<PAGE> 1
Registration No. 333-3315
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [ X ]
Post-Effective Amendment No. [ ]
(Check appropriate box or boxes)
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PMC CAPITAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
17290 PRESTON ROAD
DALLAS, TEXAS 75252
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 380-0044
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LANCE B. ROSEMORE
17290 PRESTON ROAD
DALLAS, TEXAS 75252
(NAME AND ADDRESS OF AGENT FOR SERVICE)
With a Copy to:
KENNETH L. BETTS, ESQ.
WINSTEAD SECHREST & MINICK P.C.
1201 ELM STREET, SUITE 5400
DALLAS, TEXAS 75270
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
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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]
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PMC CAPITAL, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBERS FORM N-2 CAPTION IN PROSPECTUS
- --------------------- ---------------------
<S> <C> <C>
1.,14. Outside Front Cover Page Cover Page
2. Inside Front and Outside Back Cover Page Cover Page
3. Fee Table and Synopsis Fund Expenses; Synopsis
4. Financial Highlights Not Applicable
5. Plan of Distribution Description of the Plan
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds
8.,16. General Description of the Registrant; Cover Page; Synopsis; Certain
General Information and History Considerations; Market Price of Common
Stock; Business; Investment Objectives
and Policies
9.,18. Management Management
10. Capital Stock, Long-Term Debt, and Other Description of Capital Stock and Long-Term Debt;
Securities Senior Securities; Financial Statements
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13.,15. Table of Contents Table of Contents
17. Investment Objectives and Policies Investment Objectives and Policies
19. Control Persons and Principal Holders of Holdings of Principal Shareholders; Management
Securities
20. Investment Advisory and Other Services Not Applicable
21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
22. Tax Status Tax Status
23. Financial Statements Financial Statements
</TABLE>
(i)
<PAGE> 3
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* *
* 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. *
* *
***************************************************************************
PART I SUBJECT TO COMPLETION, DATED JUNE ____, 1996
PROSPECTUS
PMC CAPITAL, INC.
17290 PRESTON ROAD
DALLAS, TEXAS 75252
(214) 380-0044
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Dividend Reinvestment and Cash Purchase Plan (the "Plan") of PMC
Capital, Inc. ("PMC") provides Participants in the Plan with a simple and
convenient method of purchasing shares of common stock without payment of any
brokerage commissions at a two percent (2%) discount from the trading price of
the common stock as discussed below. PMC is a diversified, closed-end
management investment company, that has elected to be regulated as a business
development company ("BDC") under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). PMC is engaged in the business of
originating loans to small businesses, either directly or through its three
principal subsidiaries, primarily under certain programs of the Small Business
Administration (the "SBA").
Investment options offered under the Plan are:
FULL DIVIDEND REINVESTMENT -- Reinvest dividends on all shares of
common stock held. Participants may also make optional payments of not less
than $50 per payment or more than $10,000 in the aggregate per calendar month.
PARTIAL DIVIDEND REINVESTMENT -- Reinvest dividends on a portion of
common stock held. Participants may also make optional payments of not less
than $50 per payment or more than $10,000 in the aggregate per calendar month.
OPTIONAL PAYMENT ONLY -- Current shareholders may invest by making
optional payments at any time of not less than $50 per payment or more than
$10,000 in the aggregate per calendar month.
The price of shares purchased by Participants either with reinvested
dividends or optional payments will be ninety-eight (98%) percent of the
average of the mean of the high and low prices of the common stock, as
published in The Wall Street Journal - American Stock Exchange listings, for
the five days in which trading of such shares takes place, immediately prior to
the applicable investment date.
This Prospectus relates to shares of the common stock of PMC
registered for purchase under the Plan, which shares, at the option of PMC,
will be newly issued shares, shares repurchased in the open market, treasury
shares or any combination thereof. No commissions or underwriters fees or
discounts are to be paid in connection with this offering. This Prospectus
sets forth the information an investor should know about the Company before
investing. Please read this Prospectus carefully and retain it for future
reference.
-----------------------
THE SHARES BEING OFFERED HEREBY ARE SUBJECT TO CERTAIN RISKS WHICH SHOULD BE
CAREFULLY CONSIDERED BY POTENTIAL INVESTORS. (SEE "CERTAIN CONSIDERATIONS.")
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is June ___, 1996.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DESCRIPTION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
MARKET PRICE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
REMUNERATION OF OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
HOLDINGS OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
DESCRIPTION OF CAPITAL STOCK AND LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
</TABLE>
-2-
<PAGE> 5
SYNOPSIS
This Prospectus relates to 1,000,000 shares of the common stock, $.01 par
value per share ("Common Stock"), of PMC Capital being offered for sale through
PMC Capital, Inc.'s Dividend Reinvestment and Cash Purchase Plan (the "Plan").
The minimum cash payment for the purchase of shares through the Plan shall be
$50.00. The Common Stock is traded on the American Stock Exchange ("AMEX").
On June 11, 1996, the closing price of the Common Stock on the AMEX was $12.88.
PMC Capital, Inc. ("PMC Capital" or, collectively with its wholly owned or
wholly controlled subsidiaries, the "Company") is a diversified, closed-end
management investment company, that has elected to be regulated as a BDC under
the Investment Company Act. PMC engages in the business of originating loans
to small businesses either directly or through its three principal
subsidiaries: First Western SBLC, Inc. ("First Western"), Western Financial
Capital Corporation ("Western Financial") and PMC Investment Corporation
("PMIC"). First Western, Western Financial and PMIC originate loans under loan
guarantee and funding programs sponsored by the SBA. Additionally, PMC has
originated non-SBA loans to small business concerns and has sold operating
equipment to small business concerns and individuals. The Company's investment
objective is to maximize earnings for distribution to shareholders from
interest income, loan servicing and other fees generated by loans which it
originates.
During the five years ended December 31, 1995, the Company originated loans
in the aggregate principal amount of approximately $331 million and sold
approximately $168 million aggregate principal amount of such loans into the
secondary market and approximately $24 million through a structured sale. For
the three months ended March 31, 1996, the Company originated loans in the
aggregate principal amount of approximate $20.4 million and sold approximately
$5.6 million of its total loan portfolio in the secondary market. The Company
has historically serviced substantially all the loans that it originated.
During the same five year period, the Company's average annual loan losses have
been approximately 0.5% of its average loan portfolio.
First Western, Western Financial and PMIC are registered as investment
companies under the Investment Company Act. PMC Capital has no investment
advisor and is advised by its executive officers under the supervision of its
Board of Directors. PMC Capital has elected to be taxed as a regulated
investment company for Federal income tax purposes and has distributed
substantially all investment company taxable income as dividends to its
shareholders.
-3-
<PAGE> 6
FUND EXPENSES(1)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load (as a percentage of offering price) . . . . . . . . . . . . . . None
Dividend Reinvestment and Cash Purchase Plan Fees(2) . . . . . . . . . . . None
ANNUAL EXPENSES
(as a percentage of net assets attributable to common shares)(3)
Management Fee(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.99%
Interest Payments on Borrowed Funds (5) . . . . . . . . . . . . . . . . . . 8.95%
All Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24%
Total Annual Expenses(6) . . . . . . . . . . . . . . . . . . . . . . . . . 16.18%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
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<S> <C> <C> <C> <C>
You would pay the following expenses over the indicated period
on a hypothetical $1,000 investment, assuming a 5% annual
return on total assets and 6.42% (as a percentage of consolidated 1 YEAR 3 YEARS 5 YEARS 10 YEARS
total assets) of total annual expenses: ------ ------- ------- --------
$ 170 $ 493 $ 773 $ 1,325
</TABLE>
- ----------------------
(1) The purpose of the above table, including the example, is to assist
investors in understanding various costs and expenses that investors in the
Company may bear directly or indirectly. See "Selected Consolidated
Financial Data" and "Management." The table and the example are based on
the Company's fiscal year ended December 31, 1995. THE HYPOTHETICAL
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE
TABLE AND THE EXAMPLE.
(2) All costs of the Plan are borne by the Company and are included in the fees
paid to the transfer agent for the monthly services provided thereby. Such
expenses are reflected in "All Other Expenses" above.
(3) Net assets attributable to common shares equals net assets (i.e., total
assets less total liabilities and redeemable preferred stock outstanding)
as of December 31, 1995.
(4) The Company is internally managed and does not have an investment advisor.
Accordingly, the Company directly incurs all costs with respect to the
selection, research and supervision of all investments. For purposes of
this Fund Expenses table, the Company has calculated a hypothetical amount
based on an advisory fee charged by its wholly owned subsidiary which
advises an affiliate. The hypothetical fees are calculated as follows: A
base fee (the "Base Fee") consisting of a servicing fee of 0.5% of the
average annual value of all assets, and an advisory fee of 1% of the
average annual value of all loans receivable and (ii) an additional
advisory fee is calculated which is (the "Annual Fee") equal to the product
determined by multiplying the average annual value of all loans receivable
by a percentage equal to the difference between the return on equity and
6.69% up to a maximum of one percent (1%) per annum. The Annual Fee is
assumed to be earned for purposes of the above calculation since return on
equity is in excess of the 7.69% needed to achieve the entire fee. All
such advisory fees are reduced by fifty percent with respect to the value
of loans receivable that exceed common equity as a result of leverage or
the issuance of preferred shares.
-4-
<PAGE> 7
(5) The Company had outstanding borrowings of $78.5 million at December 31,
1995.
(6) Total Annual Expenses as a percentage of consolidated net assets
attributable to common shares are higher than most closed-end management
investment companies due to the Company's consolidated outstanding
borrowings of $78.5 million and consolidated preferred stock of $7.0
million at December 31, 1995, which significantly reduce the consolidated
net assets attributable to common shares on which the Annual Expenses
percentage is calculated.
-5-
<PAGE> 8
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto and "Management's Discussion and Analysis of the Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.
The selected financial data below provides information about the Company's
financial history and is derived from the audited financial statements.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands except ratios and per share information)
<S> <C> <C> <C> <C> <C>
Operating:
Total income . . . . . . . $ 21,262 $ 16,450 $ 15,670 $ 11,780 $ 8,212
Total expenses . . . . . . $ (9,541) $ (7,578) $ (5,933) $ (4,705) $ (3,935)
Realized and unrealized
gain (loss) on
investments . . . . . . $ (359) $ 3,151 $ (404) $ (263) $ (50)
Net operating income and
realized and unrealized
gain (loss) on
investments . . . . . . $ 11,362 $ 12,023 $ 9,333 $ 6,812 $ 4,227
Dividends declared,
common . . . . . . . . . $ 11,600 $ 11,244 $ 9,367 $ 6,349 $ 3,786
Earnings per common
share . . . . . . . . . $ 1.03 $ 1.12 $ 0.87 $ 0.79 $ 0.63
Dividends per common
share . . . . . . . . . $ 1.08 $ 1.06 $ 0.89 $ 0.69 $ 0.57
Weighted average common
shares
outstanding. . . . . . . 10,768 10,650 10,579 8,557 6,535
Loans funded . . . . . . . $ 77,567 $ 75,349 $ 74,091 $ 55,975 $ 41,392
At end of period:
Loans receivable, net . . $ 110,499 $ 75,264 $ 71,528 $ 54,059 $ 44,842
Total assets . . . . . . . $ 156,479 $125,416 $ 112,515 $ 85,993 $ 57,012
SBA debentures payable . . $ 43,540 $ 26,280 $ 20,280 $ 22,280 $ 23,140
Notes payable . . . . . . $ 35,001 $ 25,001 $ 25,001 $ 1 $ 4,251
Preferred stock of con-
solidated subsidiary . . $ 7,000 $ 5,000 $ 3,000 $ 3,000 $ 3,000
Common shareholders'
equity . . . . . . . . . $ 59,088 $ 57,371 $ 55,524 $ 54,839 $ 24,039
Number of common shares
outstanding . . . . . . 10,871 10,684 10,603 10,542 7,119
Ratios:
Return on average assets . 8.0% 10.3% 9.4% 9.6% 8.1%
Return on average common
shareholders' equity . . 19.2% 21.2% 16.8% 17.1% 20.7%
</TABLE>
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<PAGE> 9
SENIOR SECURITIES
(At End of Fiscal Year, Consolidated)
<TABLE>
<CAPTION>
Total Amount
Outstanding Involuntary
Exclusive of Asset Liquidating Average
Treasury Coverage Per Preference Per Market Value
Class and Year Securities (1) Unit (2) Unit (3) Per Unit (4)
-------------------------------- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
SENIOR NOTES
December 31, 1986 . . . . . . . $ -- $ -- -- N/A
December 31, 1987 . . . . . . . -- -- -- N/A
December 31, 1988 . . . . . . . -- -- -- N/A
December 31, 1989 . . . . . . . -- -- -- N/A
December 31, 1990 . . . . . . . -- -- -- N/A
December 31, 1991 . . . . . . . -- -- -- N/A
December 31, 1992 . . . . . . . -- -- -- N/A
December 31, 1993 . . . . . . . 25,000,000 2,292 -- N/A
December 31, 1994 . . . . . . . 25,000,000 2,216 -- N/A
December 31, 1995 . . . . . . . 35,000,000 1,841 -- N/A
BANK LOAN
(revolving line of credit)
December 31, 1986 . . . . . . . $ -- $ -- -- N/A
December 31, 1987 . . . . . . . 500,000 1,742 -- N/A
December 31, 1988 . . . . . . . -- -- -- N/A
December 31, 1989 . . . . . . . 3,000,000 1,711 -- N/A
December 31, 1990 . . . . . . . 2,891,500 1,759 -- N/A
December 31, 1991 . . . . . . . 4,251,000 1,987 -- N/A
December 31, 1992 . . . . . . . 1,000 3,596 -- N/A
December 31, 1993 . . . . . . . 1,000 2,292 -- N/A
December 31, 1994 . . . . . . . 1,000 2,216 -- N/A
December 31, 1995 . . . . . . . 1,000 1,841 -- N/A
</TABLE>
-7-
<PAGE> 10
<TABLE>
<CAPTION>
Total Amount
Outstanding Involuntary
Exclusive of Asset Liquidating Average
Treasury Coverage Per Preference Per Market Value
Class and Year Securities(1) Unit (2) Unit(3) Per Unit(4)
------------------------------------ ------------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
SBA DEBENTURES(5)
December 31, 1986 . . . . . . . $ 9,140,000 $ 1,870 -- N/A
December 31, 1987 . . . . . . . 11,640,000 1,742 -- N/A
December 31, 1988 . . . . . . . 14,140,000 1,752 -- N/A
December 31, 1989 . . . . . . . 16,640,000 1,711 -- N/A
December 31, 1990 . . . . . . . 23,140,000 1,759 -- N/A
December 31, 1991 . . . . . . . 23,140,000 1,987 -- N/A
December 31, 1992 . . . . . . . 22,280,000 3,596 -- N/A
December 31, 1993 . . . . . . . 20,280,000 2,292 -- N/A
December 31, 1994 . . . . . . . 26,280,000 2,216 -- N/A
December 31, 1995 . . . . . . . 43,540,000 1,841 -- N/A
NON-REDEEMABLE CUMULATIVE
PREFERRED STOCK(5)
December 31, 1986 . . . . . . . $ -- $ -- $ -- N/A
December 31, 1987 . . . . . . . 1,000,000 161 100 N/A
December 31, 1988 . . . . . . . 1,000,000 164 100 N/A
December 31, 1989 . . . . . . . 3,000,000 148 100 N/A
December 31, 1990 . . . . . . . 3,000,000 158 100 N/A
December 31, 1991 . . . . . . . 3,000,000 179 100 N/A
December 31, 1992 . . . . . . . 3,000,000 317 100 N/A
December 31, 1993 . . . . . . . 3,000,000 215 100 N/A
December 31, 1994 . . . . . . . 3,000,000 202 100 N/A
December 31, 1995 . . . . . . . 3,000,000 169 100 N/A
</TABLE>
-8-
<PAGE> 11
<TABLE>
<CAPTION>
Total Amount
Outstanding Involuntary
Exclusive of Asset Liquidating Average
Treasury Coverage Per Preference Per Market Value
Class and Year Securities(1) Unit (2) Unit(3) Per Unit(4)
------------------------------------ -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
REDEEMABLE
CUMULATIVE PREFERRED
STOCK(5)
December 31, 1986 . . . . . . . $ -- $ -- $ -- N/A
December 31, 1987 . . . . . . . -- -- -- N/A
December 31, 1988 . . . . . . . -- -- -- N/A
December 31, 1989 . . . . . . . -- -- -- N/A
December 31, 1990 . . . . . . . -- -- -- N/A
December 31, 1991 . . . . . . . -- -- -- N/A
December 31, 1992 . . . . . . . -- -- -- N/A
December 31, 1993 . . . . . . . -- -- -- N/A
December 31, 1994 . . . . . . . 2,000,000 202 100 N/A
December 31, 1995 . . . . . . . 4,000,000 169 100 N/A
</TABLE>
- --------------------------
(1) Total amount of each class of senior securities outstanding at the end of
the year presented.
(2) The asset coverage ratio for a class of senior securities representing
indebtedness is calculated as the Company's consolidated total assets
less all liabilities and indebtedness not represented by senior
securities, divided by senior securities representing indebtedness. This
asset coverage ratio is multiplied by $1,000 to determine the Asset
Coverage Per Unit. The asset coverage ratio for a class of senior
securities that is preferred stock is calculated as the Company's
consolidated total assets less all liabilities and indebtedness not
represented by senior securities, divided by senior securities
representing indebtedness, plus the involuntary liquidation preference of
the preferred stock (see footnote 3). The Asset Coverage Per Unit is
expressed in terms of dollar amounts per share.
(3) The amount to which such class of senior security would be entitled upon
the voluntary liquidation of the issuer in preference to any security
junior to it.
(4) Not applicable, as senior securities are not registered for public
trading.
(5) Issued by the Company's small business investment company subsidiaries to
the U. S. Small Business Administration. These categories of senior
securities are not subject to the asset coverage requirements of the
Investment Company Act of 1940.
-9-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CERTAIN ACCOUNTING CONSIDERATIONS
In accordance with its business and financing strategy, the Company sells
the guaranteed portions of its SBA loans while retaining servicing rights. A
portion of the Company's revenue is recognized from the premium on the sale of
loans, which principally represents either cash received or an excess
servicing spread. The excess servicing spread is calculated as the present
value of the difference between the interest rate charged by the Company to a
borrower and the interest rate received by the investors who purchased the loan
to the extent that this difference exceeds the normal loan servicing fees (the
"Excess Servicing Spread").
At the time of sale, the value of the Excess Servicing Spread is reported
as income and concurrently recorded as a corresponding asset on the Company's
consolidated balance sheet (the "Excess Servicing Asset").
During the first quarter of 1995, the Company completed a reassessment of
the method used to amortize the Excess Servicing Asset. Historically, the
Company had amortized the Excess Servicing Asset based upon the estimated life
for each loan at the time of sale, expectation of prepayments and other
considerations. When a loan was paid in full, the remaining unamortized Excess
Servicing Asset, if any, was charged against income. Considering the above
factors and the Company's historical portfolio performance, the Company
extended to the expected remaining life of the related loans, on a pooled
basis, the period over which the remaining Excess Servicing Asset would be
amortized for loans originated and sold prior to January 1, 1995. The Excess
Servicing Asset is amortized on an accelerated method over the estimated
remaining lives of the related assets. There can be no assurance of the
accuracy of management's prepayment estimates. If prepayments occur at a
faster rate than expected, the amortization of the Excess Servicing Asset will
be accelerated as a charge to earnings. If actual prepayments occur at a
slower rate than estimated, cash flows from the Excess Servicing Spread would
exceed previously expected amounts and total income in future periods would be
enhanced. Management will evaluate on an ongoing basis the future benefit
anticipated from the Excess Servicing Asset. If it is determined the future
benefit is impaired, the Company will reflect the impairment as a charge to
earnings during the period evaluated. To the extent future Excess Servicing
Spread exceeds the estimated amortization of the Excess Servicing Asset
pertaining to these loans, additional revenues will be recognized.
Since the Company's historical portfolio, in terms of prepayment speeds and
loss ratios, has performed more favorably than expected, the Company has
experienced a moderate decrease in its rate of amortization in the near term.
As the Company reviews its amortization methodologies periodically and compares
its loan portfolio performance to expectations and assumptions used in
determining the amortization period, the effect of this change in the long term
is uncertain. If the Company's loan portfolio continues to perform at its
current pace, the change will also decrease the amortization rate in the long
term.
RESULTS OF OPERATIONS
General. By increasing other sources of revenues, the Company has been
able to reduce its reliance on the income generated from its SBA guaranteed
lending subsidiary, First Western. Since 1992 the Company's other lending
activities have increased and the Company
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<PAGE> 13
has established other revenue sources. In the opinion of management, this
diversification should stabilize income and enhance future profits.
PMC Capital has outstanding senior unsecured notes in an aggregate
principal amount of $35,000,000 (the "Senior Unsecured Notes") at a weighted
average interest rate of approximately 7.4% at December 31, 1995. All proceeds
from the Senior Unsecured Notes were used to originate non-SBA loans with
interest rates typically ranging from 10.5% to 11.5% plus a commitment fee of
3%, or to purchase loans from the Resolution Trust Corporation ("RTC") and/or
its agents. The spread between the rate at which PMC Capital's non-SBA lending
program has borrowed funds and the rate at which it has loaned these funds is
currently generating a positive effect on the Company's net operating income.
All of the loans originated by PMC Capital have penalty provisions as a
disincentive for prepayment. However, in a declining interest rate
environment, when borrowers could refinance at lower interest rates, the
likelihood of prepayment increases. If the loans are prepaid, the Company may
have to originate new loans with these funds at a lower interest rate. The
Company anticipates that even if relending rates were lower, they would likely
continue to exceed the cost of funds and generate a positive spread. In
periods of rising interest rates, the likelihood of prepayments on loans with
fixed interest rates is reduced.
Western Financial and PMIC have continued to increase lending activities.
The SBA provided certain statutory relief during 1994 allowing Western
Financial and PMIC to increase their portfolio investments in the non-developer
hospitality industry in excess of one-third of their respective outstanding
portfolios. Consequently, these two subsidiaries have become more active
lenders.
The following table sets forth information concerning the aggregate gross
loans funded for the Company and the respective changes from previous years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993
---------------------- -------------------- ----------------------
Increase Increase Increase
Company Funded (Decrease) Funded (Decrease) Funded (Decrease)
------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
PMIC $21.2 107.8% $10.2 209.1% $3.3 266.7%
Western Financial 8.0 11.1% 7.2 500.0% 1.2 (45.5%)
First Western 40.6 (2.4%) 41.6 (22.0%) 53.3 3.3%
PMC Capital 7.7 (53.0%) 16.4 0.6% 16.3 1153.8%
----- ------ ----- ------ ------ -------
Total $77.5 2.8% $75.4 1.8% $ 74.1 32.3%
===== ====== ===== ====== ====== =======
</TABLE>
Increased revenues were also generated by PMC Capital's investment advisor
subsidiary, PMC Advisers, Inc. ("PMC Advisers"). PMC Advisers provides
investment advisory services to PMC Commercial Trust, a Texas real estate
investment trust and an affiliate of PMC Capital ("PMC Commercial"), pursuant
to an investment management agreement. During 1995, due to the increased
investments of PMC Commercial, the Company earned additional advisory fee
income of approximately $760,000. Increases in advisory fee income are
expected to continue as a result of anticipated increases in the loan portfolio
of PMC Commercial.
Substantially all of the loans of First Western are variable rate which
are reset quarterly based on a spread above the prime rate of interest charged
by the banking industry ("Prime
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<PAGE> 14
Rate"). The spread over the Prime Rate is typically 2.5% to 2.75%. From
February 1994 to September 1995, the Prime Rate charged by major banking
institutions increased from 6% to 9%. These increases caused the stated
interest rate on First Western's variable rate loan portfolio to be increased
by 300 basis points through September 30, 1995. This upward trend has
increased the yield on First Western's retained loan portfolio. Beginning
October 1, 1995, the yield on First Western's portfolio was reduced 25 basis
points due to the decrease in the Prime Rate to 8.75%. On January 1, 1996, the
yield on First Western's portfolio was further reduced by 25 basis points and
in February 1996 the Prime Rate was reduced an additional 25 basis points with
an anticipated reduction in yield on First Western's loan portfolio beginning
April 1, 1996. First Western is experiencing some prepayments on its variable
rate loans primarily due to the current interest rate environment.
The interest rate environment and certain applicable legislative changes
have affected the secondary market for the SBA Section 7(a) guaranteed portion
of loans originated by First Western. The most notable legislative changes
resulted from the Revenue Reconciliation Act of 1993 which required SBA program
lenders to pay a fee of 40 basis points per annum on the outstanding principal
balance of any loans sold in the secondary market subsequent to August 31, 1993
and reduced the SBA guaranteed percentage of certain loans. This fee has been
increased from 40 basis points to 50 basis points for all loans approved after
October 1, 1995 irrespective of whether the guaranteed portions of these loans
are sold into the secondary market. Since the Company has historically sold
the guaranteed portion of its SBA Section 7(a) loans into the secondary market,
the effect of this change to First Western will be the increase in fees from 40
basis points to 50 basis points. The value of the guaranteed portion of loans
decreased as a result of this fee and the percentage of loans eligible to be
sold through the secondary market was diminished by the reduction in the SBA
guaranteed percentage. Additionally, as interest rates fluctuated during 1994,
the secondary market demand for the guaranteed portion of the SBA Section 7(a)
loans decreased and the premiums declined. The secondary market demand
increased in late 1994 and has continued the increase during 1995, partially
offsetting the negative effect of the fees of 40 basis points per annum
established in 1993. Continued program and market changes may have an adverse
effect on future periods of operations.
Effective October 1995, the fees charged to the borrower by the SBA for the
SBA's guaranty of a loan to the lender increased. The fees are now based on
the size of the originated loan and will range from 2% to 3.875% of the
guaranteed portion of the loan. The fees had been 2% of the guaranteed portion
of the loan. The Company does not know what impact, if any, these changes will
have on future loan originations of First Western.
During December 1994, First Western completed a securitization and
structured sale of $24.8 million of its non-guaranteed SBA loan portfolio.
This transaction was rated "Aaa" by Moody's Investors Service and created an
additional Excess Servicing Spread. The future profitability of the Company's
SBA Section 7(a) lending activities will be impacted by a number of factors
including; (i) the more efficient capital structure achieved by First Western's
securitization and future securitizations, (ii) volume of lending, (iii) length
of loans, (iv) structure of sales to the secondary market, (v) interest rates
charged and related terms, (vi) quality of portfolio, (vii) prepayment
experience and (viii) legislative and/or regulatory changes.
In 1994, PMIC filed a registration statement with the SEC to register
shares of its common stock. The Company incurred approximately $136,000 in
costs in connection with the filing of this registration statement. PMIC, a
licensed specialized small business investment company, uses long-term funds
provided by the SBA through the issuance of debentures (which are guaranteed
by the SBA and on which the interest rate is reduced through a SBA subsidy by
-12-
<PAGE> 15
3% during the first five years). Based on discussions with staff members of
the SBA, the Company has been notified that there will be no SBA subsidized
debentures or preferred stock available during the fiscal year of the SBA
ending September 30, 1996. As a result, the registration was cancelled.
Accordingly, during the year ended December 31, 1995, the Company expensed the
costs of registration. In anticipation of this potential unavailability of SBA
subsidized funds during 1996, PMIC issued $15 million in new subsidized
debentures during 1995 and at December 31, 1995, had available approximately
$7.6 million to fund future commitments made by PMIC. To the extent PMIC has
commitments above available working capital, PMC Capital will originate those
loans.
Any other aspect of the SBA programs under which the Company participates
could be modified by legislation or agency policy changes. PMC Capital has
evaluated alternative lending strategies and would pursue such strategies
should the SBA programs under which any of its subsidiaries operates were to be
eliminated or significantly curtailed.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Interest income increased by $4.3 million (36%) from $12.0 million for the
year ended December 31, 1994, to $16.3 million for the year ended December 31,
1995. This increase was primarily attributable to: (i) the growth in the
Company's portfolio from $75.3 million at December 31, 1994 to $110.5 million
at December 31, 1995, (ii) the increased yield on First Western's loan
portfolio as a result of an increase in the Prime Rate and (iii) the increased
interest earned on temporary investments from funds received on the
securitization and structured sale of assets during December, 1994 which were
placed in short-term investments until loans were funded.
Premium income increased by $100,000 ( 4%) from $2.7 million for the year
ended December 31, 1994, to $2.8 million for the year ended December 31, 1995.
The premium income increased even though the volume of loans sold decreased by
$2.7 million, or 8%, from $33.0 million during the year ended December 31, 1994
to $30.3 million during the year ended December 31, 1995. This increase in
premium income was primarily attributable to the increased demand for these SBA
loan products by the secondary market. The increased demand was a result of
stabilized interest rates and the decrease in the prime rate in July 1995.
Accordingly, the premium on individual loans sold increased. The premium
derived from the secondary market is directly related to the term of the loan.
Other investment income, net, increased by $65,000 ( 21%) from $303,000 for
the year ended December 31, 1994, to $368,000 for the year ended December 31,
1995. This increase was primarily attributable to forfeited deposits and
prepayment penalties.
Other income, net, increased by $300,000 (20%) from $1.5 million during the
year ended December 31, 1994, to $1.8 million during the year ended December
31, 1995. This increase was primarily attributable to the investment
management fees generated by PMC Advisers.
Operating expenses, not including interest, increased by $500,000 (13%)
from $4.0 million during the year ended December 31, 1994, to $4.5 million
during the year ended December 31, 1995. Included in operating expenses for
the year ended December 31, 1995, are $136,000 pertaining to the aggregate of
costs of the PMIC registration statement. This increase was also primarily
attributable to: (i) increased staff and general overhead necessary to manage
the increased portfolio of the Company, (ii) the operations of PMC Advisers
and (iii) increases in state franchise tax expense.
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<PAGE> 16
Interest expense increased by $1.4 million (39%) from $3.6 million during
the year ended December 31, 1994, to $5.0 million during the year ended
December 31, 1995. This increase was primarily attributable to: (i) the
interest expense on $23,260,000 in SBA debentures issued or assumed between
September 1994 and September 1995 by PMIC and Western Financial, (ii) the
scheduled increase in interest rate on $5,000,000 of PMIC's SBA debentures
during the first half of 1995 and (iii) the issuance of $10,000,000 of senior
notes by PMC Capital on April 19, 1995.
Due to First Western's securitization and structured sale of assets, during
the year ended December 31, 1994, the Company recognized $3.3 million of
gain. This gain represented the difference between the proceeds from the
sale of these assets plus the present value of the difference between the
interest charged to the borrowers and the interest paid to the purchasers less
the carrying value of the assets (including discounts from the application of
Financial Accounting Standards Board ("FASB") Emerging Issues Task Force 88-11)
and an allowance for credit losses. During the year ended December 31, 1995
the Company did not complete any securitization and structured sale, and did
not have any comparable gain recognized. Not including the aforementioned
gain, realized and unrealized gain (loss) on investments has increased by
$163,000 (83%) from a loss of $196,000 for the year ended December 31, 1994, to
a loss of $359,000 during the year ended December 31, 1995. This increase in
loss is attributable primarily to a greater number of loans presently in the
process of liquidation. Based on updated area demographics, appraisals and the
condition of the collateral properties, valuation reserves were increased.
However, loan losses for the year ended December 31, 1995 continued at an
annualized rate of approximately 0.39% of average outstanding loans receivable,
primarily attributable to: (i) minimal losses incurred in the Company's largest
industry concentration (the lodging industry), (ii) continued monitoring
efforts, (iii) the strong economy and (iv) the low interest rates over the
previous several years.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Interest income increased by $2.7 million (29%) from $9.3 million for the
year ended December 31, 1993, to $12 million for the year ended December 31,
1994. This increase was primarily attributable to: (i) the growth in the
non-SBA lending portfolio from $14.5 million at December 31, 1993 to $23.8
million at December 31, 1994, (ii) the growth in the weighted average of First
Western's retained loan portfolio from $30.0 million during the year ended
December 31, 1993 to $40.1 million during the year ended December 31, 1994 and
(iii) the increased interest rates earned during the second half of the year on
the retained portion of the variable rate loans of First Western.
Premium income decreased by $2.8 million (51%) from $5.5 million for the
year ended December 31, 1993, to $2.7 million for the year ended December 31,
1994. This decrease was primarily attributable to the effect of legislative
changes and volatility in the secondary market (see "Results of Operations --
General" above) and the decline in the aggregate amount of loans originated
and sold. The average gain on the sale of the guaranteed portion of a loan
into the secondary market decreased from 13% during the year ended December 31,
1993 to 8% during the year ended December 31, 1994. Additionally, the
aggregate amount of loans sold to the secondary market declined from $36.8
million during the year ended December 31, 1993, to $33.0 million during the
year ended December 31, 1994.
Other investment income, net, increased by $100,000 (50%) from $200,000 for
the year ended December 31, 1993, to $300,000 for the year ended December 31,
1994. This increase was primarily attributable to increased prepayment charges
collected on fixed-rate loans.
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<PAGE> 17
Other income, net, increased by $900,000 (150%) from $600,000 for the year
ended December 31, 1993, to $1.5 million for the year ended December 31, 1994.
This increase was primarily attributable to the investment management fees
generated by Advisers. In addition, the Company recognized increased revenues
from forfeited deposits, construction loan monitoring and other fee income.
Operating expenses, not including interest, increased by $400,000 (11%)
from $3.6 million for the year ended December 31, 1993, to $4.0 million for
the year ended December 31, 1994. This increase was primarily attributable to
the result of increased staff and general overhead necessary to manage the
increased portfolio and the operations of PMC Advisers.
Interest expense increased by $1.3 million (57%) from $2.3 million for the
year ended December 31, 1993, to $3.6 million for the year ended December 31,
1994. This increase was primarily attributable to the $25 million Senior
Unsecured Notes issued in 1993, and $6 million in subordinated debentures
issued in September 1994.
Due to First Western's securitization and structured sale of assets, during
the year ended December 31, 1994, the Company recognized $3.3 million of
gain. This gain represents the difference between the proceeds from the sale
of these assets plus the present value of the difference between the interest
charged to the borrowers and the interest paid to the purchasers less the
carrying value of the assets (including discounts from the application of EITF
88-11) and an allowance for credit losses.
Realized and unrealized gain (loss) on investments (not including the $3.3
million gain from the structured sale of loans) has been reduced from a loss of
$400,000 for the year ended December 31, 1993 to a loss of $200,000 for the
year ended December 31, 1994, a 50% reduction. The reduction was primarily
attributable to: (i) recovery of $68,000 on a loan in liquidation, (ii) a
strong economy with relatively low interest rates and (iii) no losses incurred
in the Company's largest industry concentration.
CASH FLOW ANALYSIS
The Company generated $12.8 million and $13.9 million from operating
activities during the years ended December 31, 1995 and 1994, respectively.
The decrease of $1.1 million (8.0%) was not attributable to any one significant
item.
The Company used $31.9 million and $3.7 million through investing
activities during the years ended December 31, 1995 and 1994, respectively.
Included in the 1994 activity are the source of funds of $24.8 from the
structured sale of loans. There was no comparable transaction in 1995. Other
significant changes are noted below. The Company increased its use of funds
for loans originated by approximately $4 million from $43.1 million during the
year ended December 31, 1994 to $47.1 million during the year ended December
31, 1995. During the year ended December 31, 1995 principal collected was
$10.7 million as compared to $17.8 million during the year ended December 31,
1994. This decrease of $7.1 million (40%) was primarily due to higher
prepayments on larger principal balance fixed rate loans during 1994 primarily
in the portfolios of PMC Capital and PMIC. Also included as proceeds from
investing activity are the proceeds from government security sales net of
purchases of $5 million during the year ended December 31, 1995 as compared to
the use of funds for purchases in excess of sales of $1.9 million during the
year ended December 31, 1994.
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<PAGE> 18
The Company generated $16.9 million from financing activities during the
year ended December 31, 1995 as compared to the use of $1.8 million during the
year ended December 31, 1994. This change of $18.7 million was primarily due
to (i) increase in SBA debentures issued in 1995 to $15 million from $6 million
in 1994 and (ii) proceeds of $10 million from the issuance of notes payable.
It is also noted that the dividends paid during the year ended December 31,
1995 was $11.2 million as compared to $9.8 million during the year ended
December 31, 1994, an increase of $1.4 million (14.3%).
LIQUIDITY AND CAPITAL RESOURCES
The primary use of the Company's funds is to originate loans. In addition,
the Company may use funds to acquire loans from governmental agencies and/or
their agents. The Company also uses funds for general and administrative
expenses, dividends to shareholders, interest expense, capital expenditures,
advances on loan liquidations and payments due on borrowing facilities.
Approximately $2.5 million of the Company's SBA debentures become payable in
September 1996. This amount could, subject to SBA approval, be rolled over
into new SBA debentures. See "Business -- Overview of SBA Regulations." As a
regulated investment company, pursuant to the Internal Revenue Code of 1986,
the Company is required to pay out substantially all of its net investment
company taxable income to the common shareholders. To sustain growth in the
size of its investment portfolio, the Company continually reviews the need for
obtaining additional funds from either: (i) debt offerings and additional
credit facilities, (ii) securitization and sale of a portion of the loan
portfolio and/or (iii) equity offerings. Historically, the Company's primary
sources of capital and liquidity have been debentures issued through programs
of the SBA, private and public issuances of common stock, the issuance of
senior unsecured notes, a securitization and sale of its loan portfolio and the
utilization of its short-term, uncollateralized line of credit. Availability
of additional SBA debentures is limited and there are no SBA subsidized
debentures and preferred stock available through September 30, 1996.
Loan commitments outstanding at December 31, 1995 to various prospective
small business companies, including the unfunded portion of projects in the
construction phase, amounted to approximately $86.9 million. Of these
commitments, $30.6 million were for loans partially guaranteed by the SBA of
which approximately $28.4 million will be sold into the secondary market. Such
commitments are made in the ordinary course of the Company's business.
Commitments to extend credit are agreements to lend to a customer provided that
the terms established in the contract are met. Commitments generally have
fixed expiration dates and require payment of a fee. Since some commitments
expire without the proposed loan closing, the total commitment amounts do not
necessarily represent future cash requirements.
During April 1995, the Company issued $10 million in senior unsecured
notes, $5 million of which is due in April 2003 with a fixed interest rate of
8.6% and the remaining $5 million is due in April 2004 with a variable
nterest rate of LIBOR plus 1.30% (7.24% at December 31, 1995). During May 1995,
PMIC issued $2 million in preferred stock and Western Financial assumed $2.26
million in SBA debentures in exchange for the previously participated portion
of certain loans. During March 1995, June 1995 and September 1995, the
Company's subsidiaries issued $3 million, $5 million and $7 million in SBA
debentures, respectively. The Company also has a short-term line of credit
under which it can borrow approximately $10 million. In addition, at December
31, 1995, the Company had $31.6 million in cash and cash equivalents.
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<PAGE> 19
The lack of availability to issue SBA debentures through September 30, 1996
will require the Company to utilize other sources of funds prior to that time.
The cost and terms of these other sources of funds will not be as favorable as
those typically achieved on SBA debentures, however, the Company has
historically been able to issue debt through private placement of notes and
receive working capital through securitization and sale of a portion of its
portfolio. If additional funds are required, the Company would attempt to
either issue additional senior unsecured notes, privately or publicly raise
equity and/or securities and structure a sale of either the unguaranteed
portion of SBA loans or the portfolio of PMC Capital, Western Financial and
PMIC. Management believes that through utilization of one or more of these
sources of debt or equity capital, the Company should meet its liquidity needs
for the foreseeable future.
PMC Capital is required to maintain a minimum of 200% asset coverage of
debt as defined in sections 18 and 61 of the Investment Company Act as modified
by exemptive orders obtained by the Company from the SEC.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114 "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." These pronouncements are
effective for fiscal years beginning after December 15, 1994. These statements
provide income recognition criteria on loans and generally require creditors to
value certain impaired and restructured loans at the present value of the
expected future cash flows, discounted at the loan's effective interest rate,
or at fair value of the collateral if the loan is collateral dependent.
The implementation SFAS No. 114 and SFAS No. 118 did not have an effect on
the Company's financial statements.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," an amendment of SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities," to require that an entity recognize as separate assets rights to
service mortgage loans for others, regardless of how such servicing is
acquired. SFAS No. 122 is effective for fiscal years beginning after December
15, 1995. The effects on operations and financial condition of implementing
SFAS No. 122, in management's opinion, is not considered significant.
In 1992, FASB issued SFAS No. 107, "Disclosures About fair Value of
Financial Instruments," to require disclosure in the body of the financial
statements or the accompanying notes regarding the fair value of financial
instruments for which it is practicable to estimate that value and the methods
and significant assumptions used. The effective date is for financial
statements issued in fiscal years ending after December 15, 1995. The Company
has incorporated the requirements of SFAS No. 107 in the accompanying
consolidated financial statements.
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<PAGE> 20
DESCRIPTION OF THE PLAN
The following is a description of the provisions of the Dividend
Reinvestment and Cash Purchase Plan of PMC Capital in question and answer
format:
PURPOSE
1. What is the purpose of the Plan?
The Plan offers participants ("Participants") a convenient and economical
way to purchase PMC Capital's common stock, par value $.01 per share (the
"Common Stock"). Once a Participant is enrolled in the Plan, cash dividends
will be used to purchase shares of Common Stock (both whole and fractional
shares). Participants pay no brokerage commissions for purchases made under
the Plan. Purchases of shares of Common Stock under the Plan will provide the
Company with funds to be applied toward general corporate purposes.
ADVANTAGES
2. What are the advantages of the Plan?
Shareholders may participate in the Plan by having cash dividends on all,
or a portion of their shares of Common Stock automatically reinvested.
Participants are not required to pay any brokerage commissions in connection
with purchases made under the Plan. A full investment of funds is possible
under the Plan because fractions of shares of Common Stock, as well as full
shares of Common Stock, will be credited to Participants' Plan accounts
including dividends on these shares. Participants will avoid the cumbersome
safe keeping of certificates for shares of Common Stock credited to their Plan
accounts as the shares of Common Stock are held in custody for Participants by
American Stock Transfer & Trust Company (hereinafter "American Stock
Transfer"). Statements of Participants' Plan accounts will be provided
monthly.
ADMINISTRATION
3. Who administers the Plan?
PMC Capital is the Plan Administrator. American Stock Transfer is the
agent for the Company and acts as custodian for the shares held in the Plan and
purchases shares of Common Stock as the Participants' agent. American Stock
Transfer will keep a record of each Participant's participation and will send
monthly statements of each Participant's Plan account. Shares of Common Stock
purchased under the Plan will be registered in the name of American Stock
Transfer, as agent for Participants in the Plan, and not in the name of the
Participant. If American Stock Transfer ceases to serve as agent, its
successor will be designated by PMC Capital. At the option of the Company, the
shares of Common Stock purchased under the Plan on behalf of Participant will
be newly issued by PMC Capital, issued from treasury stock or purchased in the
open market by American Stock Transfer as agent for the Participant.
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<PAGE> 21
4. Who interprets and regulates the Plan?
PMC Capital reserves the right to interpret and regulate the Plan as
deemed desirable or necessary. PMC Capital, or an agent administering the
Plan, will not be liable for any act done in good faith or for any omission to
act in good faith, including, without limitation, any claim of liability
arising out of a failure to terminate a Participant's account upon the
Participant's death prior to receipt of written notice of the death (unless
the Company is deemed to be an underwriter for purposes of the federal
securities laws, in which case the Company cannot be so excluded from
liability). Such exclusion of liability to American Stock Transfer does not
affect any liability of PMC Capital.
Participants should recognize that PMC Capital cannot assure them of a
profit or protect them against a loss on the shares of Common Stock purchased
under the Plan.
5. May the Plan be modified or discontinued?
PMC Capital reserves the right to suspend, modify or terminate the Plan at
any time. Any suspension, major modification or termination of the Plan will
be announced by PMC Capital to all shareholders and employees including both
Plan Participants and non-Participants.
PARTICIPATION
6. Who is eligible to participate in the Plan?
All shareholders of record are eligible to join the Plan. In order to be
eligible to participate, beneficial owners of Common Stock whose shares are
registered in names other than their own (e.g., in the name of a broker or a
bank nominee) must become shareholders of record by having their shares of
Common Stock transferred into their names. Beneficial owners may request the
record holders of their shares of Common Stock to participate on their behalf.
In the event a Participant's account shall have a market value of less than
$100, PMC Capital shall have the option, but not the obligation, to terminate
the Participant's account. In the event a Participant's account is terminated
by PMC Capital, a certificate for whole shares of Common Stock shall be
delivered to the Participant and the Participant's fractional shares of Common
Stock shall be sold (see Question Nos. 21, 22 and 23).
PARTICIPATION BY SHAREHOLDERS
7. How does a shareholder of record participate?
Shareholders of record may join the Plan at any time by completing the
Authorization Form and returning it to American Stock Transfer. Authorization
Forms will be furnished to shareholders at any time upon request made to
American Stock Transfer (1-800-278-4353).
8. When will dividends be invested?
If the Authorization Form is received by American Stock Transfer on or
before the dividend record date, then the dividend will be used to purchase
additional shares of Common Stock for a Participant on the dividend payment
date. The dividend declaration date is the date on which the Board of
Directors of PMC Capital decides whether a dividend should be paid and
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<PAGE> 22
in what amount. If the Authorization Form is received after the record date, a
Participant's purchase will not start until the next quarterly dividend payment
date. The dividend record dates are generally on the last business day of each
calendar quarter in which the AMEX is open for trading. Quarterly dividends
are paid approximately two weeks following the dividend record date.
9. How are optional cash payments made and invested?
Optional cash payments are invested on the fifth business day of each
month. Optional cash payments should be sent so that they are received by
American Stock Transfer at least five business days before a purchase date.
Any optional cash payments received later than a purchase date will be held by
American Stock Transfer and applied to the next purchase date, unless the
shareholder requests, in writing, to American Stock Transfer the return of such
payment.
Participants do not receive any interest on the amounts held by American
Stock Transfer pending investment.
Participants may not send less than $50 per payment nor more than $10,000
per calendar month. If a Participant sends less than $50 or more than $10,000,
American Stock Transfer will refund the entire amount to him or her.
The price of the shares of Common Stock purchased with optional cash
payments will be ninety-eight (98%) percent of the average of the mean of the
high and low prices of Common Stock, as published in The Wall Street Journal -
American Stock Exchange listings for the five days in which trading of shares
of Common Stock takes place, immediately prior to the optional cash payment
purchase date.
10. Are shareholders enrolled in the Plan required to send in a new
Authorization Form annually?
No. Shareholders are enrolled in the Plan without further action on their
part, unless the Participant gives notice to the Plan Administrator in writing
that he or she wishes to terminate participation (see Question Nos. 21 and 22
for information concerning termination of participation in the Plan). A
shareholder may also submit a new Authorization Form to change the portion of
cash dividends that are to be issued in the form of Common Stock, provided that
such an election must be submitted to the Plan Administrator prior to a
dividend record date in order to be effective for the corresponding dividend
payment date (presently quarterly).
11. What does the Authorization Form provide?
The Authorization Form allows a Participant to decide the extent to which
such Participant wants to participate in the Plan. By checking the appropriate
box on the Authorization Form, a Participant may indicate whether he wants to:
(a) Reinvest dividends paid on all shares of Common Stock registered
in a Participant's name;
(b) Reinvest dividends paid on a portion of Common Stock registered
in a Participant's name; or
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<PAGE> 23
(c) Invest by making optional payments at any time up to an aggregate
of TEN THOUSAND AND NO/100 DOLLARS ($10,000) per calendar month.
PURCHASES
12. How many shares of Common Stock will be purchased for Participants?
The number of shares of Common Stock to be purchased depends on the amount
of the Participant's dividends credited to the Participant's account under the
Plan or the amount of any optional payments and the purchase price of the
shares of Common Stock on the dividend payment date. Each Participant's
account will be credited with that number of shares, including fractions
computed to four decimal places, equal to the total amount to be invested
divided by the applicable purchase price.
13. What is the price of the new shares of Common Stock?
The price of shares of Common Stock bought with cash dividends or optional
payments will be ninety-eight (98%) percent of the average for the mean of the
high and low prices of Common Stock, as published in the Wall Street Journal -
American Stock Exchange listings, for the five days in which trading of shares
of Common Stock takes place immediately prior to the applicable purchase date.
14. Are any fees or expenses incurred by Participants?
Participants will pay no brokerage commissions for purchases made under
the Plan. Certain charges (see Question 22) may be incurred by Participants if
they withdraw from the Plan or if the Plan is terminated by the Company.
REPORTS TO PARTICIPANTS
15. How will Participants be advised of their purchases of shares of
Common Stock?
As soon as practicable Participants will receive monthly statements of
their purchases and accounts. These statements are Participants' continuing
records of the cost of their purchases and should be retained for tax purposes.
In addition, Participants will receive copies of the same communications sent
to other shareholders, including PMC Capital's annual report, interim reports,
notice of annual meeting and proxy statement, and income tax information.
Participants should notify American Stock Transfer (attn: Dividend
Reinvestment) of any change in address or duplicate mailings, so that American
Stock Transfer can consolidate their accounts and simplify their tax reporting.
DIVIDENDS
16. Will Participants be credited with dividends on shares of Common
Stock held in their accounts under the Plan?
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<PAGE> 24
Yes. The Company pays dividends, as declared, to the record holders of its
shares of Common Stock. As the record holder for Participants, American Stock
Transfer, as agent, will receive dividends for all Plan shares held on the
record date. It will credit these dividends to Participants on the basis of
full and fractional shares of Common Stock held in their accounts, and will
reinvest these dividends in additional shares of Common Stock.
CERTIFICATES
17. Will stock certificates be issued for shares of Common Stock
purchased?
Normally, certificates for shares of Common Stock purchased under the Plan
will not be issued to Participants. The number of shares of Common Stock
credited to accounts under the Plan will be shown on Participants' monthly
statements. This additional service protects against loss, theft or
destruction of stock certificates. The shares of Common Stock will be owned
for record purposes by American Stock Transfer until certificates are issued to
a Participant upon a Participant's written request.
Certificates for any number of whole shares of Common Stock up to the full
number of shares of Common Stock credited to Participants' Plan accounts will
be issued upon written request to American Stock Transfer (see Question 22).
Any remaining full shares of Common Stock and fractional shares of Common Stock
will continue to be credited to Participants' accounts.
Shares of Common Stock credited to the accounts of Participants under the
Plan may not be pledged. Participants who wish to pledge such shares of Common
Stock must request that certificates for such shares of Common Stock be issued
in their names. Certificates for fractional shares of Common Stock will not be
issued under any circumstances.
18. In whose name will accounts be maintained and certificates registered
when issued?
Accounts for Participants will be maintained in the Participants' names as
shown on PMC Capital's shareholder records at the time the Participants join
the Plan. Certificates for whole shares of Common Stock will be so registered
when issued, except in instances such as death. Upon written request,
certificates can also be registered and issued in names other than the account
name, subject to compliance with any applicable laws and the payment by the
Participants of any applicable taxes, provided that the request bears the
signatures of the Participants and the signatures are guaranteed by a
commercial bank or member firm of AMEX.
CHANGING INVESTMENT OPTIONS
19. How do Participants change their investment option?
Participants may change their investment option at any time by
completing a new Authorization Form. New Authorization Forms may be obtained
by submitting a written request to American Stock Transfer. A Participant's
request will become effective as soon as practicable after the Authorization
Form is received by American Stock Transfer.
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<PAGE> 25
20. May PMC Capital elect not to issue shares of Common Stock under the
Plan?
PMC Capital reserves the right to terminate or modify the Plan at any time
(see Question 31). Moreover, if at any time the value of the shares to be
issued (taking into account the 2% discount) is less than the current net asset
value of Common Stock (which net asset value shall be determined within
forty-eight hours, excluding Sundays and holidays next preceding the time of
such determination), then that dividend will be paid in cash.
WITHDRAWING FROM THE PLAN
21. May Participants withdraw all or a portion of their shares of Common
Stock from the Plan?
Yes. The Plan is entirely voluntary and Participants may withdraw at any
time, by completing the account correspondence stub attached to the monthly
statement, or by forwarding a written request to American Stock Transfer for a
full or partial withdrawal. Withdrawing Participants may request either that
their shares of Common Stock be sold and the cash proceeds forwarded to them or
request that certificates be issued to them.
22. How do Participants withdraw all or a portion of their shares of
Common Stock from the Plan?
In order to withdraw from the Plan, Participants must notify American
Stock Transfer in writing that they wish to withdraw. Written notice should be
addressed to American Stock Transfer. Written notice may also be provided by
completing the reverse side of the account correspondence stub of the monthly
statement and returning it to American Stock Transfer.
If a Participant requests a partial withdrawal, he must specify that
American Stock Transfer either sell the full shares of Common Stock designated
or issue a certificate for any number of whole shares of Common Stock credited
to his Plan account.
If a Participant requests a full withdrawal, he must specify that American
Stock Transfer sell all of his shares of Common Stock or issue a certificate
for any number of whole shares credited to his Plan account.
If a Participant requests his shares of Common Stock to be sold, American
Stock Transfer will place a market order to sell as soon as practicable after
receipt of his request. The Participant will receive the proceeds of the sale
less any brokerage commission and any transfer tax. This will include cash
proceeds for any fraction of a share of Common Stock.
If a Participant's request for withdrawal or sale of shares of Common
Stock is received by American Stock Transfer prior to the fifth business day
after the record date, the amount of the dividend which would otherwise have
been invested on the next investment date will be paid in cash as soon as
practicable to the withdrawing Participant. If such request is received by
American Stock Transfer on or after the fifth business day after the record
date, then it will be processed as soon as practicable after the dividend
payment date. Thereafter, all dividends will be paid in cash. Any eligible
shareholder may elect to re-enroll in the Plan at any time.
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<PAGE> 26
23. What happens to fractions of shares of Common Stock when Participants
withdraw from the Plan?
When Participants withdraw from the Plan, cash payments representing any
fractions of shares of Common Stock will be mailed directly to the
Participants. The cash payment price will be based on the current market price
of the Common Stock less any brokerage commission and transfer tax on the date
the withdrawal notice is received by American Stock Transfer. If that date is
not a trading day, the next previous trading day will be substituted (see
Questions 21 and 22).
24. What are the Federal income tax consequences of participating in the
Plan?
The following discussion of Federal income tax consequences of
participation in the Plan is provided for general information only.
Participants should consult their own tax advisors to determine the specific
Federal and State tax consequences which may result from participation in the
Plan and a subsequent disposal of shares of Common Stock acquired pursuant to
the Plan.
Participants in the Plan will be treated for Federal income tax purposes
as having received, on the dividend payment date for cash dividend payments as
determined by the Company, a dividend in an amount equal to the fair market
value on such dividend payment date of the shares of Common Stock acquired with
reinvested dividends. Since the shares of Common Stock are issued at
ninety-eight (98%) percent of fair market value, the taxable dividend usually
will exceed the amount of the cash dividend. For Federal income tax purposes,
the fair market value of shares of Common Stock acquired with reinvested
dividends under the Plan will be equal to the means of the high and low prices
of shares of Common Stock as shown in the Wall Street Journal - American Stock
Exchange listing for the dividend payment date. The tax basis of shares of
Common Stock acquired with reinvested dividends will equal the fair market
value on the dividend payment date of such shares of Common Stock.
Participants' holding periods for shares of Common Stock acquired pursuant
to the Plan will begin on the day following the date of their acquisition for
the Participants' accounts.
Participants will not realize any taxable income upon receipt of
certificates for whole shares of Common Stock credited to the Participants'
accounts either upon the Participants' request for certain of those shares of
Common Stock or upon withdrawal from or termination of the Plan.
Participants will realize gain or loss when Participants sell or exchange
shares of Common Stock received by Participants after withdrawals of such
shares of Common Stock from the Plan. The amount of such gain or loss will be
the difference between the amount that Participants receive for the shares of
Common Stock or fractional share equivalent, and the tax basis thereof.
Participants will realize gain or loss upon receipt of cash payments for
fractional share equivalents credited to the Participants' accounts upon
withdrawal from or termination of the Plan.
25. What provision is made for foreign shareholders whose dividends are
subject to income tax withholding?
In the case of those foreign shareholders whose dividends are subject to
United States income tax withholding, an amount equal to the dividends less
that amount of tax required to be withheld will be applied to the purchase of
shares of Common Stock. Amounts withheld are
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<PAGE> 27
paid to the Internal Revenue Service. Foreign shareholders at their option may
file returns with the Internal Revenue Service with respect to such
withholding.
OTHER INFORMATION
26. What happens when Participants sell or transfer all of the shares of
Common Stock registered in their names?
If Participants dispose of all shares of Common Stock registered in their
names, PMC Capital will, unless otherwise instructed by the Participants,
continue to reinvest the dividends on the shares of Common Stock credited to
their Plan accounts.
27. What happens if PMC Capital issues a stock dividend, declares a stock
split, or has a rights offering?
Any shares of Common Stock distributed by PMC Capital as a stock dividend
on shares of Common Stock credited to Participants' Plan accounts, or on any
split of their shares of Common Stock, will be credited to their Plan accounts.
In a rights offering, Participants' entitlements will be based on their total
holdings, including those credited to their Plan accounts. Rights applicable
to shares of Common Stock credited to their Plan accounts, however, will be
sold by American Stock Transfer. The proceeds will be credited to
Participants' Plan accounts and applied to purchase shares of Common Stock on
the next investment date.
28. What happens if PMC Capital makes the right to purchase additional
shares of Common Stock or other securities available to its shareholders?
In the event that PMC Capital makes available to its shareholders (1)
rights to purchase additional shares of Common Stock or (2) any securities of
any other class of PMC Capital, then the Plan Administrator will afford to
Participants the opportunity to exercise any such rights or warrants accruing
to the whole shares of Common Stock credited to the Participants' Plan
accounts.
29. How will Participant's shares of Common Stock be voted at meetings of
shareholders?
The Participants will receive proxy cards covering the total number of
whole shares of Common Stock credited to the Participants' Plan accounts. The
Plan Administrator will vote any whole shares of Common Stock that it holds for
Participants in accordance with the proxies returned by the Participants to PMC
Capital. If a proxy card is returned properly signed, but without indicating
instructions as to the manner shares are to be voted with respect to any item
thereon, the shares of Common Stock covered will be voted in accordance with
the recommendations of PMC Capital's management. If a proxy card is not
returned, or it is returned unexecuted or improperly executed, the shares of
Common Stock covered will not be voted unless the Participant or the
Participant's duly appointed representative votes in person at the meeting.
Participants will continue to receive separate proxy cards for any other whole
shares of Common Stock registered in the Participants' names.
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<PAGE> 28
30. What are the responsibilities of the Plan Administrator under the
Plan?
The Plan Administrator shall not be liable under the Plan for any act done
in good faith, or for any good faith omission to act, including, without
limitation, any claim of liability (1) arising out of any such act or omission
to act which occurs prior to the termination of participation and (2) with
respect to the prices at which shares of Common Stock are issued to
Participants' accounts. Participants should recognize that neither PMC Capital
nor the Plan Administrator can assure Participants of profits, or protect
Participants against losses, on shares issued and/or held under the Plan.
31. May the Plan be changed or discontinued?
PMC Capital reserves the right to modify, amend, suspend or terminate the
Plan at any time. Notice of any such modification shall be furnished to
Participants at least fifteen (15) days prior to the dividend record date for
which the amendment shall be effective. In such event, PMC Capital as Plan
Administrator will follow the procedures for termination set forth in Question
21.
32. Where should correspondence regarding the Plan be sent?
Any notice, instruction, request or election which by any provision of the
Plan is required or permitted to be given or made by the Participants to the
Plan Administrator shall be in writing, signed by the Participants and
addressed to:
American Stock Transfer & Trust Company
Dividend Reinvestment
40 Wall Street, 46th Floor
New York, N.Y. 10005
or such other address as the Plan Administrator shall furnish to the
Participants, and such notice, instruction, request or election shall be deemed
to have been sufficiently given or made when received by the Plan
Administrator.
Participants should mention their account keys on all such correspondence.
33. What is sufficient notice to Participants?
Any notice or certificate which any provision of the Plan requires the
Plan Administrator to give to the Participants shall be in writing and shall be
deemed to have been sufficiently given for all purposes by being deposited
postage prepaid in a post office letter box addressed to the Participants at
their address as it shall last appear on the Plan Administrator's records.
34. Can successor Plan Administrator(s) be named?
PMC Capital may, from time to time, designate a bank or trust company as
successor Plan Administrator under the Plan.
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<PAGE> 29
35. What law governs the Plan?
The terms and conditions of the Plan and its operation are governed by the
laws of the State of Florida.
USE OF PROCEEDS
The net proceeds from the sale of shares of Common Stock purchased from
PMC Capital from time to time will be used for general corporate purposes, which
may include lending such proceeds in accordance with the Company's underwriting
criteria.
CERTAIN CONSIDERATIONS
GENERAL
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered in evaluating an investment in
the Common Stock.
Credit Risks of Loans and Portfolio Diversification. The Company's
lending business is subject to various risks, including, but not limited to,
the risk that borrowers will not satisfy their debt service obligations and
the risk that the value of the collateral securing a liquidated loan is less
than the principal amount of such loan. In addition, since the Company's
borrowers are small businesses with more limited financial resources than
larger, more established companies, the Company may assume a greater risk of
loss than might otherwise be the case if it had focused on lending to larger
companies. The Company attempts to reduce its risk of loss by evaluating each
borrower's creditworthiness and the value of the collateral securing each
loan; by limiting the maximum amount loaned to any single borrower; by taking
security interests in assets, including real property, of the borrower and, in
certain cases, parties related to the borrower; and by obtaining personal
guarantees.
The Company has relatively high levels of loans to the lodging industry
(approximately 55% of the Company's total assets as of December 31, 1995).
Pursuant to a change in the emphasis of the Company's investment strategy, the
Company's investments in the lodging industry have increased while the
percentage of its investments in the health care field have decreased. In
consideration of the Company's efforts to decrease their investments in the
health care field, the Company, through a shareholder vote at the annual
shareholders' meeting held June 19, 1993, amended its fundamental policies to
allow for concentration in only the lodging industry. The Company will invest
the proceeds of any sales of shares pursuant to the Plan in a manner the
ensures that it is in compliance with its current fundamental policies.
In the event of a downturn in the lodging industry, the ability of such
borrowers to satisfy their debt service obligations to the Company could be
adversely affected. In addition, approximately 41%, 13% and 10% of the
Company's total assets as of December 31, 1995 consisted of loans to borrowers
located in Texas, Florida and Georgia, respectively. A significant economic
downturn in either of these regions could adversely affect the value of
collateral located in these regions.
Interest Rate and Prepayment Risk. The Company's income is materially
dependent upon the "spread" between the rate at which it borrows funds and the
rate at which it loans these funds. Western Financial and PMIC have
historically borrowed funds from the SBA for terms
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<PAGE> 30
of 10 years and have made fixed rate loans for terms of four to 25 years. PMC
has borrowed funds through private placements of senior unsecured notes with
maturities ranging from 6 to 10 years and have made fixed rate loans for terms
of 5 to 10 years. If interest rates decline, Western Financial, PMIC and PMC
may experience significant prepayments, and such prepayments, as well as
scheduled repayments, are likely to be reloaned at lower rates, which may have
a material adverse effect on the Company. Western Financial, PMIC and PMC
attempt to protect against declining interest rates by generally requiring
prepayment penalties and by making loans at initial spreads which reflect this
risk. First Western has less prepayment risk because it makes variable rate
loans which periodically adjust with changing market conditions.
In connection with First Western's sale of the guaranteed portion of the
loans it originates, the Company records an "Excess Servicing Asset" on its
balance sheet. The Excess Servicing Asset is amortized over the estimated life
of the loans. A shorter loan life than that estimated at the time when the
Excess Servicing Asset was established will result in the carrying value of the
Excess Servicing Asset being written down through a charge to earnings. If the
actual life of the loans, however, exceeds the estimated life of the Excess
Servicing Assets, the Company will recognize additional income exceeding the
amount of the Excess Servicing Asset.
Dependence on SBA Programs. The Company funds a substantial portion of
the loans that it originates through certain SBA programs. Approximately $62
million of the Company's loans outstanding at December 31, 1995 were funded
under the specialized small business company ("SSBIC") and small business
investment company ("SBIC") programs of the SBA which allow for PMIC and
Western Financial to borrow funds at below market rates. The availability of
funding under the SSBIC and SBIC programs is subject to annual appropriations
by the U.S. Congress which have not been finalized for the government's fiscal
year ending September 30, 1996. Discontinuation, elimination or a significant
reduction of these SBA programs would have a material adverse effect on the
Company. There have been attempts in previous years by the federal government
to eliminate the SBA or to curtail its activities or funding. Any significant
change in the SBA programs could have a material adverse effect on further
periods of operation.
Dependence on Key Personnel. The Company is dependent upon the efforts
and abilities of Dr. Fredric M. Rosemore, its Chairman of the Board, Lance B.
Rosemore, its President and Chief Executive Officer, and Dr. Andrew S.
Rosemore, its Executive Vice President and Chief Operating Officer. Although
the Company believes that it has a capable management group, the loss or
interruption of the services of these persons could have a material adverse
effect on the Company. The Company has entered into employment agreements with
Dr. Fredric M. Rosemore, Lance B. Rosemore and Dr. Andrew S. Rosemore, which
agreements expire in August 1997.
The Company has not purchased policies insuring the lives of Dr. Fredric
M. Rosemore, Lance B. Rosemore or Dr. Andrew S. Rosemore. All of the executive
officers are required to spend all of their business time on Company business,
including the management of PMC Advisers in connection with advisory services
to be provided by PMC Advisers to affiliates of the Company in the future. See
"Remuneration of Directors and Officers" and "Management." See also "Certain
Affiliated Transactions and Other Matters" for important information concerning
the management of the Company.
Availability of Funding Sources. The Company has a continuing need for
capital to finance its lending activities and has generally funded its loan
origination activities by
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<PAGE> 31
borrowings through programs of the SBA, private and public issuances of Common
Stock, the issuance of senior unsecured notes, a securitization and sale of its
loan portfolio and the utilization of its short-term uncollateralized line of
credit. Accordingly, reductions in the availability of funds from these
sources could have a material adverse effect on the Company. In addition,
since the Company distributes as dividends to its shareholders all its
investment company taxable income, such earnings are not available to fund loan
originations.
Environmental Liabilities. The Company has acquired, and may in the
future acquire, through foreclosure, properties that secured defaulted loans.
While the Company performs extensive due diligence investigations into
properties both prior to originating the loan secured by such properties and
prior to foreclosing thereon, there is a risk that hazardous substances or
wastes, contaminants, pollutants or sources thereof could be discovered on
properties acquired by the Company or with respect to which the Company is
deemed to be an owner or operator under applicable environmental laws. In such
event, the Company could be required under certain environmental laws to remove
such substances and clean up the affected property at its sole cost and
expense or to contribute to the cost of such remediation or clean up, which
could have a material adverse effect on the Company. In addition, the Company
could be required to pay fines and/or penalties imposed by governmental
agencies. The Company requires environmental site assessments of commercial
real estate securing loans it makes as a condition to making such loans;
however, there can be no assurance that such assessments would reveal any or
all potential environmental liabilities.
Competition. Many entities, including banks, financial institutions,
insurance companies and other lending companies, including companies operating
under SBA programs, as well as individuals, compete for investments similar to
those made by the Company, some of whom have far greater resources than the
Company. Competition has increased as the financial strength of the banking
and thrift industries improved. Increased competition makes it more difficult
to originate loans on favorable terms at attractive prices. The principal
competitive factors in the Company's business are the loan terms offered to
borrowers and the quality of service provided to borrowers. See "Business --
Competition."
Leverage. The Company has borrowed funds from the SBA and pursuant to
lines of credit with a commercial bank. In addition, the Company has also
privately issued $35 million of Senior Unsecured Notes. As a result of all of
the aforementioned borrowings the Company is leveraged. Lenders and holders of
preferred stock will have fixed dollar claims on the Company's assets superior
to the claims of the holders of Common Stock and may require that the Company
agree to covenants that could restrict its flexibility in the future and may
limit the Company's ability to pay dividends. The Company's net income is
materially dependent upon the "spread" between the rate at which it borrows
funds (typically either short-term at variable rates or long-term at fixed
rates) and the rate at which it loans these funds (typically long-term at fixed
rates). If the returns on loans originated by the Company with funds obtained
from borrowings or the issuance of preferred stock failed to cover the cost of
such funds, the Company's cash flow will be reduced and could be negative.
Additionally, any increase in the interest rate earned by the Company on
investments in excess of the interest rate or dividend rate incurred on the
funds obtained from either borrowings or the issuance of preferred stock could
cause the Company's net income to be increased more than it would without the
leverage. Conversely, any decrease in the interest rate earned by the Company
on investments could cause net income to decline by a greater amount than it
would if the funds had not been obtained from either borrowings or the issuance
of preferred stock and invested. Leverage is thus generally considered a
speculative investment technique. In order for the Company to repay
indebtedness or meet its obligations in respect of any outstanding preferred
stock on a timely basis, the
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<PAGE> 32
Company may be required to dispose of assets at a time at which it would not
otherwise do so and at prices which may be below the net book value of the
loan. Dispositions of assets may adversely impact the Company's results of
operations and the Company's ability to pay dividends.
Decline in Net Asset Value. If the net asset value of the Company's
assets were to decline, PMC Capital's ability to pay dividends on the Common
Stock may be adversely effected. Such inability to pay dividends may cause
PMC Capital to lose its status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). Additionally, such
reduction may require the Company to dispose of assets at a time at which it
would not otherwise do so and at prices which may be below the net book value
of the assets.
Shares Eligible for Future Sale. As of March 31, 1996 the Company's
executive officers and directors ("Management Shareholders") owned an aggregate
of 2,936,286 shares of Common Stock (approximately 26.8% of total shares of
Common Stock outstanding at that time). In addition, certain other persons
have purchased shares of Common Stock in reliance upon certain exemptions from
registration under the Securities Act of 1933, as amended (the "Act"). Sales
of the shares of Common Stock owned by the Management Shareholders or such
other shareholders may not be made in a public distribution unless registered
under the Act or sold pursuant to Rule 144 thereunder. Sales of substantial
amounts of Common Stock in the public market subsequent, and the possibility
that such sales may be made, could adversely affect the prevailing market price
of the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale".
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<PAGE> 33
EFFECTS OF LEVERAGE
(1) For a schedule of the annual rate of interest or dividend payments on
senior securities, see "Description of Capital Stock and Long-Term
Debt--Long-Term Debt."
(2) The following table is included to assist the investor in understanding
the effects of leverage. The figures appearing in the able are
hypothetical and actual return may be greater or less than that reflected
in table.
Leverage Effect Table
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assumed return on -15% -10% -5% 0% 5% 10% 15%
portfolio (net of
expenses)
- ------------------------------------------------------------------------------------------------------------------------
Corresponding return to (50.24%) (36.80%) (23.37%) (9.93%) 3.51% 16.94% 30.38%
common shareholder
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 34
MARKET PRICE OF COMMON STOCK
The Common Stock is traded on the AMEX. The following table sets forth
the high and low sales prices on the AMEX for the Common Stock for the periods
indicated. On June 4, 1996 the closing price of the Common Stock on the AMEX
was $12.75 per share and on March 31, 1996 the net asset value was $5.47. The
Common Stock has historically traded at a premium to net asset value.
<TABLE>
<CAPTION>
1994
----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------- ---------- --------- ---------
Market Price:
<S> <C> <C> <C> <C>
High . . . . . . . . . . . . . . . . . . . . . . $ 16.25 $ 17.38 $ 17.13 $ 14.88
Low . . . . . . . . . . . . . . . . . . . . . . $ 14.00 $ 14.50 $ 14.13 $ 11.88
Net Asset Value (1) . . . . . . . . . . . . . . . . . $ 5.23 $ 5.24 $ 5.28 $ 5.37
(Discount) or Premium to Net asset value . . . . . . 168% 177% 168% 121%
Average weekly trading volume . . . . . . . . . . . . 38,500 25,300 28,100 32,400
1995
----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- --------- ---------
Market Price:
High . . . . . . . . . . . . . . . . . . . . . . $ 13.50 $ 12.13 $ 12.00 $ 13.25
Low . . . . . . . . . . . . . . . . . . . . . . $ 11.13 $ 10.75 $ 10.88 $ 11.38
Net Asset Value (1) . . . . . . . . . . . . . . . . . $ 5.39 $ 5.40 $ 5.44 $ 5.44
(Discount) or Premium to Net asset value . . . . . . 106% 99% 100% 109%
Average weekly trading volume . . . . . . . . . . . . 33,400 38,400 41,900 33,000
1996
------------------------
1st 2nd
Quarter Quarter (2)
--------- -----------
Market Price:
High . . . . . . . . . . . . . . . . . . . . . . $ 13.63 $ 13.38
Low . . . . . . . . . . . . . . . . . . . . . . $ 11.88 $ 12.38
Net Asset Value (1) . . . . . . . . . . . . . . . . . $ 5.47
(Discount) or Premium to Net asset value . . . . . . 117%
Average weekly trading volume . . . . . . . . . . . . 35,100
</TABLE>
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<PAGE> 35
- -----------------
(1) Average value during period, calculated based on average net assets during
the period divided by the weighted average number of common shares
outstanding. Securities for which market values are available are valued
at market, all other assets are valued at fair value as determined by the
Board of Directors. The Board of Directors has determined that the fair
value of the Company's loans is the principal amount of the loan less any
discounts, deferred fees, net of related costs and loan loss reserves.
(2) Through May 31, 1996.
SHARE REPURCHASES
The Company is a closed-end investment company designed for long-term
investment and investors should not consider it to be trading vehicle. In
connection with the Plan and in recognition that the Company's shares, which
historically have traded at a premium to net asset value, might trade at a
discount to net asset value or at any value that is less than the desired value
as determined by the Board of Directors of the Company (the "Board"), the Board
contemplates that the Company may from time to time repurchase its shares in
the open market pursuant to Section 23(c)(1) of the Investment Company Act.
The Company anticipates that the market price of its shares will remain at
a premium to net asset value but may vary. The market price of the Company's
shares will be determined by, among other things, the relative demand for and
supply of such shares in the market, the Company's investment performance, the
Company's dividends and yield and investor perception of the Company's overall
attractiveness. Although the Board believes that share repurchases generally
would have a favorable effect on the market price of the Company shares, it
should be recognized that the acquisition of shares by the Company in the open
market will decrease total assets and consequently have the effect of
increasing the Company's expense ratio. Due to the nature of the Company's
investment objectives, policies and portfolio, under current market conditions
the Company anticipates that repurchases generally should not have a material
adverse effect on the Company's investment performance; however, this may not
always be the case.
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BUSINESS
GENERAL
PMC Capital is a diversified, closed-end, management investment company
that operates as a business development company ("BDC") under the Investment
Company Act. PMC Capital principally engages in the business of making loans
to small businesses either directly or through its investment company
subsidiaries.
The following chart sets forth the corporate structure of the Company:
[CHART]
The common stock of the Company is traded on the American Stock Exchange
under the symbol "PMC". The Company engages in the business of originating
loans to small businesses either directly or through its three principal
subsidiaries: First Western SBLC, Inc. ("First Western"), PMC Investment
Corporation ("PMIC") and Western Financial Capital Corporation ("Western
Financial"). In addition, the Company is the sole shareholder of PMC Advisers,
Inc. ("PMC Advisers") and PMC Funding Corp. First Western, PMIC and Western
Financial are registered under the Investment Company Act as diversified
closed-end management investment companies. PMC Advisers, organized in July
1993, is a registered investment advisor under the Investment Advisers Act of
1940 and acts as the investment advisor for PMC Commercial. PMC Advisers
provides investment advisory services to PMC Commercial pursuant to an
investment management agreement. PMC Capital has elected to be taxed as a
regulated investment company and distributes substantially all its taxable
income as dividends to its shareholders, thereby incurring no Federal income
tax liability on such income.
The Company primarily originates loans to individuals and small business
concerns in the lodging, medical and food service industries, primarily in the
Southwest and Southeast regions of the United States. A majority of the
Company's loans in the lodging industry (the largest industry concentration in
the Company's loan portfolio) are to owner-operated facilities generally
operating under national franchises. The Company believes that franchise
operations offer attractive lending opportunities because such businesses
employ proven business concepts, have consistent product quality, are screened
and monitored by franchisors and generally have a higher rate of success as
compared to other independently operated businesses. In addition, management
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believes that the franchise lodging industry and the other industry segments
upon which it focuses are underserved by traditional lending sources.
PMC Capital, incorporated in Florida under the name of Pro-Med Capital,
Inc. in June 1983, became the successor by merger to Western Capital
Corporation (founded in 1979) in December 1983 and changed its name to "PMC
Capital, Inc." in March 1991. The principal executive offices of the Company
are located at 17290 Preston Road, Third Floor, Dallas, Texas 75252.
Earnings per share on a quarterly basis since 1988 are as follows:
<TABLE>
<CAPTION>
Per Share Earnings (cents)
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 23.0 18.6 18.5 17.8 15.0 13.3 9.4 9.0
Second Quarter 25.6 23.3 23.0 22.5 14.6 12.0 10.6 9.0
Third Quarter 26.9 26.2 25.0 19.3 17.7 13.5 9.8 9.6
Fourth Quarter 28.0 44.0* 21.0 19.3 16.2 13.5 11.1 9.3
------ ------- ---- ---- ---- ---- ---- -----
103.5 112.1 87.5 78.9 63.5 52.3 40.9 36.9
</TABLE>
* Includes approximately $0.24 from a structured sale of a portion of the loan
portfolio.
LENDING PROGRAMS
FIRST WESTERN
First Western is a small business lending company ("SBLC") that originates
variable-rate loans which are partially guaranteed by the SBA pursuant to its
Section 7(a) program. While the eligibility requirements of the Section 7(a)
program vary by the industry of the borrower and other factors, the general
eligibility requirements are that: (i) gross sales of the borrower cannot
exceed $5.0 million (other than with respect to certain industries where
eligibility is determined based on a number of employees), (ii) liquid assets
or real estate equity of the borrower (and certain affiliates) cannot exceed
the greater of 25% of the loan amount or $50,000 and (iii) the maximum
aggregate SBA loan guarantees to a borrower cannot exceed $750,000.
However, effective March 1, 1996, certain eligibility requirements have
been amended as follows. When the total amount of the proposed financing:
(1) Is $250,000 or less, each 20 percent owner of the applicant must
contribute to the business personal liquid assets per the SBA rules and
regulations ("Personal Liquid Assets") in excess of two times the total
financing or $100,000, whichever is greater;
(2) Is between $250,001 and $500,000, each 20 percent owner of the
applicant must contribute Personal Liquid Assets to the business in excess of
one and one-half times the total financing or $500,000, whichever is greater;
and
(3) Exceeds $500,000, each 20 percent owner of the applicant must
contribute to the business Personal Liquid Assets in excess of one times the
total financing or $750,000, whichever is greater.
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The Company does not know what impact, if any, these changes will have on
future loan originations of First Western.
At December 31, 1995, First Western had loans receivable, net, in an
aggregate amount of $20.8 million. During the year ended December 31, 1995,
First Western originated $40.6 million in loans and sold $30.3 million of the
guaranteed portion of its loans into the secondary market (without recourse to
the Company). At December 31, 1995, First Western had loans receivable with an
aggregate balance of approximately $659,000 (3.2% of First Western loans
receivable, net) greater than 60 days past due. Loans written-off and the
change in unrealized depreciation on First Western's investments, net of
recoveries, was $238,056 during the year ended December 31, 1995.
PMIC
PMIC is a licensed specialized SSBIC under the Small Business Investment
Act of 1958, as amended ("SBIA"). PMIC uses long-term funds provided by the
SBA, together with its own capital, to provide long-term, fixed-rate
collateralized loans to eligible small businesses owned by "disadvantaged"
persons, as defined under the regulations of the SBA. PMIC is eligible as an
SSBIC to obtain long-term, fixed-rate funding, generally at below-market rates,
from the SBA through the issuance of debentures (guaranteed by the SBA and on
which the interest rate is reduced through an SBA subsidy by 3% during the
first five years) and preferred stock (currently issuable to the SBA with a 4%
per annum cumulative dividend rate). Issuance of debentures and preferred
stock is subject to SBA approval and availability. See "Overview of SBA
Regulations".
At December 31, 1995, PMIC had loans receivable, net, in an aggregate
amount of $36.7 million. During the year ended December 31, 1995, PMIC
originated $21.2 million in loans. At December 31, 1995, PMIC had loans
receivable with an aggregate balance of approximately $707,000 (2.0% of loans
receivable, net) greater than 60 days past due. Realized and unrealized losses
on PMIC's investments were $27,155 during the year ended December 31, 1995.
WESTERN FINANCIAL
Western Financial is a licensed small business investment company ("SBIC")
under the SBIA that provides fixed-rate loans to small business concerns and
persons. As an SBIC, Western Financial is eligible to obtain long-term,
fixed-rate funding, generally at below-market rates, from the SBA through the
issuance of debentures (guaranteed by the SBA). Issuance of debentures is
subject to SBA approval and availability. See "Overview of SBA Regulations".
At December 31, 1995, Western Financial had loans receivable, net, in an
aggregate amount of $25.1 million. During the year ended December 31, 1995,
Western Financial originated $8.0 million in loans. At December 31, 1995,
Western Financial had loans receivable with an aggregate principal balance of
approximately $436,000 (1.7% of loans receivable, net) greater than 60 days
past due. Realized and unrealized losses on Western Financial's investments
were $93,704 during the year ended December 31, 1995.
PMC CAPITAL
PMC Capital has originated loans to borrowers on a non-SBA supported basis
using criteria similar to that utilized by its three principal subsidiaries
whose loans are funded under the SBA programs. These loans are: (i) to
borrowers who exceed the eligibility requirements of the SBA 7(a) or SBIC
programs, (ii) payable in monthly installments of principal and interest
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based upon four to 25 year amortization tables, with the balance due at
maturity (typically four to 10 years), (iii) primarily collateralized by real
estate and (iv) generally guaranteed by the principals of the borrowers. The
funding for this lending program is limited to the extent of leverage available
to the Company. However, the Company expects that most non-SBA supported loans
will be made by PMC Commercial in the future and that such loans will be made
by the Company only to the extent that PMC Commercial does not have available
funds.
At December 31, 1995, PMC Capital had loans receivable, net, in an
aggregate amount of $27.9 million. During the year ended December 31, 1995,
PMC Capital originated $7.7 million in loans. At December 31, 1995, PMC
Capital had no loans receivable greater than 60 days past due. PMC Capital had
no realized or unrealized losses during the year ended December 31, 1995.
ELECTION TO BE A BUSINESS DEVELOPMENT COMPANY
In 1980, the Investment Company Act was amended to permit closed-end
investment companies which make certain types of investments ("Qualifying
Assets") to elect to become business development companies rather than
registered investment companies. Under this amendment (the "1980 Amendment"),
BDCs must register their shares under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and become subject to the Exchange Act's periodic
reporting requirements rather than the Investment Company Act's reporting
requirements. On June 7, 1994, PMC Capital elected to operate as a BDC.
Companies having securities registered under the Exchange Act, such as PMC
Capital, must file quarterly rather than semi-annual financial reports. The
1980 Amendment provides BDCs with greater operating flexibility relating to
capital structure, portfolio diversification, transactions with downstream
affiliates, executive stock options and the frequency of which they may make
distributions from capital gains, that may be greater than that available to
registered investment companies.
Under the 1980 Amendment, a BDC such as PMC Capital may only acquire
Qualifying Assets unless, at the time of their acquisition, Qualifying Assets
represent at least 70% of the value of the BDC's total assets. The principal
categories of Qualifying Assets relevant to the business of PMC Capital are the
following:
(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible portfolio
company. An eligible portfolio company is defined in the 1980 Amendment as any
issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than an SBIC wholly-owned by
the BDC (PMC Capital's investments in and advances to PMIC, Western
Financial and First Western are Qualifying Assets ); and
(c) does not have any class of securities with respect to which a
broker or dealer may extend margin credit.
(2) Securities received in exchange for or distributed on or with respect
to securities described in (1) above, or pursuant to the exercise of options,
warrants or rights relating to such securities.
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(3) Cash, cash items, Government securities or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal place
of business) in the United States for the purpose of making investments in the
type of securities described in (1) above and, in order to classify the
securities as Qualifying Assets for purposes of the 70% test, the BDC must make
available to the issuer of the securities significant managerial assistance
which means, among other things:
(1) Any arrangement whereby the BDC, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide, significant
guidance and council concerning the management, operations or business
objectives and policies of a portfolio company; or
(2) In the case of an SBIC, making loans to a portfolio company.
Under the 1980 Amendment, now that PMC Capital has elected to be regulated
as a BDC, it may not change the nature of its business so as to cease to be, or
withdraw its election as, a BDC unless authorized by the vote of a majority of
the shares of Common Stock.
COMPETITION
PMC Capital's primary competition comes from banks, financial institutions,
franchise loan programs and other companies operating under SBA sponsored
programs. Some of these competitors have greater financial and larger
managerial resources than the Company. Competition increased as the financial
strength of the banking and thrift industries improved. PMC Capital believes
that it competes effectively with such entities on the basis of the interest
rates, maturities and payment schedules, the quality of its service, its
reputation as a lender, the timely credit analysis and decision making
processes, and the renewal options available to borrowers. In addition, to
the extent that the investment opportunities reviewed by PMC Advisers conform
to the investment criteria of PMC Commercial, and PMC Commercial has funds
available to make these investments, such investments will be made by PMC
Commercial.
During December 1995, in addition to being a "Certified SBA lender" in
Miami, Florida and "Preferred SBA lender" in Dallas, Texas, First Western was
granted the designation of a "preferred lender" in over 50 additional districts
of the SBA. Under the 7(a) program, in order to have SBA guarantee on portions
of loans, they must have some level of SBA approval. Within the SBA Section
7(a) program, the different status levels for SBA approvals are (i) guaranteed
lender, (ii) certified lender and (iii) preferred lender. Approval of loans
under the guaranteed lender program requires the greatest amount of review time
by the SBA while the preferred lender program the least. The granting of
preferred lender status in those SBA districts should assist the Company in
competing for loan origination opportunities due to the reduction in approval
time.
LEVERAGE
The Company has borrowed funds and issued shares of preferred stock, and
intends to borrow additional funds through advances on its line of credit
facility and through the issuance of: (i) notes payable, (ii) SBA debentures,
if available, and (iii) additional shares of preferred stock of PMIC to the
SBA, if available. Under current appropriations for the fiscal year of the SBA
ending September 1996, the availability of SBA debentures will be limited and
SBA preferred stock will not be available. See "Overview of SBA Regulations".
As a result of the
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issuance of notes and debentures and preferred stock to the SBA, the Company is
leveraged. The SBA and private lenders have fixed dollar claims on the
Company's assets superior to the claims of the holders of Common Stock. Any
increase in the interest rate earned by the Company on investments in excess of
the interest rate or dividend payable on the funds obtained from either
borrowings or the issuance of preferred stock would cause its net income to
increase more than it would without the leverage, while any decrease in the
interest rate earned by the Company on investments would cause net income to
decline by a greater amount than it would without the leverage. Leverage is
thus generally considered a speculative investment technique. In order for the
Company to repay indebtedness or meet its obligations in respect of any
outstanding preferred stock on a timely basis, the Company may be required to
dispose of assets at a time which it would not otherwise do so and at prices
which may be below the net book value of such assets. Dispositions of assets
may adversely impact the Company's results of operations.
INTEREST RATE AND PREPAYMENT RISK
Net income of the Company is effected by the spread between the rate at
which it borrows funds and the rate at which it loans these funds. The
portfolio of PMC Capital, Western Financial and PMIC are typically long-term
and at fixed rates and the borrowed funds of these companies are typically
long-term and at fixed rates. First Western originates variable rate loans and
has utilized equity capital of the Parent Company and a structured sale to
obtain funds necessary to originate loans. If the yield on loans originated by
the Company with funds obtained from borrowings or the issuance of preferred
stock fails to cover the cost of such funds, the Company's cash flow will be
reduced. During periods of changing interest rates, interest rate mismatches
could negatively impact the Company's net income, dividend yield and the market
price of the Common Stock. Most of the fixed rate loans that the Company
originates have prepayment penalties. If interest rates decline, the Company
may experience significant prepayments. Such prepayments, as well as scheduled
repayments, are likely to be reloaned or invested at lower rates, which may
have an adverse effect on the Company's ability to maintain distributions at
existing levels.
EMPLOYEES
At December 31, 1995, the Company had 51 employees. Management of the
Company believes its relationship with its employees is satisfactory.
OVERVIEW OF SBA REGULATIONS
The lending operations of First Western, PMIC and Western Financial are
regulated by the SBA establishing, among other things, maximum interest rates
that borrowers may be charged (which currently may not exceed the greater of
19% per annum or 11% above the Company's cost of funds from the SBA) and
minimum and maximum maturities for the Company's loans (which generally range
from four to 25 years). Borrowers must satisfy certain criteria established by
the SBA to qualify for loans originated by the Company under SBA sponsored
programs, including limitations on the net worth and net income of potential
borrowers or alternative criteria that focus upon the number of employees of
the borrower and its gross revenues. In addition, the SBA generally limits the
aggregate amount of guaranties that can be provided to any single borrower and
restricts the use to which the loan proceeds can be employed by the borrower.
Funding availability under the SBA's SBIC and SSBIC programs is subject to
the outcome of the U.S. Government's budget impasse. The SBA is presently
funding these programs for their 1996 fiscal year ending September 30, based on
the continuing resolution of
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the U.S. Congress ("CR"). With regard to leverage, the SBA has availability
under the CR based upon prior years funded amounts. In order to determine
which licensees are to receive funding, the SBA will give first priority to
issue debentures to those licensees which are to use such funds to refinance
matured debentures and second priority to fund those licensees requesting
leverage which when issued will not cause outstanding leverage to be greater
than two times their regulatory capital. PMIC and Western Financial have
aggregate amounts of SBA leverage which are currently at or greater than two
times their regulatory capital. The SBA has notified its licensees under the
SSBIC program that there is no subsidized leverage or preferred stock available
for the remainder of the SBA's current fiscal year ending September 30, 1996.
There has not been any announcement of whether or not any subsidized leverage
or preferred stock will be available in future fiscal years. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
PROPERTIES
The Company's headquarters are located at 17290 Preston Road, Dallas, Texas
75252 where its facilities comprise approximately 12,400 square feet of space
pursuant to leases with a corporation, a majority of whose shareholders are
officers and/or directors of the Company. In addition the Company also leases
office space in Hollywood, Florida and Atlanta, Georgia. The aggregate annual
lease payments for the year ended December 31, 1995 were approximately
$203,000.
LEGAL PROCEEDINGS
The Company is involved from time to time in routine litigation incidental
to its business. The Company does not believe that the current proceedings
will have a material adverse effect on the results of operations or financial
condition of the Company.
INVESTMENT OBJECTIVES AND POLICIES
PMC CAPITAL
PMC Capital's investment objective is to maximize earnings for distribution
to shareholders from interest income, loan servicing and other fees generated
by loans which it originates. Except for the fundamental policies described
below, PMC Capital's investment objectives may be changed by a majority vote of
the PMC Capital Board of Directors.
The Company places its liquid funds not invested in loans in short-term
monetary instruments. These liquid funds are maintained in such instruments
pending application to long-term portfolio investments. No dollar limit has
been established for short-term investments as a whole or for any type of
short-term instrument.
Each subsidiary of PMC Capital also sets its own investment policies.
FIRST WESTERN
The following policies of First Western may be modified or terminated by a
majority vote of its Board of Directors.
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The investment objective of First Western is to receive interest, premiums,
and servicing fees to fund current operations, meet contingencies as they
arise, and provide earnings for the payment of dividends to PMC. In seeking to
achieve this objective, management may expand First Western's investments
through borrowings.
WESTERN FINANCIAL
The following policies of Western Financial may be modified or terminated
by a majority vote of its Board of Directors.
The investment objective of Western Financial is to receive interest and
fees to fund current operations, meet contingencies as they arise and provide
earnings for the payment of dividends to PMC.
Except for certain SBA restrictions which prohibit Western Financial from
making loans to any single borrower in excess of 20% of its regulatory stated
capital and capital surplus, Western Financial has not established any more
restrictive limit on the dollar amount or percentage of its total assets that
may be invested in any particular company or any group of companies than that
imposed by SBA regulations.
PMIC
The following policies of PMIC may be modified or terminated by a majority
vote of its Board of Directors, except that its policy to make loans to
"socially or economically disadvantaged" small business entrepreneurs may be
changed only as described below in "Fundamental Policies".
The investment objective of PMIC is to receive interest and fees to fund
current operations, meet contingencies as they arise and provide earnings for
the payment of dividends to PMC. PMIC has an overall policy of making loans to
"socially or economically disadvantaged" small business entrepreneurs pursuant
to the SBIA.
SBA restrictions prohibit PMIC from making loans to any single borrower in
excess of 25% of its regulatory stated capital and capital surplus. PMIC has
not established any more restrictive limit on the dollar amount or percentage
of its total assets that may be invested in any particular company or any group
of companies than that imposed by SBA regulations.
FUNDAMENTAL POLICIES
The following investment policies of PMC Capital and its subsidiaries are
fundamental policies and may not be changed without the approval of the lesser
of (i) more than 50% of PMC Capital's outstanding voting securities or (ii) 67%
or more of PMC Capital's voting securities present at a meeting of security
holders at which a quorum is present. All other investment policies of PMC
Capital may be changed by PMC Capital's Board of Directors at any time.
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1. The Company will not purchase or sell commodities or commodity
contracts.
2. The Company will not engage in short sales, purchase securities on
margin or trade in contracts commonly called puts or calls or in combinations
thereof, except that it may acquire warrants, options or other rights to
subscribe to or sell securities in furtherance of its investment objectives.
3. The Company will not underwrite securities of other issuers, except
that it may acquire portfolio securities under circumstances where, if sold,
the Company might be deemed an underwriter for purposes of the Securities Act
of 1933. The Company may purchase "restricted securities" as to which there
are substantial restrictions on resale under the Securities Act of 1933.
4. The Company will not purchase any securities of a company if any of
the directors or officers of the Company owns more than 0.5% of such company
and such persons owning more than 0.5% together own 5% or more of the shares of
such company.
5. The Company may issue senior securities in the form of debentures,
reverse repurchase agreements and preferred stock and may borrow monies from
banks and other lenders, all on an unsecured basis. The Investment Company Act
limits the Company to the issuance of one class of senior debt securities and
one class of senior equity securities.
6. The Company will not invest 25% or more of its total assets in any one
industry except in the lodging industry which may constitute 100% of the
Company's portfolio. The Company will invest at least 25% of its total assets
in the lodging industry.
7. The Company may invest in real estate development companies, may make
real estate acquisitions and improvement loans and may further make other loans
secured by real estate.
8. The Company may make loans and purchase debt securities in furtherance
of its investment objectives. The Company will not make loans to its officers,
directors or other affiliated persons.
9. PMIC will perform the functions and conduct the activities
contemplated under the SBIA, and will provide assistance solely to small
business concerns which will contribute to a well-balanced national economy by
facilitating ownership of such concerns by persons whose participation in the
free enterprise system is hampered because of social or economic disadvantages.
These fundamental policies of PMIC may not be changed without shareholder
approval and without the prior written consent of the SBA.
As stated above, the Company has a fundamental policy that requires it to
invest at least 25% of its total assets in the lodging industry, and allows
investment of up to 100% of total assets in the lodging industry. At December
31, 1995 and 1994, loans to businesses in the lodging industry comprised 55%
and 41% of its total assets, respectively.
There can be no assurance that the Company will continue to experience the
positive results it has historically achieved from lending to the lodging
industry or that market conditions will enable the Company to maintain or
increase its level of loan concentration in this industry. Any economic
factors that negatively impact this industry could have a material adverse
effect on the business of the Company. Additionally, at December 31, 1995,
loans to businesses located
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in Texas, Florida and Georgia comprised approximately 41%, 13% and 10% of the
Company's outstanding loan portfolio, respectively. A decline in economic
conditions in any of these states may adversely affect the Company.
PORTFOLIO TURNOVER
The Company's portfolio turnover rate was 30% for the year ended December
31, 1995 primarily as a result of First Western's sales of loans in the
secondary market.
INVESTMENT ADVISOR
The Company is advised internally by its executive officers under the
supervision of its Board.
TAX CONSIDERATIONS
The following discussion is a general summary of the material Federal tax
considerations applicable to PMC Capital and to an investment in the Common
Stock and does not purport to be a complete description of the tax
considerations applicable to such an investment. Prospective investors should
consult their own tax advisors with respect to the tax considerations which
pertain to their purchase of the Common Stock. This summary does not discuss
all aspects of Federal income taxation relevant to holders of the Common Stock
("Holders") in light of their personal circumstances, or to certain types of
Holders subject to special treatment under federal income tax laws, including
foreign taxpayers. This summary does not discuss any aspects of foreign,
state, or local tax laws.
GENERAL
PMC Capital and each of its subsidiaries (with the exception of PMC Funding
and PMC Advisers) has qualified and intends to continue to qualify to be
treated as "regulated investment companies" under the Code. To be so treated,
the Company must (i) be registered under the Investment Company Act at all
times during the taxable year, (ii) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
certain other passive income, (iii) derive less than 30% of its gross income in
each taxable year from the sale or other disposition within three months of
their acquisition by the Company of stock, securities, or certain other
investments that are not directly related to the Company's principal business
of investing in stock or securities, and (iv) diversify its holdings to meet
certain requirements set forth in the Code. The Company has treated, and
intends to continue to treat, all amounts received on the sale of loans in
excess of a normal servicing fee, as qualifying income for purposes of meeting
the test in clause (ii).
The Company intends to make timely distributions of its investment company
taxable income, net capital gains and capital gain net income so that the
Company will not be subject to federal income or excise taxes. For Federal
income and excise tax purposes, dividends declared in October, November or
December of any calendar year and payable to Holders of record on a specified
date in such a month are deemed to have been received by each Holder,
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and to have been paid by the Company, on December 31 of such calendar year,
provided that such dividend is actually paid during January of the following
year.
DISTRIBUTIONS
Distributions to Holders of the Company's dividend and interest income and
of any net short-term capital gain in any year will generally be taxable as
dividend income to Holders to the extent of the Company's earnings and profits.
Distributions which constitute dividends for Federal income tax purposes will
not generally be eligible for the dividends-received deduction for
corporations. To the extent that such distributions to a United States Holder
in any year exceed the Company's earnings and profits, they will be treated as
a nontaxable return of capital and will reduce the United States Holder's basis
in his shares. The amount of such distributions, if any, in excess of the
Holder's basis in his shares, will be treated as a gain from the sale of
shares, as discussed below. Distributions of the Company's net capital gains
(which will be designated as capital gain dividends by the Company) will be
taxable to United States Holders as long-term capital gain, regardless of the
length of time the Holder has held his shares.
SALES
A Holder may recognize taxable gain or loss if the Holder sells shares of
the Company. Any gain or loss arising from such sale will generally be capital
gain or loss and will be long-term capital gain or loss if such Holder has held
such shares for more than one year at the time of the sale; otherwise it will
be short-term capital gain or loss. However, any capital loss arising from the
sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
Holder.
REPORTING AND BACK-UP WITHHOLDING
PMC Capital will inform Holders each year of the amount and nature of any
income or gain distributed to them. Certain Holders may be subject to a 31%
Federal back-up withholding tax on distributions if they fail to provide PMC
Capital with their correct taxpayer identification number and certification
that they are not subject to backup withholding.
MANAGEMENT
PMC Capital has no formal advisory board but is advised by its executive
officers under the direction of its Board of Directors. PMC Capital's Loan
Committee, comprised primarily of senior management, including but not limited
to Mr. Lance B. Rosemore, Dr. Andrew S. Rosemore, Ms. Mary J. Brownmiller and
Mr. Jan F. Salit, is primarily responsible for the day-to-day management of the
Company's loan portfolio. PMC Capital's Board of Directors is divided into
three classes with staggered three year terms. No more than one class of
directors is elected at any annual meeting. All officers and directors hold
office until their respective successors are elected and qualified or until
their earlier resignation or removal.
The Audit Committee of PMC Capital's Board of Directors is currently
comprised of Mr. Thomas Hamill and Mr. Barry A. Imber. The principal functions
of the Audit Committee are to oversee the financial reporting policies,
accounting issues, portfolio valuation and the entire audit function of the
Company. The Audit Committee reports their activities to PMC Capital's
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<PAGE> 47
Board of Directors. There are no compensation or nomination committees;
however, PMC Capital's Board of Directors as a whole performs these functions.
PMC Capital has appointed an Independent Directors Committee consisting of Dr.
Irvin Borish, Mr. Robert Diamond, Mr. Hamill, Mr. Imber and Mr. Lee Ruwitch,
each of whom is otherwise unaffiliated with the Company. The Independent
Directors Committee, reviews all proposed affiliated transactions to ensure
that such transactions do not violate the appropriate provisions of the
Investment Company Act.
The following table set forth certain information about the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Positions and
Name and Address(1) Offices with the Company
------------------- ------------------------
<S> <C>
Dr. Fredric M. Rosemore(2) Chairman of the Board and Treasurer
Mr. Lance B. Rosemore(2) President, Chief Executive Officer,
Secretary, and Director
Dr. Andrew S. Rosemore(2) Executive Vice President,
Chief Operating Officer, and Director
Mr. Jan F. Salit Executive Vice President, Chief Investment
Officer and Assistant Secretary
Mr. Barry N. Berlin Chief Financial Officer
Ms. Mary J. Brownmiller Senior Vice President
Dr. Irvin M. Borish Director
Mr. Robert Diamond Director
Dr. Martha R. Greenberg(2) Director
Mr. Thomas Hamill Director
Mr. Barry A. Imber Director
Mr. Lee Ruwitch Director
</TABLE>
- ---------------------
(1) The address for each of Dr. Fredric M. Rosemore, Dr. Irvin Borish, Mr.
Robert Diamond, Mr. Thomas Hamill, Mr. Lee Ruwitch and Mr. Barry Imber is
c/o the Company, 4000 Hollywood Blvd., Suite 435 South, Hollywood, Florida
33021. The address for Mr. Lance B. Rosemore and Dr. Andrew S. Rosemore is
c/o the Company, 17290 Preston Road, 3rd Floor, Dallas, Texas 75252. The
address for Dr. Martha R. Greenberg is P.O. Box 1177, Russellville, Alabama
35653.
(2) Mr. Lance B. Rosemore and Dr. Andrew S. Rosemore are the sons, and Dr.
Martha R. Greenberg is the daughter, of Dr. Fredric M. Rosemore and Mrs.
Marion Rosemore. Dr. Fredric M. Rosemore, Mrs. Marion Rosemore and Dr.
Andrew S. Rosemore each own in excess of 5% of the shares of the Company.
Consequently, all these family members are "interested persons" as defined
under the Investment Company Act.
Information concerning the executive officers and directors of the Company is
as follows:
DR. FREDRIC M. ROSEMORE--Dr. Rosemore, 72, has been the Chairman of the
Board of the Company since 1983. From 1990 to 1992, Dr. Rosemore was Vice
President of the Company
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<PAGE> 48
and from 1979 to 1990, Dr. Rosemore was the President of the Company. For many
years he was engaged in diverse businesses, including the construction of
apartment complexes, factory buildings, and numerous commercial retail
establishments. From 1948 to 1980, Dr. Rosemore practiced optometry. He has
been a director of the Company since 1983.
MR. LANCE B. ROSEMORE---Mr. Rosemore, 47, has been Chief Executive Officer
of the Company since May 1992, President of the Company since 1990 and
Secretary since 1983. From 1990 to May 1992, Mr. Rosemore was Chief Operating
Officer of the Company. Previously, Mr. Rosemore owned his own consumer
finance company and was employed by C.I.T. Financial and United Carolina Bank
Shares. He has been a director of the Company since 1983.
DR. ANDREW S. ROSEMORE---Dr. Rosemore, 49, has been Chief Operating Officer
of the Company since May 1992 and Executive Vice President of the Company since
1990. From 1988 to May 1990, Dr. Rosemore was Vice President of the Company.
From 1973 to 1988, Dr. Rosemore owned and managed commercial rental properties,
apartment complexes and factory buildings. Since 1972, Dr. Rosemore has been a
licensed physician in Alabama. He has been a director of the Company since
1988.
MR. JAN F. SALIT---Mr. Salit, 46, has been Executive Vice President of the
Company since May 1993 and Chief Investment Officer and Assistant Secretary of
the Company since March 1994. From 1979 to 1992, Mr. Salit was employed by
Glenfed Financial Corporation and its predecessor company Armco Financial
Corporation, holding various positions including Executive Vice President and
Chief Financial Officer.
MR. BARRY N. BERLIN---Mr. Berlin, 36, has been Chief Financial Officer of
the Company since November of 1992. From August 1986 to November 1992, he was
an audit manager with Imber and Company Certified Public Accountants. Imber
and Company served as the Company's independent accountants from March 1988
until September 1992. Mr. Berlin is a Certified Public Accountant.
MS. MARY J. BROWNMILLER---Ms. Brownmiller, 41, has been Senior Vice
President of the Company since 1992, and Vice President of the Company since
November 1989. From 1987 to 1989, she was Vice President for Independence
Mortgage, Inc., an SBA lender. From 1976 to 1987, Ms. Brownmiller was employed
by the SBA, holding various positions including senior loan officer. Ms.
Brownmiller is a Certified Public Accountant.
DR. IRVIN M. BORISH---Dr. Borish, 83, served as Benedict (Distinguished)
Professor of Optometry at the University of Houston after retiring from Indiana
University, where he holds the status of Professor Emeritus. He operated a
private practice of optometry for over thirty years. He is the author of the
major text in his field and holds five patents in contact lenses. He has been
a director of the Company since 1989.
DR. MARTHA R. GREENBERG---Dr. Greenberg, 45, has practiced optometry for 17
years in Russellville, Alabama. She has been a director of the Company since
1984.
MR. THOMAS HAMILL---Mr. Hamill, 42, has been the President, Chief Operating
Officer and a director of Caliban Holdings and its subsidiary, Belvedere
Insurance Co., Ltd. ("Belvedere"), since 1993. From 1989 to 1993, Mr. Hamill
was the President, Chief Operating Officer and a director of Belvedere. From
September 1986 to December 1989, Mr. Hamill was Vice President of Belvedere
America Re and Vice President and Secretary of Belvedere Corporation. Mr.
Hamill is the Chairman of the Board and a non-executive director of Midlands
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<PAGE> 49
Management Corporation. Mr. Hamill has been a director of the Company since
1992, when he was elected pursuant to an agreement between the Company and
Belvedere in April 1991 whereby the directors of the Company agreed at that
time to support a representative of Caliban Holdings in his candidacy for
director in exchange for Belvedere's purchase of 185,000 shares of Common
Stock.
MR. LEE RUWITCH---Mr. Ruwitch, 82, has managed personal investments since
1986. Since 1987 he has been the President of the LFR Corporation and since
1992 he has been a partner in TCA Joint Venture. Each of the entities is
principally engaged in the business of financial investments. Mr. Ruwitch has
been active in the communications industry for over 30 years. He was a
director of the Company from 1984 to December 1993 and rejoined the board in
September 1994.
MR. BARRY A. IMBER---Mr. Imber, 49, has been a principal of Imber and
Company, Certified Public Accountants, or its predecessor, since 1982. Imber
and Company was the independent certified public accountant for PMC and its
subsidiaries for the years ended December 31, 1988 through December 31, 1991.
Mr. Imber has been a director of the Company since March 1995.
MR. ROBERT DIAMOND---Mr. Diamond, 64, has been an attorney for 39 years.
He is currently of counsel to the law firm of Diamond & Diamond, P.A.,
Millburn, New Jersey. He served as a director of the Company from 1982 to 1992
and rejoined the Board of Directors in January 1994. He served as a member of
the Board of Directors of Allstate Financial Corporation from 1991 to 1993. He
has managed personal investments since 1991.
REMUNERATION OF OFFICERS AND DIRECTORS
The PMC Capital Board of Directors had four regular (including video
conferences) meetings, and conducted three special meetings via telephonic
conference, during 1995. Non-employee directors were compensated $500 per
meeting for each meeting they attended. PMC Capital pays for the travel
expenses incurred by directors in connection with such meetings.
The following table sets forth all remuneration in excess of $60,000 paid
for the year ended December 31, 1995 by PMC Capital to each of the three
highest compensated officers of the Company and to all executive officers and
directors as a group during fiscal year 1995.
-47-
<PAGE> 50
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Profit Sharing Total Profit Compensation
Capacities in Which Contribution Sharing Benefits Paid
Remuneration Aggregate Accrued During Accrued by Company
Name of Person Received Compensation (1) Last Fiscal Year (2) to Date to Directors
-------------- -------- ---------------- -------------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Fredric M. Rosemore Chairman of Board $ 145,681 $ 14,429 $ 162,564
Mr. Lance B. Rosemore President, Chief 285,887 18,007 165,710
Executive Officer
Dr. Andrew S. Rosemore Executive Vice 268,531 18,007 130,451
President, Chief
Operating Officer
Dr. Irvin M. Borish Director $ 1,500
Mr. Thomas Hamill Director 2,500
Mr. Barry A. Imber Director 2,500
Dr. Martha R. Greenberg Director 2,000
Mr. Robert Diamond Director 2,000
Mr. Lee Ruwitch Director 2,000
- -------------------
</TABLE>
(1) The Company has determined that the amount of perquisites and other
personal benefits paid to each of the executive officers listed in the
compensation table does not exceed the lesser of $50,000 or 10% of each
such person's annual salary and bonus reported in such table and that the
aggregate amount of perquisites and other personal benefits paid to all
executive officers and directors as a group does not exceed the lesser of
10% of all such person's annual salary and bonus or $600,000 ($50,000
multiplied by 12, the number of executive officers and directors).
Accordingly, none of such perquisites and other personal benefits is
included in the above table.
(2) The participants in the Company's profit sharing plan (the "Plan") consist
of all employees who are at least 20-1/2 years old, have been employed by
the Company for six months and are employed at the end of each fiscal year
or have died, become totally disabled or retired after age 65 during such
fiscal year. The Plan is intended to qualify under Section 401(a) of the
Internal Revenue Code of 1986, as amended. A required distribution of
$9,685 was paid to Dr. Fredric M. Rosemore. No monies were withdrawn from
the Plan during 1995 for the benefit of Mr. Lance B. Rosemore or Dr.
Andrew S. Rosemore. Mr. Lance B. Rosemore and Dr. Fredric M. Rosemore are
co-administrators of the Plan.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Fredric M. Rosemore,
Lance B. Rosemore, Andrew S. Rosemore, Mary J. Brownmiller, Jan F. Salit and
Barry N. Berlin. Each of these employment agreements provides for at least
annual reviews by the Board of Directors of the salaries contained therein,
with a mandatory minimum increase based on percentage increases to the cost of
living index. In addition, the Board of Directors may determine, in its
discretion, to award bonuses to each of the foregoing persons based on the
Company's performance. Each of the employment agreements also provides that if
a new board of directors of the Company is put in place, as a result of the
acquisition of the Common Stock by an outside party or otherwise, and such new
board requests the covered executive to resign or substantially modifies the
duties or working conditions of the executive, the executive could resign and
be
-48-
<PAGE> 51
entitled to be paid by the Company an amount equal to 2.99 times the average
compensation paid to the executive over the last five years.
OTHER EXPENSES
In addition to compensating its management members as discussed above, the
Company incurs various other expenses in its operations, such as custody and
transfer agent fees, brokerage commissions, professional fees, expenses of
board and shareholder meetings, fees and expenses relating to registration of
its shares, taxes and governmental fees, fees and expenses of the directors,
costs of obtaining insurance, expenses of printing and distributing shareholder
materials, organizational expenses, including costs or losses related to any
litigation.
HOLDINGS OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
On March 31, 1996, the Company had outstanding 10,935,490 shares of Common
Stock. The table below lists, as of the same date, certain information
regarding the beneficial ownership of the Company's Common Stock by all persons
who are known by the Company to be the beneficial owners of more than 5% of the
Common Stock, the directors, the executive officers and by all executive
officers and directors as a group.
<TABLE>
<CAPTION>
Names and Addresses Amount and Nature of Percent of
of Beneficial Owners Beneficial Ownership Ownership
-------------------- ---------------------- ----------
<S> <C> <C>
Dr. Irvin M. Borish (1) 135,000 1.2%
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Mr. Robert Diamond (2) 350,035 3.2%
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Dr. Martha R. Greenberg *(3) 499,885 4.6%
P.O. Box 1177
Russellville, Alabama 35653
Mr. Thomas Hamill (4) 5,000 **
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Mr. Barry A. Imber 100 **
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Dr. Andrew S. Rosemore *(5) 760,907 7.0%
17290 Preston Road, 3rd Floor
Dallas, Texas 75252
</TABLE>
-49-
<PAGE> 52
<TABLE>
<CAPTION>
Names and Addresses Amount and Nature of Percent of
of Beneficial Owners Beneficial Ownership Ownership
-------------------- ---------------------- ---------
<S> <C> <C>
Dr. Fredric Rosemore *(6) 565,637 5.2%
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Mrs. Marion Rosemore (7) 565,637 5.2%
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Mr. Lance B. Rosemore *(8) 215,059 2.0%
17290 Preston Road, 3rd Floor
Dallas, Texas 75252
Mr. Lee Ruwitch (9) 400,848 3.7%
4000 Hollywood Blvd.
Suite 435 South
Hollywood, Florida 33021
Mr. Jan F. Salit (10) 605 **
17290 Preston Road, 3rd Floor
Dallas, Texas 75252
Mr. Barry N. Berlin 100 **
17290 Preston Road, 3rd Floor
Dallas, Texas 75252
Ms. Mary J. Brownmiller 3,110 **
17290 Preston Road, 3rd Floor
Dallas, Texas 75252
Directors and executive officers 2,936,286 26.8%
as a group (12 persons)
- ----------------------
</TABLE>
(1) Includes 44,500 shares held jointly with his wife and 90,500 shares held
in the Irvin B. Borish Revocable Trust.
(2) Includes 178,391 shares held in an individual retirement rollover account.
(3) Includes 12,814 shares in which her children have a beneficial interest,
28,400 shares held in an individual retirement account, 127,500 shares
held jointly with her husband and 118,791 shares held in a pension trust.
Does not include 225,660 shares owned by her husband, as to which shares
she disclaims any beneficial interest.
(4) Does not include 321,000 shares held by two companies of which Mr. Hamill
is a director, as to which shares he disclaims any beneficial interest.
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<PAGE> 53
(5) Includes 39,500 shares held jointly with his wife, 14,350 shares held as
custodian for his children, 202,000 shares held in a retirement benefit
plan, 147,250 shares held in individual retirement accounts and 28,975
shares held in trust for the benefit of Dr. Rosemore and his children.
(6) Represents shares of Common Stock held by a partnership of which Dr.
Fredric M. Rosemore is a general partner.
(7) Represents shares of Common Stock held by a partnership of which Mrs.
Marion Rosemore is a general partner.
(8) Includes 2,431 shares in which his minor children have beneficial
interest, 141,789 shares held jointly with his wife, 9,220 shares held in
an individual retirement account, 28,930 shares held in trust for the
benefit of Mr. Rosemore and his children and 3,270 shares owned
individually by Mr. Lance B. Rosemore's wife.
(9) Includes 5,625 shares held in the name of his wife, 114,567 shares held in
trust for the benefit of Mr. Ruwitch and 45,452 shares held by a
corporation controlled by Mr. Ruwitch and a pension plan thereof. Does
not include shares owned individually by other members of his family, as
to which shares he disclaims any beneficial interest.
(10) Consists of 605 shares held in an individual retirement account.
* Mr. Lance B. Rosemore and Dr. Andrew S. Rosemore are the sons, and Dr.
Martha R. Greenberg is the daughter, of Dr. Fredric M. Rosemore and Mrs.
Marion Rosemore. Dr. Fredric M. Rosemore, Mrs. Marion Rosemore and Dr.
Andrew S. Rosemore each own in excess of 5% of the shares of the Company.
Consequently, all such persons may be deemed to be "interested persons" as
defined under the Investment Company Act.
** Less than 1.0%
DESCRIPTION OF CAPITAL STOCK AND LONG-TERM DEBT
CAPITAL STOCK OF THE COMPANY
General. The authorized share capital of PMC Capital consists of
15,000,000 shares of Common Stock. As of March 31, 1996, PMC Capital had
10,935,490 shares of Common Stock issued and outstanding. In addition, PMC
Capital will have reserved for issuance 1,000,000 shares under the Plan. The
following summary is qualified by reference to the Company's Articles of
Incorporation, as amended (the "Articles"), a copy of which has been
incorporated by reference herein.
Voting Rights. Each holder of Common Stock is entitled to one vote per
share on all matters submitted to a vote of shareholders. Holders of Common
Stock do not have cumulative voting rights.
Dividend Rights. Holders of Common Stock are entitled to receive
dividends out of funds legally available therefor when, as and if declared by
the Board of Directors. The Company's dividend history and policy is described
under "Dividends".
Liquidation and Other Provisions. All shares of Common Stock have equal
rights to receive pro rata, the net assets of the Company upon liquidation or
dissolution after payments
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<PAGE> 54
to creditors and the prior payment of any preferential amounts payable to
holders of preferred stock. The Common Stock is not redeemable and has no
preemptive or conversion rights. All outstanding shares of Common Stock are,
and the shares of Common Stock offered hereby will be, when issued, fully paid
and non-assessable.
Liability and Indemnification of Directors. Florida law limits the
liability of a director of a Florida corporation if the director discharges his
duties in accordance with standards specified by statute. Florida law and the
Company's bylaws also authorize the Company to indemnify the Company's
directors, officers, employees and agents. Additionally, each of the Company's
directors has entered into an agreement with the Company which provides for
such director's indemnification in certain circumstances.
PREFERRED STOCK OF PMIC
PMIC has outstanding 30,000 shares of $100 par value, 3% cumulative
preferred stock (the "3% Preferred Stock") and 40,000 shares of $100 par vale,
4% cumulative preferred stock (the "4% Preferred Stock"). The 3% Preferred
Stock and the 4% Preferred Stock (collectively the "Preferred Stock") are held
by the SBA pursuant to the SBIA.
PMIC is entitled to redeem, in whole or in part, the 3% Preferred Stock by
paying 35% of the par value of these securities plus dividends accumulated and
unpaid on the date of redemption. While the 3% Preferred Stock may be
redeemed, redemption is not mandatory. Dividends of approximately $90,000 on
the 3% Preferred Stock were recognized during the year ended December 31, 1995.
The 4% Preferred Stock was issued during September 1994 ($2,000,000) and
May 1995 ($2,000,000), and must be redeemed at par no later than 15 years from
the date of issuance. Dividends of approximately $132,000 were recognized
during the year ended December 31, 1995.
Neither series of Preferred Stock has any preemptive or conversion rights.
The Preferred Stock provides for a liquidation preference in the amount of $100
per share plus accrued and unpaid dividends.
LONG-TERM DEBT
PMC Capital has a $10 million uncollateralized revolving line of credit
facility which, as extended, expires in June 1997. Advances pursuant to the
line of credit bear interest at PMC Capital's option at the lender's prime rate
or the London Interbank Offering Rate (LIBOR) plus 200 basis points. The
credit facility requires the Company to meet certain covenants, the most
restrictive of which includes that the ratio of net charge-offs to net loans
receivable will not exceed 1.5%, and the ratio of total liabilities to net
worth will not exceed 200%. At December 31, 1995, the Company had $1,000
outstanding pursuant to this credit facility. At December 31, 1995, the
Company was in compliance with all covenants of this facility.
PMC has consummated $35 million in private placements of uncollateralized
senior notes. These borrowings have been utilized to fund commitments of the
Company's non-SBA lending program. The notes require the Company to meet
certain covenants, the most restrictive of which require; (i) that net loans
receivable (as defined in the note agreement) exceed 150% of senior funded
debt, (ii) the increase in the Company's loan valuation reserve for any 12
month period must not exceed 3% of net loans receivable, and (iii) the
Company's consolidated earnings plus interest expense must exceed 150% of
interest expense. At December 31, 1995, the Company
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<PAGE> 55
was in compliance with all of the covenants of these notes. At December 31,
1995 outstanding uncollateralized senior notes were as follows:
<TABLE>
<CAPTION>
Interest Final
Date Rate Amount Maturity
-------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
July 19, 1993 7.20% $20,000,000(2) July 19, 2001
December 15, 1993 6.97% 5,000,000 December 15, 2002
April 19, 1995 8.60% 5,000,000 April 19, 2003
April 19, 1995 LIBOR + 1.3%(1) 5,000,000 April 19, 2004
-----------
$35,000,000
===========
</TABLE>
- -------------------
(1) Reset quarterly, 7.24% at March 31, 1996.
(2) Payable in three equal annual installments commencing July 19, 1999.
Principal payments required on the senior notes at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . $ 6,666,667
2000 . . . . . . . . . . . . . . . . . . . . 6,666,667
2001 . . . . . . . . . . . . . . . . . . . . 6,666,666
2002 . . . . . . . . . . . . . . . . . . . . 5,000,000
2003 . . . . . . . . . . . . . . . . . . . . 5,000,000
2004 . . . . . . . . . . . . . . . . . . . . 5,000,000
--------------
$ 35,000,000
==============
</TABLE>
Western Financial and PMIC have issued debentures to the SBA to partially
fund their lending activities. These debentures require semi-annual interest
payments, with the entire principal amount due at maturity. The debentures are
not convertible, have no sinking fund provisions, impose restrictions on the
ability of Western Financial and PMIC to repurchase their securities, to make
distributions to PMC other than out of retained earnings and to increase the
aggregate amount of salaries or other compensation of officers, directors, or
employees in excess of the amount previously approved by the SBA. See
"Capitalization" and Note 6 to the Consolidated Financial Statements.
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<PAGE> 56
At March 31, 1996, the maturities, interest rates and principal payments on
the SBA debentures were as follows:
<TABLE>
<CAPTION>
Maturity Date Interest Rate Amount
------------- ------------- ------
<S> <C> <C>
September 1, 1996 . . . . . . . . . . . . . 8.750% $ 2,490,000
February 1, 1997 . . . . . . . . . . . . . . 7.950% 2,480,000
September 1, 1997 . . . . . . . . . . . . . 10.350% (1) 800,000
February 1, 1998 . . . . . . . . . . . . . . 8.850% 1,500,000
August 18, 1999 . . . . . . . . . . . . . . 8.125% 1,000,000
September 1, 1999 . . . . . . . . . . . . . 8.800% 2,500,000
December 1, 1999 . . . . . . . . . . . . . . 8.600% (1) 650,000
January 2, 2000 . . . . . . . . . . . . . . 7.875% (2) 3,000,000
March 1, 2000 . . . . . . . . . . . . . . . 9.350% 1,000,000
June 1, 2000 . . . . . . . . . . . . . . . . 9.300% 2,000,000
June 1, 2000 . . . . . . . . . . . . . . . . 9.300% (1) 300,000
September 1, 2000 . . . . . . . . . . . . . 9.600% 4,310,000
December 1, 2002 . . . . . . . . . . . . . . 7.510% (1) 510,000
September 1, 2004 . . . . . . . . . . . . . 5.200% (2) 3,000,000
September 1, 2004 . . . . . . . . . . . . . 8.200% 3,000,000
March 1, 2005 . . . . . . . . . . . . . . . 4.840% (3) 3,000,000
June 1, 2005 . . . . . . . . . . . . . . . . 3.690% (4) 5,000,000
September 1, 2005 . . . . . . . . . . . . . 3.875% (5) 7,000,000
------------
$ 43,540,000
============
</TABLE>
- --------------------
(1) During April 1995, the Company assumed $2,260,000 in SBA debentures from a
non-affiliated small business investment corporation in exchange for loans
receivable of $2,109,062 and cash of $150,938. The loans acquired were
initially originated by the Company and a portion sold to the non-
affiliated SBIC. All of these loans were purchased at par and were
performing according to their terms at the time of reacquisition.
(2) The interest rate will increase to 8.200% in September 1999 until
maturity.
(3) The interest rate will increase to 7.840% in March 2000 until maturity.
(4) The interest rate will increase to 6.690% in June 2000 until maturity.
(5) The interest rate will increase to 6.875% in September 2000 until
maturity.
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<PAGE> 57
OUTSTANDING SECURITIES
The following chart indicates the Common Stock and Cumulative Preferred
Stock of PMIC outstanding as of March 31, 1996:
<TABLE>
<CAPTION>
Amount Outstanding
Amount held by Exclusive of Amount
Amount the Company or Held by the Company
Title of Class Authorized for its Account for its Account
-------------- ---------- --------------- ---------------
<S> <C> <C> <C>
Common Stock 15,000,000 - 10,935,490
Class A Cumulative 30,000 - 30,000
Preferred Stock of
PMIC
Class B Cumulative 40,000 - 40,000
Preferred Stock of PMIC
</TABLE>
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
The Company retains custody of its securities (which consist principally
of loan documentation) and, therefore, is subject to the additional record
keeping and examination requirements of Rule 17f-2 under the Investment Company
Act.
The Company's transfer and dividend-paying agent is American Stock & Trust
Company, 40 Wall Street, 46th Floor, New York, N.Y. 10005.
FLORIDA LAW
The Company has elected not to be subject to the Florida Control Share Act
which generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of the corporation's disinterested shareholders.
The Florida Control Share Act may deter an attempt to acquire control of the
Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Company generally does not pay brokerage fees on the securities in its
portfolio. Although the Company may pay such fees in the future in connection
with the purchase of short-term investments, there is no arrangement to
allocate brokerage expenses.
The Company has no obligation to deal with any broker, dealer or group of
brokers or dealers in purchasing or selling portfolio securities, and orders
for such transactions may be placed with a number of brokers and dealers.
In purchasing and selling portfolio securities, the Company selects
brokers and dealers on the basis of the price of the security, commission rates
and other factors. Where practicable, the Company will survey a number of
brokers and dealers in connection with a proposed portfolio
-55-
<PAGE> 58
transaction and select the broker or dealer that offers the Company the best
price and execution or other services. At least annually the Company evaluates
the overall reasonableness of the brokerage commissions it has paid, if any.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and the Investment Company Act, and in accordance therewith files reports
and other information with the SEC. The Registration Statement, including the
exhibits thereto, as well as any reports, proxy statements and other
information filed with the SEC can be inspected and copies at the SEC's public
reference room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the following Regional Offices of the SEC: New York Regional Office, 13th
Floor, 7 World Trade Center, New York, New York 10048; and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, reports and other information concerning the Company may be inspected
at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New
York, New York 10006.
-56-
<PAGE> 59
PMC CAPITAL, INC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT PUBLIC ACCOUNTANTS
For Inclusion in Form N-2
Filed with the
Securities and Exchange Commission
F-1
<PAGE> 60
PMC CAPITAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SUMMARY OF SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . F-3
QUARTERLY STATISTICS . . . . . . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . F-5
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . F-6
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . F-7
CONSOLIDATED SCHEDULE OF INVESTMENTS . . . . . . . . . . . . F-8
CONSOLIDATED STATEMENTS OF INCOME . . . . . . . . . . . . F-10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . F-13
CONSOLIDATING FINANCIAL STATEMENTS:
CONSOLIDATING BALANCE SHEET . . . . . . . . . . . . . . . F-32
CONSOLIDATING STATEMENT OF INCOME . . . . . . . . . . . . F-33
CONSOLIDATING STATEMENT OF SHAREHOLDERS' EQUITY . . . . . F-34
CONSOLIDATING STATEMENT OF CASH FLOWS . . . . . . . . . . F-35
</TABLE>
F-2
<PAGE> 61
PMC CAPITAL, INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- --------- --------- ---------
( IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS )
<S> <C> <C> <C> <C> <C>
OPERATING:
Operating income . . . . . . . . . . . . . . . $ 21,262 $ 16,450 $ 15,670 $ 11,780 $ 8,212
Operating expenses. . . . . . . . . . . . . . . (9,541) (7,578) (5,933) (4,705) (3,935)
Realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . (359) 3,151 (404) (263) (50)
--------- ---------- --------- --------- ---------
Net operating income and realized
and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . $ 11,362 $ 12,023 $ 9,333 $ 6,812 $ 4,227
========= ========= ========= ========= =========
Dividends declared, common . . . . . . . . . . $ 11,600 $ 11,244 $ 9,367 $ 6,349 $ 3,786
========= ========= ========= ========= =========
Earnings per common share . . . . . . . . . . . $ 1.03 $ 1.12 $ 0.87 $ 0.79 $ 0.63
========= ========= ========= ========= =========
Dividends per common share . . . . . . . . . . $ 1.08 $ 1.06 $ 0.89 $ 0.69 $ 0.57
========= ========= ========= ========= =========
Weighted average common shares
outstanding . . . . . . . . . . . . . . . . . 10,768 10,650 10,579 8,557 6,535
========= ========= ========= ========= =========
Loans funded . . . . . . . . . . . . . . . . . $ 77,567 $ 75,349 $ 74,091 $ 55,975 $ 41,392
========= ========= ========= ========= =========
AT END OF PERIOD:
Loans receivable, net . . . . . . . . . . . . . $ 110,499 $ 75,264 $ 71,528 $ 54,059 $ 44,842
========= ========= ========= ========= =========
Total assets . . . . . . . . . . . . . . . . . $ 156,479 $ 125,416 $ 112,515 $ 85,993 $ 57,012
========= ========= ========= ========= =========
SBA debentures payable . . . . . . . . . . . . $ 43,540 $ 26,280 $ 20,280 $ 22,280 $ 23,140
========= ========= ========= ========= =========
Notes payable . . . . . . . . . . . . . . . . . $ 35,001 $ 25,001 $ 25,001 $ 1 $ 4,251
========= ========= ========= ========= =========
Preferred stock of consolidated subsidiary . . $ 7,000 $ 5,000 $ 3,000 $ 3,000 $ 3,000
========= ========= ========= ========= =========
Common shareholders' equity . . . . . . . . . . $ 59,088 $ 57,371 $ 55,524 $ 54,839 $ 24,039
========= ========= ========= ========= =========
Number of common shares outstanding . . . . . . 10,871 10,684 10,603 10,542 7,119
========= ========= ========= ========= =========
RATIOS:
Return on average assets . . . . . . . . . . . 8.0% 10.3% 9.4% 9.6% 8.1%
========= ========= ========= ========= =========
Return on average common shareholders'
equity . . . . . . . . . . . . . . . . . . . 19.2% 21.2% 16.8% 17.1% 20.7%
========= ========= ========= ========= =========
</TABLE>
F-3
<PAGE> 62
PMC CAPITAL, INC. AND SUBSIDIARIES
QUARTERLY STATISTICS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME . . . . . . . . . . $4,693,891 $5,327,279 $5,633,876 $5,607,148 $21,262,194
NET OPERATING INCOME . . . . . . . . $2,520,268 $2,882,930 $3,154,375 $3,163,699 $11,721,272
NET GAIN (LOSS) ON INVESTMENTS . . . ($11,000) ($77,227) ($187,742) ($82,946) ($358,915)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . $2,509,268 $2,805,703 $2,966,633 $3,080,753 $11,362,357
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . $0.438 $0.496 $0.523 $0.517 $1.974
NET OPERATING INCOME . . . . . . . . $0.235 $0.268 $0.293 $0.292 $1.088
NET GAIN (LOSS) ON INVESTMENTS . . . ($0.001) ($0.007) ($0.017) ($0.008) ($0.033)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . $0.234 $0.261 $0.276 $0.284 $1.055
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME . . . . . . . . . . $3,842,805 $4,206,943 $3,995,016 $4,405,520 $16,450,284
NET OPERATING INCOME . . . . . . . . $2,048,068 $2,485,534 $2,130,128 $2,208,680 $8,872,410
NET GAIN (LOSS) ON INVESTMENTS . . . ($51,621) $19,911 $686,130 $2,495,827 $3,150,247
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . $1,996,447 $2,505,445 $2,816,258 $4,704,507 $12,022,657
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . $0.363 $0.395 $0.375 $0.413 $1.546
NET OPERATING INCOME . . . . . . . . $0.193 $0.233 $0.201 $0.207 $0.834
NET GAIN (LOSS) ON INVESTMENTS . . . ($0.005) $0.002 $0.064 $0.235 $0.296
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . $0.188 $0.235 $0.265 $0.442 $1.130
</TABLE>
F-4
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
PMC Capital, Inc.:
We have audited the accompanying consolidated balance sheets of PMC Capital,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995 and the financial
highlights for each of the four years in the period ended December 31, 1995. We
have also audited the accompanying consolidated schedule of investments as of
December 31, 1995. These financial statements and the financial highlights are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights of PMC Capital, Inc. and subsidiaries
for the year ended December 31, 1991, were audited by other auditors whose
report dated February 18, 1994, expressed an unqualified opinion on those
financial highlights.
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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included the examination or confirmation of
securities owned as of December 31, 1995 and 1994. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial highlights
referred to above present fairly, in all material respects, the consolidated
financial position of PMC Capital, Inc. and subsidiaries as of December 31,
1995 and 1994, the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, and
the financial highlights for each of the four years in the period ended
December 31, 1995, and the consolidated schedule of investments as of December
31, 1995, in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The supplementary
consolidating balance sheet and the related consolidating statement of income,
cash flows, and shareholders' equity are presented for purposes of additional
analysis rather than to present the financial position, results of operations,
and cash flows of the individual companies, and is not a required part of the
consolidated financial statements. The supplementary consolidating information
has been subjected to the auditing procedures applied in the audit of the
consolidated financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the consolidated financial statements taken
as whole.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 20, 1996
F-5
<PAGE> 64
PMC CAPITAL, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
The following financial highlights of the Company should be read in conjunction
with the consolidated financial statements and the notes thereto appearing
elsewhere on this Form 10-K. The financial highlights below provide
information about the Company's financial history. It uses the Company's
fiscal year (which ends December 31) and expresses the per share operating
performance in terms of a single share outstanding throughout each fiscal
period. The information is derived from the audited consolidated financial
statements. The financial highlights for the years ended December 31, 1995,
1994, 1993 and 1992 have been audited by Coopers & Lybrand L.L.P., independent
accountants. The financial data for the year ended December 31, 1991 was
audited by other independent accountants.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE ( 1 ):
Net asset value, beginning of period . . . . . . . . . $ 5.37 $ 5.24 $ 5.20 $ 3.38 $ 2.75
--------- --------- --------- --------- ---------
Net operating income . . . . . . . . . . . . . . . . . 1.09 0.83 0.92 0.83 0.65
Net gains or losses on securities
realized and unrealized (2) . . . . . . . . . . . . . 0.08 0.37 0.02 1.69 0.56
--------- --------- --------- --------- ---------
Total from investment operations . . . . . . . . . 1.17 1.20 0.94 2.52 1.21
--------- --------- --------- --------- ---------
Less distributions:
Preferred shareholder of consolidated subsidiary . . 0.02 0.01 0.01 0.01 0.01
Common shareholders. . . . . . . . . . . . . . . . . 1.08 1.06 0.89 0.69 0.57
--------- --------- --------- --------- ---------
Total distributions . . . . . . . . . . . . . . . 1.10 1.07 0.90 0.70 0.58
--------- --------- --------- --------- ---------
Net asset value, end of period . . . . . . . . . . . . $ 5.44 $ 5.37 $ 5.24 $ 5.20 $ 3.38
========= ========= ========= ========= =========
Per share market value, end of period . . . . . . . . . $ 12.63 $ 13.50 $ 14.50 $ 13.25 $ 9.88
========= ========= ========= ========= =========
Total investment return . . . . . . . . . . . . . . . . 2% 0% 16% 43% 123%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period ( in thousands) . . . . . . . $ 59,088 $ 57,371 $ 55,524 $ 54,839 $ 24,039
========= ========= ========= ========= =========
Ratio of expenses to average net assets . . . . . . . . 16% 13% 11% 12% 20%
========= ========= ========= ========= =========
Ratio of operating income to average net assets . . . . 20% 16% 18% 18% 21%
========= ========= ========= ========= =========
Ratio of net operating income and realized and
unrealized gain (loss) on investments to
average net assets . . . . . . . . . . . . . . . . . 20% 21% 17% 17% 21%
========= ========= ========= ========= =========
Portfolio turnover ( 3 ) . . . . . . . . . . . . . . . 30% 65% 54% 77% 59%
========= ========= ========= ========= =========
</TABLE>
FOOTNOTES:
(1) The per share changes during the year are based on the weighted average
number of shares outstanding of the Company during the year presented.
(2) The per share net gains or losses on securities (realized and unrealized)
includes the effect of stock issuances and other changes in per share
amounts during the year presented.
(3) Included in the computation of the portfolio turnover rate are the sales of
loans through the secondary market or private placement.
F-6
<PAGE> 65
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
-------------- ---------------
<S> <C> <C>
ASSETS
INVESTMENTS AT VALUE:
Loans receivable, net . . . . . . . . . . . . . . . . . . . . $ 110,499,485 $ 75,264,189
Excess servicing asset, net . . . . . . . . . . . . . . . . . 4,990,924 5,100,202
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . 31,134,961 33,003,391
Government securities . . . . . . . . . . . . . . . . . . . . - 4,882,166
Restricted investments . . . . . . . . . . . . . . . . . . . 1,784,868 1,533,591
Real property owned . . . . . . . . . . . . . . . . . . . . . 4,505 307,658
-------------- ---------------
TOTAL INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 148,414,743 120,091,197
-------------- ---------------
OTHER ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438,984 693,014
Accrued interest receivable . . . . . . . . . . . . . . . . . 723,360 425,038
Receivable for loans sold . . . . . . . . . . . . . . . . . . 4,370,715 1,910,080
Due from affiliates . . . . . . . . . . . . . . . . . . . . . 1,135,253 437,592
Investment in subsidiaries . . . . . . . . . . . . . . . . . 27,412 26,000
Property and equipment, net . . . . . . . . . . . . . . . . . 199,360 247,735
Deferred charges, deposits and other assets . . . . . . . . . 1,168,919 1,585,444
-------------- ---------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . 8,064,003 5,324,903
-------------- ---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,478,746 $ 125,416,100
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
SBA debentures payable . . . . . . . . . . . . . . . . . . . $ 43,540,000 $ 26,280,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 35,001,000 25,001,000
Accrued interest payable . . . . . . . . . . . . . . . . . . 1,434,475 1,033,312
Deferred fee revenue . . . . . . . . . . . . . . . . . . . . 778,927 554,738
Borrower advances . . . . . . . . . . . . . . . . . . . . . . 2,260,314 2,954,162
Dividends payable . . . . . . . . . . . . . . . . . . . . . . 3,595,637 3,944,260
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 2,500,231 2,153,750
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 1,279,988 1,123,558
-------------- ---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 90,390,572 63,044,780
-------------- ---------------
Commitments and contingencies (Notes 7 and 8)
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY . . . . . . . . . . . 7,000,000 5,000,000
-------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, authorized 15,000,000 shares of $.01 par value,
10,871,040 and 10,684,035 shares issued and outstanding
at December 31, 1995 and 1994, respectively . . . . . . 108,710 106,840
Additional paid-in capital . . . . . . . . . . . . . . . . . 58,429,112 56,254,654
Undistributed net operating income . . . . . . . . . . . . . 1,017,352 1,386,826
Net unrealized depreciation on investments . . . . . . . . . (467,000) (377,000)
-------------- ---------------
59,088,174 57,371,320
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . $ 156,478,746 $ 125,416,100
============== ===============
NET ASSET VALUE PER COMMON SHARE . . . . . . . . . . . . . . . $5.44 $5.37
============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE> 66
PMC CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER
OF
CATEGORY/ISSUER LOANS VALUE (1) % COST %
- --------------- ------ --------- ----- ---- -----
<S> <C> <C> <C> <C> <C>
LOANS TO SMALL BUSINESS CONCERNS (2):
SMALL BUSINESS LENDING COMPANY LOANS:
FIRST WESTERN SBLC, INC. AND SUBSIDIARY
Hotels and motels . . . . . . . . . . . . . . . . . . . . 164 $ 15,828,325 10.66% $ 16,777,847 10.89%
Health care . . . . . . . . . . . . . . . . . . . . . . . 11 26,672 0.02% 27,540 0.02%
Restaurants . . . . . . . . . . . . . . . . . . . . . . . 75 1,367,700 0.92% 1,546,833 1.00%
Food and grocery stores . . . . . . . . . . . . . . . . . 18 230,705 0.16% 248,298 0.16%
Gasoline / service stations . . . . . . . . . . . . . . . 22 586,940 0.40% 646,970 0.42%
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . 25 232,699 0.16% 292,348 0.19%
Services . . . . . . . . . . . . . . . . . . . . . . . . 76 1,120,155 0.75% 1,219,991 0.79%
Manufacturing . . . . . . . . . . . . . . . . . . . . . . 20 292,003 0.20% 301,003 0.20%
Laundromats . . . . . . . . . . . . . . . . . . . . . . . 14 192,715 0.13% 194,813 0.13%
Car washes . . . . . . . . . . . . . . . . . . . . . . . 4 29,600 0.02% 31,374 0.02%
Retail, other . . . . . . . . . . . . . . . . . . . . . . 80 926,273 0.62% 975,576 0.63%
--- ------------ ----- ------------ -----
Total small business lending company loans . . . . . . . . 509 20,833,787 14.04% 22,262,593 14.45%
--- ------------ ----- ------------ -----
SMALL BUSINESS INVESTMENT COMPANY LOANS:
WESTERN FINANCIAL CAPITAL CORPORATION
Hotels and motels . . . . . . . . . . . . . . . . . . . . 32 17,494,073 11.79% 17,825,455 11.56%
Health care . . . . . . . . . . . . . . . . . . . . . . . 55 1,478,806 1.00% 1,616,270 1.05%
Restaurants . . . . . . . . . . . . . . . . . . . . . . . 2 369,649 0.25% 369,649 0.24%
Food and grocery stores . . . . . . . . . . . . . . . . . 3 478,369 0.32% 478,786 0.31%
Gasoline / service stations . . . . . . . . . . . . . . . 5 2,107,924 1.42% 2,152,254 1.40%
Services . . . . . . . . . . . . . . . . . . . . . . . . 18 1,667,496 1.12% 1,694,220 1.10%
Laundromats . . . . . . . . . . . . . . . . . . . . . . . 2 184,582 0.12% 184,582 0.12%
Manufacturing . . . . . . . . . . . . . . . . . . . . . . 5 388,710 0.26% 388,927 0.25%
Retail, other . . . . . . . . . . . . . . . . . . . . . . 7 577,315 0.39% 616,928 0.40%
Other notes receivable . . . . . . . . . . . . . . . . . 4 306,309 0.21% 306,309 0.20%
--- ------------ ----- ------------ -----
Total small business investment company loans . . . . . . . 133 25,053,233 16.88% 25,633,380 16.63%
--- ------------ ----- ------------ -----
SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY LOANS:
PMC INVESTMENT CORPORATION
Hotels and motels . . . . . . . . . . . . . . . . . . . . 50 30,308,592 20.43% 30,847,659 20.01%
Health care . . . . . . . . . . . . . . . . . . . . . . . 25 939,515 0.63% 1,006,622 0.65%
Restaurants . . . . . . . . . . . . . . . . . . . . . . . 4 959,831 0.65% 965,782 0.63%
Food and grocery stores . . . . . . . . . . . . . . . . . 7 1,198,192 0.81% 1,213,383 0.79%
Gasoline / service stations . . . . . . . . . . . . . . . 5 1,829,704 1.23% 1,877,682 1.22%
Services . . . . . . . . . . . . . . . . . . . . . . . . 3 479,097 0.32% 479,359 0.31%
Laundromats . . . . . . . . . . . . . . . . . . . . . . . 1 10,912 0.01% 10,912 0.01%
Retail, other . . . . . . . . . . . . . . . . . . . . . . 1 68,916 0.04% 70,431 0.04%
Other notes receivable . . . . . . . . . . . . . . . . . 3 872,764 0.59% 905,894 0.59%
--- ------------ ----- ------------ -----
Specialized small business investment company loans . . . . 99 36,667,523 24.71% 37,377,724 24.25%
--- ------------ ----- ------------ -----
COMMERCIAL LOANS:
PMC CAPITAL, INC.
Hotels and motels . . . . . . . . . . . . . . . . . . . . 38 22,400,117 15.08% 22,458,538 14.58%
Retail centers and other . . . . . . . . . . . . . . . . 8 5,544,825 3.74% 5,936,478 3.85%
--- ------------ ----- ------------ -----
Commercial loans . . . . . . . . . . . . . . . . . . . . . 46 27,944,942 18.82% 28,395,016 18.43%
--- ------------ ----- ------------ -----
TOTAL LOANS RECEIVABLE (6) . . . . . . . . . . . . . . . . 787 $110,499,485 74.45% $113,668,713 73.76%
=== ============ ===== ============ =====
</TABLE>
(Continued on next page)
F-8
<PAGE> 67
PMC CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
(CONTINUED)
<TABLE>
<CAPTION>
CATEGORY/ISSUER VALUE (1) % COST %
- --------------- --------- ------ ---- ------
<S> <C> <C> <C> <C>
CASH EQUIVALENTS AND OTHER INVESTMENTS:
CASH EQUIVALENTS (3):
Certificates of deposit . . . . . . . . . . . . . . . . . . . . $ 495,000 0.33% $ 495,000 0.32%
MONEY MARKET AND FUND DEPOSIT ACCOUNTS (4):
SunBank Miami, money market . . . . . . . . . . . . . . . . . . 1,069,985 0.72% 1,069,985 0.69%
Bank One Texas, money market . . . . . . . . . . . . . . . . . 11,822,460 7.97% 11,822,460 7.67%
SunTrust, overnight repo account . . . . . . . . . . . . . . . 5,230,378 3.52% 5,230,378 3.39%
Lehman Brothers, Prime money market fund . . . . . . . . . . . 3,340,062 2.25% 3,340,062 2.17%
Lehman Brothers, Prime Value money market fund . . . . . . . . 2,664,081 1.80% 2,664,081 1.73%
Goldman Sachs, Prime Obligation money market fund. . . . . . . 3,223,781 2.17% 3,223,781 2.09%
Goldman Sachs, Money Market Portfolio money market fund . . . 3,289,214 2.22% 3,289,214 2.13%
------------- ------ ------------ ------
Total cash equivalents . . . . . . . . . . . . . . . . . . . . . 31,134,961 20.98% 31,134,961 20.20%
------------- ------ ------------ ------
OTHER INVESTMENTS (7):
Excess servicing asset. . . . . . . . . . . . . . . . . . . . . 4,990,924 3.37% 7,513,784 4.88%
SunBank Miami, restricted investments . . . . . . . . . . . . . 1,784,868 1.20% 1,784,868 1.16%
Real property owned . . . . . . . . . . . . . . . . . . . . . . 4,505 0.00% 4,505 0.00%
------------- ------ ------------ ------
Total other investments. . . . . . . . . . . . . . . . . . . . . 6,780,297 4.57% 9,303,157 6.04%
------------- ------ ------------ ------
TOTAL CASH EQUIVALENTS AND OTHER INVESTMENTS . . . . . . . . . . 37,915,258 25.55% 40,438,118 26.24%
------------- ------ ------------ ------
TOTAL INVESTMENTS (5) . . . . . . . . . . . . . . . . . . . . . . $ 148,414,743 100.00% $154,106,831 100.00%
============= ====== ============ ======
</TABLE>
(1) Names have been omitted as disclosure to the public may be detrimental to
the small business.
(2) Interest rates on loans receivable range from 6.5% to 14.0%.
(3) Interest rates on certificates of deposit range from 5.6% to 5.7%. All
certificates held by either PMC or any of its subsidiaries are less than
$100,000 in any one institution, generally have maturities of 90 days and
are considered to be cash equivalents.
(4) Interest rates on money market and fund deposit accounts range from 2.5%
to 5.7%.
(5) The aggregate cost of investments for Federal income tax purposes is
$149,848,000.
(6) Balances are at face value of loans, less discounts aggregating $1,183,730
in accordance with Emerging Issues Task Force 88-11, discounts on
purchased loans of $552,357, deferred fee revenue of $966,141 and reserves
of $467,000.
(7) The value of other investments is net of a $2,522,860 reserve established
in connection with the structured sale of loans.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-9
<PAGE> 68
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,329,854 $ 11,952,049 $ 9,320,504
Premium income . . . . . . . . . . . . . . . . . . . . . . . 2,847,139 2,728,446 5,523,667
Other investment income, net. . . . . . . . . . . . . . . . . 368,220 302,517 202,523
-------------- -------------- ---------------
Total investment income . . . . . . . . . . . . . . . . . . . . 19,545,213 14,983,012 15,046,694
Equity in income (loss) of subsidiaries . . . . . . . . . . . . (77,778) - -
Other income, net . . . . . . . . . . . . . . . . . . . . . . . 1,794,759 1,467,272 623,333
-------------- -------------- ---------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . 21,262,194 16,450,284 15,670,027
-------------- -------------- ---------------
EXPENSES:
Salaries and related benefits . . . . . . . . . . . . . . . . 2,778,264 2,551,816 2,267,679
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,929 175,914 219,015
Legal and accounting . . . . . . . . . . . . . . . . . . . . 151,875 75,984 117,750
Directors and shareholders expense . . . . . . . . . . . . . 38,447 43,606 44,020
Small Business Administration fees . . . . . . . . . . . . . 77,303 48,309 52,395
General and administrative . . . . . . . . . . . . . . . . . 1,053,298 899,561 760,461
Profit sharing plan . . . . . . . . . . . . . . . . . . . . . 189,494 167,754 152,350
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 5,049,312 3,614,930 2,319,414
-------------- -------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . 9,540,922 7,577,874 5,933,084
-------------- -------------- ---------------
Net operating income . . . . . . . . . . . . . . . . . . . . . 11,721,272 8,872,410 9,736,943
-------------- -------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Loans written-off . . . . . . . . . . . . . . . . . . . . . (309,211) (406,989) (424,660)
Recoveries on loans written-off . . . . . . . . . . . . . . 40,296 68,000 -
Sale of assets . . . . . . . . . . . . . . . . . . . . . . - 3,346,236 -
Change in unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . . (90,000) 143,000 21,000
-------------- -------------- ---------------
Total realized and unrealized gain (loss) on investments . . . (358,915) 3,150,247 (403,660)
-------------- -------------- ---------------
NET OPERATING INCOME AND REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . $ 11,362,357 $ 12,022,657 $ 9,333,283
============== ============== ===============
PREFERRED DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . $221,945 $112,356 $89,763
============== ============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . 10,767,783 10,649,885 10,578,756
============== ============== ===============
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . $1.03 $1.12 $0.87
============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-10
<PAGE> 69
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET
ADDITIONAL UNDISTRIBUTED UNREALIZED
COMMON PAID-IN NET OPERATING DEPRECIATION
STOCK CAPITAL INCOME ON INVESTMENTS TOTAL
------ ---------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 . . . . . . . . . . . . . $ 105,419 $ 54,267,000 $ 1,007,859 $ (541,000) $ 54,839,278
Issuances of common stock:
Dividend reinvestment plan, 60,805 shares . . . . 607 807,312 - - 807,919
Net income . . . . . . . . . . . . . . . . . . . . - - 9,312,283 21,000 9,333,283
Dividends:
Preferred . . . . . . . . . . . . . . . . . . . . - - (89,763) - (89,763)
Common ( $0.89 per common share ) . . . . . . . . - - (9,366,628) - (9,366,628)
--------- ------------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 1993 . . . . . . . . . . . . 106,026 55,074,312 863,751 (520,000) 55,524,089
Issuances of common stock:
Dividend reinvestment plan, 81,345 shares . . . . 814 1,180,342 - - 1,181,156
Net income . . . . . . . . . . . . . . . . . . . . - - 11,879,657 143,000 12,022,657
Dividends:
Preferred . . . . . . . . . . . . . . . . . . . . - - (112,356) - (112,356)
Common ( $1.06 per common share ) . . . . . . . . - - (11,244,226) - (11,244,226)
--------- ------------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . 106,840 56,254,654 1,386,826 (377,000) 57,371,320
Issuances of common stock:
Dividend reinvestment plan, 187,005 shares . . . 1,870 2,174,458 - - 2,176,328
Net income . . . . . . . . . . . . . . . . . . . . - - 11,452,357 (90,000) 11,362,357
Dividends:
Preferred . . . . . . . . . . . . . . . . . . . . - - (221,945) - (221,945)
Common ( $1.08 per common share ) . . . . . . . . - - (11,599,886) - (11,599,886)
--------- ------------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . $ 108,710 $ 58,429,112 $ 1,017,352 $ (467,000) $ 59,088,174
========= ============= ============ ========== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-11
<PAGE> 70
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating income and realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,362,357 $ 12,022,657 $ 9,333,283
Adjustments to reconcile net operating income and realized and unrealized . . .
gain (loss) on investments to net cash provided by operating activities:
Loans funded, held for sale . . . . . . . . . . . . . . . . . . . . . . . (30,468,122) (32,249,364) (42,689,039)
Proceeds from sale of guaranteed loans . . . . . . . . . . . . . . . . . 30,298,570 32,988,708 36,763,920
Change in unrealized depreciation on investments and loans written-off. . 358,915 195,989 403,660
Unrealized premium income, net . . . . . . . . . . . . . . . . . . . . . 79,962 5,542 (428,790)
Depreciation and amortization of property and equipment and other
deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,433 149,859 115,040
Amortization of excess servicing asset . . . . . . . . . . . . . . . . . 971,610 1,492,345 1,241,413
Accretion of discount on portfolio . . . . . . . . . . . . . . . . . . . (167,930) (302,201) (209,358)
Accretion of deferred fees . . . . . . . . . . . . . . . . . . . . . . . (508,062) (470,381) (122,903)
Accretion on government securities . . . . . . . . . . . . . . . . . . . (123,318) (30,573) (43,460)
Deferred fees collected . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,318 1,003,541 343,358
(Gain) loss on sale of assets . . . . . . . . . . . . . . . . . . . . . . 26,059 (43,298) 16,074
Gain on structured sale of loans . . . . . . . . . . . . . . . . . . . . - (3,346,238) -
Equity in loss of subsidiary . . . . . . . . . . . . . . . . . . . . . . 77,778 - -
Net change in operating assets and liabilities:
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . (298,322) (44,592) (62,308)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165,848) 460,598 (834,929)
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . 401,163 202,075 240,541
Borrower advances . . . . . . . . . . . . . . . . . . . . . . . . . . (693,848) 371,178 1,174,888
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 502,911 1,484,983 59,567
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . 12,874,626 13,890,828 5,300,957
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,098,934) (43,100,003) (31,401,899)
Principal collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,651,520 17,756,494 13,632,687
Proceeds from structured sale of loans . . . . . . . . . . . . . . . . . . . . - 24,844,359 -
Purchase of furniture and fixtures and other assets . . . . . . . . . . . . . . (52,712) (828,373) (340,296)
Purchase of government securities . . . . . . . . . . . . . . . . . . . . . . . (3,942,013) (4,856,363) (2,951,770)
Proceeds from maturities of government securities . . . . . . . . . . . . . . . 8,947,497 3,000,000 -
Investment in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . (251,277) (1,533,591) -
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . 232,786 1,010,280 439,324
Investment in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . (400,000) - -
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (31,913,133) (3,707,197) (20,621,954)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of SBA debentures . . . . . . . . . . . . . . . . . . . 15,000,000 6,000,000 -
Proceeds from issuance of notes payable . . . . . . . . . . . . . . . . . . . 10,000,000 - 25,000,000
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . 1,399,220 535,035 270,755
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . 2,000,000 2,000,000 -
Payment of dividends on common stock . . . . . . . . . . . . . . . . . . . . . (11,188,909) (9,773,666) (7,810,342)
Payment of dividends on preferred stock . . . . . . . . . . . . . . . . . . . (204,437) (67,315) (89,763)
Payment on SBA debentures . . . . . . . . . . . . . . . . . . . . . . . . . . - - (2,000,000)
Advances from (to) affiliates, net . . . . . . . . . . . . . . . . . . . . . . 357,099 (369,992) (93,600)
Payment of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . (446,926) (157,500) (272,376)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . . . . . . . . . 16,916,047 (1,833,438) 15,004,674
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . (2,122,460) 8,350,193 (316,323)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 33,696,405 25,346,212 25,662,535
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 31,573,945 $ 33,696,405 $ 25,346,212
============ ============ ============
SUPPLEMENTAL DISCLOSURE:
INTEREST PAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,648,149 $ 3,412,855 $ 2,078,873
============ ============ ============
DIVIDENDS REINVESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 777,107 $ 646,121 $ 537,165
============ ============ ============
LOANS RECEIVABLE ACQUIRED IN EXCHANGE FOR SBA DEBENTURES . . . . . . . . . . . $ 2,109,062 $ - $ -
============ ============ ============
RECLASSIFICATION FROM LOANS RECEIVABLE TO REAL PROPERTY OWNED . . . . . . . . $ 65,000 $ 649,942 $ 720,170
============ ============ ============
LOANS TO FACILITATE SALE OF REAL PROPERTY OWNED . . . . . . . . . . . . . . . $ 85,000 $ 1,345,319 $ -
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-12
<PAGE> 71
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
PMC Capital, Inc. ("PMC" or "PMC Capital") is a diversified,
closed-end management investment company that on June 7, 1994 elected
to operate as a business development company under the Investment
Company Act of 1940 (the "1940 Act"). PMC engages in the business of
originating loans to small businesses either directly or through its
three principal subsidiaries; First Western SBLC, Inc. ("First
Western"), PMC Investment Corporation ("PMIC") and Western Financial
Capital Corporation ("Western Financial"). First Western, PMIC and
Western Financial are registered under the 1940 Act as diversified,
closed-end management investment companies. In addition, PMC is the
sole shareholder of PMC Advisers, Inc. ("PMC Advisers") and PMC
Funding Corp. PMC has elected to be taxed as a regulated investment
company and distributes substantially all of its taxable income as
dividends to shareholders.
First Western is a small business lending company ("SBLC") that
originates variable-rate loans which are partially guaranteed by the
Small Business Administration ("SBA") pursuant to its Section 7(a)
program. While the eligibility requirements of the Section 7(a)
program vary by the industry of the borrower and other factors, the
general eligibility requirements are that; (i) gross sales of the
borrower cannot exceed $5.0 million (other than with respect to
certain industries where eligibility is determined based on the number
of employees), (ii) liquid assets or real estate equity of the
borrower (and certain affiliates) cannot exceed the greater of 25% of
the loan amount or $50,000 and (iii) the maximum aggregate SBA loan
guarantees to a borrower cannot exceed $750,000.
PMIC is a licensed specialized small business investment company
("SSBIC") under the Small Business Investment Act of 1958, as amended
("SBIA"). PMIC uses long-term funds provided by the SBA, together
with its own capital, to provide long-term, fixed-rate collateralized
loans to eligible small businesses owned by "disadvantaged" persons,
as defined under the regulations of the SBA. As an SSBIC, PMIC is
eligible to obtain long-term, fixed-rate funding, generally at
below-market rates, from the SBA through the issuance of debentures
(which are guaranteed by the SBA and on which the interest rate is
reduced through an SBA subsidy by 3% during the first five years) and
preferred stock (which is currently issuable to the SBA with a 4% per
annum cumulative dividend rate).
Western Financial is a licensed small business investment company
("SBIC") under the SBIA that provides fixed- rate loans to borrowers
whether or not they qualify as "disadvantaged". As an SBIC, Western
Financial is eligible to obtain long-term, fixed-rate funding,
generally at below-market rates, from the SBA through the issuance of
debentures.
PMC has originated loans to borrowers on a non-SBA supported basis
using similar criteria as that used for other loans that are funded
under the SBA programs utilized by the subsidiaries. These loans are
made to borrowers who exceed the eligibility requirements of the SBA
7(a) or SBIC programs.
F-13
<PAGE> 72
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PMC Advisers, organized in July 1993, is a registered investment
advisor under the Investment Advisers Act of 1940 which acts as the
investment advisor for PMC Commercial Trust ("PMC Commercial" or the
"Trust"), a Texas real estate investment trust and an affiliate of PMC
Capital, Inc.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PMC and
its wholly owned regulated investment company subsidiaries
(collectively "the Company"). Intercompany transactions have been
eliminated in consolidation.
The accounts of PMC Advisers and PMC Funding Corp. are accounted for
by the equity method of accounting in conformity with the requirements
of the 1940 Act.
VALUATION OF INVESTMENTS
Loans receivable are carried at the Board of Directors' estimate of
fair value. The Board of Directors has estimated the fair value of
loans receivable to be the loan principal balance less deferred fees
and discounts, unless there is doubt as to the realization of the loan
(a "problem loan"). A valuation reserve is established for a problem
loan based on the creditor's payment history, collateral value,
guarantor support, and other factors. Changes in market interest
rates are not considered in determining the estimate of fair value.
When selling the SBA-guaranteed portion of loans, the basis of the
retained portion of the loans have been reduced by the differential
between the face amount of the unguaranteed portion of the loans and
the value as determined in accordance with Emerging Issues Task Force
("EITF" 88-11). This difference being the Retained Loan Discount. At
the time of sale, premium income has been reduced by the Retained Loan
Discount. Unless the underlying loans are paid in full or sold, the
Retained Loan Discount is amortized over the life of the underlying
loan based on an effective yield method. When a loan is prepaid, the
remaining Retained Loan Discount is recognized as an increase to
interest income. When a loan is sold, the remaining Retained Loan
Discount is included as a reduction to the basis of the retained
portion of the underlying loan as a reduction of cost.
Excess servicing related to the sale of the guaranteed portion of SBA
loans is carried at the Board of Directors' estimate of fair value at
the time of the related loan sale and amortized on a pool basis over
the estimated life of the underlying pool of loans.
F-14
<PAGE> 73
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
For those sales of the unguaranteed portion of SBA loans, the related
excess servicing asset has been offset by an allowance which
represents the Board of Directors' estimate of probable credit losses
to be incurred over the lives of the loans sold.
Deferred fees consist of non-refundable fees less direct loan
origination costs. These fees are being recognized over the life of
the related loan as an adjustment of yield.
Real property owned is carried at the Board of Directors' estimate of
fair value, based upon appraisals and other factors.
Cash equivalents are carried at value, which approximates cost.
Debt incurred by the Company is valued at cost. Changes in market
interest rates are not considered in determining fair value as
determined by the Board of Directors.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are carried at their
value, which is cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using accelerated and
straight-line methods, with estimated useful lives ranging from five
to 15 years.
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gains or losses are measured by the difference between the
proceeds from the sale and the cost basis of the investment, without
regard to unrealized gains and losses previously recognized. The gain
or loss calculated also includes loans written-off or charged-down
during the year and recoveries of loans written-off or charged-down in
prior years.
Other changes in the value of investments are included as changes in
the unrealized appreciation (depreciation) on investments in the
statements of income.
Realized gains on the sale of the unguaranteed portion of SBA loans
are recognized based upon the difference between the sales price as
adjusted for any excess servicing ( net of the allowance for credit
losses) and the carrying value of the assets (including the Retained
Loan Discount).
INTEREST INCOME
Interest income on loans is accrued as earned. The accrual of
interest is generally suspended when the related loan becomes 60 days
past due ("Non-accrual Loan"). Interest income on a Non-accrual Loan
is recognized on the cash basis.
Interest income includes the interest rate spread on loans sold to the
secondary market or through the unguaranteed portion of SBA loans less
the amortization of any excess servicing asset.
F-15
<PAGE> 74
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PREMIUM INCOME
For loans originated by the SBLC after January 1, 1990, gain on the
sale of the SBA guaranteed portion of such loans to the secondary
market has been adjusted to reflect a normal service fee for the
future servicing rights retained by the Company. Premium income
represents the differential between the value attributable to the sale
of a loan to the secondary market and the principal balance (cost) of
the loan in accordance with EITF 88-11. The sale price includes the
value attributable to any excess servicing spread retained by the
Company plus any cash received.
DEFERRED CHARGES
Costs incurred in connection with the issuance of SBA debentures and
the notes payable are included in deferred charges, deposits and other
assets. These costs are amortized over the life of the related
obligation.
FEDERAL INCOME TAXES
The Company has elected to be treated as a regulated investment
company by meeting certain requirements of the Internal Revenue Code
relating to the distribution of its net investment income to
shareholders. Thereby the Company incurs no Federal income tax
liability on such income. Based on its status as a regulated
investment company, the Company may elect to retain, deem to
distribute or distribute, in whole or in part, net long-term capital
gains realized on the disposition of its investments.
Any dividends declared by the Company in October, November or December
of any calendar year, payable to shareholders of record on a specified
date in such month and actually paid during January of the following
year, may be treated as if it were received by the shareholders on
December 31 of the year declared.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents for
purposes of the statement of cash flows.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NOS. 114 AND 118
The Company adopted SFAS No.114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan Income Recognition and Disclosures" on January 1,
1995. Under these new standards, a loan is considered impaired, based
on current information and events, if it is probable that the Company
will
F-16
<PAGE> 75
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement.
Since most of the Company's loans are collateral dependent, the
measurement of impaired loans is generally based on the fair value of
the collateral. To the extent that loans are not collateral
dependent, the measurement of impaired loans will be based on the
present value of expected future cash flows from loan payments
discounted at the historical effective interest rate. The adoption of
SFAS Nos. 114 and 118 did not have a material effect on the Company's
consolidated financial statements.
Loans, including impaired loans, are generally classified as
nonaccrual if they are past due as to maturity or payment of principal
or interest for a period of more than 60 days. If a loan or a portion
of a loan is classified as doubtful or is partially reserved or
charged-off, the loan is classified as nonaccrual. Loans that are on
a current payment status or past due less than 60 days may also be
classified as nonaccrual if repayment in full of principal and/or
interest is in doubt.
EXCESS SERVICING ASSET
During 1995, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 94-9, "Determining a Normal Servicing Fee Rate
for the Sale of an SBA Loan." This consensus provides that for
purposes of allocating the recorded investment in a loan between the
portion of the loan sold and the portion retained, including any
excess servicing asset, a normal servicing fee of 40 basis points
should be used. The Company has historically used 50 basis points as
a normal servicing fee. The effect of this change in estimate was not
material to the consolidated financial statements during the year
ended December 31, 1995.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to
current year presentation.
NOTE 2. LOANS RECEIVABLE:
Loans receivable consist primarily of loans made under SBIC, SSBIC,
and SBLC programs established by the SBA and financings to businesses
outside of the SBA loan programs.
As an SBLC, First Western originates loans which are partially
guaranteed by the SBA and which are collateralized generally, with
first liens on real and/or personal property of the borrower. The SBA
guarantees repayment of up to 90% of the principal amount of the
loans originated by First Western. First Western sells, without
recourse, the guaranteed portion of its loans into the secondary
market while retaining the rights to service the loans. Funding for
the SBA's Section 7(a) loan program depends on the annual
appropriations by the U.S. Congress. At December 31, 1995, included
in loans receivable are approximately $5.0 million which represents
the guaranteed portion of First Western loans available for sale.
F-17
<PAGE> 76
PMC CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. LOANS RECEIVABLE: (CONTINUED)
The principal balance of the loans serviced on behalf of third parties
by First Western was approximately $150.1 million and $143.3 million
at December 31, 1995 and 1994, respectively.
First Western's loans, generally: (i) range in original principal
amount from $30,000 to $1,400,000, (ii) provide for a variable rate of
interest based on 1.5% to 2.75% above the then prevailing prime rate,
(iii) have a term of seven to 25 years, (iv) may be prepaid without
penalty and (v) require monthly payments covering accrued interest and
amortization of principal based in part on the remaining useful life
of the assets collateralizing the loans and on the borrowers' use of
loan proceeds.
PMIC and WFCC originate loans that are payable in monthly installments
of principal and interest based upon four to 20 year amortization
tables, with the balance due at maturity. These loans are
collateralized with first liens on real and/or personal property and
are generally guaranteed by the principals of the borrower.
PMC originates loans to borrowers on a non-SBA supported basis, using
similar criteria for loans that are funded under the SBA programs
utilized by its three principal subsidiaries. These loans are: (i)
to borrowers who exceed the eligibility requirements of the SBA 7(a)
or SBIC programs, (ii) payable in monthly installments of principal
and interest based upon four to 25 year amortization tables, with the
balance due at maturity, (iii) generally collateralized by real estate
and/or equipment and (iv) are generally guaranteed by the principals
of the borrower.
The Company's portfolio of investments consists of loans to borrowers
located principally in the southern portion of the United States. The
most significant concentration of loans were to borrowers in Texas,
Georgia and Florida, as noted below:
<TABLE>
<CAPTION>
Percentage of Loan Portfolio
State December 31,
----- ----------------------------
1995 1994
---- ----
<S> <C> <C>
Texas 41% 40%
Florida 13% 16%
Georgia 10% 10%
Other 36% 34%
---- ----
100% 100%
==== ====
</TABLE>
F-18
<PAGE> 77
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. LOANS RECEIVABLE: (CONTINUED)
The activity in net unrealized depreciation on investments is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994
---------- ---------
<S> <C> <C>
Balance, beginning of period . . . . . . . . . . . . $ 377,000 $ 520,000
Provision for losses . . . . . . . . . . . . . . . . 399,211 263,989
Loans written-off . . . . . . . . . . . . . . . . . (309,211) (406,989)
---------- ---------
Balance, end of period . . . . . . . . . . . . . . . $ 467,000 $ 377,000
========== =========
</TABLE>
Loans receivable with an aggregate retained balance of $1.8 million
and $1.2 million were greater than 60 days past due at December 31,
1995 and 1994, respectively.
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled
$1.5 million. Of this total, approximately $20,000 related to loans
with no valuation reserve, since the estimated fair value of the
collateral for each loan exceeds the respective loan balance.
Approximately $1.5 million of these loans have a corresponding
valuation allowance of $446,000. The Company has recognized $21,000
in valuation allowances on identified problem loans of $300,000 which
were not deemed impaired. The Company did not recognize any material
amount of interest on impaired loans during the portion of the period
that they were impaired. Had these impaired loans performed in
accordance with their original terms, interest income of approximately
$168,000 would have been recognized during the year ended December 31,
1995.
NOTE 3. EXCESS SERVICING ASSET:
First Western sells, through separate transactions, the SBA guaranteed
portion of all its originated loans into the secondary market ("SBA
Guaranteed Sales"), and the unguaranteed portion of certain of its
originated loans through private placements. First Western retains the
right to service all such loans. The guaranteed portions are sold to
either dealers in government guaranteed loans or institutional investors
and certain of the unguaranteed portions have been sold in privately
negotiated transactions between First Western and the purchaser.
By retaining the right to service the loan, First Western earns an
interest rate spread equal to the difference between the interest rate on
the loan and the interest rate paid to the purchaser on the sold portion
(this difference being the "Servicing Spread"). On SBA Guaranteed Sales,
First Western or PMC recognizes premium income by receiving either a cash
premium, an excess servicing right on the sale or a combination of these
elements. On SBA Guaranteed Sales that involve receiving the maximum
premium, First Western retains the minimum Servicing Spread of 1%
required by SBA regulations ("SBA Minimum Servicing"). When receiving
the maximum premium, PMC or First Western would recognize as premium
income
F-19
<PAGE> 78
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. EXCESS SERVICING ASSET: (CONTINUED)
the difference between the amount received from the purchaser and the
aggregate of the outstanding principal amount of the guaranteed portion
plus any value of the Servicing Spread in excess of normal servicing
(the "Excess Servicing Spread").
On SBA Guaranteed Sales where First Western retains Servicing Spread in
excess of the SBA Minimum Servicing, First Western recognizes premium
income equal to the value of the Excess Servicing Spread, plus the
difference, if any, between the amount received from the purchaser and
the outstanding principal amount of the guaranteed portion sold as valued
in accordance with EITF 88-11.
The Board of Directors estimates the value of the Excess Servicing Spread
based upon various factors including premiums realized on comparable
transactions in the secondary market with a 1% servicing fee being
retained, comparable market bids with normal servicing rates on SBA loans
and the likelihood of prepayment. The value of the Excess Servicing
Spread is recognized as premium income at the time of the sale and is
concurrently capitalized as an excess servicing asset on First Western's
balance sheet, which is then amortized over the estimated life of the
loan. When the Excess Servicing Spread is retained by the SBLC, the
amount of cash actually received over the life of the loan may exceed the
gain previously recognized at the time the loan was sold. If actual cash
flows exceed the excess servicing asset, the SBLC will recognize
additional income in excess of the value of the excess servicing asset.
A shorter loan life than that estimated at the time when the excess
servicing asset was established will result in the carrying value of the
excess servicing asset being written down through a charge to earnings.
During the first quarter of 1995, the Company completed a reassessment of
the method used to amortize the Excess Servicing Asset. Historically,
the Company had amortized the Excess Servicing Asset based upon the
estimated life for each loan at the time of sale, expectation of
prepayments and other considerations. When a loan was paid in full, the
remaining unamortized Excess Servicing Asset, if any, was charged against
income. Considering the above factors and the Company's historical
portfolio performance, the Company extended to the expected remaining
life of the related loans, on a pooled basis, the period over which the
remaining Excess Servicing Asset would be amortized for loans originated
and sold prior to January 1, 1995. The Excess Servicing Asset is
amortized on an accelerated method over the estimated remaining lives of
the related pool assets. There can be no assurance of the accuracy of
management's prepayment estimates. If prepayments occur at a faster rate
than expected, the amortization of the Excess Servicing Asset will be
accelerated as a charge to earnings. If actual prepayments occur at a
slower rate than estimated, cash flows from the Excess Servicing Spread
would exceed previously expected amounts and total income in future
periods would be enhanced.
F-20
<PAGE> 79
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. EXCESS SERVICING ASSET: (CONTINUED)
The sale of the unguaranteed portion of SBA loans has also generated an
excess servicing asset to the extent that the Servicing Spread exceeds
the normal servicing fee. This asset has been reduced by a valuation
allowance in connection with the provisions of the sale (See Note 8).
The activity in the excess servicing asset is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . $5,100,202 $5,108,095
Additions, net of allowances . . . . . . . . . . . . . 791,522 1,484,452
Less: amortization, net . . . . . . . . . . . . . . . (900,800) (1,492,345)
---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . $4,990,924 $5,100,202
========== ==========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, property and equipment consisted of the following:
1995 1994
---------- ---------
<S> <C> <C>
Furniture and equipment . . . . . . . . . . . . . . . . $ 288,852 $ 276,854
Leasehold improvements . . . . . . . . . . . . . . . . . 150,000 150,000
Automobiles . . . . . . . . . . . . . . . . . . . . . . 12,673 51,932
---------- ---------
451,525 478,786
Less: accumulated depreciation . . . . . . . . . . . . 252,165 231,051
---------- ---------
$ 199,360 $ 247,735
========== =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1995, 1994 and 1993 was approximately $57,000, $75,000 and $63,000,
respectively.
NOTE 5. NOTES PAYABLE:
PMC has a $10 million uncollateralized revolving line of credit
facility which, as extended, expires June, 1997. Advances pursuant to
the line of credit bear interest at the Company's option at the bank's
prime rate or the London Interbank Offering Rate (LIBOR) plus 200
basis points. The credit facility requires the Company to meet
certain covenants, the most restrictive of which includes that the
ratio of net charge-offs to net loans receivable will not exceed 1.5%,
and the ratio of total liabilities to net worth will not exceed 200%.
At December 31, 1995 and 1994, the Company had $1,000 outstanding
pursuant to this credit facility. At December 31, 1995, the Company
was in compliance with all covenants of this facility.
PMC has consumated $35 million in private placements of
uncollateralized senior notes. These borrowings have been utilized to
fund commitments of the non-SBA lending program.
F-21
<PAGE> 80
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. NOTES PAYABLE: (CONTINUED)
The notes require the Company to meet certain covenants, the most
restrictive of which require; (i) that net loans receivable (as
defined in the note agreement) exceed 150% of senior funded debt, (ii)
the increase in the Company's loan valuation reserve for any 12 month
period must not exceed 3% of net loans receivable, and (iii) the
Company's consolidated earnings plus interest expense must exceed 150%
of interest expense. At December 31, 1995, the Company was in
compliance with all of the covenants of these notes. At December 31,
1995 outstanding uncollateralized senior notes were as follows:
<TABLE>
<CAPTION>
Interest Final
Date Rate Amount Maturity
---- -------- ------ --------
<S> <C> <C> <C>
July 19, 1993 7.20% $20,000,000(2) July 19, 2001
December 15, 1993 6.97% 5,000,000 December 15, 2002
April 19, 1995 8.60% 5,000,000 April 19, 2003
April 19, 1995 LIBOR +1.3% (1) 5,000,000 April 19, 2004
-----------
$35,000,000
===========
</TABLE>
(1) Reset quarterly, 7.24% at December 31, 1995.
(2) Payable in three equal annual installments commencing
July 19, 1999.
Principal payments required on the senior notes at December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -----------
<S> <C>
1999 $6,666,667
2000 6,666,667
2001 6,666,666
2002 5,000,000
2003 5,000,000
2004 5,000,000
-----------
$35,000,000
===========
</TABLE>
F-22
<PAGE> 81
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. SBA DEBENTURES PAYABLE:
Debentures payable represent amounts due to the SBA as a result of
borrowing made pursuant to the SBIA.
At December 31, 1995, the maturities, interest rates and principal
payments on the SBA debentures were as follows:
<TABLE>
<CAPTION>
Maturity Date Interest Rate Amount
------------- ------------- -----------
<S> <C> <C>
September 1, 1996 8.750% $ 2,490,000
February 1, 1997 7.950% 2,480,000
September 1, 1997 (8) 10.350% 800,000
February 1, 1998 8.850% 1,500,000
August 18, 1999 (1) 8.125% 1,000,000
December 1, 1999 (8) 8.600% 650,000
September 1, 1999 8.800% 2,500,000
January 2, 2000 (2) 7.875% 3,000,000
March 1, 2000 9.350% 1,000,000
June 1, 2000 (8) 9.300% 300,000
June 1, 2000 (3) 9.300% 2,000,000
September 1, 2000 9.600% 4,310,000
December 1, 2002 (8) 7.510% 510,000
September 1, 2004 (4) 5.200% 3,000,000
September 1, 2004 8.200% 3,000,000
March 1, 2005 (5) 4.840% 3,000,000
June 1, 2005 (6) 3.690% 5,000,000
September 1, 2005 (7) 3.875% 7,000,000
-----------
$43,540,000
===========
</TABLE>
(1) The interest rate on this debenture was 5.125% through
August 18, 1994, as a result of the subsidy program
provided by the SBA.
(2) The interest rate on this debenture was 4.875% through
January 2, 1995, as a result of the subsidy program
provided by the SBA.
(3) The interest rate on this debenture was 6.300% through
June 1, 1995, as a result of the subsidy program provided
by the SBA.
(4) The interest rate will increase to 8.200% in September
1999 until maturity.
(5) The interest rate will increase to 7.840% in March 2000
until maturity.
(6) The interest rate will increase to 6.690% in June 2000
until maturity.
F-23
<PAGE> 82
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. SBA DEBENTURES PAYABLE: (CONTINUED)
(7) The interest rate will increase to 6.875% in September
2000 until maturity.
(8) During April 1995, the Company assumed $2,260,000 in SBA
debentures from a non-affiliated small business investment
corporation in exchange for loans receivable of $2,109,062
and cash of $150,938. The loans acquired were initially
originated by the Company and a portion sold to the
non-affiliated small business investment corporation. All
of these loans were purchased at par and were performing
according to their terms at the time of reacquisition.
NOTE 7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
During 1991, the Company entered into an agreement to lease its
corporate office space for a 15 year period from a corporation, a
majority of whose principals are officers and directors of the
Company. Leasehold improvements of $150,000 have been paid to the
corporation for costs incurred during the build-out of the leased
premises. The lease has been amended to allow the Company to
terminate such lease without penalty upon 60 days written notice to
the corporation. During 1995, the Company entered into agreements to
lease additional space for one year periods.
The independent members of the Board of Directors will decide on an
annual basis whether PMC will continue the leases and the annual lease
payments.
The Company has additional agreements to lease office space in Florida
and Georgia.
Rental expense amounted to approximately $203,000, $176,000 and
$219,000 during the years ended December 31, 1995, 1994 and 1993,
respectively.
Future minimum lease payments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------------
<S> <C>
1996 $ 189,000
1997 175,000
1998 175,000
1999 167,000
2000 152,000
Thereafter 906,000
------------
$ 1,764,000
============
</TABLE>
F-24
<PAGE> 83
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
LOAN COMMITMENTS
Loan commitments outstanding at December 31, 1995, to various
prospective small business companies, including the unfunded portion
of projects in the construction phase amounted to approximately $86.9
million. Of these commitments, $30.6 million are for loans to be
originated by First Western and subject to SBA Guaranteed Sales.
These commitments are made in the ordinary course of the Company's
business and in management's opinion, are generally on the same terms
as those to existing borrowers. Commitments to extend credit are
agreements to lend to a customer provided that the terms established
in the contract are met. Commitments generally have fixed expiration
dates and require payment of a fee. Since some commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
EMPLOYMENT AGREEMENTS
The Company has employment contracts with certain of its officers for
terms expiring August, 1997. Annual remuneration during the term of
the contracts range from $91,000 to $214,500. Future minimum
payments under these contracts are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -----------
<S> <C>
1996 $ 926,000
1997 540,000
-----------
$ 1,466,000
===========
</TABLE>
During the years ended December 31, 1995, 1994 and 1993 compensation
to officers was approximately $1,229,000, $1,243,000 and $1,048,000,
respectively.
LITIGATION
In the normal course of business, the Company is subject to various
proceedings and claims, the resolution of which will not, in
management's opinion, have a material adverse effect on the Company's
consolidated financial position or results of operations.
SBA FUNDING
Approximately $62 million of the Company's loans outstanding at
December 31, 1995 are funded under the SSBIC and SBIC programs which
allow for PMIC and Western Financial to borrow funds at below market
rates. The availability of funding under the SSBIC and SBIC is
subject to annual appropriations by the U.S. Congress which have not
been finalized for the government's fiscal year ending September 30,
1996.
F-25
<PAGE> 84
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. CREDIT RISK:
In connection with First Western's structured sale of a 94% portion of
certain unguaranteed SBA loans during December 1994, the Company is
subject to credit risk. Total proceeds from the sale amounted to
$24.8 million. Pursuant to the structured sale, the investors'
protection from losses is provided by: (i) the subordination of a
portion of loans receivable totaling approximately $1.6 million at the
time of sale ($1.3 million at December 31, 1995) (ii) the
subordination of Servicing Spread on those loans sold in the
securitization and (iii) cash deposits provided by the Company. At
December 31, 1995, approximately $1,785,000 of cash deposits held in
interest bearing accounts were restricted. As a result of the
Company's subordinated position, the $3.1 million excess servicing
asset recognized during the year ended December 31, 1994 in connection
with the structured sale has been reduced by a valuation reserve of
$2.6 million. At December 31, 1995, the excess servicing asset was
$2.6 million with a valuation reserve of $2.5 million.
The Company has a fundamental policy that requires investment of at
least 25% of its total assets in the lodging industry, and allows
investment of up to 100% of total assets in this industry. At
December 31, 1995 and 1994, loans to businesses in the lodging
industry comprised 55% and 41% of its total assets, respectively.
There can be no assurance that the Company will continue to experience
the positive results it has historically acheived from these lending
activities or that market conditions will enable the Company to
maintain or increase this level of loan concentration. Any economic
factors that negatively impact the lodging industry could have a
material adverse effect on the business of the Company. Additionally,
loans to businesses located in Texas, Florida and Georgia currently
comprise approximately 41%, 13% and 10% of the Company's outstanding
loan portfolio, respectively. A decline in economic conditions in any
of these states may adversely affect the Company.
NOTE 9. CUMULATIVE PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY:
PMIC has outstanding 30,000 shares of $100 par value, 3% cumulative
preferred stock (the "3% Preferred Stock") and 40,000 shares of $100
par value, 4% cumulative preferred stock (the "4% Preferred Stock").
The 3% Preferred Stock and the 4% Preferred Stock (collectively the
"Preferred Stock") are held by the SBA pursuant to the SBIA.
PMIC is entitled to redeem, in whole or in part, the 3% Preferred
Stock by paying 35% of the par value of these securities plus
dividends accumulated and unpaid on the date of redemption. While the
3% Preferred Stock may be redeemed, redemption is not mandatory.
Dividends of approximately $90,000 on the 3% Preferred Stock were
recognized during each of the years ended December 31, 1995, 1994 and
1993.
F-26
<PAGE> 85
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. CUMULATIVE PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY: (CONTINUED)
The 4% Preferred Stock was issued during September 1994 ($2,000,000)
and May 1995 ($2,000,000), and must be redeemed at par no later than
15 years from the date of issuance. Dividends of approximately
$132,000 and $22,000 were recognized during the years ended December
31, 1995 and 1994, respectively.
Neither series of SBA Preferred Stock has any preemptive or conversion
rights. The Preferred Stock provides for a liquidation preference in
the amount of $100 per share plus accrued and unpaid dividends.
NOTE 10. SHAREHOLDERS' EQUITY:
The Company has a dividend reinvestment and cash purchase plan ("the
Plan") for up to 500,000 shares of common stock. As amended,
participants of the Plan have the option to reinvest all or a portion
of dividends received plus an optional cash purchase of $10,000 per
month. The purchase price of the shares is 98% of the average of the
high and low price of the common stock as published for the five
trading days immediately prior to the dividend record date or prior to
the optional cash payment purchase date. During the years ended
December 31, 1995, 1994 and 1993, the Company issued 187,005, 81,345
and 60,805 shares of common stock pursuant to the Plan for proceeds
(through cash and the reinvestment of dividends) of $2,176,328,
$1,181,156 and $807,919, respectively.
NOTE 11. EARNINGS PER COMMON SHARE COMPUTATIONS:
The computations of earnings per common share are based on the
weighted average number of shares outstanding of the Company.
Earnings are defined as the net operating income and realized and
unrealized gain (loss) on investments and are reduced by the preferred
stock dividend requirements of PMIC. Preferred stock dividend
requirements were approximately $222,000, $112,000 and $90,000 during
the years ended December 31, 1995, 1994 and 1993, respectively. The
weighted average number of shares used in the computations of earnings
per common share were 10,767,783, 10,649,885 and 10,578,756 for the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 12. BORROWER ADVANCES:
The Company finances several projects during the construction phase.
At December 31, 1995, the Company was in the process of funding
approximately $35.5 million in construction projects, of which $17.7
million in funding remained. As part of the monitoring process to
verify that the borrowers' cash equity is utilized for its intended
purpose, the Company receives amounts from the borrowers and releases
the funds upon presentation of appropriate supporting documentation.
The Company had approximately $2.3 million and $3.0 million in funds
held on behalf of borrowers at December 31, 1995 and 1994,
respectively.
F-27
<PAGE> 86
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. PROFIT SHARING PLAN:
The Company has a profit sharing plan available to its full-time
employees after one year of employment. Vesting increases ratably to
100% after the sixth year of employment. Pursuant to the profit
sharing plan, the Company has expensed approximately $188,000,
$168,000 and $152,000 during the years ended December 31, 1995, 1994
and 1993, respectively. Contributions to the profit sharing plan are
at the discretion of the Board of Directors.
NOTE 14. RELATED PARTY TRANSACTIONS:
Pursuant to agreements between PMC Capital and its wholly owned
subsidiaries, during the three years in the period ended December 31,
1995, PMC provided certain services to the subsidiaries at no cost.
These services and costs include salaries, rent and other general
corporate expenses. However, PMC retains all cash premiums on First
Western's SBA Guaranteed Sales ($2,927,101, $2,733,988 and $5,011,486
during the years ended December 31, 1995, 1994 and 1993, respectively)
as compensation for these services and for the working capital
provided by PMC Capital to First Western.
During December 1993, PMC Advisers entered into an investment
management agreement with the Trust. The officers and certain
directors of the Trust are officers and directors of PMC. Pursuant to
the agreement, the Trust pays PMC Advisers a base annual servicing fee
of 0.50% of the average assets (as defined in the agreement) of the
Trust under management plus an advisory fee of 1% of the average
invested assets (as defined in the agreement ) of the Trust. In
addition, PMC Advisers earns an advisory fee up to 1% of the average
invested assets upon meeting certain criteria in regards to investment
returns to the Trust shareholders. All such advisory fees are reduced
by 50% with respect to the value of average invested assets that
exceed the beneficiaries' equity of the Trust as a result of leverage
or the issuance of preferred shares. Pursuant to the investment
management agreement, advisory fees in the amount of $57,932 were
waived through June 1994.
Pursuant to the investment management agreement between PMC Advisers
and the Trust, PMC Advisers earned $1,189,720 and $428,811 during the
years ended December 31, 1995 and 1994 respectively.
F-28
<PAGE> 87
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. UNCONSOLIDATED SUBSIDIARY:
As described in Note 1, PMC Advisers is accounted for by the equity
method of accounting. During 1993 the advisor did not have any
operating activity. The following is the condensed balance sheet for
PMC Advisers as of December 31, 1995 and 1994 and the condensed
statement of income for the years ended December 31, 1995 and 1994:
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Cash equivalents . . . . . . . . . $ 140,162 $ 735,882
Other assets . . . . . . . . . 1,704 2,268
Due from affiliate . . . . . . . . . 840,812 179,523
--------- ---------
$ 982,678 $ 917,673
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Due to parent . . . . . . . . . $ 364,933 $ 432,592
Deferred fee revenue . . . . . 591,745 450,381
Other liabilities . . . . . . . - 8,700
--------- ---------
956,678 891,673
--------- ---------
Shareholder's equity:
Common stock . . . . . . . . . 1,000 1,000
Additional paid-in capital . . 25,000 25,000
--------- ---------
26,000 26,000
--------- ---------
$ 982,678 $ 917,673
========= =========
</TABLE>
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<S> <C> <C>
INCOME:
Management fee . . . . . . $1,189,720 $ 428,811
Other income . . . . . . . 54,940 194,449
---------- ----------
Total income . . . 1,244,660 623,260
---------- ----------
EXPENSES:
General and administrative $1,242,186 620,599
Other . . . . . . . . . . 2 ,474 2,661
---------- ----------
Total expenses . . 1,244,660 623,260
---------- ----------
NET INCOME . . . . $ - $ -
========== ==========
</TABLE>
F-29
<PAGE> 88
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. UNCONSOLIDATED SUBSIDIARY: (CONTINUED)
PMC Capital allocates overhead to PMC Advisers to the extent that PMC
Advisers utilizes the staff and facilities of PMC Capital. In no
event will the allocated expenses exceed the income available from the
operations of PMC Advisers.
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The estimates of fair value as required by SFAS No. 107 differ from
the value of the financial assets and liabilities determined by the
Board of Directors primarily as a result of the effects of discounting
future cash flows.
The estimated fair values of the Company's financial instruments
pursuant to SFAS No. 107 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
(Amounts in thousands)
<S> <C> <C>
Assets:
Loans receivable, net $110,499 $114,353
Cash equivalents 31,135 31,135
Cash 439 439
Restricted investments 1,785 1,785
Other assets 6,229 6,229
Liabilities:
Debentures payable 43,540 42,362
Notes payable 35,001 34,881
Other liabilities 9,791 9,791
</TABLE>
(a) Loans receivable, net
The estimated fair value for all fixed rate loans is
estimated by discounting the estimated cash flows using the
current rate at which similar loans would be made to
borrowers with similar credit ratings and maturities.
The impact of delinquent loans on the estimation of the fair
values described above is not considered to have a material
effect and accordingly, delinquent loans have been
disregarded in the valuation methodologies employed.
(b) Cash equivalents
The carrying amount is a reasonable estimation of fair
value.
F-30
<PAGE> 89
PMC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS: (CONTINUED)
(c) Cash
The carrying amount is a reasonable estimation of fair
value.
(d) Restricted investments
The carrying amount is a reasonable estimation of fair
value.
(e) Other assets
The carrying amount is a reasonable estimation of fair
value.
(f) Debentures payable
The estimated fair value is based on present value
calculation based on prices of the same or similar
instruments after considering risk, current interest rates
and remaining maturities.
(g) Notes payable
The estimated fair value is based on present value
calculation based on prices of the same or similar
instruments after considering risk, current interest rates
and remaining maturities.
(h) Other liabilities
The carrying amount is a reasonable estimation of fair
value.
NOTE 17. WRITE-DOWN OF REGISTRATION COSTS
In 1994, PMC Investment Corporation ("PMIC") filed a registration
statement with the Securities and Exchange Commission to register
shares of its common stock. The Company had incurred approximately
$136,000 in costs in connection with the filing of the registration
statement. PMIC, a licensed specialized small business investment
company, uses long-term funds provided by the SBA through the
issuance of debentures (which are guaranteed by the SBA and on which
the interest rate is reduced through an SBA subsidy of 3% during the
first five years). Due to the lack of availability of SBA subsidized
debentures or preferred stock for the SBA's fiscal year ending
September 30, 1996, the Company believes the registration will not be
completed in the near term. Accordingly, during the year ended
December 31, 1995, the Company has expensed the costs of
registration.
F-31
<PAGE> 90
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CONSOLIDATED
BEFORE PMC CAPITAL,
CONSOLIDATED ELIMINATION ELIMINATION INC.
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
INVESTMENTS AT VALUE, SEE ACCOMPANYING SCHEDULE:
Loans receivable, net . . . . . . . . . . . . . . . . $ 110,499,485 $ - $ 110,499,485 $ 27,944,942
Excess servicing asset, net . . . . . . . . . . . . . 4,990,924 - 4,990,924 -
Cash equivalents . . . . . . . . . . . . . . . . . . 31,134,961 - 31,134,961 19,097,967
Restricted investments . . . . . . . . . . . . . . . 1,784,868 - 1,784,868 -
Real property owned . . . . . . . . . . . . . . . . . 4,505 - 4,505 -
-------------- -------------- -------------- --------------
Total investments . . . . . . . . . . . . . . . . . . . 148,414,743 - 148,414,743 47,042,909
-------------- -------------- -------------- --------------
OTHER ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . 438,984 - 438,984 163,272
Accrued interest receivable . . . . . . . . . . . . . 723,360 - 723,360 185,970
Receivable for loans sold . . . . . . . . . . . . . . 4,370,715 - 4,370,715 359,856
Due from affiliates . . . . . . . . . . . . . . . . . 1,135,253 (27,532,040) 28,667,293 28,666,293
Investment in subsidiaries . . . . . . . . . . . . . 27,412 (23,588,714) 23,616,126 23,616,126
Property and equipment, net . . . . . . . . . . . . . 199,360 - 199,360 90,220
Deferred charges, deposits and other assets . . . . . 1,168,919 - 1,168,919 271,184
-------------- -------------- -------------- --------------
Total other assets . . . . . . . . . . . . . . . . . . 8,064,003 (51,120,754) 59,184,757 53,352,921
-------------- -------------- -------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $ 156,478,746 $ (51,120,754) $ 207,599,500 $ 100,395,830
============== ============== =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
SBA debentures payable . . . . . . . . . . . . . . . $ 43,540,000 $ - $ 43,540,000 $ -
Notes payable . . . . . . . . . . . . . . . . . . . . 35,001,000 - 35,001,000 35,001,000
Accrued interest payable . . . . . . . . . . . . . . 1,434,475 - 1,434,475 441,925
Deferred fee revenue . . . . . . . . . . . . . . . . 778,927 - 778,927 231,840
Borrower advances . . . . . . . . . . . . . . . . . . 2,260,314 - 2,260,314 369,078
Dividends payable . . . . . . . . . . . . . . . . . . 3,595,637 - 3,595,637 3,533,089
Accounts payable . . . . . . . . . . . . . . . . . . 2,500,231 - 2,500,231 82,775
Other liabilities . . . . . . . . . . . . . . . . . . 1,279,988 - 1,279,988 863,996
Due to affiliates . . . . . . . . . . . . . . . . . . - (27,532,040) 27,532,040 -
-------------- -------------- -------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . 90,390,572 (27,532,040) 117,922,612 40,523,703
-------------- -------------- -------------- --------------
Cumulative preferred stock of subsidiary . . . . . . . 7,000,000 3,000,000 4,000,000 -
-------------- -------------- -------------- --------------
SHAREHOLDERS' EQUITY:
Cumulative preferred stock of subsidiary, 3% . . . . - (3,000,000) 3,000,000 -
Common stock . . . . . . . . . . . . . . . . . . . . 108,710 (21,739) 130,449 108,710
Additional paid-in capital . . . . . . . . . . . . . 58,429,112 (21,872,652) 80,301,764 58,429,112
Undistributed net operating income . . . . . . . . . 1,017,352 (2,694,323) 3,711,675 1,334,305
Net unrealized depreciation on investments . . . . . (467,000) - (467,000) -
-------------- -------------- -------------- --------------
59,088,174 (27,588,714) 86,676,888 59,872,127
Less treasury stock . . . . . . . . . . . . . . . . . - 1,000,000 (1,000,000) -
-------------- -------------- -------------- --------------
Total shareholders' equity . . . . . . . . . . . . . . 59,088,174 (26,588,714) 85,676,888 59,872,127
-------------- -------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . $ 156,478,746 $ (51,120,754) $ 207,599,500 $ 100,395,830
============== ============== =============== ==============
NET ASSET VALUE PER COMMON SHARE . . . . . . . . . . . $ 5.44
==============
<CAPTION>
FIRST WESTERN
WESTERN SBLC, FINANCIAL PMC
AND CAPITAL INVESTMENT
SUBSIDIARY CORPORATION CORPORATION
-------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS
INVESTMENTS AT VALUE, SEE ACCOMPANYING SCHEDULE:
Loans receivable, net . . . . . . . . . . . . . . . . $ 20,833,787 $ 25,053,233 $ 36,667,523
Excess servicing asset, net . . . . . . . . . . . . . 4,990,924 - -
Cash equivalents . . . . . . . . . . . . . . . . . . 1,712,858 2,763,393 7,560,743
Restricted investments . . . . . . . . . . . . . . . 1,784,868 - -
Real property owned . . . . . . . . . . . . . . . . . 5 4,500 -
-------------- -------------- ---------------
Total investments . . . . . . . . . . . . . . . . . . . 29,322,442 27,821,126 44,228,266
-------------- -------------- ---------------
OTHER ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . 162,673 5,470 107,569
Accrued interest receivable . . . . . . . . . . . . . 126,231 182,045 229,114
Receivable for loans sold . . . . . . . . . . . . . . 4,010,859 - -
Due from affiliates . . . . . . . . . . . . . . . . . - 1,000 -
Investment in subsidiaries . . . . . . . . . . . . . - - -
Property and equipment, net . . . . . . . . . . . . . 36,380 36,380 36,380
Deferred charges, deposits and other assets . . . . . 249,283 129,417 519,035
-------------- -------------- ---------------
Total other assets . . . . . . . . . . . . . . . . . . 4,585,426 354,312 892,098
-------------- -------------- ---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $ 33,907,868 $ 28,175,438 $ 45,120,364
============== ============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
SBA debentures payable . . . . . . . . . . . . . . . $ - $ 19,540,000 $ 24,000,000
Notes payable . . . . . . . . . . . . . . . . . . . . - - -
Accrued interest payable . . . . . . . . . . . . . . 45,134 577,066 370,350
Deferred fee revenue . . . . . . . . . . . . . . . . 127,303 152,930 266,854
Borrower advances . . . . . . . . . . . . . . . . . . 1,273,243 203,863 414,130
Dividends payable . . . . . . . . . . . . . . . . . . - - 62,548
Accounts payable . . . . . . . . . . . . . . . . . . 2,370,249 3,112 44,095
Other liabilities . . . . . . . . . . . . . . . . . . 341,992 26,000 48,000
Due to affiliates . . . . . . . . . . . . . . . . . . 27,470,648 - 61,392
-------------- -------------- ---------------
Total liabilities . . . . . . . . . . . . . . . . . . . 31,628,569 20,502,971 25,267,369
-------------- -------------- ---------------
Cumulative preferred stock of subsidiary . . . . . . . - - 4,000,000
-------------- -------------- ---------------
SHAREHOLDERS' EQUITY:
Cumulative preferred stock of subsidiary, 3% . . . . - - 3,000,000
Common stock . . . . . . . . . . . . . . . . . . . . 50 20,689 1,000
Additional paid-in capital . . . . . . . . . . . . . 1,999,950 7,433,885 12,438,817
Undistributed net operating income . . . . . . . . . 1,497,299 399,893 480,178
Net unrealized depreciation on investments . . . . . (218,000) (182,000) (67,000)
-------------- -------------- ---------------
3,279,299 7,672,467 15,852,995
Less treasury stock . . . . . . . . . . . . . . . . . (1,000,000) - -
-------------- -------------- ---------------
Total shareholders' equity . . . . . . . . . . . . . . 2,279,299 7,672,467 15,852,995
-------------- -------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . $ 33,907,868 $ 28,175,438 $ 45,120,364
============== ============== ===============
NET ASSET VALUE PER COMMON SHARE . . . . . . . . . . .
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATING FINANCIAL
STATEMENTS.
F-32
<PAGE> 91
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CONSOLIDATED
BEFORE PMC CAPITAL,
CONSOLIDATED ELIMINATION ELIMINATION INC.
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,329,854 $ - $ 16,329,854 $ 4,264,341
Premium income . . . . . . . . . . . . . . . . . . . . . . 2,847,139 - 2,847,139 2,927,101
Other investment income, net . . . . . . . . . . . . . . . 368,220 - 368,220 290,605
-------------- ------------- ------------- -------------
Total investment income . . . . . . . . . . . . . . . . . . . 19,545,213 - 19,545,213 7,482,047
Other income, net . . . . . . . . . . . . . . . . . . . . . . 1,794,759 - 1,794,759 1,397,987
Equity in income (loss) of subsidiaries . . . . . . . . . . . (77,778) (9,035,634) 8,957,856 8,957,856
-------------- ------------- ------------- -------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . 21,262,194 (9,035,634) 30,297,828 17,837,890
-------------- ------------- ------------- -------------
Expense:
Salaries and related benefits . . . . . . . . . . . . . . . 2,778,264 - 2,778,264 2,778,264
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,929 - 202,929 202,929
Legal and Accounting . . . . . . . . . . . . . . . . . . . 151,875 - 151,875 138,979
Directors and shareholders expense . . . . . . . . . . . . 38,447 - 38,447 38,447
Small Business Administration fees . . . . . . . . . . . . 77,303 - 77,303 -
General and administrative . . . . . . . . . . . . . . . . 1,053,298 - 1,053,298 727,741
Profit sharing plan . . . . . . . . . . . . . . . . . . . . 189,494 - 189,494 189,494
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 5,049,312 - 5,049,312 2,399,679
-------------- ------------- ------------- -------------
Total expense . . . . . . . . . . . . . . . . . . . . . . . . 9,540,922 - 9,540,922 6,475,533
-------------- ------------- ------------- -------------
Net operating income . . . . . . . . . . . . . . . . . . . . 11,721,272 (9,035,634) 20,756,906 11,362,357
-------------- ------------- ------------- -------------
Realized and unrealized gain (loss)
on investments:
Loans written-off . . . . . . . . . . . . . . . . . . . . (309,211) - (309,211) -
Recoveries on loans written-off . . . . . . . . . . . . . 40,296 - 40,296 -
Change in unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . (90,000) - (90,000) -
-------------- ------------- ------------- -------------
(358,915) - (358,915) -
-------------- ------------- ------------- -------------
Net operating income and realized and unrealized
gain (loss) on investments . . . . . . . . . . . . . . . . $ 11,362,357 $ (9,035,634) $ 20,397,991 $ 11,362,357
============== ============= ============= =============
Earnings per share . . . . . . . . . . . . . . . . . . . . . $1.03
==============
<CAPTION>
FIRST WESTERN
WESTERN SBLC, FINANCIAL PMC
AND CAPITAL INVESTMENT
SUBSIDIARY CORPORATION CORPORATION
------------- ----------- -------------
<S> <C> <C> <C>
Investment income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,444,772 $ 3,006,913 $ 3,613,828
Premium income . . . . . . . . . . . . . . . . . . . . . . (79,962) - -
Other investment income, net . . . . . . . . . . . . . . . 10,005 44,017 23,593
------------- ----------- -------------
Total investment income . . . . . . . . . . . . . . . . . . . 5,374,815 3,050,930 3,637,421
Other income, net . . . . . . . . . . . . . . . . . . . . . . 312,946 10,946 72,880
Equity in income (loss) of subsidiaries . . . . . . . . . . . - - -
------------- ----------- -------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . 5,687,761 3,061,876 3,710,301
------------- ----------- -------------
Expense:
Salaries and related benefits . . . . . . . . . . . . . . . - - -
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . - - -
Legal and Accounting . . . . . . . . . . . . . . . . . . . 8,090 1,735 3,071
Directors and shareholders expense . . . . . . . . . . . . - - -
Small Business Administration fees . . . . . . . . . . . . - 37,253 40,050
General and administrative . . . . . . . . . . . . . . . . 76,967 44,740 203,850
Profit sharing plan . . . . . . . . . . . . . . . . . . . . - - -
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 41,564 1,676,152 931,917
------------- ----------- -------------
Total expense . . . . . . . . . . . . . . . . . . . . . . . . 126,621 1,759,880 1,178,888
------------- ----------- -------------
Net operating income . . . . . . . . . . . . . . . . . . . . 5,561,140 1,301,996 2,531,413
------------- ----------- -------------
Realized and unrealized gain (loss)
on investments:
Loans written-off . . . . . . . . . . . . . . . . . . . . (171,056) (79,000) (59,155)
Recoveries on loans written-off . . . . . . . . . . . . . - 8,296 32,000
Change in unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . (67,000) (23,000) -
------------- ----------- -------------
(238,056) (93,704) (27,155)
------------- ----------- -------------
Net operating income and realized and unrealized
gain (loss) on investments . . . . . . . . . . . . . . . . $ 5,323,084 $ 1,208,292 $ 2,504,258
============= =========== =============
Earnings per share . . . . . . . . . . . . . . . . . . . . .
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATING FINANCIAL
STATEMENTS.
F-33
<PAGE> 92
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL UNDISTRIBUTED
PREFERRED COMMON PAID-IN NET OPERATING
STOCK, 3% STOCK CAPITAL INCOME
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
PMC CAPITAL, INC.
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ - $ 106,840 $ 56,254,654 $ 1,571,835
Net income . . . . . . . . . . . . . . . . . . . . . . - - - 11,362,357
Dividend reinvestment plan, 187,005 shares . . . . . . - 1,870 2,174,458 -
Dividends on common stock . . . . . . . . . . . . . . . - - - (11,599,886)
-------------- ------------ ------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ - $ 108,710 $ 58,429,112 $ 1,334,306
============== ============ ============= ===============
FIRST WESTERN SBLC, INC. AND SUBSIDIARY
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ - $ 50 $ 1,999,950 $ 1,457,215
Net income . . . . . . . . . . . . . . . . . . . . . . - - - 5,390,084
Dividends to parent company . . . . . . . . . . . . . . - - - (5,350,000)
-------------- ------------ ------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ - $ 50 $ 1,999,950 $ 1,497,299
============== ============ ============= ===============
WESTERN FINANCIAL CAPITAL CORPORATION
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ - $ 20,689 $ 6,433,885 $ 218,601
Net income . . . . . . . . . . . . . . . . . . . . . . - - - 1,231,292
Contribution of capital . . . . . . . . . . . . . . . . - - 1,000,000 -
Dividends to parent company . . . . . . . . . . . . . . - - - (1,050,000)
-------------- ------------ ------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ - $ 20,689 $ 7,433,885 $ 399,893
============== ============ ============= ===============
PMC INVESTMENT CORPORATION
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ 3,000,000 $ 1,000 $ 5,438,817 $ 97,865
Net income . . . . . . . . . . . . . . . . . . . . . . - - - 2,504,258
Contribution of capital . . . . . . . . . . . . . . . . - - 7,000,000 -
Dividends to parent company . . . . . . . . . . . . . . - - - (1,900,000)
Dividends, preferred . . . . . . . . . . . . . . . . . - - - (221,945)
-------------- ------------ ------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ 3,000,000 $ 1,000 $ 12,438,817 $ 480,178
============== ============ ============= ===============
ELIMINATION ADJUSTMENTS
Equity in income of subsidiaries . . . . . . . . . . . - - - (9,035,634)
Dividends to parent . . . . . . . . . . . . . . . . . . - - - 8,300,000
Stock of subsidiaries . . . . . . . . . . . . . . . . . (3,000,000) (21,739) (21,872,652) -
Undistributed earnings of subsidiaries . . . . . . . . - - - (1,958,690)
-------------- ------------ ------------- ---------------
(3,000,000) (21,739) (21,872,652) (2,694,324)
-------------- ------------ ------------- ---------------
CONSOLIDATED $ - $ 108,710 $ 58,429,112 $ 1,017,352
============== ============ ============= ===============
<CAPTION>
NET
UNREALIZED
APPRECIATION TOTAL
(DEPRECIATION) TREASURY SHAREHOLDERS'
ON INVESTMENTS STOCK EQUITY
-------------- -------------- ---------------
<S> <C> <C> <C>
PMC CAPITAL, INC.
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ - $ - $ 57,933,329
Net income . . . . . . . . . . . . . . . . . . . . . . - - 11,362,357
Dividend reinvestment plan, 187,005 shares . . . . . . - - 2,176,328
Dividends on common stock . . . . . . . . . . . . . . . - - (11,599,886)
-------------- -------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ - $ - $ 59,872,128
============== ============== ===============
FIRST WESTERN SBLC, INC. AND SUBSIDIARY
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ (151,000) $ (1,000,000) $ 2,306,215
Net income . . . . . . . . . . . . . . . . . . . . . . (67,000) - 5,323,084
Dividends to parent company . . . . . . . . . . . . . . - - (5,350,000)
-------------- -------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ (218,000) $ (1,000,000) $ 2,279,299
============== ============== ===============
WESTERN FINANCIAL CAPITAL CORPORATION
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ (159,000) $ - $ 6,514,175
Net income . . . . . . . . . . . . . . . . . . . . . . (23,000) - 1,208,292
Contribution of capital . . . . . . . . . . . . . . . . - - 1,000,000
Dividends to parent company . . . . . . . . . . . . . . - - (1,050,000)
-------------- -------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ (182,000) $ - $ 7,672,467
============== ============== ===============
PMC INVESTMENT CORPORATION
BALANCES, JANUARY 1, 1995 . . . . . . . . . . . . . . . $ (67,000) $ - $ 8,470,682
Net income . . . . . . . . . . . . . . . . . . . . . . - - 2,504,258
Contribution of capital . . . . . . . . . . . . . . . . - - 7,000,000
Dividends to parent company . . . . . . . . . . . . . . - - (1,900,000)
Dividends, preferred . . . . . . . . . . . . . . . . . - - (221,945)
-------------- -------------- ---------------
BALANCES, DECEMBER 31, 1995 . . . . . . . . . . . . . $ (67,000) $ - $ 15,852,995
============== ============== ===============
ELIMINATION ADJUSTMENTS
Equity in income of subsidiaries . . . . . . . . . . . - - (9,035,634)
Dividends to parent . . . . . . . . . . . . . . . . . . - - 8,300,000
Stock of subsidiaries . . . . . . . . . . . . . . . . . - 1,000,000 (23,894,391)
Undistributed earnings of subsidiaries . . . . . . . . - - (1,958,690)
-------------- -------------- ---------------
- 1,000,000 (26,588,715)
-------------- -------------- ---------------
CONSOLIDATED $ (467,000) $ - $ 59,088,174
============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATING FINANCIAL
STATEMENTS.
F-34
<PAGE> 93
PMC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CONSOLIDATED
BEFORE PMC CAPITAL,
CONSOLIDATED ELIMINATION ELIMINATION INC.
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating income and realized and
unrealized gain (loss) on investments . . . . . . . . . . . . $ 11,362,357 $ (9,035,634) $ 20,397,991 $ 11,362,357
Adjustments to reconcile net operating
income and realized and unrealized
gain (loss) on investments to net cash
provided by (used in) operating activities:
Loans funded, held for sale . . . . . . . . . . . . . . . (30,468,122) - (30,468,122) -
Proceeds from sale of guaranteed loans . . . . . . . . . 30,298,570 - 30,298,570 -
Change in unrealized depreciation on
investments and loans written-off . . . . . . . . . . 358,915 - 358,915 -
Unrealized premium income, net . . . . . . . . . . . . . 79,962 - 79,962 -
Amortization of property and equipment
and other deferred costs . . . . . . . . . . . . . 170,433 - 170,433 89,906
Amortization of excess servicing asset . . . . . . . . . 971,610 - 971,610 -
Accretion of discount on portfolio . . . . . . . . . . . (167,930) - (167,930) (38,875)
Accretion of deferred fees . . . . . . . . . . . . . . . (508,062) - (508,062) (103,597)
Accretion on government securities . . . . . . . . . . . (123,318) - (123,318) (123,318)
Deferred fees collected . . . . . . . . . . . . . . . . . 1,050,318 - 1,050,318 (114,807)
(Gain) loss on sale of assets . . . . . . . . . . . . . . 26,059 - 26,059 127
Equity in loss of unconsolidated subsidiary . . . . . . . 77,778 - 77,778 77,778
Net change in operating assets
and liabilities:
Accrued interest receivable . . . . . . . . . . . . . (298,322) - (298,322) (39,721)
Other assets . . . . . . . . . . . . . . . . . . . . (165,848) - (165,848) (283,459)
Accrued interest payable . . . . . . . . . . . . . . 401,163 - 401,163 123,934
Borrower advances . . . . . . . . . . . . . . . . . . (693,848) - (693,848) (294,814)
Other liabilities . . . . . . . . . . . . . . . . . . 502,911 - 502,911 315,085
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . . . . . 12,874,626 (9,035,634) 21,910,260 10,970,596
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded . . . . . . . . . . . . . . . . . . . . . . . . . (47,098,934) - (47,098,934) (7,695,209)
Principal collected and other adjustments . . . . . . . . . . . 10,651,520 - 10,651,520 3,762,943
Purchase of furniture and fixtures and other
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,712) - (52,712) (25,644)
Purchase of government securities' . . . . . . . . . . . . . . (3,942,013) - (3,942,013) (3,942,013)
Proceeds from maturities of government securities . . . . . . . 8,947,497 - 8,947,497 8,947,497
Investment in restricted cash . . . . . . . . . . . . . . . . . (251,277) - (251,277) -
Proceeds from sale of assets . . . . . . . . . . . . . . . . . 232,786 - 232,786 -
Investment in subsidiaries . . . . . . . . . . . . . . . . . . (400,000) 8,735,634 (9,135,634) (9,135,634)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . . . (31,913,133) 8,735,634 (40,648,767) (8,088,060)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of SBA debentures . . . . . . . . . . . 15,000,000 - 15,000,000 -
Proceeds from issuance of notes payable . . . . . . . . . . . 10,000,000 - 10,000,000 10,000,000
Proceeds from issuance of common stock . . . . . . . . . . . . 1,399,220 (8,000,000) 9,399,220 1,399,220
Proceeds from issuance of preferred stock . . . . . . . . . . 2,000,000 - 2,000,000 -
Payment of dividends on common stock . . . . . . . . . . . . . (11,188,909) 8,300,000 (19,488,909) (11,188,909)
Payment of dividends on preferred stock . . . . . . . . . . . (204,437) - (204,437) -
Advances from (to) affiliates, net . . . . . . . . . . . . . . 357,099 - 357,099 (7,182,620)
Payment of issuance costs on notes and debentures . . . . . . (446,926) - (446,926) (53,176)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . 16,916,047 300,000 16,616,047 (7,025,485)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . (2,122,460) - (2,122,460) (4,142,949)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . 33,696,405 - 33,696,405 23,404,188
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . $ 31,573,945 $ - $ 31,573,945 $ 19,261,239
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 4,648,149 $ - $ 4,648,149 $ 2,275,745
============ ============ ============ ============
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . $ 777,107 $ - $ 777,107 $ 777,107
============ ============ ============ ============
Loans receivable acquired in exchange for SBA debentures . . . $ 2,109,062 $ - $ 2,109,062 $ -
============ ============ ============ ============
Reclassification from loans receivable to
real property owned . . . . . . . . . . . . . . . . . . . . $ 65,000 $ - $ 65,000 $ -
============ ============ ============ ============
Loans to facilitate sale of real property owned . . . . . . . $ 85,000 $ - $ 85,000 $ -
============ ============ ============ ============
<CAPTION>
FIRST WESTERN
WESTERN SBLC, FINANCIAL PMC
AND CAPITAL INVESTMENT
SUBSIDIARY CORPORATION CORPORATION
--------------- --------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating income and realized and
unrealized gain (loss) on investments . . . . . . . . . . . . $ 5,323,084 $ 1,208,292 $ 2,504,258
Adjustments to reconcile net operating
income and realized and unrealized
gain (loss) on investments to net cash
provided by (used in) operating activities:
Loans funded, held for sale . . . . . . . . . . . . . . . (30,468,122) - -
Proceeds from sale of guaranteed loans . . . . . . . . . 30,298,570 - -
Change in unrealized depreciation on
investments and loans written-off . . . . . . . . . . 238,056 93,704 27,155
Unrealized premium income, net . . . . . . . . . . . . . 79,962 - -
Amortization of property and equipment
and other deferred costs . . . . . . . . . . . . . . 3,336 37,057 40,134
Amortization of excess servicing asset . . . . . . . . . 971,610 - -
Accretion of discount on portfolio . . . . . . . . . . . (128,319) (351) (385)
Accretion of deferred fees . . . . . . . . . . . . . . . (164,227) (95,411) (144,827)
Accretion on government securities . . . . . . . . . . . - - -
Deferred fees collected . . . . . . . . . . . . . . . . . 53,470 392,634 719,021
(Gain) loss on sale of assets . . . . . . . . . . . . . . 46,856 6,482 (27,406)
Equity in loss of unconsolidated subsidiary . . . . . . . - - -
Net change in operating assets
and liabilities:
Accrued interest receivable . . . . . . . . . . . . . (89,647) (57,786) (111,168)
Other assets . . . . . . . . . . . . . . . . . . . . 72,400 9,594 35,617
Accrued interest payable . . . . . . . . . . . . . . 3,623 59,578 214,028
Borrower advances . . . . . . . . . . . . . . . . . . (611,250) 90,047 122,169
Other liabilities . . . . . . . . . . . . . . . . . . 203,388 23,247 (38,809)
--------------- --------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . . . . . 5,832,790 1,767,087 3,339,787
--------------- --------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded . . . . . . . . . . . . . . . . . . . . . . . . . (10,156,041) (8,011,887) (21,235,797)
Principal collected and other adjustments . . . . . . . . . . . 1,566,535 3,768,432 1,553,610
Purchase of furniture and fixtures and other
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,386) (1,682) -
Purchase of government securities' . . . . . . . . . . . . . . - - -
Proceeds from maturities of government securities . . . . . . . - - -
Investment in restricted cash . . . . . . . . . . . . . . . . . (251,277) - -
Proceeds from sale of assets . . . . . . . . . . . . . . . . . 49,530 30,000 153,256
Investment in subsidiaries . . . . . . . . . . . . . . . . . . - - -
--------------- --------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . . . (8,816,639) (4,215,137) (19,528,931)
--------------- --------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of SBA debentures . . . . . . . . . . . - - 15,000,000
Proceeds from issuance of notes payable . . . . . . . . . . . - - -
Proceeds from issuance of common stock . . . . . . . . . . . . - 1,000,000 7,000,000
Proceeds from issuance of preferred stock . . . . . . . . . . - - 2,000,000
Payment of dividends on common stock . . . . . . . . . . . . . (5,350,000) (1,050,000) (1,900,000)
Payment of dividends on preferred stock . . . . . . . . . . . - - (204,437)
Advances from (to) affiliates, net . . . . . . . . . . . . . . 8,411,348 (601,000) (270,629)
Payment of issuance costs on notes and debentures . . . . . . - - (393,750)
--------------- --------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . 3,061,348 (651,000) 21,231,184
--------------- --------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . 77,499 (3,099,050) 5,042,040
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . 1,798,032 5,867,913 2,626,272
--------------- --------------- -----------------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . $ 1,875,531 $ 2,768,863 $ 7,668,312
=============== =============== =================
SUPPLEMENTAL DISCLOSURE:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 37,941 $ 1,616,574 $ 717,889
=============== =============== =================
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
=============== =============== =================
Loans receivable acquired in exchange for SBA debentures . . . $ - $ 2,109,062 $ -
=============== =============== =================
Reclassification from loans receivable to
real property owned . . . . . . . . . . . . . . . . . . . . $ 65,000 $ - $ -
=============== =============== =================
Loans to facilitate sale of real property owned . . . . . . . $ - $ 85,000 $ -
=============== =============== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATING FINANCIAL
STATEMENTS.
F-35
<PAGE> 94
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) The listing of the financial statements and notes thereto in the Index
to Consolidated Financial Statements in the Registration Statement attached
hereto is incorporated herein by reference.
(2) Exhibits.
Exhibit Description
a. Charter documents:
a.1 Articles of Incorporation, as amended
(previously filed as Exhibit 4(b)(1) to the
Registrant's Registration Statement on Form
N-2 (Registration No. 33-2535) (the
"Registration Statement"), dated November 29,
1991, and incorporated herein by reference).
b. Bylaws:
b.1 Bylaws, as amended (previously filed as
Exhibit 2 to Amendment No. 7 to the
Registration Statement, dated April 27, 1989,
and incorporated herein by reference).
c. Not applicable.
d. Certificate of Common Stock, par value $.01 per share
(previously filed as Exhibit 4 to Amendment No. 1 to
the Registration Statement, dated November 10, 1983,
and incorporated herein by reference).
f. Long term debt instruments:
f.1 Debenture dated September 24, 1986 for
$2,490,000 loan with SBA (previously filed as
an exhibit to Amendment No. 6 to the
Registration Statement, dated April 27, 1988,
and incorporated herein by reference).
f.2 Debenture dated February 4, 1987 for
$2,480,000 loan with SBA (previously filed as
an exhibit to Amendment No. 6 to the
Registration Statement, dated April 27, 1988,
and incorporated herein by reference).
f.3 Debenture dated February 17, 1988 for
$1,500,000 loan with SBA (previously filed as
Exhibit 4(b)(2) to Amendment No. 7 to the
Registration Statement, dated April 27, 1989,
and incorporated herein by reference).
C-1
<PAGE> 95
f.4 Debenture dated June 27, 1990 for $2,000,000
loan with SBA (previously filed as Exhibit
4(b)(5)(n) to Amendment No. 9 to the
Registration Statement, dated April 29, 1991,
and incorporated herein by reference).
f.5 Debenture dated September 26, 1990 for
$2,810,000 loan with SBA (previously filed as
Exhibit 4(b)(5)(o) to Amendment 9 to the
Registration Statement, dated April 29, 1991,
and incorporated herein by reference).
f.6 Debenture dated September 26, 1990 for
$1,500,000 loan with SBA (previously filed as
Exhibit 4(b)(5)(p) to Amendment 9 to the
Registration Statement, dated April 29, 1991,
and incorporated herein by reference).
f.7 Debenture dated March 29, 1990 for $1,000,000
loan with SBA (previously filed as Exhibit
5(q) to Amendment No. 3 to the Registration
Statement, dated August 18, 1992, and
incorporated herein by reference).
f.8 Debenture dated September 27, 1989 for
$1,000,000 loan with SBA (previously filed as
Exhibit 5(r) to Amendment No. 3 to the
Registration Statement, dated August 18,
1992, and incorporated herein by reference).
f.9 Debenture dated September 27, 1989 for
$1,500,000 loan with SBA (previously filed as
Exhibit 5(s) to Amendment No. 3 to the
Registration Statement, dated August 18,
1992, and incorporated herein by reference).
f.10 Debenture dated January 2, 1990 for
$3,000,000 loan with SBA (previously filed as
Exhibit 5(t) to Amendment No. 3 to the
Registration Statement, dated August 18,
1992, and incorporated herein by reference).
f.11 Debenture dated August 18, 1989 for
$1,000,000 loan with SBA (previously filed as
Exhibit 5(u) to Amendment No. 3 to the
Registration Statement, dated August 18,
1992, and incorporated herein by reference).
f.12 Debenture dated September 28, 1994 for
$3,000,000 loan with SBA (previously filed as
Exhibit 4.13 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1994
and incorporated herein by reference).
f.13 Debenture dated September 28, 1994 for
$3,000,000 loan with SBA (previously filed as
Exhibit 4.14 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1994
and incorporated herein by reference).
C-2
<PAGE> 96
f.14 Senior Note dated July 19, 1993 for
$6,000,000 with Columbine Life Insurance
Company (previously filed as Exhibit 4.15 to
the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated
herein by reference).
f.15 Senior Note dated July 19, 1993 for
$9,000,000 with Life Insurance Company of
Georgia (previously filed as Exhibit 4.16 to
the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated
herein by reference).
f.16 Senior Note dated July 19, 1993 for
$5,000,000 with SouthLand Life Insurance
Company (previously filed as Exhibit 4.17 to
the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated
herein by reference).
f.17 Senior Note dated December 15, 1993 for
$2,000,000 with Peerless Insurance Company
(previously filed as Exhibit 4.18 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
f.18 Senior Note dated December 15, 1993 for
$3,000,000 with Security Life of Denver
Insurance Company (previously filed as
Exhibit 4.19 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1994
and incorporated herein by reference).
f.19 Debenture dated March 29, 1995 for $3,000,000
loan with SBA (previously filed as Exhibit
4.20 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
f.20 Debenture dated June 28, 1995 for $5,000,000
loan with SBA (previously filed as Exhibit
4.21 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
f.21 Debenture dated September 27, 1995 for
$7,000,000 loan with SBA (previously filed as
Exhibit 4.22 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.22 Debenture dated September 29, 1987 for
$800,000 loan with SBA (previously filed as
Exhibit 4.23 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.23 Debenture dated December 20, 1989 for
$650,000 loan with SBA (previously filed as
Exhibit 4.24 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995
and incorporated herein by reference).
C-3
<PAGE> 97
f.24 Debenture dated June 27, 1990 for $300,000
loan with SBA (previously filed as Exhibit
4.25 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
f.25 Debenture dated December 6, 1992 for $510,000
loan with SBA (previously filed as Exhibit
4.26 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
f.26 Senior Note Dated April 19, 1995 for
$5,000,000 with Security Life of Denver
Insurance Company (previously filed as
Exhibit 4.27 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.27 Senior Note Dated April 19, 1995 for
$2,000,000 with Peerless Insurance Company
(previously filed as Exhibit 4.28 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated
herein by reference).
f.28 Senior Note Dated April 19, 1995 for
$2,000,000 with Indiana Insurance Company
(previously filed as Exhibit 4.29 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated
herein by reference).
f.29 Senior Note Dated April 19, 1995 for
$1,000,000 with Security Life of Denver
Insurance Company (previously filed as
Exhibit 4.30 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.30 Sixth Renewal Master Promissory Note for
$10,000,000 with Sun Trust Bank, Miami
(previously filed as Exhibit 10.7 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated
herein by reference)
g. Not applicable.
h. Not applicable.
i. Not applicable.
j. Not applicable.
k. Material Contracts
k.1 Employment contract between the Registrant
and Lance B. Rosemore dated August 1, 1994
(previously filed as Exhibit 10.1 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
C-4
<PAGE> 98
k.2 Employment contract between the Registrant
and Andrew S. Rosemore dated August 1, 1994
(previously filed as Exhibit 10.2 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
k.3 Employment contract between the Registrant
and Fredric M. Rosemore dated August 1, 1994
(previously filed as Exhibit 10.3 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
k.4 Employment contract between the Registrant
and Jan F. Salit dated August 1, 1994
(previously filed as Exhibit 10.4 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
k.5 Employment contract between the Registrant
and Barry N. Berlin dated August 1, 1994
(previously filed as Exhibit 10.5 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
k.6 Employment contract between the Registrant
and Mary J. Brownmiller dated August 1, 1994
(previously filed as Exhibit 10.6 to the
Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated
herein by reference).
l. Opinion of counsel, as to the legality of the shares being
registered.*
m. Not applicable
n. Consents
n.1 Consent of Coopers & Lybrand L.L.P. as to inclusion
of their report.**
o. Not applicable.
p. Not applicable.
q. Not applicable.
r. Financial Data Schedule**
-----------------------
* Previously filed
** Filed herewith
ITEM 25. MARKETING ARRANGEMENTS
None
C-5
<PAGE> 99
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fees $ 4,418
Stock Exchange Fees $ 1,000
Printing and Mailing $ 3,000
Accounting Fees $ 5,000
Legal Fees $ 10,000
Plan Administrator Fee $ 1,000
Miscellaneous $ 1,582
TOTAL $ 26,000
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant owns 100% of the issued and outstanding common
stock of five subsidiaries: Western Financial Capital Corp.,
a Florida corporation, First Western SBLC, Inc., a Florida
corporation, PMC Investment Corporation, formerly Pro-Med
Investment Corporation, a Florida corporation, PMC Funding
Corp., formerly Pro-Med Leasing and Equipment Corp., a Florida
corporation ("PMC Funding") and PMC Advisers, Inc., a Texas
corporation ("PMC Advisers"). Neither PMC Funding nor PMC
Advisers is registered under the Investment Company Act. Each
of the investment company subsidiaries is included in the
Company's consolidated financial statements included herein.
PMC Advisers and PMC Funding are not consolidated because they
are not investment companies.
C-6
<PAGE> 100
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of June 5, 1996 there were approximately 1100 holders of
record of the Registrant's common stock, par value $.01 per
share.
ITEM 29. INDEMNIFICATION
Section 607.0850 of the Florida Statutes and Article IX of the
Articles of Incorporation and Article VI of the Bylaws of the Registrant
provide for indemnification of the Registrant's directors and officers under
certain circumstances. Additionally, in 1992, each of the Company's directors
entered into an indemnification agreement with the Company which provides for
such director's indemnification under certain circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the 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 hereby, 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 Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Registrant's books and records are located at 17290
Preston Road, 3rd Floor, Dallas, Texas 75252, c/o Lance B.
Rosemore, President
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
A. 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
C-7
<PAGE> 101
recent post-effective amendment
thereof) which, individually or in
the aggregate, represent a
fundamental change in the
information set forth in the
registration statement; and
(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. Insofar as indemnification for liabilities arising
under the Securities 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 Securities 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 against
the Registrant 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 Securities Act and will be governed by the final
adjudication of such issue.
C-8
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Pre-effective Amendment No. 1 to the Registration Statement on
Form N-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, and State of Texas, on the 21st day of June,
1996.
PMC CAPITAL, INC.
By: /s/ Lance B. Rosemore
--------------------------------------
Lance B. Rosemore, President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement on Form N-2 has
been signed below on June 21, 1996 by the following persons in the capacities
indicated.
/s/ Fredric M. Rosemore Chairman of the Board and Treasurer
- -------------------------------------
FREDRIC M. ROSEMORE
/s/ Lance B. Rosemore
- ------------------------------------- President, Chief Executive Officer,
LANCE B. ROSEMORE Secretary and Director
/s/ Andrew S. Rosemore
- ------------------------------------- Executive Vice President, Chief Operating
ANDREW S. ROSEMORE Officer and Director
/s/ Barry N. Berlin
- ------------------------------------- Chief Financial Officer and Principal
BARRY N. BERLIN Accounting Officer
/s/ Robert Diamond Director
- -------------------------------------
ROBERT DIAMOND
/s/ Lee Ruwitch Director
- -------------------------------------
LEE RUWITCH
/s/ Martha R. Greenberg Director
- -------------------------------------
MARTHA R. GREENBERG
C-9
<PAGE> 103
/s/ Barry A. Imber Director
- -------------------------------------
BARRY A. IMBER
/s/ Irvin M. Borish Director
- -------------------------------------
IRVIN M. BORISH
/s/ Thomas Hamill Director
- -------------------------------------
THOMAS HAMILL
C-10
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ----------- --------
<S> <C> <C> <C>
a. Charter documents:
a.1 Articles of Incorporation, as amended (previously filed as Exhibit 4(b)(1) to the
Registrant's Registration Statement on Form N-2 (Registration No. 33-2535) (the
"Registration Statement"), dated November 29, 1991, and incorporated herein by
reference).
b. Bylaws:
b.1 Bylaws, as amended (previously filed as Exhibit 2 to Amendment No. 7 to the
Registration Statement, dated April 27, 1989, and incorporated herein by reference).
c. Not applicable.
d. Certificate of Common Stock, par value $.01 per share (previously filed as Exhibit 4 to
Amendment No. 1 to the Registration Statement, dated November 10, 1983, and incorporated herein
by reference).
f. Long term debt instruments:
f.1 Debenture dated September 24, 1986 for $2,490,000 loan with SBA (previously filed as
an exhibit to Amendment No. 6 to the Registration Statement, dated April 27, 1988, and
incorporated herein by reference).
f.2 Debenture dated February 4, 1987 for $2,480,000 loan with SBA (previously filed as an
exhibit to Amendment No. 6 to the Registration Statement, dated April 27, 1988, and
incorporated herein by reference).
</TABLE>
E-1
<PAGE> 105
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C> <C>
f.3 Debenture dated February 17, 1988 for $1,500,000 loan with SBA (previously filed as
Exhibit 4(b)(2) to Amendment No. 7 to the Registration Statement, dated April 27,
1989, and incorporated herein by reference).
f.4 Debenture dated June 27, 1990 for $2,000,000 loan with SBA (previously filed as
Exhibit 4(b)(5)(n) to Amendment No. 9 to the Registration Statement, dated April 29,
1991, and incorporated herein by reference).
f.5 Debenture dated September 26, 1990 for $2,810,000 loan with SBA (previously filed as
Exhibit 4(b)(5)(o) to Amendment 9 to the Registration Statement, dated April 29, 1991,
and incorporated herein by reference).
f.6 Debenture dated September 26, 1990 for $1,500,000 loan with SBA (previously filed as
Exhibit 4(b)(5)(p) to Amendment 9 to the Registration Statement, dated April 29, 1991,
and incorporated herein by reference).
f.7 Debenture dated March 29, 1990 for $1,000,000 loan with SBA (previously filed as
Exhibit 5(q) to Amendment No. 3 to the Registration Statement, dated August 18, 1992,
and incorporated herein by reference).
f.8 Debenture dated September 27, 1989 for $1,000,000 loan with SBA (previously filed as
Exhibit 5(r) to Amendment No. 3 to the Registration Statement, dated August 18, 1992,
and incorporated herein by reference).
f.9 Debenture dated September 27, 1989 for $1,500,000 loan with SBA (previously filed as
Exhibit 5(s) to Amendment No. 3 to the Registration Statement, dated August 18, 1992,
and incorporated herein by reference).
</TABLE>
E-2
<PAGE> 106
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C> <C>
f.10 Debenture dated January 2, 1990 for $3,000,000 loan with SBA (previously filed as
Exhibit 5(t) to Amendment No. 3 to the Registration Statement, dated August 18, 1992,
and incorporated herein by reference).
f.11 Debenture dated August 18, 1989 for $1,000,000 loan with SBA (previously filed as
Exhibit 5(u) to Amendment No. 3 to the Registration Statement, dated August 18, 1992,
and incorporated herein by reference).
f.12 Debenture dated September 28, 1994 for $3,000,000 loan with SBA (previously filed as
Exhibit 4.13 to the Registrant's Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
f.13 Debenture dated September 28, 1994 for $3,000,000 loan with SBA (previously filed as
Exhibit 4.14 to the Registrant's Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
f.14 Senior Note dated July 19, 1993 for $6,000,000 with Columbine Life Insurance Company
(previously filed as Exhibit 4.15 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
f.15 Senior Note dated July 19, 1993 for $9,000,000 with Life Insurance Company of Georgia
(previously filed as Exhibit 4.16 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
f.16 Senior Note dated July 19, 1993 for $5,000,000 with SouthLand Life Insurance Company
(previously filed as Exhibit 4.17 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference). Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by reference).
f.18 Senior Note dated December 15, 1993 for $3,000,000 with Security Life of Denver
Insurance Company (previously filed as Exhibit 4.19 to the Registrant's Form 10-K for
the fiscal year ended
</TABLE>
E-3
<PAGE> 107
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C> <C>
December 31, 1994 and incorporated herein by reference).
f.19 Debenture dated March 29, 1995 for $3,000,000 loan with SBA (previously filed as
Exhibit 4.20 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.20 Debenture dated June 28, 1995 for $5,000,000 loan with SBA (previously filed as
Exhibit 4.21 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.21 Debenture dated September 27, 1995 for $7,000,000 loan with SBA (previously filed as
Exhibit 4.22 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.22 Debenture dated September 29, 1987 for $800,000 loan with SBA (previously filed as
Exhibit 4.23 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.23 Debenture dated December 20, 1989 for $650,000 loan with SBA (previously filed as
Exhibit 4.24 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.24 Debenture dated June 27, 1990 for $300,000 loan with SBA (previously filed as Exhibit
4.25 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference).
</TABLE>
E-4
<PAGE> 108
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C> <C>
f.25 Debenture dated December 6, 1992 for $510,000 loan with SBA (previously filed as
Exhibit 4.26 to the Registrant's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference).
f.26 Senior Note Dated April 19, 1995 for $5,000,000 with Security Life of Denver Insurance
Company (previously filed as Exhibit 4.27 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1995 and incorporated herein by reference).
f.27 Senior Note Dated April 19, 1995 for $2,000,000 with Peerless Insurance Company
(previously filed as Exhibit 4.28 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference).
f.28 Senior Note Dated April 19, 1995 for $2,000,000 with Indiana Insurance Company
(previously filed as Exhibit 4.29 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference).
f.29 Senior Note Dated April 19, 1995 for $1,000,000 with Security Life of Denver Insurance
Company (previously filed as Exhibit 4.30 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1995 and incorporated herein by reference).
f.30 Sixth Renewal Master Promissory Note for $10,000,000 with Sun Trust Bank, Miami
(previously filed as Exhibit 10.7 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference)
g. Not applicable.
h. Not applicable.
i. Not applicable.
j. Not applicable.
k. Material Contracts
k.1 Employment contract between the Registrant and Lance B. Rosemore dated August 1, 1994
(previously filed as Exhibit 10.1 to the Registrant's
</TABLE>
E-5
<PAGE> 109
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C> <C>
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference).
k.2 Employment contract between the Registrant and Andrew S. Rosemore dated August 1, 1994
(previously filed as Exhibit 10.2 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
k.3 Employment contract between the Registrant and Fredric M. Rosemore dated August 1,
1994 (previously filed as Exhibit 10.3 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference).
k.4 Employment contract between the Registrant and Jan F. Salit dated August 1, 1994
(previously filed as Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
k.5 Employment contract between the Registrant and Barry N. Berlin dated August 1, 1994
(previously filed as Exhibit 10.5 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
k.6 Employment contract between the Registrant and Mary J. Brownmiller dated August 1,
1994 (previously filed as Exhibit 10.6 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference).
l. Opinion of counsel, as to the legality of the shares being registered.*
m. Not applicable
</TABLE>
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<PAGE> 110
<TABLE>
<CAPTION>
Exhibit Description Page No.
------- ------------ --------
<S> <C> <C>
n. Consents
n.1 Consent of Coopers & Lybrand L.L.P. as to inclusion of their report.**
o. Not applicable.
p. Not applicable.
q. Not applicable.
r. Financial Data Schedule**
</TABLE>
--------------------------
* Previously filed
** Filed herewith
E-7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1995 FORM 10-K OF PMC CAPITAL INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 438,984
<SECURITIES> 31,134,961
<RECEIVABLES> 116,060,560<F1>
<ALLOWANCES> (467,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 451,525
<DEPRECIATION> (252,165)
<TOTAL-ASSETS> 156,478,746<F2>
<CURRENT-LIABILITIES> 9,790,657<F3>
<BONDS> 78,541,000
<COMMON> 58,537,822
4,000,000<F4>
3,000,000<F4>
<OTHER-SE> 550,352
<TOTAL-LIABILITY-AND-EQUITY> 156,478,746<F5>
<SALES> 0
<TOTAL-REVENUES> 21,262,194<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,491,610
<LOSS-PROVISION> 358,915
<INTEREST-EXPENSE> 5,049,312
<INCOME-PRETAX> 11,362,357
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,362,357
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
<FN>
<F1>Includes current and long term portion of all loans receivable - before
reserve, interest receivable on loans and receivable for loans sold. Does not
include receivable from affiliate.
<F2>Includes the following items not included above
(i) Excess servicing asset $4,990,924
(ii) Restricted investments 1,784,868
(iii) Real property owned 4,505
(iv) Due from affiliates 1,135,253
(v) Deferred charges, deposit and
other assets, net 1,168,919
(vi) Investment in subsidiary 27,412
----------
$9,111,881
==========
<F3>Includes the following:
(i) Accrued interest payable $ 1,434,475
(ii) Borrower advances 2,260,314
(iii) Dividends payable 3,595,637
(iv) Accounts payable 2,500,231
-----------
$ 9,790,657
===========
<F4>Preferred stock of subsidiary held by SBA. See footnotes to financial
statements.
<F5>Includes the following items not included above
(i) Deferred fee revenue $ 778,927
(ii) Other liabilities 1,279,988
----------
$2,058,915
==========
<F6>Reserves consist primarily of interest and other yield on investments.
</FN>
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 1 in this registration statement
on Form N-2 (File No. 333-3315) of our report dated March 20, 1996 on our
audits of the consolidated financial statements, consolidated schedule of
investments and financial highlights of PMC Capital, Inc.
COOPER & LYBRAND L.L.P.
Dallas, Texas
June 24, 1996
