
IMPACT OF PREPAYMENT ON INTEREST-ONLY STRIP RECEIVABLES. Gain on Sale of
Receivables represents the majority of the Company's revenues. Gain on Sale of
Receivables represents the difference between the proceeds (including
premiums) from the sale of loans, net of related transaction costs, and the
allocated carrying amount of the loans sold, where the allocated carrying
amount is determined by allocating the original amount of the loans (including
premiums paid on loans purchased) between the portion sold and any retained
interests (interest-only strip receivables) based on their relative fair
values at the date of sale. The net unrealized gains on valuation of interest-
only strips include the recognition of unrealized gains which represents the
initial difference between the allocated carrying amount of loans sold and
their fair market value. The calculation of the fair value of the interest-
only strip receivables utilizes certain estimates made by management at the
time loans are sold. These
S-6
<PAGE>
estimates include the following: (i) discount rate used to calculate present
value; (ii) rate of prepayment; (iii) adequate servicing compensation; and
(iv) the provision for credit losses on loans sold. The rate of prepayment of
loans may be affected by a variety of economic and other factors, including
prevailing interest rates and the availability of alternative financing. The
effects of these factors may vary depending on the particular type of loan.
Estimates of prepayment rates are made based on management's expectations of
future prepayment rates, which are based, in part, on the historic performance
of the Company's loans and other considerations. There can be no assurance of
the accuracy of management's estimates. Moreover, when the Company introduces
new loan products, such as 125 LTV Loans, there can be no assurance that the
historic performance of the Company's other loan products will accurately
predict the future performance of such new loan products. If actual
prepayments occur more quickly than was projected at the time loans were sold,
the carrying value of the interest-only strip receivables may have to be
written down through a charge to earnings in the period of adjustment. The
timing of sales of the Company's loans may impact the Company's earnings from
quarter to quarter.
NEED FOR ADDITIONAL FUNDS AND DEPENDENCE ON SECURITIZATION TO FINANCE
LENDING ACTIVITIES. The Company has a constant need for capital to finance its
lending activities. At September 30, 1997, the Company had outstanding $1.6
billion of notes payable, $399.7 million of which will mature prior to
December 31, 1998 and $1.5 billion of which will mature prior to the maturity
of the Notes. The notes payable include $525.0 million principal amount of
senior unsecured notes (the "Private Senior Unsecured Notes"), $175.0 million
principal amount of the Company's 8.05% Senior Notes due 2002 and $125.0
million principal amount of the Company's 8.375% Senior Notes due 2004
(collectively, the "Public Unsecured Senior Notes" and, collectively with the
Private Unsecured Senior Notes, the "Unsecured Senior Notes"), $429.3 million
of borrowings outstanding under the Company's $800.0 million unsecured
revolving credit facility (the "Credit Facility") and $353.0 million
outstanding under various warehouse lines of credit. The Senior Unsecured
Notes and borrowings outstanding under the Credit Facility are currently
guaranteed by substantially all of the Company's subsidiaries. While the
Company believes that it will be able to refinance or otherwise repay its
outstanding indebtedness, including short-term debt, in the normal course of
its business, there can be no assurance that the Company's existing lenders
will agree to refinance such debt, that other lenders will be willing to
extend lines of credit to the Company or that funds otherwise generated from
operations will be sufficient to satisfy such obligations. Future financing
may involve the issuance of additional debt securities, Common Stock or other
securities, including securities convertible into or exercisable for Common
Stock.
The terms upon which the Company is able to obtain financing are affected by
the Company's credit ratings. In connection with the offering of the Notes,
Moody's Investors Service ("Moody's") confirmed its ratings of Ba1 for the
Company's outstanding senior notes and Ba2 for the Company's $1.72 Mandatory
Convertible Preferred Stock (the "Preferred Shares"), but changed its outlook
from stable to negative. Moody's stated that continued increases in effective
leverage and delinquencies will put additional downward pressure on its
ratings. As of the date of this Prospectus Supplement, neither Moody's nor any
other rating agency has downgraded the ratings of the Company's securities,
although no assurance can be given that any such downgrading will not occur in
the future.
Since 1989, the Company has pooled and sold substantially all of the loans
or other assets which it originates or purchases through securitization
transactions as a means to improve its liquidity and to repay the Company's
warehouse lenders. Accordingly, adverse changes in the securitization market
in general, or adverse developments relating to the Company in particular,
could impair the Company's ability to originate, purchase and sell loans or
other assets on a favorable or timely basis. Any such impairment could have a
material adverse effect upon the Company's business and results of operations.
Any delay in the sale of a loan or other asset pool would postpone the
recognition of gain on such loans until their sale. Such delays could cause
the Company's earnings to fluctuate from quarter to quarter.
REGULATION OF LENDING ACTIVITIES; DEPENDENCE ON FEDERAL PROGRAMS; AND
POSSIBLE ENVIRONMENTAL LIABILITIES. The operations of the Company are subject
to extensive regulation by federal, state and local governmental authorities
and are subject to various laws and judicial and administrative decisions
imposing
S-7
<PAGE>
various requirements and restrictions, including, among other things,
regulating credit granting activities, establishing maximum interest rates,
insurance coverages and charges, requiring disclosures to customers, governing
secured transactions and setting collection, repossession and claims handling
procedures and other trade practices. There can be no assurance that more
restrictive laws, rules and regulations will not be adopted in the future
which could make compliance much more difficult or expensive, restrict the
Company's ability to originate or sell loans, further limit or restrict the
amount of interest and other charges earned under loans originated or
purchased by the Company, or otherwise adversely affect the business or
prospects of the Company. In addition, the elimination of or a substantial
reduction in the current home mortgage interest income tax deduction could
curtail the amount of Home Equity Loan originations, which could have an
adverse effect on the Company's results of operations or financial condition.
In the course of its business, the Company has acquired, and may in the
future acquire, properties through foreclosure. Primarily with respect to
commercial properties securing Commercial Loans, there is a risk that
hazardous substances or wastes could be discovered on such properties after
foreclosure. In such event, the Company might be required to remove such
substances at its sole cost and expense. There can be no assurance that the
cost of such removal would not substantially exceed the value of affected
properties or the loans secured by the properties, that the Company would have
adequate remedies against the prior owner or other responsible parties or that
the Company would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
For the nine months ended September 30, 1997 and the year ended December 31,
1996, of the loans originated by the Company, approximately 9% and 11%,
respectively, by principal amount were Commercial Loans and approximately 8%
and 8%, respectively, by principal amount were Student Loans. The
discontinuation, elimination or significant reduction of guarantee levels for
the related federal programs could have a material adverse effect on the
Company's operations.
From time to time, legislation has been introduced in the United States
Congress that would, among other things, abolish HUD, reduce federal spending
for housing and community development activities and eliminate the Title I
program. Other changes to HUD have been proposed, which, if adopted, could
affect the operation of the Title I program. No assurance can be given that
the Title I program will continue in existence or that HUD will continue to
receive sufficient funding for the operation of the Title I program. Under the
Omnibus Budget Reconciliation Act of 1993, Congress made a number of changes
that may affect the financial condition of the entities which guarantee
Student Loans. In addition, that legislation greatly expanded the Federal
Direct Student Loan Program volume to a target of 60% of Student Loan demand
in academic year 1998-1999, which could result in decreasing volumes of
conventional Student Loans of the type originated by the Company. There can be
no assurance that such changes will not have an adverse effect on the
Company's volume of Student Loan originations or on its ability to securitize
the Student Loans it originates due to the potential adverse impact on the
Student Loan guarantors. Further, the level of competition in the secondary
market for Student Loans could be reduced, resulting in fewer potential buyers
of Student Loans and lower prices for loans sold in the secondary market. In
addition, the United States Department of Education is implementing a direct
consolidation loan program, which may further reduce the volume of Student
Loans originated. Finally, federal legislation considered by Congress from
time to time could modify many of the provisions of existing federal laws
relating to Student Loans. Until final legislation is adopted, the impact on
the Company, if any, is impossible to determine.
SUBORDINATION; HOLDING COMPANY STRUCTURE. The Notes of each Series will
constitute unsecured general obligations of the Company, will be subordinated
to all existing and future Senior Indebtedness of the Company and will be
effectively subordinated to all existing and future indebtedness and other
obligations of the Company's subsidiaries. At September 30, 1997, the Company
had approximately $1.6 billion of Senior Indebtedness outstanding,
approximately $1.3 billion of which was guaranteed by substantially all of the
Company's subsidiaries and approximately $353.0 million of which was secured.
See "Capitalization." Of such outstanding Senior Indebtedness, approximately
$429.3 million was outstanding under the Credit Facility and $353.0 million
was outstanding under secured warehouse lines, $ million of which is
expected to be repaid
S-8
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with the net proceeds from the sale of the Notes. However, because the Credit
Facility and warehouse lines are revolving credit facilities, there will be no
restriction on the Company's ability to make further borrowings thereunder
(provided, in the case of warehouse lines, that loans are available to secure
such borrowings), including borrowings in excess of the amounts repaid. Under
the Indenture, there is no limitation on the amount of Senior Indebtedness
which the Company may incur, nor is there any limitation on the amount of
indebtedness or other obligations that the Company's subsidiaries may incur.
The Company may not pay principal of, premium, if any, or interest on, the
Notes or repurchase or redeem the Notes, if any Senior Indebtedness is in
default unless, in each case, the default has been cured or waived or shall
have ceased to exist. Upon any distribution of assets of the Company upon the
dissolution, winding up, liquidation or reorganization of the Company, the
payment of the principal of (and premium, if any) and interest on the Notes
will be subordinated to the extent provided in the Subordinated Indenture in
right of payment to the prior payment in full of all Senior Indebtedness. No
payment on account of principal (or premium, if any) or interest may be made
on the Notes unless full payment of amounts then due for principal, premium,
if any, sinking funds and interest on Senior Indebtedness has been made or
duly provided for. In the event that, notwithstanding the foregoing, any
payment by the Company described in the foregoing sentence is received by the
Trustee under the Indenture, any Paying Agent or the holders of any of the
Notes before all Senior Indebtedness is paid in full, such payment or
distribution shall be paid over to the holders of such Senior Indebtedness or
on their behalf for application to the payment of all such Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid in
full.
The Company is a holding company whose principal assets are the capital
stock of its subsidiaries. Because the Company is a holding company, its
rights and the rights of its creditors, including the holders of the Notes,
except to the extent the Company may itself be a creditor with recognized
claims against such subsidiaries, will rank junior to the claims of creditors
of the subsidiaries with respect to the assets and earnings of the
subsidiaries. In addition, as a holding company the Company's ability to meet
debt service obligations and pay operating expenses and dividends depends on
receipt of sufficient funds from its subsidiaries. There can be no assurance
that the Company's subsidiaries will not enter into financing arrangements in
the future that may restrict their ability to pay dividends to the Company.
OBLIGATIONS OF THE COMPANY UPON CERTAIN CHANGES IN CONTROL. Marc Turtletaub,
the Chief Executive Officer and President of the Company, and Alan Turtletaub,
the Chairman of the Board of Directors of the Company, beneficially own or
otherwise control an aggregate of approximately 35.2% of the outstanding
Common Stock of the Company (32.3% assuming all of the Preferred Shares are
converted at the maximum conversion rate of one share of Common Stock per
Preferred Share). Certain of the Company's loan agreements, including the
Credit Facility and the agreements pursuant to which the Private Senior
Unsecured Notes were issued (the "Note Agreements"), prohibit Marc Turtletaub
and Alan Turtletaub from beneficially owning in the aggregate less than a
specified percentage of the outstanding voting stock of the Company, prohibit
third parties from beneficially owning more than a specified percentage of the
outstanding voting stock of the Company and/or prohibit certain changes in
management of the Company. In the case of the Note Agreements, violation of
such provisions could require the Company to offer to prepay such Private
Senior Unsecured Notes or could permit the holders of 50% of the outstanding
principal amount of any issue of Private Senior Unsecured Notes to declare all
the outstanding Private Senior Unsecured Notes of such issue immediately due
and payable. A default in any of such provisions could also cause defaults
under the Credit Facility, the Public Senior Unsecured Notes and other loan
agreements. While a majority of the executive officers relevant to such
covenants have entered into employment agreements with the Company, there can
be no assurance that any or all of such persons will remain employed with the
Company. There can be no assurance that Marc Turtletaub and Alan Turtletaub
will retain the required percentages of the voting control of the Company
necessary to avoid violating such changes in control provisions.
ABSENCE OF PUBLIC MARKET FOR THE NOTES. Each Series of Notes is a new issue
of securities with no established trading market. The Company does not intend
to apply for listing of either Series of Notes on a national securities
exchange but has been advised by the Underwriters that they presently intend
to make a
S-9
<PAGE>
market in the Notes, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in either Series of
Notes and any such market making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to
the liquidity of or trading markets for either Series of Notes or that an
active public market for either Series of Notes will develop. If active public
markets for the Notes do not develop, the market prices and liquidity of the
Notes may be adversely affected.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
are estimated to be $ million, after deducting underwriting discounts and
estimated offering expenses. The Company intends to use the net proceeds from
the sale of the Notes to repay a portion of indebtedness outstanding under the
Credit Facility and existing warehouse lines. See "Underwriting." Indebtedness
was incurred under the Credit Facility for general corporate purposes,
including loan originations and purchases. Borrowings under the Credit
Facility mature on June 30, 2000. At September 30, 1997, outstanding
borrowings under the Credit Facility were $429.3 million with a weighted
average interest rate of 6.46%. The Company's warehouse lines generally mature
within one year. At September 30, 1997, outstanding borrowings under the
Company's warehouse lines were $353.0 million in the aggregate and had a
weighted average interest rate of 6.35% .
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1997 and as adjusted to give effect to the receipt by
the Company of the net proceeds from the sale of the Notes and the application
of the net proceeds therefrom to reduce outstanding indebtedness. See "Use of
Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable(1)........................................ $1,614,298 $
Subordinated debt:
% Subordinated Notes due 2002........................ -- 150,000
% Subordinated Notes due 2007........................ -- 100,000
Other subordinated debt................................ 2,000 2,000
---------- --------
Total subordinated debt............................. 2,000 252,000
---------- --------
Total debt.......................................... 1,616,298
---------- --------
Shareholders' equity:
$1.72 Mandatory Convertible Preferred Stock, no par
value; 10,000,000 shares authorized; 5,215,000 shares
issued and outstanding; $138,198 aggregate liquidation
preference .......................................... 133,363 133,363
Common stock, no par value; 250,000,000 shares
authorized; 58,278,091 shares issued and
outstanding(2)....................................... 195,215 195,215
Foreign currrency translation adjustments............. 2 2
Retained earnings..................................... 340,315 340,315
---------- --------
Total shareholders' equity.......................... 668,895 668,895
---------- --------
Total capitalization................................ $2,285,193 $
========== ========
</TABLE>
- --------
(1) Includes short-term notes payable.
(2) Does not include options to purchase 4,336,125 shares of Common Stock
which were outstanding at September 30, 1997.
S-11
<PAGE>
RATIOS OF EARNINGS
The following table sets forth the ratio of earnings to fixed charges for
the Company for the nine months ended September 30, 1997 and 1996 and for each
of the years in the five-year period ended December 31, 1996.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. Earnings consist of income before income taxes plus
fixed charges. Fixed charges consist of interest on all indebtedness and the
portion of rental expense considered to be representative of interest.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings................ $264,164 $188,346 $273,357 $180,389 $98,462 $71,429 $58,552
======== ======== ======== ======== ======= ======= =======
Interest expense........ 105,253 91,426 124,076 93,985 43,059 29,184 31,504
Rent expense(1)......... 4,153 3,462 4,741 3,371 2,376 1,672 1,448
-------- -------- -------- -------- ------- ------- -------
Total fixed charges..... $109,406 $ 94,888 $128,817 $ 97,356 $45,435 $30,856 $32,952
======== ======== ======== ======== ======= ======= =======
Ratio................... 2.42x 1.99x 2.12x 1.85x 2.17x 2.31x 1.78x
======== ======== ======== ======== ======= ======= =======
</TABLE>
- --------
(1) Rent expense reflects one-third of the Company's total rent expense.
S-12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data with
respect to the Company for the nine months ended September 30, 1997 and 1996
and each of the five years in the period ended December 31, 1996. The data for
each of the five years in the period ended December 31, 1996 are derived in
part from the audited Consolidated Financial Statements of the Company. The
data for the nine months ended September 30, 1997 and 1996 are unaudited. In
the opinion of the Company's management, however, the accompanying data
contains all adjustments, which consist only of normal recurring items,
necessary for a fair presentation, in accordance with generally accepted
accounting principles, of such data for such periods have been included. The
results of operations for the nine months ended September 30, 1997 are subject
to year-end audit and adjustments and are not necessarily indicative of the
results of operations to be expected for the full year. See the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30, and September 30, 1997, incorporated by reference herein.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------
1997 1996(1) 1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
-------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of
receivables, including
net unrealized gain on
valuation of interest-
only strips.............. $422,431 $276,933 $416,038 $274,159 $213,625 $121,960 $71,767
Finance income, fees
earned and other......... 214,479 175,791 234,211 156,563 70,557 60,233 62,791
-------- -------- -------- -------- -------- -------- -------
636,910 452,724 650,249 430,722 284,182 182,193 134,558
-------- -------- -------- -------- -------- -------- -------
EXPENSES:
Salaries and employee
benefits................. 172,088 117,001 170,296 119,423 85,596 53,844 40,831
Other operating expenses.. 190,767 138,527 194,098 123,394 96,188 53,462 33,521
Interest.................. 105,253 91,426 124,076 93,985 43,059 29,184 31,504
Provision for credit
losses on loans not
sold..................... 14,044 12,312 17,239 10,887 6,312 5,130 3,102
-------- -------- -------- -------- -------- -------- -------
482,152 359,266 505,709 347,689 231,155 141,620 108,958
-------- -------- -------- -------- -------- -------- -------
Income before income
taxes.................... 154,758 93,458 144,540 83,033 53,027 40,573 25,600
Income taxes.............. 62,781 37,637 58,885 34,318 21,706 18,802 10,374
-------- -------- -------- -------- -------- -------- -------
Net income................ $ 91,977 $ 55,821 $ 85,655 $ 48,715 $ 31,321 $ 21,771 $15,226
======== ======== ======== ======== ======== ======== =======
Net income per common
share(2):
Primary................. $ 1.44 $ 0.95 $ 1.44 $ 0.95 $ 0.62 $ 0.48 $ 0.34
======== ======== ======== ======== ======== ======== =======
Fully diluted........... $ 1.42 $ 0.95 $ 1.41 $ 0.95 $ 0.62 $ 0.48 $ 0.34
======== ======== ======== ======== ======== ======== =======
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1997 1996(1) 1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding(2):
Primary............... 59,369,690 58,629,987 59,085,322 51,023,609 50,804,963 45,347,486 45,168,750
========== ========== ========== ========== ========== ========== ==========
Fully diluted......... 64,771,520 58,889,385 60,821,321 51,023,609 50,804,963 45,347,486 45,168,750
========== ========== ========== ========== ========== ========== ==========
Cash dividends.......... $ 12,532 $ 3,954 $ 6,308 $ 3,492 $ 2,371 $ 1,688 $ 402
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- -------
(1) All periods have been reclassified to reflect the adoption of FAS 125.
(2) Net income per common share is computed using the weighted average number
of shares of common stock outstanding during the period, after giving
effect to common stock equivalents arising from the issuance and the
assumed conversion of the Preferred Shares and the assumed exercise of
stock options. In addition, all share and per share amounts have been
restated to reflect stock splits effected by the Company.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DATA:
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
------------- -------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
------------- ---------- ---------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receivables, net........ $1,601,138 $1,385,934 $1,029,853 $ 637,017 $570,856 $348,769
Interest-only strip
receivables, net....... 826,329 586,300 399,204 255,756 193,300 138,048
Total assets............ 2,904,121 2,391,940 1,667,093 1,101,281 878,743 591,360
Notes payable........... 1,614,298 1,319,197 1,075,892 676,420 501,636 285,864
Subordinated debt....... 2,000 2,000 24,000 24,000 41,000 53,000
Shareholders' equity.... 668,895 582,509 241,126 194,263 165,313 126,155
</TABLE>
OTHER SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------
1997 1996(1) 1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Volume of loans
originated and
purchased.............. $ 5,453,372 $ 4,039,226 $ 5,693,054 $3,822,971 $2,779,408 $1,699,010 $1,007,465
Serviced loan
portfolio.............. $15,250,171 $11,174,863 $12,192,432 $8,621,467 $5,898,469 $3,872,708 $2,963,930
Average shareholders'
equity to average total
assets................. 23.63% 16.31% 20.29% 15.73% 18.16% 19.83% 19.97%
Return on average assets
(net income divided by
average total
assets)(2)............. 4.64% 3.69% 4.22% 3.52% 3.16% 2.96% 2.56%
Return on average equity
(net income divided by
average equity)(2)..... 19.65% 22.63% 20.80% 22.38% 17.42% 14.93% 12.82%
Debt to equity ratio
(notes payable plus
subordinated debt
divided by
shareholders' equity).. 2.42:1 3.32:1 2.27:1 4.56:1 3.61:1 3.28:1 2.68:1
</TABLE>
- -------
(1)All periods have been reclassified to reflect the adoption of FAS 125.
(2)The percentages for the nine-month periods ended September 30, 1997 and
1996 have been annualized.
S-14
<PAGE>
The following table sets forth certain selected operating data with respect
to the Company for the nine month periods ended September 30, 1997 and 1996
and for each of the three years in the three-year period ended December 31,
1996:
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Originations:
Home Equity Loans..... $ 4,035,632 $ 2,998,627 $ 4,150,992 $ 2,885,044 $ 2,013,027
Commercial Loans...... 513,774 428,362 635,498 440,728 420,416
Student Loans......... 421,421 310,453 458,459 369,129 345,965
Auto Loans............ 482,545 301,784 448,105 128,070 --
----------- ----------- -------------- ------------- -------------
Total originations.... $ 5,453,372 $ 4,039,226 $ 5,693,054 $ 3,822,971 $ 2,779,408
=========== =========== ============== ============= =============
Serviced Loan Portfolio:
Home Equity Loans..... $10,423,203 $ 7,585,765 $ 8,230,776 $ 5,751,677 $ 3,725,918
Commercial Loans...... 2,562,022 2,134,181 2,282,384 1,907,050 1,605,645
Student Loans......... 1,489,390 1,090,421 1,203,739 845,501 566,906
Auto Loans............ 775,556 364,496 475,533 117,239 --
----------- ----------- -------------- ------------- -------------
Total Serviced Loan
Portfolio............ $15,250,171 $11,174,863 $ 12,192,432 $ 8,621,467 $ 5,898,469
=========== =========== ============== ============= =============
Charge-offs, net:
Home Equity Loans..... $ 41,036 $ 26,363 $ 37,039 $ 24,205 $ 19,942
Percent of total
(1)(4).............. 0.53% 0.46% 0.45% 0.42% 0.54%
Commercial Loans...... $ 1,946 $ 2,040 $ 2,553 $ 1,732 $ 1,293
Percent of total
(2)(4).............. 0.34% 0.48% 0.41% 0.40% 0.37%
Auto Loans............ $ 24,855 $ 3,987 $ 7,474 $ 290 --
Percent of total
(3)(4).............. 4.28% 1.46% 1.57% 0.25% --
----------- ----------- -------------- ------------- -------------
Total charge-offs,
net.................. $ 67,837 $ 32,390 $ 47,066 $ 26,227 $ 21,235
=========== =========== ============== ============= =============
</TABLE>
- --------
(1) Represents the amount of Home Equity Loans charged off, net, as a
percentage of the Home Equity Loans in the Serviced Loan Portfolio.
(2) Represents the amount of Commercial Loans charged off, net, as a
percentage of the unguaranteed portion of the Commercial Loans in the
Serviced Loan Portfolio.
(3) Represents the amount of Auto Loans charged off, net, as a percentage of
the Auto Loans in the Serviced Loan Portfolio.
(4) The percentages for the nine-month periods ended September 30, 1997 and
1996 have been annualized.
S-15
<PAGE>
<TABLE>
<CAPTION>
AS OF AND
FOR THE
NINE MONTHS
ENDED AS OF AND FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
1997 1996 1995 1994
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Delinquencies:
Home Equity Loans:
30-59 days............ 1.61% 1.31% 1.76% 1.77%
60-89 days............ 0.94 0.81 0.68 0.42
90 + days............. 4.23 3.83 2.42 1.86
-------- -------------- -------------- -------------
Total delinquencies... 6.78% 5.95% 4.86% 4.05%
======== ============== ============== =============
Commercial Loans:
30-59 days............ 0.96% 1.08% 1.01% 0.89%
60-89 days............ 0.47 0.60 0.35 0.41
90 + days............. 4.79 4.21 3.97 3.67
-------- -------------- -------------- -------------
Total delinquencies... 6.22% 5.89% 5.33% 4.97%
======== ============== ============== =============
Auto Loans(1):
30-59 days............ 7.14% 2.15% 1.60% --%
60-89 days............ 2.02 0.47 0.15 --
90 + days............. 0.71 0.41 0.04 --
-------- -------------- -------------- -------------
Total delinquencies... 9.87% 3.03% 1.79% --%
======== ============== ============== =============
Collateral owned or
serviced for others
(Home Equity,
Commercial and Auto
Loans) at end of
period(2).............. $ 77,998 $ 44,785 $ 24,337 $ 25,592
======== ============== ============== =============
Allowance for credit
losses................. $ 20,842 $ 19,895 $ 15,591 $14,014
Allowance for credit
losses and loans sold.. 334,363 220,085 125,155 63,849
-------- -------------- -------------- -------------
Total allowance for
credit losses........ $355,205 $ 239,980 $ 140,746 $ 77,863
======== ============== ============== =============
</TABLE>
- --------
(1) The Company began originating Auto Loans in 1995.
(2) Includes collateral owned by trusts which have issued asset-backed
securities in the amounts of $73,655,000 $37,586,000, $14,126,000 and
$13,705,000 at September 30, 1997 and December 31, 1996, 1995 and 1994,
respectively.
S-16
<PAGE>
DESCRIPTION OF THE NOTES
Each Series of Notes is to be issued under a Subordinated Indenture to be
dated as of December , 1997 entered into by the Company and The Bank of New
York, as trustee (the "Trustee"), as supplemented by the first and second
supplemental indentures (the "Indenture"). The following summaries of certain
provisions of the Notes and the Indenture, a copy of which has been
incorporated by reference as an exhibit to the Registration Statement of which
the Prospectus is a part, do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Notes and the Indenture, including the definitions therein of certain
terms. Capitalized terms used in "Description of the Notes" have the meanings
attributed to them in the Notes or the Indenture unless otherwise defined
herein.
The following description of the particular terms of each Series of Notes
offered hereby supplements and, to the extent inconsistent therewith, replaces
the description of the general terms and provisions of the Debt Securities and
the Indenture set forth in the Prospectus, to which reference is hereby made.
GENERAL
The Five Year Notes will be limited to $150 million aggregate principal
amount and will mature on , 2002. The Ten Year Notes will be limited to
$100 million aggregate principal amount and will mature on , 2007. Each
Series of Notes will bear interest at the rate set forth on the front cover of
this Prospectus Supplement from , 1997, payable semi-annually on
and of each year, commencing , 1998, to the registered
holders at the close of business on the or preceding such
or , respectively, whether or not such day is a business day.
Interest on each Series of Notes will be computed on the basis of a 360-day
year of twelve 30-day months.
SUBORDINATION
The Notes of each Series will constitute unsecured general obligations of
the Company, will be subordinated to all existing and future Senior
Indebtedness of the Company and will be effectively subordinated to all
existing and future indebtedness and other obligations of the Company's
subsidiaries. At September 30, 1997, the Company had approximately $1.6
billion of Senior Indebtedness outstanding, approximately $1.3 billion of
which was guaranteed by substantially all of the Company's subsidiaries and
approximately $353.0 million of which was secured. See "Capitalization." Of
such outstanding Senior Indebtedness, approximately $429.3 million was
outstanding under the Credit Facility and $353.0 million was outstanding under
secured warehouse lines, $ million of which is expected to be repaid with
the net proceeds from the sale of the Notes. However, since the Credit
Facility and the warehouse lines are revolving credit facilities, there will
be no restriction on the Company's ability to make further borrowings
thereunder (provided, in the case of warehouse lines, that loans are available
to secure such borrowings), including borrowings in excess of the amounts
repaid. Under the Indenture, there is no limitation on the amount of Senior
Indebtedness which the Company may incur, nor is there any limitation on the
amount of indebtedness or other obligations that the Company's subsidiaries
may incur. See "Description of Securities--Debt Securities--Subordination" in
the Prospectus.
The Company may not pay principal of, premium, if any, or interest on, the
Notes or repurchase or redeem the Notes, if any Senior Indebtedness is in
default unless, in each case, the default has been cured or waived or shall
have ceased to exist. Upon any distribution of assets of the Company upon the
dissolution, winding up, liquidation or reorganization of the Company, the
payment of the principal of (and premium, if any) and interest on the Notes
will be subordinated to the extent provided in the Indenture in right of
payment to the prior payment in full of all Senior Indebtedness. No payment on
account of principal (or premium, if any) or interest may be made on the Notes
unless full payment of amounts then due for principal, premium, if any,
sinking funds and interest on Senior Indebtedness has been made or duly
provided for. In the event that, notwithstanding the foregoing, any payment by
the Company described in the foregoing sentence is received by the Trustee
under the Indenture, any Paying Agent or the holders of any of the Notes
before all Senior Indebtedness is paid in full,
S-17
<PAGE>
such payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full.
The Company is a holding company whose principal assets are the capital
stock of its subsidiaries. Because the Company is a holding company, its
rights and the rights of its creditors, including the holders of the Notes,
except to the extent the Company may itself be a creditor with recognized
claims against such subsidiaries, will rank junior to the claims of creditors
of the subsidiaries with respect to the assets and earnings of the
subsidiaries. In addition, as a holding company the Company's ability to meet
debt service obligations and pay operating expenses and dividends depends on
receipt of sufficient funds from its subsidiaries. There can be no assurance
that the Company's subsidiaries will not enter into financing arrangements in
the future that may restrict their ability to pay dividends to the Company.
OPTIONAL REDEMPTION
Neither Series of Notes will be redeemable prior to maturity.
SINKING FUND
There will be no sinking fund payments for either Series of Notes.
COVENANTS
Neither the Notes nor the Indenture contain any provisions which will
restrict the Company or any of its subsidiaries from incurring, assuming or
becoming liable with respect to any indebtedness or other obligations, whether
secured or unsecured, and whether senior or junior to, or pari passu with, the
Notes. Neither Series of Notes contains any provisions which will restrict the
Company or any of its subsidiaries from paying dividends or making other
distributions on its or their capital stock or purchasing or redeeming its or
their capital stock. Neither the Notes nor the Indenture contain any financial
ratios or specified levels of liquidity to which the Company must adhere. In
addition, neither the Notes nor the Indenture contain any provision which
requires the Company to repurchase, redeem or modify the terms of the Notes
upon a change in control or other events involving the Company which may
adversely affect the creditworthiness of the Notes.
EVENTS OF DEFAULT
Each Series of Notes shall be subject to the Events of Default set forth in
the Prospectus.
DEFEASANCE
Each Series of Notes is subject to the Company's legal defeasance option and
covenant defeasance option as set forth under "Description of Securities--Debt
Securities--Discharge, Legal Defeasance and Covenant Defeasance" in the
Prospectus.
BOOK-ENTRY, DELIVERY AND FORM
Each Series of Notes initially will be represented by one or more Global
Notes deposited with The Depository Trust Company ("DTC") and registered in
the name of DTC's nominee. Except as described in the Prospectus, each Series
of Notes will be available for purchase in denominations of $1,000 principal
amount, and integral multiples thereof, in book-entry form only. Unless and
until certificated Notes are issued under the limited circumstances described
in the Prospectus, no beneficial owner of a Note shall be entitled to receive
a definitive certificate representing a Note. So long as the Notes are
represented by the Global Notes, any payments in respect of the Notes will be
made to DTC or its nominee, as the registered owner of the Global Notes. See
"Description of Securities--Debt Securities--Book-Entry Debt Securities" in
the Prospectus.
S-18
<PAGE>
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for each Series of Notes will be made by the Underwriters in
immediately available funds. All payments of principal and interest will be
made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in same-day funds. The Notes will trade in DTC's Same-Day
Funds Settlement System until maturity, and secondary market trading activity
in the Notes will therefore be required by DTC to settle in immediately
available funds.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with respect to each
Series of Notes.
S-19
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement,
to purchase from the Company the principal amount of Notes set forth below
opposite their respective names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF FIVE YEAR NOTES OF TEN YEAR NOTES
----------- ------------------ -----------------
<S> <C> <C>
Prudential Securities Incorporated.... $ $
Bear, Stearns & Co. Inc. .............
NationsBanc Montgomery Securities,
Inc. ................................
Salomon Brothers Inc..................
------------ ------------
Total............................... $150,000,000 $100,000,000
============ ============
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Notes offered hereby if any are purchased.
The Underwriters have advised the Company that they propose to offer each
Series of Notes initially at the respective public offering prices set forth
on the cover page hereof and to certain dealers at a price that represents a
concession not in excess of % and % of the principal amount of the Five
Year Notes and the Ten Year Notes, respectively. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of % and % of
the principal amount of the Five Year Notes and the Ten Year Notes,
respectively, to certain other dealers. After the initial public offering, the
public offering price and the concessions may be changed by the Underwriters.
The Company has agreed to indemnify the several Underwriters, or to
contribute to losses arising out of certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended.
Each Series of Notes is a new issue of securities with no established
trading market. The Company does not intend to apply for listing of the either
Series of Notes on a national securities exchange but has been advised by the
Underwriters that they presently intend to make a market in the Notes, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in either Series of Notes and any such
market making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of or
trading markets for either Series of Notes or that an active public market for
either Series of Notes will develop. If active public markets for the Notes do
not develop, the market prices and liquidity of the Notes may be adversely
affected.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specific
maximum. Syndicate covering transactions involve purchases of the Notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the Notes originally sold by
such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of such transactions.
The Underwriters receive customary fees for ordinary brokerage transactions
with the Company and its affiliates. The Underwriters and their affiliates
have performed investment banking services in the ordinary course of their
respective businesses for the Company and its affiliates in the past, for
which they have received customary compensation, and may continue to do so in
the future.
S-20
<PAGE>
Prudential Securities Credit Corp., an affiliate of Prudential Securities
Incorporated, provides the Company with various warehouse lines of credit
under which the aggregate outstanding balance may not exceed $600 million.
Bear Stearns Mortgage Capital Corporation, an affiliate of Bear, Stearns & Co.
Inc., provides the Company with a mortgage warehouse line of credit under
which the outstanding balance may not exceed $450 million. NationsBank of
Texas, N.A., an affiliate of NationsBanc Montgomery Securities, Inc., is a
lender to the Company pursuant to the Credit Facility, and its commitment
thereunder is $40 million. The Company may use a portion of the net proceeds
of the offering of the Notes to repay some or all of the amounts outstanding
under the Credit Facility or one or more of such warehouse lines.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Stroock & Stroock & Lavan LLP, New York, New York. Certain other legal
matters will be passed upon for the Company by Stroock & Stroock & Lavan LLP
and Corporate Counsel to the Company. Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A., New York, New York will pass upon certain legal matters
for the Underwriters. Stroock & Stroock & Lavan LLP will rely as to matters of
New Jersey law upon Corporate Counsel to the Company. Sills Cummis Zuckerman
Radin Tischman Epstein & Gross, P.A. represents the Company in certain matters
from time to time.
S-21
<PAGE>
PROSPECTUS
THE MONEY STORE INC.
COMMON STOCK, PREFERRED STOCK AND DEBT SECURITIES
The Money Store Inc. (the "Company") may offer from time to time, together
or separately, (i) shares of its Common Stock, no par value per share (the
"Common Stock"), (ii) shares of its preferred stock, no par value per share
(the "Preferred Stock"), (iii) its unsecured debt securities, which may be
either senior (the "Senior Debt Securities") or subordinated (the
"Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities") (the Common Stock, the Preferred Stock and the Debt
Securities are collectively referred to herein as the "Securities"), in
amounts, at prices and on terms to be determined at the time of the offering
thereof. The Subordinated Debt Securities and Preferred Stock may be
convertible or exchangeable into other series of Debt Securities or shares of
Common Stock. The Debt Securities may be guaranteed by certain wholly-owned
subsidiaries of the Company named herein. The Securities offered pursuant to
this Prospectus by the Company may be issued in one or more series or
issuances the aggregate offering price of which will not exceed $734,146,250
(or the equivalent thereof if the Debt Securities are denominated in one or
more foreign currencies or foreign currency units).
The Selling Shareholder (as defined herein) also may offer and sell from
time to time up to an aggregate of 1,250,000 shares of Common Stock. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholder.
The specific terms of the Securities in respect of which this Prospectus is
being delivered (the "Offered Securities") will be set forth in an
accompanying supplement to this Prospectus (each, a "Prospectus Supplement"),
including, where applicable, (i) in the case of Common Stock, the aggregate
number of shares offered and whether such shares will be offered by the
Company and/or the Selling Shareholder, (ii) in the case of the Preferred
Stock, the specific designation, the aggregate number of shares offered, the
dividend rate (or method of calculation thereof), the dividend period and
dividend payment dates, whether such dividends will be cumulative or
noncumulative, the liquidation preference, the voting rights, if any, any
terms for optional or mandatory redemption, any terms for conversion or
exchange into other series of Debt Securities or Common Stock and any other
special terms, and (iii) in the case of Debt Securities, the specific
designation, the aggregate principal amount, the ranking as Senior Debt
Securities or Subordinated Debt Securities, the authorized denominations, the
maturity, any premium, rate or method of calculation of interest and dates for
payment thereof, any terms for optional or mandatory redemption, any sinking
fund provisions, any terms for conversion or exchange into other series of
Debt Securities or Common Stock and any other special terms. If so specified
in the applicable Prospectus Supplement, Debt Securities of a series may be
issued in whole or in part in the form of one or more temporary or permanent
global securities.
The Senior Debt Securities will rank equally with all other unsubordinated
and unsecured indebtedness of the Company. The Subordinated Debt Securities
will be subordinate in right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company.
The Company and the Selling Shareholder may sell the Securities (i) through
underwriting syndicates represented by managing underwriters, or by
underwriters without a syndicate, with such underwriters to be designated at
the time of sale, (ii) through agents designated from time to time, or (iii)
directly. The names of any underwriters or agents of the Company or of the
Selling Shareholder involved in the sale of the Securities, the public
offering price or purchase price thereof, any applicable commissions or
discounts, any other terms of the offering of such Securities and the net
proceeds to the Company or to the Selling Shareholder from such sale, will be
set forth in the applicable Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
April 10, 1997
<PAGE>
FOR NORTH CAROLINA PURCHASERS: THE COMMISSIONER OF INSURANCE FOR THE STATE
OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE
COMMISSIONER ACTED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the following
public reference facilities maintained by the Commission: Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, Suite 1300, New York, New York 10048; and the Citibank Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail from the Public Reference Station of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of prescribed rates. In addition, such materials may
be accessed electronically at the Commission's site on the World Wide Web
located at http://www.sec.gov. Reports, proxy statements and other information
concerning the Company also may be inspected at the offices of the National
Association of Securities Dealers, Inc. 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission on Form S-3 under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. These documents may be inspected without charge at the office
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies may be obtained at fees and charges prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(b) The Company's Current Report on Form 8-K dated April 9, 1997; and
(c) The Company's Registration Statements on Form 8-A with respect to the
Common Stock and the $1.72 Mandatory Convertible Preferred Stock
(No. 1-10785).
All reports and any definitive proxy or information statements filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified, or superseded, to
constitute a part of this Prospectus.
2
<PAGE>
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO ERIC R. ELWIN, ESQ., VICE PRESIDENT AND CORPORATE COUNSEL, 2840
MORRIS AVENUE, UNION, NEW JERSEY, 07083. TELEPHONE REQUESTS MAY BE DIRECTED TO
ERIC R. ELWIN, ESQ. AT (908) 686-2000.
3
<PAGE>
THE COMPANY
The Company is a financial services company engaged, through its
subsidiaries, in the business of originating (including purchasing), selling
and servicing consumer and commercial loans of specified types and offering
related services. Loans originated by the Company primarily consist of (i)
fixed and adjustable rate mortgage loans on residential real estate ("Home
Equity Loans"), (ii) loans guaranteed in part ("SBA Loans") by the United
States Small Business Administration (the "SBA") and commercial loans
generally secured by first mortgages ("Small Business Loans" and, together
with SBA Loans, "Commercial Loans"), (iii) government-guaranteed student loans
("Student Loans") and (iv) motor vehicle retail installment sale contracts
purchased from automotive dealers ("Auto Loans").
For the year ended December 31, 1996, the Company originated or purchased
approximately $5.7 billion of loans. Of these loans, approximately 73% by
principal amount were Home Equity Loans, approximately 11% by principal amount
were Commercial Loans, approximately 8% by principal amount were Student Loans
and approximately 8% by principal amount were Auto Loans. Based upon
government agency sources, management believes that during each of the last 14
SBA fiscal years the Company originated a greater principal amount of SBA
Loans than any other originator of SBA Loans in the United States.
Substantially all of the loans originated and purchased by the Company are
sold to institutional investors or pledged to the Company's lenders until the
loans can be sold and the lenders repaid. Revenue is recognized as gain on
sale of receivables, which represents the present value of the difference
between the interest charged by the Company to a borrower and the interest
rate received by the investor who purchased the loan, in excess of normal loan
servicing fees (the "Excess Servicing Spread") and non-refundable fees and
premiums on loans sold. The Company recognizes such gain on sale of
receivables in the year that the loans are sold, although cash (representing
the Excess Servicing Spread and servicing fees) is received by the Company
over the lives of the loans. The Company's practice of selling its loans is
designed to increase the Company's liquidity, reduce the need to access
markets for capital and reduce certain risks associated with interest rate
fluctuations. For loans sold during 1996, the Excess Servicing Spread averaged
approximately 3.68% on Home Equity Loans, 2.09% on Commercial Loans, 1.90% on
Student Loans and 10.09% on Auto Loans.
The Company generally retains the right to service loans it sells or
pledges. In addition to the Excess Servicing Spread, the Company receives fees
in connection with its loan origination and servicing activities. The total
portfolio of loans which the Company services (the "Serviced Loan Portfolio")
was approximately $12.2 billion at December 31, 1996, consisting of $11.2
billion of loans that had been sold with servicing rights retained, $1.0
billion of loans (the "Retained Loan Portfolio") which the Company has not
sold and approximately $24.4 million of loans (the "Repurchased Loan
Portfolio") which the Company has repurchased from investors pursuant to
contractual commitments. The Retained Loan Portfolio consists of (i) Home
Equity Loans, Commercial Loans, Student Loans, Auto Loans and other loans that
are warehoused pending their sale, (ii) the unsold unguaranteed portion of SBA
Loans for which the related guaranteed portions have been sold, (iii) certain
Student Loans during the period prior to the commencement of the borrower's
repayment obligation, and (iv) loans that the Company otherwise determines to
retain.
At December 31, 1996, the Company operated out of 217 branch offices and
was doing business in 50 states, the District of Columbia and the Commonwealth
of Puerto Rico.
The Company was incorporated in New Jersey in 1974. The predecessor of the
Company, which is now a wholly-owned subsidiary of the Company, began making
Home Equity Loans in 1967. The Company's principal executive offices are
located at 2840 Morris Avenue, Union, New Jersey 07083. Its telephone number
is (908) 686-2000.
4
<PAGE>
RATIOS OF EARNINGS
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the years in the five-year period ended December 31,
1996.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. Earnings consist of income before income taxes plus
fixed charges. Fixed charges consist of interest on all indebtedness and the
portion of rental expense considered to be representative of interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings.......................... $273,357 180,389 $98,462 $71,429 $58,552
-------- ------- ------- ------- -------
Interest expense.................. 124,076 93,985 43,059 29,184 31,504
Rent expense(1)................... 4,741 3,371 2,376 1,672 1,448
-------- ------- ------- ------- -------
Total fixed charges............... $128,817 $97,356 $45,435 $30,856 $32,952
======== ======= ======= ======= =======
Ratio 2.12x 1.85x 2.17x 2.31x 1.78x
======== ======= ======= ======= =======
</TABLE>
- --------
(1) Rent expense reflects one-third of the Company's total rent expense.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of the Offered Securities will be
used for general corporate purposes. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholder.
5
<PAGE>
SELLING SHAREHOLDER
The Selling Shareholder is Marc Turtletaub, the President and Chief
Executive Officer and a Director of the Company. The following table sets
forth certain information with respect to the Selling Shareholder's beneficial
ownership of Common Stock, as adjusted to reflect the sale by him of the
shares registered for sale, at February 1, 1997.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED IF ALL
OWNED PRIOR TO REGISTERED SHARES
OFFERING NUMBER OF SHARES ARE SOLD
------------------ BEING REGISTERED -----------------------
SELLING SHAREHOLDER NUMBER PERCENT FOR SALE NUMBER PERCENT
- ------------------- ---------- ------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Marc Turtletaub....... 19,969,750 34.5% 1,250,000 18,719,750 32.3%
</TABLE>
Marc Turtletaub is a general partner in a general partnership with Alan
Turtletaub, the Chairman of the Board of Directors of the Company, which has a
one-third interest in a joint venture which is the lessor of the Company's
corporate headquarters in Union, New Jersey. During the past three years, the
Company has occupied approximately 50,000 square feet in Union under a lease
recently extended to the year 2000. The annual rent under the lease, subject
to certain adjustments, is approximately $1,200,000.
From 1990 to 1993, Commercial Capital Co., Inc., a subsidiary of the
Company ("CCC"), provided a secured revolving credit facility (the "MTGB
Facility") to MTGB Partners ("MTGB"), a general partnership whose partners
were Marc Turtletaub and another individual who was neither affiliated with
the Company nor related to any Director or officer of the Company. The maximum
amount of the MTGB Facility was $5 million and such facility bore interest at
prime plus 2% per annum, adjusted quarterly. The term of the MTGB Facility
expired on the earlier to occur of September 30, 1995 or the date of sale of
all real property owned by Delta Diamond Oaks IV ("Delta Diamond"), a
California limited partnership, or of MTGB's direct or indirect interest in
Delta Diamond. MTGB repaid the facility in 1993.
DESCRIPTION OF SECURITIES
GENERAL
The following description of the terms of the Securities sets forth certain
general terms and provisions of the Securities to which any Prospectus
Supplement may relate. The particular terms of the Securities offered by any
Prospectus Supplement and the extent, if any, to which such general provisions
may apply to the Securities so offered will be described in the Prospectus
Supplement relating to such Securities.
COMMON STOCK
General
The Company has 250,000,000 shares of authorized Common Stock, no par value
per share. Holders of the Company's Common Stock are entitled to receive such
dividends as may be legally declared by the Board of Directors. The Company
has paid a quarterly dividend on its Common Stock since November 1992. The
Company anticipates continuing this quarterly dividend program. Holders of the
Common Stock are entitled to one vote for each share held of record. Action of
the stockholders may generally be taken by the affirmative vote of a majority
of the shares present or represented at a duly called meeting at which a
quorum is present or represented. Holders of Common Stock have no preemptive
or subscription rights and have no liability for further calls or assessments.
All shares of Common Stock are entitled to share ratably in the net assets of
the Company upon liquidation. The transfer agent and registrar for the Common
Stock is Registrar and Transfer Company of Cranford, New Jersey.
6
<PAGE>
DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.
The Senior Debt Securities are to be issued under an indenture, as
supplemented from time to time (the "Senior Indenture"), between the Company
and The Chase Manhattan Bank, as Trustee (the "Senior Trustee"). The
Subordinated Debt Securities are to be issued under an indenture as
supplemented from time to time (the "Subordinated Indenture"), between the
Company and The Bank of New York, as Trustee (the "Subordinated Trustee"). The
term "Trustee" as used herein shall refer to either the Senior Trustee or the
Subordinated Trustee, as appropriate, for Senior Debt Securities or
Subordinated Debt Securities. The Senior Indenture and the Subordinated
Indenture (being referred to herein collectively as the "Indentures" and
individually as an "Indenture") are filed as exhibits to the Registration
Statement. The Indentures are subject to and governed by the Trust Indenture
Act of 1939, as amended (the "TIA").
The statements made under this heading relating to the Debt Securities and
the Indentures are summaries of the provisions thereof, do not purport to be
complete and are qualified in their entirety by reference to the Indentures,
including the definitions of certain terms therein and in the TIA. Certain
capitalized terms used below but not defined herein have the meanings ascribed
to them in the applicable Indenture. Unless otherwise noted below, section
references below are to both Indentures.
The particular terms of the Debt Securities being offered (the "Offered
Debt Securities"), any modifications of or additions to the general terms of
the Debt Securities as described herein that may be applicable in the case of
the Offered Debt Securities and any applicable federal income tax
considerations will be described in the Prospectus Supplement relating to the
Offered Debt Securities. Accordingly, for a description of the terms of the
Offered Debt Securities, reference must be made both to the Prospectus
Supplement relating thereto and the description of Debt Securities set forth
in this Prospectus.
General
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Debt Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by the Subordinated Debt Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company (including the Senior Debt Securities) as
described under "--Debt Securities--Subordination" below. The Debt Securities
may be issued in one or more series. The respective Indentures provide that
there is no limitation on the amount of debt securities that may be issued
thereunder from time to time.
The Company primarily conducts its operations through its Subsidiaries. The
rights of the Company and its creditors, including the Holders of the Debt
Securities, to participate in the assets of any Subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
Subsidiary's creditors except to the extent that the Company may itself be a
creditor with recognized claims against the Subsidiary.
The accompanying Prospectus Supplement will set forth the terms of the
Offered Debt Securities, which may include the following:
(1)The title of the Offered Debt Securities and whether they are
Senior Debt Securities or Subordinated Debt Securities.
(2)The aggregate principal amount of the Offered Debt Securities and
any limit on the aggregate principal amount of the Offered Debt
Securities.
7
<PAGE>
(3)The percentage of the principal amount at which the Offered Debt
Securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof or the method by
which such portion shall be determined.
(4)The date or dates on which or periods during which the Offered Debt
Securities may be issued, and the date or dates, or the method by which
such date or dates will be determined, on which the principal of (and
premium, if any, on) the Offered Debt Securities will be payable.
(5)The rate or rates at which the Offered Debt Securities will bear
interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest, if any, shall
accrue or the method by which such date or dates shall be determined, the
interest payment dates on which such interest will be payable and, if the
Offered Debt Securities are Registered Securities, the regular record
dates, if any, for the interest payable on such interest payment dates,
and, if the Offered Debt Securities are floating rate securities, the
notice, if any, to Holders regarding the determination of interest and
the manner of giving such notice.
(6)The place or places where the principal of (and premium, if any)
and interest on the Offered Debt Securities shall be payable; the extent
to which, or the manner in which, any interest payable on any Global Note
(as defined below) on an interest payment date will be paid, and the
manner in which any principal of, or premium, if any, on, any Global Note
will be paid.
(7)The obligation, if any, of the Company to redeem, repay or purchase
the Offered Debt Securities pursuant to any mandatory redemption, sinking
fund or analogous provisions or at the option of the Holder thereof and
the period or periods within which, or the dates on which, the prices at
which and the terms and conditions upon which the Offered Debt Securities
shall be redeemed, repaid or purchased, in whole or in part, pursuant to
such obligation.
(8)The right, if any, of the Company to redeem the Offered Debt
Securities at its option and the period or periods within which, or the
date or dates on which, the price or prices at which, and the terms and
conditions upon which Offered Debt Securities may be redeemed, if any, in
whole or in part, at the option of the Company or otherwise.
(9)If the coin or currency in which the Offered Debt Securities shall
be issuable is U.S. dollars, the denominations of the Offered Debt
Securities if other than denominations of $1,000 and any integral
multiple thereof.
(10)Whether the Offered Debt Securities are to be issued as original
issue discount securities ("Discount Securities") and the amount of
discount at which such Offered Debt Securities may be issued and, if
other than the principal amount thereof, the portion of the principal
amount of Offered Debt Securities which shall be payable upon declaration
of acceleration of the Maturity thereof upon an Event of Default.
(11)Provisions, if any, for the defeasance of Offered Debt Securities
or certain of the Company's obligations with respect to the Offered Debt
Securities.
(12)Whether the Offered Debt Securities are to be issued as Registered
Securities or Bearer Securities or both, and, if Bearer Securities are
issued, whether any interest coupons appertaining thereto ("Coupons")
will be attached thereto, whether such Bearer Securities may be exchanged
for Registered Securities and the circumstances under which, and the
place or places at which, any such exchanges, if permitted, may be made.
(13)Whether provisions for payment of additional amounts or tax
redemptions shall apply and, if such provisions shall apply, such
provisions; and, if any of the Offered Debt Securities are to be issued
as Bearer Securities, the applicable procedures and certificates relating
to the exchange of temporary Global Notes for definitive Bearer
Securities.
8
<PAGE>
(14)If other than U.S. dollars, the currency, currencies or currency
units (the term "currency" as used herein will include currency units) in
which the Offered Debt Securities shall be denominated or in which
payment of the principal of (and premium, if any) and interest on the
Offered Debt Securities may be made, and particular provisions applicable
thereto and, if applicable, the amount of Offered Debt Securities which
entitles the Holder of an Offered Debt Security or its proxy to one vote
for purposes of voting at a meeting of Holders of the Offered Debt
Securities.
(15)If the principal of (and premium, if any) or interest on the
Offered Debt Securities is to be payable, at the election of the Company
or a Holder thereof, in a currency other than that in which the Debt
Securities is denominated or payable without such election, in addition
to or in lieu of the applicable provisions of the Indentures, the period
or periods within which and the terms and conditions upon which, such
election may be made and the time and the manner of determining the
exchange rate or rates between the currency or currencies in which the
Offered Debt Securities are denominated or payable without such election
and the currency or currencies in which the Offered Debt Securities are
to be paid if such election is made.
(16)The date as of which any Offered Debt Securities shall be dated.
(17)If the amount of payments of principal of (and premium, if any) or
interest on the Offered Debt Securities may be determined with reference
to an index, including, but not limited to, an index based on a currency
or currencies other than that in which the Offered Debt Securities are
denominated or payable, or any other type of index, the manner in which
such amounts shall be determined.
(18)If the Offered Debt Securities are denominated or payable in
foreign currency, any other terms concerning the payment of principal of
(and premium, if any) or any interest on the Offered Debt Securities
(including the currency or currencies of payment thereof).
(19)The designation of the original Currency Determination Agent, if
any.
(20)The applicable Overdue Rate, if any.
(21)If the Offered Debt Securities do not bear interest, the
applicable dates upon which the Company will furnish or cause to be
furnished to the Trustee a list of the names and addresses of the
Registered Holders of the Offered Debt Securities.
(22)Any addition to, or modification or deletion of, any Events of
Default or covenants provided for in the applicable Indenture with
respect to the Offered Debt Securities.
(23)If any of the Offered Debt Securities are to be issued as Bearer
Securities, (x) whether interest in respect of any portion of a temporary
Offered Debt Security in global form (representing all of the Outstanding
Bearer Securities of the series) payable in respect of any interest
payment date prior to the exchange of such temporary Offered Debt
Security for definitive Offered Debt Securities shall be paid to any
clearing organization with respect to the portion of such temporary
Offered Debt Security held for its account and, in such event, the terms
and conditions (including any certification requirements) upon which any
such interest payment received by a clearing organization will be
credited to the Persons entitled to interest payable on such interest
payment date, (y) the terms upon which interests in such temporary
Offered Debt Security in global form may be exchanged for interests in a
permanent Global Note or for definitive Offered Debt Securities and the
terms upon which interests in a permanent Global Note, if any, may be
exchanged for definitive Offered Debt Securities and (z) the cities in
which the Authorized Newspapers designated for the purposes of giving
notices to Holders are published.
(24)Whether the Offered Debt Securities shall be issued in whole or in
part in the form of one or more Global Notes and, in such case, the
depositary or any common depositary for such Global Notes; and if the
Offered Debt Securities are issuable only as Registered Securities, the
manner in which and the circumstances under which Global Notes
representing Offered Debt Securities may be exchanged for Registered
Securities in definitive form.
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(25)The designation, if any, of any depositaries, trustees (other than
the applicable Trustee), paying agents, authenticating agents, security
registrars (other than the applicable Trustee) or other agents with
respect to the Offered Debt Securities.
(26)If the Offered Debt Securities are to be issuable in definitive
form only upon receipt of certain certificates or other documents or upon
satisfaction of certain conditions, the form and terms of such
certificates, documents or conditions.
(27)If the Offered Debt Securities are Subordinated Debt Securities,
whether they will be convertible or exchangeable into another series of
Debt Securities or shares of Common Stock and, if so, the terms and
conditions, which may in addition to or in lieu of the provisions
contained in the Subordinated Indenture, upon which such Offered Debt
Securities will be so convertible or exchangeable, including the
conversion or exchange price and the conversion or exchange period.
(28)Any other terms of the Offered Debt Securities not specified in
the Indenture under which such Offered Debt Securities are to be issued
(which other terms shall not be inconsistent with the provisions of such
Indenture).
(29)Whether the Offered Debt Securities will be guaranteed by the
Subsidiary Guarantors named herein under "--Subsidiary Guarantees."
The Debt Securities may be issued in one or more series under the
Indentures, in each case as authorized from time to time by the Board of
Directors of the Company, or any committee thereof or any duly authorized
officer or pursuant to any modification of an Indenture. (Section 3.01)
In the event that Discount Securities are issued, the Federal income tax
consequences and other special considerations applicable to such Discount
Securities will be described in the Prospectus Supplement relating thereto.
The general provisions of the Indentures do not contain any provisions that
would limit the ability of the Company or its Subsidiaries to incur
indebtedness or that would afford holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving the Company or
its Subsidiaries. Reference is made to the accompanying Prospectus Supplement
for information with respect to any deletions from, modifications of or
additions, if any, to the Events of Default or covenants of the Company
described below that are applicable to the Offered Debt Securities, including
any addition of covenants or other provisions providing event risk or similar
protection.
All of the Debt Securities of a series need not be issued at the same time,
and may vary as to denomination, interest rate, maturity and other provisions
and unless otherwise provided, a series may be reopened for issuance of
additional Debt Securities of such series. (Section 3.01)
Denominations, Registration and Transfer
Unless specified in the Prospectus Supplement, the Debt Securities of any
series shall be issuable only as Registered Securities in denominations of
$1,000 and any integral multiple thereof and shall be payable only in U.S.
dollars. (Section 3.02) The Indentures also provide that Debt Securities of a
series may be issuable in global form. See "--Debt Securities--Book-Entry Debt
Securities." Unless otherwise indicated in the Prospectus Supplement, Bearer
Securities (other than in global form) will have Coupons attached. (Section
2.01)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of like aggregate principal amount
and of like Stated Maturity and with like terms and conditions. If so
specified in the Prospectus Supplement, at the option of the Holder thereof,
to the extent permitted by law, any Bearer Security of any series which by its
terms is registrable as to principal and interest may be exchanged for a
Registered Security of such series of like aggregate principal amount and of a
like Stated Maturity and with like terms and conditions, upon surrender of
such Bearer Security at the corporate trust office of the applicable Trustee
or at any other office or agency of the Company designated for the purpose of
making any such exchanges. Subject to certain exceptions, any Bearer Security
issued with Coupons surrendered for exchange
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must be surrendered with all unmatured Coupons and any matured Coupons in
default attached thereto. (Section 3.05)
Notwithstanding the foregoing, the exchange of Bearer Securities for
Registered Securities will be subject to the provisions of United States
income tax laws and regulations applicable to Debt Securities in effect at the
time of such exchange. (Section 3.05)
Except as otherwise specified in the Prospectus Supplement, in no event may
Registered Securities, including Registered Securities received in exchange
for Bearer Securities, be exchanged for Bearer Securities. (Section 3.05)
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency of the Company maintained for such purpose,
the Company shall deliver, in the name of the designated transferee, one or
more new Registered Securities of the same series of like aggregate principal
amount of such denominations as are authorized for Registered Securities of
such series and of a like Stated Maturity and with like terms and conditions.
No service charge will be made for any transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. (Section
3.05)
The Company shall not be required to (i) register, transfer or exchange
Debt Securities of any series during a period beginning at the opening of
business 15 days before the day of the transmission of a notice of redemption
of Debt Securities of such series selected for redemption and ending at the
close of business on the day of such transmission, or to (ii) register,
transfer or exchange any Debt Security so selected for redemption in whole or
in part, except the unredeemed portion of any Debt Security being redeemed in
part. (Section 3.05)
Events of Default
Under the Indentures, "Event of Default" with respect to the Debt
Securities of any series means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law, pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body): (1) default in the payment of any
interest upon any Debt Security or any payment with respect to the Coupons, if
any, of such series when it becomes due and payable, and continuance of such
default for a period of 30 days; (2) default in the payment of the principal
of (and premium, if any, on) any Debt Security of such series at its Maturity;
(3) default in the deposit of any sinking fund payment, when and as due by the
terms of a Debt Security of such series; (4) default in the performance, or
breach of any covenant or warranty in the applicable Indenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in the applicable Indenture specifically dealt with or which
expressly has been included in the applicable Indenture solely for the benefit
of Debt Securities of a series other than such series), and continuance of
such default or breach for a period of 60 days after there has been given to
the Company by the applicable Trustee or to the Company and the applicable
Trustee by the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of such series, a written notice specifying such default or
breach and requiring it to be remedied; (5) certain events of bankruptcy,
insolvency or reorganization with respect to the Company; or (6) any other
Event of Default provided with respect to Debt Securities of that series
pursuant to the applicable Indenture. (Section 5.01)
Each Indenture requires the Company to file with the applicable Trustee,
annually, an officers' certificate as to the Company's compliance with all
conditions and covenants under the applicable Indenture. (Section 12.02) Each
Indenture provides that the applicable Trustee may withhold notice to the
Holders of a series of Debt Securities of any default (except payment defaults
on such Debt Securities) if it considers such withholding to be in the
interest of the Holders of such series of Debt Securities to do so. (Section
6.02)
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, then in every case the applicable
Trustee or the Holders of not less than 25% in principal amount of
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the Outstanding Debt Securities of such series may declare the principal
amount (or, if any Debt Securities of such series are Discount Securities,
such portion of the principal amount of such Discount Securities as may be
specified in the terms of such Discount Securities) of the Debt Securities of
such series to be due and payable immediately, by a notice in writing to the
Company (and to the applicable Trustee if given by Holders), and upon any such
declaration such principal amount (or specified amount), plus accrued and
unpaid interest (and premium, if any) shall become immediately due and
payable. Upon payment of such amount in the currency in which such Debt
Securities are denominated (except as otherwise provided in the applicable
Indenture or specified in the Prospectus Supplement), all obligations of the
Company in respect of the payment of principal of the Debt Securities of such
series shall terminate. (Section 5.02)
Subject to the provisions of each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default with respect to Debt
Securities of a particular series shall occur and be continuing, the
applicable Trustee shall be under no obligation to exercise any of its rights
or powers under such Indenture at the request, order or direction of any of
the Holders of Debt Securities of that series, unless such Holders shall have
offered to the applicable Trustee reasonable indemnity against the expenses
and liabilities which might be incurred by it in compliance with such request.
(Section 5.07) Subject to such provisions for the indemnification of the
applicable Trustee, the Holders of a majority in principal amount of the
Outstanding Debt Securities of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the applicable Trustee under such Indenture, or exercising any trust or
power conferred on the applicable Trustee with respect to the Debt Securities
of that series provided that such direction does not conflict with law or with
the applicable Indenture. (Section 5.12)
At any time after such a declaration of acceleration with respect to Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee as
provided in the Indentures, the Holders of a majority in principal amount of
the Outstanding Debt Securities of such series, by written notice to the
Company and the applicable Trustee, may rescind and annul such declaration and
its consequences if (1) the Company has paid or deposited with the applicable
Trustee a sum in the currency in which such Debt Securities are denominated
(except as otherwise provided in the applicable Indenture or specified in the
Prospectus Supplement) sufficient to pay (A) all overdue installments of
interest on all Debt Securities or all overdue payments with respect to any
Coupons of such series, (B) the principal of (and premium, if any, on) any
Debt Securities of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such Debt Securities, (C) to the extent that payment of
such interest is lawful, interest upon overdue installments of interest on
each Debt Security of such series or upon overdue payments on any Coupons of
such series at a rate established for such series, and (D) all sums paid or
advanced by the applicable Trustee and the reasonable compensation, expenses,
disbursements and advances of the applicable Trustee, its agents and counsel;
and (2) all Events of Default with respect to Debt Securities of such series,
other than the nonpayment of the principal of Debt Securities of such series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in the applicable Indenture. No such rescission
and waiver will affect any subsequent default or impair any right consequent
thereon. (Section 5.02)
Modification or Waiver
Without prior notice to or consent of any Holders, the Company and the
applicable Trustee, at any time and from time to time, may modify the
applicable Indenture for any of the following purposes: (1) to evidence the
succession of another corporation to the rights of the Company and the
assumption by such successor of the covenants and obligations of the Company
in the applicable Indenture and in the Debt Securities and Coupons, if any,
issued thereunder; (2) to add to the covenants of the Company for the benefit
of the Holders of all or any series of Debt Securities and the Coupons, if
any, appertaining thereto (and if such covenants are to be for the benefit of
less than all series, stating that such covenants are expressly being included
solely for the benefit of such series), or to surrender any right or power
conferred in the applicable Indenture upon the Company; (3) to add any
additional Events of Default (and if such Events of Default are to be
applicable to less than all series,
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stating that such Events of Default are expressly being included solely to be
applicable to such series); (4) to add or change any of the provisions of the
applicable Indenture to such extent as shall be necessary to permit or
facilitate the issuance thereunder of Debt Securities of any series in bearer
form, registrable or not registrable, and with or without Coupons, to permit
Bearer Securities to be issued in exchange for Registered Securities, to
permit Bearer Securities to be issued in exchange for Bearer Securities of
other authorized denominations or to permit the issuance of Debt Securities of
any series in uncertificated form, provided that any such action shall not
adversely affect the interests of the Holders of Debt Securities of any series
or any related Coupons in any material respect; (5) to change or eliminate any
of the provisions of the applicable Indenture, provided that any such change
or elimination will become effective only when there is no Outstanding Debt
Security issued thereunder or Coupon of any series created prior to such
modification which is entitled to the benefit of such provision and as to
which such modification would apply; (6) to secure the Debt Securities issued
thereunder; (7) to supplement any of the provisions of the applicable
Indenture to such extent as is necessary to permit or facilitate the
defeasance and discharge of any series of Debt Securities, provided that any
such action will not adversely affect the interests of the Holders of Debt
Securities of such series or any other series of Debt Securities issued under
such Indenture or any related Coupons in any material respect; (8) to
establish the form or terms of Debt Securities and Coupons, if any, as
permitted by the applicable Indenture; (9) to evidence and provide for the
acceptance of appointment thereunder by a successor Trustee with respect to
one or more series of Debt Securities and to add to or change any of the
provisions of the applicable Indenture as is necessary to provide for or
facilitate the administration of the trusts thereunder by more than one
Trustee; or (10) to cure any ambiguity, to correct or supplement any provision
in the applicable Indenture which may be defective or inconsistent with any
other provision therein, to eliminate any conflict between the terms of the
applicable Indenture and the Debt Securities issued thereunder and the TIA or
to make any other provisions with respect to matters or questions arising
under the applicable Indenture which will not be inconsistent with any
provision of the applicable Indenture; provided such other provisions shall
not adversely affect the interests of the Holders of Outstanding Debt
Securities or Coupons, if any, of any series created thereunder prior to such
modification in any material respect. (Section 11.01)
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of each series affected by
such modification voting separately, the Company and the applicable Trustee
may modify the applicable Indenture for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the
applicable Indenture or of modifying in any manner the rights of the Holders
of Debt Securities and Coupons, if any, under the applicable Indenture;
provided, however, that no such modification may, without the consent of the
Holder of each Outstanding Debt Security of each such series affected thereby
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Debt Security, or reduce the principal amount thereof or the
interest thereon or any premium payable upon redemption thereof, or change the
Stated Maturity of or reduce the amount of any payment to be made with respect
to any Coupon, or change the currency or currencies in which the principal of
(and premium, if any) or interest on such Debt Security is denominated or
payable, or reduce the amount of the principal of a Discount Security that
would be due and payable upon a declaration of acceleration of the Maturity
thereof, or adversely affect the right of repayment or repurchase, if any, at
the option of the Holder, or reduce the amount of, or postpone the date fixed
for, any payment under any sinking fund or analogous provisions for any Debt
Security, or impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or limit the obligation of the
Company to maintain a paying agency outside the United States for payments on
Bearer Securities, or adversely affect the right to convert any Subordinated
Debt Security into shares of Common Stock as may be set forth in the
Prospectus Supplement; (2) reduce the percentage in principal amount of the
Outstanding Debt Securities of any series, the consent of whose Holders is
required for any such modification, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of the
applicable Indenture or certain defaults or Events of Default thereunder and
their consequences provided for in such Indenture; (3) modify any of the
provisions of the applicable Indenture relating to modifications and waivers
of defaults and covenants, except to increase any such percentage or to
provide that certain other provisions of the applicable Indenture cannot be
modified or waived without the consent of the Holder of each Outstanding Debt
Security of each series affected
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thereby; provided, however, that certain of such modifications may be made
without the consent of any Holder of any Debt Security; or (4) in the case of
the Subordinated Indenture, modify any of the provisions relating to the
subordination of the Subordinated Debt Securities in a manner adverse to the
Holders thereof. (Section 11.02)
A modification which changes or eliminates any covenant or other provision
of the applicable Indenture with respect to one or more particular series of
Debt Securities and Coupons, if any, or which modifies the rights of the
Holders of Debt Securities and Coupons of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
the applicable Indenture of the Holders of Debt Securities and Coupons, if
any, of any other series. (Section 11.02)
In the case of the Subordinated Indenture, no modification may adversely
affect the rights of any holder of Senior Indebtedness under the subordination
provisions of the Subordinated Indenture without the consent of such holder.
(Section 11.08 of the Subordinated Indenture)
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
the Debt Securities of any such series waive, by notice to the applicable
Trustee and the Company, any past default or Event of Default under the
applicable Indenture with respect to such series and its consequences, except
a default (1) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series, or in the payment of any sinking
fund installment or analogous obligation with respect to the Debt Securities
of such series, or (2) in respect of a covenant or provision hereof which
pursuant to the second paragraph under "--Debt Securities--Modification or
Waiver" cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security of such series affected. Upon any such waiver,
such default will cease to exist, and any Event of Default arising therefrom
will be deemed to have been cured, for every purpose of the Debt Securities of
such series under the applicable Indenture, but no such waiver will extend to
any subsequent or other default or Event of Default or impair any right
consequent thereon. (Section 5.13)
The Company may omit in any particular instance to comply with certain
covenants in the applicable Indenture (including, if so specified in the
Prospectus Supplement, any covenant not set forth in the applicable Indenture
but specified in the Prospectus Supplement to be applicable to the Debt
Securities of any series issued thereunder, except as otherwise specified in
the Prospectus Supplement, and including the covenants relating to the
maintenance by the Company of its existence, rights and franchises), if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Debt Securities of such series either waive such
compliance in such instance or generally waive compliance with such
provisions, but no such waiver may extend to or affect any term, provision or
condition except to the extent expressly so waived, and, until such waiver
becomes effective, the obligations of the Company and the duties of the
applicable Trustee in respect of any such provision will remain in full force
and effect. (Section 12.09 of the Senior Indenture; Section 12.07 of the
Subordinated Indenture)
Subordination
Upon any distribution of assets of the Company upon the dissolution,
winding up, liquidation or reorganization of the Company, the payment of the
principal of (and premium, if any) and interest on the Subordinated Debt
Securities will be subordinated to the extent provided in the Subordinated
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness, including Senior Debt Securities (Sections 16.01 and 16.02 of
the Subordinated Indenture), but the obligation of the Company to make payment
of principal (and premium, if any) or interest on the Subordinated Debt
Securities will not otherwise be affected. (Section 16.02 of the Subordinated
Indenture) No payment on account of principal (or premium, if any), sinking
funds or interest may be made on the Subordinated Debt Securities (including,
without limitation, payment of any Coupons) unless full payment of amounts
then due for principal, premium, if any, sinking funds and interest on Senior
Indebtedness has been made or duly provided for. (Section 16.03 of the
Subordinated Indenture) In the event that, notwithstanding the foregoing, any
payment by the Company described in the foregoing sentence is received by the
Trustee under the Subordinated Indenture, any Paying Agent or the Holders of
any of the
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Subordinated Debt Securities before all Senior Indebtedness is paid in full,
such payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness. Subject to payment in
full of Senior Indebtedness, the Holders of the Subordinated Debt Securities
will be subrogated to the rights of the holders of the Senior Indebtedness to
the extent of payments made to the holders of such Senior Indebtedness out of
the distributive share of the Subordinated Debt Securities. (Section 16.02 of
the Subordinated Indenture)
By reason of such subordination, in the event of a distribution of assets
upon insolvency, certain general creditors of the Company may recover more,
ratably, than Holders of the Subordinated Debt Securities. The Subordinated
Indenture provides that the subordination provisions thereof shall not apply
to money and securities held in trust pursuant to the satisfaction and
discharge and the legal defeasance provisions of the Subordinated Indenture.
(Sections 4.02 and 15.02 of the Subordinated Indenture)
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Debt Securities, the accompanying Prospectus Supplement
or the information incorporated by reference therein will set forth the
approximate amount of Senior Indebtedness outstanding as of a recent date.
Discharge, Legal Defeasance and Covenant Defeasance
The applicable Indenture with respect to the Debt Securities of any series
may be discharged, subject to certain terms and conditions, when (1) either
(A) all Debt Securities and the Coupons, if any, of such series have been
delivered to the applicable Trustee for cancellation, or (B) all Debt
Securities and the Coupons, if any, of such series not theretofore delivered
to the applicable Trustee for cancellation (i) have become due and payable,
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements
satisfactory to the applicable Trustee for the giving of notice by the
applicable Trustee, and the Company, in the case of (i), (ii) or (iii) of
subclause (B), has irrevocably deposited or caused to be deposited with the
applicable Trustee as trust funds in trust for such purpose an amount in the
currency in which such Debt Securities are denominated sufficient to pay and
discharge the entire indebtedness on such Debt Securities for principal (and
premium, if any) and interest to the date of such deposit (in the case of Debt
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be; provided, however, in the event a
petition for relief under the applicable Federal or state bankruptcy,
insolvency or other similar law is filed with respect to the Company within 91
days after the deposit and the applicable Trustee is required to return the
deposited money to the Company, the obligations of the Company under the
applicable Indenture with respect to such Debt Securities will not be deemed
terminated or discharged; (2) the Company has paid or caused to be paid all
other sums payable under the applicable Indenture by the Company; (3) the
Company has delivered to the applicable Trustee an officers' certificate and
an opinion of counsel each stating that all conditions precedent therein
provided relating to the satisfaction and discharge of the applicable
Indenture with respect to such series have been complied with; and (4) the
Company has delivered to the applicable Trustee an opinion of counsel or a
ruling of the Internal Revenue Service to the effect that such deposit and
discharge will not cause the Holders of the Debt Securities of the series to
recognize income, gain or loss for Federal income tax purposes. (Section 4.01)
If provision is made for the defeasance of Debt Securities of a series, and
if the Debt Securities of such series are Registered Securities and
denominated and payable only in U.S. dollars, then the provisions of each
Indenture relating to defeasance shall be applicable except as otherwise
specified in the Prospectus Supplement for Debt Securities of such series.
Defeasance provisions, if any, for Debt Securities denominated in a foreign
currency or currencies or for Bearer Securities may be specified in the
Prospectus Supplement. (Section 15.01)
At the Company's option, either (a) the Company shall be deemed to have
been Discharged (as defined below) from its obligations with respect to Debt
Securities of any series (including, in the case of Subordinated Debt
Securities, the provisions described under "--Debt Securities--Subordination"
herein) ("legal defeasance
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option") or (b) the Company shall cease to be under any obligation to comply
with any obligation of the Company in the applicable Indenture including any
restrictive covenants described in the accompanying Prospectus Supplement and
any other covenants applicable to the Debt Securities which are subject to
covenant defeasance (including, in the case of Subordinated Debt Securities,
the provisions described under "Subordination" herein) ("covenant defeasance
option") at any time after the applicable conditions set forth below have been
satisfied: (1) the Company shall have deposited or caused to be deposited
irrevocably with the applicable Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the Holders
of the Debt Securities of such series (i) money in an amount, or (ii) U.S.
Government Obligations which through the payment of interest and principal in
respect thereof in accordance with their terms will provide, not later than
one day before the due date of any payment, money in an amount, or (iii) a
combination of (i) and (ii), sufficient, in the opinion (with respect to (i)
and (ii)) of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the applicable
Trustee, to pay and discharge each installment of principal (including any
mandatory sinking fund payments) of (and premium, if any) and interest on, the
Outstanding Debt Securities of such series on the dates such installments of
interest or principal and premium are due; (2) such deposit shall not cause
the applicable Trustee with respect to the Debt Securities of that series to
have a conflicting interest with respect to the Debt Securities of any series;
(3) such deposit will not result in a breach or violation of, or constitute a
default under, the applicable Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound; (4) if the Debt
Securities of such series are then listed on any national securities exchange,
the Company shall have delivered to the applicable Trustee an opinion of
counsel or a letter or other document from such exchange to the effect that
the Company's exercise of its legal defeasance option or the covenant
defeasance option, as the case may be, would not cause such Debt Securities to
be delisted; (5) no Event of Default or event (including such deposit) which,
with notice or lapse of time or both, would become an Event of Default with
respect to the Debt Securities of such series shall have occurred and be
continuing on the date of such deposit and, with respect to the legal
defeasance option only, no Event of Default under the provisions of the
applicable Indenture relating to certain events of bankruptcy or insolvency or
event which with the giving of notice or lapse of time, or both, would become
an Event of Default under such bankruptcy or insolvency provisions shall have
occurred and be continuing on the 91st day after such date; and (6) certain
other opinions, officers' certificates and other documents specified in the
applicable Indenture, including an opinion of counsel or a ruling of the
Internal Revenue Service to the effect that such deposit, defeasance or
Discharge will not cause the Holders of the Debt Securities of such series to
recognize income, gain or loss for Federal income tax purposes.
Notwithstanding the foregoing, if the Company exercises its covenant
defeasance option and an Event of Default under the provisions of the
Indentures relating to certain events of bankruptcy or insolvency or event
which with the giving of notice or lapse of time, or both, would become an
Event of Default under such bankruptcy or insolvency provisions shall have
occurred and be continuing on the 91st day after the date of such deposit, the
obligations of the Company referred to under the definition of covenant
defeasance option with respect to such Debt Securities shall be reinstated in
full. (Section 15.02)
Payment and Paying Agents
If Debt Securities of a series are issuable only as Registered Securities,
the Company will maintain in each Place of Payment for such series an office
or agency where Debt Securities of that series may be presented or surrendered
for payment, where Debt Securities of that series may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Debt Securities of that series and the
applicable Indenture may be served. (Section 12.03)
If Debt Securities of a series are issuable as Bearer Securities, the
Company will maintain (A) in the Borough of Manhattan, The City and State of
New York, an office or agency where any Registered Securities of that series
may be presented or surrendered for payment, where any Registered Securities
of that series may be surrendered for registration of transfer, where Debt
Securities of that series may be surrendered for exchange or redemption, where
Subordinated Debt Securities of that series that are convertible may be
surrendered for conversion, where notices and demands to or upon the Company
in respect of the Debt Securities of that series
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and the applicable Indenture may be served and where Bearer Securities of that
series and related Coupons may be presented or surrendered for payment in the
circumstances described in the following paragraph (and not otherwise), (B)
subject to any laws or regulations applicable thereto, in a Place of Payment
for that series which is located outside the United States, an office or
agency where Debt Securities of that series and related Coupons may be
presented and surrendered for payment (including payment of any additional
amounts payable on Debt Securities of that series, if so provided in such
series; provided, however, that if the Debt Securities of that series are
listed on The Stock Exchange of the United Kingdom and the Republic of
Ireland, the Luxembourg Stock Exchange or any other stock exchange located
outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Debt Securities of that series in
London, Luxembourg or any other required city located outside the United
States, as the case may be, so long as the Debt Securities of that series are
listed on such exchange, and (C) subject to any laws or regulations applicable
thereto, in a Place of Payment for that series located outside the United
States an office or agency where any Registered Securities of that series may
be surrendered for registration of transfer, where Debt Securities of that
series may be surrendered for exchange or redemption, where Subordinated Debt
Securities of that series that are convertible may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Debt Securities of that series and the applicable Indenture may be served.
The Company will give prompt written notice to the applicable Trustee of the
locations, and any change in the locations, of such offices or agencies. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the applicable Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
corporate trust office of the applicable Trustee, except that Bearer
Securities of that series and the related coupons may be presented and
surrendered for payment at the offices specified in the applicable Debt
Security and the Company has appointed the applicable Trustee (or in the case
of Bearer Securities may appoint such other agent as may be specified in the
applicable Prospectus Supplement) as its agent to receive all presentations,
surrenders, notices and demands. (Section 12.03)
No payment of principal, premium or interest on Bearer Securities shall be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that,
if the Debt Securities of a series are denominated and payable in U.S.
dollars, payment of principal of and any premium and interest on Bearer
Securities of such series, if specified in the applicable Prospectus
Supplement, shall be made at the office of the applicable Trustee or the
Company's Paying Agent in the Borough of Manhattan, the City and State of New
York, if (but only if) payment in U.S. dollars of the full amount of such
principal, premium, interest or additional amounts, as the case may be, at all
offices or agencies outside the United States maintained for the purpose by
the Company in accordance with the applicable Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 12.03)
Book-Entry Debt Securities
The Debt Securities of a series may be issued in whole or in part in global
form that will be deposited with, or on behalf of, a depositary identified in
the Prospectus Supplement. Global Notes may be issued in either registered or
bearer form and in either temporary or permanent form (each a "Global Note").
Payments of principal of (and premium, if any) and interest on Debt Securities
represented by a Global Note will be made by the Company to the applicable
Trustee and then by such Trustee to the depositary.
If specified in the applicable Prospectus Supplement, any Global Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York,
New York ("DTC"), as depositary, or such other depositary as may be specified
in the applicable Prospectus Supplement. In the event that DTC acts as
depositary with respect to any Global Notes, the Company anticipates that such
Global Notes will be registered in the name of DTC's nominee, and that the
following provisions will apply to the depositary arrangements with respect to
any such Global Notes. Additional or differing terms of the depositary
arrangements, if any, applicable to the Offered Debt Securities, will be
described in the accompanying Prospectus Supplement.
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So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole Holder of the
Debt Securities represented by such Global Note for all purposes under the
applicable Indenture. Except as provided below, owners of beneficial interests
in a Global Note will not be entitled to have Debt Securities represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Debt Securities in certificated form and will not
be considered the owners or Holders thereof under the applicable Indenture.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in certificated form; accordingly, such
laws may limit the transferability of beneficial interests in a Global Note.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the
Company will issue individual Debt Securities in certificated form in exchange
for the Global Notes. In addition, the Company may at any time, and in its
sole discretion, determine not to have any Debt Securities represented by one
or more Global Notes and, in such event, will issue individual Debt Securities
in certificated form in exchange for the relevant Global Notes. If Registered
Securities of any series shall have been issued in the form of one or more
Global Notes and if an Event of Default with respect to the Debt Securities of
such series shall have occurred and be continuing, the Company will issue
individual Debt Securities in certificated form in exchange for the relevant
Global Notes. (Section 3.04)
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the Banking Law of
the State of New York, a "banking organization" within the meaning of the
Banking Law of the State of New York, a member of the Federal Reserve System,
a clearing corporation within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debt
Securities on DTC's records. The ownership interest of each actual purchaser
of each Debt Security ("Beneficial Owner") is in turn recorded on the Direct
and Indirect Participants' records. A Beneficial Owner does not receive
written confirmation from DTC of its purchase, but such Beneficial Owner is
expected to receive a written confirmation providing details of the
transaction, as well as periodic statements of its holdings, from the Direct
or Indirect Participant through which such Beneficial Owner entered into the
transaction. Transfers of ownership interests in Debt Securities are
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners do not receive certificates representing
their ownership interests in Debt Securities, except in the event that use of
the book entry system for the Debt Securities is discontinued.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's partnership nominee, Cede & Co. The deposit of the Debt
Securities with DTC and their registration in the name of Cede & Co. effects
no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Debt Securities; DTC records reflect only the
identity of the Direct Participants to whose accounts Debt Securities are
credited, which may or may not be the Beneficial Owners. The Participants
remain responsible for keeping account of their holdings on behalf of their
customers.
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Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal and interest payments on the Debt Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the payable date
in accordance with their respective holdings as shown on DTC's records unless
DTC has reason to believe that it will not receive payment on the payable
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC, the
Paying Agent or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Company or the Paying Agent,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the Paying Agent. Under such circumstances, in the event that a
successor securities depositary is not appointed, Debt Security certificates
are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
Debt Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Unless stated otherwise in the applicable Prospectus Supplement, the
underwriters or agents with respect to a series of Debt Securities issued as
Global Notes will be Direct Participants in DTC.
None of the Company, any underwriter or agent, the applicable Trustee or
any applicable Paying Agent will have the responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
interests in a Global Note, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
Conversion or Exchange Rights
The terms and conditions, if any, upon which Subordinated Debt Securities
being offered are convertible or exchangeable into another series of Debt
Securities or shares of Common Stock will be set forth in the Prospectus
Supplement relating thereto. Such terms will include the conversion or
exchange price, the conversion or exchange period, provisions as to whether
conversion or exchange will be at the option of the Holder or the Company, the
events requiring an adjustment of the conversion or exchange price and
provisions affecting conversions or exchanges in the event of the redemption
of such Subordinated Debt Securities.
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Concerning the Trustees
The Company may from time to time maintain deposit accounts and conduct
other banking transactions with The Chase Manhattan Bank or The Bank of New
York and their affiliated entities in the ordinary course of business.
Certain Definitions
Set forth below is summary of certain defined terms used in the applicable
Indenture. Reference is made to the applicable Indenture for the full
definition of all such terms.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Debt Securities of such series and to have satisfied all the obligations under
the applicable Indenture relating to the Debt Securities of such series,
except (i) the right of Holders of Debt Securities of such series to receive,
from the trust fund described under "Discharge, Legal Defeasance and Covenant
Defeasance" above, payment of the principal of (and premium, if any) and
interest on such Debt Securities when such payments are due, (ii) the
Company's obligations with respect to the Debt Securities of such series under
the provisions relating to exchanges, transfers and replacement of Debt
Securities, the maintenance of an office or agency of the Company and the
defeasance trust fund, the provisions relating to compensation and
reimbursement of the applicable Trustee and (iii) the rights, powers, trusts,
duties and immunities of the applicable Trustee thereunder. (Section 15.02)
"Indebtedness" means (i) any liability of any Persons (a) for borrowed
money, or (b) evidenced by a bond, note, debenture or similar instrument
(including purchase money obligations but excluding trade payables), or (c)
for the payment of money relating to a lease that is required to be classified
as a capitalized lease obligation in accordance with generally accepted
accounting principles, or (d) preferred or preference stock of a Subsidiary of
the Company held by Persons other than the Company or a Subsidiary of the
Company; (ii) any liability of others described in the preceding clause (i)
that the Person has guaranteed, that is recourse to such Person or that is
otherwise its legal liability; and (iii) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
the types referred to in clauses (i) and (ii) above. (Section 1.01)
"Senior Indebtedness" means the principal of (and premium, if any) and
unpaid interest on (i) Indebtedness of the Company, whether outstanding on the
date of the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, for money borrowed (other than the Indebtedness evidenced by the
Subordinated Debt Securities of any series), unless in the instrument creating
or evidencing the same pursuant to which the same is outstanding it is
provided that such Indebtedness is not senior or prior in right of payment
to the Subordinated Debt Securities or is pari passu or subordinate by its
terms in right of payment to the Subordinated Debt Securities and (ii)
renewals, extensions and modifications of any such Indebtedness. (Section 1.01
of the Subordinated Indenture)
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation, irrespective of whether or not
at the time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency, is
at the time, directly or indirectly, owned or controlled by the Company or by
one or more Subsidiaries thereof, or by the Company and one or more
Subsidiaries thereof. (Section 1.01)
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States for the timely payment of which its full
faith and credit is pledged, or (ii) obligations of a Person controlled for
supervised by and acting as an agency or instrumentality of the United States
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States, which, in either case under clauses (i) or
(ii), are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such U.S. Government
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Obligation or a specific payment of interest on (or principal of) any such
U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by
such depository receipt. (Section 15.02)
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors named below may, jointly and severally, fully and
unconditionally guarantee the due and punctual payment of principal of (and
premium, if any) and interest on one or more series of Debt Securities, on
such terms and conditions as may be set forth in the applicable Prospectus
Supplement.
The "Subsidiary Guarantors" will consist of the following wholly-owned
subsidiaries of the Company: The Money Store/D.C. Inc., The Money
Store/Kentucky Inc., The Money Store/Minnesota Inc., The Money Store Auto
Finance Inc., ClassNotes Inc., Dyna-Mark, Inc., Equity Insurance Agency, Inc.,
Major Brokerage Co., Inc., Princeton Escrow, The Money Store Home Equity
Corp., The Money Store Investment Corporation, The Money Store of New York
Inc., The Commerce Group, The Money Store Commercial Mortgage Inc., The Money
Store Service Corp., TMS Mortgage Inc., The Money Store U.K. Inc., The Money
Store Realty Inc., and TMS Venture Holdings, Inc.
As of the date of this Prospectus, the Subsidiary Guarantors conduct all of
the Company's operations other than its Student Loan business and the holding
of its excess servicing asset.
PREFERRED STOCK
The description of certain provisions of the Preferred Stock set forth
below and in any Prospectus Supplement does not purport to be complete and is
subject to and qualified in its entirety by reference to the Company's
Restated Articles of Incorporation, as amended (the "Articles"), and the
Articles of Amendment relating to each such series of Preferred Stock, which
will be filed with the Commission in connection with the offering of such
series of Preferred Stock.
General
Under the Articles, the Board of Directors may, by resolution, establish
series of Preferred Stock having such voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as the Board of Directors
may determine.
The Preferred Stock offered hereby will have the dividend, liquidation and
voting rights set forth below unless otherwise provided in the Prospectus
Supplement relating to a particular series of Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of
Preferred Stock offered thereby for specific terms, including: (1) the
designation and stated value per share of such Preferred Stock and the number
of shares offered; (2) the amount of liquidation preference per share; (3) the
price at which such Preferred Stock will be issued; (4) the dividend rate (or
method of calculation), the dates on which dividends will be payable, whether
such dividends will be cumulative or noncumulative and, if cumulative, the
dates from which dividends will accrue; (5) any redemption or sinking fund
provisions; (6) any terms by which such series of Preferred Stock may be
convertible into or exchanged for Common Stock or Debt Securities; and (7) any
additional or other rights, preferences, privileges, limitations and
restrictions relating to such series of Preferred Stock.
The Preferred Stock offered hereby will be issued in one or more series.
The holders of Preferred Stock will have no preemptive rights. Preferred Stock
will be fully paid and nonassessable upon issuance against full payment of the
purchase price therefor. Unless otherwise specified in the Prospectus
Supplement relating to a
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particular series of Preferred Stock, each series of Preferred Stock will,
with respect to dividend rights and rights on liquidation, dissolution and
winding up of the Company, rank prior to the Common Stock (the "Junior Stock")
and on a parity with each other series of Preferred Stock offered hereby (the
"Parity Stock").
Dividend Rights
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
funds legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
books of the Company on such record dates as will be fixed by the Board of
Directors of the Company. Dividends on any series of the Preferred Stock may
be cumulative or noncumulative, as provided in the Prospectus Supplement
relating thereto. If the Board of Directors of the company fails to declare a
dividend payable on a dividend payment date on any series of Preferred Stock
for which dividends are noncumulative, then the right to receive a dividend in
respect of the dividend period ending on such dividend payment date will be
lost, and the Company will have no obligation to pay the dividend accrued for
that period, whether or not dividends are declared for any future period.
Dividends on shares of each series of Preferred Stock for which dividends are
cumulative will accrue from the date set forth in the applicable Prospectus
Supplement.
The Preferred Stock of each series will include customary provisions (1)
restricting the payment of dividends or the making of other distributions on,
or the redemption, purchase or other acquisition of, Junior Stock unless full
dividends, including, in the case of cumulative Preferred Stock, accruals, if
any, in respect of prior dividend periods, on the shares of such series of
Preferred Stock have been paid and (2) providing for the pro rata payment of
dividends on such series and other Parity Stock when dividends have not been
paid in full upon such series and other Parity Stock.
Rights Upon Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for distribution
to stockholders, before any distribution of assets is made to holders of
Junior Stock, liquidating distributions in the amount set forth in the
Prospectus Supplement relating to such series of Preferred Stock plus an
amount equal to accrued and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the amounts
payable with respect to the Preferred Stock of any series and any Parity Stock
are not paid in full, the holders of the Preferred Stock of such series and of
such Parity Stock will share ratably in any such distribution of assets of the
Company in proration to the full respective preferential amounts (which may
include accumulated dividends) to which they are entitled. After payment of
the full amount of the liquidating distribution to which they are entitled,
the holders of such series of Preferred Stock will have no right or claim to
any of the remaining assets of the Company. Neither the sale of all or a
portion of the Company's assets nor the merger or consolidation of the Company
into or with any other corporation shall be deemed to be a dissolution,
liquidation or winding up, voluntarily or involuntarily, of the Company.
Voting Rights
The holders of Preferred Stock of a series offered hereby will not be
entitled to vote except as indicated in the Prospectus Supplement relating to
such series of Preferred Stock or as required by applicable law. Unless
otherwise specified in the Prospectus Supplement relating to a particular
series of Preferred Stock, when and if any such series is entitled to vote,
each share in such series will be entitled to one vote.
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PLAN OF DISTRIBUTION
The Company and the Selling Shareholder may offer and sell the Securities
in one or more of the following ways: (i) through underwriters or dealers,
(ii) through agents, or (iii) directly to one or more purchasers. The
Prospectus Supplement with respect to a particular offering of a series of
Securities will set forth the terms of the offering of such Securities,
including the name or names of any underwriters or agents with whom the
Company has entered into arrangements with respect to the sale of such
Securities, the public offering or purchase price of such Securities and the
proceeds to the Company and/or the Selling Shareholder from such sales and any
underwriting discounts, agency fees or commissions and other items
constituting underwriters' compensation, the initial public offering price,
any discounts or concessions to be allowed or re-allowed or paid to dealers
and any securities exchange, if any, on which such Securities may be listed.
Dealer trading may take place in certain of the Offered Securities, including
Offered Securities not listed on any securities exchange.
If underwriters are used in the offer and sale of Offered Securities, the
Offered Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The Offered Securities may be offered to the
public either through underwriting syndicates represented by managing
underwriters, or by underwriters without a syndicate, all of which
underwriters in either case will be designated in the applicable Prospectus
Supplement. Unless otherwise set forth in the applicable Prospectus
Supplement, under the terms of the underwriting agreement, the obligations of
the underwriters to purchase Offered Securities will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all of
the Offered Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or re-allowed or paid to dealers may
be changed from time to time.
Offered Securities may be offered and sold directly by the Company and the
Selling Shareholder or through agents designated by the Company and the
Selling Shareholder from time to time. Any agent involved in the offer or sale
of the Offered Securities with respect to which this Prospectus is delivered
will be named in, and any commissions payable to such agent will be set forth
in or calculable from, the applicable Prospectus Settlement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a
best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters, dealers or agents to solicit offers by certain
institutions to purchase the Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to delayed
delivery contracts ("Delayed Delivery Contracts") providing for payment and
delivery on the date or dates stated in the Prospectus Supplement. Each
Delayed Delivery Contract will be for an amount of the Offered Securities not
less than and, unless the Company otherwise agrees, the aggregate amount of
the Offered Securities sold pursuant to Delayed Delivery Contracts shall be
not more than the respective minimum and maximum amounts stated in the
Prospectus Supplement. Institutions with which Delayed Delivery Contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies and educational and charitable
institutions, but shall in all cases be subject to the approval of the Company
in its sole discretion. The obligations of the purchaser under any Delayed
Delivery Contract to pay for and take delivery of the Offered Securities will
not be subject to any conditions except that (i) the purchase of the Offered
Securities by such institution shall not at the time of delivery be prohibited
under the laws of the jurisdiction to which such institution is subject, and
(ii) any related sale of the Offered Securities to underwriters shall have
occurred. A commission set forth in the Prospectus Supplement will be paid to
underwriters soliciting purchases of the Offered Securities pursuant to
Delayed Delivery Contracts accepted by the Company. The underwriters will not
have any responsibility in respect of the validity or performance of Delayed
Delivery Contracts.
The Debt Securities and the Preferred Stock will be new issues of
securities with no established trading market. Any underwriters to whom
Offered Securities are sold by the Company for public offering and sale may
make a market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for any Offered Securities.
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Any underwriter, dealer or agent participating in the distribution of the
Offered Securities may be deemed to be an underwriter, as that term is defined
in the Securities Act, of the Offered Securities so offered and sold, and any
discounts or commissions received by it from the Company and any profit
realized by it on the sale or resale of the Offered Securities may be deemed
to be underwriting discounts and commissions under the Securities Act.
Under agreements entered into with the Company or the Selling Shareholder,
underwriters, dealers and agents may be entitled to indemnification by the
Company or the Selling Shareholder against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with
respect to payments which the underwriters or agents may be required to make
in respect thereof.
Underwriters, dealers and agents also may be customers of, engage in
transactions with, or perform other services for the Company in the ordinary
course of business.
LEGAL MATTERS
Unless otherwise specified in the applicable Prospectus Supplement, the
validity of the Common Stock and the Preferred Stock offered hereby will be
passed upon by Corporate Counsel to the Company, and the validity of the Debt
Securities and the Subsidiary Guarantees offered hereby will be passed upon by
Stroock & Stroock & Lavan LLP, New York, New York. Certain other legal matters
will be passed upon for the Company by Stroock & Stroock & Lavan LLP. Certain
legal matters in connection with any offering of Securities involving any
underwriters or dealers will be passed upon for such underwriters or dealers
by counsel to be named in the appropriate Prospectus Supplement. Stroock &
Stroock & Lavan LLP and such counsel may rely as to matters of New Jersey law
on Corporate Counsel to the Company.
EXPERTS
The consolidated financial statements of The Money Store Inc. and
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three year period ended December 31, 1996 have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
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No dealer, salesperson or any other person has been authorized to give any in-
formation or to make any representations other than those contained in or in-
corporated by reference in this Prospectus Supplement and the accompanying
Prospectus in connection with the offer made by this Prospectus Supplement and
the accompanying Prospectus, and, if given or made, such information or repre-
sentations must not be relied upon as having been authorized by the Company or
any of the Underwriters. Neither this Prospectus Supplement nor the accompany-
ing Prospectus constitutes an offer to sell or a solicitation of any offer to
buy any security other than the securities offered hereby, nor do they consti-
tute an offer to sell or a solicitation of any offer to buy any of the securi-
ties offered hereby by anyone in any jurisdiction in which such offer or so-
licitation is not authorized, or in which the person making such offer or so-
licitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus
Supplement and the accompanying Prospectus, nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that any in-
formation contained herein is correct as of any time subsequent to the date
hereof.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.............................................. S-3
Investment Considerations.................................................. S-6
Use of Proceeds............................................................ S-11
Capitalization............................................................. S-11
Ratios of Earnings......................................................... S-12
Selected Consolidated Financial Data....................................... S-13
Description of the Notes................................................... S-17
Underwriting............................................................... S-20
Legal Matters.............................................................. S-21
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents By Reference............................ 2
The Company................................................................ 4
Ratios of Earnings......................................................... 5
Use of Proceeds............................................................ 5
Selling Shareholder........................................................ 6
Description of Securities.................................................. 6
Plan of Distribution....................................................... 23
Legal Matters.............................................................. 24
Experts.................................................................... 24
</TABLE>
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$250,000,000
[LOGO OF THE MONEY STORE(R)]
$150,000,000
% Subordinated Notes Due 2002
$100,000,000
% Subordinated Notes Due 2007
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY
SALOMON BROTHERS INC
November , 1997
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