<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(A) Of The Securities Exchange Act Of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HEADLANDS MORTGAGE COMPANY
(Names of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined:
----------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5. Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
-----------------------------------------------
2. Form Schedule or Registration Statement No.:
--------------------------
3. Filing Party:
---------------------------------------------------------
4. Date Filed:
------------------------------------------------------------
<PAGE>
HEADLANDS MORTGAGE COMPANY
1100 Larkspur Landing Circle, Suite 101
Larkspur, California 94939
(415) 461-6790
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Headlands Mortgage Company:
You are cordially invited to attend the Annual Meeting of Shareholders of
Headlands Mortgage Company, a California corporation (the "Company"), to be held
on Thursday, September 17, 1998 at 10:00 a.m., Pacific Daylight Time, at the
Courtyard by Marriott, 2500 Larkspur Landing Circle, Larkspur, California 94939,
for the following purposes:
1. The of election Directors of the Company's Board of Directors to serve
until the Company's Annual Meeting of Shareholders to be held in 1999
or until such directors' successors are elected and qualified;
2. Ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ended December 31,
1998; and
3. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. The Board of Directors has fixed the close
of business on August 3, 1998 as the record date for determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting.
In order that your shares may be represented at the Annual Meeting,
management requests that you date, execute and promptly mail the enclosed proxy
in the accompanying postage-paid envelope. A proxy may be revoked by a
shareholder by notice in writing to the Secretary of the Company at any time
prior to its use, by presentation of a later-dated proxy, or by attending the
Annual Meeting and voting in person.
By Order of the Board of Directors
PETER T. PAUL
President, Chief Executive Officer and Director
Larkspur, California
August 10, 1998
------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
------------------------------------------
<PAGE>
HEADLANDS MORTGAGE COMPANY
1100 Larkspur Landing Circle, Suite 101
Larkspur, California 94939
(415) 461-6790
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 17, 1998
To Our Shareholders:
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Headlands Mortgage Company, a California
corporation (the "Company"), for use at the Annual Meeting of Shareholders of
the Company (the "Annual Meeting") to be held on Thursday, September 17, 1998 at
10:00 a.m. Pacific Daylight Time, at the Courtyard by Marriott, 2500 Larkspur
Landing Circle, Larkspur, California 94939, and any adjournments thereof. This
Proxy Statement, the accompanying proxy card and the Notice of Annual Meeting
are being provided to shareholders beginning on or about August 10, 1998.
GENERAL INFORMATION
Solicitation of Proxies
The enclosed proxy is solicited by the Board of Directors of the Company.
The costs of this solicitation will be borne by the Company. Proxy
solicitations will be made by mail, and also may be made by personal interview,
telephone, facsimile transmission and telegram on behalf of the Company by
directors and officers of the Company. Banks, brokerage house nominees and
other fiduciaries will be requested to forward the proxy soliciting material to
the beneficial owners and to obtain authorization for the execution of proxies.
The Company will, upon request, reimburse such parties for their reasonable
expenses in forwarding proxy materials to their beneficial owners. The Company
does not expect to engage an outside firm to solicit votes, but if such a firm
is engaged subsequent to the date of this Proxy Statement, the cost is estimated
to be less than $3,500 plus reasonable out-of-pocket expenses.
Voting Rights
Holders of shares of the Company's common stock, no par value ("Common
Stock"), at the close of business on August 3, 1998, the record date, are
entitled to notice of, and to vote at, the Annual Meeting. On that date,
19,727,634 shares of Common Stock were outstanding. Each share of Common Stock
outstanding on the record date is entitled to one vote on each matter presented
at the Annual Meeting. The presence, in person or by proxy, of shareholders
representing 50% or more of the issued and outstanding stock entitled to vote
constitutes a quorum for the transaction of business at the Annual Meeting. If
a quorum is present, (i) a plurality of the votes cast at the Annual Meeting is
required for election of a director, and (ii) the affirmative vote of the
majority of the shares present, in person or by proxy, at the Annual Meeting and
entitled to vote is required for all other matters. Cumulative voting in the
election of directors is not permitted. Abstentions are considered shares
present and entitled to vote, and therefore have the same legal effect as a vote
against all matters presented at the Annual Meeting other than the election of
directors. Any shares held in street name for which the broker or nominee
receives no instructions from the beneficial owner, and as to which such broker
or nominee does not have discretionary voting authority under applicable New
York Stock Exchange rules, will be considered as
1
<PAGE>
shares not entitled to vote and will therefore not be considered in the
tabulation of the votes. Accordingly, a broker non-vote will have no effect on
items (i) and (ii) above.
Voting of Proxies
Shares of the Common Stock represented by all properly executed proxies
received in time for the Annual Meeting will be voted in accordance with the
choices specified in the proxies. Unless contrary instructions are indicated on
the proxy, the shares will be voted FOR the election of the nominees named in
this proxy statement as directors and FOR the appointment of KPMG Peat Marwick
LLP as the Company's independent public accountants for the fiscal year ending
December 31, 1998.
The management and the Board of Directors of the Company know of no matters
to be brought before the Annual Meeting other than as set forth herein. To
date, no shareholders' proposals have been received by the Company. However, if
any other matter of which the management and Board of Directors of the Company
are not now aware is presented properly to the shareholders for action, it is
the intention of the proxy holders named in the enclosed proxy to vote in their
discretion on all matters on which the shares represented by such proxy are
entitled to vote.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in
person should the shareholder giving the proxy so desire. A proxy may be
revoked at any time prior to its exercise by delivering a written statement to
the Secretary of the Company that the proxy is revoked, by presenting to the
Company a later-dated proxy, or by attending the Annual Meeting and voting in
person.
Annual Report
The 1997 Annual Report including financial statements for the year ended
December 31, 1997, which is being mailed to shareholders together with the Proxy
Statement, contains financial and other information about the activities of the
Company, but is not incorporated into this Proxy Statement and is not to be
considered a part of these proxy soliciting materials.
ITEM 1--ELECTION OF DIRECTORS
The nominees for the Company's Board of Directors are set forth below. The
proxy holders intend to vote all proxies received by them in the accompanying
form for the nominee for director listed below unless otherwise specified by the
shareholder. In the event any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them for the
nominees listed below and against any other nominees. As of the date of this
Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as director. The nominees listed below already
serve as directors of the Company.
The election to the Board of Directors of the nominees identified in the
Proxy Statement will require the affirmative vote of a plurality of the
outstanding shares of Common Stock present in person or represented by proxy at
the Annual Meeting. The Board of Directors unanimously recommends that
shareholders vote FOR the nominees identified below.
2
<PAGE>
Nominees to Board of Directors
Name Position with the Company
---- -------------------------
Peter T. Paul President, Chief Executive Officer and Director
Becky S. Poisson Executive Vice President -- Operations and Director
Gilbert J. MacQuarrie Executive Vice President, Chief Financial Officer,
Secretary and Director
Steven M. Abreu Executive Vice President -- Production and Secondary
Marketing and Director
Mark L. Korell Director
Leonard B. Auerbach Director
Mark E. Lachtman Director
Peter T. Paul, age 54, has been President, founder and major shareholder of
the Company since it began operations in 1986. He also holds the position of
Chief Executive Officer. Prior to founding the Company, he was Vice President of
United Century Mortgage in California and was responsible for wholesale mortgage
lending in several western states. From 1977 to 1980, Mr. Paul was Executive
Vice President and director of Lindsey & Co. in charge of all its mortgage
banking activities. Mr. Paul's substantial experience in the secondary mortgage
market includes positions in the Secondary Mortgage Marketing Departments for
Ticor and IMI, mortgage insurance companies, and as a GNMA salesman for Weeden &
Co. Mr. Paul received a B.A. degree in business administration from the
University of New Hampshire in 1967 and was awarded an M.B.A. degree from Boston
University in 1971. Mr. Paul has 25 years experience in the mortgage banking
industry and is a Director of the California Mortgage Bankers Association.
Becky S. Poisson, age 49, is Executive Vice President -- Operations of the
Company and has served in such capacity since January of 1994. From 1992 through
1993, Ms. Poisson was Senior Vice President, Operations. She oversees the day-
to-day operations of the Company's underwriting, funding, branch operations,
mortgage loan delivery, information services, servicing and Quality Assurance
Department. Prior to joining the Company, Ms. Poisson was Vice President of
Operations at Bank of San Francisco. From 1988 to 1990, Ms. Poisson was Vice
President--Regional Underwriting Manager of Security Pacific National Bank, and
from 1986 to 1988 she was Vice President of Asset Management of Unified Mortgage
Company. From 1984 to 1986, Ms. Poisson was Vice President of Loan
Acquisitions/Sales for Farmers' Savings Bank, and from 1974 to 1984, Ms. Poisson
was responsible for all closing operations for Lindsey and Company, Inc. Ms.
Poisson received a B.A. degree from the University of Wisconsin in 1971. Ms.
Poisson has 23 years experience in the banking and mortgage banking industries.
Gilbert J. MacQuarrie, age 43, is Executive Vice President, Chief Financial
Officer and Secretary of the Company and has served in such capacities since
1997. From 1994 to 1997, Mr. MacQuarrie served as Senior Vice President, Chief
Financial Officer and Secretary, and from 1987 to 1994 he served in both
capacities of Controller and Assistant Controller of the Company. As head of the
Company's Corporate Finance Group, Mr. MacQuarrie is responsible for accounting,
treasury, finance and human resources. Mr. MacQuarrie received a B.A. degree
from Sonoma State University and is a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants.
Steven M. Abreu, age 33, is Executive Vice President -- Production and
Secondary Marketing of the Company and has served in such capacity since 1997.
Mr. Abreu was elected to serve as a director of the Company effective upon the
pricing of the Company's initial public offering of its Common Stock in February
3
<PAGE>
1998 (the "Initial Public Offering"). Mr. Abreu served as Senior Vice President,
Production and Secondary Marketing since 1994 and 1996, respectively. He is
responsible for all of the Company's production offices, national expansion and
secondary marketing activities. Mr. Abreu served as Assistant Vice President of
Secondary Marketing from 1988 to 1992. Prior to rejoining Headlands in 1994, Mr.
Abreu was Vice President and Institutional Mortgage Bond Salesman for Donaldson,
Lufkin & Jenrette. Mr. Abreu has a B.S. degree from the University of San
Francisco.
Mark L. Korell, age 50, was elected to serve as a director of the Company
effective upon the pricing of the Company's Initial Public Offering. Mr. Korell
is president and chief executive officer of Industrywide Mortgage Exchange
("IMX"), San Ramon, California, a software company which facilitates mortgage
loan sales between loan originators and mortgage lenders. From 1995 to 1997, Mr.
Korell served as group president and chief executive officer of Norwest
Mortgage, Inc., Des Moines, Iowa, a nationwide mortgage lender and mortgage loan
servicer. From 1993 to 1995, Mr. Korell served as president and chief executive
officer of GMAC Mortgage Group, Minneapolis, Minnesota, and from 1986 to 1993,
as president and chief executive officer of Residential Funding Corp.,
Minneapolis, Minnesota. Mr. Korell has a B.S. degree from the University of
Wisconsin (Madison) and an M.B.A. degree from Stanford Business School.
Leonard B. Auerbach, age 51, was elected to serve as a director of the
Company effective upon the pricing of the Company's Initial Public Offering.
Mr. Auerbach is President of L, B, A and C, Inc., Orinda, California, which
manages mortgage assets. Since 1979, Mr. Auerbach has been president of
Auerbach Associates Inc., which provides quantitative and management consulting
services to a variety of industries. From 1989 to 1997, Mr. Auerbach and L, B,
A and C, Inc. served as general partners in Tuttle & Co., which manages mortgage
pipeline origination risk and provides information services to the mortgage
industry. Since 1987, Mr. Auerbach has served as a trustee of the Robertson
Stephens Investment Trust, San Francisco, California, an investment trust of
twelve publicly traded mutual funds. From 1973 to 1983, Mr. Auerbach served as
a faculty member at University of California, Berkeley, Haas School of Business
and from 1975 to 1990 was a full professor at St. Mary's College for both
graduate and undergraduate business schools.
Mark E. Lachtman, age 54, was elected to serve as a director of the Company
effective upon the pricing of the Company's Initial Public Offering. Mr.
Lachtman is president of First Capital Group, Inc., San Rafael, California, a
mortgage brokerage company that he founded in 1983. He previously served as
director of production for Fair, Isaac & Co., San Rafael, California, from 1978
to 1982. He is a founding director and currently treasurer of the California
Association of Mortgage Brokers, North Bay Chapter. Mr. Lachtman has a B.A.
degree in mathematics from the University of California (Berkeley) and a Ph.D.
degree in mathematics from the University of Maryland.
Committees Of The Board
Audit Committee. The Company established an Audit Committee effective upon
the pricing of the Company's Initial Public Offering composed of Messrs. Korell,
Auerbach, Lachtman and MacQuarrie and Ms. Poisson. The Audit Committee will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
Compensation Committee. The Company established a Compensation Committee
effective upon the pricing of the Company's Initial Public Offering composed of
the three outside directors. The Compensation Committee will determine the
policies for compensation of the Company's executive officers, including the
Chief Executive Officer, beginning with the 1998 fiscal year. In 1997 and prior
fiscal years, as a privately owned company, the Company had no Compensation
Committee and the compensation of its executive officers was determined by the
directors, including Peter T. Paul.
4
<PAGE>
Executive Compensation
Management of the Company receives annual base salaries. Mr. Paul, Ms.
Poisson, Mr. MacQuarrie and Mr. Abreu currently receive base salaries of
$90,000, $120,000, $120,000 and $120,000, respectively. The base salaries may be
raised at the discretion of the Compensation Committee. In addition, the Board
of Directors has established a bonus incentive compensation plan for executive
officers of the Company. This program permits the Board of Directors, in their
discretion, to award cash bonuses annually to executive officers of the Company.
The following Summary Compensation Table sets forth information concerning
compensation earned in the years ended December 31, 1995, 1996 and 1997 by the
Company's Chief Executive Officer and its three other executive officers serving
at the end of the last completed fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- ----------------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Peter T. Paul................. 1997 $ 90,000 $510,287 -- --
President and Chief Executive 1996 90,000 510,750 -- --
Officer 1995 90,000 8,000 -- --
Becky S. Poisson.............. 1997 $113,000 $100,000 70,000 --
Executive Vice President, 1996 94,000 30,000 -- --
Operations 1995 82,520 35,459 -- --
Gilbert J. MacQuarrie......... 1997 $113,000 $100,000 70,000 --
Executive Vice President, 1996 94,000 30,000 -- --
Chief Financial Officer and 1995 82,000 29,479 -- --
Secretary
Steven M. Abreu............... 1997 $117,800 $100,000 70,000 --
Executive Vice President, 1996 100,800 30,000 -- --
Production and Secondary 1995 104,800 -- -- --
Marketing
</TABLE>
Option Grants
The following table sets forth information concerning stock options granted
during the 1997 fiscal year to each of the executive officers, adjusted to give
effect to a 14,000-for-1 stock split effected immediately prior to the Initial
Public Offering (the "stock split"). Each of the stock options to purchase
Common Stock of the Company becomes exercisable as follows: 25% in July 1998 and
25% in July of each of the three years thereafter.
5
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Peter T. Paul.............. -- -- -- -- -- --
Becky S. Poisson........... 70,000 13.51% $4.06 7/22/07 $178,500 $452,900
Gilbert J. MacQuarrie...... 70,000 13.51% $4.06 7/22/07 178,500 452,900
Steven M. Abreu............ 70,000 13.51% $4.06 7/22/07 178,500 452,900
</TABLE>
- -------------------
(1) Estimated fair market value on the date of grant, as determined by
independent third-party appraisal.
Option Exercises and Fiscal Year End Values
No options were exercised during the 1997 fiscal year. The following table
sets forth certain information with respect to the value of the options as of
December 31, 1997 held by the named executive officers, adjusted to give effect
to the stock split.
FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter T. Paul................................... -- -- -- --
Becky S. Poisson................................ -- 70,000 -- $555,800
Gilbert J. MacQuarrie........................... -- 70,000 -- $555,800
Steven M. Abreu................................. -- 70,000 -- $555,800
</TABLE>
- -----------------------------
(1) The dollar amounts set forth represent the difference between the initial
public offering price of $12.00 per share and the exercise price of the
options, multiplied by the applicable number of shares underlying the
options.
Compensation Of Directors
Outside directors receive automatic stock options pursuant to the Company's
Stock Option Plan. Upon pricing of the Initial Public Offering, each outside
director was granted options to purchase 10,000 shares of Common Stock at the
initial public offering price. None of the directors of the Company has received
any separate compensation for service on the Board of Directors or on any
committee thereof. The Company pays outside directors $10,000 per year. All
directors will receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board of Directors. No director who
is an employee of the Company will receive separate compensation for services
rendered as a director.
Employment Agreements
The Company entered into employment agreements with Mr. Paul, Ms. Poisson,
Mr. MacQuarrie and Mr. Abreu. Each agreement provides for a term through
December 31, 1999 and will be automatically extended
6
<PAGE>
for an additional year at the end of each year of the agreement, unless either
party provides a prescribed prior written notice to the contrary. Each agreement
provides for an annual base salary and for participation by the subject officer
in the bonus incentive compensation plan. Each employment agreement provides for
the subject officer to receive his or her base salary and bonus compensation to
the date of the termination of employment by reason of death, disability or
resignation and to receive base compensation to the date of the termination of
employment by reason of a termination of employment for cause as defined in the
agreement. Each employment agreement also provides for the subject officer to
receive, in the event that the Company terminates the subject officer's
employment without cause, or if the subject officer resigns for "good reason"
(as defined in the agreement, including the occurrence of a "Change of Control"
of the Company as defined in the agreement), an amount equal to two times the
combined salary and bonus for the last fiscal year. Section 280G of the Code may
limit the deductibility of such payments by the Company for federal income tax
purposes. Each employment agreement also contains a "non-compete" provision
prohibiting the subject officer from competing with the Company for a period of
one year following termination of employment following the Company's termination
of the subject officer without cause or resignation of the subject officer for
"good reason" (including a "Change of Control"). In addition, all outstanding
options and Awards granted to the subject officer under the Stock Option Plan
shall immediately vest upon his or her termination without cause or termination
for "good reason" (including upon a "Change of Control"). "Change of Control"
for purposes of the agreements would include a merger or consolidation of the
Company, a sale of all or substantially all of the assets of the Company,
changes in the identity of a majority of the members of the Board of Directors
of the Company (other than due to the death, disability or age of a director) or
acquisitions of more than 25% of the Company's capital stock, subject to certain
limitations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of June
30, 1998, by each person known to the Company to beneficially own more than five
percent of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AS OF JUNE 30, 1998
-------------------
NUMBER PERCENT
------ -------
<S> <C> <C>
Paul Family Group
1100 Larkspur Landing Circle, Suite 101
Larkspur, California 94939
Peter T. Paul(1)(2).............................. 10,500,100 53.2
Jessica M. Paul(3)............................... 1,680,100 8.5
Daniel W. Paul(3)................................ 840,000 4.3
Gilbert J. MacQuarrie(3)......................... 858,088 4.3
Paul Family Group (exclusive
of the Voting Trust)........................ 8,400,200 42.6
Hart Family Group
100 Larkspur Landing Circle, Suite 110
Larkspur, California 94939
Dennis M. Hart................................... 1,400,000 7.1
Katherine E. Hart................................ 700,000 3.5
Hart Family Group................................ 2,100,000 10.6
Wellington Management Co......................... 2,011,800 10.2
75 State Street
Boston, Massachusetts 02109
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Edgemont Asset Management Corp................... 2,000,000 10.1
140 East 45th Street, 43rd Floor
New York, New York 10004
Scudder Kemper Investments....................... 990,000 5.0
Two International Pl.
Boston, Massachusetts 02110
</TABLE>
- --------------------------
(1) Pursuant to a Voting Trust Agreement dated September 15, 1997, all of the
shares of Common Stock of the Company outstanding prior to the Initial
Public Offering were transferred to Mr. Peter T. Paul, as Voting Trustee,
1100 Larkspur Landing Circle, Suite 101, Larkspur, California 94939, with
certain voting and investment powers. The Voting Trust Agreement will
terminate on September 30, 2000.
(2) Peter T. Paul beneficially owns, through a living trust, 6,720,000 shares
of Common Stock of the Company.
(3) Jessica M. Paul, daughter of Peter T. Paul, beneficially owns 1,680,000
shares of Common Stock of the Company held in two trusts for her benefit.
Daniel W. Paul, her uncle, and Gilbert J. MacQuarrie, the Company's
Executive Vice President, Chief Financial Officer and Secretary, each serve
as a trustee for one of those trusts, with sole voting and investment power
with respect to the trust assets. The total shown for Gilbert J.
MacQuarrie also includes 17,500 shares issuable pursuant to vested stock
options.
Security Ownership By Directors And Management
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of June
30, 1998, by (i) each director, (ii) the Company's executive officers, and (iii)
all directors and executive officers as a group. Unless otherwise indicated in
the footnotes to the table, the beneficial owners named have, to the knowledge
of the Company, sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHAPES BENEFICIALLY
OWNED
AS OF JUNE 30, 1998
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ -------- ---------
<S> <C> <C>
Peter T. Paul(1).......................................... 10,500,100 53.2
Becky S. Poisson(2)....................................... 17,696 *
Gilbert J. MacQuarrie(2)(3)............................... 858,088 4.3
Steven M. Abreu(2)........................................ 22,500 *
Leonard B. Auerbach....................................... 2,000 *
Mark E. Lachtman.......................................... 3,800 *
Mark L. Korell............................................ 1,000 *
Directors and Executive Officers as a group
(7 persons)(4)....................................... 11,405,184 57.7
</TABLE>
- -------------------------
* Less than one percent.
(1) See footnotes (1) and (2) to previous table.
(2) Includes 17,500 shares issuable to vested stock options.
(3) See footnote (3) to previous table.
(4) Includes 52,500 shares issuable pursuant to vested stock options.
8
<PAGE>
Certain Relationships And Related Transactions
Notes Payable To Shareholders
The Company was incorporated in California and commenced its mortgage
banking business in 1986. From inception of operations, the Company conducted
certain of its business activities through a contractual arrangement with First
California Mortgage Company ("FCMC"). This arrangement was embodied in an Agency
Agreement dated December 11, 1992 (the "Agency Agreement").
In 1993, the Company took steps to conduct all of its business activities
independently of FCMC through its own personnel and facilities in order to
facilitate the full implementation of its business strategy. In particular, the
Company entered into a Warehouse Facility in 1993 to enable it to fund its own
originations. Additionally, the Company commenced a transfer of servicing rights
from the FCMC servicing center to the Company's Servicing Center which was
substantially completed in 1994.
Following completion of the steps described above permitting the Company to
operate independently of FCMC, a number of disputes arose between the Company,
FCMC and its successor in interest, Mortgage Service America Co. ("MSA"). At
approximately the same time, litigation ensued between Peter T. Paul ("PTP") and
Dennis M. Hart ("DMH") and between the Company and DMH in which the Company and
PTP alleged that loans previously made to DMH by the Company and PTP were due
and owing. These disputes and the litigation were resolved pursuant to two
settlement agreements (the "Settlement Agreements") which were finalized in July
1996.
The FCMC and Headlands Settlement and Mutual Release Agreement resolved the
dispute between the Company and FCMC over the amounts and rights related to
certain inter-company receivables and payables, and the Headlands Shareholders
Settlement and Mutual Release Agreement resolved the disputes arising between
PTP, DMH and the Company.
Among the conditions of settlement, PTP agreed to make a loan to the
Company, the repayment of which would be subordinated to the lenders under the
warehouse lines of credit as required by such lenders. At the closing, PTP and
his daughter, Jessica M. Paul ("JMP") made loans to the Company pursuant to
unsecured promissory notes. At December 31, 1997, the principal amount of the
notes totaled $9,670,000 and interest expense on the notes was $0.9 million
during 1997. The notes bore interest at a variable rate equal to LIBOR for one-
year deposits, plus 5.0%. At December 31, 1997, the accrued and unpaid interest
was $0.9 million. The notes were to mature on June 29, 2000, but were repaid in
full from the proceeds of the Initial Public Offering.
Termination Of S Corporation Status And Tax Indemnification Agreement
From inception of operations, the Company elected to be treated for federal
income tax purposes as an S corporation under Subchapter S of the Code, and as
an S corporation for certain state corporate income tax purposes under certain
comparable state laws. As a result, the Company's historical earnings have been
taxed directly to the Company's shareholders, at their individual federal and
state income tax rates, rather than to the Company (except for certain state
taxes). On January 31, 1998 the Company's S corporation status was terminated
and the Company became fully subject to federal and state income taxes. At that
time, the Company recorded a deferred tax liability on its balance sheet in the
amount of $18,487,000, which represents timing differences between tax and book
accounting relating principally to recognition of gains on sales of mortgage
loans.
From inception through January 31, 1998, the Company made distributions to
its shareholders (the "Sub S Shareholders") of a portion of the Company's income
to permit the shareholders to pay their taxes on such income. The aggregate
amount of distributions to Sub S Shareholders, however, was less than the
aggregate amount of taxable income of the Company during this period. The amount
of this previously earned and undistributed taxable income (including estimated
taxable income up to January 31, 1998, with provision for adjustment based on
final numbers) (the "Shareholders Distribution Amount") will be
distributed to the Sub S
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Shareholders out of the net proceeds of the Initial Public Offering. The
Shareholders Distribution Amount is estimated to be approximately $13,748,000.
The Company and the Sub S Shareholders have entered into a tax
indemnification agreement (the "Tax Agreement") relating to their respective
income tax liabilities. Because the Company is fully subject to corporate income
taxation after the termination of the Company's S corporation status, any
reallocation of income and deductions between the period during which the
Company was treated as an S corporation and the period during which the Company
is subject to corporate income taxation may increase the taxable income of one
party while decreasing that of another party. Accordingly, the Tax Agreement is
intended to assure that taxes are borne either by the Company or the Sub S
Shareholders to the extent that such parties received the related income. The
Tax Agreement generally provides that, if an adjustment is made to the taxable
income of the Company for a year in which it was treated as an S corporation,
each party will indemnify the other against any increase in the indemnified
party's income tax liability (including interest and penalties and related costs
and expenses) with respect to such tax year to the extent such increase results
in a related decrease in the income tax liability of the indemnifying party
(whether with respect to the year of the adjustment or over future years).
However, the Tax Agreement specifically provides that the Sub S Shareholders
will not be responsible for any portion of the deferred tax liability recorded
on the balance sheet of the Company upon termination of the S corporation
status. The Company will also indemnify the Sub S Shareholders for all taxes
imposed upon them as the result of an indemnification payment under the Tax
Agreement. In no event, however, will the Company be obligated to make
indemnification payments under the Tax Agreement if such payments, together with
the aggregate of prior payments, would exceed the amount of the deferred tax
liability recorded by the Company on the balance sheet of the Company at the
time of the termination of the Company's S corporation status. Any payment made
by the Company to the Sub S Shareholders pursuant to the Tax Agreement may be
considered by the Internal Revenue Service or state taxing authorities to be
non-deductible by the Company for income tax purposes. Neither parties'
obligations under the Tax Agreement are secured, and, as such, there can be no
assurance that the Sub S Shareholders or the Company will have funds available
to make any payments which may become due under the Tax Agreement.
Other Business Transactions With Management
The Company had accounts receivable from Headlands Insurance Agency of
$118,000 and $56,000 at December 31, 1997 and 1996, respectively. The Company
had accounts payable due from Marin Conveyancing Corp. of $56,000 at December
31, 1997 and accounts receivable of $58,000 at December 31, 1996. The Company
provided administrative services to these related parties, and received fees
(included in production income) of $270,000 and $240,000 during the years ended
December 31, 1997 and 1996, respectively.
Other Business Transactions With Directors
Leonard B. Auerbach, who became a director of the Company on February 4,
1998, was a general partner of Tuttle & Co. from April 1989 until July 1997.
During 1997, the Company paid Tuttle & Co. for various hedging and other
advisory services a total of $472,426.00.
ITEM 2--RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of KPMG Peat
Marwick LLP to audit the Company's financial statements for, and otherwise act
as the Company's independent certified public accountants with respect to the
year ending December 31, 1998. The Board of Director's selection of KPMG Peat
Marwick LLP for the current fiscal year is being presented to shareholders for
ratification at the Annual Meeting. To the Company's knowledge, neither KPMG
Peat Marwick LLP nor any of its partners has any direct financial interest or
any material indirect financial interest in the Company, or has had any
connection since the inception of the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee. A representative of
KPMG Peat Marwick LLP will be present at the Annual Meeting.
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OTHER BUSINESS
The Board of Directors knows of no other matters which may be presented for
shareholder action at the meeting. However, if other matters do properly come
before the meeting, it is intended that the persons named in the proxies will
vote upon them in accordance with their best judgments.
SHAREHOLDER PROPOSALS--1999 ANNUAL MEETING
Shareholders are entitled to present proposals for action at a forthcoming
shareholder's meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1999 Annual Meeting of
Shareholders of the Company must be received at the Company's offices on or
before April 12, 1999 in order to be considered for inclusion in the Company's
proxy statement and form proxy relating to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Peter T. Paul
President, Chief Executive Officer and Director
Larkspur, California
August 10, 1998
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HEADLANDS MORTGAGE COMPANY
REVOCABLE PROXY
For Annual Meeting of Shareholders on September 17, 1998
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Peter T. Paul, Becky S. Poisson, Gilbert J.
MacQuarrie and Steven M. Abreu, and each of them, with full powers of
substitution, to act as attorneys and proxies for the undersigned to vote, as
designated on the reverse side of this proxy, all shares of the Common Stock of
Headlands Mortgage Company (the "Company") which the undersigned is entitled to
vote at the Company's Annual Meeting of Shareholders to be held at 1100 Larkspur
Landing Circle, Suite 101, Larkspur, California 94939, on September 17, 1998 at
________, Pacific Daylight Time, and at any and all adjournments thereof.
BY SIGNING AND DATING THIS CARD, YOU AUTHORIZE THE PROXIES TO VOTE EACH
PROPOSAL, AS MARKED, OR IF NOT MARKED TO VOTE "FOR" EACH PROPOSAL, AND TO USE
THEIR DISCRETION TO VOTE ANY OTHER MATTER AS MAY PROPERLY COME BEFORE THE
MEETING. PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENVELOPE PROVIDED.
AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
THIS PROXY IS REVOCABLE AND THE UNDERSIGNED MAY REVOKE IT AT ANY TIME PRIOR
TO ITS EXERCISE. ATTENDANCE OF THE UNDERSIGNED AT SAID MEETING OR ANY ADJOURNED
OR POSTPONED SESSION THEREOF WILL NOT BE DEEMED TO REVOKE THIS PROXY UNLESS THE
UNDERSIGNED SHALL INDICATE AFFIRMATIVELY THEREAT THE INTENTION OF THE
UNDERSIGNED TO VOTE SAID SHARES IN PERSON. IF THE UNDERSIGNED HOLD(S) ANY
SHARES OF HEADLANDS MORTGAGE COMPANY IN A FIDUCIARY, CUSTODIAL OR JOINT CAPACITY
OR CAPACITIES, THIS PROXY IS SIGNED BY THE UNDERSIGNED IN EVERY SUCH CAPACITY AS
WELL AS INDIVIDUALLY.
The Board recommends a vote FOR each of the listed items
Item 1 - ELECTION OF DIRECTORS.
[_] FOR the nominees [_] WITHHOLD authority to vote [_] WITHHOLD all nominees.
listed below. for the nominee(s) lined
through below.
Nominees: Peter T. Paul Mark L. Korell
Becky S. Poisson Leonard Auerbach
Gilbert J. MacQuarrie Mark E. Lachtman
Steven M. Abreu
Item 2 - RATIFICATION OF KPMG Peat Marwick LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998.
[_] FOR [_] AGAINST [_] ABSTAIN
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR EACH OF THE LISTED ITEMS AND IN THE
DISCRETION OF THE PROXYHOLDERS ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS OF
HEADLANDS MORTGAGE COMPANY AND A PROXY STATEMENT
FOR THE ANNUAL MEETING PRIOR TO THE SIGNING OF
THIS PROXY.
Date: , 19
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Signature
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Signature
(Please sign exactly as name appears on stock
certificate. Where stock is registered jointly,
all owners must sign. Corporate owners should
sign full corporate name by an authorized person.
Executors, administrators, trustees or guardians
should indicate their status when signing.)
Please complete, sign and date this proxy and
return it in the enclosed envelope.
