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As filed with the Securities and Exchange Commission on November 4, 1999
Registration Statement No. 333-76243
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STEWART FINANCE COMPANY
(Name of small business issuer in its charter)
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GEORGIA 6141 58-158374
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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610 SIBLEY AVENUE
UNION POINT, GEORGIA 30669
(706) 486-4163
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN B. STEWART, JR., PRESIDENT
STEWART FINANCE COMPANY
610 SIBLEY AVENUE
UNION POINT, GEORGIA 30669
(706) 486-4163
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
copies of all
correspondence to:
ALLISON WADE, ESQ.
STANLEY H. POLLOCK, ESQ.
HOLLAND & KNIGHT LLP
1201 WEST PEACHTREE STREET, N.E., SUITE 2000
ATLANTA, GEORGIA 30309
(404) 817-8500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
TITLE OF EACH CLASS OF Amount to be Offering Price Aggregate Registration
SECURITIES TO BE REGISTERED Registered Per Share Offering Price Fee(1)
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Senior Demand Notes............................. $ 921,824 N/A $ 921,824 $ 256
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Subordinated Debentures......................... $ 12,421,245 N/A $ 12,421,245 $3,453
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Series A Preferred Stock, par value $0.001 per share 33,475 shares $100 $ 3,347,500 $ 931
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(1) Of the $4,640 registration fee, $4,609 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
STEWART FINANCE COMPANY
RESCISSION OFFER
SENIOR DEMAND NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF $921,824
SUBORDINATED DEBENTURES IN THE AGGREGATE PRINCIPAL AMOUNT OF $12,421,245
33,475 SHARES OF SERIES A PREFERRED STOCK
Stewart Finance Company is offering to eligible purchasers of the
securities listed above the opportunity to rescind or void their purchase of
these securities. This rescission offer is being made only to persons who
purchased their securities from Stewart Finance Company by payment or exchange
(in the case of the preferred stock) and who are residents of the State of
Georgia. This rescission offer does not extend to persons who purchased their
securities from any other person or who now reside outside the State of Georgia.
If you are an eligible security holder and you elect to accept this
rescission offer, you will exchange your securities for cash. The amount of cash
that you will receive will equal the original purchase price of your securities,
plus accrued and unpaid interest (if the securities surrendered are senior
demand notes or subordinated debentures) or accrued and unpaid dividends (if the
securities surrendered are shares of Series A preferred stock).
You will have 30 days following your receipt of this prospectus to respond
to this rescission offer. The rescission offer will terminate on the earlier of
our receipt of your response or 12:00 midnight, eastern time, on the 30th day
following your receipt of this prospectus, unless extended by Stewart Finance
Company.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE
5, ALONG WITH THE REST OF THIS PROSPECTUS, BEFORE YOU DETERMINE WHETHER OR NOT
TO ACCEPT THE RESCISSION OFFER.
Neither Stewart Finance Company nor its sole director makes any
recommendation to any holder of the securities subject to the rescission offer
as to whether to accept the offer or retain the securities currently held.
You must make your own decision as to whether to accept this rescission offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is ____________, 1999
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY...................................................... 3
SUMMARY FINANCIAL DATA.................................................. 4
RISK FACTORS............................................................ 5
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS................... 9
THE RESCISSION OFFER.................................................... 10
SELECTED FINANCIAL AND OPERATIONS DATA.................................. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 16
BUSINESS................................................................ 22
DIVIDEND POLICY......................................................... 29
MANAGEMENT.............................................................. 30
PRINCIPAL SHAREHOLDERS.................................................. 32
CERTAIN TRANSACTIONS.................................................... 33
DESCRIPTION OF CAPITAL STOCK............................................ 35
DESCRIPTION OF SUBORDINATED DEBENTURES.................................. 37
DESCRIPTION OF SENIOR DEMAND NOTES...................................... 40
DESCRIPTION OF FINOVA CREDIT FACILITY................................... 42
DESCRIPTION OF COMMUNITY BANK AND TRUST CREDIT FACILITY................. 44
LEGAL MATTERS........................................................... 46
EXPERTS................................................................. 46
ADDITIONAL INFORMATION.................................................. 46
INDEX TO FINANCIAL STATEMENTS...........................................F-1
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PROSPECTUS SUMMARY
OUR COMPANY.
Stewart Finance Company is a Georgia corporation and wholly owned
subsidiary of Stewart Finance Company Holdings, Inc., which, in turn, is wholly
owned by John B. Stewart, Jr. We typically refer in this prospectus to Stewart
Finance Company Holdings, Inc., as "Stewart Holdings." We conduct our operations
through 22 offices located throughout the State of Georgia. Our principal office
and corporate headquarters is located at 610 Sibley Avenue, Union Point, Georgia
30669 and our telephone number there is (706) 486-4163. Our business consists
primarily of making small balance consumer finance loans to individuals in
relatively small original principal amounts for relatively short periods of
time. We also sell credit related insurance products in connection with making
these loans, such as non-recording, life, accident and health and automobile
insurance. Finally, we sell memberships in an automobile club, which provides
payment or reimbursement of emergency related automobile expenses, such as
towing charges and roadside repair.
TERMS OF THE RESCISSION OFFER.
If you are eligible to participate in this rescission offer and you decide
to accept it, you will exchange all (and not less than all) of your securities
for cash. The amount of the cash payment that you will receive will be as
follows:
- In the case of the senior demand notes and subordinated debentures, you
will receive the purchase price of these securities, plus accrued and unpaid
interest. Interest will be calculated from the date of purchase through the date
of payment at the stated interest rate on the face of your notes or debentures.
- In the case of the Series A preferred stock, you will receive the
purchase price of these securities, plus accrued and unpaid dividends. The
dividends will be calculated from the date of purchase or exchange through the
date of payment at the dividend rate stated on the face of your preferred stock.
If you would prefer to retain your securities, you may reject the
rescission offer and do nothing further. Please refer to the steps that you must
follow to either accept or reject this rescission offer, which are explained in
detail under the caption "Procedures Governing the Rescission Offer" contained
within the section of this prospectus entitled "Rescission Offer."
WHY IS STEWART FINANCE COMPANY OFFERING TO RESCIND ITS SALE OF THESE SECURITIES?
Stewart Finance Company offered and sold these securities in a continuous
series of offerings beginning in 1989 in reliance on what is referred to as the
"intrastate offering" exemption under Section 3(a)(11) of the Securities Act of
1933. In order to satisfy that exemption's requirements, Stewart Finance Company
had to offer and sell these securities only to residents of the State of Georgia
and had to confine the vast majority of its business operations to the State of
Georgia. While we did limit our offer and sale of these securities to Georgia
residents, over time we may have used a larger and larger percentage of the
proceeds from the sale of these securities to fund the operations of our
affiliated companies located outside Georgia. As a result, the intrastate
offering exemption may not have been available, which means that you may have
the right under applicable federal and state law to recover the price that you
paid for your securities, plus interest, reduced by any income received on or
from your securities. Stewart Finance Company is making this rescission offer
voluntarily to limit, as far as may be permissible under applicable securities
laws, its potential liability stemming from its possible non-compliance with
applicable state and federal securities laws. You should note, however, that the
Securities and Exchange Commission takes the position that liabilities under the
federal securities laws are not terminated by making a rescission offer. If you
would like more information about the legal consequences of this rescission
offer, please refer to the discussion of this topic following the caption
entitled "Effect of the Rescission Offer" contained within the section of this
prospectus entitled "Rescission Offer."
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SUMMARY FINANCIAL DATA
The summary financial data presented below for the fiscal years ended
December 31, 1997 and 1998 have been derived from Stewart Finance Company's
financial statements, which have been audited by Pechter & Associates, P.C.,
independent public accountants. The summary financial data presented below for
the six months period ended June 30, 1999, and the balance sheet data as of June
30, 1999, are unaudited. In the opinion of Stewart Finance Company, such
unaudited data includes all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information provided. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Stewart Finance
Company's financial statements and related notes included elsewhere in this
prospectus.
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YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
INCOME STATEMENT DATA: 1998 1997 1999 1998
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Interest Fee Income and Maintenance
and Delinquent Charges................. $2,609,626 2,288,665 1,836,891 1,033,573
Interest Expense....................... 2,085,492 1,564,030 1,274,322 897,252
Net Interest Income........... 524,134 724,635 562,569 136,321
Provision for Credit Loss (Net of
Recoveries)............................ (91,953) (575,549) 301,093 275,934
Net Interest Income After
Credit Loss.................. 616,087 1,300,184 261,476 412,225
Auto Club Commissions and Other
Operating Revenue...................... 1,072,879 1,055,136 570,156 498,145
Insurance Commissions.................. 1,201,007 973,119 660,405 490,030
Reimbursement Income................... 2,476,089 867,699 1,452,004 990,125
Salaries............................... 2,202,801 1,772,774 1,352,402 998,517
Other.................................. 3,790,366 2,760,738 2,180,634 1,449,553
Net Income (Net Loss) Before Income
Tax Effect............................. (143,209) (256,852) (588,995) (57,515)
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AS OF As of
DECEMBER 31, June 30,
1998 1999
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BALANCE SHEET DATA:
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Total Assets......................................................................... 26,713,856 25,179,499
Total Debentures, Senior Demand Notes and Preferred Stock............................ 12,439,755 15,922,070
Total Other Liabilities.............................................................. 10,424,696 10,283,274
Total Shareholder's Equity........................................................... 3,849,405 (1,025,845)
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RISK FACTORS
BECAUSE THE LEGAL EFFECT OF THE RESCISSION OFFER IS UNCERTAIN, IT MAY NOT
ELIMINATE STEWART FINANCE COMPANY'S LIABILITY FOR POSSIBLE VIOLATIONS OF FEDERAL
AND STATE SECURITIES LAWS.
Eligible offerees who do not accept the rescission offer, either
because they affirmatively reject it or because they fail to respond to it, may
still attempt to assert claims against Stewart Finance Company relating to our
possible non-compliance with the securities laws. We cannot predict with
certainty that such claims will be barred by the rescission offer because the
legal effect of the rescission offer is uncertain. To the extent such claims are
brought and result in judgments for damages, Stewart Finance Company's business,
financial condition and results of operation could all be adversely affected.
Even if Stewart Finance Company is successful in defending such claims under
applicable securities laws, their mere assertion could result in costly
litigation and significant diversions of effort by our management. At this
point, we cannot quantify the number of, or the dollar amount of the securities
held by, eligible offerees who will accept or reject the rescission offer. Thus,
we cannot quantify the potential continuing liability upon completion of the
rescission offer.
The rescission offer will have no effect on or prevent the Securities
and Exchange Commission from pursuing enforcement action against Stewart Finance
Company with respect to any non-compliance with the federal securities laws that
may have occurred in connection with the offer and sale of the securities
subject to the rescission offer.
BECAUSE STEWART FINANCE COMPANY DOES NOT HAVE SUFFICIENT LIQUID ASSETS TO FUND
THE RESCISSION OFFER IF IT IS ACCEPTED BY ALL ELIGIBLE OFFEREES, WE MAY BE
REQUIRED TO INCUR ADDITIONAL DEBT OR SELL ASSETS TO FUND THE RESCISSION OFFER.
We believe current assets of approximately $11,000,000 (after
repayment of a margin loan and the $6.5 million revolving line of credit with
Finova Capital Corporation) could potentially be used to fund the rescission
offer. If additional funds are required, we would have to either increase our
current credit lines, borrow from other lenders or sell corporate assets to fund
the rescission offer. We believe that as much as $5,000,000 in additional funds
could be borrowed if necessary, however, we can make no assurance that we could
borrow this amount or that we could do so on sufficiently favorable terms. In
addition, the interest expense that we would incur in connection with such a
loan would significantly adversely affect our future cash flow, earnings,
liquidity and growth. For a more detailed discussion of our plans to fund the
rescission offer and the effect those plans may have on our business operations
and financial condition at various levels of acceptance, please see the
discussion under the caption "Plan for Payment of Security Holders Accepting the
Rescission Offer" contained within the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BECAUSE THERE CURRENTLY IS NO PUBLIC MARKET FOR OUR SECURITIES AND ONE MAY NOT
DEVELOP, YOU MAY HAVE DIFFICULTY RESELLING YOUR SECURITIES.
Prior to this rescission offer, there has been no public trading
market for our securities. We do not make a market in our securities and we are
not aware of anyone else who intends to do so in the future. Stewart Finance
Company is not obligated, and does not intend, to apply for quotation or listing
of any of these securities on the Nasdaq Stock Market or a national securities
exchange. You should be aware that if you do not accept the rescission offer,
you may be required to hold your securities until maturity or, in the case of
the Series A preferred stock, for an indefinite period of time.
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OUR HISTORY OF OPERATING LOSSES MAY CONTINUE, WHICH MAY PREVENT US FROM MAKING
PAYMENTS ON OUR SECURITIES AND PREVENT YOU FROM RECOVERING ALL OR ANY PART OF
YOUR INVESTMENT.
We have sustained operating losses for each of the fiscal years ended
December 31, 1998 and 1997, and we can provide no assurance that we will be
profitable in the future. If we are ultimately unable to become profitable, our
access to capital will diminish, which will adversely impact our ability to make
loans and continue our operations. This, in turn, will make it more difficult
for us to repay your securities as they come due and ultimately will result in a
decrease in their value.
OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND OBTAIN ADDITIONAL FUNDING WILL BE
ADVERSELY AFFECTED IF WE EXPERIENCE SIGNIFICANT DELAYS IN COMPLETING THIS
RESCISSION OFFER.
Until this rescission offer is completed, we will be unable to engage
in a public offering of the same or a similar type of securities. Additionally,
we may be unable to obtain additional bank credit from our lenders until the
outcome of the rescission offer and our potential exposure to liability is more
definite. Because our operations, including making loans and repaying our
obligations as they become due, is dependent on our liquidity, significant
delays in completing the rescission offer will have an adverse impact on our
business and the value of your securities.
OUR ABILITY TO REPAY OUR MATURING DEBT SECURITIES AS THEY COME DUE WILL DEPEND
ON OUR ABILITY TO MAINTAIN SUFFICIENT LIQUIDITY.
A portion of our debentures (approximately $1,000,000) will become due
within one year of this rescission offer and all of our senior notes are payable
on demand. Depending on the level of acceptance of the rescission offer, we can
not ensure you that the we will be successful in our efforts to maintain
sufficient liquidity to pay these debt securities as they become due. If we fail
to repay these securities in a timely manner, our ability to obtain additional
capital in the future through securities offerings will be severely limited,
which, in turn, will adversely impact our ability to support our current and
future operations.
IF WE CANNOT MAINTAIN SUFFICIENT LIQUIDITY, WE MAY NOT BE ABLE TO REPAY OR RENEW
OUR OUTSTANDING CREDIT FACILITIES.
We obtain our working capital for ongoing operations in part from a
$6,500,000 line of credit with Finova Financial Corporation and a $1,500,000
line of credit with Community Bank & Trust, Cornelia, Georgia. The Cornelia loan
matures in May 2000, while the Finova loan matures on January 31, 2001. Although
we do not anticipate having difficulty obtaining future financing or renewing
our current lines on acceptable terms, we cannot be sure that these lines of
credit will continue to be available to us on terms and conditions that exist as
of the date of this rescission offer. Furthermore, the lines of credit are
subject to periodic review by the respective lenders. In conducting these
reviews our lenders consider our profitability, general economic conditions, and
other lending criteria in evaluating whether they will continue to provide us
with the lines of credit. If the outcome of this rescission offer results in a
significant decline in our liquidity, it could adversely affect our lenders'
decision to renew our credit facilities.
TO THE EXTENT THE LEVEL OF ACCEPTANCE OF THIS RESCISSION OFFER CAUSES STEWART
FINANCE COMPANY TO BECOME INSOLVENT, OUR ABILITY TO PAY DIVIDENDS ON THE SERIES
A PREFERRED STOCK WILL BE LIMITED.
We cannot assure any holder of shares of Series A preferred stock as
to our ability to pay dividends on such shares, when due or otherwise. As a
Georgia corporation, we are subject to provisions of Georgia law that do not
allow a corporation to pay any dividends if such payment would cause the
corporation to become insolvent. Furthermore, applicable Georgia law gives
absolute discretion to a corporation's board of directors to decide whether or
not to declare and pay any dividend. As such, the payment of any dividend on the
Series A
6
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preferred stock is subject to these provisions, either or both of which may
affect the timing and/or the payment of dividends.
CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME BECAUSE MANY OF
OUR LOANS ARE MADE AT FIXED RATES OF INTEREST AND MANY OF OUR OBLIGATIONS ARE
REPAYABLE AT VARIABLE RATES OF INTEREST.
Because we are engaged in the consumer loan business, we face the
on-going risk of decreases in our net interest margin or "spread", which is the
difference in the rate at which we borrow and the rate at which we lend. The
consumer loans that we extend in the ordinary course of our business are made at
fixed rates. In contrast, some of our sources of funds, such as our existing
lines of credit and some of our outstanding senior demand notes, are made at
variable rates. Thus, from time to time we may find ourselves in a situation in
which we cannot pass on the increased cost of our borrowings to our loan
customers. A decline in our net interest margin may adversely affect our cash
flow, which in turn may adversely affect our ability to repay existing and
future borrowings and our maturing debt securities.
CHANGES IN INTEREST RATES ARE UNPREDICTABLE AND MAY MATERIALLY AFFECT THE LEVEL
OF CONSUMER LOAN ACTIVITY THAT WE GENERATE.
Interest rates are highly sensitive to many factors that are beyond
our control, including general economic conditions and the policies of various
federal and state government and regulatory authorities. Changes to the discount
rate by the Federal Reserve Board usually lead to corresponding interest rate
changes, which affect our interest income and interest expense. Also,
governmental policies, such as the creation of a tax deduction for individual
retirement accounts, can alter the rate of savings and affect the costs of
funds. The nature, timing and effect on Stewart Finance Company and our results
of operations of any future changes in federal monetary and fiscal policies and
Georgia lending laws are not predictable.
UNPREDICTABLE ECONOMIC CONDITIONS MAY ADVERSELY AFFECT THE ABILITY OF OUR
BORROWERS TO REPAY THEIR LOANS AND OUR PROFITABILITY.
Because our business consists mainly of making loans to individuals
living in the State of Georgia who depend on their earnings to repay their
loans, our profitability will materially depend on the general economic
conditions prevailing in Georgia. Accordingly, a sustained recession in Georgia
or any event which results in unemployment or continued increases in the number
of personal bankruptcies among our customer base may have a materially adverse
effect on our ability to pay interest and dividends and repay the principal
balance of our securities.
YOUR SECURITIES DO NOT PROVIDE YOU WITH ANY CONTROL OR VOTING RIGHTS WITH
RESPECT TO THE MANAGEMENT OF STEWART FINANCE COMPANY AND YOU THEREFORE MUST
DEPEND ON THE POLICIES OF CURRENT MANAGEMENT TO MAKE STEWART FINANCE COMPANY
SUCCESSFUL.
John B. Stewart, Jr., is the president, sole director, and owner of
all of the outstanding common stock of Stewart Holdings, which is the parent and
sole shareholder of Stewart Finance Company. He also is the president and sole
director of Stewart Finance Company. As such, Mr. Stewart controls the election
of all members of our board of directors and determines all corporate actions.
As an owner of the securities subject to this rescission offer, you have had no
control over the management of Stewart Finance Company and the rescission offer
will not change this situation. Therefore, you will not have any vote with
respect to the election of executive officers or directors of Stewart Finance
Company. If you determine not to accept the rescission offer, you will have to
continue to rely upon the management skills of our executive officers and
directors.
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THE RECENT GROWTH OF STEWART FINANCE COMPANY HAS PUT A STRAIN ON OUR FINANCIAL
RESOURCES, WHICH MAY CONTINUE FOR THE FORESEEABLE FUTURE.
Stewart Finance Company's expansion has placed, and is expected to
continue to place, a strain on our personnel and financial resources. In the
last eight years, we have grown from 7 offices to the 22 that we operate today.
We also have supported the rapid growth of our sister companies in Louisiana,
Missouri and Illinois. In the near term, we intend to slow the pace of our
growth, particularly until we complete the rescission offer and Stewart Finance
Company Holdings raises additional capital through a public offering of
securities.
Notwithstanding our present intentions, we will take advantage of
opportunities to open or acquire new Georgia branch offices if favorable
opportunities arise. If we elect to pursue such opportunities, our operating
expenses will increase in order to fund the costs of establishing a new branch
or acquiring an existing business. These costs may include, among other things,
expenses associated with purchasing equipment, making leasehold improvements,
and employing additional personnel. If we borrow funds to pay for the costs of
expansion, there is a risk of default in repayment of the borrowed funds, which
likely would be senior in right of payment to the interest and dividends payable
on the securities that are subject to this rescission offer.
IN THE EVENT OUR KEY PERSONNEL WERE TO LEAVE STEWART FINANCE COMPANY, OUR
OPERATIONS AND FINANCIAL PERFORMANCE WOULD BE ADVERSELY AFFECTED.
We believe our success depends largely on the efforts of John B.
Stewart, Jr., our founder, president and sole director, and Jeffery L. Smith,
our vice president. We have not entered into an employment agreement with either
of Mr. Stewart or Mr. Smith. Although Stewart Finance Company is Mr. Stewart's
primary business endeavor, he is involved in other business ventures and does
not spend his entire business time and attention on the operations of Stewart
Finance Company. We believe that the loss of Mr. Stewart's or Mr. Smith's
services would have a material adverse effect on our business, financial
condition and results of operations. We also believe that our success may depend
upon our ability to attract and retain qualified people in the future.
WE HAVE UNDERTAKEN TRANSACTIONS IN THE PAST WITH MR. STEWART THAT ARE FAVORABLE
TO HIM AND MAY LEAD TO CONFLICTS BETWEEN HIS PERSONAL INTEREST AND THE INTERESTS
OF STEWART FINANCE COMPANY.
John B. Stewart, Jr., beneficially owns all of our common stock
(through his ownership of Stewart Holdings) and accordingly he controls the
operations of Stewart Finance Company. As a result, we have conducted
transactions with Mr. Stewart that are less favorable to us than those we could
obtain in arm's-length negotiations. For example, we have provided accounting
and funding services to subsidiaries of Stewart Holdings which are valued at
approximately $4 million and we have advanced Mr. Stewart approximately $1.3
million in connection with the transfer of a portfolio of securities from our
account to his personal account. These services and advances were made without
any repayment obligation and do not generate interest. We have described these
transactions in more detail in the section of this prospectus entitled "Certain
Transactions." A conflict of interest exists between Stewart Finance Company and
Mr. Stewart with respect to these transactions because repaying these
obligations may not be in Mr. Stewart's personal best interest. We cannot assure
you that such obligations will be repaid or, if so, on terms favorable to
Stewart Finance Company. Additionally, our lenders under the Finova and
Community Bank of Cornelia credit facilities have obtained collateral or
guaranties from Mr. Stewart that secure such credit facilities. These
arrangements may create potential conflicts of interest if we decide to repay
the indebtedness for which Mr. Stewart has personal liability before other
company indebtedness.
We may in the future transact business with Mr. Stewart, his family
and/or his other business ventures. These transactions may not be negotiated at
arm's-length and may involve potential conflicts of interest.
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WE ARE UNCERTAIN THAT OUR COMPUTER SYSTEMS ARE YEAR 2000 COMPLIANT.
We are not certain of the total exposure we may have as a result of
the "Year 2000" problem - that is, the inability of existing data processing
computer hardware and software to appropriately recognize calendar dates
beginning in the year 2000. Year 2000 issues relate to our computer hardware and
software systems and other devices employing computer chips. We use financial
reporting computer software that is standard in the consumer finance industry.
We do not expect that we will incur significant operating expenses or be
required to invest heavily in computer system improvements to be year 2000
compliant. However, there can be no assurance that such computer systems will
operate properly once the year 2000 arrives, and significant uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance. Any year 2000 compliance problem of Stewart Finance Company could
have a material adverse effect on our business, results of operations, financial
condition and prospects. Please refer to a more detailed discussion of our
efforts to address the year 2000 problem under the caption "Year 2000
Compliance" contained in the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE ARE UNCERTAIN THAT THE YEAR 2000 PROBLEM WILL NOT AFFECT OUR THIRD-PARTY
VENDORS AND PAYORS AND OUR CUSTOMERS.
Our software vendors have indicated that their software is year 2000
compliant. However, there can be no assurance that such software will operate
properly once the year 2000 arrives. Any year 2000 compliance problem of our
outside vendors, third-party payors or customers could have a material adverse
effect on our business, results of operations, financial condition and
prospects.
HOLDERS OF PROMISSORY NOTES ISSUED PERSONALLY BY JOHN B. STEWART, JR., MAY SEEK
TO ASSERT A CLAIM AGAINST STEWART FINANCE COMPANY FOR SATISFACTION OF SUCH NOTES
Mr. Stewart has used the proceeds of approximately $1.6 million of
promissory notes that he personally issued to repay an obligation that he owed
to Stewart Finance Company and to make a loan to Stewart Finance Company.
Because Mr. Stewart indirectly controls Stewart Finance Company as the sole
shareholder of Stewart Holdings, persons who hold Mr. Stewart's notes may
attempt to claim that Stewart Finance Company is obligated to repay such notes
if Mr. Stewart fails to satisfy his obligations. Although Stewart Finance
Company does not believe it is obligated to repay Mr. Stewart's personal
obligations, it may be required to expend resources defending such a claim if
asserted, and ultimately repaying the notes if a note holder successfully
asserted such a claim.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus under the captions
"Prospectus Summary," Risk Factors," "Rescission Offer," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" and elsewhere in this prospectus are "forward-looking statements."
Forward-looking statements include, among other things, statements about the
legal effects of the rescission offer, the level of acceptance of the rescission
offer, our ability to fund the rescission offer, the competitiveness of the
consumer finance industry, potential regulatory obligations, our strategies and
other statements that are not historical facts. When used in this prospectus,
the words "anticipate," "believe," "estimate," and other similar expressions
generally identify forward-looking statements. Because forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by the forward-looking statements.
9
<PAGE> 11
THE RESCISSION OFFER
BACKGROUND INFORMATION.
Throughout its existence, Stewart Finance Company has operated with
limited capital, a significant portion of which has been raised by periodic
offerings of its securities - including the securities that are subject to this
rescission offer. Stewart Finance Company began offering its securities in
October 1989 and continued to do so on a relatively continuous basis until
February 1999. As of June 30, 1999, Stewart Finance Company had outstanding
senior demand notes in the aggregate principal amount of $921,824, subordinated
debentures in the aggregate principal amount of $12,421,245 and 33,475 shares of
Series A preferred stock. This rescission offer covers all of these securities.
Stewart Finance Company did not register the securities subject to
this rescission offer with either the Securities and Exchange Commission or the
Commissioner of Securities of the State of Georgia. Instead, it relied upon an
exemption from the federal registration requirement commonly known as the
"intrastate offering" exemption, which requires compliance with Section 3(a)(11)
of the Securities Act of 1933. With respect to an exemption from the state
registration requirements, Stewart Finance Company relied on the "GILA"
exemption under Section 10-5-8(6) of the Georgia Securities Act.
To satisfy the requirements of the intrastate offering exemption, an
issuer of securities must:
- offer and sell the securities only to persons resident within
a single state or territory; and
- be incorporated (if a corporation) and doing business in the
state where the securities are offered and sold.
Stewart Finance Company complied with both of these requirements, offering and
selling the securities subject to the rescission offer only to persons then
resident in the State of Georgia, which is the state in which Stewart Finance
Company was and is incorporated and doing business. Some of the proceeds from
the sales of these securities, however, may have been used to fund operations
outside Georgia -- by virtue of Stewart Finance Company's funding its sister
corporations in Louisiana, Missouri and Illinois. Under relevant interpretative
authority, this may have caused Stewart Finance Company to lose its ability to
take advantage of the intrastate offering exemption. If such is the case,
Stewart Finance Company may not have fully complied with the registration
requirements of the Securities Act of 1933.
To satisfy the GILA exemption under the Georgia Securities Act, an
issuer of securities must be an industrial loan association organized and
supervised under the laws of the State of Georgia. If an issuer satisfies this
requirement, its securities are exempt from the registration requirements of the
Georgia Securities Act. Stewart Finance Company believes that it fully qualified
for the GILA exemption, however, there is no definitive authority in Georgia
interpreting the limitations, if any, of the GILA exemption. Because of this
uncertainty, Stewart Finance Company may not have fully complied with the
registration requirements of the Georgia Securities Act.
Under federal and applicable state securities laws, the failure to
register the securities pursuant to the registration requirements of the
Securities Act of 1933 and state registration requirements - if a registration
obligation, in fact, existed - exposes Stewart Finance Company to potential
liability. Specifically, purchasers of the securities from Stewart Finance
Company may have the right to recover the price paid for their securities, plus
interest or dividends (as applicable), reduced by any income received on or from
the securities. Purchasers of Stewart Finance Company's securities already have
this right because Stewart Finance Company's senior demand notes and
subordinated debentures are repayable at maturity and its preferred stock is
subject to mandatory redemption. However, a purchaser claiming a right to
rescission based on Stewart Finance Company's possible failure to comply fully
with federal and state registration requirements, would have the right
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<PAGE> 12
to demand immediate repayment of the purchase price of his or her securities,
plus any accrued but unpaid interest or dividends, as applicable. As a practical
matter, therefore, Stewart Fiance Company's potential liability stemming from a
rescission action by the purchasers of its securities is an immediate
acceleration of the repayment obligations that already exist under its
outstanding senior demand notes, subordinated debentures and preferred stock.
It should be understood that the rescission offer is not an admission
by Stewart Finance Company that it did not comply with the registration and/or
disclosure requirements of applicable federal and state securities laws.
WHAT PROMPTS STEWART FINANCE COMPANY TO ADDRESS ITS POTENTIAL FAILURE TO COMPLY
WITH THE SECURITIES LAWS NOW?
Stewart Finance Company's parent (Stewart Holdings) has recently
determined to register an offer to the public of up to $20,000,000 worth of its
securities. Management of Stewart Holdings engaged legal counsel to undertake an
analysis of potential securities law violations by Stewart Finance Company and
its affiliated companies in anticipation of such offering. Based on that
analysis, management elected to undertake the rescission offer. Stewart Finance
Company wants to eliminate, to the extent possible under applicable securities
laws, its potential liability for possible failure to comply with applicable
federal and state securities laws. After consulting with legal counsel,
management deemed it prudent to conduct - voluntarily - this rescission offer.
The rescission offer will limit, as far as may be permissible under applicable
securities laws, Stewart Finance Company's potential liability stemming from the
possible failure to comply with such laws. This will, in turn, allow Stewart
Holdings to market more effectively the securities that it intends to offer
publicly after completion of the rescission offer. Stewart Finance Company's
potential liability, if left unaddressed, could serve as a significant hindrance
on the Stewart Holdings' ability to sell its securities in the intended public
offering.
ELIGIBLE SECURITY HOLDERS.
This rescission offer applies only to persons who purchased the
securities subject to this rescission offer from Stewart Finance Company by
payment or, in the case of the shares of Series A preferred stock, in exchange
for Stewart Finance Company's subordinated debentures. The offer does not extend
to persons who purchased any of these securities from any other person because
Stewart Finance Company does not believe it has any liability to such persons
under applicable securities laws. Further, the rescission offer does not apply
to any securities of Stewart Finance Company other than those securities listed
on the cover page of this prospectus.
In making this rescission offer, Stewart Finance Company intends to
comply only with the federal securities laws and the securities laws of the
State of Georgia, where all purchasers were resident at the time of their
purchase of the securities. To the extent any otherwise eligible security holder
now resides outside the State of Georgia, Stewart Finance Company's rescission
offer will not extend to such person. Based on a review of Stewart Finance
Company's records, there appears to be a single holder of the securities subject
to the rescission offer who currently resides outside of Georgia. In
management's view, the benefits of including this non-Georgia resident in the
rescission offer are outweighed by the burdens associated with compliance with
the state securities laws of another state.
TERMS OF THE RESCISSION OFFER.
We are offering to eligible security holders the opportunity to
rescind their purchase of Stewart Finance Company's senior demand notes,
subordinated debentures and Series A preferred stock. Eligible security holders
who decide to accept the rescission offer will exchange all (and not less than
all) of their securities for cash. The amount of the cash payment will be the
original purchase price of these securities, plus accrued and unpaid interest or
dividends, as applicable, from the date of purchase through the date of payment,
at the applicable stated interest rate on the face of the notes or debentures or
the dividend rate on the preferred stock. Eligible security holders should note
that the amount of the cash being offered is identical to the amount Stewart
Finance
11
<PAGE> 13
Company would be required to pay in damages in an action for rescission,
exclusive of attorney's fees, under federal and state securities laws.
REGISTRATION OF THE RESCISSION OFFER.
Stewart Finance Company has filed a registration statement with the
Securities and Exchange Commission with respect to the rescission offer because
no exemption from registration is available in connection with this offer. This
prospectus is part of that registration statement. The disclosure in this
prospectus is intended to provide eligible security holders with the protections
and information required by the Securities Act of 1933, and the rules and
regulations issued under the Securities Act of 1933, in connection with the
investment decision to be made in this case, which is:
- accept the rescission offer, rescind your purchase of the
securities subject to the rescission offer and accept a cash
payment in the amount described in this prospectus; or
- reject the rescission offer and retain the securities.
The securities subject to this rescission offer were, at the time of
their initial sale, "restricted securities" as defined under the Securities Act
of 1933. This means that these securities were not freely tradeable and could
not be offered or sold at any time unless the transaction was registered under
the Securities Act of 1933 or an exemption from registration was available.
Because this rescission offer is being registered, these previously unregistered
securities will now be freed of their "restricted securities" status. Therefore,
if you reject the rescission offer and retain you securities, you will receive
the benefit of owning freely transferable securities. Your securities will
remain subject to the contractual restrictions on transfers to which such
securities are subject by their terms.
Notwithstanding the freely transferable nature of the securities under
applicable securities laws, there is presently no public market for the
securities. No assurance can be provided that a public market will develop in
the future. Stewart Finance Company is not obligated, and does not intend, to
apply for quotation or listing of any of these securities on the Nasdaq Stock
Market or any national securities exchange. You should be aware that if you
reject the rescission offer and retain your securities, you may be required to
hold such securities until maturity or, in the case of the Series A preferred
stock, for an indefinite period of time.
LEGAL EFFECT OF THE RESCISSION OFFER.
- Federal securities laws. We believe that our potential liability
under applicable federal securities laws resulting from our offer and sale of
the securities subject to the rescission offer will be eliminated with respect
to those eligible security holders who accept the rescission offer and exchange
their securities for cash. The Securities and Exchange Commission, however,
takes the position that liabilities under the federal securities laws are not
terminated by making a rescission offer. We believe, however, that acceptance of
the rescission offer and receipt by the eligible security holder of the cash
consideration to be paid for such person's securities, should have the effect of
terminating liability to that security holder because the damages element of any
claim by the security holder will be eliminated.
If an eligible security holder affirmatively rejects or fails to
respond to the rescission offer, Stewart Finance Company's potential liability
under the Securities Act of 1933 may not be completely extinguished. Under those
circumstances, Stewart Finance Company may assert that these security holders
released any claims to recover the purchase price of their securities because of
their rejection or inaction. If the affirmative rejection or failure to respond
to the rescission offer does not act as a release of claims, eligible security
holders who have rejected or failed to respond to the rescission offer would
retain any rights or claims they may have under the federal securities laws.
Such claims would be subject to any defenses Stewart Finance Company may have,
12
<PAGE> 14
including the running of the statute of limitations. In general, to sustain a
claim based on violations of the registration provisions of the federal
securities laws, the claim must be brought within one year after discovery of
the violation upon which the claim is based, but in no event more than three
years after the occurrence of the violation. The statute of limitations may have
already run with respect to some eligible holders of securities.
- Georgia securities laws. Under Georgia securities laws, a person
may sue an issuer that offers or sells a security in violation of the Georgia
registration requirements to recover the consideration paid for the security,
together with interest at the stated rate per annum appearing on the face of
such security (or 6% per annum for a non-interest bearing security) from the
date of payment, less the amount of any income received on the security, until
the person's return of the security. Under Georgia law, no person may sue based
on a violation of the registration provisions of Georgia law more than two years
after the contract of sale. In any event, a buyer of securities in Georgia may
not sue if he has received a bona fide offer in writing to refund the
consideration paid for such security, together with interest at the applicable
rate, from the date of payment, less the amount of any income received on the
security, and such buyer has failed to accept the offer within 30 days of its
receipt.
TAX CONSIDERATIONS OF THE RESCISSION OFFER.
In general, if an eligible security holder determines to accept the
rescission offer, receipt of a cash payment will be a taxable event for federal
income tax purposes. If the amount received by the eligible security holder does
not exceed the holder's tax basis in the securities surrendered, however, there
will be no realized taxable gain. Amounts received as interest or dividends in
connection with the rescission offer generally will be taxable to the recipient
at ordinary income tax rates.
THIS FEDERAL INCOME TAX DISCUSSION IS INCLUDED FOR INFORMATIONAL
PURPOSES ONLY. STEWART FINANCE COMPANY URGES EACH ELIGIBLE SECURITY HOLDER TO
CONSULT HIS OR HER OWN TAX ADVISOR BEFORE ACCEPTING OR REJECTING THE RESCISSION
OFFER.
PROCEDURES GOVERNING THE RESCISSION OFFER.
You will have 30 days from the date of receipt of this prospectus to
respond to the rescission offer. The rescission offer will terminate on the
earlier of our receipt of your response or 12:00 midnight, eastern time, on the
30th day following your receipt of this prospectus, unless extended by us.
If you intend to accept the rescission offer, complete and sign the
enclosed form, and return the form, together with the note(s) or certificate(s)
representing your securities, marked "cancelled." You may return the form and
the securities to us either in person or by mail at the following address:
Stewart Finance Company
610 Sibley Avenue
Union Point, Georgia 30669
Attention: Jeffery L. Smith
We will send you your cash payment within 5 business days after the expiration
date and your securities will be deemed cancelled at that time.
If you intend to reject the rescission offer and retain your securities, please
mark the form to indicate your rejection of the rescission offer and return it
to us. You need do nothing further.
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<PAGE> 15
If you do not respond to this rescission offer by returning your completed
election form before the expiration date by following the procedures we have
described above, you will be deemed to have rejected the rescission offer and
you will retain your securities.
If you want to return your election form in person, you must do so by
the close of business on the expiration date. If you intend to make use of the
mails to return your election form, the form must be postmarked by the
expiration date and we recommend that you use registered mail, return receipt
requested.
Stewart Finance Company will not extend the expiration date of the
rescission offer for any responses that we find deficient, but we will mail
notice of any such deficiencies to the eligible security holder's last known
address. If the security holder does not correct a deficient response within 30
days from the date he or she received this prospectus, we will not purchase our
securities from that person.
PLEASE NOTE: YOUR ELECTION WILL BE DEEMED TO BE EFFECTIVE UPON RECEIPT
IF YOU DELIVER IT IN PERSON OR AS OF THE DATE POSTMARKED IF YOU RETURN IT BY
MAIL. TO BE EFFECTIVE, YOUR ELECTION MUST BE EITHER DELIVERED OR POSTMARKED BY
THE EXPIRATION DATE. WE WILL ACCEPT YOUR ELECTION UPON RECEIPT AND ONCE
ACCEPTED, YOU CANNOT WITHDRAW OR CHANGE YOUR ELECTION.
Stewart Finance Company has not retained nor does it intend to retain
any person to make solicitations or recommendations to eligible security holders
in connection with this rescission offer. Neither Stewart Finance Company nor
its officers and sole director may make any recommendations to any eligible
security holder with respect to the rescission offer. Each eligible security
holder must make his or her own decision as to whether to accept or reject the
rescission offer.
FUNDING THE RESCISSION OFFER.
We do not have liquid assets sufficient to pay the roughly $16,690,569
in cash that would need to be paid if the rescission offer were accepted by all
of the eligible security holders. Because we have no way of predicting the
number of eligible security holders who will accept the rescission offer or how
many securities they own, we cannot provide you with a realistic description of
the effect that the rescission offer will have on the financial condition of
Stewart Finance Company. We have tried, however, to analyze the effect at
various levels of acceptance under the caption "Financial effect of the
rescission offer," which can be found in the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 16
SELECTED FINANCIAL AND OPERATIONS DATA
The following table sets forth selected financial and operating data
of Stewart Finance Company for the periods indicated. The selected financial
data presented below for the six months periods ended June 30, 1998 and 1999,
and the balance sheet data as of June 30, 1999, are unaudited. In the opinion of
Stewart Finance Company, such unaudited data includes all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the information provided. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Stewart Finance Company's financial statements and related notes
included elsewhere in this prospectus:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
INCOME STATEMENT DATA: 1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and Fee Income................ $2,038,401 $1,804,126 1,534,683 781,042
Maintenance and Delinquent Charges..... 571,225 484,539 302,208 252,531
Insurance Premiums..................... 1,201,067 973,119 660,405 490,030
Auto Club and Other Income............. 4,124,757 2,578,906 2,022,160 1,764,204
Total Income................ 7,935,450 5,840,690 4,519,456 3,287,807
Interest Expense....................... 2,085,492 1,564,030 1,274,322 897,252
Salaries............................... 2,202,801 1,772,774 1,352,402 998,517
Other Expenses......................... 3,790,366 2,760,738 2,481,727 1,449,553
Total Expenses............... 8,078,659 6,097,542 5,108,451 3,345,322
Net Income (Loss) Before Income
Tax Effect............................. (143,209) (256,852) (588,995) (57,515)
<CAPTION>
AS OF As of
DECEMBER 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
BALANCE SHEET DATA:
Finance Receivables.................................................................. 8,278,921 8,872,223
Other Current Assets................................................................. 14,145,493 12,820,392
Property and Equipment (net of accumulated depreciation)............................. 2,948,614 3,216,526
Other Assets......................................................................... 1,340,828 270,358
Total Assets............................................................... 26,713,856 25,179,499
Subordinated Debentures.............................................................. 11,863,630 11,625,746
Senior Demand Notes.................................................................. 576,125 921,824
Preferred Stock...................................................................... 3,347,500 3,374,500
Note Payable, FINOVA Capital......................................................... 6,500,000 6,350,000
Other Liabilities.................................................................... 3,924,696 3,933,274
Total Liabilities.......................................................... 22,864,451 26,205,344
Stockholder's Equity................................................................. 501,905 (1,025,845)
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Two major events had a material impact upon Stewart Finance Company's
financial condition and results of operations in 1998 and in the six month
period ended June 30, 1999. These were (i) the opening by Stewart Finance
Company and its affiliates of seven new offices in 1998, bringing total offices
to 41 at the end of 1998 (21 of which were operated by affiliates), an increase
of 20.6%, and (ii) the exchange in December 1998 of a new issue of preferred
stock for outstanding subordinated debentures resulting in an increase of
$3,345,467 in paid-in-capital and a corresponding reduction in debt. Stewart
Finance Company opened one new office during the first six months of 1999.
Stewart Finance Company provides funding and accounting services to
its affiliates in connection with the opening of new offices and is reimbursed
for those services. Such reimbursements amounted to $2,476,089 in 1998 and
$867,699 in 1997, an increase of 185.4% The reimbursement amount for the six
months ended June 30, 1999 was $1,452,004 compared to $990,125 for the
comparable period in 1998, an increase in the current period of $461,879 or
46.6%. Amounts due Stewart Finance Company from affiliates as a result of these
services amounted to $5,314,792 at June 30, 1999, $3,862,788 at December 31,
1998 $2,838,703 at June 30, 1998 and $1,386,699 at year December 31, 1997. A
portion of the costs incurred in opening each new office, equal to the total
expense of operations for the first three to six months, is treated as a "start
up" expense and amortized over sixty months. As a result, Stewart Finance
Company reported unamortized organization costs related to opening new offices
of $1,061,663 at year end 1998 and $198,000 at year end 1997. These unamortized
costs were financed with borrowed funds, thereby increasing interest costs
without any measurable increase in interest income. Consequently, the difference
between interest received and interest incurred (net interest margin) decreased
to $524,134 in 1998 from $724,635 in 1997. Interest received less interest
incurred for the six months ended June 30, 1999 was $206,361, an increase of
$124,040 from the $136,321 of excess interest received and interest incurred
during the six months ended June 30, 1998.
The expansion through the opening of new offices also contributed to
increases in 1998 (excluding reimbursed expenses and revenues) of revenues to
$5,459,361 from $4,972,991 (9.8%), and of expenses to $5,602,570 from $5,229,843
(7.1%). Consequently, the net loss decreased (before income tax effect) to
$143,209 from $256,852, an improvement of $113,643. Operations for the six
months ended June 30, 1999 reflect a loss (before income tax effect and
extraordinary loss) of $588,995 compared to a loss of $57,515 for the six months
ended June 30, 1998. Revenue during this period (before reimbursement expenses)
amounted to $3,127,801 and expenses totaled $3,716,796. Revenue for the six
months ended June 30, 1998 totaled $2,381,290 excluding reimbursement expenses
and expenses for the period were $2,438,805. Revenue during the current six
month period increased $746,511 and expenses increased $1,277,991. The increase
in expenses during the current six month period reflects the continued increase
in expenses for new offices that have opened during the past year and have not
reached maximum earning capacity, as well as increases in expenses in the
principal office attributable to increased centralized accounting and
administrative services.
This improvement in 1998 would have been even greater but for a
decrease in recoveries of delinquent accounts (net of bad debt) from $575,549 in
1997 to $91,953 in 1998. In 1997, Stewart Finance Company established a separate
collection department, which was charged with collecting all of the company's
bad debts, regardless of which branch office originated the loan. Prior to 1997,
collecting bad debts was the responsibility of the local office that originated
the loan. The collection department was very successful in 1997 and,
consequently, the amount of bad debts available for collection was significantly
reduced for 1998. Additionally, Stewart Finance Company began writing off
delinquent loans as bad debts when a loan was 240 days past due instead of 270
days past due as was its policy in 1997. This policy change had the effect of
increasing write offs, which reduced the excess of recoveries over bad debts.
The combination of these factors was primarily responsible for the approximately
84% decrease in recoveries of delinquent accounts (net of bad debts) from 1997
to 1998. During the six months ended June 30, 1999, charges for uncollectible
16
<PAGE> 18
accounts exceeded recoveries by $301,093. During the same period of the prior
year, recoveries exceeded charges for uncollectible accounts by $275,934,
reflecting the continuing results of the changes made during 1997 with the start
up of the centralized collection department.
Total assets increased to $26,713,856 at year-end 1998, up from
$19,983,137 a year earlier, or 33.7%. Total assets at June 30, 1999 amounted to
$25,179,499, an increase of $4,955,209 or 24.5% over the total assets of
$20,224,290 at June 30, 1998. Total liabilities increased to $22,864,451 in
1998, up from $19,480,841 a year earlier, or 17.4%. Total liabilities at June
30, 1999 amounted to $22,830,844 compared to $19,779,509 at June 30, 1998, an
increase of $3,051,335 or 15.4%. Of the 1998 increase in liabilities, $985,795
was attributable to a 9.1% increase in the amount of subordinated debentures
outstanding at year-end 1998 to $11,863,630. An additional portion of the
increase resulted from Stewart Finance Company's use in 1998 of the $1,075,000
available at year end 1997 under its line of credit from Finova Capital
Corporation. The balance under the Finova line of credit was $6,500,000 at
year-end 1998, up from $5,425,000 a year earlier, or 19.8%. The total liability
to Finova at June 30, 1999 amounted to $6,350,000, a decrease of $150,000 from
December 31, 1998 and an increase of $2,150,000 over the balance at June 30,
1998. Stockholder's equity increased to $3,849,405 at year-end 1998, up from
$502,296 a year earlier. This change resulted primarily from the issuance of
preferred stock in exchange for outstanding subordinated debentures.
Stockholders equity at June 30, 1999 amounted to $2,348,655 (after the issuance
of preferred stock of $3,374,500), reflecting a decrease of $1,470,606 from
stockholders equity of $444,781 at June 30, 1998. This decrease resulted from an
operating loss for the six-month period ended June 30, 1999 and an extraordinary
loss resulting from the write-off of the unamortized capital costs reflected on
the balance sheet at December 31, 1998.
The dividend rate and other terms and conditions of the preferred
stock correspond to the interest rate and other material features of the
subordinated debentures redeemed in the exchange. This transaction resulted in
Stewart Finance Company losing its status as a sub Chapter S corporation for tax
purposes in 1998.
As to liquidity cash increased to $3,595,486 at year-end 1998 from
$1,973,530 a year earlier, an increase of $1,621,956 or 82.2%. Cash at June 30,
1999 totaled $3,273,583, an increase of $934,239 from the June 30, 1998 balance.
Cash flows from operations were a negative $878,974 in 1998, while cash flows
from investing activities were a negative $3,528,608. These compared to negative
$2,007,291 and $4,651,771, respectively, a year earlier. Cash provided by
financing activities in 1998 amounted to $6,029,538, compared to $6,712,842 a
year earlier. Cash flow for the six months ended June 30, 1999 reflected a
decrease of $925,768 and a negative from investing activities of $1,981,682.
Cash provided by financing activities increased by $1,629,739 during the six
months ended June 39, 1999.
Stewart Finance Company acquired one new office during the first six
months of 1999 and it expects that three new offices will be opened by
affiliates during the remainder of 1999. Stewart Finance Company expects that
its affiliate, Stewart Holdings, will open five additional offices in 2000,
bringing the total number of offices operated to fifty by the end of that year.
Stewart Finance Company anticipates that Stewart Holdings will continue to
obtain additional offices by opening them under Stewart Finance Company's or its
affiliates' licenses or by acquiring existing offices from third parties.
Stewart Finance Company also expects to continue to provide funding and
accounting services to its affiliates on essentially the same terms as it did
during 1997, 1998 and the first six months of 1999, and to account for such
transactions in the same manner as it did in those periods.
Stewart Finance Company anticipates that it will finance the expansion
of its operations during the balance of 1999 and 2000 as described above from
internally generated funds and from the proceeds of sales of additional
preferred stock and subordinated debentures by Stewart Holdings. Stewart Finance
Company expects that these securities offerings by Stewart Holdings will be made
through non-underwritten registered offerings of securities pursuant to
registration statements filed with the Securities and Exchange Commission. There
is no assurance as to whether, or when or in what amounts, or on what terms any
of such securities can be sold, and there is no expectation that a market will
exist for such securities if they are sold.
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<PAGE> 19
Stewart Finance Company and its affiliates opened 7 offices (an
increase of 20.6%) during the year 1998. The additional personnel required to
operate these offices contributed to the increase in salaries of $430,000,
(24.3%), between 1998 and 1997. Increases in employee compensation based on cost
of living and/or merit salary raises, increases in claims of Stewart Finance
Company's self-insured group medical plan and increases in other accrued
employee benefits also contributed to the increase in personnel expense.
Salaries increased during the six months ended June 30, 1999 to a total of
$1,352,402, reflecting the continued increase in staffing of new branches and
the home office in preparation of the proposed increases in the number of
offices anticipated during the next eighteen months. Salaries increased during
the current six month period by $335,885 from the aggregate salary expense of
$998,517 for the six months ended June 30, 1998.
Additional expenses related to the expansion of the home office and
the addition of 7 offices resulted in an increase of general and administrative
and depreciation and amortization expenses in the amount of $1,029,000 (27.2%).
Stewart Finance Company has provided general, administrative, accounting and
management services to its affiliated companies in Louisiana, Missouri and
Illinois. The charges for these services have been reflected in income as
reimbursed expenses. The analysis below indicates the operating expenses of
Stewart Finance Company for the years ended December 31, 1996, 1997 and 1998 and
the six months ended June 30, 1998 and 1999. Total expenses are reflected and
then reduced by the reimbursed expenses that are shown on the income statement
as income. The net expenses reflected after this reduction show an increase in
expenses in 1998 of 7.1% as compared to an increase in expenses in the prior
year of 25.2%. Expenses incurred in the six months ended June 30, 1999 reflect
an increase of 36.9% over the same period of the prior year.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT % DATA)
<S> <C> <C> <C> <C> <C>
General and administrative............ $ 3,401 $ 2,498 $ 1,889 $ 2,026 $ 1,613
Salaries and wages.................... 2,203 1,773 1,365 1,352 999
Interest expense...................... 2,085 1,564 1,210 1,274 897
Charges for uncollectible accounts,
net of recoveries..................... --- --- --- 301 ---
Depreciation and amortization......... 389 263 233 215 196
----------- ---------- ---------- ---------- ----------
Total expense.................... 8,078 6,098 4,697 5,168 3,705
Less reimbursed expenses.............. 2,476 868 519 1,452 990
---------- ---------- ---------- ---------- ----------
Net expenses..................... $ 5,602 $ 5,230 $ 4,178 $ 3,705 $ 2,715
========== ========== ========== ========== ==========
Increase.............................. 7.1% 25.2% 12.4% 36.9%
Total revenue, excluding reimbursed expenses reflects an increase in the current
year of 9.7% as compared to an increase of 17.7% in the prior year.
Total revenues (excluding
reimbursed expenses).................. $ 5,459 $ 4,974 $ 4,225 $ 3,067 $ 2,658
========== ========== ========== ========== ==========
Increase.............................. 9.7% 17.7% 37.8% 15.4%
</TABLE>
18
<PAGE> 20
PLAN FOR PAYMENT OF SECURITY HOLDERS ACCEPTING RESCISSION OFFER.
Stewart Finance Company's plan to pay security holders who accept the
rescission offer would involve a series of steps beginning with the use of cash,
certificates of deposit and marketable securities (net of the margin loan
applicable to the marketable securities).
As of December 31, 1998, the value of these assets were:
<TABLE>
<S> <C>
Cash $ 3,595,486
Certificates of deposit 1,195,967
Marketable Securities, valued at market 446,973
Margin loan on marketable securities (241,863)
==========
Net cash available for rescission payments $ 4,995,663
===========
</TABLE>
These funds would liquidate approximately 30% of the total potential
rescission acceptances. At this level of acceptance, Stewart Finance Company
would have to obtain additional cash resources in order to continue to pay its
costs of operations on a regular basis. During the six months ended June 30,
1999, Stewart Finance Company incurred average monthly expenses of approximately
$230,000. Additionally, Stewart Finance Company expended approximately $100,000
per month in connection with new loan receivables from customers during that
period. Consequently, Stewart Finance Company would need to obtain sufficient
cash to fund approximately $330,000 per month if 30% of rescission offerees
accept the rescission offer. Stewart Finance Company anticipates that it or
Stewart Holdings could borrow or provide sufficient cash to enable Stewart
Finance Company to continue to pay these operating expenses and to make such
loans until the cash flow from these loans provided adequate funds for Stewart
Finance Company to sustain its operating expenses from internally generated
funds.
The next step in Stewart Finance Company's plan would be to borrow up
to $5,000,000 to liquidate additional rescission acceptances. Stewart Finance
Company believes that it can borrow 5,000,0000 either from John B. Stewart, Jr.
or lending institutions. These funds would enable Stewart Finance Company to
liquidate an additional 30% of the aggregate amount of potential rescission
acceptances.
If 60% of the offerees accepted the rescission offer, Stewart Finance
Company would continue to require approximately $330,000 on a monthly basis to
satisfy its operating expenses. If Stewart Finance Company could not obtain
funds to satisfy these operating expenses after the additional $5,000,000 had
been borrowed, it would be required to take steps to significantly reduce its
monthly expenses through employee reductions and the sale of offices. Stewart
Finance Company anticipates that it would prioritize the sale of offices by
first selling those which are marginally profitable and retaining those offices
that provide a greater return on investment. The funds obtained through the
reduction of expenses and the sale of offices would be utilized to reduce debt
and fund ongoing operations.
If more than 60% of the security holders elected to accept the
rescission offer, Stewart Finance Company would have to liquidate finance
receivables and sell additional office locations (including the license granted
to such office location by the Georgia Industrial Loan Department).
Stewart Finance Company would be required to pay off the Finova loan
before any of the finance receivables could be sold to unrelated third parties.
As a result, it would be necessary for Stewart Finance Company to raise
$6,500,000 from the sale of existing finance receivables or offices before any
funds could be applied to liquidate additional rescission acceptances.
Therefore, to complete the payoff of the remaining 40% of the rescission
elections (approximately $6,6000,000), Stewart Finance Company would have to
sell, on a wholesale basis, finance receivables or offices with an inventory of
finance receivables in a total amount of
19
<PAGE> 21
approximately $12,100,000. These steps would provide the funds to pay the
Finova liability and to liquidate the balance of the rescission offering.
The specific method of liquidating any finance receivables or selling
any office locations with the finance receivables would be determined at the
time the need for such sales arose. There are accepted formulas for the sale, on
a wholesale basis, of finance receivables or office locations with finance
receivables.
If more than 60% of the offerees accept the rescission offer, Stewart
Finance Company would face an ongoing requirement to reduce payroll and other
operating expenses. Its ability to make new loans would be based on its
collection of outstanding loans and its ability to obtain additional funding
either from borrowing or other sources. Stewart Finance Company has no specific
plan to obtain sufficient funding to satisfy this rescission offering if more
than 60% of the offerees accept the rescission offer.
YEAR 2000 COMPLIANCE
The state of Stewart Finance Company's readiness
The Year 2000 issue results from computer programs being written using
two digits rather than four to define the applicable year. Any of Stewart
Finance Company's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
resulting in disruptions of operations, including, among other things, a
temporary inability to process transactions, send statements or engage in
similar normal business activities.
Stewart Finance Company has a four-phase plan to resolve the Year 2000
issue with respect to its internal and external systems:
- Identifying significant systems and assessing potential Year
2000 issues relating to those systems;
- Renovating, repairing and replacing noncompliant systems;
- Testing and validating solutions; and
- Implementing those solutions.
The first and second phase of the plan have been completed and Stewart
Finance Company has substantially completed the third phase. The first phase
involved assessing all computer controlled systems, including the computer
systems of Stewart Finance Company's vendors, telecommunications, security and
alarm, elevator, telephone, HVAC, and environmental systems with embedded
microchips. Stewart Finance Company's local area network has been evaluated and
is Year 2000 compliant.
The second phase involves upgrading, as applicable, hardware, software,
networks and other processing platforms. The noncompliant individual personal
computers throughout the organization have been replaced. Stewart Finance
Company also has upgraded the versions of the spreadsheet and word processing
programs it uses for internal purposes to the Year 2000 compliant versions.
The testing, validation and implementation phases are substantially
complete. During the remainder of 1999 additional testing and re-testing will be
performed, and every effort will be made to ensure the conversion from 1999 to
the Year 2000 is uneventful.
20
<PAGE> 22
The costs to address Stewart Finance Company's Year 2000 issues
The costs associated with Stewart Finance Company's Year 2000 issues
are not expected to have a material impact on the long term results of the
operations or financial condition of Stewart Finance Company. The total expense
to upgrade the individual personal computers throughout the organization was
approximately $35,000. The software upgrade cost approximately $5,000. To date,
Stewart Finance Company has incurred expenses of approximately $15,000 in
connection with its Year 2000 plan. Expenses incurred in the upgrade and testing
of the new hardware and software for the vendors' data processing systems are
the outside vendors' responsibility.
The risks of Stewart Finance Company's Year 2000 issues
Stewart Finance Company believes that the failure of third parties to
address their Year 2000 problems in a timely fashion presents the greatest
likelihood of Stewart Finance Company not being fully Year 2000 compliant. Such
a failure could materially adversely impact Stewart Finance Company's
operations, the estimated costs of the Year 2000 plan. The effect of
non-compliance by third parties is not determinable at this time. Stewart
Finance Company could be subject to litigation for computer systems product
failure including equipment shutdown or failure to properly date business
records or process transactions. The amount of potential liability, if any, and
lost revenue cannot be reasonably estimated at this time.
Stewart Finance Company's contingency plans
Stewart Finance Company has contingency plans in place for mission
critical systems in the event of unforeseen difficulties to minimize any
disruptions. Personnel of Stewart Finance Company have been trained and advised
to operate on a manual basis, with all items going to Stewart Finance Company's
corporate headquarters for processing. The corporate headquarters will operate
on a power generator that should allow continued processing and service to
Stewart Finance Company's customers in the event of interruption of electric
utility service.
21
<PAGE> 23
BUSINESS
IN GENERAL.
The business of Stewart Finance Company primarily consists of making
and servicing two types of loans: GILA loans, which are consumer loans to
individuals in original principal amounts of less than $3,000 that Stewart
Finance Company originates under the Georgia Industrial Loan Act ("GILA"); and
Non-GILA loans, which are consumer loans to individuals in excess of $3,000 that
are not regulated under GILA. Stewart Finance Company also offers insurance
premium loans, which we originate to finance an individual's purchase of
property and casualty insurance, and tax refund loans, which are loans we make
to individuals in anticipation of their receipt of a federal income tax refund.
Stewart Finance Company also services sales finance loans, which are loans we
purchase from other lenders, primarily retailers, that were made to finance the
borrower's purchase of personal property. As of December 31, 1998, GILA loans
and Non-GILA loans comprised in excess of 99% of Stewart Finance Company's total
outstanding loans. As of December 31, 1998, Stewart Finance Company had
approximately 18,821 accounts and approximately $8,869,924 in loans outstanding.
As of December 31, 1998, the resources of Stewart Finance Company were
invested primarily in GILA loans and Non-GILA loans, which together comprised
approximately 31% of Stewart Finance Company's total assets on that date. For
the fiscal year ended December 31, 1998, approximately 48% of Stewart Finance
Company's revenue (as adjusted to exclude reimbursement income) was derived from
interest, fees and related charges earned on these loans. Stewart Finance
Company also earned an additional 42% of its revenue in 1998 (as adjusted to
exclude reimbursement income) from commissions on insurance sales and automobile
club memberships, while 10% of its adjusted revenue in 1998 was derived from
interest, fees and related charges earned on insurance premium loans, tax refund
loans and servicing sales finance loans.
DESCRIPTION OF LOANS.
The table below provides information regarding Stewart Finance
Company's loans for the years ended December 31, 1998, 1997, 1996, 1995 and 1994
and the six months ended June 30, 1999:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Number of
Loans Outstanding...... 18,821 17,785 14,368 13,818 10,804 21,790
Total Amount of
Loans Outstanding
(Gross) (in
thousands)............. $ 8,869 $ 7,946 $ 6,811 $ 6,699 $ 5,609 $ 9,630
Average Balance on
Outstanding Loans...... $ 471 $ 491 $ 474 $ 485 $ 519 $ 442
Average Amount of
Loans Outstanding
Per Branch............. $ 400,697 $ 397,300 $ 454,080 $ 478,475 $ 420,628 $ 437,727
Average Number of
Loans Outstanding
Per Branch............. 896 890 958 921 772 990
</TABLE>
22
<PAGE> 24
GILA LOANS. Stewart Finance Company makes GILA loans to individual
consumers who use the proceeds of these loans primarily for paying unusual or
unforeseen expenses, discharging accumulations of small debts, or purchasing
furniture or appliances. As of December 31, 1998, the aggregate amount of GILA
loans Stewart Finance Company had outstanding was $6,307,227, which represented
approximately 71% of Stewart Finance Company's total loans outstanding as of
that date. The average maturity of Stewart Finance Company's GILA loans as of
December 31, 1998 was 5.9 months. Stewart Finance Company generally secures GILA
loans by obtaining a security agreement which grants a security interest in
specified collateral. In connection with most GILA loans, however, Stewart
Finance Company does not perfect its security interest by filing any financing
statements or deeds to secure debt or taking possession of any title
certificates. Instead, Stewart Finance Company relies on the borrower's payment
of "non-recording" insurance. There are no non-accruing loans in Stewart Finance
Company's loan portfolio.
The table below provides information with respect to GILA loans made by
Stewart Finance Company, including the annual yield on such loans (the
percentage of finance charges, including late charges, earned to average net
outstanding balance) for the years ended December 31, 1998, 1997, 1996, 1995 and
1994 and the six months ended June 30, 1999:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT FOR PERCENT DATA)
<S> <C> <C> <C> <C> <C> <C>
Average Amount
Outstanding............. $ 6,307 $ 5,758 $ 5,317 $ 5,604 $ 4,600 $ 6,405
Average Interest
Earned.................. $ 1,853 $ 1,590 $ 1,920 $ 1,798 $ 1,405 $ 1,090
Average Annual Yield.... 32% 31% 37% 33% 32% 32%
</TABLE>
NON-GILA LOANS. Stewart Finance Company also originates loans to
individuals in original principal amounts in excess of $3,000, which loans are
used for various purposes but most typically to finance the borrower's purchase
of personal property. As of December 31, 1998, the aggregate amount of Non-GILA
loans Stewart Finance Company had outstanding was $2,562,697, which represented
approximately 29% of Stewart Finance Company's total loans outstanding as of
that date. The average maturity of Stewart Finance Company's Non-GILA loans as
of December 31, 1998 was 22 months. Non-GILA loans are secured by a security
interest in the property that is the subject of the loan and Stewart Finance
Company attempts to perfect its security interest by filing financing statements
in the case of personal property which does not have a certificate of title, and
holding certificates of title on automobiles and other similarly certificated
property. There are no non-accruing loans in Stewart Finance Company's loan
portfolio.
The below table provides information with respect to Non-GILA loans
made by Stewart Finance Company, including the average annual yield on such
loans (the percentage of finance charges, including late charges, earned to
average net outstanding balance) for the years ended December 31, 1998, 1997,
1996, 1995 and 1994 and the six months ended June 30, 1999:
23
<PAGE> 25
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT FOR PERCENT DATA)
<S> <C> <C> <C> <C> <C> <C>
Average Amount
Outstanding............. $ 2,563 $ 2,188 $ 1,494 $ 1,095 $ 1,009 $ 2,560
Average Interest
Earned.................. $ 756 $ 618 $ 538 $ 369 $ 308 $ 445
Average Annual Yield.... 30% 30% 31% 31% 30% 30%
</TABLE>
OTHER TYPES OF LOANS. Stewart Finance Company provides insurance
premium loans to finance the purchase of automobile, property and casualty
insurance exclusively for Ben Stewart Insurance and Realty, Inc., which is
wholly owned by John B. Stewart, Jr. Stewart Finance Company obtains an
assignment of insurance policies which it finances so that in the event of a
cancellation of the policy as a result of a loan default, or otherwise, Stewart
Finance Company receives any rebate of unearned premiums which it can apply
against the loan balance. Otherwise, insurance premium loans are unsecured.
Stewart Finance Company also provides loans to individuals based on their
anticipated federal income tax refund. Finally, Stewart Finance Company services
sales finance loans that it purchases from retailers, which made the loan to
finance the borrower's purchase of personal property. Stewart Finance Company
generally attempts to perfect a security interest in the collateral securing
such loans when the loans are obtained from the retailer. As of December 31,
1998, the aggregate amount of insurance premium loans, tax refund loans and
sales finance loans Stewart Finance Company had outstanding was $242,000, which
represented less than 1% of Stewart Finance Company's total loans outstanding as
of that date. There are no non-accruing loans in Stewart Finance Company's loan
portfolio.
UNDERWRITING.
Prior to making any loan to a potential borrower, Stewart Finance
Company conducts a credit investigation to determine the income, existing
indebtedness, length and stability of employment, and other relevant information
concerning the potential borrower. The account is credit scored, and this score
is used in making the loan decision. In making GILA loans and insurance premium
loans, Stewart Finance Company places emphasis upon the potential borrower's
ability to repay the loan rather than upon the potential resale value of any
underlying collateral. In making Non-GILA loans, however, Stewart Finance
Company places more emphasis upon the marketability and value of the underlying
collateral than on the potential borrower's ability to repay the loan.
DELINQUENCIES.
Delinquent accounts are classified at the end of each month according
to the number of installments past due at that time based on the original or
extended terms of the loan contract. When 75% of an installment has been paid,
it is not considered delinquent for the purpose of this classification. When
three installments are past due, the account is classified as being 60-89 days
past due; when four or more installments are past due, the account is classified
as being 90 days or more past due. Stewart Finance Company has an immediate
response policy for delinquencies and attempts to collect loans that are one day
past due. Stewart Finance Company's loan officers are encouraged to contact the
customer each day and to continue collection efforts for 90 days. Stewart
Finance Company may renew or modify past due loans; however, if the loan
continues in a delinquent status for 90 days, Stewart Finance Company generally
attempts to exercise its remedies, including legal action,
24
<PAGE> 26
primarily through actions filed in small claims court. Stewart Finance Company
considers renewals of past due loans to be in the ordinary course of business
and does not maintain records of the number of past due loans which are renewed.
Based on recent collection experience, Stewart Finance Company now writes off
past due balances at 240 days.
The table below shows the amount of certain classifications of
delinquencies and the ratio that such delinquencies bear to related outstanding
loans for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 and the
six months ended June 30, 1999. Stewart Finance Company changed its accounting
methods in 1996 to include in the category of loans that are 90 or more days
past due balanced of loans that are subject to bankruptcy or legal proceedings.
For the years ended 1998, 1997 and 1996, the aggregate loan balances for
customers who had filed bankruptcy were $430,000, $630,000 and $180,000,
respectively. Prior to 1996, the balance of a bankrupt customer was charged off
to bad debts and removed from loan receivables.
<TABLE>
<CAPTION>
Six Months
Ended
YEARS ENDED DECEMBER 31, June 30,
------------------------ --------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- ----
(in thousands, except percent data)
<S> <C> <C> <C> <C> <C> <C>
Loans 60-89
Days Past
Due.............. $ 108 $ 223 $ 103 $ 98 $ 117 $ 118
Percentage of
Outstanding
Loans............ 2.29% 1.90% 1.50% 1.70% 3.78% 1.22%
Loans 90 Days
or More Past
Due.............. $ 1,082 $ 1,336 $ 513 $ 169 $ 241 $ 957
Percentage of
Outstanding
Loans............ 12.46% 12.20% 7.50% 3.94% 4.88% 9.94%
</TABLE>
Stewart Finance Company has no non-accruing loans in its loan
portfolio.
LOSS EXPERIENCE.
The table below provides net losses (charge-offs less recoveries) for
the years ended December 31, 1998, 1997, 1996 and 1995 and the six months ended
June 30, 1999:
<TABLE>
<CAPTION>
Six Months
Ended
YEARS ENDED DECEMBER 31 June 30
----------------------- -------
1998 1997 1996 1995 1999
----
<S> <C> <C> <C> <C> <C>
Charge-offs......... $ 377,317 $ 602,164 $ 334,161 $ 203,000 $ 443,000
Recoveries.......... 161,000 102,000 94,000 61,000 122,000
------------ -------------- ------------- -------------- -------------
Net Loss............ $ 216,317 $ 500,164 $ 240,161 $ 142,000 $ 131,000
</TABLE>
25
<PAGE> 27
ALLOWANCE FOR LOAN LOSSES.
Stewart Finance Company determines its allowance for loan losses based on
its previous loss experience, a review of specifically identified potentially
uncollectible loans and management's evaluation of the inherent risks in Stewart
Finance Company's loan portfolio. Such allowance is, in the opinion of
management, sufficient to provide adequate protection against future loan
losses.
NON-RECORDING INSURANCE.
Stewart Finance Company charges its GILA loan borrowers who chose not to
pay the costs associated with, and incur the other detriments of, a secured loan
the cost of purchasing "insurance" rather than providing a perfected security
interest. The insurance purchased under this arrangement is commonly known as
"non-recording" insurance because no financing statement is filed. Despite its
characterization as "insurance," the payment made by the borrower is not
actually a form of insurance, but is rather a payment for Stewart Finance
Company's self-retention risk. Stewart Finance Company's practice is not to
waive "non-recording" insurance for unsecured GILA loans. Georgia regulations
governing "non-recording" insurance provide that such insurance can be written
on loans with a face amount of greater than $100 in lieu of recording a security
instrument with the proper public official or agency of the state. The rates for
such "non-recording" insurance must meet standards and requirements of the
Georgia Insurance Code and Stewart Finance Company is not allowed to select
"non-recording" insurance instead of recording a security instrument if the
former choice will cost the borrower more money than the latter choice. Stewart
Finance Company's current charges for "non-recording" insurance are $10 if
personal property is listed as security and $25 if both personal property and an
automobile are listed as security.
OTHER INSURANCE SALES.
Under GILA, a lender is authorized to sell certain types of insurance and
to charge and collect from its customers premiums actually paid for insurance
obtained for the customer, provided that the insurance is reasonably related to
the type and value of the property issued and the amount and term of the loan.
Additionally, such insurance may be obtained only through an insurance company
authorized to do business in Georgia. When authorized to do so by its customer,
Stewart Finance Company acts as a subagent for Voyager Insurance Company, an
un-affiliated insurance company based in Jacksonville, Florida, through which it
places life, accident and health, property and automobile insurance in
connection with its loans. At a minimum, the manager of each of Stewart Finance
Company's branch locations is licensed as a subagent of Voyager to sell
credit-related insurance. Stewart Finance Company's commissions are determined
on the basis of 40% of the premiums collected on insurance other than the so
called "non-recording" insurance. Under GILA regulations, Stewart Finance
Company is authorized to sell level term life insurance and reducing term life
insurance, which can be written as security on all loans. The insurance coverage
is not allowed to exceed the face amount of the loan contract. GILA regulations
establish different rates for various types of term life coverage and govern the
use of proceeds from such insurance and its cancellation. Under GILA, Stewart
Finance Company is also authorized to write credit accident and sickness
insurance, household goods fire insurance (provided that the face amount of the
contract is $200 or more), and automobile insurance against loss or damage
caused by fire, theft or collision. When household goods and an automobile are
both pledged as security on a loan and the actual market value of the automobile
and the market value of the household goods together are less than the face
amount of the loan, insurance can be written for the actual market value of the
automobile and the household goods. However, where equity in an automobile which
has been or is being financed (with insurance coverage) is pledged as security
for a loan, insurance may be written only to cover that period of the life of
the loan that is not covered by the existing contract of insurance.
26
<PAGE> 28
AUTO CLUB MEMBERSHIPS.
Stewart Finance Company is affiliated through common ownership with
Preferred Choice Auto Club, Inc. ("Auto Club"), which is owned by John B.
Stewart, Jr. The Auto Club provides payment or reimbursement of certain
automobile emergency related expenses such as towing charges and roadside
repair. Stewart Finance Company offers memberships in the Auto Club through its
branch offices as a service to its customers and receives a commission for
membership sales.
The table below provides information regarding Stewart Finance Company's
commissions on Auto Club activities for the years ended December 31, 1998, 1997,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
ACTIVITY 1998 1997 1996 1995 1994
- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commissions on Sales of Auto
Club Memberships.................... $1,110,173 $946,082 $721,396 $637,311 $309,299
</TABLE>
SOURCES OF FUNDS
Stewart Finance Company's primary sources of funds are a $6,500,000
revolving line of credit with Finova Capital Corporation, a $1,500,000 revolving
line of credit with Community Bank & Trust, Cornelia, Georgia, and sales of its
own securities. As of December 31, 1998, Stewart Finance Company had borrowed
$6,500,000 and $1,500,000 under the Finova and Community Bank & Trust credit
lines, respectively. As of June 30, 1999, Stewart Finance Company had issued
$921,824 in principal amount of senior notes, $12,432,245 in principal amount of
subordinated debentures and $3,347,500 in shares of Series A preferred stock,
par value $0.001 per share.
The table below provides Stewart Finance Company's average interest rate
on borrowings, computed by dividing the aggregate interest paid by the average
indebtedness outstanding for the years ended December 31, 1998, 1997, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
All Borrowings..................... 9.00% 9.95% 9.90% 8.54% 8.21%
</TABLE>
GOVERNMENT REGULATION.
The GILA loans made by Stewart Finance Company are regulated under GILA,
which governs loans of $3,000 or less and requires that lenders subject to GILA
not lend funds for more than 36 months and 15 days. GILA provides for a maximum
rate of interest and specifies permitted additional fees which can be charged
for a loan, including loan fees, maintenance fees and delinquency fees. Stewart
Finance Company is also authorized to collect the actual and reasonable expense
of repossessing, storing, and selling any collateral pledged as security. In
general, charges, interest and fees under the Georgia Code cannot exceed the 5%
per month (effectively 60% per year) limit established by the criminal usury
provisions of the Georgia law.
GILA requires that each office in which a small loan business is conducted
be licensed by the State of Georgia. The granting of a license depends on a
finding of public convenience and advantage for the proposed office, and a
finding of the financial responsibility, character and fitness of the applicant.
Pursuant to regulations under GILA, Stewart Finance Company is required to
demonstrate that it has a minimum net worth of $25,000 to begin business. As a
condition to obtaining such license, the applicant must consent to state
regulation and
27
<PAGE> 29
examination and to the making of periodic reports to the Georgia Industrial Loan
Department. Licenses are revocable for cause, and their continuance depends upon
compliance with the law and regulations issued pursuant thereto. As of the date
of this Prospectus, Stewart Finance Company has never had any of its GILA
licenses revoked. A breach of any applicable rules or regulations may result in
a fine of up to $l,000 (or $5,000 if Stewart Finance Company knew or should have
reasonably known that it was in violation of the applicable rules and
regulations) or Stewart Finance Company's being placed on probation by the
Commissioner of the Georgia Industrial Loan Department. GILA regulations also
prescribe debt collection practices which govern the conduct of Stewart Finance
Company's employees and agents in collecting debts. The Georgia Insurance
Department, which regulates and enforces GILA, periodically conducts audits of
Stewart Finance Company and its individual branches. Stewart Finance Company
follows its own internal audit procedures in an effort to insure that its
operations are conducted in accordance with the rules and regulations of the
Georgia Insurance Department and the requirements of GILA.
All of Stewart Finance Company's lending operations are carried on under
the provisions of the Federal Consumer Credit Protection Act ("Truth-in-Lending
Act") and the Fair Credit Reporting Act. On all loans made by Stewart Finance
Company, the finance charge, the annual percentage rate, the total of payments
and other disclosures required by the Truth-in-Lending Act are disclosed to the
borrower.
A Federal Trade Commission ruling prevents Stewart Finance Company and
other consumer lenders from using household goods as collateral on GILA loans.
Stewart Finance Company believes the inability to use household goods as
collateral has not had any adverse impact on the quality of Stewart Finance
Company's receivables because the primary credit consideration in making GILA
loans is the customer's ability to repay the loan, and not the collateral
available in the event of default. Stewart Finance Company secures its Non-GILA
loans with nonhousehold collateral such as automobiles, boats and other items
which are exempt under Federal Trade Commission rulings.
COMPETITION.
Stewart Finance Company competes with national and regional finance
companies, local finance companies in the communities that it serves and, to a
lesser extent, with commercial banks. Stewart Finance Company believes that
customer service is the primary factor that differentiates finance companies,
since most competing finance companies, including Stewart Finance Company,
charge the same rate of interest and fees as permitted by the applicable state
regulatory authorities. Stewart Finance Company believes it has been able to
compete effectively with other lenders in its market area through superior
customer service.
LEGAL PROCEEDINGS.
There are no pending legal proceedings to which Stewart Finance Company is
a party or to which the property of Stewart Finance Company is subject which
management believes would have a material effect upon the operations or
financial condition of Stewart Finance Company. Except for Stewart Finance
Company's belief that some purchasers of its securities may have rescission
claims, no information has been received with respect to any claim that might
constitute a basis for any such material litigation.
EMPLOYEES.
As of June 30, 1999, Stewart Finance Company employed 157 full-time
persons, including 23 in managerial functions, 15 in corporate headquarters
functions and 107 in branch operations. The employees of Stewart Finance Company
include three executive officers, one senior supervisor, six supervisors, a
corporate headquarters manager, the corporate headquarters administrative staff,
along with office managers, assistant managers and cashiers at each branch
location.
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<PAGE> 30
FACILITIES.
Stewart Finance Company's corporate headquarters are located in four
office buildings in Union Point, Georgia, which are owned by Stewart Finance
Company and contain approximately 50,000 aggregate square feet of capacity.
Stewart Finance Company leases office space for all of the other branches.
Stewart Finance Company believes that its facilities are adequate for its
current operations.
EFFECT OF RESCISSION OFFER.
The effect of the rescission offer on our business operations will depend
upon the level of acceptance by rescission offerees. Please refer to a more
detailed discussion of the effect the rescission offer may have on our business
operations and financial condition at various levels of acceptance under the
caption "Plan for Payment of Security Holders Accepting the Rescission Offer"
contained within the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
Except for the payment of dividends on its preferred stock, Stewart
Finance Company currently anticipates that all of its earnings will be retained
for the future development, operation and expansion of Stewart Finance Company's
business and does not anticipate paying any cash dividends on its equity in the
foreseeable future except with respect to the preferred stock. Any determination
to pay dividends in the future, including payment of dividends to the holders
shares of preferred stock, will be at the discretion of Stewart Finance
Company's board of directors and will depend upon Stewart Finance Company's
results of operations, financial condition and other factors deemed relevant by
the board of directors.
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<PAGE> 31
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES.
The following individuals are the directors, executive officers and other
key personnel of Stewart Finance Company:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
John B. Stewart, Jr. 49 Director, President and Treasurer
Jeffery L. Smith 44 Vice President
Janice M. Wallace 34 Secretary
Frederick Boutwell 34 Director of Operations
</TABLE>
John B. Stewart, Jr. Mr. Stewart is the founder of Stewart Finance Company
and has been Stewart Finance Company's President, Treasurer and a director since
Stewart Finance Company's inception in 1984. Mr. Stewart is also the sole
shareholder of Stewart Holdings. In addition to his duties with Stewart Finance
Company, Mr. Stewart is currently serving a fourth term as the Mayor of the City
of Union Point, Georgia. Mr. Stewart received his bachelor's degree in Finance
from the University of Georgia.
Jeffery L. Smith. Mr. Smith has served as the Vice President of Stewart
Finance Company since April 1993. As Vice President, Mr. Smith is responsible
for general operations of Stewart Finance Company's business, with particular
emphasis on the Union Point corporate headquarters office. Mr. Smith is
responsible for general supervision of Stewart Finance Company's programs. Prior
to being employed by Stewart Finance Company, Mr. Smith was, from 1977 to 1993,
employed by the Central and Southern Bank of Greensboro where he served as a
Senior Vice President from 1988 to 1993. Mr. Smith received his Bachelor of
Business Administration in accounting from the University of Georgia in 1977.
Janice M. Wallace. Ms. Wallace has served as the Secretary of Stewart
Finance Company since 1992 and has been employed by Stewart Finance Company
since 1988. Ms. Wallace graduated from Greene-Taliaferro High School.
Frederick Boutwell. Mr. Boutwell has served as the Director of Operations
for Stewart Finance Company since June 1996. Mr. Boutwell is responsible for the
overall office operations of Stewart Finance Company. Prior to being employed by
Stewart Finance Company, Mr. Boutwell was, from 1991 to 1996, employed by The
Money Tree as a regional supervisor. Mr. Boutwell graduated from Central of
Thomas County High School.
The directors of Stewart Finance Company are elected annually and serve a
term of one year which expires at the annual meeting of shareholders following
their election, or at the earlier of their resignation, removal from office or
death. Officers of Stewart Finance Company are appointed annually by the board
of directors and serve one year terms, or until their earlier resignation,
removal from office or death.
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<PAGE> 32
EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation for services
rendered to Stewart Finance Company in all capacities paid or accrued for the
fiscal years ended December 31, 1998, 1997 and 1996. No executive officer of
Stewart Finance Company received aggregate cash and cash equivalent forms of
compensation in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME ALL OTHER
CAPACITY SALARY YEAR BONUS COMPENSATION
-------- ------ ---- ----- ------------
<S> <C> <C> <C> <C> <C>
John B. Stewart, Jr. President, Director $60,000 1998 N/A $ 27,000
$60,000 1997 N/A 27,000
$60,000 1996 N/A 27,000
</TABLE>
INDEMNIFICATION.
Stewart Finance Company has, pursuant to the authority granted under
Georgia law, agreed to indemnify any officer or director of Stewart Finance
Company against any expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually or reasonably incurred by him in any action,
suit or proceeding brought or threatened to be brought against him by reason of
the fact that he is or was an officer or director of Stewart Finance Company if
he acted in a manner he reasonably believed to be in or not opposed to the best
interests of Stewart Finance Company, and with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Stewart Finance Company pursuant to the foregoing provisions, or otherwise,
Stewart Finance Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
PROFIT SHARING 401(K) PLAN.
Stewart Finance Company has established a Profit Sharing 401(k) Plan,
which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code
("Code"), pursuant to which all employees of Stewart Finance Company may elect
to have Stewart Finance Company make certain salary reduction contributions on
their behalf. Subject to certain annual limitations imposed by the Code ($10,000
per participant in 1999), an employee may elect to contribute up to 15% of his
or her total compensation to the plan on a pre-tax basis. Each participant in
the 401(k) Plan is fully vested in his or her salary reduction contributions
account. In addition, at the end of each "plan year", Stewart Finance Company
may make a discretionary matching contribution with respect to the first 4% of
each participant's salary reduction contribution for the relevant plan year in
an amount that is equal to a specified percentage of the participant's
contributions as determined by the board of directors. Each participant becomes
vested ratably in Stewart Finance Company's contributions on behalf of the
participant at the rate of 20% after two years of service with Stewart Finance
Company and an additional 20% for each subsequent year of service, becoming
fully vested after six years of service.
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<PAGE> 33
PRINCIPAL SHAREHOLDERS
The table below presents information regarding the beneficial ownership of
all shares of common stock of Stewart Finance Company as of December 31, 1998
by:
(i) each person who owns beneficially more than five percent of the
outstanding shares of common stock;
(ii) each director of Stewart Finance Company;
(iii) each named executive officer; and
(iv) all directors and officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ------ -------
<S> <C> <C>
John B. Stewart, Jr. (director, executive officer).......................... 10,000 100%
All directors and officers as a group....................................... 10,000 100%
</TABLE>
The business address of Mr. Stewart is the same as the address of Stewart
Finance Company's principal executive offices.
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<PAGE> 34
CERTAIN TRANSACTIONS
As of June 30, 1999, Stewart Finance Company had the following loan
transactions with parties that are related to Stewart Finance Company.
- During 1996 and 1997, Stewart Finance Company acquired a portfolio of
marketable securities at the direction of John B. Stewart, Jr. At the request of
Stewart Finance Company's lenders, the portfolio was transferred from Stewart
Finance Company into Mr. Stewart's individual name. Stewart Finance Company
accounted for this transfer as an advance to Mr. Stewart in the amount of
$1,363,087, which was the market value of the securities in the portfolio when
they were transferred to Mr. Stewart. The advance was unsecured, non-interest
bearing, had no stated maturity and was not represented by a written instrument.
On or about June 15, 1999, Mr. Stewart repaid the advance in full and loaned
Stewart Finance Company an additional $246,866. The loan is unsecured,
non-interest bearing, has no stated maturity and is not represented by a written
instrument. Mr. Stewart obtained the proceeds to repay the advance and to make
the loan to Stewart Finance Company by personally borrowing money from
individuals pursuant to written promissory notes. Mr. Stewart is obligated to
repay the principal balance of such notes, together with interest at 9% per
annum, on demand at the request of the holder of such notes.
- On December 15, 1989, Stewart Finance Company issued to John B.
Stewart, Jr., a senior demand note in the aggregate principal amount of
$26,887.00. As of December 31, 1998, the outstanding principal balance of
this note was $72,297.48. Interest on this senior note is payable monthly at a
rate of 9% per annum and the outstanding principal balance of the note is
repayable on demand at the request of Mr. Stewart. As of June 30, 1999, the
outstanding principal balance of this note was $502.27.
- On July 18, 1995, Stewart Finance Company issued to Stewart Insurance,
Ltd., an insurance company owned entirely by John B. Stewart, Jr., domiciled in
the Turks and Caicos Islands, a senior demand note in the aggregate principal
amount of $50,667.04. As of June 30, 1999, the outstanding principal balance of
this note was $106,438.88. Interest on this senior note is payable monthly at a
rate of 7% per annum and the outstanding principal balance of the note is
repayable on demand at the request of Stewart Insurance, Ltd.
- On February 26, 1999, Stewart Finance Company issued to J&J
Reinsurance, Ltd., an insurance company owned by John B. Stewart, Jr., domiciled
in the Turks and Caicas Islands, a senior demand note in the aggregate principal
amount of $23,126.24. As of June 30, 1999, the outstanding principal balance of
this note was $79,550.12. Interest on this senior note is payable monthly at a
rate of 8% per annum and the outstanding principal balance of the note is
repayable on demand at the request of J&J Reinsurance, Ltd.
- Stewart Finance Company has a loan outstanding in the aggregate
principal amount of $137,573.82 that was made on July 12, 1999 to Richard
Stewart, who is the brother of John B. Stewart, Jr. The loan is amortized in
equal monthly installments of principal and interest over its term, which
matures on July 1, 2004. The loan bears interest at an annual percentage rate of
12%.
Stewart Finance Company is subject to various conflicts of interest in its
relationship with Mr. Stewart and his other business enterprises. The following
relationships between Stewart Finance Company and related parties may involve
actual or potential conflicts of interest.
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<PAGE> 35
- Stewart Finance Company provides cash advances and accounting
services to Stewart Finance Company of Louisiana, Inc., Stewart Finance Company
of Missouri, Inc. and Stewart Finance Company of Illinois, Inc., each of which
is a wholly owned subsidiary of Stewart Holdings. As of June 30, 1999, Stewart
Finance Company was owed $8,385,137 for advances and services provided to these
affiliates. Stewart Finance Company earns no return on funds advanced or
services rendered to these affiliates, the advances and services are not made
pursuant to written instruments and there is no schedule established for
repayment of the advances or payment for the services. At December 31, 1998,
Stewart Finance Company and each of the affiliates identified above was wholly
owned by John B. Stewart, Jr.
- Voyager Insurance Company has a risk sharing agreement with Stewart
Insurance, Ltd., an insurance company owned entirely by Mr. Stewart and
domiciled in the Turks and Caicos Islands. Under this agreement, Stewart
Insurance, Ltd. bears a portion of the risk of loss associated with insurance
placed by Stewart Finance Company with Voyager Insurance Company, Inc. on a
retrospective plan under which Stewart Insurance, Ltd. receives as profit a
portion of the insurance commissions paid to Voyager Insurance Company
determined on the basis of its loss experience. Stewart Finance Company has no
interest in the earnings, profits or losses of Stewart Insurance, Ltd. In 1998,
Stewart Insurance, Ltd. earned $160,188 in net income from its arrangement with
Voyager Insurance Company, Inc.
- John B. Stewart, Jr. is the sole shareholder of Preferred Choice Auto
Club, Inc., which provides payment or reimbursement of certain automobile
emergency related expenses such as towing charges and roadside repair. Stewart
Finance Company offers memberships in the Auto Club as a service to its
customers and receives a commission for membership sales. In 1998, Stewart
Finance Company earned $1,110,173 in commissions on sales of memberships in the
Auto Club.
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<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
GENERAL.
Stewart Finance Company's authorized capital stock consists of 1,000,000
shares of common stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.001 per share. As of the date of this prospectus,
Stewart Finance Company has 10,000 shares of common stock outstanding and 33,475
shares of preferred stock outstanding. The following summary description of
Stewart Finance Company's capital stock does not purport to be complete and is
qualified in its entirety by reference to Stewart Finance Company's articles of
incorporation, which are filed as an exhibit to the registration statement of
which this Prospectus forms a part, and Georgia law.
COMMON STOCK.
As of the date of this prospectus, there are 10,000 shares of Stewart
Finance Company's common stock issued and outstanding, all of which are owned by
Stewart Holdings. Holders of common stock have one vote per share on all matters
submitted to a vote of the shareholders of Stewart Finance Company, including
with respect to the election of directors. Stewart Finance Company's common
stock is not traded in an established public trading market.
Subject to the preferences that may be applicable to outstanding preferred
stock, holders of common stock are entitled to receive ratably such dividends as
may be declared by the board of directors of Stewart Finance Company out of
funds legally available therefor. In the event of a liquidation, dissolution or
winding up of Stewart Finance Company, holders of the common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any then outstanding preferred stock. The common
stock has no preemptive or conversion rights or other subscription rights. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK.
Stewart Finance Company's articles of incorporation authorize its board of
directors to issue up to 10,000,000 shares of preferred stock in one or more
series and to establish such designations and relative voting, dividend,
liquidation, conversion, redemption, liquidation and other rights, preferences
and limitations as the board of directors may determine without any further
approval of the shareholders of Stewart Finance Company. As of the date of this
prospectus, Stewart Finance Company's articles of incorporation authorize the
issuance of 50,000 shares of Series A preferred stock, par value $0.001 per
share. The following summary sets forth the material terms and provisions of the
preferred shares, and is qualified in its entirety by reference to the terms and
provisions of Stewart Finance Company's articles of incorporation.
SERIES A PREFERRED STOCK.
Ranking. Any proceeds to which the holders of preferred shares are
entitled upon the liquidation dissolution and winding-up of Stewart Finance
Company are distributed to holders of preferred shares pro rata, based on the
original issue price of such shares, prior to any distributions to the holders
of shares of common stock.
Dividends and distributions. Holders of preferred shares are entitled to
receive ratably such dividends as may be declared by the board of directors out
of funds legally available therefor prior to and in preference over any
dividends paid to the holders of shares of common stock. The dividend rate on
the preferred shares is 11% per annum based on the original issue price of such
shares. Dividends on the preferred shares are payable monthly and are
cumulative.
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<PAGE> 37
Voting. Holders of preferred shares have no voting rights.
Conversion. The preferred shares are not convertible into any other
security of Stewart Finance Company.
Liquidation. In the event of a liquidation, dissolution or winding up of
Stewart Finance Company, holders of preferred shares are entitled to receive a
liquidation preference equal to $100 per share (subject to an appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus an amount equal to all
declared and unpaid dividends thereon, prior to the making of any payments to
the holders of shares of common stock. If upon liquidation, dissolution or
winding up of Stewart Finance Company, the liquidation preferences with respect
to the preferred shares are not paid in full, the holders of the preferred
shares will share ratably in any distribution of the assets of Stewart Finance
Company in proportion to the preferential amounts to which they are entitled.
Redemption by Stewart Finance Company. Stewart Finance Company, to the
extent that it may lawfully do so, is contractually obligated to redeem all
outstanding preferred shares on the fourth anniversary of the issuance of such
shares, and additionally, will have the right to redeem any preferred shares at
any time and from time to time prior to such fourth anniversary without penalty
or premium, by giving notice to the holder of such shares appearing on the books
of Stewart Finance Company, with such notice specifying the terms (including the
location, price and date) of such redemption.
Transfer. The preferred shares may not be transferred without the consent
of Stewart Finance Company, except pursuant to (i) a bona fide gift or other
transfer to or for the benefit of the spouse or direct lineal descendants of the
holder, or (ii) a pledge as security for a bona fide indebtedness of the holder.
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<PAGE> 38
DESCRIPTION OF SUBORDINATED DEBENTURES
GENERAL.
The subordinated debentures of Stewart Finance Company are issued in
registered form without coupons. The debentures are issued in series, although
each series of debentures differs from any other series only as to the interest
rate and maturity of the debentures in that series. Stewart Finance Company may
change the interest rate and/or the maturity of any series of debentures that it
offers, but no such change affects the terms of any debenture of any series
issued prior to the date of change. The debentures are direct obligations of
Stewart Finance Company, but are not secured. Principal and interest is payable
at the executive offices of Stewart Finance Company in Union Point, Georgia. The
debentures are sold only to residents of the State of Georgia and are governed
by Georgia law.
The original form of debenture utilized by Stewart Finance Company prior
to April 1, 1998 differs as to some of its terms and conditions from the form of
debenture currently utilized by Stewart Finance Company. Both forms of
debentures are filed as exhibits to the registration statement of which this
prospectus forms a part. We refer you to these exhibits for a detailed
description of the provisions of the debentures. We also have summarized below
the material terms, as well as the material differences, of the original form of
debenture and the form of debenture presently used by Stewart Finance Company.
INTEREST.
An annual rate of interest for each debenture is set by Stewart Finance
Company as of the date the debenture is issued and such interest rate remains
fixed through the maturity date of the debenture. Under the original form of
debenture, the interest rate may be changed by Stewart Finance Company in the
event the maturity of the debenture is extended (as described below). Interest
on the principal balance of a debenture is calculated on a simple interest basis
and is payable monthly.
MATURITY.
The debentures are issued and dated as of the date purchased. The maturity
of the debentures is fixed as of the date of issue and ranges between three,
six, twelve, eighteen, twenty-four and forty-eight months. The maturity of the
current form of debenture cannot be extended. The maturity of the original form
of debenture is automatically extended at maturity for an additional period of
time equal to the original term of the debenture unless:
- the holder submits the debenture for redemption within 15 days
after its maturity; or
- Stewart Finance Company tenders the amount due the holder within 15
days after maturity.
In the event the maturity of a debenture is extended, all other provisions
of the debenture remain unchanged except the interest rate, which may be changed
for the new term by Stewart Finance Company at its discretion. If Stewart
Finance Company elects to extend the maturity of the debenture by not tendering
payment, it notifies the holder of such debenture of its intention to extend the
maturity of the debenture at least 30 days prior to the maturity date, thereby
giving such holder the opportunity to request redemption.
SUBORDINATION.
The payment of the principal amount of the debentures, as well as any
accrued but unpaid interest on such debentures, is subordinate in right of
payment to all senior indebtedness of Stewart Finance Company. In other words,
if any of the following events occur, the indebtedness evidenced by the
debentures is entitled to payment only after all principal and interest on
senior indebtedness has been paid in full:
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<PAGE> 39
- a dissolution or winding-up of Stewart Finance Company (other than
by a merger, consolidation or share exchange);
- a voluntary or involuntary liquidation or reorganization of Stewart
Finance Company;
- the initiation of a voluntary or involuntary bankruptcy, insolvency
or receivership proceeding;
- an assignment for the benefit of creditors of Stewart Finance
Company;
- any other marshaling of the assets of Stewart Finance Company; or
- any default in the payment of senior indebtedness if Stewart Finance
Company has notice of such default.
The term "senior indebtedness" means all indebtedness of Stewart Finance
Company outstanding at any time except indebtedness that by its terms is not
senior in right of payment to the debentures. The amount of Stewart Finance
Company's senior indebtedness outstanding at June 30, 1999 was $8,771,824.
REDEMPTION BY STEWART FINANCE COMPANY PRIOR TO MATURITY.
Stewart Finance Company may redeem the debentures at any time prior to
maturity for a redemption price equal to principal amount of such debenture,
plus all accrued but unpaid interest on such debenture as of the date of
redemption. If Stewart Finance Company elects to redeem debentures held by
holders of the original form of debenture, it must notify such debenture holders
of its intention to redeem their debentures not less than 30 nor more than 60
days prior to the date fixed for redemption. If Stewart Finance Company elects
to redeem debentures held by holders of the current form of debenture, it must
notify such debenture holders of its intention to redeem their debentures within
a reasonable period of time prior to the date fixed for redemption.
REDEMPTION AT REQUEST OF HOLDER PRIOR TO MATURITY.
Although not a written term of any debenture, Stewart Finance Company has
maintained a policy of redeeming any debenture at the request of the holder of
such debenture for a redemption price equal to the principal amount of such
debenture, plus any accrued but unpaid interest on to the date of redemption.
Stewart Finance Company presently intends to continue this informal policy, but
has no obligation to do so. Stewart Finance Company may terminate this policy at
any time.
ABSENCE OF RESTRICTIONS UPON STEWART FINANCE COMPANY.
There are no restrictions against the issuance of additional securities or
the incurring of additional debt.
ABSENCE OF TRUSTEE.
There is no trustee for the debentures. The owners of the debentures must
therefore individually or collectively protect their own interests in the event
of a default in the obligations of Stewart Finance Company respecting the
debentures. Georgia law generally provides that in the absence of an agreement
to the contrary, the holder of a promissory note has the right to receive
payments on the note as they become due and, upon default, to demand payment.
EVENTS OF DEFAULT.
Any of the following events constitute an "event of default" under a
debenture issued under the original form of debenture:
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<PAGE> 40
- failure to repay the principal amount of any debenture when it
becomes due;
- failure to pay interest upon any debenture when it becomes due and
the default continues for 30 days;
- failure, after notice from the holders of at least 25% in principal
amount of the debentures, to observe or perform within 60 days any
of the covenants contained in the debentures; or
- the filing by or against Stewart Finance Company of a bankruptcy or
insolvency proceeding that remains unstayed and in effect for a
period of 60 days.
The following events constitute an event of default under a debenture
issued under the current form of debenture:
- the failure of Stewart Finance Company to pay principal or interest
on any Debenture when it becomes due; or
- Stewart Finance Company:
(i) applying for or consenting to the appointment of, or a taking
of possession by, a receiver, custodian, trustee or liquidator
for Stewart Finance Company or any of its property,
(ii) becoming generally unable to pay its debts as they become due,
(iii) becoming insolvent or making a general assignment for the
benefit of its creditors, or
(iv) filing or being served with any petition for relief under the
federal Bankruptcy Code or any similar federal or state
statute.
RIGHTS ON DEFAULT.
With respect to debentures issued under the original form of debenture,
the holders of debentures representing at least 25% of the aggregate principal
amount of all such debentures may declare the aggregate principal amount of all
such debentures, together with any accrued but unpaid interest, immediately due
and payable upon the occurrence of any event of default under the debentures.
The holders of debentures representing a majority of the aggregate principal
amount of all such debentures, however, may waive any event of default.
Notwithstanding such rights, any holder of such a debenture may enforce his or
her right to payment of the principal amount of, and any accrued but unpaid
interest on, his or her debenture when due. With respect to debentures issued
under the current form of debenture, any holder of a debenture may declare the
principal amount of, and any accrued but unpaid interest on, his or her
debentures immediately due and payable upon the happening of any of the events
of default under such debentures.
TRANSFER.
Debentures issued under the current form of debenture are not transferable
except pursuant to (i) a bona fide gift or other transfer to or for the benefit
of the spouse or direct lineal descendants of the holder, or (ii) a pledge as
security for a bona fide indebtedness of the holder. Debentures issued under the
original form of debenture are transferable only at the principal executive
office of Stewart Finance Company by the registered owner of such debenture for
a like principal amount to a transferee who is a resident of Georgia.
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DESCRIPTION OF SENIOR DEMAND NOTES
GENERAL.
The senior demand notes of Stewart Finance Company are sold for any amount
not less than $1, dated the date of purchase, and are non-negotiable. The
principal amount of, and the interest rate applicable to, a senior note is
recorded only on the books and records of Stewart Finance Company and does not
appear on the face of the instrument. Senior notes issued on or prior to
February 19, 1998 pay a fixed rate of interest, while senior notes issued after
February 19, 1998 pay interest at a variable rate. The senior notes are sold
only to residents of the State of Georgia.
INTEREST.
The interest rate payable on variable rate senior notes is equal to the
"prime rate" announced from time to time in the Tuesday edition of the Wall
Street Journal. When a variable rate senior note is issued, the initial rate of
interest on such note is the prime rate announced in the Tuesday edition of the
Wall Street Journal immediately preceding the date the senior note is issued.
The interest rate applicable to such variable rate senior note is then reset
each Tuesday following the date it is issued to equal the prime rate announced
in that Tuesday's edition of the Wall Street Journal. The interest rate being
paid at any time on variable rate senior notes may be obtained from Stewart
Finance Company's executive office in Union Point, Georgia. The interest rate
payable on fixed rate senior notes is fixed by Stewart Finance Company as of the
date such senior notes are issued. Interest payable on the outstanding principal
balance of any senior note is calculated on a simple interest basis and is
payable monthly.
CHANGES IN THE PRINCIPAL BALANCE OF SENIOR NOTES.
A senior note is redeemable in full on demand by its holder for the
outstanding balance of such senior note plus any accrued but unpaid interest at
the time of redemption. A senior note also is redeemable in part by its holder
to the extent the holder of such note requests a cash payment from Stewart
Finance Company that is less than the outstanding principal balance of the
holder's senior note. Likewise, the holder of a senior note may increase the
principal balance of an outstanding senior note by making an additional payment
to Stewart Finance Company. When Stewart Finance Company makes a payment to a
senior note holder in partial redemption of a senior note or accepts additional
funds from a senior note holder to increases the amount of an outstanding senior
note, it records the change on its books and records, but it does not issue a
new senior note reflecting the reduced or increased principal balance of such
note. All redemptions (full or partial) and increases in the amount of
outstanding senior notes must be made either in person or by mail at Stewart
Finance Company's executive office. Stewart Finance Company can call the senior
notes individually or as a whole for redemption at any time at a price equal to
the principal amount of such senior note plus any accrued but unpaid interest at
the time of redemption.
ABSENCE OF TRUSTEE.
There is no trustee for the senior notes. The owners of the senior notes
must therefore individually or collectively protect their own interests in the
event of a default in the obligations of Stewart Finance Company with respect to
the senior notes. Georgia law generally provides that in the absence of an
agreement to the contrary, the holder of a promissory note has the right to
receive payments on the note as they become due and, upon default, to demand
payment.
PRIORITY.
The senior notes are equal in terms of priority to all other
unsubordinated unsecured obligations of Stewart Finance Company, but are junior
to Stewart Finance Company's obligations under the Finova and Community
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<PAGE> 42
Bank and Trust credit facilities. Stewart Finance Company may at any time borrow
money from a lending institution on a secured basis which would be senior in
terms of priority to the senior notes to the extent of the security interest in
the assets pledged.
TRANSFER.
Senior notes are transferable only at the principal office of Stewart
Finance Company by their registered owner for a like principal amount to a
transferee who is a resident of Georgia
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DESCRIPTION OF FINOVA CREDIT FACILITY
On December 21, 1994, Stewart Finance Company entered into a $6.5 million
revolving credit facility with Finova Capital Corporation. Since then, the
credit facility has been amended and restated several times, most recently on
January 29, 1999 to add Stewart Holdings and each of the Louisiana, Missouri and
Illinois subsidiaries as parties. When we refer in this section of the
prospectus to Stewart Finance Company, Stewart Holdings and the Louisiana,
Missouri and Illinois subsidiaries collectively, we refer them as the
"Borrowers." The following summary description of the credit facility is
qualified in its entirety by reference to the original agreement, as amended, a
copy of which is filed as an exhibit to the registration statement of which this
prospectus forms a part.
SECURITY.
Indebtedness of Stewart Finance Company under the credit facility is
secured by a first priority security interest in substantially all of the
personal property (including, but not limited to, accounts receivable, chattel
paper, instruments, contract rights, general intangibles and proceeds of such
assets) of the Borrowers, whether now owned or subsequently acquired.
Additionally, all of the obligations of Stewart Finance Company under the credit
facility are personally guaranteed by John B. Stewart, Jr.
INTEREST.
Indebtedness under the credit facility bears interest at a floating rate
equal to the "prime" rate publicly announced by Citibank, N.A., New York, New
York, plus 3.0% per annum. Stewart Finance Company pays interest on a monthly
basis under the terms of the credit facility.
BORROWING BASE AND ELIGIBLE RECEIVABLES.
Advances under the credit facility are limited to 65% of eligible
receivables (as defined in the credit facility), including loans, extensions of
credit, and rights to payment of Borrower. In order to qualify as an eligible
receivable, a loan must satisfy, among other conditions, certain maximum amount
limitations ($5,000), term limitation (24 months), and delinquency limitations
(90 days).
MATURITY.
Advances made under the credit facility may be borrowed, repaid and
reborrowed from time to time until January 31, 2002, subject to the satisfaction
of conditions on the date of any such borrowing.
CONDITIONS TO EXTENSIONS OF CREDIT.
The obligation of Finova to make advances under the credit facility is
subject to the satisfaction of customary conditions, including, but not limited
to:
- the absence of a default or event of default under the credit
facility;
- all representations and warranties under the credit facility being
true and correct in all material respects; and
- the absence of any material adverse change.
42
<PAGE> 44
COVENANTS.
Stewart Finance Company has agreed to customary negative covenants in
connection with the credit facility, including, without limitation, restrictions
on:
- the incurrence of debt;
- the sale of assets;
- mergers, acquisitions and other business combinations;
- distributions;
- repurchase or redemption of securities; and
- amendments of Stewart Finance Company's articles of incorporation
and bylaws.
The credit facility also contains various financial covenants, including
requirements to maintain certain minimum levels of net worth and net income and
a maximum limitation on Stewart Finance Company's leverage ratio. This
rescission offering, to the extent that it is accepted, is technically a breach
of the covenant against redemptions of Stewart Finance Company's securities.
Stewart Finance Company has discussed its intent to undertake this rescission
offer with Finova, however, and has received its verbal approval to proceed with
the offering. Notwithstanding Finova's verbal approval, Stewart Finance Company
has assumed full repayment of the credit facility in planning for the funding of
the rescission offering.
EVENTS OF DEFAULT.
The credit facility contains certain customary events of default,
including, without limitation:
- the non-payment of principal or interest when due, subject to the
applicable grace periods in certain circumstances;
- non-fulfillment of the covenants described above;
- any impairment of the validity, enforceability or priority of
Finova's security interest;
- events of bankruptcy or insolvency; and
- material judgments.
If any event of default occurs, Finova will be entitled to take all
actions permitted to be taken by a secured creditor under the Uniform Commercial
Code and to accelerate all amounts due under the credit facility.
43
<PAGE> 45
DESCRIPTION OF COMMUNITY BANK AND TRUST CREDIT FACILITY
On May 19, 1999, Stewart Finance Company entered into a $1.5 million
revolving credit facility with Community Bank & Trust, Cornelia, Georgia. The
following summary description of the credit facility is qualified in its
entirety by reference to the original agreement, as amended, a copy of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part.
SECURITY.
Indebtedness of Stewart Finance Company under the credit facility is
secured by a pledge of 100% of the outstanding common stock of Stewart Finance
Company and a $1,500,000 insurance policy on the life of John B. Stewart, Jr.
Additionally, all of the obligations of Stewart Finance Company under the credit
facility are personally guaranteed by John B. Stewart, Jr.
INTEREST.
Indebtedness under the credit facility bears interest at a floating rate
equal to the "prime" rate published daily in the Wall Street Journal plus 2.0%
per annum. Although the credit facility requires Stewart Finance Company to pay
the accrued interest only upon maturity of the credit facility, Stewart Finance
Company consistently has paid such interest monthly.
BORROWING BASE.
Advances under the credit facility are made at the request of Stewart
Finance Company upon approval of Community Bank & Trust.
MATURITY.
All advances made pursuant to the credit facility mature on May 18, 2000.
CONDITIONS TO EXTENSIONS OF CREDIT.
The obligation of Community Bank & Trust to make advances under the credit
facility are subject to the satisfaction of customary conditions, including, but
not limited to:
- the absence of a default under the credit facility;
- all representations and warranties under the credit facility
remaining true and correct in all material respects; and
- the absence of any material adverse change.
EVENTS OF DEFAULT
The credit facility contains customary events of default, including,
without limitation:
- the non-payment of principal or interest when due, subject to any
applicable grace periods;
- the non-fulfillment of the covenants described above;
- any impairment of the validity, enforceability or priority of
Community Bank & Trust's security interest;
44
<PAGE> 46
- events of bankruptcy or insolvency; and
- material judgments.
If any event of default occurs, Community Bank & Trust will be entitled to
take all actions permitted to be taken by a secured creditor under the Uniform
Commercial Code and to accelerate the amounts due under the credit facility.
Community Bank & Trust also will be entitled to reasonable attorneys' fees and
costs incurred in enforcing such rights.
45
<PAGE> 47
LEGAL MATTERS
Some of the legal matters implicated by the rescission offer will be
passed upon for Stewart Finance Company by Holland & Knight LLP, Atlanta,
Georgia.
EXPERTS
The financial statements of Stewart Finance Company as of December 31,
1998, and for each of the two years in the period ended December 31, 1998,
appearing in this prospectus and in the registration statement, have been
audited by Pechter & Associates, P.C., independent certified public accountants,
as stated in their report appearing elsewhere in this prospectus, and are
included in reliance upon such report of such firm given upon their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
Stewart Finance Company has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 under the Securities Act of
1933 with respect to the offered securities. This prospectus, which constitutes
a part of the registration statement, does not contain all the information set
forth in the registration statement and the exhibits and schedules to such
registration statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to Stewart Finance Company and the offered securities, reference is made
to the registration statement and to the exhibits and schedules filed as part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the registration statement. Each
such statement is qualified in all respects by such reference to such exhibit.
Copies of the registration statement and the exhibits and schedules to the
registration statement may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024. Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or
any part thereto may be obtained from such office upon payment of prescribed
fees. The Registration Statement, including the exhibits and schedules thereto,
is also available on the Commission's Web site at http://www.sec.gov.
Stewart Finance Company intends to furnish its shareholders with annual
reports containing audited financial statements examined by its independent
auditors and quarterly reports for the first three quarters of each year
containing interim unaudited financial information.
46
<PAGE> 48
STEWART FINANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants............................................................. F-2
Balance Sheet as of December 31, 1998 and June 30, 1999 (unaudited) ........................................... F-3
Statements of Income for the years ended December 31, 1997 and 1998 and for the six months
ended June 30, Income 1998 and 1999 (unaudited)................................................................ F-5
Statements of Stockholders' Deficit for the years ended December 31, 1997 and 1998 and for the
six months ended June 30, 1999 (unaudited)..................................................................... F-6
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and for the six months ended
June 30, 1998 and 1999 (unaudited)............................................................................. F-7
Notes to Financial Statements.................................................................................. F-9
</TABLE>
F-1
<PAGE> 49
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Stewart Finance Company
Union Point, Georgia
We have audited the accompanying balance sheet of Stewart Finance Company as of
December 31, 1998, and the related statements of income, stockholders' deficit
and cash flows for the each of the years in the two year period ended December
31, 1998. These financial statements are the responsibility of the Company's
management, our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stewart Finance Company as of
December 31, 1998, and the results of operations and its cash flows for each of
the years in the two-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
Atlanta, Georgia Pechter & Associates, P.C.
March 8, 1999, except as to Note 1
which is as of August 11, 1999
F-2
<PAGE> 50
STEWART FINANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,595,486 $ 2,317,775
Certificates of deposit 1,195,967 955,808
Trading investments 446,073 590,969
Finance receivables, net 8,278,921 8,872,223
Prepaid expenses 91,050 120,603
Loans to related parties 1,363,087 --
Note receivable 46,800 46,800
Due from affiliated companies 6,635,140 8,385,137
Refundable income taxes 142,818 265,726
Other current assets 150,739 137,574
------------ ------------
TOTAL CURRENT ASSETS 21,946,081 21,692,615
------------ ------------
PROPERTY AND EQUIPMENT
Buildings 378,100 747,028
Furniture, fixtures and equipment 2,005,421 2,334,081
Leasehold improvements 809,700 869,562
Vehicles 470,323 493,645
Construction in process 308,928 --
------------ ------------
3,972,472 4,444,316
Accumulated depreciation (1,023,858) (1,227,790)
------------ ------------
2,948,614 3,216,526
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated
amortization 257,737 246,930
Start-up costs, net of
accumulated amortization 1,061,663 --
Deposits and other assets 21,428 23,428
------------ ------------
1,340,828 270,358
------------ ------------
$ 26,235,523 $ 25,179,499
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 51
STEWART FINANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 226,284 $ 192,537
Accrued expenses 717,602 956,423
Credit line payable 1,500,000 1,500,000
Current portion of long-term debt 753,113 750,000
Subordinated debentures 11,863,630 11,625,746
Senior demand notes 576,125 921,824
Margin loan on marketable securities 241,863 279,917
Loans to related parties -- 246,866
Note payable, related party 7,501 7,531
------------ ------------
TOTAL CURRENT LIABILITIES 15,886,118 16,480,844
------------ ------------
LONG-TERM DEBT
Note payable, funding company 6,500,000 6,350,000
Notes payable 753,113 750,000
------------ ------------
7,253,113 7,100,000
Current portion (753,113) (750,000)
------------ ------------
6,500,000 6,350,000
------------ ------------
PREFERRED STOCK 3,347,500 3,374,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000,000
shares authorized, 10,000 shares
issued and outstanding 10,000 10,000
Additional paid-in capital 492,296 492,296
Accumulated deficit (391) (1,528,141)
------------ ------------
501,905 (1,025,845)
------------ ------------
$ 26,235,523 $ 25,179,499
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 52
STEWART FINANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, December 31, June 30, June 30,
1997 1998 1998 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Interest and fee income $ 1,804,126 $ 2,038,401 $ 781,042 $ 1,534,683
Auto club commissions and other operating revenue 1,055,136 1,072,879 498,145 570,156
Insurance commissions 973,119 1,201,067 490,030 660,405
Reimbursement income 867,699 2,476,089 990,125 1,452,004
Recovery of delinquent accounts, net of bad debt 575,549 91,953 275,934 --
Maintenance and delinquent charges 484,539 571,225 252,531 302,2O8
----------- ----------- ----------- -----------
5,760,168 7,451,614 3,287,807 4,519,456
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and administrative 2,497,653 3,400,972 1,612,753 2,026,244
Salaries and wages 1,772,774 2,202,801 998,517 1,352,402
Interest expense 1,564,030 2,085,492 897,252 1,274,322
Charges for uncollectible amounts, net
of recovery -- -- -- 301,093
Depreciation and amortization 263,085 389,394 196,342 214,739
----------- ----------- ----------- -----------
6,097,542 8,078,659 3,704,864 5,168,800
----------- ----------- ----------- -----------
Operating (loss) (337,374) (627,045) (417,057) (649,344)
----------- ----------- ----------- -----------
NONOPERATING INCOME
Income from change in accounting estimates 169,846 -- -- --
Realized gains on marketable securities 68,890 231,116 122,795 73,711
Dividend income 2,267 3,771 3,672 4,700
Unrealized gain (loss) on marketable securities (151,512) 248,949 233,075 (18,062)
(Loss) on sale of property and equipment (8,969) -- -- --
----------- ----------- ----------- -----------
80,522 483,836 359,542 60,349
----------- ----------- ----------- -----------
Net (loss) before provision for income taxes (256,852) (143,209) (57,515) (588,995)
PROVISION FOR INCOME TAXES
Benefit from net operating loss carryforward -- 142,818 -- 122,908
----------- ----------- ----------- -----------
Net (loss) before extraordinary (loss) (256,852) (391) (57,515) (466,087)
EXTRAORDINARY (LOSS)
(Loss) from change in accounting estimates -- -- -- (1,061,663)
----------- ----------- ----------- -----------
Net (loss) $ (256,852) $ (391) $ (57,515) $(1,527,750)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 53
STEWART FINANCE COMPANY
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $10,000 $ 976,315 $ (484,019) $ 502,296
Reclassification of S-Corporation
Retained Earnings 0 (484,019) 484,019 0
Net (loss) 0 0 (391) (391)
------- --------- ----------- -----------
Balance, December 31, 1998 10,000 492,296 (391) 501,905
Net (loss) 0 0 (1,527,750) (1,527,750)
------- --------- ----------- -----------
Balance, June 30, 1999 $10,000 $ 492,296 $(1,528,141) $(1,025,845)
======= ========= =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 54
STEWART FINANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, December 31, June 30, June 30,
1997 1998 1998 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash received on customers loans $ 4,194,236 $ 6,959,913 $ 3,722,374 $ 3,926,154
Cash paid to suppliers and employees (5,070,644) (6,014,501) (3,033,877) (3,731,874)
Dividends received 2,267 3,771 3,672 4,700
Cash paid for investments (21,731,076) (15,369,744) (15,179,384) (5,710,270)
Cash received from sale of investments 20,622,768 16,877,047 16,444,476 5,621,023
Interest paid (1,133,150) (1,828,157) (696,680) (1,035,501)
------------ ------------ ------------ -----------
Net cash provided by (used in)
operating activities (3,115,599) 628,329 1,260,581 (925,768)
------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of certificates of deposit 67,746 (660,967) (609,750) 240,159
Proceeds from sale of property and equipment 22,867 -- -- --
Disbursements for start up costs (150,000) (863,663) -- --
Disbursements for goodwill (90,358) (99,640) (7,497) --
Net payments to affiliated company (2,606,601) (2,644,267) (1,903,473) (1,749,997)
Purchases of property and equipment (787,117) (767,374) (457,398) (471,844)
------------ ------------ ------------ -----------
Net cash (used in) investing activities (3,543,463) (5,035,911) (2,978,118) (1,981,682)
------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts from related parties 142,001 (538,418) 666,189 1,609,983
Proceeds from credit line 18,000,000 18,000,000 18,000,000 9,000,000
Disbursements on credit line (18,000,000) (16,500,000) (18,000,000) (9,000,000)
Proceeds from senior demand notes 1,195,125 1,642,605 667,758 1,709,833
Disbursements on senior demand notes (1,092,905) (1,512,230) (752,315) (1,364,134)
Proceeds from subordinated debentures 5,966,837 6,153,960 3,423,879 1,145,740
Disbursements on subordinated debentures (1,581,895) (5,168,165) (1,146,845) (1,383,624)
Net receipts from margin loans 418,190 (433,652) (675,515) 38,054
Proceeds from issuance of long-term debt 12,512,151 14,429,924 6,029,924 6,650,000
Payments on long-term debt (10,846,662) (13,391,986) (7,274,474) (6,803,113)
Proceeds from issuance of preferred stock -- 3,347,500 -- 27,000
------------ ------------ ------------ -----------
Net cash provided by financing activities 6,712,842 6,029,538 938,601 1,629,739
------------ ------------ ------------ -----------
Net increase (decrease) in cash 53,780 1,621,956 (778,936) (1,277,711)
Cash, beginning of year 1,919,750 1,973,530 1,973,530 3,595,486
------------ ------------ ------------ -----------
Cash, end of year $ 1,973,530 $ 3,595,486 $ 1,194,594 $ 2,317,775
============ ============ ============ ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 55
STEWART FINANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, December 31, June 30, June 30,
1997 1998 1998 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net (loss) $ (256,852) $ (391) $ (57,515) $ (1,527,750)
----------- ----------- ----------- ------------
Non-cash items included in net income:
Change in accounting estimate (169,846) -- -- 1,061,663
Loss on sale of asset 8,969 -- -- --
Realized gains on marketable securities (68,890) (231,116) (122,795) (73,711)
Unrealized gain (loss) on
marketable securities 151,512 (248,949) (233,075) 18,062
Depreciation and amortization 263,085 389,394 196,342 214,739
Changes in assets; (increase) decrease in:
Finance receivables, net (1,575,241) (491,648) 434,567 (593,302)
Prepaid expenses (17,009) (15,659) (102,579) (29,553)
Refundable income taxes -- (142,818) -- (122,908)
Deposits 1,607 (20,874) (17,272) (2,000)
Trading investments (1,108,309) 1,507,303 1,265,092 (89,247)
Other current assets (160,092) 14,168 164,961 13,165
Repossessed assets 9,309 -- -- --
Changes in liabilities; increase (decrease) in:
Due to customer (360,946) (439,054) (439,054) --
Accounts payable (263,776) 50,638 (28,663) (33,747)
Accrued expenses 430,880 257,335 200,572 238,821
----------- ----------- ----------- ------------
Total adjustments (2,858,747) 628,720 1,318,096 601,982
----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities $(3,115,599) $ 628,329 $ 1,260,581 $ (925,768)
=========== =========== =========== ============
</TABLE>
See notes to financial statements.
F-8
<PAGE> 56
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
Stewart Finance Company ("the Company") was formed on October 22, 1984
for the purpose of providing short-term lending services to the general
public, and selling insurance coverages related to the loans. These
loans are generally collateralized by personal property of the
borrower.
The Company operated twenty-one offices located in nineteen Georgia
cities during 1998 and nineteen offices located in seventeen cities
during 1997. During the 1999, the Company operated twenty-two offices
in twenty locations.
Significant accounting policies:
Finance Receivables:
Finance receivables that management has the intent and ability to hold
until payoff or maturity are reported at their outstanding unpaid
balances reduced by any chargeoff or specific valuation accounts and
net of any deferred fees or costs on originated loans, or unamortized
premiums or discounts on purchased loans.
Allowance for loan losses is increased by charges to income and
decreased by chargeoffs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's
past loan experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic
conditions. Consumer loans are charged off when they are 240 days past
due.
F-9
<PAGE> 57
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. MATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES - Continued
Income recognition:
The Company uses the rule of 78's method to recognize interest and the
straight-line method to recognize insurance commissions on loans that
have precomputed charges included in the loan balance. The use of the
effective interest method would not have a material effect on the
income recognized by the Company due to the majority of loans being
short term. The use of the straight line method for insurance
commissions is not materially different from recognizing the revenue in
proportion to the insurance protection provided due to the short term
nature of the loans. The unearned portions of these charges are
combined on the Balance Sheet in Finance Receivables, net and reflected
in Note 3.
The commission income from the sale of auto club memberships is
recognized using the straight line method. The unearned portion of
these charges are combined on the Balance Sheet in Finance Receivables,
net and reflected in Note 3.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Trading investments:
The Company's marketable securities that are bought and held
principally for the purpose of selling them in the near future are
classified as trading investments. Trading investments are recorded at
fair value on the balance sheet in current assets, with the change in
fair value during the period included in earnings. Realized gains are
computed using the average cost method.
F-10
<PAGE> 58
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES - Continued
Credit losses:
Provisions for credit losses are charged to expense in amounts
sufficient to maintain the allowance at a level considered adequate to
cover potential losses as estimated by management.
Loans are written off directly to the provision for credit losses when
deemed uncollectible by management.
Loan origination fees and costs:
Loan origination fees and costs are recognized at the inception of the
loan. Because loan fees are not significant and the majority of loans
have maturities of one year or less, the results on operations are not
materially different than the results which would be obtained by
amortizing these costs over the life of the loan as required by
generally accepted accounting principles.
Goodwill:
Branch office location purchase price allocations in excess of net
tangible assets acquired are recorded as goodwill and amortized on a
straight-line basis over 15 years.
Property and equipment:
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
F-11
<PAGE> 59
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES - Continued
Income taxes:
The Company, with the consent of its stockholder, elected to issue a
secondary class of capital stock during 1998. In accordance with
Internal Revenue Service regulations, the Company will no longer be
treated as an S-Corporation beginning with the year ended December 31,
1998. For the year ended December 31, 1998, the Company had a net
operating loss. The tax benefit resulting from this loss has been
included in these financial statements.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions regarding reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements. Actual results may differ from those estimates. Changes to
estimates are recognized in the year in which the revisions are
determined.
Unaudited Interim Period:
The unaudited interim financial statements for the six month periods
ended June 30, 1998 and 1999 have been prepared on the same basis as
the Company's audited financial statements as of and for the year ended
December 31, 1998. In the opinion of management, all adjustments,
consisting of normal, recurring accruals, necessary to present fairly
the financial position of the Company at June 30, 1998 and 1999, and
the results of operations and cash flows for the six month periods
ended June 30, 1998 and 1999 were properly completed. The results of
operations for the six month period ended June 30, 1999 are not
necessarily indicative of the results expected for the year ended
December 31, 1999.
Note 2. TRADING INVESTMENTS
Trading investments consisted exclusively of common stock at December
31, 1997 and 1998. The market value of these securities were $1,473,311
and $446,073 as compared to the cost
F-12
<PAGE> 60
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 2. TRADING INVESTMENTS - Continued
basis of $1,706,386 and $429,332 at December 31, 1997 and 1998,
respectively. The market value of the securities at June 30,1999 was
$590,969 with a cost basis of $593,156.
At December 31, 1997 and 1998, the Company had borrowed $675,515 and
$241,863, respectively, on a margin account secured by trading
investments. At June 30, 1999, The Company had borrowed $279,917 on a
margin account secured by trading investments.
Note 3. FINANCE RECEIVABLES
Finance receivables consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Gross finance receivables $ 8,596,263 $ 9,197,662 $ 9,779,825
Allowance for credit losses (264,430) (279,784) (283,599)
Unearned interest, auto club income
and insurance premiums (544,559) (638,957) (624,003)
----------- ----------- -----------
Finance receivables, net $ 7,787,274 $ 8,278,921 $ 8,872,223
=========== =========== ===========
</TABLE>
Note 4. RELATED PARTY TRANSACTIONS
Advances to related parties consist of noninterest bearing advances
made to affiliated companies and other related parties. Advances
consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Loans to related parties $ 824,669 $ 1,363,087 $ --
=========== =========== ==========
</TABLE>
F-13
<PAGE> 61
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 4. RELATED PARTY TRANSACTIONS - Continued
Related party receivable balances consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Finance receivables $ 343,500 $197,692 $182,835
========= ======== ========
</TABLE>
Related party payable balances consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Debentures $32,995 $ 14,329 $ 14,329
======= ======== ========
Senior demand notes $ -- $140,816 $206,129
======= ======== ========
Note payable, related party $ 7,501 $ 7,501 $ 7,531
======= ======== ========
Loan from related party $ -- $ -- $246,866
======= ======== ========
</TABLE>
The Company pays rent to its majority stockholder on a month-to-month
basis for its home office location. Total rent paid relating to this
arrangement was $22,315 for the years ended December 31, 1997 and 1998
and $15,391 for the period ended June 30, 1999.
The Company provides funding and accounting services for Stewart
Finance Company of Louisiana, Inc., Stewart Finance Company of
Missouri, Inc. and Stewart Finance Company of Illinois, Inc. The
funding includes funds for operations and loan funding. At December 31,
1997 and 1998 the Company was owed $4,174,970 and $6,635,140,
respectively, for these services and cash advances. At June 30, 1999
the Company was owed $8,385,137. Stewart Finance Company, Stewart
Finance Company of Louisiana, Inc., Stewart Finance Company of
Missouri, Inc. and Stewart Finance Company of Illinois, Inc. are owned
by the majority
F-14
<PAGE> 62
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 4. RELATED PARTY TRANSACTIONS - Continued
shareholder of the company. The amounts due from affiliates are carried
at cost.
Note 5. SENIOR DEMAND NOTES
Senior demand notes are unsecured obligations which are payable on
demand. The interest rate payable on senior demand notes is a variable
rate, adjusted periodically by the Company. The range of interest rates
as of December 31, 1997 and 1998 and as of June 30, 1999 was 7.0% to
10.5%.
Note 6. DEBENTURES
Debentures reflect subordinated debt of the Company and consist of
variable rate debentures which mature at three, six, twelve, eighteen,
twenty-four or forty-eight months after the date of issue. The Company
has the option of redeeming debentures prior to maturity for 100% of
the principal plus any unpaid interest to date of the redemption. The
Company has followed a policy of allowing debenture holders to redeem
their notes at any time. The range of interest rates as of December 31,
1997 and 1998 and as of June 30, 1999 was from 7% to 11%.
Aggregate maturities of debentures are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
1998 $ 846,965 $ -- $ --
1999 2,002,336 943,057 --
2000 4,187,110 2,167,437 1,819,720
2001 3,841,424 4,483,416 3,116,883
2002 -- 4,269,720 4,246,193
2003 -- -- 2,442,950
----------- ----------- -----------
$10,877,835 $11,863,630 $11,625,746
=========== =========== ===========
</TABLE>
F-15
<PAGE> 63
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 7. NOTE PAYABLE, LONG-TERM
Note payable, funding company represents a revolving credit line with a
lender which provides for collateralized working capital borrowings.
Borrowings are based upon an asset formula involving finance
receivables, with maximum borrowings limited to $7,000,000. The
revolving credit line is collateralized by substantially all of the
Company's and its affiliates' assets and a personal guarantee of the
Company's majority shareholder.
Interest on all borrowings is at prime plus 3% through maturity on
January 31, 2001. The credit line is subject to compliance with certain
restrictive covenants related to the Company and its affiliates,
including a leverage ratio and a minimum net income of $1. As of
December 31, 1997 and 1998, the affiliated companies as a whole had net
income in excess of $1.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Revolving credit line to a lender,
monthly interest installments
through January, 2001 at
the prime rate plus 3%. $ 5,425,000 $6,500,000 $6,350,000
Note payable to bank, due in
monthly installments of $2,944
through January, 1999, including
interest at 9.5%, collateralized by
the building at the Union Point,
Georgia location, owned by the
majority stockholder, and the
assignment of a life insurance
policy on the majority stockholder. 36,215 3,113 --
</TABLE>
F-16
<PAGE> 64
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 7. NOTE PAYABLE, LONG-TERM - Continued
<TABLE>
<S> <C> <C> <C>
Note payable to bank, due in
monthly installments of $332,
through September, 1998,
including interest at 7.0% 3,467 -- --
Note payable to bank, due in
monthly installments of $380,
through February, 1998, including
interest at 8.9% collateralized
by an automobile 493 -- --
Note payable to insurance company,
principal due October, 2000,
interest paid quarterly at prime,
collateralized by a security
interest in borrower's insurance
commissions and other amounts owed
to the Company by the lender. 750,000 750,000 750,000
----------- ----------- -----------
6,215,175 7,253,113 7,100,000
Less current maturities (40,175) (753,113) (750,000)
----------- ----------- -----------
$ 6,175,000 $ 6,500,000 $ 6,350,000
=========== =========== ===========
</TABLE>
Aggregate maturities of long-term debt at December 31,
1998 and 1997, were as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
1998 $ 40,175 $ -- $ --
1999 750,000 753,113 --
2000 -- -- 750,000
2001 5,425,000 6,500,000 6,350,000
----------- ----------- -----------
$ 6,215,175 $ 7,253,113 $ 7,100,000
=========== =========== ===========
</TABLE>
For the years ended December 31, 1997 and 1998 and the period ended
June 30, 1999, all interest incurred was expensed.
F-17
<PAGE> 65
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 9. LEASE COMMITMENTS
The Company leased office space at twenty one locations during 1999,
twenty one locations during 1998, and nineteen locations during 1997.
Five of the locations were leased on a month to month basis totaling
$2,645 per month during the years ended December 31, 1997 and 1998 and
$2,713 during the period ended June 30, 1999.
Future minimum lease payments for the remaining
locations are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
1998 $171,024 $ -- $ --
1999 81,715 216,933 --
2000 27,925 102,251 248,884
2001 19,000 58,366 200,176
2002 -- 21,223 74,103
2003 -- -- 8,297
-------- -------- --------
$299,664 $398,773 $531,460
======== ======== ========
</TABLE>
Note 10. CONCENTRATION OF CREDIT RISK
The Company's deposits with financial institutions were $14,995 and
$206,035, respectively, in excess of federally insured limits at
December 31, 1997 and 1998 and $1,185,002 at June 30, 1999.
Note 11. PREFERRED STOCK
The Company has authorized 10,000,000 shares of $.001 par preferred
stock. During 1998, the Company issued 33,475 shares of preferred stock
with a redemption price of $100 per share and a redemption value of
$3,347,500. During 1999, the Company issued 270 shares of preferred
stock with a redemption price of $100 per share and a redemption value
of $27,000. Holders of the preferred stock have rights to annual
dividends per share of $11.
F-18
<PAGE> 66
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 12. PROFIT SHARING PLAN
The Company sponsors a defined contribution profit sharing plan
covering substantially all full time employees. Contributions are
decided by the board of directors each year. The Company contributed
$15,214 and $9,655, respectively, to the plan during the years ended
December 31, 1997 and 1998. The Company had $12,821 contributions
during the period ended June 30, 1999.
Note 13. LINE OF CREDIT
The Company had a line of credit with a local bank that accrues
interest at the prime rate. The line of credit had a balance as
follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Credit line payable $ 800,000 $ 1,500,000 $ 1,500,000
=========== =========== ===========
</TABLE>
Note 14. REIMBURSEMENT INCOME
The Company's home office location is responsible for the
administration and operation of Stewart Finance Company of Louisiana,
Inc., Stewart Finance Company of Missouri, Inc., Stewart Finance
Company of Illinois, Inc. and Smith Filing Service, Inc. The expenses
related to the operations of the related companies are allocated based
on the average outstanding customer loan balances during the year.
The Company had reimbursement income as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
(Unaudited)
<S> <C> <C> <C>
Reimbursement income $ 867,699 $ 2,476,089 $ 1,452,004
=========== =========== ===========
</TABLE>
F-19
<PAGE> 67
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 15. REFUNDABLE INCOME TAXES
The Company had refundable income taxes from taxable losses. Refundable
Federal and state income taxes as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999 Total
(Unaudited)
<S> <C> <C> <C>
Federal $ 121,395 $ 90,845 $ 212,240
State 21,423 32,063 53,486
----------- ---------- ----------
$ 142,818 $ 122,908 $ 265,726
=========== ========== ==========
</TABLE>
The net operating loss of $534,384 expires during the year ended
December 31, 2013.
Note 16. SEGMENT INFORMATION
The Company does not have separate segments that meet the criteria for
separate reportable segments according to SFAS 131. The income and
operating expenses related to the financing of small loans to consumers
are the majority of all of the income and expenses for the Company.
Note 17. CHANGE IN ACCOUNTING ESTIMATES
Effective January 1, 1997, the Company extended the estimated service
lives of property and equipment assets. The effect of this change of
$169,846 was recognized in the year ended December 31, 1997. The change
will not affect future periods.
Note 18. SUBSEQUENT EVENTS
During 1999, the Company's majority shareholder exchanged each share of
the outstanding common stock of the Company for one share of Stewart
Finance Company Holdings, Inc.
The Company plans to file a Rescission Registration Statement with
respect to outstanding debentures and preferred stock in 1999 with the
Securities and Exchange Commission. Stewart Finance Company Holdings,
Inc. plans to file a Registration
F-20
<PAGE> 68
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 18. SUBSEQUENT EVENTS - Continued
for its issuance of debentures and preferred stock in 1999. The
expected result is to allow Stewart Finance Company Holdings, Inc. to
issue debentures and preferred stock on an interstate basis rather than
Stewart Finance Company issuing debenture and preferred stock on an
intrastate basis.
F-21
<PAGE> 69
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
To the Stockholder
Stewart Finance Company
Union Point, Georgia
Our audit was performed for the purpose of forming an opinion on the financial
statements as of December 31, 1998 taken as a whole. The supplemental
information on page 22 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the financial
statements as of December 31, 1998 and for the year then ended and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
Atlanta, Georgia Pechter & Associates, P.C.
March 8, 1999, except as to Note 1
which is as of August 11, 1999
F-22
<PAGE> 70
STEWART FINANCE COMPANY
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
December 31, December 31, June 30, June 30,
1997 1998 1998 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Auto expenses $ 92,257 $ 95,143 $ 41,321 $ 52,790
Advertising 105,505 185,162 48,311 88,000
Bank charges 202,204 113,984 53,307 80,966
Cash (over) and short (1,567) (2,803) (5,694) (5,482)
Charitable contributions 1,707 3,736 3,576 1,837
Commissions 2,706 2,417 -- 14,551
Consulting 8,775 66,315 30,865 5,835
Contract labor 62,916 155,400 46,777 86,820
Credit reports 48,591 76,755 35,935 50,390
Dues and subscriptions 52,893 48,974 18,144 15,163
Equipment rental 90,148 87,864 43,807 37,858
Employee benefits 15,214 9,655 9,655 12,821
Insurance - business 73,206 95,525 51,756 35,113
Insurance - health 144,518 206,995 97,848 93,738
Insurance - officer's life 28,961 29,759 15,070 14,688
Legal and professional 160,575 267,456 97,519 342,561
Meals and entertainment 62,012 72,994 32,668 42,568
Miscellaneous 16,233 27,485 24,971 3,101
office supplies 191,647 299,179 172,876 125,651
Postage and delivery 181,406 302,605 154,189 151,398
Referral fees 30,820 55,169 28,531 12,322
Rent 222,112 268,273 146,914 177,917
Repairs and maintenance 40,705 100,854 45,268 73,214
Taxes - payroll 201,554 214,137 104,640 116,515
Taxes - state loan 18,070 21,089 9,260 11,644
Taxes and licenses 91,973 127,124 58,253 106,287
Telephone 211,579 248,107 132,713 141,667
Travel and convention 45,893 87,338 51,055 72,683
Utilities 95,040 134,281 63,218 63,628
----------- ----------- ----------- -----------
$ 2,497,653 $ 3,400,972 $ 1,612,753 $ 2,026,244
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 71
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR OTHER
INFORMATION TO WHICH THIS DOCUMENT REFERS. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
-----------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary.............................................................................................. 3
Summary Financial Data........................................................................................... 4
Risk Factors................................................................................................... 5
Cautionary Statement About Forward-Looking
Statements................................................................................................ 9
The Rescission Offer.......................................................................................... 10
Selected Financial and Operations Data........................................................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................................................... 16
Business...................................................................................................... 22
Dividend Policy ............................................................................................. 29
Management.................................................................................................... 30
Principal Shareholders........................................................................................ 32
Certain Transactions.......................................................................................... 33
Description of Capital Stock.................................................................................. 35
Description of Subordinated Debentures........................................................................ 37
Description of Senior Demand Notes............................................................................ 40
Description of Finova Credit Facility......................................................................... 42
Description of Community Bank & Trust
Credit Facility............................................................................................. 44
Legal Matters................................................................................................. 46
Experts...................................................................................................... 46
Additional Information....................................................................................... 46
Index to Financial Statements................................................................................ F-1
</TABLE>
-------------
STEWART FINANCE COMPANY
RECISSION OFFER
$921,824 Senior Demand Notes
$12,421,245 Subordinated Debentures
33,475 Shares of Series A Preferred Stock
-------------
PROSPECTUS
-------------
_____________, 1999
================================================================================
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has, pursuant to the authority granted in Section 14-2-851
of the Official Code of Georgia Annotated, agreed to indemnify any officer or
director of the Registrant against any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually or reasonably incurred
by him in any action, suit or proceeding brought or threatened to be brought
against him by reason of the fact that he is or was an officer or director of
the Registrant if he acted in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful.,245 Subordinated Debentures
ITEM 24. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................................ $4,640
Printing and Engraving Costs................................................................... *
Accounting Fees and Expenses................................................................... *
Legal Fees and Expenses (excluding Blue Sky)................................................... *
Blue Sky Fees and Expenses..................................................................... *
Miscellaneous................................................................................. *
--------------
Total.................................................................................... $ *
==============
</TABLE>
- ---------------------
* To be supplied by amendment. All amounts are estimated except for the SEC
registration fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
All of the securities of Stewart Finance Company were offered in
unregistered transactions. Although Stewart Finance Company believes it complied
with the exemption from the federal registration requirements provided by
Section 3(a)(11) in connection with the offer and sale of its securities, the
use of an impermissible amount of the proceeds from the sale of such securities
outside of the State of Georgia may render such registration exemption
unavailable. Accordingly, Stewart Finance Company is undertaking this rescission
offer. All of Stewart Finance Company's securities were issued under an
exemption from the registration requirements of the Georgia Securities Act
provided by Section 10-5-8(6) thereof, which exempts from registration any
security issued by an industrial loan association organized and supervised under
the laws of the State of Georgia. Stewart Finance Company believes it fully
satisfied this exemption in connection with its offer and sale of securities.
II-1
<PAGE> 73
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
3.1 Articles of Incorporation of the Registrant, as amended
3.2 Bylaws of the Registrant
4.1 ** Specimen certificate for the Registrant's Preferred Shares
4.2 Form of Subordinated Debenture (on or prior to 4/1/98)
4.3 Form of Subordinated Debenture (after 4/1/98)
4.4 Form of Senior Demand Note (on or prior to 2/19/98)
4.5 Form of Senior Demand Note (after 2/19/98)
4.6 * Senior Demand Note of John B. Stewart, Jr., dated December 15, 1989
4.7 * Senior Demand Note of Stewart Insurance, Ltd., Dated July 18, 1995
4.8 * Senior Demand Note of J&J Reinsurance, Ltd., dated February 26, 1999
4.9 * Promissory Note of Richard Stewart, dated July 12, 1989
5.1 Opinion of Holland & Knight LLP
10.1 * Finova Capital Corporation Credit Agreement
10.2 * Community Bank and Trust Credit Agreement
10.3 * Profit Sharing -- 401(k) Plan
10.4 * Risk Sharing Agreement among Voyager Life and Health Insurance Company and
Stewart Insurance, Ltd.
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1 of this
Registration Statement)
23.2 * Consent of Pechter & Associates, P.C.
24.1 * Power of Attorney (included on the signature page of this Registration Statement)
27.1 * Financial Data Schedule (for SEC use only)
99.1 * Form of Letter of Election
</TABLE>
- ----------------------
* Filed with Amendment No. 1
** To be filed by Amendment
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are
inapplicable or the requested information is either immaterial or shown in the
Registrant's financial statements or notes thereto.
II-2
<PAGE> 74
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by ss. 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; and (iv) to file weekly with the
Securities and Exchange Commission a Rule 424(b)(2) prospectus supplement
setting forth the established features (as defined in the prospectus).
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Union Point, State of
Georgia, on the 3rd day of November, 1999.
STEWART FINANCE COMPANY
By: /s/ John B. Stewart, Jr. *
-------------------------------------
John B. Stewart, Jr., President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John B. Stewart, Jr., being a director
and officer, of Stewart Finance Company (the "Company"), a Georgia corporation,
by his signature below, hereby constitutes and appoints Jeffery L. Smith, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement,
including post-effective amendments and registration statements filed pursuant
to Rule 462 under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite, necessary and advisable to be done, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and Sole Director
By: /s/ John B. Stewart, Jr. * (Principal Executive Officer) November 3, 1999
--------------------------------------------------------
John B. Stewart, Jr., President
/s/ Jeffery L. Smith Vice President November 3, 1999
-------------------------------------------------------- (Principal Financial and
Jeffery L. Smith Accounting Officer)
</TABLE>
* By Jeffery L. Smith, attorney-in-fact, pursuant to the power of attorney
included on signature page initially filed with the Registration
Statement.
II-4
<PAGE> 1
EXHIBIT 4.6
STEWART FINANCE COMPANY
FORM OF SENIOR DEMAND NOTE
(form to be used on or prior to 2/19/98)
UNION POINT, GEORGIA December 15, 1989
On Demand, for value received, STEWART FINANCE COMPANY promises to pay
JOHN B. STEWART, JR.
at the home office of Stewart Finance Company, 610 Sibley Avenue, Union Point,
Georgia 30669, the principal amount of this Note, as represented from time to
time on the books and records of Stewart Finance Company, and to pay interest
thereon at the applicable rate, calculated on a simple interest basis. Stewart
Finance Company can call this Note for redemption at any time without penalty.
This Note is nonnegotiable and is transferrable only on the books of
Stewart Finance Company.
/s/ Jeffery L. Smith
- -----------------------------------
Vice President
/s/ Janice M. Walker
- -----------------------------------
Assistant Treasurer/Secretary
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED OR CONVEYED IN WHOLE OR PART TO ANY PERSON WHO
DOES NOT HAVE HIS (HER) PRINCIPAL RESIDENCE IN THE STATE OF GEORGIA.
THIS SECURITY IS NOT A DEPOSIT AND IS NOT INSURED
BY ANY FEDERAL OR STATE AGENCY.
<PAGE> 1
EXHIBIT 4.7
STEWART FINANCE COMPANY
FORM OF SENIOR DEMAND NOTE
(form to be used on or prior to 2/19/98)
UNION POINT, GEORGIA July 18, 1995
On Demand, for value received, STEWART FINANCE COMPANY promises to pay
STEWART INSURANCE, LTD.
at the home office of Stewart Finance Company, 610 Sibley Avenue, Union Point,
Georgia 30669, the principal amount of this Note, as represented from time to
time on the books and records of Stewart Finance Company, and to pay interest
thereon at the applicable rate, calculated on a simple interest basis. Stewart
Finance Company can call this Note for redemption at any time without penalty.
This Note is nonnegotiable and is transferrable only on the books of
Stewart Finance Company.
/s/ Jeffery L. Smith
----------------------------------
Vice President
/s/ Janice M. Walker
----------------------------------
Assistant Treasurer/Secretary
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED OR CONVEYED IN WHOLE OR PART TO ANY PERSON WHO
DOES NOT HAVE HIS (HER) PRINCIPAL RESIDENCE IN THE STATE OF GEORGIA.
THIS SECURITY IS NOT A DEPOSIT AND IS NOT INSURED
BY ANY FEDERAL OR STATE AGENCY.
<PAGE> 1
EXHIBIT 4.8
STEWART FINANCE COMPANY
FORM OF SENIOR DEMAND NOTE
(form to be used after 2/19/98)
On Demand, for value received, STEWART FINANCE COMPANY promises to pay:
J&J REINSURANCE, LTD.
At the home office of Stewart Finance Company, 610 Sibley Avenue, Union Point,
Georgia 30669, the principal amount of this Note, as represented from time to
time on the books and records of Stewart Finance Company, and to pay interest
thereon at not more than the prime rate, calculated on a simple interest basis.
Prime Rate means the rate of interest equal to the rate announced from time to
time in the Tuesday edition of the Wall Street Journal as the "Prime Rate". For
purposes of computing interest on this note, the interest rate shall be
initially established as the Prime Rate on the Tuesday next preceding the date
of this note and shall change each week with respect to any outstanding
principal balance of this note effective on the Tuesday announcement of a Prime
Rate. In the event that the Wall Street Journal, during the term hereof, shall
abolish or abandon the practice of announcing a "Prime Rate" of interest, or
should it become unascertainable, Company shall designate a comparable
reference rate which shall be deemed to be the Prime Rate hereunder. Stewart
Finance Company can call this note for redemption at any time without penalty.
This Note is nonnegotiable and is transferrable only on the books of Stewart
Finance Company.
/s/ Jeffery L. Smith
- ---------------------------------
Company Officer
/s/ Janice M. Wallace
- ---------------------------------
Company Officer
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED OR CONVEYED IN WHOLE OR IN PART TO ANY PERSON WHO DOES
NOT HAVE HIS (HER) PRINCIPAL RESIDENCE IN THE STATE OF GEORGIA.
THIS SECURITY IS NOT A DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY ANY FEDERAL OR STATE AGENCY.
<PAGE> 1
EXHIBIT 4.9
PROMISSORY NOTE
$137,573.82 July 12, 1999
FOR VALUE RECEIVED, I promise to pay to the order of STEWART FINANCE
COMPANY, the principal sum of One Hundred Thirty-Seven Thousand Five Hundred
Seventy-Three and 82/100 ($137,573.82) Dollars, in legal tender of the United
States, with interest thereon from date at the rate of twelve (12%) percent per
annum, on the unpaid balance until paid as follows:
Sixty (60) monthly installments of principal and interest in the amount of
$3,060.25 each beginning August 1, 1999, with a final installment due on July
1, 2004.
Principal and interest are payable at 610 Sibley Avenue, Union Point,
Georgia 30669, or at such other place as the holder hereof may designate in
writing.
Should any installment not be paid when due, the entire unpaid
principal sum evidenced by this note, with all accrued interest, shall, at the
option of the holder, and without notice to the undersigned, become due and may
be collected forthwith, time being of the essence of this contract. It is
further agreed that failure of the holder to exercise this right of
accelerating the maturity of the debt, or indulgence granted from time to time,
shall in no event be considered as a waiver of such right of acceleration or
estop the holder from exercising such right.
In case this note is collected by law, as through an attorney at law,
all costs of collection, including fifteen (15%) percent of the principal and
interest as attorneys' fees, shall be paid by the make hereof.
And each of us, whether maker, endorser, guarantor, or surety, hereby
severally waives and renounces, for himself and family, any and all exemption
rights either of us, or the family of either of us, may have under or by virtue
of the Constitution or laws of the State of Georgia, or any other state, or the
United States, as against this debt or any renewal thereof, and each further
waives demand, protest and notice of demand, protest, and non-payment.
Notwithstanding anything contained herein to the contrary, it is
hereby understood and agreed that upon a default in payment of this promissory
note, the interest rate prevailing in the judgment in Case No. 97-CV-1736C, of
the Hall County Superior Court, as provided for by O.D.G.A., Section 7-4-12,
shall revert to and be applied retroactively to the date of said judgment and
shall continue at said rate from the date of default herein until his
obligation is paid in full.
Any default hereunder may be cured within fifteen (15) days of the due
date of such payment by paying the amounts due on said date plus a penalty
equal to an additional five (5%) percent of the payment which is then due.
This contract is to be construed in all respects and enforced
according to the laws of the State of Georgia.
Witness my hand and seal.
/s/ Richard M. Stewart (Seal)
Richard M. Stewart
<PAGE> 1
EXHIBIT 10.1
GFC GREYHOUND FINANCIAL CORPORATION
CONSUMER REDISCOUNT GROUP
LOAN AND SECURITY AGREEMENT
Borrower: STEWART FINANCE COMPANY
Address: 610 SIBLEY AVENUE
UNION POINT, GEORGIA 30669
Date: DECEMBER 12, 1994
================================================================================
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender"), whose
corporate address is Dial Tower, Dial Corporate Center, Phoenix, Arizona 85077
and whose branch office address is 13355 Noel Road, Suite 800, Dallas, Texas
75240 and the borrower named above (the "Borrower"), whose chief executive
office is located at the above address ("Borrower's Address").
1. DEFINITIONS
1.1 ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or
persons that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
1.2. AGREEMENT. The term "Agreement" shall mean this Loan and Security
Agreement and any amendment, modifications or extension hereof.
1.3. BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which commercial banks are open for business to the
public in Phoenix, Arizona and New York, New York.
1.4. CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.5. COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
1.6. COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity" shall
mean an entity, whether or not incorporated, which is under common control with
Borrower within the meaning of Section 414(b) or (c) of the Code.
1.7. DEFAULT. The term "Default" shall mean an event which with the passage
of time or notice or both would constitute an Event of Default (as defined in
Section 7.1).
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1.8. DISTRIBUTIONS. The term "Distributions" shall mean any dividends or
other distribution of earnings to Borrower's shareholders.
1.9. ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean those
Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
goods or the rendering of services in the ordinary course of Borrower's
business; (ii) represent a valid and binding obligation enforceable in
accordance with its terms for the amount outstanding thereof without offset,
counterclaim or defense (whether actual or alleged); (iii) comply in all
respects with all applicable laws and regulations, including, but not limited
to, truth in lending and credit disclosure laws and regulations; (iv) all
amounts and information appearing thereon or furnished to Lender in connection
therewith are true and correct and undisputed by the Account Debtor thereon or
any guarantor thereof; (v) Borrower and the Account Debtor are not engaged in
any litigation regarding nonpayment of the receivable; (vi) to the best
knowledge of Borrower neither the Account Debtor thereon nor any guarantor
thereof is subject to any receivership, insolvency or bankruptcy proceeding, is
insolvent or has failed to meet its debts as they mature; (vii) Borrower has
good and sufficient right to pledge, assign and deliver the Receivables free
from all liens, claims, encumbrances or security interests whatsoever; (viii)
neither the Account Debtor nor any guarantor thereof is employed by, related to,
or affiliated with Borrower; (ix) to the best knowledge of Borrower no condition
exists that materially or adversely affects the value of the Receivables or
jeopardizes any security therefor; (x) if the Receivables arise from the sale of
goods, such goods have been delivered and accepted by the Account Debtor and are
still subject to the lawful possession and control of the Account Debtor and
have not been otherwise returned to or repossessed by Borrower; (xi) is not a
renewal or extension of any Receivable previously ineligible hereunder; (xii)
the original principal amount thereof does not exceed the Maximum Amount of an
Eligible Receivable (SCHEDULE SECTIONS 1.9.A.) and the original term thereof
does not exceed the Maximum Term of an Eligible Receivable (SCHEDULE SECTION
1.9.B.); (xiii) meets the liability Test and has been reported to Lender in
compliance with the Aging Procedures (SCHEDULE SECTION 1.9.D.); (xiv) is not
evidenced by a judgment or has not been reduced to judgment; (xv) is not an open
account; (xvi) is evidenced by a written payment agreement, bearing interest or
containing a time price differential, which has been executed by the Account
Debtor; (xvii) the Account Debtor thereunder is a legal resident of the United
States; and (xviii) payments under the Receivable are to be made in United
States dollars.
1.10. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.11. GAAP. The term "GAAP" shall mean generally accepted accounting
principles and other standards as promulgated by the American Institute of
Certified Public Accounts.
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1.12. GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a guaranty agreement in favor of Lender guaranteeing the repayment of
the Borrower's Indebtedness to Lender (Schedule Section 4.5).
1.13. GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that
certain agreement executed by the Guarantor, in a form and substance approved by
Lender.
1.14. GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
1.15. INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
1.16. LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, total liabilities of Borrower, including the outstanding balance
of the Indebtedness, divided by the sum of the amount of Borrower's Tangible Net
Worth plus all Subordinated Debt.
1.17. LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement,
the Note, the Schedule, the Guaranty, Subordination Agreements, Agency and
Custodian Agreements and all other documents executed in connection with this
Agreement, together with any and all renewals, amendments, restatements or
replacements of such documents.
1.18. MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful and
nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received on the Note and the
Indebtedness under the laws of the United States and the laws of such states as
may be applicable thereto, that are in effect or, to the extent allowed by such
laws, that may be hereafter in effect and that allow a higher maximum
nonusurious and lawful interest rate than would any applicable laws now allow.
1.19. NET INCOME. The term "Net Income" shall mean with respect to any fiscal
period, the net earnings of Borrower (excluding all extraordinary gains or
nonrecurring income) before provision for income taxes for such fiscal period of
Borrower, all as reflected on the financial statements of Borrower supplied to
Lender pursuant to Sections 4.4(A) and 4.4(B) hereof.
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1.20. NOTE. The term "Note" shall mean the promissory note of even date
herewith, executed by Borrower and payable to the order of Lender.
1.21. PLAN. The term "Plan" shall mean any pension plan that is covered by
Title IV of ERISA and with respect to which Borrower or a Commonly Controlled
Entity is an "Employer" as defined in section 3(5) of ERISA.
1.22. RECEIVABLES. The term "Receivables" shall mean all accounts of Borrower
and any other right of Borrower to receive payment, including, without
limitation, all loans, extensions of credit or Borrower's right to payment for
goods sold or services rendered by Borrower.
1.23. REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a
written request for an advance in the form of Exhibit "A" attached hereto and
made a part hereof.
1.24. SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
1.25. SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the
aggregate amount of any indebtedness of Borrower to persons other than Lender
that by its terms is subordinated in all respects, including, but not limited
to, the right of payment, to the prior payment in full of the Indebtedness. A
subordination and standstill agreement or similar acceptable language, in a form
and substance satisfactory to Lender, shall be entered into by all holders of
Subordinated Debt.
1.26. TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean, at any
time of determination, the shareholder's equity of Borrower determined in
accordance with GAAP minus the aggregate amount of all intangible assets and all
assets consisting of obligations due to Borrower from shareholders, directors,
officers, or any affiliate of Borrower or any Guarantor hereunder.
2. LOAN
2.1. AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time the lesser of the
following: (a) the Amount of Revolving Credit Line (SCHEDULE SECTION 2.1.A.) or
(b) the Availability on Eligible Receivables (SCHEDULE SECTION 2.1.B.). Within
the limits of this Section 2. 1, Borrower may borrow, repay and reborrow the
advances. The Loan shall be evidenced by the Note.
2.2. INTEREST RATE. The outstanding principal balance of Loan shall bear
interest at the Stated Interest Rate (SCHEDULE SECTION 2.2). If Lender is ever
prevented from charging or collecting interest at the rate set forth in Stated
Interest Rate Section (i) because interest at such rate would exceed interest at
the Maximum Rate, then the rate set forth in Stated Interest Rate Section (i)
shall continue to be the Maximum Rate until Lender has charged
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and collected the full amount of interest chargeable and collectable had
interest at the rate set forth in Stated Interest Rate Section (i) always been
lawfully chargeable and collectible. As the Governing Rate changes, the rate set
forth in Stated Interest Rate Section (i) shall be increased or decreased
(subject to the Maximum Rate), on the first day of each calendar month to
correspond with the change in the Governing Rate then in effect and shall remain
fixed at such rate until the first day of the next succeeding calendar month,
notwithstanding fluctuations in the Governing Rate during the month. All changes
in the Governing Rate shall be made without notice to Borrower. The monthly
interest due on the principal balance of the Loan outstanding shall be computed
for the actual number of days elapsed during the month in question on the basis
of a year consisting of three hundred sixty (360) days and shall be calculated
by determining the average daily principal balance outstanding for each day of
the month in question. The daily rate shall be equal to 1/360th times the Stated
Interest Rate (but shall not exceed the Maximum Rate).
2.3. PAYMENTS. All payments to Lender shall be payable at Greyhound Financial
Corporation, File No. 96425, P. 0. Box 668100, Charlotte, NC 28266-8100. All
payments received pursuant to this Agreement shall be applied to Borrower's
Indebtedness three (3) Business Days after the actual receipt of such payment by
Lender's depository bank if such payment is credited to Lender's account. The
indebtedness shall be due and payable as follows:
A. Accrued but unpaid interest for each calendar month during the term
hereof shall be due and payable, in arrears, on or before the fifteenth
(15th) day of the immediately succeeding calendar month; if such accrued but
unpaid interest for the preceding month is not received by the fifteenth
(15th) of the month, such unpaid interest shall be added to the Indebtedness.
B. Costs, fees and expenses payable pursuant to this Agreement shall be
due and payable by Borrower to Lender or to such other person(s) designated
by Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (SCHEDULE SECTION 2.3.).
2.4. PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5. MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2. 1, Borrower shall
immediately and without notice, repay to Lender an amount sufficient to
eliminate such excess, or, at Lender's option, assign and deliver additional
Eligible Receivables sufficient for such purpose. In the event Borrower sells,
transfers, assigns or otherwise disposes of all or any portion of its
Receivables, other than in the ordinary course of business,
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Borrower shall apply all proceeds of any such sale, transfer, assignment or
other disposition to reduce the outstanding balance of the Indebtedness.
2.6. VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily prepay
the Indebtedness in full at any time, provided, however, that Borrower has given
Lender ninety (90) days written notice of any such intention to prepay the
Indebtedness in full. Borrower may not make such prepayment prior to the
expiration of such ninety (90) day period. Upon written notice of prepayment of
the Indebtedness in full, the commitment by Lender to advance funds to Borrower
and all the obligations of Lender shall terminate on the expiration of said
ninety (90) day notice period, and the entire amount of the Indebtedness shall
be due and payable on such date.
2.7. MAXIMUM INTEREST, CONTROLLING AGREEMENT. The contracted for rate of
interest of the Loan without limitation, shall consist of the following: (i) the
Stated Interest Rate, calculated and applied to the principal balance of the
Note in accordance with the provisions of the Note and this Agreement; (ii)
Interest After Event of Default or Due Date, calculated and applied to the
amounts due under the Note in accordance with the provisions thereof; and (iii)
all Additional Sums (as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to the Note, this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in the Loan Documents, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall the Loan Documents or
such documents require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable Usury Law. In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the indebtedness evidenced by the Loan
Documents is accelerated in whole or in part, or (c) all or part of the
principal or interest of the Loan Documents shall be prepaid, so that under any
of such circumstances the amount of interest contracted for, shared or received
in connection with the loan evidenced hereby, would exceed the maximum contract
rate
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permitted by the Applicable Usury Law, then in any such event (1) the provisions
of this paragraph shall govern and control, (2) neither Borrower nor any other
person or entity now or hereafter liable for the payment hereof will be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum contract rate permitted by the Applicable Usury Law, (3) any such
excess which may have been collected shall be either applied as a credit against
the then unpaid principal amount hereof or refunded to Borrower, at Lender's
option, and (4) the effective rate of interest will be automatically reduced to
the maximum amount of interest permitted by the Applicable Usury Law. It is
further agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x) all calculations of interest
which are made for the purpose of determining whether such rate would exceed the
maximum contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the loan evidenced hereby, all interest at any time contracted
for, charged or received from Borrower or otherwise in connection with such
loan; and (y) in the event that the effective rate of interest on the loan
should at any time exceed the maximum contract rate allowed under the Applicable
Usury Law, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
Lender from time to time, if and when the effective interest rate on the loan
otherwise falls below the maximum amount permitted by the Applicable Usury Law,
to the extent that interest paid to the date of calculation does not exceed the
maximum contract rate permitted by the Applicable Usury Law, until the entire
amount of interest which would have otherwise been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. Borrower
further agrees that should the maximum contract rate permitted by the Applicable
Usury Law be increased at any time hereafter because of a change in the law,
then to the extent not prohibited by the Applicable Usury Law, such increases
shall apply to all indebtedness evidenced hereby regardless of when incurred;
but, again to the extent not prohibited by the Applicable Usury Law, should the
maximum contract rate permitted by the Applicable Usury Law be decreased because
of a change in the law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.8. STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with a
statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.9. CONDITIONS PRECEDENT TO ADVANCES. The obligation of Lender to make
advances is subject to the following conditions: (i) no Default or Event of
Default shall have occurred; (ii) all actions to be taken by Borrower in
connection with the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Lender; (iii) the warranties and
representations of Borrower contained herein shall be true and correct on the
date hereof and shall be deemed to have been made again on the date of each
advance and shall then also be true and correct; (iv) Borrower shall have
performed and complied with all obligations or conditions required by this
Agreement to be performed or complied with prior to each advance and Borrower
shall not then be in default under any document or instrument evidencing or
securing the Indebtedness; (v) Borrower shall
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submit to Lender a completed Request for Advance Report in the form and
substance of Exhibit "A" attached hereto, on the date such advance is requested
or shall have complied with the provisions concerning oral advances hereunder as
set forth in Section 2.10 hereof; (vi) prior to the initial advance hereunder,
Borrower shall submit to Lender the initial Availability Report and all other
documents, instruments, financing statements, evidence of authority, evidence of
compliance with applicable laws, opinions of counsel and other information which
Lender may reasonably request; (vii) prior to the initial advance hereunder,
Borrower shall provide Lender satisfactory evidence that Borrower's Tangible Net
Worth is equal or more than Two Hundred Thousand Dollars ($200,000.00); and
(viii) Borrower shall submit to Lender resolutions of its Board of Directors
designating personnel authorized by Borrower to execute Availability Reports on
behalf of Borrower and each specific request for advance shall be executed by
one such person.
2.10. ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be made
only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this Agreement and any
other documents or instruments executed in connection herewith irrespective of
any failure by Borrower to furnish such written confirmation. Any loan or
advance shall be conclusively resumed to have been made under the terms of this
Agreement, to or for the benefit of Borrower, when made pursuant to the terms of
any written agreement executed in connection herewith; or in accordance with
such requests and directions; or when an advance is deposited to the credit of
the account of any person or persons, corporation or corporations comprising
Borrower, regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account or regardless of the
fact that the advance was not made or deposited for the benefit of all persons
or corporations comprising Borrower.
2.11. ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans and
advances made by Lender to Borrower under this Agreement and any other documents
or instruments executed in connection herewith shall constitute one loan, and
all indebtedness and obligations of Borrower to Lender under this Agreement and
all other such documents and instruments shall constitute one general obligation
secured by Lender's security interest in all of the Collateral and by all other
security interests, liens, claims and encumbrances heretofore, now, or at any
time or times hereafter granted by Borrower to Lender. Borrower agrees that all
of the rights of Lender set forth in this Agreement shall apply to any
modification of or supplement to this Agreement and any other such documents and
instruments.
2.12. ADVANCES. Lender shall have the right in Lender's discretion, subject
to availability hereunder on behalf of and without notice to Borrower, to make
and use
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advances to pay Lender for any amounts due to Lender pursuant to this
Agreement or otherwise, to cure any default hereunder, notwithstanding the
expiration of any applicable cure period.
2.13. APPLICATION OF PAYMENTS. Borrower does hereby irrevocably agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all payments and collections at any time or times hereafter received by Lender
against the Indebtedness, in such manner as Lender may determine.
3. SECURITY AGREEMENT
3.1. SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to Lender
a first and continuing security interest in the following property and interests
in property of Borrower, whether now owned or existing or hereafter acquired or
arising and wheresoever located:
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles related thereto, all of Borrower's right,
remedies, security, liens, guaranties, or other contracts of suretyship with
respect thereto, all deposits or other security or support for the obligation
of any Account Debtor thereunder and credit and other insurance acquired by
Account Debtor or the Borrower in connection therewith;
B. All bank accounts of Borrower;
C. All monies, securities and property, now or hereafter held, received
by, or entrusted to, in the possession or under the control of Lender or a
bailee of Lender;
D. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of
insurance policies referenced in Section 3.l.A above (including but not
limited to claims paid and premium refunds); and
E. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer software and hardware, electronic
data processing software, computer printouts and other computer materials and
records) of Borrower evidencing or containing information regarding any of
the foregoing.
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents reasonably necessary to evidence,
preserve or protect Lender's security interest in the Collateral. Borrower
agrees that financing statements shall be filed covering all of Borrower's
locations (SCHEDULE SECTION 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such places
as Lender may reasonably designate, schedules executed by Borrower, listing the
Receivables and fully and correctly specifying in adequate detail the aggregate
unmatured unpaid face
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amount of each Receivable and the amount of the deferred installments thereof
falling due each month. These schedules shall be in form and tenor satisfactory
to or supplied by Lender. All schedules delivered Collateral pledged to Lender
shall be assigned to Lender pursuant to the "Schedule of Receivables and
Assignment" in the form and substance of Exhibit "E" attached hereto. Borrower
further warrants and agrees that in each case where the terms of any Receivable
require the Borrower or the Account Debtor named in such Receivable to place or
carry fire insurance or other insurance in respect of the merchandise or
property to which such Receivable relates, the Borrower shall or shall cause the
Account Debtor to maintain such insurance until the full amount of such
Receivable is collected and if not, Lender, at its option, may place and
maintain such insurance, charging the cost thereof to Borrower.
3.3. FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in respect of any Receivable to Lender shall
not invalidate Lender's security interest therein. To the extent that possession
may be required by applicable law for the perfection of Lender's security
interest, the original chattel paper and instruments representing the
Receivables shall be deemed to be held by Lender, although kept by the Borrower
as the custodial agent of Lender.
3.4. NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or instruments
representing or evidencing a Receivable shall contain (by way of stamp or other
method satisfactory to Lender) the following language: "ASSIGNED TO GREYHOUND
FINANCIAL CORPORATION AS COLLATERAL".
3.5. LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, upon Lender's request, physically deliver to Lender all
Receivables (including any instruments, documents or writings in respect of any
Receivable together with all instruments, documents or writings in respect of
any collateral securing each Receivable) assigned to Lender to any reasonable
place or places designated by Lender. All Receivables shall, regardless of their
location, be deemed to be under Lender's domination and control (with files so
labeled) and deemed to be in Lender's possession.
3.6. RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current on
a daily basis and located only at the locations (SCHEDULE SECTION 3.2.). Lender
by or through any of its officers, agents, employees, attorneys or accountants,
shall have the right to enter any such locations, at any reasonable time or
times during regular business hours, for so long as Lender may desire, to
inspect the Collateral and to inspect, audit and make extractions or copies from
the books, records, journals, orders, receipts, correspondence or other data
relating to the Collateral or this Agreement.
3.7. ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its reasonable
discretion in order to evidence Lender's security interest in the Collateral.
Borrower shall not allow any financing statement or notice of assignment of
accounts receivable, other than those executed in connection with this
Agreement, to be on file in any public office
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covering any Collateral, proceeds thereof or other matters subject to the
security interest granted to Lender.
3.8. COLLECTION. Borrower agrees at its own expense to promptly and
diligently collect each installment of all Receivables in trust for the
exclusive account of Lender, to hold Lender harmless from any and all loss,
damage, penalty, liability, fine or expense arising from such collection by
Borrower or its agents and to faithfully account therefor to Lender. Upon the
occurrence of a Default, Lender expressly retains the unqualified right at any
time it so elects to take over the collection of the Receivables.
3.9. BLOCKED ACCOUNTS. Upon the occurrence of a Default or an Event of
Default, at Lender's request, any checks, notes, drafts or any other payment
upon and/or proceeds of the Collateral received by Borrower (or any
subsidiaries, divisions, affiliates, proprietorships, shareholders, directors,
officers, employees, agents or those persons acting for or in concert with
Borrower), shall no later than the next Business Day following receipt thereof,
be delivered to Lender, at Lender's address set forth above, for application on
account of the Indebtedness and shall be reflected in the Statement of Account
as provided in Section 2.8 herein, until such time as Lender has established a
depository account at a bank for the deposit of such payments, made arrangements
for such deposits to be transferred to Lender daily and thereafter established a
lock-box arrangement or otherwise. Borrower shall (i) deposit or cause all
Items, as defined below, to be deposited in the special account so established
by Lender or transfer all Items to Lender for application on account of the
Indebtedness and to be reflected in the Statement of Account as provided in
Section 2.8 herein and (ii) maintain copies of all checks or other items of
payment and deposit slips related thereto, together with a collection report in
a form satisfactory to Lender. All cash payments, checks, drafts, or similar
items of payment upon and/or proceeds of the Receivables (collectively "Items")
by or for the account of Borrower shall be the sole and exclusive property of
Lender immediately upon the earlier of the receipt of such Items by Lender or
the receipt of such Items by Borrower; provided, however, that no such item
received by Lender shall constitute payment to Lender and be applied to reduce
the Indebtedness until the later of: (i) three (3) Business Days from collection
of such Item by Lender's depository bank, or (ii) such Item being actually
collected by Lender's depository bank and such collection being credited to
Lender's account. Notwithstanding anything to the contrary herein, all such
items of payment shall be deemed not received if the same is subsequently
dishonored or not duly credited to Lender's depository account for any reason
whatsoever.
3.10. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral and
records pertaining to such Collateral: (i) if Borrower maintains its Collateral
records on a manual system such records shall be kept in a fire proof cabinet or
on no less than a monthly basis, a record of all payments on Receivables and all
other matters relating to the Collateral shall be placed in an off site safety
deposit box (and Lender shall have access to such safety deposit box); or (ii)
if the Collateral records are computerized, Borrower agrees to create a tape or
diskette "back-up" of the computerized information and upon the
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request of Lender, provide Lender with a tape or diskette copy of such "back-up"
information.
3.11. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that
Lender has not required that Borrower remit all collections or proceeds of
Collateral to Lender, Borrower may use or dispose of the funds received on the
Receivables in the ordinary course of business (including returned or
repossessed goods), collect or compromise accounts or obligations and accept
returned goods or make repossessions, as Borrower shall determine based upon its
reasonable discretion.
3.12. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan in the
ordinary course of business, solely in its operations for costs incurred in the
financing of Receivables, or for payments to Lender pursuant to Section 2.12
hereof.
3.13. RETURN OF COLLATERAL. Upon the payment in fall or renewal of any
Receivable to which the written documents evidencing such Receivable are held by
Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.14. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender and
shall be a part of the Indebtedness.
4. REPORTING REQUIREMENTS
4.1. ACCOUNTING PRACTICES. Borrower shall maintain (i) a modem system of
accounting in accordance with GAAP or other systems of accounting acceptable to
Lender and (ii) standard operating procedures applicable to all of its locations
with respect to the handling and disposition of cash receipts and other proceeds
of Collateral on a daily basis, including the depositing thereof, aging of
account receivables, record keeping and such other matters as Lender may
reasonably request. For the purpose of determining compliance with the covenants
and representations in the Loan Documents, Lender shall have the right to recast
any financial statement or report presented to Lender by or on behalf of
Borrower to comply with GAAP.
4.2. PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all Receivables
and, if so requested by Lender, Borrower shall deliver to Lender all documents
evidencing Receivables of Borrower, no less often than on the twentieth (20th)
day of each calendar month during the term of this Agreement, together with the
Schedule of Receivables and Assignment, as set forth in Section 3.2 hereof.
4.3. ACCOUNT DEBTORS' ADDRESSES. Borrower agrees to furnish to Lender from
time to time, promptly upon request, a list of all Account Debtors' names and
their most current addresses. Borrower agrees that Lender may from time to time,
consistent with standard or generally accepted auditing practices, verify the
validity, amount and any other matters
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relating to the Receivables by means of mail, telephone or otherwise, in the
name of Borrower and upon the occurrence of an Event of Default in the name of
Lender or such other name as Lender may choose.
4.4. FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within twenty (20) days
after the end of each fiscal month: (i) "Availability Report," in the form and
substance of Exhibit "D" attached hereto; (ii) Statement of Accounts Receivable
showing the detailed aging of each Receivable according to the procedures
(SCHEDULE SECTION 1.9.D.); (iii) a monthly Profit and Loss Statement and Balance
Sheet, certified by Borrower's chief financial officer or equivalent duly
elected officer of Borrower; and (iv) Schedule of Receivables and Assignment in
the form and substance of Exhibit "E" attached hereto.
B. Within ninety (90) days after the end of each of Borrower's fiscal years,
annual financial statements, or consolidated statements, as the case may be, of
Borrower prepared in accordance with GAAP, consistently applied and certified by
its chief financial officer or equivalent duly elected officer. The financial
statements shall be prepared by and under the method acceptable to Lender and
shall consist of a balance sheet as of the end of such fiscal year and
comparative statements of earnings, cash flows, and change in stockholders'
equity for such fiscal year (Schedule Section 4.4.).
C. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans and
reports.
Together with each delivery of financial statements required by subsections
A, B and C above, Borrower shall deliver to Lender and shall cause each of its
subsidiaries to deliver to Lender, if requested by Lender, a certificate in form
satisfactory to Lender, certifying that no Default or Event of Default exists
under this Agreement as of the date of such AMA, certificate, or if a Default or
an Event of Default exists, specifying the nature and period of existence
thereof and what action Borrower proposes to take with respect thereto.
4.5. FINANCIAL STATEMENTS OF GUARANTORS. Each of the Guarantors (SCHEDULE
SECTION 4.5.) shall furnish to Lender annual personal financial statements in
form reasonably satisfactory to Lender and certified by such Guarantor and a
copy of each Guarantor's personal Federal Income Tax Return (including all
schedules thereto and amendments thereof) filed during the term hereof, within
thirty (30) days of the filing of the same.
4.6. NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing of
any change of its officers, directors or key employees; change of location of
its principal offices, change of location of any of its principal assets; any
acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; litigation of which
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Borrower or a Guarantor is a party; and any other material change in the
business or financial affairs of Borrower.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
5.1. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor hereby
continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in all states where
such qualification is required, has all necessary corporate power and authority
to enter into this Agreement and each of the documents and instruments relating
hereto and to perform all of its obligations hereunder and thereunder.
B. Borrower operates its business only under the assumed names (SCHEDULE
SECTION 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and all documents and instruments relating hereto and this Agreement
and all documents and instruments relating hereto are the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms.
D. Each Guarantor is competent to enter into this Agreement and the Guaranty
and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement does
not and shall not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Borrower; (ii) violate any provision of its Articles of
Incorporation or Bylaws; or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or any of its assets or
properties may be bound or affected; and Borrower is not in default of any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
F. No consent, approval, license, exemption of or filing or registration
with, giving of notice to, or other authorization of or by, any court,
administrative agency or other governmental authority is or shall be required in
connection with the execution, delivery or performance by Borrower for the valid
consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or an
Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation
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pending or threatened against or affecting Borrower before or by any court,
administrative agency or other governmental authority that brings into
question the validity of the transactions contemplated hereby, or that might
result in any material adverse change in the businesses, assets, properties
or financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any
taxes levied or assessed against either of them or any of their assets or
properties, except for taxes being contested in good faith and by appropriate
proceedings.
I. Borrower and Guarantor have good and marketable title to their assets
and properties as reflected in their financial statements furnished to
Lender.
J. Each of the financial statements furnished to Lender by the Borrower
and Guarantor was prepared in accordance with GAAP and fairly and accurately
reflects their financial condition as of the date thereof; and each hereby
certifies that there have been no material adverse changes in their
condition, financial or otherwise, since the date of such statements, and
there are no contingent liabilities not provided for or disclosed in such
statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or
Guarantor contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements made herein or therein not
misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership
of the Collateral, free and clear of all liens, claims, security interests
and encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously
with the execution of this Agreement or are subordinate to those of Lender,
in a form and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and
shall be genuine and in all respects what they purport to be; the original
amount and the unpaid balance of each Receivable shown on the books and
records of Borrower and in the schedules represented as owing by each Account
Debtor is and shall be the correct amount actually owing or to be owing by
such Account Debtor at maturity; each Account Debtor liable upon the
Receivables has and shall have capacity to contract; Borrower has no
knowledge of any fact which would impair the validity or collectibility of
any of the Receivables; and the payments shown to have been made by each
Account Debtor on the books and records of Borrower shall reflect the amounts
of and dates on which said payments were actually made.
N. Borrower has places of business only at the locations (SCHEDULE SECTION
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first
notifying Lender.
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O. The present value of all benefits vested under all Plans of Borrower or
any Commonly Controlled Entity (based on the assumptions used to fund the Plans)
did not, as of the last annual valuation date (which in case of any Plan was not
earlier than December 31, 1982) exceed the value of the assets of the Plans
applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi-employer Plans were to be terminated as of the valuation date most
closely preceding the date hereof, is not in excess of One Thousand Dollars
($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of its
important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing" or
"carrying" "margin stock" as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the outstanding
securities of Borrower have been offered, issued, sold and delivered in
compliance with, or are exempt from, all federal and state laws and rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true,
complete and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local environmental laws, regulations or
administrative orders or other materials, the removal of which is required or
the maintenance of which is prohibited, regulated or penalized by any federal,
state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they become
due, has sufficient capital to carry on its business and transactions and all
businesses and transactions in which it intends to engage, and the current value
of Borrower's assets, at fair saleable valuation, exceeds the sum of its
liabilities. Borrower shall not be rendered insolvent by the execution and
delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to
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engage. Borrower does not intend to, nor does it reasonably believe it shall,
incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional lien
for taxes not yet due and payable.
W. There are no material actions, suits or proceedings pending, or threatened
against or affecting the assets of Borrower or the consummation of the
transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect on
the business operations or financial condition of Borrower or Guarantor.
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With respect
to Eligible Receivables, Borrower and Guarantor continuously warrant and
represent to Lender that during the term of this Agreement and so long as any of
the Indebtedness remains unpaid: (i) in determining which Receivables are
"Eligible Receivables," Lender may rely upon all statements or representations
made by Borrower; and (ii) those Receivables designated as Eligible Receivables
meet each requirement set forth below at the time any request for advance is
provided to Lender.
A. Eligible Receivables are genuine; are in all respects what they purport to
be; and are evidenced by at least one executed original instrument, agreement,
contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto;
C. The amounts of the face value shown on any schedule of Receivables
provided to Lender, and/or all invoices or statements delivered to Lender with
respect to any Eligible Receivables, are actually and absolutely owing to
Borrower and are not contingent for any reason;
D. No set-offs, counterclaims or disputes as to payments or liability thereon
exist or have been asserted with respect thereto and Borrower has not made any
agreement with any Account Debtor thereunder for any deduction therefrom, except
a discount or allowance allowed by Borrower in the ordinary course of its
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount of
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the Receivable shown on any schedule, or on all contracts, invoices or
statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed; and (ii) generally have the ability to pay their
debts as become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened or
pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any other
person or entity;
I. The goods giving rise to the Eligible Receivables are not, and were not at
the time of the sale, rental and/or lease thereof, subject to any lien, claim,
encumbrance or security interest except those of Lender, those removed or
terminated prior to the date hereof or those subordinated to Lender's security
interest, by a subordination and standstill agreement acceptable to Lender;
J. The End of Month Delinquency set forth in Section 12 of the Availability
Report shall be delivered to Lender by Borrower hereunder as determined pursuant
to the Aging Procedures and Eligibility Test (SCHEDULE SECTION 1.9.D.).
6. COVENANTS AND OTHER AGREEMENTS
6.1. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as
any of THE INDEBTEDNESS remains unpaid, Borrower and Guarantor agree and
covenant, jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due. This provision shall not apply to taxes
or expenses which are due, but which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not limited
to, keeping documents, instruments or other written records otherwise evidencing
the Collateral in a fire proof cabinet.
C. Furnish to Lender written notice as to the occurrence any Default or Event
of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the business,
financial condition, properties or assets of Borrower or Guarantor, that would
have or has a materially adverse affect on such business, financial condition,
properties or assets, or
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ability to perform their obligations under this Agreement and (ii) any material
and adverse litigation or investigation to which either of them may be a party.
E. Carry on and conduct their business in the same manner and in the same
fields of enterprise as they are presently engaged, and Borrower shall preserve
its corporate existence, licenses or qualifications as a domestic corporation in
the jurisdiction of its incorporation and as a foreign corporation in every
jurisdiction in which the character of its assets or properties or the nature of
the business transacted by it at any time makes qualification as a foreign
corporation necessary, and to maintain all other material corporate rights and
franchises, provided, however, nothing herein shall be construed to prevent
Borrower from closing any retail location in the good faith exercise of its
business judgment.
F. Comply, and cause each affiliate to comply, with all statutes,
governmental rules and regulations applicable to them.
G. Permit and authorize Lender, without notifying Borrower or Guarantor, to
make such inquiries through business credit or other credit reporting services
concerning Borrower or Guarantor as Lender shall deem appropriate.
H. Provide Lender with evidence of insurance issued by a reputable carrier,
as reasonably required by Lender. This insurance shall reflect Lender as the
loss payee or additional insured, as required by Lender, and contain a provision
that Lender shall be notified by the carrier thirty (30) days prior to the
termination or cancellation of any such insurance.
I. Charge off the outstanding balance of all Receivables for which a payment
has not been received within One Hundred and Eighty (180) days of the
contractual due date of such payment. If such charge off is not reflected in
Borrower's monthly financial statements immediately following the expiration of
such One Hundred and Eight (180) day period, the amount of such outstanding
balance shall be deemed to be an intangible asset for the purpose of determining
Tangible Net Worth.
6.2. NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness secured hereby has been paid in full, Borrower and Guarantor
covenant and agree that they shall not, without Lender's prior written consent,
which consent shall not be unreasonably withheld, do any of the following:
A. Incur or permit to exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender.
B. Delegate, transfer or assign any of their obligations or liabilities under
this Agreement, or any part thereof, to any other person or entity.
C. Be a party to or participate in: (i) any merger or consolidation; (ii) any
purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class
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of, or any partnership or joint venture interest in, any other corporation or
entity; (iii) any sale, transfer, conveyance or lease of all or substantially
all of Borrower's assets or properties; or (iv) any sale or assignment with or
without recourse of any Receivables.
D. Cause or take any of the following actions with respect to Borrower: (i)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's outstanding securities; or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity.
E. Amend, supplement or otherwise modify Borrower's Articles of Incorporation
or Bylaws which would have a material adverse affect on the condition and
operations, prospects or financial condition of the Borrower.
F. Incur, assume or suffer to exist any debt (including capitalized leases)
other than (i) the Indebtedness, (ii) accounts payable incurred in the ordinary
course of business, (iii) Subordinated Debt, or (iv) other Debt consented to in
writing by Lender.
G. Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any person or entity, other than in the ordinary course of
Borrower's business.
H. Amend, modify, or otherwise change in any respect any material agreement,
instrument, or arrangement (written or oral) by which Borrower, or any of its
assets, are bound..
I. Allow Borrower to be owned and controlled directly or indirectly by any
person or entity other than the shareholders and senior management that own and
control Borrower as of the date hereof.
J. Permit the Leverage Ratio to be more than the Leverage Ratio Limit
(SCHEDULE SECTION 6.2.A.).
K. Permit the Net Income to be less than the Minimum Net Income requirement.
(SCHEDULE SECTION 6.2.B).
L. Make or allow Distributions, in the aggregate, to exceed the distributions
limitation (SCHEDULE SECTION 6.2.C.); provided, however, that no Distribution
shall be made if a Default or an Event of Default shall exist.
7. EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender is
not paid within five (5) days after the same shall be due and payable.
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B. If Borrower or Guarantor fails or neglects to perform, keep or observe any
of the terms, provisions, conditions or covenants, contained in this Agreement,
any of the other Loan Documents or any other agreement or document executed in
connection with the transactions contemplated by this Agreement or if any
representation, warranty or certification made by Borrower herein or in any
certificate or other writing delivered pursuant hereto shall prove to be untrue
in any material respect as of the date upon which the same was made or at any
time thereafter, and the same is not cured to Lender's satisfaction within ten
(10) days after Lender has given written notice to Borrower identifying such
default.
C. If the validity or enforceability of any lien, charge, security interest,
mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
D. If any judgment against Borrower not covered by insurance in an amount in
excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or other
levy against the properties or assets of Borrower with respect to a claim for
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days.
E. Default in the payment of any sum due under any instrument of indebtedness
for borrowed money owed by Borrower or any Guarantor to any person, or any other
default under such instrument of indebtedness for borrowed money that permits
such indebtedness for borrowed money to become due prior to its stated maturity
or permits the holders of such indebtedness for borrowed money to elect a
majority of the board of directors or manage the business of Borrower or any
Guarantor.
F. If a court or governmental authority of competent jurisdiction shall enter
an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole or
any substantial part of its properties or assets, or approving a petition filed
against Borrower or Guarantor seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law, and such order, judgment or decree
shall remain unvacated, unstayed or not set aside for an aggregate of thirty
(30) days (whether or not consecutive) from the date of the entry thereof or if
any petition seeking such relief shall be filed against Borrower or Guarantor
and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower or
Guarantor.
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H. If either Borrower or Guarantor shall: (i) be generally not paying their
respective debts as they become due; (ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act or other act for the relief or
aid of debtors; (iii) make an assignment for the benefit of their creditors;
(iv) consent to or acquiesce in the appointment of a receiver, custodian,
liquidator, trustee or other officer with similar powers of either of their
properties or assets; (v) file a petition or answer seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the federal bankruptcy laws or any other applicable law; (vi) be
adjudicated insolvent or be liquidated; (vii) admit in writing either of their
inability to pay debts as they become due; (viii) voluntarily suspend
transaction of usual business; or (ix) take any action, corporate or otherwise,
for the purpose of any of the foregoing.
I. Any of the following shall occur: (i) entry of a court order that enjoins,
restrains or in any way prevents Borrower from conducting all or any material
part of its business affairs in the ordinary course of business or (ii)
withdrawal or suspension of any license or authority required for the conduct of
any material part of Borrower's business.
J. If any Guarantor gives notice of termination or terminates his liability
pursuant to the Guaranty Agreement executed in conjunction with this Agreement.
K. The breach of terms or conditions of any Agency and Custodian Agreement
executed in conjunction with this Agreement.
7.2. ACCELERATION OF THE INDEBTEDNESS. Upon and after an Event of Default,
the outstanding principal balance together with all accrued but unpaid interest
on the Indebtedness and all other sums due and payable by Borrower to Lender
may, at the option of Lender and without demand, presentment, notice of
dishonor, notice of intent to demand or accelerate payment, diligence in
collecting, grace, notice and protest or a legal process of any kind, all of
which are hereby expressly waived, be declared, and immediately shall become due
and payable.
7.3. LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is
domiciled in, or Collateral is located in, Louisiana, and to the extent of such
domicile or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby confesses judgment, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during the
life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured
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to be seized and sold by executory process issued by any competent court or to
proceed with enforcement of its security interest in any other manner provided
by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the immediate
seizure of the Collateral in the event of suit thereon.
7.4. REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be non-exclusive,
cumulative and in addition to each and every other remedy set forth in the Loan
Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon
the premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower notice and opportunity for a hearing on the validity of
Lender's claim, and remove the Collateral therefrom to the premises of Lender or
any agent of Lender, for such time as Lender may desire, in order to effectively
collect and liquidate the Collateral; and/or (ii) require Borrower to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its
then condition at public or private sale or sales, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable; provided
that such sales may be adjourned from time to time with or without notice. The
requirement of reasonable notice to Borrower of the time and place of any public
sale of the Collateral or of the time after which any private sale either by
Lender or at its option, a broker, or any other intended disposition thereof is
to be made, shall be met if such notice is mailed, postage prepaid, to Borrower
at the address of Borrower designated herein at least ten (10) Business Days
before the date of any public sale or at least ten (10) Business Days before the
time after which any private sale or other disposition is to be made unless
applicable law requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use,
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without charge, Borrower's labels, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit. Lender agrees to hold
Borrower harmless from any liability arising out of Lender's use of Borrower's
premises, labels, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature as
it pertains to advertising for sale, marshalling or selling the Collateral.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or part of the Collateral at public or, if permitted
by law, private sale and, in lieu of actual payment of such purchase price, may
set off the amount of such price against the Indebtedness owing by Borrower to
Lender. The proceeds realized from the sale of any Collateral shall be applied
first to reasonable costs and expenses, attorney's fees, expert witness fees
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to all payments,
other than principal and interest, due under this Agreement; third to interest
due upon any of the Indebtedness; fourth to the principal balance owing on the
Indebtedness; and fifth the remainder, if any, to Borrower, its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
D. In the event that Borrower is domiciled in, or Collateral is located in,
Louisiana, and to the extent of such domicile or location where Louisiana law is
applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement, appraisement being hereby expressly waived, as an entirety
or in parcels, as Lender may determine, to the highest bidder for cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5. NO WAIVER. No delay, failure or omission of Lender to exercise any right
upon the occurrence of any Default or Event of Default shall impair any such
right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed in writing by Lender. No waiver of any
Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to
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this Agreement or any other written agreement between the parties hereto shall
be valid or effective (or serve as a basis of reliance by way of estoppel)
unless the same is in writing and signed by the party against whom it is sought
to be enforced. The acceptance by Lender at any time and from to time of a
partial payment or partial performance of any of Borrower's obligations set
forth herein shall not be deemed a waiver, reduction, modification or release
from any Default or Event of Default then existing. No waiver by Lender of any
Default or Event of Default shall be deemed to be a waiver of any other existing
or any subsequent Default or Event of Default.
7.6. GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold
Lender harmless from and against any and all claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (collectively "Claim" or "Claims") of any kind or nature
whatsoever, asserted by any party other than Borrower, or with respect to
Borrower only as otherwise provided in this Agreement or pursuant to applicable
law regarding Lender's obligations to Borrower, which may be imposed on,
incurred by or asserted against Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) in any way relating to or arising out of the Loan Documents or
any action taken or omitted by Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) under the Loan Documents, except to the extent such indemnified
matters are finally found by a court to be caused by Lender's gross negligence
or willful misconduct.
7.7. APPLICATION OF PROCEEDS. After an Event of Default shall have occurred
and is continuing, all amounts received by Lender on account of any Indebtedness
and realized by Lender with respect to the Collateral, including any sums which
may be held by Lender, or the proceeds of any thereof, shall be applied in the
same manner as proceeds of Collateral as set forth in Section 7.4.C. hereof.
7.8. APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's name,
at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative duties
pursuant to this Agreement, including, but not limited to, the execution of
financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.8.C below, at the cost and expense of Borrower.
C. In addition to, but not in limitation of, the foregoing, at any time or
times upon the occurrence of an Event of Default, Lender shall have the right:
(i) to enter upon Borrower's premises and to receive and open all mail directed
to Borrower and remove all payments to
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Borrower on the Receivables; however, Lender shall turn over to Borrower all of
such mail not relating to Receivables; (ii) in the name of Borrower, to notify
the Post Office authorities to change the address for the delivery of mail
addressed to Borrower to such address as Lender may designate (notwithstanding
the foregoing, for the purposes of notice and service of process to or upon
Borrower as set forth in this Agreement, Lender's rights to change the address
for the delivery of mail shall not give Lender the right to change the address
for notice and service of process to or upon Borrower in this Agreement); (iii)
demand, collect, receive for and give renewals, extensions, discharges and
releases of any Receivable; (iv) institute and prosecute legal and equitable
proceedings to realize upon the Receivables; (v) settle, compromise, compound or
adjust claims in respect of any Receivable or any legal proceedings brought in
respect thereof; (vi) generally, sell in whole or in part for cash, credit or
property to others or to itself at any public or private sale, assign, make any
agreement with respect to or otherwise deal with any of the Receivables as fully
and completely as though Lender were the absolute owner thereof for all
purposes, except to the extent limited by any applicable laws and subject to any
requirements of notice to Borrower or other persons under applicable laws; (vii)
take possession and control in any manner and in any place of any cash or
non-cash items of payment or proceeds of Receivables; (viii) endorse the name of
Borrower upon any notes, acceptances, checks, drafts, money orders, chattel
paper or other evidences of payment of Receivables that may come into Lender's
possession; and (vii) sign Borrower's name on any instruments or documents
relating to any of the Collateral, or on drafts against Account Debtors.
The appointment of Lender as attorney-in-fact for Borrower is coupled with an
interest and is irrevocable.
8. MISCELLANEOUS
8.1. REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, except as
set forth in the SCHEDULE SECTION 8.1., Borrower agrees to reimburse Lender,
upon demand, for all reasonable out-of-pocket expenses (including costs of
establishing and maintaining accounts or arrangements set forth in Section 3.9,
attorney's fees, expert witness fees and legal expenses) incurred in connection
with the evaluation of collateral, preservation of collateral, or collection of
the indebtedness.
8.2. NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent if
sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or Schedule Section 8.2,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
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Lender shall have the right, on or after initial funding pursuant to the
terms of this Agreement, to issue a press release or other brochure announcing
the consummation of the Loan Documents and to distribute that information to
third parties in the normal course of Lender's business, at no cost to Borrower.
8.3. PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that
Lender may from time to time sell or offer to sell interests in the Indebtedness
and the Loan Documents to one or more participants. Borrower and Guarantors
authorize Lender to disseminate any information it has pertaining to the
Indebtedness, including without limitation, complete and current credit
information on Borrower and any of its principals and Guarantors, to any such
participant or prospective participant.
8.4. SURVIVAL OF AGREEMENTS. All of the various representations, warranties,
covenants and agreements of Borrower (including without limitation, any
agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and the
performance under such Loan Documents, and shall further survive until one (1)
year and one (1) month after all of the Indebtedness is paid in full to Lender
and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
8.5. NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that
upon the Maturity Date, Lender shall have no obligation to renew, extend, modify
or rearrange the Loan and shall have the right to require all amounts due and
owing under the Loan to be paid in full upon such date.
8.6. PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and
only agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
8.7. PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not assign
any of their respective rights or obligations pursuant this Agreement.
8.8. NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
8.9. NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
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8.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which taken together shall constitute but one and the same instrument.
8.11. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
8.12. HEADINGS. The Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
8.13. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby
expressly incorporated by reference as though fully set forth at that point
verbatim. All terms and provisions as defined or set forth in Article I and in
any Schedule are hereby incorporated into and made a part of this Agreement.
Each reference in this Agreement and the Schedule hereto to any information or
definitions contained in Article I or the Schedule shall mean and refer to the
information or definitions as set forth in Article I and the Schedule unless the
context specifically requires otherwise. Any terms used in Article I and in the
Schedule which are not defined shall have the meanings ascribed to such terms,
as of the date of this Agreement, by the Uniform Commercial Code as enacted in
the State of Arizona to the extent the same are defined therein.
8.14. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto and
to the other Loan Documents and all such financing statements or continuation
statements, instruments of further assurance and any other instruments, and
shall take such other actions, as Lender reasonably requests and deems necessary
or advisable in furtherance of the agreements contained herein.
8.15. LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL OF
LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES
SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR BREACH
OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY THE ACTS
OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT
LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES
AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING
SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL BE
PAYABLE ON DEMAND.
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8.16. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
8.17. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER HEREBY CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID COUNTY AND STATE AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
BORROWER, AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE SECTION 8.17 AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
8.18. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR HEREBY
WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, AND ONE OR MORE
EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND HEARING
PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR THE LENDER'S REPLEVIN,
ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT
BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY OF THE
LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT OR
EXEMPTION LAWS.
8.19. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THEY
HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH RESPECT TO
THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE TRANSACTION
GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE PROVISIONS
CONTAINED IN SECTIONS 7.3, 8.15, 8.16, 8.17, 8.18, 8.19 and 8.20 HEREOF AND HAS
RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE TERMS
AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING T HIS AGREEMENT, AND THAT
THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS AGREEMENT AS THE PRODUCT OF
ARMS' LENGTH NEGOTIATIONS.
29
<PAGE> 30
8.20. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS
HEREBY COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
ANY MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW EXISTING
OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY: LENDER, BORROWER AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
8.21. TIME OF ESSENCE. Time is of the essence for the performance the
obligations set forth in this Agreement and the Loan Documents.
(Intentionally Left Blank)
30
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first set forth above.
BORROWER:
STEWART FINANCE COMPANY
By:
------------------------------- -------------
Date
GUARANTORS:
LENDER:
GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
By:
------------------------------- -------------
Date
31
<PAGE> 32
FIFTH AMENDED AND RESTATED SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: STEWART FINANCE COMPANY ("LEAD BORROWER")
STEWART FINANCE OF LOUISIANA, INC.
STEWART FINANCE COMPANY OF MISSOURI, INC.
STEWART FINANCE COMPANY HOLDINGS, INC.
STEWART FINANCE COMPANY OF ILLINOIS, INC.
ADDRESS: 610 SIBLEY AVENUE
UNION POINT, GEORGIA 30669
DATE: JANUARY 29,1999
This Fifth Amended and Restated Schedule ("Fifth Amended Schedule") is
executed in conjunction with a certain Loan and Security Agreement
("Agreement") dated December 21, 1994, as an amendment and restatement, and not
a Aemmmibon, of that certain Schedule to Loan and Security Agreement ("Original
Schedule"), dated December 21, 1994, that certain Amended and Restated Schedule
to Loan and Security Agreement ("Amended Schedule"), dated February 6, 1996,
that certain Second Amended and Restated Schedule to Loan and Security
Agreement ("Second Amended Schedule"), dated December 30, 1997, that certain
Third Amended and Restated Schedule to Loan and Security Agreement ("Third
Amended Schedule"), dated September 18, 1998 and that certain Fourth Amended
and Restated Schedule to Loan and Security Agreement ("Fourth Amended
Schedule"), dated December 15,1998, by and between FINOVA Capital Corporation,
previously known as Greyhound Financial Corporation, as Lender, and the above
Borrowers, as Borrowers. Each Borrower shall be separately defined as set forth
in this Fourth Amended and Restated Schedule. All representations, warranties,
covenants, agreements, undertakings or other obligations of Borrowers as set
forth in the Agreement and all other Loan Documents are made by each Borrower
as if separately set forth for each Borrower in the Agreement and the other
Loan Documents. All financial covenants and ratios set forth herein shall be
applied to the Borrowers in the aggregate. All references to Section numbers
herein refer to Sections in the Agreement. The terms of this Fifth Amended
Schedule shall supersede the terms and provisions of the Original Schedule,
Amended Schedule, Second Amended Schedule and Fourth Amended Schedule.
Stewart Finance Company Holdings, Inc. ("Stewart Holdings"), Stewart
Finance Company of Missouri, Inc. ("Stewart of Missouri; and Stewart Finance
Company of Illinois, Inc. ("Stewart of Illinois") are hereby added to the
Agreement as a coborrowers. All references to "Borrower"in the Agreement and all
other Loan Documents shall include both Stewart Holdings, Stewart of Missouri
and Stewart of Illinois, jointly and severally, except for those provisions that
specifically identify any Borrower separately.
Stewart Holdings, Stewart of Missouri and Stewart of Illinois,
hereby acknowledge and agree that Stewart Holdings, Stewart of Missouri and
Stewart of Illinois, shall be added to the Agreement and all other Loan
Documents, as a co-borrower with Stewart Finance Company and Stewart Finance of
Louisiana, Inc., and hereby assumes all obligations and liability as a
co-borrower hereunder. Stewart Holdings, Stewart of Missouri and Stewart of
Illinois additionally acknowledge and agree that Stewart Holdings, Stewart of
Missouri and Stewart of Illinois shall receive a material consideration and
benefit for the credit facility evidenced by the Loan Documents.
1
<PAGE> 33
1.A. BORROWERS (SECTION 1).
All references to "Borrower" in any and all Loan Documents
are hereby modified to include the following Borrowers, as
co-borrowers, jointly and severally:
<TABLE>
<S> <C>
Stewart Finance Company "Stewart" or "Lead Borrower"
Stewart Finance of Louisiana, Inc. "Stewart of Louisiana"
Stewart Finance Company Holdings, Inc. "Stewart Holdings"
Stewart Finance Company of Missouri, Inc. "Stewart of Missouri"
Stewart Finance Company of Illinois, Inc. "Stewart of Illinois"
</TABLE>
1.9.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.9).
The term "Maximum Amount of an Eligible Receivable" shall
mean the sum of Five Thousand Dollars ($5,000.00) remaining
due thereon at any date of determination.
1.9.13. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.9).
The "Maximum Term of an Eligible Net Receivable" shall be
twenty-four(24) months remaining until the due date of such
Eligible Receivable at any date of determination.
1.9.C. RECEIVABLE LIMITATIONS - EXPANDED (SECTION 1.9).
Notwithstanding the provisions of Section 1.9, up to ten
percent (10%) of the aggregate dollar amount of Eligible
Receivables may be composed of Receivables which exceed the
Maximum Amount or the Maximum Term of an Eligible Receivable,
provided said Receivables satisfy all other requirements of
this Section 1.9, and do not exceed the amount of Fifteen
Thousand Dollars ($15,000.00), excluding all unearned finance
charges, time price differentials, insurance fees and other
fees and charges pursuant to the Eligible Receivables
remaining due thereon at any date of determination and do not
exceed sixty (60) months remaining until the due date of such
Eligible Receivable at any date of determination.
1.9.D. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.9).
AGING PROCEDURES FOR A CONTRACTUAL AGING:
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 or to 90 days past due = "90 day Account".
5. 91 or more days past due = "90 + day Account".
2
<PAGE> 34
For the purpose only of calculating the aging of any Receivable hereunder,
Borrower may only grant an Account Debtor two extensions of the principal
portion of a monthly payment due on any Receivable within any twelve (12) month
period that would allow such Receivable to avoid being classified in a
different "past due or missed" payment category set forth above. All extensions
within any twelve (12) month period in excess of two (2) will not be used to
delay or defer aging of such Receivable.
ELIGIBILITY TEST:
The term "Eligibility Test" shall mean the test to determine the eligibility of
a Receivable for the purposes of Section 1.9 hereof, that test, being as
follows: no payment due on said Receivable remains unpaid more than ninety (90)
days from the specific date on which such payment was due pursuant to the terms
of said Receivable.
1.27 ADDITIONAL DEFINITIONS (SECTIONS 1.27 AND 1.28).
The following definitions shall be added in their entirety to
the Loan Agreement:
1.27 CHARGE OFFS. The term "Charge Offs"shall mean
the amount due (including the principal balance plus
all earned fees and charges) pursuant to a
Receivable on the date that Borrower charges off
such Receivable as uncollectible, pursuant to
Borrower's policies and/or procedures
1.28 COLLATERAL RECOVERY RATE. The term "Collateral
Recovery Rate" shall mean, for any period of
determination, (i) the total cash collected from all
Receivables (including but not limited to all cash
proceeds from charge off recoveries), divided by
(ii) the sum of (a) the total cash collected from
all Receivables (excluding all cash proceeds from
charge off recoveries) plus (b) the aggregate of all
Charge Offs for that period.
2.1.A. AMOUNT OF REVOLVING CREDIT LINE (SECTION 2.1):
Seven Million Dollars ($7,000,000.00)
(i) If the date of determination is on or before April
____, 1999, then the Amount of Revolving Credit Line
shall be Seven Million Dollars ($7,000,000.00). Five
Hundred Thousand Dollars ($500,000.00) of the above
Seven Million Dollars ($7,000,000.00) represents a
temporary overline granted to Borrower that expires
on April 30, 1999.
(ii) If the date of determination is after April 30,1999,
then the Amount of Revolving Credit Line shall be
Six Million Five Hundred Thousand Dollars
($6,500,000.00).
2.1.13. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
The "Availability on Eligible Receivables" shall be an amount equal to
sixty-five percent (65%) of the aggregate unmatured and unpaid amount due to
Borrower from the Account Debtor named thereon, including all unearned finance
charges, time price differentials, insurance fees and other fees and charges
pursuant to the Eligible Receivables
3
<PAGE> 35
Notwithstanding any provision contained in the Loan Documents to the contrary,
if (i) on the last day of any calendar month immediately prior to any date of
determination, the aggregate outstanding balance of all Receivables that are
more than thirty (30) days past due divided by the aggregate outstanding
balance of all Receivables is greater than fifteen percent (15%); (ii) for the
calendar month immediately prior to any date of determination the cash
collections from all Receivables received by Borrower during such month of
determination divided by the aggregate outstanding balance of all Receivables,
as of the first day of such month of determination, is less than ten percent
(10%); or (iii) if, for the twelve (12) calendar month period immediately prior
to any date of determination, the Collateral Recovery Rate is less than
eighty-five percent (85%), then upon the occurrence of either event, Lender, in
its sole and absolute discretion, may modify the Availability on Eligible
Receivables advance percentage set forth above:
2.2. STATED INTEREST RATE (SECTION 2.2).
The lesser of (i) the Governing Rate plus three percent
(3.00%) per annum; or (ii) the Maximum Rate.
2.3. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on January
31, 2002. If Borrower desires to extend the primary term or
any term thereafter of this Agreement, Borrower shall give
Lender notice of its intent to extend the term no earlier
than one hundred and eighty (180) days and no later than one
hundred and fifty (150) days prior to any expiration date of
this Agreement. Upon the receipt by Lender of Borrowers
notice to extend the term of this Agreement, if Lender
desires to renew and extend the term of this Agreement,
Lender shall give Borrower notice of Lender's intent to
extend the term of this Agreement, within sixty (60) days of
Lender's receipt of Borrowers notice to extend. If Lender
does not give Borrower notice of Lender's intent to extend
the term of this Agreement within the sixty (60) days period,
then it shall be deemed that Lender does not intend to renew
and extend the term of this Agreement. Notwithstanding the
foregoing, this Agreement shall remain in full force and
effect until the Indebtedness due and owing to Lender has
been paid in full.
2.6. VOLUNTARY PREPAYMENTS (SECTION 2.6)
Section 2.6 of the Loan and Security Agreement is here by
deleted in its entirety and the following is substituted in
lieu thereof:
2.6. VOLUNTARY PREPAYMENTS.
Borrower may, at its option, voluntarily prepay the
Indebtedness in full at any time, provided, however,
that Borrower has given Lender ninety (90) days
written notice of any such intention to prepay the
Indebtedness in full, and if before January 31,
2001, Borrower pays the balance of the Indebtedness
in full and Borrower requests Lender to terminate
Lender's security interest in the Collateral, the
liquidated damages shall be an amount equal to one
percent (1.00%) of the highest balance of the
Indebtedness outstanding on or after January 31,
1998, but before January 31, 2002.
2.14 JOINT AND LEAD BORROWER PROVISIONS (SECTIONS 2.14,2.15 AND 2.16)
4
<PAGE> 36
The following Sections 2.14, 2.15 and 2.16 are hereby added
to the Agreement:
"2.14 APPLICATION OF PAYMENTS. All payments and collections
shall be deemed to be comprised of a pro rata remittance or
payment made by each Borrower, based upon the proportion that
each Borrower's Eligible Receivables bear to the aggregate of
all Eligible Receivables of the Borrowers, as of the date on
which such remittance or payment is received by Lender. In
the event such remittance or payment shall be made by the
Lead Borrower, acting as agent or trustee for the other
Borrowers, each Borrower shall be deemed to have made their
proportionate amount of such remittance or payment to Lender
by and through such agent or trustee.
2.15. ADVANCES TO LEAD BORROWER. Borrower does hereby
irrevocably agree that in the event Lender makes advances to
Lead Borrower, as agent or trustee for each of Borrower, as
contemplated in Section 2.16, each such advance shall be
deemed to be made to each Borrower based upon a proportion
that each Borrower's Eligible Receivables bear to the
aggregate of all Eligible Receivables of Borrower,
notwithstanding any subsequent disbursement of said advance
by the Lead Borrower, acting as agent or trustee for the
Borrowers. In the event that the actual advances, direct or
indirect, received by Lead Borrower or any other Borrower or
the balance due to Lender as shown in the records of any
Borrower shall be disproportionate when compared to the
proportion of the Eligible Receivables of each Borrower,
whether by way of subsequent disbursements by Lead Borrower,
acting as agent or trustee, by way of Lender electing to make
advances to each Borrower, as contemplated in Section 2.16 or
otherwise, such disproportionalities shall be deemed to have
occurred by virtue of loans made between and among Borrowers.
2.16 APPOINTMENT OF AGENT. Lender agrees that, in the sole
discretion of Lender, Borrower may, by written notice to
Lender, designate a Lead Borrower to receive advances from
Lender, make payments to Lender, communicate with Lender and
generally represent the interests of the Borrowers with
respect to the subject matter of this Agreement;
notwithstanding the foregoing, Lender may, at its sole
discretion and upon notice to each of the Borrowers, make
advances directly to each of the Borrowers, require that
payments due hereunder be made to Lender by each of the
Borrowers, require each of the Borrowers to communicate
directly with Lender, for its own account, and generally deal
independently and separately with each of the Borrowers.
Until so notified by Lender, each of the Borrowers hereby
agree that any and all funds advanced by Lender pursuant to
the terms of this Agreement, shall be advanced to the Lead
Borrower and may be deposited or transferred into the general
corporate account of Lead Borrower, as agent and/or trustee
for Borrowers. Lead Borrower hereby agrees to keep detailed
and accurate records of all such disbursements made to any
other Borrowers. Lead Borrower hereby agrees to keep detailed
and accurate records of all loans and dealings between or
among Lead Borrowers and the other Borrowers. Borrowers agree
to furnish copies of such records to Lender upon request.
Each Borrower, other than the Lead Borrower hereby
irrevocably makes, constitutes, designates and appoints Lead
Borrower as its agent and/or trustee with full power to
receive all notices, request all Advances hereunder and to
deal generally with Lender as agent and/or trustee for the
Borrowers and Lead Borrower is hereby granted full power and
authority to bind the Borrowers in respect of any term,
condition, covenant or undertaking embraced in this
Agreement. Lender may, without liability or responsibility to
the Borrowers rely upon the instructions or other
communications of Lead Borrower on behalf of each of the
Borrowers in connection with any notifications, requests or
communications required or permitted to be given hereunder
with the same force and effect as if actually given by each
Borrower; each Borrower hereby agrees to indemnify and hold
Lender harmless from and against any liability, claim, suit,
action, penalty, fine or damage arising out of or incurred in
connection with Lender's reliance upon communications from
Lead Borrower on behalf of the Borrowers. It is specifically
understood and agreed that any Advance made hereunder by
Lender to Lead Borrowershall be considered and treated as an
Advance to the Borrowers and each
5
<PAGE> 37
Borrower shall be jointly and severally liable therefor."
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2,3.6 AND 5.1.N.).
All locations are as follows on attached Exhibit "A"
3.15 CROSS COLLATERALIZATION (SECTION 3.15)
The following Section 3.15 is hereby added to the Agreement:
"3.15 CROSS COLLATERALIZATION. Each Borrower agrees
that the Collateral of each Borrower pledged
hereunder shall secure all of the obligations of the
Borrowers to Lender hereunder. Upon and after an
Event of Default by any Borrower, Lender may pursue
all rights and remedies it may have against all or
any part of the Collateral regardless of the status
of legal title to such Collateral. Each Borrower
hereby acknowledges that this Cross Collateral-
ization of their Collateral is in consideration of
Lender's extending the credit hereunder and mutually
beneficial to each Borrower."
4.4. ANNUAL FINANCIAL STATEMENTS (SECTION 4.4).
Annual audited financial statements to be prepared
by certified public accountants, acceptable to
Lender.
4.5. GUARANTOR (WHETHER ONE OR MORE) (SECTION 4.5).
John Benjamin Stewart, Jr. and Janice Stewart
5.1. BORROWER'S TRADENAMES (WHETHER ONE OR MORE)(SECTION 5.1.B.)
None
6.1. AFFIRMATIVE COVENANTS (SECTION 6.1.1).
The following Section 6.1.1 shall be deleted in its entirety
from the Loan and Security Agreement:
"Charge off the outstanding balance of all Receivables for
which a payment has not been received within One Hundred and
Eighty (180) days of the contractual due date of such
payment. If such charge is not reflected in Borrower's
monthly financial statements immediately following the
expiration of such One Hundred and Eighty (180) day period,
the amount of such outstanding balance shall be deemed to be
an intangible asset for the purpose of determining Tangible
Net Worth."
6
<PAGE> 38
6.2. NEGATIVE COVENANTS (SECTIONS 6.2.J., 6.2.K AND 6.2.L).
The following covenants set forth in Sections 6.2.J., 6.2.K.
and 6.21. shall be deleted in its entirety from the Loan and
Security Agreement:
"J. Permit the Leverage Ratio to be more than the
Leverage Ratio Limit."
"K. Permit the Net Income to be less than the
Minimum Net Income requirement."
"L. Make or allow Distributions, in the
aggregate, to exceed the distributions
limitation; provided, however, that no
Distributions shall be made if a Default or
an Event of Default shall exist."
6.3. JOINT NEGATIVE COVENANTS
The following Joint Negative Covenants shall be added as
Sections 6.3.A., 6.3.B., 6.3.C., 6.3.D. and 6.3.E. to the
Loan and Security Agreement:
"6.3. JOINT NEGATIVE COVENANTS. During the term of
this Agreement until the Indebtedness secured hereby
has been paid in full, both Borrowers, as defined in
(Schedule Section 1.A.) jointly covenant and agree
that they shall not, allow or permit any of the
following, which covenants shall be applied in the
aggregate by combining each element of such
financial covenants for each Borrower:
A. Permit the aggregate Leverage Ratio
to be more than the Leverage Ratio
Limit. The term "Leverage Ratio
Limit"shall mean 4.0 to 1.0.
B. Permit the aggregate Net Income to
be less than the Minimum Net Income
Requirement. The Minimum Net Income
requirement shall be One Dollar
($1.00) for each fiscal month.
C. Make or allow Distributions, in the
aggregate, to exceed, without
Lender's prior written consent,
which consent shall not be
unreasonably withheld, the
Distributions Limitation: provided,
however, that no Distribution shall
be made if a Default or an Event of
Default shall exist. The
Distributions Limitation shall be
Seventy-Five percent (75%) of Net
Income
D. Allow Borrower's Minimum Tangible
Net for any fiscal year of
Borrower. Worth, on any date of
determination, to be One Dollar
($1.00), to be determined as of
the last day of each fiscal month
during the term hereof.
E. Allow Borrower's Minimum Tangible
Net Worth and Subordinated Debt,
to be Seven Million Five Hundred
Thousand Dollars, to be determined
as of the last day of each fiscal
month during the term hereof.
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
None in addition of those otherwise set forth in the Loan
Documents.
7
<PAGE> 39
8.2. NOTICES (SECTION 8.2).
Lender: FINOVA Capital Corporation (copy each
office below with all notices)
CORPORATE FINANCE OFFICE:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice
President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
CORPORATE OFFICE:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Senior Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
REDISCOUNT FINANCE OFFICE:
FINOVA Capital Corporation
16633 Dallas Parkway, Suite 700
Addison, TX 75001
Attn: Frank Durkee (Account Executive)
Telephone: (972) 764-1100
Telecopy No.: (972) 764-1149
Borrower: Stewart Finance Company
Stewart Finance of Louisiana, Inc.
Stewart Finance Company Holdings, Inc.
Stewart Finance Company of Missouri, Inc.
Stewart Finance Company of Illinois, Inc.
610 Sibley Avenue
Union Point, GA 30669
Telephone:
-------------------------
Telecopy No.
-----------------------
Guarantor: John Benjamin Stewart, Jr. and
Janice Stewart
105 Thornton Street
Union Point, GA 30669
Telephone:
------------------------
Telecopy No.
-----------------------
8.17. AGENT FOR SERVICE OF PROCESS (SECTION 8.17).
John Benjamin Stewart, Jr., whose address is 610 Sibley
Avenue, Union Point, GA 30669. (Agent)
8
<PAGE> 40
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and year
first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
-------------------------------------------------
(Signature)
----------------------------------------------------
(Printed Name and Title) (Date)
BORROWER:
STEWART FINANCE COMPANY
By:
-------------------------------------------------
(Signature)
John Benjamin Stewart, Jr., President
----------------------------------------------------
(Printed Name and Title) (Date)
STEWART FINANCE OF LOUISIANA, INC.
By:
-------------------------------------------------
(Signature)
John Benjamin Stewart, Jr., President
----------------------------------------------------
(Printed Name and Title) (Date)
STEWART FINANCE COMPANY OF MISSOURI, INC.
By:
-------------------------------------------------
(Signature)
John Benjamin Stewart, Jr., President
----------------------------------------------------
(Printed Name and Title) (Date)
STEWART FINANCE COMPANY OF ILLINOIS, INC.
By:
-------------------------------------------------
(Signature)
John Benjamin Stewart, Jr., President
----------------------------------------------------
(Printed Name and Title) (Date)
9
<PAGE> 41
STEWART FINANCE COMPANY HOLDINGS, INC.
By:
-------------------------------------------------
(Signature)
John Benjamin Stewart, Jr., President
----------------------------------------------------
(Printed Name and Title) (Date)
GUARANTORS:
----------------------------------------------------
John Benjamin Stewart, Jr.
----------------------------------------------------
Janice Stewart
10
<PAGE> 42
EXHIBIT "A"
133 Broad Street
Sparta, GA 31087
106 West Main Street
Warrenton, GA 30828
Victory Square Shopping Center
1915 E. Victory Drive
Savannah, GA 31404
3600 Buena Vista Rd.
Columbus, GA 31901
5915 LaPalco Blvd., Suite 10D
Marrero, LA 70072
165 S. Elm Street
Commerce, GA
610 Sibley Ave.
P.O. Box 213
Union Point, GA 30669
3876 Pio Nono Ave.
Macon, GA 31206
223 W. Broughton St.
P. 0. Box 9327
Savannah, GA 31412
1100 Stump Blvd.
Gretna, GA 70053
4715 Lee Street
Alexandria, LA 71302
1271-A East Broad St.
Greensboro, GA
Willowood Shopping Center
4036 Lexington Road
Athens, GA 30605
137 Court Square
P. 0. Box 341
Franklin, GA 30217
1647 Gordon Hwy.
Augusta, GA 30906
3303-A Tulane Ave.
New Orleans, LA 70119
638 Shurling Drive
Macon, GA 31211
5784 Crowder Blvd.
New Orleans, LA 70127
356 Habersharn Hills Circle
Cornelia, GA 30531
2879 East Point St., Suite 5
East Point, GA 30344
400 Mudd Street
Lafayette, LA 70501
4432 Florida Blvd.
Baton Rouge, LA 70806
625 Broad Street
Lake Charles, LA 70601
4001 Jewella, Suite A
Shreveport, LA 71109
7909 Airline Hwy.
Metairie, LA 70003
1860 Lafayette Rd., Suite 23
Ft. Oglethorpe, GA 30742
3000 North Market, Suite 158
Shreveport, LA 71107
3301-B Tulane Avenue
New Orleans, LA 70119
210 Hwy. 49 South
Byron, GA 31008
1605 Louisville St., Suite 1
Monroe, LA 71202
3530 Flat Shoals Rd., Suite A
Decatur, GA 30034
1104 East Main, Suite F
New Iberia, LA 70560
110 Chickamauga Ave.
Rossville, GA 30741
2630-B Martin Luther King
Atlanta, GA
41 Marietta St., N.W., Suite 81
Atlanta, GA
431 Grand Caillou Road
Houma, GA 70363
11
<PAGE> 43
7200 State Street
East St. Louis, IL 62203
625 N. Euclid, Suite #100
St. Louis, MO 63108
1438 N. 13 St.
St. Louis, MO 63103
514 S. Vienna St.
Ruston, LA 71270
12
<PAGE> 1
EXHIBIT 10.2
<TABLE>
<S> <C> <C>
STEWART FINANCE COMPANY COMMUNITY BANK & TRUST WRS
BEN STEWART 448 North Main Street Loan Number: 42798060
P.O. Box 213 Cornelia, GA 30531 Date: 5/18/99
Union Point, GA 30669-0000 Maturity Date: 5/18/00
Loan Amount:1500000.00
Renewal Of: 703994405
</TABLE>
Borrower's Name and Address Lender's Name and Address
"I" includes each Borrower above, "You" means the Lender, its
jointly and severally successors and assigns
For value received, I promise to pay to you, or your order, at your address
listed above, the PRINCIPAL sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100
Dollars $1,500,000.00
[ ] SINGLE ADVANCE: I will receive
all of this principal sum on __________________. No additional advances are
contemplated under this note.
[X] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On ______________ I will receive the
amount of $_____________________ and future principal advances are
contemplated.
CONDITIONS: The conditions for future advances are UPON
REQUEST OF BORROWER AND APPROVAL OF LENDER.
[X] OPEN END CREDIT: You and I agree that I may borrow up to
the maximum amount of principal more than one time. This feature is
subject to all other conditions and expires on ___________________.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up
to the maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
4/29/98 at variable rate indicated below until paid in full, the initial
interest rate being 10.500%.
[ ] VARIABLE RATE: This rate may then change as stated below.
[ ] INDEX RATE: The future rate will be 2.000% PLUS the
following index rate: INDEX 16 - WALL STREET JOURNAL DAILY.
[ ] NO INDEX: The future rate will not be subject top any
internal or external index. It will be entirely in your control.
[X] FREQUENCY AND TIMING: The rate on this note may change as
often as daily. A change in the interest rate will take effect same
day as prime changes.
[ ] LIMITATIONS: During the term of this loan, the applicable
annual interest rate will not be more than _____________________% each
_______________________.
EFFECT OF VARIABLE RATE: A change in the interest rate will
have the following effect on the payments:
[ ] The Amount of each scheduled payment will change.
[ ] The Amount of the final payment will change.
ACCRUAL METHOD: Interest will be calculated on a actual/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of
this note owing after maturity, and until paid in full, as stated
below:
[X] on the same fixed or variable rate basis in effect before
maturity (as indicated above).
[ ] at a rate equal to _____________________________________.
[X] LATE CHARGE: If a payment is made more than 10 days after it is
due, I agree to pay a late charge of 5% of regular payment or $50.00,
whichever is less.
<PAGE> 2
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are
[X]are not included in the principal amount above: $2,500.00 TRANSACTION FEE
PER EACH ADVANCE.
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest at maturity.
[X] PRINCIPAL: I agree to pay the principal at maturity on May 18, 2000.
[ ] INSTALLMENTS: I agree to pay this note in ___________ payments. The first
payment will be in the amount of $ _____________________________ and will be
due ______________________________________________________ thereafter. The
final payment of the entire unpaid balance of principal and interest will be
due ______________________________________.
[ ] If checked, and this loan is secured by a first lien on real estate, then
any accrued interest not paid when due (whether due by reason of a schedule of
payments or due because of lenders demand) will become part of the principal
thereafter, and will bear interest at the interest rate in effect from time to
time as provided for in this agreement.
ADDITIONAL TERMS:
THIS LOAN IS SECURED BY 100% OF THE OUTSTANDING STOCK OF STEWART
FINANCE COMPANY, UNION POINT, GEORGIA, AND $1,500,000.00 LIFE
INSURANCE POLICY COVERING THE LIFE OF BEN STEWART AND ASSIGNMENT OF
PAYMENT-ESCROW ACCOUNT.
<TABLE>
<S> <C>
[ ] SECURITY: This note is separately secured by PURPOSE: The purpose of this loan is
(describe separate document by type and date): SHORT-TERM CASE RELATED TO DIRECT DEPOSIT.
SIGNATURES AND SEALS: IN WITNESS
WHEREOF, I HAVE SIGNED MY NAME AND
AFFIXED MY SEAL ON THIS _______________
_______________. BY DOING SO, I AGREE TO
THE TERMS OF THIS NOTE (INCLUDING
THOSE ON PAGE 2). I HAVE RECEIVED A
COPY ON TODAY'S DATE.
Signature for Lender ------------------------------------ (Seal)
STEWART FINANCE COMPANY 58-1588374
- ---------------------------------------------------- -------------------------------------(Seal)
BEN STEWART
- ---------------------------------------------------- -------------------------------------(Seal)
-------------------------------------(Seal)
</TABLE>
DEFINITIONS: As used on page 1, "X" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Georgia will govern this note. Any term
of this note which is contrary to applicable law will not be effective, unless
the law permits you and me to agree to such a variation. If any provision of
this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification
of this agreement may be made without your express written consent. Time is of
the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
<PAGE> 3
principal advanced at that time. You and I may provide in this agreement for
accrued interest not paid when due to be added to principal. Notwithstanding
anything to the contrary, I do not agree to pay and you do not intend to charge
any rate of interest that is higher than the maximum rate of interest you could
charge under applicable law for the extension of credit that is agreed to here
(either before or after maturity). If any notice of interest accrual is sent
and is in error, we mutually agree to correct it, and if you actually collect
more interest than allowed by law and this agreement, you agree to refund it to
me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier. SINGLE ADVANCE LOANS: If this is a
single advance loan, you and I expect that you will make only one advance of
principal. However, you may add other amounts to the principal if you make any
payments described in the "PAYMENTS BY LENDER" paragraph below, or if we have
agreed that accrued interest not paid when due may be added to principal.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that y will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promises, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because of my liabilities exceed my assets or I am unable to
pay my debts as they become due); (6) I make any written statement or provide
any financial information that is untrue or inaccurate at the time it was
provided; (7) I do or fail to do something which causes you to believe that you
will have difficulty collecting the amount I owe you; (8) any collateral
securing this note is used in a manner or for a purpose which threatens
confiscation by a legal authority; (9) I change my name or assume an additional
name without first notifying you before
<PAGE> 4
making such a change; (10) I fail to plant, cultivate and harvest crops in due
season; (11) any loan proceeds are used for a purpose that will contribute to
excessive erosion of highly erodible land or to the conversation of wetlands to
produce an agricultural commodity, as further explained in 7 C.F.R. Part 1940,
Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this
note (principal, accrued unpaid interest and other accrued
charges).
(2) You may set off this debt against any right I have to the
payment of money from you subject to the terms of the
"Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional
parties to be obligated to pay this note as a condition for
not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on
credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not
give up your right to later use any other remedy. By waiving
your right to declare an event to be a default, you do not
waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee, not
to exceed 15 percent of the principal and interest then owed, you incur with
such attorney plus court costs (except where prohibited by law). To the extent
permitted by the United States Bankruptcy Code, I also agree to pay the
reasonable attorney's fees and costs you incur to collect this debt as awarded
by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain thins. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of
dishonor); or
(4) give me notice prior to seizure of my personal property when
you are seeking to foreclose a secured interest in any of my
personal property used to secure a commercial transaction.
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a
separate guarantee or endorsement). You may sue me alone, or anyone else who is
obligated on this note, or any number of us together, to collect this note. You
may do so without any notice that it has not been paid (notice of dishonor).
You may without notice release any party to this agreement without releasing
any other party. If you give up any of your rights, with or without notice, it
will not affect my duty to pay this note. Any extension of new credit to any of
us, or renewal of this note by all or less than all of us will not release me
from my duty to pay it. (Of course you are entitled to only one payment in
full). I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note. I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address stated on page 1 of this agreement, or to any
other address that you have designated.
<PAGE> 1
EXHIBIT 10.3
ADOPTION AGREEMENT FOR
PENSION FINANCIAL SERVICES, INC.
STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
(WITH PAIRING PROVISIONS)
The undersigned Employer adopts the Pension Financial Services, Inc.
Standardized 401(K) Profit Sharing Plan and Trust for those Employees who shall
qualify as Participants hereunder, to be known as the
A1 Stewart Finance Company 401(K) Plan
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer: Stewart Finance Company
B2 Address: 610 Sibley Avenue, Union Point, GA 30669
Telephone: (706) 486-4163
B3 Employer Identification Number: 58-1588374
B4 Date Business Commenced: 1984
B5 TYPE OF ENTITY
a. (x) S Corporation
b. ( ) Professional Service Corporation
c. ( ) Corporation
d. ( ) Sole Proprietorship
e. ( ) Partnership
f. ( ) Other _________________________
AND, is the Employer a member of...
<PAGE> 2
g. a controlled group? (X) Yes ( ) No
h. an affiliated group? ( ) Yes (X) No
B6 NAME(S) OF TRUSTEES
a. Jeffery Smith
b. Dan Stewart
c. __________________________________________________
d. __________________________________________________
B7 TRUSTEES' ADDRESS
a. (X) Use Employer Address
b. ( ) _______________________________________________
Street
_________________ ___________ ____________
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE
a. (X) State b. ( ) Commonwealth of c. Georgia and
this Plan and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing of a. January 1st (e.g., January 1st and ending on
b. December 31st
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the Pension Financial Services, Inc.
Standardized 401(k) Profit Sharing Plan and Trust shall:
a. (X) establish a new Plan and Trust effective as of January 1, 1996
(hereinafter called the "Effective Date").
b. ( ) constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the Employer
which was effective _____________ (hereinafter called the
"Effective Date"). Except as
2
<PAGE> 3
specifically provided in this Plan, the effective date of this
amendment and restatement is _______ (For TRA '86 amendments, enter
the first day of the first Plan Year beginning in 1989).
C2. PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January 1st and ending on
b. December 21st.
IS THERE A SHORT PLAN YEAR?
c. (X ) No
d. ( ) Yes, beginning _________________ and ending ______________.
C3 ANNIVERSARY DATE of the Plan (Annual Valuation Date)
a. December 31st
--------------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
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<S> <C> <C> <C>
a. (X ) 001 b. ( ) 002 c. ( ) 003 d. ( ) Other ____________
</TABLE>
C5 NAME OF PLAN ADMINISTRATOR (Document provides the Employer to
appoint an Administrator. If none is named, the Employer will
become the Administrator.)
a. (X ) Employer (Use Employer Address)
b. ( ) Name __________________________________________________
Address _______________________________________________
C6 PLAN'S AGENT for service of process
a. (X ) Employer (Use Employer Address)
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean all Employees who
have satisfied the eligibility requirements except those checked
below:
a. (X ) N/A. No exclusions.
b. ( ) Employees whose employment is governed by a collective bargaining
agreement between the Employer and "employee representatives" under
which retirement benefits were the subject of good faith bargaining.
For this purpose, the term "employee representatives" does not
include any organization more than half of whose members are
employees who are owners, officers, or executives of the Employer.
3
<PAGE> 4
c. ( ) Employees who are nonresident aliens who received no earned income
(within the meaning of Code Section 911(d)(2) from the Employer
which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3).
NOTE: For purposes of this Section, the term Employee shall include
all Employees of this Employer, any Affiliated Employer, and
any leased employees deemed to be Employees under Code Section
414(n) or 414(o).
D2 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. (X ) On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited with ten
(10) Hours of Service if under the Plan such Employee would be
credited with at least one (1) Hour of Service during the day.
c. ( ) On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during the
week.
d. ( ) On the basis of semi-monthly payroll periods, an Employee will be
credited with ninety-five (95) Hours of Service during the
semi-monthly payroll period.
e. ( ) On the basis of months worked, an Employee will be credited with one
hundred ninety (1990) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of Service
during the month.
D3 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b
and c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if
such ?????
Satisfied the service and age requirements, if any, specified below:
a. ( ) NO AGE OR SERVICE REQUIRED.
b. ( ) SERVICE REQUIREMENT. (May not exceed 1 year)
1. ( ) None
2. ( ) 1/2Year of Service
3. (X ) 1 Year of Service
4. ( ) Other __________
NOTE: If the Year(s) of Service selected is or includes a fractional year,
an Employee will not be required to complete any specified number of
4
<PAGE> 5
Hours of Service to receive credit for such fractional year. If
expressed in Months of Service, an Employee will not be required to
complete any specified number of Hours of Service in a particular
month.
c. (X) AGE REQUIREMENT (may not exceed 21)
1 (X) N/A - No Age Requirement.
2. ( ) 20 1/2
3. ( ) 21
4. ( ) Other _______
d. (X) FOR NEW PLANS ONLY - Regardless of any of the above age or service
requirements, any Eligible Employee who was employed on the
Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date.
D4 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible
Employee shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the requirements.
b. ( ) the first day of the Plan Year in which he met the requirements, if
he met the requirements in the first 6 months of the Plan Year, or
as of the first day of the next succeeding Plan Year if he met the
requirements in the last 6 months of the Plan Year.
c. (X) the earlier of the first day of the seventh month of the first day
of the Plan Year coinciding with or next following the date on which
he met the requirements.
d. ( ) the first day of the Plan Year next following the date on which he
met the requirements. (Eligibility must be 1/2 Year of Service or
less and age 20 1/2 or less.
e. ( ) the first day of the month coinciding with or next following the
date on which he met the requirements.
f. ( ) Other: ______________, provided that an Employee who has satisfied
the maximum age and service requirements that are permissible in
Section D3 above and who is otherwise entitled to participate, shall
commence participation no later than the earlier of (a) 6 months
after such requirements are satisfied, or (b) the first day of the
first Plan Year after such requirements are satisfied, unless the
Employee separates from service before such participation date.
D5 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as follows:
5
<PAGE> 6
a. ( ) 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service).
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
b. ( ) 0-2 years 0% c. ( ) 0-4 years 0%
3 years 100% 5 years 100%
d. (X) 0-1 year 0% e. ( ) 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. ( ) 1 year 20% g. ( ) 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
</TABLE>
h. ( ) Other - Must be at least as liberal as either c or g above.
Years of Service Percentage
________________ ___________
________________ ___________
________________ ___________
________________ ___________
________________ ___________
D6 FOR AMENDED PLANS (Plan Section 6.4(f). If the vesting schedule has been
amended to a less favorable schedule, enter the pre-amended schedule below:
a. ( ) Vesting schedule has not been amended or amended schedule is more
favorable in all years.
b. ( ) Years of Service Percentage
________________ ___________
________________ ___________
________________ ___________
D7 TOP HEAVY VESTING (Plan Section 6.4(c). If this Plan becomes a Top
Heavy Plan, the following vesting schedule, based on number of Years
of Service, for such Plan Year and each succeeding Plan Year,
whether or not the Plan is a Top Heavy Plan, shall apply and shall
be treated as a Plan amendment pursuant to this Plan. Once
effective, this schedule
6
<PAGE> 7
shall also apply to any conditions made prior to the Effective Date
of the Code Section 416 and/or before the Plan became a Top Heavy
Plan.
a. ( ) N/A (D5a, b, d, e or f was selected)
b. ( ) 0-1 year 0% c. ( ) 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become top heavy. Such Participant's Account balance
attributable to Employer contributions and Forfeitures will be
determined without regard to this section.
D8 VESTING (Plan Section 6.5(h). In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be EXCLUDED:
a. ( ) Service prior to the Effective Date of the Plan or a predecessor
plan.
b. (X ) N/A
c. ( ) Service prior to the time an Employee attained age 18.
d. (X ) N/A
D9 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. (X ) No.
b. ( ) Yes: Years of Service with ______ shall be recognized for the
purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then
Years of Service with such predecessor Employer shall be recognized
pursuant to Section 1.74, and b. must be marked.
D10 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. (X ) the date a Participant attains his 65th birthday. (not to exceed
65th)
b. ( ) the later of the date a Participant attains his ____ birthday (not
to exceed 65th) or the
c. ( ) (not to exceed 5th) anniversary of the first day of the Plan Year
in which participation in the Plan commenced.
D11 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
7
<PAGE> 8
a. (X ) as of the Participant's "NRA."
OR (must select b. or c. AND 1. Or 2.)
b. ( ) as of the first day of the month ...
c. ( ) date on which a Participant ...
d. ( ) first day of the month coinciding with or next following the date
on which a Participant ...
e. ( ) Anniversary Date coinciding with or next following the date on
which a Participant ...
AND, if b, c or d was selected ...
1. ( ) attains his ____ birthday and has
2. ( ) completed at least _____ Years of Service.
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any Participant means:
1. (X ) Wages, tips and other Compensation on Form W-2.
2. ( ) Section 3401(a) wages (wages for withholding purposes)
3. ( ) 415 safe-harbor corporation.
AND COMPENSATION
1. (X ) shall
2. ( ) shall not
exclude (even if includible in gross income) reimbursements or other expense
allowances, fringe benefits (cash or noncash), moving expenses, deferred
compensation, and welfare benefits.
b. COMPENSATION shall be
1. (X ) actually paid (must be selected if Plan is integrated)
( ) accrued
c. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. (X ) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending with the Plan Year.
3. ( ) the Calendar Year coinciding with or ending with the Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
8
<PAGE> 9
d. HOWEVER, for an Employee's first year of participation, Compensation
shall be recognized as of:
1. ( ) the first day of the Plan Year.
2. (X ) the date the Participant entered the Plan.
e. IN ADDITION, COMPENSATION and "414(s) Compensation"
1. (X ) shall 2. ( ) shall not include compensation which is not currently
includible in the Participant's gross income by reason of the
application of the Code Sections 125, 402(a)(8), 402(h)(1))B), or
403(b).
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION
(Plan Section 11.2). Each Employee may elect to have his
Compensation reduced by:
a. ( ) ______%
b. (X ) up to 15%
c. ( ) from _____% to _____%
d. ( ) up to the maximum percentage allowable not to exceed the limits of
Code Sections 401(K), 404 and 415.
AND ...
e. (X ) A Participant may elect to commence salary reduction as of
January 1, July 1
(ENTER AT LEAST ONE DATE OR PERIOD). A Participant may modify the
amount of salary reductions as of January 1, July 1, (ENTER AT LEAST
ONE DATE OR PERIOD).
AND ...
Shall cash bonuses paid within 2 1/2 months after the end of the Plan Year be
subject to the salary reduction election?
f. ( ) Yes
g. (X ) No
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION
(Plan Section 11.1(b))
a. ( ) N/A. There shall be no matching contributions.
b. ( ) The Employer shall make matching contributions equal to ____% (e.g.,
50%) of the Participant's salary reductions.
9
<PAGE> 10
c. (X) The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the Employer, of the
Participant's salary reductions.
d. ( ) The Employer shall make matching contributions equal to the sum of
_____ % of the portion of the Participant's salary reduction which
does not exceed _____% of the Participant's Compensation plus _____%
of the portion of the Participant's salary reduction which exceeds
_____% of the Participant's Compensation, but does not exceed _____%
of the Participant's Compensation.
e. ( ) The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
___________________ ___________________
___________________ ___________________
___________________ ___________________
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. (X) Matching contributions g. ( ) shall h. (X) shall not be used in
satisfying the deferral percentage tests. (If used, full vesting and
restrictions on withdrawals will apply and the match will be deemed
to be an Elective Contribution).
i. ( ) for Plan Years beginning prior to 1990, a Year of Service ( ) shall
j. ( ) shall not be required in order to share in the matching
contributions. For Plan Years beginning after 1989, a Year of
Service shall not be required in order to share in the matching
contributions.
k. (X) In determining matching contributions, only salary reductions up to
4% of a Participant's Compensation will be matched. l. ( ) N/A
m. ( ) The matching contribution made on behalf of a Participant for any
Plan Year shall not exceed $______. n. ( ) N/A
o. (X) Matching contributions shall be made on behalf of
1. (X) all Participants
2. ( ) only Non-Highly Compensated Employees.
p. (X) Notwithstanding anything in the Plan to the contrary, all matching
contributions which relate to distributions of Excess Deferred
Compensation, Excess Contributions, and Excess Aggregate
Contributions shall be Forfeited. (Select this option only if it is
applicable.)
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan
Section 11.1(c))?
10
<PAGE> 11
a. (X) No.
b. ( ) Yes, the Employer may make a discretionary contribution out of its
current or accumulated Net Profit.
c. ( ) Yes, the Employer may make a discretionary contribution which is not
limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary contribution
shall be allocated as follows:
d. ( ) FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be allocated in
the same ratio as each Participant's Compensation bears to the total of such
Compensation of all Participants.
e. ( ) FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be allocated in
accordance with Plan Section 4.3(b)(2) based on a Participant's Compensation in
excess of:
f. ( ) The Taxable Wage Base/
g. ( ) The greater of $10,000 or 20% of the Taxable Wage Base.
h. ( ) ____% of the Taxable Wage Base. (See Note below)
i. ( ) $_______. (See Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% of h. or i. above is more than 20% and less than or equal to
80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more than 80% of the
Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 11.1(d))
a. ( ) N/A. There shall be no Qualified Non-Elective Contributions except
as provided in Section 11.5(b) and 11.7(h).
b. ( ) The Employer shall make a Qualified Non-Elective Contribution equal
to ___% of the total Compensation of all Participants eligible to
share in the allocations.
11
<PAGE> 12
c. (X) The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.3(e)
a. Forfeitures of contributions other than matching contributions shall
be ...
1. ( ) added to the Employer's contribution under the Plan.
2. ( ) allocated to all Participants eligible to share in the allocation in
the same proportion that each Participant's Compensation for the
year bears to the Compensation of all Participants for such year.
b. Forfeitures of matching contributions shall be:
1. ( ) N/A. No matching contributions or match is fully vested
2. (X) used to reduce the Employer's matching contribution.
3. ( ) allocated to all Participants eligible to share in the allocations
in proportion to each such Participant's Compensation for the year.
4. ( ) allocated to all Non-Highly Compensated Employee's eligible to share
in the allocations in proportion to each such Participant's
Compensation for the year.
E7 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(K)
Any Participant who terminated employment during the Plan Year for reasons other
than death, Total and Permanent Disability or retirement:
a. With respect to the allocation of Employer Non-Elective
Contributions (other than matching), Qualified Non-Elective
Contributions, and Forfeitures for Plan Years beginning prior to
19990:
1. (X) N/A
2. ( ) shall share in such allocations provided such Participant completed
a Year of Service.
3. ( ) shall not share in such allocations regardless of Hours of Service.
NOTE: The Plan provides that for Plan Years beginning after 1989, a
terminated Participant shall share in such allocation provided such
Participant completed more than 500 Hours of Service.
12
<PAGE> 13
b. With respect to the allocation of Employer Matching Contributions, a
Participant:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for matching contributions.
ii. (x ) shall share in the allocations, regardless of Hours of
Service.
iii ( ) shall share in the allocations provided such Participant
completed more than 500 Hours of Service.
2. For Plan Years beginning before 1990,
i. (x ) N/A, Plan does not provide for matching contributions.
ii. ( ) shall share in the allocations, regardless of Hours of
Service.
iii ( ) shall share in the allocations provided such Participant
completed a Year of Service.
E8 ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts contributed to the
Plan after the previous Anniversary Date or other valuation date
shall be determined.
a. (x ) by using a weighted average.
b. ( ) by treating one-half of all such contributions as being a part of
the Participant's nonsegregated account balance as of the previous
Anniversary Date or valuation date.
c. ( ) by using the method specified in Section 4.3(c).
d. ( ) other ____.
E9 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified defined
contributions plan maintained by the Employer, or if the Employer
maintains a welfare benefit fund, as defined in Code Section 419(e),
or an individual medical account, as defined in Code Section
415(1(2), under which amounts are treated as Annual Additions with
respect to any Participant in this Plan:
1. (x ) N/A.
2. ( ) The provisions of Section 4.4(b) of the Plan will apply.
3. ( ) Provide the method under which the Plans will limit total Annual
Additions to the Maximum Permissible Amount, and will properly
reduce any Excess Amounts, in a manner that precludes Employer
discretion.
13
<PAGE> 14
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
NOTE: If a.3 above is selected, an Employer may not rely on the opinion
letter issued by the Internal Revenue Service that this Plan is
qualified under Code Section 401.
b. If any Participant is or ever has been a Participant in a defined benefit
plan maintained by the Employer:
1. ( ) N/A.
2. ( ) In any Limitation Year, the Annual Additions credited to the
Participant under this Plan may not cause the sum of the Defined
Benefit Plan Fraction and the Defined Contribution Fraction to
exceed 1.0. If the Employer's contribution that would otherwise be
made on the Participant's behalf during the limitation year would
cause the 1.0 limitation to be exceeded, the rate of contribution
under this Plan will be reduced so that the sum of the fractions
equals 1.0. If the 1.0 limitation is exceeded because of an Excess
Amount, such Excess Amount will be reduced in accordance with
Section 4.4(a)(4) of the Plan.
3. ( ) Provide the method under which the Plan involved will satisfy the
1.0 limitation in a manner that precludes Employer discretion.
E10 DISTRIBUTION UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall ...
a. ( ) be made pursuant to the election of the Participant or
beneficiary.
b. (x ) begin within 1 year of death for a designated
beneficiary and be payable over the life (or over a period
not exceeding the life expectancy) of such beneficiary,
except that if the beneficiary is the Participant's spouse,
begin within the time the Participant would have attained
age 70 1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other __________.
E11 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions
required pursuant to Code Section 401(a)(9) shall...
a. ( ) be recalculated at the Participant's election.
b. ( ) be recalculated.
c. (x ) not be recalculated.
E12 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
14
<PAGE> 15
Distributions upon termination of employment pursuant to Section
6.4(a) of the Plan shall not be made unless the following conditions
have been satisfied:
a. (X) N/A. Immediate distributions may be made at
Participant's election.
b. ( ) The Participant has incurred ______ 1-Year Break(s) in
Service.
c. ( ) The Participant has reached his or her Early or Normal
Retirement Age.
d. ( ) Distributions may be made at the Participant's election
on or after the Anniversary Date following termination
of employment.
e. ( ) Other _________.
E13 FORM OF DISTRIBUTIONS (Plan Section 6.5 and 6.6)
Distributions under the Plan may be made ...
a. ( ) in lump sums.
b. (X) in lump sums or installments.
AND, pursuant to Plan Section 6.13,
a. (X) no annuities are allowed (avoids Joint and Survivor
rules).
b. ( ) annuities are allowed (Plan Section 6.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a plan
which permitted annuities as a form of distribution or if this Plan
has accepted a plan to plan transfer of assets from a plan which
permitted annuities as a form of distribution.
c. ( ) AND may be made in ...
1. ( ) cash only (except for insurance or annuity
contracts).
2. (X) cash or property.
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(i): When a Non-Key Employee is
a Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication
of top heavy minimum benefits.
a. (X) The Employer does not maintain a Defined Benefit Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each
Non-Key Employee's total Compensation shall be provided
in this Plan, as specified in Section 4.3(i). (The
Defined Benefit and Defined Contribution Fractions will
be computed using 100% if this choice is selected.)
15
<PAGE> 16
c. ( ) A minimum non-integrated contribution of 71/2% of each
Non-Key Employee's total Compensation shall be provided
in this Plan, as specified in Section 4.3(i). (If this
choice is selected, the Defined Benefit and Defined
Contribution Fractions will be computed using 125% for
all Plan Years in which the Plan is Top Heavy, but not
Super Top Heavy.)
d. ( ) Specify the method under which the Plans will provide
top heavy minimum benefits for Non-Key Employees that
will preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined Benefit Plan in
addition to this Plan, shall be based on...
a. (X ) N/A. The Employer does not maintain a defined benefit
plan.
b. ( ) Interest Rate: _______
Mortality Table: ______
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans (other than paired plans).
a. (X ) N/A.
b. ( ) A minimum, non-integrated contribution of 3% of each
Non-Key Employee's total Compensation shall be provided
in the Money Purchase Plan (or other plan subject to
Code Section 412), where the Employer maintains two (2)
or more non-paired Defined Contribution Plans.
c. ( ) Specify the method under which the Plans will provide
top heavy minimum benefits for Non-Key Employees that
will preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
_______________________________________________________
_______________________________________________________
_______________________________________________________
F4 IS THIS A PAIRED PLAN?
a. ( ) Yes. Name the Plan(s) with which this is paired.
___________________________________________________________________
b. (X ) No or N/A.
MISCELLANEOUS
GI LOANS TO PARTICIPANTS (Plan Section 7.4)
16
<PAGE> 17
a. (X ) Yes, loans may be made up to $50,000 or 1/2 vested
interest.
b. ( ) No, loans may not be made.
If YES, (check all that apply) ...
c. (X ) loans shall be treated as a Directed Investment.
d. ( ) loans shall be made for hardship or financial necessity.
e. (X ) the minimum loan shall be $1,000.
f. ( ) $10,000 de minimis loans may be made regardless of
Vested interest. (If selected, Plan may need security in
addition to Vested interest.)
g. (X ) No more than one outstanding loan per Participant.
NOTE: Department of Labor Regulations require the adoption of a SEPARATE
written loan program setting forth the requirements outlined in Plan
Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for
the interest in any one or more accounts.
a. (X ) Yes, regardless of the Participant's Vested Interest in
the Plan.
b. ( ) Yes, but only with respect to the Participant's Vested
interest in the Plan.
c. ( ) Yes, but only with respect to those accounts which are
100% Vested.
d. ( ) No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. (X ) Yes, transfers from qualified plans (and rollovers) will
be allowed.
b. ( ) No, transfers from qualified plans (and rollovers) will
not be allowed.
AND, transfers shall be permitted ...
c. (X ) from any Employee, even if not a Participant.
d. ( ) from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.7)
a. ( ) Yes, Voluntary Contributions are allowed subject to the
limits of Section 4.10.
b. (X ) No, Voluntary Contributions will not be allowed.
17
<PAGE> 18
NOTE: TRA '86 subjects voluntary contributions to strict
discrimination rules.
G5 HARDSHIP DISTRIBUTIONS (Plan Sections 6.11 and 11.8)
a. (X ) Yes, from any accounts which are 100% Vested.
b. ( ) Yes, from Participant's Elective Account only.
c. ( ) Yes, but limited to the Participant's Account only.
d. ( ) No.
NOTE: Distributions from a Participant's Elective Account are
limited to the portion of such account attributable to
such Participant's Deferred Compensation and earnings
attributable thereto up to December 31, 1988. Also
hardship distributions are not permitted from a
Participant's Qualified Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. ( ) If a Participant has reached the age of ____,
distributions may be made, at the Participant's
election, from any accounts which are 100% Vested
without requiring the Participant to terminate
employment.
b. (X ) No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and
Qualified Non-Elective Account are not permitted prior
to age 591/2.
G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased from Plan
contributions.
a. (X ) No life insurance may be purchased.
b. ( ) Yes, at the option of the Administrator.
c. ( ) Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be
subject to the following limitations: (select all that apply)
d. ( ) N/A, no limitations.
e. ( ) each initial Contract shall have a minimum face amount
of $________.
f. ( ) each additional Contract shall have a minimum face
amount of $_____.
g. ( ) the Participant has completed ____ Years of Service.
h. ( ) the Participant has completed ____ Years of Service.
i. ( ) the Participant is under age ____ on the Contract
issue date.
18
<PAGE> 19
j. ( ) the maximum amount of all Contracts on behalf of a
Participant shall not exceed $_______.
k. ( ) the maximum face amount of life insurance shall be
$_______.
An Employer who has ever maintained or who later adopts any plan in addition to
this Plan (including a welfare benefit fund, as defined in Code Section 419(e),
which provides post-retirement medical benefits allocated to separate accounts
for Key Employees, as defined in Code Section 419A(d)(3) or an individual
medical account, as defined in Code Section 415(1)(2) (other than paired plan
#01-002, #01-004, #01-008) may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan is
qualified under Code Section 401. If the Employer who adopts or maintains
multiple plans wishes to obtain reliance that the Employer's plan(s) are
qualified, application for a determination letter should be made to the
appropriate key district director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with basic Plan document
#01. This Adoption Agreement and the basic Plan document shall together be known
as Pension Financial Services, Inc. Standardized 401(K) Profit Sharing Plan and
Trust #01-006.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Pension Financial Services, Inc. will notify the Employer of any amendments made
to the Plan or of the discontinuance or abandonment of the Plan provided this
Plan has been acknowledged by Pension Financial Services, Inc. or its authorized
representative. Furthermore, in order to be eligible to receive such
notifications, we agree to notify Pension Financial Services, Inc. of any change
in address.
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on March 13, 1996. Furthermore, this Plan may not be used unless
acknowledged by Pension Financial Services, Inc. or its authorized
representatives.
EMPLOYER:
By: ___________________________
PARTICIPATING EMPLOYER:
By: ___________________________
19
<PAGE> 20
This Plan may not be used, and shall not be deemed to be a Regional Prototype
Plan, unless an authorized representative of Pension Financial Services, Inc.
has acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
Pension Financial Services, Inc.
By: __________________________
<PAGE> 1
EXHIBIT 10.4
TRUST AGREEMENT
Between
VOYAGER LIFE AND HEALTH INSURANCE COMPANY
State of Georgia
And
STEWART INSURANCE, LTD.
Turks and Caicos Islands
<PAGE> 2
TRUST AGREEMENT
THIS TRUST AGREEMENT is made and entered into by and among Voyager life and
Health Insurance Company, a corporation organized under the laws of the State
of Georgia (hereinafter referred to as Ceding Company) and Stewart Insurance,
Ltd. a corporation organized under the laws of The Turks and Caicos Islands
(hereinafter referred to as Reinsuring Company), and First Union National Bank
of Florida, a National Bank organized under the laws of the State of Florida,
with offices in Jacksonville, Florida (hereinafter referred to as Trustee).
WITNESSETH:
WHEREAS, Ceding Company has heretofore entered into a Reinsurance Agreement
effective as of January 1, 1993, with Reinsuring Company; and
WHEREAS, Reinsuring Company has accepted certain liability for reinsurance
assumed as provided in the Reinsurance Agreement, but is not authorized to
transact insurance business in certain states, or is not authorized to act as
reinsurer pursuant to statutes or regulations as prescribed by the governing
officials of said states;
and WHEREAS, notwithstanding Ceding Company's liability under said policy being
reinsured by Reinsuring Company, so long as Reinsurer Company remains
unqualified to act as reinsurer in certain states, Ceding Company, in order to
take credit for such reinsurance on its Annual Statement is required to keep and
maintain certain required reserves thereon to the same extent as would have been
maintained bad such liability not been reinsured;
and WHEREAS, the Reinsurance Agreement requires the establishment of a Trust
Account 50 as to permit Ceding Company to take credit in its Annual Statement in
accordance with Section 33-7-14(b) of the Georgia Insurance Code as revised from
time to time for the reinsurance so ceded;
and WHEREAS, the Trustee is a qualified U.S. Financial Institution in accordance
with Section 33-7-14(c)(2) of the Georgia Insurance Code,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
ARTICLE I. REQUIRED DEPOSIT
This Trust Agreement, which is attached to and forms a permanent part of the
Reinsurance Agreement and which is effective on the date of its execution by
all parties, is established for the benefit of Ceding Insurer for the sole
purpose of Reinsuring Company providing additional security for the performance
of all its obligations to Ceding Company under the Reinsurance Agreement.
Reinsuring Company hereby agrees to deposit into a trust account
<PAGE> 3
established with Trustee, which is a member of the Federal Reserve System,
assets equal to the reserves required to be established by Reinsuring Company
(such deposits hereinafter referred to as the Account). The Trustee shall
determine that the assets shall be held in such form that the Trustee upon
direction of Ceding Company may, whenever necessary, negotiate or transfer any
such assets without consent or signature from Reinsuring Company or any other
person or entity. Reinsuring Company agrees to execute assignments,
endorsements in blank or other necessary documents on all assets requiring such
in order to effect such transfer. The determination of the amount required to
be maintained in the Account shall be determined by Ceding Company through
actuarial statements upon which the Trustee may rely without liability.
ARTICLE II. PERMISSIBLE INVESTMENTS
It is understood that assets so deposited shall be valued, for purposes in
determining the extent thereof, according to their fair market value thereof.
Such assets shall consist only of: 1) Cash (United States legal tender), 2)
deposit accounts or certificates of deposit, of less than one year maturity, in
an amount not exceeding $1,000,000 in any single bank or savings and loan
company organized under the laws of the United States that has a short term
debt rating of F2/A2 or better from Moody's or Standard and Poor's or $100,000
in any other single bank or savings and loan company that is organized under
the laws of the United States and is federally insured, 3) U.S. government
obligations, or 4) such securities which are readily marketable over a national
exchange listed by the Securities Valuation Office of the National Association
of Insurance Commissioners and qualifying as admitted assets for life
companies, provided that such securities are issued by an institution that is
not the parent, subsidiary or affiliate of Reinsuring Company or Ceding
Company. It is understood that the Trustee shall not be responsible for
determining the fair market value of securities maintained in the Account nor
to determine the total assets required to be maintained in the Account.
ARTICLE III. BALANCE ADJUSTMENT
Any adjustments by Reinsuring Company necessary to maintain the Account at the
required reserves shall be made by Reinsuring Company within ten (10) days
following receipt by Reinsuring Company of Coding Company's statement
indicating the necessary amount of said reserves.
ARTICLE IV. VOTING/DIVIDEND AND INTEREST RIGHTS
Reinsuring Company shall have the full and unqualified right to vote and
execute consents with respect to any shares of stock forming a part of the
Account for any purpose as Reinsuring Company in their discretion may deem
proper. The Trustee is hereby authorized and empowered, with prior notice to
Ceding Company, to demand payment of and collect any and all interest or cash
dividends on assets pledged hereunder, and the Trustee, is directed to remit to
Reinsuring Company all of such interest or cash dividends collected;
<PAGE> 4
provided, however, that if at any time of collection or receipt of such
interest by the Trustee, any amount is due the Account under provisions of
Article I or is due Ceding Company under the circumstances described in Article
VI hereof the Trustee shall deposit, retain, hold or dispose of such interest
upon the same terms and conditions as the Trustee is authorized to hold and
dispose of the assets pledged hereunder.
The Trustee shall not be responsible for the collection or record maintenance
for any stock dividends.
ARTICLE V. WITHDRAWAL OF FUNDS
Withdrawals of assets from the Account cannot be made without the written
consent of the Ceding Company. With the written consent of Ceding Company,
Reinsuring Company shall at any time have the right to withdraw assets from the
Account, provided that Reinsuring Company replaces such assets with assets that
are in such form and of sufficient value to meet the requirements of this Trust
Agreement, and that after such withdrawal and transfer, the market value of the
Account is no less than 102% of the amount required by Article I above. Ceding
Company shall execute any and all documents necessary to permit Reinsuring
Company to withdraw assets under this Trust Agreement. In the event that the
Reinsurance Agreement is terminated, Ceding Company shall have the right during
the runoff period to control assets deposited under this Trust Agreement to the
extent of 150% of the amount required by Article I above, until the Account is
dissolved, in accordance with Article VIII hereof.
ARTICLE VI. USE OF FUNDS
Reinsuring Company agrees that the assets of Reinsuring Company deposited in
the Account pursuant to this Trust Agreement, shall be subject to withdrawal by
Ceding Company at. any time and utilized only by Ceding Company, or its
successors in interest by operation of law, including without limitation any
liquidator, rehabilitator, receiver or conservator, only in the event of
Reinsuring Company's failure to fulfill its obligations under the terms of the
Reinsurance Agreement or any other reinsurance agreement between the Ceding
Company (including its affiliate companies) and Reinsuring Company (including
its affiliate companies) and only for the following purposes:
A. to reimburse Ceding Company for Reinsuring Company's share of premium
refunded on account of cancellations of policies reinsured under the
Reinsurance Agreement;
B. to reimburse Ceding Company for Reinsurance Company's share of
surrenders, if any, and benefits or losses paid pursuant to the
provisions of the policies reinsured under the Reinsurance Agreement;
<PAGE> 5
C. in the event of notice of termination of this Trust Agreement, to fund
an account with Ceding Company in an amount at least equal to the
deduction, for reinsurance ceded, from Ceding Company's liabilities
for policies ceded under the Agreement, such account to include, but
not be limited to, amounts for policy reserves, claims and losses
incurred (including losses incurred but not reported), allocated loss
adjustment expenses and unearned premiums reserves; and
D. to reimburse Ceding Company for any other amounts due from Reinsuring
Company pursuant to the Reinsurance Agreement or any other reinsurance
agreement between Ceding Company (including its affiliate companies)
and Reinsuring Company (including its affiliate companies).
All of said reimbursements shall be made without diminution because of
insolvency of Ceding Company or Reinsuring Company.
ARTICLE VII. RESPONSIBILITIES OF TRUSTEE
A. Upon written demand by Ceding Company at Trustee's office in the
United States, Trustee is hereby authorized and directed to
immediately convey, assign or transfer absolutely and unequivocally
all right, title and interest in. or sell or collect at maturity (in
which manner Ceding Company shall direct) any and all of the assets
pledged hereunder, without notice to Reinsuring Company, and to
deliver physical custody of such assets or the proceeds of any such
sale to Ceding Company. In the event that the amount realized upon any
sales or collections of any assets is greater than the amount due
Ceding Company hereunder, the excess shall be returned to, or retained
by Trustee, to be held in the same manner as other assets pledged
hereunder. Reinsuring Company agrees to cooperate promptly with all
requests of Trustee or Ceding Company to assign, sell and/or transfer
to Ceding Company the assets necessary to satisfy the requirements of
this Trust Agreement.
B. Trustee shall notify Coding Company and Reinsuring Company, within 10
days, of any deposits to or withdrawals from the Account and shall
report to Ceding Company and Reinsuring Company at the inception of
the Account and not later than the 20th day of the month following the
end of each calendar quarter, the amount on deposit as of the last day
of the preceding quarter. The report shall also contain a listing
identifying the cash, securities and other assets on deposit. The
Trustee shall be responsible for investing funds at the direction of
the parties as herein provided, and shall have no other investing
responsibilities.
C. Trustee agrees to receive from Reinsuring Company the assets forming
the Account and to hold said assets in safekeeping subject to the
terms of this Trust Agreement at the Trustee's office in the United
States. All cash received by Trustee shall be deposited in a bank,
which is a member of the Federal Reserve System including itself, as
the Trustee may deem proper.
D. Reinsuring Company agrees to pay all costs or fees of Trustee for
acting as Trustee
<PAGE> 6
hereunder including fees for legal services incurred by Trustee if
Trustee deems such services necessary, and the parties agree that such
costs or fees shall not be withdrawn from the Account or otherwise
paid with Trust assets.
E. Subject to the obligations of Paragraph F. below, the Trustee shall be
protected in acting upon any statement notice, resolution, consent,
letter or other document reasonably believed by the Trustee to be
genuine and to have been signed, sent or presented by the proper party
or parties.
F. Whenever the Trustee is authorized or directed pursuant to the
provisions of this Trust Agreement to take any action and acts in
accordance with such written and signed directions by the appropriate
party or parties, then Ceding Company and Reinsuring Company hereby
agree to indemnify the Trustee against all losses, insuring damages,
costs and expenses, including reasonable attorney's fees, resulting
from any act so taken by the Trustee, except that Trustee shall be
liable for its own negligence, willful misconduct, lack of good faith,
or breach of fiduciary duty.
ARTICLE VIII. TERMINATION
A. Unless sooner terminated by mutual written consent of Ceding Company
and Reinsuring Company, this Trust Agreement shall terminate when
Reinsuring Company shall no longer be liable as a reinsurer under the
terms and provisions of the Reinsurance Agreement; provided always
that the Trustee shall deliver to the parties notification of
termination at least 30 days prior to termination. Upon termination of
this Trust Agreement, the Trustee shall, upon written approval of
Ceding Company, return the assets then remaining in the Account to
Reinsuring Company or Reinsuring Company's legal representative or
assigns, without further order of instruction, and thereupon the
Trustee shall be released and discharged from all further duty and
liability in respect to the assets.
B. Ceding Company and Reinsuring Company may mutually agree to change the
Trustee at any time.
C. The Trustee shall have the option to terminate its agreement to am as
Trustee under this Trust Agreement at any time by giving 90 days prior
notice by certified mail to Ceding Company and Reinsuring Company
provided that no such resignation shall be effective until a successor
trustee has been duly appointed and approved by Ceding Company and
Reinsuring Company and all assets in the Account have been duly
transferred to the new Trustee.
<PAGE> 7
ARTICLE IX. ENTIRE CONTRACT
This Trust Agreement and the Reinsurance Agreement to which it is attached
constitute the entire agreement and supersede all prior agreements,
understandings and negotiations, oral and written, between Coding Company and
Reinsuring Company. This Trust Agreement is not subject to any conditions or
qualifications outside of this Trust Agreement other than the Reinsurance
Agreement. Except with respect to the provisions of Paragraphs E and F of
Article VII hereof, this Trust Agreement may be altered, amended or terminated
at any time by written agreement of Ceding Company and Reinsuring Company.
However, no waiver, amendment or modification hereof shall be of any force or
effect unless in writing and signed by the parties making specific reference
hereto. If any provision of this Trust Agreement is held to be unenforceable by
a tribunal having jurisdiction in the matter, then such provision shall be
enforced to the maximum extent possible and the remaining provisions shall
remain in full force and effect. Furthermore, in lieu of such unenforceable
provision, there shall be added automatically a part of this Trust Agreement a
provision as similar in terms as may be possible and enforceable.
ARTICLE X. MISCELLANEOUS PROVISIONS
A. Neither Ceding Company nor Reinsuring Company shall assign or transfer
all of any part of the rights or obligations accruing hereunder
without the prior written consent of each other. Trustee shall not
assign or transfer all or any part of its rights or obligations
hereunder without the prior written consent of both Ceding Company and
Reinsuring Company.
B. Should an irreconcilable difference of opinion or dispute arise between
Ceding Company and Reinsuring Company as to the interpretation of this
Trust Agreement or as to transactions with respect to this Trust
Agreement, such differences or dispute shall be resolved in accordance
with the Arbitration provision in the Reinsurance Agreement which is
incorporated herein by reference in its entirety.
C. This Trust Agreement shall be deemed to have been made and shall be
interpreted and construed pursuant to the laws of the State of Texas.
Reinsuring Company agrees to submit to the jurisdiction of any court
of competent jurisdiction in Texas, to comply with all requirements
necessary to give such court jurisdiction, and to abide by the final
decision of such court or any Appellant Court in the event of appeal.
Reinsuring Company hereby designates the Commissioner of Insurance of
the state of domicile of Ceding Insurer as its true and lawful
attorney upon whom may be served any lawful process and any action,
suit or proceeding instituted by or on behalf of the Ceding Company.
This provision, however, is not intended to conflict with or override
the obligation of the parties to arbitrate their disputes in
accordance with Paragraph B above.
D. All notices and other communications shall be in writing and shall be
delivered personally or mailed, postage prepaid, certified or
registered mail, return receipt
<PAGE> 8
requested to the respective addresses as follows or otherwise to a
party as it may specify by notice given:
If to Ceding Insurer: Voyager Life & Health Insurance Company
714 Main Street
Fort Worth, Texas 76102
Attention: President
If to Reinsuring Company Stewart Insurance, Ltd.
400 Lamb Ave.
Union Point, GA. 30669
Attention: Mr. Ben Stewart
If to Trustee: First Union National Bank of Florida
Capital Management Group
214 Hogan Street - Ed Ball Bldg., FL 0135
Jacksonville, FL 32202
Attention: David Keim, Vice President
E. The terms of this Agreement shall not be construed in favor of or
against any party on account of the party's participation or lack of
participation in the drafting of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate by their duly authorized officers.
VOYAGER LIFE & HEALTH INSURANCE
COMPANY
By: Witness:
---------------------------------------- ------------------------
Title:
-----------------------
Date:
----------------------
STEWART INSURANCE, LTD.
By: Witness:
---------------------------------------- ------------------------
Title:
-----------------------
Date:
----------------------
FIRST UNION NATIONAL BANK OF
FLORIDA
By: Witness:
---------------------------------------- ------------------------
Title:
-----------------------
Date:
----------------------
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Stewart Finance Company
We consent to the use of our report in the Form SB-2 Registration
Statement and related Prospectus of Stewart Finance Company and to the reference
to our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
PECHTER & ASSOCIATES, P.C.
Atlanta, Georgia
November 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STEWART FINANCE COMPANY FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,308,299
<SECURITIES> 590,969
<RECEIVABLES> 14,107,442
<ALLOWANCES> 613,350
<INVENTORY> 0
<CURRENT-ASSETS> 18,204,551
<PP&E> 6,311,419
<DEPRECIATION> 1,600,161
<TOTAL-ASSETS> 23,202,824
<CURRENT-LIABILITIES> 16,590,912
<BONDS> 7,100,000
3,374,500
0
<COMMON> 420
<OTHER-SE> (3,113,008)
<TOTAL-LIABILITY-AND-EQUITY> 23,202,824
<SALES> 0
<TOTAL-REVENUES> 6,172,739
<CGS> 0
<TOTAL-COSTS> 5,261,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 848,346
<INTEREST-EXPENSE> 1,274,322
<INCOME-PRETAX> (1,151,045)
<INCOME-TAX> (360,984)
<INCOME-CONTINUING> (790,061)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,921,531)
<CHANGES> 0
<NET-INCOME> (1,527,750)
<EPS-BASIC> (88.37)
<EPS-DILUTED> (88.37)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INSTRUCTIONS TO STEWART FINANCE COMPANY
FORM OF ELECTION
1. GENERAL. This Form of Election should be properly filled in, dated and
signed, and should be delivered to Stewart Finance Company (the "Company") at
the address set forth on the Form of Election. The method of delivery to the
Company is at your option and risk, but if you return the election by mail, we
suggest you use registered mail return receipt requested.
2. TIME IN WHICH TO ELECT. To be effective, a Form of Election must be
received by the Company no later than _______________ (the "Expiration Date").
A Form of Election returned to the Company after the Expiration Date must be
accompanied by evidence that the person submitting such Form of Election
submitted the Form of Election prior to the Expiration Date.
3. SIGNATURE. The signature (or signatures) on the Form of Election
should correspond exactly with the name as written on the face of the
securities.
If the Form of Election is signed by a trustee, executor,
administrator, guardian, officer of a corporation, attorney-in-fact or any
other representative or fiduciary, the person signing must give such person's
full title in such capacity provide appropriate evidence of authority to act in
such capacity.
4. MISCELLANEOUS. In the event you accept the Company's rescission offer
and comply with the requirements of the Form of Election, the Company will
begin mailing and delivering checks in reimbursement for consideration paid for
your securities within five business days after the Expiration Date.
All questions with respect to this Form of Election and the rescission
offer (including questions relating to the timeliness or effectiveness of any
election) will be determined by the Company, which determination shall be final
and binding. All questions should be directed to Jeffery L. Smith, Vice
President, Stewart Finance Company, 610 Sibley Avenue, Union Point, Georgia
30669; (706) 486-4163.
<PAGE> 2
FORM OF ELECTION TO BE SUBMITTED PURSUANT TO ELECTION TO
RESCIND OR CONTINUE INVESTMENT IN
STEWART FINANCE COMPANY
Stewart Finance Company
610 Sibley Avenue
Union Point, Georgia 30669
Attention: Jeffrey L. Smith, Vice President
Dear Mr. Smith:
The undersigned, who holds
<TABLE>
<CAPTION>
SECURITY AMOUNT DATE ACQUIRED
- -------------------------------------- ------------------------------------ -------------------------------------
<S> <C> <C>
Preferred Stock
Subordinated
Debentures
Senior Demand Notes
</TABLE>
hereby acknowledges receipt of a final prospectus (the "Prospectus") from
Stewart Finance Company (the "Company") in which the Company has offered
holders of its securities the right to rescind their purchase of such
securities or continue their investment in Stewart Finance Company (the
"Rescission Offer"). This Rescission Offer must be accepted or rejected within
30 days of receipt of the Rescission Offer.
Subject to the terms and conditions of the Rescission Offer and the
instructions set forth below, I hereby elect:
(CHECK APPROPRIATE BLANK(S))
[ ] To accept the Rescission Offer and rescind the sale to the
undersigned of all of the securities of the Company and to
receive a full refund of all sums paid therefor, together
with the appropriate legal rate of interest as set forth in
the Prospectus from the date of such sale to the date hereof;
or
[ ] To reject the Rescission Offer and continue to hold such
securities.
If I have elected to accept the Rescission Offer to rescind and the
Company is not presently holding my securities, I hereby submit to the Company
the enclosed securities to which this election relates.
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