<PAGE>
As filed with the Securities and Exchange Commission on November 2, 2000
Registration No. 333-42623
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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THE THAXTON GROUP, INC.
(Name of small business issuer in its charter)
South Carolina 6140 57-0669498
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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1524 Pageland Highway
Lancaster, South Carolina 29721
(803) 285-4336
(Address and telephone number of principal executive offices)
Allan F. Ross
Vice President, Chief Financial Officer and Secretary
The Thaxton Group, Inc.
1524 Pageland Highway
Lancaster, South Carolina 29720
(803) 285-4336
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Barney Stewart III
Cary Nadelman
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
----------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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The Thaxton Group, Inc.
$50,000,000 of Debt Securities
Terms of Securities
<TABLE>
<CAPTION>
Subordinated Term Notes Subordinated Term Notes
Due One Month Due Six, 12, 36 and 60 Months Subordinated Daily Notes
---------------------------- ---------------------------------- ----------------------------
<S> <C> <C> <C>
Minimum Initial Purchase $100 $1,000 $50
Interest Rate May vary. May vary. May vary.
Interest Payment Payable at maturity. Payable, at your option, Payable upon redemption.
monthly, quarterly or at maturity.
Redemption by Holder Redeemable with forfeiture Redeemable with penalty, Redeemable without penalty.
of interest, unless waived. unless waived.
Redemption by Redeemable upon
Thaxton Group 30 days' notice.
Subordination Subordinated to all existing Subordinated to all existing Subordinated to all existing
and future senior debt of and future senior debt of and future senior debt of
Thaxton Group. Thaxton Group. Thaxton Group.
</TABLE>
The offering commenced on February 17, 1998 and will continue until all
securities are sold or Thaxton Group suspends or terminates the offering. To
date Thaxton Group has sold securities in the aggregate principal amount of
$43.0 million.
If Thaxton Group sells all of the securities, it will have received in the
aggregate $50,000,000 in proceeds before deducting offering expenses, estimated
at approximately $500,000. Thaxton Group is, however, unable to provide you any
assurance that it will sell all or any particular portion of the remaining
securities.
Thaxton Group will use Carolinas First Investments, Inc., a registered
broker-dealer, to sell the securities and to assist Thaxton Group in managing
the offering. It will pay Carolinas First Investments, Inc. sales commissions
of 0.25% of the principal amount of the securities sold and a monthly
management fee of $6,250. In addition, Thaxton Group may elect to use other
registered broker-dealers to assist in selling the securities on a best efforts
basis. It anticipates paying commissions ranging from 0.25% to 5% of the sales
price to the broker-dealers who sell securities. In addition, Thaxton Group may
also agree to reimburse these broker-dealers for some of their costs and
expenses. As a result, expenses of the offering will increase, and the proceeds
it receives will be less than stated above.
There is no public trading market for these securities. Thaxton Group does
not intend to list the securities on any securities exchange and does not
expect that any active trading market for the securities will develop.
You should read "Risk Factors" beginning on page 6 for a discussion of risk
factors that you should consider before investing in the securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in the prospectus. Any representation
to the contrary is a criminal offense.
These securities are not savings deposits or obligations of an insured
depository institution and are not insured by the Federal Deposit Insurance
Corporation.
The date of this prospectus is November 2, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 8
Description of Securities................................................ 9
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
Where You Can Find More Information...................................... 29
Management............................................................... 30
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities............................................................. 31
Principal and Management Shareholders.................................... 32
Market for Common Equity and Related Stockholder Matters................. 32
Transactions with Related Parties........................................ 33
Legal Matters............................................................ 34
Experts.................................................................. 34
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................. 34
Plan of Distribution..................................................... 34
Index to Financial Statements............................................ F-1
</TABLE>
i
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes a description of the terms of the securities we are
offering, as well as information regarding our business and detailed financial
data. We encourage you to read the entire prospectus carefully.
References in this prospectus to "Thaxton," "we", "us", "our" or "Company"
refer to the combined business of The Thaxton Group, Inc. and its subsidiaries.
References in this prospectus to "Thaxton Group" refers only to The Thaxton
Group, Inc., which is the issuer of the securities. The term "securities"
collectively refers to the subordinated term notes due one, six, 12, 36 and 60
months and the subordinated daily notes that Thaxton Group is offering for sale
with this prospectus.
The Offering
Thaxton Group is offering $50.0 million aggregate principal amount of
subordinated terms notes due 1, 6, 12, 36 and 60 months and subordinated daily
notes. Before deciding to purchase any of the securities, you should read the
discussion in this prospectus summary that begins on page 4 under the heading
"Summary of Terms of Securities" and on page 11 of this prospectus under the
heading "Description of Securities." The offering is expected to continue until
all $50 million of the securities are sold, but Thaxton Group reserves the
right to suspend or terminate the offering at any time. The proceeds of this
offering will be used primarily to temporarily repay outstanding debt under
Thaxton's credit facilities.
Interest accrues on the securities at fixed rates based upon the term
lengths of the securities. Examples of the initial annual interest rates for
the securities as of October 15, 2000 are as follows: daily note--6.50%;
1-month term note--6.50%; 6-month term note--7.00%; 12-month term note--7.50%;
36-month term note--7.75%; and 60-month term note--7.75%. The actual initial
annual interest rates may be more or less than these examples at the time of
your investment decision. Also, if you purchase more than $50,000 in aggregate
principal amount of the securities, you may receive a rate of interest higher
than any of the rates shown above. Maximum rates offered are not expected to
exceed 10.00%.
We will provide you a schedule of the current interest rates for each
security at the offices where the securities will be sold. In addition, you may
call us at 1-888-842-9866 during normal business hours to obtain the current
interest rates for the securities.
Overview of Thaxton
We are a diversified consumer financial services company that:
. provides small consumer loans to borrowers with impaired credit;
. finances the purchase of used automobiles and insurance premiums for
borrowers with impaired credit;
. serves as an independent sales agent for a wide variety of property and
casualty, health and life insurance companies;
. originates residential mortgage loans and packages them for resale to
investors; and
. provides a limited number of commercial loans.
In February 1999, we acquired the consumer finance operations of FirstPlus
Consumer Finance, Inc., including 144 consumer finance offices in seven states,
of which 47 are in Texas and 31 are in South Carolina. The core business of
these acquired offices is similar to our core business in that they provide
small consumer loans, real estate loans and used automobile financing loans to
credit impaired borrowers. You should read the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Expansion Activities" for more information about this acquisition.
1
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Our Offices
Our executive offices are located at 1524 Pageland Highway, Lancaster, South
Carolina 29720, and our telephone number is (888) 842-9866. We currently have a
total of 212 finance offices and 14 insurance agency offices located in the
following states:
<TABLE>
<CAPTION>
Finance Offices
---------------
<S> <C>
South Carolina.......... 82
North Carolina.......... 8
Texas................... 47
Mississippi............. 24
Georgia................. 21
Tennessee............... 10
Kentucky................ 9
Ohio.................... 7
Alabama................. 2
Virginia................ 2
</TABLE>
<TABLE>
<CAPTION>
Insurance Agency Offices
------------------------
<S> <C>
South Carolina.......... 12
North Carolina.......... 2
</TABLE>
Summary Consolidated Financial Information
Our consolidated financial information set forth below should be read in
conjunction with our consolidated financial statements and related notes
included in the back of this prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------- -----------------------
Actual Actual
------------------ Pro Forma -----------------------
1998 1999 1999(1) 1999 2000
-------- -------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income..... $ 10,690 $ 42,278 $45,312 $29,490 $ 32,003
Provision for credit
losses................. 4,047 11,937 12,638 8,773 10,844
Net interest income
after provision for
credit losses.......... 6,644 30,340 32,638 20,718 21,159
Insurance commissions,
net.................... 6,591 11,259 11,661 6,498 9,715
Other income............ 962 6,496 6,542 8,850 7,625
Operating expenses...... 15,778 45,970 48,241 34,146 37,712
Income tax expense
(benefit).............. (497) 1,206 1,447 937 583
Net income (loss)--
continuing operations
....................... (1,084) 1,187 1,189 982 205
Net income (loss) per
common share continuing
operations............. (0.35) 0.06 0.06 0.06 (0.05)
Balance Sheet Data:
Finance receivables..... $ 73,610 213,123 224,662
Unearned income......... (13,299) (39,588) (39,649)
Allowance for credit
losses................. (4,711) (10,661) (10,597)
Finance receivables,
net.................... 55,600 162,781 174,416
Total assets............ 78,996 234,935 243,904
Total liabilities....... 66,067 225,132 236,413
Shareholders' equity.... 12,929 9,803 7,491
</TABLE>
--------
(1) For information regarding the unaudited pro forma adjustments made to our
historical financial data, which give effect to the inclusion of January
1999 data for Thaxton Investment, see the "Unaudited Pro Forma
Consolidated Financial Data" section in the back of this prospectus.
2
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Competitive Weaknesses and Risks
We discuss in this prospectus, particularly in the "Risk Factors" section,
our competitive weaknesses and the numerous uncertainties and contingencies
beyond our control that affect our business, including:
. our dependence on floating-rate debt to finance our fixed-rate
receivables, which means that in periods of increasing interest rates,
our profitability may decline and our ability to fulfill our obligations
under the securities may be impaired;
. the high credit and operating costs associated with operating in the
non-prime consumer credit market; and
. competition in the non-prime consumer credit market from bank credit
card and mortgage banking companies, which are offering new sources of
credit to our customers.
You should carefully consider the information in the "Risk Factors" section in
this prospectus as well as the other information and data included in this
prospectus before deciding whether to purchase any of the securities.
Summary of Terms of Securities
Subordinated Term Notes Due One Month
Minimum Investment.......... $100
Interest Rate............... Thaxton Group will determine periodically the
rate of interest payable on one month term
notes, which rate will be at least equal to
the rate established for the most recent
auction average of United States Treasury
Bills with a maturity of 13 weeks, but no
less than 2% per year and no more than 12%
per year. One month term notes bear interest
at a fixed rate until maturity.
Interest Payment............ Payable at maturity and compounded daily.
Extension Procedure......... The procedure for extending one month term
notes is described below under "Extension
Procedure for Term Notes."
Additions and Redemptions You may adjust the original principal amount
by Holder.................. of one month term notes without extending the
maturity at any time through additional
purchases or partial redemptions. You may
not, however, reduce the outstanding
principal amount below $100. If you present a
one month term note to Thaxton Group, Thaxton
Group will, for your convenience, record any
adjustments to the original principal amount,
such as additional purchases or partial
redemptions. If you redeem, in whole or in
part, prior to maturity, you will forfeit all
accrued interest on the redeemed amount,
unless Thaxton Group, in its sole discretion,
waives the forfeiture in whole or in part.
3
<PAGE>
Subordinated Term Notes Due 6, 12, 36 and 60 Months
Minimum Investment.......... $1,000
Interest Rate............... Thaxton Group will determine periodically the
rate of interest payable on six, 12, 36 or 60
month term notes, which rate will be at least
equal to the rate established for the most
recent auction average of United States
Treasury Bills with a maturity of 52 weeks,
but no less than 2% per year and no more than
12% per year. Six, 12, 36 and 60 month term
notes bear interest at a fixed rate until
maturity.
Interest Payment............ At your option, payable either monthly,
quarterly or at maturity and compounded
daily.
Extension Procedure.........
The procedure for extending six, 12, 36 and
60 month term notes is described below under
"Extension Procedure for Term Notes".
Redemption by Holder........ If you redeem, in whole or in part, prior to
maturity, you will be required to pay a
penalty equal to the difference between the
amount of interest actually accrued since the
date of issuance, or most recent extension
date, and the amount of interest that would
have accrued had the rate of interest been 3%
less than the rate currently in effect,
unless Thaxton Group, in its sole discretion,
waives the forfeiture in whole or in part.
Thaxton Group, in its sole discretion, may
require you to give 30 days' prior written
notice of a redemption.
Redemption by Thaxton
Group...................... Thaxton Group may redeem 6, 12, 36 and 60
month term notes without premium at any time
on 30 days' notice.
Extension Procedure for
Term Notes................. Not later than 15 days prior to the maturity
date of a term note, Thaxton Group will
provide you with an extension notice.
. the maturity date,
. the principal amount due on maturity,
. the amount of accrued interest to the
maturity date,
. the applicable interest rate upon
extension; and
. your right to receive, upon request, a
copy of this prospectus, as amended or
supplemented.
One, six, 12, 36 and 60 month term notes will
be extended for a new one, six, 12, 36 or 60
month term at the then applicable interest
rate, unless you notify Thaxton Group in
writing on or before the maturity date that
you do not wish to extend the term.
Notwithstanding the foregoing, if you are a
resident of Ohio, you must sign a new
application to purchase securities, which
Thaxton Group will provide to you along with
this prospectus, as amended or supplemented,
in order to extend the term of your term note
at
4
<PAGE>
the then applicable interest rate. If Thaxton
Group does not receive a signed application
on or before the maturity date, the principal
outstanding on your term note, together with
all interest accrued through the maturity
date, will be paid to you.
Subordinated Daily Notes
Minimum Investment.......... $50
Interest Rate............... Thaxton Group will determine periodically the
rate of interest payable on daily notes,
which rate will be no less than 3% below or
5% above the most recent auction average of
United States Treasury Bills with 13 week
maturities. Additionally, the interest rate
on daily notes will not be less than 2% per
year or more than 12% per year. Daily notes
bear interest at a fixed rate as of the date
of issuance, but the rate may be adjusted as
explained below prior to redemption.
Thaxton Group may adjust the interest rate on
daily notes on the first day of the month.
You will be notified promptly by first class
mail of any monthly adjustment in the
interest rate.
Interest Payment............ Payable upon redemption and compounded daily.
Additions and Redemptions
by Holder.................. You may adjust the original principal amount
at any time through additional purchases or
partial redemptions. You may not, however,
reduce the outstanding principal amount below
$50. If you present a daily note to Thaxton
Group, Thaxton Group will, for your
convenience, record any adjustments to the
original principal amount, such as additional
purchases or partial redemptions. You may
redeem daily notes, in whole or in part, at
any time, without penalty.
Ranking of Securities
The securities:
. are general, unsecured obligations of Thaxton Group only; and
. rank subordinate in right of payment to all existing and future senior
debt of Thaxton Group.
At September 30, 2000, Thaxton Group had approximately $173 million of senior
debt outstanding, which may be increased at any time.
5
<PAGE>
RISK FACTORS
The securities that we are offering will constitute general unsecured
obligations of Thaxton Group. Before you invest in the securities, you should
consider carefully all of the information contained in this prospectus and, in
particular, the following risk factors:
The payment of principal and interest on these debt securities is not
guaranteed by any governmental or private insurance fund.
No governmental or private agency, including the FDIC, insures the
securities which represent Thaxton Group's debt obligations to purchasers of
the securities. Consequently, an investment in the securities is not insured
against loss and the purchaser is dependent solely upon our earnings, our
working capital and other sources of funds, including proceeds from the
continuing sale of debt securities and our revolving credit facilities for
repayment of principal at maturity and the ongoing payment of interest on the
securities.
Because no trading market for the securities exists, and we do not expect one
to develop, you may only liquidate your investment by payment from Thaxton
Group.
The securities are non-negotiable which means that the securities are not
transferable without our prior consent. All transfers and assignments of the
securities may be made only at our offices.
We are dependent upon our debt financing arrangement with FINOVA Capital
Corporation ("FINOVA") to provide capital and liquidity for our business.
We may be unable to successfully continue our business if FINOVA cannot
honor its contractual commitments to us, we cannot extend our credit facilities
at the completion of our contract, or we cannot find satisfactory replacement
debt financing. Additionally, our credit facilities with FINOVA require us to
maintain certain financial ratios, and to comply with certain covenants in
order to remain in good standing with FINOVA. We are unable to give you
assurance that we will be able to comply with the terms of these facilities or
be able to extend their commitment terms beyond their maturity dates. In the
event we are unable to obtain extensions, our ability to obtain similar
financing will depend upon, among other things, our financial condition and
results of operations. We cannot guarantee that successor financing will be
available when we would need it and on terms similar to those of our credit
facilities with FINOVA. To the extent we are unsuccessful in maintaining or
replacing our credit facilities, we may be unable to service our other debt,
including the securities. You should read "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for a description of our credit facilities.
Your securities are subordinate to Thaxton Group's senior debt, which may
adversely affect our ability to repay your debt.
In the event that Thaxton Group is unable to make payment on its debts as
they become due or declares bankruptcy, reorganizes or liquidates, Thaxton
Group is required to pay all amounts due on its senior debt before it is
allowed to pay any amounts due on the securities. In addition, your right to
receive payments on the securities could be adversely affected if any
subsidiary or Thaxton Group is unable to pay funds to Thaxton Group or declares
bankruptcy, liquidates or reorganizes.
Senior debt is broadly defined as all of Thaxton Group's debt other than the
securities. Thaxton Group has the unrestricted right to increase or decrease
the amount of senior debt at any time. As of September 30, 2000, the principal
amount of Thaxton Group's senior debt outstanding was approximately $173
million. Thaxton Group can not provide any assurance to investors that it would
have or be able to obtain sufficient funds to pay amounts due on the securities
if it becomes insolvent or upon its dissolution, winding up, liquidation or
reorganization. You should read "Description of Securities--General Provisions
Applicable to all Securities--Subordination" for more information about this
risk.
6
<PAGE>
Increased credit losses will reduce our profitability, and decrease our ability
to repay the securities.
The non-prime consumer credit market is comprised of borrowers who are
deemed to be relatively high credit risks due to various factors. These factors
include, among other things, the manner in which they have handled previous
credit, the absence or limited extent of prior credit history, and limited
financial resources. Consequently, our primary assets of non-prime consumer
loans and used automobile sales contracts, relative to other assets such as
prime consumer loans and retail installment contracts, involve a higher
probability of default and greater servicing and collection costs. Our
profitability depends upon our ability to properly evaluate the
creditworthiness of credit-impaired borrowers, to maintain adequate security
for used automobile sales contracts and to efficiently service and collect our
portfolio of finance receivables. We are unable to assure purchasers of the
securities that the credit performance of our customers will be satisfactory,
or that the rate of future defaults and/or losses will not exceed our recent
prior experience. Delinquency rates related to consumer lending and automobile
financing are significantly influenced by general economic conditions, such as
the rate of unemployment. If general economic conditions should worsen in the
future, we anticipate that our delinquency rates would likely increase.
Increased interest rates will reduce our profitability, and decrease our
ability to repay the securities.
In periods of increasing interest rates, our dependence on debt with
floating interest rates to finance our portfolio of receivables, which bear
interest income at fixed interest rates, may adversely affect our profitability
and our ability to service our obligations for the securities. Our
profitability is adversely affected when interest rates rise. Our finance
receivables bear interest at fixed rates, including some of which are limited
to the maximum rates allowed under applicable law. During periods of rising
interest rates, our interest expense generally increases while our interest
income remains constant. Thus, net interest rate spreads decrease and our
profitability is hurt. We believe that by financing a portion of these
receivables with the fixed rate securities in this offering, we will be able to
better match our fixed rate receivables with fixed rate debt and improve our
interest rate sensitivity and net interest rate spreads. Although Thaxton Group
has sold approximately $41 million of the securities to date, we cannot give
you any assurance that we will sell any additional amount of the securities in
this offering. You should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information.
Changes in regulatory restrictions and state laws may hurt our business,
decrease our profitability and Thaxton Group's ability to repay the securities.
We operate in an industry in which federal and state governmental
authorities extensively regulate, supervise and license the participants.
Changes in the regulatory environment, particularly changes related to the
maximum permissible interest rates that we charge borrowers, could materially
hurt our business, decrease our profitability and Thaxton Group's ability to
fulfill its debt obligations.
Increased competition in our lines of business could materially harm our
business and our ability to service our debt, including Thaxton Group's
obligations to repay the securities.
The consumer finance business is highly fragmented and competitive.
Traditional consumer finance sources, many of whom have generally ignored the
non-prime consumer market in the past, are now serving this market. In
addition, numerous nontraditional consumer finance sources are serving this
market. Many of our competitors or potential competitors have significantly
greater resources than we do. Increased competition from these sources or other
sources of credit for credit-impaired borrowers in the markets we serve could
result in our inability to attract new customers or retain our existing ones,
which would have an adverse effect on our revenue. This reduction in revenue
may, in turn, weaken our financial position and our ability to service our
debt. See "Business--The Consumer Finance and Insurance Agency Industries."
Control of our company is concentrated in a sole shareholder.
Because an existing shareholder of Thaxton Group is able to effectively
control the outcome of all matters requiring shareholder approval, including
the election of Thaxton Group's board of directors, the success of our
7
<PAGE>
business and your potential investment in the securities is at least partially
tied to the decisions of the controlling shareholder.
James D. Thaxton, Chief Executive Officer, President, and Chairman of the
Board of Directors of Thaxton Group, beneficially owns more than 90% of the
outstanding shares of the common stock of Thaxton Group. As a result, Mr.
Thaxton is able to elect all of its directors, amend its articles of
incorporation, effect a merger, sale of assets, or other business acquisition
or disposition, and otherwise effectively control the outcome of other matters
requiring shareholder approval. If Mr. Thaxton makes an unfavorable decision
for Thaxton Group, or any of its subsidiaries, our business and our ability to
service our debt, including the securities, could suffer. See "Principal and
Management Shareholders."
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements can be identified by the use
of language such as "will likely result," "may," "are expected to," "is
anticipated," "estimate," "projected," "intends to" or other similar words.
Although we believe that our plans, intentions and expectations reflected in or
suggested by any of our forward-looking statements are reasonable, we can give
no assurance that these plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are discussed here under
"Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
The offering commenced on February 17, 1998, and securities having an
aggregate principal amount of approximately $41 million have been sold to date.
After payment of expenses incurred to date of approximately $400,000, Thaxton
Group has received net proceeds of approximately $39.5 million. If Thaxton
Group sells all of the remaining securities that it is offering, the aggregate
net proceeds to Thaxton Group are estimated to be approximately $49,500,000
after payment of offering expenses estimated at $500,000. Thaxton Group can,
however, give no assurance that we will receive any particular amount of
additional proceeds from the offering of the securities. In addition, Thaxton
Group has not ever had nor does it expect to ever have as much as $49,500,000
in net proceeds available at any one time due to, among other factors, the
maturities of the securities and the time period over which the offering will
be conducted. Any net proceeds available to us from sales of the securities
during the offering will be used to temporarily repay indebtedness outstanding
under the revolving credit facilities described in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
8
<PAGE>
DESCRIPTION OF SECURITIES
The securities will be issued under an indenture between Thaxton Group and
The Bank of New York, as trustee. The terms of the securities include those
stated in the indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939, as in effect on the date of the indenture.
The following description is a summary of the material provisions of the
securities and the indenture. It does not restate the indenture in its
entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the securities. We have filed a
copy of the indenture as an exhibit to the registration statement which
includes this prospectus.
Brief Description of the Securities
The securities:
. are general, unsecured obligations of Thaxton Group only; and
. are subordinated in right of payment to all existing and future "senior
indebtedness" of Thaxton Group.
As of September 30, 2000, the outstanding amount of senior indebtedness of
Thaxton Group was approximately $173 million.
Terms of Subordinated Term Notes Due One Month
Additions/Redemptions. Each one-month term note will be issued in the
minimum principal amount of $100 and will mature one month after date of
issuance unless redeemed or extended. Holders of one-month term notes may
adjust the original principal amount, without extending the maturity, at any
time by increases or decreases resulting from additional purchases or partial
redemptions. Partial redemptions may not, however, reduce the outstanding
principal amount below $100. Upon presentation of a one-month term note
certificate to Thaxton Group, it will, for the holder's convenience, record on
the certificate any adjustments to the original principal amount, such as
additional purchases or partial redemptions.
Interest. Thaxton Group will determine, from time to time, the rate of
interest payable on one month term notes, which rate will be at least equal to
the rate established for the most recent auction average of United States
Treasury Bills with a maturity of 13 weeks, but no less than 2% per annum and
no more than 12% per annum. The rate of interest at the time of purchase will
be the rate of interest payable throughout the original term of the one month
term note. Interest will be payable at maturity and will be compounded daily.
Terms of Subordinated Term Notes Due Six, 12, 36 and 60 Months
Each six, 12, 36 or 60-month term note will be issued in the minimum
principal amount of $1,000 and will mature six, 12, 36 or 60-months after date
of issuance unless redeemed prior to its maturity date. Thaxton Group will
determine, from time to time, the rates of interest payable on the six, 12, 36
or 60-month term notes, which rate will be at least equal to the rate
established for the most recent auction average of United States Treasury Bills
with a maturity of 52 weeks but no less than 2% and nor more than 12% per
annum. The rate of interest at the time of purchase of a particular six, 12, 36
or 60-month term note will be the rate of interest payable throughout the term
of the term note. Interest will be payable, at the holder's option, either
monthly, quarterly or at maturity and will be compounded daily.
Procedure for Extensions of Term Notes
Not later than 15 days prior to the maturity of a term note, Thaxton Group
will provide the holder by first-class mail with an extension notice. The
extension notice will advise the holder of the maturity date of the term
9
<PAGE>
note, the principal amount due on maturity, the amount of accrued interest to
the maturity date and the applicable interest rate upon an extension of the
term note. The extension notice will also inform the holder that, upon request,
Thaxton Group will promptly furnish the holder with a copy of this prospectus,
as amended or supplemented.
Each one, six, 12, 36 or 60-month term note will be extended for successive
one, six, 12, 36 or 60-month terms, respectively, at the rates of interest then
in effect unless, prior to maturity, Thaxton Group receives written
notification of the holder's intention to redeem the term note at maturity.
Notwithstanding the foregoing, a holder of a term note who is a resident of the
State of Ohio must sign a new application to purchase securities, which Thaxton
Group will provide to the holder along with a copy of this prospectus, as
amended or supplemented, in order to extend the term of the term note. If
Thaxton Group does not receive an executed application on or prior to the
maturity date, the principal outstanding on such term note, together with all
interest accrued through the maturity date, will be paid to the holder. Except
for a possible change in the rate of interest, all of the terms and conditions
applicable to the term notes when issued will also apply during each period of
extension.
Terms of Subordinated Daily Notes
Additions/Redemptions. Daily notes will be issued in the minimum original
principal amount of $50. Holders of daily notes may adjust the original
principal amount at any time by increases or decreases resulting from
additional purchases or partial redemptions. Partial redemptions may not,
however, reduce the outstanding principal amount below $50. Upon presentation
of a daily note certificate to Thaxton Group, it will, for the holder's
convenience, record on the certificate any adjustments to the original
principal amount, such as additional purchases or partial redemptions.
Interest. Thaxton Group will determine the interest rate payable on daily
notes which may fluctuate on a monthly basis. Any adjustment to the interest
rate will be made on the first day of the month. The fluctuation may reflect
adjustments which are either increases or decreases in the rate of interest
payable. The interest rate, once adjusted, will be effective as of the first
day of each month and shall remain in effect until Thaxton Group makes another
adjustment. The interest rate will be no less than 3% below nor more than 5%
above the rate established for the most recent auction average of United States
Treasury Bills with maturities of 13 weeks. Nevertheless, the interest rate
will not be less than 2% per annum or more than 12% per annum. Interest will be
accrued daily and compounded daily. Holders of daily notes will be notified by
first-class mail of any monthly adjustments in the interest rate.
Redemption of Securities at Option of Holder.
One-Month Term Notes. The holder of a one-month term note will have the
right, at the holder's option, to redeem the term note prior to maturity, in
whole or in part. Upon early redemption, the holder will forfeit all accrued
interest on the principal amount redeemed unless Thaxton Group, in its sole
discretion, elects to waive all or a portion of the forfeited interest.
Six, 12, 36 or 60-Month Term Notes. The holder of a six, 12, 36, or 60-month
term note will have the right, at the holder's option, to redeem the note prior
to maturity. If the holder redeems prior to maturity, the holder will forfeit
an amount equal to the difference between the amount of interest actually
accrued on the six, 12, 36 or 60-month term note since the date of issuance or
most recent extension and the amount of interest that would have accrued on the
term note had the rate of interest been 3% less than the rate in effect at the
date issuance or most recent extension unless Thaxton Group, in its sole
discretion, elects to waive all or a portion of the penalty. When necessary,
forfeited interest already paid to or for the account of the holder will be
deducted from the amount redeemed. Holders of six, 12, 36 or 60-month term
notes will also have the right to make partial redemptions prior to maturity. A
partial redemption may not, however, reduce the principal amount to less than
$1,000. The interest rate penalty for each redemption of a six, 12, 36 or 60-
month term
10
<PAGE>
note will be calculated only upon the principal amount of the term note
redeemed. Six, 12, 36 or 60-month term notes may be redeemed before maturity
without interest rate penalty upon the death of any holder or if the holder is
determined to be legally incompetent by a court or any other administrative
body of competent jurisdiction. Thaxton Group retains the right to require the
holder of a six, 12, 36 or 60-month term note to give it 30 days' prior written
notice, by first class mail, of a redemption request, which notice shall
specify the principal amount of the term note to be redeemed and the redemption
date.
Daily Notes. The holder of a daily note will have the right, at the holder's
option, to redeem the daily note at any time, in whole or in part, without
penalty. If the holder redeems a daily note in full, the holder must surrender
the daily note to Thaxton Group. Thaxton Group shall fully discharge the
obligations under the daily note by payment to the holder of the outstanding
principal amount of the daily note, together with any accrued but unpaid
interest, as reflected on the books of Thaxton Group.
Possible 30 Day Notice Requirement for Redemption by Holders. As noted
above, Thaxton Group, in its sole discretion, may at any time require holders
of six, 12, 36, or 60-month term notes to give it 30 days prior written notice,
by first class mail, of a redemption request. If it elects to impose this
requirement, it expects to do so by informing holders of the securities of the
requirement personally when they are present in the offices of Thaxton Group or
its subsidiaries where the securities may be presented for redemption or by
appropriate signage in these offices. Thaxton Group may also give this notice
by mailing letters to holders of the securities. Interest will continue to
accrue if Thaxton Group should impose this notice requirement.
General Provisions Applicable to All Securities
Optional Redemption by Thaxton Group. Thaxton Group will have the right, at
its option, to redeem the six, 12, 36, or 60-month term notes, in whole or in
part, at any time. Interest on the redeemed securities will continue to accrue
until the date of redemption and no premium shall be paid on the redeemed
securities. Thaxton Group will give the holder not less than 30 days' prior
written notice by first class mail of each redemption, specifying, among other
things, the principal amount of the security to be redeemed and the redemption
date. The principal amount of the security specified in the notice, together
with interest accrued and unpaid on the security to the date of redemption,
will become due and payable on the redemption date.
Subordination. The discussion that follows in this subsection is a brief
summary of the effect of the subordination of the securities. We believe that
to properly understand this effect, you must understand the definition of the
terms "Senior Indebtedness" and "Indebtedness." For this reason, we have used
within this subsection of the prospectus only these terms as they are defined
in the indenture for the securities.
"Senior Indebtedness" means Indebtedness of Thaxton Group outstanding at any
time, other than
. Indebtedness of Thaxton Group to a subsidiary for money borrowed or
advanced from any such subsidiary; or
. Indebtedness which by its terms is not superior in right of payment to
the securities.
"Indebtedness" means the principal of, and premium, if any, and interest on,
(1) any debt of Thaxton Group for borrowed money whether or not evidenced
by a note, debenture, bond or similar instrument, including
indebtedness represented by a purchase money obligation given in
connection with the acquisition of any property or assets, including
securities;
(2) any debt of others described in the preceding clause (1) which Thaxton
Group has guaranteed or for which it is otherwise liable; and
(3) any amendment, renewal, extension or refunding of any such debt.
The indebtedness evidenced by the securities is subordinate to the prior
payment when due of the principal of and interest on all Senior Indebtedness.
Upon maturity of any Senior Indebtedness, payment in full must be
11
<PAGE>
made on the Senior Indebtedness before any payment is made on or in respect of
the securities. During the continuance of any default in payment of principal
of, or premium, if any, or interest or sinking fund on any Senior Indebtedness,
or any other event of default for Senior Indebtedness which maturity has been
accelerated, Thaxton Group may not make or agree to make any direct or indirect
payment on the securities. Upon any distribution of assets of Thaxton Group in
any dissolution, winding up, liquidation or reorganization, payment of the
principal of and interest on the securities will be subordinated to the prior
payment in full of all Senior Indebtedness. The indenture does not limit
Thaxton Group's ability to increase the amount of Senior Indebtedness or to
incur any additional indebtedness in the future that may affect its ability to
make payments under the securities. Except as described above, the obligation
of Thaxton Group to make payment of principal or interest on the securities
will not be affected. The holders of the securities will be subrogated to the
rights of the holders of the Senior Indebtedness to the extent of payments made
on Senior Indebtedness come out of the distributive share of the securities. By
reason of this subordination, in the event of a distribution of assets of
Thaxton Group upon insolvency, some general creditors of Thaxton Group may
recover more, ratably, than holders of the securities.
Subordination Related to Corporate Structure. The securities will be
obligations of Thaxton Group only. Thaxton Group does business through
subsidiary corporations. Thaxton Group's rights and the rights of its
creditors, including the holders of the securities, to participate in the
distribution of the assets of any of Thaxton Group's subsidiaries upon
liquidation, dissolution or reorganization of a subsidiary will be subject to
the prior claims of the subsidiaries' creditors. Thaxton Group may, however,
itself be a creditor with recognized claims against the subsidiary, and these
claims may be equal in right of payment to the claims of the subsidiaries'
creditors.
Defaults and Remedies. The term "event of default" when used in connection
with the securities generally means any one of the following:
(1) failure of Thaxton Group to pay interest when due, which failure
continues for 30 days, or failure to pay principal of any of the
securities when due, whether or not prohibited by the subordination
provisions; and
(2) some events of bankruptcy, insolvency or reorganization involving
Thaxton Group or some of its subsidiaries.
The indenture provides that the trustee will, within 90 days after the
occurrence of a default, mail to the holders notice of all uncured defaults
known to it. Except in the case of default in the payment of principal of or
interest on any of the securities, the trustee shall, however, be protected in
withholding notice if it in good faith determines that the withholding of
notice is in the interest of the holders. The term "default" for this purpose
shall only mean the happening of any event of default described above,
excluding grace periods.
If an event of default occurs and is continuing, the trustee or the holders
of not less than 25% in aggregate principal amount of any series of the
securities then outstanding may declare the principal of and all accrued
interest on all of the securities of the series to be due and payable
immediately. The trustee shall notify Thaxton Group in writing of this
declaration, and, if the holders of the securities desire to make this
declaration, they must also notify the trustee in writing of the declaration of
acceleration. The holders of a majority in principal amount of the series of
securities may rescind the declaration if:
(1) Thaxton Group has paid or deposited with the trustee a sum sufficient
to pay all overdue interest on the series of securities and principal
of any securities which have become due except as the result of the
declaration of acceleration; and
(2) all existing events of default have been cured or waived.
Upon the occurrence of conditions specified in the indenture, the holders of
a majority in principal amount of a series of securities may waive all
defaults, except uncured defaults in payment of principal of or interest
12
<PAGE>
on the securities or uncured defaults under a provision which cannot be
modified under the terms of the indenture without the consent of each holder
affected. The indenture requires Thaxton Group to file periodic reports with
the trustee as to the absence of defaults.
No director, officer, employee or shareholder of Thaxton Group shall have
any liability for Thaxton Group's obligations under the securities or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder by accepting a security waives and releases all of this
liability. The waiver and release are part of the consideration for the
issuance of the securities.
Consolidation, Merger, Conveyance, Transfer or Lease. Thaxton Group may not
consolidate with, merge into, or transfer or lease substantially all of its
assets to, any other corporation other than a subsidiary, unless the successor
corporation assumes all obligations of Thaxton Group under the indenture and
the securities. To effectuate these types of transactions, other conditions are
required to be met as well. Thereafter all of the obligations under the
indenture will terminate and the successor corporation formed by a
consolidation or into which Thaxton Group is merged or to which a transfer or
lease is made will succeed to all rights and powers of Thaxton Group under the
indenture.
Securities Non-Negotiable. The securities are non-negotiable and no rights
of ownership may be transferred by mere endorsement and delivery of the
securities to a purchaser. All transfers and assignments of securities may be
made only at the offices of Thaxton Group, upon presentation of the security
and recordation of the transfer or assignment in the books of Thaxton Group.
The securities are not transferable to any person who is a resident of a state
where the offering of the securities has not been registered under applicable
state securities laws, unless an exemption from registration is available.
Modification of the Indenture. The indenture contains provisions permitting
Thaxton Group and the trustee, without the consent of any holder,
. to supplement or amend the indenture under specified circumstances,
including to cure any ambiguity;
. to correct or supplement any other provision in the indenture;
. to evidence the succession of a successor to Thaxton Group or the
trustee;
. to add to the covenants of Thaxton Group for the benefit of the holders
or additional events of default;
. to secure the securities; or
. to add any other provisions with respect to matters or questions arising
under the indenture which Thaxton Group and the trustee deem necessary
or desirable and which do not adversely affect the interests of the
holders.
Otherwise, the rights and obligations of Thaxton Group and the rights of the
holders may be modified by Thaxton Group and the trustee only with the consent
of the holders of a majority in principal amount of each series of securities
then outstanding. No reduction in the principal of or the interest rate on the
securities or in the percentage of holders required for modification of the
indenture and no extension of the maturity of any securities or in the time of
payment of interest will be effective against any holder without his or her
consent.
The Company as Paying Agent. Thaxton Group shall make all principal and
interest payments to the holders, and Thaxton Group shall provide notice of the
payment to the trustee.
Satisfaction and Discharge of Indenture. The indenture will be discharged
and canceled upon payment of all the securities or upon deposit with the
trustee of funds sufficient for the payment or redemption of the securities,
within not more than one year prior to the maturity of all of the securities.
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<PAGE>
The Trustee. The trustee is The Bank of New York, a New York banking
corporation, whose principal corporate trust office is in New York City. Notice
to the trustee should be directed to The Bank of New York, Towermarc Plaza,
10161 Centurion Parkway, Jacksonville, Florida 32256, Attention: Assistant
Treasurer.
The holders of a majority in principal amount of all outstanding series of
securities have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, provided
that this direction
. would not conflict with any rule of law or with the indenture;
. would not be prejudicial to the rights of another holder; and
. would not subject the trustee to personal liability.
The indenture provides that in case an uncured event of default should occur
and be known to the trustee, the trustee will be required to use the degree of
care of a prudent man in the conduct of its own affairs in the exercise of its
power. Subject to using this standard, the trustee will be under no obligation
to exercise any of its rights or powers under the indenture at the request of
any of the holders unless they shall have offered to the trustee security and
indemnity satisfactory to it.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information as
of September 30, 2000 and for the nine-month periods ended September 30, 1999
and 2000 and each of the two fiscal years in the period ended December 31,
1999, which should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The selected consolidated financial information for the fiscal years ended
December 31, 1999 and 1998 has been derived from our consolidated financial
statements, which were audited by Cherry, Bekaert & Holland, LLP, independent
auditors. The financial information for the nine-month periods ended September
30, 1999 and 2000 and as of September 30, 2000 has been derived from our
unaudited financial statements. In the opinion of management, the unaudited
interim consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the consolidated financial position and consolidated results of operations
for these periods. The unaudited interim consolidated results of operations are
not necessarily indicative of the consolidated results of operations for any
other interim period or for any fiscal year as a whole.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September
December 31, 30,
---------------- ----------------
1998 1999 1999 2000
------- ------- ------- -------
(Unaudited)
(Dollars in thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Income Statement Data:
Interest and fee income.................... $15,728 $60,392 $44,074 $47,560
Interest expense........................... 5,037 18,114 14,583 15,557
------- ------- ------- -------
Net interest income........................ 10,691 42,278 29,490 32,003
Provision for credit losses................ 4,047 11,938 8,772 10,884
------- ------- ------- -------
Net interest income after provision for
credit losses............................. 6,644 30,340 21,164 21,159
Insurance commissions, net................. 6,591 11,259 6,498 9,715
Other income............................... 962 6,496 8,849 7,625
Operating expenses......................... 15,778 45,702 34,146 37,712
Income tax expense (benefit)............... (497) 1,206 937 583
------- ------- ------- -------
Income (loss) from continuing operations... $(1,084) $ 1,187 $ 982 $ 205
======= ======= ======= =======
Discontinued operations net loss........... $ (0) $(1,542) $ (886) $ (475)
Net income (loss).......................... $(1,084) $ (355) $ 96 $ (271)
======= ======= ======= =======
Net Income (loss) per common share......... $ (0.35) $ (0.26) $ (0.06) $ (0.12)
Average common shares outstanding.......... 3,803 6,976 6,995 6,975
Operating Data:
Average interest rate earned(1)(2)......... 29.72% 33.63% 39.12% 37.55%
Average interest rate paid(2).............. 9.27% 9.16% 10.17% 9.87%
Net interest spread(2)..................... 20.45% 24.47% 28.95% 27.68%
Net interest margin(2)(3).................. 21.47% 23.81% 20.56% 20.30%
Allowance for credit losses as a percentage
of net finance receivables(4)............. 8.39% 6.59% 6.81% 6.07%
Allowance for credit losses, dealer
reserves and discount on bulk purchases as
a percentage of net finance
receivables(4)............................ 10.60% 7.02% 7.55% 6.78%
Net charge-offs as a percentage of average
net finance receivables(2)................ 7.64% 7.58% 7.69% 8.53%
</TABLE>
--------
(1) Average interest rate earned represents interest and fee income for the
period divided by average net finance receivables during the period.
(2) Percentages for the nine-months ended September 30, 1999 and 2000 are
computed using annualized operating data which do not necessarily
represent the comparable data for a full twelve-month period.
(3) Net interest margin represents net interest income for the period divided
by average net finance receivables during the period.
(4) Net finance receivable balances are determined net of unearned finance
charges only.
15
<PAGE>
<TABLE>
<CAPTION>
At Year Ended
December 31,
------------------ At September 30,
1998 1999 2000
-------- -------- ----------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Finance receivables........................ $ 80,685 $213,170 $224,663
Unearned income(1)......................... (14,104) (39,642) (39,622)
Allowance for credit losses................ (4,711) (10,661) (10,597)
Finance receivables, net................... 61,870 162,867 174,416
Total assets............................... 78,996 234,935 243,904
Total liabilities.......................... 66,067 225,132 236,413
Shareholders' equity....................... 12,929 9,803 7,491
</TABLE>
--------
(1) Includes unearned finance charges, dealer reserves on used automobile
sales contracts and discounts on bulk purchases. Dealer reserves and
discounts on bulk purchases totaled $1,241,633 and $704,657 at December
31, 1998, and 1999, respectively, and $1,220,265 at September 30, 2000.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Credit Loss Experience."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Development of Our Business
We are a diversified consumer financial services company engaged in the
origination and servicing of loans made to credit-impaired borrowers, used
automobile lending through the purchase and servicing of used automobile sales
contracts, insurance premium finance lending through the purchase of insurance
premium finance contracts, selling insurance products on an agency basis,
originating residential mortgage loans, and the factoring of accounts
receivable and the origination and servicing of small commercial loans to small
and medium sized businesses.
Recent Expansion Activities. We expanded our business significantly in 1998,
1999 and 2000, principally through acquisitions.
1998 Acquisitions. Our business expanded in 1998 with the addition of our
commercial finance business and with the growth of our consumer finance and
mortgage brokerage businesses. A wholly-owned subsidiary, Thaxton Commercial
Lending, Inc. began our commercial finance business, which consists of making
factoring and secured commercial loans to small and medium-sized businesses. We
also increased the size of our consumer finance business in 1998 with the
opening of consumer finance offices in Charlotte, North Carolina, Beaufort,
South Carolina and the acquisition of Budget Financial Service, Inc.'s consumer
finance offices in Amory and Aberdeen, Mississippi and in Vernon and Hamilton,
Alabama. Finally, the growth of our business in 1998 was completed with the
acquisition of Paragon, Inc. in November of that year. Paragon, Inc. is a
mortgage banking company engaged in the origination, funding, and whole loan
sale of primarily "B" and "C" credit quality residential mortgages.
1999 Acquisition of FirstPlus Consumer Finance offices. In February 1999 we
acquired 144 consumer finance offices formerly owned by FirstPlus Consumer
Finance, Inc. ("FirstPlus"). Originally, these offices were owned and operated
by Thaxton Investment Corporation ("Thaxton Investment"). Thaxton Investment
was formed specifically for this purpose, and was wholly owned by James D.
Thaxton, a 90% shareholder and Chief Executive Officer of Thaxton Group. On
November 8, 1999, Thaxton Investment was merged into Thaxton Group under the
terms of the Plan of Share Exchange Agreement dated as of September 30, 1999
among Thaxton Group, Thaxton Investment, Thaxton Operating Company and Mr.
James D. Thaxton. Mr. Thaxton, the sole shareholder of Thaxton Investment,
transferred all of his shares of common stock of Thaxton Investment to Thaxton
Group in exchange for 3,223,000 shares of common stock of Thaxton Group. At the
time of the merger, Thaxton Group's management estimated that the aggregate
fair market value of the common stock of Thaxton Group issued to Mr. Thaxton at
approximately $30,000,000. Because Thaxton Investment and Thaxton Group had
been under common ownership and control since February 1999, Thaxton Group's
acquisition of Thaxton Investment was accounted for at historical cost in a
manner similar to pooling of interests accounting.
2000 Acquisition of Quick Credit. On August 18, 2000, the Company acquired
all of the stock of Quick Credit Corporation, a consumer finance company with
25 branch offices located in South Carolina. The purchase price was $12.75
million in cash. This acquisition was accounted for as a purchase and resulted
in goodwill of approximately $5.0 million which is being amortized over 15
years.
Discontinued Operations. On March 1, 2000, the Company transferred all of the
assets and liabilities of 32 insurance agency operations to a newly formed
subsidiary, Thaxton RBE, Inc. ("Thaxton RBE"). The purpose of the transfer was
to place the insurance operations in a separate entity to facilitate raising
capital to fund the specialized non-standard automobile insurance business of
Thaxton RBE. Immediately after the transfer, Thaxton Life Partners, Inc.
acquired 90% of the equity of Thaxton RBE for $2 million. Thaxton Life
Partners, Inc., is owned by James D. Thaxton, the chairman and majority
shareholder of Thaxton Group, C.L. Thaxton, Sr., is a director of Thaxton
Group, and other Thaxton family members. At March 31, 2000, the Company had a
net receivable from Thaxton RBE of $5 million.
17
<PAGE>
During the third quarter of 2000, the Company decided to dispose of its
remaining interest and investment in Thaxton RBE as soon as suitable financing
for Thaxton RBE could be obtained. On August 31, 2000, Thaxton Life Partners
arranged financing for Thaxton RBE independent of the Company, purchased the
Company's remaining 10% interest in Thaxton RBE and all amounts owed to the
Company by Thaxton RBE were paid in full. The Company recorded a loss, net of
income tax benefit, from the discontinuance of operations of Thaxton RBE of
$1,542,409 for the year ended December 31, 1999 and $475,268 for the nine
months ended September 30, 2000. For additional information about the effects
of the discontinued operations, see Note 14 to the Company's consolidated
financial statements for the years ended December 31, 1999 and 2000.
Results of Operations
Comparison of Nine-Months Ended September 30, 1999 to Nine-Months Ended
September 30, 2000
Net finance receivables increased 7% for the first nine-months of 2000 to
$174,444,000 from $162,827,000 for the same period in 1999. This was primarily
due to the purchase of Quick Credit Corporation.
Interest and fee income increased 8% in the first nine-months of 2000 to
$47,560,000 from $43,950,000 in the same period in 1999, primarily because the
operations of the finance offices acquired from FirstPlus were included in the
Company financial results for only eight months in 1999, and the entire nine-
months in the current year in 2000. The acquisition of Quick Credit also
contributed to the increase in interest and fee income in the first nine months
of 2000.
Interest expense increased to $15,557,000 for the first nine-months of 2000
from $14,014,000 in the same period in 1999. This increase was primarily
attributable to interest rate increases in our variable rate credit facility
resulting from increases in the prime rate, as well as the First Plus
acquisition being included in our results of operations for only eight months
of 1999.
Insurance commissions net of insurance cost increased to $9,715,000 for the
nine months ended September 30, 2000 from $6,498,000 for the same period of
1999, due to increased sale of insurance products in additional branch
locations in our insurance operations.
Operating expenses increased to $37,712,000 for the nine-months ended
September 30, 2000 from $34,146,000 for the comparable period of 1999, a 12%
increase, primarily as a result of additional branch locations operating in the
current year.
As a result of the above, the Company generated $205,000 in net income from
continuing operations for the nine months ended September 30, 2000 versus
$982,000 for the nine-months ended September 30, 1999.
Stockholders' equity decreased from $9,803,000 at December 31, 1999 to
$7,490,000 at September 30, 2000, a 25% decrease, primarily due to the
repurchase of $1,500,000 of preferred stock in March 2000.
Comparison of Fiscal Year Ended December 31, 1999 to Fiscal Year Ended
December 31, 1998
Finance receivables at December 31, 1999 were $224,570,141 versus
$80,684,786 at December 31, 1998, a 178% increase. The increase was primarily
attributable to the acquisition of 144 consumer finance offices from FirstPlus
in 1999.
Unearned income at December 31, 1999 was $38,184,319 versus $12,862,542 at
December 31, 1998. This increase was primarily attributable to the receivables
acquired from FirstPlus.
The allowance for credit losses increased to $10,661,339 at December 31,
1999 versus $4,710,829 at December 31, 1998, a 126% increase. This increase was
primarily attributable to the $6.7 million additional
18
<PAGE>
allowance acquired in the course of the FirstPlus acquisition. Credit losses
increased to $12,263,478 for 1999 versus $4,145,031 for 1998, an increase of
296%, again a function of the increased receivables associated with the
FirstPlus acquisition. However, credit losses expressed as a percentage of
ending net finance receivables remained constant at 6.2% for both 1999 and
1998.
Interest and fee income for the twelve months ended December 31, 1999 was
$60,392,123 compared to $15,727,484 for the twelve months ended December 31,
1998, a 284% increase. Interest expense also increased to $18,113,990 for the
twelve months ended December 31, 1999 versus $5,037,289 for the comparable
period of 1998, an increase of 260%. The larger levels relate directly to the
larger portfolio, and related levels of borrowings associated with the
FirstPlus Acquisition. Additionally, our overall interest cost of borrowings,
as related to earning assets, increased in 1999 as a result of higher leverage
associated with the FirstPlus acquisition.
Provision for credit losses increased significantly between years, from
$4,046,460 in 1998 to $11,937,679 in 1999, or a 195% increase. Our credit
losses, as a percentage of ending net finance receivables remained constant at
6.2% between years and the increase in provision for credit losses was
primarily the result of the increased receivables and operational activity
associated with the FirstPlus acquisition.
Insurance premiums and commissions net of insurance cost increased to
$11,259,084 for the twelve months ended December 31, 1999 from $6,590,849 for
the comparable period of 1998, a 71% increase. This was primarily due to
increased sales of insurance products to borrowers, brought about by management
emphasis on this product line. Other income increased from $962,398 for the
twelve months ended December 31, 1998 to $3,358,515 for the comparable period
of 1999 due primarily to increased activity from the FirstPlus acquisition and
the additional insurance agency offices.
Total operating expenses increased from $15,777,486 for the twelve months
ended December 31, 1998 to $45,702,000 for the comparable period of 1999, a
192% increase. The increase in expenses was due, in large part, to the
acquisition in the latter part of 1998 of Paragon, the four finance offices
from Budget; and the 1999 acquisition of 144 consumer finance offices from
FirstPlus. Additionally, there was a general increase in other operating costs
associated with administering a larger finance receivable portfolio and
additional branch offices.
For the twelve months ended December 31, 1999, The Company generated a
pretax profit of $2,393,000, and a net loss of $355,190 as compared to a pretax
and net loss of $1,580,584 and $1,084,017 for the comparable period of 1998.
The 1999 pretax profit, and reduced net loss between years, was attributed to
improved performance in the consumer finance business.
Stockholders' equity decreased from $12,928,872 at December 31, 1998 to
$9,802,578 at December 31, 1999 primarily as a result of the Company's
repurchase and retirement of 132,859 shares of common stock, 70,850 shares of
Series A and Series D preferred stock, dividends paid on preferred stock of
$734,012, and the net loss from operations of $355,190.
Credit Loss Experience
Provisions for credit losses are charged to income in amounts sufficient to
maintain this allowance at a level considered adequate to cover the expected
future losses of principal and interest in the existing finance receivable
portfolio. Credit loss experience, contractual delinquency of finance
receivables, the value of underlying collateral, and management's judgment are
factors used in assessing the overall adequacy of the allowance and resulting
provision for credit losses. Our reserve methodology is designed to provide an
allowance for credit losses that, at any point in time, is adequate to absorb
the charge-offs expected to be generated by the finance receivable portfolio,
based on events or losses that have occurred or are known to be inherent in the
portfolio. The model utilizes historical charge-off data to predict the charge-
offs likely to be generated in the future by the existing finance receivable
portfolio. The model takes into consideration overall loss levels, as well as
losses by originating office and by type, and develops historical loss factors
which are applied to the current portfolio. In addition, changes in dealer and
bulk purchase reserves are reviewed for each
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individual dealer and bulk purchase, and additional reserves are established
for any dealer or bulk purchase if coverage is deemed to have declined below
adequate levels. Our charge-off policy is based on an account by account review
of delinquent receivables. Losses on finance receivables secured by automobiles
are recognized at the time the collateral is repossessed. Other finance
receivables are charged off when they become contractually past due 180 days,
unless extenuating circumstances exist leading management to believe the
finance receivables will be collectible. Finance receivables may be charged off
prior to the normal charge-off period if management deems them to be
uncollectible.
Under our dealer reserve arrangements, when a dealer assigns a used
automobile sales contract to us, we withhold a percentage of the principal
amount of the contract, usually between five and ten percent. The amounts
withheld from a particular dealer are recorded in a specific reserve account.
Any losses incurred on used automobile sales contracts purchased from that
dealer are charged against its specific reserve account. If at any time the
balance of a dealer's specific reserve account exceeds the amount derived by
applying the withheld percentage to the total amount of principal and interest
due under all outstanding used automobile sales contracts purchased from the
dealer, the dealer is entitled to receive distributions from the specific
reserve account in an amount equal to the excess. If we continue to purchase
used automobile sales contracts from a dealer, distributions of excess dealer
reserves generally are paid quarterly. If we do not continue to purchase used
automobile sales contracts from a dealer, distributions of excess dealer
reserves are not paid out until all used automobile sales contracts originated
by that dealer have been paid in full. The aggregate balance of all specific
reserve accounts, including unpaid excess dealer reserves, are reflected in the
balance sheet as a reduction of finance receivables. Our allowance for credit
losses is charged only to the extent that the loss on a used automobile sales
contract exceeds the originating dealer's specific reserve account at the time
of the loss.
We periodically purchase used automobile sales contracts in bulk. In a bulk
purchase arrangement, we typically purchase a portfolio of used automobile
sales contracts from a dealer at a discount to par upon our management's review
and assessment of the portfolio. This discount is maintained in a separate
account against which losses on the bulk portfolio purchased are charged. To
the extent losses experienced are less than the discount, the remaining
discount is accreted into income.
The following table sets forth our allowance for credit losses and credit
loss experience at or over the periods presented.
<TABLE>
<CAPTION>
At or for year ended At or for the Nine months
December 31 ended September 30,
------------------------- --------------------------
1998 1999 1999 2000
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net finance
receivables(1)......... $56,130,791 $161,805,620 $162,827,219 $174,444,342
Allowance for credit
losses................. 4,710,829 10,661,339 11,094,309 10,596,974
Allowance for credit
losses as a percentage
of net finance
receivables(1)......... 8.39% 6.59% 6.81% 6.07%
Dealer reserves and
discounts on bulk
purchases.............. $ 1,241,633 $ 704,657 1,202,000 1,232,798
Dealer reserves and
discounts on bulk
purchases as percentage
of net automobile sales
contracts at period
end.................... 3.46% 2.62% 3.18% 3.69%
Allowance for credit
losses and dealer
reserves and discount
on bulk purchases(2)... $ 5,952,462 $ 11,365,996 12,293,455 11,827,326
Allowance for credit
losses and dealer
reserves as a
percentage of finance
receivables............ 10.60% 7.02% 7.55% 6.78%
Provision for credit
losses................. $ 4,046,460 11,937,679 8,772,823 10,844,168
Charge-offs (net of
recoveries)............ 4,145,031 12,263,478 8,665,652 10,908,533
</TABLE>
--------
(1) Net finance receivable balances are presented net of unearned finance
charges, and exclude mortgage warehoused loans and commercial finance
receivables. Average net finance receivables are computed using month-end
balances.
20
<PAGE>
The following table sets forth important information concerning our premium
finance contracts at the end of the periods indicated:
<TABLE>
<CAPTION>
At December 31, At September 30,
-------------------- --------------------
1998 1999 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Premium finance contracts
contractually past due 60 days or
more(1)........................... $ 119,345 241,804 272,320 268,456
Premium finance contracts
outstanding(1).................... 3,228,160 8,029,703 8,060,430 7,880,834
Premium finance contracts
contractually past due 60 days or
more as a percentage of premium
finance contracts................. 3.6% 3.0% 3.4% 3.4%
</TABLE>
--------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases.
Liquidity and Capital Resources
We generally finance our operations through cash flow from operations and
borrowings under revolving credit facilities with FINOVA and the sale of the
securities offered by this prospectus.
Our credit facilities consist of two primary tranches for Thaxton Group and
two primary tranches for Thaxton Investment. The primary tranches, tranches A
and B, are used to finance consumer receivables. Tranche A advances accrue
interest at the prime rate + 1.25% for Thaxton Group and the prime rate + 1.00%
for Thaxton Investment. Tranche B advances accrue interest at the prime rate +
5.00% for Thaxton Group and the prime rate + 3.50% for Thaxton Investment The
prime rate is the prime rate published by Citibank, N.A., or other money center
bank as FINOVA may select. The credit facilities mature in 2004. The interest
rates are adjusted monthly to reflect fluctuations in the designated prime
rate. Accrued interest on borrowings is payable monthly. Under each facility,
principal is due in full on the maturity date and can be prepaid without
penalty. Substantially all of Thaxton Group's and its subsidiaries' assets
secure their revolving credit facility, which requires the borrowers to comply
with restrictive covenants, including financial condition covenants. The
security and covenants for Thaxton Investment's facility are substantially the
same as those for Thaxton Group's facility. Maximum borrowings for the credit
facilities are limited to $232 million.
As of September 30, 2000, $58 million was outstanding under Thaxton Group's
revolving credit facility all under tranche A. As of September 30, 2000, there
were no advances under Tranche B. Under the terms of the revolving credit
facility, Thaxton Group's net finance receivables as of September 30, 2000
would have allowed it to borrow an additional $11 million against existing
collateral, with $38 million of total potential capacity available for
borrowing against qualified finance receivables generated in future periods. As
of September 30, 2000, the interest rates for borrowings were 9.50% tranche A
to 14.5% for tranche B.
As of September 30, 2000, $112 million was outstanding under Thaxton
Investment's revolving credit facility, at which $102 million was advanced
under the tranche A and $10 million under tranche B. This facility provides for
advances up to $150 million. Borrowing availability is, however, limited to
outstanding eligible receivables. As a result, Thaxton Investment's eligible
receivables as of September 30, 1999 would have allowed it to borrow $2.6
million in excess of its outstanding indebtedness as of that date.
Beginning in March 1998, the Company registered under the Securities Act of
1933, as amended, a continuous offering of up to $50 million of subordinated
notes which are sold primarily to individual investors in South Carolina, Ohio,
and North Carolina. The maturities of the notes range from a daily (or demand)
note to a sixty-month note. Interest rates vary in accordance with the fixed
rates offered by the Company from time to time. The notes are currently offered
at rates ranging from 6.5% to 7.75%. As of September 30, 2000, approximately
$43 million of these notes were outstanding. The net proceeds from the sale of
these notes are used to temporarily reduce the Company's borrowings under its
credit facilities with FINOVA.
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<PAGE>
Management believes that the maximum borrowings available under the
Company's credit facilities with FINOVA, the net proceeds from the continued
sale of subordinated notes, together with cash expected to be generated from
operations, will provide the resources necessary to fund the Company's
liquidity and capital needs through 2001.
Net Interest Margin
The principal component of our profitability is our net interest spread,
which is the difference between interest earned on finance receivables and
interest expense paid on borrowed funds. Statutes in some states regulate the
interest rates that we may charge our borrowers, while interest rates in other
states are unregulated and, consequently, competitive market conditions
establish these rates. Significant differences exist in the interest rates
earned on the various components of our finance receivable portfolio. The
interest rate earned on used automobile sales contracts generally is lower than
the interest rates earned on direct consumer loans due to competition from
other lenders, superior collateral and longer terms. The interest rates earned
on premium finance contracts are state regulated and vary based on the type of
underlying insurance and the term of the contract.
Unlike our interest income, our interest expenses are sensitive to general
market fluctuations in interest rates. The interest rates paid to our primary
lender, FINOVA, are based upon a published prime rate plus set percentages.
Thus, general market fluctuations in interest rates directly impact our cost of
funds. Our general inability to increase the interest rates earned on finance
receivables may impair our ability to adjust to increases in the cost of funds
resulting from changes in market conditions. Accordingly, increases in market
interest rates generally will narrow our interest rate spread and lower our
profitability, while decreases in market interest rates generally will widen
our interest rates spreads and increase profitability.
The following table presents important data relating to our net interest
margin.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------- --------------------------
1998 1999 1999 2000
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average net finance
receivables(1)......... $52,919,907 $178,630,026 $150,222,994 $168,861,276
Average notes
payable(1)............. 47,095,575 191,663,621 191,211,077 210,182,066
Interest and fee
income(2).............. 15,727,484 60,073,689 44,073,585 47,560,269
Interest expense(2)..... 4,366,757 17,549,804 14,583,095 15,556,771
Net interest income..... 11,360,727 42,523,885 29,490,490 32,003,497
Average interest rate
earned(1).............. 29.72% 33.63% 39.12% 37.55%
Average interest rate
paid(1)................ 9.27% 9.16% 10.17% 9.87%
Net interest rate
spread................. 20.45% 24.47% 28.95% 27.68%
Net interest margin(3).. 21.47% 23.81% 20.56% 20.30%
</TABLE>
--------
(1) Averages are computed using month-end balances during the year presented.
(2) Excludes Thaxton Insurance Group, Inc. interest income and expense and
Paragon, Inc. loan fee income.
(3) Net interest margin represents net interest income divided by average net
finance receivables.
Impact of Inflation and General Economic Conditions
Although we do not believe that inflation directly has a material adverse
effect on our financial condition or results of operations, increases in the
inflation rate generally are associated with increased interest rates. Because
we borrow funds on a floating rate basis and generally extend credit at the
maximum interest rates permitted by law or market conditions, increased
interest rates would increase our cost of funds and could materially impair our
profitability. We intend to explore opportunities to fix or cap the interest
rates on all or a portion of our borrowings. We can, however, give no assurance
that fixed rate or capped rate financing will be available on terms acceptable
to us. Inflation also may affect our operating expenses. Other general economic
conditions in the United States could affect our business, including economic
factors affecting the ability of our customers or prospective customers to
purchase used automobiles and to obtain and repay loans.
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<PAGE>
Accounting Matters
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement addresses the accounting for derivative
instruments, including some types of derivative instruments imbedded in other
contracts, and hedging activities. SFAS No. 133, as amended by SFAS No. 137 and
SFAS No. 138, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. We do not anticipate the adoption of the
provisions of SFAS No. 133 will have a material impact on our financial
position and results of operations.
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<PAGE>
BUSINESS
General
Before reading the following detailed description of our business, you
should read the "Prospectus Summary" section of this prospectus. It contains a
general overview of our business that is not repeated here in order to avoid
unnecessary redundancy. For a complete understanding of our business and
competitive strengths and weaknesses, you should also read the sections of this
prospectus entitled "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Lines of Business
Direct Consumer Lending. Making small loans to borrowers with impaired
credit is our largest line of business. We have been in this business since
1985. Direct loans are relied upon by credit-impaired borrowers to meet short-
term cash needs, finance purchases of consumer goods or refinance existing
indebtedness. Almost all of our direct loans are unsecured. Only about 10% of
these loans are secured, typically by first or second liens on real property.
The usual term of a direct loan is 15 months. Interest rates on direct loans
vary based on a number of factors, the most important of which is the extent to
which the borrower's state of residence regulates interest rates. Some states
in which we operate permit consumer lenders to simply post a maximum rate of
interest in filings with regulatory authorities. In these states we typically
post a maximum annual interest rate of 69%. Other states where we have offices
impose specific maximum annual interest rates on direct loans that range from
10% to 36%. Other factors that we consider in setting the interest rate on a
particular direct loan are the credit profile of the borrower, the type and
value of any collateral and competitive market conditions.
Each applicant for a direct loan must pass a thorough credit review. This
review is conducted by the manager or personnel under his or her supervision in
the office where the application is taken. This review generally takes into
account the borrower's credit history, ability to pay, stability of residence,
employment history, income, discretionary income, debt service ratio, and the
value of any collateral. We use an industry standard application analysis score
sheet to compile information on the factors described above. If a direct loan
is to be secured by real estate, we obtain an appraisal of the property, obtain
a title opinion from an attorney and verify filing of a mortgage or deed of
trust before disbursement of funds to the borrower. A senior officer must
approve any direct loan to be secured by real estate. The principal competitive
factors for these types of loans is the interest rate charged and customer
service.
In connection with making direct consumer loans, we also offer, as agent,
credit life and credit accident and health insurance. Instead of filing
financing statements to perfect our security interest in the collateral on all
direct consumer loans secured by personal property other than an automobile, we
purchase non-filing insurance from an unaffiliated insurer. On these loans we
charge an amount approximately equal to the filing fees that we would have
charged to the customer if we had filed financing statements to perfect our
security interest. This amount is typically included in the amount of the loan.
We use this amount to pay premiums for non-filing insurance against losses
resulting from failure to file. Under our non-filing insurance arrangements,
approximately 90% of the premiums paid are refunded to us on a quarterly basis
and are netted against charge-offs for the period.
Used Automobile Sales Finance. Another line of business for us is the
financing of used automobile purchases. We purchase sales contracts from
independent automobile dealers who have been approved by the manager of an
individual finance office or a regional supervisor. Office managers and
regional supervisors periodically evaluate independent dealers in their market
areas to ensure that we purchase sales contracts only from reputable dealers
carrying an inventory of quality used automobiles. We enter into a non-
exclusive agreement with each dealer which sets forth the terms and conditions
on which we will purchase sales contracts. The dealer agreement generally
provides that sales contracts are sold to us without recourse to the dealer
with respect to the credit risk of the borrower. If the dealer breaches the
terms of the agreement or a
24
<PAGE>
customer withholds payment because of a dispute with the dealer regarding the
quality of the automobile purchased, the dealer typically is obligated to
repurchase the sales contract on our demand for its net unpaid balance. If the
purchaser of the automobile recovers any amount from us as a result of a claim
against the dealer, the dealer agreement provides that the dealer will
reimburse us for any amount paid the customer and for any costs we incur as a
result of the claim.
The dealer agreement allows us to withhold a specified percentage of the
principal amount of each sales contract purchased. This dealer reserve
arrangement is designed to protect us from credit losses on sales contracts.
These dealer reserves, which range from five to 10% of the net amount of each
sales contract, are negotiated on a dealer-by-dealer basis and are subject to
change based upon the collection history on sales contracts we have purchased
from the dealer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Credit Loss Experience."
In purchasing used automobile sales contracts, underwriting standards are
used that take into account principally the degree of a proposed buyer's
creditworthiness and the market value of the vehicle being financed. The office
manager, or other office personnel under the manager's supervision, conducts
the credit evaluation review. This review generally takes into account similar
factors as for our review of direct consumer loans. We generally do not finance
more than 100% of the average trade-in value of the automobile as listed in the
current edition of the National Association of Automobile Dealers Official Used
Car Guide.
From time to time we purchase used automobile sales contracts in bulk from
dealers who have originated and accumulated contracts over a period of time. By
doing so, we are able to a obtain large volumes of sales contracts in a cost-
effective manner. For bulk purchases, our underwriting standards take into
account principally the borrowers' payment history and the collateral value of
the automobiles financed. These purchases are typically made at discounts
ranging from 25% to 50% of the financed portion of the contract. Generally no
dealer reserve arrangements are established with bulk purchases. In connection
with bulk purchases, we review all credit evaluation information collected by
the dealer and the servicing and collection history of the sales contracts.
The basis on which we compete with others in used car financing is primarily
the price paid for used automobile sales contracts, which is a function of the
amount of the dealer reserve, and the reliability of service to participating
dealers. We generally do not compete for the same type of used automobile to be
financed because our competition concentrates their financing activities on
late-model used automobiles purchased from franchised dealers rather than
older-model used automobiles purchased from independent dealers, which is the
target market of our used automobile sales financing activities. The size of
our average used automobile sales contract is considerably smaller than that of
many other companies engaged in purchasing used automobile sales contracts. We
believe this is due in large part to the fact that most of our competitors are
seeking to do business primarily with franchised dealers selling late-model,
lower mileage used automobiles, coming off leases or which were rental cars,
for significantly higher prices than the prices for automobiles offered for
sale by the independent dealers with whom we have relationships. The
independent dealers from whom we purchase used automobile sales contracts
typically sell automobiles that tend to be somewhat older, higher mileage
vehicles. Because the costs of servicing and collecting a portfolio of finance
receivables increase with the number of accounts included in the portfolio, we
believe that many apparent potential competitors will choose not to do business
with independent dealers.
In connection with the origination of used automobile sales contracts, we
offer, as agent, credit life, and credit accident and health insurance.
Borrowers under sales contracts and direct loans secured by an automobile are
required to obtain comprehensive and collision insurance on the automobile that
designates us as loss payee. A loss payee is the person who receives insurance
proceeds in the event an automobile is damaged in a collision. If the borrower
allows the insurance to lapse during the term of the contract or loan, we will
purchase a vendors' single interest insurance policy, which insures us against
a total loss on the automobile. The cost of the premium will then be added to
the borrower's account balance. We also offer, as agent, limited physical
damage insurance, which satisfies the requirement that the borrower purchase
comprehensive and collision insurance.
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<PAGE>
Insurance Premium Finance. We provide short-term financing of insurance
premiums purchased indirectly through independent insurance agents. The
premiums are primarily for personal lines of insurance that are typically too
high for a credit-impaired borrower to pay in six-month increments, such as
automobile insurance. Financing the premium allows the insured to pay it in
smaller increments, usually monthly. Most agents who refer premium finance
business to us are located in North Carolina, South Carolina and Virginia. A
small amount of our business involves financing premiums for commercial lines
of insurance for small businesses, including property and casualty, business
automobile, general liability and workers' compensation. A substantial amount
of our premium finance business is derived from customers of the 48 insurance
offices owned and operated by Thaxton RBE, Inc., which is owned by Thaxton
Group CEO James D. Thaxton and members of his family. See "--Insurance Agency
Activities."
When an individual purchases an insurance policy from an agent with whom we
have a relationship, the agent will offer the opportunity to enter into a
premium finance contract that allows the insured to make a down payment and
finance the balance of the premium. The typical term of a premium finance
contract ranges from three to eight months depending primarily upon the term of
the underlying insurance policy. The required down payment ranges from 20% to
50% of the premium. We sometimes allow agencies to charge a smaller down
payment. In those instances, we have an arrangement where that agency
reimburses our premium finance company for any losses incurred in excess of 5%
of the original contract. We generally impose the maximum finance charges and
late fees that applicable state law permits for premium finance contracts,
which are extensively regulated in the states where we engage in this business.
All of the states in which we operate permit assessment of a fee of up to $15
on each premium finance contract and a maximum interest rate of 12% per annum.
Because we are able to cancel the insurance policy generally within a period of
23 to 28 days after the due date of a delinquent payment and receive a refund
of the unearned portion of the premium, the creditworthiness of the insured is
a less important factor than the size of the down payment and an efficient and
effective system for servicing and collecting our portfolio of premium finance
contracts.
Insurance Agency Activities. We sell, on an agency basis, various lines of
automobile, property and casualty, life, and accident and health insurance. The
insurance companies that we represent assume all underwriting risk on most of
the policies we sell. The insurance company that issues a policy we sell pays
us a commission based on a standard or negotiated schedule. We are eligible for
additional commission payments from some of the companies we represent if the
loss experience on the policies we sell for those companies falls below
specified levels and the total premiums on such policies exceed a specified
minimum. In 1998, we began selling a new program in North Carolina where we
assumed limited underwriting risk on non-standard automobile collision
insurance with minimum limits. In the fourth quarter of 1999, and throughout
the first half of 2000, we expanded the sale of this policy into Arizona, New
Mexico, and Colorado. This business was discontinued and sold on August 31,
2000.
Mortgage Banking Operations. As the result of an acquisition in November
1998, we began originating, closing, and funding mortgage loans primarily for
credit-impaired borrowers. We hold these loans until they can be packaged and
sold to long-term investors. We receive fee income from the borrower at the
time the mortgage loan is originated and generally sell the loan to an investor
at a premium ranging from one to five percent of the principal balance. The
amount of premium depends upon the credit quality of the borrower, the interest
rate and term of the loan and market conditions. Most of our employees engaged
in this business are located in its Charlotte, North Carolina office.
Commercial Finance. In 1998, we began making commercial loans and offering
factoring services to small business clients. Our commercial loans usually are
secured, most often with real estate. In factoring, we advance funds to the
client based upon the balance of designated accounts receivable due from their
customers. The client then assigns or sells these receivables to us, notifies
its customers to send payment directly to us and we collect the receivables and
credit the amount advanced to the client. Generally, we advance to our
factoring client 80% to 95% of the dollar value of each receivable, holding the
difference in reserve. We charge a fee equal to one to four percent of the
amount advanced for this service and may also charge interest on any
26
<PAGE>
uncollected balances. Almost all of our factoring contracts are with recourse,
which allows us to charge any uncollected receivables back to the client after
a period ranging from 60 to 90 days.
The Consumer Finance and Insurance Agency Industries
The segment of the consumer finance industry in which we operate is commonly
called the "non-prime credit market." Our borrowers under direct loans and
automobile sales contracts typically have limited credit histories, low incomes
or past credit problems. These borrowers generally do not have access to the
same sources of consumer credit as borrowers with long credit histories, no
defaults and stable employment because they do not meet the stringent objective
credit standards that most traditional lenders use. The non-prime credit market
for used automobile finance and loans is highly competitive and fragmented,
consisting of many national, regional and local competitors. New competitors
are able to enter this market with relative ease. Historically, commercial
banks, savings and loans, credit unions, financing arms of automobile
manufacturers and other lenders providing traditional consumer financing have
not consistently served this segment of the consumer finance market. Several
large bank holding companies in an effort to recapture some of the customers
their bank subsidiaries have traditionally rejected on the basis of their rigid
credit scoring systems now serve the non-prime credit market through automobile
finance subsidiaries. We also face increasing competition from a number of
companies, including bank credit card companies, providing similar financing to
individuals that cannot qualify for traditional financing. Many of these
competitors or potential competitors have significantly greater resources than
we do and have pre-existing relationships with established networks of dealers.
To the extent that any of these lenders significantly expand their activities
in the markets where we operate or plan to operate, our profitability could be
threatened.
Although the primary service-providers in the premium finance industry are
different than those who serve the non-prime credit market for direct loans and
used automobile finance, credit-impaired borrowers also are the primary
borrowers under premium finance contracts. Insurance companies that engage in
direct writing of insurance policies generally provide premium financing to
their customers who need the service. Numerous small independent finance
companies like us are engaged in providing premium financing for personal lines
of insurance purchased by credit-impaired borrowers through independent
insurance agents. Because the rates they charge are highly regulated, these
companies compete primarily on the basis of efficiency in providing the
financing and servicing the loans. A significant number of independent
insurance agents provide premium financing to their customers either directly
or through affiliated entities. As banks are allowed to enter the insurance
business, they also are increasingly engaging in the premium finance business.
Independent insurance agencies represent numerous insurance carriers and
typically place a customer's business with the carrier whose combination of
features and price best match the customer's needs. In comparison, direct
agents represent only one carrier. Most carriers find the use of independent
agencies to be a more cost-effective method of selling their products than
using a direct agent force. Competition among independent insurance agencies is
intense. Numerous other independent agencies operate in most of the markets
where our insurance offices are located. Direct agents for various insurance
companies located in some of our markets also compete with us. We compete
primarily on the basis of service and convenience. We attempt to develop and
maintain long-term customer relationships through low employee turnover and
responsive service representatives and offer virtually all types of insurance
products.
The mortgage banking industry is highly competitive, with many small brokers
originating loans. Independent brokers originate the majority of our loans. We
fund the loan and hold it for a number of days, group it with other loans, and
sell it to the ultimate investor. The origination of residential mortgages for
credit-impaired borrowers is highly competitive and the number of companies
engaged in the business is increasing rapidly. We compete mainly on the basis
of the service that we provide to customers in markets where we already have a
presence with our finance and insurance offices.
Banks and commercial finance companies dominate the commercial lending
industry. Many banks, however, do not offer factoring services, and most banks
do not make loans to the higher risk business client
27
<PAGE>
with whom we have found our niche. Most commercial finance companies engage in
lending to larger businesses or engage in lending to specialized businesses.
Our primary competition comes from independent factoring companies who, like
us, specialize in smaller clients.
Regulation
Consumer finance companies and insurance agents are extensively supervised
and regulated under state and federal statutes and regulations. Depending upon
the nature of a particular transaction and the state of residence of the
borrower or the customer, we may be required to:
. obtain licenses and meet specified minimum qualifications;
. limit the interest rates, fees and other charges for which the borrower
may be assessed;
. limit or prescribe specified other terms and conditions of the
financing;
. govern the sale and terms of insurance products; and
. define and limit the right to repossess and sell collateral.
Federal and state laws also require us to provide various disclosures to
prospective borrowers, prohibit misleading advertising, protect against
discriminatory lending practices and prohibit unfair credit practices. We
believe we comply in all material respects with applicable governmental
regulations. These requirements change frequently however, and we cannot be
certain that future changes or modifications in these laws will not have a
material adverse affect on our business either through increased compliance
costs or prohibition or limitation of a profitable line of business.
Employees
As of September 30, 2000, we employed 1,239 persons, none of whom was
covered by a collective bargaining agreement. Of that total, 62 were located in
our headquarters in Lancaster, South Carolina and 1,177 were located in our
other offices. We generally consider our relationships with our employees to be
good.
Property
Our executive offices are located in Lancaster, South Carolina in a leased
office facility of approximately 28,000 square feet. The lease expires in
August 2012, and includes an option to renew for an additional five-year term.
We lease all of our branch office facilities. In some instances, we lease these
facilities from affiliates. These offices range in size from approximately 800
square feet to 2,200 square feet. Since most of our business with automobile
dealers is conducted by facsimile machine and telephone, we do not believe that
the particular locations of our finance offices are critical to our business of
purchasing used automobile sales contracts or our premium finance operations.
Location is somewhat more important for our direct loan and insurance agency
operations. Other satisfactory locations are, however, generally available for
lease at comparable rates and for comparable terms in each of our markets.
Legal Proceedings
We presently are not a party to any legal proceedings nor is our management
aware of any material threatened litigation against us.
28
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form SB-2 and an amendment to the
registration statement with the Commission, with respect to the registration of
the securities offered for sale with this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. For further information pertaining to
Thaxton Group, the securities offered by this prospectus and related matters,
you should review the registration statement, including the exhibits filed as a
part of the registration statement. Each statement in this prospectus referring
to a document filed as an exhibit to the registration statement is qualified by
reference to the exhibit for a complete statement of its terms and conditions.
We file annual, quarterly and current reports, proxy statements and other
information with the Commission. So long as we are subject to the Commission's
reporting requirements, we will continue to furnish the reports and other
required information to the Commission. You may read and copy any reports,
statements and other information we file at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Please call the Commission at 1-800-SEC-0330 for further information on the
operations of the public reference room. The Commission also maintains an
internet site at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission. Our filings are available, using our name
or stock trading symbol, "THAX," on the Commission's internet site.
29
<PAGE>
MANAGEMENT
Directors and Executive Officers
Thaxton Group's directors and executive officers and their ages as of
September 30, 2000 were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James D. Thaxton...... 53 Chairman of the Board, President and Chief Executive
Officer
Robert L. Wilson...... 60 Executive Vice President, Chief Operating Officer
and Director
Allan F. Ross......... 52 Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
C.L. Thaxton, Sr. .... 77 Director
</TABLE>
James D. Thaxton has served as Chairman of the Board, President and Chief
Executive Officer of Thaxton Group since it was founded. Prior to joining
Thaxton Group, Mr. Thaxton was an insurance agent at C.L. Frates & Company in
Oklahoma City, Oklahoma from 1974 to 1976. From 1972 to 1973, he was employed
as an underwriter by United States Fidelity and Guaranty. James D. Thaxton is
the son of C.L. Thaxton, Sr.
Robert L. Wilson joined Thaxton Group in January 1991 and has served since
July 1991, as its Executive Vice President, Chief Operating Officer and a
director. From October 1988 until July 1990, Mr. Wilson served as Operations
Manager of MANH--Financial Services Corp. For more than 25 years prior
thereto, Mr. Wilson served in various positions with American Credit
Corporation and its successor, Barclays American Corporation, including as
Southeastern Regional Manager and Executive Vice President of Barclays
American Credit Division.
Allan F. Ross joined Thaxton Group in March 1997, and has served as Vice
President and Corporate Controller since April 1997, and as a Director,
Secretary, Treasurer and Chief Financial Officer since February 1998. From
1989 to 1997, Mr. Ross was the managing partner of a CPA and consulting
practice. From 1978 to 1989, Mr. Ross was Vice President and Financial
Controls Director of Barclays American Corporation. From 1974 to 1978, Mr.
Ross was a practicing CPA with Arthur Andersen & Company, and with Deloitte
and Touche, LLP. He is a certified public accountant.
C.L. Thaxton, Sr. has served on the Board of Directors of Thaxton Group
since it was founded. Mr. Thaxton is a director of Thaxton Insurance, which he
founded in 1950 and is the manager of its Pageland office. Mr. Thaxton is the
father of James D. Thaxton.
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Thaxton Group's
executive officers are appointed by and serve at the discretion of the Board
of Directors.
The Board of Directors directly oversees executive compensation, and
oversees and approves salaries and incentive compensation for executive
officers and other employees of Thaxton Group. The Board of Directors also
directly oversees the selection of Thaxton Group's independent auditors and
reviews the results and scope of the audit and other services that the
independent auditors provide. Directors do not receive any compensation from
Thaxton Group for their service as members of the Board of Directors. All
directors are reimbursed for their expenses reasonably incurred in attending
Board meetings.
30
<PAGE>
Executive Compensation
The table below shows the compensation paid or accrued by Thaxton Group, for
the year ended December 31, 1999, to or for the account of the Chief Executive
Officer and its only other executive officer whose total salary and bonus
exceeded $100,000 during 1999 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------
Name and Principal Position Year ($) Salary ($) Bonus ($)
--------------------------- -------- ---------- ---------
<S> <C> <C> <C>
James D. Thaxton,................................ 1999 113,880 92,757
President and Chief Executive Officer 1998 119,419 62,317
Robert L. Wilson,................................ 1999 125,280 5,102
Executive Vice President 1998 135,444 --
</TABLE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
No specific provision for indemnification of Thaxton Group's directors,
officers or controlling persons against liability under the Securities Act
exists in Thaxton Group's articles of incorporation or bylaws or in any
document to which Thaxton Group is a party. Thaxton Group's bylaws provide,
however, for indemnification of its officers and directors against liabilities
and reasonable expenses incurred in connection with any action, suit or
proceeding to which the person may be a party because he is or was a director
or officer of Thaxton Group or serving in a similar capacity at Thaxton Group's
request for another entity, to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Thaxton
Group pursuant to the foregoing provisions, or otherwise, Thaxton Group has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by Thaxton Group of expenses incurred or paid by a
director, officer or controlling person of Thaxton Group 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, Thaxton Group will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
31
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the outstanding common stock of Thaxton Group at December 31, 1999
by:
(1) the only person who is the beneficial owner of more than five percent
of the outstanding common stock;
(2) each director;
(3) each Named Executive Officer and
(4) directors and officers of Thaxton Group as a group.
<TABLE>
<CAPTION>
Number of Shares and Percentage of Common
Name of Beneficial Owner Nature of Beneficial Ownership Stock Outstanding
------------------------ ------------------------------ --------------------
<S> <C> <C>
James D. Thaxton.......... 6,456,000(1) 92.6%
Robert L. Wilson.......... -- --
Allan F. Ross............. -- --
C. L. Thaxton, Sr. ....... 15,555(2) *
Directors and officers as
a group.................. 6,471,555 92.8%
</TABLE>
--------
* Indicates less than one percent ownership.
(1) Includes 1,112,828 shares held by a family limited partnership as to which
Mr. Thaxton shares voting and investment power.
(2) Includes 15,222 shares held of record by Mr. Thaxton's spouse, Katherine
D. Thaxton, as to which Mr. Thaxton shares voting and investment power.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Due to the relatively small number of shares held by non-affiliates of
Thaxton Group, there is no active trading market for Thaxton Group's common
stock, although trades in the stock occur occasionally in the over-the-counter
market. At September 30, 2000, there were 164 shareholders of record based upon
information provided to Thaxton Group.
Thaxton Group has not paid any dividends on common stock during the last two
fiscal years or during the nine-month period ended September 30, 2000. At the
present time, it has no plans to pay any cash dividends on common stock.
Thaxton Group's credit facilities restrict it from paying any cash dividends in
excess of 25% of net income in any fiscal year.
32
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
Stock Transactions with Directors
In December 1997, Thaxton Group, through a private placement, issued 27,076
shares of Series B Convertible Preferred Stock to Mr. Jack W. Robinson, a
Director of Thaxton Group at the time. The terms of this transaction involved
the exchange of one share of common stock for one share of preferred stock. In
July 1998, Thaxton Group, through a private placement, exchanged all of the
27,076 shares of outstanding Series B preferred stock, plus 29,200 shares of
common stock, for 56,276 shares of Series D Preferred Stock. The Series D
preferred stock pays annual dividends of $ 0.80 per share, and Thaxton Group
may redeem this stock at any time at $10 per share. In January 1999, Mr.
Robinson divested his ownership interest in Thaxton Group and resigned from the
Board of Directors. At his request, Thaxton Group repurchased his Series D
preferred stock, plus all of his remaining common stock at $10 per share.
In January 1999, Mr. Perry L. Mungo divested his ownership interest in
Thaxton Group and resigned from the Board of Directors. At his request, Thaxton
Group repurchased all of his remaining common stock, totaling 29,200 shares, at
$10 per share.
Transactions with and Acquisition of Thaxton Investment
On February 1, 1999, Mr. James D. Thaxton, Chairman of the Board of
Directors, President, Chief Executive Officer and controlling shareholder of
Thaxton Group, organized Thaxton Investment. Mr. Thaxton owned all of the
issued and outstanding common stock of Thaxton Investment. Thaxton Investment's
Board of Directors and executive officers were, with one exception, identical
to Thaxton Group's. Prior to Thaxton Group's acquisition of all of the issued
and outstanding common stock of Thaxton Investment, our executive officers and
other administrative personnel provided management services to Thaxton
Investment and charged a monthly management fee in the amount of $36,440 based
upon time estimates of our personnel for work performed for the benefit of
Thaxton Investment. The management fee also included the reimbursement of other
direct costs incurred in the course of our provision of management services to
Thaxton Investment.
On November 8, 1999, Thaxton Group completed its acquisition of all of the
outstanding common stock of Thaxton Investment. Mr. Thaxton transferred all of
his shares of Thaxton Investment to Thaxton Group in exchange for 3,223,000
shares of common stock of Thaxton Group. Because Thaxton Investment and Thaxton
Group had been under common ownership and control since February, 1999, the
Company's acquisition of Thaxton Investment was accounted for at historical
cost in a manner similar to pooling of interests accounting.
Acquisition and Subsequent Disposition of Thaxton RBE, Inc.
At the end of 1998, and throughout 1999, the Company made a series of
acquisitions of agencies in Arizona, New Mexico, Nevada, Colorado and North
Carolina, as well as a general insurance agency in Virginia. At the same time,
the Company entered into a contract with American Bankers Insurance Group, Inc.
("ABIG"), pursuant to which the Company agreed to sell ABIG non-standard
insurance policies sold by these agencies with the Thaxton Group retaining the
underwriting risk, and any profit or loss from operations. This business
ultimately consisted of 30 non-standard automobile agency office locations,
plus two insurance general agencies in Virginia and South Carolina.
On March 1, 2000, the Company transferred all of the assets and liabilities
of these agency operations to Thaxton RBE, Inc. ("Thaxton RBE"). The total
amount of the assets transferred approximately $8 million, the majority of
which were intangible. The purpose of the transfer was to place the operations
of Thaxton RBE in a single entity to facilitate additional capital for Thaxton
RBE to fund its initial stage operations. As such, immediately subsequent to
the formation and asset transfer, Thaxton Life Partners, Inc. invested
$2,000,000 in the capital stock of RBE and obtained a 90% interest in that
company as a result of the investment. Thaxton Life Partners, Inc., is a
company owned by James D. Thaxton (Chairman and majority shareholder of Thaxton
33
<PAGE>
Group, Inc.); C. L. Thaxton, Sr. (Director of Thaxton Group, Inc.); and other
Thaxton family members. As a result of these transactions, Thaxton Group, Inc.
had a net receivable from Thaxton RBE in the amount of $5 million at March 31,
2000.
During the third quarter of 2000, Thaxton Group made the decision to
discontinue operations and dispose of its interest and investment in Thaxton
RBE as soon as suitable financing for Thaxton RBE could be obtained. On August
31, 2000, Thaxton Life Partners was able to arrange financing for Thaxton RBE
independent of Thaxton Group, and Thaxton Life Partners purchased the remaining
10% interest in RBE from Thaxton Group. At the time of the sale, all amounts
owed Thaxton Group were paid in full. Thaxton Group has recognized no gain or
loss on the disposition of Thaxton RBE. The transaction has been accounted for
in accordance with Accounting Principles Board Opinion #30, ("APB 30"),
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."
LEGAL MATTERS
Moore & Van Allen, PLLC, Charlotte, North Carolina will pass upon the
validity of the securities offered for sale with this prospectus for Thaxton
Group.
EXPERTS
The consolidated financial statements of The Thaxton Group, Inc. as of
December 31, 1999 and 1998, and for the years then ended have been included
herein and in the registration statement in reliance upon the report of Cherry,
Bekaert & Holland, LLP, independent certified public accountants, appearing
elsewhere herein, given on the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of FirstPlus Consumer Finance, Inc. as
of December 31, 1998 and 1997 and for the years then ended have been included
herein and in the registration statement in reliance upon the report of
Elliott, Davis & Company, L.L.P., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 14, 1998, Thaxton Group notified KPMG LLP that it was
terminating KPMG LLP's appointment as its independent accountants. There were
no disagreements between KPMG LLP and Thaxton Group pertaining to accounting
principles, financial statement disclosure, or audit scope or procedure.
KPMG LLP issued unqualified opinions on the 1997 and 1996 financial statements.
Thaxton Group's Board of Directors approved the termination and also approved
the engagement of Cherry, Bekaert & Holland, LLP as Thaxton Group's independent
accountants for the 1998 fiscal year. Thaxton Group filed Form 8-K with the
Commission in December 1998 disclosing this change of accountants.
PLAN OF DISTRIBUTION
Officers and employees of Thaxton Group and some of its finance and
insurance subsidiaries will sell the securities in reliance upon Rule 3a4-1
under the Exchange Act. Persons associated with Thaxton Group and its
affiliates who participate in the offering of the securities will limit their
participation to activities permitted under Rule 3a4-1, and no commissions or
other direct or indirect compensation will be paid to these persons in
connection with the sale of the securities. In addition, Thaxton Group may in
the future employ the services of
34
<PAGE>
one or more registered broker-dealers to offer the securities on a non-
exclusive, "best efforts" basis. Thaxton Group anticipates that an agreement
concerning the use of a broker-dealer to assist with the distribution of the
securities would provide for the payment of sales commissions ranging from
0.25% to 5% of the principal amount of the securities sold through the broker-
dealer. Thaxton Group may also agree to indemnify the broker-dealer against
some liabilities, including liabilities arising under the Securities Act, and
to reimburse the broker-dealer for some of its costs and expenses. The offering
commenced on February 17, 1998, is continuous in nature and is expected to
continue until the securities are sold.
Thaxton Group will employ Carolinas First Investments, Inc., a registered
broker-dealer, to sell the securities and to assist Thaxton Group in managing
the offering. Under the terms of the sales agency agreement between Carolinas
First Investments, Inc. and Thaxton Group, Carolinas First Investments, Inc.
will receive sales commissions equaling 0.25% of the principal amount of the
securities sold and a monthly management fee of $6,250. Other terms of the
sales agency agreement are similar to those described above.
Thaxton Group may market the securities through the use of newspaper
advertisements, mailings of this prospectus to Thaxton Group's insurance and
selected consumer finance customers, signs in its offices and its finance and
insurance subsidiaries and by providing copies of this prospectus to potential
purchasers who inquire about purchasing the securities. Officers, directors or
employees of Thaxton Group and its finance and insurance subsidiaries will not
market the securities by telephone or other oral solicitation.
Daily notes will not be offered or sold in South Carolina.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Thaxton Group, Inc.
Independent Auditors' Reports............................................ F- 2
Consolidated balance sheets as of December 31, 1999 and 1998............. F- 3
Consolidated statements of income for the years ended December 31, 1999
and 1998................................................................ F- 4
Consolidated statements of stockholders' equity for the years ended
December 31, 1999 and 1998.............................................. F- 5
Consolidated statements of cash flows for the years ended December 31,
1999 and 1998........................................................... F- 6
Notes to consolidated financial statements............................... F- 7
Consolidated balance sheets as of September 30, 2000 (unaudited) and
December 31, 1999....................................................... F-22
Consolidated statements of income for the nine-months ended September 30,
2000 and 1999 (unaudited)............................................... F-23
Consolidated statements of income for the three-months ended September
30, 2000 and 1999 (unaudited)........................................... F-24
Consolidated statements of cash flows for the six-months ended September
30, 2000 and 1999 (unaudited)........................................... F-25
Notes to consolidated financial statements (unaudited)................... F-26
FirstPlus Consumer Finance, Inc. and Subsidiaries
Report of Independent Certified Public Accountants....................... F-36
Consolidated balance sheets as of December 31, 1998 and 1997............. F-37
Consolidated statements of income and retained earnings for the years
ended December 31, 1998 and 1997........................................ F-38
Consolidated statements of cash flows for the years ended December 31,
1998 and 1997........................................................... F-39
Notes to consolidated financial statements............................... F-40
Unaudited Pro Forma Consolidated Financial Data of The Thaxton Group,
Inc. Introduction....................................................... F-46
Unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999................................................. F-47
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Thaxton Group, Inc.
We have audited the accompanying consolidated balance sheets of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Cherry, Bekaert & Holland, LLP
Charlotte, North Carolina
March 28, 2000, except for note 14 as to which the date is October 31, 2000
F-2
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Assets
Cash................................................. $ 2,110,246 $ 780,864
Finance receivables, net............................. 162,780,503 55,599,540
Loans Held for Sale.................................. 11,400,639 7,075,295
Premises and equipment, net.......................... 4,778,719 2,843,753
Accounts receivable.................................. 1,901,497 1,252,412
Repossessed automobiles.............................. 131,908 603,288
Goodwill and other intangible assets................. 32,730,803 8,305,129
Other assets......................................... 10,190,071 2,535,731
Assets of discontinued operations.................... 8,910,651 --
------------ -----------
Total assets..................................... $234,935,037 78,996,012
============ ===========
Liabilities and Stockholders' Equity
Liabilities
Accrued interest payable........................... 2,174,397 428,906
Notes payable...................................... 209,542,862 62,144,209
Notes payable to affiliates........................ 491,072 778,990
Accounts payable................................... 2,746,712 928,580
Employee savings plan.............................. 1,328,998 1,070,425
Other liabilities.................................. 6,516,470 716,030
Liabilities of discontinued operations............. 2,331,947 --
------------ -----------
Total liabilities................................ 225,132,458 66,067,140
------------ -----------
Stockholders' Equity
Preferred Stock $.01 par value:
Series A: 400,000 shares authorized; issued and
outstanding 160,440 shares in 1999, 175,014
shares in 1998; liquidation value $1,604,400 in
1999............................................ 1,604 1,750
Series C: 50,000 shares authorized issued and
outstanding in 1999 and 1998; liquidation value
$500,000 in 1999................................ 500 500
Series D: 56,276 shares authorized, no shares
issued and outstanding in 1999 56,276 in 1998... -- 563
Series E: 800,000 shares authorized, issued and
outstanding in 1999 and 1998; liquidation value
$8,000,000 in 1999 and 1998..................... 8,000 8,000
Common stock, $.01 par value, 50,000,000 shares
authorized; issued and outstanding 6,975,359 shares
in 1999; 3,885,218 shares in 1998................... 69,753 38,852
Additional paid-in-capital........................... 10,116,774 12,184,057
Retained earnings (deficit).......................... (394,052) 695,150
------------ -----------
Total stockholders' equity....................... 9,802,579 12,928,872
------------ -----------
Total liabilities and stockholders' equity....... $234,935,037 $78,996,012
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Interest and fee income............................. $60,392,123 $ 15,727,484
Interest expense.................................... 18,113,990 5,037,289
----------- ------------
Net interest income................................. 42,278,133 10,690,195
Provision for credit losses......................... 11,937,679 4,046,460
----------- ------------
Net interest income after provision for credit
losses............................................. 30,340,454 6,643,735
Other income:
Insurance premiums and commissions, net........... 11,259,084 6,590,849
Premiums for loans sold........................... 3,137,595 263,296
Other income...................................... 3,358,515 699,102
----------- ------------
Total other income.............................. 17,755,194 7,553,247
----------- ------------
Operating expenses:
Compensation and employee benefits................ 26,552,371 8,636,026
Telephone, computers, postage, and supplies....... 2,337,708 2,187,264
Net occupancy..................................... 6,624,607 1,460,174
Reinsurance claims expense........................ 1,142,724 314,995
Advertising....................................... 1,929,989 307,253
Collection expense................................ 312,894 132,488
Travel............................................ 1,073,992 153,046
Professional fees................................. 758,528 452,152
Other............................................. 4,969,616 2,134,088
----------- ------------
Total operating expenses........................ 45,702,429 15,777,486
----------- ------------
Income (loss) from continuing operations before
income tax expense................................. 2,393,219 (1,580,504)
Income tax expense (benefit)........................ 1,206,000 (496,487)
----------- ------------
Income (loss) from continuing operations............ $ 1,187,219 $ (1,084,017)
=========== ============
Discontinued operations (Note 14)
Loss from operations of discontinued non-standard
insurance division (Less benefit from income taxes
of $716,000 in 1999)............................... $(1,542,409) $ --
Net loss............................................ $ (355,190) $ (1,084,017)
=========== ============
Dividends on preferred stock........................ $ 734,012 $ 258,289
=========== ============
Net loss applicable to common shareholders.......... $(1,089,202) $ (1,342,306)
=========== ============
Net loss per common share--basic and diluted........ $ (0.26) $ (0.35)
=========== ============
From continuing operations........................ $ 0.06 --
=========== ============
From discontinued operations...................... $ (0.32) --
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional Deferred Total
Common Preferred Paid-in Stock Retained Stockholders'
Stock Stock Capital Award Earnings Equity
------- --------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 37,956 2,551 4,521,354 (630,000) 2,037,456 5,969,317
======= ====== ========== ======== ========== ==========
Purchase and retirement
of 114,761 shares of
common stock........... (1,148) -- (1,074,314) -- -- (1,075,462)
Issuance of 800,000
shares of Series E
Preferred Stock........ -- 8,000 7,992,000 -- -- 8,000,000
Issuance of 300,000
shares of restricted
common Stock........... 3,000 -- 1,497,000 -- -- 1,500,000
Issuance of 3,580 shares
of common stock under
Employee stock purchase
plan................... 36 -- 26,590 26,626
Conversion of 29,200
shares of common stock
and 27,076 shares of
Series B Preferred
Stock into 56,276 of
Series D Preferred
Stock.................. (292) 292 -- -- -- --
Repurchase of 3,000
shares of Series A
Preferred Stock........ -- (30) (29,970) -- -- (30,000)
Cancellation and
forfeiture of Deferred
Stock Award............ (700) -- (629,300) 630,000 -- --
Costs associated with
preferred stock
issuance............... -- -- (119,303) -- -- (119,303)
Dividends paid on
preferred stock........ -- -- -- -- (258,289) (258,289)
Net loss................ -- -- -- -- (1,084,017) (1,084,017)
------- ------ ---------- -------- ---------- ----------
Balance at December 31,
1998................... $38,852 10,813 12,184,057 -- 695,150 12,928,872
======= ====== ========== ======== ========== ==========
Purchase and retirement
of 132,859 shares of
common stock........... (1,329) -- (1,327,262) -- -- (1,328,591)
Repurchase of 14,574
shares of Series A
Preferred Stock........ -- (146) (145,594) -- -- (145,740)
Repurchase of 56,276
shares of Series D
Preferred Stock........ -- (563) (562,197) -- -- (562,760)
Issuance of 3,223,000
shares of common stock
for purchase of Thaxton
Investment
Corporation............ 32,230 -- (32,230) -- -- --
Dividends paid on
preferred stock........ -- -- -- -- (734,012) (734,012)
Net Income (Loss)....... -- -- -- -- (355,190) (355,190)
------- ------ ---------- -------- ---------- ----------
Balance at December 31,
1999................... $69,753 10,104 10,116,774 -- (394,052) 9,802,579
======= ====== ========== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (355,190) $ (1,084,017)
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses...................... 11,937,679 4,046,460
Depreciation and amortization.................... 3,415,392 1,224,170
Deferred taxes................................... (709,934) (300,000)
Increase in loans held for sale.................. (4,325,344) (2,011,340)
Decrease (increase) in other assets.............. (4,642,738) 304,732
Increase (decrease) in accrued interest payable
and other liabilities........................... 6,381,914 156,506
------------ ------------
Net cash provided by operating activities....... 11,701,779 2,336,511
------------ ------------
Cash flows from investing activities:
Net increase in finance receivables............... (15,050,941) (8,650,926)
Capital expenditures for premises and equipment... (2,338,721) (1,490,452)
Proceeds from sale of premises and equipment...... 742,992 79,316
Proceeds from sale of investments................. 0 46,935
Acquisitions, net of acquired cash equivalents.... (42,424,498) (4,976,488)
Purchase of securities............................ 0 (42,947)
------------ ------------
Net Cash used by investing activities........... (59,071,168) (15,034,562)
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock..... 0 7,907,323
Notes payable to affiliates....................... (287,918) (236,368)
Repurchase of common stock........................ (1,328,591) (1,075,732)
Dividends paid.................................... (734,012) (258,289)
Net increase in notes payable..................... 51,757,792 6,009,188
Repurchase of preferred stock..................... (708,500) (30,000)
------------ ------------
Net cash provided by financing activities....... 48,698,771 12,316,122
------------ ------------
Net increase (decrease) in cash.................... 1,329,382 (381,929)
Cash at beginning of period........................ 780,864 1,162,793
------------ ------------
Cash at end of period.............................. $ 2,110,246 $ 780,864
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......................................... 16,825,179 5,029,246
Income taxes..................................... 2,011 --
Total Non-cash Activities
Investing: Non-cash portion of acquisitions........ (2,584,260)
Financing: Portion of Acquisition financed by note
to seller......................................... 2,584,260
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of
the state of South Carolina and operates, primarily through subsidiaries. The
Company operates consumer finance branches in 11 states, primarily under the
names of TICO Credit, Southern Finance, and Covington Credit. The Company also
operates insurance agency branches in seven states located in the Southeast and
Southwest. The Company is a diversified financial services company that is
engaged primarily in consumer lending and consumer automobile sales financing
to borrowers with limited credit histories, low incomes or past credit
problems. The Company also offers insurance premium financing to such
borrowers. A substantial amount of the Company's premium finance business has
been derived from customers of the independent insurance agencies owned by
Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which was acquired by the
Company in 1996. The Company provides reinsurance through wholly owned
subsidiaries, TICO Reinsurance, Ltd. ("TRL"), Fitch National Reinsurance, Ltd.,
Soco Reinsurance, Inc., and Thaxton Reinsurance, Inc. Through a wholly owned
subsidiary, Paragon, Inc., the Company is also engaged in, originating,
funding, and closing mortgage loans to individuals. The Company sells
substantially all mortgage loans it originates to independent third parties.
Through another wholly owned subsidiary, Thaxton Commercial Lending, Inc., the
Company makes factoring loans and collateralized commercial loans to small and
medium sized businesses. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a description of the more significant accounting and
reporting policies which the Company follows in preparing and presenting its
financial statements.
Interest and Fee Income: Interest income from finance receivables is
recognized using the interest (actuarial) method on an accrual basis. Accrual
of income on finance receivables continues until the receivable is either paid
off in full or is charged off. Fee income consists primarily of late fees which
are credited to income when they become due from borrowers. For receivables
which are renewed, interest income is recognized using a method similar to the
interest method.
Allowance for Credit Losses: Additions to the allowance for credit losses
are based on management's evaluation of the finance receivables portfolio
considering current economic conditions, overall portfolio quality, charge-off
experience, and such other factors which, in management's judgment, deserve
recognition in estimating credit losses. Loans are charged-off when, in the
opinion of management, such loans are deemed to be uncollectible or six months
has elapsed since the date of the last payment, whichever occurs first. While
management uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary if conditions differ
substantially from the assumptions used in making the evaluations.
Non-file Insurance: Non-file insurance is written in lieu of recording and
perfecting the Company's security interest in the assets pledged to secure
certain loans. Non-file insurance premiums are collected from the borrower on
certain loans at inception and renewal and are remitted directly to an
unaffiliated insurance company. Certain losses related to such loans, which are
not recoverable through life, accident and health, or property insurance
claims, are reimbursed through non-file insurance claims subject to policy
limitations. Any remaining losses are charged to the allowance for credit
losses.
F-7
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
Premises and Equipment: Premises and equipment are reported at cost less
accumulated depreciation which is computed using the straight-line method for
financial reporting and accelerated methods for tax purposes. For financial
reporting purposes the Company depreciates furniture and equipment over 5
years, leasehold improvements over the remaining term of the related lease, and
automobiles over 3 years. Maintenance and repairs are expensed as incurred and
improvements are capitalized.
Insurance: The Company remits a portion of credit life, accident and health,
property and auto insurance premiums written in connection with certain loans
to an unaffiliated insurance company at the time of origination. Any portion of
the premiums remitted to this insurance company which are not required to cover
their administrative fees or to pay reinsurance claims expense are returned to
the Company through its reinsurance subsidiaries, and are included in insurance
premiums and commissions in the accompanying consolidated statements of income.
Unearned insurance premiums are accreted to income over the life of the related
insurance contracts using a method similar to that used for the recognition of
finance charges. Insurance commissions earned by Thaxton Insurance are
recognized as services are performed in accordance with Thaxton Insurance's
contractual obligations with the underwriters, but not before protection is
placed with insurers.
Employee Savings Plan: The Company offers a payroll deduction savings plan
to all its employees. The Company pays interest monthly at an annual rate of
10% on the prior month's ending balance. Employees may withdraw savings on
demand, subject to a subordination agreement with the Company's primary lender.
Income Taxes: Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes (Statement 109), requires the asset and liability
method of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Earnings Per Share: The Company adopted the provisions of SFAS 128, "Earning
per Share" ("EPS") in 1997. The presentation of primary and fully diluted EPS
has been replaced with basic and diluted EPS. Basic earnings per share are
computed by dividing net income applicable to common shareholders by the
weighted average number of common shares outstanding. Diluted earnings per
share are computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents calculated based upon the
average market price. Common stock equivalents consist of stock options issued
by the Company, and are computed using the treasury stock method.
Intangible Assets: Intangible assets include goodwill, expiration lists, and
covenants not to compete related to acquisitions made by the Company. Goodwill
represents the excess of the cost over the fair value of net assets acquired at
the date of acquisition. Goodwill is amortized on a straight-line basis,
generally over a five to twenty-five year period. The expiration lists are
amortized over their estimated useful lives, generally fifteen to twenty-five
years, on a straight-line basis. Covenants not to compete are amortized
according to the purchase contract over five to six years on a straight-line
basis. Recoverability of recorded intangibles is evaluated by using
undiscounted cash flows.
Stock Options: Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires that the fair value
of employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income or the impact of such fair
value
F-8
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
on net income and earnings per share be disclosed on a pro forma basis in a
footnote to the financial statements if the Company continues to use the
intrinsic value method in accordance with APB 25. The Company will continue
such accounting under the provisions of APB 25.
Fair Value of Financial Instruments: All financial assets of the Company are
short term in nature and all liabilities are substantially at variable rates of
interest. As such, the carrying values of these financial assets and
liabilities approximate their fair value. A small percentage of subordinated
notes payable are at fixed rates, with terms up to sixty months in maturity.
For these liabilities, an evaluation is made annually to assess the
appropriateness of the carrying value.
Repossessed Assets: Repossessed assets are recorded at their estimated fair
value less costs to dispose. Any difference between the loan balance and the
fair value of the collateral on the date of repossession is charged to the
allowance for credit losses.
Advertising: Advertising costs are expensed as incurred.
Cash and Cash Equivalents: The Company considers cash on hand, cash due from
banks, and interest-earning deposits, which are maintained in financial
institutions as cash and cash equivalents.
Loans Held For Sale: Loans held for sale include certain mortgage loans and
are carried at the lower of aggregate cost or market value.
Other Comprehensive Income: Comprehensive income is the change in the
Company's equity during the period from transactions and other events and
circumstances from non-owner sources. Total comprehensive income is divided
into net income and other comprehensive income. There were no items of other
comprehensive income in 1999 or 1998.
Loans/Impairment: Finance receivables are classified as nonaccrual, and the
accrual of interest is discontinued, when the contractual payment of principal
and interest has become 180 days past due or when, in management's judgment,
principal or interest is not collectible in accordance with the terms of the
obligation. Cash receipts on non accrual loans are applied to principal.
Interest recognition resumes when the loan returns to performing status.
Reclassifications: Certain amounts in the 1998 financial statements have
been reclassified in order to conform to the 1999 presentation.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement addresses the accounting
for derivative instruments, including certain derivative instruments imbedded
in other contracts, and hedging activities. The Statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
does not anticipate the adoption of the provisions of SFAS No. 133 will
significantly impact the Company's financial reporting.
(2) BUSINESS COMBINATIONS
On February 1, 1999, Thaxton Investment Corporation ("TIC"), which was
wholly owned by the Company's Chief Executive Officer and majority shareholder
purchased approximately 144 consumer finance
F-9
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
offices from FirstPlus Consumer Finance, Inc., and operated those offices in
Thaxton Investment Corporation ("TIC"), a corporation set up for that purpose.
The purchase price paid was $49.4 million, including a cash payment of $46.5
million, with the balance in notes and amounts payable to FirstPlus. The note
payable arising from the purchase was paid in full prior to December 31, 1999.
This acquisition, which was accounted for as a purchase, resulted in goodwill
in the amount of $29.5 million, which is being amortized over 25 years. At the
time of the acquisition, Thaxton Investment Corp. was a private corporation,
with Mr. Thaxton as the sole shareholder. TIC operated independently from the
Company from February 1, 1999 through November 8, 1999. On November 8th, the
Company acquired TIC in exchange for 3,223,000 shares of the Company's common
stock. Because TIC and the Company had been under common ownership and control
since February 1999, the Company's acquisition of TIC was accounted for at
historical cost in a manner similar to pooling of interests accounting.
On November 13, 1998, the Company acquired all of the outstanding capital of
stock of Paragon, Inc. ("Paragon"), a North Carolina corporation, for $1.6
million consisting of $100,000 in cash and 300,000 shares of the Company's
common stock. Stock issued in the acquisition was valued at $5 per share based
on market prices near the date of acquisition with consideration given to the
one year required holding period on the shares issued. Paragon operates as a
licensed mortgage banker through nine offices in North and South Carolina. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,630,000 has
been recorded as goodwill and is being amortized on a straight-line basis over
seven years.
On October 27, 1998, the Company acquired substantially all of the assets of
the finance operations in Alabama and Mississippi from Budget Financial
Services, Inc. ("Budget") for cash of $3 million. Budget operates in the
consumer finance business. The purchase was allocated to the assets acquired
and liabilities assumed based on their fair values at the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired of
$1,273,000 has been recorded as goodwill and is being amortized on a straight-
line basis over five years.
The acquisitions (other than the Company's acquisition of "TIC") were
accounted for under the purchase method of accounting. Accordingly, the results
of operations of the acquired businesses are included in the accompanying
financial statements from the dates of acquisition. The following table
presents unaudited pro forma combined results of operations as if the
acquisitions had occurred at the beginning of each year presented. Such pro
forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisitions had occurred at the
beginning of each year.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total revenues................................... $88,750,000 $74,200,000
Net income (loss)................................ $ (150,000) $ 350,000
Basic and Diluted earnings per share............. $ (0.21) $ 0.32
</TABLE>
F-10
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
(3) FINANCE RECEIVABLES
Finance receivables consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Automobile Sales Contracts....................... 33,138,025 $37,124,775
Direct Loans..................................... 140,704,637 27,852,566
Mortgage Loans................................... 27,477,365 4,021,088
Premium Finance Contracts........................ 8,362,591 3,343,320
Commercial Loans................................. 3,440,166 1,267,742
----------- -----------
Total finance receivables...................... 213,122,784 73,609,491
----------- -----------
Unearned interest................................ (37,805,852) (11,914,393)
Unearned insurance premiums, net................. (2,797,033) (275,476)
Valuation discount for acquired loans............ (93,534) (672,673)
Dealer Holdback and Bulk purchase discount....... (704,657) (1,241,633)
Allowance for credit losses...................... (10,661,339) (4,710,829)
Deferred Loan Cost, net.......................... 1,720,134 805,053
----------- -----------
Finance receivables, net....................... 162,780,503 55,599,540
----------- -----------
Loans Held for Sale.............................. 11,400,639 7,075,295
=========== ===========
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan receivables.
With bulk purchase arrangements, the Company typically purchases a group of
receivables from an auto dealer or other retailer at a discount to par based on
management's review and assessment of the portfolio to be purchased. This
discount amount is then maintained in an unearned income account to which
losses on these loans are charged. To the extent that losses from a bulk
purchase exceed the purchase discount, the allowance for credit losses will be
charged. To the extent losses experienced are less than the purchase discount,
the remaining discount is accreted into income. With holdback arrangements, an
automobile dealer or other retailer will assign receivables to the Company on a
loan-by-loan basis, typically at par. The Company will withhold a certain
percentage of the proceeds, generally 5% to 10%, as a dealer reserve to be used
to cover any losses which occur on these loans. The agreements are structured
such that all or a portion of these holdback amounts can be reclaimed by the
dealer based on the performance of the receivables. To the extent that losses
from these holdback receivables exceed the total remaining holdback amount for
a particular dealer, the allowance for credit losses will be charged. The
amount of bulk purchase and holdback receivables, net of unearned interest and
insurance, and the related holdback and discount amount outstanding were
approximately $26,870,193 and $704,657, respectively, at December 31, 1999 and
approximately $24,463,738 and $1,241,633, respectively, at December 31, 1998.
At December 31, 1999, there were no significant concentrations of
receivables in any type of property or to one borrower. These receivables are
pledged as collateral for a line of credit agreement (see note 7).
F-11
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
Changes in the allowance for credit losses for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Beginning balance............................... 4,710,829 $ 4,809,400
Valuation allowance for acquired loans.......... 6,276,309 0
Provision for credit losses..................... 11,937,679 4,046,460
Charge-offs..................................... (13,461,390) (4,307,260)
Recoveries...................................... 1,197,912 162,229
------------ -----------
Net charge-offs................................. (12,263,478) (4,145,031)
------------ -----------
Ending balance.................................. $ 10,661,339 $ 4,710,829
============ ===========
The Company's loan portfolio primarily consists of short-term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables
is not materially different from carrying value.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998 follows:
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Leasehold improvements.......................... 1,867,214 712,709
Furniture and fixtures.......................... 2,852,573 806,668
Equipment and automobiles....................... 7,071,238 3,871,999
------------ -----------
Total cost.................................... 11,791,025 5,391,376
Accumulated depreciation........................ 7,012,306 2,547,623
------------ -----------
Net premises and equipment.................... $ 4,778,719 $ 2,843,753
============ ===========
Depreciation expense was approximately $1,209,000 and $721,000 in 1999 and
1998, respectively.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1999 and 1998:
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Covenants not to compete........................ $ 102,021 $ 118,495
Goodwill and purchase premium................... 33,633,120 7,051,516
Insurance expirations........................... 1,890,301 3,114,363
------------ -----------
Total cost.................................... 35,625,442 10,284,374
Less accumulated amortization................... 2,894,639 1,979,245
------------ -----------
Intangible assets, net........................ $ 32,730,803 $ 8,305,129
============ ===========
</TABLE>
The majority of the intangibles were acquired by the Company in connection
with its acquisition of FirstPlus Consumer Finance, as well as the Thaxton
Insurance (and related subsequent purchases of individual agencies), the
acquisition of Paragon, and the acquisition of four finance offices from
Budget. Amortization expense was approximately $1,546,000 and $503,000 in 1999
and 1998, respectively.
F-12
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
(6) LEASES
The Company conducts all of its operations from leased facilities. It is
expected that in the normal course of business, leases that expire will be
renewed at the Company's option or replaced by other leases or acquisitions of
other properties. Total rental expense was approximately $1,635,000 in 1999 and
$801,000 in 1998. The future minimum lease payments under noncancelable
operating leases as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000............................................................. 2,122,513
2001............................................................. 1,481,682
2002............................................................. 970,842
2003............................................................. 590,383
2004............................................................. 321,662
Thereafter....................................................... 335,843
---------
Total minimum lease payments................................... 5,822,925
=========
</TABLE>
Related parties own six of the office buildings in which the Company
conducts business. These premises are leased to the Company for a total monthly
rental of approximately $3,350.
(7) NOTES PAYABLE AND NOTES PAYABLE TO AFFILIATES
At December 31, 1999 and 1998, notes payable consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Senior Notes Payable/Lines of Credit................. $163,370,892 $46,950,000
Warehouse credit lines for mortgage loans at various
rates and maturities................................ 0 3,638,220
Subordinated Notes payable to individuals with
varying maturity dates and rates ranging from 5 1/4%
to 12%.............................................. 43,411,543 10,281,246
Note payable to finance company collateralized by an
aircraft, due in monthly installments of $9,091
through July 2003 including interest at 8.99%....... 0 408,583
Other subordinated notes payable to companies with
varying maturity dates and rates ranging from 4 1/4%
to 10%.............................................. 2,760,427 866,160
------------ -----------
Total notes payable................................ $209,542,862 $62,144,209
============ ===========
Subordinated Note payable to affiliates, with varying
maturity dates and rates ranging from 6 1/4% to
10%................................................. $ 491,072 $ 778,990
============ ===========
</TABLE>
A schedule of maturities of long-term debt is as follows:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Year Ending December 31,
2000...................................... $ 25,440,759
2001...................................... 13,322,953
2002...................................... 3,646,150
2003...................................... 1,026,800
2004...................................... 166,415,926
Thereafter................................ 181,346
------------
Total................................... $210,033,934
============
</TABLE>
F-13
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
At December 31, 1999, the Company maintained two lines of credit with a
commercial finance company for $242 million, maturing on July 31, 2004. The
credit line is set up in four Tranches, allowing the Company to borrow against
its eligible collateral of finance receivables. At December 31, 1999, the
Company's net finance receivables would have allowed it to borrow an additional
$14.6 million against existing collateral. The aggregate outstanding balance
under these lines of credit was $163 million at December 31, 1999, of which
$60.9 million was borrowed at 9.75% (Lenders prime +1 1/4%); $93.2 million was
borrowed at 9.5% (Lenders prime +1%); and $9.2 million was borrowed at 12%
(Lenders prime +3 1/2%).
In addition to the eligible collateral restrictions, the borrowing
availability under any single Tranche is also limited by amounts borrowed under
other Tranches, outstanding receivables, insurance premiums written, and in
some cases, additional restrictions. As a result of these additional
restrictions, the Company had approximately $79 million of total potential
borrowing capacity as of December 31, 1999.
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The agreement
requires the Company to maintain certain financial ratios at established levels
and comply with other non-financial requirements, which may be amended from
time to time. Also, the Company may pay dividends up to 25% of the current
year's net income. As of December 31, 1999, the Company met all such ratios and
requirements or obtained waivers for any instances of non-compliance.
In connection with the FirstPlus acquisition, the Company assumed $2.1
million of subordinated notes issued by Voyager Insurance Co. In November 1999,
those notes were cancelled and re-issued in the name of the Company. The note
agreement contained an interest coverage ratio restrictive covenant, which the
Company did not meet at December 1999, and a waiver was obtained for the year.
However, the Company cannot say with certainty that it will meet this covenant
requirement for the year 2000, and if it does not meet this requirement that a
waiver will be obtained. However, the Company is confident that it has adequate
availability under it primary credit facility to borrow adequate funds to
liquidate this note, if required.
In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998 (and amended in November
1999), and the Company now offers notes in multiple states under this federal
registration. The maturity terms on these notes range from daily to sixty
months, and interest rates vary in accordance with the rates offered by the
Company from time to time. Notes currently being offered carry interest rates
ranging from 5.25% to 8.0%. Approximately $43.9 million and $11.1 million in
notes were outstanding at December 31, 1999 and 1998, and are reflected as
notes payable to individuals and notes payable to affiliates.
(8) BENEFITS
In 1995 the Board of Directors of the Company adopted the Thaxton Group,
Inc. 1995 Stock Incentive Plan (the "Incentive Plan"), under which 620,000
shares of common stock were available for grants to key employees of the
Company. Awards under the Incentive Plan may include, but are not limited to,
stock options, stock appreciation rights, restricted stock, performance awards
and other common stock and common stock-based awards. Stock options granted
under the Incentive Plan may be either incentive stock options or non-qualified
stock options. During 1996, the Company granted 20,000 options to employees
under the Incentive Plan at an exercise price of $9.00 per share. All of these
options have since been cancelled.
During 1995 the Board of Directors of the Company also adopted the Thaxton
Group, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), under
which 100,000 shares of common stock are available for purchase by
substantially all employees. The Stock Purchase Plan enables eligible employees
of the
F-14
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
Company, through payroll deductions, to purchase at twelve-month intervals
specified in the Stock Purchase Plan, shares of common stock at a 15% discount
from the lower of the fair market value of the common stock on the first day or
the last day of the year. The Stock Purchase Plan allows for employee
contributions up to 3% of the participant's annual compensation and limits the
aggregate fair value of common stock that may be purchased by a participant
during any calendar year to $25,000. As of December 31, 1998, 4,377 shares were
purchased under this Stock Purchase Plan. The Board of Directors canceled this
plan in January 1999.
An ongoing benefit to the employees is the Employee Savings Plan. This plan
allows employees to contribute and earn a rate of 10%. The balances as of 1999
and 1998 were $1,328,998 and $1,070,425, respectively.
(9) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
---------- --------- ----------
<S> <C> <C> <C>
1999Federal............................. $1,726,133 $(709,934) $1,016,199
State................................ 189,801 0 189,801
---------- --------- ----------
$1,915,934 $(709,934) $1,206,000
========== ========= ==========
1998Federal............................. $ (196,487) $(300,000) $ (496,487)
State................................ -- -- --
---------- --------- ----------
$ (196,487) $(300,000) $ (496,487)
========== ========= ==========
</TABLE>
A reconciliation of the Company's income tax provision and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Statutory rate applied to income before income
tax expense..................................... $ 813,695 $(537,371)
Increase (decrease) in income taxes resulting
from:
Goodwill amortization.......................... 375,867 43,904
TICO Reinsurance Ltd. Nontaxable income........ (82,828) (93,160)
State taxes, less related federal benefit...... 4,120 (82,347)
Valuation allowance adjustment................. 121,149 82,347
Other.......................................... (26,003) 90,140
---------- ---------
Income taxes..................................... $1,206,000 $(496,487)
========== =========
</TABLE>
F-15
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
The effective tax rate was 365.7% and 31.4% for the years ended December 31,
1999 and 1998, respectively. The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves............................... $3,091,466 $1,090,357
Federal net operating loss carryforwards......... 898,103 311,078
State net operating loss carryforwards........... 284,779 163,630
Other............................................ 27,767 54,819
---------- ----------
Total gross deferred tax asset................. 4,302,115 1,619,884
Less valuation allowance........................... 284,779 163,630
---------- ----------
Net deferred tax assets............................ 4,017,336 1,456,254
---------- ----------
Deferred tax liabilities:
Prepaid insurance................................ (66,926) (123,112)
Depreciable basis of fixed assets................ (165,323) (162,417)
Deferred loan costs.............................. (381,670) (313,971)
Intangible assets................................ (251,355) (266,486)
Other............................................ (65,007) (52,268)
---------- ----------
Total gross deferred tax liability............. (930,281) (918,254)
---------- ----------
Net deferred tax asset............................. $3,087,055 $ 538,000
========== ==========
</TABLE>
The change in the valuation allowance for 1999 and 1998 was an increase of
$121,149 and $82,347 respectively. The valuation allowance relates to certain
state net operating loss carryforwards. It is management's opinion that
realization of the net deferred tax asset, net of valuation allowance, is more
likely than not based upon the Company's history of taxable income and
estimates of future taxable income. The company's income tax returns for 1994
and subsequent years are subject to review by taxing authorities.
(10) PREFERRED STOCK
The Company issued three series of preferred stock during 1997 and two
additional series of preferred stock in 1998. 400,000 shares of 7.5% cumulative
redeemable convertible Series A preferred stock were authorized, and 178,014
were issued in a December 1997 public offering to existing shareholders. The
terms of the offering included the conversion of one share of common stock plus
$10 for two shares of Series A preferred stock. For a five year conversion
period commencing January 1, 1998, each share of preferred stock can be
converted into one share of common stock. The Company may redeem all or a
portion of the outstanding shares of Series A stock at any time after December
31, 1999, for $15 per share. The Company repurchased and retired 3,000 shares
of Series A Preferred Stock in December 1998, and 14,574 shares during 1999.
In December 1997, the Company, through a private placement, issued 27,076
shares of 7.5% cumulative redeemable convertible Series B preferred stock. The
terms of this transaction involved the exchange of one share of common stock
for one share of preferred stock. In July 1998, the Company, through a private
placement, exchanged all of the 27,076 shares of outstanding Series B Preferred
stock, plus 29,200 shares of common stock, for 56,276 shares of Cumulative
Series D preferred stock. The Series D preferred stock pays
F-16
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
annual dividends of $ .80 per share, and is redeemable at any time by the
company at $10 per share. In January 1999, all of the shares of Series D
Preferred Stock were repurchased by the Company, and retired.
In December 1997, the Company converted a $500,000 subordinated note held by
one corporate investor into 50,000 shares of Series C cumulative redeemable
convertible preferred stock. The annual dividends attributable to this series
are $1 per share through December 31, 2000, and $1.80 per share, per annum,
thereafter. Each share of preferred stock can be converted into one share of
common stock after January 1, 1998. The Company may redeem all or a portion of
the outstanding shares of Series C stock at any time after December 31, 2000,
for $10 per share.
In December 1998, the Company, through a private placement, issued 800,000
shares of Cumulative Series E preferred stock for $10 per share. The stock pays
a variable rate dividend rate of prime minus 1% through October 31, 2003 and
prime plus 3% thereafter. The stock is redeemable by the Company at any time at
a price of $10 per share.
(11) EARNINGS PER SHARE INFORMATION
The following is a summary of the earnings per share calculation for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
BASIC
Net loss....................................... $ (355,190) $(1,084,017)
----------- -----------
Less: Dividends on preferred stock........... 734,012 258,289
Net loss applicable to common shareholders
(numerator)................................... (1,089,202) (1,342,306)
Average common shares outstanding
(denominator)................................. 4,263,146 3,802,759
Loss per share--basic.......................... $ (0.26) $ (0.35)
=========== ===========
DILUTED
Net loss....................................... $ (355,190) $(1,084,017)
Less: Dividends on preferred stock........... 734,012 258,289
----------- -----------
Net loss applicable to common shareholders
(numerator)................................... (1,089,202) (1,342,306)
Average common shares outstanding.............. 4,263,146 3,802,759
Dilutive common stock assumed converted
Average diluted shares outstanding
(denominator)................................. 4,263,146 3,802,759
Loss per share--diluted........................ $ (0.26) $ (0.35)
=========== ===========
</TABLE>
The earnings per share calculation does not include 160,440 shares of
Preferred Series A and 50,000 shares of Preferred Series C stock which are
convertible to common shares.
(12) SUBSEQUENT EVENTS
On March 1, 2000, The Thaxton Group, Inc. transferred all of the assets and
liabilities of certain insurance agency operations into a newly formed company
named Thaxton RBE, Inc. The assets involve approximately 30 non-standard
automobile insurance agency offices in North Carolina, Arizona, New Mexico, and
Colorado. These agencies offer an insurance product in which The Thaxton Group,
Inc. bears insurance underwriting risk.
F-17
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
Also transferred were the assets and liabilities of an insurance general agency
in Virginia, and an insurance general agency in South Carolina. Both of these
general agencies also offer products which bear insurance underwriting risk.
The total amount of the assets transferred approximate $8 million, the majority
of which are intangible. As a result of this transfer, Thaxton Group, Inc. has
a net receivable from Thaxton RBE in the amount of $7 million.
The purpose of the transfer was to raise additional capital for Thaxton RBE,
as its operations were in their initial stages. As such, immediately subsequent
to the formation and asset transfer, Thaxton Life Partners, Inc. invested
$2,000,000 in the capital stock of Thaxton RBE, Inc., and obtained a 90%
interest in this company as a result of the investment. Thaxton Life Partners,
Inc., is a company owned by James D. Thaxton (Thaxton Chairman and majority
shareholder of Thaxton Group, Inc.); C. L. Thaxton (Director of Thaxton Group,
Inc.); and other Thaxton family members.
(13) BUSINESS SEGMENTS
For the year ended December 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance.
Additionally, SFAS No. 131 requires disclosure of certain information by
geographic region.
The Company reports its results of operations in four primary segments;
consumer finance, mortgage banking, insurance agency, and insurance non-
standard risk bearing. The consumer finance segment provides financing to
consumers with limited credit histories, low incomes or past credit problems.
Revenues in the consumer finance business are derived primarily from interest
and fees on loans, and the sale of credit related insurance products to its
customers. The Company's mortgage banking operations are conducted through
Paragon, a wholly-owned subsidiary acquired in November 1998. Paragon
originates, closes, and funds predominantly B and C credit quality mortgage
loans, which are warehoused until they can be packaged and sold to long term
investors. Paragon receives fee income from originating mortgages and loans are
generally sold at a premium to the permanent investor. The Company's insurance
operations consist of selling, on an agency basis, various lines of automobile,
property and casualty, life and accident and health insurance. Revenue is
generated through fees paid by the insurance for which business is placed.
Insurance non-standard risk bearing consists of selling non-standard automobile
insurance, through agencies, where the Company retains a portion of the
insurance risk.
F-18
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Consumer Mortgage Insurance
Finance Banking Insurance RBE Other Total
----------- ---------- --------- ------------- --------- -----------
(Discontinued
Operations)
<S> <C> <C> <C> <C> <C> <C>
1999
Income Statement Data
Total revenue........... 67,346,247 6,132,999 4,035,734 5,661,959 632,337 83,809,276
Net interest income..... 40,061,849 2,039,015 (235,236) 97,314 412,505 42,375,447
Provision for credit
losses................. 11,923,527 14,152 11,937,679
Noninterest income...... 10,898,404 3,139,789 3,717,300 5,107,965 (299) 22,863,159
Insurance premiums and
commissions, net....... 8,284,489 2,974,595 3,850,792 15,109,876
Non interest expenses... 36,639,178 5,347,192 3,289,358 7,920,837 426,701 53,623,266
Depreciation and
amortization........... 2,257,937 143,062 366,927 631,660 15,807 3,415,393
Net income.............. 1,313,935 (294,650) 132,358 (1,542,409) 35,576 (355,190)
Balance Sheet Data
Total assets............ 204,440,045 8,789,645 8,865,785 8,910,651 3,928,911 234,935,037
Loans, net of unearned
income................. 147,936,157 11,404,180 3,440,166 162,780,503
Allowance for credit
losses................. 10,661,339 10,661,339
Intangibles............. 29,652,189 1,371,155 1,707,559 6,780,230 0 39,511,133
</TABLE>
<TABLE>
<CAPTION>
Consumer Mortgage
Finance Banking Insurance Other Total
---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1998
Income Statement Data
Total revenue........... 16,182,000 917,000 6,013,000 169,000 23,281,000
Net interest income..... 9,745,000 814,000 131,000 10,690,000
Provision for credit
losses................. 4,046,000 4,046,000
Noninterest income...... 1,257,000 278,000 6,013,000 5,000 7,553,000
Insurance premiums and
commissions, net....... 1,142,000 5,449,000 6,591,000
Non interest expenses... 7,457,000 1,178,000 7,008,000 134,000 15,777,000
Depreciation and
amortization........... 626,000 32,000 566,000 1,224,000
Net income.............. (8,000) (85,000) (953,000) (38,000) (1,084,000)
Balance Sheet Data
Total assets............ 55,871,000 12,967,000 9,017,000 1,141,000 78,996,000
Loans, net of unearned
income................. 54,536,000 10,784,000 1,261,000 66,581,000
Allowance for credit
losses................. 4,711,000 4,711,000
Intangibles............. 1,641,000 1,601,000 5,063,000 8,305,000
</TABLE>
F-19
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
(14) SUBSEQUENT EVENTS--DISCONTINUED OPERATIONS
At the end of 1998, and throughout 1999, the Company made a series of
acquisitions of agencies in Arizona, New Mexico, Nevada, Colorado and North
Carolina, as well as a general insurance agency in Virginia. At the same time,
the Company entered into a contract with American Bankers Insurance Group, Inc.
("ABIG"), where the Company would sell ABIG non-standard insurance policies in
these locations, but Thaxton Group would contractually retain the underwriting
risk, and retain any profit or loss from operations. This business ultimately
contained 30 non-standard automobile agency office locations, plus two
insurance general agencies (located in Virginia and South Carolina).
On March 1, 2000, the Company transferred all of the assets and liabilities
of these agency operations into a newly formed company named Thaxton RBE, Inc.
("Thaxton RBE"). The total amount of the assets transferred approximate $8
million, the majority of which were intangible. The purpose of the transfer was
to raise additional capital for Thaxton RBE, as it operations were in their
initial stages. As such, immediately subsequent to the formation and asset
transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock
of RBE and obtained a 90% interest in that company as a result of the
investment. Thaxton Life Partners, Inc., is a company owned by James D. Thaxton
(Chairman and majority shareholder of Thaxton Group, Inc.); C. L. Thaxton, Sr.
(Director of Thaxton Group, Inc.); and other Thaxton family members. As a
result of those transactions, Thaxton Group, Inc. had a net receivable from
Thaxton RBE in the amount of $5 million at March 31, 2000.
During the third quarter of 2000, Thaxton Group made the decision to
discontinue operations and dispose of its interest and investment in Thaxton
RBE as soon as suitable financing for Thaxton RBE could be obtained. On August
31, 2000, Thaxton Life Partners was able to arrange financing for Thaxton RBE
independent of Thaxton Group, Inc., and Thaxton Life Partners purchased the
remaining 10% interest in RBE from Thaxton Group. At the time of the sale, all
amounts owed Thaxton Group were paid in full. Thaxton Group has recognized no
gain or loss on the disposition of Thaxton RBE. The transaction has been
accounted for in accordance with Accounting Principles Board Opinion #30, ("APB
30"), "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions."
F-20
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
The components of the Discontinued assets and Discontinued liabilities in
the consolidated balance sheets as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
December 31,
(1) 1999
------------
Assets
Cash............................................................ (74,142)
Accounts receivable............................................. 1,484
Finance receivables............................................. 46,716
Premises and equipment, net..................................... 1,514,869
Intangibles, net................................................ 6,780,230
Other assets.................................................... 641,494
------------
Total discontinued assets......................................... 8,910,651
------------
Liabilities
Subordinated notes payable...................................... 1,676,091
Accounts payable................................................ 552,028
Other liabilities............................................... 103,828
------------
Total discontinued liabilities.................................... 2,331,947
============
<CAPTION>
1999
------------
<S> <C>
(2) Premises and Equipment
Leasehold improvements............................................ 81,868
Furniture and fixtures............................................ 254,389
Equipment and automobiles......................................... 1,532,413
------------
Total cost...................................................... 1,868,670
Accumulated depreciation.......................................... 353,801
------------
Net premises and equipment...................................... $ 1,514,869
============
Depreciation expense was approximately 165,000 in 1999.
<CAPTION>
1999
------------
<S> <C>
(3) Intangibles
Covenants not to compete.......................................... $ 165,423
Goodwill and purchase premium..................................... 4,657,611
Insurance expirations............................................. 2,746,287
------------
Total cost...................................................... 7,569,321
Less accumulated amortization..................................... 789,091
------------
Intangible assets, net.......................................... $ 6,780,230
============
Amortization expense was approximately 495,000 in 1999.
(4) Leases
2000.............................................................. 467,370
2001.............................................................. 243,222
2002.............................................................. 127,656
2003.............................................................. 37,682
2004.............................................................. 4,010
Thereafter........................................................ 0
------------
Total minimum lease payments.................................... 879,940
============
</TABLE>
Total rental expense for 1999 was approximately $558,000.
F-21
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September December 31,
30, 2000 1999
------------ ------------
<S> <C> <C>
Assets
Cash.............................................. $ 7,467,272 $ 2,110,246
Finance receivables, net.......................... 174,416,059 162,780,503
Loans Held for Sale............................... 9,778,576 11,400,639
Premises and equipment, net....................... 5,142,824 4,778,719
Accounts receivable............................... 1,199,890 1,901,497
Repossessed automobiles........................... 384,399 131,908
Goodwill and other intangible assets.............. 35,971,707 32,730,803
Other assets...................................... 9,542,870 10,190,071
Assets of discontinued operations................. -- 8,910,651
------------ ------------
Total assets.................................. $243,903,597 $234,935,037
============ ============
Liabilities and Stockholders' Equity
Liabilities.......................................
Accrued interest payable........................ 2,726,171 2,174,397
Notes payable................................... 223,687,205 209,542,862
Notes payable to affiliates..................... -- 491,072
Accounts payable................................ 2,432,860 2,746,712
Employee savings plan........................... 557,051 1,328,998
Other liabilities............................... 7,009,834 6,516,470
Liabilities of discontinued operations.......... -- 2,331,947
------------ ------------
Total liabilities............................. 236,413,121 225,132,458
============ ============
Stockholders' Equity..............................
Preferred Stock $.01 parvalue:....................
Series A: 400,000 shares authorized; issued and
outstanding 10,440 shares as of September 2000,
160,440 shares in 1999; liquidation value
$104,400 in 2000............................... 104 1,604
Series C: 50,000 shares authorized issued and
outstanding in 2000 and 1999; liquidation value
$500,000 in 2000 500 500
Series E: 800,000 shares authorized, issued and
outstanding in 2000 and 1999; liquidation value
$8,000,000 in 2000 and 1999 8,000 8,000
Common stock, $.01 par value, 50,000,000 shares
authorized; issued and outstanding 6,974,355
shares in 2000; 6,975,359 shares in 1999......... 69,743 69,753
Additional paid-in-capital........................ 8,610,549 10,116,774
Retained earnings (deficit)....................... (1,198,420) (394,052)
------------ ------------
Total stockholders' equity.................... 7,490,476 9,802,579
------------ ------------
Total liabilities and stockholders' equity.... $243,903,597 $234,935,037
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest and fee income.............................. $47,560,269 $44,073,585
Interest expense..................................... 15,556,771 14,583,095
----------- -----------
Net interest income.................................. 32,003,498 29,490,490
Provision for credit losses.......................... 10,844,168 8,772,823
----------- -----------
Net interest income after provision for credit
losses.............................................. 21,159,330 20,717,667
----------- -----------
Other income:
Insurance premiums and commissions, net............ 9,714,577 6,497,549
Premiums for loans sold............................ 2,553,632 2,232,359
Other income....................................... 5,071,427 6,617,474
----------- -----------
Total other income............................... 17,339,636 15,347,382
----------- -----------
Operating expenses:
Compensation and employee benefits................. 22,271,885 20,810,834
Telephone, computers, postage, and supplies........ 3,863,793 3,524,846
Net occupancy...................................... 4,436,373 3,710,757
Reinsurance claims expense......................... 647,965 485,000
Advertising........................................ 1,972,168 1,513,681
Collection expense................................. 189,428 249,143
Travel............................................. 891,446 731,455
Professional fees.................................. 687,861 462,255
Other.............................................. 2,750,785 2,658,507
----------- -----------
Total operating expenses......................... 37,711,704 34,146,478
----------- -----------
Income from continuing operations before income tax
expense............................................. 787,262 1,918,571
Income tax expense................................... 582,669 937,000
----------- -----------
Income from continuing operations.................... $ 204,593 $ 981,571
Discontinued operations (Note 6).....................
Loss from operations of discontinued Non-Standard
insurance division (Less benefit from income taxes
of $148,904 in 2000, and $301,188 in 1999)........ (475,268) (885,848)
Net loss............................................. (270,675) 95,723
Dividends on preferred stock......................... $ 533,693 $ 534,000
Net Income (loss) applicable to common shareholders.. $ (804,368) $ (438,277)
=========== ===========
Net Income (loss) per common share--basic and
diluted............................................. $ (0.12) $ (0.06)
=========== ===========
From continuing operations......................... $ (0.05) $ 0.06
From discontinuing operations...................... $ (0.07) $ (0.13)
Weighted average shares outstanding--basic and
diluted............................................. 6,974,815 6,994,687
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30, 2000 and
1999
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities................. $ 5,983,367 $ 2,457,000
Cash flows from investing activities................. (10,457,142) (9,914,000)
Cash flows from financing activities................. 9,830,801 10,729,000
------------ -----------
Net increase (decrease) in cash...................... 5,357,026 3,272,000
Cash at beginning of period.......................... 2,110,246 781,000
------------ -----------
Cash at end of Period................................ $ 7,467,272 $ 4,053,000
============ ===========
</TABLE>
F-25
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000 and 1999
(1) BASIS OF PRESENTATION FOR INTERIM FINANCIAL INFORMATION
Information with respect to September 30, 2000 and 1999, and the periods
then ended, have not been audited by the Company's independent auditors, but in
the opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations of
the Company. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the audited consolidated
financial statements appearing previously in this prospectus. The results of
operations for the nine months and quarter ended September 30, 2000 are not
necessarily indicative of results to be expected for the entire fiscal year.
(2) FINANCE RECEIVABLES
Finance receivables consist of the following at September 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Automobile sales contracts.......... $ 33,392,604 $ 33,138,025
Mortgage loans...................... 28,715,735 27,477,365
Commercial loans.................... 3,746,606 3,440,166
Direct Loans........................ 150,927,627 140,704,637
Premium finance contracts........... 7,880,834 8,362,591
------------ ------------
Total finance receivables......... 224,663,406 213,122,784
------------ ------------
Unearned interest................... (37,372,396) (37,805,852)
Unearned insurance premiums, net.... (3,133,937) (2,797,033)
Valuation discount for acquired
loans.............................. (12,533) (93,534)
Bulk purchase discount and dealer
holdback........................... (1,220,265) (704,657)
Allowance for credit losses......... (10,596,974) (10,661,339)
Deferred loan cost, net............. 2,088,758 1,720,134
------------ ------------
Finance receivables, net............ $174,416,059 $162,780,503
============ ============
Loans held for sale................. $ 9,778,576 $ 11,400,639
============ ============
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan receivables.
With bulk purchase arrangements, the Company typically purchases a group of
receivables from an auto dealer or other retailer at a discount to par based on
management's review and assessment of the portfolio to be purchased. This
discount amount is then maintained in an unearned income account to which
losses on these loans are charged. To the extent that losses from a bulk
purchase exceed the purchase discount, the allowance for credit losses will be
charged. To the extent losses experienced are less than the purchase discount,
the remaining discount is accreted into income. With holdback arrangements, an
automobile dealer or other retailer will assign receivables to the Company on a
loan-by-loan basis, typically at par. The Company will withhold a certain
percentage of the proceeds, generally 5% to 10%, as a dealer reserve to be used
to cover any losses which occur on these loans. The agreements are structured
such that all or a portion of these amounts can be reclaimed by the dealer
based on the performance of the receivables. To the extent that losses from
these holdback receivables exceed the total remaining holdback amount for a
particular dealer, the allowance for credit losses will be charged. The amount
of bulk purchase and holdback receivables, net of unearned interest and
insurance, and the related holdback and discount amount outstanding were
approximately $20,654,820 and $1,220,265, respectively, at September 30, 2000
and approximately $26,870,193 and $704,657, respectively, at December 31, 1999.
F-26
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
September 30, 2000 and 1999
At September 30, 2000 there were no significant concentrations of
receivables in any type of property or to one borrower.
These receivables are pledged as collateral for a line of credit agreement
(see note 3).
Changes in the allowance for credit losses for the nine months ended
September 30, 2000 and for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Beginning balance............................... $ 10,661,339 $ 4,710,829
Valuation allowance for acquired loans.......... -- 6,276,309
Provision for credit losses..................... 10,844,168 8,772,823
Charge-offs..................................... (11,988,681) (9,487,897)
Recoveries...................................... 1,080,148 822,245
------------ -----------
Net charge-offs................................. (10,908,533) (8,665,652)
------------ -----------
Ending balance.................................. $ 10,596,974 $11,094,309
============ ===========
</TABLE>
The Company's loan portfolio primarily consists of short-term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables
is not materially different from carrying value.
(3) NOTES PAYABLE
At September 30, 2000, the Company maintained two lines of credit with a
commercial finance company for $232 million, maturing on July 31, 2004. The
credit line is set up in four Tranches, allowing the Company to borrow against
its eligible collateral of finance receivables. At September 30, 2000 the
Company had approximately $62 million total potential borrowing capacity under
these facilities. However, in addition to the eligible collateral restrictions,
the borrowing availability under Tranches is also limited by amounts borrowed
under other Tranches, outstanding receivables, insurance premiums written, and
in some cases, additional restrictions. As a result of these additional
restrictions, the Company had approximately $3.9 million total potential
borrowing capacity as of September 30, 2000.
The aggregate outstanding balance under these lines of credit was $170.4
million at September 30, 2000, of which $58.0 million was borrowed at 10.75%
(Lenders prime +1 1/4%); $101.9 million was borrowed at 10.5% (Lenders prime +
1%); and $10.5 million was borrowed at 13% (Lenders prime +3 1/2%).
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The agreement
requires the Company to maintain certain financial ratios at established levels
and comply with other non-financial requirements, which may be amended from
time to time. Also, the Company may pay dividends up to 25% of the current
year's net income. The Company met all such ratios and requirements or obtained
waivers for any instances of non-compliance as of the prior year end, and
expects to meet all such ratios and requirements or obtain waivers for any
instances of non-compliance for the current year.
In connection with the FirstPlus acquisition, the Company assumed $2.2
million of subordinated notes issued to Voyager Insurance Co. In November 1999,
those notes were cancelled and re-issued in the name of the Company. The note
agreement contained an interest coverage ratio restrictive covenant, which the
Company
F-27
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
September 30, 2000 and 1999
did not meet at December 31, 1999, and a waiver was obtained for the year.
However, the Company cannot say with certainty that it will meet this covenant
requirement for the year 2000, and if it does not meet this requirement that a
waiver will be obtained. However, the Company is confident that it has adequate
availability under it primary credit facility to borrow adequate funds to
liquidate this note, if required.
In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998 (and amended in November
1999), and the Company now offers notes in multiple states under this federal
registration. The maturity terms on these notes range from daily to sixty
months, and interest rates vary in accordance with market rates. Notes
currently being offered carry interest rates ranging from 5.5% to 9.0%.
Approximately $43.9 million in notes were outstanding at September 30, 2000 and
$43.9 million were outstanding at December 31, 1999 and are reflected as notes
payable and notes payable to affiliates.
(4) BUSINESS COMBINATIONS
On March 1, 2000, the Company transferred all of the assets and liabilities
of these agency operations into a newly formed company named Thaxton RBE, Inc.
("Thaxton RBE"). The total amount of the assets transferred approximate $8
million, the majority of which were intangible. The purpose of the transfer was
to raise additional capital for Thaxton RBE, as it operations were in their
initial stages. As such, immediately subsequent to the formation and asset
transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock
of RBE and obtained a 90% interest in that company as a result of the
investment. Thaxton Life Partners, Inc., is a company owned by James D. Thaxton
(Chairman and majority shareholder of Thaxton Group, Inc.); C. L. Thaxton, Sr.
(Director of Thaxton Group, Inc.); and other Thaxton family members. As a
result of those transactions, Thaxton Group, Inc. had a net receivable from
Thaxton RBE in the amount of $5 million at March 31, 2000.
During the third quarter of 2000, Thaxton Group made the decision to
discontinue operations and dispose of its interest and investment in Thaxton
RBE as soon as suitable financing for Thaxton RBE could be obtained. On August
31, 2000, Thaxton Life Partners was able to arrange financing for Thaxton RBE
independent of Thaxton Group, Inc., and Thaxton Life Partners purchased the
remaining 10% interest in RBE from Thaxton Group. At the time of the sale, all
amounts owed Thaxton Group were paid in full. Thaxton Group has recognized no
gain or loss on the disposition of Thaxton RBE. The transaction has been
accounted for in accordance with Accounting Principles Board Opinion #30, ("APB
30"), "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions."
On August 18, 2000, the Company acquired all of the stock of Quick Credit
Corporation, a consumer finance company with 25 branch offices located in South
Carolina. The purchase price was $12.75 million in cash. This acquisition was
accounted for as a purchase and resulted in goodwill of approximately $5.0
million which is being amortized over 15 years.
On February 1, 1999, the Company's CEO and majority shareholder purchased
144 consumer finance offices from FirstPlus Consumer Finance, Inc., and
operated those offices in Thaxton Investment Corporation, Inc. ("TIC"), a
corporation set up for that purpose. This acquisition was accounted for as a
purchase. TIC was a private corporation, with Mr. Thaxton as the sole
shareholder. TIC operated independently from the Company from February 1, 1999
through November 8, 1999. On November 8th, the Company acquired TIC in exchange
for 3,223,000 shares of the Company's common stock. Because TIC and the Company
had been under common
F-28
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
September 30, 2000 and 1999
ownership and control since February 1999, the Company's acquisition of TIC was
accounted for at historical cost in a manner similar to pooling of interests
accounting. The 1999 financial statements have been restated to account for the
impact of the acquisition of Thaxton Investment Corporation. Certain amounts in
the 1999 presentation have been reclassified in order to conform to the 2000
presentation.
(5) BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires the presentation of descriptive information
about reportable segments consistent with that used by management of the
Company to assess performance. Additionally, SFAS No. 131 requires disclosure
of certain information by geographic region.
The Company reports its results of operations in four primary segments;
consumer finance, mortgage banking, insurance agency, and insurance
underwriting risk bearing. The consumer finance segment provides financing to
consumers with limited credit histories, low incomes or past credit problems.
Revenues in the consumer finance business are derived primarily from interest
and fees on loans, and the sale of credit related insurance products to its
customers. The Company's mortgage banking operations are conducted through
Paragon, a wholly-owned subsidiary acquired in November 1998. Paragon
originates, closes and funds predominantly B and C credit quality mortgage
loans, which are warehoused until they can be packaged and sold to long term
investors. Paragon receives fee income from originating mortgages and loans are
generally sold at a premium to the permanent investor. The Company's insurance
agency operations consist of selling, on an agency basis, various lines of
automobile, property and casualty, life and accident and health insurance.
Revenue is generated through fees paid by the insurance for which business is
placed.
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the nine months ended September 30,
2000 and 1999:
<TABLE>
<CAPTION>
Consumer Mortgage Insurance
2000 Finance Banking Agency Other Total
---- ----------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue........... 56,076,294 5,089,620 2,999,338 794,653 64,959,905
Income (loss) from
continuing operations... 527,976 (123,686) (286,666) 86,969 204,593
Total assets............ 220,939,141 11,972,387 7,284,520 3,707,952 243,904,000
<CAPTION>
Consumer Mortgage Insurance
1999 Finance Banking Agency Other Total
---- ----------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue........... 49,215,031 6,351,210 3,422,528 432,198 59,420,967
Income (loss) from
continuing operations... 577,265 206,896 191,039 6,371 981,571
Total assets............ 199,645,908 11,223,361 13,555,160 2,751,571 227,176,000
</TABLE>
(6) DISCONTINUED OPERATIONS
At the end of 1998, and throughout 1999, the Company made a series of
acquisitions of agencies in Arizona, New Mexico, Nevada, Colorado and North
Carolina, as well as a general insurance agency in Virginia. At the same time,
the Company entered into a contract with American Bankers Insurance Group, Inc.
("ABIG"), where the Company would sell ABIG non-standard insurance policies in
these locations, but Thaxton Group would contractually retain the underwriting
risk, and retain any profit or loss from operations. This business ultimately
contained 30 non-standard automobile agency office locations, plus two
insurance general agencies (located in Virginia and South Carolina).
F-29
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
September 30, 2000 and 1999
On March 1, 2000, the Company transferred all of the assets and liabilities
of these agency operations into a newly formed company named Thaxton RBE, Inc.
("Thaxton RBE"). The total amount of the assets transferred approximate $8
million, the majority of which were intangible. The purpose of the transfer was
to raise additional capital for Thaxton RBE, as it operations were in their
initial stages. As such, immediately subsequent to the formation and asset
transfer, Thaxton Life Partners, Inc. invested $2,000,000 in the capital stock
of RBE and obtained a 90% interest in that company as a result of the
investment. Thaxton Life Partners, Inc., is a company owned by James D. Thaxton
(Chairman and majority shareholder of Thaxton Group, Inc.); C. L. Thaxton, Sr.
(Director of Thaxton Group, Inc.); and other Thaxton family members. As a
result of those transactions, Thaxton Group, Inc. had a net receivable from
Thaxton RBE in the amount of $5 million at March 31, 2000.
During the third quarter of 2000, Thaxton Group made the decision to
discontinue operations and dispose of its interest and investment in Thaxton
RBE as soon as suitable financing for Thaxton RBE could be obtained. On August
31, 2000, Thaxton Life Partners was able to arrange financing for Thaxton RBE
independent of Thaxton Group, Inc., and Thaxton Life Partners purchased the
remaining 10% interest in RBE from Thaxton Group. At the time of the sale, all
amounts owed Thaxton Group were paid in full. Thaxton Group has recognized no
gain or loss on the disposition of Thaxton RBE. The transaction has been
accounted for in accordance with Accounting Principles Board Opinion #30, ("APB
30"), "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions."
The components of the discontinued assets and discontinued liabilities in
the consolidated balance sheets as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Assets
Cash........................................................ (74,142)
Accounts receivable......................................... 1,484
Finance receivables......................................... 46,716
Premises and equipment, net................................. 1,514,869
Goodwill, net............................................... 6,780,230
Other assets................................................ 641,494
---------
Total discontinued assets..................................... 8,910,651
Liabilities
Subordinated notes payable.................................. 1,676,091
Accounts payable............................................ 552,028
Other liabilities........................................... 103,828
---------
Total discontinued liabilities................................ 2,331,947
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FIRSTPLUS Consumer Finance, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of FIRSTPLUS
Consumer Finance, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income and retained earnings and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FIRSTPLUS
Consumer Finance, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
March 19, 1999
/s/ Elliott, Davis & Company, LLP
F-36
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 5,990,252 $ 3,503,009
Finance receivables, net (see Note 2)................. 111,473,990 82,539,077
Premises and equipment less accumulated depreciation
of $3,571,910 in 1998 and $2,877,719 in 1997 (see
Note 3).............................................. 3,096,554 2,576,171
Goodwill (see Note 4)................................. 7,193,467 1,337,408
Deferred tax asset (see Note 7)....................... 1,827,793 1,278,557
Prepaid and other assets.............................. 1,996,679 1,696,318
------------ -----------
Total Assets...................................... $131,578,735 $92,930,540
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Term debt and notes payable (see Note 5).............. $ 73,439,655 $47,723,441
Subordinated investment certificates and notes payable
(see Note 6)......................................... 24,110,017 22,129,877
Note payable to parent company (see Note 10).......... 9,889,717 3,643,784
Accounts payable and other accrued liabilities........ 5,635,507 5,214,716
Insurance underwriting premiums payable............... 807,109 548,594
Insurance loss reserve................................ 860,616 285,143
------------ -----------
Total Liabilities................................... 114,742,621 79,545,555
------------ -----------
Common stock, $1 par value: 1,000 1,000
Authorized shares--1,000
Outstanding shares--1,000
Additional paid-in capital............................ 1,520,211 1,520,211
Retained earnings..................................... 15,314,903 11,863,774
------------ -----------
Total stockholder's equity.......................... 16,836,114 13,384,985
------------ -----------
Total Liabilities and Stockholder's Equity........ $131,578,735 $92,930,540
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Interest and fee income (see Note 1)................ $43,932,269 $32,134,980
Earned insurance premiums........................... 8,064,668 5,875,566
----------- -----------
Total revenues.................................... 51,996,937 38,010,546
----------- -----------
EXPENSES
Interest on notes payable (see Notes 5 and 6)....... 6,552,996 4,598,496
Provision for credit losses (see Note 2)............ 7,872,090 6,147,733
Provision for credit insurance losses............... 1,113,097 810,828
Salaries and employee benefits...................... 18,743,055 14,543,025
Occupancy, net (see Note 8)......................... 6,469,989 4,561,266
Equipment costs, depreciation and maintenance....... 833,341 779,470
Other operating..................................... 5,073,568 1,914,884
----------- -----------
Total expenses.................................... 46,658,136 33,355,702
----------- -----------
Net income before income taxes........................ 5,338,801 4,654,844
Provision for federal and state income taxes (see Note
7)................................................... 1,887,672 1,553,046
----------- -----------
Net income.......................................... 3,451,129 3,101,798
Retained earnings at beginning of year................ 11,863,774 8,761,976
----------- -----------
Retained earnings at end of year...................... $15,314,903 $11,863,774
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $ 3,451,129 $ 3,101,798
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit and insurance losses...... 8,985,187 6,147,733
Depreciation................................... 628,852 574,429
Amortization of intangible asset............... 1,692,825 134,180
Changes in operating assets and liabilities
Prepaid and other assets....................... (300,362) 1,490,944
Deferred tax asset............................. (549,236) (82,361)
Accounts payable and other accrued
liabilities................................... (208,293) 503,007
------------ ------------
Net cash provided by operating activities.... 13,700,102 11,869,730
------------ ------------
INVESTING ACTIVITIES...............................
Increase in finance receivables, net............. (17,623,667) (14,122,842)
Increase in goodwill and loan premium from
acquisitions.................................... (7,548,884) (1,337,408)
Purchase of premises and equipment, net.......... (999,649) (615,175)
Net assets acquired from branch acquisitions..... (19,332,921) (7,151,297)
------------ ------------
Net cash used in investing activities........ (45,505,121) (23,226,722)
------------ ------------
FINANCING ACTIVITIES...............................
Net proceeds from term debt, subordinate
debentures, and notes payable................... 34,292,262 13,819,314
------------ ------------
Net cash provided by financing activities.... 34,292,262 13,819,314
------------ ------------
Net increase in cash and cash equivalents.... 2,487,243 2,462,322
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 3,503,009 1,040,687
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 5,990,252 $ 3,503,009
============ ============
CASH PAID FOR......................................
Interest......................................... $ 6,453,253 $ 4,512,281
============ ============
Income taxes..................................... $ 2,977,558 $ 857,812
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations and principles of consolidation
The consolidated financial statements include the accounts of FIRSTPLUS
Consumer Finance, Inc. (the Company) and its wholly owned subsidiaries:
National Loans, Inc, The Modern Finance Company, Southern Management
Corporation and FIRSTPLUS Consumer Finance of Kentucky. The Company is a
consumer finance company based in Dallas, Texas whose principal business is
originating direct consumer finance loans and purchasing retail installment
contracts from selected dealers and merchants. The Company operates finance
branches in Georgia, Mississippi, Ohio, South Carolina, Tennessee and Texas.
All significant intercompany accounts and transactions have been eliminated.
The Company is a wholly-owned subsidiary of FIRSTPLUS Financial Group, Inc.
(FPFG) of Dallas, Texas. The Company's direct subsidiaries resulted from either
a merger transaction between FPFG and the respective subsidiary or an asset
purchase by the Company. In the case of a merger between FPFG and the
respective direct subsidiary, the former shareholders of the direct subsidiary
exchanged all of the outstanding common stock for shares of FPFG. Following the
exchange of stock, which was accounted for as a pooling of interests, the
direct subsidiary became an indirect wholly-owned subsidiary of FPFG and a
direct subsidiary of the Company.
Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Finance receivables
Finance receivables are reported at the principal balance outstanding, net
of unearned interest, the allowance for loan losses and charge-offs. Interest
included in the principal amount of pre-computed finance receivables is
recognized as revenue under the following methods by subsidiary:
National Loans--interest actuarial. Modern Finance Company--rule of 78s
collection. Southern Management--rule of 78s collection. Firstplus Consumer
Finance of Kentucky--rule of 78s accrual.
Other finance receivables are written on a simple interest basis, and
interest is recognized on an accrual basis.
Fees received for the origination of loans are deferred and amortized to
interest revenue over the average contractual lives of the loans using the
interest method. Unamortized amounts are recognized in income at the time
the loans are paid in full.
Allowance for credit losses
Unpaid finance receivable balances are charged to the allowance for
credit losses when considered to be uncollectible or if the cost of
collection becomes prohibitive. In addition, unpaid consumer loan
receivable balances are charged off against the allowance for credit losses
no later than upon six consecutive months of no payment. Recoveries on
loans previously charged off are credited to the allowance when received.
The allowance for credit losses is maintained at 1.25 percent to 10 percent
of the net outstanding loan balances, depending on the type of receivable.
These percentages are based on
F-40
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
past loss experience, economic conditions, composition of the loan
portfolio and, in management's judgment, are sufficient to maintain the
allowance at a level that adequately provides for potential loan losses.
While management uses the best information available to make evaluations,
future adjustments to the allowance may be necessary if conditions differ
substantially from the assumptions used in making the calculations.
Insurance premiums
Insurance premiums for credit life, accident and health, involuntary
unemployment, and property insurance written in connection with certain loans,
net of refunds and applicable advance insurance commissions retained by the
Company, are remitted monthly to an insurance company. All commissions are
credited to unearned insurance commissions and accreted to income over the life
of the related insurance contracts, using a method similar to that used for the
recognition of interest income.
Premises and equipment
Asset cost is reported net of accumulated depreciation. Depreciation and
amortization of property, equipment, and leasehold improvements are computed on
the straight-line method over the estimated useful lives of the related assets.
These assets are reviewed for impairment when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are charged to
operations as incurred. Additions and betterments are capitalized.
Statement of cash flows
Cash in excess of daily requirements is invested in overnight repurchase
funds. These amounts are deemed to be cash equivalents for purposes of the
consolidated statement of cash flows.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
consolidated financial statements or tax return. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be realized or settled. Additionally, the Company participates in a tax
sharing agreement whereby it is included in the consolidated federal tax
returns of FPFG but pays taxes to FPFG based on its separate taxable income.
Income tax expense is the sum of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
Business combination and other acquisitions
In April 1998, the Company completed the acquisition of substantially all of
the assets of nine branches of ABC Credit Corporation for approximately $13.7
million. The branches are located in Kentucky. The excess of the purchase price
over net assets acquired was approximately $2.8 million which is being
amortized over ten years. During 1998, the Company purchased substantially all
of the net assets of twenty-five additional consumer loan offices for
approximately $11.9 million. The excess of the purchase price over net assets
acquired was approximately $3.5 million which is being amortized over periods
ranging from 3 to 10 years. The acquisitions were accounted for under the
purchase method of accounting and the results of operations of the acquired
locations are included in the consolidated financial statements from the date
of acquisition.
F-41
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2--FINANCE RECEIVABLES
The Company's finance receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Direct consumer loans.......................... $108,686,752 $ 87,995,631
Retail contracts............................... 40,111,036 18,705,366
Interest receivable............................ 411,743 136,879
------------ ------------
149,209,531 106,837,876
Less:
Unearned interest revenue, insurance
commissions and premiums.................... 31,150,539 19,955,494
Allowance for credit losses.................. 6,585,002 4,343,305
------------ ------------
Net consumer loans receivable.............. $111,473,990 $ 82,539,077
============ ============
</TABLE>
A majority of consumer loans are made for periods of up to five years and
are either unsecured or collateralized by personal property such as automobiles
and appliances. Certain consumer loans are collateralized by first or second
mortgages on real estate and are made for periods of up to 15 years.
An analysis of the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Balance, January 1............................... $ 4,349,190 $ 3,120,059
Provision charged against income................. 7,872,090 6,147,733
Provision from purchase of loans................. 2,597,728 947,131
Loans receivable charged off, net................ (8,234,006) (5,865,733)
----------- -----------
Balance, December 31............................. $ 6,585,002 $ 4,349,190
=========== ===========
</TABLE>
In addition to the above allowance for credit losses, the Company withholds
certain percentage of proceeds remitted to automobile dealerships and other
durable good retailers for loans purchased. These dealer reserves and holdbacks
are allocated between the dealer and the Company, and the amounts allocated are
remitted back to the dealer and recognized by the Company upon full payment of
the respective dealers' aggregate loans. At December 31, 1998 and 1997, the
dealer reserves and holdbacks amounted to approximately $1,233,000 and
$2,239,000, respectively.
F-42
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--PREMISES AND EQUIPMENT
Premises and equipment is stated at cost less accumulated depreciation and
is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Land and land improvements.......................... $ 189,720 $ 189,720
Buildings and leasehold improvements................ 1,363,173 1,314,609
Furniture and fixtures.............................. 634,389 2,927,947
Office machines and equipment....................... 4,481,182 1,021,614
---------- ----------
6,668,464 5,453,890
Less accumulated depreciation....................... 3,571,910 (2,877,719)
---------- ----------
$3,096,554 $2,576,171
========== ==========
</TABLE>
NOTE 4--GOODWILL
The Company from time to time enters into agreements to acquire loan
portfolios and/or net assets of other companies. The excess of the purchase
price over the net assets acquired results in an intangible asset and is
amortized over periods ranging from 3 to 10 years. The acquisitions are
accounted for under the purchase method of accounting and the results of
operations of the acquired operations are included in the consolidated
financial statements from the date of acquisition. At December 31, 1998 and
1997, the intangible asset amounted to $7,193,467 and $1,337,408, respectively.
NOTE 5--TERM DEBT AND NOTES PAYABLE
The Company has entered into line-of-credit agreements secured by certain
assets of the Company. As of December 31, 1998 and 1997, $73,136,066 and
$47,373,466 was advanced of the $95,000,000 and $57,750,000 available under
these agreements. The agreements are for periods up to two years and interest
is charged at an adjusted rate of prime or Libor. Pursuant to events outlined
in Note 11, Subsequent Event, the line-of-credit agreements of the Company were
repaid after December 31, 1998.
The Company entered into a $632,000 five-year mortgage agreement with a bank
in 1995 with interest at 8.25 percent. At December 31, 1998 and 1997 the
outstanding balance is $303,589 and $349,975, respectively. The mortgage
agreement requires monthly principal and interest payments of $6,132 until
August, 2000, at which time the remaining balance is due and payable. As
allowed by the agreement, two voluntary principal payments of $100,000 have
been made. The mortgage agreement is secured by the Company's downtown Columbus
facility.
The aggregate amount of future maturities under term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999.......................................................... $ 36,738
2000.......................................................... 266,851
--------
$303,589
========
</TABLE>
F-43
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--SUBORDINATED INVESTMENT CERTIFICATES AND NOTES PAYABLE
Subordinated Investment Certificates and Notes Payable consist of the
following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Subordinate debentures, with interest at a rate of
prime plus .25 percent, payable through 1999..... $ 2,200,000 $ 2,257,385
Money market certificates with maturities of 6 to
84 months........................................ 21,910,017 19,872,492
----------- -----------
$24,110,017 $22,129,877
=========== ===========
</TABLE>
The average weighted interest rate on all money market certificates
outstanding at December 31, 1998 and 1997 is approximately 7%. The certificates
mature according to the terms stated above, or at the option of the holder for
like period thereafter, subject to 60 days' notice for payment.
The maturities of the subordinated investment certificates due in the next
five years are as follows:
<TABLE>
<CAPTION>
Year ending
December
31,
-----------
<S> <C>
1999........................................................... $ 9,026,017
2000........................................................... 4,044,825
2001........................................................... 5,115,450
2002........................................................... 2,497,625
2003........................................................... 748,250
Thereafter..................................................... 477,850
-----------
$21,910,017
===========
</TABLE>
The certificates are subordinated to indebtedness to banks and other
financial institutions.
NOTE 7--INCOME TAXES
Deferred income taxes are primarily the result of reporting the allowance
for loan loss and the accrual of certain expenses differently for income tax
purposes than for financial reporting purposes. The types of temporary
differences and their related tax effects that give rise to the net deferred
income tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Allowance for credit losses......................... $1,346,000 $1,156,863
Goodwill............................................ 387,351 --
Other assets........................................ 94,442 121,694
---------- ----------
1,827,793 1,278,557
Valuation Allowance................................. -- --
---------- ----------
Net deferred tax asset.............................. $1,827,793 $1,278,557
========== ==========
</TABLE>
F-44
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current............................................ $2,352,475 $1,861,938
Deferred--other.................................... (464,803) (308,892)
---------- ----------
Provision for income taxes......................... $1,887,672 $1,553,046
========== ==========
</TABLE>
Differences between the statutory federal income tax rate and the Company's
effective tax rate result from the nondeductibility of certain business
expenses.
NOTE 8--COMMITMENTS
The Company occupies space under leases with original terms from one to four
years. Net rental expense for the year ended December 31, 1998 and 1997 was
$1,687,283 and $1,189,300, respectively.
Future minimum rental payments under leases as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999............................................................ $1,523,574
2000............................................................ 1,114,517
2001............................................................ 791,510
2002............................................................ 585,074
2003 and thereafter............................................. 1,231,421
----------
$5,246,096
==========
</TABLE>
NOTE 9--RETIREMENT PLAN
The Company's employees had the option to participate in the defined
contribution employee benefit plan of FPFG. The Company's contributions to the
FPFG plan are discretionary and allocated to participants based on length of
service and base salary. During 1998, the Company did not make any
contributions to the plan.
NOTE 10--TRANSACTIONS WITH PARENT
During 1998 the Company purchased approximately $.5 million in mortgage
loans and retail installment contracts secured by real estate from FPFG.
Additionally, payroll and, from time to time, other expense items for the
Company are processed and funded by FPFG. In connection with these services at
December 31, 1998 the Company owed approximately $9,889,717 to FPFG. Pursuant
to events outlined in Note 11, Subsequent Event, advances from FPFG were
repaid.
NOTE 11--SUBSEQUENT EVENT
On February 1, 1999, Thaxton Investment Corporation (TIC) purchased all
shares of the Company's subsidiaries stock and the net assets of the Company
pursuant to a stock purchase agreement between TIC and FPFG. The purchase by
TIC was facilitated by the use of a leveraged buyout in which TIC obtained a
significant amount of the funds necessary to purchase the Company's common
stock by pledging the Company's assets in exchange for a loan to TIC.
F-45
<PAGE>
Unaudited Pro Forma Consolidated Financial Data of The Thaxton Group, Inc.
The following unaudited pro forma consolidated condensed statements of
operations for the year ended December 31, 1999 gives effect to the acquisition
of Thaxton Investment as if it occurred on January 1, 1999.
The unaudited pro forma consolidated financial data and accompanying notes
should be read in conjunction with the consolidated financial statements and
related notes of Thaxton Group and the consolidated financial statements and
related notes of Thaxton Investment, all of which are included elsewhere in
this prospectus. Management believes that the assumptions used in the following
statements provide a reasonable basis upon which to present the unaudited pro
forma financial data. The unaudited pro forma consolidated financial data is
provided for informational purposes only and should not be construed to be
indicative of Thaxton's financial condition, results from operations or
covenant compliance had the transaction described above been consummated on the
dates assumed, and is not intended to project Thaxton Group's financial
condition on any future date or Thaxton Group's results of operation for any
future period.
F-46
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------
FirstPlus Customer
Finance
For the one
month ended Pro Forma Total
Actual January 31, 1999 Adjustments Pro Forma
------- ------------------ ----------- ---------
Unaudited
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income Statement Data:
Interest and fee income.... $60,392 $4,061 $64,453
Interest expense........... 18,114 631 396(1) 19,141
------- ------ ----- -------
Net interest income........ 42,278 3,430 (396) 45,312
Provision for credit
losses.................... 11,938 700 12,638
------- ------ ----- -------
Net interest income after
provision for credit
losses.................... 30,340 2,730 (396) 32,674
Insurance commissions,
net....................... 11,259 402 11,661
Other income............... 6,496 46 6,542
------- ------ ----- -------
Total other income....... 17,755 448 18,203
Operating expenses........... 45,702 2,557 (18)(2) 48,241
Income before taxes from
continuing operations..... 2,393 621 (378) 2,636
Income tax expense
(benefit)................... 1,206 195 46(3) 1,447
------- ------ ----- -------
Net income (loss) from
continuing operations....... $ 1,187 $ 426 $(424) $ 1,189
======= ====== ===== =======
Net income (loss) per common
share....................... $ 0.06 $ 0.06
Average common shares
outstanding................. 6,976 6,976
</TABLE>
F-47
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(1) Reflects one month of additional interest expense and cost of borrowings
(for January 1999) that would have been incurred by Thaxton Group to
finance the acquisition of FirstPlus Consumer Finance, Inc. All additional
costs of borrowing incurred after February 1, 1999, are included in the
historical results of operations for Thaxton Investment.
(2) Reflects the amortization over an assumed life of 20 years of the excess
cost over net assets acquired incurred as a result of the acquisition of
FirstPlus Consumer Finance, Inc. Amortization incurred after February 1,
1999 is included in the historical results of operations for Thaxton
Investment.
(3) Reflects the tax benefit or cost associated with the application of the pro
forma adjustments.
F-48
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
No officer, employee or other person has been authorized to give any
information or make any representations not contained in this prospectus in
connection with the offering of securities covered by this prospectus. If given
or made, such information or representations must not be relied on as having
been authorized by Thaxton Group. Neither the delivery of this prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the information set forth in this
prospectus or in the affairs of Thaxton Group.
The Thaxton Group, Inc.
$50,000,000
Aggregate Principal Amount
of
Subordinated Term Notes
Due 1, 6, 12, 36 and 60 Months
and
Subordinated Daily Notes
------------------
PROSPECTUS
------------------
November 2, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Bylaws of Thaxton Group provide for indemnification of its officers and
directors against liabilities and reasonable expenses incurred in connection
with any action, suit or proceeding to which such person may be a party
because he is or was a director or officer of Thaxton Group or serving in a
similar capacity at Thaxton Group's request for another entity, to the fullest
extent permitted by the laws of South Carolina. Under the laws of South
Carolina, unless limited by its articles of incorporation, a corporation shall
indemnify a director or officer who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director or officer of such corporation, against reasonable
expenses incurred by him in connection with the proceeding. South Carolina law
also provides that a corporation may indemnify a director or officer if he
acted in good faith and in a manner he reasonably believed to be, with respect
to conduct in his official capacity, in the best interests of the corporation,
and, in all other cases, in a manner not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, he had no
reason to believe his conduct was unlawful. With respect to suits by or in the
right of Thaxton Group, such a person may be indemnified if he acted in good
faith and, in the case of conduct within his official capacity, he reasonably
believed his conduct to be in Thaxton Group's best interest, and in all other
cases, he shall not have been adjudged to be liable to Thaxton Group.
The South Carolina Business Corporation Act of 1988 also permits certain
corporations, including Thaxton Group, by a provision in its articles of
incorporation, to limit or eliminate the personal liability of its directors
for monetary damages for breach of fiduciary duty as a director, except with
respect to any breach of the director's duty of loyalty to the corporation or
its shareholders, or acts or omissions not in good faith or which involve
gross negligence, intentional misconduct or a knowing violation of law, or
which occurred prior to the time such provision became effective, or with
respect to transactions in which the director received an improper personal
benefit, or for approving an unlawful distribution. Thaxton Group's Second
Amended and Restated Articles of Incorporation include such a provision. As a
result of the inclusion of such provision, shareholders of Thaxton Group may
be unable to recover monetary damages against directors for action taken by
them which constitute negligence or which are in violation of their fiduciary
duty of due care, although they are not precluded from obtaining injunctive or
other equitable relief with respect to such actions. Such provision is not
effective to eliminate or limit statutory liabilities arising under federal
law, including liabilities under federal securities laws.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be incurred in connection
with the offering of the securities:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 14,750
NASD filing fee................................................... 5,500
Printing expenses................................................. 50,000*
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 160,000*
Blue Sky filing fees.............................................. 10,000
Trustee's fees and expenses....................................... 50,000*
Miscellaneous expenses............................................ 9,750*
--------
Total........................................................... $500,000*
========
</TABLE>
--------
* Estimated
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
On October 31, 1996, Thaxton Group acquired Thaxton Insurance by exchanging
300,000 shares of its common stock for all of the outstanding capital stock of
Thaxton Insurance. The capital stock of Thaxton Insurance was acquired from
James D. Thaxton, C.L. Thaxton, Sr., and William H. Thaxton. This transaction
was not registered under the Securities Act pursuant to the exemption provided
by Section 4(2) thereof for transactions not involving any public offering.
On July 1, 1997, Thaxton Group began offering and selling up to $10 million
in subordinated term notes due 1, 6, 12, 36 and 60 months, with interest rates
ranging from 5.5% to 8.25% per annum, in an intrastate offering registered with
the State of South Carolina. This program terminated in February 1998 upon the
commencement of the offering registered hereunder. Thaxton Group sold $5.4
million in aggregate principal amount South Carolina term notes of which $3.8
million is outstanding. Offers and sales of the South Carolina term notes were
not registered under the Securities Act pursuant to the exemption provided by
Section 3(a)(11) thereunder.
In December 1997, Thaxton Group entered into an agreement with Mr. Jack W.
Robinson and some of his affiliates pursuant to which they exchanged 27,076
shares of common stock of Thaxton Group for an equal number of shares of
Thaxton Group's Series B Convertible Preferred Stock. The terms of the Series B
preferred stock are identical to Thaxton Group's Series A Preferred Stock
except that dividends are payable, at Thaxton Group's option, in additional
shares of Series B preferred stock. On July 1, 1998, Thaxton Group entered into
a subsequent agreement with Mr. Robinson and some of his affiliates pursuant to
which they exchanged all of the shares of Series B preferred stock, plus 29,200
shares of common stock for a total of 56,276 shares of the Thaxton Group's
Series D Preferred Stock. The terms of the Series D preferred stock are similar
to the Series A preferred stock, except that they provide for an $0.80 annual
dividend rate on each share of the Series D preferred stock and they provide
that the Series D preferred stock is not convertible into common stock. Neither
of these transactions were registered under the Securities Act, pursuant to the
exemption from registration provided by Section 4(2) of this statute for
transactions not involving any public offering.
In December 1998, Thaxton Group sold 800,000 shares of Series E Cumulative
Preferred Stock for $10 per share to FINOVA, its primary lender. The stock pays
a variable rate dividend of prime minus 1% through October 31, 2003, and prime
plus 3% thereafter. Thaxton Group may redeem the preferred stock at any time at
a price of $10 per share. As part of the agreement governing the issuance of
stock, Thaxton Group reduced its overall credit line with FINOVA from
$100,000,000 to $92,000,000. Although Thaxton Group has no obligation to redeem
the stock at any time, under the terms of the agreement, FINOVA has the right,
at its option, to ask Mr. James D. Thaxton, the majority shareholder of Thaxton
Group, to repurchase the stock. The sale of the Series E preferred stock to
FINOVA was exempt from registration under the Securities Act, pursuant to
Section 4(2) thereof for transactions not involving any public offering.
In November 1999, Thaxton Group acquired Thaxton Investment by exchanging
3,223,000 shares of common stock for all of the outstanding common stock of
Thaxton Investment. The capital stock of Thaxton Investment was acquired from
James D. Thaxton. The transaction was not registered under the Securities Act
pursuant to the exemption provided by Section 4(2) thereof.
II-2
<PAGE>
Item 27. Exhibits
<TABLE>
<C> <S>
1 Form of Selling Agent Agreement between The Thaxton Group, Inc. and
Carolinas First Securities, Inc.(4)
3.1 Second Amended and Restated Articles of Incorporation of The Thaxton
Group, Inc.(3)
3.2 Bylaws of The Thaxton Group, Inc.(1)
4.1 Form of Indenture, dated as of February 17, 1998, between The Thaxton
Group, Inc. and The Bank of New York, as Trustee.(4)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of
Indenture).
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of
Indenture).
4.4 Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes
(included as Exhibit C to Form of Indenture).
5 Opinion of Moore & Van Allen, PLLC.(4)
10.1 The Thaxton Group, Inc. 1995 Stock Incentive Plan.(1)
10.2 The Thaxton Group, Inc. Employee Stock Purchase Plan.(1)
10.3 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
Insurance Group, Inc., James D. Thaxton, William H. Thaxton and Calvin
L. Thaxton, Jr.(2)
10.4 Form of Stock Purchase Agreement by and between The Thaxton Group,
Inc. and Jack W. Robinson and affiliates.(4)
10.5 Share Exchange Agreement, dated July 1, 1998, between The Thaxton
Group, Inc. and Jack W. Robinson and affiliates.(4)
10.6 Second Amended and Restated Loan and Security Agreement dated August
30, 1999 among Finova Capital Corporation, The Thaxton Group, Inc.,
Thaxton Operating Company, Thaxton Insurance Group, Inc., TICO Credit
Company, Inc., Eagle Premium Finance Co, Inc., Thaxton Commercial
Lending, Inc. and Paragon Lending, Inc.(4)
10.6(a) Third Amended and Restated Schedule to Second Amended and Restated
Loan and Security Agreement dated August 30, 1999 among Finova Capital
Corporation, The Thaxton Group, Inc., Thaxton Operating Company,
Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle
Premium Finance Co, Inc., Thaxton Commercial Lending, Inc., Paragon
Inc., TICO Premium Finance Company, Inc., TICO Reinsurance, Ltd., TICO
Credit Company of Tennessee, Inc. and TICO Credit Company of North
Carolina, Inc.
10.7 Loan and Security Agreement dated January 25, 1999 among Finova
Capital Corporation, Thaxton Investment Corporation, TICO Credit
Company (Mississippi), Modern Finance Company, TICO Credit Company
(Kentucky), TICO Credit Company (Tennessee), Southern Management
Corporation, Modern Financial Services, Inc., Southern Finance of
South Carolina, Inc., Covington Credit of Texas, Inc., Covington
Credit of Georgia, Inc. and Southern Finance of Tennessee, Inc.(4)
10.7(a) Fourth Amended and Restated Schedule to Loan and Security Agreement
dated January 25, 1999 among Finova Capital Corporation, Thaxton
Investment Corporation, TICO Credit Company (Mississippi), Modern
Finance Company, TICO Credit Company (Kentucky), TICO Credit Company
(Tennessee), Southern Management Corporation, Modern Financial
Services, Inc., Southern Finance of South Carolina, Inc., Covington
Credit of Texas, Inc., Covington Credit of Georgia, Inc., Southern
Finance of Tennessee, Inc., Fitch National Reinsurance, Ltd., SOCO
Reinsurance, Ltd. and Quick Credit Corporation.
10.8 Plan of Share Exchange Agreement, dated September 30, 1999, by and
among The Thaxton Group, Inc., Thaxton Operating Company, Thaxton
Investment Corporation and James D. Thaxton.(4)
10.9 Stock Purchase Agreement, dated August 31, 2000 between Thaxton
Insurance Group, Inc. and Thaxton Life Partners, Inc.
21 Subsidiaries of The Thaxton Group, Inc.
23.1 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this
registration statement).
23.2 Consent of Cherry, Bekaert & Holland, LLP.
23.3 Consent of Elliott, Davis & Company, L.L.P.
24 Power of Attorney.(4)
25 Form T-1, Statement of Eligibility of Trustee.(4)
</TABLE>
--------
(1) Incorporated by reference to Thaxton Group's Registration Statement on
Form SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference the Thaxton Group's Current Report on Form 8-K
dated October 31, 1996.
(3) Incorporated by reference to Thaxton Group's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
(4) Previously filed.
II-3
<PAGE>
Item 28. Undertakings
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales of the
securities are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining 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; and
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized post-effective amendment no.
2 to the registration statement to be signed on its behalf by the undersigned,
thereunto in the City of Lancaster, State of South Carolina on November 2,
2000.
The Thaxton Group, Inc.
/s/ Allan F. Ross
By: _________________________________
Allan F. Ross
Vice President, Chief Financial
Officer, and Secretary
In accordance with the requirements of the Securities Act, this post-
effective amendment no. 2 to the registration statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James D. Thaxton Chairman of the Board of November 2, 2000
______________________________________ Directors, President and
James D. Thaxton Chief Executive Officer
(Principal Executive
Officer)
/s/ Robert L. Wilson Executive Vice President, November 2, 2000
______________________________________ Chief Operating Officer
Robert L. Wilson and Director
/s/ Allan F. Ross Vice President, Chief November 2, 2000
______________________________________ Financial Officer,
Allan F. Ross Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ C.L. Thaxton, Sr.* Director November 2, 2000
______________________________________
C.L. Thaxton, Sr.
/s/ Allan F. Ross November 2, 2000
*By: _________________________________
Allan F. Ross, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1 Form of Selling Agent Agreement between The Thaxton Group, Inc. and
Carolinas First Securities, Inc.
3.1 Second Amended and Restated Articles of Incorporation of The Thaxton
Group, Inc.(3)
3.2 Bylaws of The Thaxton Group, Inc.(1)
4.1 Form of Indenture, dated as of February 17, 1998, between The Thaxton
Group, Inc. and The Bank of New York, as Trustee.(4)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of
Indenture).
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of
Indenture).
4.4 Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes
(included as Exhibit C to Form of Indenture).
5 Opinion of Moore & Van Allen, PLLC.(4)
10.1 The Thaxton Group, Inc. 1995 Stock Incentive Plan.(1)
10.2 The Thaxton Group, Inc. Employee Stock Purchase Plan.(1)
10.3 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton
Insurance Group, Inc., James D. Thaxton, William H. Thaxton and Calvin
L. Thaxton, Jr.(2)
10.4 Form of Stock Purchase Agreement by and between The Thaxton Group,
Inc. and Jack W. Robinson and affiliates.(4)
10.5 Share Exchange Agreement, dated July 1, 1998, between The Thaxton
Group, Inc. and Jack W. Robinson and affiliates.(4)
10.6 Second Amended and Restated Loan and Security Agreement dated August
30, 1999 among Finova Capital Corporation, The Thaxton Group, Inc.,
Thaxton Operating Company, Thaxton Insurance Group, Inc., TICO Credit
Company, Inc., Eagle Premium Finance Co, Inc., Thaxton Commercial
Lending, Inc. and Paragon Lending, Inc.
10.6(a) Schedule to Second Amended and Restated Loan and Security Agreement
dated August 30, 1999 among Finova Capital Corporation, The Thaxton
Group, Inc., Thaxton Operating Company, Thaxton Insurance Group, Inc.,
TICO Credit Company, Inc., Eagle Premium Finance Co, Inc., Thaxton
Commercial Lending, Inc. and Paragon Lending, Inc.
10.7 Loan and Security Agreement dated January 25, 1999 among Finova
Capital Corporation, Thaxton Investment Corporation, TICO Credit
Company (Mississippi), Modern Finance Company, TICO Credit Company
(Kentucky), TICO Credit Company (Tennessee), Southern Management
Corporation, Modern Financial Services, Inc., Southern Finance of
South Carolina, Inc., Covington Credit of Texas, Inc., Covington
Credit of Georgia, Inc. and Southern Finance of Tennessee, Inc.
10.7(a) Second Amended and Restated Schedule to Loan and Security Agreement
dated August 30, 1999 among Finova Capital Corporation, Thaxton
Investment Corporation, TICO Credit Company (Mississippi), Modern
Finance Company, TICO Credit Company (Kentucky), TICO Credit Company
(Tennessee), Southern Management Corporation, Modern Financial
Services, Inc., Southern Finance of South Carolina, Inc., Covington
Credit of Texas, Inc., Covington Credit of Georgia, Inc. and Southern
Finance of Tennessee, Inc.
10.8 Plan of Share Exchange Agreement, dated September 30, 1999, by and
among The Thaxton Group, Inc., Thaxton Operating Company, Thaxton
Investment Corporation and James D. Thaxton.
22 Subsidiaries of The Thaxton Group, Inc.
24.1 Consent of KPMG LLP.
24.2 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this
registration statement).
24.3 Consent of Cherry, Bekaert & Holland, LLP.
24.4 Consent of Elliott, Davis & Company, L.L.P.
25 Power of Attorney.(4)
26 Form T-1, Statement of Eligibility of Trustee.(4)
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(1) Incorporated by reference to Thaxton Group's Registration Statement on
Form SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference the Thaxton Group's Current Report on Form 8-K
dated October 31, 1996.
(3) Incorporated by reference to Thaxton Group's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
(4) Previously filed.
