<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1998
Registration No. 333-38783
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Pre-effective Amendment No. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
PMCC FINANCIAL CORP.
(Exact name of Issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6162 11-3404072
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
66 Powerhouse Road
Roslyn Heights, New York 11577
New York
(516) 625-3000
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
---------------------
Ronald Friedman
Chief Executive Officer
66 Powerhouse Road
Roslyn Heights, New York 11577
(516) 625-3000
(516) 625-0215 (fax)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
Norman M. Friedland, Esq. Robert Steven Brown, Esq.
Ruskin, Moscou, Evans John C. Doherty, Esq.
& Faltischek, P.C. Brock Fensterstock Silverstein & McAuliffe LLC
170 Old Country Road One Citicorp Center
Mineola, New York 111 56th Floor
(516) 663-6600 New York, New York 10022
(516) 663-6641 (fax) (212) 371-2000
(212) 371-5500 (fax)
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]_______
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
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>
* The filing fee has been previously paid.
(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 28, 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). The Existing Stockholders are
affiliates of the Company. 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 between $9.00 and $11.00 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) ......... $ $ $
===============================================================================
<PAGE>
(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 ISG CAPITAL MARKETS, LLC
SECURITIES INC.
_____________, 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. There can be no
assurance that the Company's historical rate of growth will continue in future
periods.
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.
3
<PAGE>
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 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. Although the Company expects to
continue providing this financing in its markets, there can be no assurance that
the Company's historical rate of growth of this financing activity will continue
in future periods.
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 which are
subject to risk factors, as set forth in "Risk Factors," beginning on page 7:
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.
Risk Factors
Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus, and, in
particular, should evaluate the factors set forth in "Risk Factors", beginning
on page 7.
The Offering
Common Stock offered by the
Company....................... 1,250,000 shares
Common Stock outstanding prior
to the Offering............... 2,500,000 shares
Common Stock to be outstanding
after the Offering............ 3,750,000 shares
Use of Proceeds................ Geographic expansion of mortgage banking
operations in the Northeast/mid-Atlantic
region and Florida; expansion of residential
rehabilitation financing activities; upgrade
of information systems; Subchapter S
corporation distributions to pay shareholder
taxes; repayment of debt; and general
corporate and working capital purposes.
Proposed AMEX Symbol............ "PFC"
5
<PAGE>
Summary Consolidated Financial Information
($ in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
Statement of Operations Data: ---------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $1,076 $1,464 $1,187 $3,400 $ 7,154
Net income ................................. 231 303 62 196 1,034
Provision for pro forma income
taxes (1) ................................ 391
Pro forma net income ....................... 517
Pro forma net income per share (2) ......... $ 0.20
Pro forma weighted average number of
common shares and share equiva-
lents outstanding ........................ 2,600,000
<CAPTION>
Nine Months
Ended September 30,
Statement of Operations Data: ------------------------
1996 1997
--------- -------------
<S> <C> <C>
Revenue .................................... $4,912 $ 11,731
Net income ................................. 770 2,791
Provision for pro forma income
taxes (1) ................................ 1,124
Pro forma net income ....................... 1,601
Pro forma net income per share (2) ......... $ 0.59
Pro forma weighted average number of
common shares and share equiva-
lents outstanding ........................ 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,
Balance Sheet Data: -----------------------------------------------
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 as
Forma Adjusted
Actual (1) (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>
<PAGE>
- -------------
(1) Prior to the Exchange, Premier was treated as an S corporation for federal
and state income tax purposes. See "Reorganization and Termination of S
Corporation Status." The pro forma presentation for statement of operations
data reflects the provision for income taxes as if Premier had always been a
C corporation at assumed effective tax rates 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; Potential Conflicts of Interest
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."
Inability 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."
Potential Losses Incurred from 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. As a result of its residential rehabilitation financing
activities, various federal, state and local environmental laws may require the
Company to investigate and clean up hazardous or toxic substances or chemical
releases at such properties and may impose liability on the Company to a
government entity or to a third party for property damage, personal injury and
investigation and clean up costs. See "Risk Factors -- Possible Environmental
Liabilities."
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.
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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. 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. Since January 15, 1998, the Company has been
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 -- Adverse Effects of Economic Slowdown or Recession
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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Increased Delinquencies, Foreclosures or Losses on Mortgage Loans to
Sub-Prime Borrowers May Adversely Affect Results of Operations
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."
Failure to Successfully Manage Interest Rate Volatility May Adversely Affect
Results of Operations
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 May Limit Payment of Dividends
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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Absence of 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."
16
<PAGE>
REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
From January 1992 through the date of this Prospectus, Premier was treated
for federal income tax purposes as an S corporation, and was treated as an S
corporation for certain state corporate income tax purposes under certain
comparable state laws. As a result, Premier's historical earnings since January
1, 1992 have been taxed directly to Premier's stockholders at their individual
federal and state income tax rates, rather than to Premier. On the date of the
Exchange, pursuant to the terms of a contribution agreement (the "Contribution
Agreement"), the existing Premier stockholders, Ronald Friedman and Robert
Friedman (the "Existing Stockholders"), will contribute all of the 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>
Year Ended December 31,
Statement of Operations Data: ---------------------------------------------------------
($ in thousands, except share data)
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Revenue ..................................... $1,076 $1,464 $1,187 $3,400 $ 7,154
Net income .................................. 231 303 62 196 1,034
Provision for pro forma income taxes (1) 391
Pro forma net income ........................ 517
Pro forma net income per share (2) .......... $ 0.20
Pro forma weighted average number of
common shares and share equivalents
outstanding ................................ 2,600,000
<CAPTION>
Nine Months Ended
September 30,
Statement of Operations Data: ------------------------
1996 1997
--------- -------------
<S> <C> <C>
Revenue ..................................... $4,912 $ 11,731
Net income .................................. 770 2,791
Provision for pro forma income taxes (1) 1,124
Pro forma net income ........................ 1,601
Pro forma net income per share (2) .......... $ 0.59
Pro forma weighted average number of
common shares and share equivalents
outstanding ................................ 2,700,368
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September
Year Ended December 31, 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 expects mortgage originations to increase,
and therefore believes that its loan origination fees, interest income and
gains on sales of mortgage loans will increase.
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. Although there can be no assurance
thereof, the Company expects that its financing of residential rehabilitation
properties will increase, and therefore believes that fees earned on
residential rehabilitation properties will increase its results of operations.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
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
========== ==========
</TABLE>
23
<PAGE>
Although there can be no assurance thereof, the Company believes that the
expected increase in mortgage origination volume will result in increases in
expenses.
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.
Messenger service expense increased by $22,000, or 39%, to $79,000 for the
nine months ended September 30, 1997 from $57,000 for the nine months ended
September 30, 1996. This increase was primarily attributable to the increase in
mortgage originations.
Office supplies and expense increased by $8,000, or 7%, to $126,000 for the
nine months ended September 30, 1997 from $118,000 for the nine months ended
September 30, 1996. This increase was primarily attributable to the increase in
mortgage originations.
Telephone expense increased by $51,000, or 58%, to $138,000 for the nine
months ended September 30, 1997 from $87,000 for the nine months ended September
30, 1996. This increase was primarily attributable to the increase in the number
of employees resulting from the increase in mortgage originations.
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>
24
<PAGE>
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. Although
there can be no assurance thereof, the Company expects mortgage originations to
increase, and therefore believes that its loan origination fees, interest
income and gains on sales of mortgage loans will increase.
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.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
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
========== ==========
</TABLE>
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.
Broker fees paid and other loan costs increased $152,000, or 177%, to
$237,000 for the year ended December 31, 1996 from $86,000 for the year ended
December 31, 1995. This increase was primarily attributable to the increase in
mortgage loans originated.
Occupancy and equipment expenses increased by $51,000, or 32%, to $209,000
for the year ended December 31, 1996 from $158,000 for the year ended December
31, 1995. This increase was primarily attributable to increases in various
equipment leases.
Messenger service expenses increased by $31,000, or 61%, to $81,000 for the
year ended December 31, 1996 from $51,000 for the year ended December 31, 1995.
This increase was primarily attributable to the increase in mortgage
originations.
Office supplies and expense increased by $73,000, or 88%, to $156,000 for
the year ended December 31, 1996 from $83,000 for the year ended December 31,
1995. This increase was primarily attributable to the increase in mortgage loan
originations.
25
<PAGE>
Telephone expense increased $14,000, or 13%, to $120,000 for the year ended
December 31, 1996 from $107,000 for the year ended December 31, 1995. This
increase was primarily attributable to the increase in the number of employees
resulting from the increase in mortgage orginations.
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).
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."
26
<PAGE>
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.
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
27
<PAGE>
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 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.
29
<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.
30
<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.
31
<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
33
<PAGE>
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
34
<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
35
<PAGE>
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. Since January 15, 1998, the Company has been
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."
36
<PAGE>
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
37
<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.
38
<PAGE>
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.
39
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the Company's
directors and persons nominated to become directors and executive officers and
the positions they hold with the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ronald Friedman (1) ........... 33 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.
40
<PAGE>
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.
41
<PAGE>
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 ...................... 1997 $223,855 -- --
Chief Executive Officer, 1996 $208,000 $46,538 --
President, Director 1995 $126,800 -- --
Robert Friedman ...................... 1997 $165,475 -- --
Chairman of the Board, Chief Operating 1996 $107,093 -- --
Officer, Secretary, Treasurer 1995 -- -- --
Keith Haffner ........................ 1997 $126,811 51,000 --
Executive Vice President 1996 -- -- --
1995 -- --
</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:
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 31,250 $ 6.00 3/30/07 $117,918 $298,827
</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)(5) ................. 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)(6) .................... -- -- -- --
Stanley Kreitman (6) ................... -- -- -- --
--------- -- --------- -----
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;
and 287,500 shares held in the named of The Robert Friedman 1998 Grantor
Retained Annuity Trust, of which Robert Freidman is the Trustee.
(5) Includes 600,000 shares held in the name of The Ronald Freidman 1997 Grantor
Retained Annuity Trust, of which Ronald Freidman is the Trustee.
(6) 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 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.
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.
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. The Company's Board of Directors approved
this change in auditors. 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 minority
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
============== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1996 1995 1994
--------------- --------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................ 1,033,532 195,529 62,012
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization .................................... 47,431 35,875 20,601
(Increase) decrease in accrued interest receivable ............... (43,047) (10,114) 670
(Decrease) increase in minority interest in net income of 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 accounted for as
financings and are carried at cost (amount being financed) adjusted for deferred
fees, if any, and allowances for losses, where necessary (as determined by
independent appraisals of the properties). 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 recorded as income
over the estimated financing period and 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>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities:
Money market mutual fund ......... $ 350,920 6,294 2,719 354,495
========= ===== ===== =======
</TABLE>
In 1996, the Company purchased a 12% convertible note from an investment
company. The convertible note matures the earlier of December 31, 1999, or the
initial public offering of the investment company. The investment company became
a public company in March 1997, upon which the note was converted to shares of
common stock. Because the common stock is restricted and cannot currently be
sold in the open market, the Company estimated fair value at a significant
discount from the common stock's quoted price.
The Company realized a gross gain of approximately $30,000 and $2,000 for
the years ended December 31, 1996 and 1994, respectively, on the sale of its
equity securities available-for-sale. 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>
===============================================================================
[GRAPHIC OMITTED]
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 ........................... 35,000
Miscellaneous .............................................. 96,547
--------
Total ................................................... $550,000
========
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 Indemnification Agreement
**10.8 Warehousing Credit and Security Agreement and Notes, dated June 17, 1997, by and among Pre-
mier 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 Secu- rities
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
16.1 Letter re: Change in Certifying Accountants
**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. 2 to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in Roslyn Heights, New York, on
January 28, 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 28, 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 28, 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 Indemnification Agreement
**10.8 Warehousing Credit and Security Agreement and Notes, dated June 17, 1997, by and among Pre-
mier 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 Secu- rities
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
16.1 Letter re: Change in Certifying Accountants
**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>
CERTIFICATE OF INCORPORATION
OF
PMCC FINANCIAL CORP.
The undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the Corporation is PMCC Financial Corp.
SECOND: The address of its registered office in the State of
Delaware is No. 1209 Orange Street, Corporation Trust Center, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall
have authority to issue is Forty-One Million (41,000,000), consisting of Forty
Million (40,000,000) shares of common stock, all of par value of one cent ($.01)
each, and One Million (1,000,000) shares of preferred stock, all of par value of
one cent ($.01) each.
A. Preferred Stock
1. The preferred stock of the Corporation may be issued
from time to time in one or more series of any number of shares, provided that
the aggregate number of shares issued and not cancelled in any and all such
series shall not exceed the total number of shares of preferred stock
hereinabove authorized.
2. Authority is hereby vested in the Board of Directors
from time to time to authorize the issuance of one or more series of preferred
stock and, in connection with the creation of such series, to fix by resolution
or resolutions providing for the issuance of shares thereof the characteristics
of each such series including, without limitation, the following:
(a) the maximum number of shares to constitute such series,
which may subsequently be increased or decreased (but not
below the number of shares of that series then outstanding) by
resolution of the Board of Directors, the distinctive
designation thereof and the stated value thereof if different
than the par value thereof;
1
<PAGE>
(b) whether the shares of such series shall have voting
powers, full or limited, together with any other series of
preferred stock or common stock, or as a separate class, or no
voting powers, and if any, the terms of such voting powers;
(c) the dividend rate, if any, on the shares of such
series, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other
class or classes or on any other series of capital stock and
whether such dividend shall be cumulative or noncumulative;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to
redemption, the times, prices and other terms, limitations,
restrictions or conditions of such redemption;
(e) the relative amounts, and the relative rights or
preference, if any, of payment in respect of shares of such
series, which the holders of shares of such series shall be
entitled to receive upon the liquidation, dissolution or
winding-up of the Corporation;
(f) whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund and,
if so, the extent to and manner in which any such retirement
or sinking fund shall be applied to the purchase or redemption
of the shares of such series for retirement or to other
corporate purposes and the terms and provisions relative to
the operation thereof;
(g) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any other
class, classes or series, or other securities, whether or not
issued by the Corporation, and if so convertible or
exchangeable, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting
same;
(h) the limitations and restrictions, if any, to be
effective while any shares of such series are outstanding upon
the payment of dividends or the making of other distributions
on, and upon the purchase, redemption or other acquisition by
the Corporation of, the Common Stock (as defined below) or any
other class or classes of stock of the Corporation ranking
junior to the shares of such series either as to dividends or
upon liquidation, dissolution or winding-up;
(i) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the
issuance of any additional stock (including additional shares
of such series or of any other series or of any other class)
ranking on a parity with or prior to the shares of such series
as to dividends or distributions of assets upon liquidation,
dissolution or winding-up; and
2
<PAGE>
(j) any other preference and relative, participating,
optional or other special rights, and the qualifications,
limitations or restrictions thereof, as shall not be
inconsistent with law, this Article Fourth or any resolution
of the Board of Directors pursuant hereto.
B. Common Stock
1. The common stock of the Corporation may be issued from
time to time in any number of shares, provided that the aggregate number of
shares issued and not cancelled shall not exceed the total number of shares of
common stock hereinabove authorized ("Common Stock").
2. Unless expressly provided by the Board of Directors of
the Corporation in fixing the voting rights of any series of Preferred Stock,
the holders of the outstanding shares of Common Stock shall exclusively possess
all voting power for the election of directors and for all other purposes, each
holder of record of shares of Common Stock being entitled to one vote for each
share of such stock standing in his name on the books of the Corporation.
3. Subject to the prior rights of the holders of Preferred
Stock now or hereafter granted pursuant to Article Fourth, the holders of Common
Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for that purpose, dividends payable
either in cash, stock or otherwise.
4. In the event of any liquidation, dissolution or
winding-up of the Corporation, either voluntary or involuntary, after payment
shall be made in full to the holders of Preferred Stock of any amounts to which
they may be entitled, the holders of Common Stock shall be entitled to the
exclusion of the holders of Preferred Stock of any and all series to share,
ratably according to the number of shares of Common Stock held by them, in all
remaining assets of the Corporation available for distribution to its
stockholders.
FIFTH: The name and mailing address of the sole incorporator
is as follows:
Name Mailing Address
---- ---------------
Michelle Waltz Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
SIXTH: The Corporation is to have perpetual existence.
3
<PAGE>
SEVENTH: The private property of the stockholders shall not be
subject to the payment of the Corporation's debts to any extent whatever.
EIGHTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the Corporation
and for defining and regulating the powers of the Corporation and its directors
and stockholders and are in furtherance and not in limitation of the powers
conferred upon the Corporation by statute:
A. 1. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors consisting of such
number of directors as is determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors; provided,
however, that in no event shall the number of directors be less than three. The
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
(1/3) of the total number of directors constituting the entire Board of
Directors. By unanimous written consent of the Board of Directors, the initial
classes shall be elected as follows: Class I directors shall be elected for a
one-year term, Class II directors for a two-year term and Class III directors
for a three-year term. At each succeeding annual meeting of stockholders,
successors to the class of directors whose terms expires at that annual meeting
shall be elected for three-year terms. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Except as otherwise required by law, any vacancy on the Board of
Directors that results from an increase in the number of directors and any other
vacancy occurring in the Board of Directors shall be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his or
her predecessor.
2. Any director, or the entire Board of Directors, may be
removed from office only for cause and only by the affirmative vote of not less
than two-thirds (2/3) of the votes entitled to be cast by the holders of all of
the then outstanding shares of Voting Stock (as defined in Article Tenth,
Section C), voting together as one class; provided, however, that if a proposal
to remove a director is made by or on behalf of an Interested Person (as defined
in Article Tenth, Section C) or a director who is not an Independent Director
(as defined in Article Tenth, Section C), then such removal shall also require
the affirmative vote of not less than a majority of the votes entitled to be
cast by the holders of all of the then outstanding shares of Voting Stock,
voting together as one class, excluding Voting Stock beneficially owned by such
Interested Person.
4
<PAGE>
3. Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation applicable
thereto, as amended, and such directors so elected shall not be divided into
classes pursuant to Article Ninth, Section A unless expressly provided by such
terms.
B. In furtherance and not limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
1. To make, alter, amend or repeal the By-Laws of the
Corporation. The holders of shares of Voting Stock shall, to the extent such
power is at the time conferred on them by applicable law, also have the power to
make, alter, amend or repeal the By-Laws of the Corporation, provided that any
proposal by or on behalf of an Interested Person or a director who is not an
Independent Director to make, alter, amend or repeal the By-Laws shall require
approval by the affirmative vote described in Article Tenth, Section A, unless
either (a) such action has been approved by a majority of the Board of Directors
prior to such Interested Person first becoming an Interested Person; or (b)
prior to such Interested Person first becoming an Interested Person, a majority
of the Board of Directors has approved such Interested Person becoming an
Interested Person and, subsequently, a majority of the Independent Directors has
approved such action.
2. To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
3. By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. The By-Laws may provide
that in the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the By-Laws of the Corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Article Fourth hereof, fix the designations and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or
By-Laws expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware.
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4. When and as authorized by the stockholders in accordance
with statute, to sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such consideration, which may
consist in whole or in part of money or property including shares of stock in,
and/or other securities of, any other corporation or corporations, as the Board
of Directors shall deem expedient and for the best interests of the Corporation.
5. To the full extent permitted or not prohibited by law,
and without the consent of or other action by the stockholders, to authorize or
create mortgages, pledges or other liens or encumbrances upon any or all of the
assets, real, personal or mixed, and franchises of the Corporation, including
after-acquired property, and to exercise all of the powers of the Corporation in
connection therewith.
C. In addition to any other considerations which the Board of
Directors may lawfully take into account, in determining whether to take or to
refrain from taking corporate action on any matter, including proposing any
matter to the stockholders of the Corporation, the Board of Directors may take
into account the long-term as well as the short-term interests of the
Corporation and its stockholders (including the possibility that these interests
may be best served by the continued independence of the Corporation), customers,
employees and other constituencies of the Corporation and its subsidiaries,
including the effect upon communities in which the Corporation and its
subsidiaries do business. In so evaluating any such determination, the Board of
Directors shall be deemed to be performing their duties and acting in good faith
and in the best interests of the Corporation within the meaning of Section 145
of the General Corporation Law of the State of Delaware, or any successor
provision.
D. Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, dissolution or winding-up, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote in the election of directors generally. However, any stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at an annual meeting only pursuant to the
Corporation's notice of such meeting or if written notice of such stockholder's
intent to make such nomination or nominations has been received by the Secretary
of the Corporation not less than sixty nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
thirty (30) days or delayed by more than sixty (60) days from such anniversary,
notice by the stockholder to be timely must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (1) the sixtieth day prior to
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such annual meeting; or (2) the tenth day following the day on which notice of
the day of the annual meeting was mailed or public disclosure thereof was made
by the Corporation, whichever first occurs. For purposes of calculating the
first such notice period following adoption of this Certificate of
Incorporation, the first anniversary of the 1997 annual meeting shall be deemed
to be the last day of the twelfth month following the consummation of the
initial public offering of the Corporation's Common Stock. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or person to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
relating to the nomination or nominations; (d) the class and number of shares of
the Corporation which are beneficially owned by such stockholder and the person
to be nominated as of the date of such stockholder's notice and by any other
stockholders known by such stockholder to be supporting such nominees as of the
date of such stockholder's notice; (e) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (f) the consent of each nominee to serve as a director of the
Corporation if so elected.
In addition, in the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors, any stockholder entitled to vote in the election of directors
generally may nominate one or more persons for election as directors at a
special meeting only pursuant to the Corporation's notice of meeting or if
written notice of such stockholder's intent to make such nomination or
nominations, setting forth the information and complying with the
form described in the immediately preceding paragraph, has been received by the
Secretary of the Corporation not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the later of (i) the
sixtieth day prior to such meeting; or (ii) the tenth day following the day on
which notice of the date of the special meeting was mailed or public disclosure
thereof was made by the Corporation, whichever comes first.
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No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in Article Eighth, Section D. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that
nomination was not made in accordance with the procedures prescribed by Article
Eighth, Section D, and if he or she should so determine, the defective
nomination shall be disregarded.
Elections of directors need not be by written ballot
unless the By-Laws of the Corporation shall so provide.
NINTH:
A. Meetings of the stockholders may be held within or without
the State of Delaware, as the By-Laws may provide. Commencing with the date of
the consummation of the initial public offering of the Corporation's Common
Stock, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
stockholders and may not be effected by a consent in writing by any such
holders. Subject to the rights of holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation,
dissolution or winding-up, special meetings of the stockholders of the
Corporation may be called only by the holders of a majority of the outstanding
shares of Common Stock or by a majority of the Board of Directors.
Except as otherwise required by law or by this Certificate
of Incorporation, the holders of not less than one-third (1/3) in voting power
of the shares entitled to vote at any meeting of stockholders, present in person
or by proxy, shall constitute a quorum, and the act of the holders of a majority
in voting power of the shares present in person or by proxy and entitled to vote
on the subject matter shall be deemed the act of the stockholders. If a quorum
shall fail to attend any meeting, the presiding officer may adjourn the meeting
to another place, date or time. If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote thereat, stating that
it will be held with one-quarter (1/4) in voting power of the shares entitled to
vote thereat constituting a quorum, then except as otherwise required by law,
one-quarter (1/4) in voting power of the shares entitled to vote at such
adjourned meeting, present in person or by proxy, shall constitute a quorum,
and, except as otherwise required by law or this Certificate of Incorporation,
all matters shall be determined by the holders of a majority in voting power of
the shares present in person or by proxy and entitled to vote on the subject
matter.
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B. At any meeting of the stockholders, only such business
shall be conducted as shall have been properly bought before such meeting. To be
properly bought before an annual meeting, business must be (1) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors; (2) otherwise properly brought before the meeting by or
at the direction of the Board of Directors; or (3) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholders must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be received not less than sixty (60) days nor more
than ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than thirty (30) days or delayed by more than sixty
(60) days from such anniversary, notice by the stockholder to be timely must be
so received not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of (1) the sixtieth day prior
to such annual meeting; or (2) the tenth day following the date on which notice
of the date of the annual meeting was mailed or public disclosure thereof was
made, whichever first occurs. For purposes of calculating the first such notice
period following adoption of this Certificate of Incorporation, the first
anniversary of the 1997 annual meeting shall be deemed to be the last day of the
twelfth month following the consummation of the initial public offering of the
Corporation's Common Stock. Each such notice shall set forth as to each matter
the stockholder proposes to bring before the annual meeting: (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the meeting; (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business; (c) the class, series and number of shares of the Corporation
which are beneficially owned by the stockholder; and (d) and material interest
of the stockholder in such business.
No business shall be conducted at any meeting of the
stockholders except in accordance with the procedures set forth in Article
Ninth, Section B. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
bought before the meeting and in accordance with the provisions of Article
Ninth, Section B, and if he or she should so determine, any such business not
properly brought before the meeting shall not be transacted. Nothing herein
shall be deemed to affect the Corporation's proxy statement pursuant to Section
14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-8
thereunder.
The books of the Corporation may be kept outside of
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
TENTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation or the By-Laws of the Corporation, and except as
otherwise expressly provided in Section B of Article Tenth, a Business
Transaction (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Person (as hereinafter defined) or any Affiliate (as hereinafter
defined) of any Interested Person or any person who thereafter would be an
Affiliate of such Interested Person shall require approval by the affirmative
vote of not less than two-thirds (2/3) of the votes entitled to be cast by
holders of all the then outstanding Voting Stock, voting together as one class,
excluding Voting Stock beneficially owned by such Interested Person in
accordance with Section 203 of the General Corporation Law of the State of
Delaware. Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be specified, by law or
in any agreement with any national securities exchange or otherwise.
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B. The provisions of Article Tenth, Section A, shall not be
applicable to any particular Business Transaction, and such Business Transaction
shall require only such affirmative vote, if any, as is required by law or by
any other provision of this Certificate of Incorporation or the By-Laws of the
Corporation, or any agreement with any national securities exchange, if either
(1) the Business Transaction shall have been approved by a majority of the Board
of Directors prior to such Interested Person first becoming an Interested Person
or (2) prior to such Interested Person first becoming an Interested Person, a
majority of the Board of Directors shall have approved such Interested Person
becoming an Interested Person and, subsequently, a majority of the Independent
Directors (as hereinafter defined) shall have approved the Business Transaction.
C. The following definitions shall apply with respect to
Article Tenth.
1. The term "Affiliate" shall mean a person that directly,
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, a specified person.
2. A person shall be a "beneficial owner" of any Capital
Stock (a) which such person or any of its Affiliates beneficially owns, directly
or indirectly; (b) which such person or any of its Affiliates has, directly or
indirectly, (i) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time or the occurrence of one or
more events), pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a person shall not be deemed the
beneficial owner of any security if the agreement, arrangement or understanding
to vote such security arises solely from a revocable proxy or consent
solicitation made pursuant to and in accordance with the Exchange Act, and is
not also then reportable on Schedule 13D under the Exchange Act (or a comparable
or successor report); or (c) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its Affiliates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Capital Stock (except to the
extent permitted by the proviso of clause (b)(ii) above). For the purposes of
determining whether a person is an Interested Person pursuant to paragraph (7)
of this Section C, the number of shares of Capital Stock deemed to be
outstanding shall include shares deemed beneficially owned by such person
through application of this paragraph (2) of Section C, but shall not include
any other shares of Capital Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
3. The term "Business Transaction" shall mean any of the
following transactions when entered into by the Corporation or a subsidiary of
the Corporation with, or upon a proposal by or on behalf of, any Interested
Person or any Affiliate of any Interested Person:
(a) any merger or consolidation of the Corporation or
any subsidiary with (i) any Interested Person or (ii) any
other corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested
Person;
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions), except proportionately as a
stockholder of the Corporation, to or with the Interested
Person of assets of the Corporation (other than Capital
Stock (as hereinafter defined)) or of any subsidiary of the
Corporation which assets have an aggregate market value
equal to ten percent (10%) or more of the aggregate market
value of all the outstanding stock of the Corporation;
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(c) any transaction that results in the issuance of
shares or the transfer of treasury shares by the
Corporation or by any subsidiary of the Corporation of any
Capital Stock or any capital stock of such subsidiary to
the Interested Person, except (i) pursuant to the exercise,
exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of the
Corporation or any such subsidiary which securities were
outstanding prior to the time that the Interested Person
became such, (ii) pursuant to a dividend or distribution
paid or made, or the exercise, exchange or conversion of
securities exercisable for, exchangeable for or convertible
into stock of the Corporation or any such subsidiary which
security is distributed, pro rata to all holders of a class
or series of stock of the Corporation subsequent to the
time the Interested Person became such, (iii) pursuant to
an exchange offer by the Corporation to purchase stock made
on the same terms to all holders of said stock, (iv) any
issuance of shares or transfer of treasury shares of
Capital Stock by the Corporation, provided, however, that
in the case of each of clauses (ii) through (iv) above
there shall be no increase of more than one percent (1%) in
the Interested Person's proportionate share of the Capital
Stock of any class or series or of the Voting Stock or (v)
pursuant to a public offering or private placement by the
Corporation to an Institutional Investor
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(d) any reclassification of securities, recapitalization
or other transaction involving the Corporation or any
subsidiary of the Corporation which has the effect,
directly or indirectly, of (i) increasing the proportionate
share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the
Corporation or of any such subsidiary which is owned by the
Interested Person, except as a result of immaterial changes
due to fractional share adjustments or as a result of any
purchase or redemption of any shares of stock not caused,
directly or indirectly, by the Interested Person or (ii)
increasing the voting power, whether or not then
exercisable, of an Interested Person in any class or series
of stock of the Corporation or any subsidiary of the
Corporation;
(e) the adoption of any plan or proposal by or on behalf
of an Interested Person for the liquidation or dissolution
of the Corporation; or
(f) any receipt by the Interested Person of the benefit,
directly or indirectly (except proportionately as a
stockholder of the Corporation), of any loans, advances,
guarantees, pledges, tax benefits or other financial
benefits (other than those expressly permitted in
subparagraphs (a) through (e) above) provided by or through
the Corporation or any subsidiary.
4. The term "Capital Stock" shall mean all capital stock of
the Corporation authorized to be issued from time to time under Article Fourth
of this Certificate of Incorporation.
5. The term "Independent Directors" shall mean the members
of the Board of Directors who are not Affiliates or representatives of, or
associated with, an Interested Person and who were either directors of the
Corporation prior to any person becoming an Interested Person or were
recommended for election or elected to succeed such directors by a vote which
includes the affirmative vote of a majority of the Independent Directors.
6. The term "Institutional Investor" shall mean a person
that (a) has acquired, or will acquire, all of its securities of the Corporation
in the ordinary course of its business and not with the purpose nor with the
effect of changing or influencing the control of the Corporation, nor in
connection with or as a participant in any transaction having such purpose or
effect, including any transaction subject to Section 13 of the Exchange Act and
Rule 13d-3(b) thereunder, and (b) is a registered broker dealer; a bank as
defined in '3(a)(6) of the Exchange Act; an insurance company as defined in, or
an investment company registered under, the Investment Company Act of 1940; an
investment advisor registered under the Investment Advisors Act of 1940; an
employee benefit plan or pension fund subject to the Employee Retirement Income
Security Act of 1974 or an endowment fund; a parent holding company, provided
that the aggregate amount held directly by the parent and directly and
indirectly by its subsidiaries which are not persons specified in the foregoing
subclauses of this clause (b) does not exceed one percent (1%) of the securities
of the subject class; or a group, provided that all the members are persons
specified in the foregoing subclauses of this clause (b).
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7. The term "Interested Person" shall mean any person
(other than the Corporation, any subsidiary, any Permitted Holder, any
profit-sharing, employee stock ownership or other employee benefit plan of the
Corporation or any subsidiary or any trustee of or fiduciary with respect to any
such plan when acting in such capacity) who (a) is the beneficial owner of
Voting Stock representing ten percent (10%) or more of the votes entitled to be
cast by the holders of all of the then outstanding shares of Voting Stock; (b)
has stated in a filing with any governmental agency or press release or
otherwise publicly disclosed a plan or intention to become or consider becoming
the beneficial owner of Voting Stock representing ten percent (10%) or more of
the votes entitled to be cast by the holders of all then outstanding shares of
Voting Stock and has not expressly abandoned such plan, intention or
consideration more than two years prior to the date in question; or (c) is an
Affiliate of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of Voting
Stock representing ten percent (10%) or more of the votes entitled to be cast by
holders of all then outstanding shares of Voting Stock.
8. The term "Permitted Holder" shall mean Ronald Friedman,
Robert Friedman, or any trust, estate or nominee account in which he has
effective control or beneficial interest. The term "person" shall mean
individual, corporation, partnership, unincorporated association, trust or other
entity.
9. The term "person" shall mean individual, corporation,
partnership, unincorporated association, trust or other entity.
10. The term "subsidiary" means any company of which a
majority of the voting securities are owned, directly or indirectly, by the
Corporation.
11. The term "Voting Stock" shall mean Capital Stock of any
class or series entitled to vote in the election of directors generally.
D. A majority of the Independent Directors shall have the
power and duty to determine, on the basis of information known to them after
reasonable inquiry, for the purposes of (1) Article Tenth, all questions arising
under Article Tenth including, without limitation (a) whether a person is an
Interested Person, (b) the number of shares of Capital Stock or other securities
beneficially owned by any person; and (c) whether a person is an Affiliate of
another; and (2) this Certificate of Incorporation, the question of whether a
person is an Interested Person. Any such determination made in good faith shall
be binding and conclusive on all parties.
E. Nothing contained in Article Tenth shall be construed to
relieve any Interested Person from any fiduciary obligation imposed by law.
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ELEVENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
TWELFTH: The Corporation shall, to the fullest extent
permitted by the provisions of Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Board of Directors of the Corporation may, in its
discretion, authorize the Corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liabilities asserted against him
or incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnity him against
such liability under the foregoing paragraph of this Article Eleventh.
THIRTEENTH: No director of the Corporation shall be personally
liable to the Corporation or any stockholder of the Corporation for monetary
damages for breach of fiduciary duty as a director, provided that this Article
Thirteenth shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of
the Delaware Code, or (iv) for any transaction from which the director derived
an improper personal benefit. No amendment to or repeal of this Article
Thirteenth shall apply to or have an effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the effective date of such
amendment or repeal.
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FOURTEENTH: The Corporation reserves the right to amend,
alter, change or repeal any provisions contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, PMCC Financial Corp. has caused this Certificate to
be signed by Michelle Waltz, this ____ day of October, 1997.
____________________________
Incorporator
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BY-LAWS
PMCC FINANCIAL CORP.
ARTICLE I
Offices
SECTION 1. Registered Office and Agent. The registered office and the
registered agent of the Corporation shall be located at such place as the Board
of Directors may from time to time designate.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly bought before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or the
Certificate of Incorporation, may be called by the President or the Board of
Directors. Any special meeting of the stockholders shall be held on such date,
at such time and at such place within or without the State of Delaware as the
President or Board of Directors may designate.
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SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given, either personally or by mail, not less than ten (10) nor more than sixty
(60) calendar days before the date of the meeting, to each stockholder of the
Corporation entitled to vote at such meeting at such stockholder's address as it
appears on the books and records of the Corporation. The notice shall state the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose for which the meeting is called.
SECTION 4. Adjourned Meetings. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the stockholders, or the holder of any class of stock
entitled to vote separately as a class, as the case may be, may transact any
business which might have been transacted by them at the original meeting. If
the adjournment is for more than thirty (30) calendar days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 5. Organization. The President shall act as chairman of all
meetings of the stockholders. In the absence of the President, any Vice
President designated by the Board or, in the absence of any such officer, any
person designated by the holders of a majority in number of the shares of stock
of the Corporation present in person or represented by proxy and entitled to
vote at such meeting shall act as chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all meetings
of the stockholders, but, in the absence of the Secretary, the chairman of the
meeting may appoint any
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person to act as secretary of the meeting. It shall be the duty of the Secretary
to prepare and make, at least ten (10) calendar days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at the offices of the Corporation or at the place where the
meeting is to be held, for the ten (10) calendar days next preceding the
meeting, to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, and shall be produced and kept at the
time and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present.
SECTION 6. Quorum. The holders of a majority of the shares of stock
issued and outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders present in
person or represented by proxy shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders may authorize
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another person or persons to act for such stockholder by proxy, but such proxy
shall not be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. When directed by the presiding officer or
upon the demand of any stockholder, the vote upon any matter before a meeting of
stockholders shall be by ballot. Except as otherwise provided by law or by the
Certificate of Incorporation, (a) each Director shall be elected by a plurality
of the votes cast at a meeting of stockholders by the stockholders entitled to
vote in the election; and (b) whenever any corporate action other than the
election of Directors is to be taken, it shall be authorized by a majority of
the votes cast at a meeting of stockholders by the stockholders entitled to vote
thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Procedure. At each meeting of stockholders, the chairman of
the meeting shall fix and announce the date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at
the meeting and shall determine the order of business and other matters of
procedure. Except to the extent inconsistent with any such rules and regulations
as adopted by the Board of Directors, the chairman of the meeting may establish
rules, which need not be in writing, to maintain order and safety and for the
conduct of the meeting. Without limiting the foregoing, he or she may:
(a) restrict attendance at any time to bona fide stockholders of
record and their proxies and other persons in attendance at the invitation of
the chairman;
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(b) restrict dissemination of solicitation materials and use of audio
or visual recording devices at the meeting;
(c) establish seating arrangements;
(d) adjourn the meeting without a vote of the stockholders, whether
or not there is a quorum present; and
(e) make rules governing speeches and debate including time limits
and access to microphones.
The chairman of the meeting acts in his or her absolute discretion and
his or her rulings are not subject to appeal.
SECTION 9. Inspectors. The Board of Directors by resolution shall, in
advance of any meeting of stockholders, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated by the Board of Directors
as alternate inspectors to replace any inspector who fails to act. If an
inspector or alternate is not able to act at a meeting of stockholders, the
chairman of the meeting shall, appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
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ARTICLE III
Directors
SECTION 1. Number. The Board of Directors shall consist of such number
of directors, not less than three nor more than ten, as shall be fixed by the
Board of Directors in accordance with Article Eighth of the Certificate of
Incorporation. A director need not be a stockholder.
SECTION 2. Vacancies. Any vacancy occurring in the Board of Directors
shall be filled by the Board of Directors in accordance with the provisions of
Article Eighth of the Certificate of Incorporation.
SECTION 3. Removal. Directors may only be removed as provided for in
the Corporation's Certificate of Incorporation.
SECTION 4. Powers. The business affairs of the Corporation shall be
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-laws directed or required to be
exercised or done by the stockholders.
ARTICLE IV
Meetings of the Board of Directors
SECTION 1. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board of Directors from time to time shall determine.
SECTION 2. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board of Directors from time to
time by resolution
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shall determine. No notice shall be required for any regular meeting of the
Board of Directors, but a copy of every resolution fixing or changing the time
or place of regular meetings shall be mailed to every Director at least five (5)
calendar days before the first meeting held in pursuance thereof.
SECTION 3. Special Meetings. Special Meetings of the Board of Directors
may be called by the President on ten (10) days notice to each Director; Special
Meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two Directors. Notice need not be given to
any Director who signs a waiver of notice, whether before or after the meeting.
Notice of the day, hour and place of holding of each special meeting
shall be given (i) by mailing the same at least four (4) calendar days before
the meeting; or (ii) by causing the same to be transmitted by telecopier,
telegraph or cable (A) at least twenty-four (24) hours before the meeting; or
(B) in the case of meeting held in accordance with Section 7 of this Article IV,
at least six (6) hours before the meeting, in each case to each Director. Unless
otherwise indicated in the notice thereof, any and all business, other than an
amendment of these By-Laws, may be transacted at any special meeting, and an
amendment of these By-Laws may be acted upon if the notice of the meeting shall
have stated that the amendment of these By-Laws is one of the purposes of the
meeting. At any meeting at which every Director shall be present, even though
without any notice, any business may be transacted, including the amendment of
these By-Laws.
SECTION 4. Quorum. A majority of the members of the Board of Directors
in office (but in no case less than two (2) Directors) shall constitute a quorum
for the transaction of
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business, and, except as otherwise provided in the Certificate of Incorporation,
the vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board of Directors there is less than a
quorum present, a majority of those present may adjourn the meeting from time to
time.
SECTION 5. Organization. The President shall act as chairman and
preside at all meetings of the Board of Directors. In the absence of the
President, any Vice Chairman or Vice President shall act as chairman of the
meeting. The Secretary of the Corporation shall act as secretary of all meetings
of the Board of Directors, but, in the absence of the Secretary, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
SECTION 6. Committees. The Board of Directors, by resolution adopted by
a majority of the number of Directors then in office, may designate one or more
Directors to constitute an executive committee, which committee, to the extent
provided in such resolution, shall have and exercise all of the authority of the
Board of Directors in the management of the Corporation, except as otherwise
required by law. Vacancies in the membership of the committee shall be filled by
the Board of Directors at a regular or special meeting of the Board of
Directors. The executive committee shall keep regular minutes of its proceeding
and report the same to the Board when required.
SECTION 7. Conference Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by means of conference telephone or similar communications
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equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute being present in person at
such meeting.
SECTION 8. Consent of Directors or Committee in Lieu of Meeting. Unless
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee, as the case may be.
SECTION 9. Compensation. For their services as Directors or as members
of committees, every Director shall receive such compensation, attendance fees
and other allowances as determined by resolution of the Board of Directors.
ARTICLE V
Officers
SECTION 1. Officers. The officers of the Corporation shall be a Chief
Executive Officer, President, one or more Vice Presidents who are specifically
designated as officers and who may be designated Executive Vice Presidents or
Senior Vice Presidents, a Secretary, Chief Financial Officer, and such
additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 2 of this Article V. The Chief Executive
Officer, the President, one or more Vice Presidents, the Secretary, the Chief
Financial Officer shall be elected by the Board of Directors at its first
meeting after such annual meeting of the stockholders. The failure to hold such
election shall not of itself terminate the term of office of any officer.
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All officers shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors or as shall be confirmed or required by law or these By-Laws
or as shall be incidental to the office. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person. Any officer may be removed
with or without cause at any time by the affirmative vote of a majority of the
Board of Directors. Any vacancy caused by the death of any officer, his or her
resignation, his or her removal, or otherwise, may be filled by the Board of
Directors, and any officer so elected shall hold office at the pleasure of the
Board of Directors.
SECTION 2. Additional Officers. The Board of Directors may from time to
time elect such other officers (who may, but need not, be Directors), including,
but not limited to, Treasurer, Controller, Assistant Treasurers, Assistant
Secretaries and Assistant Controllers, as the Board may deem advisable, and such
officers shall have such authority and shall perform such duties as may from
time to time be assigned to them by the Board of Directors, the President or as
shall be conferred or required by law or these By-Laws or as shall be incidental
to the office.
ARTICLE VI
Stock, Seal and Fiscal Year
SECTION 1. Certificates for Shares. The shares of the
Corporation shall be represented by certificates signed by the President or a
Vice President and by the Chief Financial Officer or the Secretary or an
Assistant Secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof.
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When the Corporation is authorized to issue shares of more than one
class, there shall be set forth upon the face or back of the certificate, or the
certificate shall have a statement that the Corporation will furnish to any
stockholder upon request and without charge, a full statement of the
designations, preferences, limitations and relative rights of the shares of each
class authorized to be issued and, if the Corporation is authorized to issue any
preferred or special class in series, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined and the authority of the Board of Directors to fix and
determine the relative rights and preferences of subsequent series.
The signatures of the officers of the Corporation upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
SECTION 2. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed. When authorizing such issue
of a new certificate, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient, and may require such indemnities as it deems
adequate, to protect the Corporation from any claim that may be made against it
with respect to any such certificate alleged to have been lost or destroyed.
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SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall
be transferred on the books of the Corporation by the recordholder thereof, in
person or by such holder's attorney duly authorized in writing upon surrender to
the Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon such surrender, a new
certificate shall be issued to the person entitled thereto, and the old
certificate cancelled and the transaction recorded upon the books of the
Corporation, except as otherwise required by law.
SECTION 4. Regulations. The Board of Directors, the President or the
Secretary shall have power and authority to make such rules and regulations as
it or such officer may deem expedient concerning the issue, transfer,
registration or replacement of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversation or exchange of stock or for the purpose of
any other lawful action, as the case may be, the Board of Directors may fix, in
advance, a record date which shall be not more than sixty (60) calendar days nor
less than ten (10) calendar days before the date of such meeting, nor more than
sixty (60) calendar days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the
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day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 6. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
SECTION 7. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the day fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
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SECTION 8. Corporate Seal. The Corporation shall have a suitable seal,
containing the name of the Corporation. The Secretary shall have custody of the
seal, but he or she may authorize others to keep and use a duplicate seal.
SECTION 9. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 10. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VII
Miscellaneous Provisions
SECTION 1. Waivers of Notice. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these By-Laws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 2. Indemnification. The Corporation shall, to the maximum
extent permitted from time to time under the law of the State of Delaware,
indemnify and upon request may advance expenses to any person who is or was a
party to any threatened, pending or completed action, suit, proceeding or claim,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was or has agreed to be a trustee, director,
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officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a trustee, director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees and expenses), judgment, fines,
penalties and amounts paid in settlement incurred in connection with the
investigation, preparation to defend or defense of any such action, suit,
proceeding or claim. Such indemnification shall not be exclusive of other
indemnification rights arising under any by-law, agreement, vote of directors or
stockholders or otherwise and shall inure to the benefit of the heirs and legal
representatives of such person.
The Corporation may purchase and maintain insurance on any person who
is or was a trustee, director, officer, employee or agent of the Corporation or
is or was serving at the request of the Corporation as a trustee, director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability incurred by him in any such
position or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under this Article
VII, Section 2.
SECTION 3. Amendments. These By-Laws may be altered, amended, or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the Board of Directors at any regular or Special Meeting of the Board of
Directors, subject to any provision in the Certificate of Incorporation
reserving to the stockholders the power to adopt, amend, or repeal By-Laws, but
By-Laws made by the Board of Directors may be altered or repealed and new
By-Laws made by the stockholders. The stockholders may prescribe that any By-Law
made by them shall not be altered or repealed by the Board of Directors.
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PMCC FINANCIAL CORP.
1998 STOCK OPTION PLAN
1. Plan; Purpose; General. The purpose of this Stock Option Plan (the
"Plan") is to advance the interests of PMCC Financial Corp. and any present and
future subsidiaries (as defined below) of PMCC Financial Corp. (hereinafter
inclusively referred to as the "Company") by enhancing the ability of the
Company to attract and retain selected employees, consultants, advisors and
directors (collectively the "Participants") by creating for such Participants
incentives and rewards for their contributions to the success of the Company,
and by encouraging such Participants to become owners of shares of the Company's
Common Stock, $.01 par value per share, as the title or par value may be amended
(the "Shares").
Options granted pursuant to the Plan may be incentive stock
options ("Incentive Options") as defined in the Internal Revenue Code of 1986,
as amended (the "Code"), or non-qualified options, or both. The proceeds
received from the sale of Shares pursuant to the Plan shall be used for general
corporate purposes.
2. Effective Date of Plan. The Plan will become effective upon approval
by the Board of Directors (the "Board"), and shall be subject to the approval by
the shareholders of the Company as provided under the Securities Act of 1933, as
amended (the "Act").
3. Administration of the Plan. The Plan will be administered by the
Board of the Company. The Board will have authority, not inconsistent with the
express provisions of the Plan, to take all action necessary or appropriate
thereunder, to interpret its provisions, and to decide all questions and resolve
all disputes which may arise in connection therewith. Such determinations of the
Board shall be conclusive and shall bind all parties.
The Board may, in its discretion, delegate its powers with
respect to the Plan to an employee benefit plan committee or any other committee
(the "Committee"), in which event all references to the Board hereunder,
including without limitation the references in Section 9, shall be deemed to
refer to the Committee. The Committee shall consist of not fewer than two (2)
members provided, however, that if the Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), each of the members of the Committee must be a "non-employee director" as
that term is defined in Rule 16b-3 adopted pursuant to the Exchange Act. A
majority of the members of the Committee shall constitute a quorum, and all
determinations of the Committee shall be made by the majority of its members
present at a meeting. Any determination of the Committee under the Plan may be
made without notice or meeting of the Committee by a writing signed by all of
the Committee members. Subject to the foregoing, from time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
thereof, or fill vacancies however caused.
The Board and the Committee, if any, shall have the authority,
consistent with the terms of the Plan, to determine eligibility, the number of
Options granted and the exercise price of Options.
4. Eligibility. The Participants in the Plan shall be all employees,
consultants, advisors and directors of the Company whether or not they are also
officers of the Company provided, however, that Incentive Options shall only be
granted to employees of the Company.
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5. Grant of Options.
(a) The Board shall grant Options to Participants that it, in its
sole discretion, selects. Options shall be granted in accordance with the terms
and conditions set forth in Section 6 hereof and on such other terms and
conditions as the Board shall determine. Such terms and conditions may include a
requirement that a Participant sell to the Company any Shares acquired upon
exercise of Options upon the Participant's termination of employment upon such
terms and conditions as the Board may determine. Incentive Options shall be
granted on terms that comply with the Code and Regulations thereunder.
(b) No Options shall be granted after January 1, 2008 but Options
previously granted may extend beyond that date.
6. Terms and Conditions of Options
(a) Exercise Price. The purchase price per share for Shares issuable
upon exercise of Options shall be a minimum of 100% of fair market value on the
date of grant as determined by the Board. For this purpose, "fair market value"
will be determined as set forth in Section 8 hereof. Notwithstanding the
foregoing, if any person to whom an Option is to be granted owns in excess of
ten (10%) percent of the outstanding capital stock of the Company (a "Principal
Shareholder"), then no Option may be granted to such person for less than 110%
of the fair market value on the date of grant as determined by the Board.
(b) Period of Options. The expiration of each Option shall be fixed
by the Board, in its discretion, at the time such Option is granted. No Option
shall be exercisable after the expiration of ten (10) years from the date of its
grant, or after the expiration of five (5) years from the date of its grant in
the case of an Incentive Option granted to a Principal Shareholder who was such
on the date of grant, and each Option shall be subject to earlier termination as
expressly provided in Section 6 hereof or as determined by the Board, in its
discretion, on the date such Option is granted.
(c) Payment for Delivery of Shares. Shares which are subject to
Options shall be issued only upon receipt by the Company of full payment of the
purchase price for the Shares as to which the Option is exercised. Payment for
Shares may be made (as determined by the Board at the time the Option is
granted) (i) in cash, (ii) by certified or bank check payable to the order of
the Company in the amount of the purchase price, (iii) by delivery of Shares
owned by the Participant having a fair market value equal to the purchase price,
or (iv) by any combination of the methods of payment described in (i) through
(iii) above, as determined by the Board at the time the Option is granted.
The Company shall not be obligated to deliver any Shares unless and
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with and until all other legal matters
in connection with the issuance and delivery of Shares have been approved by the
Company's counsel. Without limiting the generality of the foregoing, the Company
may require from the person exercising an Option such investment representation
or such agreement, if any, as counsel for the Company may consider necessary in
order to comply with the Act and applicable state securities laws.
(d) Rights as Shareholder. A Participant or a transferee of an
Option shall have no rights as a Shareholder with respect to any Shares covered
by the Option until the date of the issuance of a stock certificate to him for
such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution of
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 7 hereof.
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(e) Vesting. The Board may impose such vesting restrictions as it
sees fit at the time of grant.
(f) Non-Transferability of Options. Options may not be sold,
assigned or otherwise transferred or disposed of in any manner whatsoever except
as provided in Section 6(h) hereof.
(g) Termination of Relationship. Except as otherwise provided in an
Option or other agreement between the Company and a Participant, upon the
termination of a Participant's status as an employee, consultant, advisor or
director, for any reason other than as set forth in subsections (ii) and (iii)
below, at a time when the Shares are then Publicly Traded (as defined below),
then the following provisions shall apply:
(i) Such Participant may exercise Options to the extent
exercisable on the date of termination within three (3) months (or such shorter
time as may be specified in the grant), after the date of such termination. To
the extent that the Participant was not entitled to exercise the Option at the
date of such termination, or does not exercise such Option within the time
specified herein, such Option shall terminate.
(ii) Notwithstanding the provisions of subsection (i) above, in
the event of termination of a Participant's status as an employee as a result of
"permanent disability" (as such term is defined in any contract of employment
between the Company and the Participant or, if not defined, then such term shall
mean the inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of twelve (12) months), the Participant may exercise the
Option, but only to the extent such Option was exercisable on the date the
Participant ceased working as the result of the permanent disability. Such
exercise must occur within eighteen (18) months (or such shorter time as is
specified in the grant) from the date on which the Participant ceased working as
a result of the permanent disability. To the extent that the Participant was not
entitled to exercise such Option on the date the Participant ceased working, or
does not exercise such Option within the time specified herein, such Option
shall terminate.
(iii) Notwithstanding the provisions of subsection (i) above, in
the event of the death of a Participant, the Option may be exercised, at any
time within six (6) months following the date of death (or such shorter time as
may be specified in the grant), by the Participant's estate or by a person who
acquired the right to exercise the Option by will or the applicable laws of
descent or dissolution, but only to the extent such Option was exercisable on
the date of the Participant's death. To the extent that the Participant was not
entitled to exercise such Option on the date of death, or the Option is not
exercised within the time specified herein, such Option shall terminate.
(iv) Notwithstanding subsections (i), (ii), and (iii) above, the
Board shall have the authority to extend the expiration date of any outstanding
Option in circumstances in which it deems such action to be appropriate
(provided that no such extension shall extend the term of an Option beyond the
date on which the Option would have expired if no termination of the
Participant's relationship's with the Company had occurred).
(h) Financial Assistance. The Company is vested with authority under
this Plan to assist any employee to whom an Option is granted hereunder
(including, to the extent permitted by law, any director or officer of the
Company who is also an employee of the Company) in the payment of the purchase
price payable on exercise of that Option, by lending the amount of such purchase
price to such employee on such terms and at such rates of interest and upon such
security (or unsecured) as shall have been authorized by or under authority of
the Board.
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(i) Withholding Taxes. To the extent required by applicable
federal, state, local or foreign law, a Participant shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise by reason of an Option exercise or any sale of Shares.
The Company shall not be required to issue Shares until such obligations are
satisfied. The Board may permit these obligations to be satisfied by having the
Company withhold a portion of the Shares that otherwise would be issued to the
Participant upon exercise of the Option, or to the extent permitted, by
tendering Shares previously acquired.
7. Shares Subject to Plan.
(a) Number of Shares and Stock to be Delivered. Shares delivered
pursuant to this Plan shall in the discretion of the Board be authorized but
unissued Shares or previously issued Shares acquired by the Company. The
unexercised portion of any expired, terminated or cancelled Option shall again
be available for the grant of Options under the Plan. Subject to adjustment as
described below, the aggregate number of Shares which may be delivered under
this Plan shall not exceed 375,000 Shares.
(b) Changes in Stock. In the event of a stock dividend, stock split
or combination of Shares, recapitalization, merger in which the Company is the
surviving Company or other change in the Company's capital stock, the number and
kind of Shares of stock or securities of the Company to be subject to the Plan
and to Options then outstanding or to be granted thereunder, the maximum number
of Shares or securities which may be delivered under the Plan, the Option price
and other relevant provisions shall be appropriately adjusted by the Board,
whose determination shall be binding on all persons. In the event of a
consolidation or merger in which the Company is not the surviving Company or
which results in the acquisition of substantially all the Company's outstanding
stock by a single person or entity, or in the event of the sale or transfer of
substantially all the Company's assets, all outstanding Options, whether or not
then exercisable, shall immediately become exercisable. The Board shall notify
the Participants that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
upon the expiration of such period.
The Board may also adjust the number of Shares subject to
outstanding Options, the exercise price of outstanding Options and the terms of
outstanding Options to take into consideration material changes in accounting
practices or principles, consolidations or mergers (except those described in
the immediately preceding paragraph), acquisitions or dispositions of stock or
property or any other event if it is determined by the Board that such
adjustment is appropriate to avoid distortion in the operation of the Plan.
8. Certain Definitions.
Certain terms used in the Plan have been defined above. In addition,
as used in the Plan, the following terms shall have the following meanings:
(a) A "subsidiary" is any company (i) in which the Company owns,
directly or indirectly, stock possessing fifty (50%) percent or more of the
total combined voting power of all classes of stock or (ii) over which the
Company has effective operating control.
(b) The "fair market value" of the Shares shall mean the closing
price of the Shares as of the day in question (or, if such day is not a trading
day in the principal securities market or markets for such Shares, on the
nearest preceding trading day), as reported with respect to the market (or the
composite of markets, if more than one) in which Shares are then traded, or, if
no such closing prices are reported, on the basis of the mean between the high
bid and low asked prices that day on the principal market or quotation system on
which Shares are then quoted, or, if not so quoted, as furnished by a
professional securities dealer making a market in such Shares selected by the
Board.
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9. Indemnification of Board. In addition to and without affecting such
other rights of indemnification as they may have as members of the Board or
otherwise, each member of the Board shall be indemnified by the Company to the
extent legally possible against reasonable expenses, including attorney's fees,
actually and reasonably incurred in connection with any appeal therein, to which
he may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any Option granted thereunder, and against all
judgments, fines and amounts paid by him in settlement thereof; provided that
such payment of amounts so indemnified is first approved by a majority of the
members of the Board who are not parties to such action, suit or proceedings, or
by independent legal counsel selected by the Company, in either case on the
basis of a determination that such member acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and except that no indemnification shall be made in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Board member is liable for a breach of the duty of loyalty, bad faith or
intentional misconduct in his duties; and provided further, that the Board
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend same.
10. Amendments. The Board may at any time discontinue granting Options
under the Plan. The Board may at any time or times amend the Plan or amend any
outstanding Option or Options for the purpose of satisfying the requirements of
any changes in applicable laws or regulations or for any other purpose which may
at the time be permitted by law, provided that (except to the extent explicitly
required or permitted hereinabove) no such amendment will, without the approval
of the shareholders of the Company, (a) increase the maximum number of Shares
available under the Plan, (b) reduce the Option price of outstanding Options or
reduce the price at which Options may be granted, (c) extend the time within
which Options may be granted, (d) amend the provisions of this Section 10 of the
Plan, (e) extend the period of an outstanding Option beyond ten (10) years from
the date of grant (five (5) years for Incentive Options granted to Principal
Shareholders), (f) adversely affect the rights of any Participant (without his
consent) under any Options theretofore granted or (g) be effective if
shareholder approval is required by applicable statute, rule or regulation.
11. Miscellaneous Provisions.
(a) Rule 16b-3. With respect to Participants subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable provisions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Plan
administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board.
(b) Underscored References. The underscored references contained in
the Plan and in any Option agreement are included only for convenience, and they
shall not be construed as a part of the Plan or Option agreement or in any
respect affecting or modifying its provisions.
(c) Number and Gender. The masculine, feminine and neuter, wherever
used in the Plan or in any Option agreement, shall refer to either the
masculine, feminine or neuter and, unless the context otherwise requires, the
singular shall include the plural and the plural the singular.
(d) Governing Law. The place of administration of the Plan and each
Option agreement shall be in the State of New York. The corporate law of the
Company's state of incorporation shall govern issues related to the validity and
issuance of Shares. Otherwise, this Plan and each Agreement shall be construed
and administered in accordance with the laws of the State of New York, without
giving effect to principles relating to conflict of laws.
(e) No Employment Contract. Neither the adoption of the Plan nor
any benefit granted hereunder shall confer upon any employee any right to
continued employment nor shall the Plan or any benefit interfere in any way with
the right of the Company to terminate the employment of any of its employees at
any time.
5
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January __, 1998, by and between PMCC
FINANCIAL CORP., a New York corporation with offices located at 66 Powerhouse
Road, Roslyn Heights, New York 11577 (the "Company"), and RONALD FRIEDMAN,
residing at 788 Arbuckle Avenue, Woodmere, New York 11598 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company is a specialty consumer financial services company
providing a broad array of residential mortgage products to its customers; and
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive is
willing to serve in the employ of the Company on a full-time basis for said
period, and upon the other terms and conditions hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts
employment with the Company, all in accordance with the terms and conditions
hereof, for a term commencing on the date hereof and ending (subject to the
provisions of Section 5 hereof) two (2) years thereafter (the "Term"), on
December 31, 1999.
2. Duties.
2.1 During the Term, the Executive shall be employed by the Company
and shall serve as President and Chief Executive Officer of the Company, and
shall perform such
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duties and have such powers relating to the Company as shall from time to time
be assigned to him by the Board of Directors of the Company.
2.2 During the Term, the Executive shall devote his full
business time, attention and energy to the business and affairs of the Company
and shall not engage, directly or indirectly, in any other business, employment
or occupation which is competitive with the business of the Company.
3. Compensation.
3.1 As full compensation for his services and undertakings pursuant
to the terms of this Agreement, the Executive shall receive a base salary at the
rate of Two Hundred Fifty Thousand ($250,000) Dollars per year (the "Salary").
The Base Compensation shall be payable at such regular times and intervals as
the Company customarily pays its employees from time to time. The Executive
shall be entitled to receive such salary increases as the Board of Directors of
the Company may, on the basis of improvements in the Company's performance or
other reasonable criteria, deem appropriate. If elected or appointed as a
director of the Company or any subsidiary thereof, the Executive shall serve in
such capacity without additional compensation.
3.2 The Executive shall have the right to participate, on the same
basis as other executive employees of the Company, in the Company's employee
benefit programs, if any, including, without limitation, group life, health,
accident and hospitalization insurance programs covering the Executive and his
dependents and disability insurance similar in coverage to that currently
provided.
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3.3 Executive shall be entitled to an annual bonus as determined by
the Board of Directors, without regard to this or any other executive bonus.
Payment of the bonus, if any, shall be made within seventy-five (75) days after
the end of each fiscal year of the Company. The Executive shall be entitled to
participate in and receive the benefits under any pension plans or bonus plans
of the Company or of any subsidiary and shall be included in, at no cost to
Executive, the Company's health plan (including hospitalization, medical and
major medical), life, prescription drug, accident and disability insurance plans
or programs and any other employee benefit or fringe benefit plans, perquisites
or arrangements which the Company makes available generally to other employees
of the Company.
3.4 The Company shall deduct from the Executive's Base Compensation
and bonus any federal, state or city withholding taxes, social security
contributions and any other amounts which may be required to be deducted or
withheld by the Company pursuant to any federal, state or city laws, rules or
regulations.
3.5 The Company shall reimburse the Executive, or cause him to be
reimbursed, for all reasonable out-of-pocket expenses incurred by him in the
performance of his duties hereunder or in furtherance of the business and/or
interests of the Company; provided, however, that the Executive shall have
previously furnished to the Company an itemized account, satisfactory to the
Company, in substantiation of such expenditures.
4. Indemnification. The Company undertakes, to the extent permitted by
law, to indemnify and hold the Executive harmless from and against all claims,
damages, losses and expenses, including reasonable attorneys' fees and
disbursements, arising out of the performance
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<PAGE>
by the Executive of his duties pursuant to this Agreement, in furtherance of the
Company's business and within the scope of his employment.
5. Termination of Employment.
5.1 (a) (1) The Executive's employment hereunder shall terminate
automatically as of the date of his death or upon the Executive's becoming
eligible for benefits under the Company's long term disability plan as in effect
from time to time, or if no disability plan is in effect, upon the Executive
becoming permanently disabled. For purposes of this Agreement, the Executive
shall be deemed to be permanently "disabled" if he has been unable to perform
his duties for six (6) consecutive months or any nine (9) months in any twelve
(12) month period, all as conclusively determined in good faith by the Board of
Directors of the Company.
(2) Upon termination of the Executive's employment under
circumstances described in Section 5(a)(1) above, the Company shall promptly pay
and provide to the Executive (or, in the event of his death, to his surviving
spouse or such other beneficiary as the Executive may designate in writing, or
if there is neither, to his estate):
(i) his earned but unpaid Salary and bonus and accrued
vacation pay as of the date of termination of his employment with the Company;
(ii) the benefits, if any, to which he is entitled as a
former employee under the Company's employee benefits plans and programs and
compensation plans and programs in which he was a participant; and
(iii) an amount of Salary at the then current rate equal
to the Salary payable for a period of two (2) years.
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<PAGE>
5.2 The Company shall, in the manner described in the last paragraph
of Section 5.3, have the right to terminate the employment of Executive under
thisAgreement and Executive shall forfeit the right to receive any and all
further payments hereunder, other than the right to receive any compensation
then due and payable to Executive pursuant to Section 3 hereof through to the
date of termination, if Executive shall have committed any of the following acts
of default:
(a) Executive shall have committed any material breach of any of the
provisions or covenants of this Agreement;
(b) Executive shall have committed any act of gross negligence in
the performance of his duties or obligations hereunder, or,
without proper cause, shall have willingly refused or habitually
neglected to perform his employment duties or obligations under
this Agreement;
(c) Executive shall have committed any material act of willful
misconduct, dishonesty or breach of trust which directly or
indirectly causes the Company or any of its subsidiaries to
suffer any material loss, fine, civil penalty, judgment, claim,
damage or expense; or
(d) Executive shall have been convicted of, or shall have plead
guilty or nolo contendere to, a felony or indictable offense
(unless committed in the reasonable, good faith belief that the
Executive's actions were in the best interests of the Company
and its stockholders and would not violate criminal law).
5.3 If the Company elects to terminate this Agreement as set forth
above, it shall deliver notice of such intention to Executive, describing with
reasonable detail, the action or omission of the Executive constituting the act
of default (the "Termination Notice"), and
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<PAGE>
thereupon no further payments of any type shall be made or shall be due or
payable to Executive hereunder, except as provided in the first sentence of
Section 5.2; provided, however, with respect to any act of default set forth in
clauses (a) and (b) of Section 5.2, prior to any termination by the Company of
Executive's employment, Executive shall first have an opportunity to cure or
remedy such act of default within thirty (30) days following the Termination
Notice.
5.4 If the Executive is terminated for reasons other than death,
disability or the occurrence of any of the acts set forth in Section 5.2(a) -
(d) hereof, Executive shall be entitled to receive as severance pay (in addition
to any compensation then due and payable to Executive pursuant to Section 3
hereof through the date of termination) an amount equal to the greater of (i)
Executive's Base Compensation for the remainder of the Term, or (ii) Executive's
Salary for a period of one (1) year, such amount to be payable at such regular
times and intervals as the Company customarily pays its employees from time to
time.
6. Restrictive Covenants.
6.1 Confidential Information; Covenant not to Disclose. The
Executive covenants and undertakes that he will not at any time during or after
the termination of his employment hereunder reveal, divulge, or make known to
any person, firm, corporation, or other business organization (other than the
Company or its affiliates, if any), or use for his own account any customer
lists, trade secrets, or any secret or any confidential information of any kind
used by the Company during his employment by the Company, and made known
(whether or not with the knowledge and permission of the Company, whether or not
developed, devised, or otherwise created in whole or in part by the efforts of
the Executive, and whether or not a
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<PAGE>
matter of public knowledge unless as a result of authorized disclosure) to the
Executive by reason of his employment by the Company. The Executive further
covenants and agrees that he shall retain such knowledge and information which
he has acquired or shall acquire and develop during his employment respecting
such customer lists, trade secrets, and secret or confidential information in
trust for the sole benefit of the Company, its successors and assigns.
6.2 Covenant Not to Compete; Non-Interference.
6.2.1 The Executive covenants and undertakes that, during the period
of his employment hereunder and for a period of two (2) years hereafter, he will
not, without the prior written consent of the Company, directly or indirectly,
and whether as principal, agent, officer, director, employee, consultant, or
otherwise, alone or in association with any other person, firm, corporation, or
other business organization, carry on, or be engaged, concerned, or take part
in, or render services to, or own, share in the earnings of, or invest in the
stock, bonds, or other securities of any person, firm, corporation, or other
business organization (other than the Company or its affiliates, if any) engaged
in a business in the same geographic market in which the Company conducts
business which is similar to or in competition with any of the businesses
carried on by the Company (a "Similar Business") except in the course of his
employment hereunder; provided, however, that the Executive may invest in stock,
bonds, or other securities of any Similar Business (but without otherwise
participating in the activities of such Similar Business) if (i) such stock,
bonds, or other securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934; and (ii) his investment does not exceed, in the case of any class
of the capital stock of
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<PAGE>
any one issuer, 5% of the issued and outstanding shares, or in the case of bonds
or other securities, 5% of the aggregate principal amount thereof issued and
outstanding.
6.2.2 The Executive covenants and undertakes that during the period
of his employment hereunder and for a period of two (2) years thereafter he will
not, whether for his own account or for the account of any other person, firm,
corporation or other business organization, interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person,
firm, corporation or other business organization who or which at any time during
the term of the Executive's employment with the Company was an employee,
consultant, agent, supplier, or a customer of, or in the habit of dealing with,
the Company.
6.2.3 If any provision of this Article 6.2 is held by any court of
competent jurisdiction to be unenforceable because of the scope, duration or
area of applicability, such provision shall be deemed modified to the extent the
court modifies the scope, duration or area of applicability of such provision to
make it enforceable.
6.3 Covenant to Report; Copyrights; Trademarks; Etc. 6.3.1 All
written materials, records and documents (in any form) made by the Executive or
coming into his possession during the Term concerning the business or affairs of
the Company shall be the sole property of the Company, and, upon the termination
of the Term or upon the request of the Company during the Term, the Executive
shall promptly deliver the same to the Company. The Executive agrees to render
to the Company such reports of the activities undertaken by the Executive or
conducted under the Executive's direction pursuant hereto during the Term as the
Company may request.
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<PAGE>
6.3.2 The Executive will assign to the Company all right in the
copyrights and trademarks will assist the Company or its designee during or
subsequent to his employment, at the Company's sole expense, in filing copyright
applications on, and obtaining for the Company's benefit, copyrights for, such
trademarks in any and all countries, and will assign to the Company all such
copyright applications, all copyrights which may issue thereon, said copyrights
and trademarks to be and remain the sole and exclusive property of the Company
or its designee whether or not patented and/or copyrighted.
7. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
the Company hereto, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and acknowledges that the
Company shall be entitled to an injunction, without posting any bond or security
in connection therewith, from any court of competent jurisdiction enjoining and
restraining any breach or violation of any of the restrictive covenants
contained in Article 6 of this Agreement by the Executive or his associates,
partners or agents, either directly or indirectly, and that such right to
injunction shall be cumulative and in addition to whatever other rights or
remedies the Company may possess. Nothing contained in this Article 7 shall be
construed to prevent the Company from seeking and recovering from the Executive
damages sustained as a result of any breach or violation by the Executive of any
of the covenants or agreements contained in this Agreement, and that in the
event of any such breach, the Company shall avail itself of all remedies
available both at law and at equity.
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<PAGE>
8. Compliance with Other Agreements. The Executive represents and
warrants to the Company that the execution of this Agreement by him and his
performance of his obligations hereunder will not, with or without the giving of
notice, the passage of time or both, conflict with, result in the breach of any
provision of or the termination of, or constitute a default under, any agreement
to which the Executive is a party or by which the Executive is or may be bound.
9. Miscellaneous.
9.1 Notices. Any notice or other communication to a party under this
Agreement shall be in writing, and if by use of the mail shall be considered
given when mailed by certified mail, return receipt requested, to the Company at
its principal place of business, to the attention of the President and to the
Executive at his last known address as reflected on the books of the Company or
at such other address as the party may specify by notice to the other in the
manner provided for herein; and with a copy to Ruskin, Moscou, Evans &
Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501, Attention:
Norman M. Friedland, Esq.
9.2 Benefit. This Agreement shall be binding upon and inure to the
benefit of the respective parties hereto and their legal representatives,
successors and assigns. Insofar as the Executive is concerned this Agreement,
being personal, cannot be assigned.
9.3 Validity. The invalidity or unenforceability of any provisions
hereof shall in no way affect the validity or enforceability of any other
provision.
9.4. Entire Agreement. The Agreement constitutes the entire
Agreement between the parties, and supersedes all existing agreements between
them. It may only be changed or terminated by an instrument in writing signed by
both parties. The covenants of the
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<PAGE>
Executive contained in Article 6 of this Agreement shall survive the termination
of this Agreement and the expiration of the Term.
9.5 New York Law to Govern. This Agreement shall be governed by,
construed and interpreted in accordance with the laws of the State of New York
without regard to its principles of conflicts of laws.
9.6 Corporate Action. The execution and delivery of this Agreement
by the Company has been authorized and approved by all requisite corporate
action.
9.7 Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in writing.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
9.9 Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
PMCC FINANCIAL CORP.
By:_________________________________
ROBERT FRIEDMAN, Secretary
------------------------------------
RONALD FRIEDMAN
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January __, 1998, by and between PMCC
FINANCIAL CORP., a New York corporation with offices located at 66 Powerhouse
Road, Roslyn Heights, New York 11577 (the "Company"), and ROBERT FRIEDMAN,
residing at 33 Yale Drive, Manhasset, New York 11030 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company is a specialty consumer financial services company
providing a broad array of residential mortgage products to its customers; and
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive is
willing to serve in the employ of the Company on a full-time basis for said
period, and upon the other terms and conditions hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment with the Company, all in accordance with the
terms and conditions hereof, for a term commencing on the date hereof and ending
(subject to the provisions of Section 5 hereof) two (2) years thereafter (the
"Term"), on December 31, 1999.
2. Duties.
2.1 During the Term, the Executive shall be employed by the Company
and shall serve as its Chairman of the Board of Directors, Chief Operating
Officer, Secretary and Treasurer of the Company, and shall perform such duties
and have such powers relating to the Company as shall from time to time be
assigned to him by the Board of Directors of the Company.
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<PAGE>
2.2 During the Term, the Executive shall devote his full business
time, attention and energy to the business and affairs of the Company and shall
not engage, directly or indirectly, in any other business, employment or
occupation which is competitive with the business of the Company.
3. Compensation.
3.1 As full compensation for his services and undertakings pursuant
to the terms of this Agreement, the Executive shall receive a base salary at the
rate of Two Hundred Fifty Thousand ($250,000) Dollars per year (the "Salary").
The Base Compensation shall be payable at such regular times and intervals as
the Company customarily pays its employees from time to time. The Executive
shall be entitled to receive such salary increases as the Board of Directors of
the Company may, on the basis of improvements in the Company's performance or
other reasonable criteria, deem appropriate. If elected or appointed as a
director of the Company, or any subsidiary thereof, the Executive shall serve in
such capacity without additional compensation.
3.2 The Executive shall have the right to participate, on the same
basis as other executive employees of the Company, in the Company's employee
benefit programs, if any, including, without limitation, group life, health,
accident and hospitalization insurance programs covering the Executive and his
dependents and disability insurance similar in coverage to that currently
provided.
2
<PAGE>
3.3 Executive shall be entitled to an annual bonus as determined by
the Board of Directors without regard to this or any other executive bonus.
Payment of the bonus, if any, shall be made within seventy-five (75) days after
the end of each fiscal year of the Company. The Executive shall be entitled to
participate in and receive the benefits under any pension plans or bonus plans
of the Company or of any subsidiary and shall be included in, at no cost to
Executive, the Company's health plan (including hospitalization, medical and
major medical), life, prescription drug, accident and disability insurance plans
or programs and any other employee benefit or fringe benefit plans, perquisites
or arrangements which the Company makes available generally to other employees
of the Company.
3.4 The Company shall deduct from the Executive's Base Compensation
and bonus any federal, state or city withholding taxes, social security
contributions and any other amounts which may be required to be deducted or
withheld by the Company pursuant to any federal, state or city laws, rules or
regulations.
3.5 The Company shall reimburse the Executive, or cause him to be
reimbursed, for all reasonable out-of-pocket expenses incurred by him in the
performance of his duties hereunder or in furtherance of the business and/or
interests of the Company; provided, however, that the Executive shall have
previously furnished to the Company an itemized account, satisfactory to the
Company, in substantiation of such expenditures.
4. Indemnification. The Company undertakes, to the extent permitted by
law, to indemnify and hold the Executive harmless from and against all claims,
damages, losses and expenses, including reasonable attorneys' fees and
disbursements, arising out of the performance by the Executive of his duties
pursuant to this Agreement, in furtherance of the Company's business and within
the scope of his employment.
5. Termination of Employment.
5.1 (a) (1) The Executive's employment hereunder shall terminate
automatically as of the date of his death or upon the Executive's becoming
eligible for benefits under the Company's long term disability plan as in effect
from time to time, or if no disability plan is in effect, upon the Executive
becoming permanently disabled. For purposes of this Agreement, the Executive
shall be deemed to be permanently "disabled" if he has been unable to perform
his duties for six (6) consecutive months or any nine (9) months in any twelve
(12) month period, all as conclusively determined in good faith by the Board of
Directors of the Company.
(2) Upon termination of the Executive's employment under
circumstances described in Section 5(a)(1) above, the Company shall promptly pay
and provide to the Executive (or, in the event of his death, to his surviving
spouse or such other beneficiary as the Executive may designate in writing, or
if there is neither, to his estate):
(i) his earned but unpaid Salary bonus and accrued
vacation pay as of the date of termination of his employment with the Company;
(ii) the benefits, if any, to which he is entitled as a
former employee under the Company's employee benefit plans and programs and
compensation plans and programs in which he was a participant; and
(iii) an amount of Salary at the then current rate equal
to the Salary payable for a period of two (2) years.
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5.2 The Company shall, in the manner described in the last paragraph
of Section 5.3, have the right to terminate the employment of Executive under
this Agreement and Executive shall forfeit the right to receive any and all
further payments hereunder, other than the right to receive any compensation
then due and payable to Executive pursuant to Section 3 hereof through to the
date of termination, if Executive shall have committed any of the following acts
of default:
(a) Executive shall have committed any material breach of any of the
provisions or covenants of this Agreement;
(b) Executive shall have committed any act of gross negligence in
the performance of his duties or obligations hereunder, or, without proper
cause, shall have willingly refused or habitually neglected to perform his
employment duties or obligations under this Agreement;
(c) Executive shall have committed any material act of willful
misconduct, dishonesty or breach of trust which directly or indirectly causes
the Company or any of its subsidiaries to suffer any material loss, fine, civil
penalty, judgment, claim, damage or expense; or
(d) Executive shall have been convicted of, or shall have plead
guilty or nolo contendere to, a felony or indictable offense (unless committed
in the reasonable, good faith belief that the Executive's actions were in the
best interests of the Company and its stockholders and would not violate
criminal law).
5.3 If the Company elects to terminate this Agreement as set forth
above, it shall deliver notice of such intention to Executive, describing with
reasonable detail, the action or omission of the Executive constituting the act
of default (the "Termination Notice"), and thereupon no further payments of any
type shall be made or shall be due or payable to Executive hereunder, except as
provided in the first sentence of Section 5.2; provided, however, with respect
to any act of default set forth in clauses (a) and (b) of Section 5.2, prior to
any termination by the Company of Executive's employment, Executive shall first
have an opportunity to cure or remedy such act of default within thirty (30)
days following the Termination Notice.
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5.4 If the Executive is terminated for reasons other than death,
disability or the occurrence of any of the acts set forth in Section 5.2(a) -
(d) hereof, Executive shall be entitled to receive as severance pay (in addition
to any compensation then due and payable to Executive pursuant to Section 3
hereof through the date of termination) an amount equal to the greater of (i)
Executive's Base Compensation for the remainder of the Term, or (ii) Executive's
Salary for a period of one (1) year, such amount to be payable at such regular
times and intervals as the Company customarily pays its employees from time to
time.
6. Restrictive Covenants.
6.1 Confidential Information; Covenant not to Disclose. The
Executive covenants and undertakes that he will not at any time during or after
the termination of his employment hereunder reveal, divulge, or make known to
any person, firm, corporation, or other business organization (other than the
Company or its affiliates, if any), or use for his own account any customer
lists, trade secrets, or any secret or any confidential information of any kind
used by the Company during his employment by the Company, and made known
(whether or not with the knowledge and permission of the Company, whether or not
developed, devised, or otherwise created in whole or in part by the efforts of
the Executive, and whether or not a matter of public knowledge unless as a
result of authorized disclosure) to the Executive by reason of his employment by
the Company. The Executive further covenants and agrees that he shall retain
such knowledge and information which he has acquired or shall acquire and
develop during his employment respecting such customer lists, trade secrets, and
secret or confidential information in trust for the sole benefit of the Company,
its successors and assigns.
6.2 Covenant Not to Compete; Non-Interference.
6.2.1 The Executive covenants and undertakes that, during the period
of his employment hereunder and for a period of two (2) years hereafter, he will
not, without the prior written consent of the Company, directly or indirectly,
and whether as principal, agent, officer, director, employee, consultant, or
otherwise, alone or in association with any other person, firm, corporation, or
other business organization, carry on, or be engaged, concerned, or take part
in, or render services to, or own, share in the earnings of, or invest in the
stock, bonds, or other securities of any person, firm, corporation, or other
business organization (other than the Company or its affiliates, if any) engaged
in a business in the same geographic market in which the Company conducts
business which is similar to or in competition with any of the businesses
carried on by the Company (a "Similar Business") except in the course of his
employment hereunder; provided, however, that the Executive may invest in stock,
bonds, or other securities of any Similar Business (but without otherwise
participating in the activities of such Similar Business) if (i) such stock,
bonds, or other securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934; and (ii) his investment does not exceed, in the case of any class
of the capital stock of any one issuer, 5% of the issued and outstanding shares,
or in the case of bonds or other securities, 5% of the aggregate principal
amount thereof issued and outstanding.
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6.2.2 The Executive covenants and undertakes that during the period
of his employment hereunder and for a period of two (2) years thereafter he will
not, whether for his own account or for the account of any other person, firm,
corporation or other business organization, interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person,
firm, corporation or other business organization who or which at any time during
the term of the Executive's employment with the Company was an employee,
consultant, agent, supplier, or a customer of, or in the habit of dealing with,
the Company.
6.2.3 If any provision of this Article 6.2 is held by any court of
competent jurisdiction to be unenforceable because of the scope, duration or
area of applicability, such provision shall be deemed modified to the extent the
court modifies the scope, duration or area of applicability of such provision to
make it enforceable.
6.3 Covenant to Report; Copyrights; Trademarks; Etc.
6.3.1 All written materials, records and documents (in any form)
made by the Executive or coming into his possession during the Term concerning
the business or affairs of the Company shall be the sole property of the
Company, and, upon the termination of the Term or upon the request of the
Company during the Term, the Executive shall promptly deliver the same to the
Company. The Executive agrees to render to the Company such reports of the
activities undertaken by the Executive or conducted under the Executive's
direction pursuant hereto during the Term as the Company may request.
6.3.2 The Executive will assign to the Company all right in the
copyrights and trademarks will assist the Company or its designee during or
subsequent to his employment, at the Company's sole expense, in filing copyright
applications on, and obtaining for the Company's benefit, copyrights for such
trademarks in any and all countries, and will assign to the Company all such
copyright applications, all copyrights which may issue thereon, said copyrights
and trademarks to be and remain the sole and exclusive property of the Company
or its designee whether or not patented and/or copyrighted.
7. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
the Company hereto, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and acknowledges that the
Company shall be entitled to an injunction, without posting any bond or security
in connection therewith, from any court of competent jurisdiction enjoining and
restraining any breach or violation of any of the restrictive covenants
contained in Article 6 of this Agreement by the Executive or his associates,
partners or agents, either directly or indirectly, and that such right to
injunction shall be cumulative and in addition to whatever other rights or
remedies the Company may possess. Nothing contained in this Article 7 shall be
construed to prevent the Company from seeking and recovering from the Executive
damages sustained as a result of any breach or violation by the Executive of any
of the covenants or agreements contained in this Agreement, and that in the
event of any such breach, the Company shall avail itself of all remedies
available both at law and at equity.
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8. Compliance with Other Agreements. The Executive represents and
warrants to the Company that the execution of this Agreement by him and his
performance of his obligations hereunder will not, with or without the giving of
notice, the passage of time or both, conflict with, result in the breach of any
provision of or the termination of, or constitute a default under, any agreement
to which the Executive is a party or by which the Executive is or may be bound.
9. Miscellaneous.
9.1 Notices. Any notice or other communication to a party under
this Agreement shall be in writing, and if by use of the mail shall be
considered given when mailed by certified mail, return receipt requested, to the
Company at its principal place of business, to the attention of the President
and to the Executive at his last known address as reflected on the books of the
Company or at such other address as the party may specify by notice to the other
in the manner provided for herein; and with a copy to Ruskin, Moscou, Evans &
Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501, Attention:
Norman M. Friedland, Esq.
9.2 Benefit. This Agreement shall be binding upon and inure to
the benefit of the respective parties hereto and their legal representatives,
successors and assigns. Insofar as the Executive is concerned this Agreement,
being personal, cannot be assigned.
9.3 Validity. The invalidity or unenforceability of any
provisions hereof shall in no way affect the validity or enforceability of any
other provision.
9.4. Entire Agreement. The Agreement constitutes the entire
Agreement between the parties, and supersedes all existing agreements between
them. It may only be changed or terminated by an instrument in writing signed by
both parties. The covenants of the Executive contained in Article 6 of this
Agreement shall survive the termination of this Agreement and the expiration of
the Term.
9.5 New York Law to Govern. This Agreement shall be governed by,
construed and interpreted in accordance with the laws of the State of New York
without regard to its principles of conflicts of laws.
9.6 Corporate Action. The execution and delivery of this
Agreement by the Company has been authorized and approved by all requisite
corporate action.
9.7 Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in writing.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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9.9 Paragraph Headings. Paragraph headings are inserted herein
for convenience only and are not intended to modify, limit or alter the meaning
of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
PMCC FINANCIAL CORP.
By:________________________________
RONALD FRIEDMAN, President
___________________________________
ROBERT FRIEDMAN
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CONTRIBUTION AGREEMENT
This Contribution Agreement, dated as of January __, 1998, is by and
among PMCC Financial Corp., a Delaware corporation (the "Company"), Ronald
Friedman ("Ronald"), Robert Friedman ("Robert"), Suzanne Gordon ("Suzanne"),
Donna Joyce ("Joyce") and the Robert Friedman 1998 Grantor Retained Annuity
Trust (the "Trust") (Ronald, Robert, Suzanne, Donna and the Trust each are
sometimes hereinafter referred to as an "Existing Stockholder" and,
collectively, as the "Existing Stockholders") and Premier Mortgage Corp., a New
Jersey corporation ("Premier").
RECITALS
WHEREAS, each Existing Stockholder owns the shares of issued and
outstanding capital stock, no par value, of Premier set forth opposite such
Existing Stockholder's name on Schedule A attached hereto, which in the
aggregate represent all of the issued and outstanding shares of capital stock of
Premier as of the date hereof.
WHEREAS, Premier and the Existing Stockholders desire to contribute,
and the Company desires to acquire from the Existing Stockholders all of the
issued and outstanding capital stock of Premier in consideration for the
issuance by the Company of an aggregate of Two Million Five Hundred Thousand
(2,500,000) shares of its common stock, $.01 par value per share ("the Common
Stock"), subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
CONTRIBUTION OF SECURITIES
1.1 Contribution of Premier Securities. The Existing Stockholders
hereby agree to contribute, transfer, assign, convey and deliver to the Company,
and the Company hereby agrees to accept and acquire from the Existing
Stockholders, on the date hereof, all right, title and interest of the Existing
Stockholders, legal or equitable, in and to all of the issued and outstanding
shares of capital stock of Premier ("Premier Capital Stock") as in each case are
owned by each Existing Stockholder, as set forth opposite such Existing
Stockholder's name on Schedule A hereto, under the heading "Premier Capital
Stock Being Contributed."
1.2 Consideration to Existing Stockholders. On the date hereof, the
Company shall deliver to each Existing Stockholder, in consideration of the
contribution, transfer, assignment, conveyance and delivery of the shares of
Premier owned by each Existing Stockholder, the number of shares of Common Stock
set forth opposite each Existing Stockholder's name on Schedule A hereto, under
the heading "the Company's Capital Stock Issued in Exchange for Premier Capital
Stock."
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1.3 Closing Costs; Transfer Taxes. The Company shall be responsible for
any sales, use, income or other taxes imposed by reason of the transfers of the
shares of Premier and the shares of Common Stock provided hereunder and any
deficiency asserted with respect thereto.
ARTICLE II
CLOSING
2.1 Closing. The closing of the transactions contemplated herein (the
"Closing") shall be held at 10:00 a.m. on such date as shall be mutually agreed
upon by the parties, but in no event later than the date on which the Securities
and Exchange Commission shall declare effective the Registration Statement on
Form S-1 (the "Registration Statement") of the Company filed pursuant to the
Securities Act of 1933, as amended, at the offices of Ruskin Moscou Evans &
Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501.
2.2 Deliveries at the Closing. At the Closing:
(a) Each Existing Stockholder shall deliver to the Company,
the Premier Capital Stock, together with stock powers or other appropriate
powers of evidence of transfer in favor of the Company.
(b) The Company shall deliver to the Existing Stockholders the
shares of the Company Common Stock as provided for in Section 1.2.
(c) The Company and the Existing Stockholders shall deliver
the certificates and other matters described in Articles 7.5 and 8.4.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PMC
Premier hereby represents and warrants to the Company as follows:
3.1 Organization. Premier is duly organized, validly existing and in
good standing under the laws of its state of incorporation, has full corporate
power and authority to conduct its business as it is presently being conducted
and to own, lease and operate its properties and assets. Premier is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the ownership of property or nature of its business
requires such qualification.
3.2 Subsidiaries. Premier has four subsidiaries: JSF Properties Corp.,
RF Properties Corp., 66 Properties Corp. and Jericho Properties Corp. (the
"Subsidiaries"). Each of the Subsidiaries is duly organized, validly existing
and in good standing under the laws of their respective states of incorporation,
each Subsidiary has full corporate power and authority to conduct its business
as each is presently being conducted and to won, lease and operate its
properties and assets. Each Subsidiary is duly qualified to do business as a
foreign corporation and each is in good standing in each jurisdiction where the
ownership of property or nature of its business requires such qualifications.
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3.3 Organizational Documents, Etc. True, complete and accurate copies
of the certificate of incorporation and by-laws, each of the foregoing as
amended to the date hereof, and the minute books and all stock books and stock
transfer records of Premier, each current to the date hereof, have been
furnished to the Company, and there will be no amendments or changes to such
certificate of incorporation or by-laws prior to the Closing Date.
3.4 Capital Stock, Etc. All of the issued and outstanding capital stock
of Premier is held by the Existing Stockholders, as set forth on Schedule A
hereto. All the shares of Premier Capital Stock are, and from the date hereof
through the Closing Date, will be, validly issued and outstanding, fully paid
and non-assessable. Except as set forth on Schedule 3.4, there are no
outstanding options, warrants, rights (including preemptive rights),
subscriptions, calls, commitments, conversion rights, rights of exchange, plans
or other agreements of any character providing for the purchase, issuance or
sale of any shares of the capital stock of Premier.
3.5 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of breach of, conflict with or default under any term
or provision of any contract, agreement, indebtedness, lease, encumbrance,
commitment, license, franchise, permit, authorization or concession to which
Premier is a party or by which Premier is bound or affected or (ii) a violation
by Premier of any statute, rule, regulation, ordinance, code, action or award
applicable to it.
3.6 Restrictive Documents. Premier is not subject to, or a party to,
any mortgage, lien, lease, license, permit, agreement, contract or instrument,
or to any law, rule, ordinance, regulation, action or any other restriction of
any kind or character, which would have a material adverse effect on the
execution, delivery and performance of this Agreement by Premier and
consummation by Premier of the transactions contemplated hereby.
3.7 Consents and Approvals; Licenses. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, any governmental entity, or any other person or entity, is
required to be made or obtained by Premier in connection with the execution,
delivery and performance by Premier of this Agreement and the consummation by
Premier of the transactions contemplated hereby.
3.8 Compliance with Law. Premier has complied with, and has not
violated, any judgments, rulings, orders, writs, injunctions, awards, decrees,
statutes, laws, ordinances, codes, rules or regulations of any governmental
entity applicable to it or to its assets, properties, business or operations.
Premier has complied with, and has not violated, any foreign, federal, state,
county or local energy, public utility, health, occupational safety or health
requirement, environmental requirement or any other foreign, federal, state,
county or local governmental, regulatory or administrative requirement. No
consent, approval, authorization, license, order or permit of, or declaration,
filing or registration with, any governmental entity which has not been obtained
is material to or necessary for the conduct of the business of any of Premier.
No violations are or have been recorded in respect of any consent, approval,
authorization, license, order or permit of, or declaration, filing or
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registration with, any governmental entity, and no proceeding is pending, or to
the knowledge of Premier threatened, to revoke or limit any consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, any governmental entity.
3.9 Litigation. There is no litigation, arbitration, claim,
governmental or other proceeding or investigation (domestic or foreign, formal
or informal) pending or, to the knowledge of Premier threatened or in prospect
(or any basis therefor known to PMC), with respect to Premier or any of its
operations, business, properties or assets except as, individually or in the
aggregate, do not now have and are not reasonably expected in the future to have
a material adverse effect upon the financial condition, results of operations,
business, prospects, properties or assets of any of the Premier.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE EXISTING STOCKHOLDERS
Each Existing Stockholder hereby represents and warrants, solely with
respect to such Existing Stockholder and not with respect to any other Existing
Stockholder, to the Company as set forth in this Article IV.
4.1 Authorization. Each Existing Stockholder has the legal right, power
and authority to execute, deliver and perform his, her or its obligations under
this Agreement and each other agreement, document or instrument contemplated
hereby to which he, she or it is a party. This Agreement has been duly executed
and delivered by each such Existing Stockholder and is a legal, valid and
binding obligation of each such Existing Stockholder in accordance with its
terms, except as limited by the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto.
4.2 Ownership of Securities. All of the securities of Premier owned by
each Existing Stockholder are owned by such Existing Stockholder free and clear
of all encumbrances. No Existing Stockholder sold any securities pursuant to any
option, warrant, rights, commitments, plans or other agreement of any character
providing for the purchase or sale of any shares of capital stock of Premier.
4.3 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation or breach of, conflict with or default under any term
or provision of any contract, agreement, indebtedness, lease, encumbrance,
commitment, license, franchise, permit, authorization or concession to which any
Existing Stockholder is a party or by which any Existing Stockholder is bound or
affected or (ii) a violation by any Existing Stockholder of any statute, rule,
regulation, ordinance, code, action or award applicable to him, her or it.
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4.4 Restrictive Documents. No Existing Stockholder is subject to, or a
party to, any mortgage, lien, lease, license, permit, agreement, contract or
instrument, or to any law, rule, ordinance, regulation, action or any other
restriction of any kind or character, which would have a material adverse effect
on the execution, delivery and performance by such Existing Stockholder of this
Agreement and consummation by such Existing Stockholder of the transactions
contemplated hereby.
4.5 Consents and Approvals; Licenses. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, any governmental entity, or any other person or entity, is
required to be made or obtained by any Existing Stockholder in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby.
4.6 No Other Agreements to Sell Securities. Except as set forth on
Schedule 4.6, no Existing Stockholder has any legal obligation, absolute or
contingent, to any person or entity other than the Company to sell the
securities of Premier owned by such Existing Stockholder.
4.7 Material Misstatements Or Omissions. No representations or
warranties by any Existing Stockholder in this Agreement, nor any document,
exhibit, certificate or schedule furnished by such Existing Stockholder to the
Company pursuant hereto, or in connection with the transactions contemplated
hereby, or any document delivered at the Closing, contains or will contain
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained therein not misleading.
The copies of all documents furnished to the Company hereunder are true and
complete copies of the originals thereof.
4.8 Investment Representations. Each Existing Stockholder is acquiring
his, her or its shares of the Company's Common Stock for his, her or its own
account, for investment and not with a view to the sale or distribution thereof
or with any present intention of selling or distributing any thereof, except in
conformity with the Securities Act. Each Existing Stockholder understands and
acknowledges that the shares of the Company's Common Stock are not registered
under the Securities Act and will not be transferable except (i) pursuant to an
effective registration statement under the Securities Act, (ii) pursuant to Rule
144 or any successor rule under the Securities Act, (iii) pursuant to a
no-action letter issued by the SEC to the effect that a proposed transfer of the
shares of the Company Common Stock may be made without registration under the
Securities Act or (iv) pursuant to an opinion of counsel for or reasonably
acceptable to the Company to the effect that the proposed transfer is exempt
from registration or qualification under the Securities Act and relevant state
securities laws.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PMCC FINANCIAL CORP.
The Company hereby represents and warrants to the Existing Stockholders
as follows:
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5.1 Organization of the Company. The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware, has full
corporate power and authority to conduct its business as it is presently being
conducted and to own, lease and operate its properties and assets. The Company
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the ownership of property or nature of its
business requires such qualification and where failure to be so qualified would
have a material adverse effect on the Company. The Company was incorporated in
October 1997 and has done no business and incurred no obligations except with
respect to the transactions contemplated hereby and by the Registration
Statement.
5.2 Authorization. The Company has all necessary corporate power and
authority and has taken all corporate action necessary to enter into this
Agreement to consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and delivered by
the Company and is a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as limited
by the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors rights generally and court
decisions with respect thereto.
5.3 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of or a conflict with any provision of the certificate
of incorporation or bylaws of the Company, (ii) a breach of, or a default under,
any term or provision of any contract, agreement, indebtedness, lease,
encumbrance, commitment, license, franchise, permit, authorization or concession
to which the Company is a party or by which the Company is bound or affected
which breach or default would have a material adverse effect on the business or
financial condition of the Company or its ability to consummate the transactions
contemplated hereby or (iii) a violation by the Company of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree, action
or award applicable to the Company, which violation would have a material
adverse effect on the business or financial condition of the Company or its
ability to consummate the transactions contemplated hereby.
5.4 Consents and Approvals. No consent, approval or authorization of,
or declaration, filing or registration with, any governmental entity, or any
other person or entity is required to be made or obtained by the Company in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
5.5 Issuance of the Company's Shares. The authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock, par value $.01 per
share and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). As of the date hereof, no shares of Common Stock or
Preferred Stock are outstanding. Upon the issuance of the Company's Common
Stock, as provided herein, the Company's Common Stock will be duly and validly
issued, fully paid and non-assessable. Except as contemplated by the
Underwriting Agreement by and between the Company and Coleman & Company
Securities, Inc. and ISG Capital Markets, LLC, as representatives of the
underwriters (the "Underwriting Agreement"), to be entered into on the Effective
Date (as defined in the Underwriting Agreement) and each of the Premier Stock
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Option Plan and the 1997 Stock Option Plan proposed to be adopted by the
Company, there are no outstanding options, warrants, rights, calls commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of the Company.
5.6 Investment Representations. The Company is acquiring the shares of
Premier's Capital Stock for its own account for investment and not with a view
to the sale or distribution thereof or with any present intention of selling or
distributing any thereof. the Company understands and acknowledges that the
shares of Premier Capital Stock are not registered under the Securities Act and
will not be transferable except (i) pursuant to an effective registration
statement under the Securities Act, (ii) pursuant to Rule 144 or any successor
rule under the Securities Act, (iii) pursuant to a no-action letter issued by
the SEC to the effect that a proposed transfer of the Premier capital stock may
be made without registration under the Securities Act or (iv) pursuant to an
opinion of counsel for the Company to the effect that the proposed transfer is
exempt from registration or qualification under the Securities Act and relevant
state securities laws.
ARTICLE VI
COVENANTS OF THE EXISTING STOCKHOLDERS AND THE COMPANY
The Existing Stockholders, on the one hand, and the Company, on the
other hand, covenant with each other as follows:
6.1 Maintenance of Business Prior to Closing. During the period from
the date hereof through the Closing Date, the Existing Stockholders shall cause
Premier to continue to carry on its business in the ordinary course and in
accordance with past practice and not to take any action inconsistent with past
practice and not to take any action inconsistent therewith or with the
consummation of the Closing.
6.2 Consents and Best Efforts. As soon as practicable, Premier and the
Company will commence all reasonable action required hereunder to obtain all
applicable licenses, consents, approvals and agreements of, and to give all
notices and make all filings with, any third parties as may be necessary to
authorize, approve or permit the full and complete transfer, conveyance,
assignment and delivery of the shares of the capital stock of Premier by a date
early enough to allow the transactions hereunder to be consummated by the
Closing Date.
6.3 Share Legend. All of the Company's Common Stock to be issued to the
Existing Stockholders pursuant to this Agreement shall be subject to the
provisions of this Agreement, and the certificates representing such Company
Common Stock shall bear the following legend:
"The shares of PMCC Financial Corp. (the "Corporation") represented by
this certificate have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be distributed or
transferred except (A) pursuant to an effective registration statement
under the Securities Act, (B) pursuant to an opinion of counsel for or
reasonably acceptable to the Corporation to the effect that the
proposed transfer is exempt from registration or qualification under
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the Securities Act and relevant state securities laws or (C) pursuant
to a no-action letter issued by the Securities and Exchange Commission
to the effect that proposed transfer hereof may be made without
registration under the Securities Act."
ARTICLE VII
CONDITIONS TO THE EXISTING
STOCKHOLDERS' OBLIGATIONS
The obligations of the Existing Stockholders to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of the Company contained in or made pursuant to this Agreement shall
be true and correct in all material respects at and as of the Closing Date (and
such representations and warranties shall be deemed to be repeated by the
Company at and as of the Closing Date), except as and to the extent that the
facts and conditions upon which such representations and warranties are based
are expressly required or permitted to be changed by the terms hereof, and the
Company shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing Date.
7.2 Consents. All consents, approvals and waivers from third parties,
governmental entities and other parties necessary to permit the Existing
Stockholders to transfer the securities of Premier to the Company as
contemplated hereby shall have been obtained.
7.3 No Governmental Proceedings or Litigation. No action by any
governmental entity shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected materially to damage the Existing Stockholders if the
transactions contemplated hereunder are consummated.
7.4 Corporate Documents. The Existing Stockholders shall have received
from the Company, resolutions adopted by the board of directors of the Company
approving this Agreement and the transactions contemplated hereby, certified by
the Company's corporate secretary or assistant secretary.
7.5 Certificates. The Company shall have furnished the Existing
Stockholders with such certificates of the Company's officers and others to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by the Existing Stockholders.
8
<PAGE>
ARTICLE VIII
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to consummate the transactions provided
for hereby are subject, in the discretion of the Company, to the satisfactions,
on or prior to the Closing Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants. All representations and
warranties of the Existing Stockholders contained in or made pursuant to this
Agreement shall be true and correct in all material respects at and as of the
Closing Date (and such representations and warranties shall be deemed to be
repeated by the Existing Stockholders at and as of the Closing Date), except as
and to the extent that the facts and conditions upon which such representations
and warranties are based are expressly required or permitted to be changed by
the terms hereof, and the Existing Stockholders shall have performed in all
material respects all agreements and covenants required hereby to be performed
by them prior to or at the Closing Date.
8.2 Consents. All consents, approvals and waivers from third parties,
governmental entities and other parties necessary to permit the Existing
Stockholders to transfer, and the Company to acquire the Shares of Premier as
contemplated hereby shall have been obtained.
8.3 No Governmental Proceedings or Litigation. No action by any
governmental entity shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to affect materially the right or ability of the Company
to own the shares of Premier as contemplated hereby after the Closing or
materially to damage the Company or of Premier if the transactions contemplated
hereunder are consummated.
8.4 Certificates. The Existing Stockholders shall have furnished the
Company with such certificates to evidence compliance with reasonably requested
by the Company.
ARTICLE IX
EFFECTIVE DATE OF CLOSING
9.1 Effective Date of Closing. Notwithstanding the Closing of the
transactions contemplated hereby on the Closing Date, this Agreement, other than
this Article IX, shall terminate and such Closing shall be deemed not to have
occurred if the closing of the initial public offering by the Company
contemplated by the Registration Statement (the "Offering") shall not have
occurred in accordance with the terms of the Underwriting Agreement on or prior
to the forty-fifth business day following the Closing Date.
9.2 Further Assurances. Upon the termination of this Agreement pursuant
to Section 10.1 hereof, each party hereto hereby covenants and agrees to
cooperate in good faith with the other parties hereto and will take all
appropriate action (corporate or otherwise) and execute any documents,
instruments or conveyance of any kind which may be reasonably necessary or
advisable to place the parties in the same position as they were prior to the
execution and delivery of this Agreement and prior to the taking of any actions
(corporate or otherwise) by the parties hereto of in preparation for the
Offering.
9
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Termination. If any condition precedent to the Existing
Stockholders' obligations hereunder is not satisfied and such condition is not
waived by the Existing Stockholders at or prior to the Closing Date, or if any
condition precedent to the Company's obligations hereunder is not satisfied and
such condition is not waived by the Company at or prior to the Closing Date, the
Existing Stockholders or the Company, as the case may be, may terminate this
Agreement at their or its option by notice to the other party.
10.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party; except that the Company may
assign all its rights and obligations hereunder to a subsidiary or subsidiaries
of the Company or to a successor to the business of the Company; provided,
however, that such assignment shall not release the Company with respect to any
such obligations or liabilities. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and, beneficiaries, personal representatives
and successors. No other person shall have any right, benefit or obligation
hereunder.
10.3 Notices. All notices permitted or required under this Agreement
shall be in writing and shall be either (a) delivered by personal service, (b)
delivered by courier service, (c) telecopied and confirmed immediately in
writing by a copy mailed by registered or certified mail, postage prepaid,
return receipt requested, or (d) sent by certified or registered mail, postage
prepaid, return receipt requested, to the parties hereto at their addresses set
forth below or at such other addresses which may be designated in writing by the
parties:
If to an Existing Stockholder: c/o PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, New York 11577.
If to the Company: 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.
Telecopier No.: (516) 663-6642.
Such notices shall be effective upon receipt in the case of personal or
courier service or telecopier delivery and on the third (3rd) day after posting
in the U.S. mail.
10
<PAGE>
10.4 Governing Law. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
New York without reference to the choice of law, except with respect to matters
of law concerning the internal corporate affairs of the Company, and as to those
matters the law of the State of Delaware shall govern.
10.5 Entire Agreement. This Agreement (including the Schedules hereto)
supersedes all prior agreements and understandings, oral and written, among the
parties with respect to the subject matter hereof, and this Agreement
constitutes the entire agreement of the parties.
10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.7 Expenses. Except as otherwise specified herein, each party hereto
shall pay its own legal, accounting, out-of-pocket and other expenses incident
to this Agreement and to any action taken by such party in preparation for
carrying this Agreement into effect.
10.8 Severability. If any term, covenant, condition, or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions, and
provisions of this Agreement shall not be affected and each remaining term,
covenant, condition, and provision of this Agreement shall be valid and shall be
enforceable to the fullest extend permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
10.9 Headings. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
10.10 Publicity. No Existing Stockholder shall issue any press release
or make any public statement regarding the transactions contemplated hereby,
without the prior approval of the Company, except, if after discussion between
the parties or their counsel, in the opinion of counsel for any Existing
Stockholder, such Existing Stockholder is required under any applicable law or
regulation to make a public statement or announcement, such Existing Stockholder
shall be permitted to issue the legally required statement or announcement.
10.11 Amendments. This Agreement may not be modified or changed except
by an instrument or instruments in writing signed by all parties.
10.12 No Joint Venture. The parties, by entering into this Agreement
and consummating the transactions contemplated in this Agreement, shall not be
and shall not be considered a partner or joint venturer of one another.
11
<PAGE>
10.13 Construction of Agreement. This Agreement was negotiated at arm's
length by the parties and their respective counsel. This Agreement shall not be
construed as having been "drafted" by any one party and shall not be construed
against any party as a drafting party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PMC MORTGAGE CORP.
By:________________________________
Ronald Friedman, President
PMCC FINANCIAL CORP.
By:________________________________
Ronald Friedman, President
-----------------------------------
RONALD FRIEDMAN
-----------------------------------
ROBERT FRIEDMAN
-----------------------------------
DONNA JOYCE
-----------------------------------
SUZANNE GORDON
ROBERT FRIEDMAN 1998 GRANTOR
RETAINED ANNUITY TRUST
By:_________________________________
Robert Friedman, Trustee
12
<PAGE>
SCHEDULE "A"
<TABLE>
<CAPTION>
Premier Capital Stock Being The Company's Capital Stock
Name Contribution Issued In Exchange For
Premier Capital Stock
Class A Class B
------- -------
<S> <C> <C> <C>
Ronald Friedman 68.75 25 1,875,000
Robert Friedman 14.625 -- 292,500
Donna Joyce 1 -- 20,000
Suzanne Gordon 1 -- 20,000
Robert Friedman 1998 Grantor
Retained Annuity Trust 14.625 292,500
</TABLE>
<PAGE>
TAX INDEMNIFICATION AGREEMENT
This Tax Indemnification Agreement ("the Agreement"), is entered into
this ____ day of January, 1998, by and among PMCC FINANCIAL CORP., a Delaware
corporation (the "Company"), PREMIER MORTGAGE CORP., a New Jersey corporation
("Premier"), and each of RONALD FRIEDMAN ("Ronald"), ROBERT FRIEDMAN ("Robert"),
SUZANNE GORDON ("Suzanne"), DONNA JOYCE ("Donna") and the ROBERT FRIEDMAN 1998
GRANTOR RETAINED ANNUITY TRUST (the "Trust"). Robert, Ronald, Suzanne, Donna and
the Trust are collectively referred to as the "Stockholders."
W I T N E S S E T H:
WHEREAS, Premier was an S corporation within the meaning of Section
1361 of the Internal Revenue Code of 1986, as amended ("the Code"), and the
corresponding provisions of state income tax law, continuously since January 1,
1992 through the day immediately preceding the date of the effectiveness of the
Company's initial public offering (the "S Period"); and
WHEREAS, immediately prior to the date of this Agreement the
Stockholders held all the outstanding shares of capital stock, no par value, of
Premier (the "Capital Stock"); and
WHEREAS, as of the date of this Agreement the Stockholders have
contributed all of the shares of Capital Stock held by them to the Company in
exchange for shares of common stock, $ .01 par value per share, of the Company;
and
WHEREAS, Premier will be a C corporation within the meaning of Section
1361 of the Code and the corresponding provisions of state income tax law from
the date of this Agreement and thereafter.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Representations and Warranties of the Parties.
(a) The Stockholders, jointly and severally, represent and
warrant to the Company and Premier that:
(i) During the S Period, the Stockholders duly and timely
filed all tax reports and returns required to be filed by them ("Stockholder Tax
Return").
(ii) The Stockholders have duly included, or will duly
include, in each of their Stockholder Tax Returns their allocable share of
Premier's taxable income from all sources through and including the last
business day of the S Period (the "S Corporation Taxable Income"). All positions
taken by the Stockholders on their Stockholder Tax Returns have been consistent
with Premier's subchapter S tax returns.
<PAGE>
(iii) There are no audits, inquiries, investigations or
examinations relating to any of the Stockholder Tax Returns pending, and there
are no claims which have been asserted relating to any of the Stockholder Tax
Returns which if determined adversely would result in the assertion by any
entity of the federal government or any state including the State of New Jersey,
asserting a claim of tax deficiency against Premier.
(iv) The Stockholders caused a valid S Corporation
election to be made with respect to Premier. Further, Premier has duly filed or
will duly file, all tax returns required to be filed by it with respect to its
operations during the S Period.
(b) Each of the parties, severally and not jointly, represents
to the other parties hereto that Premier will not change the method of
accounting previously employed by it in connection with the operations of
Premier during the S Period, including but not limited to the method of
accounting employed with respect to the preparation of the Stockholder Tax
Returns, the determination of the S Corporation Taxable Income, and otherwise.
2. Indemnifications.
(a) The Stockholders, jointly and severally, shall be
responsible for and shall indemnify and save and hold harmless the Company and
Premier from and against all taxes imposed on Premier resulting from a final
determination of an adjustment to the Stockholders' Taxable Income resulting in
a decrease in the Stockholders' S Corporation Taxable Income and a corresponding
increase in Premier's taxable income.
(b) The Company and Premier, jointly and severally, shall be
responsible for and shall indemnify and save and hold harmless each Stockholder
from and against all taxes imposed on such Stockholder resulting from a final
determination of an adjustment to Premier's taxable income resulting in a
decrease in Premier's taxable income and a corresponding increase in such
Stockholder's S Corporation Taxable Income. Further, Premier shall indemnify and
hold harmless the Stockholders from and against taxes incurred by such
Stockholders resulting from the receipt of any indemnification payments made to
such Stockholders pursuant to the foregoing sentence.
(c) The Stockholders, the Company or Premier, as the case may
be, shall make any payment required under this Agreement within thirty (30) days
after receipt of notice from the other party that a payment is due by such party
to the appropriate taxing authority.
(d) If a tax audit is commenced with respect to the S Period
or any tax is claimed for which the Stockholders would be required to indemnify
Premier, written notice thereof shall be given to the Stockholders as promptly
as practicable; provided, however, that the failure to give timely notice shall
not affect rights to indemnification hereunder except to the extent that the
Stockholders demonstrate actual damage caused by such failure. After such
notice, if the Stockholders shall acknowledge in writing to Premier that they
are obligated under the terms of their indemnity hereunder in connection with
such audit or claim, then the Stockholders shall be entitled, if they so elect,
to take control of the defense and investigation of such audit or claim and to
employ and engage attorneys of their own choice to handle and defend the same,
at the Stockholder's cost, risk and expense provided that the Stockholders and
2
<PAGE>
their counsel shall proceed with diligence and in good faith with respect
thereto. Premier shall cooperate in all reasonable respects with the
Stockholders and such attorney in the defense and investigation of such audit or
claim and any appeal arising therefrom, and shall not enter into any agreement
with any tax authority with respect to such audit or claim without the prior
consent of the Stockholders; provided, however, that Premier may, subject to the
Stockholders' control of the defense and investigation of such audit or claim,
at its own cost, participate in the defense and investigation of such audit or
claim and any appeal arising therefrom.
3. Deferred Tax Liability. Notwithstanding the foregoing, the
Stockholders shall not be responsible for any portion of any deferred tax
liability which may be recorded on the balance sheet of Premier upon termination
of the S corporation status.
4. Notices. All notices and other communications made in connection
with this Agreement shall be in writing and shall be deemed given when delivered
personally or sent by facsimile transmission to the numbers indicated below (if
physical confirmation of transmissions retained) or on the third succeeding
business day after being mailed by registered or certified mail, deposited in
the United States mail, postage prepaid, return receipt requested, to the
appropriate party at its, his or her address below or at such other address for
such party (as shall be specified by written notice when in fact delivered
pursuant hereto):
If to the Company or Premier, at: PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, New York 11577
Fax: (516) 625-9898
Attention: President
If to the Stockholders, at: c/o Robert Friedman
PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, New York 11577
Fax: (516) 625-9898
With a copy to: Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Norman M. Friedland, Esq.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in Roslyn
Heights, New York, as of this day of _____ day of January, 1998.
PMCC FINANCIAL CORP.
By: __________________________
Ronald Friedman, President
PREMIER MORTGAGE CORP.
By: __________________________
Ronald Friedman, President
------------------------------
RONALD FRIEDMAN
------------------------------
ROBERT FRIEDMAN
------------------------------
SUZANNE GORDON
------------------------------
DONNA JOYCE
ROBERT FRIEDMAN 1998 GRANTOR
RETAINED ANNUITY TRUST
------------------------------
ROBERT FRIEDMAN, TRUSTEE
4
<PAGE>
STOCKHOLDERS' AGREEMENT
AGREEMENT, made as of January __, 1998, by and among RONALD FRIEDMAN,
an individual residing at 788 Arbuckle Avenue, Woodmere, New York 11598
("Ronald"), ROBERT FRIEDMAN, an individual residing at 33 Yale Drive, Manhasset,
New York 11030 ("Robert"), SUZANNE GORDON, an individual residing at
___________________________ ("Suzanne"), DONNA JOYCE, an individual residing at
___________________________________ ("Donna"), the ROBERT FRIEDMAN 1998 GRANTOR
RETAINED ANNUITY TRUST (the "Trust"), and PMCC FINANCIAL CORP., a Delaware
corporation located at 66 Powerhouse Road, Roslyn Heights, New York 11577 (the
"Company"). Ronald, Robert, Donna, Suzanne and the Trust are sometimes
collectively referred to as the "Stockholders."
W I T N E S S E T H:
WHEREAS, Ronald, Robert, Suzanne, Donna and the Trust are currently the
record owners of all of the outstanding shares of the Company (the "Shares");
and
WHEREAS, Suzanne and Donna have granted a proxy to Robert to vote their
respective Shares; and
WHEREAS, the Company is anticipating an offering of its shares to the
public through an initial public offering ("IPO"); and
WHEREAS, the Stockholders desire to provide for, in advance of the IPO,
among other things, (i) the composition of the Company's Board of Directors;
(ii) continuity in the management, ownership and control of the Company; and
(iii) certain restrictions on transfer of the Securities.
NOW, THEREFORE, in consideration of the mutual promises and other good
and valuable consideration, each of the parties hereto agrees with the other, as
follows:
1. Election of Directors; Management of the Company.
(a) Election of Directors. Each of the Stockholders agrees to
vote, in person or by proxy, all of the shares of Common Stock owned by such
Stockholder, at any meeting of Stockholders of the Company called for the
purpose of voting on the election of directors or by consensual action of
Stockholders with respect to the election of directors, in favor of the election
of the directors as follows:
(i) Ronald shall nominate and vote for Robert as a member
of the Board of Directors and any other individual whom he sees fit, in his sole
discretion, including himself; and
(ii) Robert shall nominate and vote for Ronald as Chairman
of the Board of Directors and any other individual whom he sees fit, in his sole
discretion, including himself.
<PAGE>
(b) Management of the Company. Each Stockholder shall use his
best efforts to cause the Company to employ Ronald Friedman as the Company's
President and Chief Executive Officer and Robert as Chief Operating Officer,
Secretary and Treasurer.
2. Restrictions on Transfer of Shares. The Stockholders agree that:
(a) No Stockholder shall pledge, assign, sell, gift, transfer
or hypothecate or otherwise dispose of or encumber his Shares, or cause or
permit a change in the legal or beneficial ownership of his Shares, inter vivos
(collectively and individually referred to as a "Transfer"), except as expressly
permitted in this Agreement. Any Transfer requiring consent which is attempted
without such consent shall be null and void and without any force or effect.
(b) Except with respect to a sale of the Shares pursuant to an
effective registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
then in effect ("Securities Act"), every transferee of the Shares shall be bound
by the terms and conditions of this Agreement and all amendments hereto without
the requirement for the execution of any further document or agreement.
Nevertheless, each authorized transferee of the Shares shall execute and deliver
to the Corporation, at the transferee's own cost and expense, all documents,
instruments, certificates or agreements required to bind the transferee to the
terms of this Agreement. If the transferee refuses or fails to deliver any such
document, instrument, certificate or agreement within thirty (30) days after
demand thereof by the Corporation, the Transfer of the Shares to such transferee
shall be null and void;
(c) If any of the Shares are subject to attachment by a
creditor or is assigned or held for the benefit of any creditor, the interest
obtained by such creditor or assignee shall be only that of a lienholder, and in
no event shall any such creditor or assignee have any rights as a Stockholder.
(d) All Shares, including any additional Shares that may be
issued to the Stockholders, whether or not acquired or transferred pursuant to
the provisions of this Agreement, shall remain in all respects subject to this
Agreement and every transferee thereof shall by his acceptance be deemed to have
consented thereto.
(e) The restrictions set forth in this Section 2 shall
continue with respect to each share until the date on which such share has been
transferred pursuant to a sale to the public pursuant to an effective
Registration Statement pursuant to the Securities Act.
(f) The Corporation shall not be required to recognize a
Transfer of any Shares on the books of the Corporation unless the Transfer shall
be in compliance with and in accordance with the terms of this Agreement, or if
otherwise mutually agreed to by all of the Stockholders in writing.
2
<PAGE>
3. Legends.
(a) Each certificate evidencing the Shares and each
certificate issued in exchange for or upon transfer of any of the Shares (if
such Shares remain subject to this Agreement after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
CERTAIN STOCKOLDERS AGREEMENT DATED AS OF JANUARY, 1998 BY AND
AMONG THE COMPANY AND CERTAIN STOCKHOLDERS, AND AS SUCH ARE
SUBJECT TO CERTAIN VOTING PROVISIONS AND RESTRICTIONS ON
TRANSFER SET FORTH IN THE STOCKHOLDERS AGREEMENT."
(b) Removal of Legends. Whenever in the opinion of the issuer
of such Shares and counsel reasonably satisfactory to the issuer of such Shares
(which opinion shall be delivered to the issuer of such Shares in writing) the
restrictions described in the legend set forth above cease to be applicable to
any shares, the holder thereof shall be entitled to receive from the issuer
thereof, without expense to the holder, a new instrument or certificate not
bearing a legend stating such restrictions.
4. Right of First Refusal.
(a) Upon receipt by any Stockholder (the "Selling
Stockholder") of a bona fide, arm's length offer in writing (a "Bona Fide
Offer") to purchase any and all Shares held by a Selling Stockholder, the
following provisions shall govern if such Selling Stockholder desires to sell
any such securities in any transaction, other than by a sale pursuant to an
effective Registration Statement:
(i) All sales of Shares must be entirely for cash (whether
or not payable in installments).
(ii) The Selling Stockholder shall promptly offer in
writing (the "First Reoffer") to sell such securities to the other Stockholder
("Offeree"), upon terms and conditions no less favorable than contained in the
Bona Fide Offer and shall attach a copy of the Bona Fide Offer to the First
Reoffer. Such First Reoffer may be accepted at any time by the Offeree within 20
days next following the receipt of the Reoffer (the "Reoffer Period") and such
acceptance must be made unconditionally and in full by the accepting Offeree by
notice to the Selling Stockholder prior to the expiration of the Reoffer Period.
(iii) If the First Reoffer is not accepted within the
Reoffer Period, the Selling Stockholder shall promptly offer in writing (the
"Second Reoffer") to sell such Shares to the Company upon terms and conditions
3
<PAGE>
no less favorable than contained in the Bona Fide Offer and shall attach a copy
of the Bona Fide Offer to the Second Reoffer. The Second Reoffer may be accepted
by the Company at any time within 20 days next following its receipt.
(iv) If an offer to purchase Shares of the Company is not
in writing, such offer shall not constitute a Bona Fide Offer and may not be
accepted by the Selling Stockholder.
(v) The purchase price for the securities which the
Company or Offeree elects to purchase shall be payable in cash as provided
herein, within 30 days after the exercise of such right to purchase by the
Company or such Offeree. The Company shall cooperate with and facilitate any
such transaction.
(c) Sales to Persons Other than Corporation or Offeree. Upon
the expiration of the First Reoffer and Second Reoffer without any such Reoffer
being accepted in accordance herewith, the Selling Stockholder shall be free to
accept the Bona Fide Offer; provided, however, that
(i) the third person or persons so acquiring such shares
shall prior to such acquisition agree in writing with the Company and the other
Stockholders to hold such securities subject to and in accordance with all of
the terms, provisions and considerations contained in this Agreement to the same
extent as if such person(s) originally executed this Agreement;
(ii) the conclusion of the transaction contemplated by the
Bona Fide Offer shall have been effected within 60 days after the later of the
Second Reoffer, and if not so effected within such 60 day period, the Bona Fide
Offer shall be deemed to have terminated at the end of such period and may not
thereafter be accepted; and
(iii) if the amount of a Bona Fide Offer should be
reduced, or if any of its terms or provisions should otherwise be changed, then
the Bona Fide Offer shall be treated as a new Bona Fide Offer and may not be
accepted unless the provisions of this Section 4 shall have been complied with
and Reoffers made with respect to it.
5. Voting in Violation of this Agreement. Each Stockholder agrees that
he will not vote any Shares owned by him or her or take any other action as a
Stockholder or in any other capacity for the purpose of authorizing or inducing
the Company to take any of the foregoing actions or approving or ratifying the
same in violation of this Agreement.
6. Miscellaneous.
(a) Term. This Agreement shall be effective and binding upon
the parties hereto and their respective successors and assigns as of the date on
which the Securities and Exchange Commission declares effective the Registration
4
<PAGE>
Statement on Form S-1 of PMCC, filed pursuant to the Securities Act until the
tenth (10th) anniversary of the date hereof.
(b) Notices. Notices or other communications required or
permitted to be given hereunder shall be in writing, and shall be deemed duly
given upon personal delivery or mailing by registered or certified mail, return
receipt requested, to all of the parties at their last known residence or
principal office address, as follows:
If to Ronald: 788 Arbuckle Avenue
Woodmere, New York 11598
If to Robert: 33 Yale Drive
Manhasset, New York 11030
If to the Company: 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.
Such notices shall be effective upon receipt in the case of personal or courier
service or telecopier delivery and on the third (3rd) day after posting in the
U.S. mail.
(c) Governing Law. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the State of New York without reference to the choice of law, except with
respect to matters of law concerning the internal corporate affairs of PMCC, and
as to those matters the law of the State of Delaware shall govern.
(d) Entire Agreement. This Agreement supersedes all prior
agreements and understandings, oral and written, among the parties with respect
to the subject matter hereof, and this Agreement constitutes the entire
agreement of the parties.
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Severability. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any circumstance shall
be invalid or unenforceable to any extent, the remaining terms, covenants,
conditions, and provisions of this Agreement shall not be affected and each
remaining term, covenant, condition, and provision of this Agreement shall be
valid and shall be enforceable to the fullest extend permitted by law. If any
provision of this Agreement is so broad as to be unenforceable, such provision
shall be interpreted to be only as broad as is enforceable.
5
<PAGE>
(g) Headings. The article, section and other headings
contained in this Agreement are for reference purposes only and shall not be
deemed to be a part of this Agreement or to affect the meaning or interpretation
of this Agreement.
(h) Amendments. This Agreement may not be modified or changed
except by an instrument or instruments in writing signed by all Parties.
(i) Lack of Independent Counsel. The parties all acknowledge
that the Company's counsel, Ruskin, Moscou, Evans & Faltischek, P.C., prepared
this Agreement on behalf of and in the course of its representation of the
Company, and that:
(i) The parties have been advised by Ruskin, Moscou, Evans
& Faltischek, P.C. that a conflict exists among their individual interests; and
(ii) The parties have been advised by Ruskin, Moscou,
Evans & Faltischek, P.C., to seek the advice of independent counsel; and
(iii) The parties have had the opportunity to seek the
advice of independent counsel.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PMCC FINANCIAL CORP.
By:______________________________
, President
---------------------------------
RONALD FRIEDMAN
---------------------------------
ROBERT FRIEDMAN
6
<PAGE>
---------------------------------
SUZANNE GORDON
---------------------------------
DONNA JOYCE
ROBERT FRIEDMAN 1998 GRANTOR
RETAINED ANNUITY TRUST
By:______________________________
Robert Friedman, Trustee
<PAGE>
Exhibit 16.1
January 26, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Dear Gentlemen:
We have read the disclosures made by Premier Mortgage Corp. (and its proposed
parent corporation PMCC Financial Corp. (the "Registrant") in its filing on the
Registration Statement on Form S-1. We agree with the statements made by the
Registrant on Page 53, under the heading "Experts".
Sincerely,
Freeberg & Freeberg
<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 to our firm
under the headings "Experts" and "Selected Consolidated Financial Data" in
Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1 and
related Prospectus of PMCC Financial Corp.
KPMG Peat Marwick LLP
Jericho, New York
January 27, 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. 2 to Form
S-1 Registration Statement and related prospectus of PMCC Financial Corp.
/s/ Freeberg & Freeberg
-----------------------------
Freeberg & Freeberg
Westbury, New York
January 27, 1998
