<PAGE> 1
As filed with the Securities and Exchange Commission on April 14, 1999
Registration Statement No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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<S> <C> <C>
GEORGIA 6141 58-158374
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization Classification Code Number) Identification Number)
</TABLE>
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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<CAPTION>
=============================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
TITLE OF EACH CLASS OF Amount to be Offering Price Offering Registration
SECURITIES TO BE REGISTERED Registered Per Share(1) Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Demand Notes............................ $ 809,931 N/A $ 809,931 $ 225
- -----------------------------------------------------------------------------------------------------------------------------
Subordinated Debentures........................ $ 12,421,245 N/A $12,421,245 $3,453
- -----------------------------------------------------------------------------------------------------------------------------
Series A Preferred Stock, par value $0.001 33,475 shares $100 $ 3,347,500 $ 931
per share......................................
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee.
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
Stewart Finance Company is offering to certain purchasers of its securities,
specifically its
SENIOR DEMAND NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF $809,931
SUBORDINATED DEBENTURES IN THE AGGREGATE PRINCIPAL AMOUNT OF $12,421,245
33,475 SHARES OF SERIES A PREFERRED STOCK
the opportunity to rescind or void their purchase of the above securities.
Eligible offerees participating in the rescission offer will exchange their
securities for cash. The amount of cash to be received will equal the original
purchase price of the 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).
The rescission offer is being made only to persons who purchased these
securities from the company by payment or exchange (in the case of the preferred
stock). The offer does not extend to persons who purchased any of these
securities from any other person.
Why is the company making this offer? The company offered and sold these
securities in reliance on what is referred to as the "intrastate offering"
exemption under Section 3(a)(11) of the Securities Act of 1933. To satisfy that
exemption's requirements, the securities had to be offered and sold only to
residents of the State of Georgia and the company's business had to be confined
to the State of Georgia. While the Company did limit its offer and sale of these
securities to Georgia residents, the proceeds from the sale of these securities
may have been used to fund operations of the Company located outside Georgia. As
a result, the intrastate offering exemption may not have been available. The
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 such 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.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE
7, ALONG WITH THE REST OF THIS PROSPECTUS, BEFORE YOU DETERMINE WHETHER OR NOT
TO ACCEPT THE RESCISSION OFFER.
Neither the 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. Each offeree must make his
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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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and related notes thereto appearing elsewhere in this Prospectus. See "Risk
Factors" for a discussion of certain factors to be considered by prospective
investors.
OUR COMPANY
IN GENERAL
Stewart Finance was incorporated under Georgia law in 1984. Since
inception the company has engaged in the consumer finance business. Our
principal office is located at 610 Sibley Avenue, Union Point, Georgia 30669 and
our telephone number is (706) 486-4163. The company's business consists
primarily of making and servicing the following types of loans:
- GILA Loans. GILA loans are consumer loans to individuals that we
originate under the Georgia Industrial Loan Act or GILA. GILA loans may not
exceed $3,000 in original principal amount and generally are unsecured, although
we require unsecured debtors to purchase "non-recording" insurance. As of
December 31, 1998, the aggregate amount of GILA loans we had outstanding was
$6,307,227, which represented approximately 71% of our total loans outstanding.
Our outstanding GILA loans as of December 31, 1998 had an average annual yield
of 34% and an average maturity of 5.9 months.
- Non-GILA Loans. Non-GILA loans are consumer loans to individuals that we
originate to finance borrowers' purchases of various items, typically personal
property. Because these loans exceed $3,000 in original principal amount, they
are not covered by GILA. We obtain a security interest in the property acquired
with the proceeds of our non-GILA loans. As of December 31, 1998, the aggregate
amount of non-GILA loans we had outstanding was $2,562,697, which represented
approximately 29% of our total loans outstanding. Our outstanding non-GILA loans
as of December 31, 1998 had an average annual yield of 32% and an average
maturity of 22 months.
- Other Lending Activities. Our other activities include (i) providing
short-term loans to individuals to finance their purchase of property and
casualty insurance, (ii) providing loans to taxpayers in anticipation of their
receipt of federal income tax refunds, and (iii) servicing loans purchased from
other lenders, typically retailers, which were made to finance the borrowers'
purchase of personal property. As of December 31, 1998, the aggregate amount of
these loans represented less than 1% of our total loans outstanding.
As of December 31, 1998, the company's resources were invested primarily
in GILA loans and non-GILA loans, which together comprised approximately 31% of
our total assets on that date. For the fiscal year ended December 31, 1998,
approximately 48% of our revenue (as adjusted to exclude reimbursement income)
was derived from interest, fees and related charges earned on these loans. We
earned an additional 42% of our revenue in 1998 (as adjusted to exclude
reimbursement income) from income on insurance sales and automobile club
memberships, while 10% of adjusted revenue in 1998 was derived from insurance
premium, tax refund and sales finance loans. See the discussion in the
prospectus under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
We finance our activities through several sources, including a $6,500,000
revolving line of credit with FINOVA Capital Corporation, a $1,500,000 revolving
line of credit with Community Bank & Trust of Cornelia, Georgia, and sales of
our own securities. As of December 31, 1998, we had borrowed the maximum amounts
available under our FINOVA and Community Bank & Trust credit lines. As of
February 28, 1999, we had issued $809,931 in principal amount of senior demand
notes, $12,421,245 in principal amount of subordinated debentures and $3,347,500
in Series A preferred stock, par value $0.001 per share. The rescission offer
pertains to all of these securities.
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REORGANIZATION OF THE COMPANY
In July 1998, Stewart Finance Company Holdings, Inc., a Georgia
corporation, was formed to serve as a holding company for our company and three
other companies that are engaged in the consumer finance business in Louisiana,
Missouri and Illinois. The holding company now owns all of the common stock of
our company and each of these sister companies. John B. Stewart, Jr. owns all of
the common stock of the holding company. Mr. Stewart implemented the holding
company structure to facilitate the growth of the business operations of all of
these affiliated entities. This structure allows the holding company to obtain
and distribute resources on an organization-wide basis. In addition, redundant
corporate functions will be consolidated at the holding company level.
As of the date of this prospectus, our company operates 22 offices in
Georgia. The Louisiana affiliate, which was incorporated in 1996, operates 16
offices in Louisiana. The other two affiliates were incorporated in 1998 and, as
of the date of this prospectus, are conducting their operations through 4
offices in Missouri and 1 office in Illinois. The holding company, which
acquired our company and its three sister companies on February 26, 1999,
presently has no independent operations. Accordingly, management believes that
our company will continue to provide funding resources and accounting services
in support of the operations of the Louisiana, Missouri and Illinois
subsidiaries for the immediate future. As of December 31, 1998, the Louisiana,
Missouri and Illinois affiliates owed our company $4,041,564, representing
funding obligations and amounts due for accounting services.
THE RESCISSION OFFER
WHAT IS A RESCISSION OFFER?
For our purposes, a rescission offer is an offer made by an issuer of
securities to rescind or void an offer and sale of its securities. An issuer may
extend such an offer after making a determination that a securities law
violation has occurred or may have occurred. Our reason for making this
rescission offer is explained under the captions "Purpose of Rescission Offer"
and "Effect of the Rescission Offer" below.
WHY IS THE COMPANY REGISTERING THE RESCISSION OFFER?
Section 5 of the Securities Act of 1933 prohibits any person from making
an "offer to sell or [an] offer to buy, through the use or medium of any
prospectus or otherwise, any security, unless a registration statement has been
filed as to such security." The Securities Act of 1933 also provides exemptions
from registration, none of which are available to the company in connection with
the rescission offer.
The Securities and Exchange Commission and some state securities
commissions have taken the position that a rescission offer is simultaneously an
offer to buy and sell the securities that are subject to that offer. For those
to whom the rescission offer is extended, the investment decision that must be
made is whether to sell the securities or to retain them. From the perspective
of the company which issued the securities, in conducting a rescission offer it
is deemed to have extended an offer to sell the securities again by virtue of
the offerees' having the opportunity to retain the securities. As an eligible
offeree reading through this prospectus, you may find it helpful to consider the
rescission offer, and the investment decision to be made, in these terms.
In light of the SEC's position, the company is conducting a registered
rescission offer. The company has filed a registration statement with respect to
the rescission offer with the Securities and Exchange Commission. This
prospectus is part of that registration statement. The disclosure in this
prospectus is intended to provide you with the protections and information
required by the Securities Act of 1933, and the rules and regulations issued
under the Securities Act, in connection with your investment decision.
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PURPOSE OF RESCISSION OFFER
The securities that are the subject of the rescission offer consist of
$809,931 in principal amount of senior demand notes, $12,421,245 in principal
amount of subordinated debentures and $3,347,500 in Series A preferred stock,
par value $0.001 per share. The company offered and sold these securities in
reliance on the intrastate offering exemption under Section 3(a)(11) of the
Securities Act of 1933. As noted above, the company's operations have to a large
extent funded its sister companies operating in states other than Georgia. Thus,
the proceeds of the sale of these securities may have been used to fund
operations outside Georgia. As a result, the intrastate offering exemption may
not have been available.
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 the company to potential liability.
Specifically, purchasers of these securities from the company may have the right
to recover the price paid for the securities, plus interest, reduced by any
income received on or from the securities. The company wants to eliminate, to
the extent possible under applicable securities laws, this potential liability.
See the discussion within the summary under the caption "Effect of the
Rescission Offer."
ELIGIBLE OFFEREES
The company's rescission offer applies only to persons who purchased the
securities subject to the rescission offer from the company by payment or, in
the case of the shares of preferred stock, in exchange for the company's
debentures. The offer does not extend to persons who purchased any of these
securities from any other person.
In making the rescission offer, the 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 purchase of the securities. To
the extent any otherwise eligible offeree now resides outside the State of
Georgia, the company's rescission offer will not extend to such person.
TERMS OF RESCISSION OFFER
Pursuant to this prospectus, we are offering eligible offerees the
opportunity to rescind their purchase of the company's senior demand notes,
subordinated debentures and Series A preferred stock. Eligible offerees 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 as follows:
- in the case of the senior demand notes and subordinated debentures,
the purchase price of these securities, plus accrued and unpaid
interest, from the date of purchase through the date of payment, at
the applicable stated interest rate on the face of your notes or
debentures; and
- in the case of the Series A preferred stock, the purchase price of
these securities, plus accrued and unpaid dividends, from the date of
purchase or exchange through the date of payment.
EFFECT OF THE RESCISSION OFFER
We believe that the company's potential liability under applicable federal
and state securities laws stemming from the offer and sale of the securities
subject to the rescission offer, as a function of what may have been improper
reliance on the intrastate offering exemption and inadequate disclosure, will be
eliminated with respect to those who accept the rescission offer and exchange
their securities for cash. In other words, the rescission offer will have the
effect of barring claims relating to the company's possible non-compliance with
such laws. However, the Securities and Exchange Commission takes the position
that liabilities under the federal securities laws are not terminated by making
a rescission offer.
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To the extent that eligible offerees affirmatively reject or fail to
respond to the rescission offer, the company's potential liability under the
Securities Act of 1933 may not be completely extinguished. Nevertheless, under
those circumstances, the company may assert that these offerees released any
claims to rescind their purchase of the securities by virtue 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 offerees 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, subject to any defenses
the company may have with respect to such rights and claims, including the
running of the statute of limitations. In general, to sustain a claim based on
non-compliance with the registration provisions of the federal securities laws,
the claim must be brought within one year after discovery of the non-compliance
upon which the claim is based, but in no event more than three years after the
occurrence of the non-compliance. For certain purchasers of these securities,
the statute of limitations may have already run.
DURATION OF THE RESCISSION OFFER
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 the company.
TAX CONSEQUENCES OF THE RESCISSION OFFER
In general, if you elect to accept the rescission offer, you will have
taxable income under United States federal income tax regulations to the extent
of the portion of the cash payment equal to the interest or dividends received.
We provide you with this federal income tax discussion for informational
purposes only. Each of you has individual tax circumstances that are impossible
for us to know. We therefore urge each of you to consult your own tax advisor to
determine the particular tax consequences to you of the rescission offer.
ANTICIPATED SECURITIES OFFERING BY THE HOLDING COMPANY
Upon completion of the rescission offer, the company's parent (that is,
the holding company) intends to register an offer to the public of up to
$20,000,000 in preferred stock. Management of the holding company will determine
the terms of the preferred stock at the time of its offering. The offering will
be made on a best-efforts basis by executive officers of the holding company.
Although management of the holding company anticipates undertaking this public
offering, we cannot ensure you that the holding company will be able to complete
such an offering on terms or on a schedule that it finds acceptable.
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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 the Company's consolidated
financial statements, which have been audited by Pechter & Associates, P.C.,
independent public accounts. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and related notes included
elsewhere in this Prospectus.
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YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA: 1998 1997
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<S> <C> <C>
Interest Fee Income and Maintenance and
Delinquent Charges................................................... $2,609,626 2,288,665
Interest Expense........................................................ 2,085,492 1,564,030
Net Interest Income........................................... 524,134 724,635
Provision for Credit Loss (Net of Recoveries)........................... <91,953> <575,549>
Net Interest Income After Credit Loss......................... 616,087 1,300,184
Insurance Premiums and Other Income..................................... 5,233,871 2,976,476
Salaries................................................................ 2,202,801 1,772,774
Other................................................................... 3,790,366 2,760,738
Net Income (Net Loss) Before Income Tax Effect.......................... <143,209> <256,852>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
----
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BALANCE SHEET DATA:
Total Assets.................................................................................... 26,713,856
Total Debentures and Senior Demand Notes........................................................ 12,439,755
Total Other Liabilities......................................................................... 10,424,696
Total Shareholder's Equity...................................................................... 3,849,405
</TABLE>
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RISK FACTORS
This prospectus contains forward-looking statements - that is, statements
concerning future events, actions and conditions - that involve risks and
uncertainties. Actual events, actions and conditions, and the company's results
of operations, could differ materially from those anticipated and discussed in
such forward-looking statements. These differences could result from a variety
of factors, including those set forth in the following risk factors and
elsewhere in this prospectus. You should consider carefully the following risk
factors in addition to the other information set forth in this prospectus in
evaluating the rescission offer.
UNCERTAINTY AS TO RESCISSION OFFER'S ELIMINATION OF LIABILITY
It is not certain that the company's conduct of the rescission offer will
have the effect of barring claims relating to the company's potential
non-compliance with the federal and state securities laws. This uncertainty
particularly exists with respect to those eligible offerees who either
affirmatively reject or fail to respond to the rescission offer. The company, at
this point, 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, it cannot quantify the potential continuing exposure upon
completion of the rescission offer.
Eligible offerees who do not accept the rescission offer may assert claims
against the company relating to the company's possible non-compliance with the
securities laws. Should any or all of such claims prevail, the company's
business, financial condition and results of operation could all be adversely
affected. Even if the company is successful in defending any claims under
applicable securities laws, their mere assertion could result in costly
litigation and significant diversions of effort by the company's management.
The rescission offer will have no effect on or prevent the Securities and
Exchange Commission from pursuing enforcement action against the 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.
LACK OF SUFFICIENT FUNDS TO FULLY FUND RESCISSION OFFER; DETRIMENTAL EFFECT ON
COMPANY
The company does not have liquid assets sufficient to pay the roughly
$16,578,676 in cash that would need to be paid if one assumed 100% acceptance of
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 or borrow from other lenders. 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.
NO ASSURANCE OF PUBLIC MARKET FOR SECURITIES
There is presently no public market for the securities which are subject
to this rescission offer and no assurance can be provided that a public market
will develop in the future. The 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. Eligible offerees should be aware that
should they not accept the rescission offer, they 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.
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OPERATING LOSSES
We have sustained operating losses for each of the fiscal years ended
December 31, 1998 and 1997. See "Selected Financial and Operations Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Financial Statements of the Company. We can provide no
assurance that the Company will be profitable in the future.
NEED FOR CONTINUOUS ADDITIONAL FUNDING AND ACCESS TO CAPITAL
Significant delays in completing this rescission offer could have a
materially adverse effect on our liquidity, financial condition and results of
operations. This is because the company's liquidity is dependent on the sale of
securities, the continued availability of bank credit from its lenders and the
collection of receivables. Until the registration statement of which this
prospectus is a part is declared effective by the Securities and Exchange
Commission and the rescission offer is completed, the company will not be able
to engage in a public offering of the same or a similar type of securities.
ABILITY TO PAY OFF MATURING DEBT
A portion of our debentures (approximately $1,000,000) will become due
within one year of this rescission offer. There is no assurance that the we will
be successful in our efforts to maintain sufficient liquidity to pay our debt
securities as they become due. Our failure to maintain sufficient liquidity
could have a materially adverse effect on our business, financial condition and
results of operations.
ABILITY TO REPAY OR RENEW CREDIT FACILITIES
We obtain our working capital for ongoing operations in part from a
$6,500,000 line of credit with FINOVA Financial Corporation (the "FINOVA Loan")
and a $1,500,000 line of credit with Community Bank & Trust, Cornelia, Georgia
(the "Cornelia Loan"). The Cornelia Loan has a maturity date of April 29, 1999,
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. See "Description of Finova Credit Facility" and "Description of
Community Bank and Trust Credit Facility."
POSSIBLE LESS THAN MARKET INTEREST/DIVIDEND RATES OF SECURITIES
Most of the securities subject to the rescission offer have fixed interest
and dividend rates that may be out of line with prevailing market rates.
Eligible offerees may be able to identify equity and debt instruments that pay
greater dividends or interest or that inherently present a lesser degree of risk
than these securities. The securities' interest and dividend rates were
determined solely by the company at the time of sale. These rates do not
necessarily bear any direct relationship to the company's assets, book value or
other generally-accepted criteria of value. We have not retained or consulted
with an independent third party in order to determine whether the terms of the
securities are commercially reasonable or are equivalent with other similar debt
or equity instruments.
LIMITATIONS ON PAYMENT OF DIVIDENDS ON SERIES A PREFERRED STOCK
We cannot assure any holder of shares of Series A preferred stock (which
are included in the rescission offer) as to the company's ability to pay
dividends on such shares, when due or otherwise. As a Georgia corporation, the
company is subject to the provisions of Section 14-2-640 of the Georgia Business
Corporation Code, which does not allow a corporation to pay any dividends if
such payment would cause the corporation to become insolvent.
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<PAGE> 10
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 preferred stock is subject to
these provisions, either or both of which may affect the timing and/or the
payment of dividends.
COMPANY'S SENSITIVITY TO FLUCTUATIONS IN INTEREST RATES
Engaged in the consumer loan business, the company faces the on-going risk
of decreases in its 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 certain of the company's outstanding senior demand notes, are at variable
rates. Thus, the company may from time to time find itself in a situation in
which it cannot pass on the increased costs of its borrowings to its 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.
Changing interest rates can also materially affect the level of consumer
loan activity generated by the company, which in turn affects our results of
operations, financial condition and future prospects. Interest rates are highly
sensitive to many factors that are beyond the company's 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 the company and its results of operations of any future changes in
federal monetary and fiscal policies and Georgia lending laws are not
predictable.
VULNERABILITY TO REGULATORY CHANGES IN COMPANY'S BUSINESS
Changes in the company's business may make compliance with governing
regulations more difficult and/or expensive, and, in turn, adversely affect our
results of operations and financial condition. We are subject to regulation by
federal, state and local government authorities and must comply with various
laws and judicial and administrative decisions imposing various requirements and
restrictions on our operations. These requirements, among other things, require
that we obtain and maintain certain licenses and qualifications, limit the
interest rates, fees and other charges we are allowed to charge, limit or
prescribe other terms of our loans, and require specific disclosures to our
borrowers. Additional regulations govern the sale and terms of insurance
products offered by us and the insurers for which we act as an agent. See
"Business--Government Regulation."
FACTORS IMPACTING OUR LEVEL OF COLLECTION RISK
Our liquidity, in large part, depends on the collection of our loan
receivables. We continually monitor the delinquency status of our loan
receivables and we have a policy of promptly instituting collection efforts on
each delinquent account. We also utilize an automated credit scoring system in
an effort to monitor the overall quality of our loan portfolio. Although we
believe that such measures help us maintain the level of our collection risk,
our liquidity could be adversely affected if we experience difficulty in
collecting our loan receivables.
Certain factors increase our collection risk, such as waiving our
underwriting standards or practices to make higher risk loans. Our collection
risk also is increased because generally we do not perfect our security interest
in the collateral securing our GILA Loans and we typically renew past due loans
in the normal course of our business. Our ability to operate profitably will
depend on our ability to assess accurately our borrowers' ability to meet their
obligations as they come due. We cannot assure you that we will be able to
accurately assess this risk in the future. If we fail for a sustained period of
time to accurately assess this collection risk, it could have a materially
adverse effect on our business, financial condition and results of operations.
See "Business -- Delinquencies" and "Business - - Loss Experience."
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<PAGE> 11
FACTORS AFFECTING OUR BORROWERS' ABILITY TO REPAY LOANS
Because our business consists mainly of making loans to individuals who
depend on their earnings to repay their loans, our profitability will materially
depend on the continued employment of our borrowers and their ability to meet
their financial obligations as they become due. A sustained recession 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 business, financial condition and results of operations.
ELIGIBLE OFFEREES HAVE NO CONTROL OF COMPANY'S MANAGEMENT
John B. Stewart, Jr., is the president, sole director, and owner of all of
the outstanding common stock of the company's parent (i.e., the holding
Company). He also is the president and sole director of our 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 any of the securities subject
to the rescission offer, you have had no control over the management of the
company. The rescission offer will not change this situation. If you determine
not to accept the rescission offer, you will continue to rely upon the
management skills of our executive officers and directors. You will not have a
vote with respect to the election of executive officers or directors of the
company.
STRAIN ON MANAGEMENT/FINANCIAL RESOURCES STEMMING FROM COMPANY EXPANSION
The company's expansion has placed, and is expected to continue to place,
a strain on its personnel and financial resources. In the last eight years, the
company has grown from seven Georgia 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 the holding
company completes its anticipated public offering of preferred stock. In 1999,
we are projecting only one new office in Georgia, and the holding company is
projecting three new offices in all other states. We have no pending
negotiations to open any new offices, and we are not conducting any negotiations
to acquire any new offices.
In late 1999 or early 2000, we intend to re-establish the pace of our growth.
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 subject to the rescission offer.
DEPENDENCE ON EFFORTS OF KEY PERSONNEL
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 the company is Mr. Stewart's primary business
endeavor, Mr. Stewart is involved in other business ventures and does not spend
his entire business time and attention on the operations of the 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. See "Management."
We also believe that our success may depend upon our ability to attract
and retain qualified people in the future. We cannot assure you that we will be
able to hire and retain such individuals and our failure to do so may have a
materially adverse effect on our business, financial condition and results of
operations.
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<PAGE> 12
CONFLICT OF INTEREST TRANSACTIONS
John B. Stewart, Jr., beneficially owns all of our common stock (through
his ownership of all of the outstanding common stock of the holding company) and
he devotes substantial time to our affairs. We believe that the terms of the
transactions that we conduct with Mr. Stewart are no less favorable to us than
those which could be obtained in arm's-length negotiations. Nevertheless,
potential conflicts of interest between the company and Mr. Stewart exist with
respect to certain transactions between us and Mr. Stewart, his family or other
business ventures owned or controlled by Mr. Stewart. Because Mr. Stewart is the
sole shareholder of the holding company, and the sole director and president of
the company, these conflicts may not be resolved through arm's-length
negotiations in the future.
See "Certain Transactions."
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. Additionally,
certain creditors of our company have obtained collateral or guaranties from Mr.
Stewart. Such 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.
UNCERTAINTY OF COMPANY COMPUTER SYSTEMS' YEAR 2000 COMPLIANCE
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 as well as those of
our third party vendors. The company uses 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. 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, and significant uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance. Any year 2000 compliance
problem of either our company or our outside vendors, third-party payors or
customers could have a material adverse effect on our business, results of
operations, financial condition and prospects.
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<PAGE> 13
THE RESCISSION OFFER
BACKGROUND INFORMATION
Throughout its existence, Stewart Finance Company (the "Company") has
operated with limited capital, a significant portion of which has been raised by
periodic offerings of the Company's securities - including the securities that
are subject to this rescission offer. The Company engaged in such securities
offerings beginning in October, 1989 and ending in February 1999. As of February
28, 1999, the Company had outstanding senior demand notes in the aggregate
principal amount of $809,931, subordinated debentures in the aggregate principal
amount of $12,421,245 and 33,475 shares of Series A preferred stock. The
rescission offer covers all of these securities.
At the time of the Company's offer and sale of the securities subject to
the rescission offer, the Company did not register the securities with either
the Securities and Exchange Commission or the Commissioner of Securities of the
State of Georgia. Instead, it relied upon the "intrastate offering" exemption
under Section 3(a)(11) of the Securities Act of 1933 and 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
- the state where the securities are offered and sold must be
the state in which the issuer, if a corporation, is
incorporated and doing business.
The 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, where the Company was and is incorporated and doing business.
However, the proceeds of the sale of the Company's securities may have been used
to fund operations outside Georgia -- by virtue of the Company's funding its
sister corporations in Louisiana, Missouri and Illinois. Under relevant
interpretative authority, this may have caused the Company to lose the ability
to take advantage of the intrastate offering exemption. If such is the case, the
Company may not have fully complied with the registration requirements of the
Securities Act of 1933.
The GILA exemption provides that any security issued by an industrial loan
association organized and supervised under the laws of the State of Georgia is
exempt from the registration requirements of the Georgia Securities Act. The
Company believes that it fully qualified for the GILA exemption.
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 the Company to potential liability.
Specifically, purchasers of the securities from the Company may have the right
to recover the price paid for the securities, plus interest, reduced by any
income received on or from the securities. Purchasers of the Company's
securities already have this right because the 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 the Company's possible failure to comply fully with federal
and state registration requirements, would have the right 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,
the Company's potential liability stemming from a rescission action by the
purchasers of its securities is an immediate acceleration of its repayment
obligations under its outstanding senior demand notes, subordinated debentures
and preferred stock.
It should be understood that the rescission offer is not an admission by
the Company that it did not comply with the registration and/or disclosure
requirements of applicable federal and state securities laws.
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<PAGE> 14
PURPOSE OF RESCISSION OFFER
The 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 in connection with the offer and
sale of the securities covered by the rescission offer.
The Company's potential failure to comply with the securities laws in
connection with the offer and sale of the securities subject to the rescission
offer has the effect of giving purchasers of such securities from the Company an
option. In this case, such purchasers have the option to "put" the securities
back to the Company - that is, require the Company to repurchase the securities.
The repurchase price is the amount that the Company would be forced to pay in a
claim for rescission under applicable federal and state securities laws. In
practical effect, the Company's repayment obligations under its securities would
accelerate and become payable immediately rather than at the maturity date of
such securities.
What prompts the Company to address its potential failure to comply with
the securities laws now? The Company's parent (i.e., the holding company) has
recently determined to register an offer to the public of up to $20,000,000
worth of preferred stock. Management engaged legal counsel to undertake a "due
diligence" analysis of the Company and its sister companies in anticipation of
such offering. As a result of that analysis, management became aware of its
potential failure to comply with the securities laws. After consulting with
legal counsel, management deemed it prudent to conduct - voluntarily - the
rescission offer. The rescission offer will limit, as far as may be permissible
under applicable securities laws, the Company's potential liability stemming
from the possible failure to comply with such laws. This will, in turn, allow
the holding company to market more effectively the securities its intends to
offer publicly after completion of the rescission offer. The Company's potential
liability, if left unaddressed, could serve as a significant hindrance on the
holding company's ability to sell its securities in the intended public
offering.
ELIGIBLE OFFEREES
The Company's rescission offer applies only to persons who purchased the
securities subject to the rescission offer from the Company by payment or, in
the case of the shares of Series A preferred stock, in exchange for the
Company's subordinated debentures. The offer does not extend to persons who
purchased any of these securities from any other person because the 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 the
Company other than those securities listed on the cover page of this prospectus.
In making the rescission offer, the 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 offeree now resides outside the
State of Georgia, the Company's rescission offer will not extend to such person.
Based on a review of the 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 RESCISSION OFFER
Pursuant to this prospectus, we are offering to eligible offerees the
opportunity to rescind their purchase of the Company's senior demand notes,
subordinated debentures and Series A preferred stock. Eligible offerees 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 offerees should note that the
amount
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<PAGE> 15
of the cash being offered is identical to the amount the Company would be
required to pay in damages or in an action for rescission, exclusive of
attorney's fees, under federal and state securities laws.
REGISTRATION OF THE RESCISSION OFFER
The 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 offerees 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:
- rescind the purchase of the securities subject to the rescission
offer and accept a cash payment in the amount described in this
prospectus; or
- 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. By
virtue of the registration of this rescission offer, these previously
unregistered securities will now be freed of their "restricted securities"
status. Thus, eligible offerees who reject the rescission offer and retain their
securities will receive the benefit of owning freely transferable securities
(subject to the contractual restrictions on transfers to which such securities
are subject by their terms). See "Description of Capital Stock," "Description of
Senior Demand Notes" and "Description of Subordinated Debentures."
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. The 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. Eligible offerees should be aware that should
they not accept the rescission offer, they 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.
EFFECT OF THE RESCISSION OFFER
- Federal Securities Laws. We believe that the Company's potential
liability under applicable federal securities laws stemming from the offer and
sale of the securities subject to the rescission offer will be eliminated with
respect to those eligible offerees who accept the rescission offer and exchange
their securities for cash. However, the Securities and Exchange Commission takes
the position that liabilities under the federal securities laws are not
terminated by making a rescission offer. Nonetheless, acceptance of the
rescission offer and receipt by the eligible offeree of the cash consideration
to be paid for such offeree's securities, should have the effect of terminating
liability to that offeree under the federal securities laws because receipt of
the consideration eliminates the damages element of any claim by the offeree.
To the extent that eligible offerees affirmatively reject or fail to
respond to the rescission offer, the Company's potential liability under the
Securities Act of 1933 may not be completely extinguished. Nevertheless, under
those circumstances, the Company may assert that these offerees released any
claims to recover the purchase price of their securities by virtue 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 offerees 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, subject to any defenses
the Company may have with respect to such rights and claims, 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
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<PAGE> 16
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. For certain purchasers of these securities, the statute of
limitations may have already run.
- Georgia Securities Laws. Under Georgia securities laws, a person may sue
an issuer which 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 tender of the security. Pursuant to Georgia law, no person may sue
based on a violation of the registration provisions under Georgia law more than
two years after the contract of sale. In any event, a buyer of securities may
not sue if he has received a bona fide offer in writing to refund the
consideration paid, together with interest at the applicable rate, from the date
of payment, less the amount of any income received on the security, and failed
to accept the offer within 30 days of its receipt.
CERTAIN TAX CONSIDERATIONS OF THE RESCISSION OFFER
In general, if an eligible offeree determines to accept the rescission
offer, receipt of a cash payment will be a taxable event for federal income tax
purposes. However, if the amount received by the eligible offeree does not
exceed the offeree's tax basis in the securities surrendered, 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.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
INFORMATIONAL PURPOSES ONLY. THE COMPANY URGES EACH ELIGIBLE OFFEREE 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, or the
30th day following your receipt of this prospectus, unless extended by us (the
"Expiration Date").
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," to the Company 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 thereafter be deemed cancelled.
If you return the form indicating your rejection of the rescission offer,
you will have affirmatively elected to retain your securities and need do
nothing further.
If you do not affirmatively respond to this rescission offer by returning
your completed election form before the Expiration Date in accordance with the
procedures described above, you will be deemed to have rejected the rescission
offer.
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<PAGE> 17
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.
The Company will seek to notify any eligible offeree who submits a timely
but incomplete or invalid election form of any deficiencies in such form. It
will do so by mailing notice of such deficiencies to the eligible offeree's last
known address prior to deeming the rescission offer rejected by the eligible
offeree. Any undertaking by the Company in this regard will not constitute an
extension of the Expiration Date.
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.
The Company has not retained nor does it intend to retain any person to
make solicitations or recommendations to eligible offerees in connection with
this rescission offer. Neither the Company nor its officers and sole director
may make any recommendations to any eligible offeree with respect to the
rescission offer. Each offeree must make his or her own decision as to whether
to accept the rescission offer.
FUNDING THE RESCISSION OFFER
The Company does not have liquid assets sufficient to pay the roughly
$16,578,676 in cash that would need to be paid if one assumed 100% acceptance of
the rescission offer. The Company believes 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. In order to fund the rescission offer in excess of
this amount, the Company would have to either increase our current credit lines
or borrow from other lenders. The Company believes that as much as $5,000,000 in
additional funds could be borrowed if necessary, however, it can make no
assurance that it could borrow this amount on sufficiently favorable terms.
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<PAGE> 18
THE COMPANY
The Company was incorporated in 1984 as a Georgia corporation. The Company
maintains its principal executive offices at 610 Sibley Avenue, Union Point,
Georgia 30669, and its telephone number is (706) 486-4163. As of the date of
this Prospectus, the Company is a wholly owned subsidiary of Stewart Finance
Company Holdings, Inc., a Georgia corporation (the "Holding Company"), which is
wholly owned by John B. Stewart, Jr.
DIVIDEND POLICY
Except for the payment of dividends on its preferred stock, the Company
currently anticipates that all of its earnings will be retained for the future
development, operation and expansion of the 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 of preferred
shares, will be at the discretion of the Company's Board of Directors and will
depend upon the Company's results of operations, financial condition and other
factors deemed relevant by the Board of Directors.
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<PAGE> 19
SELECTED FINANCIAL AND OPERATIONS DATA
The following table sets forth summary financial and operating data of the
Company for the periods indicated. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and related
notes included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA: 1998 1997
---- ----
<S> <C> <C>
Interest and Fee Income .............................................. $2,038,401 $1,804,126
Maintenance and Delinquent Charges.................................... 571,225 484,539
Insurance Premiums.................................................... 1,201,067 973,119
Auto Club and Other Income............................................ 4,124,757 2,578,906
Total Income................................................ 7,935,450 5,840,690
Interest Expense...................................................... 2,085,492 1,564,030
Salaries.............................................................. 2,202,801 1,772,774
Other Expenses........................................................ 3,790,366 2,760,738
Total Expenses.............................................. 8,078,659 6,097,542
Net Income (Loss) Before Income Tax Effect............................ <143,209> <256,852>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
----
<S> <C>
BALANCE SHEET DATA:
Finance Receivables............................................................................ 8,278,921
Other Current Assets........................................................................... 14,145,493
Property and Equipment (net of accumulated depreciation)....................................... 2,948,614
Other Assets................................................................................... 1,340,828
Total Assets......................................................................... 26,713,856
Subordinated Debentures........................................................................ 11,863,630
Senior Demand Notes............................................................................ 576,125
Note Payable, FINOVA Capital................................................................... 6,500,000
Other Liabilities.............................................................................. 3,924,696
Total Liabilities.................................................................... 22,864,451
Stockholder's Equity........................................................................... 3,849,405
</TABLE>
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Two major events had a material impact upon the Company's financial
condition and results of operations in 1998. These were (i) the opening by the
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.
The 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%. Amounts due the Company from affiliates as a result of these
services amounted to $3,862,788 at year end 1998 and $1,386,699 at year end
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, the 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.
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.
Total assets increased to $26,713,856 at year-end 1998, up from
$19,983,137 a year earlier, or 33.7%. Total liabilities increased to $22,864,451
in 1998, up from $19,480,841 a year earlier, or 17.4%. Liabilities included an
increase in the amount of $985,795 of subordinated debentures to $11,863,630 at
year-end 1998, up from $10,877,835 a year earlier, or 9.1% and an increase in
the amount owed the Company's principal lender to $6,500,000, up from $5,425,000
a year earlier, or 19.8%, and reflecting the use in 1998 of the $1,075,000
available at year end 1997 under the line of credit from that lender.
Stockholder's equity increased to $3,849,405 at year-end 1998, up from $502,296
a year earlier, or. This reflected primarily the issuance of preferred stock in
exchange for subordinated debentures.
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 the 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 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.
The Company expects that four new offices will open in 1999 (three of
which will be operated by affiliates) and five in 2000, bringing the total
number of offices operated to fifty by the end of that year. The Company
anticipates that the Holding Company will continue to obtain additional offices
by opening them under the Company's or its affiliates' licenses or by acquiring
existing offices from third parties. The Company also expects to continue to
provide funding and accounting services to its affiliates on essentially the
same terms as it did in 1997 and 1998, and to account for such transactions in
the same manner as it did in those years.
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<PAGE> 21
The Company anticipates that it will finance the expansion of its
operations during 1999 and 2000 as described above from internally generated
funds and proceeds from the sale of additional preferred stock and subordinated
debentures by the Holding Company in 1999. The Company expects to make these
offerings through non- underwritten registered offerings of those 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.
The 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 the Company's self-insured group medical
plan and increases in other accrued employee benefits also contributed to the
increase in personnel expense.
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%). The
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 the company for the years
ended December 31, 1996, 1997 and 1998. 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 the current year of 7.1% as compared to an increase in expenses in
the prior year of 25.2%.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
----------- ------------ -------
(IN THOUSANDS EXCEPT % DATA)
<S> <C> <C> <C>
General and administrative............ $ 3,401 $ 2,498 $ 1,889
Salaries and Wages.................... 2,203 1,773 1,365
Interest expense...................... 2,085 1,564 1,210
Depreciation and amortization......... 389 263 233
------------- --------------- --------------
Total expense.................... 8,078 6,098 4,697
Less reimbursed expenses.............. 2,476 868 519
------------- --------------- --------------
Net expenses..................... $ 5,602 $ 5,230 $ 4,178
============= =============== ==============
Increase.............................. 7.1% 25.2%
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
============= =============== ==============
Increase.............................. 9.7% 17.7%
</TABLE>
20
<PAGE> 22
BUSINESS
IN GENERAL
The Company is a Georgia corporation that was incorporated in 1984 and has
been engaged in the consumer finance business since its inception. The business
of the Company primarily consists of making and servicing the following two
types of loans: GILA Loans, which are consumer loans to individuals in original
principal amounts of less than $3,000 that the 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. The
Company also offers insurance premium loans, which are originated by the Company
to finance an individual's purchase of property and casualty insurance, and tax
refund loans, which are loans made to individuals in anticipation of their
receipt of a federal income tax refund, and services sales finance loans, which
are loans the Company purchases 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
the Company's total outstanding loans. As of December 31, 1998, the Company had
approximately 18,821 accounts and approximately $8,869,924 in loans outstanding.
As of December 31, 1998, the resources of the Company were invested
primarily in GILA Loans and Non- GILA Loans, which together comprised
approximately 31% of the Company's total assets on that date. For the fiscal
year ended December 31, 1998, approximately 48% of the Company's revenue (as
adjusted to exclude reimbursement income) was derived from interest, fees and
related charges earned on these loans. The 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 sales finance loans. See
"Management's Discussion and Analysis of Financial condition and Results of
Operations -- Results of Operations."
The Company finances its activities through several sources, including 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, the Company
had borrowed $6,500,000 and $1,500,000 under its FINOVA and Community Bank and
Trust credit lines, respectively. As of February 28, 1999, the Company had
outstanding $809,931 in principal amount of senior demand notes (the "Senior
Notes"), $12,421,245 in principal amount of subordinated debentures (the
"Debentures") and 33,475 shares of Series A preferred stock, par value $0.001
per share (the "Preferred Shares").
REORGANIZATION OF THE COMPANY
In July 1998, the Holding Company was formed to serve as a holding company
for the Company, which operates exclusively in Georgia, and three other
companies that are engaged in the consumer finance business in Louisiana,
Missouri and Illinois. All of the common stock of each of these subsidiaries,
including the Company, is now owned by the Holding Company and all of the common
stock of the Holding Company is owned by John B. Stewart, Jr. The purpose of
this corporate reorganization is to facilitate the growth of the business
operations of all of the subsidiaries by consolidating certain corporate
functions at the Holding Company level and enabling the Holding Company to
obtain and distribute corporate resources on an enterprise-wide basis.
As of the date of this Prospectus, the Company operates 22 offices in
Georgia and the Louisiana subsidiary, which was incorporated in 1996, operates
16 offices in Louisiana. The other subsidiaries were incorporated in 1998 and,
as of the date of this Prospectus, were conducting their operations through 4
offices in Missouri and 1 office in Illinois. The Holding Company, which began
operations on February 26, 1999, presently has no operations. Accordingly,
management believes that the Company will continue to provide funding resources
and accounting services in support of the business operations of the Louisiana,
Missouri and Illinois subsidiaries for the foreseeable future. As of December
31, 1998, the Louisiana, Missouri and Illinois subsidiaries owed the Company
$4,041,564 for funding obligations and accounting services.
21
<PAGE> 23
DESCRIPTION OF LOANS AND CERTAIN OTHER ACTIVITIES
The Company's primary source of revenue is the interest, fees and related
charges it receives from making consumer loans to individuals in relatively
small amounts and for relatively short periods of time. The Company's lending
operations are comprised of GILA Loans and Non-GILA Loans, and to a lesser
extent insurance premium loans, tax refund loans and sales finance loans. These
loans are offered to the general public through the Company's branch offices by
advertisement and direct mail.
The following table sets forth certain information regarding the Company's
loans 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>
Total Number of Loans
Outstanding.......................... 18,821 17,785 14,368 13,818 10,804
Total Amount of Loans Outstanding
(Gross) (in thousands)............... $ 8,869 $ 7,946 $ 6,811 $ 6,699 $ 5,609
Average Balance on Outstanding Loans.... $ 471 $ 491 $ 474 $ 485 $ 519
Average Amount of Loans Outstanding
Per Branch.............................. $ 400,697 $ 397,300 $ 454,080 $ 478,475 $ 420,628
Average Number of Loans Outstanding
Per Branch.............................. 896 890 958 921 772
</TABLE>
GILA LOANS. The Company originates GILA Loans under the Georgia Industrial
Loan Act, O.C.G.A. ss.7-3-1, et seq. ("GILA") to individual consumers who use
the proceeds of these loans primarily for payment of 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 the
Company had outstanding was $6,307,227, which represented approximately 71% of
the Company's total loans outstanding as of that date. The average maturity of
the Company's GILA Loans as of December 31, 1998 was 5.9 months. The Company
generally secures GILA Loans by obtaining a security agreement which grants a
security interest in specified collateral. However, in connection with most GILA
Loans, the 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, the Company relies on the borrower's payment of
"non-recording" insurance. See "Business -- Non-Recording Insurance."
GILA Loans are governed by GILA, which provides that loans may not exceed
$3,000 in amount and must be repayable on single payment terms not to exceed
three calendar months or in substantially equal installments on weekly,
bi-weekly, semi-monthly or monthly self-amortizing installments. Installment
balloon notes are not permitted under GILA. GILA also prescribes that, with the
exception of single payment loans, the initial installment on all loans must be
due within 45 days of the loan. The Company does not usually make single payment
GILA Loans. GILA further prescribes that the Company's GILA Loans be repayable
on terms of 36 months 15 days or less and restricts interest and charges, other
than bona fide insurance premiums, to not more than 5% per month. See "Business
- -- "Non-Recording Insurance" and "Government Regulation."
22
<PAGE> 24
The following table sets forth the average annual yield on GILA Loans made
by the Company (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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Annual Yield 34% 33% 34% 32% 33%
</TABLE>
NON-GILA LOANS. The 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 the
Company had outstanding was $2,562,697, which represented approximately 29% of
the Company's total loans outstanding as of that date. The average maturity of
the 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 the 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
similar property.
The following table sets forth the average annual yield on Non-GILA Loans
made by the Company (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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Annual Yield 32% 32% 32% 31% 31%
</TABLE>
OTHER TYPES OF LOANS. The Company provides insurance premium loans to
finance the purchase of automobile, property and casualty insurance. The Company
provides such financing through Stewart Premium Finance Company ("SPFC"), which
is operated as a separate division of the Company and finances insurance
premiums exclusively for Ben Stewart Insurance and Realty, Inc., which is wholly
owned by John B. Stewart, Jr. The financial results of operations from SPFC are
included in the financial statements of the Company. The 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, the
Company receives any rebate of unearned premiums which it can apply against the
loan balance. Otherwise, insurance premium loans are unsecured. The Company also
provides loans to individuals based on their anticipated federal income tax
refund. In connection with tax refund loans, the Company assists the taxpayer
with the preparation of his or her return and files such return electronically.
Finally, the Company services certain sales finance loans it purchases from
other lenders, primarily retailers, which were made to finance the borrower's
purchase of personal property. The Company generally attempts to perfect a
security interest in the collateral securing such loans when the loans are
obtained from the lender. As of December 31, 1998, the aggregate amount of
insurance premium loans, tax refund loans and sales finance loans the Company
had outstanding was $242,000, which represented less than 1% of the Company's
total loans outstanding as of that date.
UNDERWRITING
Prior to making any loan to a potential borrower, it is the Company's
policy to conduct 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 Direct Cash Loans and Insurance
Premium Loans, the 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
23
<PAGE> 25
making Sales Finance Loans, however, the 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 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. The Company has an immediate response policy for
delinquencies and attempts to collect loans that are one day past due. The
Company's loan officers are encouraged to contact the customer each day and to
continue collection efforts for 90 days. In certain instances, the Company may
renew or modify past due loans; however, if the loan continues in a delinquent
status for 90 days, the Company generally attempts to exercise its remedies,
including legal action, primarily through pro se actions filed in small claims
court. The 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.
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT % DATA)
<S> <C> <C> <C> <C> <C>
Loans 60-89 days Past Due............. $ 108 $ 223 $ 103 $ 98 $ 117
Percentage of Outstanding Loans....... 2.29% 1.90% 1.50% 1.70% 3.78%
Loans 90 Days or More Past Due........ $ 1,082(1) $ 1,336(1) $ 513(1) $ 169 $ 241
Percentage of Outstanding Loans....... 12.46%(1) 12.20%(1) 7.50%(1) 3.94% 4.88%
</TABLE>
(1) Includes loans that are in bankruptcy or the subject of collection/legal
proceedings. Pursuant to new accounting methods used by the Company, these
amounts also include a total in 1998 of $430,000, in 1997 of $630,000 and
in 1996 of $180,000 for balances of customers who had filed for
bankruptcy. Prior to 1996, the balance of a bankrupt customer was charged
off to bad debts and removed from loan receivables. In addition, the
Company has changed its policy for charge-offs recently. As of December
31, 1996, any past due balance over 180 days was written off. This policy
was changed in 1997 to the extent that past due balances were written off
only when they were at 270 days. Based on recent experience, the Company
now writes off past due balances at 240 days.
24
<PAGE> 26
LOSS EXPERIENCE
The following table sets forth net losses (charge-offs less recoveries)
for the years ended December 31, 1998, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Charge-offs.................................... $ 377,317 $ 602,164 $ 334,161 $ 203,000
Recoveries..................................... 161,000 102,000 94,000 61,000
---------- ---------- ---------- ----------
Net Loss....................................... $ 216,317 $ 500,164 $ 240,161 $ 142,000
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is determined based on the Company's
previous loss experience, a review of specifically identified potentially
uncollectible loans and management's evaluation of the inherent risks in, as
well as the change in the composition of, the Company's loan portfolio. Such
allowance is, in the opinion of management, sufficient to provide adequate
protection against future loan losses. The allowance is maintained out of
income, except in the case of bulk purchases, in which case it is provided in
the allocation of the purchase price.
NON-RECORDING INSURANCE
The Company's GILA Loans are secured by specific personal property owned
by the borrower and listed on a security agreement. However, the Company does
not file a security agreement or financing statement with respect to property
owned or disclosed by the borrower, and does not attempt to perfect a security
interest in the property. Because the risk of collection is generally greater on
loans with unperfected security interests, the Company charges the borrower who
chooses 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 the
Company's self-retention risk. The 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 the 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. The 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,
and further provided that the insurance is obtained through an insurance company
authorized to do business in Georgia. When authorized to do so by its customer,
the 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 minimum, the manager of each of the Company's branch locations is
licensed as a subagent of Voyager to sell credit-related insurance. The
Company's commissions are determined on the basis of 40% of the premiums
collected on insurance other than the so called "non-recording" insurance. See
25
<PAGE> 27
"Certain Transactions." Under the GILA regulations, the Company is authorized to
sell level term life insurance and reducing term life insurance under certain
circumstances, which can be written as security on all loans. The insurance
coverage is not allowed to exceed the face amount of the loan contract.
Different rates are established under the GILA regulations for various types of
term life coverage, and the regulations govern the use of proceeds from such
insurance and the cancellation thereof. Under GILA, the 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.
AUTO CLUB MEMBERSHIPS
The Company is affiliated through common ownership with Preferred Choice
Auto Club, Inc. ("Auto Club"), which is owned by John B. Stewart, Jr., the sole
shareholder of the Holding Company. The Auto Club provides payment or
reimbursement of certain automobile emergency related expenses such as towing
charges and roadside repair. The 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 following table sets forth information regarding the 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
The 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.
See "Description of Finova Credit Facility" and "Description of Community Bank
and Trust Credit Facility." As of December 31, 1998, the Company had borrowed
$6,500,000 and $1,500,000 under the FINOVA and Community Bank & Trust credit
lines, respectively. As of February 28, 1999, the Company had issued $809,931 in
principal amount of Senior Notes, $12,432,245 in principal amount of Debentures
and $3,347,500 in Preferred Shares. See "Description of Senior Demand Notes,"
"Description of Subordinated Debentures," and "Description of Capital Stock."
The following table sets forth the 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>
26
<PAGE> 28
GOVERNMENT REGULATION
The business of the Company is subject to regulation through statutes and
through supervision by administrative agencies. The GILA Loans made by the
Company are governed by the Georgia Industrial Loan Act, O.C.G.A. ss.7-3-1, et
seq. ("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 late
fees. The Company is also authorized to collect the actual and reasonable
expense of repossessing, storing, and selling any collateral pledged as
security; provided, however, that it does not exceed the amount recoverable
under the provision of the law. The Company is authorized to collect delinquency
charges equal to 5% of the scheduled payment when a payment is five days or more
delinquent. Borrowers can prepay GILA loans without penalty, and the Company
must refund unearned interest in an amount which represents at least as great a
portion of the total interest charge as the sum of the periodical time balance
after the date of prepayment bears to the sum of all periodical time balances
under the schedule of payments in the original contract. When a debt is renewed
or refinanced, a borrower is entitled to a refund or credit of the unearned
portion of the interest charge computed as of the date of the refinancing or
renewal. The Company is also authorized to charge a maintenance charge from the
borrower of its GILA Loans equal to a monthly maintenance charge of $2 for each
month that the loan is maintained. Regulations govern the calculation of the
maintenance charges and the refund of unearned maintenance charges. With certain
specific exceptions, 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 Code. Under GILA, a lender may also
sell certain types of insurance. See "Business--Other Insurance Sales."
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, the 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
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, the 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 the Company knew or should have reasonably known that it
was in violation of the applicable rules and regulations) or the 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 the Company's employees and agents in collecting debts.
Although the Company is not dependent upon patents, copyrights, trade
secrets, know-how or other proprietary information in order to continue its
operations in Georgia, the Company must continue to maintain its business
license and its license as a qualified lender regulated under GILA. Even though
the Company has never previously lost a license necessary to its operation,
there can be no assurance that the Company will be able to maintain the minimal
net worth requirements and other licensing requirements of GILA and of other
applicable federal, state and local licensing authorities. The Georgia Insurance
Department, which regulates and enforces GILA, periodically conducts audits of
the Company and its individual branches. The 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. There can be no assurance, however, that these
procedures are adequate and that the Company will be able to comply with the
requirements of GILA and the applicable insurance regulations; any failure by
the Company to so comply may lead to the Company's loss of its GILA license,
which, together with the Company's failure to comply with the regulatory
requirements of state, federal or local agencies, could have a materially
adverse impact on the business, financial condition and results of operations of
the Company.
All of the 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 the Company, the
27
<PAGE> 29
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 the Company and other consumer
lenders from using household goods as collateral on GILA Loans. The Company
believes the inability to use household goods as collateral has not had any
adverse impact on the quality of the Company's receivables, since 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. The Company
secures its Non-GILA Loans with nonhousehold collateral such as automobiles,
boats and other items which are exempt under Federal Trade Commission rulings.
GILA permits the Company to charge and collect from its customers premiums
actually paid by the Company for insurance obtained for the customer, provided,
however, that the insurance is reasonably related to the type and value of the
property covered and the amount and term of the loan, and further provided that
the insurance is obtained through an insurance company authorized to do business
in Georgia and through a regular insurance agent licensed by the Insurance
Commissioner of the State of Georgia (the "Georgia Insurance Commissioner").
Other aspects of the Company's insurance placement business are governed by GILA
regulations, but such regulations permit the insurance company to pay the
Company a reasonable fee or commission not exceeding limits established by the
Georgia Insurance Commissioner. Under these regulations, the Company is required
to make quarterly reports of loans which report the amount of insurance
coverage, amount of loans, total premiums charged, refunds, net premiums
charged, claims information and the name of the insuring company. The Company
places its insurance business in Georgia with Voyager Insurance Company, which
holds subagent licenses for employees of the Company. Subagent licenses permit
the Company's licensed employees to offer only the credit related insurance
described herein through Voyager Insurance Company. As subagents, the Company's
employees in Georgia and their activities are subject to the statutory
limitations and proscriptions, licensing requirements and regulations of the
Georgia Insurance Department.
The Company is also licensed as an insurance premium finance company in
Georgia under the Georgia Insurance Premium Finance Company Act. Pursuant to the
Insurance Premium Finance Act, the Company is required to maintain a minimum
balance of at least $5,000 (or such higher amount required by the Georgia
Insurance Commissioner) in its capital account as shown on its annual report to
the Commissioner and a $25,000 bond. The transaction of the Company's premium
finance business is subject to the statutory limitations, proscriptions,
licensing requirements and the supervision and regulation of the Georgia
Insurance Department.
COMPETITION
The Company competes with national and regional finance companies, local
finance companies in the communities which it serves and, to a lesser extent,
with commercial banks. The Company believes that customer service is the primary
factor that differentiates finance companies, since most competing finance
companies, including the Company, charge the same rate of interest and fees as
permitted by the applicable state regulatory-authorities. The Company believes
it has been able to compete effectively with other lenders in its market area
through superior customer service. Many of the Company's competitors, however,
have substantially greater resources and larger branch networks than the Company
and are able to offer a broader range of products and services.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or
to which the property of the Company is subject which management believes would
have a material effect upon the operations or financial condition of the
Company. No information has been received with respect to any claim that might
constitute a basis for any such material litigation.
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<PAGE> 30
EMPLOYEES
As of February 28, 1999, the Company employed 143 full-time persons,
including 22 in managerial functions, 14 in corporate headquarters functions and
107 in branch operations. The employees of the 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.
FACILITIES
The Company's corporate headquarters are located in four office buildings
in Union Point, Georgia, which are owned by the Company and contain
approximately 50,000 aggregate square feet of capacity. The Company leases
office space for all of the other branches. The Company believes that its
facilities are adequate for its current operations.
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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 the 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 the Company and has
been the Company's President, Treasurer and a director since the Company's
inception in 1984. Mr. Stewart is also the sole shareholder of the Holding
Company. In addition to his duties with the 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 the Company's business, with particular emphasis on
the Union Point corporate headquarters office. Mr. Smith is responsible for
general supervision of the Company's programs. Prior to being employed by the
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 the 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 the 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.
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<PAGE> 32
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation for services
rendered to the Company in all capacities paid or accrued for the fiscal years
ended December 31, 1998, 1997 and 1996. No executive officer of the Company
received aggregate cash and cash equivalent forms of compensation in excess of
$100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME CAPACITY SALARY YEAR BONUS COMPENSATION
- ---- -------- ------ ---- ----- ------------
<S> <C> <C> <C> <C> <C>
John B. Stewart, Jr. President, Director $60,000 1998 N/A $ 27,000 (1)
$60,000 1997 N/A 27,000
$60,000 1996 N/A 27,000
</TABLE>
- -----------------
(1) The Company pays Mr. Stewart's regular monthly country club dues totalling
approximately $4,000 per year and provides Mr. Stewart with the use of an
automobile valued at approximately $23,000 per year.
PROFIT SHARING 401(K) PLAN
The Company has established a Profit Sharing 401(k) Plan (the "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 the Company may elect
to have the 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", the 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 the Company's contributions on behalf of the participant at
the rate of 20% after two years of service with the Company and an additional
20% for each year of service thereafter, becoming fully vested after six years
of service.
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<PAGE> 33
PRINCIPAL SHAREHOLDERS
The following table presents certain information regarding the beneficial
ownership of all shares of common stock of the 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 the Company, (iii)
each named executive officer and (iv) all directors and officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER (1) 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>
- ------------------------
(1) The business address of Mr. Stewart is the same as the address of the
Company's principal executive offices.
(2) In February 1999, the Company was reorganized. Mr. Stewart exchanged
all of the outstanding common stock of the Company for 10,000 shares of
common stock of the Holding Company, and the Company became a wholly
owned subsidiary of the Holding Company. As the sole shareholder of the
Holding Company, which is the sole shareholder of the Company, Mr.
Stewart remains the beneficial owner of 100% of the outstanding shares
of common stock of the Company.
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<PAGE> 34
CERTAIN TRANSACTIONS
As of December 31, 1998, the Company had the following loan transactions
with parties that are related to the Company. For additional information
regarding such transactions, see the Company's financial statements, which
appear elsewhere in this Prospectus:
- During 1996 and 1997, the Company acquired a portfolio of marketable
securities at the direction of John B. Stewart, Jr. At the request of the
Company's lenders, the portfolio was transferred from the Company into Mr.
Stewart's individual name. The 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 is unsecured, non-interest bearing, has no stated maturity and is not
represented by a written instrument.
- The Company has a loan outstanding in the aggregate principal amount of
$150,739.16 that was made on June 26, 1996 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 10,
2000. The loan bears interest at an annual percentage rate of 33.38% and is
secured by a security interest in certain automobiles, furniture, fixtures and
equipment owned by Richard Stewart. The terms of the loan are similar to the
terms of like loans made by the Company to unrelated customers at the time.
- As of December 31, 1998, the Company had issued to John B. Stewart, Jr.,
or entities controlled by him, three Senior Notes in the aggregate principal
amount of $129,676. These notes are payable on demand and were issued on
December 11, 1989, December 15, 1989 and July 18, 1995, respectively. The notes
bear interest at the rate of 6.5%, 9.0% and 7.0% per annum, respectively.
The Company is subject to various conflicts of interest in its
relationship with Mr. Stewart and his other business enterprises. Because Mr.
Stewart is the sole shareholder, sole director and President of the Holding
Company, these conflicts may not be resolved through arm's-length negotiations.
In addition to the Related Party Loans, the following relationships between the
Company and related parties may involve actual or potential conflicts of
interest:
- 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., each of which is a wholly owned
subsidiary of the Holding Company. As of December 31, 1998, the Company was owed
$4,041,564 for these services. The Company earns no return on funds advanced to
the subsidiaries.
- 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 the 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. The 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. (the "Auto Club"), which provides payment or reimbursement of certain
automobile emergency related expenses such as towing charges and roadside
repair. The Company offers memberships in the Auto Club as a service to its
customers and receives a commission for membership sales. In 1998, the Company
earned $1,110,173 in commissions on sales of memberships in the Auto Club.
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<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of (i) 1,000,000 shares of
common stock, par value $0.01 per share, and (ii) 10,000,000 shares of preferred
stock, par value $0.001 per share. As of the date of this Prospectus, the
Company has 10,000 shares of common stock outstanding and 33,475 shares of
preferred stock outstanding. The following summary description of the Company's
capital stock does not purport to be complete and is qualified in its entirety
by reference to the 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. Reference is made to such exhibit and Georgia law for a detailed
description of the provisions thereof summarized below.
COMMON STOCK
As of the date of this Prospectus, there are 10,000 shares of the
Company's common stock issued and outstanding, all of which are owned by the
Holding Company. Holders of common stock have one vote per share on all matters
submitted to a vote of the shareholders of the Company, including with respect
to the election of directors. The 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 the Company out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the 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
The 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 the Company. As of the date of this Prospectus, the
Company's Articles of Incorporation authorize the issuance of 50,000 shares of
Series A Preferred Stock, par value $0.001 per share (the "Preferred Shares").
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 the 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 the 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.
Voting. Holders of Preferred Shares have no voting rights.
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<PAGE> 36
Conversion. The Preferred Shares are not convertible into any other
security of the Company.
Liquidation. In the event of a liquidation, dissolution or winding up of
the 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 the
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 the Company in proportion to the preferential
amounts to which they are entitled.
Redemption by the Company. The 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 the 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 the 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.
35
<PAGE> 37
DESCRIPTION OF SUBORDINATED DEBENTURES
GENERAL
The subordinated debentures of the Company (the "Debentures") 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. The 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 the
Company, but are not secured. Principal and interest is payable at the executive
offices of the Company in Union Point, Georgia. The Debentures are sold only to
residents of the State of Georgia and are governed by Georgia law.
The form of Debenture utilized by the Company prior to April 1, 1998 (the
"Original Form of Debenture") differs as to some of its terms and conditions
from the form of Debenture presently utilized by the Company (the "Current Form
of Debenture"). Both forms of Debentures are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. You are referred
to such exhibits for a detailed description of the provisions of the Debentures,
the material terms of which, as well as the material differences between the
Original Form of Debenture and the Current Form of Debenture, are summarized
below.
INTEREST
An annual rate of interest for each Debenture is set by the 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 on a Debenture may be changed by the 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 from the original maturity date for a
period equal to the original term of such Debenture unless the holder submits
the Debenture for redemption within 15 days after its maturity or the 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 with the exception of the interest rate, which may be changed
by the Company at its discretion. If the Company elects not to tender payment
and extend the maturity of the Debenture, 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 thereon, is subordinate in right of payment to all
Senior Indebtedness of the Company. The term "Senior Indebtedness" means all
indebtedness of the Company outstanding at any time except indebtedness of the
Company that by its terms is not senior in right of payment to the Debentures,
all of which are pari passu.
The indebtedness evidenced by the Debentures, in case the Debentures are
declared due and payable before their expressed maturity because of the
occurrence of a default under the Debentures, is entitled to payment only after
all principal and interest on such Senior Indebtedness has been paid in full.
Likewise, in the event of any insolvency or bankruptcy proceedings, or of any
receivership, liquidation, reorganization or other similar proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its property, or in the event of any
36
<PAGE> 38
proceeding for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, the holders of
Senior Indebtedness are entitled to receive payment in full of all principal and
interest on all Senior Indebtedness before the holders of the Debentures are
entitled to receive any payments.
The amount of the Company's Senior Indebtedness outstanding at December
31, 1998 was $8,809,931.
REDEMPTION BY COMPANY PRIOR TO MATURITY
The 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 thereon as of the date of redemption. If the 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
the 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, the Company has maintained a
policy of redeeming any Debenture at the request of the holder thereof for a
redemption price equal to the principal amount of such Debenture plus any unpaid
interest thereon to the date of redemption. The Company presently intends to
continue this informal policy, but has no obligation to do so. The Company may
terminate this policy at any time.
ABSENCE OF RESTRICTIONS UPON THE 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 the 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: (a) failure to repay the
principal amount of any Debenture when it becomes due; (b) failure to pay
interest upon any Debenture when it becomes due and the default continues for 30
days; (c) 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 (d) the filing by or against the
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: (a) the
failure of the Company to pay principal or interest on any Debenture when it
becomes due; or (b) the Company (i) applying for or consenting to the
appointment of, or a taking of possession by, a receiver, custodian, trustee or
liquidator for the 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.
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<PAGE> 39
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 interest thereon, immediately due and
payable upon the happening of any of the Events of Default under such
Debentures; provided, however, that the holders of Debentures representing a
majority of the aggregate principal amount of all such Debentures 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 (a) a bona fide gift or other transfer to or for the benefit
of the spouse or direct lineal descendants of the holder, or (b) 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 the 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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<PAGE> 40
DESCRIPTION OF SENIOR DEMAND NOTES
GENERAL
The senior demand notes of the Company (the "Senior Notes") are sold for
any amount not less than $1, dated the date of purchase, and are non-negotiable.
The form of Senior Notes issued on or prior to February 19, 1998 paid a fixed
rate of interest, while Senior Notes issued after February 19, 1998 (the
"Current Form Senior Notes") 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 the Current Form Senior Notes is a variable
rate, calculated on a simple interest basis. The rate of interest on any Current
Form Senior Note is 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 the Current Form Senior Notes, the interest rate initially
established is the Prime Rate on the Tuesday next preceding the date of the
Current Form Senior Note and such rate changes each week with respect to any
outstanding principal balance of the Current Form Senior Note effective on the
Tuesday announcement of a Prime Rate. When an interest rate is established, it
becomes effective for all Current Form Senior Notes, whether existing or newly
issued. The interest rate being paid at any time on the Current Form Senior
Notes may be obtained from the Company's executive office in Union Point,
Georgia. The interest rate payable on Senior Notes issued prior to February 20,
1998 is fixed by the Company as of the date such Senior Notes are issued. Senior
Notes purchased with cash begin to accrue interest as of the date of purchase.
Senior Notes purchased by check begin to accrue interest as of the first
business day after the date of purchase. Interest on the outstanding principal
balance of the Senior Notes is payable monthly.
REDEMPTION OF THE SENIOR NOTES
Senior Notes are redeemable on demand by the holder thereof for the
outstanding balance of the Senior Note plus any accrued but unpaid interest at
the time of redemption. All redemptions must be made either in person or by mail
at the Company's executive office. The 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
thereon 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 the Company respecting 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 pari passu with all other unsubordinated unsecured
obligations of the Company, but are junior to the Company's obligations under
the FINOVA and Community Bank and Trust credit facilities. The Company may at
any time borrow money from a lending institution on a secured basis which would
be prior 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 the Company
by the registered owner thereof for a like principal amount to a transferee who
is a resident of Georgia
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<PAGE> 41
DESCRIPTION OF FINOVA CREDIT FACILITY
On December 21, 1994, the Company entered into a $6.5 million revolving
credit facility (the "Credit Facility") with FINOVA Capital Corporation
("FINOVA"). Since then, the Credit facility has been amended and restated
several times, most recently on January 29, 1999 to add the Holding Company and
each of the Louisiana, Missouri and Illinois subsidiaries as parties (together
with the Company collectively referred to herein 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 the 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 therefrom) of the Borrowers,
whether now owned or hereafter acquired. Additionally, all of the obligations of
the Company under the Credit Facility are personally guaranteed by John B.
Stewart, Jr., the sole shareholder of the Holding Company
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 (subject to certain conditions) plus 3.0% per annum. The Company to pay
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 certain conditions on the date of any such borrowing.
CONDITIONS TO EXTENSIONS OF CREDIT
The obligation of FINOVA to make advances under the Credit Facility are
subject to the satisfaction of certain customary conditions, including, but not
limited to, the absence of a default or event of default under the Credit
Facility and all representations and warranties under the Credit Facility being
true and correct in all material respects and the absence of a material adverse
change.
COVENANTS
The Credit Facility contains customary negative covenants of the Company,
including, without limitation, restrictions on (i) the incurrence of debt, (ii)
the sale of assets, (iii) mergers, acquisitions and other business combinations,
(iv) distributions, (v) repurchase or redemption of securities, (v) and
amendments of the 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 the Company's leverage ratio. This rescission offering, to the
extent that it is accepted, is technically a breach of the covenant against
redemptions of the Company's securities. Although the Company has discussed its
intent to
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<PAGE> 42
undertake this rescission offer with FINOVA and received their verbal approval,
there can be no assurance that FINOVA will not seek to assert this breach of
covenant as an event of default in the future. Accordingly, in planning for the
funding of the rescission offering, the Company has assumed full repayment of
the Credit Facility.
See "The Rescission Offer -- "Funding the Rescission Offer."
EVENTS OF DEFAULT
The Credit Facility contains certain customary events of default,
including, without limitation, (i) the non-payment of principal or interest when
due, subject to the applicable grace periods in certain circumstances, (ii) non-
fulfillment of the covenants described above, (iii) any impairment of the
validity, enforceability or priority of FINOVA's security interest, (iv) certain
events of bankruptcy or insolvency, and (v) 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
the amounts due under the Credit Facility and may require all such amounts
outstanding thereunder to be immediately paid in full.
41
<PAGE> 43
DESCRIPTION OF COMMUNITY BANK AND TRUST CREDIT FACILITY
On April 29, 1998, the Company entered into a $1.5 million revolving
credit facility (the "Community Credit Facility") with Community Bank & Trust,
Cornelia, Georgia ("Community Bank & Trust"). The following summary description
of the Community 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 the Company under the Community Credit Facility is secured
by a pledge of 100% of the outstanding common stock of the Company and a
$1,500,000 insurance policy on the life of John B. Stewart, Jr. Additionally,
all of the obligations of the Company under the Community Credit Facility are
personally guaranteed by John B. Stewart, Jr.
INTEREST
Indebtedness under the Community 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 Community Credit Facility requires the
Company to pay the accrued interest only upon maturity of the Community Credit
Facility, the Company consistently has paid such interest monthly.
BORROWING BASE
Advances under the Community Credit Facility are made at the request of
the Company upon approval of Community Bank & Trust.
MATURITY
All advances made pursuant to the Community Credit Facility mature on
April 29, 1999. The Company has no reason to believe that the Community Credit
Facility will not be renewed upon its maturity, but it cannot ensure you that
such facility will be renewed on terms that it deems acceptable. If the
Community Credit Facility is not renewed, the Company cannot ensure you that it
will be able to obtain additional financing on terms its finds acceptable.
CONDITIONS TO EXTENSIONS OF CREDIT
The obligation of Community Bank & Trust to make advances under the
Community Credit Facility are subject to the satisfaction of certain customary
conditions, including, but not limited to, the absence of a default or event of
default under the Community Credit Facility and all representations and
warranties under the Community Credit Facility being true and correct in all
material respects and the absence of a material adverse change.
EVENTS OF DEFAULT
The Community Credit Facility contains certain customary events of
default, including, without limitation, (i) the non-payment of principal or
interest when due, subject to the applicable grace periods in certain
circumstances, (ii) non-fulfillment of the covenants described above, (iii) any
impairment of the validity, enforceability or priority of Community Bank &
Trust's security interest, (iv) certain events of bankruptcy or insolvency, and
(v) 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
Community Credit Facility and may require all such amounts outstanding
thereunder to be immediately paid in full. Community Bank & Trust also will be
entitled to reasonable attorneys' fees and costs incurred in enforcing such
rights.
42
<PAGE> 44
LEGAL MATTERS
Certain legal matters in connection with the Rescission Offer will be
passed upon for the Company by Holland & Knight LLP, Atlanta, Georgia.
EXPERTS
The Financial Statements of the 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 herein, and are included in reliance upon such report
of such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 under the Securities Act of
1933 with respect to the Rescission Securities offered hereby. 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 thereto, certain parts of which have been omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Rescission 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 thereto 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.
The 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.
43
<PAGE> 45
STEWART FINANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants............................................................ F-1
Balance Sheet as of December 31, 1998 ........................................................................ F-2
Statements of Operations for the years ended December 31, 1997
and 1998...................................................................................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998............................. F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1998....................................... F-6
Notes to Financial Statements................................................................................. F-8
</TABLE>
44
<PAGE> 46
PECHTER & ASSOCIATES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
200 Galleria Parkway, Suite 880
Atlanta, Georgia 30339
(770) 850-8808 Fax (770) 850-8901
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Stewart Finance Company, Inc.
Union Point, Georgia
We have audited the accompanying balance sheets of Stewart Finance Company, Inc.
as of December 31, 1998 and 1997, and the related statements of income and
accumulated deficit and cash flows for the years ended December 31, 1998 and
1997. 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, Inc.
as of December 31, 1998 and 1997, and the results of operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Pechter & Associates, P.C.
- -----------------------------------
March 8, 1999
A member of ACF International with affiliated offices worldwide
F-1
<PAGE> 47
STEWART FINANCE COMPANY
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
See Independent Auditor's Report
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,595,486 $ 2,334,476
Certificates of deposit 1,195,967 535,000
Marketable securities, valued at market 446,073 1,473,312
Investment in related companies 4,118,896 1,752,120
Finance receivables, net 8,278,921 7,787,274
Prepaid expenses 91,050 75,391
Loans to related parties 1,363,087 824,669
Note receivable 46,800 46,800
Due from affiliated companies 2,994,577 2,422,850
Refundable income taxes 142,818 --
Other current assets 150,739 164,961
------------ ------------
TOTAL CURRENT ASSETS 22,424,414 17,416,853
------------ ------------
PROPERTY AND EQUIPMENT
Buildings 378,100 378,100
Furniture, fixtures and equipment 2,005,421 1,545,932
Leasehold improvements 809,700 782,401
Vehicles 470,323 282,138
Construction in process 308,928 216,527
------------ ------------
3,972,472 3,205,098
Accumulated depreciation (1,023,858) (694,651)
------------ ------------
2,948,614 2,510,447
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated
amortization 257,737 218,283
Organization expenses, net of
accumulated amortization 1,061,663 198,000
Deposits 21,374 500
Repossessed assets 54 --
------------ ------------
1,340,828 416,783
------------ ------------
$ 26,713,856 $ 20,344,083
============ ============
</TABLE>
See notes to financial statements
F-2
<PAGE> 48
STEWART FINANCE COMPANY
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
See Independent Auditor's Report
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 226,284 $ 175,646
Accrued expenses 717,602 460,267
Credit line payable 1,500,000 800,000
Current portion of long-term debt 3,113 40,175
Subordinated debentures 11,863,630 10,877,835
Senior demand notes 576,125 445,750
Margin loan on marketable securities 241,863 675,515
Due to affiliated company 478,333 184,098
Note payable, related party 7,501 7,501
----------- -----------
TOTAL CURRENT LIABILITIES 15,614,451 13,666,787
----------- -----------
LONG-TERM DEBT
Note payable, funding company 6,500,000 5,425,000
Notes payable 753,113 790,175
----------- -----------
7,253,113 6,215,175
Current portion (3,113) (40,175)
----------- -----------
7,250,000 6,175,000
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, no par value, 1,000,000
shares authorized, 10,000 shares
issued and outstanding 10,000 10,000
Preferred stock, $.001 par value, 10,000,000
shares authorized, 33,475 shares
issued and outstanding 33 --
Additional paid-in capital 4,323,782 976,315
Accumulated deficit (484,410) (484,019)
----------- -----------
3,849,405 502,296
----------- -----------
$26,713,856 $20,344,083
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE> 49
STEWART FINANCE COMPANY
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
See Independent Auditor's Report
<TABLE>
<CAPTION>
1998 1997
----------- -----------
REVENUES
<S> <C> <C>
Interest and fee income $ 2,038,401 $ 1,804,126
Auto club and other operating revenue 1,072,879 1,055,136
Insurance premiums 1,201,067 973,119
Reimbursement income 2,476,089 867,699
Recovery of delinquent accounts, net of bad debt 91,953 575,549
Maintenance and delinquent charges 571,225 484,539
----------- -----------
7,451,614 5,760,168
----------- -----------
OPERATING EXPENSES
General and administrative 3,400,972 2,497,653
Salaries and wages 2,202,801 1,772,774
Interest expense 2,085,492 1,564,030
Depreciation and amortization 389,394 263,085
----------- -----------
8,078,659 6,097,542
----------- -----------
Operating loss (627,045) (337,374)
----------- -----------
NONOPERATING INCOME
Income from change in accounting estimates -- 169,846
Realized gains on marketable securities 231,116 68,890
Dividend income 3,771 2,267
Unrealized gains on marketable securities 248,949 (151,512)
(Loss) on sale of property and equipment -- (8,969)
----------- -----------
483,836 80,522
----------- -----------
Net (loss) before provision for income taxes (143,209) (256,852)
PROVISION FOR INCOME TAXES
Benefit from net operating loss carryforward 142,818 --
----------- -----------
$ (391) $ (256,852)
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 50
STEWART FINANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
See Independent Auditor's Report
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-In Accumulated
Stock Stock Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $10,000 $ -- $ 976,315 $(227,167) $ 759,148
Net (loss) -- -- -- (256,852) (256,852)
------- ------ ---------- --------- -----------
Balance, December 31, 1997 10,000 -- 976,315 (484,019) 502,296
Issuance of preferred stock -- 33 3,347,467 -- 3,347,500
Net (loss) -- -- -- (391) (391)
------- ------ ---------- --------- -----------
Balance, December 31, 1998 $10,000 $ 33 $4,323,782 $(484,410) $ 3,849,405
======= ====== ========== ========= ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 51
STEWART FINANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
See Independent Auditor's Report
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash received on customers loans $ 6,959,913 $ 4,194,236
Cash paid to suppliers and employees (5,575,447) (4,709,698)
Dividends received 3,771 2,267
Interest paid (1,828,157) (1,133,150)
------------ ------------
Net cash (used in) operating activities (439,920) (1,646,345)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of certificates of deposit (660,967) 67,746
Purchases of marketable securities (15,369,744) (21,731,076)
Proceeds from sales of marketable securities 16,877,047 20,622,768
Proceeds from sale of property and equipment -- 22,867
Disbursements for start up costs (863,663) (90,358)
Disbursements for goodwill (99,640) (150,000)
Net payments to affiliated company (2,644,267) (2,606,601)
Purchases of property and equipment (767,374) (787,117)
------------ ------------
Net cash (used in) investing activities (3,528,608) (4,651,771)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts from related parties (538,418) 142,001
Proceeds from credit line 18,000,000 18,000,000
Disbursements on credit line (17,300,000) (18,000,000)
Proceeds from senior demand notes 1,642,605 1,195,125
Disbursements on senior demand notes (1,512,230) (1,092,905)
Proceeds from subordinated debentures 6,153,960 5,966,837
Disbursements on subordinated debentures (5,168,165) (1,581,895)
Net receipts from margin loans (433,652) 418,190
Proceeds from issuance of long-term debt 14,429,924 12,512,151
Payments on long-term debt (13,391,986) (10,846,662)
Proceeds from issuance of preferred stock 3,347,500 --
------------ ------------
Net cash provided by financing activities 5,229,538 6,712,842
------------ ------------
Net increase in cash 1,261,010 414,726
Cash, beginning of year 2,334,476 1,919,750
------------ ------------
Cash, end of year $ 3,595,486 $ 2,334,476
============ ============
</TABLE>
F-6
<PAGE> 52
STEWART FINANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
See Independent Auditor's Report
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH
(USED IN) OPERATING ACTIVITIES
Net (loss) $ (391) $(256,852)
--------- -----------
Non-cash items included in net income:
Change in accounting estimate -- (169,846)
Loss on sale of asset -- 8,969
Realized gains on marketable securities (231,116) (68,890)
Unrealized losses on marketable securities (248,949) l5l,512
Depreciation and amortization 389,394 263,085
Changes in assets; (increase) decrease in:
Finance receivables, net (491,648) (1,575,241)
Prepaid expenses (15,659) (17,099)
Refundable income taxes (142,818) --
Deposits (20,874) 1,606
Other current assets 14,222 (160,092)
Repossessed assets (54) 9,309
Changes in liabilities; increase (decrease) in:
Accounts payable 50,638 (263,776)
Accrued expenses 257,335 430,880
--------- -----------
Total adjustments (439,529) (1,389,493)
--------- -----------
Net cash (used in) operating activities $(439,920) $(1,646,345)
========= ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 53
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
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.
Significant accounting policies:
Income recognition:
The Company uses the rule of 78's method to recognize interest and the
straight-line method to recognize insurance income on loans that have
precomputed charges included in the loan balance.
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.
Marketable securities:
Marketable securities are carried at market value. Unrealized gains and
losses are recorded for changes in the market values of those
securities held at year end. The average cost method is used in
determining the basis of sold securities.
F-8
<PAGE> 54
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
Continued
Repossessed assets:
Repossessed assets consist primarily of personal property repossessed
on loans in default, and are stated at estimated realizable value.
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
assets acquired are recorded as goodwill and amortized on a
straight-line basis over 15 years.
F-9
<PAGE> 55
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
Continued
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.
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.
Note 2. MARKETABLE SECURITIES
Marketable securities consisted exclusively of common stock at December
31, 1998 and 1997. The market value of these securities were $446,073
and $1,473,311 as compared to the cost basis of $429,332 and $1,706,386
at December 31, 1998 and 1997, respectively.
F-10
<PAGE> 56
STEWART, FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 2. MARKETABLE SECURITIES - Continued
At December 31, 1998 and 1997, the Company had borrowed $241,863 and
$675,515, respectively, on a margin account secured by marketable
securities.
Note 3. FINANCE RECEIVABLES
Finance receivables consisted of the following at December 31, 1998 and
1997:
<TABLE>
<S> <C> <C>
Gross finance receivables $ 9,197,662 $ 8,596,263
Allowance for credit losses (279,784) (264,430)
Unearned interest and
insurance premiums (638,957) (544,559)
----------- -----------
Finance receivables, net $ 8,278,921 $ 7,787,274
=========== ===========
</TABLE>
Note 4. RELATED PARTY TRANSACTIONS
Advances to related parties consist of noninterest-bearing advances
made to affiliated companies and other related parties. Advances at
December 31, 1998 and 1997 consisted of the following:
<TABLE>
<S> <C> <C>
Loans to related parties $ 1,363,087 $ 824,669
</TABLE>
At December 31, 1998 and 1997, finance receivables included amounts due
from related parties of $207,977 and $343,500.
At December 31, 1998 and 1997, debentures included amounts due to
related parties of $56,718 and $32,995.
At December 31, 1998 and 1997, senior demand notes included amounts due
to related parties of $132,862 and -0-.
At December 31, 1998 and 1997, the Company owed a related party $7,501.
This loan is unsecured and due on demand.
F-11
<PAGE> 57
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 4. RELATED PARTY TRANSACTIONS - Continued
The Company pays rent to its sole stockholder on a month-to-month basis
for its home office location. Total rent paid relating to this
arrangement for December 31, 1998 and 1997 was $22,315 for each year.
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. At
December 31, 1998 and 1997 the Company was owed $4,041,564 and
$3,817,569, respectively, for these services. 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 sole shareholder of the Company.
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, 1998 and 1997 was from 7.0% to 10.5%. Total senior
demand notes at December 31, 1998 and 1997 were $576,125 and $445,750,
respectively.
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,
1998 and 1997 was from 7% to 11%.
F-12
<PAGE> 58
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 6. DEBENTURES - Continued
Total debentures outstanding at December 31, 1998 and 1997 were
$11,863,630 and $10,877,835, respectively.
Note 7. NOTE PAYABLE, FUNDING COMPANY
Note payable funding company represents a revolving credit line with
Finova Capital Corporation which provides for secured working capital
borrowings. Borrowings are based upon an asset formula involving
finance receivables, with maximum borrowings limited to $6,500,000. 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 sole 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,
including a leverage ratio and a minimum net income of $1. As of
December 31, 1998 and 1997, the affiliated companies as a whole had net
income for the years ended December 31, 1998 and 1997, in excess of $1.
Total outstanding borrowings related to this arrangement were
$6,500,000 and $5,425,000, respectively, at December 31, 1998 and 1997.
Note 8. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and
1997:
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,
F-13
<PAGE> 59
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 8. LONG-TERM DEBT - Continued
<TABLE>
<S> <C> <C>
Georgia location, owned by the sole
stockholder, and the assignment of a
life insurance policy on the sole
stockholder. $ 3,113 36,215
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 January, 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
-------- --------
753,113 790,175
Less current maturities (3,113) (40,175)
-------- --------
$750,000 $750,000
======== ========
Aggregate maturities of long-term debt at
December 31, 1998 and 1997, were as follows:
1998 $ - $ 40,175
1999 3,113 750,000
2000 750,000 -
-------- --------
$753,113 $790,175
======== ========
</TABLE>
F-14
<PAGE> 60
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 8. LONG-TERM DEBT - Continued
In addition to these maturities, the note payable as described in Note
7 is payable in full on January 31, 2001.
For the years ended December 31, 1998 and 1997, all interest incurred
was expensed.
Note 9. LEASE COMMITMENTS
The Company leased office space at twenty one locations during 1998 and
nineteen locations during 1997. Five of the locations are leased on a
month to month basis totaling $2,645 per month.
Future minimum lease payments for the remaining locations are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ -- $171,024
1999 216,933 81,715
2000 102,251 27,925
2001 58,366 19,000
2002 21,223 --
-------- --------
$398,773 $299,664
======== ========
</TABLE>
Note 10. CONCENTRATION OF CREDIT RISK
The Company's deposits with financial institutions were $206,035 and
$14,995, respectively, in excess of federally insured limits at
December 31, 1998 and 1997.
Note 11. PREFERRED STOCK
During 1998, the Company issued 33,475 shares of preferred stock at a
par value of $.001 per share. The gross proceeds from this issuance was
$3,347,500. The par value of the stock issued was $33. The issuance of
preferred stock increased additional paid in capital by $3,347,467.
F-15
<PAGE> 61
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
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
$9,655 and $15,214, respectively, to the plan during the years ended
December 31, 1998 and 1997.
Note 13. LINE OF CREDIT
At December 31, 1998 and 1997, 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 of $1,500,000 and $800,000 at December 31, 1998 and 1997,
respectively.
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. For
the years ended December 31, 1998 and 1997, the Company had
reimbursement income of $2,476,089 and $867,699, respectively.
Note 15. REFUNDABLE INCOME TAXES
For the year ended December 31, 1998, the Company had refundable income
taxes from taxable losses of $142,818. The net operating loss
carryforward of $357,046 expires in the year ended December 31, 2013.
The refundable income taxes are comprised of a federal income tax
benefit of $121,395 and a state income tax benefit of $21,423.
F-16
<PAGE> 62
STEWART FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
See Independent Auditor's Report
Note 16. SUBSEQUENT EVENTS
The Company plans to file a Recission Registration Statement with
respect to outstanding debentures and preferred stock in 1999 with the
Securities and Exchange Commission. Stewart Holdings Company, Inc., the
Company's parent company, plans to file a Registration Statement for
its issuance of debentures and preferred stock in 1999. The expected
result is to allow Stewart Holdings Company, Inc. to issue debentures
and preferred stock on a interstate basis rather than Stewart Finance
Company issuing debenture and preferred stock on an intrastate basis.
The Company applied for a license to operate in the states of Illinois
and Missouri during 1998.
The Company opened one new location during 1999.
F-17
<PAGE> 63
PECHTER & ASSOCIATES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
200 Galleria Parkway, Suite 880
Atlanta, Georgia 30339
(770) 850-8808 fax (770) 850-8901
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 and 1997 taken as a whole The supplemental
information on page 19 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 1997 and for the years then ended and, in
our opinion, is fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ Pechter & Associates, PC
March 8, 1999
A member of ACF International with affiliated offices worldwide.
F-18
<PAGE> 64
STEWART FINANCE COMPANY
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
See Independent Auditor's Report on Supplemental Information
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Auto expenses $ 95,143 $ 92,257
Advertising 185,162 105,505
Bank charges 113,984 202,204
Cash (over) and short (2,803) (1,567)
Charitable contributions 3,736 1,707
Commissions 2,417 2,706
Consulting 66,315 8,775
Contract labor 155,400 62,916
Credit reports 76,755 48,591
Dues and subscriptions 48,974 52,893
Equipment rental 87,864 90,148
Employee benefits 9,655 15,214
Insurance - business 95,525 73,206
Insurance - health 206,995 144,518
Insurance - officer's life 29,759 28,961
Legal and professional 267,456 160,575
Meals and entertainment 72,994 62,012
Miscellaneous 27,485 16,233
Office supplies 299,179 191,647
Postage and delivery 302,605 181,406
Referral fees 55,169 30,820
Rent 268,273 222,112
Repairs and maintenance 100,854 40,705
Taxes - payroll 214,137 201,554
Taxes - state loan 21,089 18,070
Taxes and licenses 127,124 91,973
Telephone 248,107 211,579
Travel and convention 87,338 45,893
Utilities 134,281 95,040
----------- -----------
$ 3,400,972 $ 2,497,653
=========== ===========
</TABLE>
F-19
<PAGE> 65
================================================================================
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 OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................................................... 2
Summary Financial Data...................................................................................... 6
Risk Factors................................................................................................ 7
The Rescission Offer........................................................................................ 12
The Company................................................................................................. 17
Dividend Policy............................................................................................. 17
Selected Financial and Operations Data...................................................................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................................................. 19
Business.................................................................................................... 21
Management.................................................................................................. 30
Principal Shareholders...................................................................................... 32
Certain Transactions........................................................................................ 33
Description of Capital Stock................................................................................ 34
Description of Subordinated Debentures...................................................................... 36
Description of Senior Demand Notes.......................................................................... 39
Description of FINOVA Credit Facility....................................................................... 40
Description of Community Bank & Trust
Credit Facility........................................................................................... 42
Legal Matters............................................................................................... 43
Experts..................................................................................................... 43
Additional Information...................................................................................... 43
Index to Financial Statements............................................................................... 44
</TABLE>
-------------
================================================================================
================================================================================
STEWART FINANCE COMPANY
RECISSION OFFICER
$809,932 Senior Demand Notes
$12,421,245 Subordinated Debentures
33,475 Shares of Series A Preferred Stock
----------------
PROSPECTUS
----------------
-------------, 1999
================================================================================
<PAGE> 66
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.
ITEM 24. OTHER EXPENSES AS OF ISSUANCES 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......................................... $ 4,609
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 the Company were offered in unregistered
transactions. Although the Company believes it complied with the exemption from
the federal_registration_requirements provided by Section 3(a)(II) 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, the Company is
undertaking this rescission offer. All of the 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. The Company believes it fully satisfied this
exemption in connection with its offer and sale of securities.
II-1
<PAGE> 67
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)
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
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
99.1 ** Form of Letter of Election
</TABLE>
** 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> 68
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> 69
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 13th day of April, 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
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John B. Stewart, Jr. President and Sole Director April 13, 1999
- --------------------------------------------------------- (Principal Executive Officer)
John B. Stewart, Jr.
/s/ Jeffery L. Smith Vice President April 12, 1999
- --------------------------------------------------------- (Principal Financial and
Jeffery L. Smith Accounting Officer)
</TABLE>
II-4
<PAGE> 1
EXHIBIT 3.1
<PAGE> 2
ARTICLES OF INCORPORATION OF
STEWART FINANCE COMPANY
ONE
The name of the corporation is:
STEWART FINANCE COMPANY
TWO
The corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
THREE
The corporation has perpetual duration.
FOUR
The corporation is a corporation for profit organized:
(a) To subscribe for, purchase or otherwise acquire, underwrite,
obtain an interest in, own, hold, pledge, hypothecate, create security
interests in, assign, deposit, create trusts with respect to, sell, exchange,
or otherwise dispose of and generally deal in and with securities of every kind
and description of any government, state, territory, district, municipality, or
other political or governmental division or subdivision, body politic,
corporation, association, partnership, firm, trustee, syndicate, individual,
combination, organization, or entity whatsoever located in or organized under
the laws of any part of the world, including (without limiting the generality
of the foregoing) stocks, shares, notes, land trust certificates, warrants,
rights, scrip, commercial paper, choses in action, evidences of indebtedness,
certificates of interest or other obligations or other securities of any nature
howsoever evidenced; to acquire or become
<PAGE> 3
interested in any such securities by original subscription, underwriting,
participation in syndicates, or otherwise and irrespective of whether or not
such securities are fully paid or subject to further payments or assessments;
to exercise any and all rights, powers, privileges of individual ownership or
interest in respect of any such securities, including the right to vote thereon
and otherwise act with respect thereto, and to promote, manage, participate in,
and act as agent for any underwriting, purchase, or selling syndicate or group
and otherwise to take part in and assist, in any legal manner, by guaranty or
otherwise, the purchase, sale, or distribution of any such securities; to
promote, finance, aid, and assist, financially or otherwise, any body politic,
corporation, association, partnership, firm, trustee, syndicate, individual,
combination, organization, or other entity located in or organized under the
laws of any part of the world; to purchase, lease, or otherwise acquire, take
over, hold, sell, liquidate, or otherwise dispose of the business and
properties, of every kind, of corporations, associations, partnerships, firms,
trustees, syndicates, individuals, combinations, organizations, and other
entities located in or organized under the laws of any part of the world; to
continue, alter, extend, and develop their business, assume their liabilities,
guarantee or become surety for the performance of their obligations, reorganize
their capital, and participate in any way in their affairs, and to take over as
a going concern and to continue in its own name any business so acquired; and
to act as financial commercial, special, or general agent or representative of
bodies politic, corporations, associations, partnerships, firms, trustees,
syndicates, individuals, combinations, organizations, and other entities
located in or organized under the laws of any part of the world.
(b) As principal, agent, or broker, and on commission or
otherwise: to buy, sell, exchange, lease, let, grant, or take licenses in
respect of, improve, develop, repair, manage, maintain, and operate real
property of every kind, corporeal and incorporeal, and every kind of
<PAGE> 4
estate, right or interest therein or pertaining thereto; to construct, improve,
repair, raze, and wreck buildings, structures, and works of all kinds, for
itself and for others; to buy, sell, and deal in building materials and
supplies; to advance loans secured by mortgages or other liens on real estate.
To act as loan broker. Generally to do everything suitable, proper, and
conducive to the successful conduct of a real estate agency and brokerage
business in all its branches and departments. To acquire by purchase, lease, or
otherwise and to improve and develop real property. To erect dwellings,
apartment houses, and other buildings, private or public, of all kinds, and to
sell or rent the same. To lay out, grade, pave, and dedicate roads, streets,
avenues, highways, alleys, courts, paths, walks, parts, and playgrounds. To
buy, sell, mortgage, exchange, lease, let, hold for investment or otherwise,
use, and operate real estate of all kinds, improved or unimproved, and any
right or interest therein.
(c) To engage in any lawful activity, at any place and at any
time without limitation, including, but not limited to, constructing,
manufacturing, raising or otherwise producing, and repairing, servicing,
storing or otherwise caring for any type of structure, commodity, or livestock
whatsoever; purchasing, owning, dealing, processing, selling, brokering,
factoring, distributing, lending, borrowing or investing in any type of
property whether real or personal, tangible or intangible, extracting and
processing natural resources, transporting freight or passengers by land, sea
or air, collecting and disseminating information or advertisement through any
medium whatsoever; performing personal services of any nature; and entering
into or serving in any type of management, investigative, advisory,
promotional, protective, insurance, guarantyship, suretyship, fiduciary or
representative capacity or relationship for any persons or corporations
whatsoever.
<PAGE> 5
(d) To do everything necessary, proper, advisable, or convenient
for the accomplishment of its purposes, with all powers granted by the Georgia
Business Corporation Code, as it now exists and may hereafter be amended, at
any place within or without the United States to the extent that such act is
not forbidden is by the law of such place.
FIVE
The corporation has authority to issue not more than one million
shares of common stock without par value.
SIX
The corporation is entitled to purchase its own shares out of its
unreserved and unrestricted capital surplus therefor.
SEVEN
The corporation is entitled to distribute a portion of its assets to
its shareholders out of capital surplus available therefor.
EIGHT
The corporation shall not commence business until it shall have
received not less than $500.00 in payment for the issuance of shares of stock.
NINE
The initial registered office of the corporation is 106 Scott Street,
Union Point, Greene County, Georgia 30669. The initial registered agent of the
corporation is John B. Stewart, Jr.
TEN
The initial board of directors shall consist of two members, whose
names and addresses are:
<PAGE> 6
John B. Stewart, Jr.
106 Scott Street
Union Point, Georgia 30699
Robert S. Stewart
106 Scott Street
Union Point, Georgia 30669
ELEVEN
The names and addresses of the incorporators are:
John B. Stewart, Jr.
106 Scott Street
Union Point, Georgia 30699
Robert S. Stewart
106 Scott Street
Union Point, Georgia 30669
IN WITNESS WHEREOF, the undersigned executes these Articles of
Incorporation.
/s/ J. David Bansley
--------------------------
J. David Bansley
Attorney for Incorporators
October 19, 1984.
- -----------
J. DAVID BANSLEY
ATTORNEY AT LAW
2849 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305
<PAGE> 7
I, John Ben Stewart, Jr., do hereby consent to serve as registered agent for
the corporation Stewart Finance Company.
This 16th day of October, 1984.
/s/ John Ben Stewart, Jr.
- ------------------------------------
John Ben Stewart, Jr.
Stewart Finance Company
106 Scott Street
Union Point, Georgia
<PAGE> 8
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
STEWART FINANCE COMPANY
1.
The name of the Corporation is STEWART FINANCE COMPANY.
2.
Effective the date hereof, the Articles of Incorporation of STEWART
FINANCE COMPANY, are amended to add Article FOUR (e) (f) and (g), as follows:
"(e) To engage in the business of financing insurance premiums.
(f) To operate an insurance agency and to do all that is
necessary and required relating thereto.
(g) To engage in any lawful business or activity relating thereto
or for which Corporations may be organized under the Georgia Business
Corporation Code."
All other provisions of the Articles of Incorporation shall remain in
full force and effect.
3.
This amendment was duly approved by a joint resolution of the director
and shareholder in accordance with the provisions of Section 14-2-1003 of the
Georgia Business Corporation Code on June 21, 1993.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed and attested by its duly authorized officers this 21st
day of June, 1993.
<PAGE> 9
STEWART FINANCE COMPANY
/s/ John B. Stewart, Jr.
--------------------------
John B. Stewart, Jr.
President
[CORPORATE SEAL]
ATTEST:
By:/s/ Janice M. Jackson
---------------------------
Secretary
<PAGE> 10
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
STEWART FINANCE COMPANY
1.
The name of the corporation is Stewart Finance Company (the
"Corporation").
2.
Article Five of the Articles of Incorporation of the Corporation is
amended to read as follows:
"Article Five
(a) The total number of shares of all classes which the
Corporation has authority to issue is 11,000,000 of which 1,000,000 shares
shall be designated as "Common Stock," having a par value of $0.01 per share,
and 10,000,000 shares shall be designated as "Preferred Stock," having a par
value of $0.001 per share.
(b) The designations and the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class of stock are as follows:
(1) PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors, and articles of amendment shall
be filed with the Georgia Secretary of State as required by law to be filed
with respect to issuance of such Preferred Stock, prior to the issuance of any
shares of such series.
The Board of Directors is expressly authorized, at any time, by
adopting resolutions providing for the issuance of, or providing for a change
in the number of, shares of any particular series of Preferred Stock and, if
and to the extent from time to time required by law, by filing articles of
amendment which are effective without Shareholder action to increase or
decrease the number of shares included in each series of Preferred Stock, but
not below the number of shares then issued, and to set or change in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms and
conditions of redemption relating to the shares of each such series.
<PAGE> 11
Notwithstanding the foregoing, the Board of Directors shall not be authorized
to change the right of holders of the Common Stock of the Corporation to vote
one vote per share on all matters submitted for shareholder action. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, setting or changing the following:
(i) the annual dividend rate, if any, on shares of such
series, the times of payment and the date from which dividends shall
be accumulated, if dividends are to be cumulative;
(ii) whether the shares of such series shall be
redeemable and, if so, the redemption price and the terms and
conditions of such redemption;
(iii) the obligation, if any, of the Corporation to redeem
shares of such series pursuant to a sinking fund;
(iv) whether shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
classes and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(v) whether the shares of such series shall having
voting rights, in addition to the voting rights provided by law, and,
if so, the extent of such voting rights;
(vi) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding-up of
the Corporation; and
(vii) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to such
series.
The shares of Preferred Stock of any one series shall be identical
with each other in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
(2) COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article
Five, the Common Stock of the Corporation shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grant of rights or privileges in the Corporation's Articles of
Incorporation, including, but not limited to, the following rights and
privileges:
2
<PAGE> 12
(i) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends;
(ii) the holders of Common Stock shall have the right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(iii) upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the net assets of the
Corporation available for distribution shall be distributed pro rata
to the holders of the Common Stock in accordance with their respective
rights and interests.
(c) The Corporation has authority to issue 50,000 shares of
Series A Cumulative Redeemable Preferred Stock pursuant to the following terms:
SERIES A PREFERRED STOCK
Ranking: Upon liquidation, dissolution and winding-up,
proceeds are distributed to holders of shares of Series A Preferred
Stock based on the original issue price of such shares, and prior to
the holders of shares of Common Stock.
Dividends and Distributions: Holders of shares of Series A
Preferred Stock are entitled to receive ratably annual dividend
distributions at the rate of 11% per annum as mandatorily declared by
the Board of Directors out of funds legally available therefor
pursuant to O.C.G.A. SS.14-2-640(c), and such distributions shall be
prior and in preference to any dividends paid to the holders of Common
Stock. Dividends are payable monthly at the request of the holder, and
dividends are cumulative.
Voting: Holders of Series A Preferred Stock have no voting
rights.
Conversion: The shares of Series A Preferred Stock are not
convertible into any other security of the Company.
Liquidation: In the event of a liquidation, dissolution or
winding-up of the Company, holders of Series A Preferred Stock shall
be entitled to receive a liquidation preference equal to $100 per
share of Series A Preferred Stock (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 holder of Common Stock. If
upon liquidation, dissolution or winding-up of the Company, the
liquidation preferences with respect to the Series-A Preferred Stock
are not paid in full, the holders
3
<PAGE> 13
of the Series A Preferred Stock will share ratably in any distribution
of the assets of the Company in proportion to the preferential amounts
to which they are entitled.
Redemption by the Company: The Company, to the extent it may
lawfully do so, shall redeem all shares of outstanding Series A
Preferred Stock on the fourth anniversary of issuance of such shares,
and alternatively, shall have the right to redeem any shares of the
Series A Preferred Stock 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 as appears on the books of the Company,
with such notice specifying the terms (including the location, price
and date) of such redemption. On the redemption date, the Company
shall pay the redemption price, plus all declared and unpaid dividends
thereon, if any.
Transfer: The Series A Preferred Stock may not be transferred
without the Consent of the Company, which the Company has no
obligation to grant, 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 incurred with the intention of
repayment in accordance with the provisions thereof; provided,
however, that no transfer of the Series A Preferred Stock may be made
to any person who is not a bona fide resident of Georgia, and unless
such transfer has been registered under the Georgia Code or unless the
Company has received an opinion of its counsel or other evidence
satisfactory to counsel to the Company to the effect that such
registration is not required because an exemption from such
registration is available. The Company shall be entitled to treat any
holder of record of the Series A Preferred Stock as the holder in fact
thereof and shall not be bound to recognize any equitable or other
claim to or interest in the Series A Preferred Stock in the name of
any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the laws of the State of
Georgia."
3.
All other provisions of the Articles of Incorporation shall remain in
full force and effect.
4.
Each of the above Amendments was adopted on December 14, 1998.
5.
The Amendments were duly approved, as appropriate, by the shareholders
of the Corporation in accordance with the provisions of Section 14-2-1003 of
the Georgia Business Corporation Code or by the Board of Directors of the
Corporation in accordance with the provisions of Section 14-2-602 of the
Georgia Business Corporation Code.
4
<PAGE> 14
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by a duly authorized officer as of the 14 day of
December, 1998.
STEWART FINANCE COMPANY
By:/s/ John B. Stewart, Jr.
--------------------------------------
John B. Stewart, Jr., President
[CORPORATE SEAL]
5
<PAGE> 1
EXHIBIT 3.2
<PAGE> 2
BY-LAWS
OF
STEWART FINANCE COMPANY
ARTICLE ONE
CAPITAL STOCK
1.1 Share Certificates shall be numbered in the order in which they
are issued. They shall be signed by the President and Secretary and the seal of
the corporation shall be affixed thereto. Share certificates shall be kept in a
book and shall be issued in consecutive order therefrom. The name of the person
owning the shares, the number of shares, and the date of issue shall be entered
on the stub of each certificate. Share certificates exchanged or returned shall
be cancelled by the Secretary and placed in their original place in the stock
book.
1.2 Shares of stock in the corporation shall be voted by the holder of
record or by another shareholder in the corporation in accordance with a proxy
or an agreement providing for the voting of the shares.
1.3 Transfers of shares shall be made on the stock books of the
corporation by the holder in person or by power of attorney, on surrender of
the old certificates for such shares, duly assigned.
1.4 The holders of the common stock shall be entitled to one vote for
each share of stock standing in their name.
Page 1
<PAGE> 3
ARTICLE TWO
SHAREHOLDER'S MEETING
2.1 The annual meeting of shareholders of the corporation shall be
on the third Wednesday of the third month following the close of the
corporation's fiscal year, or, if that day be a legal holiday, then on the
second next succeeding day not a holiday.
2.2 Annual or special meetings of shareholders may be held within
or without the State of Georgia at such place and time as may from time to time
be fixed by the Board of Directors or as may be specified in the notice of the
meetings.
2.3 Special meetings of the shareholders may be called at any time
by the President or any holder or holders of as much as one-third of the
outstanding capital stock of the corporation upon not less than ten nor more
than fifty days' notice, either mailed to the last known address or personally
given to each shareholder. Notice of a special meeting may be waived by
instrument in writing executed before or after the meeting. Attendance at such
meeting in person or by proxy shall constitute a waiver of notice thereof.
2.4 Notice of any special meeting of shareholders shall state the
purpose or purposes for which the meeting is called.
2.5 At all meetings of shareholders a majority of the outstanding
shares of stock shall constitute a quorum for the transaction of business, and
no resolution or business shall be transacted without the favorable vote of the
holders of a majority of the shares represented at the meeting and entitled to
vote. A lesser number may adjourn
Page 2
<PAGE> 4
from day to day, and shall announce the time and place to which the meeting is
adjourned if they do so adjourn the meeting.
2.6 Any action to be taken at a meeting of the shareholders of the
corporation, or any action that may be taken at a meeting of the shareholders,
may be taken without a meeting if a consent in writing setting forth the action
so taken shall be signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
ARTICLE THREE
DIRECTORS
3.1 Subject to these By-laws, or any lawful agreement between the
shareholders, the full and entire management of the affairs and business of the
corporation shall be vested in the Board of Directors, which shall have and may
exercise all of the powers that may be exercised or performed by the
corporation.
3.2 The Board of Directors shall consist of three or more members
who shall be elected at the annual or other meetings of the shareholders and
serve for a term of one year and until their successors are elected. A majority
of the Directors shall constitute a quorum for the transaction of business. All
resolutions adopted and all business transacted by the Board of Directors shall
require the affirmative vote of a majority of the Directors present at the
meeting. If all the shares of the corporation are owned beneficially and of
record by less than three shareholders, the number of Directors may be less than
three but not less than the number of shareholders.
Page 3
<PAGE> 5
3.3 The Directors may fill the place of any Director which may
become vacant prior to the expiration of his term, such appointment by the
Directors to continue until the expiration of the term of the Director whose
place has become vacant.
3.4 The Directors shall meet annually, without notice, at the same
place as and following the annual meeting of the shareholders. Special meetings
of the Directors may be called at any time by the President or by any Director,
on two days' notice, which notice shall specify the time and place of the
meeting. Notice of any such meeting may be waived by instrument in writing
executed before or after the meeting. Attendance in person at such meeting
shall constitute a waiver of notice thereof.
3.5 Any action to be taken at a meeting of the Directors, or any
action that may be taken at a meeting of the Directors, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors.
3.6 Any Director may be removed from office, with or without
cause, upon the majority vote of the shareholders, at a meeting with respect to
which notice of such purpose is given.
ARTICLE FOUR
OFFICERS
4.1 The officers of the corporation shall consist of a President,
a Secretary and a Treasurer. The officers shall be elected by the Directors and
shall serve at the pleasure of the Board of Directors.
Page 4
<PAGE> 6
4.2 The President shall be the chief executive officer of the
corporation and shall have general and active management of the operation of
the corporation. He shall be responsible for the administration of the
corporation, including general supervision of the policies of the corporation,
general and active management of the financial affairs of the corporation, and
shall execute bonds, mortgages or other contracts under the seal of the
corporation
4.3 The Secretary shall keep minutes of all meeting of the
shareholders and Directors and have charge of the minute books, stock books and
seal of the corporation and shall perform such other duties and have such other
powers as may from time to time be delegated to him by the President and Board
of Directors.
4.4 The Treasurer shall be charged with the management of the
financial affairs of the corporation and shall have the power to recommend
action concerning the corporation's affairs to the President.
4.5 Assistants to the Secretary and Treasurer may be appointed by
the President and shall have such duties as shall be delegated to them by the
President or the Board of Directors.
4.6 The corporation may have one or more Vice-Presidents,
Assistant Vice-Presidents and Assistant Secretaries and Assistant Treasurers
elected by the Board of Directors, who shall perform such duties as may be
delegated by the President or the Board of Directors.
Page 5
<PAGE> 7
ARTICLE FIVE
SEAL
5.1 The seal of the corporation shall be in such form as the Board
of Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the company followed by the word
"Seal" enclosed in parentheses or scroll, shall be deemed the seal of the
corporation. The seal shall be in the custody of the Secretary and affixed by
him or by his assistants on the certificates of stock and other appropriate
papers.
ARTICLE SIX
AMENDMENT
These By-laws may be amended by majority vote of the Board of
Directors of the corporation or by majority vote of the shareholders, provided,
that the shareholders may provide by resolution that any By-law provision
repealed, amended, adopted or altered by them may not be repealed, amended,
adopted or altered by the Board of Directors.
Adopted this 22nd day of October, 1984.
/s/ Robert S. Stewart
---------------------------------------
Robert S. Stewart, Secretary
Page 6
<PAGE> 1
EXHIBIT 4.2
<PAGE> 2
STEWART FINANCE COMPANY, INC.
FORM OF SUBORDINATED DEBENTURE
(FORM USED ON OR BEFORE 4/1/98)
_______________, Georgia _____________, 19___
From __________ STEWART FINANCE COMPANY (the "Company") promises to pay
________________________________________________ $_____________
____________________________________________________ DOLLARS at
the main office of the Company, 610 Sibley Avenue, Union Point, Georgia, and to
pay interest thereon at the rate of _____% per annum, calculated on a simple
interest basis, for a period of _______________ from date hereof and for each
such successive period (the interest adjustment period) thereafter at an annual
rate, calculated on a simple interest basis, which shall be determined at the
beginning of each interest adjustment period. Interest will be earned daily and
payable at any time at the holder's request delivered by mail or in person at
the Company's main office.
1. REDEMPTION. This debenture may be redeemed by the Company prior
to maturity for a redemption price equal to the principal amount plus any
unpaid interest thereon to date of redemption. Notice of redemption shall be
given by mail to the holder not less than 30 nor more than 60 days prior to the
date fixed for redemption.
2. OPTIONAL REDEMPTION. At the request of the holder, the Company
will redeem this Debenture at the end of any interest adjustment period for a
redemption price equal to the principal amount plus any unpaid interest thereon
to date of redemption. At the request of the holder, the Company may, at its
option, redeem this Debenture during any interest adjustment period for a
redemption price equal to the principal amount plus interest thereon at the
rate of one-half the stated rate on this Debenture. If the holder dies before
maturity, the Company may, at its option, redeem this Debenture for a
redemption price equal to the principal amount plus any unpaid interest thereon
to date of redemption.
3. EXTENSION OF MATURITY. The maturity of this Debenture will be
automatically extended from the original maturity date for a period equal to
the original term of the Debenture unless the holder submits this Debenture for
redemption within 15 days after its maturity or the Company tenders the amount
due the holder within 15 days after maturity. In the event of such an
extension, all provisions of the Debenture shall remain unchanged with the
exception of the interest rate which will be changed in accordance with the
interest adjustment provision. If the Company does not plan to tender payment,
it will send the holder a notice of this extension provision at least 30 days
prior to the maturity date.
4. SUBORDINATION. The Debentures are subordinated to Senior Debt,
which is any Debt of the Company except Debt that by its terms is not senior in
right to the payment of the Debentures. Debt is any indebtedness for borrowed
money or any guarantee of such indebtedness. Senior Debt must be paid before
the Debentures may be paid. The Company agrees, and each Debentureholder by
accepting a Debenture, agrees to the subordination.
5. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Debentures may be amended with the consent of the holders of at least 66-2/3%
in principal amount of the Debentures, and any existing
<PAGE> 3
default may be waived with the consent of the holders of a majority in
principal amount of the Debentures. Without the consent of any Debentureholder,
the Debentures may be amended to cure any ambiguity, defect or inconsistency,
to provide for assumption of Company obligations to Debentureholders or to make
any change that does not adversely affect the rights of any Debentureholder.
6. DEFAULTS AND REMEDIES. An Event of Default is: default for 30
days in payment of interest on the Debentures; default in payment of principal
on them; failure by the Company for 60 days after notice of it from holders of
25% in principal amount of the debentures to comply with any of its other
agreements in the Debentures; and the filing by or against the Company of A
bankruptcy or insolvency proceeding which remains unstayed and in effect for 60
days. If an Event of Default occurs and is continuing, the holders of at least
25% in principal amount of the Debentures may declare all the Debentures to be
due and payable immediately.
7. TRANSFER. This Debenture, having been registered at the office of
the Company in Union Point, Georgia, at the time of issue, is transferrable at
such office only by the registered holder hereof in person or by an attorney
duly authorized in writing upon surrender of this Debenture; and upon such
transfer a new registered Debenture for a like principal amount will be issued
to the transferee in exchange herefor. The new Debenture will be dated as of
the date of the old Debenture, and will bear the same maturity date. An
indemnity bond may be required by the Company in an amount sufficient in the
judgment of the Company to protect the Company from any loss it might suffer
upon the issuance of a replacement Debenture.
8. OWNERS. The registered holder of a Debenture may be treated as
its owner for all purposes.
9. NO RECOURSE. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under the Debentures or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each Debentureholder by accepting
a Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Debentures.
THIS DEBENTURE IS NOT A BANK OBLIGATION AND IS NOT INSURED BY THE FDIC.
<PAGE> 1
EXHIBIT 4.3
<PAGE> 2
STEWART FINANCE COMPANY
FORM OF SUBORDINATED DEBENTURE
(FORM USED AFTER 4/1/98)
$
-------------
STEWART FINANCE COMPANY, a Georgia corporation (the "Company"), is indebted
and, for value received, promises to pay to _____________ on _________ (the
"Due Date"), (unless this Debenture shall have been sooner called for
redemption as herein provided), upon presentation of this Debenture,
$_____________ ("the Principal Amount") and to pay interest on the Principal
Amount at the rate of _______ % per annum, calculated on a simple interest
basis, as provided herein.
The Company covenants, promises and agrees as follows:
1. INTEREST. Interest which shall accrue on the Principal Amount shall
be payable on the first day of each month in each calendar year until
the Principal Amount and all accrued and unpaid interest shall have
been paid in full. If this Debenture shall be issued on a date other
than the first day of a calendar month, the interest payable shall be
prorated based upon the number of days of such calendar month period
during which this Debenture shall have been issued and outstanding.
All accrued and unpaid interest shall be payable on the Due Date. The
first payment of interest shall be made on __________________. All
payments of principal and interest or principal or interest shall be
made at the principal office of the Company, 610 Sibley Avenue, Union
Point, Georgia, or at such other place in Union Point, Georgia as may
be designated by the Company as its principal office.
2. REDEMPTION.
2.1 This Debenture is subject to redemption at the option of the
Company in whole or in part prior to the Due Date at any time and from
time to time without penalty or premium. The Company may exercise its
right to redeem this Debenture prior to maturity by giving notice (the
"Redemption Notice") thereof to the holder of this Debenture as it
appears on the books of the Company, which notice shall specify the
terms of redemption (including the place at which the holder of the
Debenture may obtain payment), the principal amount of the Debenture
to be redeemed (the "Redemption Amount") and shall fix a date of
redemption (the "Redemption Date").
2.2 On the Redemption Date, the Company shall pay all accrued and
unpaid interest on the Debenture up to and including the Redemption
Date and shall pay to the holder hereof a dollar amount equal to the
Redemption Amount.
3. DEFAULT.
3.1 The entire unpaid and unredeemed balance of the Principal Amount
and all interest accrued and unpaid on this Debenture shall, at the
election of the holder, be and become immediately due and payable upon
the occurrence of any of the following events (a "Default Event"): (a)
the nonpayment by the Company when due of principal and interest or
principal or interest as provided in this Debenture; (b) if the
company (i) applies for or consents to the appointments of, or if
there shall be a taking of possession by, a receiver, custodian,
trustee or liquidator for the Company or any of its property; (ii)
becomes generally unable to pay its debts as they become due, (iii)
makes a general
<PAGE> 3
assignment for the benefit of creditors or becomes insolvent, or (iv)
files or is served with any petition for relief under the federal
Bankruptcy Code or any similar federal or state statute.
3.2 No failure or delay by the holder hereof to insist upon the strict
performance of any term of this Debenture or to exercise any right,
power or remedy consequent upon a default hereunder shall constitute a
waiver of any such term or of any such breach, or preclude the holder
hereof from exercising any such right, power or remedy at any later
time or times. By accepting payment after the due date of any amount
payable under this Debenture, the holder hereof shall not be deemed to
waive the right either to require payment when due of all other
amounts payable under this Debenture, or to declare a default for
failure to effect such payment of any such other amount.
4. TRANSFER. This Debenture may not be transferred without the Consent
of the Company, which the Company has no obligation to grant, 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
incurred with the intention of repayment in accordance with the
provisions thereof; provided, however, that no transfer of this
Debenture may be made to any person who is not a bona fide resident of
Georgia, and unless such transfer has been registered under the
Georgia Code or unless the Company has received an opinion of its
counsel or other evidence satisfactory to counsel to the Company to
the effect that such registration is not required because an exemption
from such registration is available. The Company shall be entitled to
treat any holder of record of the Debenture as the holder in fact
thereof and shall not be bound to recognize any equitable or other
claim to or interest in this Debenture in the name of any other
person, whether or not is shall have express or other notice thereof,
save as expressly provided by the laws of the State of Georgia.
5. SUBORDINATION.
5.1 The Company covenants and agrees, and each holder of this
Debenture, by acceptance hereof, covenants and agrees, that the
payment of the principal of and interest on this Debenture is
expressly subordinated, only to the extent and in the manner
hereinafter set forth, in right of payment of the principal of and
interest on all Senior Secured Indebtedness (as hereinafter defined)
of the Company. The Senior Secured Lender is including but not limited
to FINOVA Capital Corporation, or its successors thereto. "Senior
Secured Indebtedness," for the purposes hereof, shall mean all present
and future debts and obligations of the Company of any kind, secured
or unsecured, due or to become due, direct or indirect, jointly or
independently owed by the Company for borrowed money (hereinafter a
"Lender") and the guaranty of such indebtedness.
5.2 In the event of any dissolution, winding-up (other than a merger,
consolidation or share exchange), liquidation or reorganization of the
Company (in bankruptcy, insolvency or receivership proceedings or upon
an assignment for the benefit of creditors or any other marshalling of
the assets and liabilities of the Company or otherwise) or in the
event of any default in the payment of any Senior Secured Indebtedness
as to which default the holder thereof shall have given the Company
notice (hereinafter "a proceeding"), then all principal of, premium
and interest on, the Senior Secured Indebtedness shall first be paid
in full before the holder of this Debenture shall be entitled to
receive any payment or distribution in respect of the principal of or
interest on this Debenture (other than a distribution of securities
the right to payment of which is, at least to the same extent as the
right to payment of this Debenture, subordinated to the prior payment
or provision for payment in full of all Senior Secured Indebtedness
then outstanding). In any such proceeding, any payment or distribution
of any kind or character, whether in cash, securities or other
property, to which the holder of the Debenture would be entitled if
this Debenture were not so subordinated to the Senior Secured
<PAGE> 4
Indebtedness shall be paid by the liquidating trustee, agent or other
person making such payment to the holders of the Senior Secured
Indebtedness for application to the payment of the Senior Secured
Indebtedness remaining unpaid until such Senior Secured Indebtedness
shall have been paid in full, after giving effect to any concurrent
payment or distribution to the holders of the Senior Secured
Indebtedness. To the extent that the holders of Senior Secured
Indebtedness have received payments which, but for the provisions of
this Section 5, would have been paid to the holder of this Debenture,
then, upon payment in full of the Senior Secured Indebtedness, the
holder of this Debenture shall be subjugated to the rights of the
holders of the Senior Secured Indebtedness to receive payments of
distributions for cash, property or securities of the Company
applicable to the Senior Secured Indebtedness until the principal of
and interest on this Debenture shall be paid in full. For purposes of
such subrogation, no such payments or distributions to the holders of
the Senior Secured Indebtedness, which but for the provisions hereof,
would have been payable or distributable to the holder of this
Debenture, shall, as between the Company, its creditors (other than
the holders of the Senior Secured Indebtedness) and the holder of this
Debenture, be deemed to be a payment by the Company to or on account
of this Debenture.
5.3 The holders of any Senior Secured Indebtedness may, at any time
and from time to time, without the consent of or notice to the holder
of this Debenture, without incurring responsibility to the holder of
this Debenture and without impairing or releasing the obligations of
the holder of this Debenture to the holders of the Senior Secured
Indebtedness, change or extend the time of payment of, or renew or
alter, any Senior Secured Indebtedness, or otherwise amend in any
manner any agreement pursuant to which Senior Secured Indebtedness
shall have been issued and exercise or refrain from exercising any
rights against the Company and any other person.
5.4 No holder of Senior Secured indebtedness shall be prejudiced in
its right to enforce subordination of this Debenture by any act or
failure to act by the Company or any other person in the custody of
the assets or property of the Company.
5.5 The provisions of this Section 5 regarding subordination are
solely for the purpose of defining the relative rights of the holders
of Senior Secured Indebtedness on the one hand and the rights of the
holder of this Debenture on the other hand, and none of such
provisions shall impair, as between the Company and the holder of this
Debenture, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of this Debenture the principal of and
interest on this Debenture in accordance with its terms, and no such
provisions shall prevent the holder of this Debenture from exercising
all remedies otherwise permitted by applicable law.
6. NON-RECOURSE PROVISIONS. Notwithstanding anything to the contrary, the
indebtedness evidenced by this Debenture shall be the obligation of
the Company and, none of the Company's officers, directors,
shareholders, or agents or employees shall have any liability for
payment of the Debenture. Debenture holders shall seek no personal
judgment against any of the Company's officers, directors,
shareholders, agents or employees, as the case may be, and such
persons shall have no personal liability for payment of the
indebtedness evidenced by the Debenture.
7. GOVERNING LAW. This Debenture shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia, or,
where applicable, the laws of the United States.
THIS DEBENTURE IS NOT A BANK DEPOSIT NOR A BANK OBLIGATION AND IS NOT INSURED
OR GUARANTEED BY ANY STATE OR FEDERAL AGENCY.
<PAGE> 1
EXHIBIT 4.4
<PAGE> 2
STEWART FINANCE COMPANY
FORM OF SENIOR DEMAND NOTE
(FORM TO BE USED ON OR PRIOR TO 2/19/98)
UNION POINT, GEORGIA _________, 19__
On Demand, for value received, STEWART FINANCE COMPANY promises to pay
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.
- -----------------------------
President
- -----------------------------
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 4.5
<PAGE> 2
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:
___________________________________________________
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.
- ----------------------
Company Officer
- ----------------------
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 5.1
<PAGE> 2
April 13, 1999
Stewart Finance Company
610 Sibley Avenue
Union Point, Georgia 30669
Gentlemen:
We refer to the registration statement of Stewart Finance Company, a
Georgia corporation (the "Company"), on Form SB-2 (the "Registration
Statement"), which is to be filed with the Securities and Exchange Commission
(the "Commission") concurrently herewith, relating to the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of Senior Demand
Notes in the aggregate principal amount of $809,931, Subordinated Debentures in
the aggregate principal amount of $12,421,245, and 33,475 shares of Series A
Preferred Stock, par value $0.001 per share, of the Company (collectively, the
"Securities") to be offered to certain eligible offerees pursuant to a
registered rescission offering by the Company on a best efforts basis. This
opinion is being delivered pursuant to the requirements of Item 601(b)(5) of
Regulation S-B promulgated by the Commission under the Securities Act.
This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction therewith.
As counsel for the Company, we have examined the Registration
Statement, and we are familiar with the proceedings taken by the Company
relating to it. We also have examined the Articles of Incorporation and the
Bylaws of the Company and such Company records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In addition, we have made such investigations and have examined
such certificates of public officials and officers of the Company and such
other documents and records as we deemed necessary for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures
on all documents submitted to us as originals, the authenticity of all
documents submitted to us as originals or certified, photostatic or facsimile
copies, and the conformity to the originals of all documents submitted to us as
copies. We also have relied upon the accuracy of the aforementioned
certificates of public officials and, as to matters of fact, of officers of the
Company. We have also relied on Company records and have assumed the accuracy
and completeness thereof.
Based upon the foregoing, it is our opinion that the Securities have
been duly authorized, legally issued and fully paid and non-assessable and that
the Senior Demand Notes and Subordinated Debentures are binding obligations of
the Company.
<PAGE> 3
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part thereof. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
HOLLAND & KNIGHT LLP
<PAGE> 1
EXHIBIT 23.2
<PAGE> 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
April 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STEWART FINANCE COMPANY FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,791,453
<SECURITIES> 204,210
<RECEIVABLES> 8,358,705
<ALLOWANCES> 279,784
<INVENTORY> 0
<CURRENT-ASSETS> 22,424,414
<PP&E> 3,972,472
<DEPRECIATION> 1,023,858
<TOTAL-ASSETS> 26,713,856
<CURRENT-LIABILITIES> 15,614,450
<BONDS> 7,250,000
3,347,500
0
<COMMON> 10,000
<OTHER-SE> 491,405
<TOTAL-LIABILITY-AND-EQUITY> 26,713,856
<SALES> 0
<TOTAL-REVENUES> 7,451,614
<CGS> 0
<TOTAL-COSTS> 5,993,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (91,953)
<INTEREST-EXPENSE> 2,085,492
<INCOME-PRETAX> (143,209)
<INCOME-TAX> (142,818)
<INCOME-CONTINUING> (391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (391)
<EPS-PRIMARY> (0.004)
<EPS-DILUTED> (0.004)
</TABLE>
