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As filed with the Securities and Exchange Commission on March 28, 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
1250 WEST MOCKINGBIRD GENERAL COUNSEL
DALLAS, TEXAS 75247 1250 WEST MOCKINGBIRD
(214) 583-3700 DALLAS, TEXAS 75247
(Name, address, including zip (214) 630-6006
code, and telephone number, (Name, address, including zip
including area code, of code, and telephone number,
registrant's principal including area code, of
executive offices) registrant's agent 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. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES REGISTERED REGISTERED SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock . . . . . . . 552,239 Shares $32.125 $17,740,678 $5,376
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</TABLE>
(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 March 26, 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.
<PAGE>
Subject To Completion Dated March 28, 1997
PROSPECTUS 552,239 SHARES
FIRSTPLUS FINANCIAL GROUP, INC.
COMMON STOCK
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This Prospectus relates to 552,239 shares (the "Shares") of 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 March 26, 1997, the closing price for the Common Stock on the
Nasdaq National Market was $32.375.
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.
<PAGE>
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 Report on Form 10-Q for the quarter ended
December 31, 1996;
(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., 1250 West Mockingbird, Dallas, Texas 75247,
or by telephone at (214) 630-6006.
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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 APPEARING ELSEWHERE OR 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 COMMON STOCK SPLITS 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 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.
In early 1996, the Company began expanding 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 December 31, 1996, the principal
amount of strategic loans serviced by the Company (the "Serviced Loan
Portfolio") was $1.9 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 $64.1 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
("SFAC"), a home improvement lender formed in January 1990, and FIRSTPLUS
Financial, Inc. ("FIRSTPLUS Financial"), formerly Remodelers National Funding
Corporation, an approved Title I home improvement lender formed in April 1986
(the "Combination"). In March 1997, the Company changed its name from "RAC
Financial Group, Inc." to "FIRSTPLUS Financial Group, Inc." The Company's
principal offices are located at 1250 West Mockingbird Lane, Dallas, Texas
75247, and its telephone number is (214) 630-6006.
THE OFFERING
This Prospectus relates to 552,239 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
5
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growth would be materially impaired and the Company's results of operations
and financial condition would be materially adversely affected.
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. The
Company expects this holding period to increase to 180 days during fiscal
1997, and it could exceed one year thereafter.
The interest rates 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."
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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 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.
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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 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 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 will require the Company to
allocate the total cost of mortgage loans sold to the mortgage loans sold
(servicing
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released), retained certificates and servicing rights based on their relative
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 pronouncement also will require the Company to provide additional
disclosure about the retained certificates in its securitizations and to
account for these assets at fair value in accordance with FASB 115. The
Company will apply the new rules prospectively beginning in the first
calendar quarter of 1997. There can be no assurance that the implementation
by the Company of FASB 125 will not reduce the Company's Gain on Sale of
loans in the future or otherwise adversely affect the Company's results of
operations or financial condition.
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
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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.
CONCENTRATION OF OPERATIONS IN CALIFORNIA
Approximately 56.3% of the loans in the Serviced Loan Portfolio at
December 31, 1996 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 a 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, approximately 68.5% and 93.9%, respectively, of the
Company's loans originated (excluding Bulk Loans) were through correspondent
lenders ("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% and 48.6% of the loans purchased from correspondent
lenders by the Company during fiscal 1995 and 1996, respectively, were
originated through the Company's 10 largest 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 December 31, 1996, 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 December 31, 1996, 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 and no servicing rights had been terminated. However,
there can be no assurance that delinquency rates with respect to
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 one-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 December 31, 1996.
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 United States 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
FHA to insure those loans. The Company's failure to comply with such
requirements could result in denial of payment by 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 February 28, 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 owned or otherwise controlled an
aggregate of approximately 13.0% and 1.4%, 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 and all matters submitted to 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 of the
Company, 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. Philips has entered into an employment agreement
with the Company.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), and Amended and
Restated Bylaws (the "Bylaws"), the Nevada General Corporation Law and the
Indenture for the Company's 7.25% Convertible Subordinated Notes due 2003
(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 Articles of Incorporation deny
the right of stockholders to amend the Bylaws and require advance notice of
stockholder proposals and nominations of directors. The company is also
subject to provisions of the Nevada General Corporation Law that prohibit a
publicly held Nevada corporation from engaging in a broad range of business
combinations with a
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person who, together with affiliates and associates, owns 10% or more of the
corporation's outstanding voting 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 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.
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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 Conventional Loans and to a lesser extent 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 Program
administered by the FHA. The Company sells substantially all of its
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 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.
In early 1996, the Company began expanding its efforts to originate
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.
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 December 31, 1996, the principal
amount of strategic loans in the Serviced Loan Portfolio was $1.9 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 $64.1 million of loans subserviced by a third party).
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 552,239 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.
NUMBER OF SHARES NUMBER OF
OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED COMMON BENEFICIALLY OWNED
PRIOR TO STOCK AFTER
OFFERING (1) OFFERED OFFERING (2)
NUMBER PERCENT
William G. Joiner(3) . . . 938,807 469,403 469,404 1.5%
Alan Stockton(3) . . . . . 165,672 82,836 82,836 *
- --------------------------
* Less than one percent
(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 36,321,486
shares of Common Stock outstanding as of March 1, 1997.
(3) The address of each Selling Stockholder is 23141 Verdugo Drive, Suite 200,
Laguna Hills, California 92653. Mr. Joiner is the President of Capital
Direct Funding Group, Inc. ("Capital Direct"), a wholly owned subsidiary of
the Company, and Mr. Stockton is Vice President of Capital Direct.
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
Capital Direct effective February 28, 1997. In connection with the
acquisition by the Company of Capital Direct, the Company agreed to file the
Registration Statement of which this Prospectus forms a part and, in
addition, has granted the Selling Stockholders certain demand registration
rights with respect to the remaining shares shown as beneficially owned by
them (the "Remaining Shares"). The exercise of such demand registration
rights would require the Company to register the resale of 50% of the
Remaining Shares (approximately 276,120 shares in the aggregate) on or after
February 28, 1998 and the final 50% of the Remaining Shares (also
approximately 276,120 shares in the aggregate) on or after February 28, 1999,
unless such registration is no longer necessary for the resale of the
Remaining Shares.
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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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 reports thereon and are incorporated by
reference in reliance upon such reports 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.
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TABLE OF CONTENTS
Page
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Available Information........................... 2
Documents Incorporated by Reference............. 2
Prospectus Summary.............................. 3
Risk Factors.................................... 5
The Company..................................... 14
Use of Proceeds................................. 14
Plan of Distribution; Selling Stockholders...... 15
Legal Matters................................... 16
Experts......................................... 16
=========================================================
=========================================================
552,239 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 . . . . $ 5,376
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 . . . . . . . . . . . . . . . . . . . . . . . 6,124*
--------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $60,000*
--------
--------
*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 27th day of March, 1997.
FIRSTPLUS Financial Group, Inc.
(Registrant)
By: /s/
-------------------------------------
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/
- ---------------------------- Chairman of the Board, March 27, 1997
Daniel T. Phillips President and
Chief Executive
Officer (Principal
Executive Officer)
/s/
- ---------------------------- Executive Vice President March 27, 1997
Eric C. Green and Chief Financial Officer
(Principal Financial
and Accounting Officer)
and Director
/s/
- ---------------------------- Director March 27, 1997
John Fitzgerald
/s/
- ---------------------------- Director March 27, 1997
Dan Jessee
/s/
- ---------------------------- Director March 27, 1997
Paul Seegers
II-3
<PAGE>
Signature Title Date
--------- ----- ----
/s/
- ---------------------------- Director March 27, 1997
Sheldon I. Stein
II-4
<PAGE>
[JENKENS & GILCHRIST LETTERHEAD]
March 28, 1997
FIRSTPLUS Financial Group, Inc.
1250 West Mockingbird
Dallas, Texas 75247
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 552,239 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.
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
<PAGE>
FIRSTPLUS Financial Group, Inc.
March 28, 1997
Page 2
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, 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 March 28, 1997) and
related Prospectus of FirstPlus Financial Group, Inc. for the registration of
552,239 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 RAC Financial Group,
Inc., included in its Annual Report (Form 10-K) for the year ended September 30,
1996, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Dallas, Texas
March 27, 1997