-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J5RJwNRJHcXF4aATWn577XKXaOvkt6cYck+WO4x4RcnxmqiIETE7CDsEZAHcc+9J mvFnBWt6df5Y5u1y82jSiA== 0000950144-97-000980.txt : 19970211 0000950144-97-000980.hdr.sgml : 19970211 ACCESSION NUMBER: 0000950144-97-000980 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970207 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDIT DEPOT CORP CENTRAL INDEX KEY: 0000869276 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 581909265 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19420 FILM NUMBER: 97520446 BUSINESS ADDRESS: STREET 1: 700 WACHOVIA CENTER CITY: GAINESVILLE STATE: GA ZIP: 30501 BUSINESS PHONE: 7705319927 MAIL ADDRESS: STREET 1: 700 WACHOVIA CENTER CITY: GAINESVILLE STATE: GA ZIP: 30501 10QSB 1 CREDIT DEPOT CORPORATION 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20459 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-19420 --------- CREDIT DEPOT CORPORATION ------------------------ (Exact name of registrant as specified in its charter) Delaware 58-1909265 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 700 Wachovia Center Gainesville, Georgia -------------------- (Address of principal executive offices) 30501 (Zip code) (770) 531-9927 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date. Class Outstanding at December 31, 1996 - ------------------- -------------------------------- Common Stock $.001 Par Value 3,717,061 Transitional Small Business Disclosure Format (check one): YES NO X --------- --------- 2 CREDIT DEPOT CORPORATION Table of Contents
PART I. FINANCIAL INFORMATION Page ---- Item 1 -- Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1996 3 Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 1995 and 1996 and the Six Months ended December 31, 1995 and 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. OTHER INFORMATION Item 1 -- Legal Proceedings 11 Item 2 -- Changes in Securities 11 Item 3 -- Defaults upon Senior Securities 11 Item 4 -- Submission of Matters to Vote of Security Holders 11 Item 5 -- Other Information 12 Item 6 -- Exhibit and Reports on Form 8-K 12 SIGNATURES 13
2 3 CREDIT DEPOT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, DECEMBER 31, 1996 1996 -------------------------------------------- ASSETS Loans receivable Consumer, collateralized by real estate $ 6,958,903 $ 4,887,663 Allowance for credit losses (250,260) (170,383) ------------------- ----------------- Net loans receivable 6,708,643 4,717,280 Cash 1,707,320 1,110,447 Property and equipment, net 493,560 537,730 Real estate held for resale 42,397 434,715 Other assets: Receivables due from related parties 222,209 225,214 Prepaid expenses and other assets 345,064 212,724 Excess servicing asset net of reserve 193,038 143,841 Interest-only strips receivable 1,317,577 4,787,682 Accrued interest receivable 113,577 87,612 Deferred financing costs 957,158 1,318,977 ------------------- ----------------- Total Assets $ 12,100,041 $ 13,576,222 =================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Convertible notes payable $ 8,500,000 $ 10,954,250 Other borrowings 1,925,000 703,098 Accounts payable 54,393 33,540 Accrued liabilities 329,322 286,501 Dividends payable 144,000 141,750 ------------------- ----------------- Total liabilities 10,952,715 12,119,139 Stockholders Equity Preferred stock, $.001 par value: 2,000,000 shares authorized, 320,000 shares issued and outstanding at June, 1996, and 315,000 shares issued and outstanding at December 31, 1996 320 315 Common stock, $.001 par value: 35,000,000 shares authorized, 3,378,761 shares issued and outstanding at June 30, 1996 and 3,717,061 issued and outstanding at December 31, 1996 3,379 3,717 Additional paid-in capital 13,242,231 13,987,648 Accumulated deficit (12,098,604) (12,534,597) ------------------- ----------------- Total stockholders' equity 1,147,326 1,457,083 ------------------- ----------------- Total liabilities and stockholders' equity $ 12,100,041 $ 13,576,222 =================== =================
See accompanying notes. 3 4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, 1995 1996 1995 1996 ------------------------ ----------------------- Revenues: Finance income and fees earned $ 188,831 $ 109,254 $ 295,494 $ 260,550 Gain on sale of receivable 4,482 2,018,212 308,342 3,284,266 Other (3,145) 66,952 26,308 33,314 ----------- ---------- ----------- ---------- 190,168 2,194,418 630,144 3,578,130 Expenses: Salaries and employee benefits 648,516 915,987 1,271,894 1,661,674 Legal and professional fees 72,556 97,986 180,600 194,697 Other operating expenses 653,312 612,340 1,079,906 1,098,596 Provision for credit losses 25,000 45,000 75,000 65,000 Interest expense and amortization of financing costs 161,862 399,157 307,678 708,408 ----------- ---------- ----------- ---------- 1,561,246 2,070,470 2,915,078 3,728,375 Income (loss) before provision for income taxes (1,371,078) 123,948 (2,284,934) (150,245) Provision for income taxes - - - - ----------- ---------- ----------- ---------- Net income (loss) $(1,371,078) $ 123,948 $(2,284,934) $ (150,245) =========== ========== =========== ========== Dividends on preferred stock 127,677 141,750 127,677 285,750 Net loss per share of common stock $ (0.44) $ (0.00) $ (.71) $ (.12) =========== ========== =========== ========== Weighted average shares outstanding 3,378,761 3,660,861 3,378,761 3,519,811 =========== ========== =========== ==========
See accompanying notes. 4 5 CREDIT DEPOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended December 31, December 31, 1995 1996 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,284,934) $ (150,245) Adjustments to reconcile net loss to cash used in operating activities: Provision for credit losses 75,000 65,000 Depreciation and amortization 260,181 158,394 Changes in operating assets and liabilities: Due from related parties (62,203) (3,005) Prepaid expenses and other 192,858 158,305 Deferred financing costs 230,874 (361,819) Loans originated (16,971,461) (41,108,754) Loans repurchased (610,385) (590,429) Deferred fee income (3,075) - Excess servicing asset, net 137,192 49,197 Interest-only strips receivable - (3,470,607) Proceeds from loans sold 14,260,058 42,304,703 Principal collections on loans not sold 1,082,804 898,653 Accounts payable and accrued liabilities 11,224 (63,674) ------------ ------------ Net cash used in operating activities (3,681,867) (2,114,281) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (65,140) (122,567) ------------- ------------ Net cash used in investing activities (65,140) (122,567) CASH FLOWS FROM FINANCING ACTIVITIES Dividends on preferred stock - (285,750) Proceeds from issuance of convertible notes - 2,800,000 Proceeds from issuance of preferred stock 5,447,767 - Payments on other borrowings (2,500,000) (977,373) Advance on interest-only strip receivable - 103,098 ------------ ------------ Net cash provided by financing activities 2,947,767 1,639,975 ------------ ------------ Net increase (decrease) in cash (799,240) (596,873) Cash at beginning of period 1,758,440 1,707,320 ------------ ------------ Cash at end of period $ 959,200 $ 1,110,447 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest $ 307,678 $ 628,951 ============ ============ Conversion of loans receivable to real estate held for sale $ 177,262 $ 564,817 ============ ============
See accompanying notes. 5 6 CREDIT DEPOT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 (Unaudited) 1. BASIS OF PRESENTATION The accompanying financial information includes the accounts of Credit Depot Corporation ("CDC") and its wholly owned subsidiaries Credit Depot Corporation of Georgia, Credit Depot Corporation of South Carolina, Credit Depot Corporation of North Carolina, and Credit Depot Corporation of Ohio, Credit Depot Corporation of Tennessee, Credit Depot Corporation of Florida, and Credit Depot Corporation of Indiana. Reference to "the Company" includes CDC and its subsidiaries. The financial information is unaudited but includes all adjustments consisting only of normal recurring adjustments which the Company's management believes to be necessary for fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Dollar figures rounded to the nearest $1,000 in the following discussion are approximate unless otherwise noted. The financial statements should be read in conjunction with the Company's audited financial statements for the year ended June 30, 1996. 2. NET INCOME (LOSS) PER SHARE Dividends on preferred stock are subtracted from net income (or loss) to arrive at the numerator for this calculation. The denominator is the weighted average number of common shares and, when dilutive, common equivalent shares (convertible securities, warrants and stock options) outstanding during each of the periods. Dilutive shares are not considered if the numerator (net income or loss less preferred dividends) is negative. 3. GAIN ON SALE OF RECEIVABLES Gains on the sale of loans to third parties wherein the Company retains an interest in the loan are calculated as the present value of the interest rate differential between the rate charged to the borrower and the rate earned by the third party, after taking into consideration the Company's estimate for early prepayments and ongoing servicing costs, if any. If the Company also retains the servicing rights on loans sold with a retained interest, a servicing fee is earned. The corresponding asset recorded at the time of the gain on sale of loans with a retained interest is amortized in proportion to the income received from the rate differential retained by the Company over the estimated lives of the underlying loans. This asset is carried at the lower of amortized cost or net realizable value. Gains on sales of loans wherein the Company does not have any further interest in the loan and does not retain the servicing rights are calculated as the difference between the cash price paid by the third party and the principal balance of the loan plus accrued interest. 4. OTHER BORROWINGS In August 1996, term debt with a principal balance of $875,000 was paid-off with proceeds from the sale of mortgage loans. 5. CONVERTIBLE SECURITIES On September 30, 1996, convertible mortgage participation holders having $400,000 of participations exercised their conversion option and exchanged their participations for 160,000 shares of common stock. During the quarter from October 1, 1996 to December 31, 1996, a holder of preferred stock converted 5,000 shares of preferred stock into 40,000 shares of common stock, and holders of convertible debt converted $345,750 of notes into 138,300 shares of common stock, as per the conversion terms of their respective securities. 6 7 Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION CERTAIN ACCOUNTING CONSIDERATIONS Most of the Company's revenue in both the three months and six months ended December 31, 1996 (the "1996 Three Months" and the "1996 Six Months") consisted of loans sold by the Company with an interest retained as a gain on sale of loans. The gain principally represents the present value of the difference between the interest rate charged by the Company to a borrower and the interest rate received by the investor who purchased the loans, which is also referred to as the "Spread". The corresponding asset used to record this gain is referred to as an "Interest-Only Strip Receivable". In previous years, the Company has sold loans in a similar manner but also retained the servicing rights to the loans, creating a gain wherein the corresponding asset is referred to as the "Excess Servicing Asset", and additionally providing revenue in the form of servicing income. The Company recognizes such gain on sale of loans in the fiscal year in which such loans are sold, although cash (representing the Interest-Only Strip Receivable or Excess Servicing Asset and servicing fees) is received by the Company over the lives of the loans. Both the Interest-Only Strip Receivable and the Excess Servicing Asset computations are in part based upon, and amortized over, the estimated lives of the loans using certain prepayment assumptions. Because the gain recognized in the year of sale is equal to the present value of the estimated future cash flows from the Spread, the amount of cash actually received over the lives of the loans can exceed the gain previously recognized at the time the loans were sold. In subsequent years, the Company would recognize additional income and fees to the extent actual cash flows from such loans exceed the amortization of the Interest-Only Strip Receivable or Excess Servicing Asset. If actual prepayments with respect to sold loans occur faster than were projected at the time such loans were sold, the carrying value of the Interest-Only Strip Receivable or Excess Servicing Asset is written down through a charge to earnings in the period of adjustment. During the three months ended December 31, 1995 (the "1995 Three Months"), the Company charged $75,000 to earnings for anticipated prepayments at that time. No charge was deemed necessary for the 1996 Three Months. RESULTS OF OPERATIONS The Company continued implementing a significant expansion program during the 1996 Three Months. The program began in the previous quarter after the Company received the proceeds from a $9,000,000 convertible debt placement. The Company's loan originations and purchases for the 1996 Three Months were $24,937,000, compared to $16,172,000 for the previous quarter ending September 30, 1996, and $9,223,000 during the 1995 Three Months. This significant improvement in originations led to increased revenues in the form of gain on sale of loans, resulting in an operating profit of $124,000 for the 1996 Three Months, as compared to a loss of $274,000 in the quarter ending September 30, 1996 and a loss of $1,371,000 in the 1995 Three Months. The Company continued to develop operations in its existing states by opening a new offices North Carolina, Tennessee, and Florida, and continued its geographic expansion by opening a new office in Chicago, Illinois. The Company also commenced operations in Missouri and Virginia during the first week of January 1997. The Company is in the process of obtaining mortgage licenses in other states and expects to start operations in those states in the near future. 7 8 Three Months Ended December 31, 1995 and 1996 During the 1996 Three Months, the Company recorded net income of $124,000, as compared to a net loss of $1,371,000 for the 1995 Three Months. After deducting dividends on Preferred Stock, the net loss per share of common stock was $(0.00) for the 1996 Three Months as compared to $(0.44) per share for the 1995 Three Months. The one line item which had the most significant change reflecting this improvement was the increase in gain on sale of loans from $4,000 in 1995 to $2,018,000 in the 1996 comparable period. While the dollar amount of loans sold increased from $6,976,000 to $22,173,000, the average percent of gain on each loan sold also improved as the method of loans sales changed between the comparable periods. In the 1995 Three Months, all loans sold were on a "Whole" loan basis, meaning the Company retained no interest or servicing rights after the sale, and received a cash premium in addition to the face value of the loan. There was only a nominal net gain on sale percentage for loans sold Whole during the 1995 Three Months (primarily due to the Company selling loans at discount rates due to cash requirements at the time), compared to a margin of 9.1% for loans sold during the 1996 Three Months. Most of the loans sold in the 1996 quarter were sold pursuant to an agreement with a large institution. Under the agreement, the Company has agreed to sell this institution $125,000,000 of mortgage loans during a one year period which will be included in such institution's securitized mortgage pools with the Company retaining a residual interest in the loans delivered for securitization. The gain on loans sold when delivered in this manner is significantly higher than could be obtained by selling loans on a Whole basis, and is the major reason for the dramatic improvement in gain on sale percentage. However, a few older loans that did not meet the criteria for inclusion in a securitized pool were sold Whole at discount rates, thus lowering the gain on sale percentage slightly for the quarter. These Whole loan sales were made in conjunction with a Company goal of divesting itself all loans held in its own portfolio that cannot be included in a securitized mortgage pool. Total expenses increased 33%, from $1,561,000 to $2,070,000, during the 1995 Three Months to the 1996 Three Months. The largest increase was in interest expense and financing cost amortization, which increased 147% from $162,000 to $399,000 during the comparable periods. This increase is from the accrual of interest on the $9,000,000 convertible notes at a rate of 10% during the 1996 quarter, and from the amortization of the financing costs paid to raise the $9,000,000. The second largest increase between the quarters was in salaries and employee benefits, which increased from $649,000 to $916,000, or 41% between the comparable periods. This increase was the result of a planned expansion program by the Company to primarily increase its sales and field operations as capital became available. At December 31, 1995, the Company had 46 employees in six offices as compared to 68 employees in fifteen offices at December 31, 1996. Six Months Ended December 31, 1995 and 1996 During the 1996 Six Months, the Company had a net loss of $150,000, as compared to a net loss of $2,285,000 for the six months ended December 31, 1995 (the "1995 Six Months). Net loss per share of Common Stock after deducting dividends on Preferred Stock was $(0.12) during the 1996 Six Months compared to a net loss of $(0.71) per share during the 1995 Six Months. Again, the primary reason for this improvement was the increase in gain on sale of loans from $308,000 in 1995 to $2,018,000 in the 1996 comparable period. While the dollar amount of loans sold increased from $14,260,000 to $42,305,000, the average percent of gain on each loan sold also improved as the method of loans sales changed between the comparable periods. In the 1995 Six Months, most loans sold were on a Whole loan basis. There was a 2.2% net gain on sale percentage for loans sold during the 1995 Six Months (primarily due to the Company selling loans at discount rates due to cash requirements during the period), compared to a margin of 4.8% for loans sold during the 1996 Six Months. Most of the loans sold in the 1996 Six Months were sold with a retained interest and were to be included in the securitized mortgage pool of a third party. However, a number of older loans and loans that did not meet the criteria for inclusion in a securitized pool were sold Whole at discount rates during the 1996 Six Months (primarily in the first fiscal quarter), which negatively impacted the gain on sale percentage obtained from loans sold with a retained interest. These Whole loan sales were made in conjunction with a Company goal of divesting itself all loans held in its own portfolio that cannot be included in a securitized mortgage pool. The Company will always originate some loans that cannot be 8 9 sold with a retained interest, and at December 31, 1996, still had a number of older loans in its portfolio that did not meet the criteria for inclusion in a securitized pool. Total expenses increased 28%, from $2,915,000 to 3,728,000, during the 1995 Six Months to the 1996 Six Months. The largest increase was in interest expense and financing cost amortization, which increased 130% from $308,000 to $708,000 during the comparable periods. This increase is from the accrual of interest on the $9,000,000 convertible notes at a rate of 10% during the 1996 period, and from the amortization of the financing costs paid to raise the $9,000,000. The second largest increase between the quarters was in salaries and employee benefits, which increased from $1,272,000 to $1,662,000, or 31% between the comparable periods. This increase was the result of a planned expansion program by the Company to primarily increase its sales and field operations as capital became available. At December 31, 1995, the Company had 46 employees in six offices as compared to 68 employees in fifteen offices at December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES Loans receivable decreased by $2,071,000 from June 30, 1996 to December 31, 1996, despite increased originations during the period, as the Company embarked on a program of liquidating loans that could not be delivered for securitization. The Company still has some loans which are not suitable for securitization in its portfolio and will continue to liquidate these as market conditions permit. Cash also decreased by $597,000 during this period despite the loan liquidations as the Company continues to operate on a negative cash flow basis. The primary reason for the negative cash flow is that the Company's profit from sale of mortgage loans is in the form of interest-only strip receivable which increased from $1,317,000 to $4,787,682 during the six months. As discussed in "Certain Accounting Considerations", this receivable is recorded in lieu of receiving a cash premium for the loans sold into a securitization. An new agreement was reached in November 1996 with the same institution the Company has been delivering loans to for inclusion in securitized pools. This agreement permits the Company to receive an advance on a portion the cash it is due with respect to the interest-only strip at the time of sale of the mortgage loans to the institution. Normally this retained interest is received in cash over the life of loan. By its nature, the Company's business requires continual access to short-term and long-term sources of debt and equity capital. The Company's capital requirements arise principally from loan originations and loan repurchases, payments of operating and interest expenses, capital expenditures, and start-up expenses for expansion into new geographic markets. Additionally, even if the Company is generating net income, a substantial portion of its revenues will consist of gain on sale of loans wherein cash is not received at the time of sale, but over the life of the mortgage loans. The Company does not expect to generate a positive cash flow for some time, and therefore has required and expects to continue to require additional financing to fund additional geographical expansion, to support its infrastructure until such time as it can increase the volume of loan origination to a point of positive cash flow, and to realize greater returns on sales of loans. While the Company recorded a profit during the 1996 Three Months, it had a negative cash flow as discussed above. The cash outlay was funded primarily out of the proceeds of the convertible debt offering completed in August 1996 described below. Capital restraints have from time to time restricted the Company's ability to increase the volume of mortgage loans it originates, and have negatively impacted its ability to hold such loans until a sale could be arranged for on more favorable terms. This has resulted in the Company selling many loans Whole simply to receive the gain on sale in cash at the time of sale. To the extent that the Company is unable to obtain periodic infusions of capital, the Company could be required to sell mortgage loans on less favorable terms than it might otherwise be available or curtail lending activities. To date, in addition to the Company's capital raising efforts, the sources of liquidity have been (1) sales of the loans the Company originates and purchases into secondary markets, (2) borrowings under a mortgage warehouse line of credit secured by its loans, (3) finance income earned on Company owned loans and servicing fees generated on the loan servicing portfolio, (4) borrowings under a repurchase line of credit (discussed below), (5) other borrowings (discussed below), (6) the conversion of the Excess Servicing Asset and Interest-Only Strip Receivable into cash 9 10 over the lives of the loans in the servicing portfolio, and (7) advances against the cash normally received over the life of the loan as noted in #6 above (discussed below). In July 1994, the Company completed the placement of $5,550,000 of 8% Senior Subordinated Convertible Notes due 2004 (the "8% Notes"). In October 1995, the Company agreed to certain conditions as a prerequisite for obtaining a waiver for technical covenant violations contained in the indenture relating to the 8% Notes at September 30, 1995. When these conditions were not met at December 31, 1995, the maturity date of 8% Notes was accelerated to March 30, 1996. The Company repaid $3,250,000 of the 8% Notes in June 1996 ($2,250,000 of which was paid out of the proceeds of the sale of the 10% Notes described below) and the remaining $2,300,000 of 8% Notes was exchanged for loans under a secured warehouse lending facility. In 1995, the Company completed an offering of $3,000,000 of convertible mortgage participations and warrants to purchase common stock to be used solely for the purpose of originating and acquiring mortgage loans. Those borrowings bear an interest rate of 10% per annum, payable monthly, and are secured by the underlying mortgage loans. The proceeds from the sale of any assigned mortgage loans can be used to originate new mortgage loans in which the holders will have participations. The participations granted to the holders must be repaid on June 16, 1997. In October 1995, $2,500,000 of the borrowings were converted by the holders of these participations into Preferred Stock and warrants as part of a placement of $6,400,000 of 9% Convertible Preferred Stock and warrants to purchase common stock. On September 30, 1996, $400,000 of the participations were converted into common stock, leaving one holder with a $100,000 participation from the original $3,000,000 offering still outstanding. At December 31, 1996, $100,000 of the preferred stock had been converted into 40,000 shares of common stock. In January 1996, the Company obtained a $1,050,000 term loan at a 10% interest rate secured by certain mortgage loans of the Company. The loan was scheduled to mature in February 1997, and had an outstanding principal balance of $875,000 when its was repaid in August 1996 from the proceeds of the sale of loans. In February 1996, the Company sold $500,000 of convertible mortgage participations on similar terms to the $3,000,000 of participations sold in June 1995 described above, all of which is still outstanding. In June 1996, the Company sold $6,200,000 of a $9,000,000 10% Convertible Secured Note offering (the "10% Notes"). The Company subsequently sold the remaining $2,800,000 of the offering in July and August 1996, which resulted in net proceeds of approximately $8,000,000 in the entire offering. The 10% Notes are partially secured by essentially all otherwise unpledged assets of the Company and are convertible into common stock. At December 31, 1996, $345,750 of the 10% Notes had been converted into 138,300 shares of common stock. While proceeds from the 10% Notes have recently allowed the Company to fund loan originations with its own cash, in the future the Company will require additional short-term credit facilities. The Company had a warehouse line of credit which expired in June 1995. The Company expects to seek a replacement warehouse line of credit in the near future. The Company also utilized a repurchase line of credit intermittently from February of 1995 to March 1996, which has expired. From time to time the Company will investigate possible financing sources which would enable it to continue expanding operations and/or would provide funds to enable it to expand the volume of mortgage loans it originates. Additionally, the Company continues to pursue opportunities to improve the gain on sale of the loans originated and/or the terms under which its loans can be sold. The Company believes that while it has sufficient financing to continue to access the securitization market through third parties, it will require additional financing to provide sufficient capital to enable it to hold loans for a period of time that would be required under its long-term strategy to directly access the securitization markets. 10 11 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", such as statements concerning the Company's future cash and financing requirements, the Company's ability to originate and/or acquire mortgage loans, the Company's ability to enter into securitization transactions and/or otherwise sell mortgage loans to the third parties and the returns therefrom, and other statements contained herein regarding matters that are not historical facts are forward looking statements; actual results may differ materially from those projected in the forward looking statements, which statements involve risks and uncertainties, including but not limited to, the following: the Company's ability to obtain future financings; the uncertainties relating to the Company's ability to participate in securitizations; and market conditions and other factors relating to the mortgage lending business. Investors are also directed to the other risks discussed herein and in other documents filed by the Company with the Commission. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS As of the date hereof, the Company is not a party to any material legal proceedings. The Company from time to time commences foreclosure proceedings against borrowers who have defaulted on their loans. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULT UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Shareholders, held on December 17, 1996, the following members were elected to the Board of Directors:
Affirmative Votes Votes Withheld --------- -------- Craig J. Brunet 3,151,020 13,850 Gerald F. Sullivan 3,151,020 13,850 John C. Thomas, Jr. 3,151,020 13,850 Samuel R. Dunlap, Jr. 3,151,020 13,850 Joel C. Williams, Jr. 3,151,020 13,850 Samuel Scott Hemingway 3,151,020 13,850 Carlos Munoz 3,151,020 13,850
11 12 The following proposals were approved at the Company's Annual Meeting of Shareholders:
Affirmative Negative Votes Votes Abstentions ------------ ------------- ----------- 1. Approval of an amendment to the 1993 Stock Option Plan to increase the number of shares available for issuance from 1,200,000 shares to 1,600,000 shares 1,198,245 161,613 6,500 2. Approval of an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock to 35,000,000 3,032,293 34,800 7,900 3. Ratification of the election of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending June 30, 1997 3,158,570 6,200 100
Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Certificate of Amendment of the Certificate of Incorporation of Credit Depot 10.1 Forward Commitment and Offset Agreement 27.1 Financial data schedule (b) No reports on Form 8-K. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CREDIT DEPOT CORPORATION ------------------------- (Registrant) Date: February 7, 1997 /s/ GERALD F. SULLIVAN --------------------------------- Gerald F. Sullivan (President and Chief Executive Officer) Date: February 7, 1997 /s/ CHARLES D. FARRAHAR --------------------------------- Charles D. Farrahar (Vice President and Chief Financial Officer) 13 EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF CREDIT DEPOT CORPORATION CREDIT DEPOT CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That a meeting of the Board of Directors of Credit Depot Corporation, a resolution was duly adopted setting forth a proposed amendment to the Certificate of Incorporation, as amended, of Credit Depot Corporation, declaring each amendment to be advisable and declaring that approval of such amendment be considered at the next Annual Meeting of Stockholders. SECOND: The Board of Directors, at such meeting, resolved that Article 4.1 of the Certificate of Incorporation, as amended, of Credit Depot Corporation should be amended by deleting such Article 4.1 in its entirety and substituting in lieu thereof the following: "FOURTH. 4.1 The total number of shares of all class of stock which the Corporation shall be authorized to issue shall be thirty-seven million (37,000,000) shares, which are to be divided into two classes as follows: 35,000,000 shares of Common Stock, par value $.001 per share; and 2,000,000 shares of Preferred Stock, par value $.001 per share." THIRD: That thereafter, pursuant to resolution of its Board of Directors, and upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, a meeting was held at which meeting the necessary number of shares as required by statute were voted in favor of said amendment. FOURTH: That said amendment was duly adopted in accordance with the provisions of Section 222 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, CREDIT DEPOT CORPORATION has caused this certificate to be executed by Gerald F. Sullivan, its authorized officer, this 30th day of January, 1997. CREDIT DEPOT CORPORATION By: /s/Gerald F. Sullivan ----------------------------------- Name: Gerald F. Sullivan Title: President & CEO EX-10.1 3 LOAN & OFFSET AGREEMENT 1 EXHIBIT 10.1 FORWARD COMMITMENT LOAN AND OFFSET AGREEMENT THIS FORWARD COMMITMENT LOAN AND OFFSET AGREEMENT made this 12th day of November, 1996, by and between [***], a Delaware corporation, with its principal address at [***] ("Lender") and Credit Depot Corporation, a Georgia corporation, with its principal address at Wachovia Center, Suite 700, Gainesville, GA 30501 ("Borrower"). RECITALS Lender wishes to lend, and Borrower wishes to borrow, subject to the terms and conditions contained herein, the Advances (as hereinafter defined), which will be repaid by the Borrower in accordance with the terms of this Agreement. The parties hereto anticipate that the Advances will be repaid from amounts which will be earned by Borrower and payable by Lender in connection with Section 4 Forward Commitment hereof and as set forth in Section 5.(I) Premium as Earned in the Purchase and Sale Agreement dated as of the twenty-sixth day of March, 1996, among Lender, Borrower and Norwest Bank Minnesota, National Association, as trustee ("Premium Agreement"). PROVISIONS NOW, THEREFORE, in consideration of the Forward Commitment and of the premises and of the covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. DEFINITIONS. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: Advance: Each monthly advance by Lender to Borrower on a Closing Date will be calculated based upon the difference between (a) the weighted average coupon rate of the principal amount of the Mortgage Loans sold to Lender by Borrower pursuant to Section 4 hereof during the prior calendar month and (b) the Par WAC. The Advance will equal the sum of (i) the principal amount of the Mortgage Loans sold during the preceding month, times [***] for the first point of the difference between (a) and (b), and (ii) the principal amount of the Mortgage Loans sold during the preceding month times the product of (c) divided by (d) where (c) is equal to (a) - (b) - [***] and (d) is equal to [***]. In any event, the Advance shall not exceed [***] percent [***] in the aggregate of the principal amount of such Mortgage Loans purchased during the preceding month. Advance Settlement Sheet: A statement provided by Lender to Borrower, and signed by Borrower, on the first Business Day of a calendar month, setting forth, for the preceding calendar month, the Mortgage Loans sold by Borrower to Lender, the current interest rate, and the amount of the Advances made to date, including the Advance to be made on that date. The Borrower shall execute and telecopy the Advance Settlement Sheet before the Lender is obligated to make an Advance pursuant to Section 2.1 hereof on that date. The original executed Advance Settlement Sheet shall be sent to Lender by overnight mail. Agreement: This Loan and Offset Agreement, including all exhibits and schedules attached and incorporated by reference herein or delivered pursuant hereto, and as the same may be amended and supplemented from time to time. 2 As-Earned Settlement Sheet: A statement provided by Lender to Borrower, on the fifteenth day of a calendar month setting forth, for the preceding calendar month, the Mortgage Loans sold by Borrower to Lender, the anticipated premiums "as-earned" under the Premium Agreement for the Mortgage Loans purchased by Lender month to date, losses month to date, the Advances made month to date, the principal and interest payments made month to date, the principal and interest payments that will be made from the Lender's Payment Obligation, and the amount of the Lender's Payment Obligation that will be paid to Borrower by Lender. Borrower's Note: The promissory note(s) of Borrower in the form set forth in Exhibit A hereto. Business Day: Any day that is not a Saturday, Sunday or other day on which commercial banking institutions in the City of New York are authorized or obligated by law to be closed. Closing Date: The first Business Day of a calendar month on which Lender will make an Advance. Commitment Penalty: As set forth in Section 4 herein and in any WAC Forward Commitment Agreement signed by Borrower and Lender. Essential Mortgage File Documents: As to each Mortgage Loan, the original of the Note, endorsed in blank, a true and certified copy of the Mortgage, an original executable assignment of Mortgage, title insurance policy including endorsements or "marked-up" title commitment, Related Assets and the additional documents as described in the Premium Agreement incorporated herein by reference. Event of Default: Any event of default set forth in Section 7.1 hereof. Forward Commitment: Borrower's agreement, as set forth in Section 4 hereof, to sell Mortgage Loans to Lender. Forward Commitment Settlement Date: The first Business Day following Lender's agreement to purchase not less than $1,000,000 of Mortgage Loans. Interest Repayment Date: The 15th day of the calendar month following the month in which there is a Closing Date and continuing thereafter on the same day of each month until paid in full. Lender Payment Obligation: The amounts owed by Lender to Borrower pursuant to Section 5.(i) of the Premium Agreement, with respect to the Mortgage Loans sold the Lender under the respective WAC Forward Commitment Agreement(s). For purposes of calculating the Lender Payment Obligation, the calculations contained in Exhibits C and D of the Premium Agreement shall be used. The Lender Payment Obligation will be affected from time to time, by prepayment rates and delinquency rates of the Mortgage Loans, and therefore for purposes of valuing the Lender Payment Obligation from time to time, the Lender's absolute discretion shall control so long as it is made in good faith. LIBOR: The rate of interest is the one (1) month London Interbank Offered Rate as published in The Wall Street Journal. Maximum Advance Amount: The outstanding amount of Advances provided to Borrower hereunder which shall not exceed [***] percent (***) of the principal amount of Mortgage Loans sold to Lender under the Forward Commitment, not to exceed $[***] in the aggregate. Mortgage. The Note, bond, deed of trust, Mortgage, mortgage warranty, extension agreement, assumption of indebtedness, assignment and any other documents constituting the basic instruments for real estate security on the real property owned by the mortgagor in the state in which the subject property is located. 2 3 Mortgage Loans: Fixed rate, first or second lien, one-to-four family, performing loans and the Note, the related Mortgage and the Related Assets which are collectively identified as the Mortgage Loans. Note: The original Note or bond or other evidence of indebtedness evidencing the indebtedness of the Mortgage under the Mortgage Loan. Par WAC: The average of the three and five year U.S. Treasury (four year interpolated) plus [***] as of each Forward Commitment Settlement Date. Principal Repayment Date: The 15th day of the calendar month following the month in which a WAC Forward Commitment Agreement expires and continuing thereafter on the same day of each month until paid in full. Related Assets: Any and all documents, instruments, collateral agreements and assignments and endorsements for all documents, instruments and collateral agreements, referred to in the Notes and/or mortgages or related thereto, including, without limitation, current insurance policies (private mortgage insurance, if applicable; flood insurance, if applicable; hazard insurance; title insurance and other applicable insurance policies) covering the Subject Property or relating to the Notes and all files, books, papers, ledger cards, reports and records including, without limitation, loan applications, Borrower financial statements, separate assignment of rents, if any, credit reports and appraisals, relating to the Loans. In all cases, the Related Assets shall be the original documents. Settlement Date: Each date of repayment of an Advance to Lender by Borrower pursuant to this Agreement; provided however, the last Settlement Date shall be no later than thirty-six (36) months from the date of the last Advance. Term: This Agreement shall have an initial term of twelve (12) months; which initial term may be renewed for an additional period of time as agreed in writing between Lender and Borrower. Underwriting Guidelines of Borrower: Borrower's Underwriting Guidelines, which are attached as Exhibit B to the Premium Agreement, as may be amended from time to time with Lender's prior written approval, which are also incorporated herein by reference. WAC Forward Commitment Agreement: As set forth in Exhibit B hereto. 2. ADVANCES 2.1 Subject to the Borrower's reimbursement obligations set forth in Section 6 hereof, and subject to receipt by telecopy of the Advance Settlement Sheet executed by Borrower, Lender hereby agrees to make Advances to Borrower on the first business day of each calendar month, and Borrower hereby agrees to borrow Advances from Lender, in accordance with the terms of the Borrower's Note and this Agreement; provided, however, that the outstanding amount of Advances provided to Borrower hereunder shall not exceed the Maximum Advance Amount except as set forth in Section 2.3 hereof. 2.2 Lender shall make Advances to Borrower on each Closing Date. All payments of Advances shall be made by wire transfer to immediately available funds to the Borrower by 7 P.M. Central Time. 2.3 Subject to Borrower's continuing performance of its obligations contained in this Agreement, and upon expiration of the initial term hereof, Lender and Borrower may agree in a writing signed by both parties to increase or decrease the Maximum Advance Amount for any renewal term agreed to between Lender and Borrower. Any such increase or decrease agreed to by the parties hereto shall be subject to the terms and conditions of this Agreement. 3 4 3. CONDITIONS PRECEDENT TO ADVANCES. The Lender's obligation to make Advances hereunder shall be subject to the fulfillment of the following conditions precedent: (a) Delivery of Borrower's Note. Borrower shall have delivered to Lender Borrower's Note on the date of this Agreement. (b) Premium as Earned. Borrower shall have furnished to Lender a copy, certified by an appropriate officer of Borrower, of the resolution of the Board of Directors of Borrower's authorizing the execution and delivery of Borrower's Notes to Lender and borrowing of Advances as herein provided for an the execution, delivery and performance of this Agreement by Borrower. (d) Representation and Warranties. The representations and warranties contained in Section 5 hereof shall be true and correct as of the date of this Agreement and on each Closing Date. (e) Designation of Authorized Officers. The Borrower shall have delivered to Lender an officer's certificate, attested to by the Secretary of the Borrower stating the names and showing the facsimile signatures of the officers of Borrower authorized to execute and deliver this Agreement, Borrower's Note and any other instrument, document or certificate executed in connection herewith. (f) Legal Matters. All other instruments and legal and corporate proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Lender and counsel to Lender and Borrower, and Lender shall have received copies of all documents which it may have reasonably requested in connection herewith. 4. FORWARD COMMITMENT. 4.1 Commitment Amount. Borrower hereby agrees to offer for sale to Lender an aggregate principal amount of $125,000,000 ("Commitment Amount") of Mortgage Loans within twelve (12) months ("Commitment Period") from the date of this Agreement, subject to the terms and conditions contained in the Premium Agreement. Borrower shall sign and provide to Lender the WAC Forward Commitment Agreement each time Borrower offers to sell a portion of the Commitment Amount to Lender hereunder which WAC Forward Commitment Agreement shall meet the following minimum amounts for the time periods identified: $10,000,000 for a 90 day period, $7,500,000 for a 60 day period, and $5,000,000 for a 30 day period. The Borrower's obligations under Section 4.1 and under any WAC Forward Commitment Agreement shall terminate if the Lender refuses to purchase from Borrower, an aggregate of [***] of Mortgage Loans that conform to the Underwriting Guidelines of Borrower. 4.2 Closings. Borrower shall submit Mortgage Loans daily to Lender. Lender shall have no obligation to purchase any Mortgage Loans and may refuse to purchase any Mortgage Loan for any reason whatsoever. In the event Lender chooses to purchase the Mortgage Loans, the settlement date(s) during the Commitment Period shall be the Forward Commitment Settlement Date. Time is of the essence. Lender and Borrower agree that the price paid for the Mortgage Loans shall be the difference between the Note rate on the Mortgage Loans and Par WAC as set forth in the WAC Forward Commitment Agreement for the Mortgage Loans purchased on the related Forward Commitment Settlement Date. The premium will be paid to Borrower "as earned" per the terms of the Premium Agreement as modified hereby. Borrower shall not be eligible for any other bonus program offered by Lender during the Commitment Period. The Note rate on any Mortgage Loan sold to Lender shall not be less than the Par WAC. 4.3 Commitment Penalty. IF FOR ANY REASON BORROWER FAILS TO DELIVER AT LEAST NINETY-FIVE PERCENT (95%) OF THE COMMITMENT AMOUNT TO LENDER WITHIN THE COMMITMENT PERIOD, BORROWER SHALL BE OBLIGATED TO PAY TO LENDER, WITHIN TEN (10) CALENDAR DAYS OF THE LAST DAY OF THE COMMITMENT PERIOD, A COMMITMENT PENALTY, 4 5 AS SET FORTH BELOW, SUCH SUM BEING AGREED BY BORROWER AND LENDER AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT LENDER'S ACTUAL DAMAGES IN THE EVENT OF BORROWER'S FAILURE TO DELIVER THE COMMITMENT AMOUNT, WOULD BE DIFFICULT TO ASCERTAIN, AND THE COMMITMENT PENALTY IS REASONABLE AS LIQUIDATED DAMAGES. THIS PROVISION SHALL NOT BE DEEMED TO LIMIT LENDER'S RIGHT TO OTHER REMEDIES PROVIDED HEREIN OR IN THE AGREEMENT WITH RESPECT TO OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES OF BORROWER. THE COMMITMENT PENALTY SHALL BE DETERMINED BASED UPON THE PERCENTAGE OF THE COMMITMENT THAT THE BORROWER ACHIEVES. THE COMMITMENT PENALTY WILL BE CALCULATED BY ADDING THE FOLLOWING COMMITMENT FEE TO THE PAR WAC FOR THE MORTGAGE LOANS THAT THE LENDER PURCHASED AND THE COMMITMENT PENALTY WILL EQUAL THE DIFFERENCE BETWEEN THE ADJUSTED PRICE FOR THE MORTGAGE LOANS AND THE PRICE THE LENDER ACTUALLY PAID. COMMITMENT AMOUNT: COMMITMENT FEE: 0 -50.00% BASIS POINTS 50.01-75.00% BASIS POINTS 75.01-95.00% BASIS POINTS Lender and Borrower agree that Borrower shall be given credit for purposes of calculating the Commitment Amount, for the Mortgage Loans that conform to the Underwriting Guidelines of Borrower that are offered by Borrower and are not purchased by Lender. 5. REPRESENTATIONS AND WARRANTIES. 5.1 Representations and Warranties of the Borrower - General. It is understood and agreed by Borrower and Lender that as a material inducement to Lender to enter into this Agreement and make Advances, Borrower hereby represents and warrants to Lender as follows: (a) The Borrower is an organization as set forth in the introductory paragraph of this Agreement and is duly organized, validly existing and in good standing under the laws of the state of its incorporation, and is duly qualified as a foreign corporation in all jurisdictions wherein the character of the property owned or leased or the nature of the business transacted by it makes qualification as a foreign corporation necessary. (b) The execution and delivery of the Agreement by Borrower and the performance by Borrower of the obligations to be performed by it hereunder have been duly authorized by all necessary corporation or other similar action. Prior to the first Settlement Date, the Borrower shall deliver to the Lender certified copies of the relevant corporate or similar resolutions and a good standing certificate for the state of its incorporation and, as requested by Lender, for each state in which Borrower is registered to do business. It is within Lender's discretion to periodically request good standing certificates for all states in which Borrower is registered to do business. (c) The execution and delivery of this Agreement by Borrower and the performance by Borrower of the obligations to be performed by it hereunder do not, and will not, violate any provision of any law, rule, regulation, order, write, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower or to the charter or bylaws of the Borrower. All parties which have had any interest in the Mortgage Loans, whether as mortgagee, assignee (other than Lender or assignee of Lender) or pledgee are (or during the period in which they held and disposed of such interest, were) in compliance with all applicable licensing requirements of the federal, state and local governments wherein the Subject Property is located. (d) The execution and delivery of this Agreement by Borrower and the performance by Borrower of the obligations to be performed by it hereunder do not and will not result in a breach of or constitute a 5 6 default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected. (e) This Agreement constitutes, when duly executed and delivered by Borrower, a legal, valid and binding obligation of Borrower, enforceable against Borrower according to its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws affecting creditors' rights in general, including equitable remedies. (f) There are no actions, suits or proceedings pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the properties of Borrower before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Borrower, would have a material adverse effect on the financial condition, properties or operations of Borrower. Any consent by Lender to make Advances pursuant to this Agreement shall automatically terminate if: (i) a decree or order of a court or agency supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, bankruptcy proceeding or any similar proceedings, or for winding up or liquidation of its affairs, shall have been entered against Borrower and such decree or order shall have remained in force undischarged or unstated for a period of 60 days; or (ii) Borrower shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, bankruptcy or similar proceedings relating to Borrower or relating to all or substantially all of its property; or (iii) Borrower shall admit in writing its inability to pay its debts as they become due, file a petition to take advantage of any applicable insolvency, reorganization or bankruptcy statute, make an assignment for the benefit of its creditors, or voluntarily suspend payments of its obligations. 5.2 Representations and Warranties of the Borrower as to Each Loan. It is understood and agreed by Borrower and Lender that as a material inducement to Lender to enter into this Agreement and make Advances, the Borrower hereby reaffirms the representations and warranties in Section 9 of the Premium Agreement to the Lender as of each Forward Commitment Settlement Date with respect to each Mortgage Loan delivered to Lender. 5.3 Survival. To induce Lender to provide Advances, Borrower makes the representations and warranties set forth herein, each and all of which shall: (i) survive the execution and delivery of this Agreement and the making of any Advance by Lender, (ii) inure to the benefit of Lender, and (iii) be deemed to have been relied upon in making Advances hereunder by Lender regardless in each case of any investigation of review Lender may have or shall hereafter make. 6. REPAYMENT OF ADVANCES. 6.1 Repayment. Borrower shall repay Lender for the Advances made, together with interest, as shown on the As- Earned Settlement Sheet. The Lender may, at its absolute discretion, and from time to time, apply all or part of the Lender Payment Obligation, toward the Borrower's obligations hereunder. Each Advance will be fully paid within thirty-six (36) months of the date of the Advance and this obligation shall survive the termination of this Agreement and/or the Premium Agreement. The Lender shall establish from time to time, the amount of the Borrower's monthly payment obligation based upon the amount of the unpaid Lender Payment Obligation. Borrower shall have the right to prepay the Advances, without penalty or premium, upon one week's prior written notice to Lender. In addition, the Borrower shall have the right at any time, and from time to time, to direct the Lender to offset the Lender Payment Obligation against the amounts owned by Borrower hereunder. 6.2 Interest on Advances. Subject to Section 6.3 hereof, Borrower shall pay to Lender on each Interest Repayment Date interest on all Advances outstanding during the prior month at LIBOR for each day of the prior month plus [***] basis points. 6.3 Failure to Repay Advances; Loan Balances. 6 7 (a) In the event Borrower fails to pay the Lender any amount due hereunder, the interest payable in accordance with Section 6.2 to Lender on the amount of all such delinquent payments shall instead be calculated at LIBOR, plus [***] basis points, for the period for which interest is being calculated starting with the date of Lender's demand to the date of repayment. (b) If Lender determines that on a Principal Repayment Date and/or an Interest Repayment Date the amounts due Lender exceed [***] percent (***) of the amounts of the Lender Payment Obligation with respect to the Mortgage Loans sold to Lender pursuant to a WAC Forward Commitment Agreement (calculated by Lender in good faith and in its absolute discretion) then Borrower shall reimburse Lender, within two (2) days of Lender's demand, the excess. 6.4 Computation of Interest. Interest on Advances shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing the interest on any Advances, the date of making the Advance shall be included and the date of repayment shall be excluded; provided, that if an Advance is repaid on the same day on which it is made, one day's interest shall be paid on the Advance. 6.5 Lender's Payment Obligation. The Borrower agrees that the Lender can satisfy the Lender's Payment Obligation, with the written consent of the Borrower, once the Lender's Payment Obligation is reduced to [***] percent (***) or less than its highest levels. The Lender shall provide the Borrower with notice of its election pursuant to the provisions of this section and shall provide the Borrower with a description of the present value of the obligation taking anticipated prepayment speeds and delinquency ratios into account. If the Borrower and the Lender can arrive at a mutually acceptable understanding with respect to these terms, the Lender can discharge the Lender's Payment Obligation by paying the Borrower the amount upon which the parties agree. 7. EVENTS OF DEFAULT. 7.1 Event of Default. The occurrence and continuation of any of the following conditions or events shall constitute an "Event of Default" hereunder: (a) Failure to Make Payments When Due. Failure by Borrower to pay any amount due hereunder when due and the continuance of the default for five Business days following the giving of notice thereof by Lender; or (b) Default in Other Agreements. Failure of Borrower to pay or any default in the payment of any principal or of interest on any other indebtedness or in the payment of any contingent obligation beyond any period of grace provided or breach or default with respect to any other material term or any evidence of any other indebtedness or of any loan agreement, mortgage, indenture or other agreement relating thereto, if the effect of such failure, default or breach is to cause, or to permit the holder or holders of that indebtedness (or a trustee on behalf of such holder or holders) to cause, indebtedness of Borrower in the aggregate amount of [***] or more to become or be declared due prior to its stated maturity (upon the giving or receiving of notice, lapse of time, both, or otherwise); or (c) Breach of Warranty. Any of Borrower's representations or warranties made herein or in any statement or certificate at any time given by Borrower in writing pursuant hereto or in connection herewith shall be false in any material respect on the date as of which made and the representation or warranty shall remain false for five days following the giving of notice thereof by the Lender, provided, however, that any representation or warranty regarding a Mortgage Loan that is contained in the Premium Agreement that is subject to a buy-back shall ot be considered a breach of a warranty from purposes of this Agreement, if the Borrower satisfies its buy-back obligation in accordance with the terms of the Premium Agreement, or (d) Other Defaults. Borrower shall default in the performance of or compliance with any term contained in this Agreement, other than those referred to in Paragraphs (a) or (c) above, and any WAC 7 8 Forward Commitment Agreement, and such default shall not have been remedied or waived within fifteen days after receipt by Borrower of notice from Lender, which notice shall be sent to Borrower of such default; or (e) Involuntary Bankruptcy; Appointment of Receiver; etc. Either, (I) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of Borrower in an involuntary case under applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or (ii) any other similar relief shall be granted under any applicable federal or state law, or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, trustee, custodian or other officer having similar powers over Borrower or over all or a substantial part of its property, or the issuance of a warrant of attachment, execution or similar process against any substantial part of the property of Borrower, and the continuance of any such events in clause (ii) for 45 days unless dismissed, bonded or discharged; or (f) Voluntary Bankruptcy; Appointment of Receiver, etc. Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by Borrower of any assignment for the benefit of creditors; or the inability or failure of Borrower, or the admission of Borrower in writing of its inability to pay its debts as such debts become due, or the Board of Directors of Borrower (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any the foregoing; or (g) Judgments and Attachments. Any money judgment, writ or warrant of attachment, or similar process involving in any case an amount in excess of $[***] shall be entered or filed against Borrower or its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 30 days or in any event later than five days prior to the date of any proposed sale thereunder; or (h) Dissolution; Liquidation. Any order, judgment or decree shall be entered against Borrower decreeing its dissolution or liquidation and such order shall remain undischarged or unstayed for a period in excess of [***] days. 7.2 Remedies. (a) Upon the occurrence and continuation of any Event of Default, the unpaid principal amount of and accrued interest on any Borrower's Note from Borrower to Lender, together with all other sums due hereunder, shall automatically become due and payable, without presentment, demand or other requirements of any kind, all of which are hereby expressly waived by Borrower, and the obligation of Lender to make Advances shall thereupon terminate. (b) Upon the occurrence of any Event of Default, Lender may exercise any and all rights and remedies of Lender as it shall deem appropriate at law, in equity, or otherwise. (c) All remedies are cumulative. Any failure on the part of Lender to exercise or any delay in exercising any right hereunder shall not operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right hereunder preclude any other exercise thereof or the exercise of any other right. 7.3 Application of Proceeds. Any money collected by Lender pursuant to this Agreement (whether upon voluntary payment, prepayment, offset or otherwise) shall be promptly applied as follows unless otherwise required by provisions of applicable law: (a) First, to the payment of all expenses incurred by Lender under this Agreement in enforcing its rights hereunder, including all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses. 8 9 (b) Next, to the payment of accrued interest on Advances to the extent amounts are due thereon. (c) Next, to the payment of all principal on Advances to the extent amounts are due thereon. (d) Next, to Borrower. 8. INDEMNIFICATION. 8.1 (a) Borrower hereby agrees to protect, indemnify, defend and hold harmless Lender, its subsidiaries and affiliates and assignees, and all of their agents, employees, officers and directors, (collectively the "Lender Indemnitees") from and against any and, all liabilities, costs, expenses, judgments, damages, losses, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, arising from, connected with, or resulting from any breach by Borrower of any covenant, representation, or warranty contained herein or of any other term of this Agreement or any act of Borrower or omission by Borrower where Borrower has a duty to act; provided, however, that Borrower's obligation to indemnify pursuant to this section shall not extend to any liability arising from the gross negligence or willful misconduct of any Lender Indemnitee. (b) If any legal proceeding shall be instituted, or any claim asserted in respect of which a Lender Indemnitee may seek indemnification from Borrower, the Borrower shall have the right, at its option and at its own expense, to be represented by counsel of its choice and to defend against, negotiate, settle, or otherwise deal with such proceeding or claim. 8.2 (a) Lender hereby agrees to protect, indemnify, defend and hold harmless Borrower, its subsidiaries and affiliates and assignees, and all of their agents, employees, officers and directors, (collectively the "Borrower Indemnitees") from and against any and, all liabilities, costs, expenses, judgments, damages, losses, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, arising from, connected with, or resulting from any breach by Lender of any covenant, representation, or warranty contained herein or of any other term of this Agreement or any act of Lender or omission by Lender where Lender has a duty to act; provided, however, that Lender's obligation to indemnify pursuant to this section shall not extend to any liability arising from the negligence or willful misconduct of any Borrower Indemnitee. (b) If any legal proceeding shall be instituted, or any claim asserted in respect of which a Borrower Indemnitee may seek indemnification from Lender, the Lender shall have the right, at its option and at its own expense, to be represented by counsel of its choice and to defend against, negotiate, settle, or otherwise deal with such proceeding or claim. 9. NOTICES. All notices or other communications provided for herein shall be in writing and shall be deemed to have been given or made when sent by overnight mail or certified mail, return receipt requested, postage prepaid, or, in the case of telegraphic notice, when delivered to the telegraph company, addressed as set forth below or to such other address as may be hereafter designated in writing by the respected parties hereto. In addition, any notices or other communications may be accomplished by a facsimile transmission at the fax numbers set forth below. Any facsimile transmissions shall promptly be confirmed to the other party in writing and by mail in accordance with the provisions above. Lender: [***] [***] [***] [***] Fax: [***] 9 10 Borrower: Credit Depot Corporation Wachovia Center, Suite 700 Gainesville, GA 30501 Attention: Gerald F. Sullivan, Sr. Fax: (770) 531-0228 10. RIGHTS OFFSET. Lender is hereby granted the absolute right to offset all sums owed by Lender to Borrower (including the Lender Payment Obligations) against the amounts owed by Borrower to Lender under the Borrower's Note or under this Agreement. This right of offset shall be absolute and unconditional and may be exercised at any time and from time to time by Lender. The Lender need not provide Borrower with any notice of its election to offset and Lender's rights hereunder shall not be restricted or conditioned. Borrower acknowledges that Lender is granted this right of offset in lieu of a lien on the Lender Payment Obligations. 11. ACCESS TO BORROWER DOCUMENTS AND INFORMATION. Borrower shall deliver to Lender its annual (audited) and quarterly (unaudited) Financial Statements within five (5) days of their availability. Borrower shall provide to Lender and its appointed agents access to documentation and information regarding the Collateral and the Borrower as Lender may request, including, but not limited to, the Mortgage Loans and any and all accounting records and financial statements of Borrower, such access being afforded without charge upon reasonable request and during normal business hours at the offices of the Borrower designated by it. 12. TERMINATION. (a) Lender may terminate its obligations under this Agreement: (i) upon completion of the initial Term, or any renewal Term agreed to by the parties, and (ii) immediately upon written notice delivered to Borrower in the event of any breach of any of the representations, warranties, covenants or agreements of Borrower set forth in this Agreement or any other agreements, if any, between Borrower and Lender. (b) In the event of termination, all outstanding Advances under the Borrower's Note and this Agreement shall become immediately due and payable. 13. MISCELLANEOUS PROVISIONS. 13.1 Representation of Servicer and Lender. If any of the Mortgage Loans are presently serviced by any third party, Borrower shall obtain and deliver on the Closing Date a representation and warranty to Lender from each such servicer that, as of the Closing Date, there are not taxes, ground rents, water charges, sewer rents, assessments payable in future installments, or other outstanding charges affecting the lien of any Mortgage or Mortgaged Property, which amounts are being escrowed and which are due and payable. If requested by the Lender, each such servicer shall submit proof of the foregoing representation and warranty. 13.2 Costs and Expenses. Except as explicitly provided herein, Borrower and Lender shall each fulfill its obligations pursuant hereto at its own cost and expense. 13.3 Agency; Joint Venture. Neither this Agreement nor any action taken pursuant hereto shall make either party an agent or representative of the other or be deemed to create a joint venture between Borrower and Lender. 13.4 Complete Agreement; Modification; Sale or Assignment. This Agreement constitutes the complete agreement between Borrower and Lender with respect to the subject matter hereof and may not be 10 11 modified, altered, or amended except by a writing signed by Borrower and Lender. Neither party hereto may sell, assign, or transfer any of its rights or obligations pursuant hereto except with the written consent of the other party, except that either party may assign this Agreement to an affiliate. Nothing herein shall in any way limit Lender's right to assign the Borrower's Note to any other person or entity. If there is any inconsistency between the terms hereof and the terms contained in the Premium Agreement, the terms of this Agreement shall control and the Premium Agreement shall be modified accordingly. 13.5 No Waiver. No undertaking, agreement, covenant, representation or warranty of Borrower contained herein shall be deemed to have been waived by Lender, unless such waiver is by an instrument in writing signed by Lender. Any such waiver by Lender shall not be deemed to be waiver of any other undertaking, agreement, covenant, representation or warranty. Lender's failure, at any time, to require strict performance of any provision hereof shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance therewith or performance thereof. 13.6 Parties. This Agreement shall be binding upon, and inure to the benefit of, the successors and permitted assigns of Borrower and Lender. 13.7 Governing Law. This Agreement shall, in all respects, be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such state without regard to the conflict of laws provisions of such jurisdiction and the laws of the United States of America. 13.8 Severability; Section Headings. Any invalidity of any provision of Borrower's Note or this Agreement shall not affect the validity of any other provision hereof. The section headings contained herein shall be without substantive meaning and shall not be deemed to be a part of this Agreement. 13.9 Construction. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, feminine, and the neuter. The words "herein," "hereof," "hereto," "hereby," and other words of similar import shall be deemed to refer to this Agreement as a whole and not to any particular section, subsection, or clause of this Agreement. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties intending to be legally bound hereby, as of the date first written above. BY: [***] Name: [***] Title: [***] CREDIT DEPOT CORPORATION BY: [***] Name: [***] Title: [***] 11 12 EXHIBIT A (Form of Promissory Note) $6,250,000 November 12, 1996 FOR VALUE RECEIVED, Credit Depot Corporation, a Georgia corporation, having its principal place of business at Wachovia Center, Suite 700, Gainesville, GA 30501 ("Borrower"), hereby promises to pay to the order of [***] ("Payee") on or before November 12, 2000, the lesser of the principal sum of six million, two hundred fifty thousand and no/100 Dollars ($6,250,000), or the unpaid principal amount of all Advances made by Payee to Borrower under the terms of that certain Forward Commitment Loan and Offset Agreement dated as of November 12, 1996, between Borrower and Payee (the "Agreement"), together with interest on the unpaid balance thereof from the date hereof until paid at the rates and at the times which shall be determined in accordance with the provisions of the Agreement. This Note is issued pursuant to and entitled to the benefits of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions under which the Advances evidenced hereby are made and are to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Agreement. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of American in immediately available funds at the office of Payee located at [***] or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Agreement. Until notified in writing of the transfer of this Note, Borrower shall be entitled to deem Payee or such person who has been so identified by the transferor in writing to Borrower as the holder of this Note, as the owner and holder of this Note. Each of Payee and any subsequent holder of this Note agrees that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of Borrower hereunder with respect to payments of principal of or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest on this Note. This Note has been executed and delivered by Borrower in accordance with the terms of the Agreement and is entitled to the benefits of the offset rights created by the Agreement and is otherwise governed thereby. The Agreement and this Note shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. Upon occurrence of an Event of Default, the unpaid balance of the principal amount of this Note may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Agreement. The terms of this Note are subject to amendment only in the manner provided in the Agreement. No reference herein to the Agreement and no provision of this Note or the Agreement shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, incurred in the collection and enforcement of this Note. Borrower and endorsers of this Note hereby consent to renewals and extensions of time. Credit Depot Corporation By:_____________________________ Name: Title: 13 EXHIBIT B November 12, 1996 CREDIT DEPOT CORPORATION (CDC) WAC FORWARD COMMITMENT AGREEMENT Reference is made to that Purchase and Sale Agreement among [***] as Sponsor, Norwest Bank Minnesota, National Association as Trustee, and Credit Depot Corporation (CDC) as Seller ("Premium Agreement") dated March 26, 1996, and the Forward Commitment Loan and Offset Agreement dated as of November 12, 1996, between Sponsor as Lender and Seller as Borrower ("Agreement"). Seller hereby agrees to offer for sale to Sponsor an aggregate principal amount of $__________ of the Commitment Amount of Loans within ____ DAYS from the date hereof, subject to the terms and conditions contained in the Premium Agreement and the Agreement, which terms and conditions are incorporated herein. All capitalized terms not otherwise defined herein shall have the meanings set forth in either the Premium Agreement or the Agreement. 1. Loans. the Loans must be fixed rate, first or second lien, one-to-four family, performing Loans complying with the following: (A) MAXIMUM OF [***] OF LOAN VOLUME CAN HAVE AN LTV OF 85.01% TO 90%. (B) MAXIMUM OF [***] OF LOAN VOLUME CAN BE NIQ OR ALT DOCUMENTATION. (C) MAXIMUM OF [***] OF LOAN VOLUME CAN BE DOUBLEWIDE. Seller agrees to submit to Sponsor all Loans originated by Seller during the Commitment Period. In the event of any conflict between this letter, the Premium Agreement, and the Agreement the terms of this letter shall be controlling. 2. Closings. Seller shall submit Loans daily to Sponsor. Sponsor shall have no obligation to purchase any Loan(s) and may refuse to purchase any Loan for any reason whatsoever. In the event Sponsor chooses to purchase the Loans, the Loans will be pooled by Sponsor into amounts of not less than $1,000,000 (principal amount) of Loans (each a "Pool"). The settlement date will be the first business day following Sponsor's agreement to purchase a Pool (each a "Forward Commitment Settlement Date"). Time is of the essence. Sponsor and Seller agree that the price paid for the Loans shall be determined from a WCA PRICE OF ____% on the Loans purchased on the related Forward Commitment Settlement Date. The premium will be paid to Seller as earned per the terms of the Premium Agreement. Seller shall not be eligible for any other bonus program offered by Sponsor during the Commitment Period. The note rate on any loan sold to Sponsor shall not be less than the above stated WAC price. 3. Commitment Penalty. IF FOR ANY REASON SELLER FAILS TO DELIVER AT LEAST NINETY-FIVE PERCENT (95%) OF THE COMMITMENT AMOUNT TO SPONSOR WITHIN THE COMMITMENT PERIOD, SELLER SHALL BE OBLIGATED TO PAY TO SPONSOR WITHIN TEN (10) CALENDAR DAYS OF THE FINAL COMMITMENT PERIOD SETTLEMENT DATE A COMMITMENT FEE BASED UPON THE LENGTH OF THE COMMITMENT PERIOD, SUCH SUM BEING AGREED BY SELLER AND SPONSOR AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT SPONSOR'S ACTUAL DAMAGES IN THE EVENT OF SELLER'S FAILURE TO DELIVER THE COMMITMENT AMOUNT, WOULD BE DIFFICULT TO ASCERTAIN, AND THE COMMITMENT FEE IS REASONABLE AS LIQUIDATED DAMAGES. THIS PROVISION SHALL NOT BE DEEMED TO LIMIT SPONSOR'S RIGHT TO OTHER REMEDIES PROVIDED HEREIN OR IN THE AGREEMENT WITH RESPECT TO OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES OF SELLER. 14 Commitment Penalties: 30 day period [***] (of original commitment amount) 45 day period [***] (of original commitment amount) 60 day period [***] (of original commitment amount) 75 day period [***] (of original commitment amount) 90 day period [***] (of original commitment amount) 4. Confidentiality. Seller and Sponsor agree that, without the prior written consent of the other party, that neither it nor its directors, officers, employees, affiliates, or agents will knowingly disclose to any individual or entity the terms, conditions, or other facts of this letter, including the status thereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. [***] as Sponsor By:__________________________ [***] Authorized Signer CREDIT DEPOT CORPORATION as Seller By:__________________________________ Name: Title: EX-27.1 4 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 1,110,447 0 4,887,663 170,383 0 8,106,969 537,730 0 13,576,222 461,791 11,657,348 0 315 3,717 1,453,051 13,576,222 0 3,578,130 0 2,954,967 0 65,000 708,408 (150,245) 0 (150,245) 0 0 0 (150,245) (0.12) (0.12)
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