<PAGE>
As filed with the Securities and Exchange Commission on January 8, 1998
Registration No. 333-38783
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Pre-effective Amendment No. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
PMCC FINANCIAL CORP.
(Exact name of Issuer as specified in its charter)
Delaware 6162 11-3404072
-------- ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Number) Identification
organization) Number)
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 & McAuliffe LLC
& Faltischek, P.C. One Citicorp Center
170 Old Country Road 56th Floor
Mineola, New York 11501 New York, New York 10022
(516) 663-6600 (212) 371-2000
(516) 663-6641 (fax) (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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
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 (2) $ 10.00 $14,375,000 $ 4,240.63
- ---------------------------------------------------------------------------------------------------------------------------
Representatives' 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 $ 12.00 $ 1,500,000 $ 442.50
- ---------------------------------------------------------------------------------------------------------------------------
Total .............................. -- -- $15,875,125 $ 4,683.17*
===========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
*$4,000 has been previously paid pursuant to the then existing filing fee
requirements. An additional filing fee of $785.17 has been submitted pursuant
to the new filing fee requirements.
(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 Representatives.
(4) Issuable upon exercise of the Representatives' 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 January 8, 1998
PROSPECTUS
[GRAPHIC OMITTED]
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").
An aggregate $1.0 million of the net proceeds of this Offering will be
paid to satisfy approximate tax liabilities associated with S Corporation
earnings to the Existing Stockholders (as defined herein). See "Reorganization
and Termination of S Corporation Status," "Use of Proceeds" and "Certain
Transactions."
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
"PFC." It is currently anticipated that the initial offering price of the
Common Stock will be $10.00 per share. See "Underwriting" for the factors
considered in determining the initial public offering price of the Shares.
Investors purchasing the Shares will incur immediate and substantial
dilution of $6.75 per share in net tangible book value assuming an initial
offering price of $10.00 per share. See "Dilution."
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.
================================================================================
Underwriting
Discounts and Proceeds to
Price 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. and ISG Capital Markets, LLC as the
representatives (the "Representatives") of the several underwriters (the
"Underwriters"), including (i) a non-accountable expense allowance, and
(ii) warrants to purchase an aggregate of 125,000 shares of Common Stock
(the "Representatives' 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, exercisable within
45 days after the date of this Prospectus, 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, them, and 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 Coleman & Company Securities, Inc. in New
York, New York, on or about ________________, 1998.
COLEMAN AND COMPANY SECURITIES, INC.
ISG CAPITAL MARKETS, LLC
_____________, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET 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 Representatives' 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 one to four family residential
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. For the year ended December 31, 1996 and for the nine months
ended September 30, 1997, the Company has had less than $50,000 of credit
losses in each period.
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 $208 million in
mortgage loans in the nine months ended September 30, 1997. For the nine months
ended September 30, 1997, sub-prime loans originated by the Company accounted
for 16% of its total mortgage originations. For its fiscal years ended December
31, 1995 and 1996 and for the nine months ended September 30, 1997, the Company
had revenues of $3.4 million, $7.2 million and $11.7 million, respectively, and
net income of $196,000, $1.03 million and $2.8 million, respectively.
The Company originates residential first mortgages in New York and New
Jersey by a staff of 31 experienced retail loan officers (as of September 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 nine months ended September 30, 1997, approximately 67%
of the Company's mortgage originations were derived from its retail mortgage
operations and approximately 33% from its wholesale operations.
The Company's revenues are primarily generated from the premiums it
receives on the sale of mortgage loans it originates, and from interest earned
during the period the Company holds mortgage loans
3
<PAGE>
for sale. The Company's mortgage loans, together with servicing rights to these
mortgages, are sold usually on a non-recourse basis to institutional investors,
in each case within approximately seven 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 selling these mortgage loans shortly after origination, 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 and it avoids a risk of loss of anticipated future
servicing revenue due to mortgage prepayments in a declining interest rate
environment.
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. As security for providing the independent real estate agencies with
the financing to accomplish the purchase, residential rehabilitation and resale
of the property, title to the properties is held by the Company. The Company's
revenue from this activity is limited to the fees and interest charged in
connection with providing the financing and is not related to any gain or loss
on the sale of the property. From the commencement of this activity on
September 1, 1996 through December 31, 1996, the Company completed 35
transactions and recognized approximately $284,000 of revenue. During the nine
months ended September 30, 1997, the Company completed 118 such transactions
and at September 30, 1997, the Company was financing 140 properties in various
stages of rehabilitation. The Company's revenues from this activity for the
nine months ended September 30, 1997 were $1.7 million.
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 credit impaired borrowers
(see "Risk Factors -- 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 acquisition of 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.
4
<PAGE>
Reorganization & Termination of S Corporation Status
Premier was incorporated in New Jersey in 1989. From 1992 through the date
of this Prospectus, Premier was treated as an S corporation for federal and
certain state corporate income tax purposes. Premier received its mortgage
banking licenses in New Jersey in 1991 and in New York in 1994. The Company,
which was incorporated in Delaware in October 1997, has not yet been
capitalized. Prior to the commencement of this Offering, the stockholders of
Premier (the "Existing Stockholders") will exchange all of their outstanding
shares of Premier for an aggregate 2,500,000 shares of Common Stock (the
"Exchange"). 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. See "Reorganization and Termination of S
Corporation Status."
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.
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
outstandingafter 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 corporate and working capital purposes.
Proposed AMEX Symbol..... "PFC"
5
<PAGE>
Summary Consolidated Financial Information
($ in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
Statement of Operations Data: -------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ------- ---- ------
Revenue ................................. $1,076 $1,464 $1,187 $3,400 $7,154 $4,912 $11,731
Net income .............................. 231 303 62 196 1,034 770 2,791
Provision for pro forma income
taxes (1) .............................. 391 1,124
Pro forma net income ..................... 517 1,601
Pro forma net income per share (2) ...... $ 0.20 $ 0.59
Pro forma weighted average number of
common shares and share equiva-
lents outstanding 2,600,000 2,700,368
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
Operating Data: ---------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mortgage loans originated
Conventional (prime credit) (3) ..................... $46,700 $51,300 $ 75,400 $54,900 $122,400
FHA/VA ............................................. -- 19,400 57,700 41,800 52,300
Sub-Prime (B, C, D credit) (3) ..................... -- -- -- -- 33,300
------- ------- -------- ------- --------
Total dollar amount of loans originated ............ $46,700 $70,700 $133,100 $96,700 $208,000
======= ======= ======== ======= ========
Total number of loans originated .................. 273 470 890 636 1,430
Average principal balance per loan originated ...... $ 171 $ 150 $ 150 $ 152 $ 145
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30, 1997
Balance Sheet Data: --------------------------------------------- -------------------------------
Pro
Forma
Pro as
Forma Adjusted
1992 1993 1994 1995 1996 Actual (1) (1)(4)
------ ------ -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivable from sales of loans ............... -- -- -- $1,357 $ 9,838 $31,104 $31,104 $31,104
Mortgage loans held for sale, net ............ -- $ 32 $ 582 5,537 2,875 19,809 19,809 19,809
Residential rehabilitation properties being
financed .................................... -- -- -- -- 3,246 12,313 12,313 12,313
Total assets ................................. $473 574 1,098 8,232 17,153 65,404 65,404 74,904
Borrowings under Warehouse Facility ............ -- -- 557 6,476 13,923 55,881 55,881 55,881
Amount due to affiliates and shareholder ...... -- 9 8 465 1,037 3,328 3,328 3,328
Total liabilities .............................. 68 69 633 7,117 15,258 61,044 63,704 62,704
Shareholders' equity ........................... 405 505 465 1,114 1,878 4,360 1,700 12,200
</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 of
approximately 42%. The pro forma statement of operations data also
reflects an increase in officer compensation expense pursuant to proposed
employment contracts. 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 including the estimated number of shares that
would be necessary to fund a $1 million S Corporation distribution.
(3) For the years ended December 31, 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 $10.00 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 Shares. Prospective investors
should note that this Prospectus contains certain "forward-looking statements,"
statements containing the words "believes," "anticipates," "expects,"
"intends," "should," "seeks" 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.
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
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 Common Stock outstanding 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 consummation of this Offering, Ronald Friedman and
Robert Friedman will enter into a stockholders agreement (the "Stockholders
Agreement"), which will contain 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 stockholder
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 Securities -- Common Stock" and "Certain Transactions."
Limited History of Operations and Rapid Growth
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 years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1997, mortgage loan originations were
approximately $47 million, $71 million, $133 million and $208 million,
respectively, and total revenues were approximately $1.2 million, $3.4 million,
$7.2 million and $11.7 million, respectively. In addition, in April 1997, the
Company commenced its lending operations to sub-prime borrowers and, in
September 1996, the Company commenced its residential rehabilitation financing
activities. 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."
Ability of the Company to Implement Its Growth Strategy
The Company has grown significantly since it commenced operations in 1991.
In the fourth quarter of 1994, 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. Prior
to April 1997, the Company did not originate significant amounts of "B," "C,"
and "D" mortgage loans. Since September 1996, the Company has significantly
increased its residential rehabilitation financing activities. For the nine
months ended
7
<PAGE>
September 30, 1997, sub-prime loans originated by the Company accounted for 16%
of its total mortgage originations compared to less than 5% of its total
mortgage origination volume for the nine months ended September 30, 1996.
Residential rehabilitation financings accounted for approximately 14% of its
revenue for the nine months ended September 30, 1997 compared to 1% for the
nine months ended September 30, 1996. No assurance can be given that the
Company can maintain its historical rate of growth. 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, expansion of its residential rehabilitation financing activities, 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 may 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 "Risk Factors -- Dependence upon Management" and
"Business -- Business Strategy."
Financing the Purchase, Rehabilitation and Resale of Residential Real Estate
In September 1996, the Company commenced a program of providing short-term
fee based financing to several independent real estate agencies with
specialized expertise in the acquisition, rehabilitation and resale of vacant
one-to-four family residential properties in New York City and Long Island, New
York. The Company's process of providing this short-term financing commences
when the agencies submit information about a property to the Company which the
agencies believe 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 at up to 70% of the appraised value. The Company does
not generally finance properties when the purchase price of the property is
greater than 70% of the appraised value. As security for providing the
financing, title to the properties purchased is held by the Company. Although
the terms of the financing agreements with each of the real estate agents
provide that all risks relating to the ownership, marketing and resale of the
property are borne by the real estate agents, the Company may incur losses from
this activity as the result of economic conditions or failure of the real
estate agents to perform their duties. Although the real estate agents and
their principals personally guarantee the reimbursement of all costs and fees
payable to the Company, there can be no assurance that the Company will not
incur losses related to this activity as the result of economic conditions or
the failure of the real estate agents to perform.
Dependence on Warehouse Financing Sources
The Company has funded substantially all of its mortgage banking and
residential rehabilitation financing activities through fundings, 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 access to capital on acceptable terms,
whether through the Warehouse Facility or otherwise.
The Company's Borrowing Agreement with two commercial banks (PNC Mortgage
Bank and LaSalle National Bank) 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. On December 29, 1997, the Borrowing Agreement
was further amended to allow the Company to borrow up to $60 million through
January 31, 1998.
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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 Borrowing Agreement requires the Company to comply
with certain financial covenants, including maintaining a minimum tangible net
worth, levels and ratios of indebtedness, restrictions on the sale or pledge of
any future retained servicing rights, restrictions on the payments of dividends
and distributions and provisions with respect to merger, sale of assets,
acquisitions, change of control and change in senior management. The Borrowing
Agreement contains a cross default provision in the event that the Company is
in default of other loan agreements whereby the Company owes, in the aggregate,
more than $100,000. In addition, borrowings are guaranteed by Ronald Friedman,
President, Chief Executive Officer and a Director of the Company and Robert
Friedman, Chairman of the Board of Directors, Chief Operating Officer,
Secretary and Treasurer of the Company. As of September 30, 1997, total
borrowings outstanding under the Borrowing Agreement were $35 million. The
Company's Borrowing Agreement with these two banks expires on May 31, 1998, and
is terminable by the banks at any time without cause, upon 60 days notice to
the Company.
From August 1996 through November 1997, one of the commercial banks that
provides the Borrowing Agreement supplemented this lending facility through the
Gestation Agreement, which for financial reporting is characterized by the
Company as a borrowing transaction. The Gestation Agreement provides the
Company with 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 within 20 days of
their sale to the bank; otherwise the Company is required to repurchase the
loans. As of September 30, 1997, total fundings under this Gestation Agreement
were $20 million. On November 15, 1997 the Gestation Agreement expired. The
bank providing the Gestation Agreement exited the business of providing
gestation lines of credit, but has allowed the Company to continue to utilize
the line of credit until January 15, 1998. After January 15, 1998, the Company
will be allowed to maintain the outstanding balance under the Gestation
Agreement, but the Company is not allowed to borrow any additional funds. The
Company will repay the amount outstanding under the Gestation Agreement in the
ordinary course of business. The Company believes that other financial
institutions will provide it with a gestation line of credit, but no assurance
can be made that the Company will find such financial institution or that the
line of credit will be available on reasonable terms or at all. See "Business
- -- Loan Funding and Borrowing Arrangements."
Any failure to renew or obtain adequate funding under the 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 be required 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 sale 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 on acceptable terms, or at all. 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. In such event, the business,
prospects, financial condition and results of operations of the Company could
be materially adversely affected. See "Use of Proceeds," "Dilution" and
"Business."
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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,
without limitation, variations in the volume of the Company's loan
originations; the differences 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 until
the quarter during which such loans are sold. 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 until the quarter during which such loans
are sold. 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 results 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. 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. A decline in the volume of loan originations could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Risk Factors -- Dependence on Loan
Sales for Future Revenue."
Dependence on Loan Sales for Future Revenue
The Company seeks to generate revenue 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 those at which they have historically purchased such loans.
For the nine months ended September 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 nine months ended September 30, 1997,
Norwest Funding, Inc. and Chase Manhattan Mortgage, Inc. purchased
approximately 49% and 14%, respectively, 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 the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Government National Mortgage Association ("FNMA," "FHLMC"
and "GNMA," respectively). There can be no assurance that such purchasers will
continue to purchase the Company's loans on terms similar to those at which
they have historically done so, if at all. 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.
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Mortgage Lending to Sub-Prime Borrowers
In April 1997, the Company established its subprime lending division to
increase mortgage originations for "B," "C" and "D" or "sub-prime" credit
classified borrowers. For the nine months ended September 30, 1997,
approximately 16% of the total principal amount of mortgages 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 attempts to sell these mortgages
(as well as other mortgages) to institutional 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. The Company's ability
to sell sub-prime loans could be materially adversely affected if there was an
increase in overall delinquencies, foreclosures and/or loss by sub-prime
borrowers. In such event, the business, prospects, financial condition and
results of operations of the Company could be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." See "Risk Factors -- Economic Conditions."
Interest Rate Volatility
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 selling these mortgage loans shortly following origination, 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. In such event, the business, prospects, financial condition and results
of operations of the Company could be materially adversely affected.
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. In such event, the business, prospects, financial condition and
results of operations of the Company could be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Geographic Concentration of Operations
For the nine months ended September 30, 1997, 99% of the mortgage loans
originated by the Company were secured by properties located in New York and
New Jersey. During such period, the residential rehabilitation properties
financed by the Company were primarily located in New York City and Long
Island, New York. Although the Company is planning to expand its mortgage
origination network to additional states, the Company's loan 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 institutions,
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
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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 array 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 business, prospects, financial condition and results of
operations of the Company.
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 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, such as the Company's
wholesale lending division, 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 require the Company to lower the rates that it
charges 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. See "Risk Factors -- Ability of
the Company to Implement its Growth Strategy."
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 and credit activities. 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 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 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 --
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
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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 offered by the Company.
Possible Environmental Liabilities
Through its residential rehabilitation financing acitivity, the Company
acquires title (for security purposes) to properties intended for near term
rehabilitation and resale. Also, it is possible that the Company may foreclose
on properties securing its mortgage loans. 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 held by the
Company, in which event the business, prospects, financial condition and
results of operations of the Company could be materially adversely affected.
Holding Company Structure
PMCC Financial Corp. is a holding company which will conduct all of its
operations through its wholly-owned subsidiary, Premier. 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, President, Chief Executive Officer and a Director of the
Company, and Robert Friedman, Chairman of the Board of Directors, Chief
Operating Officer, Secretary and Treasurer of the Company. Ronald Friedman is
the son of Robert Friedman. Both Ronald Friedman and Robert Friedman will enter
into employment agreements upon consummation of this Offering that expire on
December 31, 1999. 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."
Benefits to Existing Stockholders
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 distribution will be
payable as follows: (i) $1 million will be payable out of the net 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 in the aggregate amount of approximately
$500,000, bearing an interest rate of 10% per annum, payable in four equal
quarterly installments of principal and interest, with the final payment due
within one year of the date of this Prospectus.
In connection with the Exchange, the Existing Stockholders will receive an
aggregate of 2,500,000 shares of Common Stock in exchange for all of their
outstanding shares of Premier. See "Reorganization and Termination of S
Corporation Status," "Use of Proceeds," and "Certain Transactions."
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The Existing Stockholders originally acquired their shares at an average
cost of approximately $0.29 per share. Accordingly, the unrealized gain to the
Existing Stockholders (the difference between the value of the shares at the
assumed initial offering price of $10.00 per share and the original purchase
price of the shares) is approximately $24,275,000. See "Dilution."
Contingent Tax Liability
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 deductions 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 or
deductions. The Tax Agreement generally provides that, if an adjustment is made
by the Internal Revenue Service or state taxing authorities 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. The Tax
Agreement is not binding on the Internal Revenue Service or state taxing
authorities and the IRS could assert a claim against the Existing Stockholders
and/or the Company. 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.
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."
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. In
addition, the stock markets in the United States have, from time to time,
experienced significant price and volume fluctuations that are unrelated or
disproportionate to the operating performance of individual companies. Such
fluctuations could materially adversely affect the market price of the Shares.
See "Underwriting."
Immediate and Substantial Dilution
As of September 30, 1997, the pro forma net tangible book value per share
of Common Stock was $0.68 per share, substantially less than the assumed
initial public offering price of $10.00 per share to be paid by public
investors. Assuming an initial public offering price of $10.00 per share, upon
completion of this Offering, the net tangible book value will be approximately
$3.25 per share, representing dilution to the public investors of approximately
68%. As a result, investors purchasing the Shares will incur immediate and
substantial dilution. See "Dilution."
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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 the Common Stock since its inception and does not currently
anticipate paying dividends on the 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 under the Warehouse Facility, the earnings of
Premier and various business considerations. See "Risk Factors -- Holding
Company Structure," "Risk Factors -- Dependence on Warehouse Financing Sources"
and "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 be sold at
anytime through an effective registration statement registering those shares or
under certain circumstances, be sold without such 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 Representatives, 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
Representatives' 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 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, such
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
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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 General Corporation Law."
Effects of 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
shares 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, even where stockholders are offered a premium for their shares.
The issuance of shares 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 -- Effects of Certain Anti-Takeover
Provisions."
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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 shares of
capital 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 nine months ended September
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 $365,000, 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 net 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 four equal quarterly installments of principal and
interest, with the final payment due within one year of the date of this
Prospectus.
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 by the Internal
Revenue Service or state taxing authorities 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. The Tax Agreement is not
binding on the Internal Revenue Service or state taxing authorities and the IRS
could assert a claim against the Existing Stockholders and/or the Company. 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.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company, after deducting all of the
expenses of this Offering, are estimated to be approximately $10.5 million,
assuming an initial public offering price of $10.00 per share.
The Company intends to use the estimated net proceeds of this Offering as
follows:
<TABLE>
<CAPTION>
Application of Net Proceeds Amount Percent
- --------------------------------------------------------- ------------- ----------
<S> <C> <C>
Expand mortgage banking operations ..................... $ 2,000,000 19.1 %
Fund future residential rehabilitation financings ...... 2,000,000 19.1 %
Upgrade information systems ........................... 1,000,000 9.5 %
S corporation distributions to pay income taxes ......... 1,000,000 9.5 %
General corporate and working capital .................. 4,500,000 42.8 %
----------- ------
Total ................................................ $10,500,000 100.00%
=========== ======
</TABLE>
Prior to such use, the remaining net proceeds will be used to reduce
borrowings under the Warehouse Facility. The net proceeds, if any, from the
exercise of the Underwriters' over-allotment option will be utilized to reduce
borrowings under the Warehouse Facility.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the sale of the Shares based upon the Company's operations,
the Company's business plan, and current economic and industry conditions and
is subject to reapportionment of proceeds among the categories listed above or
to new categories in response to, among other things, changes in the Company's
plans, regulations, industry conditions, and future revenues and expenditures.
The amount and timing of expenditures will vary depending on a number of
factors, including changes in the Company's operations or business plan and
changes in economic and industry conditions.
Based on the operating plan, the Company believes that the net proceeds of
this Offering, together with revenues from continuing operations, will be
sufficient to satisfy its capital requirements and finance its plans for
expansion for at least the next 12 months. Such belief is based upon certain
assumptions, and there can be no assurance that such assumptions are correct.
Accordingly, there can be no assurance that such resources will satisfy the
Company's capital requirements for said period. The Company may require
additional financing in order to expand its operations. Such financing may take
the form of the issuance of common or preferred stock or debt securities,
and/or may involve bank or other lender financing. There can be no assurance
that the Company will be able to obtain needed additional capital on a timely
basis, on favorable terms, or at all.
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 the Common Stock since its inception and does not currently
anticipate paying dividends on the 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 under the Warehouse Facility, the earnings of
Premier and various business considerations.
18
<PAGE>
DILUTION
As of September 30, 1997, the Company had a pro forma net tangible book
value of approximately $0.68 per share of Common Stock outstanding. Pro forma
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 $10.00 per share
and the application of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of September 30, 1997, would be approximately
$3.25 per share. This represents an immediate increase in pro forma net
tangible book value of $2.57 per share to current stockholders and an immediate
dilution of $6.75 per share, or approximately 68%, to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ..................... $10.00
Pro forma net tangible book value before Offering ...... $0.68
Increase attributable to new investors .................. 2.57
-----
Pro forma net tangible book value after Offering ......... 3.25
------
Dilution to new investors ................................. $ 6.75
======
</TABLE>
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 cash consideration paid, and the average cash price per share of Common
Stock paid by the investors in this Offering and the Existing Stockholders of
the Company:
<TABLE>
<CAPTION>
Total Cash Consideration
Shares Purchased 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 5.4% $ 0.29
New Investors ............... 1,250,000 33.3% $ 12,500,000 94.6% $10.00
--------- ----- ------------ -----
Total .................. 3,750,000 100.0% $ 13,218,025 100.0%
========= ===== ============ =====
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
September 30, 1997, (ii) the pro forma capitalization of the Company as of
September 30, 1997 giving effect to the Exchange and (iii) the pro forma
capitalization of the Company as of September 30, 1997 giving effect to the
Exchange and the sale of the Shares offered hereby at an assumed public
offering price of $10.00 per share and the application by the Company of the
net proceeds therefrom as described under "Use of Proceeds." This table should
be read in conjunction with the Consolidated Financial Statements, and the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------
($ in thousands)
Pro Forma As
Actual Pro Forma (1) Adjusted (2)
--------- --------------- -------------
<S> <C> <C> <C>
Debt:
Warehouse Facility .............................. $55,881 $55,881 $55,881
Loans from affiliates ........................... 3,035 3,035 3,035
S corporation distribution payable ............... -- 1,535 535
Notes payable -- other ........................... 763 763 763
Notes payable to shareholder ..................... 293 293 293
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 out-
standing, actual and 3,750,000 shares issued and
outstanding, as adjusted (3) .................. 6 6 38
Additional paid-in-capital ..................... 712 712 12,106
Retained earnings (including unrealized gain on
securities available-for-sale of $56.) ......... 3,642 982 56
------- ------- -------
Total shareholders' equity ..................... 4,360 1,700 12,200
------- ------- -------
Total capitalization ........................... $64,332 $63,207 $72,707
======= ======= =======
</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 by the Company of the Shares at an
assumed initial public offering price of $10.00 per share, and adjusted to
give effect to the reclassification of undistributed S corporation
earnings of $926,000 from retained earnings to additional paid-in-capital.
(3) At September 30, 1997, Premier's capitalization was 3,500 shares
authorized, 125 shares outstanding.
20
<PAGE>
SELECTED CONSOLIDATED 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
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 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 nine months ended
September 30, 1996 and 1997 and the unaudited selected balance sheet data at
September 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>
Nine Months Ended
Year Ended December 31, September 30,
Statement of Operations Data: ---------------------------------------------------- ---------------------
($ in thousands, except share data)
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ................................. $1,076 $1,464 $1,187 $3,400 $ 7,154 $4,912 $ 11,731
Net income .............................. 231 303 62 196 1,034 770 2,791
Provision for pro forma income taxes (1) 391 1,124
Pro forma net income ..................... 517 1,601
Pro forma net income per share (2) ...... $ 0.20 $ 0.59
Pro forma weighted average number of
common shares and share equivalents
outstanding ........................... 2,600,000 2,700,368
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
Operating Data: ---------------------------------- ---------------------
($ in thousands)
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mortgage loans originated
Conventional (prime credit) (3) ............ $46,700 $51,300 $ 75,400 $54,900 $122,400
FHA/VA ....................................... -- 19,400 57,700 41,800 52,300
Sub-Prime (B, C, D credit) (3) ............... -- -- -- -- 33,300
------- ------- -------- ------- --------
Total dollar amount of loans originated ...... $46,700 $70,700 $133,100 $96,700 $208,000
======= ======= ======== ======= ========
Total number of loans originated ............ 273 470 890 636 1,430
Average principal balance per loan
originated ................................. $ 171 $ 150 $ 150 $ 152 $ 145
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31,
Balance Sheet Data: ----------------------------------------------
($ in thousands)
1992 1993 1994 1995 1996
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Receivable from sales of loans ............ -- -- -- $1,357 $ 9,838
Mortgage loans held for sale, net ......... -- $ 32 $ 582 5,537 2,875
Residential rehabilitation properties being
financed ................................. -- -- -- -- 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
<CAPTION>
At September 30, 1997
Balance Sheet Data: -------------------------------------------
Pro Forma Pro Forma
Actual (1) as Adjusted (1)(4)
--------- ----------- -------------------
<S> <C> <C> <C>
Receivable from sales of loans ............ $31,104 $31,104 $31,104
Mortgage loans held for sale, net ......... 19,809 19,809 19,809
Residential rehabilitation properties being
financed ................................. 12,313 12,313 12,313
Total assets .............................. 65,404 65,404 74,904
Borrowings under Warehouse Facility ...... 55,881 55,881 55,881
Amount due to affiliates and shareholder ... 3,328 3,328 3,328
Total liabilities ........................ 61,044 63,704 62,704
Shareholders' equity ..................... 4,360 1,700 12,200
</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 of
approximately 42%. The pro forma statement of operations data also
reflects an increase in officer compensation expense pursuant to proposed
employment contracts. 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, including the estimated number of shares that
would be necessary to fund a $1 million S corporation distribution.
(3) For the years ended December 31, 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 $10.00 per share.
21
<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 Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
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 one to four family residential
rehabilitation properties, opening a fully-staffed wholesale division and
significantly increasing its "B," "C" and "D" mortgage originations.
The Company's revenues are primarily generated from the premiums it
receives on the sale of mortgage loans it originates, and from interest earned
during the period the Company holds mortgage loans for sale. The Company's
mortgage loans, together with servicing rights to these mortgages, are sold
usually on a non-recourse basis to institutional investors, in each case within
approximately seven 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 selling
these mortgage loans shortly following origination, 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 and it avoids a risk of loss of anticipated future servicing revenue
due to mortgage prepayments in a declining interest rate environment.
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. As security for providing the independent real estate agencies with
the financing to accomplish the purchase, rehabilitation and resale of the
property, title to these properties is held by the Company. The Company's
revenue from this activity is limited to the fees and interest charged in
connection with providing the financing and is not related to any gain or loss
on the sale of the property. From the commencement of this activity on
September 1, 1996 through December 31, 1996, the Company completed 35
transactions and recognized approximately $284,000 of revenue. During the nine
months ended September 30, 1997, the Company completed 118 such transactions,
and at September 30, 1997, the Company was financing 140 properties in various
stages of rehabilitation. The Company's revenues from this activity for the
nine months ended September 30, 1997 were $1.7 million.
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 $208 million in
mortgage loans in the nine months ended September 30, 1997. For the nine months
ended September 30, 1997, sub-prime loans originated by the Company accounted
for 16% of its total mortgage originations. For its fiscal years ended December
31, 1995 and 1996 and for the nine months ended September 30, 1997, the Company
had revenues of $3.4 million, $7.2 million and $11.7 million, respectively, and
net income of $196,000, $1.03 million and $2.8 million, respectively.
22
<PAGE>
Results of Operations
Nine Months Ended September 30, 1996 and 1997
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1997
------------ ------------
<S> <C> <C>
Gains on sales of mortgage loans .................................... $4,254,846 $ 8,641,550
Interest earned ...................................................... 563,261 1,412,083
Fees earned on financing residential rehabilitation properties ...... 64,756 1,676,960
Gain on sale of securities available for sale ........................ 29,605 --
---------- -----------
Total revenues ...................................................... $4,912,468 $11,730,593
========== ===========
</TABLE>
Gains on sales of mortgage loans, increased by $4.4 million, or 103%, to
$8.6 million for the nine months ended September 30, 1997 from $4.3 million for
the nine months ended September 30, 1996. This increase was primarily due to
(a) increased loan originations and loan sales by the Company's existing retail
offices, and (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. The Company has increased its
mortgage originations during each quarter of 1997. Total mortgage originations
were $38.3 million, $71.4 million and $98.3 million for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, respectively. Although
there can be no assurance thereof, the Company believes that its loan
origination fees, interest income and gains on sales of mortgage loans will
increase with its increase in mortgage originations.
Interest earned increased by $850,000, or 151%, to $1.4 million for the
nine months ended September 30, 1997 from $563,000 for the nine months ended
September 30, 1996. This increase was primarily attributable to increased
mortgage originations during the nine months ended Sepember 30, 1997 as
compared to the nine months ended September 30, 1996 and an increase in the
amount of sub-prime mortgage originations which generally are held for sale
longer than conventional originations.
Fees earned on financing residential rehabilitation properties increased
by $1.6 million, or 2490%, to $1.7 million for the nine months ended September
30, 1997 from $65,000 for the nine months ended September 30, 1996. This
increase was primarily due to the increase in the number of residential
rehabilitation properties financed which increased to 258 for the nine months
ended September 30, 1997, (consisting of 118 completed transactions and 140
properties in various stages of rehabilitation) from 53 for the nine months
ended September 30, 1996 (consisting of nine completed transactions and 44
properties in various stages of rehabilitation). The Company has increased its
residential rehabilitation financing activities during each quarter of 1997.
The Company completed 28, 32 and 58 of these financings for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, respectively. In
addition, the Company was financing 63, 113, and 140 properties at March 31,
1997, June 30, 1997 and September 30, 1997, respectively.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
Nine Months Ended
September 30,
1996 1997
------------ -----------
Compensation and benefits .................. $2,617,789 $4,790,405
Advertising and promotion .................. 114,359 132,460
Broker fees paid and other loan costs ...... 124,368 669,232
Occupancy and equipment ..................... 161,392 243,003
Messenger service ........................... 56,929 79,220
Office supplies and expense ............... 117,623 126,077
Telephone ................................. 87,318 138,296
Interest expense ........................... 534,175 1,951,432
Other operating expenses .................. 308,299 784,032
---------- ----------
Total expenses .............................. $4,122,252 $8,914,157
========== ==========
Although there can be no assurance thereof, the Company believes that its
compensation and benefits, broker fees and interest expense will increase in
relative proportion to mortgage origination volume. The Company believes that
its other expenses will remain relatively fixed over a range of mortgage
origination volume.
23
<PAGE>
Compensation and benefits expenses increased by $2.2 million, or 83%, to
$4.8 million for the nine months ended September 30, 1997 from $2.6 million for
the nine months ended September 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 29 employees at September 30, 1996 to 52 employees at September
30, 1997.
Broker fees and other loan costs increased by $545,000, or 438%, to
$669,000 for the nine months ended September 30, 1997 from $124,000 for the
nine months ended September 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 expenses increased by $82,000, or 51%, to $243,000
for the nine months ended September 30, 1997 from $161,000 for the nine months
ended September 30, 1996. This increase was primarily attributable to increases
in various equipment leases, and the recent expansion of office space, both in
New Jersey and New York.
Interest expense increased by approximately $1.4 million, or 265%, to $2.0
million for the nine months ended September 30, 1997 from $534,000 for the nine
months ended September 30, 1996. Of this increase, approximately $764,000 was
attributable to the increase in the volume of mortgage loans funded through the
Company's Warehouse Facility. The remaining increase was 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 by $476,000, or 154%, to $784,000 for
the nine months ended September 30, 1997 from $308,000 for the nine months
ended September 30, 1996. This increase was partially attributable to legal,
accounting and professional fees, which increased by $88,000 from the prior
period. The remainder of the increase was attributable to increased expenses
incurred in connection with the growth in the operations of the Company.
Years Ended December 31, 1995 and 1996
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1996
------------ -----------
<S> <C> <C>
Gains on sales of mortgage loans .................................... $3,168,565 $6,104,397
Interest earned ...................................................... 231,916 735,802
Fees earned on financing residential rehabilitation properties ...... -- 284,309
Gain on sale of securities available for sale ........................ -- 29,605
---------- ----------
Total revenues ...................................................... $3,400,481 $7,154,113
========== ==========
</TABLE>
Gains on sales of mortgage loans increased by $2.9 million, or 93%, to
$6.1 million for the year ended December 31, 1996 from $3.2 million for the
year ended December 31, 1995. This increase was primarily due to increased loan
originations and loan sales by the Company's existing retail offices.
Interest earned increased by $500,000, or 217%, to $736,000 for the year
ended December 31, 1996 from $232,000 for the year ended December 31, 1995.
This increase was primarily attributable to the increase in mortgage
origination for 1996 as compared to 1995 and to the Company utilizing its
Warehouse Facility to a greater degree in 1996. During 1995, a portion of its
mortgage originations were funded directly by institutional investors at
closing.
Fees earned on financing residential rehabilitation properties increased
to $284,000 for the year ended December 31, 1996 from $0 for the year ended
December 31, 1995. This activity commenced on September 30, 1996.
24
<PAGE>
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
Years Ended December 31,
1995 1996
------------ -----------
Compensation and benefits .................. $2,069,443 $3,674,490
Advertising and promotion .................. 71,879 207,381
Broker fees paid and other loan costs ...... 85,555 237,147
Occupancy and equipment ..................... 157,734 208,929
Messenger service ........................... 50,533 81,400
Office supplies and expense ............... 83,087 155,868
Telephone ................................. 106,547 120,239
Interest expense ........................... 245,281 839,284
Other operating expenses .................. 327,262 564,190
---------- ----------
Total expenses .............................. $3,197,321 $6,088,928
========== ==========
Compensation and benefits expenses increased by $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 expenses increased by $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 by $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 on the
Company's Warehouse Facility and to the Company's affiliates relating to real
estate rehabilitation financing during the period.
Other operating expenses increased by $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.
Years Ended December 31, 1994 and 1995
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.
Total expenses increased by $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 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, 1995 as compared to the year
ended December 31, 1994.
Compensation and benefit expenses increased by $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 by $225,000 or 1,118%, to $245,000 for the year
ended December 31, 1995 from $20,000 for the year ended December 31, 1994.
During the years ended December 31, 1994 and 1995, substantially all of the
Company's originations were funded directly by institutional investors at
closing (table funding).
25
<PAGE>
Other operating expenses increased by $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 during the year ended December 31, 1995.
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 September 30, 1997, maximum
permitted borrowings under the Warehouse Facility were $70 million and the
amount of such outstanding borrowings was $55.9 million. The Warehouse Facility
is secured by the mortgage loans and residential rehabilitation properties
funded with the proceeds of such borrowings. Borrowings from affiliates are
secured by mortgages on the residential rehabilitation 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."
From August 1996 through November 1997, one of the commercial banks that
provides the Borrowing Agreement supplemented this lending facility through the
Gestation Agreement, which for financial reporting is characterized by the
Company as a borrowing transaction. The Gestation Agreement provides the
Company with 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 within 20 days of
their sale to the bank; otherwise the Company is required to repurchase the
loans. As of September 30, 1997, total fundings under this Gestation Agreement
were $20 million. On November 15, 1997 the Gestation Agreement expired. The
bank providing the Gestation Agreement exited the business of providing
gestation lines of credit, but has allowed the Company to continue to utilize
the line of credit until January 15, 1998. After January 15, 1998, the Company
will be allowed to maintain the outstanding balance under the Gestation
Agreement, but the Company is not allowed to borrow any additional funds. The
Company will repay the amount outstanding under the Gestation Agreement in the
ordinary course of business. The Company believes that other financial
institutions will provide it with a gestation line of credit, but no assurance
can be made that the Company will find such financial institution or that the
line of credit will be available on reasonable terms or at all. See "Business
- -- Loan Funding and Borrowing Arrangements."
Since September 1, 1996, the Company has borrowed funds from three
corporations owned by Ronald Friedman, the President, Chief Executive Officer
and a Director of the Company, and Robert Friedman, the Chairman of the Board
of Directors, Chief Operating Officer, Secretary and Treasurer of the Company,
to provide funding for residential rehabilitation financings and for working
capital purposes. At September 30, 1997 borrowings from affiliates totalled
$3.0 million. At December 31, 1996 borrowings from affiliates totalled
$762,000. Interest on borrowings from affiliates is 10% per annum and are
secured by certain of the Company's residential rehabilitation properties being
financed. 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 Transactions".
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 giving the Company full ownership
interest in RF Properties Corp. for $18,163, evidenced by a promissory note due
the earlier of October 1, 1998, or the date of the consummation of this
Offering, bearing an interest rate of 8% per year. These loans have been repaid
as of January 1, 1998. See "Certain 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.
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<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 net
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 Financial Accounting Standards Board (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 will 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.
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
27
<PAGE>
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 of approximately 42%.
28
<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 one to four family residential
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. For the year ended December 31, 1996 and for
the nine months ended September 30, 1997, the Company has had less than $50,000
of credit losses in each period.
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 $208 million in
mortgage loans in the nine months ended September 30, 1997. For the nine months
ended September 30, 1997, sub-prime loans originated by the Company accounted
for 16% of its total mortgage originations. For its fiscal years ended December
31, 1995 and 1996 and for the nine months ended September 30, 1997, the Company
had revenues of $3.4 million, $7.2 million and $11.7 million, respectively, and
net income of $196,000, $1.03 million and $2.8 million, respectively.
The Company originates residential first mortgages in New York and New
Jersey by a staff of 31 experienced retail loan officers (as of September 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 nine months ended September 30, 1997, approximately 67%
of the Company's mortgage originations were derived from its retail mortgage
operations and approximately 33% from its wholesale operations.
The Company's revenues are primarily generated from the premiums it
receives on the sale of mortgage loans it originates, and from interest earned
during the period the Company holds mortgage loans for sale. The Company's
mortgage loans, together with servicing rights to these mortgages, are usually
sold on a non-recourse basis to institutional investors, in each case within
approximately seven 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 selling
these mortgage loans, shortly following origination, 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 and it avoids a risk of loss of anticipated future servicing revenue
due to mortgage prepayments in a declining interest rate environment.
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. As security for providing the independent real estate agencies with
the financing to accomplish the purchase, residential rehabilitation and resale
of the property title to the properties is held by the Company. The Company's
revenue from this activity is limited to the fees and interest charged in
connection with providing the financing and is not related to any gain or loss
on the sale of the property. From the commencement of this activity on
September 1, 1996 through December 31, 1996, the Company completed 35
transactions and recognized approximately $284,000 of revenue. For the nine
months ended September 30, 1997, the Company completed 118 such transactions
and at September 30, 1997, the Company was financing 140 properties in various
stages of rehabilitation. The Company's revenues from this activity for the
nine months ended September 30, 1997 were $1.7 million.
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<PAGE>
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 credit impaired borrowers
(see "Risk Factors -- 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 acquisitions of mortgage
brokers or mortgage banks in the Northeast that 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. 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 to which it intends to expand. 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;
o expand the Company's retail mortgage origination business 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 will lease
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 with which it has not done business 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.
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<PAGE>
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.
Operating Strategy
The Company's operating strategy includes the following elements:
o continue 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 prompt funding of loans. 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;
o maintain 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 a senior underwriter. The Company believes that its
experienced underwriting staff provides it with the infrastructure
required to manage and sustain the Company's growth rate while maintaining
the quality of loans originated;
o broaden 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 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;
o continue 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 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 approve most loans provides it with a competitive
advantage because it allows the Company to provide additional services to
its borrowers and correspondents; and
o invest 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.
The Company does not currently intend to engage in mortgage securitization
activities.
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. This broad array of products allow most
prospective borrowers to obtain a mortgage through the Company.
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<PAGE>
The following are examples of the more than 200 mortgage programs offered
to 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).
o Adjustable interest rate mortgages ("ARMs") repayable over seven 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 extend mortgages 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 as an automatic endorser of
loans partially guaranteed by the Veterans Administration ("VA"), allowing the
Company to 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 and VA 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 or VA 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 for a 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.
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<PAGE>
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.
The following table sets forth the Company's mortgage loan production
volume by type of loan for each of the three years ended December 31, 1996, and
for the nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 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 $ 54,900 $ 122,400
Percentage of total volume 100% 72.6% 56.7% 56.8% 58.9%
FHA/VA Loans:
Volume .................. -- $ 19,400 $ 57,700 $ 41,800 $ 52,300
Percentage of total volume -- 27.4% 43.3% 43.2% 25.1%
Sub-Prime Loans:
Volume .................. * * * * $ 33,300
Percentage of total volume * * * * 16.0%
Total Loans:
Volume .................. $ 46,700 $ 70,700 $133,100 $ 96,700 $ 208,000
Number of Loans ......... 273 470 890 636 1,430
Average Loan Size ...... $ 171 $ 150 $ 150 $ 152 $ 145
</TABLE>
- ------------
*For the referenced periods, sub-prime loans represented less than five percent
of the Company's loan originations and are included in the Company's
conventional loans.
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 spends approximately one hour interviewing the applicant
about his/her mortgage borrowing needs and explaining the Company's mortgage
product
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alternatives. Following this interview, the mortgage loan officer assists the
customer in completing an application and gathering supporting documentation (a
"loan file"). Once the loan file is submitted, a sales manager reviews the file
to verify that 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 loans. In the case of prime and FHA/VA mortgages, the underwriting
process occurs at the Company's offices in Roslyn Heights, New York and Union,
New Jersey, while sub-prime loans are separately processed and underwritten at
the Company's office in Roslyn Heights, 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 125 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 by
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.
Because mortgage brokers may submit individual loan files to several
prospective lenders simultaneously, the Company attempts to respond to an
application as quickly as possible. Since the Company has been delegated
authority from institutional investors to approve most loans, the Company
generally issues an underwriting decision within 24 to 48 hours of receipt of a
file.
The Company works with approximately 125 mortgage bankers and brokers on a
regular basis. The Company conducts due diligence on potential mortgage bankers
and brokers, including verifying financial statements
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<PAGE>
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 mortgage banker or 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 and 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 agencies with specialized expertise in the acquisition, rehabilitation
and resale of vacant one-to-four family residential properties in New York City
and Long Island, New York. These properties are generally offered to the
agencies 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 agency submits information about a
property to the Company which the agency 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 at up
to 70% of the appraised value. The Company generally does not finance
properties when the purchase price of the property is greater then 70% of the
appraised value. As security for providing these independent real estate
agencies with the financing to accomplish the purchase, residential
rehabilitation and resale of the property, title to these properties is held by
the Company. The Company's revenue from this activity is limited to the fees
and interest charged in connection with providing the financing and not from
any gain or loss on the sale of the property. The terms of these financing
agreements with the agencies (the "Agent Agreement") provide that all risks
relating to the ownership, marketing and resale of the property are borne by
the agencies, 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 $9,500, for providing the financing is a priority payment after
payment of the funds advanced by the Company, over any monies paid to the
agencies. The agencies 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 agencies) are
usually between $10,000 and $20,000 per property. The period during which these
properties are financed generally ranges from three to five months.
From inception of the program in September 1996 through September 30,
1997, the Company has completed 153 such residential rehabilitation financings
with four different agencies. The Company financed 103 of these financings with
The Foreclosure Network and the remaining 50 with three other agents. At
September 30, 1997, the Company was financing 140 properties in various stages
of rehabilitation for an aggregate financing amount of $12.3 million, including
advances to Agents for a portion of their cost of performing the rehabilitation
work. At September 30, 1997, 37 residential rehabilitation properties had not
been sold within five months of purchase, but were subsequently sold or under
contract for sale.
The Company's arrangement with these agencies is not exclusive, although
the Company does encourage the agencies to provide the Company with a "first
right" of providing funding for each property that each agency has identified.
The Company has investigated each agency 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 the areas served by such offices.
The Company believes that its residential rehabilitation financing program
serves as an additional source of mortgage originations since purchasers of
such properties seek mortgage financings and are encouraged to submit
applications to the Company. Of the 153 properties financed and sold through
September 30, 1997, more than 90% of the buyers of such properties obtained
mortgages originated by the Company. The process by which
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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
To date, the Company has funded its mortgage banking and residential
rehabilitation financing activities in large part through the "Warehouse
Facility" and its ability to continue to originate mortgage loans and provide
residential rehabilitation financings is dependent on continued access to
capital on acceptable terms.
The Company's Borrowing Agreement with two commercial banks (PNC Mortgage
Bank and LaSalle National Bank) 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. On December 27, 1997, the Borrowing Agreement
was further amended to allow the Company to borrow up to $60 million through
January 31, 1998. 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 Ronald Friedman the
Company's President, Chief Executive Officer and a director and Robert Friedman
the Company's Chief Operating Officer, Secretary Treasurer and Chairman of the
Board of Directors. As of September 30, 1997, total borrowings outstanding
under the Borrowing Agreement were $35 million. The Company's Borrowing
Agreement with these two banks expires on May 31, 1998, and is terminable by
the banks at any time without cause, upon 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 to 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.
From August 1996 through November 1997, one of the commercial banks that
provides the Borrowing Agreement supplemented this lending facility through the
Gestation Agreement, which for financial reporting is characterized by the
Company as a borrowing transaction. The Gestation Agreement provides the
Company with 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 within 20 days of
their sale to the bank; otherwise the Company is required to repurchase the
loans. As of September 30, 1997, total fundings under this Gestation Agreement
were $20 million. On November 15, 1997 the Gestation Agreement expired. The
bank providing the Gestation Agreement exited the business of providing
gestation lines of credit, but has allowed the Company to continue to utilize
the line of credit until January 15, 1998. After January 15, 1998, the Company
will be allowed to maintain the outstanding balance under the Gestation
Agreement, but the Company is not allowed to borrow any additional funds. The
Company will repay the amount outstanding under the Gestation Agreement in the
ordinary course of business. The Company believes that other financial
institutions will provide it with a gestation line of credit, but no assurance
can be made that the Company will find such financial institution or that the
line of credit will be available on reasonable terms or at all.
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 $3.0 million. As of
September 30, 1997, $3.0 million remained outstanding, all of which 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.
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 the earlier of October 1, 1998 or the date of the consummation of this
Offering. The note bears an interest rate of 8% per year. These loans have been
repaid as of January 1, 1998. See "Certain Transactions."
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Sale of Loans
The Company follows a strategy of selling all of its originated loans for
cash to institutional investors, usually 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 make 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.
At September 30, 1997, the Company had a reserve of approximately $70,000
against this potential liability.
The Company's mortgage loan sales are made to a select number of
institutional investors. From June 1997 through September 30, 1997, the Company
had an agreement with IMC to sell up to $32 million of "B," "C" and "D" loans
which assured the Company's sale of these loans in bulk, at favorable prices.
Although the Company's agreement with IMC expired on September 30, 1997, IMC
continues to purchase loans from the Company. 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 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 in the states where
the Company conducts business and in the states into which it seeks to expand.
The Company's competitors include financial institutions, such as other
mortgage bankers (e.g. Countrywide Credit Industries, Inc. and Delta Financial
Corp.), state and national commercial banks, savings and loan associations
(e.g. Long Island Savings Bank and 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 such guidelines when
an exception or
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<PAGE>
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 programs to a
diversified class of borrowers.
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.
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 a
portion of the estimated net proceeds of this Offering for upgrades and
improvements to its information system. The cost of doing so is estimated to be
$1 million, including software, hardware and telephone equipment for all
locations. See "Use of Proceeds."
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 and credit activities. 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 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 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.
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.
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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 business, the Company takes title (for security
purposes) to residential properties intended for near term rehabilitation and
resale. Additionally, the Company may foreclosue on properties securing its
mortgage loans. To date the Company has not been required to perform any
investigation or remediation activities, nor has it been subject to any
environmental claims relating to these 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 (whether through residential rehabilitation financing or
through foreclosure) is immaterial, 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, which costs may
be substantial. 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 September 30, 1997, the Company had 83 employees, substantially all
of whom were employed full-time. Of these, 60 were employed at the Company's
Roslyn Heights, New York headquarters, and 23 were employed at the Company's
other offices. None of the Company's employees are 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 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.
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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 President and Chief Executive
Officer and Director
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
Stanley Kreitman (2) ...... 66 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 its inception. 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 its inception.
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 at 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 American University.
Joel L. Gold has been nominated to become a Director of the Company
following the closing of this Offering. In September 1997, Mr. Gold became Vice
Chairman of Coleman and 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, Mr. Gold was a managing director at Bear Stearns &
Co., an investment banking firm. Previously, Mr.
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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.
Stanley Kreitman has been nominated to become a Director of the Company
following the closing of the Offering. Since March 1994, Mr. Kreitman has been
Vice Chairman at Manhattan Associates, a merchant banking firm. From September
1975 through February 1994, Mr. Kreitman was President of United States
Bancnote Corporation. Mr. Kreitman is Chairman of the Board of Trustees of New
York Institute of Technology. He is currently a member of the Board of
Directors of Porta Systems Corp., Medallion Funding Corp., and CCA Industries,
Inc.
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 Stanley Kreitman 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 directors in Class I, but, upon their
appointment upon completion of the Offering, Class I will consist of Joel L.
Gold and Stanley Kreitman, 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 Stanley Kreitman.
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 options to purchase 5,000 shares
of Common Stock for each year served on the Board and reimbursement of expenses
incurred in connection with attending such meetings.
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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 whose aggregate cash compensation
exceeded $100,000 during the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------- Other Annual
Name and Principal Position Year Salary ($) Bonus ($) Compensation
- -------------------------------------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Ronald Friedman ..................... 1996 $208,000 $46,538 --
Chief Executive Officer, 1995 $126,800 -- --
President, Director 1994 $ 70,400 -- --
Robert Friedman ..................... 1996 $107,093 -- --
Chairman of the Board, Chief Operating 1995 -- -- --
Officer, Secretary, Treasurer 1994 -- -- --
</TABLE>
Distributions of Interest
During each of the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1997, Premier has made S corporation
distributions to the Existing Stockholders in the aggregate amounts of
$102,000, $150,000, $267,000 and $365,000, 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 with 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
whereby Ronald Friedman and Robert Friedman will each receive a salary of
$250,000, and cash bonuses, if any, as determined by the Board of Directors in
its discretion.
Key Man Life Insurance
The Company owns, maintains and is the sole beneficiary of 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.
42
<PAGE>
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 provide 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.
Premier Stock Option Plan
On April 1, 1997, the stockholders of Premier approved 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 have been granted
under such 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 has 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.
43
<PAGE>
1997 Stock Option Plan
In October , 1997, the Board of Directors of the Company adopted, and the
stockholders approved, 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,
the option purchase price per share, the manner and time of exercise, the
manner and form of payment upon exercise of an option, and restrictions such as
repurchase rights or obligations of the Company. Options granted under the 1997
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 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, 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.
To date, 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. To date no
options have been exercised.
The following table sets forth certain information with respect to
individual grants of stock options made to date to the named executive officers
and directors:
<PAGE>
Option Grants
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Date Options Exercise Expiration Appreciation for
Name Granted Granted(1) Price Date Option Terms(2)
- -------------------------- --------- ------------ ---------- ------------ ---------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Ronald Friedman ......... -- -- -- -- -- --
Robert Friedman ......... -- -- -- -- -- --
Timothy J. Mayette ...... -- -- -- -- -- --
Keith Haffner ............ 4/1/97 25,000 $6.00 3/30/07 $94,334 $239,061
</TABLE>
- ------------
(1) Each option is exercisable for one share of Common Stock.
(2) The potential realizable value set forth under the columns represent the
difference between the stated option exercise price and the market value
of the Common Stock based on certain assumed rates of stock price
appreciation from the assumed initial public offering price of $10.00 per
share and assuming that the options were exercised on their stated
expiration date; the potential realizable values set forth do not take
into account applicable tax and expense payments which may be associated
with such option exercises. Actual realizable value, if any, will be
dependent on the future price of the Common Stock on the actual date of
exercise, which may be earlier than the stated expiration date. The 5% and
10% assumed annualized rates of stock price appreciation over the exercise
period of the options used in the table above are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of the Common Stock on any
date. There is no representation either express or implied that the stock
price appreciation rates for the Common Stock assumed for purposes of this
table will actually be achieved.
44
<PAGE>
CERTAIN TRANSACTIONS
Certain Relationships
Ronald Friedman, President, Chief Executive Officer, and a Director of the
Company, is the son of Robert Friedman, Chairman of the Board of Directors,
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 all of the shares of
capital 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 nine months ended September
30, 1997, Premier has made S corporation distributions to the Existing
Stockholders in the amounts of approximately $102,000, $150,000, $267,000 and
$365,000, 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 four equal quarterly installments of
principal and interest, with the final payment due within one year of the date
of this Prospectus.
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. The Tax
Agreement is not binding on the Internal Revenue Service or state taxing
authorities and the IRS may assert a claim against the Existing Stockholders
and/or the Company. 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.
45
<PAGE>
Loans from 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. As of September
30, 1997, $3 million remained outstanding, all of which is secured by mortgages
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.
In November 1996, Ronald Friedman loaned the Company $275,000, evidenced
by a promissory note, due in full on January 1, 1998. In addition, the Company
purchased the minority interest in RF Properties Corp. from Ronald Friedman for
$18,163, evidenced by a promissory note due the earlier of October 1, 1998 or
the date of the consummation of this Offering. The note bears an interest rate
of 8% per year. These loans have been repaid as of January 1, 1998.
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 will provide that each of Ronald Friedman and Robert
Friedman will vote their shares of Common Stock in favor of the other, with
respect to their election to the Board of Directors. The stockholders agreement
will also provide 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.
46
<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 executive officer of the Company; and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
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 16.67%
Timothy J. Mayette (2) ............... -- -- -- --
Keith S. Haffner (2) .................. -- -- -- --
Joel L. Gold (3)(5) .................. -- -- -- --
Stanley Kreitman (5) .................. -- -- -- --
--------- -- --------- -----
All directors and executive officers as
a group ........................... 2,500,000 100% 2,500,000 66.67%
========= === ========= =====
</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 and 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.
47
<PAGE>
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 the Company's President, Chief Executive
Officer and a director of the Board and Robert Friedman, the Company's Chief
Operating Officer, Secretary, Treasurer and Chairman of the Board of Directors.
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.
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 -- Effects of Preferred Stock."
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 the Company's President, Chief Executive
Officer and a director of the Board and Robert Friedman, the Company's Chief
Operating Officer, Secretary, Treasurer and Chairman of the Board of Directors
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
48
<PAGE>
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 60 nor more than 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.
49
<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 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 15 months
after the date of this Prospectus, these shares will be available for sale in
the public market, subject to compliance with Rule 144 or may be sold at any
time through an effective registration statement registering these shares.
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 under 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 Securities Exchange Act of 1934, as amended (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.
50
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Coleman and Company Securities,
Inc. ("Coleman") and ISG Capital Markets, LLC ("ISG") are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, between the Company and the
Representatives (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. ......
ISG Capital Markets, LLC ..................
---------
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 Representatives that the Underwriters
propose 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. The Underwriters 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
Underwriters. The Underwriters have informed the Company that they do 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 Representatives 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 Representatives' Warrants
shall pay any underwriting discounts or commission and expenses of their own
legal counsel. In addition, the Company has agreed to pay the Represenatives a
finder's fee equal to ___% of all consideration in the event that the
Representatives originate a financing, merger, acquisition, joint venture or
other transaction to which the Company is a party.
The Company has granted to the Underwriters 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, at the initial public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. 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 Underwriters 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.
Upon consummation of this Offering, the Company has agreed to sell to the
Representatives and its designees, for nominal consideration, warrants to
purchase from the Company up to an aggregate of 125,000 shares of Common Stock
(the "Representatives' Warrants"). The Representatives' Warrants are
exercisable at a price of $12.00 per share (120% of the assumed 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
Representatives' Warrants may not be sold, transferred, assigned, or
hypothecated until one year after the date of this Prospectus, except that
51
<PAGE>
they may be transferred, in whole or in part, to (i) one or more officers or
partners of the Representatives' (or the officers or partners of any such
partner); (ii) any other underwriting firm or member of the selling group which
participated in this Offering (or the officers or partners of any such firm);
(iii) a successor to any Representative, or the officers or partners of such
successor, (iv) a purchaser of substantially all of the assets of a
Representative, or (v) by operation of law. The Representatives' Warrants
provide for adjustments in the number of shares of Common Stock issuable upon
the exercise thereof and in the exercise price of the Representatives' Warrants
as a result of certain events, including subdivisions and combinations of the
shares of Common Stock. The Representatives' Warrants grant the holders thereof
certain rights of registration for the Common Stock issuable upon exercise of
the Representatives' Warrants. The shares underlying the Representatives'
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, 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 and ISG have been named
as investment banking advisers for a 24 month period effective upon the
consummation of this Offering. For such services, the Company has agreed to pay
Coleman and ISG a monthly fee in the aggregate amount 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 15 months
following the effective date of the Registration Statement without the prior
written consent of the Representatives. 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 Representatives,
offer, issue, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any equity securities for a period of 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.
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 Representatives, 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 in the 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 are required, and, 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 Representatives. 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."
52
<PAGE>
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 LLC, New York, New York, has
acted as legal counsel to the Underwriters in connection with this Offering.
EXPERTS
The Consolidated Financial Statements of Premier Mortgage Corp. 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 Financial Statements of Premier Mortgage Corp. as of December 31,
1995, and for the years ended December 31, 1995 and 1994, 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.
53
<PAGE>
PREMIER MORTGAGE CORP. 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 September 30, 1997 (unaudited) ...... F-4
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 and for the
Nine Months Ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited) . F-5
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995
and 1994 and for the Nine Months Ended September 30, 1997 (unaudited) ............... F-6
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 and for the
Nine Months Ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited).... F-7
Notes to Consolidated Financial Statements ............................................. F-8
</TABLE>
The financial statements of PMCC Financial Corp., the Registrant, have
been omitted because PMCC Financial Corp. has not yet issued any stock, has no
assets or liabilities and has not yet conducted any business other than of an
organizational nature.
F-1
<PAGE>
Independent Auditors' Report
The Shareholders
Premier Mortgage Corp.:
We have audited the accompanying consolidated balance sheet of Premier
Mortgage Corp. 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 Corp. 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 Corp.
Roslyn Heights, New York 11577
Gentlemen:
We have audited the accompanying balance sheet of Premier Mortgage Corp.
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 Corp. 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 CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------- -------------------------
Pro forma
1997 1997 1996 1995
------------- ------------ ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents .................. $ 366,807 366,807 409,788 399,957
Debt and equity securities available-for-
sale ....................................... 131,000 131,000 75,000 354,495
Receivable from sales of loans ............... 31,103,732 31,103,732 9,837,837 1,356,802
Mortgage loans held for sale, net ............ 19,809,113 19,809,113 2,874,900 5,537,000
Mortgage loans held for investment ......... -- -- 138,052 140,292
Accrued interest receivable .................. 850,171 850,171 53,161 10,114
Other receivables, net of allowance for
indemnity losses of $70,470, $70,470,
$28,500 and $0, respectively ............... 471,299 471,299 208,769 132,624
Residential rehabilitation properties
being financed .............................. 12,312,984 12,312,984 3,246,361 --
Furniture, fixtures and equipment, net ...... 251,510 251,510 209,937 206,891
Prepaid expenses and other assets ............ 107,654 107,654 99,421 93,416
----------- ---------- --------- ---------
Total assets ........................... $65,404,270 65,404,270 17,153,226 8,231,591
=========== ========== ========== =========
Liabilities and Shareholders' Equity
Liabilities:
Notes payable -- principally
warehouse lines of credit ............... 56,644,112 56,644,112 13,923,063 6,476,359
Notes payable -- shareholder ............... 293,163 293,163 275,000 --
Due to affiliates ........................... 3,035,325 3,035,325 761,661 465,358
Accrued expenses and other liabilities 1,052,943 1,052,943 285,785 175,516
Federal and state income tax payable . 18,437 18,437 12,000 --
Deferred tax liability ..................... 1,125,000 -- -- --
S corporation distribution payable ......... 1,535,290 -- -- --
----------- ---------- ---------- ---------
Total liabilities ..................... 63,704,270 61,043,980 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 ........................... 925,975 3,586,265 1,159,529 392,758
Unrealized gain on securities
available-for-sale, net .................. 56,000 56,000 -- 3,575
----------- ---------- ---------- ---------
Total shareholders' equity ............... 1,700,000 4,360,290 1,877,554 1,114,358
----------- ---------- ---------- ---------
Total liabilities and
shareholders' equity .................. $65,404,270 65,404,270 17,153,226 8,231,591
=========== ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the nine months
ended September 30, For the years ended December 31,
----------------------------- ----------------------------------------
1997 1996 1996 1995 1994
--------------- ----------- ------------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Gains on sales of mortgage loans, net ............ $ 8,641,550 4,254,846 6,104,397 3,168,565 1,174,533
Interest earned ................................. 1,412,083 563,261 735,802 231,916 10,424
Fees earned on financing residential rehabili-
tation properties 1,676,960 64,756 284,309 -- --
Gain on sale of securities available-for-sale . -- 29,605 29,605 -- 1,562
------------ --------- --------- --------- ---------
11,730,593 4,912,468 7,154,113 3,400,481 1,186,519
------------ --------- --------- --------- ---------
Expenses:
Compensation and benefits ........................ 4,790,405 2,617,789 3,674,490 2,069,443 709,071
Advertising and promotion ........................ 132,460 114,359 207,381 71,879 55,798
Brokers fees paid and other loan costs ......... 669,232 124,368 237,147 85,555 --
Occupancy and equipment ........................ 243,003 161,392 208,929 157,734 84,588
Messenger service .............................. 79,220 56,929 81,400 50,533 21,030
Office supplies and expense ..................... 126,077 117,623 155,868 83,087 34,316
Telephone ....................................... 138,296 87,318 120,239 106,547 61,328
Interest expense ................................. 1,951,432 534,175 839,284 245,281 20,132
Other operating expenses ........................ 784,032 308,299 564,190 327,262 138,244
------------ --------- --------- --------- ---------
8,914,157 4,122,252 6,088,928 3,197,321 1,124,507
------------ --------- --------- --------- ---------
Income before income tax expense and minor-
ity interest 2,816,436 790,216 1,065,185 203,160 62,012
Income tax expense .............................. 25,198 14,290 13,790 7,631 --
------------ --------- --------- --------- ---------
Income before minority interest ............... 2,791,238 775,926 1,051,395 195,529 62,012
Minority interest in net income of
subsidiary ....................................... -- 5,680 17,863 -- --
------------ --------- --------- --------- ---------
Net income .................................... $ 2,791,238 770,246 1,033,532 195,529 62,012
============ ========= ========= ========= =========
Unaudited pro forma information:
Historical income before income tax expense
and minority interest ........................ 2,816,436 1,065,185
Adjustment to compensation expense for
contractual increase in officers' salary ...... (91,000) (139,000)
------------ ---------
Pro forma net income before income tax
expense and minority interest .................. 2,725,436 926,185
Provision for pro forma income taxes ............ (1,124,000) (391,000)
------------ ---------
Pro forma income before minority interest ...... 1,601,436 535,185
Minority interest in net income of subsidiary (17,863)
------------ ---------
Pro forma net income ........................... $ 1,601,436 517,322
============ =========
Pro forma net income per share of common
stock .......................................... $ 0.59 0.20
============ ==========
Pro forma weighted average number of
shares and share equivalents outstanding . 2,700,368 2,600,000
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PREMIER MORTGAGE CORP. 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 .............................. -- -- 2,791,238 -- 2,791,238
Distributions ........................... -- -- (364,502) -- (364,502)
Unrealized gain on securities
available-for-sale, net ............... -- -- -- 56,000 56,000
------- ------- --------- ------ ---------
Balance at September 30, 1997
(unaudited) ............................ $ 6,250 711,775 3,586,265 56,000 4,360,290
======= ======= ========= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the nine months
ended September 30,
---------------------------------
1997 1996
---------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 2,791,238 770,246
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ................................. 44,183 30,000
(Increase) decrease in accrued interest receivable ............ (797,010) (54,886)
(Decrease) increase in minority interest in net income of sub-
sidiary (18,163) 5,680
Net increase in receivable from sales of loans ............... (21,265,895) (2,598,359)
Net (increase) decrease in mortgage loans held for sale ...... (16,246,213) 940,330
Net increase in residential rehabilitation properties being
financed ................................................... (9,066,623) (3,220,519)
Provision for indemnity losses .............................. 41,970 9,431
Net (increase) decrease in deferred loan costs ............... (688,000) (132,000)
Gains on sale of securities available-for-sale ............... -- (29,605)
(Increase) decrease in other receivables ..................... (304,500) (164,999)
(Increase) decrease in prepaid expenses and other assets ...... (8,233) 62,988
Increase (decrease) in due to affiliates ..................... 2,273,664 1,261,847
Increase in accrued expenses, tax payable and other
liabilities ................................................ 773,595 64,104
------------- ----------
Net cash used in operating activities ..................... (42,469,987) (3,055,742)
------------- ----------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment, net of
dispositions ................................................ (85,756) (9,447)
Purchases of securities available-for-sale ..................... -- --
Proceeds from sales of securities available-for-sale ......... -- 380,525
Principal repayments on mortgage loans held for investment ... 138,052 884
Purchase of mortgage loan held for investment .................. -- --
Sale of mortgage loan held for investment, net ............... -- --
------------- ----------
Net cash provided by (used in) investing activities ...... 52,296 371,962
------------- ----------
Cash flows from financing activities:
Distributions to shareholders ................................. (364,502) (137,740)
Net increase in notes payable-shareholder ..................... 18,163 --
Net increase in notes payable-principally warehouse lines of
credit ...................................................... 42,721,049 3,922,943
Proceeds from issuance of common stock and capital
contribution ................................................ -- --
------------- ----------
Net cash provided by financing activities .................. 42,374,710 3,785,203
------------- ----------
Net (decrease) increase in cash and cash equivalents ............ (42,981) 1,101,423
Cash and cash equivalents at beginning of period ............... 409,788 399,957
------------- ----------
Cash and cash equivalents at end of period ..................... $ 366,807 1,501,380
============= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ...................................................... $ 1,604,930 531,060
============= ==========
Income taxes ................................................ $ 18,761 26,057
============= ==========
<PAGE>
<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 sub-
sidiary 17,863 -- --
Net increase in receivable from sales of loans ............... (8,481,035) (1,356,802)
Net (increase) decrease in mortgage loans held for sale ...... 2,750,100 (4,758,473) (556,527)
Net increase in residential rehabilitation properties being
financed ................................................... (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:
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)
Proceeds from sales of securities available-for-sale ......... 380,525 -- 11,562
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 provided by (used in) 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-principally 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 (decrease) increase 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 CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994 and (unaudited)
September 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 September 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.
(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.
(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 September 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".
F-8
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(1) Summary of Significant Accounting Policies -- (Continued)
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) Receivables from Sales of Loans
Receivables from the sales of loans represents proceeds due from investors
for loan sales transactions which closed prior to the balance sheet date. All
amounts due to the Company were collected subsequent to the balance sheet date.
(f) 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. Losses are recognized in the period when market value is less than
cost. Net deferred origination costs were $131,000, $190,000 and $40,000 at
September 30, 1997, December 31, 1996 and 1995,respectively.
(g) Mortgage Loans Held for Investment
Mortgage loans held for investment at December 31, 1996 and 1995 is
comprised of one loan which was originated and two loans which were purchased
by the Company in prior years for the purpose of holding for investment. There
were no mortgage loans held for investment at September 30, 1997.
Mortgage loans held for investment were carried at cost and consisted of
mortgages on residential real estate. Contractual maturities were after ten
years. During 1997, the mortgage loans held for investment were repaid by the
mortgagees. There were no gains or losses recorded on this repayment.
(h) Residential Rehabilitation Properties being Financed
Residential rehabilitation properties being financed are carried at the
lower of cost or market as determined by independent appraisals. Each of the
Company's subsidiaries serves as a conduit for the financing of the properties.
The properties are acquired and marketed by various independent contractors but
financed by, and titled (for collateral purposes) in the name of, one of the
subsidiaries. Upon sale, the subsidiaries receive an agreed upon fee plus
reimbursement for any acquisition and renovation costs advanced. In the event
the properties are not sold within an agreed-upon time period, generally within
three to five months of acquisition, the subsidiaries are also entitled to
receive an additional interest cost-to-carry. Financing fees for this activity
are included in revenues in the consolidated statements of operations. Funding
costs are included in interest expense and amounted to approximately $659,000
and $77,000, respectively, for the nine months ended September 30, 1997 and the
year ended December 31, 1996.
(i) 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.
(j) 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.
F-9
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(1) Summary of Significant Accounting Policies -- (Continued)
(k) Loan Origination Fees
Loan origination fees received and direct costs of originating loans are
deferred and recognized as income when the loans are sold to investors.
(l) 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 nine months ended September 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.
(m) 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 September 30,
1997 and for the nine-month periods ended September 30, 1996 and 1997 reflect,
in the opinion of management, all adjustments (which are of a normal and
recurring nature) 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 CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 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>
September 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 56,000 -- 131,000
========= ====== ============ =======
</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>
<PAGE>
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. Gross proceeds from the sale of
securities available for sale were $380,525, $380,525, and $11,562 for the nine
months ended September 30, 1996 and for the years ended December 31, 1996 and
1994, respectively.
(4) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment at September 30, 1997 and December 31,
1996 and 1995 and their related useful lives are summarized as follows:
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------
1997 1996 1995 Life in years
--------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Furniture and fixtures ........................ $ 260,398 220,543 210,356 7
Office equipment .............................. 167,021 121,120 80,830 5
---------- ------- -------
427,419 341,663 291,186
Accumulated depreciation and amortization ...... (175,909) (131,726) (84,295)
---------- -------- -------
Furniture, fixtures and equipment, net ......... $ 251,510 209,937 206,891
========== ======== =======
</TABLE>
F-11
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 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 $44,183 and $30,000
for the nine months ended September 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 September 30, 1997 and
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------
1997 1996 1995
--------------- ------------ ----------
<S> <C> <C> <C>
Warehouse facility - PNC ........................... $55,880,987 13,923,063 --
Warehouse line of credit - Fleet (formerly NatWest) . -- -- 2,488,447
Warehouse line of credit - China Trust ............ -- -- 3,987,912
Notes payable -- other .............................. 763,125 -- --
Notes payable - shareholder ........................ 293,163 275,000 --
----------- ---------- ---------
$56,937,275 14,198,063 6,476,359
=========== ========== =========
</TABLE>
At September 30, 1997 and December 31, 1996 and 1995, substantially all of
the mortgage loans held for sale and receivable from sales of loans 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 September 30, 1997 and December 31, 1996 and
1995, were $50,000,000, $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 September 30, 1997, the Company had additional financing available
under a mortgage loan purchase agreement with PNC. The agreement provides the
Company up to $20 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 $35,445,000 outstanding under the $50,000,000 line of
credit and $20,435,000 outstanding under the $20,000,000 mortgage loan purchase
agreement at September 30, 1997.
The note payable - other of $763,125 at September 30, 1997 is secured by
specific residential rehabilitation properties being financed and matures upon
sale of the underlying properties.
The notes payable to shareholder bore interest at an annual rate of 8.00%
and were due in 1998. Such amounts were fully repaid 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 CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 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 nine months ended September 30, 1997 and 1996
was $155,780 and $78,183, respectively, and for the years ended December 31,
1996, 1995 and 1994 was $108,674, $64,189 and $35,198, respectively.
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 above by approximately $229,000.
(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
$42,500 and $12,200 for the nine months ended September 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 September 30, 1997 and December 31, 1996 and 1995, the
Company had a net liability of $3,035,325, $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.
On August 25, 1997, the Company subordinated $1,000,000 of its "due to
affiliates" to its warehouse line of credit.
(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.
F-13
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(9) Financial Instruments With Off-Balance Sheet Risk and Concentrations of
Credit Risk -- (Continued)
In the ordinary course of business, the Company had issued commitments to
borrowers to fund approximately $28,000,000 and $16,500,000, respectively, of
mortgage loans at September 30, 1997 and December 31, 1996. Of these
commitments to fund, $10,484,000 and $3,748,000, respectively, relate to
commitments to fund at locked-in rates and $17,516,000 and $12,752,000,
respectively, relate to commitments to fund at floating rates at September 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 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
SFAS No.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>
September 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 ......... $ 366,807 366,807 409,788 409,788 399,957 399,957
Securities available-for-sale ... 131,000 131,000 75,000 75,000 354,495 354,495
Receivable from sales of loans ... 31,103,732 31,103,732 9,837,837 9,837,837 1,356,802 1,356,802
Mortgage loans held for sale, net 19,809,113 19,809,113 2,874,900 2,874,900 5,537,000 5,537,000
Mortgage loans held for invest-
ment -- -- 138,052 138,052 140,292 140,292
Accrued interest receivable ...... 850,171 850,171 53,161 53,161 10,114 10,114
Financial liabilities:
Notes payable-warehouse ......... 56,644,112 56,644,112 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 ............... 3,035,325 3,035,325 761,661 761,661 465,358 465,358
</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.
F-14
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(10) Disclosures About Fair Value of Financial Instruments -- (Continued)
Securities available-for-sale -- Fair value is estimated based on current
market prices, if available, and on estimates made by management.
Receivable for sales of loans and 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-principally 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
The shareholders of Premier Mortgage Corp. intend to exchange all of their
outstanding shares of common stock of Premier Mortgage Corp. 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.
F-15
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(12) Subsequent Events -- (Continued)
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 four equal quarterly installments of principal and interest. The final
payment is due within one year of the date of the consummation of the Company's
contemplated initial public offering.
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 September 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 September 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 for the year ended December 31, 1996 and for the nine months ended
September 30, 1997. In addition, the historical results of operations for the
year ended December 31, 1996 and the nine months ended September 30, 1997 have
been adjusted to reflect a pro forma increase in officer compensation expense
pursuant to certain proposed employment agreements.
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%, for
the year ended December 31, 1996, and 41.25% for the nine months ended
September 30, 1997. The pro forma balance represents the balance sheet as of
September 30, 1997 adjusted to give effect to (i) the establishment of a
$1,535,290 distribution payable for previously undistributed S corporation
earnings which are intended to be distributed, and (ii) the establishment of
$1,125,000 of deferred tax liabilities that would have been recorded had the
Company's S corporation status been terminated as of September 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.
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 the estimated number
of shares to be sold by PMCC Financial Corp. to fund the initial $1 million
distribution of previously undistributed S corporation earnings and, after
April 1997, for common stock equivalents.
The pro forma balance sheet at September 30, 1997 does not reflect the
sale of shares in the initial public offering.
F-16
<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
Reorganization and Termination of
S Corporation Status .................................... 17
Use of Proceeds ............................................. 18
Dividend Policy ............................................. 18
Dilution ................................................... 19
Capitalization ............................................. 20
Selected Consolidated Financial Data ........................ 21
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................................ 22
Business ................................................... 29
Management ................................................... 40
Certain Transactions ....................................... 45
Principal Stockholders ....................................... 47
Description of Securities .................................... 48
Shares Eligible for Future Sale .............................. 50
Underwriting ................................................ 51
Legal Matters ................................................ 53
Experts ...................................................... 53
Available Information ....................................... 53
Index to Financial Statements .............................. F-1
Until , 1998 (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>
================================================================================
PMCC
FINANCIAL CORP.
1,250,000 Shares
of Common Stock
----------------------------------------
Prospectus
----------------------------------------
COLEMAN AND COMPANY
SECURITIES, INC.
ISG CAPITAL MARKETS, LLC
-------------------------- , 1998
================================================================================
<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 listing fee.
Total
----------
SEC registration fee .................. $4,683
AMEX listing fee ..................... 25,000
AMEX filing fee ........................ 8,500
NASDR Fee .............................. 1,770
Blue Sky fees and expenses ............ 10,000
Printing and engraving expenses ...... 125,000
Legal fees and expenses ............... 175,000
Accounting fees and expenses ......... 100,000
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.
Recent Sales of Unregistered Services
None.
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 Representatives' 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
10.14 Fourth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
10.15 Fifth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
11.1 Statement re: Computation of Per Share Earnings
**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)
23.5 Consent of Joel L. Gold
23.6 Consent of Stanley Kreitman
**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
** Previously filed
II-2
<PAGE>
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.
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.
D. Undertaking in Respect of Equity Offerings of Non-Ordering Registrants.
The undersigned registrant hereby undertakes to provide the Underwriter at
the closing statement in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each Purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in Roslyn Heights, New York, on
January 7, 1998.
PMCC FINANCIAL CORP.
By: /s/ RONALD FRIEDMAN
------------------------------
Ronald Friedman, President
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ Ronald Friedman President, Chief Executive Officer, and January 7, 1998
- ----------------------------------- Director
Ronald Friedman
/s/ * Chief Operating Officer, Secretary,
- ----------------------------------- Treasurer and Chairman of the
Robert Friedman Board of Directors
/s/ * Chief Financial Officer (Principal
- ----------------------------------- Financial and Accounting Officer)
Timothy J. Mayette
*By: /s/ Ronald Friedman January 7, 1998
----------------------------------
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<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 Representatives' 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
10.14 Fourth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
10.15 Fifth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
11.1 Statement re: Computation of Per Share Earnings
**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)
23.5 Consent of Joel L. Gold
23.6 Consent of Stanley Kreitman
**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
** Previously filed
<PAGE>
1,250,000 Shares of Common Stock
PMCC FINANCIAL CORP.
UNDERWRITING AGREEMENT
_____________, 1997
Coleman and Company Securities, Inc.
As Representative of the several
Underwriters named in Schedule I
attached hereto
666 Fifth Avenue
New York, New York 10103
Gentlemen:
The undersigned, PMCC Financial Corp., a Delaware corporation (the
"Company"), hereby confirms its agreement with Coleman and Company Securities,
Inc. (individually, "Coleman," and, as representative (the "Representative") of
the several underwriters named in Schedule I hereto (the "Underwriters")), and
the Underwriters as follows:
1. Introduction.
(a) The Company proposes to issue and sell to the Underwriters an
aggregate of 1,250,000 shares of common stock, par value $.01 per share, of the
Company (the "Common Stock"). Such shares of Common Stock are hereinafter
referred to as the "Firm Stock".
(b) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to Coleman, individually and not as Representative, an
option (the "Company Over-allotment Option") to purchase from it, in the
aggregate, up to an additional 187,500 shares of Common Stock. Such shares of
Common Stock are hereinafter referred to as the "Additional Stock." The Firm
Stock and the Additional Stock are hereinafter referred to as the "Stock."
<PAGE>
(c) The Company proposes to sell to Coleman, individually and not as
Representative, warrants (the "Representative's Warrants") to purchase up to an
aggregate of 125,000 shares of Common Stock (the "Warrant Shares") for an
aggregate purchase price of $_________. The Representative's Warrants shall be
substantially in the form filed as an exhibit to the Registration Statement (as
hereinafter defined). The Representative's Warrants and the Warrant Shares are
hereinafter referred to collectively as the "Representative's Securities." The
Stock and the Representative's Securities are hereinafter referred to
collectively as the "Securities."
2. Representations and Warranties. The Company represents and warrants
to, and agrees with, the several Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (Registration
No. 333-_______), and may have filed one or more amendments thereto and a Rule
462(b) Registration Statement (as hereinafter defined) in accordance with Rule
462(b) under the Securities Act, including in such registration statement and
each such amendment a related preliminary prospectus, for the registration of
the Securities under the Securities Act of 1933, as amended (the "Securities
Act"). As used in this Agreement, the term "Registration Statement" shall refer
to such registration statement referred to in the first sentence of this Section
2(a), as amended, on file with the Commission at the time such registration
statement is declared by the Commission to be effective under the Securities Act
(including the prospectus, financial statements, and exhibits filed as a part
-2-
<PAGE>
thereof, provided, however, that such registration statement, at the time it is
declared by the Commission to be effective under the Securities Act, may omit
such information as is permitted to be omitted from such registration statement
when it becomes effective under the Securities Act pursuant to Rule 430A of the
General Rules and Regulations of the Commission under the Securities Act (the
"Regulations"), which information (the "Rule 430A Information") shall be deemed
to be included in such registration statement when a final prospectus is filed
with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations and includes any Rule 462(b) Registration Statement); the term
"Preliminary Prospectus" shall refer to each prospectus included in the
Registration Statement, or any amendments thereto, before the Registration
Statement is declared by the Commission to be effective under the Securities
Act, the form of prospectus omitting Rule 430A Information included in the
Registration Statement when the Registration Statement becomes effective under
the Securities Act, if applicable (the "Rule 430A Prospectus"), and any
prospectus filed by the Company with the consent of the Representative pursuant
to Rule 424(a) of the Regulations; and the term "Prospectus" shall refer to the
final prospectus forming a part of the Registration Statement in the form first
filed with the Commission pursuant to Rule 424(b)(1) or (4) of the Regulations
or, if no such filing is required, the form of final prospectus forming a part
of the Registration Statement. As used in this Agreement, the term "Rule 462(b)
Registration Statement" means the registration statement and any amendments
thereto filed pursuant to Rule 462(b) of the Regulations relating to the
offering covered by the Initial Registration Statement.
(b) When the Registration Statement becomes effective under
the Securities Act, and at all times subsequent thereto up to and including
the Closing Date (as defined in Section 3(a)
-3-
<PAGE>
hereof) and each Additional Closing Date (as defined in Section 3(b) hereof),
and during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Underwriters or a dealer, and during such longer
period until any post-effective amendment thereto shall become effective under
the Securities Act, the Registration Statement (and any post-effective amendment
thereto) and the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment or supplement to the Registration
Statement or the Prospectus) will contain all statements which are required to
be stated therein in accordance with the Securities Act and the Regulations,
will comply with the Securities Act and the Regulations, and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and no event will have occurred which should have been set forth in
an amendment or supplement to the Registration Statement or the Prospectus which
has not then been set forth in such an amendment or supplement; if a Rule 430A
Prospectus is included in the Registration Statement at the time it is declared
by the Commission to be effective under the Securities Act, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all
Rule 430A Information and all statements which are required to be stated therein
in accordance with the Securities Act or the Regulations, will comply with the
Securities Act and the Regulations, and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and each Preliminary
Prospectus, as of the date filed with the Commission, contained all statements
required to be stated therein in accordance with the Securities Act and the
Regulations, complied with the Securities Act and the Regulations, and did not
contain any untrue statement of a material fact or omit to state any
-4-
<PAGE>
material fact required to be stated therein or necessary to make the statements
therein not misleading; except that no representation or warranty is made in
this Section 2(a)(2) with respect to statements or omissions made in reliance
upon, and in conformity with, written information furnished to the Company as
stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representative expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto.
(c) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of, or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration or qualification of the Securities nor
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(d) Any contract, agreement, instrument, lease, or license required
to be described in the Registration Statement or the Prospectus has been
properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to the Registration Statement.
(e) The following corporations are the only subsidiaries (as defined
in the Regulations) of the Company: Premier Mortgage Co., a New York
corporation, ______________ (collectively, the "Subsidiaries"). The Company and
each of the Subsidiaries is a corporation duly organized, validly existing, and
in good standing under the laws of its respective jurisdiction of incorporation,
with full power and authority, and all necessary consents, authorizations,
approvals,
-5-
<PAGE>
orders, licenses, certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other governmental authorities and
all courts and other tribunals, to own, lease, license, and use its properties
and assets and to conduct its business in the manner described in the
Prospectus. The Company and each Subsidiary is duly qualified to do business as
a foreign corporation and is in good standing as such in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary, except where the
failure to so qualify will not have a material adverse effect on the Company's
business, properties, or financial condition on a consolidated basis.
(f) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 2,500,000 shares are outstanding,
and 1,000,000 shares of preferred stock, par value $.01 per share, of which none
are outstanding. Each outstanding share of Common Stock is validly authorized
and issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, has not been issued and is not owned or held
in violation of any preemptive or similar rights of shareholders. Each share of
capital stock of each Subsidiary is owned of record and beneficially by the
Company. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any Subsidiary or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may be properly
described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary, except as may
be properly described in the Prospectus. The certificates evidencing the Common
Stock are in due and proper form.
-6-
<PAGE>
(g) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus fairly present, with respect to
the Company, the financial position, the results of operations, the cash flows,
and the other information purported to be shown therein at the respective dates
and for the respective periods to which they apply. Such consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles (except to the extent that certain footnote disclosures regarding any
stub period may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) consistently applied throughout the periods involved, are correct and
complete in all material respects, and are in accordance with the books and
records of the Company. KPMG Peat Marwick, the accountants whose report on the
audited consolidated financial statements for the years ended and at December
31, 1995 and 1996, is filed with the Commission as a part of the Registration
Statement, Freeberg & Freeberg, the accountants whose report on the audited
consolidated financial statements for the years ended and at December 31, 1993
and 1994 is filed with the Commission as a part of the Registration Statement,
and Fein & Fein, the accountants whose report on the audited consolidated
financial statements for the year ended and at December 31, 1992 and 1996, is
filed with the Commission as a part of the Registration Statement, each are, and
during the periods covered by their reports included in the Registration
Statement and the Prospectus were, independent certified public accountants with
respect to the Company within the meaning of the Securities Act and the
Regulations. No other financial statements are required by Form S-1 or otherwise
to be included in the Registration Statement or the Prospectus. There has at no
time been a material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or
-7-
<PAGE>
future prospects of the Company on a consolidated basis from the latest
information set forth in the Registration Statement or the Prospectus, except as
may be properly described in the Prospectus.
(h) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or,
to the best knowledge of the Company, in prospect (or any basis therefor) with
respect to the Company, any Subsidiary, or any of their respective operations,
businesses, properties, or assets, except as may be properly described in the
Prospectus or such as individually or in the aggregate do not now have, and will
not in the future have, a material adverse effect upon the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company and the Subsidiaries taken as a whole. To the best
knowledge of the Company, neither the Company nor any Subsidiary is in violation
of, or in default with respect to, any law, rule, regulation, order, judgment,
or decree, except as may be properly described in the Prospectus or such as in
the aggregate do not now have, and will not in the future have, a material
adverse effect upon the operations, business, properties, or assets of the
Company and the Subsidiaries taken as a whole; nor is the Company or any
Subsidiary currently required to take any action in order to avoid any such
violation or default.
(i) The Company and each Subsidiary has good and marketable title to
all properties and assets which the Prospectus indicates are owned by it, free
and clear of all liens, security interests, pledges, charges, encumbrances, and
mortgages, except as may be properly described in the Prospectus or as are not
material to the Company and the Subsidiaries taken as a whole. No real property
owned, leased, licensed, or used by the Company or any Subsidiary lies in an
area which is, or to the knowledge of the Company will be, subject to zoning,
use, or building code restrictions which would prohibit, and no state of facts
relating to the actions or inaction of
-8-
<PAGE>
another person or entity or his or its ownership, leasing, licensing, or use of
any real or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real property
in the business of the Company and the Subsidiaries, each as presently conducted
or as the Prospectus indicates it contemplates conducting, except as may be
properly described in the Prospectus.
(j) Neither the Company or any Subsidiary nor, to the knowledge of
the Company, any other party, is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any provision of any
contract, agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company and the Subsidiaries taken as a whole, and each
such contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and effect and is the legal, valid, and binding
obligation of the parties thereto and is enforceable as to them in accordance
with its respective terms. The Company and each Subsidiary enjoys peaceful and
undisturbed possession under all leases and licenses under which it is
operating. Except as described in the Prospectus, neither the Company nor any
Subsidiary is a party to, or bound by, any contract, agreement, instrument,
lease, license, arrangement, or understanding, or subject to any charter or
other restriction, which has had, or may in the future have, a material adverse
effect on the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company and the Subsidiaries
taken as a whole. Neither the Company nor any Subsidiary is in violation or
breach of, or in default with respect to, any term of its respective certificate
of incorporation (or other charter document) or by-laws.
-9-
<PAGE>
(k) The Company and each Subsidiary owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, licenses,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, and copyrights described or referred to
in the Prospectus as owned or used by it or which are necessary for the conduct
of its business as currently conducted as described in the Prospectus and, to
the best knowledge of the Company, its business as contemplated as described in
the Prospectus. To the best knowledge of the Company, all such patents, patent
rights, licenses, trademarks, service marks, and copyrights are (i) valid and
enforceable, (ii) not being infringed by any third parties which infringement
could, singly or in the aggregate, materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company and the Subsidiaries
taken as a whole, as presently being conducted or as proposed to be conducted as
described in the Prospectus, and (iii) are uncontested by any third party. The
Company has no knowledge of, nor has it received any notice of, infringement of,
or conflict with, asserted rights of others with respect to any patents, patent
rights, inventions, trade secrets, licenses, know-how, proprietary techniques,
including processes and substances, trademarks, service marks, trade names, or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling, or finding could materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company and the Subsidiaries
taken as a whole, as presently being conducted or as proposed to be conducted as
described in the Prospectus.
(l) Neither the Company or any Subsidiary, nor, to the best
knowledge of the Company, any director, officer, agent, employee, or other
person associated with, or acting on
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behalf of, the Company or any Subsidiary, has, directly or indirectly: used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment. The
Company's internal accounting controls and procedures are sufficient to cause
the Company and each of the Subsidiaries to comply in all respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(m) The Company has all requisite power and authority to execute,
deliver, and perform each of this Agreement and the Representative's Warrants.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of this
Agreement and the Representative's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is the legal, valid, and
binding obligation of the Company. The Representative's Warrants have been duly
authorized by the Company and, when executed and delivered by the Company, will
be legal, valid, and binding obligations of the Company, each enforceable as to
the Company in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company or any Subsidiary for the execution,
delivery, or performance by the Company of this Agreement or the
Representative's Warrants, except filings under the Securities Act which have
been or will be made before the Closing Date, and consents consisting only of
consents under "blue sky" or securities laws which have been obtained at or
prior
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to the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Company or any Subsidiary is a party, or to which any of their respective
properties or assets are subject, is required for the execution, delivery, or
performance of this Agreement and the Representative's Warrants; and the
execution, delivery, and performance of this Agreement and the Representative's
Warrants will not violate, result in a breach of, conflict with, result in the
creation or imposition of any lien, charge, or encumbrance upon any properties
or assets of the Company or any Subsidiary pursuant to the terms of, or, with or
without the giving of notice or the passage of time or both, entitle any party
to terminate or call a default under, any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate, result in a breach
of, or conflict with any term of the certificate of incorporation (or other
charter document) or by-laws of the Company, or violate, result in a breach of,
or conflict with, any law, rule, regulation, order, judgment, or decree binding
on the Company or any Subsidiary or to which any of their respective operations,
businesses, properties, or assets are subject.
(n) The Firm Stock is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of shareholders, and the Underwriters will receive good title to the shares of
Firm Stock purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, shareholders' agreements,
and voting trusts. The Additional Stock is validly authorized and, when issued
in accordance with the terms hereof, will validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will
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not issued in violation of any preemptive or similar rights of shareholders. The
Company Additional Stock has been duly and validly reserved for issuance. The
Stock conforms to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(o) The Warrant Stock is validly authorized and has been duly and
validly reserved for issuance and, when issued and delivered upon exercise of
the Representative's Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of shareholders; and the holders of the
Representative's Warrants will receive good title to the securities purchased by
them upon the exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, and voting trusts. The Representative's Securities conform to all
statements relating thereto contained in the Registration Statement and the
Prospectus.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, neither the Company nor any
Subsidiary has (i) issued any securities or incurred any material liability or
material obligation, primary or contingent, for borrowed money, (ii) entered
into any material transaction not in the ordinary course of business, (iii)
declared or paid any dividend on its capital stock, except dividends by a
Subsidiary to the Company or another Subsidiary, or (iv) experienced any adverse
changes or any development which may materially adversely effect the condition
(financial or otherwise), net assets or shareholders' equity, results of
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operations, business, key personnel, assets, or properties of the Company and
the Subsidiaries taken as a whole.
(q) Neither the Company or any Subsidiary nor any of their
respective officers, directors, or affiliates (as defined in the Regulations),
has taken or will take, directly or indirectly, prior to the termination of the
offering contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Firm Stock or the
Additional Stock.
(r) The Company has obtained from each of its directors, officers,
and shareholders a written agreement, in form and substance satisfactory to
counsel for the Underwriters, that, for a period of _____ months from the date
on which the Registration Statement is declared by the Commission to be
effective under the Securities Act, he, she, or it will not, without the prior
written consent of the Representative, publicly offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or other instrument which
by its terms is convertible into, or exercisable or exchangeable for, shares of
Common Stock or other securities of the Company, including, without limitation,
any shares of Common Stock issuable pursuant to the terms of any employee stock
options; provided, however, that such persons may offer, sell, contract to sell,
grant an option for the sale of, or otherwise dispose of all or any part of his,
her, or its shares of Common Stock or other such security or instrument of the
Company during such period if such transaction is private in nature and the
transferee of such shares of Common Stock or other securities or
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instruments agrees, prior to such transaction, to be bound by all of the
provisions of such agreement.
(s) The Company is not, and does not intend to conduct its business
in a manner in which it would be required to register as, an "investment
company" as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder.
(t) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement, which right has not been waived.
(u) Except as may be set forth in the Prospectus, the Company has
not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(v) Neither the Company or any Subsidiary, nor any of their
respective affiliates, is presently doing business with the government of Cuba
or with any person or affiliate located in Cuba. If, at any time after the date
on which the Registration Statement is declared by the Commission to be
effective under the Securities Act or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever is later, and prior to the end of
the period referred to in the first clause of Section 2(b) hereof, the Company
and any Subsidiary commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba, the Company will so inform the
Florida Department within 90 days after such commencement of business in Cuba,
and, during the period referred to in Section 2(2) hereof, will inform the
Florida Department within 90 days after any change occurs with respect to
previously reported information.
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(w) No officer, director, or shareholder of the Company has any
affiliation or association with the National Association of Securities Dealers,
Inc. (the "NASD") or any member thereof.
(x) Except as disclosed in the Prospectus, the Company and each of
the Subsidiaries has filed all necessary federal, state, local, and foreign
income and franchise tax returns and other reports required to be filed and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been, or, to the knowledge of the Company, might be, asserted against the
Company or any Subsidiary.
(y) To the best knowledge of the Company, none of the activities or
business of the Company or any Subsidiary is in violation of, or will cause the
Company or any Subsidiary to violate, any law, rule, regulation, or order of the
United States, any state, county, or locality, or of any agency or body of the
United States or of any state, county, or locality, the violation of which would
have a material adverse effect upon the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
the Company and the Subsidiaries taken as a whole.
(z) The Common Stock has been approved for quotation on the American
Stock Exchange (the "AMEX").
3. Purchase, Sale, and Delivery of the Stock and the Representative's
Warrants.
(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the several
Underwriters, and, the Underwriters, severally and
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not jointly, agree to purchase from the Company, the numbers of shares of Firm
Stock set forth opposite the respective names of the Underwriters in Schedule I
hereto.
The purchase price per share of the Firm Stock to be paid by the
several Underwriters shall be $__________. The initial public offering price per
share of the Firm Stock shall be $_________.
Payment for the Firm Stock by the Underwriters shall be made by
certified or official bank check in New York Clearing House (next day) funds or
by electronic wire transfer of next day funds, payable to the order of the
Company, at the offices of Coleman and Company Securities, Inc., 666 Fifth
Avenue, New York, New York 10103, or at such other place in the New York City
metropolitan area as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Firm Stock to
the Representative for the respective accounts of the Underwriters. Such
delivery and payment shall be made at 9:00 a.m., New York City local time, on
the third business day following the time of the initial public offering, as
defined in Section 11(a) hereof (unless such time and date is postponed in
accordance with the provisions of Section 9(c) hereof), or at such other time as
shall be agreed upon between the Representative and the Company. The time and
date of such delivery and payment are hereinafter referred to as the "Closing
Date."
Certificates representing the Firm Stock shall be registered in such
name or names and in such authorized denominations as the Representative may
request in writing at least two full business days prior to the Closing Date.
The Company shall permit the Representative to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(b) The Company hereby grants to the Underwriters' the
Over-allotment Option to purchase up to 187,500 shares of Common Stock, as may
be necessary to cover over-allotments,
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at the same purchase price per share to be paid by the several Underwriters to
the Company for the Firm Stock as provided for in this Section 3 hereof. The
Over-allotment Options may be exercised only to cover over-allotments in the
sale of shares by Underwriters' and shall be exercised pro rata to the numbers
of shares of Common Stock set forth opposite the names of such Underwriters in
Schedule I hereto. The Over-allotment Option may be exercised by the
Underwriters on the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, at any time and from time to time on or before the
forty-fifth day following the date on which the Registration Statement becomes
effective under the Securities Act, by written notice by the Representative to
the Company. Such notice shall set forth the aggregate number of shares of
Additional Stock as to which the Over-allotment Option is being exercised, the
name or names in which the certificates representing the Additional Stock are to
be registered, the authorized denominations in which the Additional Stock is to
be registered, and the time and date, as determined by the Representative, when
such shares of Additional Stock are to be delivered (each such time and date are
hereinafter referred to as an "Additional Closing Date"); provided, however,
that no Additional Closing Date shall be earlier than the Closing Date nor
earlier than the second business day after the date on which the notice of the
exercise of the Over-allotment Option shall have been given nor later than the
eighth business day after the date on which such notice shall have been given.
In the event the Company declares or pays a dividend or a
distribution on the Common Stock, whether in the form of cash, shares of Common
Stock, or other consideration, prior to the Additional Closing Date, such
dividend or distribution shall also be paid on the Additional Stock
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on the later of the Additional Closing Date and the date on which such dividend
or distribution is payable.
Payment for the shares of Additional Stock by the Underwriters shall be
made by certified or official bank check in New York Clearing House (next day)
funds or by electronic wire transfer of next day funds payable to the order of
the Company at the offices of Coleman and Company Securities, Inc., 666 Fifth
Avenue, New York, New York 10103, or at such other place in the New York City
metropolitan area as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the shares of
Additional Stock to the Underwriters= for their respective accounts.
Certificates for the shares of Additional Stock shall be registered in
such name or names and in such authorized denominations as the Representative
may request in writing at least two full business days prior to the Additional
Closing Date with respect thereto. The Company shall permit the Representative
to examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to the
Representative (individually and not as representative of the several
Underwriters) and/or its designees on the Closing Date the Representative's
Warrants to purchase the Warrant Shares for an aggregate purchase price of
$100.00.
Delivery and payment for the Representative's Warrants shall be made on
the Closing Date. The Company shall deliver to the Representative upon payment
therefor, certificates representing the Representative's Warrants in the name or
names and in such authorized denominations as Hampshire may request. The
Representative's Warrants shall be exercisable for a period of four
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years commencing one year from the date on which the Registration Statement was
declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $_____________.
(d) It is understood that the the Representative may (but shall not
be obligated to) make any and all the payments required pursuant to this Section
3 on behalf of any Underwriters whose check or checks shall not have been
received by the Representative at the time of delivery of the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by the
Representative shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
4. Offering. The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the date on which the Registration Statement becomes
effective under the Securities Act, as the Representative deems it advisable so
to do. The Firm Stock is to be initially offered to the public at the initial
public offering price as provided for in Section 3(a) (such price being
hereinafter referred to as the "public offering price"). After the initial
public offering, the Representative may from time to time increase or decrease
the public offering price, in the sole discretion of the Representative, by
reason of changes in general market conditions or otherwise.
5. Covenants. The Company covenants that it will:
(a) Use its best efforts to cause the Registration Statement to
become effective under the Securities Act as promptly as possible and notify the
Representative and counsel to the Underwriters immediately, and confirm such
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective under the Securities Act, (ii) of the receipt
of any comments from the Commission or the "blue sky" or securities authority of
any
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jurisdiction regarding the Registration Statement, any post-effective amendment
thereto, the Prospectus, or any amendment or supplement thereto, (iii) of the
filing with the Commission of any supplement to the Prospectus, and (iv) of the
receipt of any notification with respect to a Stop Order or the initiation or
threatening of any proceeding with respect to a Stop Order. The Company will use
its best efforts to prevent the issuance of any Stop Order and, if any Stop
Order is issued, to obtain the lifting thereof as promptly as possible. If the
Registration Statement has become or becomes effective under the Securities Act
with a form of prospectus omitting Rule 430A Information, or filing of the
Prospectus with the Commission is otherwise required under Rule 424(b) of the
Regulations, the Company will file with the Commission the Prospectus, properly
completed, pursuant to Rule 424(b) of the Regulations within the time period
prescribed and will provide evidence satisfactory to the Representative of such
timely filing.
(b) During the time when a prospectus relating to the Firm Stock or
the Additional Stock is required to be delivered hereunder or under the
Securities Act or the Regulations, comply with all requirements imposed upon it
by the Securities Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Stock in accordance with the
provisions hereof and the Prospectus. If, at any time when a prospectus relating
to the Firm Stock or the Additional Stock is required to be delivered hereunder
or under the Securities Act or the Regulations, any event shall have occurred as
a result of which, in the reasonable opinion of counsel for the Company or
counsel for the Underwriters, the Registration Statement or the Prospectus as
then amended or supplemented contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements
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therein not misleading, or if, in the opinion of either of such counsel, it is
necessary at any time to amend or supplement the Registration Statement or the
Prospectus to comply with the Securities Act or the Regulations, the Company
will immediately notify the Representative and promptly prepare and file with
the Commission an appropriate amendment or supplement (in form and substance
satisfactory to the Representative and counsel to the Underwriters) which will
correct such statement or omission or which will effect such compliance and will
use its best efforts to have any such amendment declared effective under the
Securities Act as soon as possible.
(c) Deliver without charge to each of the several Underwriters such
number of copies of each Preliminary Prospectus as may reasonably be requested
by the Underwriters and, as soon as the Registration Statement, or any amendment
thereto, becomes effective under the Securities Act or a supplement is filed
with the Commission, deliver without charge to the Representative two signed
copies of the Registration Statement, including exhibits, or such amendment
thereto, as the case may be, and two copies of any supplement thereto, and
deliver without charge to each of the several Underwriters such number of copies
of the Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as the Representative may reasonably request
for the purposes contemplated by the Securities Act.
(d) Endeavor in good faith, in cooperation with the Representative,
at or prior to the time the Registration Statement becomes effective under the
Securities Act, to qualify the Securities for offering and sale under the "blue
sky" or securities laws of such jurisdictions as may be designated by the
Representative; provided, however, that no such qualification shall be required
in any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction to which it is not
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then subject. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees in writing that such action
is not at the time necessary or advisable, file and make such statements or
reports at such times as are or may be required by the laws of such
jurisdiction.
(e) Make generally available, within the meaning of Section 11(a) of
the Securities Act and the Regulations, to its security holders as soon as
practicable, but not later than March 31, 1999, an earnings statement, which
need not be certified by independent certified public accountants unless
required by the Securities Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Securities Act and the Regulations, covering
a period of at least 12 months beginning after the date on which the
Registration Statement was declared effective under the Securities Act.
(f) For a period of 18 months after the date of the Prospectus, not,
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,
directly or indirectly, any shares of Common Stock or other securities of the
Company, or any security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, shares of Common Stock, except as
contemplated by Section 3 hereof and except for (i) the issuance of stock
options, or shares of Common Stock issuable upon the exercise thereof, which
have been or may be granted pursuant to the Company's 1997 Long-Term Incentive
Plan, up to an aggregate of _______ shares of Common Stock, all as properly
described in the Prospectus, (ii) upon the exercise of warrants outstanding on
the date hereof, as properly described in the Prospectus, (iii) the issuance of
shares of Warrant Stock
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issuable upon exercise of the Representative's Warrants, and (iv) the issuance
of shares of Common Stock in connection with an acquisition by the Company.
(g) For a period of five years after the date on which the
Registration Statement was declared effective under the Securities Act furnish
you, without charge, the following:
(1) within 90 days after the end of each fiscal year, one copy
of financial statements certified by independent certified public accountants,
including a balance sheet, statement of income, and statement of changes in cash
flows of the Company and its then existing subsidiaries, if any, with supporting
schedules, prepared in accordance with generally accepted accounting principles,
as at the end of such fiscal year and for the 12 months then ended, which may be
on a consolidated basis;
(2) as soon as practicable after they have been sent to
shareholders of the Company or filed with, or furnished to, the Commission or
the NASD, one copy of each annual and interim financial and other report or
communication sent by the Company to its shareholders or filed with, or
furnished to, the Commission or the NASD;
(3) as soon as practicable, one copy of every press release and
every material news item and article in respect of the Company, any Subsidiary,
or their respective affairs which was released by the Company or any such
Subsidiary; and
(4) such additional documents and information with respect to
the Company, any Subsidiary, and their respective affairs, as the Representative
may from time to time reasonably request; provided, however, that such
additional documents and information shall be received by the Representative on
a confidential basis, unless otherwise disclosed to the public, and shall not be
used in violation of the federal securities laws and the rules and regulations
promulgated thereunder.
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(h) Apply the net proceeds received by the Company from the offering
contemplated by this Agreement in the manner set forth under the heading "Use of
Proceeds" in the Prospectus.
(i) Furnish to the Representative as early as practicable prior to
the Closing Date and each Additional Closing Date, if any, as the case may be,
but not less than two full business days prior thereto, a copy of the latest
available unaudited interim financial statements of the Company which have been
read by the Company's independent certified public accountants, as stated in
their letters to be furnished pursuant to Section 7(f) hereof.
(j) File no amendment or supplement to the Registration Statement or
Prospectus at any time, whether before or after the date on which the
Registration Statement was declared effective under the Securities Act, unless
such filing shall comply with the Securities Act and the Regulations and unless
the Representative shall previously have been advised of such filing and
furnished with a copy thereof, and the Representative shall have approved such
filing in writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months after the
date on which the Registration Statement shall have been declared effective
under the Securities Act) and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Securities
Act, the Company will prepare and file with the Commission, promptly upon the
Representative's request, any amendments or supplements to the Registration
Statement or the Prospectus which, in the sole opinion of the Representative,
may be necessary or advisable in connection with the distribution of the Stock.
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(k) File timely with the Commission an appropriate form to register
the Common Stock, including the Stock, pursuant to Section 12(b) of the Exchange
Act and comply with all registration, filing, and reporting requirements of the
Exchange Act, which may from time to time be applicable to the Company.
(l) Comply with all provisions of all undertakings contained in the
Registration Statement.
(m) Prior to the later of (A) the date referred to in the second
sentence of clause (j) of this Section 5, and (B) any Additional Closing Date,
issue no press release or other communication, directly or indirectly, and hold
no press conference with respect to the Company, the financial condition,
results of operations, business, properties, assets, liabilities of any the
Company or any Subsidiary, or this offering, without the prior written consent
of the Representative.
(n) Make all filings required to maintain the inclusion of the
Common Stock on the American Stock Exchange for a least four years from the date
of this Agreement.
(o) On the Closing Date, sell to the Representative, individually
and not as Representative of the several Underwriters, at the price of $.001 per
warrant, warrants to purchase the Warrant Stock, which Representative's Warrants
shall be substantially in the form set forth as an exhibit to the Registration
Statement.
(p) Until expiration of the Representative's Warrants, keep reserved
sufficient shares of Common Stock for issuance upon exercise of the
Representative's Warrants.
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(q) Deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representative may exercise the Over-allotment
Options, five sets of leather bound volumes of the Registration Statement and
all related materials to the individuals designated by the Representative or
counsel to the Underwriters.
(r) For a period of three years after the effective date on which
the Registration Statement is declared effective under the Securities Act,
provide, at its sole expense, to the Representative copies of the Company's
daily transfer sheets, if so requested by the Representative.
(s) Maintain key-person life insurance payable to the Company on the
life of Mr. Ronald Friedman, the President, Chief Executive Officer, and a
Director of the Company, and Robert Friedman, the Chairman of the Board of
Directors, Chief Financial Officer, and a Director of the Company, in the amount
of at least $3,000,000 and $750,000, respectively, for the period of time equal
to the longer of three years from the date on which the Registration Statement
becomes effective under the Securities Act and the term of the employment
agreement between the Company and such officer.
(t) For a period of three years from the date on which the
Registration Statement becomes effective under the Securities Act, the
Representative shall have the right to designate a director or appoint a
designee as an observer of the Company's Board of Directors. Such director or
observer will have the right to attend all meetings of the Board of Directors.
Such director or observer shall be entitled to receive reimbursement for all
out-of-pocket expenses incurred in attending such meetings, including, but not
limited to, food, lodging, transportation, and any fees paid to directors for
attending meetings. The Representative shall be given notice of such meetings
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at the same time and in the same manner as directors of the Company are
informed. The Representative and such director or observer shall be indemnified
to the same extent as the other directors. The Company will purchase directors
and officers insurance in an amount of not less than $_________, provided,
however, that the Company shall not be required to pay more than $_______ per
year in order to maintain such insurance, and if insurance in such amount is not
available at such cost, the Company shall purchase that amount of such insurance
which is available at a cost of $__________ per year.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement and the Agreement Among
Underwriters, any Selected Dealer Agreement and related documents, including the
cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated, (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities, including any transfer
or other taxes payable thereon, (c) the qualification of the Securities under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
for the Underwriters ($_________) and the disbursements in connection therewith,
(d) the filing fees payable to the Commission, the NASD, and the jurisdictions
in which such qualification is sought, (e) any fees relating to the listing of
the Common Stock on the American Stock Exchange and any other stock market or
exchange, (f) the cost of printing certificates representing the shares of
Common Stock, (g) the fees of the transfer
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agent for the Common Stock, (h) the cost of publication of "tombstone"
advertisements with respect to offerings, not to exceed $30,000, and (i) a
non-accountable expense allowance equal to three percent of the gross proceeds
of the sale of the Firm Stock and the Additional Stock (less amounts, if any,
previously paid to the Representative by the Company in respect of such
non-accountable expense allowance) to the Representative on the Closing Date.
Notwithstanding the foregoing, if the offering contemplated hereby should be
terminated, the Company agrees to pay the Representative only the out-of-pocket
expenses incurred by the Underwriters in connection with this Agreement or the
proposed offer, sale, and delivery of the Securities.
7. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, and the obligation of the Representative,
individually and not as representative of the several Underwriters, to purchase
and pay for the Representative's Warrants, each as provided herein, shall be
subject, in the discretion of the Representative, to the continuing accuracy of
the representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the Underwriters, as of the date hereof and as of the Closing Date (or any
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective under the
Securities Act not later than 6:00 P.M., New York City local time, on the date
of this Agreement or such later date and time as shall be consented to in
writing by the Representative; on or prior to the Closing Date, or any
Additional Closing Date, as the case may be, no Stop Order shall have been
issued and no proceeding shall have been initiated or threatened with respect to
a Stop Order; and any request by the Commission for additional information shall
have been complied with by the Company to the reasonable satisfaction of counsel
for the Underwriters. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Securities Act.
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(b) At the Closing Date and any Additional Closing Date, as
the case may be, you shall have received the opinion of Messrs. Ruskin,
Moscou, Evans & Faltischek, P.C., counsel for the Company, dated the date of
delivery, addressed to the Underwriters, and in form and scope satisfactory to
counsel for the Underwriters, with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(1) the only subsidiaries (as defined in the Regulations) of the
Company are the Subsidiaries. Each of the Company and each of the Subsidiaries
is a corporation duly organized, validly existing, and in good standing under
the laws of its respective jurisdiction of incorporation, with full power and
authority, and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities and all
courts and other tribunals, to own, lease, license, and use its respective
properties and assets and to conduct its respective business in the manner
described in the Prospectus. Each of the Company and each of the Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
as such in every jurisdiction in which its respective ownership, leasing,
licensing, or use of property and assets or the conduct of its business makes
such qualification necessary;
(2) the authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 2,500,000 shares are outstanding,
and 1,000,000 shares
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of preferred stock, par value $.01 per share, of which none is outstanding.
Except as otherwise disclosed in the Prospectus, each outstanding share of
capital stock of each Subsidiary is owned of record and beneficially by the
Company, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. Except as disclosed
in the Prospectus, each outstanding share of Common Stock and each share of
capital stock of each Subsidiary is validly authorized and issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, has not been issued and is not owned or held in violation of any
preemptive or similar rights of shareholders. To the knowledge of such counsel,
there is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any Subsidiary or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary, except as may
be properly described in the Prospectus. Except as otherwise described in the
Prospectus, there is outstanding no security or other instrument which by its
terms is convertible into, or exercisable or exchangeable for, capital stock of
the Company or any Subsidiary. The certificates evidencing the Common Stock are
in due and proper form;
(3) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any basis therefor) with
respect to the Company or any Subsidiary or any of their respective operations,
businesses, properties, or assets, except as may be properly described in the
Prospectus or such as individually or in the aggregate do not now have, and will
not in the future have, a material adverse effect upon the operations, business,
properties, or assets of the Company or any Subsidiary. To the knowledge of such
counsel, neither the Company nor any Subsidiary is in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a material adverse
effect upon the operations, business, properties, or assets of the Company; nor
is the Company or any Subsidiary required to take any action in order to avoid
any such violation or default;
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(4) to the knowledge of such counsel, neither the Company or any
Subsidiary, nor any other party is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any provision of any
contract, agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company, and, to the knowledge of such counsel, each
such contract, agreement, instrument, lease, license, arrangement, or
understanding is in full force and effect and is the valid, legal, and binding
obligation of the parties thereto and is enforceable in accordance with its
terms;
(5) neither the Company nor any Subsidiary is in violation or
breach of, or in default with respect to, any term of its respective certificate
of incorporation (or other charter document) or by-laws;
(6) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representative's Warrants.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement and
the Representative's Warrants. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and, subject to applicable bankruptcy, insolvency,
and other laws affecting the
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enforceability of creditors' rights generally, is enforceable as to the Company
in accordance with its terms. The Representative's Warrants have been duly
authorized by the Company and, when executed and delivered by the Company, will
be legal, valid, and binding obligations of the Company, each enforceable as to
the Company in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company or any Subsidiary for the execution,
delivery, or performance by the Company of this Agreement or the
Representative's Warrants, except filings under the Securities Act which have
been made prior to the Closing Date or Additional Closing Date, as the case may
be, and consents consisting only of consents under "blue sky" or securities
laws, which have been obtained. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding known to
such counsel to which the Company or any Subsidiary is a party, or to which any
of their respective properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement and the Representative's
Warrants; and the execution, delivery, and performance of this Agreement and the
Representative's Warrants will not violate, result in a breach of, conflict
with, result in the creation or imposition of any lien, charge, or encumbrance
upon any properties or assets of the Company or any Subsidiary pursuant to the
terms of, or, with or without the giving of notice or the passage of time or
both, entitle any party to terminate or call a default under, any such contract,
agreement, instrument, lease, license, arrangement, or understanding known to
such counsel, violate or result in a breach of, or conflict with any term of the
certificate of incorporation (or other charter document) or by-laws of the
Company or such Subsidiary, respectively, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or decree binding on
the Company or any Subsidiary to which any of their respective operations,
businesses, properties, or assets are subject;
(7) each share of Firm Stock to be delivered on the Closing Date
is validly authorized and, when issued and delivered in accordance with the
terms hereof, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and will not issued in
violation of any preemptive or similar rights of shareholders. Each share of
Additional Stock to be delivered on the Closing Date or any Additional Closing
Date, as applicable, is validly authorized and, when issued and delivered in
accordance with the terms hereof, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not issued in violation of any preemptive or similar rights of
shareholders. The Underwriters will receive good title to the shares of Firm
Stock and Additional Stock purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, and voting trusts. The Additional Stock has been duly and validly
reserved for issuance. The Stock conforms to all statements relating thereto
contained in the Registration Statement or the Prospectus;
(8) the Warrant Stock is validly authorized and has been duly
and validly reserved for issuance pursuant to the terms of the Representative's
Warrants. The Representative's Warrants have been duly and validly issued and
delivered. The Warrant Stock, when issued and delivered in accordance with the
Representative's Warrants, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not have been issued in violation of any preemptive rights of
shareholders. The Representative, and any other holders of the Representative's
Warrants, will receive good title to the securities purchased by them upon
exercise of the Representative's Warrants, free and clear of all liens, security
interests, pledges, charges, encumbrances, shareholders' agreements, and voting
trusts. The Representative's Securities conform to all statements relating
thereto contained in the Registration Statement or the Prospectus;
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(9) to the knowledge of such counsel, each contract, agreement,
instrument, lease, or license required to be described in the Registration
Statement or the Prospectus has been properly described therein, and each
contract, agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the Commission as an
exhibit to the Registration Statement;
(10) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or reviewed by such
counsel and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all respects;
(11) the Company is not an "investment company" as defined in
the Investment Company Act and the rules and regulations thereunder and, if the
Company conducts its business as set forth in the Prospectus, will not become an
"investment company", and will not be required to be registered under the
Investment Company Act;
(12) to the knowledge of such counsel, no person or entity has
the right to require registration of shares of Common Stock or other securities
of the Company because of the filing or effectiveness of the Registration
Statement, except by entities which have waived such rights as described in the
Registration Statement and the Prospectus;
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(13) there is no stamp duty, value-added tax, or any similar tax
or duty payable by, or on behalf of, the Underwriters, the Company or any
Subsidiary in connection with the authorization, issuance, sale and delivery of
the Securities to the Underwriters in the manner contemplated by this Agreement;
and
(14) the Registration Statement has become effective under the
Securities Act, the Prospectus has been filed in accordance with Rule 424(b) of
the Regulations, including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel, no Stop Order has
been issued and no proceeding for that purpose has been instituted or
threatened. On the basis of the participation of such counsel in conferences at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed, but without independent verification by such counsel of
the accuracy, completeness, or fairness of the statements contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
such counsel have no knowledge that (other than financial statements and other
financial data and schedules which are or should be contained therein, as to
which such counsel need express no opinion): (A) the Registration Statement, any
Rule 430A Prospectus, and the Prospectus, and any amendment or supplement
thereto, does not appear on its face to comply as to form in all material
respects with the requirements of the Securities Act and the Regulations; (B)
any of the Registration Statement, any Rule 430A Prospectus, or the Prospectus,
or any amendment or supplement thereto, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (C) since the date
of effectiveness under the Securities Act of the Registration Statement, any
event has occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not been
set forth in such an amendment or supplement.
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In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, New Jersey, and New York, to the
extent counsel for the Company deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance satisfactory to
counsel for the Underwriters) of other counsel, acceptable to counsel for the
Underwriters, familiar with the applicable laws, in which case the opinion of
counsel for the Company shall state that the opinion or opinions of such other
counsel are satisfactory in scope, form, and substance to counsel for the
Company and that reliance thereon by counsel for the Company and the
Underwriters is reasonable; (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company; and (C) to the
extent they deem proper, upon written statements or certificates of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company; provided that copies of any
such opinions, certificates, or statements shall be annexed as exhibits to the
opinion of counsel for the Company.
(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(b), and
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Representative may reasonably request.
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(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Securities Act and the Regulations, and in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company or any Subsidiary from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the date on
which the Registration Statement becomes effective under the Securities Act, and
neither the Company nor any Subsidiary shall have incurred any material
liabilities or entered into any agreements not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus,
(iii) except as set forth in the Prospectus, no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation shall be
pending, threatened, or in prospect (or any basis therefor) with respect to the
Company or any Subsidiary or any of their respective operations, businesses,
properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would materially adversely affect the business, property, condition (financial
or otherwise), results of operations, or general affairs of the Company or such
Subsidiary, and (iv) the Stock be listed upon the American Stock Exchange.
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(e) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a certificate of the chief executive officer,
the chief financial officer, and the chief accounting officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case may be, to
the effect, among other things, that (i) the conditions set forth in Sections
7(a) and 7(d) have been satisfied, (ii) as of the date of this Agreement and as
of the Closing Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and are
accurate and correct in all materials respects, and (iii) as of the Closing Date
or such Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior to such time have been fully
performed.
(f) (1) At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall have
received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representative, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from each of KPMG Peat
Marwick LLP, Freeberg & Freeberg, and Fein & Fein, each independent certified
public accountants for the Company, dated the date of delivery, in form and
substance satisfactory to the Representative and counsel to the Underwriters.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Securities shall be satisfactory in form and
substance to the Representative and to counsel for the Underwriters, and the
Underwriters shall have received from such counsel for the Underwriters the
opinion, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as the Representative may
reasonably request.
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(h) The NASD, upon review of the terms of the public offering of the
Stock shall not have objected to the Underwriters' participation in such
offering.
(i) Prior to or on the Closing Date, the Company shall have entered
into the Representative's Warrants with the Representative.
(j) Prior to or on the Closing Date, the Company shall have provided
to you copies of the agreements referred to in Section 2(r).
Any certificate or other document signed by any officer of the Company
and delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representative may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim, damage,
and expense whatsoever (which shall include, for all purposes of this Section 8,
but not
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be limited to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation) as and when incurred arising out of, based upon, or
in connection with, (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto or (B) any application or other document
or communication (for purposes of this Section 8, collectively referred to as an
"application") executed by, or on behalf of, the Company or based upon written
information furnished by, or on behalf of, the Company filed in any jurisdiction
in order to qualify the Securities under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
any Underwriter by, or on behalf of, such Underwriter through the Representative
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its
respective officers, directors, partners, employees, agents, or counsel, or any
controlling persons of an Underwriter (an
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"indemnified party") in respect of which indemnity may be sought against the
Company pursuant to the foregoing paragraph, such indemnified party or parties
shall promptly notify the Company in writing of the institution of such action
(but the failure so to notify shall not relieve the Company from any liability
it may have other than pursuant to this Section 8(a)) and the Company shall
promptly assume the defense of such action, including, without limitation, the
employment of counsel satisfactory to such indemnified party or parties and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel satisfactory to such indemnified party or parties
to have charge of the defense of such action or such indemnified party or
parties shall have concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different
from, or in addition to, those available to the Company, in any of which events
such fees and expenses shall be borne by the Company, and the Company shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties. Anything in this paragraph to the contrary notwithstanding,
the Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of each
indemnified party that is not released as described in this sentence, settle or
compromise any action, or permit a default or consent to the entry of judgment
or otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the
Underwriters of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of the
Securities, the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto, or any application.
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(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the several Underwriters in Section 8(a), but only with
respect to statements or omissions, if any, made in the Registration Statement,
any Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in
reliance upon, and in conformity with, written information furnished to the
Company as stated in this Section 8(b) with respect to any Underwriter by, or on
behalf of, such Underwriter through the Representative expressly for inclusion
in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or on any application, as the case may be;
provided, however, that the obligation of each Underwriter to provide indemnity
under the provisions of this Section 8(b) shall be limited to the amount which
represents the product of (i) the number of shares of Stock underwritten by such
Underwriter hereunder and the (ii) the underwriting discount per share of Common
Stock set forth on the cover page of the Prospectus. For all purposes of this
Agreement, the amounts of the selling concession and reallowance and the name of
each of the Underwriters, and the number of shares of Firm Stock purchased by
each of the Underwriters set forth in the Prospectus constitute the only
information furnished in writing by, or on behalf of, such Underwriter expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based on
the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or in any application, and in respect of
which indemnity may be sought against any Underwriter pursuant to this Section
8(b), such Underwriter shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 8(a).
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(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Securities Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by, or on behalf of,
any director of the Company, any officer of the Company who signed the
Registration Statement, and any controlling person of the Company), as one
entity, and the Underwriters (including for this purpose any contribution by, or
on behalf of, an indemnified party) as a second entity, shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, so that the Underwriters, in the aggregate, are responsible
for the proportion thereof equal to the percentage which the underwriting
discount per share of Common Stock set forth on the cover page of the Prospectus
represents of the initial public offering price per share of Common Stock set
forth on the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
such allocation, then other relevant equitable considerations such as the
relative fault of the Company and the Underwriters in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Underwriters agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Underwriters for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Underwriters and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8(c). No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 8(c), each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent, and counsel of any
Underwriter shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the provisions of this Section 8(c). Anything in this Section
8(c) to the contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without its
written consent. This Section 8(c) is intended to supersede any right to
contribution under the Securities Act, the Exchange Act, or otherwise.
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9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Stock or Additional Stock hereunder, and if the
number of shares of Firm Stock or Additional Stock to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of shares
of Firm Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such shares of Firm Stock or Additional
Stock to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such shares of Firm Stock or Additional
Stock, as the case may be, within one business day after the occurrence of
defaults relating to in excess of 10% of the Firm Stock or the Additional Stock,
as the case may be, then the Company shall be entitled to a further period of
one business day within which to procure another party or parties satisfactory
to the Representative to purchase such shares of Firm Stock or Additional Stock,
as the case may be, on such terms. If the Representative or the Company does not
arrange for the purchase of the shares of Firm Stock or Additional Stock, as the
case may be, to which such defaults relate as provided in this Section 9(b),
this Agreement may be terminated by the Representative or by the Company without
liability on the part of the Company (except that the provisions of Sections
5(a)(1), 6, 8, 10, and 13 shall survive such termination) or the several
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters and to
the Company for any damages occasioned by its default hereunder.
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(c) If the shares of Firm Stock or Additional Stock to which such
defaults relate are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, the Representative or
the Company shall have the right to postpone the Closing Date or the Additional
Closing Date, as the case may be, for a reasonable period but not in any event
more than seven business days in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements with respect to the Firm Stock or the Additional
Stock, and the Company agrees to prepare and file promptly any amendment or
supplement to the Registration Statement or the Prospectus which in the opinion
of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Firm Stock and
Additional Stock actually purchased by it as a result of its original commitment
to purchase Firm Stock and Additional Stock and its purchase of shares of Firm
Stock or Additional Stock pursuant to this Section 9.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock, if
any, to the several Underwriters. In addition, the provisions of Sections
5(a)(1), 6, 8, 10, 11, and 13 shall survive termination of this Agreement,
whether such termination occurs before or after the Closing Date or any
Additional Closing Date. Notwithstanding anything in the second sentence of
Section 6 hereof to the contrary, and in addition to the obligations assumed by
the Company pursuant to the first sentence of Section 6 hereof, if the offering
should be terminated, the Company shall be liable to the Underwriters only for
out-of-pocket expenses incurred by the Underwriters in connection with this
Agreement or the proposed, offer, sale, and delivery of the Securities.
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11. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 9:30 A.M., New York
City local time, on the first full business day following the day on which the
Registration Statement becomes effective under the Securities Act or at the time
of the initial public offering by the Underwriters of the Firm Stock, whichever
is earlier. The time of the initial public offering shall mean the time, after
the Registration Statement becomes effective under the Securities Act, of the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Firm Stock or the
time, after the Registration Statement becomes effective under the Securities
Act, when the Firm Stock is first released by the Representative for offering by
the Underwriters or dealers by letter or telegram, whichever shall first occur.
The Representative or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except as noted
below in this Section 11, by giving the notice indicated in Section 11(d) before
the time this Agreement becomes effective under the Securities Act.
(b) If the purchase price of the Firm Stock has not been determined
as provided for in Section 3 prior to 4:30 p.m., New York City local time, on
the fifth full business day after the date on which the Registration Statement
becomes was declared effective under the Securities Act, this Agreement may be
terminated at any time thereafter either by the Representative or by the Company
by giving notice to the other unless before such termination the purchase price
for the Firm Stock has been so determined. If the purchase price of the Firm
Stock has not been so determined prior to 4:30 p.m., New York City local time,
on the tenth full business day after the date on which the Registration
Statement was declared effective under the Securities Act, this Agreement shall
automatically terminate forthwith.
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(c) In addition to the right to terminate this Agreement pursuant
to Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company, and, if exercised,
the Over-allotment Option, at any time prior to any Additional Closing Date, by
giving notice to the Company, (i) if any domestic or international event, act,
or occurrence has materially and adversely disrupted, or, in the opinion of the
Representative, will in the immediate future materially and adversely disrupt,
the securities markets; or (ii) if there shall have been a general suspension
of, or a general limitation on prices for, trading in securities on the New York
Stock Exchange or the American Stock Exchange or in the over-the-counter market;
or (iii) if there shall have been an outbreak or increase in the level of major
hostilities or other national or international calamity; or (iv) if a banking
moratorium has been declared by a state or federal authority; or (v) if a
moratorium in foreign exchange trading by major international banks or persons
has been declared; or (vi) if there shall have been a material interruption in
the mail service or other means of communication within the United States; or
(vii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity
or malicious act, whether or not such loss shall have been insured, or from any
labor dispute or court or government action, order, or decree, which will, in
the opinion of the Representative, make it inadvisable to proceed with the
offering, sale, or delivery of the Firm Stock or the Additional Stock, as the
case may be; or (viii) if any material governmental restrictions shall have been
imposed on trading in securities in general, which restrictions are not in
effect on the date hereof; or (ix) if there shall be passed by the Congress of
the United States or by any state legislature any act or measure, or adopted by
any governmental body or authoritative accounting institute or board, or any
governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such material and
adverse change in the market for the Company's securities or securities in
general or in political, financial, or economic conditions as in the judgment of
the Representative makes it inadvisable to proceed with the offering, sale, and
delivery of the Firm Stock or the Additional Stock, as the case may be, on the
terms contemplated by the Prospectus.
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(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 10, the
Representative shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to prevent
this Agreement from becoming effective or to terminate this Agreement, the
Company shall notify the Representative promptly by telephone, telex, or
telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding
other than Section 11(f), if this Agreement shall not become effective by reason
of an election pursuant to this Section 11 or if this Agreement shall terminate
or shall otherwise not be carried out within the time specified herein by reason
of any failure on the part of the Company to perform any covenant or agreement
or satisfy any condition of this Agreement by it to be performed or satisfied,
the sole liability of the Company to the several Underwriters, in addition to
the obligations the Company assumed pursuant to the first sentence of Section 6,
will be to reimburse the several Underwriters for such out-of-pocket expenses
(including the fees and disbursements of their counsel) as shall have been
incurred by them in connection with this Agreement or the proposed offer, sale,
and delivery of the Securities, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters. Anything in this Agreement to the contrary
notwithstanding other than Section 11(f), if this Agreement shall not be carried
out within the time specified herein for any reason other than the failure on
the part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the Company
shall have no liability to the several Underwriters other than for obligations
assumed by the Company pursuant to Section 6.
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(f) Notwithstanding any election hereunder or any termination of
this Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof. Notwithstanding anything in the second
sentence of Section 6 hereof to the contrary, and in addition to the obligations
assumed by the Company pursuant to the first sentence of Section 6 hereof, if
the offering should be terminated, the Company shall be liable to the several
Underwriters only for out-of-pocket expenses incurred by the several
Underwriters in connection with this Agreement or the proposed, offer, sale, and
delivery of the Securities.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Coleman and Company Securities, Inc., 666
Fifth Avenue, New York, New York 10103, Attention: Mr. Joel L. Gold, Managing
Director, with a copy to Brock Fensterstock Silverstein & McAuliffe LLC, One
Citicorp Center, 56th Floor, York, New York 10022, Attention: Robert Steven
Brown, Esq.; or if sent to the Company, shall be mailed, delivered, or telexed
or telegraphed and confirmed by letter, to the Company, PMCC Financial Corp., 66
Powerhouse Road, Roslyn Heights, New York 11577, with a copy to Ruskin, Moscou,
Evans & Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501,
Attention: Norman M. Friedland, Esq. All notices hereunder shall be effective
upon receipt by the party to which it is addressed.
13. Parties. The Representative, individually and not as representative
of the several Underwriters, represents that it is authorized to act as
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company shall be entitled to act and rely on any request, notice,
consent, waiver, or agreement purportedly given on behalf of the Underwriters
when the same shall have been given by the Representative on such behalf. This
Agreement shall inure solely to the benefit of, and shall be binding upon, the
several Underwriters, the Company, and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Firm Stock or the Additional Stock), and no
other person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this Agreement
to the contrary, all of the obligations of the Underwriters hereunder are
several and not joint.
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14. Construction. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of laws. Time is of the essence in this Agreement.
15. Consent to Jurisdiction. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
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If the foregoing correctly sets forth the understandings among the
Representative, the Company, and the Selling Shareholder, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
PMCC FINANCIAL CORP.
By:_________________
Name:
Title:
Accepted as of the date first above
written in New York, New York
COLEMAN AND COMPANY SECURITIES, INC.*
By: ____________________________________
Joel L. Gold, Managing Director
*On behalf of itself and the other several
Underwriters named in Schedule I hereto.
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SCHEDULE I
Total
Number
of Shares
to be
Underwriter Purchased
----------- ---------
Coleman and Company Securities, Inc.............................................
---------
Total........................................................1,250,000
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EXHIBIT 4.2
REPRESENTATIVE'S WARRANTS
THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
THIS WARRANT IS NOT EXERCISABLE PRIOR TO __________, 1998.
VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, _______, 2003.
PMCC FINANCIAL CORP.
Warrants for the Purchase
of
125,000 Shares of Common Stock, Par Value $.01 Per Share
No. IPO-1
THIS CERTIFIES that, for receipt in hand of $55.00 and other value
received, COLEMAN AND COMPANY SECURITIES, INC. (the "Holder") is entitled to
subscribe for, and purchase from, PMCC FINANCIAL CORP., a Delaware corporation
(the "Company"), upon the terms and conditions set forth herein, at any time or
from time to time after 12:00 A.M., New York City local time December ___, 1998
until 5:00 P.M. New York City local time on December ___, 2002 (the "Exercise
Period"), up to an aggregate of 125,000 shares of common stock, par value $.01
per share (the "Common Stock"). This Warrant is initially exercisable at $______
per share; provided, however, that upon the occurrence of any of the events
specified in Section 5 hereof, the rights granted by this Warrant, including the
exercise price and the number of shares of Common Stock to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean, depending on the context, the initial exercise price (as set forth
above) or the adjusted exercise price per share.
This Warrant is the Underwriters' Warrant or one of the Underwriters'
Warrants (collectively, including any Underwriters' Warrant issued upon the
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exercise or transfer of any such Underwriters' Warrants in whole or in part, the
"Warrants") issued pursuant to the Underwriting Agreement, dated December ___,
1996 (the "Underwriting Agreement"), between the Company and the underwriters
(the "Underwriters") named therein. As used herein, the term "this Warrant"
shall mean and include this Warrant and any Warrant or Warrants hereafter issued
as a consequence of the exercise or transfer of this Warrant in whole or in
part. This Warrant may not be sold, transferred, assigned, or hypothecated until
December ___, 1998, except that it may be transferred, in whole or in part, to
(i) one or more officers or partners of the Holder (or the officers or partners
of any such partner); (ii) any other underwriting firm or member of the selling
group which participated in the public offering of shares of Common Stock which
commenced on December ___, 1997 (or the officers or partners of any such firm);
(iii) a successor to the Holder, or the officers or partners of such successor;
(iv) a purchaser of substantially all of the assets of the Holder; or (v) by
operation of law. The term the "Holder" as used herein shall include any
transferee to whom this Warrant has been transferred in accordance with the
above.
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
1. This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company at its office at PMCC Financial Corp., 66
Powerhouse Road, Roslyn Heights, New York 11577, or at such other place as is
designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
product of the Exercise Price and the number of Shares for which this Warrant is
being exercised.
2. Upon each exercise of the Holder's rights to purchase Shares, the
Holder shall be deemed to be the holder of record of the Shares, notwithstanding
that the transfer books of the Company shall then be closed or certificates
representing the Warrant Shares with respect to which this Warrant was exercised
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a Warrant
evidencing the right of the Holder to purchase the balance of the aggregate
number of Warrant Shares purchasable hereunder as to which this Warrant has not
been exercised or assigned.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
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faith. This Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his, her, or its authority shall be produced. Upon any registration
of transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company represents that all
shares of Common Stock issuable upon exercise of this Warrant are duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.
5. (a) The Exercise Price for the Warrants in effect from time to time,
and the number of shares of Common Stock issuable upon exercise of the Warrants,
shall be subject to adjustment, as follows:
(i) In the event that the Company shall at any time after the date
hereof (A) declare a dividend on the outstanding Common Stock payable in shares
of its capital stock, (B) subdivide the outstanding Common Stock, (C) combine
the outstanding Common Stock into a smaller number of shares, or (D) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price per Warrant Share in effect at the time of the record date for the
determination of stockholders entitled to receive such dividend or distribution
or of the effective date of such subdivision, combination, or reclassification
shall be adjusted so that it shall equal the price determined by multiplying
such Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action, and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Such adjustment shall be made successively
whenever any event listed above shall occur and shall become effective at the
close of business on such record date or at the close of business on the date
immediately preceding such effective date, as applicable.
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(ii) In the event that the Company shall fix a record date for the
determination of stockholders entitled to receive issuance of rights or warrants
to be issued to all holders of Common Stock entitling such stockholders to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the then Current Market Price (as defined below) per
share of Common Stock on such record date, the Exercise Price in effect at the
time of such record date shall be adjusted so that the same shall equal the
price determined by multiplying such Exercise Price in effect immediately prior
to such record date by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such Current Market Price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and, to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(iii) In the event the Company shall fix a record date for the
determination of stockholders entitled to receive (including any such
distribution made to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the continuing corporation in a
distribution to all holders of Common Stock) evidences of its indebtedness,
cash, or assets (other than distributions and dividends payable in shares of
Common Stock), or rights, options, or warrants to subscribe for or purchase
shares of Common Stock, or securities convertible into, or exchangeable for,
shares of Common Stock (excluding those referred to in paragraph (ii) above) in
a distribution to all holders of Common Stock, then, in each case, the Exercise
Price in effect at the time of such record date shall be adjusted by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants, or convertible or exchangeable securities, or the amount of such cash,
applicable to one share of Common Stock, and the denominator of which shall be
such Current Market Price per share of Common Stock on such record date. Such
adjustment shall be made successively whenever any event listed above shall
occur and become effective at the close of business on such record date.
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(iv) In case the Company shall issue shares of Common Stock for a
consideration per share (the "Offering Price") less than the Current Market
Price per share of Common Stock on the date the Company fixes the offering price
of such additional shares, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying such
Exercise Price by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in Subsection (i)
below) for the issuance of such additional shares would purchase at such Current
Market Price per share of Common Stock, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made. Notwithstanding anything herein to the contrary, no
adjustment pursuant to this paragraph (a)(iv) of Section 5 shall take place as a
result of this issuance of shares of Common Stock pursuant to an employee,
officer, or director securities ownership or compensation plan duly adopted by
the Board of Directors of the Company, including, but not limited to, any
employee stock option plan duly adopted by the Board of Directors of the
Company.
(v) In case the Company shall issue any securities convertible into, or
exchangeable for, Common Stock (excluding securities issued in transactions
described in Subsections (ii) and (iii) above) for a consideration per share of
Common Stock (the "Conversion Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in Subsection (i) below)
less than the Current Market Price per share of Common Stock in effect
immediately prior to the issuance of such securities, the Exercise Price in
effect immediately prior to the date of such issuance shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in Subsection (i)
below) for such securities would purchase at such Current Market Price per share
of Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock deliverable upon conversion of, or in
exchange for, such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such an issuance is
made. Notwithstanding anything herein to the contrary, no adjustment pursuant to
this paragraph (a)(v) of Section 5 shall take place as a result of the issuance
of securities convertible into, or exchangeable for, shares of Common Stock
pursuant to an employee, officer, or director securities ownership or
compensation plan duly adopted by the Board of Directors of the Company,
including, but not limited to, any employee stock option plan duly adopted by
the Board of Directors of the Company.
(b) The Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange
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(including, for purposes hereof, the Nasdaq National Market) on which the Common
Stock is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the highest reported
bid price for the Common Stock as furnished by the National Association of
Securities Dealers, Inc. through the Nasdaq SmallCap Market or a similar
organization if the Nasdaq SmallCap Market is no longer reporting such
information. If, on any such date, the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted on the Nasdaq
SmallCap Market or any similar organization, the Current Market Price shall be
deemed to be the fair value of a share of Common Stock on such date, as
determined in good faith by the Board of Directors of the Company, absent
manifest error.
(c) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the Warrant Shares, if any, issuable upon such exercise over
and above the number of Warrant Shares issuable upon such exercise on the basis
of the number of shares of Common Stock outstanding or in effect prior to such
adjustment; provided, however, that the Company shall deliver to the Holder a
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares of Common Stock upon the occurrence of the event
requiring such adjustment.
(e) Whenever there shall be an adjustment as provided in this Section
5, the Company shall within 15 days thereafter cause written notice thereof to
be sent by registered or certified mail, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares issuable and the Exercise Price thereof after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share of capital stock would be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
(g) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.05; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(h) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to Subsections (a)(i), (a)(ii), (a)(iii), (a)(iv), or
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(a)(v) above, the number of Warrant Shares issuable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number of Warrant
Shares theretofore issuable upon exercise of this Warrant by the Exercise Price
theretofore in effect and dividing the product so obtained by the Exercise
Price, as adjusted.
(i) For purposes of any computation respecting consideration received
pursuant to Subsections (a)(iv) and (a)(v) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts, or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company (irrespective of the accounting
treatment thereof), the determination of which shall be a
conclusive absent manifest error; and
(iii) in the case of the issuance of securities convertible into, or
exchangeable for, shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in
the same manner as provided in clauses (i) and (ii) of this
Subsection (i)).
(j) Notwithstanding anything herein to the contrary, if any adjustment
under this Section 5 of the Exercise Price or the number of shares of Common
Stock or other securities issuable upon exercise of this Warrant shall be
determined by the National Association of Securities Dealers, Inc. (the "NASD")
to violate either or both of Section 44(c)(6)(B)(vi)(7) or Section
44(c)(6)(B)(vi)(8) of Article III of the Rules of Fair Practice of the NASD, and
such determination shall not be subject to further appeal or review, the
violative provisions or provisions shall be deemed to be amended to the minimum
extent necessary to cause each such provision to comply with the applicable
violated paragraph of Section 44 of the NASD Rules of Fair Practice.
6. (a) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
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Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or, if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of sale, lease, or conveyance or other transfer of all or
substantially all of the assets of the Company as part of a plan for liquidation
of the Company, all rights to exercise this Warrant shall terminate 30 days
after the Company gives written notice to the Holder and each registered holder
of a Warrant that such sale or conveyance or other transfer has been
consummated.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from a specified par value to no par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of Warrant Shares for which
this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
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(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered or certified mail, postage prepaid, to the Holder
at the Holder's address as it shall appear in the Warrant Register, mailed at
least 15 days prior to (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.
8. The issuance of any shares or other securities upon the exercise of
this Warrant and the delivery of certificates or other instruments representing
such shares or other securities shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the five-year period commencing on
October 5, 1996, the Company shall file a registration statement (other than on
Form S-4, Form S-8 or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Registrable Securities (as hereinafter
defined) are outstanding, the Company shall give all the then holders of any
Registrable Securities (the "Eligible Holders") at least 45 days prior written
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notice of the filing of such registration statement. If requested by any
Eligible Holder in writing within 30 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering and sale of the
Registrable Securities, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his, her, or its
Registrable Securities shall delay the offering and sale of such Registrable
Securities (or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Registrable Securities if any securities of the Company are included in such
registration statement and eligible for sale during the Delay Period for the
account of any person other than the Company and any Eligible Holder unless the
securities included in such registration statement and eligible for sale during
the Delay Period for such other person shall have been reduced pro rata to the
reduction of the Registrable Securities which were requested to be included and
eligible for sale during the Delay Period in such registration. As used herein,
"Registrable Securities" shall mean the Warrants and the Warrant Shares which,
in each case, have not been previously sold pursuant to a registration statement
or Rule 144 promulgated under the Act.
(b) If, on any two occasions during the four-year period commencing on
October 5, 1996, the Company shall receive a written request from Eligible
Holders who in the aggregate own (or upon exercise of all Warrants or Warrants
then outstanding would own) a majority of the total number of shares of Common
Stock then included (or upon such exercises would be included) in the
Registrable Securities (the "Majority Holders"), to register the sale of all or
part of such Registrable Securities, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Registrable Securities
and will use its best efforts through its officers, directors, auditors, and
counsel to cause such registration statement to become effective as promptly as
practicable; provided, that the Company shall only be obligated to file one such
registration statement pursuant to this Section 9(b) for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Registrable Securities sold by the Eligible
Holders) shall be borne by the Company. Within five business days after
receiving any request contemplated by this Section 9(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Registrable Securities,
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provided that the Company receives a written request to do so from such Eligible
Holder within 30 days after receipt by him, her, or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required by reason of this Section 9(c) to register or qualify the Registrable
Securities in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which the Company is not then subject.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 9 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders are first
free to sell such Registrable Securities; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Registrable Securities included in such
registration.
(f) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, or preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus or any amendment or
supplement thereto, has been issued, nor, to the knowledge of such counsel, has
the Commission or any securities or blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with respect to such an
order, (ii) the registration statement and each prospectus forming a part
thereof (including each preliminary prospectus), and any amendment or supplement
thereto, complies as to form with the Act and the rules and regulations
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thereunder, and (iii) such counsel has no knowledge of any material misstatement
or omission in such registration statement or any prospectus, as amended or
supplemented. Such opinion shall also state the jurisdictions in which the
Registrable Securities have been registered or qualified for sale pursuant to
the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Registrable
Securities.
(h) The Company agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements, and other materials
required to be filed with the Commission to permit holders of the Registrable
Securities to sell such securities under Rule 144 under the Act.
10. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 10, without
limitation, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), as and when incurred, arising out of, based upon,
or in connection with, (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, relating to the offer and sale of any of
the Registrable Securities, or (B) any application or other document or
communication (in this Section 10, referred to collectively as an "application")
executed by, or on behalf of, the Company or based upon written information
furnished by, or on behalf of, the Company filed in any jurisdiction in order to
register or qualify any of the Registrable Securities under the securities or
"blue sky" laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company with respect to such Eligible
Holder by, or on behalf of, such person expressly for inclusion in any
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall be
in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
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If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including, without
limitation, the employment of counsel reasonably satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or the named parties to such action include both the indemnified
and the indemnifying parties and such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from, or in
addition to, those available to the Company, which, for reasons of conflict of
interest or otherwise, counsel to the Company is not in a position to assert, in
any of which events such reasonable fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
10 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. The Company shall not, without
the prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in, or otherwise seek to terminate, any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Eligible Holders of the commencement
of any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of any Registrable Securities or any
preliminary prospectus, prospectus, registration statement, or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Securities.
(b) Each Eligible Holder severally agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
who shall have signed any registration statement covering Registrable Securities
held by such Eligible Holder, each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, and its or their respective counsel, to the same extent as the
foregoing indemnity from the Company to the Eligible Holders in Section 10(a),
but only with respect to statements or omissions, if any, made in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon, and in conformity with, written
information furnished to the Company with respect to any Eligible Holder by, or
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on behalf of, such Eligible Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or any application,
and in respect of which indemnity may be sought against any Eligible Holder
pursuant to this Section 10(b), such Eligible Holder shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) hereof (subject to the limitations thereof), but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Warrant expressly provides
for indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by, or on behalf of,
any director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by, or on behalf of, an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Eligible Holders agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 10(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by all Eligible Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 10(c), each person, if any, who controls any Eligible Holder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent, and counsel of each such
Eligible Holder or control person shall have the same rights to contribution as
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such Eligible Holder or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 10(c). Anything in this
Section 10(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 10(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof,
the Warrant Shares issued on exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates representing the Warrant
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15. The Holder and the Company irrevocably consent to the jurisdiction
of the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of, or relating
to, this Warrant, any document or instrument delivered pursuant to, in
connection with, or simultaneously with, this Warrant, or a breach of this
Warrant or any such document or instrument. In any such action or proceeding,
the Holder or the Company, as applicable, waives personal service of any
summons, complaint, or other process and agrees that service thereof may be made
in accordance with Section 12 of the Underwriting Agreement. Within 30 days
after such service, or such other time as may be mutually agreed upon in writing
- 15 -
<PAGE>
by the attorneys for the parties to such action or proceeding, the Company shall
appear to answer such summons, complaint, or other process. Should the Company
so served fail to appear or answer within such 30-day period or such extended
[CONTINUED ON NEXT PAGE]
- 16 -
<PAGE>
period, as the case may be, the Company shall be deemed in default and judgment
may be entered against the Company for the amount as demanded in any summons,
complaint, or other process so served.
Dated: _______, 1998
PMCC FINANCIAL CORP.
By: _______________________________
Name:
Title:
[Seal]
- ----------------------
Secretary
- 17 -
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of PMCC Financial Corp., a Delaware
corporation (the "Company"), and does hereby irrevocably constitute and appoint
___________ attorney to transfer such Warrant on the books of the Company, with
full power of substitution.
Dated: _________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
- 18 -
<PAGE>
ELECTION TO EXERCISE
To: PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, New York 11577
The undersigned hereby exercises his, her, or its rights to purchase
shares of Common Stock, par value $.01 per share ("the Common Stock"), of PMCC
Financial Corp., a Delaware corporation (the "Company"), covered by the within
Warrant and tenders payment herewith in the amount of $____________ in
accordance with the terms thereof, and requests that certificates for the
securities constituting such shares of Common Stock be issued in the name of,
and delivered to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common Stock covered by the within Warrant shall be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: __________________ Name________________________
(Print)
Address:
------------------------
(Signature)
- 19 -
<PAGE>
EXHIBIT 10.14
FOURTH AMENDMENT
TO
WAREHOUSING CREDIT AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO WAREHOUSING CREDIT AND SECURITY AGREEMENT (the
"Amendment") is dated as of the 29th day of December, 1997 by and among PREMIER
MORTGAGE CORPORATION, d/b/a PMC MORTGAGE ("PMC"), RF PROPERTIES CORP. ("RF
Properties"), 66 PROPERTIES CORP. ("66 Properties"), JERICHO PROPERTIES CORP.
("Jericho"), JSF PROPERTIES CORP. ("JSF"), each a corporation organized and
existing under the laws of New York, each having its principal office at 66
Power House Road, Roslyn Heights, New York 11577 (RF Properties, PMC, 66
Properties, Jericho and JS are hereinafter collectively referred to as the
"Company" or the "Borrower"), LASALLE NATIONAL BANK, a national banking
association having its principal office at 135 South LaSalle Street, Chicago,
Illinois ("LaSalle") and PNC BANK, NATIONAL ASSOCIATION, successor in interest
by merger to PNC MORTGAGE BANK, NATIONAL ASSOCIATION, having an office at 500
West Jefferson Street, Louisville, Kentucky 40202 (LaSalle and PNC are
hereinafter collectively referred to as the "Bank" or the "Banks").
WHEREAS, the Banks have extended a commitment to make a certain credit
facility available to Borrower pursuant to that certain Warehousing Credit and
Security Agreement dated as of July 17, 1997, as amended by a First Amendment to
Warehousing Credit and Security Agreement and Notes dated as of August 29, 1997
as amended by a Second Amendment to Warehousing Credit and Security Agreement
and Notes dated as of September 30, 1997 and by a Third Amendment to Warehousing
Credit and Security Agreement ( as so amended, the "Agreement"); and
WHEREAS, the Borrower and Bank have agreed to amend the Agreement in
order to reset certain borrowing sublimits 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. Sections 2.1(c) through 2.1(g) of the Agreement are hereby replaced
with the following new Sections 2.1(c) through 2.1(h):
<PAGE>
"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. With respect to Nonconforming
Mortgage Loans and second-lien Mortgage Loans for which Advances have
been outstanding in excess of one hundred twenty (120) days, no Advance
may exceed eighty percent (80%) 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
provisions, with respect to Advances for the purchasing 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. With respect to
Foreclosure Loans for which Advances have been outstanding in excess of
one hundred fifty (150) days, the Foreclosure Advance Rate shall be
fifty percent (50%) of the appraised value of the real property subject
to the Mortgage. With respect to Advances for Repurchase Loans, no
Advance shall exceed seventy percent (70%) of the Mortgage Note Amount
of such Repurchase Loan.
2.1(d) The aggregate amount of Advances made by each Bank for purchasing
and carrying Foreclosure Loans shall not exceed such Bank's Pro Rata
Share of Seven Million Dollars ($7,000,000), at any time, provided,
however, that the aggregate amount of Advances for all Foreclosure Loans
which have been outstanding for in excess of one hundred fifty (150)
days shall not exceed Two Million Dollars ($2,000,000).
2.1(e) Intentionally Omitted.
2
<PAGE>
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 Fifteen
Million Dollars ($15,000,000) at any one time.
2.1(g) The aggregate amount of Advances made by each Bank for
Nonconforming Mortgage Loans and second-lien Mortgage Loans shall not
exceed such Bank's Pro Rata Share of Fifteen Million Dollars
($15,000,000), provided that the aggregate amount which for all such
Mortgage Loans which have been outstanding for in excess of one hundred
twenty (120) days shall not exceed Two Million Dollars ($2,000,000).
2.1(h) The aggregate amount of Advances made by each Bank for purchasing
Repurchase Loans shall not exceed each Bank's Pro-Rata Share of One
Million Dollars ($1,000,000)."
2. Section 2.1(i) of the Agreement is hereby deleted.
3. Section 2.2(c) of the Agreement is hereby amended by replacing the
phrase "five (5) Business Days" the first time it appears with the phrase "seven
(7) Business Days".
4. Section 2.8 of the Agreement is hereby replaced with the following
new Section 2.8.
"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 shall be required
ninety (90) calendar days from the time of the Advance;
3
<PAGE>
(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;
(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) One hundred twenty (120) days elapse from the date an Advance was
made with respect to a Nonconforming Mortgage Loan or a second-lien
Mortgage Loan, except for up to $2,000,000 in Nonconforming Mortgage Loans
and Second-Lien Mortgage Loans as set forth in Section 2.1(g), in which
case repayment shall be required one hundred fifty (150) days after the
Advance;
(7) One hundred fifty (150) days elapse from the date an Advance was
made with respect to a Foreclosure Loan, except for up to $2,000,000 in
Foreclosure Loans as set forth inSection 2.1(d), in which case repayment
shall be required one hundred eighty (180) days after the Advance;
(8) Two hundred seventy (270) days elapse from the date an Advance was
made with respect to a Repurchase Loan;
(9) There is any amount outstanding with respect to any Mortgage Loan
in excess of the advance rates set forth in Section 2.1(c) or the
sublimits set forth in Sections 2.1(d) through 2.1(h) hereof; or
(10) 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."
4
<PAGE>
III. 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 Banks shall have executed and delivered
counterparts of this Amendment.
2. Ronald Freidman and Robert Freidman shall each have delivered to the
Banks a duly executed Acknowledgment of Guarantors in the form attached hereto
as Exhibit A, and otherwise in form and substance satisfactory to the Bank.
3. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank an original resolution of each of the Board of
Directors of PMC, RF Properties, 66 Properties, Jericho and JS, authorizing the
execution, delivery and performance of this Amendment, and all other instruments
or documents to be delivered by the Company pursuant to this Amendment, all in
form and substance satisfactory to the Bank.
4. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank a Certificate of each of PMC, RF Properties, 66
Properties, Jericho and JSF's secretary or assistant secretary as to the
incumbency and authenticity of the signatures of the officers executing this
Amendment and all other documents to be delivered pursuant hereto.
5. Each of the representations and warranties set forth in Section IV
of this Amendment shall be true and correct on, and as of, the effective date of
this Amendment.
6. The Borrower shall have delivered to the Banks all other
instruments, documents or agreements reasonably necessary or desirable in
connection with this Amendment.
IV. Representations and Warranties. As an inducement to the Banks 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.
VII. Miscellaneous.
1. Governing Law. This Amendment shall be a contract made under, and
governed by, the internal laws of the State of Illinois.
5
<PAGE>
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 Banks and their respective permitted successors and assigns.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Banks have executed this
Amendment as of the date and year written above.
PNC BANK, NATIONAL ASSOCIATION
By:_______________________________
Title:____________________________
LASALLE NATIONAL BANK
By:_______________________________
Its:______________________________
PREMIER MORTGAGE CORPORATION
d/b/a PMC MORTGAGE
By: /s/
-------------------------------
Title: President
---------------------------
RF PROPERTIES CORP.
By: /s/
------------------------------
Title: Vice President
---------------------------
66 PROPERTIES CORP.
By: /s/
------------------------------
Title: Vice President
---------------------------
JERICHO PROPERTIES CORP.
By: /s/
------------------------------
Title: Vice President
---------------------------
JSF PROPERTIES CORP.
By: /s/
------------------------------
Title: Vice President
---------------------------
7
<PAGE>
EXHIBIT 10.15
FIFTH AMENDMENT
TO
WAREHOUSING CREDIT AND SECURITY AGREEMENT
This FIFTH Amendment to Warehousing Credit and Security Agreement (the
"Amendment") is dated as of the 29th day of December, 1997 by and among PREMIER
MORTGAGE CORPORATION, d/b/a PMC MORTGAGE ("PMC"), RF PROPERTIES CORP. ("RF
Properties"), 66 Properties Corp. ("66 Properties"), Jericho Properties Corp.
("Jericho"), JSF PROPERTIES CORP. ("JSF"), each a corporation organized and
existing under the laws of New York, each having its principal office at 66
Power House Road, Roslyn Heights, New York 11577 (RF Properties, PMC, 66
Properties, Jericho and JS are hereinafter collectively referred to as the
"Company" or the "Borrower"), LASALLE NATIONAL BANK, a national banking
association having its principal office at 135 South LaSalle Street, Chicago,
Illinois ("LaSalle") and PNC BANK, NATIONAL ASSOCIATION, successor in interest
by merger to PNC Mortgage Bank, National Association, having an office at 500
West Jefferson Street, Louisville, Kentucky 40202 (LaSalle and PNC are
hereinafter collectively referred to as the "Bank" or the "Banks").
WHEREAS, the Banks have extended a commitment to make a certain credit
facility available to Borrower pursuant to that certain Warehousing Credit and
Security Agreement dated as of July 17, 1997, as amended by a First Amendment to
Warehousing Credit and Security Agreement and Notes dated as of August 29, 1997
as amended by a Second Amendment to Warehousing Credit and Security Agreement
and Notes dated as of September 30, 1997 and by a Third Amendment to Warehousing
Credit and Security Agreement and by a Fourth Amendment to Warehousing Credit
and Security Agreement (as so amended, the "Agreement"); and
WHEREAS, the Borrower and Bank have agreed to amend the Agreement in
order to provide for additional credit availability on a temporary basis.
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. Until January 31, 1998, PNC has agreed, individually, to increase
the amount of the Commitment by Ten Million Dollars ($10,000,000) to Sixty
Million Dollars ($60,000,000). Said increase shall be evidenced by this
Amendment and by the Company's execution of a Joint and Several Promissory Note
in favor of PNC in the amount of Thirty-Five Million Dollars ($35,000,000). To
the extent the Company requests Advances that would cause the total amount
<PAGE>
of Advances outstanding to exceed Fifty Million Dollars ($50,000,000) such
Advances shall be funded solely by, and shall be repaid solely to, PNC, provided
such Advances comply with the Agreement in all other respects. Nothing contained
herein shall be deemed to require LaSalle to fund any Advances which would cause
the total amount of Advances funded by LaSalle to exceed Twenty-Five Million
Dollars ($25,000,000). Effective February 1, 1998, the increase to the
Commitment shall terminate and the Commitment shall return to Fifty Million
Dollars ($50,000,000). The execution of this Amendment by LaSalle is simply to
evidence LaSalle's knowledge hereof and consent hereto.
II. 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 Banks shall have executed and delivered
counterparts of this Amendment.
2. The Company shall have executed and delivered the Joint and Several
Replacement Promissory Note in the form attached hereto as Exhibit A.
3. Ronald Freidman and Robert Freidman shall each have delivered to the
Banks a duly executed Acknowledgment of Guarantors in the form attached hereto
as Exhibit B, and otherwise in form and substance satisfactory to the Bank.
4. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank an original resolution of each of the Board of
Directors of PMC, RF Properties, 66 Properties, Jericho and JS, authorizing the
execution, delivery and performance of this Amendment, and all other instruments
or documents to be delivered by the Company pursuant to this Amendment, all in
form and substance satisfactory to the Bank.
5. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank a Certificate of each of PMC, RF Properties, 66
Properties, Jericho and JSF's secretary or assistant secretary as to the
incumbency and authenticity of the signatures of the officers executing this
Amendment and all other documents to be delivered pursuant hereto.
6. Each of the representations and warranties set forth in Section IV
of this Amendment shall be true and correct on, and as of, the effective date of
this Amendment.
7. The Borrower shall have delivered to the Banks all other
instruments, documents or agreements reasonably necessary or desirable in
connection with this Amendment.
III. Representations and Warranties. As an inducement to the Banks to enter
into this Amendment, the Company hereby represents and warrants as
follows:
2
<PAGE>
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.
IV. 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 Banks and their respective permitted successors and assigns.
3
<PAGE>
IN WITNESS WHEREOF, the Company and the Banks have executed this
Amendment as of the date and year written above.
PNC BANK, NATIONAL ASSOCIATION
By:______________________________
Title:___________________________
LASALLE NATIONAL BANK
By:______________________________
Its:_____________________________
PREMIER MORTGAGE CORPORATION
d/b/a PMC MORTGAGE
By: /s/ illegible
-----------------------------
Title: President
---------------------------
RF PROPERTIES CORP.
By: /s/
-----------------------------
Title: Vice President
--------------------------
66 PROPERTIES CORP.
By: /s/
-----------------------------
Title:
--------------------------
JERICHO PROPERTIES CORP.
By: /s/
-----------------------------
Title: Vice President
--------------------------
JSF PROPERTIES CORP.
By: /s/
-----------------------------
Title: Vice President
--------------------------
4
<PAGE>
Exhibit 11.1
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Nine Months Ended 9/30/97
--------------------------
<S> <C>
Options Granted 4/1/97 .............................. 375,000
Exercise Price ....................................... 6.00
-------
Assumed Proceeds .................................... 2,250,000
=========
Assumed Proceeds .................................... 2,250,000
Fair market value (assume IPO Px) ..................... 10
---------
Shares to repurchase ................................. 225,000
Shares needed to issue .............................. 375,000
---------
Additional Shares .................................... 150,000
Days outstanding .................................... 182
Days in period ....................................... 272
Weighted average shares ............................... 100,368
Shares outstanding at September 30, 1997 ............. 2,500,000
Total share and share equivalents during period ...... 2,700,368
=========
Shares needed to give effect to S Corporation
distribution ...................................... 100,000
---------
Pro forma net income ................................. 1,601,436
Pro forma net income per share ........................ $ 0.59
==========
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Shareholders
Premier Mortgage Corp.
We consent to the use herein of our report dated March 31, 1997 relating to the
consolidated financial statements of Premier Mortgage Corp. and subsidiary as
of and for the year ended December 31, 1996, and to the references in our firm
under the headings "Experts" and "Selected Consolidated Financial Data" in
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 and
related Prospectus of PMCC Financial Corp.
KPMG Peat Marwick LLP
Jericho, New York
January 7, 1998
<PAGE>
[LETTERHEAD FOR FREEBERG & FREEBERG]
To the Board of Directors
Premier Mortgage Corp.:
Roslyn Heights, New York
We consent to the use herein of our report dated April 2, 1996 relating to the
financial statements of Premier Mortgage Corp. as of December 31, 1995 and for
the years ended December 31, 1995 and 1994 and the reference to our firm under
the heading "Selected Financial Data" in Pre Effective Amendment No. 1 to Form
S-1 Registration Statement and related prospectus of PMCC Financial Corp.
/s/ Freeberg & Freeberg
-----------------------------
Freeberg & Freeberg
Westbury, New York
January 7, 1998
<PAGE>
Exhibit 23.5
Consent of Joel L. Gold
I, Joel L. Gold, consent to being named as a director nominee and to all
references to me in the Registration Statement of PMCC Financial Corp., and the
Prospectus that is a part hereof.
/s/ Joel L. Gold
-------------------------------
Joel L. Gold
Dated: January 6, 1998
<PAGE>
Exhibit 23.6
Consent of Stanley Kreitman
I, Stanley Kreitman, consent to being named as a director nominee and to
all references to me in the Registration Statement of PMCC Financial Corp., and
the Prospectus that is a part hereof.
/s/ Stanley Kreitman
----------------------------
Stanley Kreitman
Dated: January 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001048275
<NAME> PMCC FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-30-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 366,807
<SECURITIES> 131,000
<RECEIVABLES> 52,234,315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,152,760
<PP&E> 251,510
<DEPRECIATION> 44,183
<TOTAL-ASSETS> 65,404,270
<CURRENT-LIABILITIES> 61,043,980
<BONDS> 0
0
0
<COMMON> 6,250
<OTHER-SE> 4,354,040
<TOTAL-LIABILITY-AND-EQUITY> 65,404,270
<SALES> 0
<TOTAL-REVENUES> 11,730,593
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,962,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,951,432
<INCOME-PRETAX> 2,816,436
<INCOME-TAX> 25,198
<INCOME-CONTINUING> 2,791,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,791,238
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
