<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1997
Registration No. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
PMCC FINANCIAL CORP.
(Exact name of Issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6162 [ ]
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
66 Powerhouse Road
Roslyn Heights, New York 11577
New York
(516) 625-3000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------
Ronald Friedman
Chief Executive Officer
66 Powerhouse Road
Roslyn Heights, New York 11577
(516) 625-3000
(516) 625-0215 - fax
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
Norman M. Friedland, Esq. Robert Steven Brown, Esq.
David M. Kastin, Esq. John C. Doherty, Esq.
Ruskin, Moscou, Evans Brock Fensterstock Silverstein
& Faltischek, P.C. McAuliffe & Wade LLC
170 Old Country Road One Citicorp Center
Mineola, New York 11501 56th Floor
(516) 663-6600 New York, New York 10022
(516) 663-6641 (fax) (212) 371-2000
(212) 371-5500 (fax)
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, 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, 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: / /
---------------------
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>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Proposed Proposed
Number of Maximum Maximum
Title of each Class of Securities to Shares to Offering Price per Aggregate Offering Amount of
be Registered be Registered Share(1) Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ......... 1,437,500 ($8.00 $11,500,000 $3,484.85
- -----------------------------------------------------------------------------------------------------------------------------
Representative's Warrants, each to
purchase one share of Common
Stock, $.01 par value ............... 125,000 (3) $.001 $ 125 $ .04
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (4) 125,000 $9.60 $ 1,200,000 $ 363.64
- -----------------------------------------------------------------------------------------------------------------------------
Total .............................. -- -- $12,700,125 $3,848.53
=============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 187,500 shares issuable solely to cover over-allotment options,
if any.
(3) To be acquired by the Representative.
(4) Issuable upon exercise of the Underwriter's Warrants.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject To Completion, Dated October 24, 1997
PROSPECTUS
[LOGO]
1,250,000 Shares of Common Stock
PMCC Financial Corp. (the "Company") hereby offers (the "Offering")
1,250,000 shares (the "Shares") of its common stock, par value $.01 per share
(the "Common Stock"). See "Underwriting" for the factors considered in
determining the initial public offering price of the Shares.
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that such a market will develop, or if
developed, that it will be sustained. The Company has made an application to
list the Common Stock on the American Stock Exchange ("AMEX") under the symbol
" ." It is currently anticipated that the initial offering price of the Common
Stock will be $8.00 per share.
----------------
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" commencing on page 7.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
===============================================================================
Price Underwriting
to Discounts and Proceeds to
Public Commissions(1) Company(2)(3)
- --------------------------------------------------------------------------------
Per Share ............. $ $ $
- --------------------------------------------------------------------------------
Total (3) ............. $ $ $
===============================================================================
(1) Does not include additional consideration to be received by Coleman and
Company Securities, Inc., as the representative (the "Representative") of
the several underwriters (the "Underwriters"), including (i) a 3%
non-accountable expense allowance, and (ii) warrants to purchase an
aggregate of 125,000 shares of Common Stock (the "Representative's
Warrants"). In addition, the Company has agreed to indemnify the
Underwriters against certain civil liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $________
($__________ if the Underwriters' Over-Allotment Option is exercised in
full). See "Underwriting."
(3) The Company has granted to the Underwriters an option to purchase up to an
additional 187,500 shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If the
Underwriters' over-allotment option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, and Proceeds to the
Company will be $_____, $_____ and $_____, respectively. See
"Underwriting."
----------------
The Shares are being offered by the several Underwriters subject to prior
sale, when, as, and if delivered to, and accepted by, the Underwriters,
subject to their right to reject orders in whole or in part and to certain
other conditions. It is expected that delivery of certificates representing
the shares will be made at the offices of the Representative in New York, New
York, on or about ________________, 1997.
COLEMAN AND COMPANY SECURITIES, INC.
The date of this Prospectus is _____________, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION THEREIN
MAINTAIN BY THE UNDERWRITERS, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Company intends to furnish to its stockholders annual reports, which
will include financial statements audited by independent accountants, and such
other periodic reports as it may determine to furnish or as may be required by
law, including Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
---------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated herein, the information in this
Prospectus does not give effect to (i) the Representative's Warrants or the
exercise thereof; (ii) the Underwriters' over-allotment option or the exercise
thereof; (iii) up to 375,000 shares of Common Stock reserved for issuance upon
the exercise of options which may be granted pursuant to the Company's 1997
Stock Option Plan (the "1997 Plan"), none of which have been granted to date;
and (iv) 375,000 shares of Common Stock reserved for issuance upon the
exercise of options granted under the Company's Premier Option Plan (the
"Premier Plan"). Except as otherwise indicated, the information herein
reflects the consummation of the Exchange (as hereinafter defined). As used
herein, the term "year" or "fiscal year" refers to the Company's fiscal year
ending December 31. As used herein, the term "Company" refers to PMCC
Financial Corp., a Delaware corporation, its wholly-owned subsidiary, Premier
Mortgage Corp., a New Jersey corporation ("Premier"), the subsidiaries of
Premier, and the predecessors of the foregoing.
This Prospectus contains certain forward-looking statements that involve
certain risks and uncertainties. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors."
The Company
PMCC Financial Corp. is a specialty consumer financial services company
providing a broad array of residential mortgage products to customers ranging
from prime credit borrowers seeking "conventional" or FHA/VA loans, to persons
who cannot so qualify, i.e., so-called "B," "C" and "D" or "sub-prime" credit
borrowers seeking "non-conventional" loans. Since mid-1996, the Company has
expanded and diversified its mortgage banking activities by establishing a
program to provide short-term financing for residential (one to four family)
rehabilitation properties, opening a fully-staffed wholesale division and
significantly increasing its "B," "C" and "D" mortgage originations.
The Company's primary business objectives are to continue to offer a full
range of mortgage products to all types of borrowers and to generate positive
cash flow by selling substantially all originated loans for cash to
institutional investors, usually without recourse, within a short period after
such loans are originated, thereby reducing exposure to interest rate and
credit risks.
The Company has experienced significant growth in recent years,
originating $47 million in mortgage loans in 1994, $71 million in mortgage
loans in 1995, $133 million in mortgage loans in 1996 and $110 million in
mortgage loans in the six months ended June 30, 1997. For the six months ended
June 30, 1997, sub-prime loans originated by the Company accounted for 13% of
its total mortgage originations. For its fiscal years ended December 31, 1995
and 1996 and for the six months ended June 30, 1997, the Company had revenues
of $3.4 million, $7.2 million and $5.6 million, respectively, and net income
of $196,000, $1.03 million and $991,000, respectively.
The Company originates residential first mortgages in New York and New
Jersey by a staff of 27 experienced retail loan officers (as of June 30, 1997)
who obtain customers through referrals from local real estate agents,
builders, accountants, financial planners and attorneys, as well as from
direct customer contact via advertising, direct mail and promotional
materials. The Company's wholesale division originates mortgage loans through
independent mortgage bankers and brokers, who submit applications to the
Company on behalf of a borrower. For the six months ended June 30, 1997,
approximately 68% of the Company's mortgage originations were derived from its
retail mortgage operations and approximately 32% from its wholesale
operations.
The Company's revenues are primarily generated from the fees it charges
on the origination of mortgage loans, from the premium it receives on the sale
of mortgage loans it originates, and from interest earned during the period
the Company holds the mortgage loan for sale. The Company's mortgage loans,
3
<PAGE>
together with servicing rights to these mortgages, are sold usually without
recourse to institutional investors, in each case within approximately 7 to 30
days of the date of origination of the mortgage. In general, when the Company
establishes an interest rate at the origination of a mortgage loan, it
attempts to contemporaneously lock in an interest yield to the institutional
investor purchasing that loan from the Company. By quickly selling these
mortgage loans, usually on a non-recourse basis, the Company limits its
exposure to interest rate fluctuations and credit risks. Furthermore, by
selling its mortgage loans on a "servicing-released" basis, the Company avoids
the administrative and collection expenses of managing and servicing a loan
portfolio.
The Company also generates revenue by charging fees to provide short-term
financing for the purchase, rehabilitation and resale of vacant one-to-four
family residences in New York City and Long Island, New York. The Company
conducts this activity in combination with several independent real estate
agencies who specialize in the rehabilitation and marketing of these
properties. From the commencement of this activity on September 1, 1996
through December 31, 1996, the Company completed 35 transactions accounting
for approximately $284,000 of revenue. During the first six months of 1997,
the Company completed 60 such transactions, accounting for approximately
$553,000 of revenue. At June 30, 1997, the Company had 113 properties in
various stages of rehabilitation.
The growth of the Company's mortgage lending to "B," "C" and "D" credit
borrowers reflects the establishment, in April 1997, of the Company's
sub-prime lending division with experienced personnel, increased customer
demand for sub-prime mortgage products and the availability of capital to the
Company for these mortgage banking products. In most cases, "B," "C" and "D"
credit borrowers have substantial equity in their residences and while some of
these sub-prime customers have impaired credit, such customers also include
individuals who seek an expedited mortgage process, and persons who are
self-employed or, due to other circumstances, have difficulty verifying their
income. The Company believes that the demand for loans by "B," "C" and "D"
credit customers is less dependent on general levels of interest rates or home
sales and therefore less cyclical than conventional mortgage lending. The
Company's sub-prime mortgage lending activity is subject to certain risks,
including risks related to the significant growth in the number of sub-prime
lenders in recent years, risks related to certain potential competition (see
"Risk Factors -- Competition"), and risks related to the industry's focus on
credit impaired borrowers (see "Risk Factors -- Risks of Mortgage Lending to
Sub-Prime Borrowers").
The Company's growth strategy includes the following elements:
o increase the Company's "B," "C" and "D" mortgage originations through
recruitment of experienced salespersons and acquire mortgage
brokers or mortgage banks in the Northeast that specialize in mortgage
products for this target market;
o increase the Company's wholesale mortgage origination business in New
York and expand into other states;
o expand the Company's retail mortgage origination business into Connecticut,
Pennsylvania, Florida and Maryland;
o expand the Company's residential rehabilitation financing activities
outside of New York City and Long Island New York; and
o recruit additional key personnel.
The Company was incorporated in the State of Delaware in October, 1997.
The Company's wholly-owned mortgage banking subsidiary, Premier Mortgage Co.,
was incorporated in New Jersey in 1989, and received its mortgage banking
licenses in New Jersey in 1991 and in New York in 1994. The Company's
principal executive office is located at 66 Powerhouse Road, Roslyn Heights,
New York 11577 and its telephone number is (516) 625-3000.
4
<PAGE>
The Offering
Common Stock offered by the
Company ....................... 1,250,000 shares
Common Stock outstanding prior
to the Offering .............. 2,500,000 shares
Common Stock to be outstanding
after the Offering ........... 3,750,000 shares
Use of Proceeds .............. Geographic expansion of mortgage banking
operations in the Northeast/mid-Atlantic
region and Florida; expansion of
residential rehabilitation financing
activities; upgrade of information
systems; Subchapter S corporation
distributions to pay shareholder taxes;
repayment of debt; and general working
capital purposes.
Proposed AMEX Symbol ........... ________
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
($ in thousands, except share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30
-------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data: ............
Revenue ................................. $1,076 $1,464 $1,187 $3,400 $7,154 $2,828 $5,612
Net income .............................. 231 303 62 196 1,034 331 991
Provision for pro forma income
taxes (1) ........................... 91 124 18 74 435 139 401
Pro forma net income ..................... $ 140 $ 179 $ 44 $ 122 $ 598 $ 192 $ 590
Pro forma net income per share (2) ...... $ 0.24 $ 0.23
Pro forma weighted average number
of common shares and share
equivalents outstanding ............... 2,500,000 2,547,134
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Mortgage loans originated
Conventional (prime credit) (3) ..................... $46,700 $51,300 $ 75,400 $33,200 $ 66,700
FHA/VA ............................................. -- 19,400 57,700 23,300 28,500
Sub-Prime (B, C, D credit) (3) ..................... -- -- -- -- 14,500
-------- -------- --------- -------- ---------
Total dollar amount of loans originated ............ $46,700 $70,700 $133,100 $56,500 $109,700
======== ======== ========= ======== =========
Total number of loans originated .................. 273 470 890 380 738
Average principal balance per loan originated ...... $ 171 $ 150 $ 150 $ 149 $ 149
</TABLE>
<TABLE>
<CAPTION>
At December 31, At June 30, 1997
--------------------------------------------- -------------------------------
Pro
Forma
Pro as
Forma Adjusted
1992 1993 1994 1995 1996 Actual (1) (4)
------ ------ -------- -------- --------- --------- --------- ---------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans held for sale, net ......... -- $ 32 $ 582 $6,894 $12,713 $33,766 $33,766 $33,766
Real estate held for sale, net ............ -- -- -- -- 3,246 10,155 10,155 10,155
Total assets .............................. $473 574 1,098 8,232 17,153 45,708 45,708 52,896
Borrowings under Warehouse Facility ......... -- -- 557 6,476 13,923 39,364 39,364 39,364
Amount due to affiliates and shareholder ... -- 9 8 465 1,037 3,006 3,006 2,713
Total liabilities ........................... 68 69 633 7,117 15,258 42,939 44,008 42,796
Shareholders' equity ........................ 405 505 465 1,114 1,878 2,769 1,700 10,100
</TABLE>
- ------------
(1) Prior to the Exchange, Premier was treated as an S corporation for federal
and state income tax purposes. See "Reorganization and Termination of S
Corporation Status." The pro forma presentation for statement of
operations data reflects the provision for income taxes as if Premier had
always been a C corporation at assumed effective tax rates ranging from
29% to 42%. The pro forma presentation for balance sheet data reflects the
deferred tax liability and the distribution payable to be recorded as of
the date of the termination of the S corporation status.
(2) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares and share
equivalents outstanding.
(3) For the years 1994, 1995 and 1996 the Company estimates that the sub-prime
loans accounted for less than 5% of the Company's total originations for
those years and are included in conventional loans for those years.
(4) Adjusted to give effect to the sale by the Company of the Shares at an
assumed initial public offering price of $8.00 per share.
6
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk. Prospective investors should carefully consider the
following risk factors relating to the business of the Company and this
Offering, together with the information and financial data set forth elsewhere
in this Prospectus, before investing in the Common Stock. Prospective
investors should note that this Prospectus contains certain "forward-looking
statements," as such term is defined in the Private Securities Litigation
Reform Act of 1995, including, without limitation, statements containing the
words "believes," "anticipates," "expects," "intends," "should," "seeks to"
and similar words. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including, but not limited to, the risk factors set forth in this Prospectus.
The accompanying information contained in this Prospectus identifies certain
important factors that could cause such differences.
History of Operations
The Company commenced mortgage lending operations in March 1991 and,
since 1994, has experienced substantial growth in mortgage loan originations
and total revenues. For the fiscal years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997, mortgage loan originations were
approximately $47 million, $71 million, $133 million and $110 million,
respectively, and total revenues were approximately $1.2 million, $3.4
million, $7.2 million and $5.6 million, respectively. In addition, the Company
recently commenced its lending operations to sub-prime borrowers. Accordingly,
prospective investors have only a limited operating history by which to judge
the Company and its future prospects. The future prospects of the Company must
also be considered in light of the problems, expenses, difficulties, risks and
complications frequently encountered in connection with similarly situated
companies. In addition, the Company's future plans are subject to known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance
suggested herein. There can be no assurance that future revenues of the
Company will increase or that the Company will continue to be profitable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risk Associated With Growth Strategy
The Company has grown significantly since it was organized in 1991. In
the fourth quarter of 1995, the Company became licensed in and opened its
office in New York. In addition, since April 1997, the Company has
significantly increased originations of "B," "C" and "D" mortgage loans.
However, no assurance can be given that the Company can maintain this growth
rate. The Company's growth strategy for the foreseeable future is based
primarily upon the expansion of the business of its "B," "C" and "D" credit
division and wholesale loan division, and expansion of its business into new
markets. There can be no assurance that the Company will achieve its expansion
in a timely and cost-effective manner or, if achieved, that the expansion
will result in profitable operations. The failure of the Company to implement
its planned geographic expansion may have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
The Company's growth strategy, whether or not successful, is expected to
place a significant strain on its limited managerial, operational and
financial resources. The Company intends to expand its operational and
financial systems and attract and retain experienced personnel. The Company
faces competition for such personnel from other financial institutions and
more established organizations, many of which have significantly larger
operations and greater financial, marketing, human and other resources than
the Company. There can be no assurance that the Company will be successful in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. In the event that the Company is not successful in
attracting and retaining such personnel, the Company's business, prospects,
financial condition, and results of operations will be materially adversely
affected. The failure to manage growth effectively and to integrate new
executives and other skilled personnel may adversely affect the Company's
business, prospects, financial condition and results of operations. See
"Business -- Business Strategy."
7
<PAGE>
Dependence on Warehouse Financing Sources
The Company has funded substantially all of its mortgage banking and
residential rehabilitation financing activities through fundings described
below, consisting of a collateralized borrowing agreement (the "Borrowing
Agreement") and a short-term mortgage purchase agreement (the "Gestation
Agreement", together with the Borrowing Agreement, the "Warehouse Facility.").
Its ability to continue to originate mortgage loans and provide residential
rehabilitation financings is dependent on continued fundings on acceptable
terms.
The Company's existing collateralized Borrowing Agreement with two
commercial banks commenced in July 1997, and was amended on September 30, 1997
to allow the Company to borrow up to $50 million to finance its mortgage
banking operations. These borrowings are repaid with the proceeds received by
the Company from the sale of its originated loans to institutional investors
or, in the case of residential rehabilitation financing activities, from the
proceeds from the sale of the properties. The Company is required to comply
with certain financial covenants and the borrowings are guaranteed by both
Ronald Friedman and Robert Friedman. As of September 30, 1997, total
borrowings outstanding under the collateralized Borrowing Agreement were $26
million. The Company's collateralized Borrowing Agreement with these two banks
expires on May 31, 1998, and is terminable by the banks at any time without
cause, upon sixty (60) days notice to the Company.
Since August 1996, one of the commercial banks that provides the
collateralized Borrowing Agreement has supplemented this lending facility
through a short-term mortgage purchase agreement (the "Gestation Agreement"),
which for financial reporting is characterized by the Company as a borrowing
transaction. The Gestation Agreement provides the Company up to $20 million of
additional funds for loan originations through the Company's sale to this bank
of originated mortgage loans previously funded under the Borrowing Agreement
and committed to be sold to institutional investors. Under the Gestation
Agreement the Company is required to arrange for institutional investors to
take delivery of the loans, generally within 20 days of their sale to the
bank, otherwise it is required to repurchase the loan. As of September 30,
1997, total fundings under this Gestation Agreement were $20 million. The bank
has discretion as to the amounts of loan purchases it is willing to make and
the Gestation Agreement is terminable by the bank at any time.
Any failure to renew or obtain adequate funding under the Company's
Warehouse Facility, or any substantial reduction in the size of or increase in
the cost of such facilities, or the termination thereof, could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. To the extent that the Company cannot successfully
maintain its existing Warehouse Facility or replace it with a comparable
financing source, it may have to curtail its mortgage loan purchase and
origination activities, which could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Possible Need for Additional Financing
The proceeds of this Offering, together with the Company's existing
capital resources, including the funds from its Warehouse Facility, are
expected to enable the Company to fund its mortgage banking and residential
rehabilitation financing operations for a minimum of 12 months following
completion of the Offering. If the Company is required to seek additional
capital in order to maintain or obtain increases in its Warehouse Facility,
such additional capital may be raised by the offering of additional shares
which may result in dilution to the purchasers of the Shares offered hereby.
To date, the Company has made no attempts to identify possible sources of any
future funding and has no commitments for any future funding. There can be no
assurance that the Company will be able to obtain additional capital in the
future. The type, timing and terms of such funding, if it is available at all,
will be determined by prevailing conditions in the financial markets and the
Company's financial condition, among other factors. If the Company requires,
but is unable to obtain additional capital, it may be required to
significantly curtail its mortgage banking and residential rehabilitation
financing activities. See "Use of Proceeds," "Dilution" and "Business."
Possible Fluctuations in Quarterly Performance
Several factors affecting the Company's business can cause significant
variations in its quarterly results of operations. These factors include,
variations in the volume of the Company's loan origination; the differences
8
<PAGE>
between the Company's cost of funds under its Warehouse Facility and the
average interest rates of originated loans; the inability of the Company to
complete significant loan sales transactions in a particular quarter; and a
decline in the number of properties financed under the Company's residential
rehabilitation program or delays in the sale of such properties. A delay in
closing loan sales transactions during a particular quarter would postpone
recognition of revenue on the sale of those loans. A delay in closing the sale
of properties financed under the Company's residential rehabilitation program
during a particular quarter would postpone the Company's receipt of the fees
due on the sale of such properties. In addition, unanticipated delays in
closing particular loan sales or the sale of a property financed under the
Company's residential rehabilitation program would also increase interest
expense and the Company's exposure to interest rate fluctuations by
lengthening the period during which its variable rate borrowings under its
Warehouse Facility are outstanding. If the Company were unable to sell a
sufficient number of its loans in a particular reporting period, the Company's
revenues for such period would decline, resulting in lower net income and
possibly a net loss for such period, which could have a material adverse
effect on the Company's result of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Economic Conditions
The Company's business will be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for
consumer credit and declining real estate values. Any material decline in real
estate values results in increased loan-to-value ratios thereby weakening
collateral coverage and increasing the possibility of a loss in the event of
default. To the extent that prospective borrowers do not meet the Company's
underwriting criteria, the volume of loans originated by the Company could
decline. A decline in loan origination volumes could have a material adverse
effect on the Company's business, prospects, financial condition and results
of operations. Changes in the level of consumer confidence, real estate
values, prevailing interest rates and investment returns expected by the
financial community could make mortgage loans of the types originated by the
Company less attractive to borrowers or investors because, among other things,
the actual rates of delinquencies and foreclosures on such loans could be
higher under adverse economic conditions than those currently experienced in
the mortgage lending industry in general.
Dependence on Loan Sales for Future Revenue
The Company seeks to generate revenue and positive cash flow by regularly
selling for cash, at a premium, its entire portfolio of originated loans to a
small number of institutional investors. There can be no assurance that such
investors will continue to purchase loans or that they will be willing to
purchase loans on terms similar to which they have historically purchased such
loans. For the six months ended June 30, 1997, all of the Company's sub-prime
mortgages were sold to IMC Mortgage Company ("IMC"), pursuant to a written
agreement which expired on September 30, 1997. The Company and IMC have not
renewed this agreement, but the Company continues to sell substantially all of
its sub-prime mortgages to IMC. For the six months ended June 30, 1997,
approximately 70% of the Company's prime credit and FHA/VA classified
mortgages, including those that conform to mortgage purchase programs that are
administered by government sponsored agencies, such as Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, and the
Government National Mortgage Association ("FNMA," "FHLMC" and "GNMA,"
respectively), were sold to three institutional investors. There can be no
assurance that such purchasers will continue to purchase the Company's loans
and to the extent that the Company could not successfully replace such loan
purchasers, the Company's business, prospects, financial condition and results
of operations could be materially and adversely affected. Further, adverse
conditions in the mortgage-backed securitization market could negatively
impact the ability of the Company to complete loan sales, as many of the
Company's loan purchasers securitize the loans they purchase from the Company.
Risks of Mortgage Lending to Sub-Prime Borrowers
Since April 1997, the Company has expanded its mortgage lending
activities to increase mortgage originations for "B," "C" and "D" or
"sub-prime" credit classified borrowers. For the six months ended June 30,
1997,
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<PAGE>
approximately 13% of the total principal amount of loans originated by the
Company were to borrowers in these credit classifications. Loans made to such
borrowers may entail a greater risk of delinquency and greater losses than
loans made to borrowers who utilize conventional mortgage sources.
Delinquencies, foreclosures and losses generally increase during economic
slowdowns or recessions. Although the Company sells these mortgages (as well
as other mortgages) to investors usually on a non-recourse basis (thereby
limiting its risk of delinquency or default) at prices which reflect the
credit risk associated with such borrowers, any sustained period of increased
delinquencies, foreclosures or losses on such loans after the loans are sold
could adversely affect the pricing of the Company's future loan sales and/or
the willingness of investors to purchase such loans from the Company or in
general in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Interest Rate Risk
In general, when the Company establishes an interest rate at the
origination of a mortgage loan, it attempts to contemporaneously lock in an
interest yield to the institutional investor purchasing that loan from the
Company. By quickly selling these mortgage loans, usually on a non-recourse
basis, the Company limits its exposure to interest rate fluctuations. However,
the operations and profitability of the Company are likely to be adversely
affected during any period of unexpected or rapid changes in interest rates.
For example, a substantial or sustained increase in interest rates could
adversely affect the ability of the Company to originate loans.
Fluctuating interest rates also may affect the net interest income earned
by the Company, resulting from the difference between the yield to the Company
on loans held pending sale and the interest paid by the Company for funds
borrowed under the Warehouse Facility. While the Company monitors the interest
rate environment, there can be no assurance that the profitability of the
Company would not be adversely affected during any period of changes in
interest rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Geographic Concentration of Operations
For the six months ended June 30, 1997, nearly all of the mortgage loans
originated by the Company were secured by properties, located in New York and
New Jersey. The residential rehabilitation financing properties were primarily
located in New York City and Long Island, New York. Although the Company is
planning to expand its mortgage origination network outside these states, the
Company's origination and residential rehabilitation financing business is
likely to remain concentrated in these states for the foreseeable future.
Consequently, the Company's business, prospects, financial condition and
results of operations are dependent, in part, upon general trends in the
economy and the residential real estate market in these states. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition
The Company faces intense competition in all aspects of its mortgage
banking business. The Company competes with numerous financial intermediaries,
such as other mortgage banking companies, commercial banks, savings
associations, credit unions, loan brokers and insurance companies in the
origination of mortgage loans. Competition can take many forms, including
convenience in obtaining a loan, customer service, marketing and distribution
channels and interest rates charged to borrowers. Competition may be affected
by, among other things, fluctuations in interest rates and general economic
conditions. Although the Company believes that its competitive advantage
exists primarily in its offering of a broad menu of mortgage loan products
with competitive features, its flexible residential rehabilitation financing
programs, its emphasis on the quality of its service, and the pricing of its
products at competitive rates, there can be no assurance that the Company will
be able to compete effectively in this highly competitive industry, which
could materially adversely affect the Company's business, prospects, financial
condition, and results of operations.
The current level of gains realized by the Company and its competitors on
the origination and sale of sub-prime mortgage loans could attract additional
competitors into this market. Certain large finance companies and conventional
mortgage originators have announced their intention to originate sub-prime
mortgage loans, and
10
<PAGE>
some of these competitors have commenced offering sub-prime loan products to
customers similar to the borrowers targeted by the Company. In addition,
establishing a broker-sourced loan business requires a substantially smaller
commitment of capital and human resources than a direct-sourced loan business.
This relatively low barrier to entry permits new competitors to enter this
market quickly and compete with the Company's wholesale lending business.
Additional competition may lower the rates that the Company may charge
borrowers, thereby potentially lowering the gain on future loan sales.
Increased competition may also reduce the volume of the Company's loan
originations and loan sales and increase the demand for the Company's
experienced personnel. The Company also faces a risk that their personnel will
leave the Company and work for a competitor of the Company.
Government Regulation
The Company's business is subject to extensive and complex rules and
regulations of, and examinations by, various federal, state and local
government authorities. These rules and regulations impose obligations and
restrictions on the Company's loan originations, credit activities and secured
transactions. In addition, these rules limit the interest rates, finance
charges and other fees the Company may assess, mandate extensive disclosure to
the Company's customers, prohibit discrimination and impose multiple
qualification and licensing obligations on the Company. The Company's loan
origination activities are subject to the laws and regulations in each of the
states in which those activities are conducted. The Company's lending
activities are also subject to various federal laws, including the Federal
Truth-in-Lending Act and Regulation Z promulgated thereunder, the
Homeownership and Equity Protection Act of 1994, the Federal Equal Credit
Opportunity Act and Regulation B promulgated thereunder, the Fair Credit
Reporting Act of 1970, the Real Estate Settlement Procedures Act of 1974 and
Regulation X promulgated thereunder, the Fair Housing Act, the Home Mortgage
Disclosure Act and Regulation C promulgated thereunder and the Federal Debt
Collection Practices Act, as well as other Federal and State statutes and
regulations affecting the Company's activities.
These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on prospective borrowers, regulate assessment,
collection, foreclosure and claims handling, regulate investment and interest
payments on escrow balances, regulate payment features, mandate certain
disclosures and notices to borrowers and, in some cases, fix maximum interest
rates, fees and mortgage loan amounts. Failure to comply with these
requirements can lead to loss of approved status by the banking regulators of
the various state governments where the Company operates, demands for
indemnification or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions
by federal and state governmental agencies. See "Business -- Government
Regulation."
Although the Company believes that it has systems and procedures to
insure compliance with these requirements and believes that it is currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations or that more restrictive laws, rules and
regulations will not be adopted in the future that could make compliance
substantially more difficult or expensive. In the event that the Company is
unable to comply with such laws or regulations, its business, prospects,
financial condition and results of operations may be materially adversely
affected.
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans
are made to borrowers for the purpose of consolidating consumer debt or
financing other consumer needs, the competitive advantage of tax deductible
interest, when compared with alternative sources of financing, could be
eliminated or seriously impaired by such government action. Accordingly, the
reduction or elimination of these tax benefits could have a material adverse
effect on the demand for mortgage loans of the kind offered by the Company.
Possible Environmental Liabilities
In the ordinary course of its business, the Company purchases properties
intended for near term rehabilitation and resale. Also, it is possible that
the Company may foreclose on properties securing its mortgage loans.
11
<PAGE>
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or chemical
releases at such property and may be held liable to a governmental entity or
to third parties for property damage, personal injury, and investigation and
clean up costs incurred by such parties in connection with the contamination.
Liability under such laws has been interpreted to be joint and several unless
the harm is divisible, and there is a reasonable basis for allocation of
responsibility. Although the Company has not incurred any losses as a result
of liabilities under environmental laws, there can be no assurance that the
Company will not experience such losses in the future. Such liabilities may
not be covered by any insurance.
Holding Company Structure
PMCC Financial Corp. is a holding company which will conduct all its
operations through its wholly-owned subsidiary, Premier. All of the capital
stock of Premier will be owned by PMCC Financial Corp. Therefore, the Company's
rights to receive revenue is dependent upon the success of Premier and its
subsidiaries. See "Dividend Policy."
Dependence Upon Management
The Company's growth and development is dependent upon the services of
Ronald Friedman, the President of the Company, and Robert Friedman, the
Company's Chief Operating Officer. Ronald Friedman is the son of Robert
Friedman. Both Ronald Friedman and Robert Friedman will enter into employment
agreements upon completion of this Offering that expire on December 31, 1999.
In addition, the Company has attempted to mitigate the risks associated with
its dependence on Ronald Friedman and Robert Friedman by obtaining, owning and
being the sole beneficiary of $3,000,000 and $750,000 key man term life
insurance policies on Ronald Friedman and Robert Friedman, respectively.
Although the Company has been able to hire and retain other qualified and
experienced management personnel, the loss of the services of either Ronald
Friedman or Robert Friedman for any reason could have a material adverse
effect on the Company. See "Management -- Employment Agreements; Key Man Life
Insurance."
Voting Control By Majority Stockholders
Following the consummation of this Offering, Ronald Friedman and his
father, Robert Friedman together will beneficially own 2,500,000 shares of the
outstanding Common Stock, which will represent approximately 67% of the total
number of shares of the outstanding Common Stock (approximately 63.5% of the
total number of shares of the outstanding Common Stock if the over-allotment
option is exercised in full). All of the currently outstanding shares of
Common Stock are beneficially owned or otherwise controlled by Ronald Friedman
and Robert Friedman. Effective upon the completion of this Offering, Ronald
Friedman and Robert Friedman will enter into a stockholders agreement (the
"Stockholders Agreement"), which contains provisions relating to the transfer
and voting of their shares of Common Stock. As a result of such Stockholders
Agreement and stock ownership, such individuals will have effective control of
the Company, and will continue to have the power to control the election of
all of the members of the Company's Board of Directors and to direct the
Company's management and policies. Such persons will be able to control all
shareholder decisions on matters which include the amendment of certain
provisions of the Company's Certificate of Incorporation and By-Laws and the
approval of fundamental corporate transactions. See "Principal Stockholders,"
"Description of Capital Stock -- Common Stock" and "Certain Relationships and
Related Transactions."
Absence of Prior Public Market and Possible Volatility of Stock Price
Prior to this Offering, there has been no public market for the Common
Stock. The Company has made an application to list the Common Stock on the
American Stock Exchange, subject to approval and notice of issuance. However,
there can be no assurance that an active public trading market for the Common
Stock will develop after this Offering or that, if developed, such market will
be sustained. The public offering price of the Shares offered hereby was
determined by negotiations among the Company and the Representative and may
not be indicative of the price at which the Common Stock will trade after this
Offering. See "Underwriting."
12
<PAGE>
The market price of the Shares may experience fluctuations unrelated to
the operating performance of the Company. In particular, the market price of
the Shares may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements and delinquency trends.
Immediate and Substantial Dilution
As of June 30, 1997, the pro forma net tangible book value of the Common
Stock (taking into account the Exchange) was $0.68 per share, substantially
less than the $8.00 per share to be paid by public investors. Upon completion
of this Offering, the net tangible book value will be approximately $2.69 per
share, representing dilution to the public investors of approximately 66%. As
a result, investors purchasing the Shares will incur immediate and substantial
dilution. See "Dilution."
Dividends
The Company has not paid any cash dividends (except that prior to the
Exchange, Premier made S corporation distributions to the Existing
Stockholders) on its Common Stock since its inception and does not currently
anticipate paying dividends on its Common Stock in the foreseeable future. The
Company conducts substantially all of its operations through its subsidiary,
Premier. Accordingly, the Company's ability to pay dividends is also dependent
upon the ability of Premier to make cash distributions to the Company. The
payment of dividends by the Company is and will continue to be restricted by
or subject to, among other limitations, applicable provisions of federal and
state laws, contractual provisions, the earnings of Premier and various
business considerations. See "Dividend Policy."
Shares Available for Future Sale
The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to this Offering, pursuant to
Rule 144 under the Securities Act ("Rule 144") or otherwise, could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. The availability of Rule 144 to the holders of
restricted securities of the Company would be conditioned on, among other
factors, the availability of certain public information concerning the
Company. All of the 2,500,000 shares of Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144 and may, under
certain circumstances, be sold without registration under the Securities Act.
In addition, shares issuable upon exercise of options granted under the Plan,
pursuant to Rule 701 under the Securities Act, could be sold publicly
commencing 90 days after the Company becomes a reporting company under the
Exchange Act. All officers, directors and stockholders of the Company have
executed agreements ("Lock-Up Agreements") pursuant to which they have agreed
not to, directly or indirectly, issue, offer, agree to sell, sell, grant an
option for the purchase or sale of, transfer, pledge, assign, hypothecate,
distribute, or otherwise dispose of, or encumber any shares of Common Stock or
options, rights, warrants, or other securities convertible into, or
exercisable or exchangeable for, or evidencing any right to purchase or
subscribe for, shares of Common Stock, whether or not beneficially owned by
such person, or any beneficial interest therein for a period of 15 months from
the date of this Prospectus. See "Underwriting."
For a period of 15 months from the date of this Prospectus, the Company
has agreed that it will not sell or otherwise dispose of any securities of the
Company without the prior written consent of the Representative, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, during such
period, the Company shall be entitled to issue (i) shares of Common Stock in
connection with mergers and acquisitions, (ii) up to 375,000 shares of Common
Stock issuable upon exercise of options which may be granted under the 1997
Plan, (iii) up to 375,000 shares of Common Stock issuable upon exercise of
options which have been granted under the Premier Plan, and (iv) shares of
Common Stock issuable, directly or indirectly, upon the exercise of the
Representative's Warrants (the "Warrant Shares").
Effects of Certain Anti-Takeover Provisions
Certain provisions of the Company's Amended Certificate of Incorporation
and Delaware Law may be deemed to have an anti-takeover effect. The Company's
Certificate of Incorporation provides that the Board of
13
<PAGE>
Directors may issue additional shares of Common Stock or establish one or more
classes or series of Preferred Stock with such designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations that the Board of Directors shall fix without stockholder
approval. Moreover, the Company's Certificate of Incorporation and By-Laws
provide that its Board of Directors is divided into three classes serving
staggered three year terms, resulting in approximately one-third of the
directors being elected each year and certain other provisions relating to
voting and the removal of the officers and directors. In addition, the Company
is subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Each of the foregoing
provisions may have the effect of rendering more difficult, delaying,
discouraging, preventing or rendering more costly an acquisition of the
Company or a change in control of the Company. See "Description of Capital
Stock -- Anti-Takeover Provisions; Section 203 of the Delaware Corporation
Law."
14
<PAGE>
REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
From January 1992 through the date of this Prospectus, Premier was
treated for federal income tax purposes as an S corporation, and was treated
as an S corporation for certain state corporate income tax purposes under
certain comparable state laws. As a result, Premier's historical earnings
since January 1, 1992 have been taxed directly to Premier's stockholders at
their individual federal and state income tax rates, rather than to Premier.
On the date of the Exchange, pursuant to the terms of a contribution agreement
(the "Contribution Agreement"), the existing Premier stockholders, Ronald
Friedman and Robert Friedman (the "Existing Stockholders"), will contribute
all of the stock of Premier that they beneficially own or otherwise control to
the Company in exchange for an aggregate 2,500,000 shares of Common Stock,
which will constitute all of the stock of the Company outstanding prior to
this Offering. As a result of the Exchange, the Company and Premier, which
will be a wholly owned subsidiary of the Company, will be fully subject to
federal and state income taxes, and the Company will record a deferred tax
liability on its balance sheet. The amount of the deferred tax liability to be
recorded as of the date of termination of Premier's S corporation status will
depend upon timing differences between tax and book accounting. During each of
the years ended December 31, 1994, 1995 and 1996 and for the six months ended
June 30, 1997, Premier has made S corporation distributions to the Existing
Stockholders in the aggregate amounts of approximately $102,000, $150,000,
$267,000 and $216,000, respectively.
Prior to the Exchange, Premier will declare a distribution to the
Existing Stockholders in an amount equal to a portion of its undistributed S
corporation earnings that will result in the Company's shareholders' equity
equaling $1.7 million at the date of the Offering. As of September 30, 1997,
such amount is currently estimated to be approximately $1.5 million. Such
distributions will be payable as follows: (i) $1 million will be payable out
of the proceeds of this Offering, all of which is intended to reimburse the
Existing Stockholders for, or satisfy, approximate tax liabilities associated
with S corporation earnings; and (ii) a promissory note (the "S-Note") in the
aggregate principal amount of approximately $500,000, bearing an interest rate
of 10% per annum, payable in five equal quarterly installments of principal
and interest, with the final payment due on April 1, 1999.
Prior to the Exchange, the Company, Premier and the Existing Stockholders
entered into a tax indemnification agreement (the "Tax Agreement") relating to
their respective income tax liabilities. Because the Company will be fully
subject to corporate income taxation after the termination of the Company's S
corporation status, the reallocation of income and deduction between the
period during which the Company was treated as an S corporation and the period
during which Premier and the Company will be 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 by the Company on the one hand and the Existing Stockholders on the
other only 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 Premier and the Company for a year in which it was treated as an S
corporation, the Company will indemnify the Existing Stockholders, and the
Existing Stockholders will indemnify the Company, against any increase in the
indemnified party's income tax liability (including interest, penalties and
related costs and expenses), with respect to any tax year to the extent such
increase results in a related decrease in the income tax liability of the
indemnifying party for that year. Moreover, the Tax Agreement specifically
provides that the Existing Stockholders will not be responsible for any
portion of any deferred tax liability recorded on the balance sheet of the
Company upon termination of the S corporation status. The Company will also
indemnify the Existing Stockholders for all taxes imposed upon them as a
result of their receipt of an indemnification payment under the Tax Agreement.
Any payment made by the Company to the Existing Stockholders 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 Existing Stockholders or the
Company will have funds available to make any payments which may become due
under the Tax Agreement.
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company, after deducting all of
the expenses of this Offering, will total approximately $8.4 million. The
Company expects that these proceeds will be used, in conjunction with the
Warehouse Facility, to expand mortgage banking operations; to fund future
residential rehabilitation financings; to upgrade the Company's information
systems; for S corporation distributions; repayment of notes payable to
shareholder and for working capital purposes.
The following table summarizes the Company's intended uses of the net
proceeds of this Offering:
<TABLE>
<CAPTION>
Use Amount Percent
--- ------ -------
<S> <C> <C>
Expand mortgage banking operations ..................... $1,500,000 17.86%
Fund future residential rehabilitation financings ...... 1,500,000 17.86%
Upgrade information systems ........................... 500,000 5.95%
S corporation distributions ........................... 1,000,000 11.90%
Repayment of notes payable to shareholder ............ 300,000 3.57%
Working capital ....................................... 3,600,000 42.86%
----------- -------
Total ............................................. $8,400,000 100.00%
=========== =======
</TABLE>
Prior to such use, the remaining net proceeds will be invested in high
quality, short term, interest bearing investment securities and deposit
accounts.
The proceeds of this Offering, together with the Company's existing
capital resources, including the funds from its Warehouse Facility, are
expected to enable the Company to fund its mortgage banking and residential
rehabilitation financing operations for a minimum of 12 months following
completion of the Offering.
Exact application of the net proceeds and timing of use will vary
depending upon numerous factors, including market and competitive issues. Due
to the number and variablity of factors that may effect the Company's use of
the net proceeds, the Company will retain significant discretion over the
actual application of the net proceeds. Accordingly, there can be no assurance
that actual application will not vary substantially from the Company's current
expectation.
DIVIDEND POLICY
The Company has not paid any cash dividends (except that prior to the
Exchange, Premier made S corporation distributions to the Existing
Stockholders) on its Common Stock since its inception and does not currently
anticipate paying dividends on its Common Stock in the foreseeable future. The
Company conducts substantially all of its operations through its subsidiary,
Premier. Accordingly, the Company's ability to pay dividends is also dependent
upon the ability of Premier to make cash distributions to the Company. The
payment of dividends by the Company is and will continue to be restricted by
or subject to, among other limitations, applicable provisions of federal and
state laws, contractual provisions, the earnings of Premier and various
business considerations.
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<PAGE>
DILUTION
As of June 30, 1997, the Company had a pro forma net tangible book value
taking into account the Exchange of approximately $0.68 per share of Common
Stock outstanding. Net tangible book value equals the total assets less
intangible assets and total liabilities divided by the aggregate number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of the Shares offered hereby at an assumed initial public offering
price of $8.00 per share and the application of the net proceeds therefrom,
the pro forma net tangible book value of the Company as of June 30, 1997,
would be approximately $2.69 per share. This represents an immediate increase
in pro forma net tangible book value of $2.01 per share to current
stockholders and an immediate dilution of $5.31 per share to new investors.
The following table illustrates this per share dilution:
Assumed initial public offering price ..................... $8.00
Pro forma net tangible book value before Offering ...... $0.68
Increase attributable to new investors .................. 2.01
-------
Pro forma net tangible book value after Offering ......... 2.69
-----
Dilution to new investors ................................. $5.31
=====
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased, the percentage of total shares of
Common Stock purchased, the total cash consideration paid, the percentage of
total consideration paid, and the average price per share of Common Stock paid
by the investors in this Offering and the current stockholders of the Company:
<TABLE>
<CAPTION>
Shares Purchased Total Cash Consideration Paid Average
----------------------- ----------------------------- Cash Price
Number Percent Amount Percent Per Share
----------- --------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 2,500,000 66.7% $ 718,025.00 6.7% $0.29
New Investors ............... 1,250,000 33.3% $ 10,000,000.00 93.3% $8.00
--------- ------ ---------------- ------
Total .................. 3,750,000 100.0% $ 10,718,025.00 100.0%
========= ====== ================ ======
</TABLE>
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997, adjusted to give effect to the Exchange, and the sale by the
Company of the Shares at an assumed public offering price of $8.00 per share
and the application by the Company of the net proceeds therefrom as described
under "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------
($ in thousands)
Pro Forma As
Actual Pro Forma (1) Adjusted (2)
--------- --------------- -------------
<S> <C> <C> <C>
Debt:
Warehouse Facility .............................. $39,364 $39,364 $39,364
Loans to affiliates ........................... 2,713 2,713 2,713
S corporation distribution payable ............ -- 919 --
Notes payable to shareholder .................. 293 293 --
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and none issued ..................... -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 2,500,000 shares issued and
outstanding, actual and 3,750,000 shares issued
and outstanding, as adjusted (3) .............. 6 6 38
Additional paid-in-capital ..................... 712 712 10,062
Retained earnings (including unrealized gain on
securities available-for-sale of $117.)......... 2,051 982 --
-------- -------- --------
Total shareholders' equity ..................... 2,769 1,700 10,100
-------- -------- --------
Total capitalization ........................ $45,139 $44,989 $52,177
======== ======== ========
</TABLE>
- ------------
(1) Prior to the Exchange, Premier was treated as an S corporation for federal
and state income tax purposes. See "Reorganization and Termination of S
Corporation Status." The pro forma presentation reflects the recording of
a deferred tax liability and distribution of a portion of retained
earnings.
(2) Adjusted to give effect to the sale of the Shares of Common Stock by the
Company at an assumed initial public offering price of $8.00 per share,
and adjusted to give effect to the reclassification of undistributed S
corporation earnings of $982,000 from retained earnings to additional
paid-in-capital.
(3) At June 30, 1997, Premier's capitalization was 3,500 shares authorized,
125 shares outstanding.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the year ended
December 31, 1996, and the selected balance sheet data at December 31, 1996
are derived from the Consolidated Financial Statements of the Company and
Notes thereto audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Company. The following selected statement of operations
data for the years ended December 31, 1993, 1994 and 1995, and the selected
balance sheet data at December 31, 1993, 1994 and 1995 are derived from the
Consolidated Financial Statements of the Company and Notes thereto audited by
Freeberg & Freeberg, independent certified public accountants for the Company.
The following selected statement of operations data for the year ended
December 31, 1992, and the selected balance sheet data at December 31, 1992
are derived from the Consolidated Financial Statements of the Company and
Notes thereto audited by Fein & Fein, independent certified public accountants
for the Company. The Consolidated Financial Statements for the years ended
December 31, 1994, 1995, and 1996 and at December 31, 1995 and 1996 are
included elsewhere herein. The unaudited selected statement of operations data
for the six months ended June 30, 1996 and 1997 and the unaudited selected
balance sheet data at June 30, 1997, are derived from the unaudited
Consolidated Financial Statements of the Company, included elsewhere herein,
which have been prepared on a basis consistent with the audited Consolidated
Financial Statements of the Company and, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of
operations. The results of operations for the interim period presented are not
necessarily indicative of results to be expected for the entire year. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company and Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
-------------------------------------------------------- -------------------------
($ in thousands, except share data)
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ................................. $1,076 $1,464 $1,187 $3,400 $ 7,154 $2,828 $ 5,612
Net income .............................. 231 303 62 196 1,034 331 991
Provision for pro forma income taxes (1) 91 124 18 74 435 139 401
Pro forma net income .................. $ 140 $ 179 $ 44 $ 122 $ 598 $ 192 $ 590
Pro forma net income per share (2) ...... $ 0.24 $ 0.23
Pro forma weighted average number of
common shares and share equivalents
outstanding ........................... 2,500,000 2,547,134
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------- -------------------------
($ in thousands)
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Mortgage loans originated
Conventional (prime credit) (3) ............ $46,700 $51,300 $ 75,400 $33,200 $ 66,700
FHA/VA .................................... -- 19,400 57,700 23,300 28,500
Sub-Prime (B, C, D credit) (3) ............ -- -- -- -- 14,500
-------- -------- --------- -------- ---------
Total dollar amount of loans originated ...... $46,700 $70,700 $133,100 $56,500 $109,700
======== ======== ========= ======== =========
Total number of loans originated ............ 273 470 890 380 738
Average principal balance per loan
originated ................................. $ 171 $ 150 $ 150 $ 149 $ 149
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
($ in thousands)
1992 1993 1994 1995 1996
------ ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Mortgage loans held for sale, net ......... -- $ 32 $ 582 $6,894 $12,713
Real estate held for sale, net ............ -- -- -- -- 3,246
Total assets .............................. $473 574 1,098 8,232 17,153
Borrowings under Warehouse Facility ...... -- -- 557 6,476 13,923
Amount due to affiliates and shareholder ... -- 9 8 465 1,037
Total liabilities ........................ 68 69 633 7,117 15,258
Shareholders' equity ..................... 405 505 465 1,114 1,878
At June 30, 1997
----------------------------------------
Pro Forma Pro Forma
Actual (1) as Adjusted (4)
--------- ----------- ----------------
<S> <C> <C> <C>
Balance Sheet Data:
Mortgage loans held for sale, net ......... $33,766 $33,766 $33,766
Real estate held for sale, net ............ 10,155 10,155 10,155
Total assets .............................. 45,708 45,708 52,896
Borrowings under Warehouse Facility ...... 39,364 39,364 39,364
Amount due to affiliates and shareholder ... 3,006 3,006 2,713
Total liabilities ........................ 42,939 44,008 42,796
Shareholders' equity ..................... 2,769 1,700 10,100
</TABLE>
19
<PAGE>
- ------------
(1) Prior to the Exchange, Premier was treated as an S corporation for federal
and state income tax purposes. See "Reorganization and Termination of S
Corporation Status." The pro forma presentation for statement of
operations data reflects the provision for income taxes as if Premier had
always been a C corporation at assumed effective tax rates ranging from
29% to 42%. The pro forma presentation for balance sheet data reflects the
deferred tax liability and the distribution payable to be recorded as of
the date of the termination of the S corporation status.
(2) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares and share
equivalents outstanding.
(3) For the years 1994, 1995 and 1996 the Company estimates that the sub-prime
loans accounted for less than 5% of the Company's total originations for
those years and are included in conventional loans for those years.
(4) Adjusted to give effect to the sale by the Company of the Shares at an
assumed initial public offering price of $8.00 per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other portions of this Prospectus contain
forward-looking information that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated by
such forward-looking statements. Factors that may cause such differences
include, but are not limited to, those discussed under the heading "Risk
Factors" and elsewhere in this Prospectus. This Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Company's financial statements and results thereto
included elsewhere in this Prospectus.
General
Overview. PMCC Financial Corp. is a specialty consumer financial services
company providing a broad array of residential mortgage products to customers
ranging from prime credit borrowers seeking "conventional" or FHA/VA loans to
persons who cannot so quality, i.e., so-called "B," "C" and "D" or "sub-prime"
credit borrowers making "non-conventional" loans. Since mid-1996, the Company
has expanded and diversified its mortgage banking activities by establishing a
program to provide short-term financing for residential (one to four family)
rehabilitation properties, opening a fully-stated wholesale division and
significantly increasing its "B," "C" and "D" mortgage orginations.
The Company's revenues are primarily generated from the fees it charges on
the origination of mortgage loans, from the premium it receives on the sale of
mortgage loans it originates, and from interest earned during the period the
Company holds the mortgage loan for sale. The Company's mortgage loans,
together with servicing rights to these mortgages, are usually sold without
recourse to institutional investors, in each case within approximately seven to
thirty days of the date of origination of the mortgage. In general, when the
Company establishes an interest rate at the origination of a mortgage loan, it
attempts to contemporaneously lock in an interest yield to the institutional
investor purchasing that loan from the Company. By quickly selling these
mortgage loans, usually on a non-recourse basis, the Company limits its
exposure to interest rate fluctuations and credit risks. Furthermore, by
selling its mortgage loans on a "servicing-released" basis, the Company avoids
the administrative and collection expenses of managing and servicing a loan
portfolio.
The Company has experienced significant growth in recent years,
originating $47 million in mortgage loans in 1994, $71 million in mortgage
loans in 1995, $133 million in mortgage loans in 1996 and $110 million in
mortgage loans in the six months ended June 30, 1997. For the six months ended
June 30, 1997, sub-prime loans originated by the Company accounted for 13% of
its total mortgage originations. For its fiscal years ended December 31, 1995
and 1996 and for the six months ended June 30, 1997, the Company had revenues
of $3.4 million, $7.2 million and $5.6 million, respectively, and net income
of $196,000, $1.03 million and $991,000, respectively.
Results of Operations
Six Months Ended June 30, 1997 and 1996
Revenues. Total revenues increased $2.8 million, or 98%, to $5.6 million
for the six months ended June 30, 1997 from $2.8 million for the six months
ended June 30, 1996. This increase in revenues was primarily attributable to
the following: (a) increased loan originations and sales by the Company's
existing retail offices, (b) loan originations and sales by the Company's New
Jersey wholesale division and New York B-C-D division, which commenced
operations in January 1997 and April 1997, respectively, and (c) fees from
residential rehabilitation financings which commenced in September 1996.
Expenses. Total expenses increased $2.1 million, or 85%, to $4.6 million
for the six months ended June 30, 1997 from $2.5 million for the six months
ended June 30, 1996. This increase in expenses was primarily attributable to
the increased costs associated with additional personnel required to process
the greater volume of originations and greater operating expenses related to
the increase in loan originations during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
Compensation and benefits increased $1.0 million, or 63%, to $2.6 million
for the six months ended June 30, 1997 from $1.6 million for the six months
ended June 30, 1996. This increase was primarily attributable to increased
sales' salaries and commissions, which are based substantially on loan
production. Administrative and support personnel increased from 24 employees
at June 30, 1996 to 41 employees at June 30, 1997.
Broker fees and other loan costs increased $228,000, or 359%, to $292,000
for the six months ended June 30, 1997 from $64,000 for the six months ended
June 30, 1996. This increase was primarily attributable to a substantial
increase in the amount of loans originated by the Company's wholesale division
during this period.
Occupancy and equipment increased $84,000, or 96%, to $171,000 for the
six months ended June 30, 1997 from $87,000 for the six months ended June 30,
1996. Approximately $38,000 of the increase was attributable to increases in
various equipment leases, and the additional increase was the result of recent
expansion of office space, both in New Jersey and New York.
21
<PAGE>
Interest expense increased $425,000, or 151%, to $708,000 for the six
months ended June 30, 1997 from $283,000 for the six months ended June 30,
1996. Of this increase, approximately $267,000 was attributable to the
increase in the volume of mortgage loans funded through the Company's
Warehouse Facility. The remaining increase is primarily attributable to
interest paid to the Company's warehouse banks and the Company's affiliates
relating to real estate rehabilitation financings.
Other operating expenses increased $273,000, or 140%, to $469,000 for the
six months ended June 30, 1997 from $196,000 for the six months ended June 30,
1996. This increase in expenses was primarily attributable to legal,
accounting and professional fees, which increased by $74,000 from the prior
period. The remaining increase was attributable to increased expenses incurred
as part of the growth in the operations of the Company.
Net income increased $660,000, or 199%, to $991,000 for the six months
ended June 30, 1997, as compared to $331,000 for the six months ended June 30,
1996.
Year Ended December 31, 1996 and 1995
Revenues. Total revenues increased $3.8 million, or 110%, to $7.2 million
for the year ended December 31, 1996 from $3.4 million for the year ended
December 31, 1995. This increase was primarily attributable to the following:
(a) increased loan originations and sales for the Company's New York retail
division, which commenced operations, in late 1994, and (b) residential
rehabilitation financings, which commenced in September 1996.
Expenses. Total expenses increased $2.9 million, or 90%, to $6.1 million
for the year ended December 31, 1996 from $3.2 million for the year ended
December 31, 1995. This increase in expenses was primarily attributable to
increased costs associated with additional personnel required to process the
greater volume of originations and greater operating expenses related to the
increase in New York loan originations during the year ended December 31, 1996
as compared to the year ended December 31, 1995.
Compensation and benefits increased $1.6 million, or 78%, to $3.7 million
for the year ended December 31, 1996 from $2.1 million for the year ended
December 31, 1995. This increase was primarily attributable to increased
sales' salaries and commissions, which are based substantially on loan
production. Administrative and support personnel increased from 17 employees
at December 31, 1995 to 33 employees at December 31, 1996.
Advertising and promotion increased $136,000, or 189%, to $207,000 for
the year ended December 31, 1996 from $72,000 for the year ended December 31,
1995. This increase was primarily attributable to the promotional costs
associated with loan origination activities, and, to a lesser extent, direct
marketing and general advertising.
Interest expense increased $594,000, or 242%, to $839,000 for the year
ended December 31, 1996 from $245,000 for the year ended December 31, 1995.
This increase was primarily attributable to the increase in the volume of
loans, substantially all of which were funded through the Company's Warehouse
Facility. Approximately $77,000 of the increase relates to interest paid to
the Company's Warehouse Facility and the Company's affiliates relating to real
estate rehabilitation financing during the period.
Other operating expenses increased $237,000, or 72%, to $564,000 for the
year ended December 31, 1996 from $327,000 for the year ended December 31,
1995. This increase was primarily attributable to the Company's increased
volume of loan originations.
Net income increased $838,000, or 429%, to $1.0 million for the year
ended December 31, 1996 from $196,000 for the year ended December 31, 1995.
Year Ended December 31, 1995 and 1994
Revenues. Total revenues increased $2.2 million, or 187%, to $3.4 million
for the year ended December 31, 1995 from $1.2 million for the year ended
December 31, 1994. This increase in revenues was primarily attributable to the
increase in loan originations relating to the opening and expansion of the New
York retail division in late 1994. The increase in 1995 loan originations was
also attributable to the more favorable interest rate and economic environment
in 1995 from 1994.
22
<PAGE>
Expenses. Total expenses increased $2.1 million, or 184%, to $3.2 million
for the year ended December 31, 1995 from $1.1 million for the year ended
December 31, 1994. This increase in expenses was primarily attributable to
increased costs associated with additional personnel required to process the
greater volume of originations and greater operating expenses related to the
increase in loan originations during the year ended December 31, 1996 as
compared to the year ended December 31, 1995.
Compensation and benefits increased $1.4 million, or 192%, to $2.1
million for the year ended December 31, 1995 from $709,000 for the year ended
December 31, 1994. This increase was primarily attributable to increased
sales' salaries and commissions which are based substantially on loan
production. Administrative and support personnel increased from 7 employees at
December 31, 1994 to 17 employees at December 31, 1995.
Interest expense increased $225,000 to $245,000 for the year ended
December 31, 1995 from $20,000 for the year ended December 31, 1994. During
1994 almost all of the Company's originations were funded directly by the
Company's investors at closing (table funding). During 1995, the Company
utilized its Warehouse Facility for substantially all of its loan
originations.
Other operating expenses increased $189,000, or 137%, to $327,000 for the
year ended December 31, 1995 from $138,000 for the year ended December 31,
1994. This increase in expenses was primarily attributable to the Company's
increased volume of loan originations in 1995.
Net income increased $134,000, or 215%, to $196,000 for the year ended
December 31, 1995 from $62,000 for the year ended December 31, 1994.
Liquidity and Capital Resources
The Company's principal financing needs consist of funding its mortgage
loans and its residential rehabilitation financings. To meet these needs, the
Company currently relies on borrowings under the Warehouse Facility,
borrowings from affiliates and cash flow from operations. At June 30, 1997
maximum permitted borrowings under the Warehouse Facility were $48 million and
the amount of such outstanding borrowings was $39.4 million. At June 30, 1997,
borrowings from affiliates amounted to $2.7 million. Borrowings under the
Warehouse Facility are secured by the mortgage loans funded with the proceeds
of such borrowings. Approximately $2.3 million of borrowings from affiliates
were secured by mortgages on the properties for which monies were borrowed.
Under the Borrowing Agreement, the interest rate charged for borrowings
is LIBOR plus 2 1/4% on fixed loans and LIBOR plus 2% on adjustable rate
mortgages. The Borrowing Agreement expires on May 31, 1998 and is funded by
two commercial banks. The Borrowing Agreement contains certain covenants
limiting indebtedness, liens, mergers, changes in control and sales of assets,
and requires the Company to maintain minimum net worth and other financial
ratios. The Company expects to be able to renew or replace the Borrowing
Agreement when its current term expires. See "Business -- Loan Funding and
Borrowing Arrangements."
Since August 1996, the Company utilized a certain short-term loan
purchase program under the terms of the Gestation Agreement provided by one of
the banks providing the Borrowing Agreement. The Gestation Agreement contains
a limit on the dollar amount of purchases by the bank ($20 million at
September 30, 1997), and the bank has discretion with regard to which Company
loans it will purchase. The Gestation Agreement may be terminated by either
party at any time. The Company believes that other financial institutions
provide similar funding programs and, in the event its current Gestation
Agreement terminates, the Company believes it will be able to enter into
similar arrangements without disruption of the Company's business. See
"Business -- Loan Funding and Borrowing Arrangements."
Since September 1, 1996, the Company has borrowed funds from three
corporations owned by Ronald Friedman and Robert Friedman to provide funding
for residential rehabilitation financings and for working capital purposes.
Following this Offering, the Company does not expect to borrow additional
funds from these affiliated entities, or any other entities owned or
controlled, either directly or indirectly, by Ronald Friedman or Robert
Friedman. See "Certain Relationships and Related Party Transactions".
The Company sells its loans to various institutional investors. The terms
of these purchase arrangements vary according to each investor's purchasing
requirements; however, the Company believes that the loss of any one or group
of such investors would not have a material adverse effect on the Company.
23
<PAGE>
The Company expects to increase its production of mortgage originations
through greater emphasis on B-C-D loans, expansion of wholesale operations and
expansion into new geographic markets. The Company believes that wholesale
lending represents a cost-effective means by which the Company may expand
into, and develop a presence in, new market areas. See "Business." This
anticipated increase in production of mortgage originations is expected to be
funded by additional borrowings under the Warehouse Facility, increased
capital resulting from this Offering and funds provided from operations. To
the extent that additional borrowings under the Warehouse Facility are not
available on satisfactory terms, the Company will explore alternative means of
financing, including raising capital through additional offerings of
securities. The proceeds of this Offering, together with the Company's
existing capital resources, including the funds from its Warehouse Facility,
are expected to enable the Company to fund its mortgage banking and
residential rehabilitation financing operations for a minimum of 12 months
following completion of the Offering.
Recent Accounting Pronouncements -- SFAS 128, SFAS 129, SFAS 130 and SFAS 131
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 (SFAS 128"), "Earnings Per Share." SFAS 128 is effective for
periods ending after December 15, 1997 and establishes standards for computing
and presenting earnings per share ("EPS") for entities with publicly held
common stock and common stock equivalents. The statement simplifies the
computations of EPS that were previously found in APB Opinion No. 15 "Earnings
Per Share" and replaces primary EPS with basic EPS and fully diluted EPS with
diluted EPS. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
all common stock equivalents were converted. This statement requires a
reconciliation of the numerator and denominator of the two EPS calculations
and the restatement of all prior period EPS data presented after adoption. The
Company has not yet determined the impact SFAS 128 will have on its financial
statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital
Structure." SFAS 129 is effective for periods ending after December 15, 1997.
The Statement consolidates the disclosure requirements related to an entity's
capital structure that were previously contained in APB Opinions No. 10,
"Omnibus Opinion -- 1996," and No. 15 "Earnings Per Share," and Financial
Accounting Standards No. 47, "Disclosure of Long Term Obligations." The
Company has not yet determined the impact SFAS 129 will have on its financial
statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), Reporting Comprehensive Income." SFAS 130 is effective
for years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes.
The statement establishes standards for reporting and display of comprehensive
income and its components. This statement requires that all items that are
required to be recognized as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company has not yet determined the impact SFAS
130 will have on its financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company has not yet
determined the impact SFAS 131 will have on its financial statements.
Termination of S Corporation and Status of Income Taxes
Upon the effective date of the Offering, the Existing Stockholders,
pursuant to the terms of the Contribution Agreement, will contribute their
shares of capital stock of Premier to the Company in exchange for 2,500,000
shares of Common Stock, which constitute all of the shares of Common Stock
outstanding prior to this Offering. Simultaneous with the Exchange, Premier
will cease to be treated as an S corporation.
24
<PAGE>
As an S corporation, the Company's income, whether or not distributed, is
taxed at the shareholder level for federal and state tax purposes. As a result
of the Exchange, the Company and Premier, which will become a wholly-owned
subsidiary of the Company, will be fully subject to federal and state income
taxes, and the Company will record a deferred tax liability on its balance
sheet. The amount of deferred tax liability to be recorded as of the date of
termination of the S corporation status will depend upon timing differences
between tax and book accounting principally relating to the recognition of
income on the cash basis for tax purposes. The pro forma provision for income
taxes in the accompanying statements of operations shows results as if the
Company had always been fully subject to federal and state taxes at an assumed
rate ranging from 29% to 42%.
25
<PAGE>
BUSINESS
General
PMCC Financial Corp. is a specialty consumer financial services company
providing a broad array of residential mortgage products to customers ranging
from prime credit borrowers seeking "conventional" or FHA/VA loans to persons
who cannot so qualify, i.e., so-called "B," "C" and "D" or "sub-prime" credit
borrowers seeking "non-conventional" loans. Since mid-1996, the Company has
expanded and diversified its mortgage banking activities by establishing a
program to provide short-term financing for residential (one to four family)
rehabilitation properties, opening a fully-staffed wholesale division and
significantly increasing its "B," "C" and "D" mortgage originations.
The Company's primary business objectives are to enhance its growth, to
continue to offer a full range of mortgage products to all types of borrowers
and to generate positive cash flow by selling substantially all originated
loans for cash to institutional investors, usually without recourse, within a
short period after such loans are originated, thereby reducing exposure to
interest rate and credit risks.
The Company has experienced significant growth in recent years,
originating $47 million in mortgage loans in 1994, $71 million in mortgage
loans in 1995, $133 million in mortgage loans in 1996 and $110 million in
mortgage loans in the six months ended June 30, 1997. For the six months ended
June 30, 1997, sub-prime loans originated by the Company accounted for 13% of
its total mortgage originations. For its fiscal years ended December 31, 1995
and 1996 and for the six months ended June 30, 1997, the Company had revenues
of $3.4 million, $7.2 million and $5.6 million, respectively, and net income
of $196,000, $1.03 million and $991,000, respectively.
The Company originates residential first mortgages in New York and New
Jersey by a staff of 27 experienced retail loan officers (as of June 30, 1997)
who obtain customers through referrals from local real estate agents,
builders, accountants, financial planners and attorneys, as well as from
direct customer contact via advertising, direct mail and promotional
materials. The Company's wholesale division originates mortgage loans through
independent mortgage bankers and brokers, who submit applications to the
Company on behalf of a borrower. For the six months ended June 30, 1997,
approximately 68% of the Company's mortgage originations were derived from its
retail mortgage operations and approximately 32% from its wholesale
operations.
The Company's revenues are primarily generated from the fees it charges
on the origination of mortgage loans, from the premium it receives on the sale
of mortgage loans it originates, and from interest earned during the period
the Company holds the mortgage loan for sale. The Company's mortgage loans,
together with servicing rights to these mortgages, are usually sold without
recourse to institutional investors, in each case within approximately seven
to thirty days of the date of origination of the mortgage. In general, when
the Company establishes an interest rate at the origination of a mortgage
loan, it attempts to contemporaneously lock in an interest yield to the
institutional investor purchasing that loan from the Company. By quickly
selling these mortgage loans, usually on a non-recourse basis, the Company
limits its exposure to interest rate fluctuations and credit risks.
Furthermore, by selling its mortgage loans on a "servicing-released" basis,
the Company avoids the administrative and collection expenses of managing and
servicing a loan portfolio.
The Company also generates revenue by charging fees to provide short-term
financing for the purchase, rehabilitation and resale of vacant one-to-four
family residences in New York City and Long Island, New York. The Company
conducts this activity in combination with several independent real estate
agencies who specialize in the rehabilitation and marketing of these
properties. From the commencement of this activity on September 1, 1996
through December 31, 1996, the Company completed 35 transactions accounting
for approximately $284,000 of revenue. During the first six months of 1997,
the Company completed 60 such transactions, accounting for approximately
$553,000 of revenue. At June 30, 1997, the Company owned 113 properties in
various stages of rehabilitation.
The growth of the Company's mortgage lending to "B," "C" and "D" credit
borrowers reflects the establishment, in April 1997, of the Company's
sub-prime lending division with experienced personnel, increased customer
demand for sub-prime mortgage products and the availability of capital to the
Company for these mortgage banking products. In most cases, "B," "C" and "D"
credit borrowers have substantial equity in their residences and while
26
<PAGE>
some of these sub-prime customers have impaired credit, such customers also
include individuals who seek an expedited mortgage process, and persons who
are self-employed or, due to other circumstances, have difficulty verifying
their income. The Company believes that the demand for loans by "B," "C" and
"D" credit customers is less dependent on general levels of interest rates or
home sales and therefore less cyclical than conventional mortgage lending. The
Company's sub-prime mortgage lending activity is subject to certain risks,
including risks related to the significant growth in the number of sub-prime
lenders in recent years, risks related to certain potential competition (see
"Risk Factors -- Competition"), and risks related to the industry's focus on
credit impaired borrowers (see "Risk Factors -- Risks of Mortgage Lending to
Sub-Prime Borrowers").
Growth Strategy
The Company's growth strategy includes the following elements:
o increase the Company's "B," "C" and "D" mortgage originations through
recruitment of experienced salespersons and acquire mortgage brokers or
mortgage banks in the Northeast who specialize in mortgage products for
this target market. The Company believes that acquisitions of mortgage
brokers and bankers who specialize in sub-prime mortgage products in
particular local markets is a cost-effective way of reaching new
customers. The Company has no present plans, agreements or arrangements
with respect to any acquisition, but intends to pursue one or more of
such acquisitions within the 12 month period following the closing of the
Offering.
o increase the Company's wholesale mortgage origination business in New
York and expand into other states. Prompt and consistent service to
independent mortgage loan brokers who are sources of wholesale loan
transactions is a key to the Company increasing its wholesale mortgage
originations and establishes the basis for repeat business and referrals
from these brokers. The Company believes that its broad range of mortgage
alternatives for most classifications of borrowers and its ability to
promptly make decisions provides it with the opportunity to increase this
aspect of its business in the New York and New Jersey markets and in
other markets in which it intends to expand;
o expand the Company into Connecticut, Pennsylvania, Florida and
Maryland. Over the next 12 months, the Company intends to open at least
four "retail" sales offices (i.e., offices intended to deal directly with
potential borrowers) in these states, although it has not yet identified
the exact locations of these additional offices. This expansion activity
will be based on the Company's ability to recruit experienced loan
officers and other qualified personnel in particular markets. The
expansion costs for new sales offices are generally mitigated by leasing
short-term executive suite space until revenues are generated by the
office, at which time the Company leases permanent space. Controlling the
costs of expansion permits the Company to enter and, if necessary, exit
new geographic markets quickly with limited financial impact. The
Company's goal is for each such office to achieve break-even operations
within six months after opening;
o expand the Company's residential rehabilitation financing activities
outside of New York City and Long Island, New York. The Company believes
that opportunities exist in other locations within New Jersey and the New
York metropolitan area to provide fee-based short-term financing for
residential rehabilitation properties. In some cases, this funding would
be provided to one of the specialized real estate companies with which
the Company already does business, while in other cases, the Company may
elect to work with companies it has not done business with in the past;
The Company views its residential rehabilitation financings as important
sources of fee business and follow-on mortgage origination business; and
o recruit additional key personnel. The Company continues to seek to
hire experienced mortgage loan and operations personnel, particularly
with experience in sub-prime mortgage originations. The Company views its
employees as key to its growth, and believes it offers compensation
packages that will both attract new employees and retain existing ones.
There can be no assurance as to the specific time-frame concerning when
the Company will implement any elements of its growth strategy, whether the
Company will be successful in implementing this strategy or whether the
implementation of this strategy will result in increased revenue or income to
the Company.
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Operating Strategy
The Company's operating strategy to accomplish the Company's growth
involves:
Continuing to Provide Quality Service. The Company seeks to provide high
levels of service to its retail customers and the broker network that is a
source of wholesale loan originations. This service includes prompt
preliminary approval of loans, consistent application of the Company's
underwriting guidelines and funding of loans promptly. To provide this level
of service, each loan is handled by a team of professionals that includes
experienced loan sales personnel, processors and underwriters. The Company
believes that this commitment to service provides it with a competitive
advantage in establishing and maintaining a productive sales force and
satisfactory broker relationships.
Maintaining Underwriting Standards. The Company's underwriting process is
designed to thoroughly, expeditiously and efficiently review and underwrite
each prospective loan, and to insure that each such loan can be sold to a
third-party investor by conforming to its requirements. The Company employs
seven underwriters, with an average of twelve years of relevant mortgage loan
experience, to ensure that all originated loans satisfy the Company's
underwriting criteria. Each loan is reviewed and approved by one senior
underwriter. The Company believes that its experienced underwriting staff
provides it with the infrastructure required to manage and sustain the
Company's recent growth, while maintaining the quality of loans originated.
Broadening Product Offerings. The Company frequently reviews its pricing
and loan products relative to its competitors and introduces new loan products
in order to meet the needs of its customers who may be "retail" customers and
brokers who are sources of wholesale loan originations. The Company
successfully negotiates master commitments from its investors for special
niche products (i.e., no income/no asset, no ratio, high ratio, etc.) which
are only offered to a limited number of companies nationwide. The Company
intends to continue to negotiate these specialized master commitments to allow
the Company to offer exceptional niche products that are only offered to a
limited amount of companies nationwide.
Delegated Underwriting Approval Status. The Company seeks to provide a
high level of service to its retail and wholesale accounts, by having internal
authority to approve a large portion of the loans it sells. In addition to
FNMA, FHLMC, FHA and jumbo loans, the Company also has been delegated
authority by certain institutional investors to approve many of the Company's
niche products. The Company has provided training for its processors and
underwriters to efficiently review each file for compliance with investor
guidelines. The Company believes that its delegated authority to make most
loans provides it with a competitive advantage because it allows the Company
to provide additional services to its borrowers and correspondents.
Investing in Information Systems. In its continued effort to increase
efficiency, the Company plans to upgrade its information systems in 1998. The
Company intends to continually look for ways to improve efficiencies through
automation.
Mortgage Products Offered
The Company believes it is one of a small group of multi-state mortgage
bankers that offer on a direct (or "retail") basis a broad array of mortgage
products to prime credit borrowers (i.e., a credit-rated borrower seeking a
conventional or FHA/VA insured loan), and borrowers who are unable to qualify
for conforming home mortgages (i.e., the "B," "C" and "D" credit-rated, or
sub-prime borrower). The Company's experience and expertise in numerous types
of mortgage products also gives it the ability to originate a full range of
mortgage products on a wholesale basis.
The following are examples of the more than 200 mortgage programs offered
to the prime credit and sub-prime credit borrowers:
o Fixed interest rate mortgages with a fixed monthly payment; this loan
is fully amortizing over a given number of years (for example, 15 or
30 years); a portion of the monthly payment covers both interest and
principal.
o Fixed interest rate balloon mortgages with equal monthly payments are
based on a long-term schedule (15 to 30 years), yet payment of the
outstanding balance is due in full at an earlier date (5 to 10
years).
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o Adjustable interest rate mortgages ("ARMs") repayable over 7 to 30
years with monthly payments adjusted on a periodic basis (i.e., six
months or once a year) based upon interest rate fluctuations.
ARMs offer additional alternatives:
o Adjustment period -- This determines when the first interest rate and
payment changes will take place; an ARM could make its initial
adjustments after six months, one year, three years, five years, or
ten years, and subsequent adjustments take place either every six
months or one year thereafter.
o Caps -- "Caps" place limits on payments and interest rate changes per
adjustment period. For example, for an ARM that adjusts every year,
the maximum increase in the interest rate on the adjustment date is
typically 200 basis point per year (i.e., a mortgage would adjust
from 7% to 9%) and 600 basis points for the life of the loan.
o Index -- The index is the basis upon which interest rate adjustments
are made; typically it is related to various Treasury bill rates or
another widely published rate such as LIBOR.
Mortgages are also offered with a variety of combinations of interest
rates and origination fees so that its customers may elect to "buy-down" the
interest rate by paying higher points at the closing or pay a higher interest
rate and reduce or eliminate points payable at closing. The Company's mortgage
products are further tailored, i.e., are offered with varying down payment
requirements, loan-to-value ratios, and interest rates, to a borrower's
profile based upon the borrower's particular credit classification and the
borrower's willingness or ability to meet varying income documentation
standards -- the full income documentation program pursuant to which a
prospective borrower's income is evaluated based on tax returns, W-2 forms and
pay stubs; the limited income documentation program pursuant to which a
prospective borrower's income is evaluated based on bank statements and profit
and loss statements; the stated income program pursuant to which a prospective
borrower's employment, rather than income, is verified; or the no ratio loan
program pursuant to which a prospective borrower's credit history and
collateral values, rather than income or employment, are verified. These loan
variations give the Company the flexibility to loan funds to a wider range of
borrowers.
FHA/VA Mortgages. The Company has been designated by the U.S. Department
of Housing and Urban Development ("HUD") as a direct endorser of loans insured
by the Federal Housing Administration ("FHA") and an automatic endorser of
loans partially guaranteed by the Veterans Administration ("VA"), and can
offer so-called "FHA" or "VA" mortgages to qualified borrowers. Generally
speaking, FHA and VA mortgages are available to borrowers with low/middle
incomes and impaired credit classifications for properties within a specific
price range (generally less than $160,950 for one-family residences or
$205,912 for two-family residences located in the New York City metropolitan
area). FHA mortgages must be underwritten within specific governmental
guidelines, which include income verification, borrower asset, borrower credit
worthiness, property value and property condition. Because these guidelines
require that borrowers seeking FHA-insured mortgages submit more extensive
documentation and the Company perform a more detailed underwriting of the
mortgage than prime credit mortgages, the Company's origination fees for these
mortgages are generally higher than a comparable sized mortgage from an prime
credit borrower.
Credit Classifications for Sub-Prime Borrowers
The Company has established credit classifications for sub-prime
borrowers "B+" through "D" -- including subratings within those categories --
based on the credit profiles of the applicant and a credit scoring model.
These classifications are determined by factors that include the applicant's
credit history, the loan-to-value ratio, the applicant's employment status,
the applicant's income (and verification thereof), and the applicant's
debt/income ratio. The Company believes its classifications are generally
consistent with established industry-wide practices utilized by third-party
investors to create and maintain a substantial liquid secondary market for
these mortgages. The significance of these classifications is that mortgages
for sub-prime borrowers typically carry higher origination fees and higher
interest charges than conventional mortgages, and are, therefore,
significantly more profitable to the Company than conventional and/or FHA/VA
mortgages.
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The following table shows mortgage loan production volume by type of loan
for each of the three years ended December 31, 1996 and six months ended June
30, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30
------------------------------------------ ---------------------------
($ in thousands) ($ in thousands)
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Conventional Loans:
Volume .................. $ 46,700 $ 51,300 $ 75,400 $ 33,200 $ 66,700
Percentage of total volume 100% 72.6% 56.7% 58.8% 60.8%
FHA/VA Loans:
Volume .................. -- $ 19,400 $ 57,700 $ 23,300 $ 28,500
Percentage of total volume -- 27.4% 43.3% 41.2% 26.0%
Sub-Prime Loans:
Volume .................. * * * * $ 14,500
Percentage of total volume * * * * 13.2%
Total Loans:
Volume .................. $ 46,700 $ 70,700 $133,100 $ 56,500 $109,700
Number of Loans ......... 273 470 890 380 738
Average Loan Size ...... $ 171 $ 150 $ 150 $ 149 $ 149
</TABLE>
- ------------
*Indicates less than 5% of the Company's originations
Operations
Markets. The Company currently services mortgage customers in New York
State (particularly in New York City and throughout Long Island) and New
Jersey through three offices. Additionally, the Company has mortgage banking
licenses in Connecticut and Florida. Within the next 12 months, the Company
intends to open four additional retail offices in New York, Pennsylvania and
Maryland and will open other retail offices as opportunities present
themselves. These offices will allow the Company to focus on developing
contacts with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. The Company will seek to
increase its wholesale mortgage originations through its existing offices and
by obtaining licenses in approximately 10 additional states within the next
year. The Company intends to expand its residential rehabilitation financing
activities through its existing and future agency relations.
The Company also expects to expand into selected geographic markets
through acquisitions of mortgage banking/mortgage broker businesses that have
established niches in such areas. The Company believes these acquisitions are
a cost-effective strategy for increasing mortgage originations, and is
particularly interested in businesses in the Northeast and mid-Atlantic Region
that specialize in mortgage products for "B," "C" and "D" customers.
Retail Mortgage Originations. The Company's typical retail customer is
assigned to one of the Company's mortgage loan officers working at one of the
Company's offices who will spend approximately one hour interviewing the
applicant about his/her mortgage borrowing needs and explaining the Company's
mortgage product alternatives. Following this interview, the mortgage loan
officer assists the customer in completing an application and assists the
customer in supplying supporting documentation (a "loan file") that allows the
Company's loan processing department to make an initial determination as to
the Company's ability to offer the customer an appropriate mortgage. Once the
loan file is submitted, a sales manager reviews the file to verify that
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the loan complies with a specific product that the Company can resell to
institutional investors. The Company assigns a loan processor to review a file
for completeness and requests missing documentation from the borrower. The
Company's review of a loan file and the related underwriting process generally
includes matters such as verification of an applicant's sources of down
payment, review of an applicant's credit report from a credit reporting
agency, receipt of a real estate appraisal, verification of the accuracy of
the applicant's income and other information, and compliance with the
Company's underwriting criteria and those of either FHA and/or institutional
investors. The Company's review/underwriting process allows it to achieve
efficiency and uniformity in processing, as well as quality control over all
such loans. In the case of prime and FHA/VA mortgages, the underwriting
process occurs at the Company's offices in Roslyn, New York and Union, New
Jersey, while sub-prime loans are separately processed and underwritten at the
Company's office in Roslyn, New York.
When a loan reaches the underwriting department, the Company's goal is to
promptly evaluate the loan file to reach preliminary decisions within 24 to 48
hours of receipt. After a loan has been approved, the Company issues a written
loan commitment to the applicant which sets forth, among other things, the
principal amount of the loan, interest rate, origination and/or closing fees,
funding conditions and approval expiration dates.
Approved applicants have a choice of electing to "lock-in" their mortgage
interest rate as of the application date or thereafter or to accept a
"prevailing" interest rate. A "prevailing" interest rate is subject to change
in accordance with market interest rate fluctuations and is set by the Company
three to five days prior to closing. At the closing, a Company-retained
attorney or closing agent is responsible for completing the mortgage
transaction in accordance with applicable law and the Company's operating
procedures and completion of appropriate documentation.
As a "retail" mortgage originator, the Company performs all the tasks
required in the loan origination process, thereby eliminating any
intermediaries from the transaction. This permits the Company to maximize fee
income and to be a low cost provider of mortgage loans. This structure
provides the Company with a competitive advantage over mortgage brokers, who
must outsource a significant portion of the loan origination process, and over
banks, which usually have greater overhead expenses than the Company. In
addition, handling the entire loan origination process in-house leads to
effective quality control and better communication among the various personnel
involved.
Wholesale Mortgage Operations. Wholesale mortgage originations are the
responsibility of the Company's wholesale division, which solicits referrals
of borrowers from a network of approximately 75 independent mortgage bankers
and brokers located throughout New York and New Jersey. In wholesale
originations, these mortgage bankers and brokers deal directly with the
borrowers assisting the borrower in collecting all necessary documents and
information for a complete loan application, and serving as a liaison to the
borrower throughout the lending process. The mortgage banker or broker submits
this fully processed loan application to the Company for underwriting
determination.
The Company reviews the application of a wholesale originated mortgage
with the same underwriting standards and procedures used for retail loans,
issues a written commitment, and upon satisfaction of all lending conditions,
closes the mortgage with a Company-retained attorney or closing agent who is
responsible for completing the transaction as if it were a "retail" originated
loan. Mortgages originated from the wholesale division are sold to
institutional investors similar to those that purchase loans originated from
the Company's "retail" operation.
Mortgage brokers may submit individual loan files to several prospective
lenders simultaneously, and the Company attempts to respond to an application
as quickly as possible. Since the Company has been delegated authority from
institutional investors to make most loans, the Company generally issues an
underwriting decision within 24-48 hours of receipt of a file.
The Company works with approximately 75 mortgage bankers and brokers on a
regular basis. The Company conducts due diligence on potential mortgage
bankers and brokers, including verifying financial statements of the company
and credit checks of principals, business references provided by the bankers
or brokers and verifying through the banking department that the mortgage
banker or broker is in good standing. Once approved, the Company requires that
each mortgage banker or broker sign an agreement of purchase and sale in which
the
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mortgage banker and broker makes representations and warranties governing both
the mechanics of doing business with the Company and the quality of the loan
submissions. In addition, the Company regularly reviews the performance of
loans originated through mortgage bankers or brokers.
Through the Wholesale Division, the Company can increase its loan volume
without incurring the higher marketing, labor and other overhead costs
associated with increased retail originations because brokers conduct their
own marketing and employ their own personnel to attract customers, to assist
the borrower in completing the loan application and to maintain contact with
borrowers.
Residential Rehabilitation Financings. In September 1996 the Company
commenced a program of providing short-term fee based financing to several
real estate companies (the "Agents") with specialized expertise in the
acquisition, rehabilitation and resale of vacant one-to-four family homes in
New York City and Long Island. These properties are generally offered to the
Agents by banks or other mortgage companies that have acquired title and
possession through a foreclosure proceeding. The Company's process of
providing this short-term financing commences when an Agent submits
information about a property to the Company which the Agent believes meets the
Company's rehabilitation financing criteria. If the Company agrees to finance
the rehabilitation of the property, it will fund the purchase of the property
in its own name up to 70% of the appraised value. The terms of these financing
agreements with the Agents (the "Agent Agreement") provide that all risks
relating to the ownership, marketing and resale of the property are borne by
the Agent, including obtaining insurance on the property, maintaining the
property and arranging for all aspects of offering and selling the property to
potential buyers and renovating the property to the satisfaction of the buyer.
The Agent Agreements also provide that the Company's fee which averages
approximately $9,000 for providing the financing, is a priority payment after
payment of the funds advanced by the Company, over any monies paid to the
Agent. The Agents and their principals personally guaranty reimbursement of
all costs and the total fee payable to the Company. The properties funded by
the Company through the residential rehabilitation program are generally
acquired at prices between $60,000 and $100,000 each, and the
renovation/rehabilitation expenses (which are borne by the Agent) are usually
between $10,000 and $20,000 per property. The period when these properties are
acquired and sold generally ranges from between two to four months and the
Company's fee increases if a property is not sold in this time frame.
From inception of the program in September 1996 through June 30, 1997,
the Company has completed 95 such residential rehabilitation financings with
four different Agents. The Company has financed 76 of these financings with
the Foreclosure Network and the remaining 19, with three other agents. At June
30, 1997, 20 residential rehabilitation properties had not been sold within
four months of purchase, but were subsequently sold or under contract for
sale. At June 30, 1997, the Company had 113 properties in various stages of
rehabilitation for an aggregate financing amount of $10 million, including
advances to Agents for a portion of their cost of performing the
rehabilitation work.
The Company's arrangement with these Agents is not exclusive, although
the Company does encourage the Agents to provide the Company with a "first
right" of providing funding for each property the Agent has identified. The
Company has investigated each Agent and is satisfied that their financial
condition and business reputation is acceptable. As the Company opens
additional retail offices, it will consider providing residential
rehabilitation financing in these areas.
The Company believes its residential rehabilitation financing program
serves as an additional source of mortgage originations since purchasers of
such properties all seek mortgage financings and are encouraged to submit
applications to the Company. Of the 95 properties acquired and resold through
June 30, 1997, more than 90% of the buyers of such properties obtained
mortgages originated by the Company. The process by which these mortgages were
processed and underwritten was identical to the Company's procedures for
reviewing and underwriting mortgages originated from retail or wholesale
sources, and each of these mortgages was sold to third party investors in the
normal course of the Company's business.
Loan Funding and Borrowing Arrangements
The Company has funded its mortgage banking and residential
rehabilitation financing activities through fundings described below
consisting of a collaterialized borrowing agreement (the "Borrowing
Agreement") and a short-term mortgage purchase agreement (the "Gestation
Agreement", and together with the Borrowing Agreement, the "Warehouse
Facility") and its ability to continue to originate mortgage loans and provide
residential rehabilitation financings is dependent on continued financings on
acceptable terms.
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The Company's collateralized Borrowing Agreement with two commercial
banks commenced in July 1997, and was amended on September 30, 1997 to allow
the Company to borrow up to $50 million to finance its mortgage banking
operations. These borrowings are repaid with the proceeds received by the
Company from the sale of its originated loans to institutional investors or,
in the case of residential rehabilitation financing activities, from the
proceeds from the sale of the properties. The Company is required to comply
with certain financial covenants and the borrowings are guaranteed by both
Ronald Friedman and Robert Friedman. As of September 30, 1997, total
borrowings outstanding under the Borrowing Agreement were $26 million. The
Company's collateralized Borrowing Agreement with these two banks expires on
May 31, 1998, and is terminable by the banks at any time without cause, upon
sixty (60) days notice to the Company.
The Borrowing Agreement requires the Company to repay the amount it
borrows to fund a loan generally within 60-90 days after the loan is closed or
when the Company receives payment from the sale of the funded loan, whichever
occurs first. Until the loan is sold to an investor and repayment of the loan
is made under the Borrowing Agreement, the Borrowing Agreement provides that
the funded loan is pledged to secure the Company's outstanding borrowings.
Interest payable on fixed loans is LIBOR plus 2 1/4% per year; while interest
payable on adjustable rate mortgages is LIBOR plus 2% per year.
Since August 1996, one of the commercial banks that provides the
collateralized Borrowing Agreement has supplemented this lending facility
through a short-term mortgage purchase agreement (the "Gestation Agreement"),
which for financial reporting is characterized by the Company as an additional
borrowing transaction. The Gestation Agreement provides the Company up to $20
million of additional funds for loan originations through the Company's sale
to this bank of originated mortgage loans previously funded under the
collateralized borrowing and committed to be sold to institutional investors.
Under the Gestation Agreement the Company is required to arrange for the
institutional investors to take delivery of the loans, generally within 20
days of their sale to the bank, otherwise it is required to repurchase the
loan. As of September 30, 1997, total fundings under this Gestation Agreement
were $20 million. The bank has discretion as to the amounts of loan purchases
it is willing to make and the Gestation Agreement is terminable by the bank at
any time.
From time to time, the Company has borrowed from three affilated
corporations owned by Ronald Friedman and Robert Friedman. The maximum
borrowings from these affiliates were approximately $3 million in May 1997. As
of June 30, 1997, $2.7 million remained outstanding, of which $2.3 million is
secured by a mortgage against the residential properties in rehabilitation
pursuant to a mortgage agreement. As the residential property is sold, the
proceeds are used to repay the mortgage on the particular property. Interest
payable pursuant to this agreement is 10% per year. The remaining $400,000
loaned to the Company by the three affiliates was loaned to the Company for
working capital purposes, evidenced by a promissory note. This note is due 90
days after the effective date of the Registration Statement, at such time as
the Company has reported cumulative net earnings after taxes exceeding
$500,000 subsequent to December 31, 1997. The note bears an interest rate of
10% per year.
Sale of Loans
The Company follows a strategy of committing to sell at the time of a
mortgage commitment, and fulfilling this commitment and selling for cash,
generally within ten days following a mortgage origination, all of its loan
originations (and related servicing rights) to institutional investors,
generally on a non-recourse basis. This strategy allows the Company to (i)
generate near-term cash revenues, (ii) limit the Company's exposure to
interest rate fluctuations, and (iii) substantially reduce any potential
expense or loss in the event the loan goes into default after the first month
of its origination. The "non-recourse" nature of the majority of the Company's
loan sales do not, however, entirely eliminate the Company's "default risk"
since the Company may be required to repurchase a loan from the investor or
indemnify an investor if the borrower fails to makes its first mortgage
payment or if the loan goes into default and the Company is found to be
negligent in uncovering fraud in connection with the loan origination process.
The Company's mortgage loan sales are made to a select number of major
institutional investors. From June 1997 through September 30, 1997, the
Company had an agreement with IMC to sell up to $32 million of "B,"
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"C" and "D" loans which assured the Company's sale of these loans in bulk, at
favorable prices. The Company's agreement with IMC expired on September 30,
1997, but the Company continues to sell loans to this institutional investor.
During 1996 and 1997, the Company sold substantially all of its prime and
FHA/VA loans to three other institutional investors. The Company, consistent
with industry custom, has, from time to time, made arrangements with these and
other institutional investors that allow the Company to sell mortgage loans to
institutional investors at favorable prices if targeted loan volumes are
achieved.
Quality Control
In accordance with HUD regulations, the Company is required to perform
quality control reviews of its FHA mortgage originations. These quality
control procedures are performed by an independent contractor who delivers its
quality control reports to the Company's management on a monthly basis. The
quality control process examines branch offices and approximately 10% of all
mortgage originations for compliance with federal and state lending standards,
which may involve reverifying employment and bank information and obtaining
separate credit reports and property appraisals.
Marketing and Sales
The Company has developed numerous marketing programs at both the
corporate and the branch office level. These programs include, among others,
market-sensitive advertising in key newspapers and other publications, public
relations, promotional materials customized for consumers and real estate
professionals, collateral materials supporting particular product promotions,
educational seminars, trade shows, telemarketing, and sponsoring or promoting
other special events. The Company also conducts seminars in conjunction with
other real estate professionals targeting potential home buyers. The Company
is active with local boards of realtors, Better Business Bureaus and the
Builders Association of America. All of the Company's loan representatives
support these activities with extensive personal contact.
Competition
The mortgage banking industry is highly competitive across the states
where the Company conducts business and where it is seeking to expand. The
Company's competitors include financial institutions, such as other mortgage
bankers (Countrywide Credit Industries, Inc., Delta Financial Corp.), state
and national commercial banks, savings and loan associations (Long Island
Savings Bank, Dime Savings Bank), credit unions, insurance companies, and
other finance companies. Many of these competitors are substantially larger
and have considerably greater financial, technical, and marketing resources
than the Company.
Competition in the mortgage banking industry is based on many factors,
including convenience in obtaining a loan, customer service, marketing and
distribution channels, amount and term of the loan, and interest rates. The
Company believes that its competitive strengths include providing prompt,
responsive service and flexible underwriting to independent mortgage bankers
and brokers. The Company's underwriters apply its underwriting guidelines on
an individual basis but have the flexibility to deviate from them when an
exception or upgrade is warranted by a particular loan applicant's situation,
such as evidence of a strong mortgage repayment history relative to a weaker
overall consumer-credit repayment history. This provides independent mortgage
bankers and brokers working with the Company the ability to offer loan
packages from a diversified class of borrowers. The underwriters also have the
ability to counter-offer a different product, thereby enabling the borrower to
qualify for the loan.
Since there are significant costs involved in establishing retail
mortgage offices, there may be potential barriers to market entry for any
company seeking to provide a full range of mortgage banking services. No
single lender or group of lenders has, on a national level, achieved a
dominant or even a significant share of the market with respect to loan
originations for first mortgages.
The Company believes that it is able to compete on the basis of providing
prompt and responsive service and offering competitive loan programs to
borrowers.
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Information Systems
The Company continues to design and integrate into its operations the
ability to access critical information for management on a timely basis. The
Company uses various software programs designed specifically for the mortgage
lending industry. Each branch office provides headquarters and senior
management with productivity and other key data. The information system
provides weekly and monthly detailed information on loans in process, fees,
commissions, closings, detailed monthly financial statements and all other
aspects of running and managing the business. The Company anticipates using
proceeds of this Offering for upgrades and improvements to its information
system. The cost of doing so is estimated to be $500,000 including both
software, hardware and telephone equipment for all locations. See "Use of
Proceeds."
Regulation
The Company is subject to the rules and regulations of, and examinations
by, the FHA and HUD and state regulatory authorities with respect to
originating, processing, underwriting and selling residential mortgage loans.
In addition, there are other federal and state statutes and regulations
affecting the Company's activities. The Company's consumer lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z promulgated
thereon, The Home Ownership and Equity Protection Act of 1994; the Federal
Equal Opportunity Act and Regulation B promulgated thereunder ("ECOA"); the
Fair Credit Reporting Act of 1994; the Federal Real Estate Settlement
Procedures Act ("RESPA") and Regulation X promulgated thereunder; the Home
Mortgage Disclosure Act, as well as other federal and state statutes and
regulations affecting the Company's business. The Company is subject to the
rules and regulations of and examinations by HUD and state regulatory
authorities with respect to originating, processing, underwriting, selling and
servicing loans. These rules and regulations, among other things, impose
licensing obligations on the Company, establish eligibility criteria for
mortgage loans, prohibit discrimination, provide for inspections and
appraisals of properties, require credit reports on prospective borrowers,
regulate the assessment, collection, foreclosure and claims handling, regulate
investment and interest payments on escrow balances, regulate payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, demands
for indemnification or mortgage loan repurchases, certain rights of rescission
for mortgage loans, class action lawsuits, and administrative enforcement
actions. [Current Regulations]. See "Business -- Regulation."
Although the Company believes that it has systems and procedures to
insure compliance with these requirements and believes that it is currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations or that more restrictive laws, rules and
regulations will not be adopted in the future that could make compliance more
difficult or expensive. In the event that the Company is unable to comply, its
business and operations may be materially adversely affected.
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans
are made to borrowers for the purpose of consolidating consumer debt or
financing other consumer needs, the competitive advantage of tax deductible
interest, when compared with alternative sources of financing, could be
eliminated or seriously impaired by such government action. Accordingly, the
reduction or elimination of these tax benefits could have a material adverse
effect on the demand for mortgage loans of the kind offered by the Company.
Seasonality
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general pattern of resales of homes, which sales
typically peak during the spring and summer seasons and decline from January
through March. Refinancings tend to be less seasonal and more closely related
to changes in interest rates.
Environmental Matters
In the course of its residential rehabilitation financings, the Company
holds title to such properties until they are sold. To date the Company has
not been required to perform any investigation or remediation activities, nor
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has it been subject to any environmental claims relating to these financings
or to its traditional mortgage lending activities. There can be no assurance,
however, that this will remain the case in the future. Although the Company
believes that the risk of an environmental claim arising from its ownership of
a residential property is small, there is that possibility, in which case the
Company could be required to investigate and clean up hazardous or toxic
substances or chemical releases at a property, and may be held liable to a
governmental entity or to third parties for property damage, personal injury
and investigation and clean up costs incurred by such parties in connection
with the contamination. In addition, the Company, as the owner or former owner
of a contaminated site, may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination
emanating from such property.
Employees
As of June 30, 1997 the Company had 68 employees, substantially all of
whom were employed full-time. Of these, approximately 41 were employed at the
Company's Roslyn, New York headquarters, and 27 were employed at the Company's
branch offices. None of the Company's employees is represented by a union. The
Company considers its relations with its employees to be satisfactory.
Properties
The Company's executive and administrative offices are located at 66
Powerhouse Road, Roslyn Heights, New York, where the Company leases
approximately 6,395 square feet of office space at an annual rent of
approximately $150,000. The lease expires in August 2000.
The Company leases 1,562 square feet of general office space in
Hauppauge, New York pursuant to a lease that expires on December 31, 1999 at
an average annual rent of approximately $19,000. The Company also leases
office space in Union, New Jersey pursuant to a lease that expires on February
28, 2002 with annual rent of $61,762.50. The Company also leases 1,670 square
feet of office space in Roslyn Heights, New York pursuant to a lease that
expires on January 31, 1998 with annual rent payments of $40,500.
Legal Proceedings
In the ordinary course of its business, the Company is from time to time
subject to various legal proceedings. The Company does not believe that any
routine legal proceedings, individually or in the aggregate, will have a
material adverse affect on the operations or financial condition of the
Company.
36
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the Company's
directors and persons nominated to become directors and executive officers and
the positions they hold with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald Friedman (1) ............... 32 Director, President and Chief
Executive Officer
Robert Friedman (1) ............... 59 Chairman of the Board of Directors, Chief
Operating Officer, Secretary, and Treasurer
Timothy J. Mayette ............... 37 Chief Financial Officer
Keith S. Haffner .................. 50 Executive Vice President
Joel L. Gold (2) .................. 56 Nominee for Director
[Independent Director] (2) ...... Nominee for Director
</TABLE>
- ------------
(1) Ronald Friedman is the son of Robert Friedman
(2) Member of Audit Committee
Ronald Friedman has been the President and Chief Executive Officer and a
Director of the Company since 1991. From 1989 through 1991, Ronald Friedman
was senior mortgage consultant at ICI Mortgage Corporation. From 1987 through
1989, Ronald Friedman was a senior accountant at Touche Ross & Co., an
accounting firm. Ronald Friedman received a B.A. in Accounting from the George
Washington University. Ronald Friedman has been a certified public accountant
since 1989.
Robert Friedman has been the Chairman of the Board of Directors, Chief
Operating Officer, Secretary and Treasurer of the Company since inception in
1991. Robert Friedman was also the Company's Chief Financial Officer until
October 1997. Prior to forming the Company, Robert Friedman was senior partner
specializing in real estate and mortgages at Bernstein & Friedman, P.C., an
accounting firm. Robert Friedman received his BBA in accounting from the City
College of New York in 1963. Robert Friedman has been a certified public
accountant since 1964.
Timothy J. Mayette joined the Company in October 1997 as the Company's
Chief Financial Officer. Prior to joining the Company, Mr. Mayette was Chief
Financial Officer at Mortgage Plus Equity and Loan Holdings Corp. from
September 1996 through October 1997 and Vice President and Controller of
BankAmerica Mortgage Corporation (formerly Arbor National Holdings, Inc.) from
August 1991 through September 1996. Mr. Mayette received an MBA degree from
Hofstra University in 1989 and is a certified public accountant.
Keith S. Haffner has been the Executive Vice President of the Company
since 1996. From 1994 through 1995, Mr. Haffner was Executive Vice President
of Exchange Mortgage Corp., a mortgage banking company. From 1986 through
1994, Mr. Haffner was Senior Vice President of Mortgage Production
Administration at Midcoast Mortgage Corp. Prior to 1986, Mr. Haffner was
employed a various positions with the Mortgage Bankers Association and with
the Department of Housing and Urban Development. Mr. Haffner received his B.A.
in Political Science in 1969 and a Masters in Public Administration in Urban
Studies and Real Estate Finance in 1972 from the American University.
Joel L. Gold has been nominated to become a Director of the Company
following the closing of the Offering. In September 1997, Mr. Gold became Vice
Chairman of Coleman & Company Securities, Inc. From April 1996 through
September 1997, Mr. Gold was Executive Vice President and head of investment
banking at L.T. Lawrence Co., an investment banking firm. From April 1995 to
April 1996, Mr. Gold was a managing director and head of investment banking at
Fechtor & Detwiler. From 1993 to 1995, Mr. Gold was a managing director at
Furman Selz Incorporated, an investment banking firm. Prior to joining Furman
Selz, from 1991 to 1993, he was a managing director at Bear Sterns & Co., an
investment banking firm. Previously, Mr. Gold was a managing director at
Drexel Burnham Lambert for nineteen years. He is currently a member of the
Board of Directors of Concord Camera, Sterling Vision, Inc., Life Medical
Sciences and BCAM International, Inc. Mr. Gold has a law degree from New York
University and an MBA from Columbia Business School.
37
<PAGE>
[Independent Director] [to be inserted].
Board of Directors
The Board of Directors currently consists of two members. There are two
vacancies on the Board. Upon completion of this Offering, the Company expects
to appoint Joel L. Gold and ____________ as directors to its Board of
Directors.
The Company's Board of Directors is divided into three classes with each
class consisting of, as nearly as may be possible, one-third of the total
number of directors constituting the entire Board. The Company's Board of
Directors presently consists of two members with one member in Class II and
one member in Class III. Class III consists of Ronald Friedman, whose term
will expire at the 2000 annual meeting of stockholders: and Class II consists
of Robert Friedman, whose term will expire at the 1999 annual meeting of
stockholders. There are currently no members, but, upon their appointment upon
completion of the Offering, Class I will consist of Joel L. Gold and --------
whose terms will expire at the 1998 annual meeting of stockholders. After the
initial term, each Class is elected for a term of three years. At each annual
meeting, directors are elected to succeed those in the Class whose term
expires at that annual meeting, such newly elected directors to hold office
until the third succeeding annual meeting and the election and qualification
of their respective successors.
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
Board Committees
Upon completion of this Offering, the Board of Directors will establish
an Audit Committee. The Audit Committee will make annual recommendations to
the Board of Directors concerning the appointment of the independent public
accountants of the Company and will review the results and scope of the audit
and other services provided by the Company's independent auditors. The Audit
Committee will be comprised of Joel L. Gold and ---------- .
Director Compensation
Directors who are employees of the Company receive no compensation, as
such, for services as members of the Board. It is expected that directors who
are not employees of the Company will receive [$_____] for each Board or
Committee meeting attended plus reimbursement of expenses incurred in
connection with attending such meetings.
Executive Compensation
The following table shows all the cash compensation paid or to be paid by
the Company, as well as certain other compensation paid or accrued, during the
fiscal years indicated, to the Chief Executive Officer ("CEO") and the most
highly compensated executive officers.
Annual Compensation
-------------------------- Other Annual
Name and Principal Posit Year Salary ($) Bonus ($) Compensation
- ------------------------ ------ ------------ ----------- -------------
Ronald Friedman ...... 1996 $208,000 $46,538 --
Chief Executive Officer, 1995 $126,800 -- --
President 1994 $ 70,400 -- --
Robert Friedman ...... 1996 $107,093 -- --
Chief Operating Officer, 1995 -- -- --
Secretary, Treasurer 1994 -- -- --
Keith S. Haffner ...... 1996
Executive Vice President 1995
1994
38
<PAGE>
Distributions of Interest
During each of the years ending December 31, 1994, 1995 and 1996 and for
the six months ended June 30, 1997, Premier has made S corporation
distributions to the Existing Stockholders in the aggregate amounts of
$102,000, $150,000, $267,000 and $216,000, respectively. Prior to the
Exchange, Premier will declare a distribution to the Existing Stockholders in
an amount equal to a portion of its undistributed S corporation earnings that
will result in the Company's shareholders equity equaling $1.7 million at the
date of the Offering. As of September 30, 1997, such distribution is currently
estimated to be approximately $1.5 million.
Employment Agreements
The Company will enter into employment agreements effective upon the
consummation of the Offering with Ronald Friedman and Robert Friedman. Each of
the employment agreements expire on December 31, 1999, unless sooner
terminated for death, physical or mental incapacity or cause (which is defined
as the uncured refusal to perform, or habitual neglect of, the performance of
his duties, willful misconduct, dishonesty or breach of trust which causes the
Company to suffer any loss, fine, civil penalty, judgment, claim, damage or
expense, a material breach of the employment agreement, or a felony
conviction), or terminated by either party with thirty (30) days' written
notice, and are automatically renewed for consecutive terms, unless cancelled
at least one year prior to expiration of the existing term. Each Employment
Agreement provides that all of such executive's business time be devoted to
the Company. In addition, each of the Employment Agreements also contain: (i)
non-competition provisions that preclude each employee from competing with the
Company for a period of two years from the date of the termination of his
employment of the Company, (ii) non-disclosure and confidentiality provisions
that all confidential information developed or made known during the term of
employment shall be exclusive property of the Company, and (iii)
non-interference provisions whereby, for a period of two years after his
termination of employment with the Company, the executive shall not interfere
with the Company's relationship with its customers or employees.
The employment agreements include compensation plans for fiscal year 1998
as follows: Ronald Friedman and Robert Friedman will each receive a minimum
salary of $250,000 each, plus options under the Company's 1997 Stock Option
Plan and cash bonuses based upon the financial performance of the Company and
their contribution to that performance.
Key Man Life Insurance
The Company maintains key man term life insurance policies on the lives
of Ronald Friedman and Robert Friedman in the amounts of $3,000,000 and
$750,000, respectively, on which the Company is named as beneficiary.
Limitation of Liability and Indemnification of Directors and Officers
The Certificate of Incorporation of the Company (the "Certificate")
provides that a director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except: (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law; (iii) for
liability under Section 174 of the Delaware General Corporation Law (relating
to certain unlawful dividends, stock repurchases or stock redemptions); or
(iv) for any transaction from which the director derived any improper personal
benefit. The effect of this provision in the Certificate is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in certain
limited situations. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. These provisions will not alter the liability of directors under federal
securities laws.
The Company's By-Laws provides that the Company shall indemnify each
director and such of the Company's officers, employees and agents as the Board
of Directors shall determine from time to time to the fullest extent provided
by the laws of the State of Delaware.
39
<PAGE>
Premier Stock Option Plan
On April 1, 1997, the stockholders of Premier approved a stock option
plan (the "Premier Plan"). In connection with the Premier Plan, 375,000 shares
(as adjusted) of Common Stock are reserved for issuance pursuant to options
that may be granted under the plan through March 30, 2007. To date, no options
have been exercised. The options vest over a three year period following the
date of the grant.
The purpose of the Premier Plan is to encourage stock ownership by
employees of the Company, its divisions and subsidiary corporations and to
give them a greater personal interest in the success of the Company. The
Premier Plan is administered by the Board of Directors. The Board of Directors
shall have the authority in its discretion, subject to and not inconsistent
with the express provisions of the Premier Plan, to administer the Premier
Plan and to exercise all the powers and authorities either specifically
granted to it under the Premier Plan or necessary or advisable in the
administration of the Premier Plan, including, without limitation, the
authority to grant Options; to determine which Options shall constitute
incentive stock options ("ISO") and which Options shall constitute
Non-Qualified Stock Options; to determine which Options (if any) shall be
accompanied by rights or limited rights; to determine the purchase price of
the shares of Common Stock covered by each Option (the "Option Price"); to
determine the persons to who, and the time or times at which, Options shall be
granted; to determine the number of shares to be covered by each Option; to
interpret the Premier Plan; to prescribe, amend and rescind rules and
regulations relating to the Premier Plan; and to make all other determinations
deemed necessary or advisable for the administration of the Premier Plan. The
Board of Directors may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the Board
of Directors or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Board of Directors or such person may have under the Premier Plan.
Options granted under the Premier Plan may not be granted at a price less
than the fair market value of the Common Stock on the date of grant (or 110%
of fair market value in the case of persons holding 10% or more of the voting
stock of the Company). The aggregate fair market value of shares for which
ISOs granted to any employee are exercisable for the first time by such
employee during any calendar year (under all stock option plans of the Company
and any related corporation) may not exceed $100,000. Options granted under
the Premier Plan will expire not more than ten years from the date of grant
(five years in the case of ISOs granted to persons holding 10% or more of the
voting stock of the Company). Options granted under the Premier Plan are not
transferable during an optionee's lifetime but are transferable at death by
will or by the laws of descent and distribution.
After the Exchange, the Premier Plan will be converted to a plan to be
adopted by the Company's shareholders. After the Exchange there will be
options to purchase 375,000 shares of the Company's Common Stock outstanding
at an exercise price of $6.00.
1997 Stock Option Plan
In October , 1997, the Board of Directors of the Company adopted, and the
stockholders approved, the 1997 Stock Option Plan (the "1997 Plan"). The 1997
Plan has 375,000 shares of Common Stock reserved for issuance upon the
exercise of options designated as either (i) an ISO or (ii) non-qualified
options. ISOs may be granted under the 1997 Plan to employees and officers of
the Company. Non-qualified options may be granted to consultants, directors
(whether or not they are employees), employees or officers of the Company.
The purpose of the 1997 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and to give them a greater personal
interest in the success of the Company. The 1997 Plan is administered by the
Board of Directors. The Board of Directors, within the limitations of the 1997
Plan, determines, with the approval of the Chief Executive Officer of the
Company, the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be
ISOs, option purchase price per share, the manner of exercise, the time,
manner and form of payment upon exercise of an option, and restrictions such
as repurchase rights or obligations of the Company. Each option vests in four
annual installments of 25% each on the first, second, third and fourth
anniversary of the date of grant. Options granted under the 1997 Plan may not
40
<PAGE>
be granted at a price less than the fair market value of the Common Stock on
the date of grant (or 110% of fair market value in the case of persons holding
10% or more of the voting stock of the Company). The aggregate fair market
value of shares for which ISOs granted to any employee are exercisable for the
first time by such employee during any calendar year (under all stock option
plans of the Company and any related corporation) may not exceed $100,000.
Options granted under the 1997 Plan will expire not more than ten years from
the date of grant (five years in the case of ISOs granted to persons holding
10% or more of the voting stock of the Company). Options granted under the
1997 Plan are generally not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution.
As of the date of this Prospectus, 1997, the Company has not granted any
options to purchase shares of Common Stock under the 1997 Plan.
Options
To date, options have not been granted to either Ronald Friedman or
Robert Friedman.
Options to purchase an aggregate of 375,000 shares at an exercise price
of $6.00 per share have been granted to employees under the Premier Plan and
no options have been granted to employees under the 1997 Plan.
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain Relationships
Ronald Friedman, President and Chief Executive Officer of the Company, is
the son of Robert Friedman, Chief Operating Officer, Secretary and Treasurer.
Reorganization and Termination of S Corporation Status
From January 1992 through the date of this Prospectus, Premier was
treated for federal income tax purposes as an S corporation, and was treated
as an S corporation for certain state corporate income tax purposes under
certain comparable state laws. As a result, Premier's historical earnings
since January 1, 1992 have been taxed directly to Premier's stockholders at
their individual federal and state income tax rates, rather than to Premier.
On the date of the Exchange, pursuant to the terms of a contribution agreement
(the "Contribution Agreement"), the existing Premier stockholders, Ronald
Friedman and Robert Friedman (the "Existing Stockholders"), will contribute
stock of Premier that they beneficially own or otherwise control to the
Company in exchange for an aggregate 2,500,000 shares of Common Stock, which
constitutes all of the stock of the Company outstanding prior to this
Offering. As a result of the Exchange, the Company and Premier, which will be
a wholly owned subsidiary of the Company, will be fully subject to federal and
state income taxes, and the Company will record a deferred tax liability on
its balance sheet. The amount of the deferred tax liability to be recorded as
of the date of termination of Premier's S corporation status will depend upon
timing differences between tax and book accounting. During each of the years
ended December 31, 1994, 1995 and 1996 and for the six months ended June 30,
1997, Premier has made S corporation distributions to the Existing
Stockholders in the amounts of approximately $102,000, $150,000, $267,000 and
$216,000, respectively.
Prior to the Exchange, Premier will declare a distribution to its
Existing Stockholders in an amount equal to a portion of its undistributed S
corporation earnings. As of September 30, 1997, such amount is currently
estimated to be approximately $1.5 million. Such distribution will be payable
as follows: (i) immediately prior to this Offering, approximately $1 million
will be payable, all of which is intended to reimburse such Existing
Stockholders for, or otherwise satisfy, tax liabilities associated with S
corporation earnings; and (ii) S-Notes in the aggregate principal amount of
$500,000, bearing an interest rate of 10% per annum, payable in five equal
quarterly installments of principal and interest, with final payments due on
April 1, 1999.
Prior to the Exchange, the Company, Premier and the Existing Stockholders
entered into a tax indemnification agreement (the "Tax Agreement") relating to
their respective income tax liabilities. Because the Company will be fully
subject to corporate income taxation after the termination of the Company's S
corporation status, the reallocation of income and deduction between the
period during which the Company was treated as an S corporation and the period
during which Premier and the Company will be 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 by the Company on the one hand and the Existing Stockholders on the
other only 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 Premier and the Company for a year in which it was treated as an S
corporation, the Company will indemnify the Existing Stockholders, and the
Existing Stockholders will indemnify the Company, against any increase in the
indemnified party's income tax liability (including interest, penalties and
related costs and expenses), with respect to any tax year to the extent such
increase results in a related decrease in the income tax liability of the
indemnifying party for that year. Moreover, the Tax Agreement specifically
provides that the Existing Stockholders will not be responsible for any
portion of any deferred tax liability recorded on the balance sheet of the
Company upon termination of the S corporation status. The Company will also
indemnify the Existing Stockholders for all taxes imposed upon them as a
result of their receipt of an indemnification payment under the Tax Agreement.
Any payment made by the Company to the Existing Stockholders 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 Existing Stockholders or the
Company will have funds available to make any payments which may become due
under the Tax Agreement.
42
<PAGE>
Loans by Affiliates
From time to time, the Company has borrowed from three affilated
corporations owned by Ronald Friedman and Robert Friedman. The maximum
borrowings from these affiliates were approximately $3 million in May 1997. As
of June 30, 1997, $2.7 million remained outstanding, of which $2.3 million is
secured by a mortgage against the residential properties in rehabilitation
pursuant to a mortgage agreement. As the residential property is sold, the
proceeds are used to repay the mortgage on the particular property. Interest
payable pursuant to this agreement is 10% per year. The remaining $400,000
loaned to the Company by the three affiliates was loaned to the Company for
working capital purposes, evidenced by a promissory note. This note is due 90
days after the effective date of the Registration Statement, at such time as
the Company has reported cumulative net earnings after taxes exceeding
$500,000 subsequent to December 31, 1997. The note bears an interest rate of
10% per year.
In November 1996, Ronald Friedman loaned the Company $275,000, evidenced
by a promissory note, due in full on January 1, 1998, bearing an interest rate
of 8% per year.
In addition, the Company purchased the minority interest in RF Properties
Corp. from Ronald Friedman for $18,163, evidenced by a promissory note due on
January 1, 1998, bearing an interest rate of 8% per year, giving the Company
full ownership interest in RF Properties Corp.
Stockholders Agreement
Prior to the effective date of this Offering, the Company will enter into
a stockholders agreement with Ronald Friedman and Robert Friedman. The
stockholders agreement provides that each of Ronald Friedman and Robert
Friedman will vote their shares of the Company's Common Stock in favor of the
other, with respect to their election to the Board of Directors. The
stockholders agreement also provides for the disposition and transfer of
shares. In general, the stockholders agreement provides that all transferees,
with the exception of a bona fide sale to a third party at fair market value,
either by the registration of those shares or by an exemption from
registration, will be bound by the stockholders agreement.
Indemnity Agreement
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Company (the "Indemnitees"). The Indemnity Agreements provide that the Company
will indemnify each Indemnitee to the fullest extent authorized or permitted
by law against payment of and liability for any and all expenses actually and
reasonably incurred by the Indemnitee, including, but not limited to,
judgments, fines, settlements and charges, costs, expenses of investigation
and expenses of defense of legal actions, suits or proceedings payable by
reason of the fact that the Indemnitee is or was a director and/or officer of
the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in connection with the defense or settlement of
such proceedings, provided it is determined that the Indemnitee acted in good
faith and in a manner that he reasonably believed to be in or not opposed to
the best interests of the Company and, in the case of a criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful. The
Indemnity Agreements also provide that all costs and expenses incurred by the
Indemnitee in defending or investigating such claim shall be paid by the
Company (and shall be paid by the Company in advance of the final disposition
thereof at the written request of the Indemnitee if the Indemnitee undertakes
to repay the Company for any costs or expenses so advanced if it shall
ultimately be determined by a court of competent jurisdiction in a final
non-appealable adjudication that he is not entitled to indemnification under
the Indemnity Agreement) unless the Company, independent legal counsel or the
stockholders of the Company determine that: (i) the Indemnitee did not act in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of the Company; (ii) in the case of any criminal action
or proceeding, the Indemnitee had reasonable cause to believe his conduct was
unlawful; or (iii) the Indemnitee intentionally breached his duty to the
Company or its stockholders.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common
Stock as of the date of the Prospectus, and as adjusted to reflect the sale of
1,250,000 shares of Common Stock offered hereby, of (i) each person known by
the Company to own beneficially five percent or more of the outstanding Common
Stock immediately prior to the Offering; (ii) each director and nominee
director of the Company; (iii) each of named executive officer of the Company;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------------
Number of Shares Beneficially Number of Shares Beneficially
Owned Prior to Offering (1) Owned After the Offering
--------------------------------------- --------------------------------------
Name of Beneficial Owner Number of Shares Percent of Class Number of Shares Percent of Class
- ------------------------ ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Ronald Friedman (2) .................. 1,875,000 75% 1,875,000 50%
Robert Friedman (2)(4) ............... 625,000 25% 625,000 16.66%
Timothy J. Mayette (2).................. -- -- -- --
Keith S. Haffner (2).................... -- -- -- --
Joel L. Gold (3)(5) .................. -- -- -- --
[Independent Director] (5) ............ -- -- -- --
---------- ---- --------- ------
All directors and executive officers as
a group ........................... 2,500,000 100% 2,500,000 66.66%
========== ==== ========== ======
</TABLE>
- ------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934 and generally includes voting and
investment power with respect to securities, subject to community property
laws, where applicable. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the
date of this Prospectus upon exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Prospectus have been exercised. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Address is c/o PMCC Financial Corp., 66 Powerhouse Road, Roslyn Heights,
New York 11577.
(3) Address is c/o Coleman & Company Securities, Inc., 717 Fifth Avenue, New
York, New York 10022.
(4) Includes an aggregate of 40,000 shares owned by Robert Friedman's
daughters, Donna Joyce and Suzanne Gordon, as to which he claims
beneficial ownership.
(5) Nominees for Director.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 1,000,000 shares
of Preferred Stock, par value $.01 per share (the "Preferred Stock"), none of
which is presently issued and outstanding, and 40,000,000 shares of Common
Stock, par value $.01 per share, of which 2,500,000 shares were issued and
outstanding following the contribution by the Existing Stockholders of their
stock in Premier to the Company pursuant to the Contribution Agreement and are
beneficially owned by Ronald Friedman and Robert Friedman.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock are entitled to receive dividends when, as,
and if declared by the Company's Board of Directors out of funds legally
available to the Company. The Company currently intends to retain all future
earnings for the use in the operation of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy." Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in the
assets remaining after payment of all liabilities and liquidation of
preferences if any. Shares of Common Stock are not redeemable and have no
preemptive or similar rights to subscribe for additional shares. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will, upon issuance and payment, be fully paid and non-assessable.
44
<PAGE>
Preferred Stock
The Board of Directors has the authority to cause the Company to issue
without any further vote or action by the stockholders, up to 1,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), in one
or more series, to designate the number of shares constituting any series, and
to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, voting rights, rights and terms of redemption, redemption
price or prices and liquidation preferences of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders.
The issuance of preferred stock with voting and conversion rights may
adversely effect the voting power of the holders of Common Stock, including
the loss of voting control. The Company has no present plans to issue any
shares of preferred stock. See "Risk Factors -- Anti-Takeover Provisions."
Anti-Takeover Provisions; Section 203 of the Delaware General Corporation Law
The Company is subject to Section 203 of the Delaware General Corporation
Law. In general, this statute restricts a corporation from entering into
certain business combinations with an interested stockholder (defined as any
person or entity that is the beneficial owner of at least 15% of a
corporation's voting stock) or its affiliates for a period of three years
after the date of the transaction in which the person became an interested
stockholder unless (i) the transaction is approved by the Board of Directors
of the corporation prior to such business combination, (ii) the interested
stockholder acquires 85% of the corporation's voting stock in the same
transaction in which it exceeds 15%, or (iii) the business combination is
approved by the Board of Directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. The Company's Certificate
of Incorporation excludes Ronald Friedman and Robert Friedman from the
definition of "interested stockholder."
The Company's Certificate of Incorporation and By-Laws include certain
provisions which may have an anti- takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider
in its best interests, including attempts that might result in a premium over
the market for the shares held by the stockholders and could make it more
difficult to remove incumbent management. The Company's Certificate of
Incorporation or By-Laws provide (i) that the Board of Directors will be
divided into three classes of directors serving staggered three year terms
resulting in approximately one-third of the Company's Board of Directors being
elected each year; (ii) that directors may be removed from office only for
cause and only by the affirmative vote of the holders of 66 2/3% of the then
outstanding shares of capital stock entitled to vote generally in an election
of directors; (iii) that, except as otherwise required by law, vacancies in
the Board of Directors may be filled only by the remaining directors; (iv)
that commencing with the consummation of the Offering, any action required or
permitted to be taken by the stockholders of the Company may be effected only
at an annual or special meeting of stockholders and not by written consent of
the stockholders; (v) that any meeting of stockholders may be called only upon
the affirmative vote of at least a majority of the members of the Board of
Directors; and (vi) for an advance notice procedure for the nomination other
than by or at the discretion of the Board of Directors or a committee of the
Board of Directors the candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of the
stockholders. In general, notice of an intent to nominate a director or raise
business at such meetings must be received by the Company not less than sixty
(60) nor more than ninety (90) days before the meeting and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning stockholders submitting the
proposal. The affirmative vote of at least a majority of the directors or the
holders of at least 66 2/3% of the voting power of the Company's stock is
required to alter, amend, repeal or adopt any provision inconsistent with the
provisions described in this paragraph.
The Delaware statute, the Certificate of Incorporation and the By-Laws
may discourage certain types of transactions involving an actual or potential
change in control of the Company.
Transfer Agent
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The 1,250,000 shares of Common Stock sold in this Offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933 ("Securities Act") unless acquired by an "affiliate" of the
Company within the meaning of the Securities Act. Upon completion of this
Offering, the Existing Stockholders of the Company will own 2,500,000 shares
of Common Stock. All of these shares are deemed "restricted securities" as
defined by Rule 144 under the Securities ("Rule 144"). Upon expiration of the
contractual restrictions between the Company, its officers and directors and
the Underwriter, beginning fifteen months after the date of this Prospectus,
these shares will be available for sale in the public market, subject to
compliance with Rule 144.
Rule 144, as currently in effect, provides that a person (or persons
whose sales are aggregated) who is an affiliate of the Company, or who has
beneficially owned shares for at least one year which were issued and sold in
reliance upon certain exemptions from registration under the Act ("Restricted
Shares"), is entitled to sell within any three month period a number of shares
that does not exceed the greater of one percent of the then outstanding shares
of Common Stock or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. However, a
person who has beneficially owned Restricted Shares for at least two years and
who is not an affiliate of the Company may sell such shares under Rule 144
without regard to volume limitations, manner-of-sale provisions, notice
requirements or the availability of current public information about the
Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act ("Rule 701")
may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisors prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning one year
after the date of this Prospectus, may be sold by persons other than
Affiliates subject only to the manner of sale provisions of Rule 144 and by
Affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of Restricted Shares or the availability of Restricted Shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Restricted Shares in the public market could
adversely affect prevailing market prices.
46
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Coleman and
Company Securities, Inc. ("Coleman") is acting as representative (the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, between the Company and the Representative (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of shares of Common Stock set forth opposite their name below:
Number of
Underwriter Shares
- ----------- ---------
Coleman and Company Securities, Inc. ......
---------
Total ................................. 1,250,000
=========
The Underwriters are committed to purchase all of the Common Stock
offered hereby, if any of the Common Stock is purchased. The Underwriting
Agreement provides that the obligations of the several Underwriters are
subject to conditions precedent specified therein.
The Company has been advised by the Representative that its proposes
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page hereof and to certain dealers (who
may be Underwriters) at a price that represents a concession not in excess of
$__________ per share under the initial public offering price. The Underwriter
may allow, and such dealers may re-allow, a concession not in excess of
$_________ per share to other Underwriters or to certain other dealers. After
the initial public offering, the public offering price and such concessions
may be changed by the Underwriter. The Underwriter has informed the Company
that it does not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make. The Company has
agreed to pay the Representative a non-accountable expense allowance of 3% of
the gross proceeds from the sale of the Common Stock offered hereby, of which
$50,000 has been paid as of the date of this Prospectus.
The Company shall bear all fees and expenses incurred by the Company in
connection with the preparation and filing of such Post-Effective Amendment or
new Registration Statement except the holders of the Underwriter's Warrants
shall pay any underwriting discounts or commission and expenses of their own
legal counsel. In addition, the Company has agreed to pay the Underwriter a
finder's fee equal to ___% of all consideration in the event that the
Underwriter originates a financing, merger, acquisition, joint venture or
other transaction to which the Company is a party.
The Company has granted to the Underwriter an over-allotment option,
exercisable for 45 days from the date of this Prospectus, to purchase up to
187,500 additional shares of Common Stock, respectively, at the initial public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions (the "Over-Allotment Option"). To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of shares of Common
Stock as the percentage it was obligated to purchase pursuant to the
Underwriting Agreement. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the same of the Common Stock
offered hereby. The Underwriter may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sale of the shares offered hereby.
In connection with this Offering, the Company has agreed to sell to the
Representative and its designees, for nominal consideration, warrants to
purchase from the Company up to 125,000 shares of Common Stock (the
"Representative's Warrants"). The Representative's Warrants are exercisable at
a price of $9.60 per share (120% of the initial public offering price per
share) for a period of four years commencing at the beginning of the second
year after their issuance and sale. The Representative's Warrants may not be
sold, transferred, assigned or hypothecated for a period of one year from the
date of this Prospectus, except to officers of the Representative. The
Representative's Warrants provide for adjustments in the number of shares of
Common Stock issuable upon
47
<PAGE>
the exercise thereof and in the exercise price of the Representative's
Warrants as a result of certain events, including subdivisions and
combinations of the shares of Common Stock. The Representative's Warrants
grant to the holders thereof certain rights of registration for the Common
Stock issuable upon exercise of the Representative's Warrants.
In connection with this Offering, the Company has agreed to appoint a
designee of Coleman as a director for a period of three years. Coleman's
initial designee is Joel L. Gold. Additionally, Coleman has been named as an
investment banking adviser for a 24 month period effective upon the
consummation of this Offering. For such services, the Company has agreed to
pay Coleman a monthly fee of $3,000.
All of the officers, directors and security holders of the Company as of
the date of this Prospectus have agreed not to, directly or indirectly, offer,
issue, sell, contract to sell, grant any option for the sale of or otherwise
dispose of any equity securities of the Company for a period of fifteen (15)
months following the effective date of the Registration Statement without the
prior written consent of the Representative. An appropriate legend shall be
marked on the reverse of the certificate representing all such securities. The
Company has agreed not to, without the prior written consent of the
Representative, offer, issue, sell, contract to sell, grant any option for the
sale of or otherwise dispose of any equity securities for a period of fifteen
(15) months following the effective date of the Registration Statement, except
for options under the Option Plan which have an exercise price no less than
the market price of the Common Stock on the date of grant.
The shares underlying the Representative's Warrant issued in connection
with this Offering are included in the aggregate number of shares covered by
this Registration Statement.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Company's
Common Stock. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid or purchase Common Stock of the Company for the purpose of
stabilizing its market price. The Underwriters also may create a short
position of the account of the Underwriters by selling more of the Common
Stock in connection with the Offering then they are committed to purchase from
the Company, and in such case may purchase Common Stock of the Company in the
open market following completion of the Offering to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position by exercising the Over-Allotment Option. In addition, the
Representative, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating int he Offering) for the account of other
Underwriters, the selling concession with respect to the shares of Common
Stock that are distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may stabilize or maintain the price of the Common
Stock of the Company at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and if, if they are undertaken, they may be discontinued at any
time.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining the initial public offering price are the
history of, and the prospects for, the Company's business and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for earnings of the Company, the present
state of the Company's development, the general condition of the securities
market at the time of the offering and the market prices and earnings of
similar securities of comparable companies at the time of the offering and
prevailing market and economic conditions.
The foregoing is a summary of the agreements described above and does not
purport to be complete. Reference is made to copies of each such agreement
which are filed as exhibits to the Registration Statement. See "Additional
Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New
York. Brock Fensterstock Silverstein McAuliffe & Wade LLC, New York, New York
has acted as legal counsel to the Underwriters in connection with this
Offering.
48
<PAGE>
EXPERTS
The Consolidated Financial Statements of Premier Mortgage Corporation and
its subsidiaries as of December 31, 1996, and for the year then ended, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The Consolidated Financial Statements of Premier Mortgage Corporation and
its subsidiaries as of December 31, 1995, and for the years ended December 31,
1994 and 1995, have been included herein and in the Registration Statement in
reliance upon the report of Freeberg & Freeberg, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing. The financial statements audited by
Freeberg & Freeberg contain no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. In 1996, the Company determined to change auditors to KPMG Peat
Marwick LLP. There were no disagreements at any time between the Company and
Freeberg & Freeberg pertaining to any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the shares
of Common Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and such exhibits and
schedules, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission in Washington, D.C. 20549.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company; the address of such site is http://www.sec.gov.
49
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page. No.
-----------
<S> <C>
Reports of Independent Auditors ...................................................... F-2
Consolidated Financial Statements:
Balance Sheets at December 31, 1996 and 1995 and at June 30, 1997 (unaudited) ........ F-4
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994
and for the Six Months Ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited) F-5
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996,
1995 and 1994 and for the Six Months Ended June 30, 1997 (unaudited) .............. F-6
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
and for the Six Months Ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited) F-7
Notes to Consolidated Financial Statements .......................................... F-8 -- F17
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholders
Premier Mortgage Corporation:
We have audited the accompanying consolidated balance sheet of Premier
Mortgage Corporation and subsidiary as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Premier
Mortgage Corporation and subsidiary as of December 31, 1996, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
March 31, 1997
F-2
<PAGE>
Independent Auditors' Report
To the Board of Directors
Premier Mortgage Corporation
Roslyn Heights, New York 11577
Gentlemen:
We have audited the accompanying balance sheet of Premier Mortgage
Corporation as of December 31, 1995 and the related statements of operations
and changes in shareholders' equity, and cash flows for the years ended
December 31, 1995 and December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Premier Mortgage
Corporation as of December 31, 1995 and the results of its operations and its
cash flows for the years ended December 31, 1995 and December 31, 1994, in
conformity with generally accepted accounting principles.
Freeberg & Freeberg
Certified Public Accountants
Westbury, New York
April 2, 1996
F-3
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------- -------------------------
Pro forma
1997 1997 1996 1995
-------------- ------------ ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents ............... $ 635,434 635,434 409,788 399,957
Debt and equity securities available-for-
sale .................................... 192,000 192,000 75,000 354,495
Mortgage loans held for sale, net ......... 33,766,460 33,766,460 12,712,737 6,893,802
Mortgage loans held for investment ...... 115,783 115,783 138,052 140,292
Accrued interest receivable ............... 81,994 81,994 53,161 10,114
Other receivables, net of allowance for
indemnity losses of $47,338, $47,338,
$28,500 and $0, respectively............... 415,179 415,179 208,769 132,624
Real estate owned held for sale ......... 10,155,059 10,155,059 3,246,361 --
Furniture, fixtures and equipment, net of
accumulated depreciation and
amortization of $161,218, $161,218,
$131,726 and $84,295, respectively ...... 244,943 244,943 209,937 206,891
Prepaid expenses and other assets ......... 101,291 101,291 99,421 93,416
------------- ----------- ----------- ----------
Total assets ........................ $ 45,708,143 45,708,143 17,153,226 8,231,591
============= =========== =========== ==========
Liabilities and Shareholders' Equity
Liabilities:
Notes payable -- warehouse lines of
credit ................................. 39,364,496 39,364,496 13,923,063 6,476,359
Notes payable -- shareholder ............ 293,163 293,163 275,000 --
Due to affiliates ........................ 2,712,528 2,712,528 761,661 465,358
Accrued expenses and other liabilities .... 556,653 556,653 285,785 175,516
Federal and state income tax payable .... 12,000 12,000 12,000 --
Deferred tax liability .................. 150,000 -- -- --
S corporation distribution payable ...... 919,303 -- -- --
------------- ----------- ----------- ----------
Total liabilities .................. 44,008,143 42,938,840 15,257,509 7,117,233
------------- ----------- ----------- ----------
Minority interest in net assets of
subsidiary .............................. -- -- 18,163 --
------------- ----------- ----------- ----------
Shareholders' equity:
Common stock, Class A, no par value;
2,500 shares authorized; 100 shares
issued and outstanding ............... 5,000 5,000 5,000 5,000
Common stock, Class B, no par value;
1,000 shares authorized; 25 shares
issued and outstanding ............... 1,250 1,250 1,250 1,250
Additional paid-in capital ............... 711,775 711,775 711,775 711,775
Retained earnings ........................ 864,975 1,934,278 1,159,529 392,758
Unrealized gain on securities
available-for-sale, net ............... 117,000 117,000 -- 3,575
------------- ----------- ----------- ----------
Total shareholders' equity ............ 1,700,000 2,769,303 1,877,554 1,114,358
------------- ----------- ----------- ----------
Total liabilities and
shareholders' equity ............... $ 45,708,143 45,708,143 17,153,226 8,231,591
============= =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the six months
ended June 30, For the years ended December 31,
--------------------------- --------------------------------------
1997 1996 1996 1995 1994
------------- ----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Loan origination fees, interest income
and gains on sales of mortgage
loans, net ........................ $ 5,058,890 2,798,649 6,840,199 3,400,481 1,184,957
Earnings from sales of real estate
owned ........................... 552,840 -- 284,309 -- --
Gain on sale of securities available-
for-sale ........................ -- 29,605 29,605 -- 1,562
------------ ---------- ---------- ---------- ----------
5,611,730 2,828,254 7,154,113 3,400,481 1,186,519
------------ ---------- ---------- ---------- ----------
Expenses:
Compensation and benefits ......... 2,637,417 1,620,454 3,674,490 2,069,443 709,071
Advertising and promotion ......... 95,668 76,442 207,381 71,879 55,798
Brokers fees paid and other loan costs 292,117 63,629 237,147 85,555 --
Occupancy and equipment ............ 171,405 87,505 208,929 157,734 84,588
Messenger service .................. 53,498 35,154 81,400 50,533 21,030
Office supplies and expense ......... 84,664 77,674 155,868 83,087 34,316
Telephone ........................... 93,553 56,898 120,239 106,547 61,328
Interest expense .................. 707,778 282,360 839,284 245,281 20,132
Other operating expenses ............ 468,619 195,587 564,190 327,262 138,244
------------ ---------- ---------- ---------- ----------
4,604,719 2,495,703 6,088,928 3,197,321 1,124,507
------------ ---------- ---------- ---------- ----------
Income before income tax expense and
minority interest .................. 1,007,011 332,551 1,065,185 203,160 62,012
Income tax expense .................. 16,506 1,790 13,790 7,631 --
------------ ---------- ---------- ---------- ----------
Income before minority interest..... 990,505 330,761 1,051,395 195,529 62,012
Minority interest in net income of
subsidiary ........................ -- -- 17,863 -- --
------------ ---------- ---------- ---------- ----------
Net income ........................ $ 990,505 330,761 1,033,532 195,529 62,012
============ ========== ========== ========== ==========
Unaudited pro forma information:
Provision for pro forma income taxes . 400,975 138,547 435,058 73,658 17,895
------------ ---------- ---------- ---------- ----------
Pro forma net income ............... $ 589,530 192,214 598,474 121,871 44,117
============ ========== ========== ========== ==========
Pro forma net income per share of
common stock ..................... $ .23 .24
============ ==========
Pro forma weighted average number of
shares and share equivalents
outstanding ..................... 2,547,134 2,500,000
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
gain on
Additional securities
Capital paid-in Retained available-
stock capital earnings for-sale, net Total
--------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ............... $ 5,000 113,025 387,014 -- 505,039
Net income ................................. -- -- 62,012 -- 62,012
Distributions .............................. -- -- (102,020) -- (102,020)
-------- -------- --------- ------- ---------
Balance at December 31, 1994 ............... 5,000 113,025 347,006 -- 465,031
Issuance of capital stock .................. 1,250 -- -- -- 1,250
Net income ................................. -- -- 195,529 -- 195,529
Capital contribution ..................... -- 598,750 -- -- 598,750
Distributions .............................. -- -- (149,777) -- (149,777)
Unrealized gain on securities
available-for-sale, net .................. -- -- -- 3,575 3,575
-------- -------- --------- ------- ---------
Balance at December 31, 1995 ............... 6,250 711,775 392,758 3,575 1,114,358
Net income ................................. -- -- 1,033,532 -- 1,033,532
Decrease in unrealized gain on securities
available-for-sale, net .................. -- -- -- (3,575) (3,575)
Distributions .............................. -- -- (266,761) -- (266,761)
-------- -------- --------- ------- ---------
Balance at December 31, 1996 ............... 6,250 711,775 1,159,529 -- 1,877,554
Net income ................................. -- -- 990,505 -- 990,505
Distributions .............................. -- -- (215,756) -- (215,756)
Unrealized gain on securities
available-for-sale, net .................. -- -- -- 117,000 117,000
-------- -------- --------- ------- ---------
Balance at June 30, 1997 (unaudited) ...... $ 6,250 711,775 1,934,278 117,000 2,769,303
======== ======== ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the six months
ended June 30,
---------------------------------
1997 1996
---------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 990,505 330,761
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization .............................. 29,492 20,000
(Increase) decrease in accrued interest receivable ......... (28,833) (53,186)
(Decrease) increase in minority interest in net income of
subsidiary ................................................ (18,163) --
Net increase in mortgage loans held for sale ............... (20,695,723) (3,061,143)
Net increase in real estate owned held for sale ............ (6,908,698) (118,895)
Provision for indemnity losses ........................... 18,838 --
Net (increase) decrease in deferred loan costs ............ (358,000) (83,000)
Gains on sale of securities available-for-sale ............ -- (29,605)
(Increase) decrease in other receivables .................. (225,248) (177,187)
(Increase) decrease in prepaid expenses and other assets ... (1,870) 24,664
Increase (decrease) in due to affiliates .................. 1,950,867 (465,358)
Increase in accrued expenses, tax payable and other
liabilities ............................................. 270,868 39,159
-------------- -----------
Net cash used in operating activities .................. (24,975,965) (3,573,790)
-------------- -----------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale ...... -- 380,525
Purchases of furniture, fixtures and equipment, net of
dispositions ............................................. (64,498) (6,870)
Purchases of securities available-for-sale .................. -- --
Principal repayments on mortgage loans held for investment 22,269 884
Purchase of mortgage loan held for investment ............... -- --
Sale of mortgage loan held for investment, net ............ -- --
-------------- -----------
Net cash (used in) provided by investing activities ... (42,229) 374,539
-------------- -----------
Cash flows from financing activities:
Distributions to shareholders .............................. (215,756) (114,805)
Net increase in notes payable-shareholder .................. 18,163 --
Net increase in notes payable-warehouse lines of credit ... 25,441,433 3,242,243
Proceeds from issuance of common stock and capital
contribution ............................................. -- --
-------------- -----------
Net cash provided by financing activities ............... 25,243,840 3,127,438
-------------- -----------
Net increase (decrease) in cash and cash equivalents ......... 225,646 (71,813)
Cash and cash equivalents at beginning of period ............ 409,788 399,957
-------------- -----------
Cash and cash equivalents at end of period .................. $ 635,434 328,144
============== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................... $ 576,883 258,877
============== ===========
Income taxes ............................................. $ 25,365 6,057
============== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1996 1995 1994
--------------- --------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ 1,033,532 195,529 62,012
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization .............................. 47,431 35,875 20,601
(Increase) decrease in accrued interest receivable ......... (43,047) (10,114) 670
(Decrease) increase in minority interest in net income of
subsidiary ................................................ 17,863 -- --
Net increase in mortgage loans held for sale ............... (5,730,935) (6,115,275) (556,527)
Net increase in real estate owned held for sale ............ (3,246,361) -- --
Provision for indemnity losses ........................... 28,500 -- --
Net (increase) decrease in deferred loan costs ............ (87,700) (197,000) 7,000
Gains on sale of securities available-for-sale ............ (29,605) -- (1,562)
(Increase) decrease in other receivables .................. (104,645) (143,414) 12,633
(Increase) decrease in prepaid expenses and other assets ... (6,005) 1,458 (26,679)
Increase (decrease) in due to affiliates .................. 296,303 457,535 (900)
Increase in accrued expenses, tax payable and other
liabilities ............................................. 122,269 106,462 8,530
----------- ----------- ---------
Net cash used in operating activities .................. (7,702,400) (5,668,944) (474,222)
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale ...... 380,525 -- 11,562
Purchases of furniture, fixtures and equipment, net of
dispositions ............................................. (50,477) (121,397) (48,686)
Purchases of securities available-for-sale .................. (75,000) (350,920) (10,000)
Principal repayments on mortgage loans held for investment 2,240 1,961 1,239
Purchase of mortgage loan held for investment ............... -- -- (80,000)
Sale of mortgage loan held for investment, net ............ -- -- 95,000
----------- ----------- ---------
Net cash (used in) provided by investing activities ... 257,288 (470,356) (30,885)
----------- ----------- ---------
Cash flows from financing activities:
Distributions to shareholders .............................. (266,761) (149,777) (102,020)
Net increase in notes payable-shareholder .................. 275,000 -- --
Net increase in notes payable-warehouse lines of credit ... 7,446,704 5,919,832 556,527
Proceeds from issuance of common stock and capital
contribution ............................................. -- 600,000 --
----------- ----------- ---------
Net cash provided by financing activities ............... 7,454,943 6,370,055 454,507
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents ......... 9,831 230,755 (50,600)
Cash and cash equivalents at beginning of period ............ 399,957 169,202 219,802
----------- ----------- ---------
Cash and cash equivalents at end of period .................. 409,788 399,957 169,202
=========== =========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................... 754,284 188,616 20,132
=========== =========== =========
Income taxes ............................................. 8,222 2,357 16,176
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(1) Summary of Significant Accounting Policies
Premier Mortgage Corporation (the Company) was incorporated on December
20, 1989, under the laws of the State of New Jersey and was licensed as a
mortgage banker in New Jersey in January 1991. Its principal business activity
is the origination of mortgage loans and the immediate sale of such loans in
the secondary market. Currently all loans are sold servicing released.
The Company also performs business in the State of New York as PMC
Mortgage Co. Operations began as a mortgage broker in March 1992, and as a
licensed mortgage banker in September 1994.
The Company is also licensed as a mortgage banker in the states of
Connecticut and Florida.
At June 30, 1997, the Company had four wholly-owned subsidiaries: RF
Properties Corp., which was incorporated on August 1, 1996 and, through
December 31, 1996 was 77% owned by the Company (on January 1, 1997, the
Company purchased the remaining interest from the sole minority shareholder);
and Jericho Properties Corp., 66 Properties Corp. and JSF Properties Corp.,
which began business during the first half of 1997 and are all wholly-owned by
the Company. The principal business activities of the subsidiaries are to
provide short-term financing for the purchase, rehabilitation and resale of
vacant one-to-four family residences.
In April 1997, the Company opened its BCD division which closes and pools
BCD (subprime) type loans. The pools are put out to bid based upon a weighted
average coupon price.
All of the shares of the Company are beneficially owned by two
individuals, one of which also owned the minority interest in RF Properties
Corp.
(a) Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles (GAAP).
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and results of
operations for the periods then ended. Actual results could differ from those
estimates.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
The Company prepares its consolidated financial statements using an
unclassified balance sheet presentation as is customary in the mortgage
banking industry. A classified balance sheet presentation would have
aggregated current assets, current liabilities, and net working capital as
follows:
December 31,
June 30, -------------------------
1997 1996 1995
-------------- ------------ ----------
(Unaudited)
Current assets ............ $ 45,425,983 16,774,320 7,861,930
Current liabilities ...... 42,938,840 15,257,509 7,099,753
------------- ----------- ----------
Net working capital ...... $ 2,487,143 1,516,811 762,177
============= =========== ==========
(b) Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and its subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
F-8
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(1) Summary of Significant Accounting Policies -- (Continued)
(c) Cash and Cash Equivalents
For the purposes of reporting cash flows, cash includes cash on hand and
money market accounts with a maturity of three months or less.
(d) Securities
At June 30, 1997 and December 31, 1996 and 1995, the Company classified
its holdings of debt securities and readily marketable equity securities as
"available for sale", which are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
shareholders' equity. At the time of new securities purchases, a determination
will be made as to the appropriate classification pursuant to Statement of
Financial Accounting Standards (SFAS) No.115, "Accounting for Certain
Investments in Debt and Equity Securities".
Premiums and discounts on debt securities, if any, are amortized to
expense and accreted to income over the estimated life of the respective
security using the interest method. Gains and losses on the sales of
securities are recognized on realization, using the specific identification
method, and shown separately in the consolidated statements of operations.
(e) Mortgage Loans Held for Sale
Mortgage loans held for sale, net of any deferred loan origination fees
or costs, are carried at the lower of cost or market value as determined by
outstanding commitments from investors. Gains resulting from sales of mortgage
loans are recognized as of the date the loans are shipped to permanent
investors. Included in mortgage loans held for sale at June 30, 1997 and
December 31, 1996 and 1995 are approximately $13,874,000, $10,148,000 and
$1,579,000, respectively, in loans shipped but not yet funded by permanent
investors. Such funding generally occurs within 10 days of shipping.
(f) Mortgage Loans Held for Investment
Mortgage loans held for investment is comprised of one loan which was
originated and loans (one at June 30, 1997 and two at December 31, 1996 and
1995) which were purchased by the Company in prior years for the purpose of
holding for investment.
(g) Real Estate Owned Held for Sale
Real estate owned held for sale (REO) represents residential
rehabilitation properties being financed for resale. Each of the Company's
subsidiaries serves as a conduit for the purchase and resale of the
properties: the properties are acquired and marketed by various independent
contractors but funded by, and titled in the name of, one of the subsidiaries;
upon sale, the subsidiaries are reimbursed for acquisition and renovation
costs plus an agreed-upon fee; in the event the properties are not sold within
an agreed-upon time period, generally 75 to 90 days of acquisition, the
subsidiaries are also entitled to receive an interest cost-to-carry. Earnings
from sales of real estate owned are shown net in revenues in the consolidated
statements of operations except for funding costs, which are included in
interest expense on warehouse lines of credit and amounted to approximately
$134,000 and $77,000, respectively, for the six months ended June 30, 1997 and
the year ended December 31, 1996.
(h) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation. The Company provides for depreciation utilizing the
straight-line method over the estimated useful lives of the assets.
F-9
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(1) Summary of Significant Accounting Policies -- (Continued)
(i) Commitment Fees
Commitment fees received, which arise from agreements with borrowers that
obligate the Company to make a loan or to satisfy an obligation under a
specified condition, are initially deferred and recognized as income as loans
are delivered to investors, or when it is evident that the commitment will not
be utilized.
(j) Loan Origination Fees
Loan origination fees received, to the extent they represent a
reimbursement of the direct costs to originate loans, are recognized as income
in the period that the related loans are closed. The balance of loan
origination fees and loan commitment fees, and direct costs in excess of fees
received, are deferred and recognized as income when the loans are sold to
investors. The effect of accounting for such fees in accordance with SFAS
No.91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases", would not
have a material effect on the financial position or the results of operations
of the Company.
(k) Income Taxes
The Company, 66 Properties Corp. and JSF Properties Corp. have elected to
be treated as S corporations for both Federal and New York and New Jersey
state income tax purposes as of and for the six months ended June 30, 1997 and
1996, and as of and for the years ended December 31, 1996, 1995 and 1994. As a
result, the income of the Company and the aforementioned subsidiaries is taxed
directly to the individual shareholders.
RF Properties Corp. was taxed as a regular C corporation for both Federal
and state income tax purposes for the period from August 5, 1996 (commencement
of operations) to December 31, 1996, as well as, together with Jericho
Properties Corp., for the month ended January 31, 1997; thereafter, these
subsidiaries also elected to be treated as an S corporations for both Federal
and state income tax purposes.
(l) Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued SFAS
No.125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it
no longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that exist
after the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not
meet the criteria for a sale, the transfer is accounted for as a secured
borrowing with pledge of collateral. The Statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and was adopted by the Company effective January 1,
1997.
(2) Interim Period Information
The unaudited financial statements and related notes as of June 30, 1997
and for the six-month periods ended June 30, 1996 and 1997 reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the statements of operations, cash
flows and balance sheets as of and for the periods presented.
F-10
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(3) Debt and Equity Securities Available-for-Sale
The amortized cost and estimated fair values of securities are summarized
as follows:
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity security:
Common stock ...... $ 75,000 117,000 -- 192,000
========= ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Debt security:
12% convertible note .. $ 75,000 -- -- 75,000
========= ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities:
Money market mutual fund. $ 350,920 6,294 2,719 354,495
========== ===== ===== =======
</TABLE>
In 1996, the Company purchased a 12% convertible note from an investment
company. The convertible note matures the earlier of December 31, 1999, or the
initial public offering of the investment company. The investment company
became a public company in March 1997, upon which the note was converted to
shares of common stock. Because the common stock is restricted and cannot
currently be sold in the open market, the Company estimated fair value at a
significant discount from the common stock's quoted price.
The Company realized a gross gain of approximately $30,000 and $2,000 for
the years ended December 31, 1996 and 1994, respectively, on the sale of its
equity securities available-for-sale.
(4) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment at June 30, 1997 and December 31, 1996
and 1995 and their related useful lives are summarized as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1997 1996 1995 Life in years
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Furniture and fixtures ........................ $ 248,140 220,543 210,356 7
Office machinery and equipment .................. 158,021 121,120 80,830 5
---------- --------- --------
406,161 341,663 291,186
Accumulated depreciation and amortization ...... (161,218) (131,726) (84,295)
---------- --------- --------
Furniture, fixtures and equipment, net ......... $ 244,943 209,937 206,891
========== ========= ========
</TABLE>
F-11
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(4) Furniture, Fixtures and Equipment -- (Continued)
Depreciation and amortization expense, included in occupancy and
equipment in the consolidated statements of operations, amounted to $29,492
and $20,000 for the six months ended June 30, 1997 and 1996, respectively, and
$47,431, $35,875 and $20,601 for the years ended December 31, 1996, 1995 and
1994, respectively.
(5) Notes Payable
Notes payable consisted of the following at June 30, 1997 and December
31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
1997 1996 1995
-------------- ------------ ----------
<S> <C> <C> <C>
Warehouse facility - PNC ........................... $ 39,364,496 13,923,063 --
Warehouse line of credit - Fleet (formerly NatWest) . -- -- 2,488,447
Warehouse line of credit - China Trust ............ -- -- 3,987,912
Notes payable - shareholder ........................ 293,163 275,000 --
------------- ----------- ----------
$ 39,657,659 14,198,063 6,476,359
============= =========== ==========
</TABLE>
At June 30, 1997 and December 31, 1996 and 1995, approximately
$32,349,000, $12,713,000 and $6,476,000, respectively, of the mortgage loans
held for sale were pledged to secure notes payable to the various financial
institutions under warehouse lines of credit agreements. The notes are repaid
as the related mortgage loans are sold or collected.
The total lines of credit at June 30, 1997 and December 31, 1996 and
1995, were $24,000,000, $15,000,000 and $10,000,000, respectively. The Company
may borrow up to 98% of the face value of the closed mortgage loans. In 1997
and 1996, a portion of the line of credit was also used to fund purchases of
residential rehabilitation properties. The terms of the current line of credit
call for an interest rate over the one month London Interbank Offered Rate
(LIBOR), of 2% for adjustable rate mortgages and 2.25% for fixed rate
mortgages. At December 31, 1995, the interest rate was .75% over the banks'
prime rate.
At June 30, 1997, the Company had additional financing available under a
mortgage loan purchase agreement with PNC. The agreement provides the Company
up to $24 million of additional funds for loan originations through the
Company's sale to PNC of originated mortgage loans previously funded under the
line of credit and committed to be sold to institutional investors. Under the
agreement, which is being accounted for as a financing, the Company is
required to arrange for the institutional investors to take delivery of the
loans, generally within 20 days of their sale to PNC; otherwise it is required
to repurchase the loans. PNC has discretion as to the amounts of loan
purchases it is willing to make and the agreement is terminable by PNC at any
time.
The Company had $25,499,000 outstanding under the $24,000,000 line of
credit and $13,865,000 outstanding under the $24,000,000 mortgage loan
purchase agreement at June 30, 1997.
The notes payable to shareholder are due in full on January 1, 1998 and
bear interest at an annual rate of 8.00%, also payable on January 1, 1998.
(6) Noncancelable Operating Leases
The Company is obligated under various operating lease agreements
relating to branch and executive offices. Lease terms expire during the years
1998 to 2002, subject to renewal options. Management expects that in the
normal course of business, leases will be renewed or replaced by other leases.
F-12
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(6) Noncancelable Operating Leases -- (Continued)
The following schedule represents future minimum rental payments required
under noncancelable operating leases for office space and equipment as of
December 31, 1996:
Year ending December 31:
1997 ........................... $ 188,656
1998 ........................... 173,924
1999 ........................... 178,091
2000 ........................... 85,990
2001 ........................... 61,763
Thereafter ..................... 61,763
----------
Total minimum payments required ...... $ 750,187
==========
Total rent expense for the six months ended June 30, 1997 and 1996 was
$102,886 and $50,917, respectively, and for the years ended December 31, 1996,
1995 and 1994 was $114,674, $64,189 and $35,198, respectively.
(7) Employee Benefits
The Company maintains a 401(k) Profit Sharing Plan (the 401(k) Plan)
which was created effective January 1, 1994 for all employees who have
completed six months of continuous service. The Company matches 50% of the
first 2.5% of each employee's contribution. The Company's 401(k) Plan expense
was approximately $19,000 and $10,000 for the six months ended June 30, 1997
and 1996, respectively, and $18,600, $12,000 and $7,350, respectively, for the
years ended December 31, 1996, 1995 and 1994.
(8) Related-Party Transactions
In the normal course of business, advances are made by and to the Company
with affiliates. At June 30, 1997 and December 31, 1996 and 1995, the Company
had a net payable of $2,712,528, $761,661 and $465,358, respectively, due to
affiliates. Such transactions are made on substantially the same terms and
conditions, including interest rate and collateral, as those prevailing at the
same time for comparable transactions with unrelated third-parties.
(9) Financial Instruments With Off-Balance Sheet Risk and Concentrations of
Credit Risk
In the normal course of the Company's business, there are various
financial instruments which are appropriately not recorded in the financial
statements. The Company's risk of accounting loss, due to the credit risks and
market risks associated with these off-balance sheet instruments, varies with
the type of financial instrument and principal amounts, and are not
necessarily indicative of the degree of exposure involved. Credit risk
represents the possibility of a loss occurring from the failure of another
party to perform in accordance with the terms of a contract. Market risk
represents the possibility that future changes in market prices may make a
financial instrument less valuable or more onerous.
In the ordinary course of business, the Company had issued commitments to
borrowers to fund approximately $42,350,000 and $16,500,000, respectively, of
mortgage loans at June 30, 1997 and December 31, 1996. Of these commitments to
fund, $10,309,000 and $3,748,000, respectively, relate to commitments to fund
at locked-in rates and $32,041,000 and $12,752,000, respectively, relate to
commitments to fund at floating rates at June 30, 1997 and December 31, 1996.
In the normal course of its mortgage banking activities, the Company
enters into optional commitments to sell the mortgage loans that it
originates. The Company commits to sell the loans at specified prices in
future
F-13
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(9) Financial Instruments With Off-Balance Sheet Risk and Concentrations of
Credit Risk -- (Continued)
periods, generally ranging from 30 to 120 days from date of commitment
directly to permanent investors. Market risk is associated with these
financial instruments which results from movements in interest rates and is
reflected by gains or losses on the sale of the mortgage loans determined by
the difference between the price of the loans and the price guaranteed in the
commitment.
The Company may be exposed to a concentration of credit risk from a
regional economic standpoint as loans were primarily originated in the New
York Metropolitan area.
(10) Disclosures About Fair Value of Financial Instruments
SFASNo.107, "Disclosures About Fair Value of Financial Instruments",
requires the Company to disclose the fair value of its on-and off-balance
sheet financial instruments. A financial instrument is defined in SFAS No.107
as cash, evidence of an ownership interest in an entity, or a contract that
creates a contractual obligation or right to deliver or receive cash or
another financial instrument from a second entity on potentially favorable or
unfavorable terms. SFAS No.107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale.
The following table represents the carrying amounts and fair values of
the Company's financial instruments as of the dates indicated:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 December 31, 1995
--------------------------- -------------------------- ------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
amount fair value amount fair value amount fair value
------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ...... $ 635,434 635,434 409,788 409,788 399,957 399,957
Securities available-for-sale ... 192,000 192,000 75,000 75,000 354,495 354,495
Mortgage loans held for sale, net 33,766,460 33,766,460 12,712,737 12,712,737 6,893,802 6,893,802
Mortgage loans held for investment. 115,783 115,783 138,052 138,052 140,292 140,292
Accrued interest receivable ...... 81,994 81,994 53,161 53,161 10,114 10,114
Financial liabilities:
Notes payable-warehouse ......... 39,364,496 39,364,496 13,923,063 13,923,063 6,476,359 6,476,359
Notes payable-shareholder ...... 293,163 293,163 275,000 275,000 -- --
Due to affiliates ............... 2,712,528 2,712,528 761,661 761,661 465,358 465,358
</TABLE>
The carrying amounts in the table are included in the consolidated
balance sheets under the indicated captions.
The following summarizes the major methods and assumptions used in
estimating the fair values of the financial instruments:
Financial Assets
Cash and cash equivalents -- The carrying amounts for cash and cash
equivalents approximate fair value as they mature in 90 days or less and do
not present unanticipated credit concerns.
Securities available-for-sale -- Fair value is estimated based on current
market prices, if available, and on estimates made by management.
F-14
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(10) Disclosures About Fair Value of Financial Instruments -- (Continued)
Mortgage loans held for sale, net -- Fair value is estimated based on
current prices established in the secondary market or, for those loans
committed to be sold, based upon the price established in the commitment.
Mortgage loans held for investment -- Fair value is based on management's
analysis of estimated cash flows discounted at rates commensurate with the
credit risk involved.
Accrued Interest Receivable -- The fair value of the accrued interest
receivable balance is estimated to be the carrying value.
Financial Liabilities
Notes payable-warehouse -- The fair value of the notes payable is based
on discounting the anticipated cash flows using rates which approximate the
rates offered for borrowings with similar terms.
Notes payable-shareholder -- The fair value of the notes
payable-shareholder is estimated by management to be the carrying value.
Due to affiliates -- The fair value of the due to affiliates balance is
estimated to be the carrying value.
Limitations -- SFAS No.107 requires disclosures of the estimated fair
value of financial instruments. Fair value estimates are made at a specific
point in time, based on relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument nor the resultant tax ramifications or
transaction costs. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(11) Contingencies
Employment Agreements
The Company entered into employment agreements during 1996 and 1997 with
four employees which provided for additional compensation to be earned over a
one or two year term. The additional compensation must be repaid by the
employee in the event that the employee is terminated prior to the one or two
year term.
Litigation
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the Company will not be affected materially by the outcome of such
proceedings.
(12) Subsequent Events
In July 1997, the Company entered into a commitment to deliver
approximately $20,000,000 of BCD loans to one investor by September 30, 1997.
On July 17, 1997, the Company amended its warehouse line of credit. The
amendment provides for a $15,000,000 line of credit with PNC Mortgage Bank and
a $15,000,000 line of credit with LaSalle Bank. PNC Mortgage Bank is currently
the collateral and administrative agent for the Company's warehouse facility.
This increase includes a residential rehabilitation/repurchase subline which
totals $5,000,000.
F-15
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(12) Subsequent Events -- (Continued)
On August 25, 1997, the Company subordinated $1,000,000 of its "due to
affiliates" to its warehouse line of credit.
On September 24, 1997, the Company amended one of its operating leases to
include additional office space. This amendment increases the total future
minimum rental payments required as disclosed in note 6 by approximately
$229,000.
The shareholders of Premier Mortgage Corporation intend to exchange all
of their outstanding shares of common stock of Premier Mortgage Corporation
for 2,500,000 shares of PMCC Financial Corp., a newly formed Delaware holding
company. Following the exchange of shares, PMCC Financial Corp. is
contemplating an initial public offering of 1,250,000 shares of its common
stock.
Prior to the exchange, the Company will declare a distribution to the
existing shareholders in an amount equal to a portion of its undistributed S
corporation earnings that will result in the Company's shareholders' equity
equaling $1.7 million at the date of the initial public offering. Such
distributions will be payable as follows: (i) $1 million will be payable out
of the proceeds of the initial public offering, and (ii) the balance will be
payable in a promissory note bearing an interest rate of 10% per annum,
payable in five equal quarterly installments of principal and interest, with
the final payment due on April 1, 1999.
In April 1997, the Company adopted and its Board of Directors ratified a
qualified stock option plan which allows certain personnel employed by the
Company to be given an opportunity to acquire a stake in the growth of the
Company via the granting of stock options. As of June 30, 1997, options to
purchase 18.75 common shares were granted at an exercise price of $120,000 per
share. To date, no such options were exercised. Upon the exchange of shares
discussed in the second preceding paragraph, the Company intends to exchange
the outstanding options for options to purchase 375,000 common shares of PMCC
Financial Corp. at an exercise price of $6 per share.
In contemplation of the initial public offering, upon the exchange of
shares, the Company will terminate its S corporation status. As a result, PMCC
Financial Corp. and the Company will be fully subject to federal and state
income taxes (see also note 13).
(13) Unaudited Pro Forma Information
The pro forma financial information has been presented to show what the
significant effects on the historical financial position might have been had
the distribution of previously undistributed S corporation earnings and the
termination of the Company's S corporation status occurred as of June 30,
1997, in contemplation of the exchange of shares described in note 12, and to
show what the significant effects on the historical results of operations
might have been had the Company not been treated as an S corporation for
income tax purposes as of the beginning of the earliest period presented.
Pro forma net income and pro forma balance sheet - pro forma net income
represents the results of operations adjusted to reflect the Company's income
tax status as a C corporation, using a pro forma income tax rate of 42.1%,
40.0% and 28.9% for the years ended December 31, 1996, 1995 and 1994,
respectively, and 41.5% and 42.2% for the six months ended June 30, 1997 and
1996, respectively. The pro forma balance represents the balance sheet as of
June 30, 1997 adjusted to give effect to (i) the establishment of a $919,303
distribution payable for previously undistributed S corporation earnings which
are intended to be distributed, and (ii) the establishment of $150,000 of
deferred tax liabilities that would have been recorded had the Company's S
corporation status been terminated as of June 30, 1997. The amounts of the
distribution payable and deferred tax liability to be recorded will be
dependent upon the amount of undistributed S corporation earnings and upon the
temporary differences between tax and book accounting existing, respectively,
at the date of termination of the Company's S corporation status. The
principal components of the Company's net deferred tax liabilities relate to
the recognition of income on the cash basis for tax purposes.
F-16
<PAGE>
PREMIER MORTGAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
June 30, 1997 and 1996
(13) Unaudited Pro Forma Information -- (Continued)
Pro forma net income per share has been computed by dividing pro forma
net income by the 2,500,000 shares of common stock of PMCC Financial Corp. to
be received in exchange for the Company's shares adjusted for periods after
April 1997 for common stock equivalents.
The accompanying pro forma balance sheet at June 30, 1997 does not
reflect the sale of shares in the initial public offering.
F-17
<PAGE>
===============================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Common Stock offered hereby,
nor does it constitute an offer to sell or a solicitation of any offer to buy
any of the securities offered hereby to any person in any jurisdiction in which
it is unlawful to make such an offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstance create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs
of the Company since such date.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ..................... 3
Risk Factors ........................... 7
Use of Proceeds ........................ 16
Dividend Policy ........................ 16
Dilution .............................. 17
Capitalization ........................ 18
Selected Financial Data ............... 19
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ........................ 21
Business .............................. 26
Management ........................... 37
Certain Relationships and Related Party
Transactions ........................ 42
Principal Stockholders ............... 44
Description of Securities ............ 44
Shares Eligible for Future Sale ...... 46
Underwriting ........................... 47
Legal Matters ........................ 48
Experts .............................. 49
Available Information .................. 49
Index to Financial Statements ......... F-1
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters with respect to their unsold allotments or
subscriptions.
===============================================================================
<PAGE>
===============================================================================
1,250,000 Shares
PMCC
FINANCIAL CORP.
Common Stock
----------------
Prospectus
----------------
COLEMAN AND COMPANY
SECURITIES, INC.
_____________ , 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
being registered, other than underwriting discounts and commissions and the
Representative's non-accountable expense allowance. All of the amounts shown
are estimated except the Securities and Exchange Commission registration fee
and the AMEX filing fee.
Total
-----------
SEC registration fee .......................... $ 3,848.53
AMEX listing fee .............................
AMEX filing fee ................................
NASDR Fee ......................................
Blue Sky fees and expenses ....................
Printing and engraving expenses ..............
Legal fees and expenses .......................
Accounting fees and expenses .................
Transfer agent and registrar fee ..............
Miscellaneous ................................
---------------
Total ......................................
===============
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a directors (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
Company' By-Laws, any agreement, vote of shareholders or otherwise.
The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonably cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the applicable provisions, the Company has been informed
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.
II-1
<PAGE>
Exhibits
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement
*3.1 Form of Certificate of Incorporation
*3.2 Form of By-Laws
*4.1 Form of Common Stock Certificate
*4.2 Form of Representative's Warrant
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1997 Stock Option Plan
*10.2 Premier Stock Option Plan
*10.3 Form of Employment Agreement between the Company and Ronald Friedman
*10.4 Form of Employment Agreement between the Company and Robert Friedman
*10.5 Form of Contribution Agreement
*10.6 Form of Tax Agreement
*10.7 Form of Indemnity Agreement
10.8 Warehousing Credit and Security Agreement and Notes, dated June 17, 1997, by and among
Premier Mortgage Corp. and RF Properties, PNC Mortgage Bank, N.A. and LaSalle National Bank
10.9 Second Amendment to Warehouse Credit and Security Agreement and Notes, dated September 30,
1997
10.10 Mortgage Loan Purchase Agreement between Premier Mortgage Corp. and PNC Mortgage
Securities Corp.
*10.11 Mortgage and Loan Agreement by and among RF Capital Corp., Min Capital Corp., and Hanover
Hill Holsteins, Inc. and Premier Mortgage Corp.
*10.12 Form of Contractors Agreement
*10.13 Form of Stockholders Agreement
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Freeberg & Freeberg
*23.4 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Statement Schedule
99.1 Valuation and Qualifying Accounts Schedule (with consent)
</TABLE>
- ------------
* to be filed by amendment
Schedules other than the ones listed above are omitted for the reason
that they are not required or are not applicable, or the required information
is shown in the financial statements or notes thereto.
II-2
<PAGE>
Undertakings
A. Undertaking in Respect of Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information 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 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
B. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 1933 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issues.
C. Undertaking with Respect to Rule 430A.
The Company undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933 Act, 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in Roslyn Heights, New York, on October 24, 1997.
PMCC FINANCIAL CORP.
By: /s/ RONALD FRIEDMAN
------------------------------
Ronald Friedman, President
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below hereby authorizes each of
Ronald Friedman and Robert Friedman with full power of substitution to execute
in the name of such person and to file any Amendment or Post-Effective
Amendment to this Registration Statement making such changes in this
Registration Statement as the Registrant deems appropriate and appoints each
of Ronald Friedman and Robert Friedman with full power of substitution,
attorney-in-fact to sign and to file any amendment and Post-Effective
Amendment to this Registration Statement.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald Friedman President, Chief Executive Officer and October 24, 1997
- ----------------------------------- Director
Ronald Friedman
/s/ Robert Friedman Chief Operating Officer, Secretary, October 24, 1997
- ----------------------------------- Treasurer and Chairman of the
Robert Friedman Board of Directors
/s/ Timothy J. Mayette Chief Financial Officer October 24, 1997
- -----------------------------------
Timothy J. Mayette
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<S> <C> <C>
*1.1 Form of Underwriting Agreement
*3.1 Form of Certificate of Incorporation
*3.2 Form of By-Laws
*4.1 Form of Common Stock Certificate
*4.2 Form of Representative's Warrant
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1997 Stock Option Plan
*10.2 Premier Stock Option Plan
*10.3 Form of Employment Agreement between the Company and Ronald Friedman
*10.4 Form of Employment Agreement between the Company and Robert Friedman
*10.5 Form of Contribution Agreement
*10.6 Form of Tax Agreement
*10.7 Form of Indemnity Agreement
10.8 Warehousing Credit and Security Agreement and Notes, dated June 17, 1997, by and among
Premier Mortgage Corp. and RF Properties, PNC Mortgage Bank, N.A. and LaSalle National Bank
10.9 Second Amendment to Warehouse Credit and Security Agreement and Notes, dated September 30,
1997
10.10 Mortgage Loan Purchase Agreement between Premier Mortgage Corp. and PNC Mortgage
Securities Corp.
*10.11 Mortgage and Loan Agreement by and among RF Capital Corp., Min Capital Corp., and Hanover
Hill Holsteins, Inc. and Premier Mortgage Corp.
*10.12 Form of Contractors Agreement
*10.13 Form of Stockholders Agreement
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Freeberg & Freeberg
*23.4 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Statement Schedule
99.1 Valuation and Qualifying Accounts Schedule (with consent)
</TABLE>
- ------------
* to be filed by amendment
<PAGE>
WAREHOUSING CREDIT AND SECURITY AGREEMENT
THIS WAREHOUSING CREDIT AND SECURITY AGREEMENT (the "Agreement"),
dated as of July 17, 1997 by and among PREMIER MORTGAGE CORPORATION,
d/b/a PMC MORTGAGE ("PMC") and RF PROPERTIES CORP. ("RF Properties"), each a
corporation organized and existing under the laws of New York, having its
principal office at 66 Power House Road, Roslyn Heights, New York 11577 (PMC
and, RF Properties, are hereinafter collectively referred to as the "Company"
or the "Borrower"), PNC MORTGAGE BANK, NATIONAL ASSOCIATION, a national bank
organized under the laws of the United States having an office at 75 North
Fairway Drive, Vernon Hills, Illinois 60061 ("PNC") and LASALLE NATIONAL BANK,
a national banking association, having an office at 135 South LaSalle Street,
Chicago, Illinois 60603("LaSalle"), PNC and LaSalle are collectively referred
to in this Agreement as the "Banks" and PNC as agent hereunder for the Banks
is referred to in this Agreement as the "Agent".
WHEREAS, the Company has requested the Banks to extend a revolving
warehousing line of credit to the Company and the parties desire to set forth
herein the terms and conditions under which Advances shall be made and
security shall be provided for the repayment thereof as set forth in this
Agreement;
WHEREAS, the Banks have appointed PNC as agent, and PNC has agreed to
serve as agent for the Banks hereunder;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
Capitalized terms defined below or elsewhere in this Agreement
(including the Exhibits hereto) shall have the following meanings:
"Adjustable Rate Mortgage (ARM) Loan" means a Mortgage Loan in which
the interest rate is adjusted periodically according to a preselected index.
"Adjusted Tangible Net Worth" means with respect to any Person at any
date, the Tangible Net Worth of such person at such date minus capitalized
service fees, plus that portion of Subordinated Debt with initial term greater
than one year, plus the product obtained by multiplying one hundred basis
points (0.0100) times the principal balance of Mortgage Loans being serviced
at such date by the Company.
"Advance" means a disbursement by the Banks under the Commitment,
including readvances of funds previously advanced to the Company and repaid to
the Banks.
"Advance Request" has the meaning set forth in Section 2.2(b) hereof.
1
<PAGE>
"Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
"Agent" has the meaning set forth in the Recitals hereof.
"Agent-Related Persons" means PNC and any successor agent arising
under Section 11.10, together with their officers, directors, employees,
agents and attorneys-in-fact.
"Agreement" means this Warehousing Credit and Security Agreement,
either as originally executed or as it may from time to time be supplemented,
modified or amended.
"Banks" has the meaning set forth in the Recitals hereof.
"Base Rate" has the meaning set forth in Section 2.7 (b) hereof.
"Borrowing" means a borrowing hereunder consisting of Advances made
to the Company on the same day by the Banks under Article II.
"Borrowing Date" means any date on which a Borrowing occurs under
Article II.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of Illinois.
"Certificate of Sale" means a certificate of sale, sheriff's
certificate, certificate of purchase, trustee's deed or comparable document
under applicable state law, issued to Borrower pursuant to and in accordance
with such applicable state law following the foreclosure sale of real property
securing a Foreclosure Loan to evidence or confirm the purchase of such real
property at such sale (subject to any applicable rights of redemption) by the
Borrower, FHA, VA, or a private mortgage insurance company.
"Closing Date" means the date on which all the conditions precedent
set forth in Section 4.1 are satisfied or waived by the Banks.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Documents" has the meaning set forth in Section 2.2(c)
hereof.
"Commitment" means Thirty Million Dollars ($30,000,000) or such
amount to which such limit may be reduced hereunder.
"Company" has the meaning set forth in the Recitals hereof.
2
<PAGE>
"Conventional Mortgage Loan" means a Mortgage Loan other than a
FHA-insured or VA-guaranteed Mortgage Loan.
"Custodian" means the organization which holds documents relating to
pooled Mortgage Loans on the Company's and GNMA's, FNMA's or FHLMC's behalf.
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at such date; (b) all
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services; (c) all indebtedness or other
obligations of any other Person for borrowed money or for the deferred
purchase price of property or services in respect of which such Person is
liable, contingently or otherwise, to pay or advance money or property as
guarantor, endorser, or otherwise (except as endorser of negotiable
instruments for collection in the ordinary course of business), or which such
Person has agreed to purchase or otherwise acquire; and (d) all indebtedness
for borrowed money or for the deferred purchase price of property or services
secured by a Lien on any property owned or being purchased by such Person
(even though such Person has not assumed or otherwise become liable for the
payment of such indebtedness) to the extent that such indebtedness would not
be otherwise counted as a liability for purposes of determining the Tangible
Net Worth of such Person and to the extent that such indebtedness does not
exceed the net book value for such property.
"Default" means the occurrence of any event or existence of any
condition which, but for the giving of notice, the lapse of time, or both,
would constitute an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"Event of Default" means any of the conditions or events set forth in
Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Federal Funds Rate" means the average weighted rate of interest at
which federal fund transactions with member banks of the Federal Reserve are
traded, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York.
"FHA" means The Federal Housing Administration of the United States
Department of Housing and Urban Development and any successor thereto.
"FHLMC" means The Federal Home Loan Mortgage Corporation and any
successor thereto.
"FICA" means the Federal Insurance Contributions Act.
3
<PAGE>
"FNMA" means The Federal National Mortgage Association and any
successor thereto.
"Foreclosure Advance Rate" has the meaning set forth in Section
2.1(c) hereof.
"Foreclosure Loan" means a Mortgage Loan with respect to which the
following is accurate and complete (and the Company by requesting an Advance
for such Mortgage Loan shall be deemed to so represent and warrant to the
Banks at and as of the date of such request for an Advance):
(a) the holder of the Mortgage Note relating to such Mortgage Loan
has completed all required actions, and all required judicial judgments,
orders or certificates, if any, have been issued by the court of competent
jurisdiction, such that such holder of such Mortgage Note is the owner is fee
simple absolute of the Property subject to such Mortgage Loan.
(b) all redemption rights or other similar rights or periods pursuant
to which the maker of the Mortgage Note may reclaim the property subject to
the Mortgage Loan or may otherwise reinstate the Mortgage have expired and
terminated; and
(c) the Advance is for the purchase of real property containing
one-to four family residences.
"Foreclosure Receivables" means any and all reimbursement rights and
other rights to payment of the Company, and all amounts payable to the
Company, under, as proceeds of or otherwise in connection with Foreclosure
Loans, including without implied limitation, all claims against VA, FHA or
private mortgage insurance companies, and the proceeds of the related
foreclosure sale.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Gestation Repo" means a Mortgage Loan eligible for a repurchase
agreement covering the time between the date the issuing Custodian submits
documents to GNMA, FNMA, or FHLMC for initial pool certification and the date
the new security is actually issued.
"GNMA" means Government National Mortgage Association or any
successor thereto.
"Guarantors" means Ronald Friedman and Robert Friedman.
4
<PAGE>
"HUD" means the United States Department of Housing and Urban
Development or any successor thereto.
"Indemnified Liabilities" has the meaning set forth in Section 9.3
hereof.
"Insurer" means FHA, VA or a private mortgage insurer, as applicable.
"Internal Revenue Code" means the Internal Revenue Code of l986, or
any subsequent federal income tax law or laws, as any of the foregoing have
been or may from time to time be amended.
"Investor" means FNMA, FHLMC or GNMA or a financially responsible
private institution (which is deemed acceptable by the Banks in its sole
discretion) purchasing Mortgage Loans from the Company pursuant to a Purchase
Commitment.
"Jumbo Loan" means a Mortgage Loan in excess of applicable FNMA or
FHLMC limits, not to exceed $600,000 without prior written approval of the
Banks.
"Libor Interest Period" means, with respect to any Advance bearing
interest for any Libor Interest Period, in any given month, the rate
determined by the Bank to be the monthly average rate per annum, for the
previous month, offered on the London Interbank Offering Market for eurodollar
deposits in an amount approximately equal to the amount of the Advance, and
for a contract term of one (1) day (overnight), adjusted for the Banks'
reserve requirements and rounded to the next highest 1/16 of 1%.
"Libor" means the period of one day (overnight) commencing on the
date of disbursement of an Advance bearing interest at the Libor and each
successive period of one day (overnight) thereafter; provided, that if a Libor
Interest Period would end on a day which is not a Business Day, it shall end
on the next succeeding Business Day, unless such day falls in the succeeding
calendar month in which case the Libor Interest Period shall end on the next
preceding Business Day. In no event shall any Libor Interest Period end on a
day after the expiration date as set forth in Section 2.9(a).
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Loan" means an extension of credit by a Bank to the Company under
Article II in the form of an Advance.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
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"Mortgage" means either (1) a first-lien mortgage, deed of trust,
security deed or similar instrument on improved real property; or (2) a
second-lien mortgage, deed of trust, security deed or similar instrument on
improved real property.
"Mortgage Loan" means any loan evidenced by a Mortgage Note,
including a Foreclosure Loan as defined herein. A Mortgage Loan, unless
otherwise expressly stated herein, means a Residential Mortgage Loan.
"Mortgage Loan Documents" means the Mortgage, Mortgage Note, credit
and closing packages, disclosures, and all other files, records and documents
necessary to establish the eligibility of the Mortgage Loans for mortgage
insurance or guarantee by an Insurer or for purchase by an Investor.
"Mortgage Note" means a note secured by a Mortgage and evidencing a
Mortgage Loan.
"Mortgage Note Amount" means the outstanding unpaid principal amount
of a Mortgage Note at the time such Mortgage Note is pledged to the Banks.
"Multiemployer Plan" means a "Multiemployer Plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of the Company
or a Subsidiary of the Company.
"Nonconforming Mortgage Loan" means a Mortgage Loan the original
principal amount of which does not exceed Six Hundred Thousand Dollars
($600,000) and which does not conform to the eligibility requirements of FNMA
or FHLMC with respect to the credit rating of the mortgagor, but which is
underwritten and approved under Investor guidelines prior to funding. ,
"Notes" has the meaning set forth in Section 2.5 hereof.
"Notices" has the meaning set forth in Article XII hereof.
"Officers' Certificate" means a certificate executed on behalf of the
Company by its chief financial officer or its treasurer.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Plans" has the meaning set forth in Section 5.12 hereof.
"Pledged Mortgages" has the meaning set forth in Section 3.1 (a)
hereof.
"Pro Rata Share" means, as to each of PNC and LaSalle at any time, a
percentage equivalent to fifty percent (50%).
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"Purchase Commitment" means a written commitment, in form and
substance satisfactory to the Banks, issued in favor of the Company by an
Investor pursuant to which that Investor commits to purchase one or more
Mortgage Loans, along with the related correspondent or whole loan purchase
agreement by and between the Company and the Investor, in form and substance
satisfactory to the Banks, governing the terms and conditions of any such
purchases.
"Redemption Amount" has the meaning set forth in Section 3.3 hereof.
"Residential Mortgage Loan" means a Mortgage Loan secured by a
Mortgage covering improved real property containing a one-to four-family
residence.
"Servicing Contracts" means the rights and obligations of the
Company, as servicer, pursuant to the Servicing Contracts identified on
Schedule B attached hereto or made part hereof, as the same may be revised
from time to time, or such other servicing contracts to which Company is or
may be a party, to administer, collect the payments for the reduction of
principal and application of interest, pay taxes and insurance, remit
collected payments, provide foreclosure services, provide full escrow
administration and any other obligations required by any Investor or Insurer
in, of or for the Mortgage Loans pursuant to the Servicing Contracts, together
with the right to receive the servicing fees and any ancillary fees arising
from or connected to the Mortgage Loans.
"Statement Date" has the meaning set forth in Section 4.1(a)(7) hereof.
"Subordinated Debt" means Debt of the Company which has been
subordinated as provided in Sections 4.1(b) or 6.10 hereof.
"Subsidiary" means any corporation, association or other business
entity in which more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly,
by any Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Tangible Net Worth" means with respect to any Person at any date,
the excess of the total assets over total liabilities of such Person on such
date, each to be determined in accordance with GAAP consistent with those
applied in the preparation of the financial statements referred to in Section
5.4 hereof, plus that portion of Subordinated Debt not due within one year of
such date plus the reserve for loan losses, provided that, for purposes of
this Agreement, there shall be excluded from total assets, those assets of any
Person which the Banks may deem non-acceptable, or, if such Person were a HUD
mortgagee, would be deemed by HUD to be non-acceptable, in calculating
adjusted net worth in accordance with its requirements in effect as of such
date, as such requirements appear in the "Audit Guide for Audit of Approved
Non-Supervised Mortgagees."
"VA" means the Department of Veterans Affairs and any successor
thereto.
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"Wet Settlement" means a closing or settlement of a Residential
Mortgage Loan wherein the Banks are requested to make an advance to the
Company based upon delivery of the Collateral Documents to a third person as
agent for or on behalf of the Banks, but prior to examination of the
Collateral Documents by the Banks.
Section 1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined herein shall have the
meanings given them under GAAP.
1.2(b) Defined terms may be used in the singular or the
plural, as the context requires.
ARTICLE II
THE CREDIT
Section 2.1 The Commitment.
2.1(a) Subject to the terms and conditions of this Agreement
and provided no Default has occurred and is continuing, each Bank severally
agrees, from time to time during the period from the date hereof to the
expiration date (unless such period is earlier determined pursuant thereto) to
make Advances to the Company or its designee in an aggregate amount not to
exceed such Bank's Pro Rata Share of the Commitment. The aggregate amount
advanced by each Bank in any one (1) day shall not exceed fifty percent (50%)
of such Bank's Pro Rata Share of the Commitment. Within the Commitment, the
Company may borrow, repay and reborrow. The total principal amount outstanding
for Advances shall not exceed Thirty Million Dollars ($30,000,000).
2.1(b) Advances shall be used by the Company solely for the
purpose of (i) funding the origination of Mortgage Loans; and (ii) for the
purpose of repurchasing and carrying Foreclosure Loans. Advances shall be made
at the request of the Company, in the manner hereinafter provided in Section
2.2 against the pledge of such Mortgage Loans and Foreclosure Loans. Except as
provided in Section 2.2(c)(ii), no Advance shall be made against any Mortgage
Loan which is not covered by a Purchase Commitment. Such Purchase Commitment
shall include a direction by the Company to the Investor of such Mortgage Loan
to pay the purchase price of such Mortgage Loan to the Agent.
2.1(c) With respect to Advances for the origination of
Mortgage Loans, no Advance shall exceed ninety-eight (98%) of the lowest of
(i) the Mortgage Note Amount; (ii) the committed purchase price set forth in
the Purchase Commitment for the related Mortgage Loan which is originated with
the proceeds of such Advance; or (iii) the book value (net investment) of such
Mortgage Loan. Notwithstanding the immediately preceding sentence, with
respect to Advances for the origination of Nonconforming Mortgage Loans and
second-lien Mortgage Loans, no Advance shall exceed ninety-six percent (96%)
of the lowest of (i) the Mortgage Note Amount; (ii) the committed purchase
price set forth in the Purchase Commitment for the related Nonconforming
Mortgage Loan or second-lien Mortgage Loan which is originated with the
proceeds of such Advance; or (iii) the book value (net investment) of such
Nonconforming Mortgage Loan or second-lien Mortgage Loan. Notwithstanding the
immediately preceding two sentences, with respect to Advances for the
repurchasing and carrying of Foreclosure Loans, no Advance shall exceed
seventy percent (70%) (such percentage, as adjusted as hereinafter set forth,
is referred to as the "Foreclosure Advance Rate") of the lesser of (x) the
appraised value of the real property subject to the Mortgage or (y) the
current outstanding principal balance for the related Foreclosure Loan.
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2.1(d) The aggregate amount of Advances made by each Bank
for repurchasing and carrying Foreclosure Loans shall not exceed such Bank's
Pro Rata share of Five Million Dollars ($5,000,000), at any time.
2.1(e) The aggregate amount of Advances made by each Bank
for Jumbo Loans shall not exceed such Bank's Pro Rata Share of Four Million
Five Hundred Thousand Dollars ($4,500,000), at any time.
2.1(f) The aggregate amount of Advances made by each Bank
for Wet Settlement shall not exceed such Bank's Pro Rata Share of Nine Million
Dollars ($9,000,000), at any one time.
2.1(g) The aggregate amount of Advances made by each Bank
for Nonconforming Mortgage and second-lien Mortgage Loans shall not exceed
such Bank's Pro Rata Share of Three Million Dollars ($3,000,000).
Section 2.2 Procedures for Obtaining Advances.
Section 2.2(a) The Company may obtain an Advance hereunder, subject
to the satisfaction of the conditions set forth in Sections 4.1 and 4.2
hereof, upon compliance with the procedures set forth in this Section 2.3.
Section 2.2(b) Requests for Advances shall be initiated by the
Company by delivering to the Agent a completed and signed request for an
Advance (an "Advance Request") on the then current form therefor provided by
the Agent. The current form in use by the Agent for the origination of
Mortgage Loans is set forth in Exhibit C hereto. The current form in use by
the Agent for the purchase and carrying of Foreclosure Loans is set forth in
Exhibit C-1 hereto. The Agent shall have the right to require or supplement
approved forms of Advance Request by giving notice thereof to the Company.
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2.2(c) (i) The procedures to be followed by the Company in
making an Advance Request for the origination of Mortgage Loans, and the
documents relating to the Collateral described in the Advance Request (the
"Collateral Documents") required to be delivered to the Agent, shall consist
of those set forth in the following described Exhibit attached hereto and
hereby made a part hereof: "Procedures and Documentation for Warehousing
Residential Mortgage Loans" as set forth in Exhibit D hereto. Unless the
related Advance is no longer outstanding, the Company shall deliver the
remaining Collateral Documents, as set forth in the aforementioned Exhibit D,
to be furnished to the Agent within five (5) Business Days after the date of
the Wet Settlement; (ii) The procedures to be followed by the Company in
making an Advance Request for the carrying of Foreclosure Loans, and the
Collateral Documents required to be delivered to the Agent, shall consist of
those set forth in the following described Exhibit attached hereto and hereby
made a part hereof: "Procedures and Documentation for Warehousing Residential
Foreclosure Loans" as set forth in Exhibit D-1 hereto; and (iii) The Agent and
Banks shall have the right, on not less than three (3) Business Days' prior
notice to the Company, to modify said Exhibit(s) to conform to current legal
requirements or Banks' practices, and as so modified, said Exhibit(s) shall be
deemed a part hereof.
2.2(d) Before funding any Advance, the Agent shall have a
reasonable time to examine each Advance Request and the Collateral Documents
to be delivered prior to the Advance, as set forth in Exhibits D and D-1
hereto, and may reject such of them as do not meet the requirements of this
Agreement or with respect to Mortgage Loans, or the related Purchase
Commitment.
2.2(e) Upon receipt by the Agent of the Advance Request, the
Agent will notify the Banks of the Borrowing Date, the amount of Advance
requested, the interest rate, and each Bank's Pro Rata Share of the Advance,
as the case may be. No later than 4:00 p.m. (Chicago, Illinois time) on the
day of any funding, each Bank will make the amount of its Pro Rata Share of
each Advance to be made by such Bank on such day available to the Agent in
immediately available funds for the account of the Company at the following
account or such other account as the Agent may specify in writing: PNC
Mortgage Bank, N.A.; Location: _______________________; ABA # _______________
for the account: Warehouse Lending; Reference # _______________ for further
credit Premier Mortgage Corporation.
2.2(f) To make an Advance, the Agent shall wire funds to the
Company or authorize payment of the Company's draft upon compliance by the
Company with the terms of this Agreement; and (ii) immediately thereafter
debit said account for the amount of the Advance and transmit such amount in
accordance with the procedures described herein.
2.2(g) All Advances under this Agreement shall constitute a
single indebtedness and all of the Collateral shall be security for the
performance of all obligations of the Company to the Banks.
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Section 2.3 Payments to Banks and Agent. (a) Unless the Agent
receives notice from a Bank on or prior to the Closing Date or, with respect
to any Borrowing after the Closing Date, prior to or on the date of such
Borrowing, that such Bank will not make available as and when required
hereunder to the Agent for the account of the Company the amount of that
Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank
has made such amount available to the Agent in immediately available funds on
the Borrowing Date and the Agent may (but shall not be so required), in
reliance upon such assumption, make available to the Company on such date a
corresponding amount. If and to the extent any Bank shall not have made its
full amount available to the Agent in immediately available funds and the
Agent in such circumstances has made available to the Company such amount,
that Bank shall on the Business Day following such Borrowing Date make such
amount available to the Agent, together with interest at the Federal Funds
Rate for each day during such period. A notice of the Agent submitted to any
Bank with respect to amounts owing under this Section 2.4(a) shall be
conclusive, absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Bank's Loan on the date of
Borrowing for all purposes of this Agreement. If such amount is not made
available to the Agent on the Business Day following the Borrowing Date, the
Agent will notify the Company of such failure to fund and, upon demand by the
Agent, the Company shall pay such amount to the Agent for the Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the
time of the Loans comprising such Borrowing plus any late charges which may be
payable hereunder.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing
Date.
(c) If and to the extent that the Agent has not made a payment to a
Bank as and when due hereunder, then such payment shall be made on the next
Business Day, together with interest at the Federal Funds Rate from the date
due until the date paid.
Section 2.4 Sharing of Payments, Etc. If, other than as expressly
provided elsewhere herein, any Bank shall obtain on account of the Loans made
by it any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its Pro-Rata Share (or other
share contemplated hereunder), such Bank shall immediately (a) notify the
Agent of such fact, and (b) pay such amount to the other Bank.
Section 2.5 Notes. The Company's obligation to pay the principal of
and interest on, all Advances made by the Banks shall be evidenced by
promissory notes (the "Notes") of the Company, dated as of the date hereof
substantially in the forms of Exhibit A and A-1 attached hereto. The term
"Notes" shall include all extensions, renewals, and modifications of the Notes
and all substitutions therefor. All terms and provisions of the Notes are
incorporated herein.
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Section 2.6 Interest & Transaction Fees - Advances.
2.6(a) Except for Advances for ARM Loans, the unpaid amount
of each Advance shall bear interest from the date of such Advance until paid
in full at a rate of interest per annum (computed on the basis of a year of
360 days and the actual number of days elapsed) equal to the sum of (i) Libor
plus (ii) two and one quarter percent (2.25%) per annum. The unpaid amount of
each Advance for ARM Loans shall bear interest from the date of such Advance
until paid in full at a rate of interest per annum (computed on the basis of a
year of 360 days and the actual number of days alapsed) equal to the sum of
(i) Libor plus (ii) two percent (2.0%) per annum.
2.6(b) The Company shall pay to the Agent for its own
account (and not for the account of the Banks), a transaction fee equal to
Twenty Dollars ($20.00) for each Advance processed by check and Twenty-Five
Dollars ($25.00) for each Advance processed by wire under the terms of this
Agreement.
2.6(c) Interest on each Advance shall be payable upon the
earlier to occur of (i) thirty (30) days from the date of such Advance; or
(ii) the purchase by an Investor of the Mortgage Loan with respect to which
the Advance was made. Subject to the immediately preceding sentence, all
interest and transaction fees will be deducted from the proceeds remitted from
the Investor to the Banks on each Mortgage Loan, or from proceeds remitted
from VA, FHA or private mortgage insurance companies, and the proceeds of the
related foreclosure sale on each Foreclosure Loan. All accrued interest shall
be due and payable in full upon the earlier of the expiration or termination
date or upon sale of the Mortgage Loan to the Investor.
Section 2.7 Provisions Regarding Libor.
2.7(a) The holder of any Notes is hereby authorized to
record the date and amount of each payment of principal and interest, and
applicable interest rates and other information with respect thereto, on the
schedules annexed to and constituting a part of the Notes and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, that the failure to make a
notation or the inaccuracy of any notation shall not limit or otherwise affect
the obligations of the Company hereunder or thereunder.
2.7(b) If the Agent or any Bank determines (which
determination shall be final and conclusive) that, by reason of circumstances
affecting the interbank eurodollar market generally, deposits in dollars (in
the applicable amounts) are not being offered to banks in the interbank
eurodollar market for the selected term, or adequate means do not exist for
ascertaining the Libor, then the Agent shall give notice thereof to the
Borrower. Thereafter until the Agent notifies the Borrower that the
circumstances giving rise to such suspension no longer exist, (a) the
availability of Advances bearing interest at Libor shall be suspended, and (b)
the interest rate for all Advances then bearing interest at Libor shall be
converted to the Base Rate (as hereinafter defined) at the expiration of the
then current Libor Interest Period.
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In addition, if after the date of this Agreement,
Agent or any Bank shall determine (which determination shall be final and
conclusive) that any enactment, promulgation or adoption of or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by a governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by the Banks with any guideline, request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for the Banks to make or maintain
or fund Advances based upon Libor, the Agent shall notify the Borrower. Upon
receipt of such notice, until the Agent notifies the Borrower that the
circumstances giving rise to such determination no longer apply, (a) the
availability of Advances based upon Libor shall be suspended, and (b) the
interest rate on all Advances then bearing interest based upon Libor shall be
converted to the Base Rate either (i) on the last day of the then current
Libor Interest Period if the Banks may lawfully continue to maintain Advances
based upon Libor. As used herein, the "Base Rate" shall mean the rate of
interest from time to time established and publicly announced by the Agent in
its sole discretion as its then applicable base rate of interest to be used as
an index in determining actual interest rates to be charged to certain of the
Agent's borrowers. The Base Rate will be adjusted as of the effective date of
each change in the Base Rate.
2.7(c) The Borrower shall indemnify the Agent and each Bank
against all liabilities, losses or expenses (including loss of margin, any
loss or expense incurred in liquidating or employing deposits from third
parties and any loss or expense incurred in connection with funds acquired by
each Bank to fund or maintain Advances bearing interest based upon Libor which
such Bank sustains or incurs as a consequence of any attempt by the Borrower
to revoke (expressly, by later inconsistent notices or otherwise) in whole or
in part any notice given to the Agent or such Bank to request, convert, renew
or repay any such Advance. If any Bank sustains or incurs any such loss, it
shall notify the Borrower of the amount determined by such Banks to be
necessary to indemnify such Bank for such loss or expense (which determination
may include such assumptions, allocations of costs and expenses and averaging
or attribution methods as such Bank deems appropriate). Such amount shall be
due and payable by the Borrower ten (10) days after such notice is given.
Section 2.8 Principal Payments - Advances.
2.8(a) The outstanding principal amount of each Advance
shall be payable in full upon the earliest to occur of (i) demand, (ii) the
occurrence of any event described in this Section 2.8(c) hereof with respect
to such Advance or (iii) expiration or termination of the Commitment.
2.8(b) The Company shall have the right to prepay the
outstanding Advances in whole or in part, from time to time, without premium
or penalty or advance notice.
2.8(c) The Company shall be obligated to pay to the Banks,
without the necessity of prior demand or notice from the Banks, and the
Company authorizes the Banks to charge its account for, the amount of any
outstanding Advance against a specific Mortgage Loan, upon the occurrence of
any of the following events:
(1) Sixty (60) calendar days elapse from the date
the Mortgage Loan with respect to which the Advance was made was delivered to
an Investor for examination and purchase, without the purchase being made
unless an extension of an additional thirty (30) calendar days is granted by
the Banks in its sole discretion, in which case repayment would be required
ninety (90) calendar days from the time of the advance;
(2) Ten (10) calendar days elapse from the date
the Investor rejects for purchase the Mortgage Loan with respect to which the
Advance was made;
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(3) One (1) Business Day elapses from the date the
Collateral Documents relating to a Mortgage Loan against which an Advance was
made, were required to be received by the Banks without the actual receipt
thereof, or such Collateral Documents, upon examination by the Banks, are
found not to be in compliance with the requirements of this Agreement or the
related Purchase Commitment;
(4) Ten (10) Business Days elapse from the date a
Collateral Document was delivered to the Company for correction or completion,
without being returned to the Agent;
(5) Except for Foreclosure Loans, a default occurs
under the Mortgage Loan with respect to which such Advance was made and
remains uncured for a period of thirty (30) days;
(6) Ninety (90) days elapse from the date an
Advance was made with respect to a Foreclosure Loan; or
(7) Upon sale of the Mortgage Loan.
Upon making such payment to the Banks, the Company shall be deemed to have
redeemed such Mortgage Loan from pledge, and the Collateral Documents relating
thereto shall be released by the Agent to the Company or to the Investor.
Section 2.9 Expiration and/or Termination of Commitment.
2.9(a) Unless terminated earlier as permitted hereunder, the
Commitment shall expire of its own term, and without the necessity of action
by Agent or the Banks on May 31, 1998.
2.9(b) The Banks shall have the right, without cause, at any
time to terminate this Agreement on not less than sixty (60) days' notice to
the Company.
2.9(c) The Banks shall have the right to terminate this
Agreement and any line of credit extended to the Company pursuant to the terms
of this Agreement, upon any adverse material change in the Company's financial
condition as determined by the Banks in their sole discretion during the term
of this Agreement. Such an adverse change of financial condition will include,
but not be limited to the occurrence of any one or more of the events listed
in Section 8.1 hereto.
2.9(d) The Banks shall have the right from time to time and
in their sole discretion, to extend the term of this Agreement. The length of
any such extension shall also be determined in the Banks' sole discretion.
Such extension may be made subject to the renegotiation of the terms hereunder
and to any other such conditions as the Banks may deem necessary. Under no
circumstances shall such an extension by the Banks be interpreted or construed
as the Banks' forfeiture of any of its rights, entitlements or interest
created hereunder. The Company acknowledges and understands that the Banks are
under no obligation whatsoever to extend the term of this Agreement beyond its
expiration date as originally stated in this Agreement.
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Section 2.10 Method of Making Payments; Reductions in Commitment.
2.10(a) Except as otherwise specifically provided herein,
all payments hereunder shall be received by the Banks on the date when due and
shall be made in lawful money of the United States of America in immediately
available funds at the office of the Agent, at 75 North Fairway Drive, Vernon
Hills, Illinois 60061, or at such other place as the Agent or the Banks from
time to time shall designate. Whenever any payment to be made hereunder or
under the Notes shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, the interest thereon shall be
payable at the applicable rate during such extension. Funds received by the
Agent after 2:00 p.m. (Chicago, Illinois time) on a Business Day shall be
deemed to have been paid by the Company on the next succeeding Business Day.
2.10(b) The Company shall have the right, at any time and
from time to time, effective as of the first day of any calendar month, to
terminate in whole or permanently reduce in part, without premium or penalty,
the amount of the Commitment in excess of the then outstanding principal
amount of all Advances hereunder. The Company shall give written notice to the
Agent designating the date of such termination or reduction not less than five
(5) Business Days' prior to the date such termination or reduction is to take
effect, and the amount of any partial reduction of the Commitment shall be in
an aggregate minimum amount of One Million Dollars ($1,000,000) or integral
multiples of One Hundred Thousand Dollars ($100,000) in excess of that amount.
Section 2.11 Late Payment Fees. In the event the Company fails to
make any payment (whether of principal, interest or any other sum) on the date
such payment is due and payable hereunder or under the Notes, and such failure
continues for more than five (5) days, the Company shall pay to the Agent, for
the account of each Bank, upon demand therefor, a late payment fee equal to
five percent (5%) of the amount of such payment.
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Section 2.12 Net Payments; Reduced Return.
2.12(a) All payments with respect to any Advance shall be
made in such amounts as may be necessary in order that all such payments after
withholding for or on account of any present or future taxes, levies, imports,
duties or other similar charges of whatsoever nature imposed by any government
or any political subdivision or taxing authority hereof, other than any taxes
on or measured by the net income of the Banks pursuant to the state, federal
and local tax laws of the jurisdiction where the Banks' principal office or
offices or lending office or offices are located, compensate Banks for any
additional cost or reduced amount receivable of making or maintaining advances
as a result of such taxes, imports, duties or other charges.
2.11(b) If, after the date hereof, any Bank shall have
determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on any Bank capital as a consequence
of its obligations hereunder to a level below that which any Bank could have
achieved but for such adoption, change or compliance (taking into
consideration the Banks' policies with respect to capital adequacy) by an
amount deemed by any Bank to be material, then from time to time, within 30
days after demand by any Bank the Company shall pay to the Banks such
additional amount or amounts as will compensate the Banks for such reduction.
Compensation due the Banks under this subsection (b) will only accrue after
the Banks has notified the Company of any event of which it has knowledge,
occurring after the date hereof, which will entitle the Banks to compensation
pursuant to this subsection (b). A certificate of the Banks claiming
compensation under this subsection (b) and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, the Banks may use any reasonable
averaging and attribution methods.
ARTICLE III
COLLATERAL
Section 3.1 Assignments and Grant of Security Interest. As security
for the payment of the Notes and for the performance of all of the Company's
obligations hereunder, the Company hereby grants to the Agent a security
interest in all rights and interest of the Company in and to the following
described property (collectively, the "Collateral"):
3.1(a) All Mortgage Loans, including all Mortgage Notes and
Mortgages evidencing such Mortgage Loans and the related Mortgage Loan
Documents, which from time to time are delivered, or caused to be delivered,
to the Agent or the Banks (including delivery to a third party on behalf of
the Banks) pursuant hereto or in respect of which an Advance has been made by
the Banks hereunder (the "Pledged Mortgages");
3.1(b) All now existing and hereafter arising rights to the
payment of monies on account of servicing, administration and/or collection
activities pertaining to any Mortgage Loan sold to FNMA or FHLMC identified on
Schedule A, on account of the termination of any such rights, and as
reimbursement for costs and expenses incurred and Advances made by the Company
on account of obligations of the obligors under any Mortgage Loan.
3.1(c) All mortgage insurance and all commitments issued by
Insurers to insure or guarantee any Mortgage Loans included in the Pledged
Mortgages; all Purchase Commitments held by the Company covering the Pledged
Mortgages and all proceeds resulting from the sale thereof to Investors
pursuant thereto; and all personal property, contract rights, servicing and
servicing fees and income, accounts and general intangibles of whatsoever kind
relating to the Pledged Mortgages, said Insurer commitments and the Purchase
Commitments, and all other documents or instruments delivered to the Agent or
the Banks in respect of the Pledged Mortgages, including, without limitation,
the right to receive all insurance proceeds and condemnation awards which may
be payable in respect of the premises encumbered by any Mortgage;
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3.1(d) All Foreclosure Loans and all Certificates of Sale,
including without implied limitation, sheriff's certificates of purchase,
trustees' deeds or comparable documents issued to Company evidencing and
confirming the purchase of real property; VA guarantees, FHA insurance
certificates, private mortgage insurance; VA guarantee and FHA and private
mortgage insurance proceeds payable to or for the account of, or received by
Company relative to the Foreclosure Loans; redemption proceeds; any and all
Foreclosure Receivables, including reimbursement rights or other rights to
payment of Company and all amounts payable to Company, under, as proceeds of
or otherwise in connection with Foreclosure Loans, including without implied
limitation, all claims against FHA, VA, or private mortgage insurers, and
proceeds of the related foreclosure sale;
3.1(e) All right, title and interest of the Company in and
to all files, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records, and other information and
data of the Company relating to the Collateral;
3.1(f) All property of the Company, in any form or capacity
now or at any time hereafter in the possession or direct or indirect control
of the Agent or the Banks (including possession by the parent company,
affiliates or subsidiary of the Banks); and
3.1(g) All products and proceeds of any and all of the
foregoing. In addition to the foregoing grant of a security interest to the
Agent in the Collateral, the Company hereby assigns and delivers to the Agent
all of the following: (i) the Company's right (but not any liabilities of the
company) under all Purchase Commitments now held or hereafter acquired by the
Company covering Pledged Mortgages and all proceeds resulting from the sale of
Pledged Mortgages pursuant thereto; (ii) all rights of the Company (but not
any liabilities of the company) with respect to the Investor; and (iii) the
Company's right under all Certificates of Sale, including without implied
limitation, sheriff's certificates of purchase, trustee's deeds or comparable
documents issued to Company confirming the purchase of real property; and
reimbursement rights or other rights to payment of the company and all amounts
payable to the Company under Pledged Mortgages, including without limitation,
all claims against FHA, VA or private mortgage insurers, and proceeds of the
related foreclosure sale. Should the Collateral be converted into another type
of property or should purchase proceeds from Investors or Foreclosure
Receivables ever be paid or delivered to the Company as a result of the
Company's interest in the Collateral, then in such event all such property,
purchase proceeds or Foreclosure Receivables shall become part of the
Collateral and the Company will pay and deliver to the Banks all of same which
are susceptible of delivery to the Agent or the Banks, properly endorsed or
assigned, should the Agent or the Banks so require. Upon the request of the
Agent or the Banks, the Company shall execute any further document or
instrument requested by the Agent or the Banks to further evidence or
effectuate the assignments set forth in this subparagraph.
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Section 3.2 Delivery of Additional Collateral or Mandatory
Prepayment. In the event that the Agent shall determine at any time that the
value of the Collateral then pledged hereunder (such value being determined at
such time as if then being pledged under Section 3.1 hereof) is less than the
aggregate amount of the Advances then outstanding hereunder, the Company shall
immediately (a) deliver to the Agent for pledge hereunder additional Mortgage
Loans, Purchase Commitments and other related Collateral satisfactory to the
Agent (each valued at that time in accordance with Section 2.1(c) hereof)
and/or cash, in aggregate amounts sufficient to cover the difference between
the value of the Collateral pledged and the aggregate amount of Advances
outstanding hereunder, or (b) repay the Advances in an amount sufficient to
reduce the aggregate balance thereof outstanding to or below the value of the
Collateral pledged hereunder.
Section 3.3 Right of Redemption from Pledge. Provided no Event of
Default has occurred and is continuing, the Company may redeem a Mortgage Loan
from pledge, by either (i) paying, or causing an Investor to pay, to the
Banks, for application to prepayment of the principal balance of the Notes, an
amount (the "Redemption Amount") equal to the then collateral value (each
valued at that time in accordance with Section 2.1(c) hereof) of the Mortgage
Loan to be released, but not less than the amount of the Advance made with
respect to such Mortgage Loan or (ii) delivering substitute Collateral which,
in addition to being acceptable to the Banks in its sole discretion, will when
included with the Collateral, result in a collateral value (as determined in
accordance with Section 2.1 (c) hereof) of all Collateral held by the Banks
which is at least equal to the aggregate outstanding Advances.
Section 3.4 Collection and Servicing Rights. So long as no Event of
Default shall have occurred, the Company shall be entitled to service, receive
and collect directly all sums payable to the Company in respect of the
Collateral, except amounts payable to the Company for the purchase by any
Investor under a Purchase Commitment of any Mortgage Loans which are funded in
whole or in part with the proceeds of any Advance, which amounts shall be paid
directly to the Banks. The Company shall direct each Investor to pay the
amounts payable for the purchase of such Mortgage Loans directly to the Banks.
Following the occurrence of any Event of Default, the Banks shall thereafter
be entitled to service, receive and collect all sums payable to the Company in
respect of the Collateral, and in such case (a) the Banks in its discretion
may, in their own name or in the name of the Company or otherwise, demand, sue
for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall
be under no obligation to do so, (b) the Company shall, if the Banks so
requests, forthwith pay to the Banks at its principal office or such other
place as the Banks may designate all amounts thereafter received by the
Company upon or in respect of any of the Collateral, advising the Banks as to
the source of such funds, and (c) all amounts so received and collected by the
Banks shall be held by it as part of the Collateral.
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Section 3.5 Return of Collateral at End of Commitment. If (i) the
Commitment shall have expired or been terminated, and (ii) no Advances,
interest or other amounts evidenced by the Notes or due under this Agreement
shall be outstanding and unpaid, the Agent and the Banks shall deliver or
release all Collateral in its possession to the Company. The receipt of the
Company for any Collateral released or delivered to the Company pursuant to
any provision of this Agreement shall be a complete and full acquittance for
the Collateral so returned, and the Agent and the Banks shall hereafter be
discharged from any liability or responsibility therefor.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Initial Advance. The obligation of the Banks to make the
initial Advance is subject to the satisfaction, in the sole discretion of the
Banks, on or before the date thereof of the following conditions precedent:
4.1(a) The Banks shall have received counterparts of the
following, all of which must be satisfactory in form and content to the Agent,
in its sole discretion:
(1) The Notes duly executed by the Company;
(2) The Guarantees, in the form attached hereto as
Exhibit B, duly executed by the Guarantors;
(3) Certified copies of the Company's articles of
incorporation and bylaws, and certificates of good standing dated no less
recently than three (3) months prior to the date of the initial Advance;
(4) A written opinion of counsel to the Company
and the Guarantors (or of separate counsel at the option of the Company and
the Guarantors) in form and content satisfactory to the Banks, dated as of, or
prior to, the date of the initial Advance, addressed to the Banks and the
Agent, substantially in the form attached hereto as Exhibit I.
(5) An original resolution of the board of
directors of each of PMC and RF Properties, certified as of the date of the
initial Advance by its corporate secretary, authorizing the execution,
delivery and performance of this Agreement and the Notes, and all other
instruments or documents to be delivered by the Company pursuant to this
Agreement;
(6) A certificate of the Company's corporate
secretary as to the incumbency and authenticity of the signatures of the
officers of the Company executing this Agreement and the Notes and each
Advance Request and all other instruments or documents to be delivered
pursuant hereto (the Agent being entitled to rely thereon until a new such
certificate has been furnished to the Banks);
(7) Original independently audited financial
statements of the Company (and their Subsidiaries, on a consolidated basis)
for the most recent fiscal year end containing a balance sheet and related
statements of income and retained earnings (the "Statement Date") and changes
in financial position for the period ended on the Statement Date, all prepared
in accordance with GAAP applied on a basis consistent with prior periods and
acceptable to the Banks;
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(8) Financial statements of the Guarantors, signed
by them, dated no less recently than three (3) months prior to the date of the
initial Advance;
(9) Copies of the certificates, documents or other
written instruments which evidence the Company's eligibility described in
Section 5.13 hereof, all in form and substance satisfactory to the Agent;
(10) Copies of the Company's errors and omissions
insurance policy or mortgage impairment insurance policy and blanket bond
coverage policy, or certificates in lieu of policies, all in form and content
satisfactory to the Agent, showing compliance by the Company as of the date of
the initial Advance with the related provisions of Section 6.8 hereof;
(11) With respect to each Advance, a copy of
irrevocable instructions to the Investor stating that payment for the Mortgage
Loan will be remitted to the Banks in the form of Exhibit J;
(12) A power of attorney in the form of Exhibit K;
and
(13) A Master Bailee Agreement for Foreclosure
Loans in the form of Exhibit L.
4.1(b) At the sole discretion of the Banks, the Banks may
require any director, officer or shareholder of the Company, all Affiliates of
the Company or of any Subsidiary of the Company, and each of the Guarantors,
to whom or to any of whom the Company shall be indebted as of the date of this
Agreement, to execute a Subordination of Debt Agreement, in the form of
Exhibit F hereto; and the Banks shall have received an executed copy of said
Subordination of Debt Agreement, certified by the corporate secretary of the
Company to be true and complete and in full force and effect as of the date of
the Advance.
Section 4.2 Each Advance. The obligation of the Banks to make the
initial and each subsequent Advance is subject to the satisfaction, in the
sole discretion of the Banks, as of the date of each such Advance, of the
following additional conditions precedent:
4.2(a) The Company shall have delivered to the Agent the
Advance Request, and Collateral Documents called for under, and shall have
satisfied the procedures set forth in, Sections 2.2(a) through 2.2(b) hereof
and the applicable Exhibits hereto described in those Sections. All items
delivered to the Banks must be satisfactory to the Banks in form and content,
and the Banks may reject such of them as do not meet the requirements of this
Agreement or of the related Purchase Commitment as provided in Section 2.2(c).
4.2(b) The Agent shall have received evidence satisfactory
to it as to the due filing and recording in all appropriate offices of all
financing statements and other instruments as may be necessary to perfect the
security interest of the Agent in the Collateral under the Uniform Commercial
Code of the State of Illinois or other applicable law.
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4.2(c) The representations and warranties of the Company
contained in Article V hereof shall be true and correct in all material
respects as if made on and as of the date of each Advance.
4.2(d) The Company and the Guarantors shall have performed
all agreements to be performed by them hereunder and under the Guaranty,
respectively, and after giving effect to the requested Advance, there shall
exist no Default hereunder.
4.2(e) The Company shall not have (i) incurred any material
liabilities, direct or contingent, other than in the ordinary course of its
business, since the dates of the Company's most recent financial statements
theretofore delivered to the Banks or (ii) experienced any other material
adverse change in its business or operations.
4.2(f) The Banks shall have received from counsel for the
Company or for the Guarantors or both, if requested by the Banks in its sole
discretion, an updated opinion, in form and substance satisfactory to the
Banks, addressed to the Banks and dated as of the date of such Advance,
covering such of the matters set forth in Section 4.1(a)(4) hereto as the
Banks may reasonably request.
Acceptance of the proceeds of the requested Advance by the
Company shall be deemed a representation by the Company that all conditions
set forth in this Section 4.2 shall have been satisfied as of the date of such
Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and make
each Advance the Company hereby represents and warrants to the Banks, as of
the date of this Agreement and as of the date of each Advance Request, that:
Section 5.1 Organization; Good Standing; Subsidiaries. The Company
and each Subsidiary of the Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the full legal power and authority to own its property and
to carry on its business as currently conducted and is duly qualified as a
foreign corporation to do business and is in good standing in each
jurisdiction in which the transaction of its business makes such qualification
necessary, except in jurisdictions, if any, where a failure to be in good
standing has no material adverse effect on the business, operations, assets or
financial condition of the Company or any such Subsidiary. The Company has no
Subsidiaries except as set forth on Exhibit G hereto. Exhibit G sets forth the
name of each such Subsidiary, place of incorporation, each state in which
qualified as a foreign corporation, and the percentage ownership of the
capital stock of each such Subsidiary by the Company.
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Section 5.2 Authorization and Enforceability. The Company has the
power and authority to execute, deliver and perform this Agreement, the Notes
and all other documents contemplated hereby or thereby. The Guarantors each
have the power and capacity to execute, deliver and perform the Guarantees.
The execution, delivery and performance by the Company of this Agreement, the
Notes and all other documents contemplated hereby or thereby and the making of
the borrowing hereunder and thereunder, have been duly and validly authorized
by all necessary corporate action on the part of the Company (none of which
actions have been modified or rescinded, and all of which actions are in full
force and effect) and do not and will not conflict with or violate any
provision of law or of the articles of incorporation or by-laws of the
Company, conflict with or result in a breach of or constitute a default or
require any consent under, or result in the creation of any Lien upon any
property or assets of the Company, or result in or require the acceleration of
any indebtedness of the Company pursuant to any agreement, instrument or
indenture to which the Company is a party or by which the Company or its
property may be bound or affected. This Agreement, the Notes and all other
documents contemplated hereby or thereby and the Guarantees constitute legal,
valid, and binding obligations of the Company or of the Guarantors,
respectively, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other such laws affecting the enforcement
of creditors' rights.
Section 5.3 Approvals. The execution and delivery of this Agreement,
the Notes and all other documents contemplated hereby or thereby and the
performance of the Company's obligations hereunder and thereunder do not
require any license, consent, approval or other action of any state or federal
agency or governmental or regulatory authority.
Section 5.4 Financial Condition. The balance sheet of the Company
(and, if applicable, its Subsidiaries, on a consolidated basis) as at the
Statement Date, and the related statements of income and changes in
shareholders' equity for the fiscal year ended on the Statement Date,
heretofore furnished to the Banks, fairly present the financial condition of
the Company (and its Subsidiaries) as at the Statement Date and the results of
its operations for the fiscal period ended on the Statement Date. The Company
had, on the Statement Date, no liabilities, direct or indirect, fixed or
contingent, matured or unmatured, known or unknown, or liabilities for taxes,
long-term leases or unusual forward or long-term commitments not disclosed by,
or reserved against in, said balance sheet and related statements, and at the
present time there are no material unrealized or anticipated losses from any
loans, advances or other commitments of the Company except as heretofore
disclosed to the Banks in writing. Said financial statements were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved. Since the Statement Date, there has been no material adverse change
in the business, operations, assets or financial condition of the Company (and
its Subsidiaries), nor is the Company aware of any state of facts which (with
or without notice or lapse of time or both) would or could result in any such
material adverse change.
Section 5.5 Litigation. There are no actions, claims, suits or
proceedings pending, or to the knowledge of the Company, threatened or
reasonably anticipated against or affecting the Company or any Subsidiary of
the Company in any court or before any arbitrator or before any government
commission, board, bureau or other administrative agency which, if adversely
determined, may reasonably be expected to result in any material and adverse
change in the business, operations, assets, licenses, qualifications or
financial condition of the Company as a whole.
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Section 5.6 Compliance with Laws. Neither the Company nor any
Subsidiary of the Company is in violation of any provision of any law, or of
any judgment, award, rule, regulation, order, decree, writ or injunction of
any court or public regulatory body or authority which might have a material
adverse effect on the business, operations, assets or financial condition of
the Company as a whole.
Section 5.7 Regulation U. The Company is not engaged principally, or
as one of its major activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no part of the proceeds of
any Advances made hereunder will be used to purchase or carry any Margin Stock
or to extend credit to others for the purpose of purchasing or carrying any
Margin Stock.
Section 5.8 Investment Company Act. The Company is not an "investment
company," or a company controlled by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 5.9 Payment of Taxes. The Company has filed or caused to be
filed all federal, state and local income, excise, property and other tax
returns with respect to the operations of the Company and its Subsidiaries
which are required to be filed, all such returns are true and correct, and the
Company has paid or caused to be paid all taxes as shown on such returns or on
any assessment, to the extent that such taxes have become due.
Section 5.10 Agreements. Neither the Company nor any Subsidiary of
the Company is a party to any agreement, instrument or indenture or subject to
any restriction materially and adversely affecting its business, operations,
assets or financial condition, except as disclosed in the financial statements
described in Section 5.4 hereof. Neither the Company nor any Subsidiary of the
Company is in default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement,
instrument, or indenture which default could have a material adverse effect on
the business, operations, properties or financial condition of the Company as
a whole. No holder of any indebtedness of the Company or of any of its
Subsidiaries has given notice of any asserted default thereunder, and no
liquidation or dissolution of the Company or of any of its Subsidiaries and no
receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to the Company or of any of its Subsidiaries or any of
its properties is pending, or to the knowledge of the Company, threatened.
Section 5.11 Title to Properties. The Company and each Subsidiary of
the Company has good, valid, insurable (in the case of real property) and
marketable title to all of its properties and assets (whether real or
personal, tangible or intangible) reflected on the financial statements
described in Section 5.4 hereof, except for such properties and assets as have
been disposed of since the date of such financial statements as no longer used
or useful in the conduct of its business or as have been disposed of in the
ordinary course of business, and all such properties and assets are free and
clear of all Liens except as disclosed in such financial statements.
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Section 5.12 ERISA. All plans ("Plans") of a type described in
Section 3(3) of ERISA in respect of which the Company or any Subsidiary of the
Company is an "Employer", as defined in Section 3(8) of ERISA, are in
substantial compliance with ERISA, and none of such Plans is insolvent or in
reorganization, has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Internal Revenue Code, and neither the Company
nor any Subsidiary of the Company has incurred any material liability
(including any material contingent liability) to or on account of any such
Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no
proceedings have been instituted to terminate any such plan, and no condition
exists which presents a material risk to the Company or a Subsidiary of the
Company of incurring a liability to or on account of any such Plan pursuant to
any of the foregoing Sections of ERISA.
Section 5.13 Eligibility. The Company meets the application criteria
set forth in the Warehouse Line Application. The Company has all state and
local permits, licenses, approvals, registrations and qualifications which it
is required to have in order to make, purchase, sell or service the Mortgage
Loans. The Company, if approved, is qualified and in good standing as a lender
or seller/servicer, as set forth below, and meets all requirements applicable
to its status as such:
5.13(a) GNMA approved issuer and servicer of Mortgage Loans
guaranteed by GNMA.
5.13(b) HUD approved lender, eligible to originate,
purchase, hold, sell and service FHA-insured Mortgage Loans (and to
participate in HUD's Direct Endorsement Mortgage Insurance Program).
5.13(c) FNMA approved seller/servicer of Mortgage Loans,
eligible to originate, purchase, hold, sell, and service Mortgage Loans to be
sold to FNMA.
5.13(d) FHLMC approved seller/servicer of Mortgage Loans,
eligible to originate, purchase, hold, sell and service Mortgage Loans to be
sold to FHLMC.
5.13(e) Lender in good standing under the VA loan guarantee
program eligible to originate (on an "automatic" basis), purchase, hold, sell
and service VA-guaranteed Mortgage Loans.
Section 5.14 Special Representations Concerning Collateral. The
Company hereby represents and warrants to the Banks, as of the date of this
Agreement and as of the date of each Advance Request, that:
5.14(a) The Company owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for the security
interest created by this Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of
Banks or the Agent relating to this Agreement. The Company has no trade name.
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5.14(b) This Agreement, together with possession of the
Mortgage Note and a duly filed financing statement, creates a valid and
perfected first priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly taken
or shall be taken at the time of the initial Advance hereunder.
5.14(c) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required (and has not been obtained, delivered or filed, as applicable) either
(i) for the grant by the Company of the security interest granted hereby or
for the execution, delivery or performance of this Agreement by the Company or
(ii) for the perfection of or the exercise by Banks or the Agent of its rights
and remedies hereunder, other than the filing of a financing statement which
has been duly executed by the Company and delivered to The Agent for filing.
5.14(d) The principal office of the Company for purposes of
Section 9-103 of the Uniform Commercial Code is located at the address set
forth on the first page of this Agreement.
5.14(e) Each Mortgage Loan conforms to the requirements and
the specifications set forth in the applicable Purchase Commitment and the
related regulations, rules, requirements and/or handbooks of the applicable
Investor and is eligible for sale to and insurance or guaranty by,
respectively, the applicable Investor and the applicable insurer.
5.14(f) The Mortgage Loan Documents have been duly executed
by the mortgagor and create valid and legally binding obligations of the
mortgagor, enforceable in accordance with their terms, except as may be
limited by bankruptcy or other laws affecting the enforcement of creditors'
rights generally, and there are no rights of rescission, set-offs,
counterclaims or other defenses with respect thereto. The full original
principal amount of each Mortgage Loan (net of any discounts) has been fully
advanced or disbursed to the mortgagor named therein. There is no requirement
for future advances and, except for loans insured under Section 203(K) of the
National Housing Act, any and all requirements as to completion of any on-site
or off-site improvements and as to disbursements of any escrow funds therefor
have been satisfied. To Company's knowledge and except as disclosed to Banks,
there is no default, breach, violation or event of acceleration existing under
the Mortgage or the related Mortgage Note, and no event has occurred which,
with the passage of time or with notice and the expiration of any grace or
cure period, would constitute a default, breach, violation or event of
acceleration; and the Company has not waived any default, breach, violation or
event of acceleration. The terms of the Mortgage Loan have in no way been
waived, impaired, changed or modified. To Company's knowledge and except as
disclosed to Banks, all tax identifications and property descriptions are
legally sufficient; tax segregation, where required, has been completed. All
taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid, or an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid.
5.14(g) Each of the Mortgage Loans has been originated, made
and serviced in material compliance with all industry standards, applicable
Investor and Insurer requirements and all applicable federal, state and local
statutes, regulations and rules, including, without limitation, the Federal
Truth-in-Lending Act of 1968, as amended, and Regulation Z thereunder, the
Federal Fair Credit Reporting Act, the Federal Equal Credit Opportunity Act,
the Federal Real Estate Settlement Procedures Act of 1974, as amended, and
Regulation X thereunder, and all applicable usury, licensing, real property,
consumer protection and other laws. All applicable federal, state and local
laws, regulations and rules relative to the Foreclosure Loans, the
Certificates of Sale and insurance and guarantee proceeds in connection with
the Foreclosure Loans will be fully complied with.
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5.14(h) Each Conventional Mortgage Loan is insured as to
payment defaults by a policy of primary mortgage guaranty insurance in the
amount required where applicable, and by an insurer approved, by the
applicable Investor and all provisions of such primary mortgage guaranty
insurance policy have been and are being complied with, such policy is in full
force and effect, and all premiums due thereunder have been paid. Each
Mortgage Loan which is represented by the Company to have, or to be eligible
for, FHA insurance is insured, or eligible to be insured, pursuant to the
National Housing Act. Each Mortgage Loan which is represented by the Company
to be guaranteed, or to be eligible for guaranty, by the VA is guaranteed, or
eligible to be guaranteed, under the provisions of Chapter 37 of Title 38 of
the United States Code. As to each FHA insurance certificate or each VA
guaranty certificate, the Company has complied with applicable provisions of
the insurance for guaranty contract and federal statutes and regulations, all
premiums or other charges due in connection with such insurance or guarantee
have been paid, there has been no act or omission which would or may
invalidate any such insurance or guaranty, and the insurance or guaranty is,
or when issued, will be, in full force and effect with respect to each
Mortgage Loan. There are no defenses, counterclaims, or rights of setoff
affecting the Mortgage Loans or affecting the validity or enforceability of
any private mortgage insurance or FHA insurance applicable to the Mortgage
Loans or any VA guaranty with respect to the Mortgage Loans.
5.14(i) Each of the Mortgage Loans presently is covered by a
policy of hazard insurance (and flood insurance and insurance against other
insurable risks and hazards as required by the applicable Investor and the
agreements applicable to such Mortgage Loans), in amounts not less than
outstanding principal balance of the Mortgage Loans or such maximum lesser
amount as permitted by applicable law, all in a form usual and customary in
the industry and which is in full force and effect, and all amounts required
to have been paid under any such policy have been paid; and all taxes,
assessments, ground rents or other applicable charges or fees due and payable
as to each Mortgage Loan have been paid. Each Loan is covered by a valid and
assignable, full fee, life of loan tax service contract, in full force and
effect.
5.14(j) A valid and enforceable title policy currently in
full force and effect has been issued for each Mortgage Loan in an amount not
less than the original principal amount of such Mortgage Loan, which title
policy insures that the Mortgage relating thereto is either (i) a valid first
lien on the property therein described and that the mortgaged property is free
and clear of all encumbrances and liens having priority over the first lien of
the Mortgage, and otherwise in compliance with the requirements of the
applicable Investor; or (ii) if the Mortgage Loan is insured under Title I of
the National Housing Act, a valid second lien on the property therein
described and that the mortgaged property is free and clear of all
encumbrances and liens (other than the first lien) having priority over the
second lien of mortgage, and otherwise in compliance with the requirements of
the applicable Investor.
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5.14(k) All escrow/custodial accounts have been established
in accordance with the requirements of FHA, VA and the applicable Investor and
Insurer and all other applicable laws and by the terms of the related
Mortgages.
5.14(l) There are no accrued liabilities of the Company with
respect to the Mortgage Loans.
5.14(m) The Company, all prior servicers and, if different,
the originating mortgagee, have performed all obligations required of them to
be performed under or pursuant to each of the Servicing Contracts and related
requirements of the applicable Investor and Insurer and each other document or
agreement relating to the Mortgage Loans by which the Company is bound, and no
event has occurred and is continuing which, under the provisions of any such
Servicing Contracts and related requirements of the applicable Investor or
other document or agreement, but for the passage of time or the giving of
notice, or both, would constitute an event of default thereunder.
5.14(n) The books, records, accounts and reports of the
Company with respect to the Mortgage Loans and Servicing Contracts have been
prepared and maintained in accordance with all applicable Investor and Insurer
requirements.
Section 5.l5 Warehouse Line Application. All of the information set
forth in the Warehouse Line Application is true, accurate and complete.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company agrees that so long as the Commitment is outstanding or
there remain any obligations of the Company to be paid or performed under this
Agreement or under the Notes, the Company shall:
Section 6.1 Payment of Notes. Punctually pay or cause to be paid the
principal and interest on and all other amounts due and payable hereunder and
under the Notes in accordance with the terms hereof and thereof.
Section 6.2 Financial Statements and Other Reports. Deliver to the
Banks:
6.2(a) Upon request by the Banks, as soon as available and
in any event within thirty (30) days after each calendar month, statements of
income and changes in shareholders' equity of the Company (and, if applicable,
its Subsidiaries, on a consolidated basis) for the immediately preceding
month, and related balance sheet as of the end of the immediately preceding
month, all in reasonable detail and certified by the chief financial officer
of the Company, subject, however, to year-end audit adjustments.
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6.2(b) As soon as available and in any event within sixty
(60) days after the close of each of the first three fiscal quarters of the
Company in each fiscal year: statements of income and changes in shareholders'
equity of the Company (and, if applicable, its Subsidiaries, on a consolidated
basis) for the period from the beginning of such fiscal year to the end of
such fiscal quarter, and the related balance sheet as at the end of such
fiscal quarter, all in reasonable detail and certified by the chief financial
officer of the Company, subject, however, to year-end audit adjustments.
6.2(c) As soon as available and in any event within ninety
(90) days after the close of each fiscal year: a statement of income and
changes in shareholders' equity of the Company (and, if applicable, its
Subsidiaries, on a consolidated basis) for such year, the related balance
sheet as at the end of such year (setting forth in comparative form the
corresponding figures for the preceding fiscal year), all in reasonable detail
and accompanied by an opinion of an accounting firm reasonably satisfactory to
the Banks, or other independent public accountants of recognized standing
selected by the Company and acceptable to the Banks, as to said financial
statements and a certificate signed by the chief financial officer of the
Company stating that said financial statements fairly present the financial
condition and results of operations of the Company (and, if applicable, its
Subsidiaries) as at the end of, and for, such year.
6.2(d) Together with each delivery of financial statements
pursuant to Sections 6.2(b) and 6.2(c) hereof, an Officer's Certificate
stating that the signatory or signatories thereto have reviewed the terms of
this Agreement and have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and conditions of the Company
(and, if applicable, its Subsidiaries) during the accounting period covered by
such financial statements and that such review has not disclosed the existence
during or at the end of such accounting period, and that the signatory or
signatories thereto do not have knowledge of the existence as of the date of
the Officer's Certificate, of any Default or if any Default existed or exists,
specifying the nature and period of the existence thereof and what action the
Company has taken, is taking and proposes to take with respect thereto.
6.2(e) As soon as available and in any event within ninety
(90) days after the close of each fiscal year of the Company, current
financial statements and the most recently filed federal and state income tax
returns of the Guarantors, signed by them, and dated not more than ninety (90)
days prior to the date of required delivery to the Banks hereunder.
6.2(f) Such other reports in respect of the Mortgage Loans
or Foreclosure Loans, in such detail and at such times as the Banks in their
discretion may request at any time or from time to time.
6.2(g) Copies of all regular or periodic financial and other
reports, if any, which the Company shall file with the Securities and Exchange
Commission or any governmental agency successor thereto.
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6.2(h) Copies of all audits, examinations and reports
concerning the operations of the Company from any Investor, Insurer or
licensing authority.
6.2(i) Any and all changes to the information set forth in
the Warehouse Line Application to assure that the same continues to be true,
accurate and complete.
6.2(j) From time to time, with reasonable promptness, such
further information regarding the business, operations, properties or
financial condition of the Company as the Banks may reasonably request.
All financial statements and reports furnished to the Banks
hereunder shall be prepared in accordance with GAAP, applied on a basis
consistent with that applied in preparing the financial statements as at, and
for the period ended, the Statement Date (except to the extent otherwise
required to conform to good accounting practice).
Section 6.3 Maintenance of Existence; Conduct of Business. Preserve
and maintain its corporate existence in good standing and all of its rights,
privileges, licenses, qualifications and franchises necessary or desirable in
the normal conduct of its business, including, without limitation, its
eligibility as an approved lender and issuer as described under Section 5.13
hereof; conduct its business in an orderly and efficient manner; maintain a
net worth of acceptable assets as required by its Investors at any and all
times for maintaining the Company's status as a FHA approved lender; and make
no change in the nature or character of its business or engage in any business
in which it was not engaged on the date of this Agreement.
Section 6.4 Compliance with Applicable Laws. Comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority and prudent industry standards, a breach of which could
materially adversely affect its business, operations, assets, or financial
condition or which could materially adversely impair the ability of Company to
perform its obligation hereunder, except where contested in good faith and by
appropriate proceedings.
Section 6.5 Inspection of Properties and Books. Permit authorized
representatives of the Agent and Bank, their parent companies or affiliates to
discuss the business, operations, assets and financial condition of the
Company and its Subsidiaries with their officers and employees and to examine
their books of account and make copies or extracts thereof, all at such
reasonable times as the Agent and Banks may request. The Company will provide
its accountants with a copy of this Agreement promptly after the execution
hereof and will instruct its accountants to answer candidly and fully any and
all questions that the officers of the Banks or any authorized representatives
of the Banks may address to them in reference to the financial condition or
affairs of the Company and its Subsidiaries. The Company may have its
representatives in attendance at any meetings between the officers or other
representatives of the Banks and the Company accountants held in accordance
with this authorization.
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Section 6.6 Notice. Give prompt written notice to the Banks of (a)
any action, suit or proceeding instituted by or against the Company or any of
its Subsidiaries in any federal or state court or before any commission or
other regulatory body (federal, state or local, domestic or foreign), or any
such proceedings threatened against the Company or any of its Subsidiaries in
a writing containing the details thereof, (b) the filing, recording or
assessment of any federal, state or local tax lien against it, or any of its
assets or any of its Subsidiaries, (c) the occurrence of any Event of Default
hereunder or the occurrence of any Default and continuation thereof for five
(5) days, (d) the actual or threatened suspension, revocation or termination
of the Company's eligibility, in any respect, as an approved lender, and
issuer as described under Section 5.13 hereof, (e) the suspension, revocation
or termination of any existing credit or investor relationship made to the
Company to facilitate the sale and/or origination of residential mortgages,
(f) the transfer or loss of any Servicing Contract to which the Company is a
party, or which is held for the benefit of the Company, and the reason for
such transfer or loss, if known to the Company, (g) any demand by any Investor
or Insurer for either the repurchase of a mortgage loan or indemnification and
(h) any other action, event or condition of any nature which may lead to or
result in a material adverse effect upon the business, operations, assets, or
financial condition of the Company and its Subsidiaries or which, with or
without notice or lapse of time or both, would constitute a default under any
other agreement, instrument or indenture to which the Company is a party or to
which the Company, its properties or assets may be subject.
Section 6.7 Payment of Debt, Taxes, etc. Pay and perform all
obligations of the Company, and cause to be paid and performed all obligations
of its Subsidiaries, promptly and in accordance with the terms thereof and pay
and discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies imposed upon the Company or its
Subsidiaries or upon their respective income, receipts or properties before
the same shall become past due, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might become a Lien or
charge upon such properties or any part thereof; provided, however, that the
Company and its Subsidiaries shall not be required to pay taxes, assessments
or governmental charges or levies or claims for labor, materials or supplies
for which the Company or its Subsidiaries shall have obtained an adequate bond
or adequate insurance or which are being contested in good faith and by proper
proceedings which are being reasonably and diligently pursued.
Section 6.8 Insurance. Will maintain (a) errors and omissions
insurance or mortgage impairment insurance and blanket bond coverage, with
such companies and in such amounts as satisfy prevailing FNMA, GNMA or FHLMC
requirements applicable to a qualified mortgage originating institution, and
(b) liability insurance and fire and other hazard insurance on its properties,
with responsible insurance companies approved by the Banks, in such amounts
and against such risks as is customarily carried by similar businesses
operating in the same vicinity; and (c) within thirty (30) days after notice
from the Banks, will obtain such additional insurance as the Banks shall
reasonably require, all at the sole expense of the Company. Copies of all such
policies shall be furnished to the Banks without charge upon request of the
Banks.
Section 6.9 Insured Closings. To the extent permitted by applicable
state law, will obtain and maintain in effect at all times an insured closing
letter from each title insurance company from which mortgagee title insurance
is procured, indemnifying and holding the Company harmless from and against
the failure of the agents and approved title attorneys of such title insurance
companies to comply with the written closing instructions of the Company as to
the Mortgage Loans pledged hereunder and will provide the Banks with evidence
of the same from time to time upon request. The Company agrees to indemnify
and hold the Banks harmless from and against any loss, including reasonable
attorneys' fees and costs, attributable to the failure of such title insurance
company, agent or approved attorney to comply with the disbursement or
instruction letter or letters of the Company or of the Banks relating to such
Mortgage Loan. The Banks shall have the right to pre-approve the closing
instructions of the Company to the title insurance company, agent or attorney
in any case where the Mortgage Loan to be created at settlement is intended to
be warehoused by the Company pursuant hereto.
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Section 6.10 Subordination of Certain Indebtedness. Will cause any
indebtedness of the Company, incurred after the date of this Agreement, to any
shareholder, director or officer of the Company, or to any Affiliate of the
Company or of any Subsidiary of the Company, or to the Guarantors, to be
subordinated to all obligations of the Company under this Agreement and the
Notes, by the execution of a Subordination of Debt Agreement in the form of
Exhibit F hereto and will deliver to the Banks an executed copy of said
Agreement, certified by the corporate secretary of the Company to be true and
complete and in full force and effect.
Section 6.11 Other Loan Obligations. Will perform all obligations
under the terms of each loan agreement, note, mortgage, security agreement or
debt instrument by which the Company is bound or to which any of its property
is subject, and will promptly notify the Banks in writing of the cancellation
or reduction of any of its other mortgage warehousing lines of credit or
agreements with any other lender.
Section 6.12 Use of Proceeds of Advances . Will use the proceeds of
each Advance solely for the purpose of financing Mortgage Loans or
repurchasing and carrying Foreclosure Loans.
Section 6.13 Special Affirmative Covenants Concerning Collateral.
6.13(a) The Company warrants and will defend the right,
title and interest of the Banks in and to the Mortgage Loans against the
claims and demands of all persons whomsoever.
`
6.13(b) The Company shall service or cause to be serviced
all Mortgage Loans in accordance with the standard requirements of the issuers
of the respective Purchase Commitments covering the same and all applicable
governmental requirements, including without limitation taking all actions
necessary to enforce the obligations of the obligors under such Mortgage
Loans. The Company shall service or cause to be serviced all Mortgage Loans in
accordance with all applicable requirements of the issuers of the respective
Purchase Commitments covering the same. The Company shall hold all escrow
funds collected in respect of Mortgage Loans in trust, without commingling the
same with non-custodial funds, and apply the same for the purposes for which
such funds were collected.
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6.13(c) The Company shall execute and deliver to the Agent
such Uniform Commercial Code financing statements with respect to the
Collateral as the Agent and the Bank may request. The Company shall also
execute and deliver to the Agent such further instruments of sale, pledge or
assignment or transfer, and such powers of attorney, as required by the Agent
and the Banks, and shall do and perform all matters and things necessary or
desirable to be done or observed, for the purpose of effectively creating,
maintaining and preserving the security and benefits intended to be afforded
the Banks under this Agreement. The Agent and the Banks shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of
the State of Illinois, or any other applicable law, in addition to all rights
provided for herein.
6.13(d) The Company shall notify the Banks within two (2)
Business Days of any default under, or of the termination of, or the rejection
for purchase under, any Purchase Commitment relating to any Mortgage Loan.
6.13(e) The Company will promptly comply in all respects
with the terms and conditions of all Purchase Commitments, and all extensions,
renewals and modifications or substitutions thereof or thereto. The Company
will cause to be delivered to the Investor the Mortgage Loans to be sold under
each Purchase Commitment not later than the earlier of three (3) Business Days
prior to the expiration thereof or three (3) Business Days prior to the
deadline for acquisition of the Mortgage Loan by the Investor thereunder.
6.13(f) The Company shall maintain, at its principal office
or in a regional office approved by the Banks, or in the office of a computer
service bureau engaged by the Company and approved by the Banks, and, upon
request, shall make available to the Banks the originals, or copies in any
case where the original has been delivered to the Banks, or to an Investor, of
its Mortgage Note and Mortgages included in Mortgage Loans, Purchase
Commitments, and all related Mortgage Loan documents and instruments, and all
files, surveys, certificates, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other information and data
relating to the Collateral.
6.13(g) Upon the request of the Banks, the Company shall
direct that all payments due the Company on Foreclosure Receivables be sent
directly to the Agent (subject to applicable FHA and VA requirements) for
deposit.
ARTICLE VII
NEGATIVE COVENANTS
The Company agrees that so long as the Commitment is outstanding or
there remain any obligation of the Company to be paid or performed hereunder
or under the Notes, the Company shall not, either directly or indirectly,
without the prior written consent of the Banks:
Section 7.1 Indebtedness. Incur, assume, guarantee, endorse, or
otherwise become liable for the obligation of any person or entity except by
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.
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Section 7.2 Sale or Pledge of Servicing Contracts. Sell, pledge or
grant a security interest in any existing or future Servicing Contracts of the
Company pursuant to the terms of this Agreement, or omit to take any action
required to keep all such Servicing Contracts in full force and effect.
Section 7.3 Merger; Sale of Assets; Acquisitions; Change in Control;
Change of Senior Management. Liquidate, dissolve, consolidate or merge or
sell, transfer or otherwise dispose of, any substantial part of its assets,
nor acquire substantially all of the assets of another, nor permit a change in
any of the following: (a) ownership, beneficially or of record, of more than
ten percent (10%) of the voting stock of Company; (b) ownership, beneficially
or of record, of more than ten percent (10%)of the voting stock of any company
which controls the Company; or (c) senior management of Company or any company
which controls the Company: Notwithstanding the foregoing provisions, nothing
in the Agreement shall be deemed to prohibit the Company from entering into an
initial public offering of not more than forty percent (40%) of the company's
common stock, provided that not more than five percent (5%) of such stock may
be sold to or held by any one person or entity.
Section 7.4 Deferral of Subordinated Debt. Pay in advance of the
stated maturity thereof any Subordinated Debt of the Company or, if an Event
of Default hereunder shall have occurred, make any payment of any kind
thereafter on such Subordinated Debt until all obligations of the Company
hereunder and under the Notes have been paid and performed in full.
Section 7.5 Loss of Eligibility. Take, or fail to take, any action
that would cause the Company to lose all or any part of its status as an
eligible lender, as described under Section 5.13 hereof.
Section 7.6 Debt to Adjusted Tangible Net Worth Ratio. Permit the
ratio of its Debt to its Adjusted Tangible Net Worth (for the Company and its
Subsidiaries determined, on a consolidated basis) at any time to exceed 12.0
to 1.0.
Section 7.7 Minimum Adjusted Tangible Net Worth. Permit the Adjusted
Tangible Net Worth of the Company and its Subsidiaries, determined on a
consolidated basis at any time to be less than Two Million Five Hundred
Thousand Dollars ($2,500,000).
Section 7.8 Maximum Portfolio Delinquency. Permit more than five
percent (5%) of the total outstanding balance of the Mortgage Loans serviced
by the Company under Servicing Contracts to be more than thirty (30) days past
due, at any one time or otherwise in default.
Section 7.9 Investments, Acquisitions, Loans, Advances and
Guarantees. Directly or indirectly, make, retain or have outstanding any
investments (whether through purchase of stock or obligations or otherwise)
in, or loans or advances to, any Affiliate, or acquire all or any substantial
part of the assets or business of any Affiliate, or be or become liable as
endorser, guarantor, surety or otherwise for any debt, obligation or
undertaking of any Affiliate.
Section 7.10 Dividends and Distributions. Declare any dividend or
incur any liability or make any other payment or distribution of cash or other
property or assets to the holders of the Company's stock (a) which exceeds, in
any calendar year, in the aggregate, forty percent (40%) of the prior year's
net income ( as determined in accordance with GAAP), (b) if an Event of
Default exists and is continuing, or (c) if such declaration or incurrence of
liability would cause an Event of Default to exist.
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Section 7.11 Special Negative Covenants Concerning Collateral.
7.12(a) Except for Foreclosure Loans, the Company shall not
amend or modify, or waive any of the terms and conditions of, or settle or
compromise any claim in respect of, any Mortgage Loan pledged hereunder.
7.12(b) The Company shall not sell, assign, transfer or
otherwise dispose of, or grant any option with respect to, or pledge or
otherwise encumber (except pursuant to this Agreement) any of the Collateral
or any interest therein.
7.12(c) The Company shall not make any compromise,
adjustment or settlement in respect of any of the Collateral or accept other
than cash in payment or liquidation of the Collateral.
ARTICLE VIII
DEFAULTS; REMEDIES
Section 8.1 Events of Default. The occurrence of any of the following
conditions or events shall be an event of default ("Event of Default"):
8.1(a) Failure to pay the principal of any Advance when due,
whether at stated maturity, by acceleration, or otherwise; or failure to pay
any installment of interest on any Advance or any other amount due under this
Agreement when due; or
8.1(b) Failure of the Company or any of its Subsidiaries to
pay, or any default in the payment of any principal or interest on, any other
indebtedness or in the payment of any contingent obligation beyond any period
of grace provided; or breach or default with respect to any other material
term of any other indebtedness or of any loan agreement, note, mortgage,
security agreement, indenture or other agreement relating thereto, if the
effect of such failure, default or breach is to cause, or to permit the holder
or holders thereof (or a trustee on behalf of such holder or holders) to
cause, indebtedness of the Company or its Subsidiaries in the aggregate amount
of $100,000 or more to become or be declared due prior to its stated maturity
(upon the giving or receiving of notice, lapse of time, both, or otherwise);
or
8.1(c) Failure of the Company to perform or comply with any
term or condition applicable to it contained in Sections 6.1 through 6.13,
inclusive, or 7.1 through 7.11, inclusive, of this Agreement; or
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8.1(d) Any of the Company's representations or warranties
made herein or in any statement or certificate at any time given by the
Company in writing pursuant hereto or in connection herewith shall be false in
any material respect on the date as of which made; or
8.1(e) The Company shall default in the performance of or
compliance with any term contained in this Agreement other than those referred
to above in subsections 8.1(a), (c) or (d) and such default shall not have
been remedied or waived within thirty (30) days after receipt of notice from
the Banks of such default; or
8.1(f) (1) A court having jurisdiction shall enter a decree
or order for relief in respect of the Company or any of its Subsidiaries or of
the Guarantors in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed; or (2) any other similar relief shall be granted under
any applicable federal or state law; or a decree or order of a court having
jurisdiction for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Company or
any of its Subsidiaries or of the Guarantors, or over all or a substantial
part of their respective property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of the Company
or any of its Subsidiaries or of the Guarantors for all or a substantial part
of their respective property; or the issuance of a warrant of attachment,
execution or similar process against any substantial part of the property of
the Company or any of its Subsidiaries or of the Guarantors, and the
continuance of any such events in this clause (2) for sixty (60) days unless
dismissed, bonded off or discharged; or
8.1(g) The Company or any of its Subsidiaries or the
Guarantors shall have an order for relief entered with respect to it or
commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or shall consent to the entry of an
order for relief in an involuntary case, or to the conversion to an
involuntary case, under any such law, or shall consent to the appointment of
or taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by the Company or any of its
Subsidiaries or the Guarantors of any assignment for the benefit of creditors;
or the inability or failure of the Company or any of its Subsidiaries or of
the Guarantors, or the admission by the Company or any of its Subsidiaries or
the Guarantors in writing of its inability to pay its debts as such debts
become due; or
8.1(h) Any money judgment, writ or warrant of attachment, or
similar process involving in any case an amount in excess of $25,000 shall be
entered or filed against the Company or any of its Subsidiaries or the
Guarantors or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days or in any
event later than five (5) days prior to the date of any proposed sale
thereunder; or
8.1(i) Any order, judgment or decree shall be entered
against the Company decreeing the dissolution, liquidation or split up of the
Company and such order shall remain undischarged or unstayed for a period in
excess of twenty (20) days; or
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8.1(j) Any Plan maintained by the Company or any of its
Subsidiaries shall be terminated within the meaning of Title IV of ERISA or a
trustee shall be appointed by an appropriate United States district court to
administer any Plan, or the Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any Plan or to
appoint a trustee to administer any Plan if as of the date thereof the
Company's liability or any such Subsidiary's liability (after giving effect to
the tax consequences thereof) to the Pension Benefit Guaranty Corporation (or
any successor thereto) for unfunded guaranteed vested benefits under the Plan
exceeds the then current value of assets accumulated in such Plan by more than
$25,000 (or in the case of a termination involving the Company or any of its
Subsidiaries as a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA) the withdrawing employer's proportionate share of such excess shall
exceed such amount); or
8.1(k) The Company or any of its Subsidiaries as employer
under a Multiemployer Plan shall have made a complete or partial withdrawal
from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has incurred
a withdrawal liability in an annual amount exceeding $25,000; or
8.1(l) The Company shall purport to disavow its obligations
hereunder or shall contest the validity or enforceability hereof; or the
Banks' security interest in any portion of the Collateral shall become
unenforceable or otherwise impaired; provided that, subject to the Banks'
approval, no Event of Default shall occur as a result of such impairment if
all Advances made against any such Collateral shall be paid in full within ten
(10) days of the date of such impairment.
Section 8.2 Remedies.
8.2(a) Upon the occurrence of any Event of Default described
in Section 8.1(f) or (g) the unpaid principal amount of and accrued interest
on the Notes shall automatically become due and payable, without presentment,
demand or other requirements of any kind, all of which are hereby expressly
waived by the Company.
8.2(b) Upon the occurrence of any Event of Default (other
than those described in Section 8.1(f) or (g)), the Banks may, by written
notice to the Company declare all or any portion of the Advances to be due and
payable whereupon the same shall forthwith become due and payable, together
with all accrued interest thereon, and the obligation of the Banks to make
Advances shall thereupon terminate.
8.2(c) Upon the occurrence of any Event of Default, the
Banks may also do any one or more or all of the following:
(1) Foreclose upon or otherwise enforce its
security interest in and Lien on all of the Collateral or on any portion
thereof to secure all payments and performance of obligations owed by the
Company under this Agreement.
(2) Notify all obligors of Collateral or on any
portion thereof that the Collateral has been assigned to the Banks and that
all payments thereon are to be made directly to the Banks or such other party
as may be designated by the Banks; settle, compromise, or release, in whole or
in part, any amounts owing on the Collateral, any such obligor or Investor or
any portion of the Collateral, on terms acceptable to the Banks; enforce
payment and prosecute any action or proceeding with respect to and any and all
Collateral; and where any such Collateral is in default, foreclose on and
enforce security interests in, such Collateral by any available judicial
procedure or without judicial process and sell property acquired as a result
of any such foreclosure.
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(3) Act, or contract with a third party to act, as
servicer of all or any item of Collateral requiring servicing and perform all
obligations required in connection with Purchase Commitments, such third
party's fees to be paid by the Company.
(4) Exercise all rights and remedies of a secured
creditor under the Uniform Commercial Code of the State of Illinois or the
state in which the Collateral is located, including but not limited to selling
the Collateral at public or private sale. The Banks shall give the Company not
less than ten (10) days' notice of any such public sale or of the date after
which private sale may be held. The Company agrees that ten (10) days' notice
shall be reasonable notice. At any such sale the Collateral may be sold as an
entirety or in separate parts, as the Banks may determine. The Banks may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which
the same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Banks until the selling price is paid by the purchaser
thereof, but the Banks shall not incur any liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be sold upon like notice. The
Banks may, however, instead of exercising the power of sale herein conferred
upon it, proceed by a suit or suits at law or in equity to collect all amounts
due upon all or any portion of the Collateral or to foreclose the pledge and
sell all or any portion of the Collateral under a judgment or decree of a
court or courts of competent jurisdiction, or both.
(5) Proceed against the Company on the Notes or
against the Guarantors under the Guarantees or both.
(6) Pursue any rights and/or remedies available at
law or in equity against the Company or the Guarantors or both.
8.2(d) The Banks shall incur no liability as a result of the
sale of the Collateral, or any part thereof, at any private sale. The Company
hereby waives any claims it may have against the Banks arising by reason of
the fact that the price at which the Collateral may have been sold at such
private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the outstanding Advances
and the unpaid interest accrued thereon, even if the Banks accepts the first
offer received and does not offer the Collateral, or any part thereof, to more
than one offeree.
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8.2(e) The Company waives any right to require the Banks to
(1) proceed against any Person, (2) proceed against or exhaust all or any of
the Collateral or pursue its rights and remedies as against the Collateral in
any particular order, or (3) pursue any other remedy in its power. The Banks
shall not be required to take any steps necessary to preserve any rights of
the Company against holders of mortgages prior in lien to the Lien of any
Mortgage included in the Collateral or to preserve rights against prior
parties.
8.2(f) The Banks may, but shall not be obligated to, advance
any sums or do any act or thing necessary to uphold and enforce the Lien and
priority of, or the security intended to be afforded by, any Mortgage included
in the Collateral, including, without limitation, payment of delinquent taxes
or assessments and insurance premiums. All advances, charges, costs and
expenses, including reasonable attorneys' fees and disbursements, incurred or
paid by the Banks in exercising any right, power or remedy conferred by this
Agreement, or in the enforcement hereof, together with interest thereon, at
the rate of interest specified in the Notes, from the time of payment until
repaid, shall become a part of principal balance outstanding under the Notes.
8.2(g) No failure on the part of the Banks to exercise, and
no delay in exercising, any right, power or remedy provided hereunder, at law
or in equity shall operate as a waiver thereof; nor shall any single or
partial exercise by the Banks of any right, power or remedy provided
hereunder, at law or in equity preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. Without intending to
limit the foregoing, all defenses based on the statute of limitations are
hereby waived by the Company. The remedies herein provided are cumulative and
are not exclusive of any remedies provided at law or in equity.
Section 8.3 Application of Proceeds. The proceeds of any sale or
other enforcement of the Banks' security interest in all or any part of the
Collateral shall be applied by the Banks:
First, to the payment of the costs and expenses of such sale
or enforcement, including reasonable compensation to the Banks' agents and
counsel, and all expenses, liabilities and advances made or incurred by or on
behalf of the Banks in connection therewith;
Second, to the payment of any other amounts due (other than
principal and interest) under the Notes or this Agreement;
Third, to the payment of interest accrued and unpaid on the
Notes;
Fourth, to the payment of the outstanding principal balance
of the Notes; and
Finally, to the payment to the Company, or to its successors
or assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining from such proceeds. If the proceeds of any such sale are
insufficient to cover the costs and expenses of such sale, as aforesaid, and
the payment in full of the Notes and all other amounts due hereunder, the
Company shall remain liable for any deficiency.
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Section 8.4 Agent Appointed Attorney-in-Fact. The Agent, on behalf of
the Banks are hereby appointed the attorney-in-fact of the Company, with full
power of substitution, for the purpose of carrying out the provisions hereof
and taking any action and executing any instruments which the Banks may deem
necessary or advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, the Agent shall have the right and power to
give notices of the Banks' security interest in the Collateral to any Person,
either in the name of the Company or in its own name, to endorse all Mortgage
Loans payable to the order of the Company, or to receive, endorse and collect
a11 checks made payable to the order of the Company representing any payment
on account of the principal of or interest on, or the proceeds of sale of, any
of the Mortgage Loans or and to give full discharge for the same.
Section 8.5 Right of Set-Off. If the Company shall default in the
payment of the Notes, any interest accrued thereon, or any other sums which
may become payable hereunder when due, or in the performance of any of its
other obligations or liabilities under this Agreement, the Banks, shall have
the right, at any time and from time to time, without notice, to set-off and
to appropriate or apply any and all deposits of money or property or any other
indebtedness at any time held or owing by the Banks or a parent company,
affiliate or subsidiary of the Banks, to or for the credit of the account of
the Company against and on account of the obligations and liabilities of the
Company under the Notes and this Agreement, irrespective of whether or not the
Banks shall have made any demand hereunder and whether or not said obligations
and liabilities shall have matured, provided, however, that the aforesaid
right of set-off shall not apply to any deposits of escrow monies being held
on behalf of the mortgagors under Mortgage Loans or other third parties.
Section 8.6 Reasonable Assurances. If, at any time during the term of
the Agreement, Banks has reason to believe that Company is not conducting its
business in accordance with, or otherwise is not satisfying: (i) all
applicable statutes, regulations, rules, and notices of federal, state, or
local governmental agencies or instrumentalities, all applicable requirements
of Investors and Insurers and prudent industry standards or (ii) all
applicable requirements of Banks, as set forth in this Agreement, then, Banks
shall have the right to demand, pursuant to written notice from Banks to
Company specifying with particularity the alleged act, error or omission in
question, reasonable assurances from Company that such a belief is in fact
unfounded, and any failure of Company to provide to Banks such reasonable
assurances in form and substance reasonably satisfactory to Banks, within the
time frame specified in such written notice shall itself constitute an Event
of Default hereunder. Company hereby authorizes Banks to take such actions as
may be necessary or appropriate to confirm the continued eligibility of
Company for Advances hereunder, including without limitation (i) ordering
credit reports and (ii) contacting mortgagors, licensing authorities and
Investors or Insurers.
ARTICLE IX
REIMBURSEMENT OF EXPENSES; INDEMNITY
The Company shall:
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Section 9.1 Cost of Enforcement. Pay all out-of-pocket costs and
expenses of the Banks or the Agent, including reasonable attorney's fees, in
connection with the enforcement of this Agreement, the Notes, and other
documents and instruments related hereto and the making and repayment of the
Advances and the payment of interest thereon.
Section 9.2 Payments of Taxes. Pay, and hold the Banks, the Agent and
any holder of the Notes harmless from and against, any and all present and
future stamp, documentary and other similar taxes with respect to the
foregoing matters and save the Banks and the holder or holders of the Notes
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay such taxes.
Section 9.3 Indemnification. Indemnify, pay and hold harmless the
Banks or the Agent and any of its officers, directors, employees or agents and
any subsequent holder of the Notes from and against any and all liabilities,
obligations, losses, damages, penalties, judgments, suits, costs, expenses and
disbursements of any kind whatsoever (the "Indemnified Liabilities")
(excluding any such Indemnified Liabilities resulting from failure by the
Banks to perform any of its obligations under this Agreement, the Notes, or
any other document referred to herein as established in a suit between the
Company and the Banks which may be the same suit in which indemnification is
being sought hereunder by the Banks) which may be imposed upon, incurred by or
asserted against the Banks or such holder in any way relating to or arising
out of this Agreement, the Notes, or any other document referred to herein or
any of the transactions contemplated hereby or thereby to the extent that any
such Indemnified Liabilities result (directly or indirectly) from (i) the
inaccuracy or incompleteness of any representation or warranty made by the
Company in this Agreement or any schedule, statement, Exhibit or certificate
furnished by the company pursuant to this Agreement or (ii) the failure by the
Company to observe or perform any term or provision of this Agreement or of
any agreement executed in connection herewith, including without limitation
any claims made, or any actions, suits or proceedings commenced or threatened,
by or on behalf of any creditor (excluding the Banks and the holder or holders
of the Notes), security holder, shareholder, mortgagor, customer (including,
without limitation, any person or entity having any dealings of any kind with
the Company), trustee, director, officer, employee and/or agent of the Company
acting in such capacity, the Company or any governmental regulatory body or
authority (excluding the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation and any other banking regulatory body or
authority having jurisdiction over the Banks).
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ARTICLE X
DELIVERIES OF COLLATERAL DOCUMENTS
The Banks exclusively shall deliver Pledged Mortgages to the Investor
under the Purchase Commitment with respect thereto for its examination and
purchase, against a bailee letter substantially in the form attached hereto as
Exhibit H. The Banks may deliver any document relating to the Collateral to
the Company for correction or completion against a properly executed trust
receipt in the form approved by the Banks with instructions to the Company to
either return the corrected document to the Banks within ten (10) Business
Days after such delivery or redeem the Mortgage Loan from pledge. In the case
of deliveries of Pledged Mortgages by the Banks, the Company shall deliver to
the Banks a letter, to accompany the delivery, confirming the security
interest of the Banks and designating the Banks as payee under any Purchase
Commitment.
ARTICLE XI
THE AGENT
Section 11.1 Appointment and Authorization. Each Bank hereby
irrevocably (subject to Section 11.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agent. Without limiting the generality of the foregoing sentence, the use of
the term "agent" in this Agreement with reference to the Agent is not intended
to connote any fiduciary or other implied (or express) obligations arising
under agency doctrine of any applicable law. Instead, such term is used merely
as a matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
Section 11.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
Section 11.3 Liability of Agent. None of the Agent-Related Persons
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or the transactions contemplated
hereby (except for its own gross negligence or willful misconduct); (b) be
responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Company, or any officer thereof,
contained in this Agreement, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or for any failure of the
Company to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Bank to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records
of the Company.
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Section 11.4 Reliance by Agent. (a) The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Persons, and upon advice and statements of legal counsel (including counsel to
the Company), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first receive such advice or concurrence
of the Banks as it deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request
or consent of the Banks and such request and any action taken or failure to
act pursuant thereto shall be binding upon the Banks.
11.4(b) Consent by Banks. For purposes of determining
compliance with the conditions specified in Section 4.1, each Bank that has
executed this Agreement shall be deemed to have consented to, approved or
accepted or to be satisfied with, each document or other matter either sent by
the Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Bank.
Section 11.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the
Agent shall have received written notice from a Bank or the Company referring
to this Agreement, describing such Default or Event of Default and stating
that such notice is a "notice of default". The Agent will notify the Banks of
its receipt of any such notice. The Agent shall take such action with respect
to such Default or Event of Default as may be requested by the Banks in
accordance with Article VIII; provided, however, that unless and until the
Agent has received any such request, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
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Section 11.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agent hereinafter taken, including any review of the affairs of
the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
credit worthiness of the Company and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Company
hereunder. Each Bank also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis appraisals and decisions in taking or not taking action under
this Agreement and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and
other condition and credit worthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition of credit
worthiness of the Company which may come into the possession of any of the
Agent-Related Persons.
Section 11.7 No Responsibility for Loans, Recitals, Etc. Neither the
Agent nor any Agent-Related Person shall (i) be responsible for or have any
duty to ascertain, inquire into or verify any recitals, reports, statements,
representations or warranties contained in this Agreement or any other
documents or furnished pursuant hereto or thereto; (ii) be responsible for any
Loans hereunder; (iii) be bound to ascertain or inquire as to the performance
or observance of any of the terms of this Agreement or any other documents
pursuant thereto; (iv) be responsible for the satisfaction of any condition
specified in Article IV, except receipt of items required to be delivered to
the Agent; (v) be responsible for the validity, effectiveness, genuineness or
enforceability of this Agreement or any other documents; or (vi) be
responsible for the creation, attachment, perfection or priority of any
security interests or liens purported to be granted to the agent or any of the
Banks pursuant to this Agreement or any other documents.
Section 11.8 Indemnification of Agent. Whether or not the
transactions contemplated hereby are consummated, the Banks shall indemnify
upon demand the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Company and without limiting the obligation of the Company to do
so), pro rata, from and against any and all Indemnified Liabilities; provided,
however, that no Bank shall be liable for the payment to the Agent-Related
Persons of any portion of such Indemnified Liabilities resulting solely from
such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse the Agent upon demand for its ratable
share of any costs or out-of-pocket expenses (including attorney costs)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect
of rights or responsibilities under, this Agreement, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking
in this Section shall survive the payment of all obligations hereunder and the
resignation or replacement of the Agent.
Section 11.9 Agent in Individual Capacity. PNC may make loans to,
issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company as though
were not the Agent hereunder and without notice to or consent of the Banks.
The Banks acknowledge that, pursuant to such activities, PNC may receive
information regarding the Company (including information that may be subject
to confidentiality obligations in favor of the Company) and acknowledge that
the Agent shall be under no obligation to provide such information to them.
With respect to its Loans, PNC shall have the same rights and powers under
this Agreement as any other Bank and may exercise the same as though it were
not the Agent, and the terms "Bank" and "Banks" include PNC in its individual
capacity.
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Section 11.10 Successor Agent. The Agent may, and at the request of
the Banks and the Company, shall, resign as Agent upon 30 days' notice to the
Banks. If the Agent resigns under this Agreement, the Banks shall appoint a
successor agent for the Banks which successor agent shall be approved by the
Company. If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with the
Banks and the Company, a successor agent. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed
to all the rights, powers and duties of the retiring Agent and the term
"Agent" shall mean such successor agent and the retiring Agent's appointment,
powers and duties as Agent shall be terminated. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article IX and Article
XI shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement. If no successor agent has
accepted appointment as Agent by the date which is 30 days following a
retiring Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Banks shall perform all of the
duties of the Agent hereunder until such time, if any, as the Banks appoint a
successor agent as provided for above.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Relationship of Parties. The relationship between Banks
and the Company is limited to that of creditor/secured party, on the one hand,
and borrower, on the other hand. The provisions herein for compliance with
financial covenants and delivery of financial statements, are intended solely
for the benefit of Banks to protect its interests as lender in assuring
performance of the obligations hereunder, and nothing contained in this
Agreement shall be construed as permitting or obligating Banks to act as a
financial or business advisor or consultant to the Company, as permitting or
obligating the Banks to control the Company or to conduct the Company's
operations, as creating any joint venture, agency, fiduciary, trustee, or
other relationship between the parties other than as explicitly and
specifically stated in this Agreement. The Company acknowledges that it has
had the opportunity to obtain the advice of experienced counsel of its own
choosing in connection with the negotiation and execution of this Agreement
and to obtain the advice of such counsel with respect to all matters contained
herein. The Company further acknowledges that it is experienced with respect
to financial and credit matters and has made its own independent decision to
execute and deliver this Agreement.
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Section 12.2 Recourse. The Company acknowledges and agrees that it is
fully liable for repayment of all Advances and all sums due hereunder or under
the Notes and for performance of all obligations contained in this Agreement.
Section 12.3 Notices. All notices, demands, consents, requests and
other communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly provided
hereunder, be in writing and shall be delivered in person or telegraphed or
mailed, first class, return receipt requested, postage prepaid, or by
overnight delivery service or by telecopy or other telecommunications device
addressed to the respective parties hereto at their respective addresses
hereinafter set forth or, as to any such party, at such other address as may
be designated by it in a Notice to the other. All Notices shall be
conclusively deemed to have been properly given or made when duly delivered,
in person or by overnight delivery service or by telecopy or other
telecommunications device, or if mailed on the third Business Day after being
deposited in the mails or when delivered to the telegraph company, addressed
as follows:
if to the Company: Premier Mortgage Corporation
66 Power House Road
Roslyn Heights, New York 11577
Attn: Robert Friedman
Telecopy No. (516) 625-9898
if to PNC or the Agent: PNC Mortgage Bank, N.A.
75 North Fairway Drive
Vernon Hills, IL 6006l
Attn: Warehouse Lending
Telecopy No: (847) 918-53l6
if to LaSalle: LaSalle National Bank
135 South LaSalle Street
Suite 302
Chicago, Illinois 60603
Section 12.4 Terms Binding Upon Successors; Survival. The terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. All
representations, warranties, covenants and agreements herein contained on the
part of the Company shall survive the making of any Advance and the execution
of the Notes, and shall be effective so long as the Commitment is outstanding
or there remains any obligation of the Company hereunder or under the Notes to
be paid or performed.
Section 12.5 Assignment. This Agreement may not be assigned by the
Company. Neither PNC nor Lasalle shall transfer or assign its respective
interest in this Agreement, the Notes or its interest in any Collateral
hereunder without the prior written consent of the other Bank.
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Section 12.6 Amendments. This Agreement may be modified or amended by
the Banks at any time upon 30 days notice to the Company. Such modification or
amendment will not take effect if, within fifteen (15) days from the date of
such notice, the Banks receives a written objection to such modification or
amendment from the Company. If no such objection is received by the Banks such
modification or amendment will automatically become effective upon the 30th
day from the date of such notice by the Banks.
Section 12.7 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Company or the Banks or any holder of the Notes in exercising
any right, power or privilege hereunder and no course of dealing between the
Company and the Banks or the holder of the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under the Notes preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Company or the Banks or the holder of the
Notes would otherwise have. No notice to or demand on the Company in any case
shall entitle the Company to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Banks or
the holder of the Notes to any other or further action in any circumstances
without notice or demand.
Section 12.8 Invalidity. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had not been included.
Section 12.9 Participations. The Banks may from time to time sell or
otherwise grant participations in the Commitment and the Notes, and the holder
of any such participation, if the participation agreement so provides, (i)
shall, with respect to its participation, be entitled to all of the rights of
the Banks and (ii) may exercise any and all rights of setoff or banker's lien
with respect thereto, in each case as fully as though the Company were
directly indebted to the holder of such participation in the amount of such
participation; provided, however, that the Company shall not be required to
send or deliver to any of the participants other than the Banks any of the
materials or notices required to be sent or delivered by it under the terms of
this Agreement, nor shall it have to act except in compliance with the
instructions of the Banks.
Section 12.10 Integration. This Agreement, together with the Notes,
and other documents executed pursuant to the terms hereof, constitute the
entire agreement between the parties hereto, with respect to the subject
matter hereof.
Section 12.11 Additional Instruments, etc. The Company shall execute
and deliver such further instruments and shall do and perform all matters and
things necessary or expedient to be done or observed for the purpose of
effectively creating, maintaining and preserving the security and benefits
intended to be afforded by this Agreement.
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Section 12.12 GOVERNING LAW AND CONSENT TO JURISDICTION. THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER
THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF
LAW. IN THE EVENT OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT, THE COMPANY
AGREES THAT THE SUBSTANTIVE LAW OF THE STATE OF ILLINOIS SHALL APPLY,
INCLUDING, WITHOUT LIMITATION, ALL PROVISIONS RELATING TO THE RIGHTS AND
REMEDIES OF THE OWNER OR HOLDER OF THE NOTES AGAINST ANY SECURITY THEREFOR
AND/OR THE COMPANY. THE COMPANY HEREBY CONSENTS TO JURISDICTION WITHIN THE
STATE OF ILLINOIS FOR PURPOSES OF SUCH LITIGATION. NOTHING HEREIN CONTAINED,
HOWEVER, SHALL PREVENT ANY OWNER OR HOLDER OF THE NOTES FROM BRINGING ANY
ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY OR AGAINST THE COMPANY OR
AGAINST ANY PROPERTY OF THE COMPANY WITHIN ANY OTHER JURISDICTION OR STATE.
INITIATING SUCH PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION OR
STATE SHALL NOT, HOWEVER, CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED
HEREIN THAT THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER.
Section 12.13 Company Information. The Company hereby authorizes the
Banks to provide any Affiliate of the Banks with information regarding the
Company, including copies of documents, financial statements, corporate
records and reports, obtained by the Banks from the Company or any other
entity during the course of the negotiation or administration of this
Agreement.
Section 12.14 WAIVER OF JURY TRIAL. THE COMPANY HEREBY (I) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY OR ANY ISSUE TRIABLE OF RIGHT BY A
JURY, AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY
SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY
TRIAL WOULD OTHERWISE ACCRUE. THE BANKS ARE HEREBY AUTHORIZED AND REQUESTED TO
SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE COMPANY'S
HEREIN CONTAINED WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, THE COMPANY
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE BANKS IS (INCLUDING
THE BANK'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF THE
UNDERSIGNED THAT THE BANK WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.
Section 12.15 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be deemed to constitute one and the same
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
PNC MORTGAGE BANK, N.A., Individually and
as Agent
By:
------------------------------------
Its:
------------------------------------
LASALLE NATIONAL BANK
By:
------------------------------------
Its:
------------------------------------
PREMIER MORTGAGE CORPORATION
By:
------------------------------------
Its:
------------------------------------
RF PROPERTIES CORP.
By:
------------------------------------
Its:
------------------------------------
WITNESS my hand and official seal this _____ day of __________________, 19___.
- ------------------------------------
Notary Public
My Commission Expires:
--------------
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SECOND AMENDMENT
TO
WAREHOUSING CREDIT AND SECURITY AGREEMENT AND NOTES
THIS SECOND AMENDMENT TO WAREHOUSING CREDIT AND SECURITY AGREEMENT
AND NOTES (the "Amendment") is dated as of the 30th day of September, 1997 by
and between PREMIER MORTGAGE CORPORATION, d/b/a PMC MORTGAGE ("PMC") and RF
PROPERTIES CORP. ("RF Properties"), each a corporation organized and existing
under the laws of New York, having their principal office at 66 Power House
Road, Roslyn Heights, New York 11577 (PMC and RF Properties are hereinafter
collectively referred to as the "Company" or the "Borrower"), and PNC MORTGAGE
BANK, NATIONAL ASSOCIATION, a national banking corporation organized under the
laws of the United States, having an office at 75 North Fairway Drive, Vernon
Hills, Illinois 60061 ("PNC") and LASALLE NATIONAL BANK, a national banking
association, having an office at 135 South LaSalle Street, Chicago, Illinois
60603 ("LaSalle")(PNC and LaSalle are collectively referred to as the "Bank"
or the "Banks").
WHEREAS, the Bank has extended a commitment to make a certain credit
facility available to the Borrower pursuant to that certain Warehousing Credit
and Security Agreement dated as of July 17, 1997, as amended by that certain
First Amendment to Warehousing Credit and Security Agreement and Notes dated
as of August 29, 1997 (as so amended, the "Agreement"); and
WHEREAS, the Borrower and Bank have agreed to amend the Agreement and
the Joint and Several Promissory Notes issued thereunder (the "Notes") in
order to provide for additional availability thereunder, and to make other
revisions as set forth herein.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which are hereby acknowledged, the
parties hereto hereby agree as follows:
I. Defined Terms. Capitalized terms contained in this Amendment shall
have the respective meanings herein as such terms have in the
Agreement.
II. Amendments to Agreement. The Agreement is hereby amended as follows:
1. The definition of "Commitment" in Section 1.1 of the Agreement is
hereby restated as follows:
""Commitment" means Fifty Million Dollars ($50,000,000) or
such amount to which such limit may be reduced hereunder."
2. Section 1.1 of the Agreement is hereby amended by adding the
following new definition: "Repurchase Loan".
<PAGE>
""Repurchase Loan" means a Mortgage Loan which the Company
is required by an Investor to repurchase under its
respective Purchase Agreement."
3. Section 2.1(a) of the Agreement is hereby amended by restating the
last sentence thereof as follows:
"The total principal amount outstanding for Advances shall
not exceed Fifty Million Dollars ($50,000,000)."
4. Section 2.1(d) of the Agreement is hereby restated as follows:
"2.1(d) The aggregate amount of Advances made by each Bank
for Repurchase Loans and Foreclosure Loans shall not exceed
such Bank's Pro Rata share of Seven Million Nine Hundred
Thousand Dollars ($7,900,000), at any time."
5. Section 2.1(e) of the Agreement is hereby amended by replacing the
dollar amount "Four Million Five Hundred Thousand Dollars ($4,500,000)" with
the dollar amount "Seven Million Five Hundred Thousand Dollars ($7,500,000)".
6. Section 2.1(f) of the Agreement is hereby amended by replacing the
dollar amount "Nine Million Dollars ($9,000,000)" with the dollar amount
"Seventeen Million Five Hundred Thousand Dollars ($17,500,000)".
7. Section 2.1(g) of the Agreement is hereby amended by replacing the
dollar amount "Three Million Dollars ($3,000,000)" with the dollar amount
"Fifteen Million Dollars ($15,000,000)".
8. Section 2.1 of the Agreement is hereby amended by adding the
following new Section 2.1(i):
"2.1(i) Notwithstanding the provisions of Sections 2.1(a)
through 2.1(g) hereof, neither Bank shall be obligated to
honor the increased amount of the Commitment, or the
increases to the various sublimits described in Sections
2.1(d) through 2.1(g) hereof, established pursuant to this
Amendment until such time as the increases have been duly
approved pursuant to each Bank's loan review and approval
processes. Nevertheless, in the event one Bank has received
approval, it may in its discretion, make Advances up to its
Pro Rata Share of such higher limits as are set forth
herein, prior to the other Bank's approval, even if such
Advances would cause the advancing Bank to increase its Pro
Rata Share (i.e., over 50%) with respect to the other Bank
with respect to such Advances. Once the non-advancing Bank
has received approval, it may participate in any
previously-made Advances by purchasing its Pro Rata Share of
such Advances pursuant to the terms hereof."
2
<PAGE>
9. Section 2.8(c) of the Agreement is hereby amended by restating
Section 2.8(c)(6) as follows:
"(7) Ninety (90) calendar days elapse from the date an
Advance was made with respect to a Repurchase Loan or a
Foreclosure Loa, unless an extension of an additional thirty
(30) calendar days is granted by the Banks in their sole
discretion, in which case repayment would be required one
hundred twenty (120) calendar days from the date of the
Advance;"
10. Section 7 of the Agreement is hereby amended by restating Section
7.6 as follows:
"Section 7.6 Debt to Adjusted Tangible Net Worth Ratio.
Permit the ratio of its Debt to its Adjusted Tangible Net
Worth (for the Company and its Subsidiaries, determined on a
consolidated basis) to exceed (i) 13.5 to 1.0 from the date
hereof to December 31, 1997; or (ii) 12.0 to 1.0 at any time
thereafter."
11. Section 7.7 of the Agreement is hereby amended by deleting the
dollar amount "Two Million Five Hundred Thousand Dollars ($2,500,000)" and
replacing it with the dollar amount "Four Million Dollars ($4,000,000)".
III. Amendment to Notes. The dollar figure "$17,000,000" in the upper left
hand corner of each of the Notes is hereby replaced by the dollar
figure "$25,000,000" and the Notes are hereby amended by deleting the
dollar amounts "$17,000,000" and "Seventeen Million Dollars
($17,000,000)" and by inserting in place thereof the dollar amounts
"$25,000,000"and "Twenty-Five Million Dollars ($25,000,000)".
IV. Conditions to Effectiveness. The amendments to the Agreement set
forth in Section II of this Amendment shall become effective, as of
the date set forth above, upon satisfaction of each of the following
conditions precedent:
1. The Company and the Bank shall have executed and delivered
counterparts of this Amendment.
2. The Company shall have delivered to the Bank evidence of its
corporate authority and incumbency with respect to this Amendment and the
Agreement, as amended hereby, in form and substance satisfactory to the Bank.
3. Each of Ronald Friedman and Robert Friedman shall have
acknowledged this Amendment pursuant to an Acknowledgment of Guarantors in
form and substance satisfactory to the Bank.
4. Each of the representations and warranties set forth in Section V
of this Amendment shall be true and correct on, and as of, the effective date
of this Amendment.
3
<PAGE>
5. The Borrower shall have delivered to the Bank all other
instruments, documents or agreements reasonably necessary or desirable in
connection with this Amendment.
6. The Borrower shall have repaid the Advances corresponding to
certain Mortgage Loans (in the amount of $865,403) outstanding in excess of
ninety (90) days as of September 8, 1997.
7. Each Bank shall have received approval of the increased Commitment
and other terms contained herein, although in the event only one Bank receives
such approval, the increases in the Commitment and sublimits set forth herein
shall be effective as to such Bank only.
V. Representations and Warranties. As an inducement to the Bank to enter
into this Amendment, the Company hereby represents and warrants as
follows:
1. After giving affect to this Amendment, each of the representations
and warranties contained in Article V of the Agreement are true and correct.
2. No Event of Default or event which with the giving of notice, the
passage of time, or both, would become an Event of Default has occurred and is
continuing or would result from the execution, delivery and performance by the
Company of this Amendment or the Agreement, as amended hereby.
VI. Miscellaneous.
1. Governing Law. This Amendment shall be a contract made under, and
governed by, the internal laws of the State of Illinois.
2. Counterparts. This Amendment may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
Amendment.
3. References to Agreement. Except as herein amended, the Agreement
and the shall remain in full force and effect and are hereby ratified in all
respects. On and after the effectiveness of the amendment to the Agreement
contemplated hereby, each reference in the Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, shall mean and be a
reference to the Agreement, as amended by this Amendment.
4. Successors, and Assigns. This Amendment shall be binding upon
Company and the Bank and their respective permitted successors and assigns.
4
<PAGE>
IN WITNESS WHEREOF, the Company and the Bank have executed this
Amendment as of the date and year written above.
PNC MORTGAGE BANK, NATIONAL
ASSOCIATION
By:
--------------------------------------
Title:
--------------------------------------
LASALLE NATIONAL BANK
By:
--------------------------------------
Title:
--------------------------------------
PREMIER MORTGAGE CORPORATION
d/b/a PMC MORTGAGE
By:
--------------------------------------
Title:
--------------------------------------
RF PROPERTIES CORP.
By:
--------------------------------------
Title:
--------------------------------------
5
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
between
PREMIER MORTGAGE CORPORATION
Seller
and
PNC MORTGAGE SECURITIES CORP.
Purchaser
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Definitions.......................................................... 1
Section 2. Procedures for Purchases of Mortgage Loans........................... 8
Section 3. Sale of Mortgage Loans to Takeout Investor........................... 9
Section 4. Payment of Accrued Interest.......................................... 12
Section 5. Servicing of the Mortgage Loans...................................... 12
Section 6. Trade Assignments.................................................... 14
Section 7. Transfers of Beneficial Interest in Mortgage Loans by
Purchaser......................................................... 14
Section 8. Record Title to Mortgage Loans; Intent of parties; Security
Interest.......................................................... 15
Section 9. Representations and Warranties....................................... 16
Section 10. Covenants of Seller.................................................. 24
Section 11. Indemnification...................................................... 27
Section 12. Term................................................................. 27
Section 13. Exclusive Benefit of Parties; Assignment............................. 27
Section 14. Amendments; Waivers, Cumulative Rights............................... 27
Section 15. Execution in Counterparts............................................ 27
Section 16. Effect of Invalidity of Provisions................................... 27
Section 17. Governing Law........................................................ 27
Section 18. Notices.............................................................. 28
Section 19. Entire Agreement..................................................... 28
Section 20. Costs of Enforcement................................................. 28
Section 21. Consent to Service................................................... 28
Section 22. Construction......................................................... 28
</TABLE>
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
This Mortgage Loan Purchase Agreement ("Agreement"), dated
as of _______________, 1996, is by and between PNC Mortgage Securities Corp.
("Purchaser") and Premier Mortgage Corporation ("Seller").
PRELIMINARY STATEMENT
Seller may, in its sole discretion, offer to sell to
Purchaser from time to time certain Mortgage Loans, and Purchaser, in its sole
discretion, may agree to purchase such Mortgage Loans from Seller in
accordance with the terms and conditions set forth in this Agreement. Seller,
subject to the terms hereof, will cause each Mortgage Loan to be purchased by
a Takeout Investor. During the period from the Purchaser's purchase of a
Mortgage Loan to the sale of the Mortgage Loan to a Takeout Investor, Seller
shall service such Mortgage Loan on behalf of Purchaser.
The parties hereto hereby agree as follows:
Section 1. Definitions.
Capitalized terms used but not defined herein shall have the
meanings set forth in the Custodial Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"Act of Insolvency": With respect to Seller, (a)
the commencement by Seller as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or Seller's seeking
the appointment of a receiver, trustee, custodian or similar
official for Seller or any substantial part of Seller's
property, or (b) the commencement of any such case or
proceeding against Seller, or another's seeking such
appointment, or the filing against Seller of an application
for a protective decree which (1) is consented to or not
timely contested by Seller, (2) results in the entry of an
order for relief, such an appointment, the issuance of such
a protective decree or the entry of an order having a
similar effect, or (3) is not dismissed within thirty (30)
days, (c) the making by Seller of a general assignment for
the benefit of creditors or (d) the admission in writing by
Seller that Seller is unable to pay its debts as they become
due or the nonpayment generally by Seller of its debts as
they become due.
"Agency": FNMA or FHLMC or GNMA, as applicable.
"Agency Transaction": A transaction initiated by
Purchaser's delivery of a Request for Certification which
identifies a Conduit as the Takeout Investor.
<PAGE>
"Assignee": As defined in Section 7.
"Business Day": Any day other than (a) a Saturday,
Sunday or other day on which banks located in New York, New
York or Chicago, Illinois are authorized or obligated by law
or executive order to be closed or (b) any day on which
Purchaser or Custodian is closed for business, provided that
notice thereof shall have been given to Seller not less than
seven (7) calendar days prior to such day, and provided
further that such closing does not conflict with any
business between Seller and Purchaser scheduled for such
date prior to the giving of such notice.
"Cash Window Transaction": A transaction initiated
by Purchaser's delivery of a Request for Certification to
the Custodian which identifies FNMA or FHLMC as the Takeout
Investor.
"Collateral": As defined in Section 8(c).
"Commitment Amount": The aggregate outstanding
principal amount of Mortgage Loans to be purchased pursuant
to a Takeout Commitment. If the applicable Takeout
Confirmation expresses the Commitment Amount as a fixed
amount plus or minus a percentage of such fixed amount, then
the amount required to be delivered by Seller shall be the
minimum amount within such range and the amount required to
be purchased by Takeout Investor shall be the maximum amount
within such range.
"Commitment Date": The date set forth in a Takeout
Confirmation as the commitment date.
"Commitment Guidelines": The guidelines, if any,
issued by Takeout Investor regarding the issuance of Takeout
Commitments, as amended from time to time by Takeout
Investor.
"Commitment Number": With respect to a Takeout
Commitment, the number identified on the Takeout
Confirmation as the commitment number.
"Completion Fee": With respect to each Mortgage
Pool, an amount equal to the sum of (i) the Discount and
(ii) the Net Carry Adjustment, less any reduction negotiated
by Seller and Purchaser pursuant to the last sentence of
Section 3(b), which amount shall be payable to Seller by
Purchaser as compensation to Seller for servicing the
Mortgage Pool on behalf of Purchaser during the period
commencing on the Purchase Date and ending on the day prior
to the Settlement Date.
2
<PAGE>
"Conduit Transaction": A transaction initiated by
Purchaser's delivery of a Request for Certification which
identifies a Conduit as the Takeout Investor.
"Confirmation": Purchaser's written confirmation of
its intent to purchase a Mortgage Pool, which written
confirmation shall be substantially in the form attached
hereto as Exhibit F.
"Conduit": Any of the entities listed on Schedule A
hereto, as supplemented or amended from time to time.
"Credit File": With respect to each Mortgage Loan,
all papers and documents required to be maintained pursuant
to the applicable Sale Agreement, and all other papers and
records of whatever kind or description whether developed or
originated by Seller or others, required to document or
service the Mortgage Loan provided, however, that such
Mortgage Loan papers, documents and records shall not
include any Mortgage Loan papers, documents or records which
are contained in the Custodial File.
"Custodial File": With respect to each Mortgage
Loan, all papers and documents (i) required to be maintained
pursuant to the applicable Sale Agreement with the Takeout
Investor's document custodian or (ii) in the event that
Takeout Investor does not employ a document custodian, such
papers and documents required to be delivered to Takeout
Investor on the Settlement Date.
"Cure Date": With respect to a Mortgage Loan, the
date occurring twenty (20) Business Days after the
applicable Purchase Date.
"Custodial Account for P&I": As defined in Section
5(b).
"Custodial Account for Reserves": As defined in
Section 5(b).
"Custodial Agreement": The Custodial Agreement,
dated as of the date of this Agreement, among Purchaser,
Seller and Custodian.
"Custodian": The entity which is identified as the
Custodian in the Custodial Agreement and its permitted
successors thereunder.
"Defective Mortgage Loan": With respect to any
3
<PAGE>
Mortgage Loan, either (i) the Document File does not contain
a document required to be contained therein, (ii) any
document within a Document File is, in the judgment of
Takeout Investor, defective or inaccurate in any material
respect, when evaluated with respect to requirements of the
applicable Sale Agreement, (iii) any document in the
Document File is not legal, valid and binding, (iv) the
Mortgage Loan breaches any representation or warranty made
with respect to it in this Agreement or the applicable Sale
Agreement or (v) the Custodian File does not contain a
document required to be contained therein.
"Discount": With respect to any Mortgage Pool sold
by Seller to Purchaser, the product of (i) the percentage
identified in the related Confirmation as the discount and
(ii) the applicable Trade Principal.
"Document File": The Credit File and the Custodial
File.
"Due Date": The day of the month on which the
Monthly Payment is due on a Mortgage Loan.
"Exhibit B-1 Letter": As defined in Section 2(a).
"Exhibit C-1 Letter": As defined in Section 2(a).
"Expiration Date": With respect to any Takeout
Commitment, the expiration date thereof.
"FDIC": Federal Deposit Insurance Corporation or
any successor thereto.
"FHLMC": Federal Home Loan Mortgage Corporation or
any successor thereto.
"FNMA": Federal National Mortgage Association or
any successor thereto.
"Losses": Any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys'
fees) incurred by any person specified; provided, however,
that "Losses" shall not include any losses, claims, damages,
liabilities or expenses which would have been avoided had
such person taken reasonable actions to mitigate such
losses, claims, damages, liabilities or expenses.
"Monthly Payment": The scheduled monthly payment of
principal and interest on a Mortgage Loan.
4
<PAGE>
"Mortgage": The mortgage, deed of trust or other
instrument creating a first lien on an estate in fee simple
in real property securing a Mortgage Note.
"Mortgage Interest Rate": The annual rate of
interest borne on a Mortgage Note.
"Mortgage Loan": A conventional single family
residential mortgage loan which is subject to this
Agreement, and which satisfies the requirements of the
applicable Sale Agreement as the same may be modified from
time to time.
"Mortgage Pool": A group of Mortgage Loans
purchased by Purchaser hereunder and subject to a single
Confirmation.
"Mortgage Note": The note or other evidence of the
indebtedness of a Mortgagor secured by a Mortgage.
"Mortgaged Property": The property subject to the
lien of the Mortgage securing a Mortgage Note.
"Mortgagor": The obligor on a Mortgage Note.
"NCUA": National Credit Union Administration or any
successor thereto.
"Net Carry Adjustment": An amount (which may be a
negative number) equal to the product of (A) the quotient of
(1) the number of days in the period beginning on the
Purchase Date and ending on the day prior to the Settlement
Date, inclusive, divided by (2) 360 and (B) the difference
between (1) the product of (x) the weighted average (by
principal balance) of the mortgage interest rates borne by
the Mortgage Loans in the applicable Mortgage Pool and (y)
the aggregate principal balance of such Mortgage Loans and
(2) the product of (x) the weighted average (by principal
balance) of the Pass-Through Rates of the Mortgage Loans in
the applicable Mortgage Pool and (y) the Purchase Price for
such Mortgage Pool.
"Notice of Rejection of Trade Assignment:" With
respect to any Mortgage Pool that Purchaser elects not to
purchase, a notification by Purchaser to Takeout Investor in
the form of Exhibit G.
5
<PAGE>
"OTS": Office of Thrift Supervision or any
successor thereto.
"Parent Company": A corporation or other entity
owning at least 50% of the outstanding shares of voting
stock of Seller.
"Pass-Through Rate": With respect to each Mortgage
Loan, the rate at which interest on the Mortgage Loan is
passed through to Purchaser which shall be the rate of
interest specified in the related Confirmation as the
Pass-Through Rate.
"Payment Shift Date": With respect to a Mortgage
Loan, the last day of the month in which the Settlement Date
can occur if accrued interest for such month is to be paid
by Takeout Investor.
"Price Adjustment": With respect to a Takeout
Commitment, the percentage by which the Trade Price is
adjusted which percentage is determined by application of
the applicable formula set forth in the Price Adjustment
Summary Sheet.
"Price Adjustment Summary Sheet": A document
prepared by Purchaser, in its sole and absolute discretion,
setting forth the formula by which the Price Adjustment is
to be determined. The Price Adjustment Summary Sheet may be
amended from time to time, in Purchaser's sole and absolute
discretion, and such amendments shall become effective two
(2) Business Days following Seller's receipt thereof,
provided that no such amendment shall apply to any Mortgage
Pool purchased by Purchaser prior to the effective date of
such amendment.
"Purchase Date": With respect to any Mortgage Pool
purchased by Purchaser hereunder, the date on which the
applicable Purchase Price is paid by Purchaser to Seller.
"Purchase Price": With respect to each Mortgage
Pool purchased by Purchaser hereunder, an amount equal to
the excess of (A) the Trade Principal for such Mortgage Pool
over (B) the Discount.
"Purchaser": PNC Mortgage Securities Corp. and its
successors in interest, including, but not limited to, a
party to whom a Trust Receipt is assigned as provided
hereunder and in the Custodial Agreement.
"Purchaser's Wire Instructions": The wire
instructions set forth in a letter in the form of Exhibit E.
6
<PAGE>
"Request for Certification": A report detailing
loan identification data supplied by Seller to Purchaser,
transmitted by Purchaser to Custodian either via facsimile
in the form of Exhibit C to the Custodial Agreement or
transmitted electronically in an appropriate data layout,
regarding all Mortgage Loans being offered for sale by
Seller to Purchaser on a Purchase Date.
"Sale Agreement": The agreement providing for the
purchase by Takeout Investor of Mortgage Loans from Seller.
"Seller": Premier Mortgage Corporation and its
permitted successors hereunder.
"Seller's Wire Instructions": The wire instructions
set forth in a letter in the form of Exhibit C-2.
"Settlement Date": With respect to any Mortgage
Loan, the date on which the Takeout Proceeds for such
Mortgage Loan are remitted by Takeout Investor to Purchaser.
"Settlement Modification Letter": A letter in the
form of Exhibit H.
"Successor Servicer": An entity designated by
Purchaser, in conformity with Section 3(c)(2), to replace
Seller as issuer and servicer, mortgagee or seller/servicer
of the Mortgage Loans evidenced by a Trust Receipt.
"Takeout Commitment": A commitment of Seller to
sell one or more Mortgage Loans to Takeout Investor and of
Takeout Investor to purchase one or more Mortgage Loans from
Seller.
"Takeout Confirmation": The written notification to
Seller from Takeout Investor confirming the terms of a
Takeout Commitment, including but not limited to, the
information set forth in Exhibit I, which notification may
take the form of a trade confirmation.
"Takeout Investor": An Agency or a Conduit, as
applicable.
"Takeout Proceeds": With respect to any Mortgage
Pool, the related Trade Principal plus accrued interest as
calculated in accordance with Section 3(a)(2), adjusted
pursuant to any related Settlement Modification Letter
accepted by Purchaser.
7
<PAGE>
"Third Party Underwriter": Any third party,
including but not limited to a mortgage loan pool insurer,
who underwrites the Mortgage Loans(s) prior to the purchase
by Purchaser of such Mortgage Loans.
"Third Party Underwriter's Certificate": A
certificate issued by a Third Party Underwriter with respect
to a Mortgage Loan, certifying that such Mortgage Loan
complies with its underwriting requirements.
"Trade Assignment": The assignment by Seller to
Purchaser of Seller's rights under a specific Takeout
Commitment, in the form of Exhibit D-1.
"Trade Price": The trade price set forth on a
Takeout Commitment less any applicable Price Adjustment.
"Trade Principal": With respect to any Mortgage
Pool, the aggregate outstanding principal balance of the
related Mortgage Loans multiplied by a percentage equal to
the Trade Price.
"Trust Receipt": A receipt issued by Custodian,
substantially in the form of Exhibit D to the Custodial
Agreement which provides, among other things, that Custodian
is holding the Mortgage Loans described therein as the
bailee and custodian of Purchaser.
"Warehouse Lender": Any lender providing financing
to Seller for the purpose of originating or purchasing
Mortgage Loans which lender has a security interest in such
Mortgage Loans as collateral for the obligations of Seller
to such lender.
"Warehouse Lender's Wire Instructions": The wire
instructions set forth in a letter in the form of Exhibit
B-2.
Section 2. Procedures for Purchases of Mortgage Loans.
(a) Purchaser may, in its sole discretion, from time to
time, purchase one or more Mortgage Pools from Seller. Prior to Purchaser's
election to purchase any Mortgage Pool, Purchaser shall have received (i) an
original, fully completed and authenticated Trust Receipt from Custodian
covering the Mortgage Pools being purchased for each of all Cash Window
Transactions and all Conduit Transactions and (ii) copies of the Takeout
Confirmations related to such Mortgage Pools, together with Trade Assignments
in the form of Exhibit D hereto, executed by Seller and Takeout Investor and
(iii) an original letter in the form of Exhibit B-1 (an "Exhibit B-1 Letter")
8
<PAGE>
in the event that there is no Warehouse Lender. Simultaneously with the
payment by Purchaser of the Purchase Price, in accordance with the Warehouse
Lender's Wire Instructions or Seller's Wire Instructions, as applicable, with
respect to the Mortgage Pools, Seller hereby conveys to Purchaser all of
Seller's right, title and interest in and to the related Mortgage Loan(s) free
and clear of any lien, claim or encumbrance. Notwithstanding the satisfaction
by Seller of the conditions specified in this Section 2(a), Purchaser is not
obligated to purchase any Mortgage Loans offered to it hereunder.
(b) If Purchaser elects to purchase any Mortgage Pool,
Purchaser shall pay the amount of the Purchase Price for such Mortgage Pool by
wire transfer of immediately available funds in accordance with the Warehouse
Lender's Wire Instructions or if there is no Warehouse Lender, Seller's Wire
Instructions. Upon such payment and not otherwise, Purchaser shall be deemed
to have accepted the related Trade Assignment. In the event that Purchaser
rejects a Mortgage Pool for purchase for any reason and/or does not transmit
the applicable Purchase Price, (i) the Trust Receipt delivered by Custodian to
Purchaser in anticipation of such purchase shall automatically be null and
void and the previously existing Trust Receipt for that type of transaction
shall be in full force and effect, (ii) Purchaser shall not consummate the
transactions contemplated in the applicable Takeout Confirmation and shall
deliver to Takeout Investor (with a copy to Seller and Custodian) a Notice of
Rejection of Trade Assignment, provided, however, that failure of Purchaser to
give such notice shall not affect the rejection by Purchaser of the Trade
Assignment, (iii) if Purchaser shall nevertheless receive any portion of the
related Takeout Proceeds, Purchaser shall promptly pay such Takeout Proceeds
to Seller in accordance with Seller's Wire Instructions and (iv) if Purchaser
shall have remitted any or all of the Purchase Price for the Mortgage Pool to
Seller, Seller shall immediately return such Purchase Price to Purchaser by
wire transfer of immediately available funds.
(c) The terms and conditions of the purchase of each
Mortgage Pool shall be as set forth in this Agreement.
Section 3. Sale of Mortgage Loans to Takeout Investor.
(a) With respect to Mortgage Loan(s) that Purchaser has
elected to purchase, Purchaser may, at its option, either (i) instruct
Custodian to deliver to Takeout Investor, pursuant to Takeout Investor's
instructions, the Custodial File in respect of such Mortgage Loans, in the
manner and at the time set forth in the Custodial Agreement or (ii) provide
for the delivery of the Custodial File to Takeout Investor through an escrow
arrangement satisfactory to Purchaser and Takeout Investor. Seller shall
deliver to Takeout Investor the related Credit File and any and all additional
documents requested by Takeout Investor to enable Takeout Investor to purchase
such Mortgage Loan(s) on or before the related Expiration Date.
9
<PAGE>
(b) With respect to each Mortgage Pool that Purchaser elects
to purchase hereunder, Purchaser shall pay to Seller a Completion Fee. Except
when Purchaser has accepted a Settlement Modification Letter as described
below, the Completion Fee relating to a Mortgage Pool shall not be payable
until the earlier to occur of (1) the date of receipt by Purchaser of the
applicable Takeout Proceeds and (2) the satisfaction by Seller of all of its
obligations pursuant to this Agreement. Notwithstanding the foregoing,
Purchaser shall not be obligated to remit any Completion Fee to Seller while
Seller is under default hereunder. Upon receipt by Purchaser, prior to the
Cure Date, of a Settlement Modification Letter, duly executed by Takeout
Investor and Seller, Purchaser may, at its election, agree to the postponement
of the Settlement Date and such other matters as are set forth in the
Settlement Modification Letter. If Purchaser elects to accept a Settlement
Modification Letter, Purchaser shall, not later than two (2) Business Days
after receipt of such Settlement Modification Letter execute the Settlement
Modification Letter and send, via facsimile, copies of such fully executed
Settlement Modification Letter to Seller and Takeout Investor. Upon execution
by Purchaser of a Settlement Modification Letter, Purchaser shall recalculate
the amount of the Completion Fee, if any, due to Seller using the new terms
included in the Settlement Modification Letter and shall pay to Seller, not
later than two (2) Business Days after Purchaser's receipt of such Settlement
Modification Letter, the amount of such recalculated Completion Fee.
In the event that Seller requests, and Purchaser agrees, that the Completion
Fee be paid prior to the date established above, the Completion Fee shall be
reduced by an amount mutually agreed upon by Seller and Purchaser.
(c) (1) Upon Purchaser's discovery that any Mortgage Loan is
a Defective Mortgage Loan at the time of the delivery of the related Trust
Receipt to Purchaser and in Purchaser's sole judgment the defects in such
Mortgage Loan will not be cured (or in fact are not cured) by Seller prior to
the Cure Date, Purchaser, at its election, may require that Seller, upon
receipt of notice from Purchaser of its exercise of such right, either (i)
immediately repurchase Purchaser's ownership interest in such Defective
Mortgage Loan by remitting to Purchaser (in immediately available funds in
accordance with Purchaser Wire Instructions) the amount paid by Purchaser for
such Defective Mortgage Loan plus interest at the Pass-Through Rate on the
principal amount thereof from the date of Purchaser's purchase of the related
Mortgage Pool to the date of such repurchase or (ii) deliver to Custodian a
Mortgage Loan in exchange for such Defective Mortgage Loan, which newly
delivered Mortgage Loan shall be in all respects acceptable to Purchaser in
Purchaser's reasonable discretion. If the aggregate principal balance of all
Mortgage Loan(s) that are accepted by Purchaser pursuant to clause (ii) of the
immediately preceding sentence is less than the aggregate principal balance of
all Defective Mortgage Loan(s) that are being replaced by such Mortgage
Loan(s), Seller shall remit with such Mortgage Loan(s) to Purchaser an amount
equal to the difference between the aggregate principal balance of the new
Mortgage Loan(s) accepted by Purchaser and the aggregate principal balance of
the Defective Mortgage Loan(s) being replaced thereby.
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(c) (2) If Seller fails to comply with its obligations under
Section 3(c)(1), not later than the third day after receipt by Seller of
notice from Purchaser, Seller's rights and obligations to service Mortgage
Loan(s), as provided in this Agreement, shall terminate. If an Act of
Insolvency occurs at any time, Seller's rights and obligations to service the
Mortgage Loan(s), as provided in this Agreement, shall terminate immediately,
without any notice or action by Purchaser. Upon any such termination,
Purchaser is hereby authorized and empowered as the exclusive agent for Seller
to sell and transfer such rights to service the Mortgage Loan(s) for such
price and on such terms and conditions as Purchaser shall reasonably
determine, and Seller shall not otherwise attempt to sell or transfer such
rights to service without the prior consent of Purchaser. Seller shall perform
all acts and take all action so that the Mortgage Loan(s) and all files and
documents relating to such Mortgage Loan(s) held by Seller, together with all
escrow amounts relating to such Mortgage Loan(s), are delivered to Successor
Servicer. To the extent that the approval of any Third Party Underwriter or
any other insurer or guarantor is required for any such sale or transfer,
Seller shall fully cooperate with Purchaser to obtain such approval. Upon
exercise by Purchaser of its remedies under this Section 3(c)(2), Seller
hereby authorizes Purchaser to receive all amounts paid by any purchaser of
such rights to service the Mortgage Loan(s) and to remit such amounts to
Seller subject to Purchaser's rights of set-off under this Agreement. Upon
exercise by Purchaser of its remedies under this Section 3(c)(2), Purchaser's
obligation to pay and Seller's right to receive any portion of the Completion
Fee relating to such Mortgage Loan(s) shall automatically be cancelled and
become null and void, provided that such cancellation shall in no way relieve
Seller or otherwise affect the obligation of Seller to indemnify and hold
Purchaser harmless as specified in Section 3(e).
(d) Each Mortgage Loan required to be delivered to Successor
Servicer by Section 3(c)(2) shall be delivered free of any servicing rights in
favor of Seller and free of any title, interest, lien, encumbrance or claim of
any kind of Seller. Seller shall deliver or cause to be delivered all files
and documents relating to each Mortgage Loan held by Seller to Successor
Servicer. Seller shall promptly take such actions and furnish to Purchaser
such documents that Purchaser deems necessary or appropriate to enable
Purchaser to cure any defect in each such Mortgage Loan or to enforce such
Mortgage Loans, as appropriate.
(e) Seller agrees to indemnify and hold Purchaser and its
assigns harmless from and against all Losses resulting from or relating to any
breach or of any representation, warranty or covenant made, or to be
performed, by Seller under this Agreement.
(f) No exercise by Purchaser of its rights under this
Section 3 shall relieve Seller of responsibility or liability for any breach
of this Agreement.
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(g) Seller hereby grants Purchaser a right of set-off
against the payment of any amounts that may be due and payable to Purchaser
from Seller, such offset to be applied against any and all monies or other
property of Seller held or received by Purchaser or due and owing from
Purchaser to Seller.
Section 4. Payment of Accrued Interest.
If a Mortgage Pool is purchased by Purchaser in the month
prior to the month in which the related Settlement Date occurs (A) Seller
shall pay Purchaser, on the applicable Settlement Date, accrued interest on
the aggregate principal balance of the Mortgage Loans, from Purchase Date
through the last day of the month prior to the month in which the Settlement
Date occurs and (B) Purchaser shall be entitled to all amounts paid by Takeout
Investor with respect to the Mortgage Loans including the portion thereof
representing the payment of interest accrued on the Mortgage Loans from the
first day of the month in which the Settlement Date occurs through the day
prior to the Settlement Date, provided that if the Settlement Date occurs
after the Payment Shift Date for such month, Seller shall pay the interest
amount described in this clause (B) to Purchaser in addition to the amount
payable by Seller to Purchaser pursuant to clause (A) of this sentence. If a
Mortgage Pool is purchased in the same month in which the related Settlement
Date occurs (A) Purchaser shall pay Seller, on the applicable Settlement Date,
accrued interest, if any, on the aggregate principal balance of the Mortgage
Loans from the first day of such month through the day prior to the Purchase
Date and (B) Purchaser shall be entitled to receive all amounts paid by
Takeout Investor with respect to the Mortgage Loans including the portion
thereof representing the payment of interest accrued on the Mortgage Loans
from the first day of such month to, but not including, the Settlement Date,
provided that if the Settlement Date occurs after the Payment Shift Date for
such month, or if interest has been prepaid by the applicable Mortgagors,
Seller shall pay to Purchaser the interest amount described in this clause
(B). For purposes of this paragraph all interest payments shall be deemed to
accrue at the applicable rate set forth in the related Takeout Commitment.
Section 5. Servicing of the Mortgage Loans.
(a) Seller shall service and administer the Mortgage Loan(s)
on behalf of Purchaser in accordance with prudent mortgage loan servicing
standards and procedures generally accepted in the mortgage banking industry
and in accordance with the requirements of Takeout Investor, provided that
Seller shall at all times comply with applicable law, and the requirements of
any applicable insurer or guarantor including, without limitation, any Third
Party Underwriter, so that the coverage provided by the insurance in respect
of any Mortgage Loan is not materially and adversely affected. Seller shall at
all times maintain accurate and complete records relating to the servicing of
each Mortgage Loan, and Purchaser may, at any time during Seller's business
hours on reasonable notice, examine and make copies of such records. In
addition, if a Mortgage Loan is not purchased by Takeout Investor on or before
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the Cure Date, Seller shall at Purchaser's request deliver to Purchaser
monthly reports regarding the status of such Mortgage Loan, which reports
shall include, but shall not be limited to, a description of each Mortgage
Loan in default for more than thirty (30) days, and such other matters with
respect to any Mortgage Loan (whether or not such Mortgage Loan is included in
the foregoing list) that could materially adversely affect any such Mortgage
Loan, Purchaser's ownership of any such Mortgage Loan or the collateral
securing any such Mortgage Loan. Seller shall deliver such a report to
Purchaser every thirty (30) days until (i) the purchase by Takeout Investor of
such Mortgage Loan pursuant to the related Takeout Commitment or (ii) the
exercise by Purchaser of any remedy pursuant to Section 3.
(b) Within five (5) business days of notice from Purchaser,
Seller shall establish and maintain separate custodial accounts for (i)
principal and interest (the "Custodial Account for P&I") entitled "[Name of
Seller], as agent, trustee and/or bailee of principal and interest custodial
account for PNC Mortgage Securities Corp. and its assignees under the Mortgage
Loan Purchase Agreement dated [the date of this Agreement]" and (ii) taxes,
insurance and other reserves (the "Custodial Account for Reserves") entitled
"[Name of Seller], as agent, trustee and/or bailee of taxes and insurance
account for PNC Mortgage Securities Corp., its assignees under the Mortgage
Loan Purchase Agreement dated [the date of this Agreement] and for various
mortgagors. The Custodial Account for P&I and the Custodial Account for
Reserves shall be established and maintained (i) with a corporate trust
department of a financial institution approved by Purchaser such that the
rights thereto of Purchaser shall be fully protected against the claims of any
creditors of Seller and any creditors or depositors of the institution in
which such account is maintained and (ii) with FDIC insured accounts. Seller
shall promptly deposit into such accounts, as applicable, in the form received
with any necessary endorsements, all collections received in respect of each
Mortgage Loan.
(c) Amounts deposited in the Custodial Account for P&I and
the Custodial Account for Reserves with respect to any Mortgage Loan shall be
held in trust for Purchaser as the owner of such Mortgage Loan and shall be
released only as follows:
(1) Except as otherwise provided in Section
5(c)(2), following receipt by Purchaser or its designee of
the Takeout Proceeds for such Mortgage Loan from Takeout
Investor or Seller, amounts deposited in the Custodial
Account for P&I (and if the Mortgage Loans were sold by
Seller on a servicing-released basis, the amounts deposited
in the Custodial Account for Reserves) shall be released to
Takeout Investor in accordance with Purchaser's
instructions.
(2) If Successor Servicer undertakes the servicing
of Mortgage Loans (either under the circumstances set forth
in Section 3 or otherwise), all amounts deposited in the
Custodial Account for P&I and the Custodial Account for
Reserves shall be promptly forwarded to Successor Servicer
for the benefit of Purchaser.
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(3) If a Mortgage Loan is not purchased by Takeout
Investor on or before the Cure Date, during the period
thereafter that Seller remains as servicer, all amounts
deposited in the Custodial Account for P&I shall be released
only in accordance with Purchaser's written instructions.
Amounts deposited in the Custodial Account for Reserves
shall be remitted to the applicable insurers and taxing
authorities in accordance with prudent mortgage servicing
practices and the terms of the applicable Sale Agreement.
Section 6. Trade Assignments. Seller hereby assigns to
Purchaser, Seller's rights, under each Takeout Commitment relating to each
Mortgage Pool purchased by Purchaser hereunder and to the Takeout Proceeds
related thereto. With respect to each Trade Assignment, Seller represents and
warrants to Purchaser that:
(a) the rights and obligations under the related
Takeout Commitment are (1) valid and binding obligations of
the parties thereto enforceable in accordance with their
terms, (2) in full force and effect and (3) not subject to
any pledge, lien, assignment or other encumbrance, or to any
right of any party other than Seller to deliver the Mortgage
Pool or against payment therefore;
(b) the applicable Takeout Investor has consented
to the Trade Assignment; and
(c) all written and oral information regarding the
related Takeout Commitment provided by Seller to Purchaser
is true and correct in all material respects.
Purchaser shall not be deemed to have accepted any Trade Assignment unless and
until it purchases the related Mortgage Loans, and nothing set forth herein
shall be deemed to impair Purchaser's right to reject any Mortgage Loan for
any reason, in its sole and absolute discretion.
Section 7. Transfers of Beneficial Interest in Mortgage
Loans by Purchaser. Purchaser may, in its sole and absolute discretion, assign
all of its right, title and interest in or grant a security interest in any
Mortgage Loan sold by Seller hereunder and all rights of Purchaser under this
Agreement and the Custodial Agreement, in respect of such Mortgage Loan to a
tri-party custody and clearing agent ("Assignee"), subject only to an
obligation on the part of assignee to deliver each such Mortgage Loan to
Takeout Investor pursuant to Section 6 or to permit Purchaser or its designee
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to make delivery thereof to a Takeout Investor pursuant to Section 6. If such
an assignment is made to an Assignee by Purchaser, Seller shall be deemed to
have irrevocably consented to such assignment. No notice of such assignment
shall be given by Purchaser to Seller or Takeout Investor. Assignment by
Purchaser of the Mortgage Loans as provided in this Section 7 shall not
release Purchaser from its obligations otherwise under this Agreement.
Without limitation of the foregoing, an assignment of the
Mortgage Loans to an Assignee, as described in this Section 7, shall be
effective upon delivery to the Assignee of a duly executed and authenticated
Trust Receipt.
Section 8. Record Title to Mortgage Loans; Intent of parties;
Security Interest.
(a) From and after the issuance and delivery of the related
Trust Receipt, and subject to the remedies of Purchaser in Section 3, Seller
shall remain the last named payee or endorsee of each Mortgage Note and the
mortgagee or assignee of record of each Mortgage in trust for the benefit of
Purchaser, for the sole purpose of facilitating the servicing of such Mortgage
Loan.
(b) Seller shall maintain a complete set of books and
records for each Mortgage Loan which shall be clearly marked to reflect the
ownership interest in each Mortgage Loan of the holder of the related Trust
Receipt.
(c) Purchaser and Seller confirm that the transactions
contemplated herein are intended to be sales of the Mortgage Loans by Seller
to Purchaser rather than borrrowings secured by the Mortgage Loans. In the
event, for any reason, any transaction is construed by any court or regulatory
authority as a borrowing rather than as a sale, Seller and Purchaser intend
that Purchaser or its Assignee, as the case may be, shall have a perfected
first priority security interest in the Mortgage Loans, the Custodial Account
for P&I, the Custodial Account for Reserves, the Takeout Commitments and the
proceeds of any and all of the foregoing (collectively, the "Collateral"),
free and clear of adverse claims. In such case, Seller shall be deemed to have
hereby granted to Purchaser or Assignee, as the case may be, a first priority
security interest in and lien upon the Collateral, free and clear of adverse
claims. In such event, this Agreement shall constitute a security agreement,
the Custodian shall be deemed to be an independent custodian for purposes of
perfection of the security interest granted to Purchaser or Assignee, as the
case may be, and Purchaser or Assignee, as the case may be, shall have all of
the rights of a secured party under applicable law.
(d) With respect to each Mortgage Pool purchased by
Purchaser from Seller pursuant to this Agreement, it is the express intention
of the parties hereto that upon Purchaser's delivery of such Mortgage Pool to
the applicable Takeout Investor, Seller shall make all representations,
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warranties and covenants to Takeout Investor with respect to the Mortgage Pool
pursuant to the terms and conditions of the applicable Sale Agreement between
Seller and Takeout Investor. It is the express understanding of the parties
hereto that Purchaser's sole obligation to Takeout Investor with respect to
the Mortgage Pool shall be the delivery thereof to Takeout Investor and that
Purchaser shall make no representations, warranties or covenants to Takeout
Investor in connection therewith. Seller shall hold Purchaser harmless, and
indemnify Purchaser, for any Losses arising out of Takeout Investor's attempt
to enforce any remedy available to it under the Sale Agreement or otherwise
with respect to any Mortgage Loan in the Mortgage Pool.
Section 9. Representations and Warranties.
(a) Seller hereby represents and warrants to Purchaser as of
the date hereof and as of the date of each issuance and delivery of a Trust
Receipt to Purchaser that:
(i) Seller is duly organized, validly existing and
in good standing under the laws of the state of its
organization and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified
and in good standing in the state where each Mortgaged
Property is located if the laws of such state require
licensing or qualification in order to conduct business of
the type conducted by Seller. Seller has all requisite power
and authority (including, if applicable, corporate power) to
execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance
of this Agreement (including all instruments of transfer to
be delivered pursuant to this Agreement) by Seller and the
consummation of the transactions contemplated hereby have
been duly and validly authorized; this Agreement evidences
the valid, binding and enforceable obligation of Seller; and
all requisite action (including, if applicable, corporate
action) has been taken by Seller to make this Agreement
valid and binding upon Seller in accordance with its terms;
(ii) No approval of the transactions contemplated
by this Agreement by the OTS, the NCUA, the FDIC or any
similar federal or state regulatory authority having
jurisdiction over Seller is required, or if required, such
approval has been obtained. There are no actions or
proceedings pending or affecting Seller which would
adversely affect its ability to perform hereunder. The
transfers, assignments and conveyances provided for herein
are not subject to the bulk transfer or any similar
statutory provisions in effect in any applicable
jurisdiction;
(iii) The consummation of the transactions
contemplated by this Agreement are in the ordinary course of
the business of Seller and will not result in the breach of
any term or provision of the charter or by-laws of Seller or
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result in the breach of any term or provision of, or
conflict with or constitute a default under or result in the
acceleration of any obligation under, any agreement,
indenture or loan or credit agreement or other instrument to
which Seller or its property is subject, or result in the
violation of any law, rule, regulation, order, judgment or
decree to which Seller or its property is subject;
(iv) This Agreement, the Custodial Agreement and
every document to be executed by Seller pursuant to is
Agreement this and will be the valid, binding and subsisting
obligations of Seller, enforceable in accordance with their
respective terms. No consents or approvals are required to
be obtained by Seller or its Parent Company for the
execution, delivery and performance of this Agreement or the
Custodial Agreement by Seller;
(v) All information relating to Seller that Seller
has delivered or caused to be delivered to Purchaser,
including, but not limited to, all documents related to this
Agreement, the Custodial Agreement or Seller's financial
statements, does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements made therein or herein in light of the
circumstances under which they were made, not misleading.
(b) Seller hereby represents, warrants and covenants to
Purchaser with respect to each Mortgage Loan as of the Purchase Date of such
Mortgage Loan that:
(i) The Mortgage Loan conforms in all respects to
the requirements of this Agreement, the applicable Sale
Agreement (including the representations and warranties
stated therein), the Commitment Guidelines and the
requirement of the related Third Party Underwriter's
Certificate, if any;
(ii) Seller is the sole owner and holder of the
Mortgage Loan free and clear of any and all liens, pledges,
charges or security interests of any nature and has full
right and authority, subject no interest or participation
of, or agreement with, any other party, to sell and assign
the same pursuant to this Agreement and upon delivery of the
related Trust Receipt to Purchaser, Purchaser will be the
sole owner thereof, free and clear of any lien, claim or
encumbrance;
(iii) No servicing agreement has been entered into
with respect to the Mortgage Loan, or if a servicing
agreement has been entered into with respect to the Mortgage
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Loan, any such servicing agreement has been terminated and
there are no restrictions, contractual or governmental,
which would impair the ability of Purchaser or Purchaser's
designees from servicing the Mortgage Loan;
(iv) The Mortgage is a valid and subsisting first
lien on the property therein described and the Mortgaged
Property is free and clear of all encumbrances and liens
except for liens for real estate taxes and special
assessments not yet due and payable. Any pledge account,
security agreement, chattel mortgage or equivalent document
related to, and delivered to Purchaser with the Mortgage,
establishes in Seller a valid and subsisting first lien on
the property described therein, and Seller has full right to
sell and assign the same to Purchaser;
(v) Neither Seller nor any prior holder of the
Mortgage has modified the Mortgage in any material respect;
satisfied, canceled or subordinated the Mortgage in whole or
in part; released the Mortgaged Property in whole or in part
from the lien of the Mortgage; or executed any instrument of
release, cancellation, modification or satisfaction unless
such release, cancellation, modification or satisfaction
does not adversely affect the value of the Mortgage Loan and
is evidenced by a written instrument which has been
recorded, if necessary, to protect the interests of the
Purchaser and which is contained in the related Document
File. The substance of any such waiver, alteration or
modification has been approved by the issuer of any related
primary insurance policy and title insurer, to the extent
required by the policies;
(vi) The Mortgage Loan is not in default, and all
Monthly Payments due prior to the Purchase Date and all
taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground
rents have ben paid. Seller has not advanced funds, or
induced or solicited any advance of funds by a party other
than the Mortgagor, directly or indirectly, for the payment
of any amount required by the Mortgage Loan. The collection
practices used by each entity which has serviced the
Mortgage Loan have been in all respects legal, proper,
prudent, and customary in the mortgage servicing business.
With respect to escrow deposits and payments in those
instances where such were required, there exist no
deficiencies in connection therewith for which customary
arrangements for repayment thereof have not been made and no
escrow deposits or payments or other charges or payments
have been capitalized under any Mortgage or the related
Mortgage Note;
(vii) There is no default, breach, violation or
event of acceleration existing under the Mortgage or the
related Mortgage Note and no event which, with the passage
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of time or with notice and the expiration of any grace or
cure period, would constitute a default, breach, violation
or event of acceleration; and neither Seller nor its
predecessors has waived any default, breach, violation or
event of acceleration;
(viii) The Mortgage Loan is not subject to any
right of rescission, set-off, counterclaim or defense,
including the defense of usury, nor will the operation of
any of the terms of the Mortgage Note or the Mortgage, or
the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in
part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and
no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(ix) The Mortgage Note and the related Mortgage are
genuine and each is the legal, valid and binding obligation
of the maker thereof, enforceable in accordance with its
terms. All parties to the Mortgage Note and the mortgage had
legal capacity to execute the Mortgage Note and the Mortgage
and each Mortgage Note and Mortgage have been duly and
properly executed by the Mortgagor;
(x) The Mortgage Loan meets, or is exempt from,
applicable state or federal laws, regulations and other
requirements pertaining to usury, and the Mortgage Loan is
not usurious;
(xi) Any and all requirements of any federal, state
or local law including, without limitation,
truth-in-lending, real estate settlement procedures,
consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loan have been
complied with, and Seller shall deliver to Purchaser upon
demand, evidence of compliance with all such requirements;
(xii) All parties which have had any interest in
the Mortgage Loan, whether as mortgagee, assignee, pledgee
or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (1) in compliance with
any and all applicable licensing requirements of the laws of
the state wherein the Mortgaged Property is located and (2)
(i) organized under the laws of such state, (ii) qualified
to do business in such state, (iii) a federal savings and
loan association or national bank having principal offices
in such state or (iv) not doing business in such state.
(xiii) The proceeds of the Mortgage Loan have been
fully disbursed, there is no requirement for future advances
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thereunder and any and all requirements as to completion of
any on site or off-site improvements and as to disbursements
of any escrow funds, therefore, have been complied with. All
costs, fees and expenses incurred in making, closing or
recording the Mortgage Loans were paid and the Mortgagor is
not entitled to any refund of any amounts paid or due under
the Mortgage Note or Mortgage;
(xiv) The related Mortgage contains customary and
enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization
against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (ii)
otherwise by judicial foreclosure. There is no homestead or
other exemption available to the Mortgagor which would
interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(xv) The Mortgage Loan was originated free of any
"original issue discount" with respect to which the owner of
the Mortgage Loan could be deemed to have income pursuant to
Sections 1271 et seq. of the Internal Revenue Code;
(xvi) Each Mortgage Loan was originated by an
institution described in Section 3(a)(41)(A)(ii) of the
Securities Exchange Act of 1934, as amended;
(xvii) The Mortgaged Property is free and clear of
all mechanics' and materialmen's liens or liens in the
nature thereof which are or could be prior to the Mortgage
lien, and no rights are outstanding that under law could
give rise to any such lien;
(xviii) All of the improvements which are included
for the purpose of determining the appraised value of the
Mortgaged Property lie wholly within the boundaries and
building restriction lines of such property, and no
improvements on adjoining properties encroach upon the
Mortgaged Property;
(xix) At origination, no improvement located on or
being part of the Mortgaged Property was in violation of any
applicable zoning law or regulation and all inspections,
licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property,
and with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and
fire underwriting certificates, had been made or obtained
from the appropriate authorities and the Mortgaged Property
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was lawfully occupied under the applicable law. No
improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or
regulation and all inspections, licenses and certificates
required to be made or issued with respect to the Mortgaged
Property, and with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or
obtained from the appropriate authorities and the Mortgaged
Property is lawfully occupied under applicable law;
(xx) There is no proceeding pending for the total
or partial condemnation of the Mortgaged Property and said
property is undamaged by waste, fire, earthquake or earth
movement, windstorm, flood, tornado or other casualty;
(xxi) The Custodial File contains and the Credit
File contains or shall contain prior to the Cure Date each
of the documents and instruments specified to be included
therein duly executed and in due and proper form and each
such document or instrument is either in form acceptable to
FNMA or is a FNMA/FHLMC uniform instrument; Seller is
currently in possession of the Custodial File and is in
possession or shall be prior to the Expiration Date of the
Credit File and there are no custodial agreements in effect
adversely affecting the rights of Seller to make the
deliveries required within the required time. Seller shall
not deliver a Credit File to Takeout Investor prior to the
related Commitment Date;
(xxii) The Mortgage Loan is covered by a mortgage
title insurance policy acceptable to FNMA, issued by, and
the valid and binding obligation of, a title insurer
acceptable to FNMA and qualified to do business in the
jurisdiction where the Mortgaged Property is located,
insuring Seller, its successors and assigns, as to the first
priority lien of the Mortgage in the original principal
amount of the Mortgage Loan, Seller is the named insured and
the sole insured of such mortgage title insurance policy,
the assignment to Purchaser of Seller's interest in such
mortgage title insurance policy does not require the consent
of or notification to the insurer, such mortgage title
insurance policy is in full force and effect and will be in
full force and effect and inure to the benefit of Purchaser
upon the consummation of the transactions contemplated by
this Agreement and no claims have been made under such
mortgage title insurance policy and no prior holder of the
related Mortgage, including Seller, has done, by act or
omission, anything which would impair the coverage of such
mortgage title insurance policy;
(xxiii) All buildings upon the Mortgaged Property
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are insured against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area
where the Mortgaged Property is located, pursuant to fire
and hazard insurance policies with extended coverage or
other insurance required by the Sale Agreement, in an amount
at least equal to the lesser of (i) the outstanding
principal balance of the Mortgage Loan or (ii) the maximum
insurable value (replacement cost without deduction for
depreciation) of the improvements constituting the Mortgaged
Property. If applicable laws limit the amount of such
insurance to the replacement cost of the improvements
constituting the Mortgaged Property or to some other amount,
then such insurance is in an amount equal to the maximum
allowed by such laws. Such insurance amount is sufficient to
prevent the Mortgagor or the loss payee under the policy
from becoming a co-insurer. The insurer issuing such
insurance is acceptable pursuant to the Sale Agreement. All
individual insurance policies contain a standard mortgagee
clause naming Seller, its successors and assigns, as
mortgagee and all premiums thereon have been paid. Each
Mortgage obligates the Mortgagor thereunder to maintain all
such insurance at Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at
Mortgagor's cost and expense and to seek reimbursement
therefor from the Mortgagor. Any flood insurance required by
applicable law has been obtained. The hazard insurance
policy is the valid and binding obligation of the insurer,
is in full force and effect, and inures to the benefit of
the Purchaser upon the consummation of the transactions
contemplated by this Agreement. Seller has not engaged in,
and has no knowledge of the Mortgagor having engaged in, any
act or omission which would impair the coverage of any such
policy, the benefits of the endorsement provided for herein,
or the validity and binding effect of either, including,
without limitation, no unlawful fee, commission, kickback or
other unlawful compensation or value of any kind has been or
will be received, retained or realized by any attorney, firm
or other person or entity, and no such unlawful items have
been received, retained or realized by Seller;
(xxiv) The original principal amount of the related
Mortgage Note either (a) was not more than 80% of the lesser
of (i) the purchase price of the Mortgaged property paid by
the Mortgagor at the origination of the Mortgage Loan and
(ii) the appraised value of the Mortgaged Property, such
appraised value being, for the purposes hereof, the amount
set forth in an appraisal made in connection with the
origination of such mortgage Loan, or (b) is and will be
insured as to payment defaults by a policy of primary
mortgage guaranty insurance in accordance with the Sale
Agreement and all provisions of such primary mortgage
guaranty insurance policy have been and are being complied
with, such policy is in full force and effect, and all
22
<PAGE>
premiums due thereunder have been paid. Any Mortgage Loan
subject to any such policy of primary mortgage guaranty
insurance obligates the Mortgagor thereunder to maintain
such insurance and pay all premiums and charges in
connection therewith. The original principal amount of each
Mortgage Note was not more than 95% of the purchase price of
the related Mortgaged Property paid by the Mortgagor at the
origination of the Mortgage Loan. No action, event or state
of facts exists or has existed which, because involving or
arising from any dishonest, fraudulent, criminal, negligent
or knowingly wrongful act, error or omission by the
Mortgagor or the originator or servicer of the Mortgage
Loan, would result in the exclusion from, denial of, or
defense to coverage which otherwise would be provided by
such insurance;
(xxv) At the time that the related Mortgage Loan
was made the Mortgagor represented that the Mortgagor would
occupy such Mortgaged Property as Mortgagor's primary
residence;
(xxvi) The Mortgaged property consists of a single
parcel of real property;
(xxvii) There are no circumstances or conditions
with respect to the Mortgage, the Mortgaged Property, the
Mortgagor or the Mortgagor's credit standing that can be
reasonably expected to cause private institutional investors
to regard the Mortgage Loan as an unacceptable investment,
cause the Mortgage Loan to become delinquent or adversely
affect the value or marketability of the Mortgage Loan;
(xxviii) The Mortgaged Property is free from any and
all toxic or hazardous substances and there exists no
violation of any local, state or federal environmental law,
rule or regulation;
(xxix) Prior to origination, an appraisal of the
Mortgaged Property was made by an appraiser acceptable to
FNMA and FHLMC on a form satisfactory to FNMA and FHLMC and
included an estimate of value based upon sales of comparable
properties;
(xxx) The Mortgage Loan was underwritten in
accordance with the underwriting guidelines of the
applicable Takeout Investor;
(xxxi) In the event the Mortgage constitutes a deed
of trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated and currently so
serves and is named in the Mortgage, and no fees or expenses
are or will become payable by Purchaser to the trustee under
23
<PAGE>
the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor; and
(xxxii) The Mortgage contains an enforceable
provision for the acceleration of the payment of the unpaid
principal balance of the Mortgage Loan in the event that the
Mortgaged Property is sold or transferred without the prior
written consent of the mortgagee thereunder; by the terms of
the Mortgage Note, however, the provision for acceleration
may not be exercised at the time of a transfer if prohibited
by federal law or, in the event that the mortgage interest
rate for the Mortgage Loan is adjustable, if the prospective
purchaser is transferee of the original Mortgagor who meets
the applicable creditworthiness standards and pays an agreed
upon fee.
The representations and warranties of Seller in this Section 9 are unaffected
by and supersede any provision in any endorsement of any Mortgage Loan or in
any assignment with respect to such Mortgage Loan to the effect that such
endorsement or assignment is without recourse or without representation or
warranty.
It is understood and agreed that the representations and warranties set forth
in this Section 9 shall survive delivery of the respective Custodial Files to
the Custodian or Takeout Investor and shall continue notwithstanding any
termination of this Agreement. Upon discovery by Purchaser of a breach of any
of the foregoing representations and warranties which materially and adversely
affects the interests of Purchaser in the related Mortgage Loans, Purchaser
shall give prompt written notice to Seller. Within ninety (90) days of its
receipt of notice of breach, Seller shall repurchase such Mortgage Loans for
an amount equal to the portion of the applicable Purchase Price related
thereto plus accrued and unpaid interest at the weighted average (by principal
balance) of the rate set forth in the applicable Takeout Commitment for such
Mortgage Loans to the day prior to the date of repurchase.
Section 10. Covenants of Seller. Seller hereby
covenants and agrees with Purchaser as --------------------follows:
(a) Seller shall deliver to Purchaser:
(i) Within one hundred twenty (120) days after the
end of each fiscal year of Seller, consolidated balance
sheets of Seller and its consolidated subsidiaries and the
related consolidated statements of income showing the
financial condition of Seller and its consolidated
subsidiaries as of the close of such fiscal year and the
results of operations during such year, and a consolidated
statement of cash flows, as of the close of such fiscal
year, setting forth, in each case, in comparative form the
corresponding figures for the preceding year, all the
24
<PAGE>
foregoing consolidated financial statements to be reported
on by, and to carry the report (acceptable in form and
content to Purchaser) of, an independent public accountant
of national standing acceptable to Purchaser;
(ii) Within sixty (60) days after the end of each
of the first three fiscal quarters of each fiscal year of
Seller, unaudited consolidated balance sheets and
consolidated statements of income, all to be in a form
acceptable to Purchaser, showing the financial condition and
results of operations of Seller and its consolidated
subsidiaries on a consolidated basis as of the end of each
such quarter and for the then elapsed portion of the fiscal
year, setting forth, in each case, in comparative form the
corresponding figures for the corresponding periods of the
preceding fiscal year, certified by a financial officer of
Seller (acceptable to Purchaser) as presenting fairly the
financial position and results of operations of Seller and
its consolidated subsidiaries and as having been prepared in
accordance with generally accepted accounting principles
consistently applied, in each case, subject to normal
year-end audit adjustments;
(iii) Promptly upon receipt thereof, a copy of each
other report submitted to Seller by its independent public
accountants in connection with any annual, interim or
special audit of Seller;
(iv) Promptly upon becoming aware thereof, notice
of (1) the commencement of, or any determination in, any
legal, judicial or regulatory proceedings, (2) any dispute
between Seller or its Parent Company and any governmental or
regulatory body, (3) any event or condition, which, in any
case of (1) or (2) if adversely determined, would have a
material adverse effect on (A) the validity or
enforceability of this Agreement, (B) the financial
condition or business operations of Seller, or (C) the
ability of Seller to fulfill its obligations under this
Agreement or (4) any material adverse change in the
business, operations, prospects or financial condition of
Seller, including, without limitation, the insolvency of the
Seller or its Parent Company;
(v) Promptly upon becoming available, copies of all
financial statements, reports, notices and proxy statements
sent by its Parent Company, Seller or any of Seller's
consolidated subsidiaries in a general mailing to their
respective stockholders and of all reports and other
material (including copies of all registration statements
under the Securities Act of 1933, as amended) filed by any
of them with any securities exchange or with the Securities
and Exchange Commission or any governmental authority
succeeding to any or all of the functions of said
Commission;
25
<PAGE>
(vi) Promptly upon becoming available, copies of
any press releases issued by its Parent Company or Seller
and copies of any annual and quarterly financial reports and
any reports on Form H-(b)12 which its Parent Company or
Seller may be required to file with the OTS or the RTC or
comparable reports which a Parent Company or Seller may be
required to file with the FDIC or any other federal banking
agency containing such financial statements and other
information concerning such parent Company's or Seller's
business and affairs as is required to be included in such
reports in accordance with the rules and regulations of the
OTS, the RTC, the FDIC or such other banking agency, as may
be promulgated from time to time;
(vii) Such supplements to the aforementioned
documents and such other information regarding the
operations, business, affairs and financial condition of its
Parent Company, Seller or any of Seller's consolidated
subsidiaries as Purchaser may request;
(viii) A copy of (1) the articles of incorporation
of Seller and any amendments thereto, certified by the
Secretary of State of Seller's state of incorporation, (2) a
copy of Seller's by-laws, together with any amendments
thereto, (3) a copy of the resolutions adopted by Seller's
Board of Directors authorizing Seller to enter into this
Agreement and the Custodial Agreement and authorizing one or
more of Seller's officers to execute the documents related
to this Agreement and the Custodial Agreement, and (4) a
certificate of incumbency and signature of each officer of
Seller executing any document in connection with this
Agreement;
(ix) Neither Seller nor any affiliate thereof will
acquire at any time any economic interest in or obligation
with respect to any Mortgage Loan;
(x) Under generally accepted accounting principles
("GAAP") and for federal income tax purposes, Seller will
report each sale of a Mortgage Loan to the Purchaser
hereunder as a sale of the ownership interest in the
Mortgage Loan. Seller has been advised by or has confirmed
with its independent public accountants that the foregoing
transactions will be so classified under GAAP;
(xi) The consideration received by Seller upon the
sale of each Mortgage Pool will constitute reasonably
equivalent value and fair consideration for the ownership
interest in the Mortgage Loans included therein;
(xii) Seller will be solvent at all relevant times
26
<PAGE>
prior to, and will not be rendered insolvent by, any sale of
a Mortgage Loan to the Purchaser; and
(xiii) Seller will not sell any Mortgage Loan to
the Purchaser with any intent to hinder, delay or defraud
any of Seller's creditors.
(b) Seller shall comply, in all material respects, with all
laws, rules and regulations to which it is or may become subject.
(c) Seller shall, upon request of Purchaser, promptly
execute and deliver to Purchaser all such other and further documents and
instruments of transfer, conveyance and assignment, and shall take such other
action as Purchaser may require more effectively to transfer convey, assign to
and vest in Purchaser and to put Purchaser in possession of the property to be
transferred, conveyed, assigned and delivered hereunder and otherwise to carry
out more effectively the intent of the provisions under this Agreement.
Section 11. Term. This Agreement shall continue in effect
until terminated as to future transactions by written instruction signed by
either Seller or Purchaser and delivered to the other, provided that no
termination will affect the obligations hereunder as to any of the Mortgage
Loans purchased hereunder.
Section 12. Exclusive Benefit of Parties; Assignment. This
Agreement is for the exclusive benefit of the parties hereto and their
respective successors and assigns and shall not be deemed to give any legal or
equitable right to any other person, including the Custodian. Except as
provided in Section 7, no rights or obligations created by this Agreement may
be assigned by any party hereto without the prior written consent of the other
parties.
Section 13. Amendments; Waivers, Cumulative Rights. This
Agreement may be amended from time to time only by written agreement of Seller
and Purchaser. Any forebearance, failure or delay by either party in
exercising any right, power or remedy hereunder shall not preclude the further
exercise thereof. Every right, power and remedy of Purchaser shall continue in
full force and effect until specifically waived by Purchaser in writing. No
right, power or remedy shall be cumulative and in addition to any other right,
power or remedy, whether conferred hereby or hereafter available at law or in
equity or by statute or otherwise.
Section 14. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
Section 15. Effect of Invalidity of Provisions. In case any
one or more of the provisions contained in this Agreement should be or become
27
<PAGE>
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall
in no way be affected, prejudiced or disturbed thereby.
Section 16. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Illinois, without regard to conflict of laws rules.
Section 17. Notices. Any notices, consents, elections,
directions and other communications given under this Agreement shall be in
writing and shall be deemed to have been duly given when telecopied or
delivered by overnight courier, personally delivered, or on the third day
following the placing thereof in the mail, first class postage prepaid, to the
respective addresses set forth in the cover page hereof for Seller and
Purchaser, or to such other address as either party shall give notice to the
other party pursuant to this Section 17. Notices to any Assignee shall be
given to such address as Assignee shall provide to Seller in writing.
Section 18. Entire Agreement. This Agreement and the
Custodial Agreement contain the entire agreement between the parties hereto
with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements between them, oral or written, of any nature
whatsoever with respect to the subject matter hereof.
Section 19. Costs of Enforcement. In addition to any other
indemnity specified in this Agreement, in the event of a breach by Seller of
this Agreement, the Custodial Agreement or a Takeout Commitment, Seller agrees
to pay the reasonable attorneys' fees and expenses of Purchaser and/or
Assignee incurred as a consequence of such breach.
Section 20. Consent to Service. Each party irrevocable
consents to the service of process by registered or certified mail, postage
prepaid, to its at its address given in or pursuant to Section 17.
Section 21. Construction. The headings in this Agreement are
for convenience only and are not intended to influence its construction.
References to Sections, Exhibits and Annexes in this Agreement are to the
Sections of and Exhibits to this Agreement. The Exhibits are part of this
Agreement, and are incorporated herein by reference. The singular includes the
plural, the plural the singular, and the words "and" and "or" are used in the
conjunctive or disjunctive as the sense and circumstances may require.
IN WITNESS WHEREOF, Purchaser and Seller have duly executed
this Agreement as of the date and year set forth above.
28
<PAGE>
PNC MORTGAGE SECURITIES CORP.
By__________________________________
Name:
Title:
PREMIER MORTGAGE CORPORATION
By__________________________________
Name:
Title:
29
<PAGE>
Exhibit 21.1
Subsidiaries of Registrant Premier Mortgage Corp., a New Jersey Corporation,
doing business in New York as P.M.C. Mortgage Co.
<PAGE>
Consent of Independent Auditors
The Shareholders
Premier Mortgage Corporation:
We consent to the use herein of our report dated March 31, 1997 relating to
the consolidated financial statements of Premier Mortgage Corporation and
subsidiary as of and for the year ended December 31, 1996, and to the
references to our firm under the headings "Experts" and "Selected Financial
Data" in the Registration Statement on Form S-1 and related Prospectus of PMCC
Financial Corp.
/s/ KPMG Peat Marwick LLP
-------------------------
Jericho, New York
October 23, 1997
<PAGE>
[LETTERHEAD FOR FREEBERG & FREEBERG]
To the Board of Directors
Premier Mortgage Corporation
Roslyn Heights, New York
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ Freeberg & Freeberg
----------------------------
Freeberg & Freeberg
Westbury, New York
October 22, 1997
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<NAME> PMCC FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-30-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 635,434
<SECURITIES> 192,000
<RECEIVABLES> 34,379,416
<ALLOWANCES> 0
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<CURRENT-ASSETS> 45,425,983
<PP&E> 244,943
<DEPRECIATION> 29,492
<TOTAL-ASSETS> 45,708,143
<CURRENT-LIABILITIES> 42,938,840
<BONDS> 0
0
0
<COMMON> 6,250
<OTHER-SE> 2,763,053
<TOTAL-LIABILITY-AND-EQUITY> 45,708,143
<SALES> 0
<TOTAL-REVENUES> 5,611,730
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<OTHER-EXPENSES> 4,604,719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 707,778
<INCOME-PRETAX> 1,007,011
<INCOME-TAX> 16,506
<INCOME-CONTINUING> 990,505
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