<PAGE> 1
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
FIRST SIERRA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0438432
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
600 TRAVIS STREET, SUITE 7050
HOUSTON, TEXAS 77002
(713) 229-6800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
THOMAS J. DEPPING
PRESIDENT
FIRST SIERRA FINANCIAL, INC.
600 TRAVIS STREET, SUITE 7050
HOUSTON, TEXAS 77002
(713) 229-6800
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------
Copies To:
Scott N. Gierke, P.C.
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
--------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
- --------------------------------------------- ----------------------- ---------------------
<S> <C> <C>
Debt Securities
Common Stock (par value $.01 per share)(2) $300,000,000 $83,400
============================================= ======================= =====================
</TABLE>
(1) The registration fee has been calculated in accordance with Rule 457(O)
under the Securities Act of 1933, and reflects the offering price rather
than the principal amount of any Debt Securities issued at a discount.
(2) There are also registered an indeterminate number of Rights to purchase
Junior Preferred Stock, Series C, which are currently attached to and
transferable only with shares of Common Stock registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
SUBJECT TO COMPLETION, DATED APRIL 27, 1999
PROSPECTUS
$300,000,000
FIRST SIERRA FINANCIAL, INC.
DEBT SECURITIES AND COMMON STOCK
--------------------
We may sell from time to time for proceeds of up to $300,000,000:
o our debt securities;
o shares of our Common Stock; or
o any combination of the foregoing.
We will provide specific terms of the securities which we may offer in
supplements to this prospectus. You should read this prospectus and any
supplement carefully before you invest.
Our Common Stock is quoted on the NASDAQ National Market.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT YOU SHOULD CONSIDER BEFORE PURCHASING ANY SECURITIES.
--------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
-------------------------------------------
The date of this Prospectus is _______________, 1999.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 4
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC using a "shelf" registration process. Under this process, we may sell
any combination of the securities described in this prospectus in one or more
offerings up to a total dollar amount of $300,000,000. This prospectus provides
you with a general description of the securities we may offer. Each time we
offer to sell securities, we will provide a supplement to this prospectus that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update, or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information described under the heading
WHERE YOU CAN FIND MORE INFORMATION, below.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy reports, statements or
other information at the SEC's public reference rooms in Washington, D.C., New
York, New York or Chicago, Illinois. You can call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
As noted above, we have filed with the SEC a registration statement on
Form S-3 to register the securities. This prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all the information set forth in the registration statement. For further
information you should refer to the registration statement and to the exhibits
and schedules filed as part of the registration statement. You can review and
copy the registration statement and its exhibits and schedules at the public
reference facilities maintained by the SEC as described above. The registration
statement, including its exhibits and schedules, is also available on SEC's web
site.
The SEC allows us to "incorporate by reference" into this prospectus
the information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and the
information that we file with the SEC later will automatically update and
supersede this information. We incorporate by reference in this prospectus the
following:
o our Annual Report on Form 10-K for the year ended December 31,
1998;
o the description of our Common Stock included in our Form 8-A
Registration Statement;
o the description of our Rights to Purchase Shares of Junior
Preferred Stock, Series C, included in our Form 8-A
Registration Statement; and
o any future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
until we sell all of the securities.
You may request a copy of these filings, at no cost, by writing or
telephoning us at First Sierra Financial, Inc., 600 Travis Street, Houston, TX
77002, Attention: Secretary.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this prospectus and any prospectus
supplement or in the information incorporated by reference may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such information may involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
-2-
<PAGE> 5
FIRST SIERRA FINANCIAL, INC.
First Sierra Financial, Inc. is a leading provider of equipment lease
financing products and services. We acquire and originate equipment leases and
offer servicing, consulting and technology solutions to our lease financing
customers. The leases we finance relate to a wide range of equipment, including
computers and peripherals, software, medical, dental, diagnostic,
telecommunications, office, automotive servicing, hotel security, food services,
tree service and industrial. The underlying equipment generally has a purchase
price of less than $250,000 with an average of approximately $31,000 for leases
financed in 1998.
We have established strategic alliances with a network of independent
leasing companies, lease brokers and equipment vendors, each of which acts as a
source from which we obtain access to equipment leases. We customize lease
financing products to meet the specific needs of our lease sources, including
automation and integration.
Since 1996, we have provided on-line financing products to our larger
customers. Through our April 1998 acquisition of Nexsoft, Inc., we greatly
expanded our ability to offer electronic commerce solutions to our customers'
lease financing needs. In February 1999, we announced the formation of a new
strategic services group called B2B Solutions, which is dedicated to providing
e-commerce technology solutions and on-line financing products for commercial
customers.
Our e-commerce technology enables us to make direct originations or
acquisitions of leases over the internet through an on-line application process
that provides customers with immediate access to our credit department and lease
documents. Our lease processing systems are linked directly to the vendor's
systems through our internet browser, allowing us to interface with the vendor's
web site, sales force and customers and providing customers with real-time
access to application status reports and portfolio and customer performance
data. We are also able to develop functional web sites for our vendors to
facilitate business-to-business e-commerce and offer maintenance and training
support.
We provide lease financing to different participants in the small
ticket equipment leasing industry through four general lease funding programs,
referred to as our Private Label, Wholesale, Retail and Captive Finance
programs. While the terms of the underlying leases are similar in all these
lease funding programs, the financing arrangement we offer varies depending on
the size and servicing capabilities of the lease source.
Our Private Label program is designed to provide financing to
established leasing companies that have demonstrated the ability to originate a
larger volume of leases, follow prudent underwriting guidelines that we have
established and undertake some of the more labor-intensive aspects of lease
servicing on an ongoing basis. Participants in our Private Label program also
provide us with protection from credit losses on the leases we acquire from
them. Through our Wholesale program, we finance equipment leases from small
ticket lease brokers who are unwilling or unable to provide the credit
protection and perform the servicing functions necessary to participate in our
Private Label program. Our Retail program focuses on providing lease financing
services directly to equipment lessees and on establishing formal and informal
relationships with manufacturers, dealers and other equipment vendors who are in
a position to recommend us to their customers as a preferred provider of lease
financing. Through our Captive Finance program, we focus on cultivating
partnerships with large equipment vendors to help them develop, implement and
administer a customized, sales-oriented lease finance program. In addition to
offering lease financing, we provide the training, sales tools, management and,
in some cases, personnel, necessary to support a dedicated lease finance
program.
We initially fund the acquisition or origination of our leases from
working capital or through our securitized funding facilities. From time to
time, depending on market conditions, we securitize the leases in our portfolio
that meet pre-established eligibility criteria by packaging them in to a pool
and selling beneficial interests in the leases through public offerings and
private placement transactions. From time to time, we also generate income by
acquiring lease portfolios and then reselling these portfolios at a premium. Our
goal is to maximize the spread between the yield received on our leases and our
cost of funds by obtaining favorable terms on our securitized funding
facilities, our securizations and our portfolio sales.
-3-
<PAGE> 6
RECENT DEVELOPMENTS
As part of our strategy to become a leading provider of e-commerce
financial products and services to the small business market, we plan to begin
offering accounts receivable financing to our business customers in the second
half of 1999.
We also intend to apply for regulatory approval to establish the first
internet-based business-to-business bank. Our internet bank will be devoted
exclusively to the banking and financing needs of small business customers. Our
goal in establishing the bank is to diversify our funding sources, lower our
cost of funds, and allow us to offer additional e-commerce products to our base
of business customers.
-4-
<PAGE> 7
RISK FACTORS
BEFORE YOU BUY ANY SECURITIES OFFERED BY THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW AND THOSE WHICH MAY BE SET FORTH IN ANY
PROSPECTUS SUPPLEMENT. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS,
TOGETHER WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS, ANY PROSPECTUS
SUPPLEMENT AND THE DOCUMENTS THAT ARE INCORPORATED BY REFERENCE BEFORE YOU
DECIDE TO ACQUIRE ANY SECURITIES.
WE DEPEND ON THE SECURITIZATION MARKET TO FINANCE OUR LEASES
From time to time, depending on market conditions, we securitize the
leases in our portfolio that meet pre-established eligibility criteria by
packaging them into a pool and selling beneficial interests in the leases
through public offerings and private placement transactions. In a securitization
transaction, we transfer a pool of leases to a wholly owned, special purpose
subsidiary of First Sierra. The special purpose subsidiary simultaneously
transfers an interest in the leases to a trust, which issues beneficial
interests in the leases in the form of senior and subordinated securities and
sells such securities through public offerings and private placement
transactions. We generally retain the right to receive any excess cash flows of
the trust, which right is represented by a trust certificate.
Gain on sale of securitized leases represented approximately 15% of our
revenues in 1996, approximately 35% of our revenues in 1997, and approximately
48% of our revenues during the period from January 1, 1998 through June 30,
1998. As a result of our decision to emphasize portfolio lending, effective July
1, 1998, we altered the structure of our securitizations so that we no longer
record an immediate gain on sale when we securitize lease financing receivables.
Rather, we will recognize net interest margin over the life of each of our
leases. Thus, we expect that our earnings per share will be negatively affected
until the interest income and other revenue generated from leases held on our
balance sheet exceed our operating expenses.
We depend on securitizations for refinancing of amounts outstanding
under our securitized funding facilities, which we utilize to acquire and
originate additional leases. Several factors affect our ability to complete
securitizations, including conditions in the securities markets generally,
conditions in the asset-backed securities markets, the credit quality of our
lease portfolio, compliance of our leases with the eligibility requirements
established in connection with the securitizations, our ability to obtain
third-party credit enhancement, our ability to adequately service our lease
portfolio, and the absence of any material downgrading or withdrawal of ratings
given to securities previously issued in our securitizations. Any substantial
reduction in the availability of the securitization market for our leases or any
adverse change in the terms of our securitizations could have a material adverse
effect on our business, financial condition and results to operations.
IF THE CASH FLOWS FROM OUR SECURITIZATION TRANSACTIONS ARE LESS THAN WE EXPECT,
IT WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
The cash flows available to the trust certificates which we retain in
our securitization transactions are calculated as the difference between cash
flows received from the leases and the sum of interest and principal payable to
the holders of the senior and subordinated securities, trustee fees, third-party
credit enhancement fees, service fees, and backup service fees. Our right to
receive this excess cash flow is subject to certain conditions specified in the
related trust documents designed to provide additional credit enhancement to
holders of the senior and subordinated securities issued in the securitization.
We estimate the expected levels of cash flows available to the trust
certificate taking into consideration anticipated defaults, recoveries and other
factors which may affect the cash flows available to the holder of the trust
certificate. The cash flows ultimately available to the trust certificate
largely depend upon the actual default rates and recovery levels experienced on
the leases sold to the trust. Losses incurred on leases held by the trust are
borne solely by the holder of the trust certificate to the extent of the
holder's investment in the trust certificate.
-5-
<PAGE> 8
Because we are typically entitled to receive, as holder of the trust
certificates issued in our securitization transactions, from 2.0% to 6.5% of the
cash flows of the trust yet we bear the risk of loss based upon the performance
of the entire portfolio of leases held by the trust, relatively small
fluctuations in default rates, recovery levels and other factors impacting cash
flows of the leases could have a material adverse effect on our ability to
realize our recorded basis in the trust certificates. If any of these
fluctuations were to occur, we would be required to reduce the carrying amount
of our trust certificates and record a charge to earnings in the period in which
the event occurred or became known to management.
OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL
A key component of our growth strategy has been to acquire other
equipment leasing companies in strategic markets and locations. In the past, we
have financed these acquisitions by using a combination of common stock, cash
and debt. During 1998, we experienced a significant decline in the market price
of our common stock. As a result, our ability to complete acquisitions using our
Common Stock as currency, in a manner that was not dilutive to current
stockholders, was adversely affected. If our common stock does not maintain a
sufficient market value in the future, or if the owners of businesses we wish to
acquire are unwilling to accept common stock as part of the purchase price, we
may be required to use more of our cash resources, or seek additional capital,
in order to complete acquisitions. It is possible that we will not be able to
successfully consummate acquisitions in the future. If we are unable to pursue
an acquisition strategy in the future, we will be required to rely on internal
growth to expand our business.
Any acquisition we make may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt and the amortization of
expenses related to goodwill and other intangible asses, any of which could have
a material adverse effect on our business, financial condition and results of
operations. We also may experience difficulties in the assimilation of the
operations, services, products and personnel of acquired companies, an inability
to sustain or improve the historical revenue levels of acquired companies, the
diversion of management's attention from ongoing operations and the potential
loss of key employees of such acquired companies.
WE DEPEND ON EXTERNAL FINANCING TO FUND OUR LEASES
We fund a large percentage of the equipment leases we acquire or
originate through our securitized funding facilities. The securitized funding
facilities are available to fund leases which satisfy eligibility criteria for
inclusion in our public securitizations. We repay borrowings under our
securitized funding facilities with the proceeds we receive from our public
securitization transactions. Any adverse impact on our ability to complete
public securitization transactions could have a material adverse effect on our
ability to obtain or maintain securitized funding facilities or the amount
available under such facilities. Any failure to renew our existing securitized
funding facilities or obtain additional facilities or other financings with
pricing, advance rates and other terms consistent with our existing facilities
could have a material adverse effect on our business, financial condition and
results of operations.
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR OPERATIONS
Our lease financing business is capital intensive and requires access
to substantial short-term and long-term credit to fund new equipment leases. We
expect to continue to require access to a large amount of capital to maintain
and expand our volume of leases funded. If future market conditions adversely
affect our ability to finance leases, we may require additional capital to fund
our operations.
INCREASES IN INTEREST RATES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
The leases we finance are non-cancelable and require payments to be
made by the lessee at fixed rates for specified terms. The rates we charge are
based on interest rates prevailing in the market at the time of lease approval.
Until we securitize or otherwise sell our leases, we generally fund the leases
under our securitized funding facilities or from working capital. If we were to
become unable to securitize or otherwise sell leases with
-6-
<PAGE> 9
fixed rates within a reasonable period of time after funding, our operating
margins could be adversely affected by increases in interest rates. Moreover,
increases in interest rates which cause us to raise the implicit rate we charge
to our customers could cause a reduction in demand for our lease financing. We
generally undertake to hedge against the risk of interest rate increases when
our equipment lease portfolio exceeds $10.0 million. These hedging activities
limit our ability to participate in the benefits of lower interest rates with
respect to our hedged portfolio of leases. In addition, our hedging activities
may not adequately insulate us from interest rate risks.
INCREASE IN LESSEE DEFAULTS COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL
CONDITION
We specialize in acquiring and originating equipment leases with a
purchase price of less than $250,000, generally involving small and mid-size
commercial businesses located throughout the United States. Small business
leases generally entail a greater risk of non-performance and higher
delinquencies and losses than leases entered into with larger more creditworthy
lessees. Because of our short operating history, we have limited performance
data with respect to leases we finance. Thus, our historical delinquency and
loss statistics do not necessarily predict our future performance.
We funded the vast majority of the leases we acquired or originated
through December 31, 1996 through a combination of the recourse and purchase
price holdback features of our Private Label program. During the year ended
December 31, 1998, we funded approximately 54% of the leases that we acquired or
originated through our Wholesale and Retail programs, which do not have these
credit protections. We believe that we will generate increasingly larger
percentages of our lease originations in the future through lease funding
programs that do not provide us with credit protection.
The failure of our lessees to comply with the terms of their leases
will result in the inability of these leases to qualify to serve as collateral
under our securitized funding facilities and securitization program and may have
a material adverse effect on our liquidity. Also, delinquencies and defaults in
excess of levels estimated by our management in determining our allowance for
credit losses and in valuing our right to receive excess cash flows under our
securitization program could have a material adverse effect on our ability to
obtain financing and effect public securitization transactions. Our inability to
effect public securitization transactions could, in turn, have a material
adverse effect on our business, financial condition and results of operations.
OUR QUARTERLY RESULTS MAY FLUCTUATE
We may experience significant fluctuations in quarterly operating
results due to a number of factors, including, among others, the interest rate
on the securities issued in connection with our securitization transactions,
variations in the volume of leases we finance, differences between our cost of
funds and the average implicit yield we receive on our leases prior to their
being securitized or otherwise sold, the effectiveness of our hedging strategy,
the degree to which we encounter competition in our markets and general economic
conditions. As a result of these fluctuations, you should not rely on our
results for any one quarter as predicting or guaranteeing our performance in
future quarters.
WE MAY BE UNABLE TO CONTINUE OUR GROWTH IN VOLUME OF LEASE FINANCING RECEIVABLES
Our ability to sustain continued growth depends upon our capacity to
attract, evaluate, finance and service increasing volumes of leases of suitable
yield and credit quality. Our ability to accomplish this on a cost-effective
basis is largely a function of our ability to market our products effectively,
to manage our credit evaluation process to assure adequate portfolio quality, to
provide competent, attentive and efficient servicing and to maintain access to
institutional financing sources to achieve an acceptable cost of funds for our
financing programs. Any failure to market our products effectively, to maintain
our portfolio quality, to effectively service our leases or to obtain
institutional financing at reasonable rates would have a material adverse effect
on business, financial condition and results of operations.
-7-
<PAGE> 10
WE RELY ON KEY EMPLOYEES WHOSE ABSENCE COULD ADVERSELY AFFECT OUR BUSINESS
We depend to a large extent upon the experience, abilities and
continued efforts of our senior management, including the management of
companies we have acquired. We have entered into employment agreements with our
principal executive officers. The loss of the services of one or more of the key
members of our senior management could have a material adverse effect on our
business, financial condition and results of operations. Our future success also
will depend upon our ability to attract and retain additional skilled management
personnel necessary to support anticipated future growth.
COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS
The financing of small ticket equipment is highly competitive. We
compete for customers with a number of national, regional and local finance
companies. Our competitors also include those equipment manufacturers that
finance the sale of or lease of their products themselves and other traditional
types of financial services companies, such as commercial banks and savings and
loan associations, all of which provide financing for the purchase of equipment.
Many of our competitors and potential competitors possess substantially greater
financial, marketing and operational resources than we do. Our competitors and
potential competitors include many larger, more established companies that may
have a lower cost of funds than we do and access to capital markets and to other
funding sources that may be unavailable to us.
OUR LEASES ARE CONCENTRATED IN A SMALL NUMBER OF STATES AND INDUSTRIES; ADVERSE
ECONOMIC OR REGULATORY CONDITIONS IN THOSE STATES OR INDUSTRIES COULD ADVERSELY
AFFECT OUR BUSINESS
Although our portfolio of leases includes lessees located throughout
the United States, we acquire or originate a majority of our leases from sources
operating in five states: Texas, Florida, New York, New Jersey and California.
The ability of our lessees to honor their contracts may substantially depend on
economic conditions in these states. All of our leases are collateralized by the
related equipment. The recourse and holdback provisions of our Private Label
program mitigate, but do not eliminate, a significant portion of any economic
risk not recoverable through the sale of the related equipment.
Also, a substantial portion of our leases are concentrated in certain
industries, including the medical industry, the dental industry and the
veterinary industry. If the economic or regulatory conditions prevalent in such
industries were to change, our lessees may not be able to honor their lease
obligations.
If our major lease sources were to substantially reduce the number of
leases sold to us, and we were not able to replace the lost lease volume, this
reduction could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH
We have grown dramatically since our inception in June 1994. The volume
of leases we acquired or originated was $4.5 million for the period from
inception to December 31, 1994, $65.2 million for the year ended December 31,
1995, $179.2 million for the year ended December 31, 1996, $383.1 million for
the year ended December 31, 1997, and $897.1 million for the year ended December
31, 1998. This growth has placed, and if sustained will continue to place, a
burden on our administrative and financial resources. If our management is
unable to effectively manage our future growth, this could have a material
adverse effect on our business, financial condition and results of operations.
IF WE ARE UNABLE TO REALIZE THE RECORDED RESIDUAL VALUES ON OUR EQUIPMENT, THIS
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We retain a residual interest in the equipment covered by some of our
leases. We reflect the estimated fair market value of the equipment at the end
of the contract term of the lease as an asset on our balance sheet. Our results
of operations depend, to some degree, upon our ability to realize these residual
values. Realization of
-8-
<PAGE> 11
residual values depends on many factors, several of which are outside our
control, including general market conditions at the time of expiration of the
lease, whether there has been unusual wear and tear on, or use of, the
equipment, the cost of comparable new equipment, the extent, if any, to which
the equipment has become technologically or economically obsolete during the
contract term and the effects of any additional or amended government
regulations. If, upon the expiration of a lease, we sell or refinance the
underlying equipment and the amount realized is less than the recorded value of
the residual interest in the equipment, we realize a loss reflecting the
difference. If we were to fail to realize aggregate recorded residual values,
this could have a material adverse effect on our business, financial condition
and results of operations.
USE OF PROCEEDS
Except as we may otherwise specify in a prospectus supplement, we will
use the net proceeds from the sale of the securities offered by this prospectus
for working capital and general corporate purposes.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our Common Stock.
We currently intend to retain our earnings to finance the growth and development
of our business and we do not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. In addition, provisions in certain of our
credit facilities and the terms of our Series A Preferred Stock contain certain
restrictions on the payment of dividends on the Common Stock. Holders of shares
of Series A Preferred Stock are entitled to receive annual cash dividends of
$1.86 per share, such dividends being payable annually as declared by our Board
of Directors. See "Description of Capital Stock - Series A Preferred Stock." Any
future change in our dividend policy will be made at the discretion of our Board
of Directors in light of our financial condition, capital requirements, earnings
and prospects and any restrictions under our credit agreements or rights of the
Series A Preferred Stock, as well as other factors our Board of Directors may
deem relevant.
-9-
<PAGE> 12
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the periods indicated below
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
The Company and subsidiaries................... * 3.90 1.82 1.78 *
</TABLE>
*The ratio is less than one-to-one. The coverage deficiency was as follows:
1998 - $8.6 million; and 1994 - $.8 million.
For purposes of calculating the ratio, earnings consist of income from
continuing operations to which has been added income taxes and fixed charges.
Fixed charges consist of interest on all indebtedness and one-third of rental
expense (approximate portion representing interest).
DESCRIPTION OF DEBT SECURITIES
We may offer debt securities under this prospectus, any of which may be
issued as convertible and/or exchangeable debt securities. The following
description of the terms of the debt securities sets forth certain general terms
and provisions of the debt securities to which any prospectus supplement may
relate. We will set forth the particular terms of the debt securities we offer
in a prospectus supplement. The extent, if any, to which the following general
provisions apply to particular debt securities, will be described in the
applicable prospectus supplement. The following description of general terms
relating to the debt securities and the Indenture (as defined below) are
summaries only and therefore are not complete. You should read the Indenture and
the prospectus supplement regarding any particular issuance of debt securities.
The debt securities will represent our unsecured general obligations,
unless otherwise provided in the prospectus supplement.
Our ability to service our indebtedness, including the debt securities,
is dependent to some extent upon the receipt of funds from our subsidiaries. The
payment of dividends or the making of loans and advances to us by our
subsidiaries are subject to contractual, statutory or regulatory restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business considerations. Further, any right we may have to receive
assets of any of our subsidiaries upon liquidation or recapitalization of any
such subsidiaries (and the consequent right of the holders of debt securities to
participate in those assets) will be subject to the claims of our subsidiaries'
creditors. Even in the event that we are recognized as a creditor of a
subsidiary, our claims would still be subject to any security interest in the
assets of such subsidiary and any indebtedness of such subsidiary senior to our
claim.
The debt securities will be issued under an Indenture (the "Indenture")
that we will enter into with an indenture trustee (the "Trustee"). A copy of the
form of Indenture has been filed as an exhibit to the Registration Statement of
which this prospectus is a part, and is available as described above under
"Where You Can Find More Information." The Indenture is subject to, and is
governed by, the Trust Indenture Act of 1939, as amended.
Except as may be set forth in a prospectus supplement, the Indenture
does not contain any covenants or restrictions that afford holders of the debt
securities special protection in the event of a change of control or highly
leveraged transaction.
The following summary of certain provisions of the debt securities and
the Indenture is not complete. You should read carefully the provisions of
particular debt securities we may issue and the Indenture, including the
definitions in those documents of certain terms and of those terms made a part
of those documents by the Trust Indenture Act. All capitalized terms used but
not defined below have the meanings set forth in the Indenture.
-10-
<PAGE> 13
GENERAL
The Indenture does not limit the aggregate principal amount of debt
securities which may be issued under it and provides that debt securities may be
issued in one or more series, in such form or forms, with such terms and up to
the aggregate principal amount that we may authorize from time to time. We will
establish the terms of each series of debt securities and such terms will be set
forth or determined in the manner provided in an officers' certificate or by a
supplemental indenture. The particular terms of the debt securities offered
pursuant to any prospectus supplement will be described in such prospectus
supplement. All debt securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened, without the
consent of any holder, for issuances of additional debt securities of that
series.
Unless otherwise provided in the prospectus supplement, debt securities
may be presented for registration of transfer and exchange and for payment or,
if applicable, for conversion and/or exchange at the office of the applicable
Trustee. At our option, the payment of interest may also be made by check mailed
to the address of the person entitled to such payment as it appears in the debt
security register.
The applicable prospectus supplement will describe the following terms
of any debt securities (the "Offered Debt Securities") in respect of which this
prospectus is being delivered (to the extent applicable to the Offered Debt
Securities):
o the designation (including whether they are senior debt securities,
senior subordinated debt securities or subordinated debt securities
and whether such debt securities are convertible and/or
exchangeable) and aggregate principal amount of the Offered Debt
Securities;
o the percentage of the principal amount at which such Offered Debt
Securities will be issued;
o the date or dates (and whether fixed or extendable) on which the
principal of the Offered Debt Securities is payable or the method of
determination thereof;
o the rate or rates (which may be fixed, floating or adjustable) at
which the Offered Debt Securities will bear interest, if any, the
method of calculating such rates, the date or dates from which such
interest will accrue or the manner of determining such dates, the
interest payment dates on which such interest shall be payable and
the record dates for the determination of the holders of debt
securities to whom interest will be payable;
o the place where the principal of, premium, if any, and interest, if
any, on the Offered Debt Securities will be payable;
o any provisions relating to the issuance of the Offered Debt
Securities at an original issue discount;
o the terms and conditions upon which the Offered Debt Securities may
be redeemed (including the form or method of payment if other than
in cash, which may include securities of other issuers);
o the obligation, if any, that we may have to redeem, purchase or
repay the Offered Debt Securities pursuant to any mandatory
redemption, sinking fund or analogous provisions or at the option of
the holder of any debt securities and the terms and conditions of
such redemption, purchase or repayment (including the form or method
of payment if other than in cash, which may include securities of
other issuers), and any provisions for the remarketing of such debt
securities;
o if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which the Offered Debt Securities
shall be issuable;
o if other than the principal amount thereof, the portion of the
principal amount of the Offered Debt Securities which will be
payable upon declaration of acceleration of the maturity thereof or
in bankruptcy;
-11-
<PAGE> 14
o any Events of Default in lieu of or in addition to those described
in this prospectus and remedies relating to such Events of Default;
o whether the Offered Debt Securities are convertible or exchangeable
and, if so, the securities or rights into which they are convertible
or exchangeable and the terms and conditions upon which such
conversion or exchange will be effected;
o any trustees, authenticating or paying agents, transfer agents or
registrars or any other agents with respect to the Offered Debt
Securities;
o the currency or currencies, including composite currencies, in which
the Offered Debt Securities will be denominated if other than the
currency of the United States of America;
o if other than the coin or currency in which the Offered Debt
Securities are denominated, the coin or currency in which payment of
the principal of, premium, if any, or interest on the Offered Debt
Securities will be payable (and the manner in which the equivalent
of the principal amount thereof in the currency of the United States
is to be determined for any purpose, including for determining the
principal amount outstanding);
o if the principal of, premium, if any, or interest on the Offered
Debt Securities will be payable, at our election or the election of
a holder thereof, in a coin or currency other than that in which the
Offered Debt Securities are denominated and terms and conditions
upon which, such election may be made;
o if the amount of payments of principal of, premium, if any, and
interest on the Offered Debt Securities may be determined with
reference to the value, rate or price of one or more specified
commodities, currencies or indices, the manner in which such amounts
shall be determined;
o whether and under what circumstances we will pay additional amounts
on the Offered Debt Securities held by a person who is not a United
States of America person in respect of any tax, assessment or
governmental charge withheld or deducted and, if so, whether we will
have the option to redeem such debt securities rather than pay such
additional amounts;
o if receipt of certain certificates or other documents or
satisfaction of other conditions will be necessary for any purpose,
including, without limitation, as a condition to the issuance of the
Offered Debt Securities in definitive form (whether upon original
issue or upon exchange of a temporary Debt Security), the form and
terms of such certificates, documents or conditions;
o any other affirmative or negative covenants with respect to the
Offered Debt Securities;
o whether the Offered Debt Securities will be issued in whole or in
part in the form of one or more global securities and, in such case,
the depositary for such a global security and the circumstances
under which any global security may be exchanged for Offered Debt
Securities registered in the name of, and under which any transfer
of such global security may be registered in the name of, any person
other than the depositary;
o whether the debt securities are defeasible; and
o any other specific terms of the Offered Debt Securities.
Unless otherwise indicated in the prospectus supplement relating to the
debt securities, principal of and any premium or interest on the debt securities
will be payable, and the debt securities will be exchangeable and transfers
thereof will be registrable, at the office of the Trustee at its principal
executive offices. However, at our option, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
debt security register. Any payment of principal and any premium or interest
required to be made on an interest payment date, redemption date or at maturity
which is not a business day need not be made on such date, but may be made on
the next succeeding business day with the same force and effect as if made on
the applicable date, and no interest shall accrue for the period from and after
such date.
Unless otherwise indicated in the applicable prospectus supplement
relating to Offered Debt Securities, the debt securities will be issued only in
fully registered form, without coupons, in denominations of $1,000 or any
integral multiple thereof. No service charge will be made for any transfer or
exchange of the debt securities, but we may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection with a
transfer or exchange.
-12-
<PAGE> 15
Debt securities may be issued under the Indenture as Original Issue
Discount Securities (as defined below) to be offered and sold at a substantial
discount from their stated principal amount. In addition, under Treasury
Regulations it is possible that the debt securities which are offered and sold
at their stated principal amount would, under certain circumstances, be treated
as issued at an original issue discount for federal income tax purposes, federal
income tax consequences and other special considerations applicable to any such
Original Issue Discount Securities (or other debt securities treated as issued
at an original issue discount) will be described in the prospectus supplement
relating to such securities. "Original Issue Discount Security" means any debt
security that does not provide for the payment of interest prior to maturity or
which is issued at a price lower than its principal amount and which provides
that upon redemption or acceleration of its stated maturity an amount less than
its principal amount shall become due and payable.
GLOBAL SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
debt securities of a series will be issued in the form of one or more global
securities that will be deposited with a depositary or its nominees identified
in the prospectus supplement relating to the debt securities. In such a case,
one or more global securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding debt securities of the series to be represented by such global
security or securities.
Unless and until it is exchanged in whole or in part for debt
securities in definitive registered form, a global security may not be
registered for transfer or exchange except as a whole by the depositary for such
global security to a nominee of the depositary and except in the circumstances
described in the prospectus supplement relating to the Offered Debt Securities.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the prospectus supplement relating to such
series.
MODIFICATION OF THE INDENTURE
We and the Trustee may modify the Indenture with respect to the debt
securities of any series, with or without the consent of the holders of debt
securities, under certain circumstances to be described in a prospectus
supplement.
DEFEASANCE; SATISFACTION AND DISCHARGE
The prospectus supplement will outline the conditions under which we
may elect to have certain of our obligations under the Indenture discharged and
under which the Indenture obligations will be deemed satisfied.
DEFAULTS AND NOTICE
The debt securities will contain Events of Default to be specified in
the applicable prospectus supplement, including, without limitation:
o failure to pay the principal of, or premium, if any, on any debt
security of such series when due and payable (whether at maturity,
by call for redemption, through any mandatory sinking fund, by
redemption at the option of the holder, by declaration or
acceleration or otherwise);
o failure to make a payment of any interest on any debt security of
such series when due;
o failure to perform or observe any other covenants or agreements in
the Indenture or in the debt securities of such series;
o certain events of bankruptcy, insolvency or reorganization with
respect to us; and
o certain cross defaults.
-13-
<PAGE> 16
If an Event of Default with respect to debt securities of any series
shall occur and be continuing, the Trustee or the holders of not less than 25%
in aggregate principal amount of the then outstanding debt securities of such
series may declare the principal amount (or, if the debt securities of such
series are issued at an original issue discount, such portion of the principal
amount as may be specified in the terms of the debt securities of such series)
of all debt securities of such series and/or such other amount or amounts as the
debt securities or supplemental indenture with respect to such series may
provide, to be due and payable immediately.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give to holders of debt securities of any series notice
of all uncured defaults with respect to such series known to it. However, in the
case of a default that results from the failure to make any payment of the
principal of, premium, if any, or interest on the debt securities of any series,
or in the payment of any mandatory sinking fund installment with respect to debt
securities of such series, the Trustee may withhold such notice if it in good
faith determines that the withholding of such notice is in the interest of the
holders of debt securities of such series.
The Indenture contains a provision entitling the Trustee to be
indemnified by holders of debt securities before proceeding to exercise any
trust or power under the Indenture at the request of such holders. The Indenture
provides that the holders of a majority in aggregate principal amount of the
then outstanding debt securities of any series may direct the time, method and
place of conducting any proceedings for any remedy available to the Trustee, or
of exercising any trust or power conferred upon the Trustee with respect to the
debt securities of such series. However, the Trustee may decline to follow any
such direction if, among other reasons, the Trustee determines in good faith
that the actions or proceedings as directed may not lawfully be taken, would
involve the Trustee in personal liability or would be unduly prejudicial to the
holders of the debt securities of such series not joining in such direction.
The right of a holder to institute a proceeding with respect to the
Indenture is subject to certain conditions including, that the holders of a
majority in aggregate principal amount of the debt securities of such series
then outstanding make a written request upon the Trustee to exercise its power
under the Indenture, indemnify the Trustee and afford the Trustee reasonable
opportunity to act. Even so, the holder has an absolute right to receipt of the
principal of, premium, if any, and interest when due, to require conversion or
exchange of debt securities if the Indenture provides for convertibility or
exchangeability at the option of the holder and to institute suit for the
enforcement of such rights.
CONCERNING THE TRUSTEES
The prospectus supplement with respect to particular debt securities
will describe any relationship that we may have with the Trustee for such debt
securities.
REPORTS TO HOLDERS OF DEBT SECURITIES
We intend to furnish to holders of debt securities all quarterly and
annual reports which we furnish to holders of our Common Stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 share of common
stock, par value $.01 per share ("Common Stock") and 1,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock").
COMMON STOCK
As of March 11, 1999, 14,223,915 shares of Common Stock were
outstanding and held of record by 57 holders of record.
The holders of our Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of holders of Common Stock. The Common
Stock does not have cumulative voting rights, which means that
-14-
<PAGE> 17
the holders of a majority of the voting power of shares of Common Stock
outstanding are able to elect all the directors and the holders of the remaining
shares are not able to elect any directors. Each share of Common Stock is
entitled to participate equally in dividends, if, as and when declared by our
Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
Preferred Stock. We have never declared or paid cash dividends on our Common
Stock. The shares of Common Stock have no preemptive rights, redemption rights,
or sinking fund provisions. The outstanding shares of Common Stock are, and any
shares of Common Stock which may be offered by this prospectus and a related
prospectus supplement will be upon issuance and sale, duly authorized, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
Our Board of Directors may establish, without stockholder approval, one
or more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences, and limitations that they may designate. We believe that
this power to issue Preferred Stock will provide flexibility in connection with
possible corporate transactions. The issuance of Preferred Stock, however, could
adversely affect the voting power of holders of our Common Stock and restrict
their rights to receive payments upon liquidation of the Company. It could also
have the effect of delaying, deferring or preventing a change in control of the
Company. As of March 11, 1999, our authorized and outstanding Preferred Stock
consisted of 56,718 shares of Series A Preferred Stock. In addition, 300,000
shares of Junior Preferred Stock, Series C are authorized and reserved for
issuance in connection with our Stockholder Rights Plan which is described
below.
SERIES A PREFERRED STOCK
As of March 11, 1999, 38,437 shares of Series A Preferred Stock were
issued and outstanding. The following description is a summary of the
Certificate of Designation for the Series A Preferred Stock, and is qualified in
its entirety by reference to that document.
Dividends. The Series A Preferred Stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to the Common
Stock and junior to, or on parity with, as the case may be, any other stock of
the Company designated as senior to, or on parity with , as the case may be,
Series A Preferred Stock. Holders of Series A Preferred Stock are entitled to
receive non-cumulative annual cash dividends of $1.86 per share payable annually
when declared by the Board of Directors. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Series A
Preferred Stock then outstanding will be entitled to receive an amount of cash
per share equal to $46.54607 before any distribution is made on the Common
Stock. As long as any shares of Series A Preferred Stock are outstanding, the
Company may not pay, declare or set apart a dividend or distribution on the
Common Stock (other than stock dividends or distributions payable in Common
Stock).
Redemption. The Series A Preferred Stock is mandatorily redeemable by
us on December 31, 2001 (subject to conversion rights at any time on or prior to
November 30, 2001) at a redemption price of $46.54607 per share.
Conversion. The Series A Preferred Stock is convertible, at the option
of the respective holders, at any time into Common Stock at a conversion rate of
5.47 shares of Common Stock for each share of Series A Preferred Stock, subject
to adjustment for stock dividends, stock splits and combinations.
Voting Rights. The shares of Series A Preferred Stock have general
voting rights on all issues submitted to the stockholders. Each share of Series
A Preferred Stock entitles the holder thereof to such number of votes per share
as shall equal the number of shares of Common Stock into which such shares of
Series A Preferred Stock are convertible.
-15-
<PAGE> 18
STOCKHOLDER RIGHTS PLAN
On December 15, 1998, our Board of Directors declared a dividend
distribution of one preferred stock purchase right (a "Right") for each share of
our Common Stock. The dividend was payable on December 30, 1998 to stockholders
of record at the close of business on December 28, 1998 (the "Record Date").
Each Right generally entitles the registered holder to purchase from us one
one-hundredth of a share of our Junior Preferred Stock, Series C, par value
$0.01 per share (the "Series C Preferred Stock"), at a purchase price of $65.25
per one one-hundredth of a share (the "Purchase Price"). The description and
terms of the Rights are set forth in the Rights Agreement (the "Rights
Agreement") between the Company and Harris Trust and Savings Bank as Rights
Agent.
The Rights will be evidenced by Common Stock certificates and not
separate certificates until the earliest of (I) ten days following the date of
public disclosure that a person or group (the "Acquiring Person") has acquired
or obtained the right to acquire beneficial ownership of 15% or more of the
outstanding shares of the Common Stock, or (ii) ten business days following the
commencement or disclosure of an intention to commence a tender offer or
exchange offer by a person or group other than the Company and certain related
entities if, upon consummation of such offer, such person or group would
beneficially own 15% or more of the outstanding shares of Common Stock (the
earlier of such dates being the "Distribution Date"). Until the Distribution
Date (or earlier redemption or expiration of the Rights), the transfer of Common
Stock will also constitute transfer of the associated Rights. The Rights will
expire at the close of business on December 30, 2008, unless earlier redeemed by
the Company.
If a person acquires beneficial ownership of 20% or more of our Common
Stock, or if we are the surviving corporation in a merger with an Acquiring
Person and the Common Stock remains outstanding and unchanged, the Rights will
"flip in" and entitle each holder of a Right, with certain exceptions, to
purchase (upon exercise at the then-current market price) that number of shares
of Common Stock having a market value of two times the Purchase Price.
In the event that, following the Distribution Date, we are acquired in
a merger or other business combination in which the Common Stock does not remain
outstanding or is changed or 50% or more of the Company's consolidated assets or
earning power is sold, leased, exchanged, or otherwise transferred or disposed
of (whether in one transaction or a series of related transactions), the Rights
will "flip over" and entitle each holder of a Right to purchase, upon the
exercise of the Right at the then-current Purchase Price, that number of shares
of common stock of the acquiring company (or, in certain circumstances, one of
its affiliates) which at the time of the transaction would have a market value
of two times the Purchase Price.
Series C Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Series C Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share, but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock, if greater. In the event of liquidation, the holders of the
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $100 per share, but will be entitled to an aggregate payment of 100 times the
payment made per share of Common Stock, if greater. In the event of any merger
or other business combination in which Common Stock is exchanged, each share of
Preferred Stock will be entitled to receive 100 times the amount received per
share of Common Stock. Customary anti-dilution provisions protect these rights.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
our outstanding voting stock) from engaging in a "business combination" (as
defined in Section 203) with us for three years following the date that person
becomes an interested stockholder unless (a) before that person became an
interested stockholder, our Board of Directors approved the transaction in which
the interested stockholder became an interested stockholder or approved the
business combination; (b) upon completion of the transaction that resulted in
the interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock outstanding at the time the
transaction commenced (excluding stock held by directors who are also
-16-
<PAGE> 19
officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (c) following
the transaction in which that person became an interested stockholder, the
business combination is approved by our Board of Directors and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock not owned by the interested
stockholder.
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving us and a
person who was not an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a majority of our
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
then in office.
Our Board of Directors is divided into three classes. The directors of
each class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of stockholders. Stockholders may remove a director only for cause upon
the vote of at least 80% of the then outstanding shares of capital stock
entitled to vote upon the election of directors ("Voting Stock"). In general,
the Board of Directors, not the stockholders, has the right to appoint persons
to fill vacancies on the Board of Directors.
The Charter provides that special meetings of holders of Common Stock
may be called only by our Board of Directors and that only business proposed by
the Board of Directors may be considered at special meetings of holders of
Common Stock.
The Charter provides that the only business (including election of
directors) that may be considered at any annual meeting of holders of Common
Stock, in addition to business proposed (or persons nominated to be directors)
by the directors of the Company, is business proposed (or persons nominated to
be directors) by holders of Common Stock who comply with the notice and
disclosure requirements set forth in the Charter. In general, the Charter
requires that a stockholder give the Company notice of proposed business or
nominations no later than 60 days before the annual meeting of holders of Common
Stock (meaning the date on which the meeting is first scheduled and not
postponements or adjournments thereof) or (if later) ten days after the first
public notice of the annual meeting is sent to holders of Common Stock. In
general, the notice must also contain information about the stockholder
proposing the business or nomination, the stockholder's interest in the
business, and (with respect to nominations for director) information about the
nominee of the nature ordinarily required to be disclosed in public proxy
statements. The stockholder also must submit a notarized letter from each of the
stockholder's nominees stating the nominee's acceptance of the nomination and
indicating the nominee's intention to serve as a director if elected.
The Charter provides that the affirmative vote of at least two-thirds
of the Voting Stock shall be required to approve any of the following proposed
transactions: (i) a merger or consolidation in which the Company shall not be
the surviving entity or shall survive only as a subsidiary of an entity; (ii) a
sale, lease or exchange or an agreement to sell, lease or exchange all or
substantially all of our assets to any other person or entity; or (iii) the
dissolution or liquidation of the Company.
The Charter authorizes the Board of Directors, without any action by
our stockholders to issue up to 1,000,000 shares of Preferred Stock, in one or
more series and to determine the voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and in liquidation
and the conversion and other rights of each such series. Because the terms of
the preferred stock may be fixed by the Board of Directors without stockholder
action, the preferred stock could be issued quickly with terms designed to make
more difficult a proposed takeover of the Company or the removal of its
management, thus affecting the market price of the Common stock and preventing
stockholders from obtaining any premium offered by the potential buyer. The
Board of Directors will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders.
-17-
<PAGE> 20
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws requires a grater
percentage. The Charter provides that approval by the holders of at least 80% of
the Voting Stock is required to amend the provisions of the Charter previously
discussed and certain other provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
and Savings Bank.
PLAN OF DISTRIBUTION
We may sell securities on a negotiated or competitive bid basis to or
through one or more underwriters or dealers. We may also sell securities
directly to institutional investors or other purchasers or through agents. Any
underwriter, dealer or agent involved in the offer and sale of securities, and
any applicable commissions, discounts and other items constituting compensation
to such underwriters, dealers or agents, will be set forth in the prospectus
supplement.
We may effect distribution of securities from time to time in one or
more transactions at a fixed price or prices (which may be changed) or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Unless otherwise indicated in a prospectus supplement, the obligations
of any underwriters to purchase securities will be subject to certain conditions
and the underwriters will be obligated to purchase all of the applicable
securities if any are purchased. If a dealer is used in a sale, we may sell the
securities to the dealer as principal. The dealer may then resell the securities
to the public at varying prices to be determined by the dealer at the time of
resale.
We or our agents may solicit offers to purchase securities from time to
time. Unless otherwise indicated in a prospectus supplement, any agent will be
acting on a best efforts basis for the period of its appointment.
In connection with the sale of securities, underwriters or agents may
receive compensation (in the form of discounts, concessions or commissions) from
us or from purchasers of securities for whom they may act as agents.
Underwriters may sell securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
securities may be deemed to be underwriters as that term is defined in the
Securities Act of 1933, and any discounts or commissions received by them from
us and any profits on the resale of the securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. Any
such underwriter or agent will be identified, and any such compensation received
from us will be described, in the related prospectus supplement.
Underwriters, dealers and agents may be entitled, under agreements with
us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the prospectus supplement, we will authorize agents
and underwriters to solicit offers by certain specified institutions to purchase
securities at the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Institutions with whom such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions but shall in all cases be subject to our approval. Such contracts
will be subject only to those conditions set forth in the prospectus supplement
and the prospectus supplement will set forth the commission payable for
solicitation of such contracts. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the securities
shall not be prohibited at the time of delivery under the laws of the
jurisdiction to which the purchaser is subject. The underwriters and other
agents will not have any responsibility in respect of the validity or
performance of such contracts.
-18-
<PAGE> 21
Certain of the underwriters or agents and their associates may engage
in transactions with and perform services for us or our affiliates in the
ordinary course of their respective businesses.
The securities may or may not be listed on a national securities
exchange or traded in the over-the-counter market (other than the Common Stock,
which is quoted in the NASDAQ National Market). No assurance can be given as to
the liquidity of the trading market for any such securities.
If underwriters or dealers are used in the sale, until the distribution
of the securities is completed, SEC rules may limit the ability of any such
underwriters and selling group members to bid for and purchase the securities.
As an exception to these rules, representatives of any underwriters are
permitted to engage in certain transactions that stabilize the price of the
securities. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the securities. If the
underwriters create a short position in the securities in connection with the
offerings (i.e., if they sell more securities than are set forth on the cover
page of the prospectus supplement) the representatives of the underwriters may
reduce that short position by purchasing securities in the open market. The
representatives of the underwriters may also elect to reduce any short position
by exercising all or part of any over-allotment option described in the
prospectus supplement. The representatives of the underwriters may also impose a
penalty bid on certain underwriters and selling group members. This means that
if the representatives purchase securities in the open market to reduce the
underwriters' short position or to stabilize the price of the securities, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering. In general,
purchases of a security for the purpose of stabilization or to reduce a short
position could cause the price of the security to be higher than it might be in
the absence of such purchases. The imposition of a penalty bid might also have
an effect on the price of the securities to the extent that it discourages
resales of the securities. We make no representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the securities. In addition, the representatives of any
underwriters may determine not to engage in such transactions or that such
transactions, once commenced, may be discontinued without notice.
LEGAL OPINIONS
McDermott, Will & Emery, Chicago, Illinois, will pass upon the legality
of the securities offered by this prospectus.
EXPERTS
The audited consolidated financial statements incorporated by reference
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
-19-
<PAGE> 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC
registration fee) of the issuance and distribution of the securities being
registered, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee........................ $ 83,400
Printing expenses........................... *
Fees and expenses of counsel............... *
Fees and expenses of accountants............ *
Trustees fees and expenses.................. *
Rating agency fees.......................... *
Miscellaneous............................... *
---------
Total.................................. $ *
=========
</TABLE>
*To be supplied by amendment to this registration statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (Section 102) allows a corporation
to eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Company's Restated Certificate of
Incorporation contains a provision which eliminates directors' personal
liability as set forth above.
The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's Restated Certificate of Incorporation provides for
indemnification to the fullest extent authorized by Section 145 of the Delaware
General Corporation Law for directors, officers and employees of the Company and
also to persons who are serving at the request of the Company as directors,
officers or employees of other corporations (including subsidiaries); provided
that, with respect to proceedings initiated by such indemnitee, indemnification
shall be provided only if such proceedings were authorized by the Board of
Directors. This right of indemnification is not exclusive of any other right
which any person may acquire under any statute, bylaw, agreement, contract, vote
of stockholders or otherwise.
The Company maintains a directors' and officers' liability insurance
and corporate reimbursement policy insuring directors and officers against loss
arising from claims made arising out of the performance of their duties.
II-1
<PAGE> 23
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Forms of Underwriting Agreements(1)
*4.1 Form of Indenture
4.2 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to the Company's Annual Report on From 10-K for the
year ended December 31, 1998)
4.3 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Exhibit 3.1 to Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-22629))
*5 Opinion of McDermott, Will & Emery regarding legality
11 Statement regarding Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
*23.2 Consent of McDermott, Will & Emery (included in Exhibit 5)
24 Power of Attorney (included with the signature page to the Registration
Statement.)
25 Statement of Eligibility of Trustee on from T-1(1)
</TABLE>
- -----------------
(1) To be filed subsequently as part of a Form 8-K.
* To be filed by amendment to this Registration Statement.
ITEM 17. UNDERTAKINGS.
1. (a) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; 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;
II-2
<PAGE> 24
provided, however, that subparagraphs (a)(i) and (a)(ii) do not apply to the
extent that the information required to be included in a post-effective
amendment by those subparagraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated
by reference in the Registration Statement.
(b) The undersigned registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act, 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.
(c) The registrant hereby undertakes to remove from registration by
means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by the registrants is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
4. The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) 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 Rule 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time it
was declared effective, and (ii) 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.
5. The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act (the "Act") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
II-3
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Houston, Texas, on the 26th day of April, 1999.
First Sierra Financial, Inc.
By: /s/ Thomas J. Depping
----------------------------------------
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and
officers of First Sierra Financial, Inc., a Delaware corporation, which is
filing a Registration Statement on Form S-3 with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), hereby constitute and appoint Thomas J. Depping and Sandy B.
Ho, and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign such Registration Statement and any
and all amendments, including post-effective amendments, to the Registration
Statement, including a Prospectus or an amended Prospectus therein and any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and all other documents in
connection therewith to be filed with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the 26th day of April, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Thomas J. Depping President, Chief Executive Officer and Chairman of
--------------------------------------- the Board of Directors (principal executive officer)
(Thomas J. Depping)
/s/ Sandy B. Ho Executive Vice President and Chief Financial
--------------------------------------- Officer
(Sandy B. Ho) (principal financial officer and principal
accounting officer)
/s/ Richard J. Campo Director
---------------------------------------
(Richard J. Campo)
/s/ Robert Ted Enloe, III Director
---------------------------------------
(Robert Ted Enloe, III)
/s/ Brian E. McManus Director
---------------------------------------
(Brian E. McManus)
/s/ Norman J. Metcalfe Director
---------------------------------------
(Norman J. Metcalfe)
/s/ David C. Shindeldecker Director
---------------------------------------
(David C. Shindeldecker)
/s/ David L. Solomon Director
---------------------------------------
(David L. Solomon)
</TABLE>
II-4
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Forms of Underwriting Agreements(1)
*4.1 Form of Indenture
4.2 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to the Company's Annual Report on From 10-K for the
year ended December 31, 1998)
4.3 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Exhibit 3.1 to Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-22629))
*5 Opinion of McDermott, Will & Emery regarding legality
11 Statement regarding Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
*23.2 Consent of McDermott, Will & Emery (included in Exhibit 5)
24 Power of Attorney (included with the signature page to the Registration
Statement.)
25 Statement of Eligibility of Trustee on from T-1(1)
</TABLE>
- -----------------
(1) To be filed subsequently as part of a Form 8-K.
* To be filed by amendment to this Registration Statement.
<PAGE> 1
EXHIBIT 11
FIRST SIERRA FINANCIAL, INC.
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEAR PERIOD 1994 TO 1998
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on debt and capitalized leases $ 163 $ 2,632 $ 5,049 $ 5,180 $ 6,027
Interest element of rentals 6 52 77 218 612
-------- -------- -------- -------- --------
Total fixed charges $ 169 $ 2,684 $ 5,126 $ 5,398 $ 6,639
======== ======== ======== ======== ========
EARNINGS:
Consolidated net income $ (530) $ 1,379 $ 3,263 $ 10,537 $ (5,902)
Add back:
Provision for income taxes (317) 720 932 5,107 (2,665)
Fixed Charges 169 2,684 5,126 5,398 6,639
-------- -------- -------- -------- --------
$ (678) $ 4,783 $ 9,321 $ 21,042 $ (1,928)
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES * 1.78 1.82 3.90 *
======== ======== ======== ======== ========
* DURING APPLICABLE YEARS THE RATIO IS LESS THAN 1 TO 1,
THE COVERAGE DEFICIENCY IS AS FOLLOWS: $ (847) N/A N/A N/A $ (8,567)
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
February 17, 1999 included in First Sierra Financial, Inc.'s Form 10-K for the
year ended December 31, 1998 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
April 26, 1999
