1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LITCHFIELD FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-3023928
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
430 MAIN STREET, WILLIAMSTOWN, MA 01267, (413)458-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. STRATTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LITCHFIELD FINANCIAL CORPORATION
430 MAIN STREET, WILLIAMSTOWN, MASSACHUSETTS 01267
(413)458-1000
------------------------
COPIES TO:
JAMES WESTRA, ESQ. BOB F. THOMPSON, ESQ.
HUTCHINS, WHEELER & DITTMAR BASS, BERRY & SIMS PLC
A PROFESSIONAL CORPORATION 2700 FIRST AMERICAN CENTER
101 FEDERAL STREET NASHVILLE, TENNESSEE 37238
BOSTON, MASSACHUSETTS 02110 (615)742-6200
(617)951-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
Notes................................ $100,000,000 100% $100,000,000 $29,500
=================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY , 1998
PROSPECTUS
$100,000,000
[LITCHFIELD LOGO]
NOTES
Litchfield Financial Corporation ("Litchfield" or the "Company") may offer
from time to time up to $100,000,000 aggregate initial offering price of its
debt securities (the "Notes") on terms to be determined at the time of offering.
The specific designation, aggregate principal amount, maturity, rate and times
of payment of interest, if any, redemption and sinking fund terms, if any, other
specific terms and any listing on a securities exchange of each series of the
Notes in respect of which this Prospectus is being delivered will be set forth
in the applicable Prospectus supplement hereto (each a "Prospectus Supplement"),
together with the terms of offering of the Notes. The terms will be established
by negotiation or by competitive bid.
------------------------
THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 3.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Company may sell the Notes in any of the following ways: (i) through
underwriters or dealers; (ii) directly to a limited number of purchasers or to a
single purchaser; or (iii) through agents. The names of any such underwriters or
agents and any applicable commissions or discounts will be set forth in an
accompanying Prospectus Supplement. Prospectus information and net proceeds to
the Company from the sale of each series of Notes will also be set forth in such
Prospectus Supplement. See "Plan of Distribution" herein.
------------------------
THE DATE OF THIS PROSPECTUS IS JULY , 1998.
3
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (herein, with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes offered hereby. This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement or the exhibits and
schedules thereto, certain portions having been omitted pursuant to the rules
and regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract or other document are not necessarily complete; with
respect to each such contract or other document filed with the Commission as an
exhibit to the Registration Statement, or incorporated by reference to exhibits
previously filed, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, New York, New York 10048 and Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Room 3190, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.
The Company's Common Stock is listed on The Nasdaq Stock Market's National
Market, and such reports, proxy statements and other information can also be
inspected at the Offices of Nasdaq Operations, 1735 K Street, N.W., Washington
D.C. 20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated in and made a part of this Prospectus by
reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
(c) The definitive Proxy Statement dated March 24, 1998 for the Annual
Meeting of the Company's stockholders held on April 24, 1998.
All reports and any definitive proxy or information statements filed by the
Company with the Commission pursuant to Sections 13, 14 and 15(d) of the
Exchange Act prior to the termination of the offering of the shares offered
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits not specifically
incorporated in such documents). Requests for such copies should be directed to
Ronald E. Rabidou, Chief Financial Officer and Treasurer, Litchfield Financial
Corporation, 430 Main Street, Williamstown, MA 01267 (telephone number:
413-458-1000).
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. SUCH TRANSACTIONS, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
2
4
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Notes
offered hereby:
General Business Risks. The Company's business is subject to various
business risks. The level of the Company's revenues is dependent upon demand for
the type of loans originated, purchased, sold and serviced by the Company from
both potential borrowers and investors. Future declines in real estate values,
changes in prevailing interest rates and changes in the availability of
attractive returns on alternative investments each could make loans of the type
originated and purchased by the Company less attractive to borrowers and
investors.
Funding and Liquidity. The Company has a constant need for working capital
to fund its lending, purchasing and securitization activities and, as a result,
generally has experienced negative cash flows from operations. Historically, the
Company has funded any negative cash flows from operations by borrowing under
secured lines of credit and issuing long-term debt and equity securities. The
Company's lines of credit are renewable on one to three year bases. The Company
had secured lines of credit totaling $117.5 million with six financial
institutions as of March 31, 1998. Outstanding borrowings on these lines of
credit were $23,125,000 at March 31, 1998. To date, the Company has issued
$122.8 million of long-term debt and has publicly issued $46.3 million of equity
securities.
The Company also has a $150.0 million revolving line of credit and sale
facility as part of an asset backed commercial paper facility with a
multi-seller commercial paper conduit. The facility expires in June 2001. As of
March 31, 1998, the outstanding balance of the sold or pledged loans securing
this facility was $116.6 million. Outstanding borrowings on this facility were
$97,000 at March 31, 1998. The Company has an additional revolving line of
credit and sale facility of $25.0 million with another multi-seller commercial
paper conduit. The facility expires in March 2000. As of March 31, 1998, the
outstanding aggregate balance of the sold or pledged loans under the facility
was $13.3 million.
There can be no assurance that the Company will continue to be able to
obtain financing or raise capital on terms satisfactory to the Company. To the
extent the Company cannot raise additional funds, lack of liquidity could have a
material adverse impact on its operations and its ability to repay the Notes.
Impact of Economic Cycles. The business risks associated with the
Company's business become more acute in an economic slowdown. Asset values
generally decrease and delinquencies, foreclosures and loan losses generally
increase during economic slowdowns or recessions, and any such future slowdowns
could adversely affect future operations of the Company.
Interest Rate Risk. The Company's interest and fees on loans, gain on sale
of loans and interest expense are affected by changes in interest rates. The
Company could be adversely affected by interest rate increases if its variable
rate liabilities exceed its variable rate assets or if the rates on its variable
rate liabilities increase sooner or to a greater extent than the rates on its
variable rate assets.
The Company seeks to mitigate a portion of its interest rate risk by
attempting to match fixed and variable rate assets and liabilities, instituting
interest rate floors and by entering into interest rate swaps on certain of its
variable rate assets, and purchasing interest rate caps on certain of its
variable rate liabilities. There can be no assurance that the Company's attempts
to mitigate its interest rate risk will be effective.
Competition. The finance business is highly competitive, with competition
occurring primarily on the basis of customer service and the term and interest
rate of the loans. Traditional competitors in the finance business include
commercial banks, credit unions, thrift institutions, industrial banks and other
finance companies, many of which have considerably greater financial, technical
and marketing resources than the Company. There can be no assurance that the
Company will not face increased competition from existing or new financial
institutions and finance companies. In addition, the Company may enter new lines
of business that may be highly competitive and may have competitors with greater
financial resources than the Company.
Credit Risks. The Company's loans are subject to delinquency and default
risk. General downturns in the economy and other factors beyond the Company's
control may have an adverse effect on the Company's
3
5
delinquency and default rates. The Company's A&D Loans and, to a lesser extent,
its Hypothecation Loans have a greater concentration of credit risk due to their
larger size and their development and marketing risk.
The Company's VOI Loans (hereinafter defined) are subject to certain risks
associated with VOI ownership. Although individual VOI owners are obligated to
make payments under their purchase obligation irrespective of any defect in,
damage to, or change in conditions of the vacation resort (such as erosion,
construction of adjacent or nearby properties, or environmental problems) or of
any breach of contract by the property owners association to provide certain
services to the VOI borrowers (including any such breach resulting from a
destruction of the resort) or of any other loss of benefits related to their
unit week(s) (including cessation of the ability of the borrowers to exchange
their time intervals in the resort for time intervals in other unaffiliated
resorts), any such material defect, damage, change, breach of contract, or loss
of benefits is likely to result in a delay in payment or default by a
substantial number of the borrowers whose VOIs are affected. The costs of
liquidating unit weeks securing defaulted loans are likely to be substantially
higher than such costs for traditional mortgage loans, and this may materially
affect the amounts realized by the Company on defaulted loans.
Estimates of Future Prepayment and Default Rates. A significant portion of
the Company's revenues historically has been comprised of gains on sales of
loans. The gains are recorded in the Company's revenues and on its balance sheet
(as retained interests on loan sales) at the time of sale, and the amount of
gains recorded is based in part on management's estimates of future prepayment
and default rates and other considerations in light of then-current conditions.
If actual prepayments with respect to loans occur more quickly than was
projected at the time such loans were sold, as can occur when interest rates
decline, interest income would be less than expected and earnings would be
charged in the current period. If actual defaults with respect to loans sold are
greater than estimated, charge-offs would exceed previously estimated amounts
and earnings would be charged in the current period.
Expansion of Business. The Company has increased the number and average
principal amount of its Hypothecation and A&D Loans. A&D Loans are larger
commercial loans to land dealers and resort developers and, consequently, have a
greater concentration of credit risk than the Company's Purchased Loans. A&D
Loans for timeshare resorts are also subject to greater risk because their
repayment depends on the successful completion of the development of the resort
and the subsequent successful sale of a substantial portion of the resort's
timeshare interests. The Company may seek to limit its exposure to any one
developer by participating a portion of an A&D Loan with another lender.
The Company has historically made Hypothecation Loans to land dealers and
resort developers secured by Land Loans and VOI Loans, respectively.
Hypothecation Loans are commercial loans that have significantly larger balances
than the Company's Purchased Loans and, consequently, have a greater
concentration of credit risk which is only partially offset by the lesser
concentration of credit risk of the underlying collateral.
In addition, the Company has recently expanded its marketing of
Hypothecation Loans to include loans to other finance companies secured by other
types of receivables. These loans may be subject to additional risk because the
Company has relatively less experience with these other types of receivables
than with Land Loans or VOI Loans. In addition, these loans may be larger than
the Company's average Hypothecation Loans and may provide the Company with an
option to take an equity position in the borrower.
Fluctuations in Quarterly Results of Operations. Since gains on sales of
loans are a significant portion of the Company's revenues, the timing of loan
sales has a significant effect on the Company's quarterly results of operations,
and the results of one quarter are not necessarily indicative of results for the
next quarter.
Contingent Repurchase Obligations. In connection with certain of the
Company's whole loan sales to investors, the Company has committed to repurchase
such loans that become 90 days past due. These contingent obligations are
subject to various terms and conditions, including limitations on the amounts of
loans which must be repurchased. The Company has also guaranteed payment of
loans included in certain of its securitization programs. As of March 31, 1998,
the Company had outstanding contingent repurchase obligations in the aggregate
amount of approximately $9.9 million. In addition, when the Company sells loans
4
6
through securitization programs, the Company commits to replace any loans that
do not conform to certain representations and warranties included in the
operative loan sale documents.
Third Party Servicer. The Company uses a third party to provide certain
data processing services in connection with the servicing of its loans. The
third party's systems and controls support the servicing, collecting and
monitoring of the Serviced Portfolio as well as certain accounting and
management functions of the Company. There can be no assurance that the third
party will continue to provide these services in the future or that its systems
and controls will continue to be adequate to support the Company's growth. A
failure of the third party's automated systems or its controls over data
integrity or accuracy could have a material adverse effect on the Company's
operations and financial condition.
Year 2000 Compliance. The Company uses and is dependent upon a significant
number of computer software programs and operating systems to conduct its
business. The Company believes that substantially all of its operating systems
are year 2000 compliant. To the extent that the Company relies on outside
software vendors, year 2000 compliance matters will not be within the Company's
direct control. In addition, the Company has relationships with vendors,
customers and other third parties that rely on computer software that may not be
year 2000 compliant. There can be no assurance that year 2000 compliance
failures by the Company and such third parties will not have a material adverse
effect on the Company's results of operations.
Regulation. The operations of the Company are subject to extensive
regulation by federal, state and local government authorities and are subject to
various laws and judicial and administrative decisions imposing various
requirements and restrictions, including among other things, regulating credit
granting activities, establishing maximum interest rates and finance charges,
requiring disclosures to customers, governing secured transactions and setting
collection, repossession and claims handling procedures and other trade
practices. In addition, certain states have enacted legislation which restricts
the subdivision of rural land and numerous states have enacted regulations in
connection with VOIs. Although the Company believes that its activities are in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations or interpretations thereof will not be adopted in
the future which could make compliance much more difficult or expensive,
restrict the Company's ability to originate, purchase or sell loans, further
limit or restrict the amount of interest and other charges earned under loans
originated or purchased by the Company, or otherwise adversely affect the
business or prospects of the Company.
Environmental Liabilities. In the course of its business, the Company has
acquired, and may in the future acquire, properties securing defaulted loans.
Although substantially all of the Company's Land Loans are secured by mortgages
on rural land, there is a risk that hazardous substances or waste could be
discovered on such properties after foreclosure by the Company. In such event,
the Company might be required to remove such substances from the affected
properties at its sole cost and expense. There can be no assurances that the
cost of such removal would not substantially exceed the value of the affected
properties or the loans secured by the properties or that the Company would have
adequate remedies against the prior owner or other responsible parties, or that
the Company would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
Dependence on Senior Management. The Company's success depends upon the
continued contributions of its senior management. The loss of services of
certain of the Company's executive officers could have an adverse effect upon
the Company's business. The Company maintains key man insurance on the life of
Richard A. Stratton, its Chief Executive Officer and President.
Limited Market for Notes. The Company has no present intention to have the
Notes authorized for quotation on the Nasdaq stock market or any other quotation
system or listed on any securities exchange. Although the Company has been
advised that the Underwriters currently intend to make a market in the Notes,
the Underwriters are under no obligation to do so or to continue any market
making activities if commenced. No assurance can be given that an active trading
market for the Notes will develop.
5
7
Leverage. The issuance of the Notes will increase the Company's leverage
to the extent that the proceeds of the Offering are not used to satisfy
indebtedness of the Company and/or over time to the extent the Company reborrows
on any indebtedness paid down with such proceeds. The consequences of increased
leverage include: (i) the Company's increased vulnerability to changes in
economic conditions and competition; (ii) the potential limitations on the
Company's access to capital markets and ability to refinance its secured
financing facilities; and (iii) the dedication of a substantial portion of the
Company's available cash to debt service, thereby reducing cash available to
fund expanding business operations and future business opportunities.
Limited Covenants in the Indenture; Absence of Sinking Fund. The Indenture
pursuant to which the Notes will be issued may contain financial and operating
covenants including, among others, limitations on the Company's ability to pay
dividends, incur additional indebtedness and engage in certain transactions.
This may include limitations on certain consolidations, mergers or transfers of
all or substantially all of its assets. The covenants in the Indenture may be
limited and not designed to protect the Noteholders in the event of a material
adverse change in the Company's financial condition or results of operations.
Further, the Notes may not have the benefit of any sinking fund payments by the
Company. See "Description of Notes."
6
8
THE COMPANY
Litchfield Financial Corporation (the "Company") is a specialty finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.
The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests, popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans and consumer
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").
Land Loans are typically secured by one to twenty acre rural parcels. Land
Loans are secured by property located in 35 states, predominantly in the
southern United States. VOI Loans typically finance the purchase of ownership
interests in fully furnished vacation properties. VOI Loans are secured by
property located in 17 states, predominantly in California, Florida and
Pennsylvania. The Company requires most dealers or developers from whom it buys
loans to guarantee repayment or replacement of any loan in default. Ordinarily,
the Company retains a percentage of the purchase price as a reserve until the
loan is repaid.
The Company extends Hypothecation Loans to land dealers, resort developers
and other finance companies secured by receivables. Hypothecation Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 2% to 4%.
The Company also makes A&D Loans to land dealers and resort developers for
the acquisition and development of rural land and timeshare resorts in order to
finance additional receivables generated by the A&D Loans. At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare interests. A&D Loans typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the difference between the allocated cost
basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of the Company's revenue is comprised
of gains realized upon sales of loans, the timing of such sales has a
significant effect on the Company's results of operations. As of March 31, 1998,
the Company had sold $265.0 million of Land Loans, $54.1 million of VOI Loans
and $47.6 million of Hypothecation Loans since its inception.
As of March 31, 1998, the Company serviced loans with a principal balance
of $338.5 million (the "Serviced Portfolio"), of which the Company owned $154.3
million. As of March 31, 1998 the Serviced Portfolio was comprised of 52.5%
Purchased Loans, 32.3% Hypothecation Loans, 12.8% A&D Loans and 2.4% Other
Loans. The average principal balance of the Land Loans in the Serviced Portfolio
was $13,200 with a weighted average remaining maturity of 12.1 years and a
weighted average interest rate of 12.0%. Approximately 82.5% of such loans had
fixed rates of interest. The average principal balance of the VOI Loans in the
Serviced Portfolio was $3,500 with a weighted average remaining maturity of 3.8
years and a weighted average interest rate of 14.6%. Approximately 96.3% of such
loans had fixed rates of interest. The average principal balance of the
Hypothecation Loans in the Serviced Portfolio was $1,401,000 with a weighted
average interest rate of 11.5% and an average advance rate of 84.0%.
Approximately 88.5% of such loans had variable rates of interest. The average
principal balance of the A&D Loans in the Serviced Portfolio was $545,000 with a
weighted average interest rate of 11.6% and an average loan to value ratio of
71%. Approximately 86.1% of such loans had variable rates of interest. As of
March 31, 1998, loans 30 days or more past due which are not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned were 1.20% of the Serviced Portfolio. For the three months ended March 31,
1998, annualized net charge-offs were .66% of the average Serviced Portfolio.
7
9
The Company was founded in November 1988. The Company's strategy has been
to build its Serviced Portfolio by acquiring loan portfolios from rural land
dealers, resort developers and financial institutions and by providing loans to
such dealers, developers and other finance companies secured by receivables. The
Company also provides A&D Loans in order to have the opportunity to finance
additional receivables generated by these A&D loans. As part of its business and
financing strategy, the Company seeks niche markets where its underwriting
expertise and ability to provide value-added services enable it to distinguish
itself from its competitors and earn an attractive rate of return on its
invested capital. Initially, the Company pursued this strategy by financing
consumer Land Loans through a land dealer network and portfolio acquisitions.
Subsequently, the Company extended its strategy to financing consumer VOI Loans
and providing Hypothecation Loans to land dealers and resort developers. In
1995, the Company significantly expanded its financing of VOIs when it acquired
approximately $41.5 million of VOI related loans and assets as part of its
purchase of the Government Employees Financial Corporation ("GEFCO") portfolio.
In 1997 and 1998, the Company has expanded its financing of Hypothecation Loans
to other finance companies secured by other types of receivables, which to date
have included construction loans, tax lien certificates and healthcare
receivables. The Company expects to continue to expand its specialty finance
company lending. These loans may be larger than the Company's average
Hypothecation Loans and may provide the Company an option to take an equity
position in the borrower. The Company's objective is to identify other lending
opportunities or lines of business to diversify its portfolio as it did with VOI
Loans and Hypothecation Loans.
USE OF PROCEEDS
Except as may be otherwise stated in the applicable Prospectus Supplement
hereto, it is expected that the Company will use the net proceeds from the sale
of the Notes for general corporate purposes, which may include the funding of
originations and loan purchases, the funding of cash requirements of the
Company's future loan securitizations or the repayment of certain of the
Company's indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES
For the three-month period ended March 31, 1998 and the last five fiscal
years, the ratios of earnings to fixed charges of the Company, computed as set
forth below, were as follows:
YEARS ENDED DECEMBER 31,
-------------------------------- THREE MONTHS ENDED
1993 1994 1995 1996 1997 MARCH 31, 1998
---- ---- ---- ---- ---- ------------------
Ratio of Earnings to Fixed Charges......... 2.35 2.37 1.90 2.19 2.01 1.84
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes and extraordinary item and fixed
charges. Fixed charges consist of interest charges and the amortization of debt
expense.
DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under an Indenture dated as of July 15, 1998,
and one or more supplemental indentures (the "Indenture") between the Company
and The Bank of New York, as trustee (the "Trustee"). The particular terms of
any series of Notes offered by any Prospectus Supplement (each such series
individually the "Offered Notes") will be described in the Prospectus Supplement
relating to such Offered Notes (the "Applicable Prospectus Supplement"). A copy
of the Indenture is an exhibit to the Registration Statement of which this
Prospectus is a part and a copy of a form of Supplemental Indenture will be
filed by the Company with the Commission as an exhibit to a document which will
be incorporated by reference herein. The following summaries of certain
provisions of the Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture and the applicable supplemental indenture, including
the definitions therein of certain terms. Capitalized terms not otherwise
defined in this Prospectus shall have the meanings given to them in the
Indenture.
8
10
The Indenture provides that Notes may be issued from time to time in one or
more series in an aggregate principal amount up to $100,000,000. The Notes will
be issued as fully-registered Notes only in integral multiples of $1,000 and
will be direct unsecured obligations of the Company.
The Applicable Prospectus Supplement will describe the following terms of
the Offered Notes: (a) the title of the Offered Notes; (b) any limit on the
aggregate principal amount of the Offered Notes; (c) the date or dates on which
the Offered Notes will mature; (d) the rate or rates per annum at which the
Offered Notes will bear interest and the date or dates from which such interest
will accrue and the dates on which such interest on the Offered Notes will be
payable and the record date for such interest payment dates; (e) the terms of
any rights of the Company to redeem the Offered Notes at its option; (f) the
terms of any rights of the Holders to redeem the Offered Notes at their option;
and (g) any other terms of the Offered Notes.
REDEMPTION AT HOLDER'S OPTION
Unless the Notes have been declared due and payable prior to their maturity
by reason of an Event of Default and such Event of Default has not been waived
and such declaration has not been rescinded or annulled, a holder has the right
to present Notes for payment prior to their maturity, and the Company will
redeem the same (or any portion of the principal amount thereof which is $1,000
or an integral multiple thereof, as the holder may specify) subject to the
limitations that the Company will have no obligation to redeem Notes in excess
of the following annual maximum amounts, or the applicable annual maximum
amounts set forth in any applicable supplemental indenture (collectively, the
"Annual Amount Limitations") of (A) $25,000 in aggregate principal amount per
holder for any Redemption Period (defined below) and (B) for any Redemption
Period, an aggregate principal amount for all Notes submitted for redemption
equal to five percent (5%) of the aggregate original principal amount of the
Notes of all series theretofore issued under the Indenture (the "Five Percent
Limitation"). Notes submitted for redemption, except for Notes submitted for
redemption following the death of a holder, must be submitted on or prior to the
date that is sixty (60) days prior to the end of the applicable Redemption
Period, for redemption on the last day of such Redemption Period. If the $25,000
per holder limitation has been reached and the Five Percent Limitation has not
been reached, if Notes have been properly presented for payment, each in an
aggregate principal amount exceeding $25,000, the Company will redeem such Notes
in order of their receipt (except Notes presented for payment in the event of
death of a holder, which will be given priority in order of their receipt), up
to the aggregate limitation of five percent (5%) of the aggregate principal
amount of the Notes of all series issued under the Indenture, notwithstanding
the $25,000 limitation. "Redemption Period" shall mean the period of time
beginning with the date of issuance of Notes hereunder and ending with the first
day of the thirteenth month following such date, and every twelve (12) month
period thereafter.
Subject to the Annual Amount Limitations (and unless the Notes have been
declared due and payable prior to their maturity by reason of an Event of
Default and such Event of Default has not been waived and such declaration has
not been rescinded or annulled), the Company will, at any time upon the death of
any holder, redeem Notes within sixty (60) days following receipt by the Trustee
of a written request therefor from such holder's personal representative, or
surviving joint tenant(s), tenant by the entirety or tenant(s) in common.
The price to be paid by the Company for all Notes presented to it for
redemption pursuant to these provisions is 100% of the principal amount thereof
to be redeemed, plus accrued but unpaid interest on such principal amount to the
date of payment.
In the case of Notes registered in the names of banks, trust companies or
broker-dealers who are members of a national securities exchange or the National
Association of Securities Dealers, Inc. ("Qualified Institutions"), the $25,000
limitation shall apply to each beneficial owner of Notes held by a Qualified
Institution and the death of such beneficial owner shall entitle a Qualified
Institution to seek redemption of such Notes as if the deceased beneficial owner
were the record holder. A Note held in tenancy by the entirety, joint tenancy or
tenancy in common will be deemed to be held by a single holder, and the death of
a tenant by the entirety, joint tenant or tenant in common will be deemed the
death of a holder. A person who is entitled to substantially all of the
beneficial interests of ownership of a Note will be deemed to be the holder, if
such beneficial interest can be established to the satisfaction of the Trustee,
and the death of such person will be
9
11
deemed to be the death of the holder, regardless of the registered holder. For
purposes of a holder's request for redemption and a request for redemption on
behalf of a deceased holder, such beneficial interest shall be deemed to exist
in cases of street name or nominee ownership, ownership by a custodian for the
benefit of a minor under the Uniform Gifts to Minors Act, community property or
other joint ownership arrangements between a husband and wife (including
individual retirement accounts or Keogh plans maintained solely by or for the
holder or decedent, or by or for the holder or decedent and his or her spouse),
and trusts and certain other arrangements where a person has substantially all
of the power to sell, transfer or otherwise dispose of a Note and the right to
receive the proceeds therefrom, as well as interest and principal payable with
respect thereto.
Notes may be presented for redemption by delivering to the Trustee: (a) a
written request for redemption, in a form satisfactory to the Trustee, signed by
the registered holder(s) or his or her duly authorized representative, (b) the
Note to be redeemed, free and clear of any liens or encumbrances of any kind,
and (c) in the case of a surviving tenant or personal representative of a
deceased holder or beneficial owner, appropriate evidence of such death and, if
made by a representative of a deceased holder, appropriate evidence of authority
to make such request. Qualified Institutions must submit evidence, satisfactory
to the Trustee, that they hold Notes on behalf of such beneficial owner and must
certify that the aggregate amount of requests for redemption tendered by such
Qualified Institution on behalf of each beneficial owner in the initial period
or in any subsequent twelve (12) month period does not exceed $25,000.
Any Notes presented for redemption at the option of the holder may be
withdrawn by the person(s) presenting the same upon delivery of a written
request for such withdrawal to the Trustee (a) in cases other than by reason of
death of a holder on or prior to the date that is sixty (60) days prior to the
end of the applicable Redemption Period, or (b) prior to the issuance of a check
in payment thereof or any other form of payment authorized by the Indenture in
the case of Notes presented by reason of the death of a holder.
Notes presented for redemption as set forth above will be redeemed in order
of their receipt by the Trustee, except that Notes presented for payment in the
event of death of a holder will be given priority in order of their receipt,
over other Notes. Notes not redeemed in any such period because they have not
been presented on or prior to the date that is sixty (60) days prior to the end
of the applicable Redemption Period or because of the Annual Amount Limitations
will be held in order of their receipt for redemption during the following
twelve (12) month period(s) until redeemed, unless sooner withdrawn by the
holder. Holders of Notes presented for redemption shall be entitled to and shall
receive scheduled monthly payments of interest thereon on scheduled Interest
Payment Dates until their Notes are redeemed.
In the case of any Notes which are presented for redemption in part only,
upon such redemption the Company shall execute and the Trustee shall
authenticate and deliver to or on the order of the holder of such Notes, without
service charge, a new Note(s), of any authorized denomination or denominations
as requested by such holder, in aggregate principal amount equal to the
unredeemed portion of the principal of the Notes so presented. Nothing herein
shall prohibit the Company from redeeming, in acceptance of tenders made
pursuant hereto, Notes in excess of the principal amount that the Company is
obligated to redeem, nor from purchasing any Notes in the open market. However,
the Company may not use any Notes purchased in the open market as a credit
against its redemption obligations hereunder.
NOTEHOLDERS' RIGHTS TO PREPAYMENT AFTER FUNDAMENTAL STRUCTURAL CHANGE OR
SIGNIFICANT SUBSIDIARY DISPOSITION
In the event of any Fundamental Structural Change of the Company (as
defined herein below) or a Significant Subsidiary Disposition (as defined herein
below), each holder of Notes will have the right, at the holder's option and
subject to the terms and conditions of the Indenture, to require the Company to
purchase all or any part (provided the principal amount of such part is $1,000
or an integral multiple thereof) of the holder's Notes on the date that is 75
days after the occurrence of the Fundamental Structural Change or Significant
Subsidiary Disposition (the "Repurchase Date") at a price equal to 100% of the
principal amount thereof plus accrued but unpaid interest to the Repurchase
Date, unless on or before the date that is 40 days after the occurrence of the
Fundamental Structural Change or Significant Subsidiary Disposition, the Notes
have received a rating of Baa3 or better by Moody's Investors Service, Inc., or
BBB- or better by either
10
12
Standard & Poor's Corporation or Duff & Phelps Credit Rating Co. Neither the
Board of Directors of the Company nor the Trustee has the ability to waive the
Company's obligation to redeem a holder's Notes upon request in the event of a
Fundamental Structural Change or Significant Subsidiary Disposition. Exercise of
this redemption option by a holder is irrevocable.
If a Fundamental Structural Change or Significant Subsidiary Disposition
occurs, unless the Notes have received a rating as described in the immediately
preceding paragraph, the Company is obligated to provide promptly, but in any
event within three business days after expiration of the 40 day period
referenced above, notice to the Trustee, who shall promptly (and in all events
within five days after receipt of notice from the Company) notify all holders of
the Notes, of the Fundamental Structural Change or Significant Subsidiary
Disposition, which notice shall state, among other things (i) the availability
of the redemption option, (ii) the date before which a holder must notify the
Trustee of such holder's intention to exercise the redemption option (which date
shall be no more than three business days prior to the Repurchase Date), and
(iii) the procedure such holder must follow to exercise such right. To exercise
this right, the holder must deliver to the Trustee on or before the close of
business on the Repurchase Date, written notice of such holder's redemption
election signed by such holder or its authorized representative and the Note or
Notes to be redeemed free of liens or encumbrances.
Under the Indenture, a "Fundamental Structural Change" in the Company is
deemed to have occurred at such time as (i) the Company shall consolidate with
or merge into any other corporation or partnership, or convey, transfer or lease
all or substantially all of its assets to any person other than as part of a
loan securitization or sale entered into in the ordinary course of business,
(ii) any person shall consolidate with or merge into the Company pursuant to a
transaction in which at least a majority of the common stock of the Company then
outstanding is changed or exchanged or in which the number of shares of common
stock issued by the Company in the transaction to persons who were not
stockholders of the Company immediately prior to such transaction is greater
than the number of shares outstanding immediately prior to the transaction,
(iii) any person shall purchase or otherwise acquire in one or more transactions
beneficial ownership of 50% or more of the common stock of the Company
outstanding on the date immediately prior to the last purchase or other
acquisition, (iv) the Company or any subsidiary shall purchase or otherwise
acquire in one or more transactions during the twelve month period preceding the
date of the last such purchase or other acquisition an aggregate of 25% or more
of the common stock of the Company outstanding on the date immediately prior to
the last such purchase or acquisition, or (v) the Company shall make a
distribution of cash, property or securities to holders of common stock in their
capacity as such (including by means of dividend, reclassification or
recapitalization) which, together with all other distributions during such 12
month period preceding the date of such distribution, has an aggregate fair
market value in excess of an amount equal to 25% of the fair market value of
common stock of the Company outstanding on the date immediately prior to such
distribution.
Under the Indenture, a "Significant Subsidiary Disposition" shall be deemed
to have occurred upon (i) the merger, consolidation, or conveyance or transfer
of all or substantially all of the assets of a Significant Subsidiary, or (ii)
the issuance, sale, transfer, assignment, pledge or other disposition of the
capital stock of a Significant Subsidiary or securities convertible or
exchangeable into shares of capital stock of such Significant Subsidiary. A
Significant Subsidiary is any subsidiary of the Company the consolidated assets
of which constitute 20% or more of the Company's consolidated assets. The
Company does not currently have any Significant Subsidiaries.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of conveyance, transfer or
lease of less than all of the assets of the Company or a Significant Subsidiary
to another person may be uncertain.
Except as described above with respect to a Fundamental Structural Change
or Significant Subsidiary Disposition, the Indenture does not contain any other
provisions that permit the holders of the Notes to require that the Company
repurchase the Notes in the event of a takeover or similar transaction.
Moreover, a recapitalization of the Company or a transaction entered into by the
Company with management or its affiliates would not necessarily be included
within the definition of a "Fundamental Structural Change" or a
11
13
"Significant Subsidiary Disposition." Accordingly, while such definitions cover
a wide variety of arrangements which have traditionally been used to effect
highly-leveraged transactions, the Indenture does not afford the holders of
Notes protection in all circumstances from highly leveraged transactions,
reorganizations, restructurings, mergers or similar transactions involving the
Company and its Significant Subsidiaries that may adversely affect holders of
Notes.
The Company has previously issued notes pursuant to indentures that permit
the holders thereof to require the Company to repurchase such notes upon the
occurrence of events which are substantially identical to those described in the
definitions of "Fundamental Structural Change" and "Significant Subsidiary
Disposition" above. Such notes rank on a parity with the Notes. No assurance can
be given that if a Fundamental Structural Change or Significant Subsidiary
Disposition were to occur, there would be sufficient funds available to the
Company to pay the amounts outstanding under the Notes, the previously issued
notes and any other instruments or facilities then outstanding which are senior
to or on a parity with the Notes.
The Fundamental Structural Change purchase feature of the Notes may, in
certain circumstances, make more difficult or discourage a takeover of the
Company and thus removal of incumbent management. The Fundamental Structural
Change purchase feature, however, is not the result of management's knowledge of
any specific effort to obtain control of the Company or part of a plan by
management to adopt a series of anti-takeover provisions. Rather, the terms of
the Fundamental Structural Change purchase feature are a result of negotiations
between the Company and the Underwriters.
To the extent that the right of redemption by a holder in the event of a
Fundamental Structural Change constitutes a tender offer under Section 14(e) of
the Exchange Act and the rules thereunder, the Company will comply with all
applicable tender offer rules.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be Events of Default: (a) default in the payment of
principal, or premium, if any, when due; (b) default in the payment of any
interest when due, continued for five days; (c) default in the meeting of any
redemption payment when due, continued for five days; (d) default in the
performance of any other covenant or warranty of the Company, continued for 30
days after written notice to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 10% in principal amount of the
outstanding Notes affected; (e) any default by the Company under the terms of
any instrument under which Indebtedness in an aggregate principal amount in
excess of $1,000,000 outstanding is accelerated and such acceleration is not
rescinded or annulled within 10 days after written notice to the Company from
the Trustee or to the Trustee and the Company from the holders of not less than
25% in principal amount of the outstanding Notes; or (f) certain events of
bankruptcy, insolvency or reorganization. If any Event of Default shall occur
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of outstanding Notes may declare the Notes immediately due and payable.
The Company is required to deliver quarterly to the Trustee an officer's
certificate as to the absence or existence of any default in the performance of
any covenant contained in the Indenture or any supplemental indenture during the
preceding quarter and is also required to provide the Trustee notice within ten
business days after the Company knew or should have known of a default under the
Indenture or any supplemental indenture or any other Indebtedness of the
Company.
The Indenture provides that the Trustee will, within 90 days after
obtaining notice of the occurrence of a default, give the holders of Notes (and
to certain other persons and former noteholders) notice of all uncured defaults
known to it; but, except in the case of a default in the payment of principal,
or premium, if any, or interest on any of the Notes, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such holders.
The holders of a majority of the aggregate principal amount of outstanding
Notes may on behalf of the holders of all Notes waive certain past defaults, not
including a default in payment of principal, or premium, if any, or interest on
any Note.
12
14
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS
In the Indenture, the Company has covenanted that on each of June 30,
December 31 and any day on which the Company directly or indirectly incurs any
Indebtedness (as defined in the Indenture), the Company will maintain a Ratio
equal to or in excess of 2:1. The term "Ratio" means the ratio of (A) the
Company's earnings before deduction of taxes, depreciation, amortization and
interest expense for the twelve month period immediately preceding the date such
Ratio is calculated (as shown by a pro forma consolidated income statement of
the Company) to (B) the aggregate dollar amount of interest paid by the Company
on the Notes and all other Indebtedness of the Company or its subsidiaries
during such twelve month period, in each case, after giving effect to the
incurrence of such Indebtedness and, if applicable, the application of the
proceeds therefrom. The Company is required to deliver to the Trustee, within 45
days after each June 30 and December 31, and each incurrence of Indebtedness, an
officer's certificate containing appropriate calculations of the Ratio and the
compliance of the Company with this covenant. At March 31, 1998, the Company's
Ratio was 2.65:1.
LIMITATION ON DIVIDENDS AND OTHER PAYMENTS
The Company has agreed pursuant to the Indenture that it will not make, pay
or declare any of the following (each a "Restricted Payment"): (i) any dividend
or other distribution of property or assets other than dividends paid solely in
the Company's stock, (ii) a repayment or defeasance of any indebtedness which is
subordinate to the Notes (except, so long as the Notes are not in default,
scheduled payments of principal and interest thereon), (iii) an exchange of
equity for debt issued subsequent to the last day of the month immediately
preceding the date of the first issuance of Notes hereunder, or (iv) any stock
repurchase, unless such Restricted Payment when aggregated with all other
Restricted Payments is less than the sum of (A) $2,000,000 plus (B) 45% of the
Company's and its subsidiaries' cumulative net income earned during the period
commencing on the last day of the month immediately preceding the date of the
first issuance of Notes hereunder and ending on the date of such Restricted
Payment, plus (C) the cumulative cash and non-cash proceeds to the Company of
all public or private equity offerings during such time. In addition, the
Company is prohibited by the Indenture from making any Restricted Payment if,
(i) by so doing, the Company will be in violation of any other provisions of the
Indenture or any other loan agreement or indenture to which the Company is a
party, or (ii) there is an existing default under the Indenture.
MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION
The Company has covenanted that it will not merge or consolidate with, or
sell all or substantially all of its assets to, any person, firm or corporation
unless the Company is the continuing corporation in such transaction and,
immediately thereafter, is not in default under the Indenture or, if it is not
the continuing corporation, the successor corporation expressly assumes the
Company's obligations under the Indenture and, immediately after such
transaction, the successor corporation is not in default under the Indenture.
Any successor corporation shall succeed to and be substituted for the Company as
if such successor corporation has been named as the Company in the Indenture.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of 66 2/3% in principal amount
of outstanding Notes, provided that no such modification or amendment may (i)
reduce the principal amount of or interest on any Note or change the stated
maturity of the principal or the interest payment dates or change the currency
in which the Notes are to be paid, without the consent of each holder of any
Note affected thereby, or (ii) reduce the percentage of holders of Notes
necessary to modify or alter the Indenture, without the consent of the holders
of all Notes then outstanding.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. Its mailing
address is 101 Barclay Street, New York, NY 10286.
13
15
The Indenture contains a provision pursuant to which the Company will
indemnify the Trustee against any and all losses or liabilities incurred by the
Trustee in connection with its execution and performance of the Indenture;
provided, however, that such indemnification will not extend to losses resulting
from a breach of the Trustee's duties under the Indenture. The Indenture
provides that the holders of a majority in principal amount of the outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred upon
the Trustee, subject to certain limitations set forth in the Indenture. The
Trustee is not required to take any action at the direction of the holders of
the Notes unless such holders have provided the Trustee with a reasonable
indemnity.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will initially be issued in the form of one or more registered
notes in global form without coupons (each a "Global Note"). Each Global Note
will be deposited on the date of the closing of the sale of the Notes (the
"Closing Date") with, or on behalf of, the Depository Trust Company and
registered in the name of Cede & Co., as nominee of The Depository Trust
Company. Any person having a beneficial interest in a Global Note may, upon
request to the Trustee, exchange such beneficial interest for certificated
notes. Upon such issuance, the Trustee is required to register such certificated
notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof).
PLAN OF DISTRIBUTION
The Company may sell the Notes to or through underwriters, and also may
sell the Notes directly to other purchasers or through agents. Such underwriters
may include McDonald & Company, Inc. ("McDonald"), Tucker Anthony Incorporated
("Tucker Anthony"), J.C. Bradford & Co. ("Bradford"), Oppenheimer & Co., Inc.
("Oppenheimer") or may be a group of underwriters represented by one or more of
McDonald, Tucker Anthony, Bradford, Oppenheimer or one or more other firms. Only
underwriters named in the applicable Prospectus Supplement are deemed to be
underwriters in connection with the Notes offered thereby.
The distribution of the Notes may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the Notes, underwriters may receive
compensation from the Company or from purchasers of the Notes for whom they may
act as agents in the form of discounts, concessions or commissions.
Underwriters, dealers and agents that participate in the distribution of the
Notes may be deemed to be underwriters and any discounts or commissions received
by them and any profit on the sale of the Notes by them may be deemed to be
underwriting discounts and commissions under the Act. Any such underwriter or
agent will be identified, and any such compensation will be described, in the
applicable Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of the Notes may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Act, or to contribution with respect to payments
which the underwriters, dealers or agents may be required to make in respect
thereof.
LEGAL MATTERS
Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal
Street, Boston, Massachusetts, will render an opinion on the legality of the
Notes being offered hereby. Bass, Berry & Sims PLC, 2700 First American Center,
Nashville, Tennessee, will pass upon certain legal matters for the Underwriters.
James Westra, a shareholder of Hutchins, Wheeler & Dittmar, is a Director of the
Company. Mr. Westra owns 1,735 shares of the Company's common stock and has
options to acquire another 7,512 shares.
14
16
EXPERTS
The consolidated financial statements of Litchfield Financial Corporation
incorporated by reference in Litchfield Financial Corporation's Annual Report
(Form 10-K) for the year ended December 31, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference. Such
financial statements are, and audited financial statements to be included in
subsequently filed documents will be, incorporated herein in reliance upon the
reports of Ernst & Young LLP pertaining to such financial statements (to the
extent covered by consents filed with the Securities and Exchange Commission)
given upon the authority of such firm as experts in accounting and auditing.
15
17
================================================================================
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Incorporation of Documents by
Reference........................... 2
Risk Factors.......................... 3
The Company........................... 7
Use of Proceeds....................... 8
Ratio of Earnings to Fixed Charges.... 8
Description of Notes.................. 8
Plan of Distribution.................. 14
Legal Matters......................... 14
Experts............................... 15
------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
================================================================================
================================================================================
$100,000,000
[LITCHFIELD FINANCIAL CORP. LOGO]
NOTES
---------------------
PROSPECTUS
---------------------
JULY , 1998
================================================================================
18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The expenses in connection with the issuance and distribution of the
securities being registered hereby are estimated as follows:
Registration fee under Securities Act....................... $ 29,500
Legal fees and expenses..................................... $ 75,000
Accounting fees and expenses................................ $ 35,000
Printing and engraving...................................... $100,000
Trustees fees and expenses.................................. $ 11,000
Miscellaneous............................................... $ 9,500
--------
Total............................................. $260,000
========
- ---------------
* All amounts are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts provides as follows:
"Section 67. Indemnification of directors, officers, employees and other
agents of a corporation, and persons who serve at its request as directors,
officers, employees or other agents of another organization, or who serve at its
request in any capacity with respect to any employee benefit plan, may be
provided by it to whatever extent shall be specified in or authorized by (i) the
articles of organization or (ii) a by-law adopted by the stockholders or (iii) a
vote adopted by the holders of a majority of the shares of stock entitled to
vote on the election of directors. Except as the articles of organization or
by-laws otherwise require, indemnification of any persons referred to in the
preceding sentence who are not directors of the corporation may be provided by
it to the extent authorized by the directors. Such indemnification may include
payment by the corporation of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the person indemnified to repay
such payment if he shall be adjudicated to be not entitled to indemnification
under this section which undertaking may be accepted without reference to the
financial ability of such person to make repayment. Any such indemnification may
be provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization or
no longer serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section.
A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or other agent of another organization or with
respect to any employee benefit plan, against any liability incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability."
II-1
19
Article 7 of the Amended and Restated By-Laws of the Company provides that:
Each director and officer (and his heirs and personal representatives)
shall be indemnified by the Company against any Expenses incurred by him in
connection with any action, suit or proceeding, civil or criminal, brought or
threatened in or before any court, tribunal, administrative or legislative body
or agency in which he is involved as a result of his serving or having served as
a director or officer, except as limited by law or with respect to a proceeding
as to which it shall have been adjudicated that he did not act in good faith in
the reasonable belief that his action was in the best interests of the Company.
"Expense" means any fine or penalty, and any liability fixed by a judgment,
order, decree or award in such a proceeding and any professional fees and other
disbursements reasonably incurred in connection with such a proceeding.
Article Sixth of the Restated Articles of Organization of the Company
provides that:
No Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director
notwithstanding any statutory provision or other law imposing such liability,
except for liability of a Director (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the
Massachusetts General Laws, or (iv) for any transaction from which the Director
derived an improper personal benefit.
The directors and officers of the Company are insured against liabilities
which they incur in their capacity as such under policies of insurance carried
by the Company.
ITEM 16. EXHIBITS
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
1.1 Form of Underwriting Agreement.
4.1 Indenture, dated as of July 15, 1998, between the Company
and The Bank of New York, Trustee.
5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation.
12.1 Statement Re: Computation of Ratios.
23.1 Consent of Independent Auditors.
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
25.1 Form T-1, Statement of Eligibility of and Qualification
under the Trust Indenture Act of 1939 of The Bank of New
York as Trustee.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
II-2
20
(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.
Provided, however, that paragraphs (1)(i) and (1)(ii) of this section do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
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
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 and will be governed by the final
adjudication of such issue.
The undersigned registrant further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
II-3
21
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 15th day of July, 1998.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ RICHARD A. STRATTON
--------------------------------------
Richard A. Stratton, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes
Richard A. Stratton and Heather A. Sica, and each of them, with full power of
substitution and full power to act without the other, his or her true and lawful
attorney-in-fact and agent in his or her name, place and stead, to execute in
the name and on behalf of each person, individually and in each capacity stated
below, and to file any and all amendments to this Registration Statement,
including any and all post-effective amendments, and any related Rule 462(b)
Registration Statement and any amendments thereto.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD A. STRATTON President, Chief Executive July 15, 1998
- ----------------------------------------------------- Officer, and Director
Richard A. Stratton
/s/ HEATHER A. SICA Executive Vice President and July 15, 1998
- ----------------------------------------------------- Director
Heather A. Sica
/s/ RONALD E. RABIDOU Chief Financial Officer and July 15, 1998
- ----------------------------------------------------- Treasurer
Ronald E. Rabidou
/s/ JOHN A. COSTA Director July 15, 1998
- -----------------------------------------------------
John A. Costa
/s/ GERALD SEGEL Director July 15, 1998
- -----------------------------------------------------
Gerald Segel
/s/ JAMES WESTRA Director July 15, 1998
- -----------------------------------------------------
James Westra
II-4
22
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
1.1 Form of Underwriting Agreement.
4.1 Indenture, dated as of July 15, 1998, between the Company
and The Bank of New York, Trustee.
5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation.
12.1 Statement Re: Computation of Ratios.
23.1 Consent of Independent Auditors.
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
25.1 Form T-1, Statement of Eligibility of and Qualification
under the Trust Indenture Act of 1939 of The Bank of New
York as Trustee.