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As filed with the Securities and Exchange Commission on September 3, 1997
Registration No. 333-[_____]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRSTPLUS FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 75-2561085
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
RONALD M BENDALIN
GENERAL COUNSEL
1600 VICEROY, 8TH FLOOR 1600 VICEROY, 8TH FLOOR
DALLAS, TEXAS 75235 DALLAS, TEXAS 75235
(214) 599-6400 (214) 599-6400
(Name, address, including zip code, (Name, address, including zip code,
and telephone number, including and telephone number, including
registrant's principal executive area code, of registrant's agent
offices) for service)
Copies to:
RONALD J. FRAPPIER, ESQ.
T. ALLEN MCCONNELL, ESQ.
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75202
(214) 855-4500
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 in connection with dividend or
interest reimbursement 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
===============================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF OFFERING AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
Common Stock..... 889,209 Shares $47.1875 $41,959,550 $12,716
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based upon the average of the high and low
prices reported on the Nasdaq National Market on August 28, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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Subject To Completion Dated September 3, 1997
PROSPECTUS 889,209 SHARES
FIRSTPLUS FINANCIAL GROUP, INC.
COMMON STOCK
_______________
This Prospectus relates to 889,209 shares (the "Shares") of voting common
stock, $.01 par value per share (the "Common Stock"), of FIRSTPLUS Financial
Group, Inc., a Nevada corporation (the "Company"), that may be offered and sold
from time to time by certain stockholders of the Company (the "Selling
Stockholders").
The Common Stock is traded on the Nasdaq National Market under the symbol
"FPFG." On August 28, 1997, the closing price for the Common Stock on the
Nasdaq National Market was $44.50.
The Shares offered hereby may be sold from time to time by the Selling
Stockholders. Such sales may be made directly, through agents designated from
time to time, or through dealers and underwriters also to be designated, or on
the Nasdaq National Market or otherwise at prices and at terms then prevailing
or at prices related to the then current market price or in negotiated
transactions (which may include the pledge or hypothecation of some or all of
the Shares). To the extent required, the specific shares of Common Stock to be
sold, name of the Selling Stockholder (or the pledgee of such Selling
Stockholder, as the case may be), public offering price, the names of any such
agents, dealers or underwriters, and any applicable commission or discount with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution; Selling Stockholders."
The Company will receive none of the proceeds from the sale of the Common
Stock offered hereby by the Selling Stockholders. All expenses of registration
incurred in connection with this offering are being borne by the Company. All
selling and other expenses incurred by the Selling Stockholders will be borne by
the Selling Stockholders.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES, SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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 DATE OF THIS PROSPECTUS IS ____________, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
of which this Prospectus is a part, with respect to the Common Stock offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, including exhibits thereto, and reference is made to the Registration
Statement for further information with respect to the Company and the Common
Stock offered hereby. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents and when any such document
is an exhibit to the Registration Statement, each such statement is qualified in
its entirety by reference to the copy of such document filed with the
Commission. Copies of the Registration Statement, and exhibits thereto, may be
acquired upon payment of the prescribed fees or examined without charge at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
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 and other information with the Commission. Reports and
other information filed by the Company with the Commission pursuant to the
information requirements of the Exchange Act may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies can be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
World Wide Web Site that contains reports, proxy statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission. The address of the site is http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents or portions thereof filed by the Company are hereby
incorporated by reference in this Prospectus:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996, March 31, 1997 and June 30, 1997.
(iii) the Company's Current Report on Form 8-K, filed with the Commission
on December 19, 1996; and
(iv) the description of the Common Stock set forth in the Registration
Statement on Form 8-A, dated January 15, 1996, filed with the
Commission, including any amendment or report filed for the purpose of
updating such description.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock made
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or schedules
are specifically incorporated by reference into such documents). Such requests
should be directed to Ronald M Bendalin, General Counsel, FIRSTPLUS Financial
Group, Inc., 1600 Viceroy, 8th Floor, Dallas, Texas 75235, or by telephone at
(214) 599-6400.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THAT APPEAR ELSEWHERE OR ARE INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS, THE FACTORS SET FORTH UNDER "RISK FACTORS" BELOW SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED
HEREBY. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE
"COMPANY" REFER TO FIRSTPLUS FINANCIAL GROUP, INC. AND ITS SUBSIDIARIES. EXCEPT
AS OTHERWISE NOTED HEREIN, ALL INFORMATION APPEARING ELSEWHERE OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS RELATING TO THE COMPANY'S CAPITAL STOCK HAS BEEN
ADJUSTED TO REFLECT SPLITS ON THE COMPANY COMMON STOCK OF 67-FOR-ONE AND
TWO-FOR-ONE IN JULY 1995 AND NOVEMBER 1996, RESPECTIVELY. UNLESS THE CONTEXT
INDICATES OTHERWISE, ALL REFERENCES TO THE COMPANY'S ORIGINATION OF STRATEGIC
LOANS INCLUDES BULK PURCHASES OF LOANS ("BULK LOANS").
THE COMPANY
FIRSTPLUS Financial Group, Inc. is a specialized consumer finance company
that originates, purchases, services and sells consumer finance receivables,
substantially all of which are debt consolidation or home improvement loans
secured primarily by second liens on real property. The Company offers
uninsured home improvement and uninsured debt consolidation loans ("Conventional
Loans") and to a lesser extent partially insured Title I home improvement loans
("Title I Loans"). Title I Loans are insured, subject to certain exceptions, for
90% of the principal balance and certain interest costs under the Title I credit
insurance program (the "Title I Program") administered by the Department of
Housing and Urban Development ("HUD") of the Federal Housing Administration (the
"FHA"). The Company sells substantially all of its Conventional Loans and
Title I Loans that meet its securitization parameters (collectively, the
Company's "strategic loans") primarily through its securitization program and
retains rights to service these loans.
The Company relies principally on the creditworthiness of the borrower for
repayment of Conventional Loans. The Company's borrowers typically have limited
access to consumer financing for a variety of reasons, primarily insufficient
home equity values. The Company uses its own credit evaluation criteria to
classify its applicants as "A+" through "D" credits. The Company currently
makes loans only to borrowers it classifies as "C+" or better for Conventional
Loans and "C" or better for Title I Loans. The Company's credit evaluation
criteria include, as a significant component, the credit evaluation scoring
methodology developed by Fair, Isaac and Company ("FICO"), a consulting firm
specializing in creating default-predictive models through scoring mechanisms.
The Company's principal origination channel is its network of regional
independent correspondent lenders. Correspondent lenders tend to be commercial
banks, thrifts or finance companies that do not have the infrastructure to hold
and service portfolios of Conventional and Title I Loans. The Company's
correspondent lenders originate Conventional and Title I Loans using the
Company's underwriting criteria and sell these loans to the Company. During
fiscal 1995 and 1996 and the first nine months of fiscal 1997, the Company
originated loans through correspondent lenders ("Correspondent Loans") of
$81.9 million, $1.0 billion and $2.1 billion, respectively, representing 68.5%,
93.9% and 81.8%, respectively, of the Company's originations of strategic loans
during such periods (excluding Bulk Loans).
In early 1996, the Company expanded its efforts to originate loans directly
to qualified homeowners ("Direct Loans"). The Company originates Direct Loans
through television, radio and direct mail advertising campaigns and referrals
from independent home improvement contractors. The Company is pursuing a
strategy to increase its Direct Loan originations because the Company believes
that Direct Loans should prove to be more profitable and allow the Company to
have better control over the quality and size of the Company's production.
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The Company sells substantially all of the Conventional Loans and Title I
Loans it originates and purchases through its securitization program and
generally retains rights to service such loans. The Company earns servicing
fees on a monthly basis ranging from 0.75% to 1.00% on the loans it services in
the various securitization pools. At June 30, 1997, the principal amount of
strategic loans serviced by the Company (the "Serviced Loan Portfolio") was
$3.6 billion. The Serviced Loan Portfolio includes strategic loans held for sale
and strategic loans that have been securitized and are serviced by the Company
(including $56.1 million of loans subserviced by a third party).
The Company is a Nevada corporation that was formed in October 1994 to
combine the operations of SFA: State Financial Acceptance Corporation ("SFA"), a
home improvement lender formed in January 1990, and FIRSTPLUS Financial, Inc.,
formerly Remodelers National Funding Corporation ("FIRSTPLUS Financial"), an
approved Title I home improvement lender formed in April 1986 (the
"Combination"). The Company's principal offices are located at 1600 Viceroy,
8th Floor, Dallas, Texas 75235, and its telephone number is (214) 599-6400.
THE OFFERING
This Prospectus relates to 889,209 shares of Common Stock that may be
offered and sold from time to time by the Selling Stockholders. The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholders. See "Plan of Distribution; Selling Stockholders."
FORWARD-LOOKING INFORMATION
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND
SECTION 21E OF THE EXCHANGE ACT, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR
"CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, THE STATEMENTS IN "RISK FACTORS" OF THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES CERTAIN RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO
THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. As a result of the Company's increasing volume of loan
originations and purchases, and its expanding securitization activities, the
Company has operated, and expects to continue to operate, on a negative
operating cash flow basis, which is expected to increase as the volume of the
Company's loan purchases and originations increases and its securitization
program grows. The Company's primary operating cash requirements include the
funding of (i) loan originations and loan purchases, (ii) reserve accounts,
overcollateralization requirements, fees and expenses incurred in connection
with its securitization program, (iii) tax payments due on the Company's taxable
net income, (iv) television, radio and direct mail advertising and other
marketing expenses, and (v) administrative and other operating expenses.
There can be no assurance that, as the Company's existing lending
arrangements mature, the Company will have access to the financing necessary for
its operations and its growth plans or that such financing will be available to
the Company on favorable terms. To the extent the Company is unable to renew
existing warehouse facilities or arrange additional or new warehouse lines of
credit, the Company may have to curtail loan origination and purchasing
activities, which could have a material adverse effect on the Company's results
of operations and financial condition.
NEED FOR ADDITIONAL FINANCING. The Company requires substantial capital to
fund its operations. Consequently, the Company's operations and its ability to
grow are affected by the availability of financing and the terms thereof. Based
on the rate of growth of the Company's originations in the recent past, the
Company anticipates that it will need to arrange additional warehouse lines of
credit or other financing sources in the foreseeable future in order to maintain
its historical growth rates. The Company is currently negotiating for increased
and/or new warehouse facilities; however, the Company has no commitments for
such increased and/or additional financings, and there can be no assurance that
the Company will be successful in consummating such financing transactions in
the future or on terms the Company would consider to be favorable. If the
Company is unable to arrange new warehouse lines of credit or other financing
sources, the Company may have to curtail its loan origination and purchasing
activities, which could have a material adverse effect on the Company's results
of operations and financial condition.
DEPENDENCE ON SECURITIZATION TRANSACTIONS. Since the beginning of fiscal
1995, the Company has utilized a securitization program that involves the
periodic pooling and sale of its strategic loans. The securitization proceeds
have historically been used to repay borrowings under warehouse facilities,
thereby making such warehouse facilities available to finance the origination
and purchase of additional strategic loans. There can be no assurance that, as
the Company's volume of loans originated or purchased increases and other new
products available for securitization increases, the Company will be able to
securitize its loan production efficiently. In addition, the securitization
market for many types of assets is relatively undeveloped and may be more
susceptible to market fluctuations or other adverse changes than more developed
capital markets. Securitization transactions may be affected by a number of
factors, some of which are beyond the Company's control, including, among other
things, conditions in the securities markets in general, conditions in the
asset-backed securitizations market and the conformity of loan pools to rating
agency requirements and to the extent that monoline insurance is used, the
requirements of such insurers. Adverse changes in the secondary market could
impair the Company's ability to originate, purchase and sell loans on a
favorable or timely basis. In addition, the Company's securitizations typically
utilize credit enhancements in the form of financial guaranty insurance policies
in order to achieve better credit ratings. Failure to obtain acceptable rating
agency ratings or insurance company credit enhancements could decrease the
efficiency or affect the timing of future securitizations. The Company intends
to continue public or private securitizations of its loan pools on a quarterly
basis. Any delay in the sale of a loan pool beyond a quarter-end would
substantially reduce and may eliminate the Company's gain on sale of loans, net
(the "Gain on Sale"), in the given quarter and would likely result in losses for
such quarter being reported by the Company. If the Company were unable to
securitize loans due to changes in the secondary market or the unavailability of
credit enhancements, the Company's growth would be materially impaired and the
Company's results of operations and financial condition would be materially
adversely affected.
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RISKS ASSOCIATED WITH LOANS HELD FOR SALE. In order to increase its
interest income and, therefore, reduce the amount of cash used in the Company's
operating activities, in the third quarter of fiscal 1996 the Company began to
implement a strategy of maintaining a significant quantity of loans on its
balance sheet as "loans held for sale, net." During fiscal 1994 and 1995, loans
were held an average of one month before their sale. In fiscal 1996, this
average holding period increased to two months. During fiscal 1997 the holding
period has increased to approximately 180 days, and it could exceed one year
thereafter.
The interest rate on loans originated and purchased by the Company are
fixed at the time the Company issues a loan commitment. In addition, the
interest rates on the Company's loans are fixed, and the Company's loan
financing facilities all bear floating interest rates. See "--Sensitivity to
Interest Rates." Accordingly, the Company's strategy to increase the dollar
amount of loans held for sale and the length of time such loans are held will
significantly increase the Company's exposure to interest rate fluctuations and
the risks that such fluctuations will result in greater interest expense under
warehouse facilities and reduced Gain on Sale resulting from a reduced spread
between the interest rates charged to borrowers and the interest rate paid to
investors in securitizations. Moreover, in order to manage this increased risk,
the Company will have to increase its hedging activities, and there can be no
assurance that such hedging activities will be successful in managing the risk
or will not themselves have a material adverse effect on the Company's financial
condition or results of operations. Further, because the Company's warehouse
facilities bear interest at variable rates, the Company has a need for medium-
to long-term, fixed rate financing. As a result, there can be no assurance that
this strategy will not have a material adverse effect on the Company's financial
condition or results of operations.
SENSITIVITY TO INTEREST RATES
The Company's profitability may be directly affected by fluctuations in
interest rates. While the Company monitors interest rates and employs a
strategy designed to hedge some of the risks associated with changes in interest
rates, no assurance can be given that the Company's results of operations and
financial condition will not be adversely affected during periods of
fluctuations in interest rates. The Company's interest rate hedging strategy
currently includes purchasing put contracts on treasury securities, selling
short treasury securities and maintaining a pre-funding strategy with respect to
its securitizations. Since the interest rates on the Company's indebtedness
used to fund and acquire loans are variable and the rates charged on loans the
Company originates and purchases are fixed, increases in the interest rates
after loans are originated and prior to their sale could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, increases in interest rates prior to sale of the loans may reduce the
Gain on Sale earned by the Company. The ultimate sale of the Company's loans
will fix the spread between the interest rates paid by borrowers and the
interest rates paid to investors in securitization transactions (the "Excess
Servicing Spread") with respect to such loans, although increases in interest
rates may narrow the potential spread that existed at the time the loans were
originated or purchased by the Company. A significant, sustained rise in
interest rates could curtail the Company's growth opportunities by decreasing
the demand for loans at such rates and increasing market pressure to reduce
origination fees or servicing spreads. The Company has begun to implement a
strategy of maintaining a significant quantity of loans on its balance sheet,
thus increasing the length of time that loans are held for sale and materially
increasing its interest rate risk.
The Company's investment in the Excess Servicing Receivable (as defined in
"--Excess Servicing Receivable Risks") is also sensitive to interest rates. A
decrease in interest rates could cause an increase in the rate at which
outstanding loans are prepaid, thereby reducing the period of time during which
the Company receives the Excess Servicing Spread and other servicing income with
respect to such prepaid loans, thereby possibly resulting in accelerated
amortization of the Excess Servicing Receivable. Although an increase in
interest rates may decrease prepayments, such increase may not offset the higher
interest costs of financing the Excess Servicing Receivable. See "--Excess
Servicing Receivable Risks."
CREDIT RISK ASSOCIATED WITH BORROWERS
Many of the Company's borrowers are consumers who have limited access to
consumer financing for a variety of reasons, including insufficient home equity
value and, in the case of Title I borrowers, unfavorable past credit experience.
The Company is subject to various risks associated with these borrowers,
including, but not limited to, the risk that borrowers will not satisfy their
debt service payments, including payments of interest and principal, and that
the
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realizable value of the property securing such loans will not be sufficient
to repay the borrower's obligation to the Company. The risks associated with
the Company's business increase during an economic downturn or recession. Such
periods may be accompanied by decreased demand for consumer credit and declining
real estate values. Any material decline in real estate values reduces the
ability of borrowers to use home equity to support borrowings and increases the
loan-to-value ratios of the Company's existing loans, thereby weakening
collateral values and foreclosures and the frequency and severity of losses
generally increase during economic downturns or recessions. Because the Company
lends to borrowers who may be credit-impaired, the actual rates of
delinquencies, foreclosures and losses on such loans could be higher under
adverse economic conditions than those currently experienced in the consumer
finance industry in general. While the Company is experiencing declining
delinquency rates on its Serviced Loan Portfolio as a whole, delinquency rates
have followed historical trends on a pool-by-pool basis, which trends assume
increased rates of delinquencies over time. However, there can be no assurance
that delinquency rates will not increase beyond historical trends. In addition,
in an economic downturn or recession, the Company's servicing costs will
increase. Any sustained period of such increased losses could have a material
adverse effect on the Company's results of operations and financial condition.
CREDIT RISK ASSOCIATED WITH HIGH LTV LOANS
Although the Company's strategic loans are typically secured by real
estate, because of the relatively high loan-to-value ratio ("LTV") of most of
the Company's loans, in most cases the collateral of such loans will not be
sufficient to cover the principal amount of the loans in the event of default.
The Company relies principally on the creditworthiness of the borrower and to a
lesser extent on the underlying collateral for repayment of the Company's
Conventional Loans, and FHA co-insurance with respect to Title I Loans.
Consequently, many of the Company's loans equal or exceed the value of the
mortgaged properties, in some instances involving LTVs of up to 125%. With
respect to many of the Company's loans, LTV determinations are based upon the
borrowers' representations as to the value of the underlying property;
accordingly, there can be no assurance that such represented values accurately
reflect prevailing market prices. With respect to any default, the Company
currently evaluates the cost effectiveness of foreclosing on the collateral. To
the extent that borrowers with high LTVs default on their loan obligations, the
Company is less likely to use foreclosure as a means to mitigate its losses.
Under these circumstances, losses would be applied to the Company's allowances
for possible credit losses on loans sold and held for sale, except to the extent
that Title I Program insurance is available. Such absorption, if in excess of
the Company's allowance for such losses, could have a material adverse effect on
the Company's financial condition and results of operations, if such losses
required the Company to record additional provisions for losses on loans sold.
EXCESS SERVICING RECEIVABLE RISKS
ILLIQUIDITY OF THE EXCESS SERVICING RECEIVABLE. When the Company's loans
are pooled and sold in securitization transactions, the Company recognizes Gain
on Sale, which constitutes a substantial majority of the Company's revenues.
the Company records an asset corresponding to its Gain on Sale (the "Excess
Servicing Receivable") on its balance sheet in an initial amount equal to the
present value of the Excess Servicing Spread it expects to collect over the life
of the securitized loans sold. The Company is not aware of an active market for
this kind of receivable, and no assurance can be given that the receivable could
in fact be sold at its stated value on the balance sheet, if at all.
In addition, the Gain on Sale is recognized in the period during which
loans are sold, while cash payments are received by the Company pursuant to its
pooling and servicing agreements and servicing fees are paid to the Company by
the securitization trustees over the lives of the securitized loans. This
difference in the timing of cash flows could cause a cash shortfall, which may
have a material adverse effect on the Company's financial condition and results
of operations.
EXCESS SERVICING RECEIVABLE MAY BE OVERSTATED; PROVISION FOR CREDIT LOSSES
MAY BE UNDERSTATED. The calculation of Gain on Sale and the valuation of the
Excess Servicing Receivable are based on certain management estimates relating
to the appropriate discount rate and anticipated average lives of the loans
sold. In order to determine the present value of this excess cash flow, the
Company currently applies an estimated market discount rate of between 10% and
11% to the expected pro forma gross cash flow calculated utilizing the weighted
average maturity of the securitized loans, and currently applies a risk free
discount rate of 6.5% to the anticipated losses attendant to this pro
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forma cash flow stream. Accordingly, the overall effective discount rate
utilized on the cash flows, net of expected credit losses, is approximately
12.5%. Although the Company records the Excess Servicing Receivable and the
related reserve on a gross basis, for purposes of evaluation and comparison,
the Company calculates an average net discount rate for the net Excess
Servicing Receivable. This is calculated by subtracting the present value of
the anticipated losses attributable to loans being securitized and sold from
the present value of the expected stream of payments to derive the present
value of the net Excess Servicing Receivable. The Company then determines the
average discount rate that equates the expected payments, net of expected
losses, to the value of the Excess Servicing Receivable, which, with respect
to its most recent securitization, is approximately 12.5%. To estimate the
anticipated average lives of the loans sold in securitization transactions,
management estimates prepayment, default and interest rates on a pool-by-pool
basis. If actual experience varies from management estimates at the time
loans are sold, the Company may be required to write down the remaining Excess
Servicing Receivable through a charge to earnings in the period of adjustment.
Prepayment rates and default rates may be affected by a variety of economic
and other factors, including prevailing interest rates and the availability of
alternative financing, most of which are not within the Company's control. A
decrease in prevailing interest rates could cause prepayments to increase,
thereby requiring a writedown of the Excess Servicing Receivable. Even if
actual prepayment rates occur more slowly and default rates are lower than
management's original estimates, the Excess Servicing Receivable would not
increase.
Furthermore, management's estimates of prepayment rates and default rates
are based, in part, on the historical performance of the Company's Title I
Loans. The Company is originating an increasing proportion of Conventional
Loans, while historical performance data is based primarily on Title I Loans.
In addition, a significant portion of the Company's securitized loans sold were
very recently originated or were acquired in bulk purchases. No assurance can
be given that these loans, as with any new loan, will perform in the future in
accordance with the Company's historical experience. In addition, when the
Company introduces new loan products it may have little or no historical
experience on which it can base its estimates, and thus its estimates may be
less reliable. During the fiscal year ended September 30, 1996, the Company
increased its provision for credit losses, $2.5 million of which was taken
because the default rate for a pool of Bulk Loans included in the Company's
1995-2 securitization exceeded the estimates made at the time of the
securitization and the adjustment was in conformity with the Company's current
estimation methodology. There can be no assurance that the Company will not be
required in the future to write down its Excess Servicing Receivable in excess
of its provision for credit losses. Any such writedown could have a material
adverse effect on the Company's financial condition and results of operations.
FINANCING OF THE EXCESS SERVICING RECEIVABLE. The Company retains
significant amounts of Excess Servicing Receivable on its balance sheet. The
Company currently does not hedge this asset. The Company finances its Excess
Servicing Receivable with term-line borrowings under various term lines of
credit with lenders (collectively, the "Term Lines"). Borrowings under the Term
Lines bear interest at floating rates. The Company, however, cannot reprice its
Excess Servicing Receivable on its balance sheet, which has an expected average
life of four to six years. Therefore, the Company remains at risk that its
financing sources may increase the interest rates they charge the Company.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125 ("FASB 125"), "Accounting
for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities." FASB 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. FASB 125 distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. FASB 125 is generally
effective for transactions that occur after December 31, 1996, and it is to be
applied prospectively. FASB 125 requires the Company to allocate the total cost
of mortgage loans sold to the mortgage loans sold (servicing released), retained
certificates and servicing rights based on their relative fair values. The
Company will be required to assess the retained certificates and servicing
rights for impairment based upon the fair value of those rights. The Company
adopted FASB 125 during the quarter ended March 31, 1997. As a result of the
adoption of FASB 125, the Company's earnings were decreased by $556,000 after
tax over the earnings that would have been recorded utilizing the Company's
previous accounting method. Additionally, under FASB 115, the Company deferred
$7.2 million of its gain on sale of loans, which was recorded as a separate
component of equity, net of tax. FASB 125 also required certain
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<PAGE>
reclassifications on the Company's balance sheet and income statement. On the
balance sheet, the Excess Servicing Receivable has been reclassified as an
"available for sale" investment security and renamed as Interest Only Strip
("I/O Strip"), with the allowance for losses on loans sold reclassified from
liabilities to a contra asset to the I/O Strip. In the income statement, the
provision for losses on loans sold is now shown as a reduction of the gain on
sale of loans.
ABILITY OF THE COMPANY TO CONTINUE GROWTH STRATEGY; POSSIBLE ADVERSE
CONSEQUENCES FROM RECENT GROWTH
The Company's ability to continue its growth strategy depends on its
ability to increase the volume of loans it originates and purchases while
successfully managing its growth. This volume increase is, in part, dependent
on the Company's ability to procure, maintain and manage its increasingly larger
warehouse facilities and lines of credit. In addition to the Company's
financing needs, its ability to increase its volume of loans will depend on,
among other factors, its ability to (i) offer attractive products to prospective
borrowers, (ii) attract and retain qualified underwriting, servicing and other
personnel, (iii) market its products successfully, especially its new Direct
Loan products, (iv) establish new relationships and maintain existing
relationships with independent correspondent lenders in states where the Company
is currently active and in additional states and (v) build national brand name
recognition. In addition, the Company has recently begun to focus resources on
the small loan consumer finance industry. There can be no assurance that the
Company will successfully enter or compete in this highly competitive segment of
the consumer finance industry.
In light of the Company's rapid growth, the historical performance of the
Company's operations, including its underwriting and servicing operations, which
were principally related to origination of Title I Loans, may be of limited
relevance in predicting future performance with respect to Conventional Loans,
especially debt consolidation loans or personal consumer loans. Any credit or
other problems associated with the large number of loans originated in the
recent past may not become apparent until sometime in the future. Consequently,
the Company's historical results of operations may be of limited relevance to an
investor seeking to predict the Company's future performance. In addition,
purchases of Bulk Loans require the Company to rely to a certain extent on the
underwriting practices of the seller of the Bulk Loans. Although the Company
has its own review process when purchasing Bulk Loans, the Company occasionally
must rely upon the underwriting standards of the originator, which standards may
not be as rigorous as the Company's.
The Company's ability to successfully manage its growth as it pursues its
growth strategy will be dependent upon, among other things, its ability to (i)
maintain appropriate procedures, policies and systems to ensure that the
Company's loans have an acceptable level of credit risk and loss, (ii) satisfy
its need for additional short-term and long-term financing, (iii) manage the
costs associated with expanding its infrastructure, including systems, personnel
and facilities, and (iv) continue operating in competitive, economic, regulatory
and judicial environments that are conducive to the Company's business
activities. The Company's requirement for additional operating procedures,
personnel and facilities is expected to continue over the near term. The
Company is absorbing the effects of the implementation of new computer hardware
and software to manage its business operations, and it plans to continue to
procure hardware and software that require additional corresponding investments
in training and education. The Company's significant growth has placed
substantial new and increased pressures on the Company's personnel. There can
be no assurance that the addition of new operating procedures, personnel and
facilities together with the Company's enhanced information systems, will be
sufficient to enable it to meet its current operating needs. Changes in the
Company's ability to obtain or maintain any or all of these factors or to
successfully manage its growth strategy could have a material adverse effect on
the Company's operations, profitability and growth.
CONSOLIDATION OF OPERATIONS OF ACQUISITIONS
Since November 1995, the Company has made numerous acquisitions and intends
to acquire additional companies in the consumer finance industry. The Company
must successfully integrate the management, marketing, products and systems
associated with its acquisitions if the Company is to make current or
prospective acquisitions financially successful. In addition, the Company's
strategy of acquiring personal consumer loan companies involves introducing the
Company's strategic loan products, which are very different from the type of
loans such companies now originate, into this origination channel. Acquisitions
may produce excess costs and may become significant distractions to management
if they are not timely integrated. There can be no assurance that future
acquisition opportunities will become available, that such future acquisitions
can be accomplished on favorable terms or that such acquisitions, if any, will
result in profitable operations in the future or can be integrated successfully
with the Company's existing business.
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CONCENTRATION OF OPERATIONS IN CALIFORNIA
Approximately 46.7% of the loans in the Serviced Loan Portfolio at June 30,
1997 were secured by subordinate liens on residential properties located in
California. Consequently, the Company's results of operations and financial
condition are dependent upon general trends in the California economy and its
residential real estate market. California has experienced an economic slowdown
or recession over the last several years, which has been accompanied by a
sustained decline in the California real estate market. Such a decline may
adversely affect the values of properties securing the Company's loans, such
that the principal balances of such loans, together with any primary financing
on the mortgaged properties, may further increase LTVs, making the Company's
ability to recoup losses in the event of a borrower's default extremely
unlikely. In addition, California historically has been vulnerable to certain
risks of natural disasters, such as earthquakes and erosion-caused mudslides,
which are not typically covered by the standard hazard insurance policies
maintained by borrowers. Uninsured disasters may adversely impact borrower's
ability to repay loans made by the Company, which could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION
The consumer finance market is highly competitive and fragmented. The
Company competes with a number of finance companies that provide financing to
individuals who may not qualify for traditional financing. To a lesser extent,
the Company competes, or will compete, with commercial banks, savings and loan
associations, credit unions, insurance companies and captive finance arms of
major manufacturing companies that currently tend to apply more traditional
lending criteria. In addition, in recent months, several companies have
announced loan programs that will compete directly with the Company's loan
products, particularly its Conventional Loans. Many of these competitors or
potential competitors are substantially larger and have significantly greater
capital and other resources than the Company. In fiscal 1995 and 1996 and the
first nine months of fiscal 1997, approximately 68.5%, 93.9% and 81.8%,
respectively, of the Company's loans originated (excluding Bulk Loans) were
Correspondent Loans, which are expected to remain a significant part of the
Company's loan production program. As a purchaser of Correspondent Loans, the
Company is exposed to fluctuations in the volume and price of Correspondent
Loans resulting from competition from other purchasers of such loans, market
conditions and other factors. In addition, the Federal National Mortgage
Association ("Fannie Mae") has purchased and is expected to continue to purchase
significant volumes of Title I Loans on a whole-loan basis. Purchases by Fannie
Mae could be made from sources from which the Company also purchases loans. To
the extent that purchasers of loans, such as Fannie Mae, enter or increase their
purchasing activities in the markets in which the Company purchases loans,
competitive pressures may decrease the availability of loans or increase the
price the Company would have to pay for such loans, a phenomenon that has
occurred with respect to Title I Loans. In addition, increases in the number of
companies seeking to originate loans tends to lower the rates of interest the
Company can charge borrowers, thereby reducing the potential value of
subsequently earned Gains on Sales of loans. To the extent that any of these
lenders or Fannie Mae significantly expand their activities in the Company's
market, or to the extent that new competitors enter the market, the Company's
results of operations and financial condition could be materially adversely
affected.
CONCENTRATION OF CORRESPONDENT LENDERS
Approximately 79.8%, 48.6% and 39.3% of the loans purchased from
correspondent lenders by the Company during fiscal 1995 and 1996 and the first
nine months of fiscal 1997, respectively, were originated through the Company's
ten largest independent correspondent lenders. Approximately 50% of the loans
purchased from correspondent lenders during fiscal 1995 were originated through
two independent correspondent lenders. The Company believes that it is possible
for its dependence on a small number of independent correspondent lenders to
continue for the foreseeable future as the Company focuses extensively on
originating Direct Loans. Correspondent lenders are not contractually bound to
sell loans to the Company, and, therefore, are able to sell their loans to
others or to undertake securitization programs of their own. To the extent that
the Company is no longer able to purchase or originate loans from these
significant independent correspondent lenders, this could have a material
adverse effect on the Company's results of operations and financial condition.
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LIMITED OPERATING HISTORY
The Company was formed in 1994 to combine the operations of FIRSTPLUS
Financial and SFAC. The Combination involved the integration of the operations
of two companies that previously operated independently. Consequently, the
Company has a limited operating history under its new corporate structure upon
which prospective investors may base an evaluation of its performance.
DELINQUENCIES; RIGHT TO TERMINATE SERVICING; NEGATIVE IMPACT ON CASH FLOW
On June 30, 1997, approximately 66.0% (by dollar volume) of the Serviced
Loan Portfolio consisted of loans securitized by the Company and sold to grantor
or owner trusts. The Company's form of pooling and servicing agreement with
each of these trusts provides that the trustee of the related trust may
terminate the Company's servicing rights if certain delinquency or loss
standards are not met. As of June 30, 1997, none of the pools of securitized
loans exceeded the foregoing delinquency standards and no servicing rights had
been terminated. However, there can be no assurance that delinquency rates with
respect to the Company-sponsored securitized loan pools will not exceed this
rate in the future and, if exceeded, that servicing rights will not be
terminated, which would have a material adverse effect on the Company's result
of operations and financial condition.
The Company's cash flow can also be adversely impacted by high delinquency
and default rates in its grantor and owner trusts. Generally, provisions in the
pooling and servicing agreement have the effect of requiring the
overcollateralization account, which is funded primarily by the excess servicing
on the loans held in the trust, to be increased up to approximately two and on-
half times the level otherwise required when the delinquency and the default
rates exceed various specified limits. The reserve account was fully funded as
of June 30, 1997.
DEPENDENCE ON TITLE I PROGRAM
A portion of the Company's business is dependent on the continuation of the
Title I Program, which is federally funded. The Title I Program provides that
qualifying loans are eligible for FHA insurance, although such insurance is
limited. From time to time, legislation has been introduced in both houses of
the Congress that would, among other things, abolish the Department of Housing
and Urban Development ("HUD"), reduce federal spending for housing and community
development activities and eliminate the Title I Program. No assurance can be
given that the Title I Program will continue in existence or that HUD will
continue to receive sufficient funding for the operation of the Title I Program.
Discontinuation of or a significant reduction in the Title I Program or the
Company's authority to originate or purchase loans under the Title I Program
could have a material adverse effect on the Company's results of operations and
financial condition.
IMPACT OF REGULATION AND LITIGATION
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations requiring, among other things,
the licensing of lenders, adequate disclosure of loan terms and limitations on
the terms and interest rates of consumer loans, collection policies, creditor
remedies and other trade practices. An adverse change in these laws or
regulations could have an adverse effect on the Company by, among other things,
limiting the interest and fee income the Company may generate on existing and
additional loans, limiting the states in which the Company may operate or
restricting the Company's ability to realize on the collateral securing its
loans.
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company, which could have a material adverse effect on the
Company's results of operations and financial condition.
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Industry participants are frequently named as defendants in litigation
involving alleged violations of federal and state consumer lending laws and
regulations, or other similar laws and regulations, as a result of the consumer-
oriented nature of the industry in which the Company operates and uncertainties
with respect to the application of various laws and regulations in certain
circumstances. If a significant judgment were rendered against the Company in
connection with any litigation, it could have a material adverse effect on the
Company's financial condition and results of operations.
The Company's loans under the Title I Program are eligible for FHA
insurance. The FHA insures 90% of such loans and certain interest costs,
provided that the Company has not depleted its loss reserve account established
with the FHA and the loans were properly originated according to FHA
regulations. The amount of insurance coverage in a lender's FHA loss reserve
account is equal to 10% of the original principal amount of all Title I Loans
originated and the amount of the reserves for purchased loans reported for
insurance coverage by the lender, less the amount of all insurance claims
approved for payment in connection with losses on such loans and other
adjustments. If at any time claims exceed the loss reserve balance, the
remaining Title I Loans will be uninsured. In addition, the Title I Program
sets loan origination guidelines that must be satisfied by the lender in
connection with the origination of Title I Loans in order for the FHA to insure
those loans. The Company's failure to comply with such requirements could
result in denial of payment by the FHA. There can be no assurance that losses
will not exceed the Company's loss reserve account or that the Company will not
be adversely affected by such defaults. The Company's Conventional Loans are
not insured.
CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
At June 30, 1997, Daniel T. Phillips, the Company's President, Chief
Executive Officer and Chairman of the Board, and Eric C. Green, the Company's
Chief Financial Officer, beneficially own or otherwise control an aggregate of
approximately 13.1% and 1.6%, respectively, of the outstanding voting Common
Stock. Therefore, Messrs. Phillips and Green are able to exercise significant
influence with respect to the election of the entire Board of Directors of the
Company (the "Board") and all matters submitted to the Company stockholders.
Messrs. Phillips and Green are also able to significantly influence the
direction and future operations of the Company, including decisions regarding
the issuance of additional shares of Common Stock and other securities. In
addition, as long as Messrs. Phillips and Green beneficially own or otherwise
control a significant block of issued and outstanding Common Stock, it will be
difficult for third parties to obtain control of the Company through purchases
of Common Stock not beneficially owned or otherwise controlled by
Messrs. Phillips and Green.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services of Daniel T. Phillips
or Eric C. Green and certain of the Company's other key employees. While the
Company believes that it could find replacements for its executive officers and
key employees, the loss of their services could have an adverse effect on the
Company's operations. Each of the Company's executive officers has entered into
an employment agreement with the Company.
EVENTS OF DEFAULT UNDER CERTAIN FINANCING FACILITIES
The loss of the services of Daniel T. Phillips as Chief Executive Officer
of the Company would constitute an event of default under one of the Company's
credit facilities, which in turn would result in defaults under other
indebtedness. Mr. Phillips has entered into an employment agreement with the
Company.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Articles, the Company's Bylaws, the
Nevada General Corporation Law (the "NGCL") and the Indenture for the
outstanding 7.25% Convertible Subordinated Notes due 2003 of the Company (the
"Convertible Notes") could delay or frustrate the removal of incumbent directors
and could make difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be viewed as beneficial by the Company's
stockholders. For example, the Company's Articles deny the right of
stockholders to amend the Company's Bylaws and require advance notice of
stockholder proposals and nominations of directors. The Company is also subject
to provisions of the NGCL that prohibit a publicly-held Nevada corporation from
engaging in a broad range of business combinations with a person who, together
with affiliates and associates, owns 10% or more of the corporation's
outstanding voting
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shares (an "interested stockholder") for three years after the person became
an interested stockholder, unless the business combination is approved in a
prescribed manner. In addition, the Indenture for the Convertible Notes
provides that in the event of a "change of control" (as defined therein)
holders of the Convertible Notes have the right to require that the Company
repurchase the Convertible Notes in whole or in part.
SECURITIES TRADING; POSSIBLE VOLATILITY OF PRICES
The Common Stock is quoted on the Nasdaq National Market. The market price
for shares of Common Stock may be significantly affected by such factors as
quarter-to-quarter variations in the Company's results of operations, news
announcements or changes in general market or industry conditions.
USE OF PROCEEDS
This Prospectus relates to shares of Common Stock that may be offered from
time to time by the Selling Stockholders. See "Plan of Distribution; Selling
Stockholders." The Company will receive none of the proceeds from the sale of
the Common Stock offered hereby by the Selling Stockholders.
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PLAN OF DISTRIBUTION; SELLING STOCKHOLDERS
This Prospectus relates to 889,209 shares of Common Stock that may be
offered and sold from time to time by the Selling Stockholders. Set forth below
is information, as of the date hereof, regarding the beneficial ownership of the
Shares by each Selling Stockholder.
<TABLE>
NUMBER OF SHARES NUMBER OF NUMBER OF SHARES
OF COMMON STOCK SHARES OF OF COMMON STOCK
BENEFICIALLY OWNED COMMON BENEFICIALLY OWNED
PRIOR TO STOCK AFTER
NAME OFFERING (1) OFFERED OFFERING (2)
---- ------------------ --------- ------------------
<S> <C> <C> <C>
Ruth J. Apel....................... 1,357 679 679
Charles H.F. Beach................. 217 109 109
Harry T. Begg, Trustee............. 651 326 326
Ronald J. Begg, Trustee............ 651 326 326
Dorothy L. Bloom .................. 244 122 122
Nonnie B. Booher................... 244 122 122
Gordon Y. Boyd..................... 4,071 2,036 2,036
Carey & Co......................... 16,179 8,090 8,090
Guy E. Carr........................ 54 27 27
Roger V. Cramer.................... 54 27 27
Mellsha T. Durke................... 62,567 31,284 31,284
Rebecca J. Egnot................... 162 81 81
H. William Fletcher................ 35,529 17,765 17,765
Rebecca Osborne Egnot.............. 4,886 2,443 2,443
Kevin Gates........................ 574,050 287,025 287,025
Stan R. Goodburn................... 1,357 679 679
Carol A. Hammond................... 1,085 543 543
Hare & Co. ........................ 8,523 4,262 4,262
Richard T. Hibbard ................ 651 326 326
William D. Hibbard................. 651 326 326
Jeanne Kathryn Beach Holmquict..... 217 109 109
Robert G. Jack Trust............... 977 489 489
David Lee Jones.................... 787 394 394
Carolyn Larson..................... 162 81 81
Paul Meszaros & Betty S. Meszaros.. 2,714 1,357 1,357
The Ohio Company................... 4,886 2,443 2,443
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Cheryl J. Osborne.................. 8,550 4,275 4,275
Cheryl Jane Osborne................ 16,287 8,144 8,144
Dorothy M. Osborne................. 92,187 46,094 46,094
Earl W. Osborne.................... 8,686 4,343 4,343
Laura S. Osborne................... 86,107 43,054 43,054
Lewis K. Osborne III............... 100,304 50,152 50,152
Park National Bank................. 352 176 176
Carolyn E. Roblyer................. 54 27 27
Georgianna Rymer................... 1,303 652 652
Louis G. Rymer & Georgianna Rymer.. 6,487 3,244 3,244
Pete Sholten....................... 2,307 1,154 1,154
Laura O. Slemp..................... 4,886 2,443 2,443
Laura R. Slemp..................... 162 81 81
Samuel J. Smith & Kathryn Smith.... 1,465 733 733
Gary L. Shutt...................... 108 54 54
Doris Todd......................... 70,151 35,076 35,076
G. Elton Todd...................... 479,848 239,924 239,924
Grover E. Todd..................... 88,122 44,061 44,061
K. Brian Todd...................... 88,122 44,061 44,061
</TABLE>
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(1) Unless otherwise indicated, to the knowledge of the Company, the persons
and entities named in the table have sole voting and sole investment power
with respect to all shares of Common Stock beneficially owned, subject to
community property laws where applicable.
(2) Assumes that all shares of Common Stock offered hereby by each Selling
Stockholder are actually sold. Such presentation is based on 34,461,473
shares of Common Stock outstanding as of June 30, 1997.
Except for the shares of Common Stock beneficially owned by Kevin Gates,
Mellsha T. Durke, H. William Fletcher, Doris Todd, G. Elton Todd, Grover E.
Todd, and K. Brian Todd, the shares of Common Stock beneficially owned by the
Selling Stockholders were acquired by such Selling Stockholders in connection
with the acquisition by the Company of all of the outstanding capital stock
of The Modern Finance Company, which was effective as of May 21, 1997. Kevin
Gates acquired his shares of Common Stock in connection with the acquisition
by the Company of all the outstanding capital stock of Freedom Mortgage
Corporation, which was effective as of August 29, 1997. Mellsha T. Durke, H.
William Fletcher, Doris Todd, G. Elton Todd, Grover E. Todd, and K. Brian
Todd acquired their shares of Common Stock in connection with the acquisition
by the Company of all the outstanding capital stock of Southern Management
Corporation, which was effective as of August 29, 1997. In connection with
the acquisition by the Company of Modern Finance, Southern Management, and
Freedom Mortgage, the Company agreed to file the Registration Statement of
which this Prospectus forms a part.
The Company has been advised by the Selling Stockholders that they intend
to sell all or a portion of the Shares offered by this Prospectus from time to
time (i) on the Nasdaq National Market, (ii) otherwise than on the Nasdaq
National Market, in negotiated transactions (which may include the pledge or
hypothecation of some or all of the Shares) at fixed prices which may be
changed, at market prices prevailing at the time of sale or at prices reasonably
related thereto or at negotiated prices, or (iii) by a combination of the
foregoing methods of sale. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of the Shares
for which such broker-dealers may act as agent or to whom they may sell as
principal, or both. The Company is not aware as of the date of this Prospectus
of any agreements between any of the Selling Stockholders and any broker-dealers
with respect to the sale of the Shares offered by this Prospectus. The Selling
Stockholders and any broker, dealer or other agent executing sell orders on
behalf of the Selling Stockholders may be deemed to be "underwriters" within the
meaning
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<PAGE>
of the Securities Act, in which event commissions received by any such
broker, dealer or agent and profit on any resale of the Shares of principal
may be deemed to be underwriting commissions under the Securities Act. Such
commissions received by a broker, dealer or agent may be in excess of
customary compensation. The Shares may also be sold in accordance with Rule
144 and Rule 145 under the Securities Act.
All expenses of registration incurred in connection with the offering will
be borne by the Company. All selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders.
The Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation, Rule 102 under Regulation M, which provisions may limit the timing
of purchases and sales of any of the Common Stock by the Selling Stockholders.
Rule 102 under Regulation M provides, with certain exceptions, that it is
unlawful for a selling shareholder or its affiliated purchaser to, directly or
indirectly, bid for or purchase or attempt to induce any person to bid for or
purchase, for an account in which the selling shareholder or affiliated
purchaser has a beneficial interest in any securities that are the subject of
the distribution during the applicable restricted period under Regulation M.
All of the foregoing may affect the marketability of the Common Stock. The
Company will require each Selling Stockholder, and his or her broker if
applicable, to provide a letter that acknowledges his compliance with
Regulation M under the Exchange Act before authorizing the transfer of such
Selling Stockholder's Shares.
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon for the
Company by Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company at September 30, 1996
and 1995 and for each of the three years in the period ended September 30, 1996,
incorporated by reference in this Prospectus and in the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon and are incorporated by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING 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 SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
--------------------
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... 2
DOCUMENTS INCORPORATED
BY REFERENCE............................................................ 2
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 5
USE OF PROCEEDS............................................................ 13
PLAN OF DISTRIBUTION;
SELLING STOCKHOLDERS.................................................... 14
LEGAL MATTERS.............................................................. 16
EXPERTS.................................................................... 16
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
889,209 SHARES
FIRSTPLUS
FINANCIAL GROUP, INC.
COMMON STOCK
------------------
PROSPECTUS
------------------
____________________, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred by the Company in
connection with the issuance and distribution of the securities described in
this registration statement, other than underwriting discounts and commissions.
Securities and Exchange Commission Registration Fee............... $12,716
Nasdaq National Market Filing Fee................................. 17,500
Blue Sky Fees and Expenses........................................ 2,500*
Accounting Fees and Expenses...................................... 5,000*
Legal Fees and Expenses........................................... 17,500*
Fees of Transfer Agent and Registrar.............................. 1,000*
Printing and Engraving Fees and Expenses.......................... 5,000*
Miscellaneous..................................................... 3,784*
-------
TOTAL....................................................... $65,000*
-------
-------
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Articles of Incorporation of the Registrant, together with its
bylaws, provide that the Registrant shall indemnify officers and directors, and
may indemnify its other employees and agents, to the fullest extent permitted by
law. The laws of the State of Nevada permit, and in some cases require,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, fines, settlements and reasonable expenses under certain
circumstances.
(b) The Registrant has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors and officers to the
fullest extent permitted by the laws of the State of Nevada. Under the
Registrant's Articles of Incorporation, and as permitted by the laws of the
State of Nevada, a director or officer is not liable to the Registrant or its
stockholders for damages for breach of fiduciary duty. Such limitation of
liability does not affect liability for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law, or (ii) the
payment of any unlawful distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
*5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation
*23.1 Consent of Ernst & Young LLP, Independent Auditors
*23.2 Consent of Jenkens & Gilchrist, a Professional Corporation
(included in the opinion contained as Exhibit 5.1)
*24.1 Power of Attorney (included on the signature page of the
Registration Statement)
* Filed herewith.
II-1
<PAGE>
(b) Financial Statement Schedules:
Not Applicable.
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 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.
(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, 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
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, thereunto duly authorized, in the City of Dallas, and the State of
Texas, the 3rd day of September, 1997.
FIRSTPLUS Financial Group, Inc.
(Registrant)
By: /s/ Daniel T. Phillips
------------------------------------------
Daniel T. Phillips, Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Daniel T. Phillips, Eric C. Green and Ronald M
Bendalin, and each of them, each with full power to act without the other, his
true and lawful attorney-in-fact and agent, with full power and substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Daniel T. Phillips Chairman of the Board, President September 3, 1997
----------------------- and Chief Executive Officer
Daniel T. Phillips (Principal Executive Officer)
/s/ Eric C. Green Executive Vice President and September 3, 1997
----------------------- Chief Financial Officer
Eric C. Green (Principal Financial and
Accounting Officer) and Director
/s/ John Fitzgerald Director September 3, 1997
-----------------------
John Fitzgerald
/s/ Dan Jessee Director September 3, 1997
-----------------------
Dan Jessee
/s/ Paul Seegers Director September 3, 1997
-----------------------
Paul Seegers
/s/ Sheldon I. Stein Director September 3, 1997
-----------------------
Sheldon I. Stein
/s/ Paul Nussbaum Director September 3, 1997
-----------------------
Paul Nussbaum
<PAGE>
Exhibit 5.1
[JENKENS & GILCHRIST LETTERHEAD]
September 2, 1997
FIRSTPLUS Financial Group, Inc.
1600 Viceroy
8th Floor
Dallas, Texas 75235
Re: Offering of Common Stock of FIRSTPLUS Financial Group, Inc.
Gentlemen:
Concurrently with the giving of this opinion, FIRSTPLUS Financial Group,
Inc., a Nevada corporation (the "Company"), is filing with the Securities and
Exchange Commission (the "Commission") its registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). The Registration Statement relates to the sale by certain stockholders
of the Company (the "Selling Stockholders") of an aggregate of 889,209 shares
(the "Shares") of common stock, par value $.01 per share, of the Company,
pursuant to Rule 415 under the Act. We have acted as counsel to the Company in
connection with the preparation and filing of the Registration Statement.
In connection therewith, we have examined and relied upon the original or
copies, certified to our satisfaction, of (i) the Amended and Restated Articles
of Incorporation and Bylaws of the Company, in each case as amended to date,
(ii) copies of resolutions of the Board of Directors of the Company authorizing
the issuances of the Shares to the Selling Stockholders, (iii) the Registration
Statement, and all exhibits thereto, and (iv) such other documents and
instruments as we have deemed necessary for the expression of the opinions
herein contained. In making the foregoing examinations, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies. As to various questions of
fact material to this opinion, we have relied, to the extent we deem reasonably
appropriate, upon representations or certificates of officers or directors of
the Company and upon documents, records and instruments furnished to us by the
Company, without independent check or verification of their accuracy.
<PAGE>
FIRSTPLUS Financial Group, Inc.
September 2, 1997
Page 2
Based upon the foregoing examination, we are of the opinion that the Shares
to be sold by the Selling Stockholders in the offering, as described in the
Prospectus forming a part of the Registration Statement, have been duly and
validly authorized for issuance and the Shares, when sold by the Selling
Stockholders in the manner stated in the Prospectus constituting a part of the
Registration Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Commission thereunder.
Respectfully submitted,
JENKENS & GILCHRIST, A
PROFESSIONAL CORPORATION
By: /s/ Ronald J. Frappier
----------------------------------
Ronald J. Frappier, Esq.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 to be filed on or about September 3, 1997) and
related Prospectus of FIRSTPLUS Financial Group, Inc. for the registration of
889,209 shares of its common stock and to the incorporation by reference therein
of our report dated October 25, 1996, with respect to the consolidated financial
statements of FIRSTPLUS Financial Group, Inc., formerly known as RAC Financial
Group, Inc., incorporated by reference in its Annual Report (Form 10-K) for the
year ended September 30, 1996, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Dallas, Texas
August 29, 1997
