<PAGE>
As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-38783
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Pre-effective Amendment No. 3
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 11501 56th Floor
(516) 663-6600 New York, New York 10022
(516) 663-6641 (fax) (212) 371-2000
(212) 371-5500 (fax)
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]_______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]_______
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
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 February 11, 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 of $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 Common Stock will be listed on the
American Stock Exchange ("AMEX") upon official notice of issuance 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 and 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 opening a
fully-staffed wholesale division, significantly increasing its "B," "C" and "D"
mortgage originations and establishing a program to provide short-term funding
to independent real estate agencies for one-to-four family residential
rehabilitated properties.
The Company's primary mortgage banking 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 from its mortgage banking activities.
The Company has experienced significant growth in its mortgage banking
activities 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 from its mortgage banking activities of $3.4
million, $6.8 million and $10.1 million, respectively. There can be no assurance
that the Company's historical rate of growth from its mortgage banking
activities 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 from mortgage banking activities 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 income by charging fees for short-term funding
to independent real estate agencies for the purchase, rehabilitation and resale
of vacant one-to-four family residences in New York City and Long Island, New
York. The Company provides this funding to 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 funding
to accomplish the purchase, rehabilitation and resale of the property, title to
the properties is held by the Company. The Company's income from this activity
is limited to the fees and interest charged in connection with providing the
funding and is not related to any gain or loss on the sale of the property.
Because the Company holds the title to these properties, for financial reporting
purposes the Company records as revenue the gross sales price of these
properties when the properties are sold to the ultimate purchasers and it
records cost of sales equal to the difference between such gross sales price and
the amount of its contracted income pursuant to its contracts with the
independent real estate agents. From the commencement of this activity on
September 1, 1996 through December 31, 1996, the Company completed 35
transactions and recorded revenues of $5.1 million and cost of sales of $4.8
million. During the nine months ended September 30, 1997, the Company completed
118 such transactions and at September 30, 1997, the Company had 140 properties
in various stages of rehabilitation and awaiting resale. The Company's revenues
and costs of sales from this activity for the nine months ended September 30,
1997 were $17.5 million and $16.5 million, respectively . Although the Company
expects to continue this activity in its markets, there can be no assurance that
the Company's historical rate of growth of this activity will continue in future
periods. (See "Risk Factors -- Potential Losses Incurred From the Funding of the
Purchase, Rehabilitation and Resale of Residential Real Estate"; and "Possible
Fluctuations in Quarterly Performance").
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;
4
<PAGE>
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, activities in conjunction
with independent real estate agencies outside of New York City and Long
Island, New York; and
o recruit additional key personnel.
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 activities in conjunction with
independent real estate agencies; upgrade of
information systems; Subchapter S corporation
distributions to pay shareholder taxes;
repayment of debt; and general corporate and
working capital purposes.
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 $ 11,943
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 .................................... $5,864 $ 27,573
Net income ................................. 770 2,489
Provision for pro forma income
taxes (1) ................................ 1,000
Pro forma net income ....................... 1,423
Pro forma net income per share (2) ......... $ 0.53
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>
<PAGE>
<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 ........................................ 12,408 12,408 12,408
Total assets ..................................... 64,819 64,819 74,319
Borrowings under Warehouse Facility .............. 55,881 55,881 55,881
Amount due to affiliates and shareholder ......... 3,328 3,328 3,328
Total liabilities ................................ 60,761 63,119 62,119
Shareholders' equity ............................. 4,058 1,700 12,200
</TABLE>
- -------------
(1) Prior to the Exchange, Premier was treated as an S corporation for federal
and state income tax purposes. See "Reorganization and Termination of S
Corporation Status." The pro forma presentation for statement of operations
data reflects the provision for income taxes as if Premier had always been a
C corporation at assumed effective tax rates of approximately 42%. The pro
forma statement of operations data also reflects an increase in officer
compensation expense pursuant to proposed employment contracts. The pro
forma presentation for balance sheet data reflects the deferred tax
liability and the distribution payable to be recorded as of the date of the
termination of the S corporation status.
(2) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares and share
equivalents outstanding including the estimated number of shares that would
be necessary to fund a $1 million S Corporation distribution.
(3) For the years ended December 31, 1994, 1995 and 1996, the Company estimates
that the sub-prime loans accounted for less than 5% of the Company's total
originations for those years and are included in conventional loans for
those years.
(4) Adjusted to give effect to the sale by the Company of the Shares at an
assumed initial public offering price of $10.00 per share.
6
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk. Prospective investors should carefully consider the
following risk factors relating to the business of the Company and this
Offering, together with the information and financial data set forth elsewhere
in this Prospectus, before investing in the Shares. Prospective investors should
note that this Prospectus contains certain "forward-looking statements,"
statements containing the words "believes," "anticipates," "expects," "intends,"
"should," "seeks" and similar words. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Actual results may differ materially from those
in the forward-looking statements as a result of various factors, including, but
not limited to, the risk factors set forth in this Prospectus. The accompanying
information contained in this Prospectus identifies certain important factors
that could cause such differences.
Voting Control by Majority Stockholders; 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 Common Stock outstanding (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
revenues from residential rehabilitation funding activities. 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. Total revenues for these periods from
mortgage banking activities were approximately $1.2 million, $3.4 million, $6.8
million and $10.1 million, respectively. In April 1997, the Company commenced
its lending operations to sub-prime borrowers. In September 1996, the
Company commenced its residential rehabilitation activities. The revenues from
this activity were $5.1 million and $17.5 million for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.
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
7
<PAGE>
Company has significantly increased its residential rehabilitation funding
activities. 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 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 the Funding of the Purchase, Rehabilitation and
Resale of Residential Real Estate
In September 1996, the Company commenced a program to provide short-term
funding 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
income from this activity is limited to fees and interest charged in connection
with providing the funding and is not related to any gain or loss on the sale of
the property. The Company's activity commences when the agencies submit
information about a property to the Company which the agencies believe meets the
Company's criteria. If the Company agrees, it will fund the property at up to
70% of the appraised value. The Company does not generally fund properties when
the purchase price of the property is greater than 70% of the appraised value.
Although the terms of the 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 fulfill their contractual obligations. Although the real estate agents
and their principals personally guarantee the reimbursement of all costs and
fees payable to the Company, including all costs incurred by the Company in
connection with the purchase of such properties, 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 currently or formerly holding title to properties pursuant to its
residential rehabilitation 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 activities through 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
conduct residential rehabilitation activities is dependent on continued access
to capital on acceptable terms, whether through the Warehouse Facility or
otherwise.
The Company's Borrowing Agreement with two commercial banks (PNC Mortgage
Bank and LaSalle National Bank) commenced in July 1997 and was amended on
September 30, 1997 to allow the Company to
8
<PAGE>
borrow up to $50 million to finance its operations. The Borrowing Agreement was
further amended to allow the Company to borrow up to $60 million through
February 17, 1998. These borrowings are to be 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 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 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
activities 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 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."
9
<PAGE>
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 or delay in the number of properties sold under the Company's
residential rehabilitation program. 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 under the Company's residential rehabilitation
program during a particular quarter would postpone the Company's recording of
revenue, and therefore its contractual income, from the sale of such properties
until the quarter during which such properties are sold. In addition,
unanticipated delays in closing particular loan sales or the sale of a property
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."
Because the Company holds title to the properties in its residential
rehabilitation program, for financial reporting purposes the Company records as
revenue on the sales of such properties the gross sales price of these
properties when sold to the ultimate purchasers and it records as cost of sales
an amount equal to the difference between such gross sales price and the amount
of its contracted income pursuant to its contracts with the independent real
estate agents. In the event that in the future the Company should determine not
to hold title to all or a portion of such properties, the revenues of the
Company may decline as the revenue recognized by the Company in such event would
equal such contracted income and the Company would recognize no cost of sale.
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. Any material decline in real estate value
may result in lower revenues to the Company from the sale of its residential
real estate purchased for rehabilitation. A material decline in the volume of
sales of residential real estate could have a material adverse effect on the
Company's business, prospects, financial condition and results of operation. See
"Risk Factors -- Dependence on Loan Sales for Future Mortgage Banking Revenue."
Dependence on Loan Sales for Future Mortgage Banking Revenue
The Company seeks to generate mortgage banking 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
10
<PAGE>
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.
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 properties in the Company's residential
rehabilitation program were primarily located in New York City and Long Island,
New York.
11
<PAGE>
Although the Company is planning to expand its mortgage origination network to
additional states, the Company's loan origination and other activities are
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 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 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." In connection with the Company's
residential rehabilitation activities, the Company may, at a future date, face
competition from larger institutions that have significantly greater resources
and marketing capabilities than the Company.
Government Regulation
The Company's business is subject to extensive and complex rules and
regulations of, and examinations by, various federal, state and local government
authorities. These rules and regulations impose obligations and restrictions on
the Company's loan originations 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
12
<PAGE>
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 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 activity, the Company acquires title
to properties. 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, the Company, as either the
current holder of title or as a previous holder of title may be (i) required to
investigate and clean up hazardous or toxic substances or chemical releases at
such property and (ii) 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
13
<PAGE>
equaling $1.7 million at the date of the Offering. As of September 30, 1997,
such amount is currently estimated to be approximately $1.4 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 $400,000, 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."
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
14
<PAGE>
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."
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").
15
<PAGE>
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 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 $1.4 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 $400,000, 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 properties .......... 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 ................................................... $10,500,000 100.0%
=========== =====
</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 ............... -- 1,393 393
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.).......... 3,340 982 56
------- ------- -------
Total shareholders' equity ....................... 4,058 1,700 12,200
------- ------- -------
Total capitalization ........................... $64,030 $63,065 $72,565
======= ======= =======
</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 $ 11,943
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 ..................................... $5,864 $ 27,573
Net income .................................. 770 2,489
Provision for pro forma income taxes (1) 1,000
Pro forma net income ........................ 1,423
Pro forma net income per share (2) .......... $ 0.53
Pro forma weighted average number of
common shares and share equivalents
outstanding ................................ 2,700,368
</TABLE>
<PAGE>
<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>
<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 ..................................... 12,408 12,408 12,408
Total assets .................................. 64,819 64,819 74,319
Borrowings under Warehouse Facility ........... 55,881 55,881 55,881
Amount due to affiliates and shareholder ...... 3,328 3,328 3,328
Total liabilities ............................. 60,761 63,119 62,119
Shareholders' equity .......................... 4,058 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 income by charging fees to provide short-term
funding to independent real estate agencies for the purchase, rehabilitation and
resale of vacant one-to-four family residences in New York City and Long Island,
New York. The Company provides this funding to 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 funding
to accomplish the purchase, rehabilitation and resale of the property, title to
these properties is held by the Company. The Company's income from this activity
is limited to the fees and interest charged in connection with providing the
funding 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 recorded revenues of $5.1
million and cost of sales of $4.8 million. During the nine months ended
September 30, 1997, the Company completed 118 such transactions and at September
30, 1997, the Company had 140 properties in various stages of rehabilitation and
awaiting resale. The Company's revenues and costs of sales from this activity
for the nine months ended September 30, 1997 were $17.5 million and $16.5
million, respectively. Although the Company expects to continue this activity in
its markets, there can be no assurance that the Company's historical rate of
growth of this activity will continue in future periods.
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 from its
mortgage banking activities of $3.4 million, $6.8 million and $10.1 million,
respectively.
There can be no assurance that the Company's historical rate of growth will
continue in future periods.
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>
Sales of residential rehabilitation properties ......... $1,016,500 $17,519,462
Gains on sales of mortgage loans ....................... 4,254,846 8,641,550
Interest earned ........................................ 563,261 1,412,083
Gain on sale of securities available for sale .......... 29,605 --
---------- -----------
Total revenues ......................................... $5,864,212 $27,573,095
========== ===========
</TABLE>
Sales of residential rehabilitation properties increased by $16.5 million
to $17.5 million for the nine months ended September 30, 1997 from $1.0 million
for the nine months ended September 30, 1996. This increase was primarily due to
the increase in the number of properties sold which increased to 118 for the
nine months ended September 30, 1997 from nine for the nine months ended
September 30, 1996. The Company completed 28, 32 and 58 sales for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, respectively.
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.
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>
Costs of sales -- residential rehabilitation properties ......... $ 951,744 16,522,515
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 1,573,591
Other operating expenses ........................................ 308,299 784,032
---------- ----------
Total expenses .................................................. $5,073,996 $25,058,831
========== ===========
</TABLE>
Although there can be no assurance thereof, the Company believes that the
expected increase in mortgage origination volume and residential rehabilitation
activities will result in increases in expenses.
23
<PAGE>
Costs of sales -- residential rehabilitation properties increased by $15.6
million to $16.5 million for the nine months ended September 30, 1997 from $1.0
million for the nine months ended September 30, 1996. This increase was
primarily due to the increase in the number of properties purchased and sold.
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 $1.0 million, or 195%, to $1.6
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 the funding of residential rehabilitation properties.
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>
Sales of residential rehabilitation properties ......... -- $ 5,073,253
Gains on sales of mortgage loans ....................... $3,168,565 6,104,397
Interest earned ........................................ 231,916 735,802
Gain on sale of securities available for sale .......... -- 29,605
---------- -----------
Total revenues ......................................... $3,400,481 $11,943,057
========== ===========
</TABLE>
24
<PAGE>
Revenue from sales of residential rehabilitation properties increased to
$5.1 million for the year ended December 31, 1996 from $0 for the year ended
December 31, 1995. This activity commenced in September 1996.
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 and an
increase in the number of properties sold to 35 for year ended December 31, 1996
from 0 for the year ended December 31, 1995. 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.
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>
Costs of sales -- residential rehabilitation properties ......... -- $ 4,788,944
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 $10,877,872
========== ===========
</TABLE>
Costs of sales -- residential rehabilitation properties increased to $4.8
million for the year ended December 31, 1996 from $0 for the year ended December
31, 1995. This activity commenced in September, 1996.
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 residential rehabilitation properties. 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>
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. The Borrowing Agreement was further amended to
allow the Company to borrow up to $60 million through February 17, 1998. These
borrowings are to be 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 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 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."
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 properties 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. 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.
27
<PAGE>
The Company expects to increase its production of mortgage originations
through greater emphasis on B-C-D loans, expansion of wholesale operations and
expansion into new geographic markets. The Company believes that wholesale
lending represents a cost-effective means by which the Company may expand into,
and develop a presence in new market areas. See "Business." This anticipated
increase in production of mortgage originations is expected to be funded by
additional borrowings under the Warehouse Facility, increased capital resulting
from this Offering and funds provided from operations. To the extent that
additional borrowings under the Warehouse Facility are not available on
satisfactory terms, the Company will explore alternative means of financing,
including raising capital through additional offerings of securities. The net
proceeds of this Offering, together with the Company's existing capital
resources, including the funds from its Warehouse Facility, are expected to
enable the Company to fund its mortgage banking and residential rehabilitation
operations for a minimum of 12 months following completion of the Offering.
Recent Accounting Pronouncements -- SFAS 128, SFAS 129, SFAS 130 and SFAS 131
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share." SFAS 128 is effective for periods ending after December
15, 1997 and establishes standards for computing and presenting earnings per
share ("EPS") for entities with publicly held common stock and common stock
equivalents. The statement simplifies the computations of EPS that were
previously found in APB Opinion No. 15 "Earnings Per Share" and replaces primary
EPS with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if all common stock equivalents were
converted. This statement requires a reconciliation of the numerator and
denominator of the two EPS calculations and the restatement of all prior period
EPS data presented after adoption. The Company has not yet determined the impact
SFAS 128 will have on its financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital
Structure." SFAS 129 is effective for periods ending after December 15, 1997.
The Statement consolidates the disclosure requirements related to an entity's
capital structure that were previously contained in APB Opinions No. 10,
"Omnibus Opinion -- 1996," and No. 15 "Earnings Per Share," and Financial
Accounting Standards No. 47, "Disclosure of Long Term Obligations." The Company
has not yet determined the impact SFAS 129 will have on its financial
statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), Reporting Comprehensive Income." SFAS 130 is effective for
years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes. The
statement establishes standards for reporting and display of comprehensive
income and its components. This statement requires that all items that are
required to be recognized as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as all changes in equity
during a period, except those resulting from investments by owners and
distributions to owners. The Company has not yet determined the impact SFAS 130
will have on its financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company has not yet
determined the impact SFAS 131 will have on its financial statements.
Termination of S Corporation and Status of Income Taxes
Upon the effective date of the Offering, the Existing Stockholders,
pursuant to the terms of the Contribution Agreement, will contribute their
shares of capital stock of Premier to the Company in exchange for 2,500,000
shares of Common Stock, which will constitute all of the shares of Common Stock
outstanding prior to this Offering. Simultaneous with the Exchange, Premier will
cease to be treated as an S corporation.
As an S corporation, the Company's income, whether or not distributed, is
taxed at the shareholder level for federal and state tax purposes. As a result
of the Exchange, the Company and Premier, which will become
28
<PAGE>
a wholly-owned subsidiary of the Company, will be fully subject to federal and
state income taxes, and the Company will record a deferred tax liability on its
balance sheet. The amount of deferred tax liability to be recorded as of the
date of termination of the S corporation status will depend upon timing
differences between tax and book accounting principally relating to the
recognition of income on the cash basis for tax purposes. The pro forma
provision for income taxes in the accompanying statements of operations shows
results as if the Company had always been fully subject to federal and state
taxes at an assumed rate of approximately 42%.
29
<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 opening a
fully-staffed wholesale division, significantly increasing its "B," "C" and "D"
mortgage originations and establishing a program to provide short-term funding
to independent real estate agencies for one to four family residential
rehabilitation properties.
The Company's primary mortgage banking 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 from its mortgage banking activities.
The Company has experienced significant growth in its mortgage banking
activities 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 from its mortgage banking activities of $3.4
million, $6.8 million and $10.1 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 from mortgage banking activities 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 income by charging fees for short-term funding
to independent real estate agencies for the purchase, rehabilitation and resale
of vacant one-to-four family residences in New York City and Long Island, New
York. The Company provides this funding to 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 funding
to accomplish the purchase, rehabilitation and resale of the property, title to
the properties is held by the Company. The Company's income from this activity
is limited to the fees and interest charged in connection with providing the
funding and is not related to any gain or loss on the sale of the property.
Because the Company holds the title to these properties, for financial reporting
purposes the Company records as revenue the gross sales price of these
properties when the properties are sold to the ultimate purchasers and it
records cost of sales equal to the difference between such gross sales price and
the amount
30
<PAGE>
of its contracted income pursuant to its contracts with the independent real
estate agents. From the commencement of this activity on September 1, 1996
through December 31, 1996, the Company completed 35 transactions and recorded
revenues of $5.1 million and cost of sales of $4.8 million. During the nine
months ended September 30, 1997, the Company completed 118 such transactions and
at September 30, 1997, the Company had 140 properties in various stages of
rehabilitation and awaiting resale. The Company's revenues and costs of sales
from this activity for the nine months ended September 30, 1997 were $17.5
million and $16.5 million, respectively. Although the Company expects to
continue this activity in its markets, there can be no assurance that the
Company's historical rate of growth of this activity will continue in future
periods. (See "Risk Factors -- Potential Losses Incurred from the Funding of the
Purchase, Rehabilitation and Resale of Residential Real Estate"; and "Possible
Fluctuations in Quarterly Performance").
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 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 funding for residential
rehabilitation properties. In some cases, this funding would be provided to
one of the specialized real estate companies with which
31
<PAGE>
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 activities as
important sources of fee business and follow-on mortgage origination
business; and
o recruit additional key personnel. The Company continues to seek to hire
experienced mortgage loan and operations personnel, particularly with
experience in sub-prime mortgage originations. The Company views its
employees as key to its growth, and believes it offers compensation
packages that will both attract new employees and retain existing ones.
There can be no assurance as to the specific time-frame concerning when the
Company will implement any elements of its growth strategy, whether the Company
will be successful in implementing this strategy or whether the implementation
of this strategy will result in increased revenue or income to the Company.
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.
32
<PAGE>
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.
The following are examples of the more than 200 mortgage programs offered
to prime credit and sub-prime credit borrowers:
oFixed 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.
oFixed 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).
oAdjustable 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:
oAdjustment 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.
oCaps -- "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.
oIndex -- 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
33
<PAGE>
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. 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 activities through its existing and future
agency relations.
34
<PAGE>
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 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 loan 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.
35
<PAGE>
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 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 Activities. In September 1996, the Company commenced
a program of providing short-term fee-based funding 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 funding 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 fund the rehabilitation of the
property, it will advance the purchase of the property at up to 70% of the
appraised value. The Company generally does not fund properties when the
purchase price of the property is greater than 70% of the appraised value. As
security for providing these independent real estate agencies with the funding
to accomplish the purchase, residential rehabilitation and resale of the
property, title to these properties is held by the Company. The Company's income
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, 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. Because the
Company holds title to these properties, for financial reporting purposes the
Company records as revenue the gross sales price of these properties when the
properties are sold to the ultimate purchasers and it records cost of sales
equal to the difference between such gross sales price and the amount of its
contracted income pursuant to its contracts with the independent real estate
agents.
From inception of the program in September 1996 through September 30, 1997,
the Company has completed 153 such residential rehabilitation transactions with
four different agencies. The Company funded 103 of these properties for The
Foreclosure Network and the remaining 50 with three other agents. At September
30, 1997, the Company held 140 properties in various stages of rehabilitation
and resale in an aggregate amount of $12.4 million. 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 funding each property that each agency has identified. The Company has
investigated each agency and is satisfied that their financial condition and
business repu-
36
<PAGE>
tation is acceptable. As the Company opens additional retail offices, it will
consider funding residential rehabilitation properties in the areas served by
such offices.
The Company believes that its residential rehabilitation 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 sold through September 30, 1997, more than
90% of the buyers of such properties obtained mortgages originated by the
Company. The process by which these mortgages were processed and underwritten
was identical to the Company's procedures for reviewing and underwriting
mortgages originated from retail or wholesale sources, and each of these
mortgages was sold to third party investors in the normal course of the
Company's business.
Loan Funding and Borrowing Arrangements
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. The Borrowing Agreement was further amended to
allow the Company to borrow up to $60 million through February 17, 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 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
37
<PAGE>
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."
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
38
<PAGE>
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 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.
39
<PAGE>
Although the Company believes that it has systems and procedures to insure
compliance with these requirements and believes that it is currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations or that more restrictive laws, rules and
regulations will not be adopted in the future that could make compliance
substantially more difficult or expensive. In the event that the Company is
unable to comply with such laws or regulations, its business, prospects,
financial condition and results of operations may be materially adversely
affected.
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans
are made to borrowers for the purpose of consolidating consumer debt or
financing other consumer needs, the competitive advantage of tax deductible
interest, when compared with alternative sources of financing, could be
eliminated or seriously impaired by such government action. Accordingly, the
reduction or elimination of these tax benefits could have a material adverse
effect on the demand for mortgage loans of the kind offered by the Company.
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.
40
<PAGE>
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.
41
<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.
42
<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.
43
<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 $1.4 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.
44
<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.
45
<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.
46
<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 $1.4 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 $400,000, 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.
47
<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.
48
<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.
49
<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
50
<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.
51
<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.
52
<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 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.
53
<PAGE>
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 Post-Effective Amendments to the
Registration Statement of which this Prospectus forms a part or new Registration
Statements except that the holders of the Representatives' Warrants shall pay
any underwriting discounts or commission and expenses of their own legal
counsel.
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, payable in
advance at the closing of this Offering.
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."
54
<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.
55
<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 ................ 170,158 170,158 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 ...... 12,408,107 12,408,107 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 ............................ $64,819,380 64,819,380 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 .... 770,225 770,225 285,785 175,516
Federal and state income tax payable ...... 18,437 18,437 12,000 --
Deferred tax liability .................... 965,000 -- -- --
S corporation distribution payable ........ 1,393,118 -- -- --
----------- ---------- ---------- ---------
Total liabilities ...................... 63,119,380 60,761,262 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 3,284,093 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 4,058,118 1,877,554 1,114,358
----------- ---------- ---------- ---------
Total liabilities and
shareholders' equity ................ $64,819,380 64,819,380 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:
Sales of residential rehabilitation properties..... $ 17,519,462 1,016,500 5,073,253 -- --
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
Gain on sale of securities available-for-sale ..... -- 29,605 29,605 -- 1,562
------------ --------- --------- --------- ---------
27,573,095 5,864,212 11,943,057 3,400,481 1,186,519
------------ --------- ---------- --------- ---------
Expenses:
Cost of sales, residential rehabilitation prop-
erties .......................................... 16,522,515 951,744 4,788,944 -- --
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 .................................. 1,573,591 534,175 839,284 245,281 20,132
Other operating expenses .......................... 784,032 308,299 564,190 327,262 138,244
------------ --------- ---------- --------- ---------
25,058,831 5,073,996 10,877,872 3,197,321 1,124,507
------------ --------- ---------- --------- ---------
Income before income tax expense and minor-
ity interest ...................................... 2,514,264 790,216 1,065,185 203,160 62,012
Income tax expense ................................. 25,198 14,290 13,790 7,631 --
------------ --------- ---------- --------- ---------
Income before minority interest ................. 2,489,066 775,926 1,051,395 195,529 62,012
Minority interest in net income of
subsidiary ........................................ -- 5,680 17,863 -- --
------------ --------- ---------- --------- ---------
Net income ...................................... $ 2,489,066 770,246 1,033,532 195,529 62,012
============ ========= ========== ========= =========
Unaudited pro forma information:
Historical income before income tax expense
and minority interest ........................... 2,514,264 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 ................... 2,423,264 926,185
Provision for pro forma income taxes .............. (1,000,000) (391,000)
------------ ----------
Pro forma income before minority interest ......... 1,423,264 535,185
Minority interest in net income of subsidiary (17,863)
----------
Pro forma net income .............................. $ 1,423,264 517,322
============ ==========
Pro forma net income per share of common
stock ........................................... $ 0.53 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 .............................. -- -- 2,489,066 -- 2,489,066
Distributions ........................... -- -- (364,502) -- (364,502)
Unrealized gain on securities
available-for-sale, net ................ -- -- -- 56,000 56,000
------- ------- --------- ------ ---------
Balance at September 30, 1997 (unau-
dited) ................................. $ 6,250 711,775 3,284,093 56,000 4,058,118
======= ======= ========= ====== =========
</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 ........................................................ $ 2,489,066 770,246
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 ............... (116,997) (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 ............ (9,161,746) (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 ..................................................... 490,877 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 ............ (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
funding 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
Each of the Company's subsidiaries serves as a conduit for funding the
acquisition of residential rehabilitation properties. The properties are
acquired and marketed by various independent contractors, but funded by, and
titled in the name of, one of the subsidiaries. Upon sale, the subsidiaries
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.
The Company records as revenue the gross sales price of these properties when
the properties are sold to the ultimate purchasers and it records cost of sales
equal to the difference between such gross sales price and the amount of its
contracted income pursuant to its agreements with independent contractors. The
residential rehabilitation properties are carried at the lower of cost
(generally at up to 70% of the property's appraised value) or fair value less
cost to sell (as determined by independent appraisals of the properties). The
agreements with the independent contractors contain cross-collateralization
provisions and personal guarantees that minimize the risks associated with
changes in economic conditions and failure of the contractors to perform.
(i) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation. The Company provides for depreciation utilizing the straight-line
method over the estimated useful lives of the assets.
(j) Commitment Fees
Commitment fees received, which arise from agreements with borrowers that
obligate the Company to make a loan or to satisfy an obligation under a
specified condition, are initially deferred and recognized as income as loans
are delivered to investors, or when it is evident that the commitment will not
be utilized.
F-9
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(1) Summary of Significant Accounting Policies -- (Continued)
(k) Loan Origination Fees
Loan origination fees received and direct costs of originating loans are
deferred and recognized as income when the loans are sold to investors.
(l) Income Taxes
The Company, 66 Properties Corp. and JSF Properties Corp. have elected to
be treated as S corporations for both Federal and New York and New Jersey state
income tax purposes as of and for the nine months ended September 30, 1997 and
1996, and as of and for the years ended December 31, 1996, 1995 and 1994. As a
result, the income of the Company and the aforementioned subsidiaries is taxed
directly to the individual shareholders.
RF Properties Corp. was taxed as a regular C corporation for both Federal
and state income tax purposes for the period from August 5, 1996 (commencement
of operations) to December 31, 1996, as well as, together with Jericho
Properties Corp., for the month ended January 31, 1997; thereafter, these
subsidiaries also elected to be treated as an S corporations for both Federal
and state income tax purposes.
(m) Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued SFAS No.125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities". This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and was adopted by the Company effective
January 1, 1997.
(2) Interim Period Information
The unaudited financial statements and related notes as of September 30,
1997 and for the nine-month periods ended September 30, 1996 and 1997 reflect,
in the opinion of management, all adjustments (which are of a normal and
recurring nature) necessary to fairly present the statements of operations, cash
flows and balance sheets as of and for the periods presented.
F-10
<PAGE>
PREMIER MORTGAGE CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
December 31, 1996, 1995 and 1994 and (unaudited)
September 30, 1997 and 1996
(3) Debt and Equity Securities Available-for-Sale
The amortized cost and estimated fair values of securities are summarized
as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity security:
Common stock .. ....... $ 75,000 56,000 -- 131,000
======== ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Debt security:
12% convertible note ......... $ 75,000 -- -- 75,000
======== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities:
Money market mutual fund ......... $ 350,920 6,294 2,719 354,495
========= ===== ===== =======
</TABLE>
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 .......... 170,158 170,158 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) Supplemental Information
The Company's operations consist of two principal activities (a) mortgage
banking and (b) the funding of the purchase, rehabilitation and resale of
residential real estate. The following table sets forth certain information
concerning these activities (in thousands):
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) Supplemental Information -- (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Residential rehabilitation properties...................................... $ 5,073 $ -- $ --
Mortgage banking .......................................................... 6,840 3,400 1,185
Other ..................................................................... 30 -- 2
------- ------ ------
$11,943 $3,400 $1,187
======= ====== ======
Less(1):
Expenses allocable to residential rehabilitation properties (cost of sales,
interest expense and compensation and benefits) ......................... $ 4,896 $ -- $ --
Expenses allocable to mortgage banking (all other expenses) ............... 5,982 3,197 1,125
------- ------ ------
$10,878 $3,197 $1,125
======= ====== ======
Operating Profit:
Residential rehabilitation properties...................................... $ 177 $ -- $ --
Mortgage banking .......................................................... 858 203 60
Other ..................................................................... 30 -- 2
------- ------ ------
$ 1,065 $ 203 $ 62
======= ====== ======
Identifiable Assets:
Residential rehabilitation properties...................................... $ 3,246 $ --
Mortgage banking .......................................................... 13,907 8,232
------- ------
$17,153 $8,232
======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
Revenues:
Residential rehabilitation properties............................................... $17,519 $ 1,016
Mortgage banking ................................................................... 10,054 4,818
Other .............................................................................. -- 30
------- -------
$27,573 $ 5,864
======= =======
Less(1)
Expenses allocable to residential rehabilitation properties (cost of sales, interest
expense and compensation and benefits) ........................................... $16,930 $ 965
Expenses allocable to mortgage banking (all other expenses) ........................ 8,129 4,109
------- -------
$25,059 $ 5,074
======= =======
Operating Profit:
Residential rehabilitation properties............................................... $ 589 $ 51
Mortgage banking ................................................................... 1,925 709
Other .............................................................................. -- 30
------- -------
$ 2,514 $ 790
======= =======
Identifiable Assets:
Residential rehabilitation properties............................................... $12,408
Mortgage banking ................................................................... 52,411
-------
$64,819
=======
</TABLE>
(1) In managing its business, the Company does not allocate corporate
expenses other than interest and compensation and benefits to its various
activities.
F-16
<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
(13) 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.
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).
(14) 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 $1,393,118
distribution payable for previously undistributed S corporation earnings which
are intended to be distributed, and (ii) the establishment of $965,000 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-17
<PAGE>
===============================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Common Stock offered hereby,
nor does it constitute an offer to sell or a solicitation of any offer to buy
any of the securities offered hereby to any person in any jurisdiction in which
it is unlawful to make such an offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstance create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs of
the Company since such date.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ............................ 3
Risk Factors .................................. 7
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>
<CAPTION>
<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 Securities Corp.
10.11 Mortgage and Loan Agreement by and among RF Capital Corp., Min Capital Corp., and Hanover
Hill Holsteins, Inc. and Premier Mortgage Corp.
10.12 Form of Contractors Agreement
**10.13 Form of Stockholders' Agreement
**10.14 Fourth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
**10.15 Fifth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
*10.16 Third Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
10.17 Sixth 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. 3 to the Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in Roslyn Heights, New York, on
February 11, 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 Securities Corp.
10.11 Mortgage and Loan Agreement by and among RF Capital Corp., Min Capital Corp., and Hanover
Hill Holsteins, Inc. and Premier Mortgage Corp.
10.12 Form of Contractors Agreement
**10.13 Form of Stockholders' Agreement
**10.14 Fourth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
**10.15 Fifth Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
*10.16 Third Amendment to Warehousing Credit and Security Agreement, dated December 29, 1997.
10.17 Sixth 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>
PMCC
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
OF $0.01 PAR VALUE PER SHARE OF
PMCC FINANCIAL CORP. (hereinafter called the (3)Corporation(2)), transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed or
assigned for transfer.
This Certificate and the shares represented hereby are issued and shall be
held subject to the laws of the State of Delaware and to the provisions of the
Certificate of Incorporation and the By-Laws of the Corporation, as amended from
time to time. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Date:
Secretary
[SEAL]
Chairman and Chief Executive Officer
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
Transfer Agent
and Registrar,
By
Authorized Signature.
<PAGE>
The Corporation is authorized to issue more than one class of stock,
including a class of Preferred Stock which may be issued in one or more series.
The Corporation will furnish to any stockholder, upon request and without
charge, a full statement of the designations, preferences, limitations or
relative rights of the shares of each class authorized to be issued and, as to
shares of Preferred Stock, the variations in the relative rights and preferences
between the shares of each series so far as the same h ave 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 following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN -
as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT- Custodian
------------------ ---------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby
---------------------------------------------------
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
| |
| |
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint , Attorney,
----------------------------------------
to transfer the said shares on the books of the within named Corporation, with
full power of substitution.
<PAGE>
Date
------------------------------- -----------------------------------
Signature
-----------------------------------
Signature
NOTICE: The Signature to this
Assignment must correspond with the
name as written upon the face of
the Certificate in every
particular, without alteration or
enlargement, or any change
whatever.
Signature(s) Guaranteed:
- --------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
RUSKIN, MOSCOU, EVANS & FALTISCHECK, P.C.
170 Old Country Road
Mineola, New York 11501
February 11, 1998
PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, NY 11577
Re: PMCC Financial Corp.
Gentlemen:
We have acted as counsel to PMCC Financial Corp., a Delaware corporation
(the "Company"), in connection with its filing of a Registration Statement
(Registration No. 333-38783)(the "Registration Statement") on Form S-1 with
respect to: (i) 1,250,000 shares (the "Common Shares") of Common Stock, $.01 par
value of the Company, which are to be issued and sold by the Company to a group
of underwriters (the "Underwriters") represented by Coleman and Company
Securities Inc. and ISG Capital Markets, LLC; and (ii) 187,500 shares of Common
Stock to be issued and sold by the Company upon exercise of an over-allotment
option (the "Over-Allotment Shares") granted to the Underwriters by the Company.
Unless otherwise defined herein, all capitalized terms used herein and not
expressly defined shall have the meaning given to them in the Registration
Statement.
As counsel to the Company, we have examined the Certificate of
Incorporation and By-laws and other corporate records of the Company and have
made such other investigations we have deemed necessary in connection with the
opinion hereinafter set forth.
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us.
Based solely upon and subject to the foregoing, we are of the opinion that
the Company's Common Shares and Over-Allotment Shares have been duly and validly
authorized and, when issued and paid for, will be duly and validly issued, fully
paid and non-assessable.
<PAGE>
February 11, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement and to the reference to our firm under the
opinion "Legal Matters" in the Prospectus constituting a part of said
Registration Statement.
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek, P.C.
--------------------------------------------
Ruskin, Moscou, Evans & Faltischek, P.C.
<PAGE>
QUALIFIED STOCK OPTION PLAN FOR
PREMIER MORTGAGE CORP. DATED APRIL 1, 1997
WHEREAS, the Board of Directors of PREMIER MORTGAGE CORP. deems it in
the best interests of the Company ("PREMIER") that certain personnel employed by
PREMIER and by its subsidiaries be given an opportunity to acquire a stake in
the growth of the Company, as a means of assuring their maximum effort and
continued association with the Company, and
WHEREAS, the Board believes that the Company can best obtain these and
other benefits by granting stock options to designated employees from time to
time, pursuant to Section 422 and related sections of the Internal Revenue Code
of 1986,
NOW, THEREFORE, the Board has adopted this Stock Option Plan effective
upon approval by the affirmative vote of the holders of a majority of all
classes of shares of the Company entitled to vote:
1. Policy. The Company shall, from time to time, but in no event after March 30,
2007, grant options for sale of shares to certain personnel employed by it, and
by subsidiary corporations of the Company, pursuant to the terms of this Plan.
The term "subsidiary corporation" means any corporation in which the Company
owns at least 50 percent of the voting shares, or any corporation in a chain of
corporations connected with the Company through ownership of at least 50 percent
of its voting shares by any corporation in the chain.
2. Option stock. Options under this Plan shall pertain to authorized and
unissued Capital stock of the Company ("option shares"). The Company shall at
all times while this Plan is in force reserve such number of Shares as will be
sufficient to satisfy the requirements of this Plan.
3. Participants. For the purposes of this Agreement, the term "personnel" shall
be deemed to include only following full-time employees of the Company or its
subsidiary corporations. The Board, on recommendation of the President of the
Company shall from time to time designate from among the personnel employed by
the Company and by its subsidiary corporations the persons to whom stock options
shall be granted. Such designations shall be made in the absolute discretion of
the Board and shall be final without approval of shareholders. Directors of the
Company who are otherwise engaged as offices or employees of the Company, or of
any of its subsidiary corporations, may be designated as participants. On the
occasion of any designation of participants, the Board may grant additional
options to participants then holding options, or to some of them, or may grant
options solely or partially to new participants. In designating participants the
Board shall fix the number of shares to be optioned to designees in its absolute
discretion.
1
<PAGE>
4. Method of granting. Whenever the Board shall designate a person for the
receipt of an option, the Secretary (of if the Secretary is himself the
designee, the President) of the Company shall forthwith send notice thereof to
the designee, in such form as the Board shall approve, stating the number of
shares optioned to such designee and the price per share, and attaching a
certified copy of this Statement of Stock Option Plan. The date of such notice
shall be the date of granting the option to such participant for all purposes of
this Plan. The notice may be accompanied by an option agreement to be signed by
the Company and by the participant if the Board shall so direct, which shall be
in such form and shall contain such provisions as the Board shall deem
advisable.
5. Adjustments of option stock.
(a) If at any time, or from time to time, after the grant but prior to
the exercise of all or any part of an option under this Plan, the Company shall
effect a subdivision or combination of its shares, or other option shares as
that term is used below, into a greater or smaller number of shares, or a
reclassification of such shares or other option shares into shares of another
class or into securities, or the Company shall be consolidated or merged with
any other corporation, then there shall be thereafter deliverable by the
Company, or by the corporation surviving a merger or consolidation, upon any
exercise of such option, in lieu of each share or other option share and for the
same price, such shares or securities or such shares and securities as shall
have been substituted for shares or other option share in connection with such
subdivision, combination, reclassification, consolidation, or merger. Such
substituted shares or securities or such substituted shares and securities shall
be deemed option shares for the purposes of this Plan.
(b) Notwithstanding anything stated above to the contrary, upon the
occasion of a merger or consolidation of the Company with any other corporation,
any options previously granted under this Plan which shall not have been
exercised in the manner described below shall be deemed cancelled, unless the
surviving corporation shall assume the options under this Plan or shall issue
substitute options in place of them.
2
<PAGE>
(c) If at any time, or from time to time, after the grant but prior to
the exercise of all or any part of the option under this Plan, the Board shall
declare in respect of the Company's shares or other option shares any dividend
payable in shares of the Company of any class, then there shall be deliverable
upon any exercise thereafter of any option under this Plan, in addition to each
option share and for no additional price, such additional share or shares as
shall have been distributable as a result of such share dividend in respect of
an option share; except that fractional shares shall not be so deliverable. Any
such share dividend shall be deemed part of the option shares for the purposes
of this Plan.
6. Severance, death. (a) In the event that a participant shall cease to be
employed by the Company or by any of its subsidiary corporations for any reason
except death, any option or options theretofore granted to him under this Plan
which shall not have been then exercised in the manner described below shall be
deemed at that time cancelled, except that the Board may in its absolute
discretion extend the privilege to such participant to exercise any options
previously granted to him, which have not then expired, within three months
after severance. Furthermore, if any such cessation of employment is caused by
the participant's retirement at or after 65 by the Company or by any subsidiary
corporation employing the participant at such time, the participant shall have
the right to exercise such option or options, which have not then expired, at
any time within three months after such retirement. The transfer of a
participant from the employ of the Company to a subsidiary corporation, or vice
versa, or from one subsidiary corporation to another, shall not be deemed to
constitute a cessation of employment for purposes of this Plan.
(b) In the event that a participant shall die while employed by the
Company or by any subsidiary corporation, or shall die within three months after
his retirement by the Company or by any subsidiary corporation, any option or
options granted to him under this Plan which shall not have been exercised in
the manner described below at the time of his death shall be exercisable by the
estate of the participant, or by any person who acquired such option by bequest
or inheritance from the participant, within six months after the death of the
participant, or until the expiration of the option as provided in Paragraph 4,
if that be sooner. References to the "participant" that follow shall be deemed
to include any person entitled to exercise the option after the death of the
participant under the terms of this paragraph.
3
<PAGE>
7. Exercise of options. (a) Subject to the provisions of the Plan with respect
to termination of employment the period during which each option may be
exercised shall be fixed by the Board at the time such option is granted, but
shall period shall expire not later than ten years from the date the option is
granted.
(b) Each option granted under the Plan may be exercised only after one
year of continued employment by the Company or one of its subsidiaries
immediately following the date the option is granted and only during the
continuance of the optionee's employment with the Company or one of its
subsidiaries. Subject to the foregoing limitations and the terms and conditions
of the option agreement, each option shall be exercisable in whole or in part in
installments at such time or times as the Board may prescribe and specify in the
applicable option agreement.
(c) No shares hall be delivered pursuant to any exercise of an
option until the requirements of such laws and regulations as may be deemed by
the Board to be applicable to them are satisfied and until payment is received
by the Company in accordance with the terms set by the Board. No optionee, or
the legal representative, legatee, or distributee of an optionee, shall be
deemed to be a holder of any shares subject to any option unless and until the
certificate or certificates for them have been issued.
(d) Value of Shares. The aggregate Fair Market Value (determined as of
the date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Options granted under this Plan and all other plans of the
Corporation and any Subsidiary Corporation become exercisable for the first time
by an Optionee during any calendar year shall not exceed $100,000.00.
8. Manner of exercise. Whenever an option is granted under this Plan in respect
of option shares, such shares may be purchased by written notice of election
delivered prior to the expiration of the option to the Company at its principal
office by registered or certified mail, stating the number of shares with
respect to which the option is being exercised and specifying a date, not less
than five nor more than 15 days after the date of such notice, on which the
shares will be taken and payment made for them.
9. Option Price. The price at which shares of stock may be purchased under an
option granted pursuant to this Plan shall be determined by the Board but shall
not be less than 100 percent of fair market value of such shares on the date
that the option is granted, such fair market value to be determined by, and in
accordance with procedures to be established by, the Board. However, under no
circumstances shall the fair market value as determined by the Board be less
than the book value of the Company's no par value Common Stock as reflected in
the Company's most recent financial statements, prepared by the certified public
accountant who is then servicing the Company's account, which are prepared in
accordance with generally accepted accounting principles. For all purposes of
this Plan, the fair market value of shares subject to option shall be deemed
conclusive, upon the determination of the Board made in good faith. The option
price will be subject to adjustments in accordance with provisions of Section 10
herein.
4
<PAGE>
10. Closing. On the date specified in the notice of election referred to above,
or an adjourned date provided for later in this paragraph, the Company shall
deliver or cause to be delivered to the participant certificates for the number
of shares with respect to which the option is being exercised, against payment
for them and delivery to the Company of the certificate described herein.
Delivery of the shares may be made at the principal office of the Company or at
the office of a transfer agent appointed for the shares of the Company. Shares
shall be registered in the name of the participant unless the participant
otherwise directs in his notice of election. No shares shall be issued until
payment for them has been made as provided herein; and a participant has none of
the rights of a shareholders until shares are issued as herein provided. In the
event of any failure to take up and pay for the number of shares specified in
the notice of election on the date stated on it, or an adjourned date, the
option shall become inoperative as to such number of shares, but shall continue
with respect to any remaining shares covered by the option and not yet acquired
pursuant to it. If any law, or any regulation of the Securities and Exchange
Commission or of any other body having jurisdiction, shall require the Company
or the participant to take any action in connection with the shares specified in
a notice of election, then the date specified therein for the delivery of the
shares shall be adjourned until the completion of the necessary action.
11. Securities Registration. At the closing provided for above, the participant
shall agree to hold the shares acquired by his exercise of the option for
investment and not with a view to resale or distribution thereof to the public,
and he shall deliver to the Company a certificate to that effect. In the event
that the Company shall nevertheless deem it necessary to register under the
Securities Act of 1933 or other applicable statutes any shares with respect to
which an option shall have been exercised, or to qualify any such shares for
exemption from the Securities Act of 1933 under Regulation A of the Rules and
Regulations of the Securities and Exchange Commission, then the Company shall
take such action at its own expense before delivery of such shares. In the event
the shares of the Company shall be listed on any national stock exchange at the
time of the exercise of an option under this Plan, then, whenever required, the
Company shall register the shares with respect to which such option is exercised
under the Securities and Exchange Act of 1934, and shall make prompt application
for the listing on such stock exchange of such shares, at the sole expense of
the Company.
5
<PAGE>
12. Conditions of Employment. Each participant to whom an option is granted
under this Plan, in consideration of granting of such option, shall agree that
he will remain in the employ of the Company or a subsidiary corporation for a
period of not less than two years from the date of the granting of each option.
Nevertheless, the granting of an option under this Plan shall impose no
obligation on the Company or on any of its subsidiary corporations to continue
the employment of nay participant, and shall not lessen or affect the right to
terminate such employment of the participant. Participation under this Plan
shall not affect eligibility for any profit-sharing, bonus, insurance, pension,
or other extra compensation plan which the Company or its subsidiary
corporations have previously adopted or may at any time adopt for employees.
13. Termination of Employment. In the event that employment of an optionee by
the Company or any subsidiary is terminated for any reason other than death, an
option granted hereunder shall be exercisable by the optionee at any time prior
to the expiration date of the option or within three months after the date of
such termination, whichever is earlier, but only to the extent the optionee had
the right to exercise such option at the date of such termination. In the event
of the death of an optionee while in the employ of the Company (or within three
months after termination of employment by reasons of retirement with the consent
of the Company), his option shall be exercisable by the person or persons to
whom such optionee's rights pass by will or by the laws of descent and
distribution at any time prior to the expiration date of the option or within
three months after the date of such death, whichever is earlier, but only to the
extent the optionee had the right to exercise such option on the date of his
death.
14. Amendment and discontinuance. The Board may alter, suspend, or discontinue
this Plan; provided, however, that the Board shall not, without the written
consent of the holders of options, alter or impair unexercised options that may
have been previously granted under this Plan, except insofar as a merger or
consolidation of the Company, or a termination of employment of a participant,
or a liquidation or dissolution shall effect a cancellation of an option as
provided herein.
6
<PAGE>
15. Other terms and conditions. Any option granted hereunder shall contain such
other and additional terms, not inconsistent with the terms of this Plan, which
are deemed necessary or desirable by the Board, which such terms, together with
the terms of this Plan, shall constitute such option as an "Incentive Stock
Option" within the meaning of Section 422 of the 1986 Internal Revenue Code and
lawful regulations thereunder.
16. Transferability of Options. An option granted under the Plan may not be
transferred except by will or the laws of descent or distribution, and during
the lifetime of the employee to whom granted, may be exercised only by such
employee.
17. Capital adjustments affecting stock. In the event of a capital adjustment
resulting from a stock dividend, stock split, reorganization, merger,
consolidation, or a combination or exchange of shares, the number of shares of
stock subject to this Plan and the number of shares under option shall be
adjusted consistent with such capital adjustment. The price of any share under
option shall be adjusted so that there will be no change in the aggregate
purchase price payable under exercise of any such option. The granting of an
option pursuant to this Plan shall not affect in any way the right or power of
the Company to make adjustments, reorganizations, reclassifications, or changes
of its capital or business structure or to merge, consolidate, dissolve,
liquidate, or sell or transfer all of any part of its business or assets.
18. Term of Plan. Options, Rights and Limited Rights may be granted pursuant to
the Plan from time to time within a period of ten (10) years from the date the
Plan is adopted by the Board, or the date the Plan is approved by the
stockholders of the Corporation, whichever is earlier.
7
<PAGE>
19. Amendment and Termination of this Plan. The Board at any time and from time
to time may suspend, terminate, modify or amend the Plan; provided, however,
that any amendment that would materially increase the aggregate number of shres
of Common Stock as to which Options, Rights and Limited Rights may be granted
under the Plan or materially modify the requirements as to eligibility for
participation in the Plan shall be subject to the approval of the holders of a
majority of the Common Stock issued and outstanding, except that any such
increase or modification that may result from adjustments authorized by Seciton
8(i) hereof shall not require such approval. Except as provided in Section 8
hereof, no suspension, termination, modification or amendment of the Plan may
adversely affect any Option, Right or Limited Right previously granted, unless
the written consent of the Optionee is obtained.
20. Approval of Stockholders. The Plan shall take effect upon its adoption by
the Board of Directors but shall be subject to the approval of the holders of a
majority of the issued and outstanding shares of Common Stock of the
Corporation, which approval must occur within twelve months after the date the
Plan is adopted by the Board.
ADOPTED: April 1, 1997
PREMIER MORTGAGE COMPANY
Dated: Roslyn, New York
April 1, 1997
------------------------------
BY: RONALD FRIEDMAN, PRESIDENT
- ----------------------------
ATTEST
Secretary
8
<PAGE>
EXHIBIT 10.11
MORTGAGE AND LOAN AGREEMENT
By and among
RF CAPITAL CORP., MIN CAPITAL CORP., AND HANOVER HILL HOLSTEINS , INC.,
as the Lenders,
and
PREMIER MORTGAGE CORP.
as the Borrower
Dated as of ___________, 1996
<PAGE>
MORTGAGE AND LOAN AGREEMENT
THIS MORTGAGE AND LOAN AGREEMENT (the "Agreement"), dated as of
____________, 1996, between PREMIER MORTGAGE CORP., a New Jersey corporation, as
the Borrower ("Borrower") and RF CAPITAL CORP., a New York corporation ("RF"),
MIN CAPITAL CORP., a New York corporation ("Min") and HANOVER HILL HOLSTEINS ,
INC., a New York corporation, and JSF Properties Corporation, a New York
corporation ("JSF"), (Hanover" and together with RF and Min, the "Lenders.")
WHEREAS, the Borrower wishes to obtain a funding from the Lenders and
the Lenders wish to make available such funding, subject to the terms and
conditions set forth herein;
WHEREAS, the Borrower intends to pledge its assets from time to time to
secure the funding described herein ("Secured Loan's");
WHEREAS, the Borrower intends to use the Secured Loan to finance the
rehabilitation of residential properties (the "Collateral").
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
THE SECURED LOANS
Section 1.01. Provisions and Conditions Precedent to Secured Loans.
With respect to each funding of loans pursuant to the Secured Loan, the
following conditions precedent shall have been met as of the related funding
date (the "Funding Date"):
(a) all of the representations and warranties of the Borrower
in this Agreement shall be true and correct in all material respects as of such
Funding Date;
(b) the Borrower shall have delivered to the Lenders such
documents as the Lenders shall deem necessary or convenient to perfect a
security interest in the Collateral, including, without limitation, the filing
or amendment of all necessary UCC Statements in all applicable jurisdictions and
any signature guarantees and such other documents as the Lenders shall deem
necessary or convenient to perfect its security interest in the Collateral
including, without limitation, the filing or amendment of all necessary UCC
Statements in all applicable jurisdiction and any signature guarantees.
1
<PAGE>
(c) The Borrower hereby acknowledges that, notwithstanding the
fact that the promissory note evidencing the Secured Loan (the "Secured Loan
Note") is secured by the Collateral, the obligations of the Borrower under the
Secured Loan Note are recourse obligations of the Borrower.
Section 1.02. Additional Provisions and Conditions Precedent to Making
Secured Loans.
(a) Lenders obligation to make Secured Loans to the Borrower
shall terminate on mutual agreement of the parties, on at least sixty (60) days
notice.
(b) The Lenders shall be obligated to make each such Secured
Loan not more than two Business Days following the date of receipt by the
Lenders of a written request of such Secured Loan from the Borrower.
(c) A Secured Loan hereunder may only be requested if the
Borrower certifies in the request relating to such Secured Loan that the
proceeds of such Secured Loan will be used for the purpose of residential
rehabilitation financing.
(d) The Borrower shall not request a Secured Loan more
frequently than once a week.
(e) Each Secured Loan shall not exceed seventy (70%) percent
of the appraised value of the residential property being financed.
Section 1.03. Interest Payments on Secured Loans.
(a) Interest shall accrue daily with respect to each Secured
Loan on each day during the period commencing on the date of the initial Funding
Date through and including the last day of the calendar month in which the
Funding Date occurs (the "Accrual Period") at a rate equal to the product of (i)
1/360, (ii) the interest rate of ten percent (10%) and (iii) the related Secured
Loan Balance on such day. With respect to each Accrual Period, the Lenders shall
notify the Borrower on the second day following the end of the Accrual Period of
the amount of interest which accrued on the Secured Loan during such Accrual
Period and such accrued interest shall be due and payable on the fifth day
following the sale of the residential rehabilitation property secured by the
Secured Loan (the "Payment Date"). The Lenders failure to notify the Borrower of
the accrued interest due on any such date shall not affect the Borrower's
obligation to pay the interest due on the related Payment Date.
Section 1.04. Principal Payments.
(a) The outstanding principal amount of each Advance shall be
payable in full upon the earliest to occur of (i) demand, (ii) sale by the
Company of the Real Estate or (iii) expiration or termination of this Agreement.
2
<PAGE>
(b) The Company shall have the right to prepay the outstanding
Advances in whole or in part, from time to time, without premium or penalty or
advance notice.
(c) The Company shall remit, in immediately available funds,
upon sale of Real Estate underlying an Advance, full repayment of the Advance
and all accrued interest thereon.
(d) Upon making such principal payments to the Lenders, the
Company shall be deemed to have redeemed such collateral from pledge and the
collateral documents relating thereto shall be released to the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01. Representations and Warranties of the Borrower.
(a) The Borrower hereby makes the following representations
and warranties, as of the date of this Agreement and as of each Funding Date:
(i) the Borrower has been duly organized and is
validly existing as a corporation under the Laws of the state of its
incorporation;
(ii) the Borrower is duly licensed where required as
a "Licensee" or is otherwise qualified in each state in which it transacts
business and is not in default of such state's applicable laws, rules and
regulations;
(iii) the Borrower has the requisite power and
authority and legal right to own and grant a lien on all of its right, title and
interest in and to the Collateral and the Borrower has the requisite power and
authority and legal right to execute and deliver, engage in the transactions
contemplated by this Agreement;
(iv) the Borrower is able to meet its obligations
when they become due and is not in default (beyond any applicable cure period)
under any mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money, and the execution and delivery by
the Borrower of this Agreement will not result in any violation of any such
mortgage, instrument or agreement to which the Borrower is a party or by which
its property is bound;
(v) (A) all audited and unaudited financial
statements, budgets and certificates of the Borrower or any of its officers
furnished to the Lenders are true and complete and do not omit to disclose any
material liabilities, contingent or otherwise, or other-facts relevant to the
condition of the Borrower; and (B) all such audited financial statements have
been prepared in accordance with GAAP;
3
<PAGE>
(vi) no consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required under applicable Law in connection with the execution, delivery and
performance by the Borrower of this Agreement;
(vii) there is no action, proceeding or investigation
pending or, to the best knowledge of the Borrower, threatened against it before
any court, administrative agency or other tribunal (A) asserting the invalidity
of this Agreement or any documents relating thereto, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, or (C)
which might materially and adversely affect the performance by the Borrower of
its obligations under, or the validity or enforceability of this Agreement;
(viii) since the date of this Agreement, there has
been no material adverse change in the business, operations, financial
condition, properties or business plan of the Borrower, taken as a whole;
(ix) the person or persons signatory to this
Agreement and any document executed pursuant to it on behalf of the Borrower
have full power and authority to bind the Borrower;
(x) the Borrower has not pledged the Collateral to
any entity or person other than to the Lenders
(xi) there has been no (A) filing against the
Borrower of a petition for liquidation, reorganization, arrangement or
adjudication as a bankrupt or similar relief under the bankruptcy, insolvency or
similar laws of the United States or any state or territory thereof or of any
foreign jurisdiction as to which the Borrower fails to secure dismissal within
60 days of such filing, or (B) commencement by the Borrower of a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Borrower to the entry of an order for
relief in an involuntary case under any such law or to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Borrower or of any substantial
part of its property, or the making by the Borrower of any general assignment
for the benefit of creditors, or the failure of the Borrower generally to pay
its debts as such debts become due, or the taking of corporate action by the
Borrower in furtherance of any of the foregoing.
(xii) all representations and warranties made
pursuant to this Agreement are and will be true and correct at the time when
made and at all times thereafter under this Agreement or, if limited to a
specific date, as of the date to which they refer;
(b) The Borrower agrees and acknowledges that each of the
representations and warranties set forth in subsection (a) hereof (i) is
material and being relied upon by the Lenders, (ii) is true in all respects as
of the date of this Agreement, and (iii) shall survive the execution,
termination and expiration of this Agreement.
4
<PAGE>
Section 2.02. Representations and Warranties of the Lenders.
(a) Each of the Lenders hereby makes the following
representations and warranties, as of the date of this Agreement as of each
Funding Date:
(i) each of the Lenders has been duly organized and
is validly existing as a corporation under the laws jurisdictions of the states
of their respective;
(ii) each of the Lenders has the requisite power and
authority and legal right to execute and deliver, engage in the transactions
contemplated by, and perform and observe the terms and conditions of, this
Agreement to be performed by it;
(iii) no consent, approval, authorization or order
of, registration or filing with, or notice to any governmental authority or
court is required under applicable law in connection with the execution and
delivery by each of the Lenders of this Agreement;
(iv) the person or persons signatory to this
Agreement and any document executed pursuant to it on behalf of each of the
Lenders has full power and authority to bind the respective Lenders;
(v) this Agreement is valid, binding and enforceable
against Lenders in accordance with its terms; and
(vi) the execution, delivery and performance of this
Agreement, and the exhibits attached hereto and the other documents contemplated
herein to which each of the Lenders is a party, and the performance by each of
the Lenders of all transactions contemplated herein and therein (A) have been
duly authorized by all necessary and appropriate corporate action on the part of
each of the Lenders, (B) will not violate any provision of the Certificate of
Incorporation of each of the Lenders, (C) does not conflict with any term or
provision of any other agreement to which each of the Lenders is a party, and
(D) will not cause a breach of any applicable federal, state or municipal
governmental law or regulations, or any order, judgment, writ, award, injunction
or decree of any court or governmental authority which is binding upon each of
the Lenders.
(b) Each of the Lenders agrees and acknowledges that each of
the representations and warranties set forth in subsection (a) hereof (i) is
material and being relied upon by the Borrower, (ii) is true in all respects as
of the date of this Agreement, and (iii) shall survive the execution and
termination of this Agreement.
5
<PAGE>
ARTICLE III
EVENTS OF DEFAULT
Section 3.01. Occurrence of an Event of Default. An "Event of Default"
shall occur:
(a) immediately in the event that if the Borrower fails to
repay the Secured Loan upon the sale of the Collateral;
(b) five days after the occurrence of a non-monetary default;
provided, however, that an "Event of Default" will not occur until ten days
after the occurrence of a non-monetary default if the ability to cure, and
substantial effort towards curing, such non-monetary default can be demonstrated
in writing satisfactory to each of the Lenders in its sole discretion; provided,
further, that if it is not possible or practicable within ten days to cure a
non-monetary default, an "Event of Default" shall be deemed to have occurred
immediately upon the occurrence of such non-monetary default; or
(c) immediately, if the Borrower shall generally not pay any
of its respective debts as such debts become due, or the Borrower shall admit in
writing its or his inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or any of its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order of relief or the appointment of a conservator,
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur; or
the Borrower shall take any corporate action to authorize any of the actions set
forth in this subsection.
ARTICLE IV
GENERAL PROVISIONS
Section 4.01. Amendment; Waivers. This Agreement may be amended from
time to time only by written agreement of the parties. No failure on the part of
the Lenders to exercise, and no delay in exercising, any right, power, or remedy
under this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement preclude any other or further
exercise thereof or the exercise of any other right. No term or provision of
this Agreement may be waived or modified unless such waiver or modification is
in writing and signed by the party against whom such waiver or modification is
sought to be enforced.
Section 4.02. Taxes. All payments made by the Borrower to the Lenders
on account of any Loan which are due hereunder shall be made free and clear of,
and without reduction by reason of, any taxes, levies, imposts, deductions,
charges or withholdings of any nature, including, without limitation, any
6
<PAGE>
withholding taxes (but excluding any taxes imposed on the overall net income of
the Lenders) and all liabilities with respect thereto (all such taxes, levies,
imposts, deductions, charges, withholding and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by Law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Secured Loan
Note, the sum payable shall be increased as may be necessary so that after
making all required deductions (including as applicable to additional sums
payable under this subsection) the Lenders receives an amount equal to the sum
it would have received had no such deductions been made.
Section 4.03. Costs and Expenses. The Lenders and the Borrower will
each be solely responsible for and bear all of their own respective expenses
(including, without limitation, the expenses of legal counsel), including,
without limitation, accountants and other advisers, incurred at any time in
connection with pursuing or consummating the Significant Documents and the
transactions contemplated thereby.
ARTICLE V
CONSTRUCTION
Section 5.01. Entire Agreement. This Agreement, contains the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements between them, whether oral or written, of any
nature whatsoever with respect to such subject matter.
Section 5.02. Severability Clause. Any part or provision of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any part or provision of this
Agreement that is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction,
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable Law, the parties
hereto waive any provision of law that prohibits or renders void or
unenforceable any provision hereof. If the invalidity of any part or provision
of this Agreement shall deprive any party of the economic benefit intended to be
conferred by this Agreement, the parties shall negotiate, in good faith, to
develop a structure, the economic effect of which is as close as possible to the
economic effect of this Agreement, without regard to such invalidity.
Section 5.03. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
Section 5.04. Governing Law. This Agreement has been negotiated,
executed and delivered at and shall be deemed to have been made in New York, New
York. This Agreement shall be governed by and construed in accordance with the
internal Laws of the State of New York, without giving effect to the conflict of
7
<PAGE>
laws rules therein. The parties hereto hereby consent and agree that the Supreme
Court of New York County, New York or, at the Lenders option, the United States
District Court for the Southern District of New York, shall have exclusive
jurisdiction to hear and determine any claims or disputes between the parties
hereto pertaining to this Agreement or to any matter arising out of or related
to this Agreement. The parties hereto expressly submit and consent in advance to
such jurisdiction in any action or suit commenced in any such court, and hereby
waive any objection which it may have based upon lack of personal jurisdiction,
improper venue or forum non conveniens and hereby consent to the granting for
such legal or equitable relief as is deemed appropriate by such court. Each
party hereto irrevocably consents to the service of process by registered or
certified mail, postage prepaid, to it at its address given pursuant to Section
6.01 hereof. Nothing in this Agreement shall be deemed or operate to affect the
right of the Lenders to serve legal process in any other manner permitted by
law, or to preclude the enforcement by the Lenders of any judgement or order
obtained in such forum or the taking of any action under this Agreement to
enforce the same in any other appropriate forum or jurisdiction.
Section 5.05. Recitals. The recitals of this Agreement are not intended
to constitute substantive provisions hereof.
Section 5.06. Good Faith. The Borrower and the Lenders shall implement
the terms and provisions of this Agreement in good faith in accordance with
applicable Law.
Section 5.07. Waiver of Trial by Jury and Other Waivers by Borrower.
The Borrower waives (i) the right to trial by jury (which Lenders hereby also
waives) in any action, suit, proceeding or counterclaim of any kind arising out
of or related to this Agreement; (ii) presentment, demand and protest and notice
of presentment, protest, default, non payment, maturity, release, compromise,
settlement, extension or renewal of any or all accounts, contract rights,
documents, instruments, chattel paper and guaranties any time held by Lenders on
which Borrower may in any way be liable and hereby ratifies and confirms
whatever Lenders may do in this regard; (iii) notice prior to taking possession
or control of the Collateral or any bond or security which might be required by
any court prior to allowing Lenders to exercise any of Lenders remedies; (iv)
the benefit of all valuation, appraisement and exemption laws; and (v) notice of
acceptance hereof. Borrower each acknowledges that the foregoing waivers are a
material inducement to Lenders entering into this Agreement and that Lenders are
relying upon the foregoing waivers in its future dealings with Borrower.
Borrower warrants and represents that it has knowingly and voluntarily waived
its jury trial rights following consultation with legal counsel. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Notices. All demands, notices, requests for consent and
other communications hereunder shall be in writing and personally delivered,
mailed by certified mail, return receipt requested, or telecopied, and shall be
deemed to have been duly given upon receipt;
8
<PAGE>
if to the Borrower:
Premier Mortgage Corporation
66 Powerhouse Road
Roslyn Heights, New York 11577
Attention: Chief Financial Officer
Telephone Number: 516/625-3000
Telecopier Number: 516/625-0215
with a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501-4366
Attention:
Telephone Number: 516/663-
Telecopier Number: 516/663-
if to the Lenders:
RF Capital Corp.
MIN Capital Corp.
Holsteins, Inc.
Hanover Hill
66 Powerhouse Road
Roslyn Heights, New York 11577
Attention: Chief Financial Officer
Telephone Number: 516/625-3000
Telecopier Number: 516/625-0215
or, as to number as notice to any party, at such other address or telecopy shall
be designated by such party in a written each other party.
Section 6.02. Further Agreements. The Borrower and the Lenders each
agree to execute and deliver to the other such additional documents, instruments
or agreements as may be necessary or appropriate to effectuate the purposes of
this Agreement.
Section 6.03. Third-Party Rights; Assignment. This Agreement is for the
exclusive benefit of the parties hereto and their respective successors and
assigns and shall not be deemed to give any legal or equitable right to any
other Person. The Borrower may neither assign its rights nor delegate its
obligations under this Agreement without the prior written consent of the
9
<PAGE>
Lenders. The Lenders may assign its rights and/or delegate its obligations under
this Agreement to an Affiliate or to any successor to all or substantially all
of the Lenders or such Affiliates business, in each case, without the consent of
the Borrower.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
representative to execute this Agreement as of the date first above written.
PREMIER MORTGAGE CORPORATION
By:_____________________________________
, PRESIDENT
By:_____________________________________
RF CAPITAL CORPORATION
By:_____________________________________
, PRESIDENT
MIN CAPITAL CORPORATION
By:_____________________________________
, PRESIDENT
HANOVER HILL HOLSTEINS, INC.
By:_____________________________________
, PRESIDENT
10
<PAGE>
AGREEMENT
AGREEMENT entered into this _____ day of __________, between COMPANY1, a
New York Corporation doing business at _________________________________, New
York, (hereinafter referred to as "COMPANY1"), and COMPANY2, Inc., a New York
Corporation doing business at _____________________________________________ New
York, __________________________________________________________________ and
residing at hereinafter jointly referred to as the "COMPANY2").
WHEREAS, COMPANY2, Inc. has been organized to provide certain real estate
and construction related services for the acquisition of real estate properties,
improvement and/or construction and/or renovation to the real estate properties,
marketing and sales of said real estate projects; and
WHEREAS, has, or may obtain the financial resources to fund the activities
of COMPANY2, Inc.; and
WHEREAS, COMPANY2, Inc. is an "independent contractor," as that term is
defined in the Internal Revenue Code and the Regulations promulgated thereunder,
as amended, and COMPANY2, Inc. is qualified to render the services required.
NOW THEREFORE, in consideration of the mutual covenants herein set forth,
and of the promises made, the parties hereto agree as follows:
1. ACCEPTANCE OF SCOPE. hereby engages COMPANY2, Inc. and COMPANY2, Inc.
hereby accepts the engagement, under the terms and conditions set forth herein,
to contribute their knowledge, talent, expertise, time, as well as management
and supervision of the construction and/or rehabilitation of the properties, and
shall contributed their full time and effort in the location of properties for
purchase, arrange the actual acquisition of same, supervision the construction
and/or rehabilitation of same, market and sell the properties. COMPANY2, Inc.
represent that they have contractors willing to engage in the construction
and/or rehabilitation of the properties, and who will agree to be paid upon the
sale and closing of title of each property.
<PAGE>
2. PERFORMANCE OF COMPANY2, INC. Subject to the conditions or limitations
set forth herein, and to the requirement of any law or administrative enactment
applicable to the interests created herein, COMPANY2, Inc. shall perform the
following:
(a) Use its best efforts to secure projects for the parties during the term
of this agreement, at the best possible terms and at maximum profit margins;
(b) Negotiate all contracts for the purchase of the Real Estate Projects,
subject to the verbal approval of COMPANY1;
(c) Negotiate contracts for the construction and/or rehabilitation of the
properties, at a price agreeable to COMPANY1, with contractors who agree in
writing to be paid their fees and costs upon the sale of the subject property;
(d) Manage and supervise the construction and/or rehabilitation of the
properties;
(e) Market and sell the properties at a price. must agree to the sale price
in the event the profit to is less than $_____;
(f) Make reports to COMPANY1, not less often than monthly as to the status
of each and every project, providing such information which may be requested by
COMPANY1.
3. SCOPE OF PERFORMANCE. The following are conditions governing the
performance of the respective duties and responsibilities of the parties:
(a) COMPANY2, Inc. shall not, without express authorization from COMPANY1,
make, cause to be made, contract for, or agree to any expenditure, the total
cost of which will exceed $10,000.00, without the prior written approval of
COMPANY1. This restriction shall apply to the total cost of any undertaking in
connection with the business and affairs of COMPANY1;
<PAGE>
(b) ______, ______and COMPANY2, Inc. and staff shall devote their full time
attention in furtherance of the goals of this contract, and shall be precluded
from engaging in any other business ventures during the term of this contract
which is similar, or in competition to the business purpose of COMPANY1, and
shall be precluded from engaging in any other business ventures which effects or
impairs the business purpose of COMPANY1, including but not limited to the
diminishment of time devoted by ________and/or COMPANY2, Inc. to the business of
COMPANY1;
(c) Should COMPANY2, Inc. fail to close the sale of any property within a
six (6) month period beginning from the day of purchase, then upon five (5) days
notice will take over management and sale of said property. In the event
exercises its right to take over a particular property, COMPANY2, Inc. will
receive no compensation for services relative to such property. Should the
eventual sale of said property fail to compensate for its total costs including
the compensation herein described in paragraph 5, COMPANY2, Inc. shall
immediately pay over to said deficiency;
(d) Notwithstanding paragraph (c) herein, COMPANY2, Inc. may within the six
(6) month period described in paragraph (c) above, purchase the property from
for the purchase price paid by plus the compensation described in paragraph
5(a), and all costs incurred by COMPANY1.
(e) In the event that takes back a property as described in paragraphs 3
and 5, COMPANY2, Inc. shall pay to an amount equal to ________ ( %) percent of
COMPANY1's total cost which shall hold as a reserve to compensate for any
deficiencies on the sale of the properties. Any monies over and above the
deficiency amount shall be paid back to COMPANY2, Inc. after has been paid for
all costs and compensations as described elsewhere herein, any excess funds
shall be remitted to COMPANY2, Inc.
<PAGE>
4. INSURANCE. COMPANY2, Inc. will, at COMPANY1's cost, maintain adequate
and proper insurance on each of the projects and shall not be-held responsible
for any claims arising from same. shall be reimbursed for the foregoing cost at
closing of title of each project.
5. COMPENSATION.
(a) shall pay COMPANY2, Inc., as compensation for its services hereunder,
the net gains and profits on the sale of each project, less a fee to of $_____
per property. In the event a property is not sold and titled closed within 75
days of acquisition, then in that event, shall also receive one percent (1%) per
month on the total outstanding balance due on each property until said property
is sold and title closes. In the event a property is sold and closed in less
than seventy five (75) days of acquisition, then in that event the fees due
shall be reduced (1%) per month for every month that is less than 75 days from
acquisition to closing. The above one (1%) percent adjustments are based on an
average property cost of ________and 00/100 ($ 000.00) Dollars;
(b) Notwithstanding paragraph 5(a) herein, should the net proceeds on the
sale of a property taken over by under this paragraph fail to reimburse for its
costs and compensations (as described in paragraph 5) then COMPANY2, Inc. will
immediately pay to said deficiency;
(c) In the event that takes back a property pursuant to paragraphs 3 and 5
herein, and COMPANY2, Inc. fails to pay said deficiency immediately all losses
(including escrows) incurred by may be deducted from the profit earned on any
property that is the subject of this agreement.
6. TERM. This Agreement shall take effect on the date hereof and shall
continue in full force and effect for two years, at which time it shall be
automatically extended for additional one (1) year periods unless terminated.
Any such extension, continuation, or renewal shall be on the same terms, as
contained herein, together with any amendments which may be agreed upon. This
Agreement shall terminate immediately and without notice in the event a petition
in bankruptcy is filed by or against either party, or in the event either party
shall make an assignment for the benefit of creditors or take any action for
relief under statutes or rules relating to insolvency.
<PAGE>
7. ASSIGNMENT. This Agreement shall not be transferred, assigned, sold, or
in any manner hypothecated or pledged by the Manager, and shall terminate
automatically upon any such transfer, assignment, sale, hypothecation, or
pledge, except that this Agreement shall not terminate upon any sale or merger
of the Manager, if the presently controlling interests of the Manager continue
in control of the purchaser or the resulting company after such sale or merger.
8. INDEPENDENT CONTRACTOR STATUS. In the event any provision of this
Agreement shall cause COMPANY2, Inc. to be other than an "independent
contractor," as defined in the Internal Revenue Code, as amended, or in the
event that there is any change in the affairs of COMPANY2, Inc. which would
terminate its status as an "independent contractor" as so defined, then, in that
event, this Agreement shall be deemed immediately amended to remove or modify
the provision which gives rise to such disqualification, or, if such is not
possible, this Agreement shall be immediately terminable by COMPANY2, Inc.,
without notice. Notice shall be given to COMPANY2, Inc. within a reasonable time
after such a termination occurs, if terminated by COMPANY1.
9. NON COMPETITION. __________and COMPANY2, Inc. agree that during the term
of this agreement, and as extended or renewed, they will not, directly or
indirectly, either as their own account, or as a partner, employee, agent,
manager, regional employees employee, or sales of or for any person, firm,
association, corporation, or other entity, compete in a similar or competitive
business with the purpose of this joint venture. This covenant is of the essence
of this agreement and it shall be construed as independent of any other
provision of this agreement. Any violation of this Section shall entitle to
immediately terminate this agreement, and any monies due, or to become due to
_________________ and/or COMPANY2, Inc. shall immediately be forfeited. Any
violation of the agreement by shall entitle COMPANY2, Inc. to immediately
terminate this agreement, and any monies due, or to become due to representing
profit shall immediately be forfeited.
<PAGE>
10. RIGHT OF FIRST REFUSAL. COMPANY2, Inc. shall first provide with the
right to participate in any real estate acquisition. In the event declines same,
COMPANY2, Inc. may finance the project with others.
11. REFERRALS. COMPANY2, Inc. and its affiliates shall refer all
prospective mortgagors to ______ and it's affiliates shall refer all potential
______ purchases to COMPANY2, Inc.
12. BENEFIT. Except as herein otherwise provided, this Agreement shall
inure to the benefit of and be binding upon the parties, their successors or
assigns.
13. CONSTRUCTION. This Agreement shall be construed in accordance with the
laws of the State of New York.
14. BREACH OF CONTRACT. In the event either party wrongfully breaches this
agreement, then in that event the breaching party forfeits and waives any monies
due from the other party, including accrued fees due or to become due.
15. INFORMAL ARBITRATION. In the event there is any dispute or disagreement
arising out of or in connection with this Agreement, the Parties agree to
resolve such disputes and/or disagreements by informal arbitration in accordance
with the American Arbitration Association's rules but not through the formal
means of the American Arbitration Association. In such event, each party shall
each select an Arbitrator within fifteen (15) days after notice of a dispute,
and the two selected Arbitrators shall forthwith review and resolve the dispute,
whose decision shall be conclusive and binding on the Parties hereto. In the
event the two selected Arbitrators cannot agree, the two Arbitrators shall
jointly select a third Arbitrator who shall break the tie. The cost of the
Arbitration shall be borne by the Party determined to be in error.
<PAGE>
16. TERMINATION. shall be entitled to terminate this agreement upon the
happening of any of the following:
(a) Bankruptcy, insolvency or assignment for the benefit of creditors of
COMPANY2, Inc., ________or __________;
(b) Death of ______or ______;
(c) If ______or ______ sells, transfers or assigns any interest in
COMPANY2, Inc. Termination of this agreement shall entitle to immediately take
control of all management duties and sale of all properties. shall charge back
to ______ Inc. all management fees and expenses incurred as a result of the
termination, including but not limited to the provisions of paragraph 5 herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written. COMPANY1
- ------------------------------------- -----------------------------------
BY:
COMPANY2, INC.
-----------------------
- -------------------------------------
BY:
<PAGE>
SIXTH AMENDMENT
TO
WAREHOUSING CREDIT AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO WAREHOUSING CREDIT AND SECURITY
AGREEMENT (the "Amendment") is dated as of the 30th day of January, 1998 by
and among PREMIER MORTGAGE CORPORATION, d/b/a PMC MORTGAGE ("PMC"), RF
PROPERTIES CORP. ("RF Properties"), 66 PROPERTIES CORP. ("66 Properties"),
JERICHO PROPERTIES CORP. ("Jericho"), JSF PROPERTIES CORP. ("JSF"), each a
corporation organized and existing under the laws of New York, each having
its principal office at 66 Power House Road, Roslyn Heights, New York 11577
(RF Properties, PMC, 66 Properties, Jericho and JS are hereinafter
collectively referred to as the "Company" or the "Borrower"), LASALLE
NATIONAL BANK, a national banking association having its principal office at
135 South LaSalle Street, Chicago, Illinois ("LaSalle") and PNC BANK,
NATIONAL ASSOCIATION, successor in interest by merger to PNC MORTGAGE BANK,
NATIONAL ASSOCIATION, having an office at 500 West Jefferson Street,
Louisville, Kentucky 40202 (LaSalle and PNC are hereinafter collectively
referred to as the "Bank" or the "Banks").
WHEREAS, the Banks have extended a commitment to make a certain
credit facility available to Borrower pursuant to that certain Warehousing
Credit and Security Agreement dated as of July 17, 1997, as amended by a
First Amendment to Warehousing Credit and Security Agreement and Notes dated
as of August 29, 1997 as amended by a Second Amendment to Warehousing Credit
and Security Agreement and Notes dated as of September 30, 1997 and by a
Third Amendment to Warehousing Credit and Security Agreement and by a Fourth
Amendment to Warehousing Credit and Security Agreement and by a Fifth
Amendment to Warehousing Credit and Security Agreement (the "Fifth
Amendment") (as so amended, the "Agreement"); and
WHEREAS, the Borrower and Bank have agreed to amend the Agreement in
order to provide for additional credit availability on a temporary basis.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which are hereby acknowledged,
the parties hereto hereby agree as follows:
I. Defined Terms. Capitalized terms contained in this Amendment shall
have the respective meanings herein as such terms have in the
Agreement.
II. Amendments to Agreement. The Agreement is hereby amended as follows:
1. The temporary increase in the amount of the Commitment, set forth
in the Fifth Amendment, which was due to expire January 31, 1998, is hereby
extended through February 15, 1998. Effective February 16, 1998, the
increase to the Commitment shall terminate and the
<PAGE>
Commitment shall return to Fifty Million Dollars ($50,000,000). The execution
of this Amendment by LaSalle is simply to evidence LaSalle's knowledge hereof
and consent hereto.
III. Conditions to Effectiveness. The amendments to the Agreement set forth
in Section II of this Amendment shall become effective, as of the date
set forth above, upon satisfaction of each of the following conditions
precedent:
1. The Company and the Banks shall have executed and delivered
counterparts of this Amendment,
2. The Company shall have reduced the outstanding amount of all
collateral exceptions to not more than One Million Eight Hundred Thousand
Dollars ($1,800,000).
3. Ronald Freidman and Robert Freidman shall each have delivered to
the Banks a duly executed Acknowledgment of Guarantors in the form attached
hereto as Exhibit A, and otherwise in form and substance satisfactory to the
Bank.
4. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank an original resolution of each of the Board of
Directors of PMC, RF Properties, 66 Properties, Jericho and JS, authorizing
the execution, delivery and performance of this Amendment, and all other
instruments or documents to be delivered by the Company pursuant to this
Amendment, all in form and substance satisfactory to the Bank.
5. Each of PMC, RF Properties, 66 Properties, Jericho and JSF shall
have delivered to the Bank a Certificate of each of PMC, RF Properties, 66
Properties, Jericho and JSF's secretary or assistant secretary as to the
incumbency and authenticity of the* signatures of the officers executing this
Amendment and all other documents to be delivered pursuant hereto.
6. Each of the representations and warranties set forth in Section IV
of this Amendment shall be true and correct on, and as of, the effective date
of this Amendment.
7. The Borrower shall have delivered to the Banks all other
instruments, documents or agreements reasonably necessary or desirable in
connection with this Amendment.
IV. Representations and Warranties. As an inducement to the Banks to enter
into this Amendment, the Company hereby represents and warrants as
follows:
1. After giving effect to this Amendment, each of the representations
and warranties contained in Article V of the Agreement are true and correct.
2. No Event of Default or event which with the giving of notice, the
passage of time. or both, would become an Event of Default has occurred and is
continuing or would result from the execution, delivery and performance by the
Company of this Amendment or the Agreement, as amended hereby.
<PAGE>
IV. Miscellaneous.
1. Governing Law. This Amendment shall be a contract made under, and
governed by, the internal laws of the State of Illinois.
2. Counterparts. This Amendment may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
Amendment.
3. References to Agreement. Except as herein amended, the Agreement
and the shall remain in full force and effect and are hereby ratified in all
respects. On and after the effectiveness of the amendment to the Agreement
contemplated hereby, each reference in the Agreement to "this Agreement,"
"hereunder," "thereof," "herein" or words of like import, shall mean and be a
reference to the Agreement, as amended by this Amendment.
4. Successors, Assigns. This Amendment shall be binding upon Company
and the Banks and their respective permitted successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Company and the Banks have executed this
Amendment as of the date and year written above.
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Title:
---------------------------------
LASALLE NATIONAL BANK
By:
---------------------------------
Title:
---------------------------------
PREMIER MORTGAGE CORPORATION
d/b/a PMC MORTGAGE
By:
---------------------------------
Title:
---------------------------------
66 PROPERTIES CORP.
By:
---------------------------------
Title:
---------------------------------
JERICHO PROPERTIES CORP.
By:
---------------------------------
Title:
---------------------------------
JSF PROPERTIES CORP.
By:
---------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT A
ACKNOWLEDGMENT OF GUARANTORS
PNC Bank, National Association
75 North Fairway Drive
Vernon Hills, Illinois 60061
Attention: Warehousing Lending
Ladies and Gentlemen,
Reference is hereby made to those certain Guarantys dated as of July
17, 1997 (the "Guaranty") made by each of the undersigned, Robert Friedman and
Ronald Friedman, to and for the benefit of PNC Mortgage Bank, National
Association (now PNC Bank, National Association, successor in interest by
merger) and LaSalle National Bank (collectively, "Banks") Capitalized terms
contained herein shall have the respective meanings herein as such terms have
in the Guarantys or the Credit Agreement referred to therein.
The undersigned hereby acknowledge the execution and delivery by
PREMIER MORTGAGE CORPORATION d/b/a PMC MORTGAGE, RF PROPERTIES CORP., 66
PROPERTIES CORP., JERICHO PROPERTIES CORP. and JSF PROPERTIES CORP.
(collectively, the "Borrower") of that certain Sixth Amendment to Warehousing
Credit and Security Agreement dated as of January 30, 1998, (the "Amendment").
The undersigned hereby, consent to the execution, delivery and performance by
the Borrower of said Amendment, and hereby confirm that the Guaranty shall
remain in full force and effect, shall extend to all indebtedness or other
sums owing and payable by the Borrower under the- Loan Documents, and shall be
enforceable against the undersigned.
The Banks may rely upon this Acknowledgment of Guarantors in
connection with their execution and delivery of the Amendment.
IN WITNESS WHEREOF, this Acknowledgment of Guarantors has been
executed as of the day and year set forth below.
Dated: , 1998
-------------------------------
Robert Friedman
-------------------------------
Ronald Friedman
<PAGE>
Exhibit 11.1
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Nine Months Ended 9/30/97
--------------------------
<S> <C>
Options Granted 4/1/97 .............................................. 375,000
Exercise Price ...................................................... 6.00
----------
Assumed Proceeds .................................................... 2,250,000
=========
Assumed Proceeds .................................................... 2,250,000
Fair market value (assume IPO Px) ................................... 10
---------
Shares to repurchase ................................................ 225,000
Shares needed to issue .............................................. 375,000
---------
Additional Shares ................................................... 150,000
Days outstanding .................................................... 182
Days in period ...................................................... 272
Weighted average shares ............................................. 100,368
Shares outstanding at September 30, 1997 ............................ 2,500,000
Shares needed to give effect to S Corporation distribution .......... 100,000
---------
Total share and share equivalents during period ..................... 2,700,368
=========
Pro forma net income ................................................ 1,423,264
Pro forma net income per share ...................................... $ 0.53
==========
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Shareholders
Premier Mortgage Corp.
We consent to the use herein of our report dated March 31, 1997 relating to the
consolidated financial statements of Premier Mortgage Corp. and subsidiary as of
and for the year ended December 31, 1996, and to the references to our firm
under the headings "Experts" and "Selected Consolidated Financial Data" in
Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1 and
related Prospectus of PMCC Financial Corp.
KPMG Peat Marwick LLP
Jericho, New York
February 11, 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. 3 to
Form S-1 Registration Statement and related prospectus of PMCC Financial Corp.
/s/ Freeberg & Freeberg
------------------------------
Freeberg & Freeberg
Westbury, New York
February 11, 1998
<PAGE>
RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.
170 Old Country Road
Mineola, New York 11501
February 9, 1998
PMCC Financial Corp.
66 Powerhouse Road
Roslyn Heights, NY 11577
Re: PMCC Financial Corp.
Gentlemen:
We have acted as counsel to PMCC Financial Corp., a Delaware
corporation (the "Company"), in connection with its filing of a Registration
Statement (Registration No. 333-38783) (the "Registration Statement") on Form
S-1 with respect to: (i) 1,250,000 shares (the "Common Shares") of Common Stock,
$.01 par value of the Company, which are to be issued and sold by the Company to
a group of underwriters (the "Underwriters") represented by Coleman and Company
Securities Inc. and ISG Capital Markets, LLC; and (ii) 187,500 shares of Common
Stock to be issued and sold by the Company upon exercise of an over-allotment
option (the "Over-Allotment Shares") granted to the Underwriters by the Company.
Unless otherwise defined herein, all capitalized terms used herein and not
expressly defined shall have the meaning given to them in the Registration
Statement.
As counsel to the Company, we have examined the Certificate of
Incorporation and By-laws and other corporate records of the Company and have
made such other investigations we have deemed necessary in connection with the
opinion hereinafter set forth.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us.
Based solely upon and subject to the foregoing, we are of the opinion
that the Company's Common Shares and Over-Allotment Shares have been duly and
validly authorized and, when issued and paid for, will be duly and validly
issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement and to the reference to our firm under the
opinion "Legal Matters" in the Prospectus constituting a part of said
Registration Statement.
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek, P.C.
--------------------------------------------
Ruskin, Moscou, Evans & Faltischek, P.C.
