<PAGE>
September 5, 1997
To Our Shareholders:
You are cordially invited to attend the annual meeting of shareholders
of First Mortgage Corporation on October 16, 1997, beginning at 10:00 a.m.,
at the Shilo Inn Hilltop Suites Hotel, 3101 Temple Street, Pomona,
California 91768.
Details of business to be conducted at the annual meeting are provided
in the enclosed Notice of Annual Meeting of Shareholders and Proxy
Statement. Also enclosed for your information is a copy of our Annual
Report to Shareholders for 1997.
We hope that you will attend the annual meeting. In any event, please
sign, date and return the enclosed form of proxy in the accompanying
envelope as promptly as possible so that your shares will be voted at the
meeting in accordance with your instructions.
Very truly yours,
Clement Ziroli
Chairman of the Board
and Chief Executive Officer
<PAGE>
3230 Fallow Field Drive
Diamond Bar, CA 91765
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1997
To the Shareholders of First Mortgage Corporation:
The Annual Meeting of the Shareholders of First Mortgage Corporation, a
California corporation (the "Company"), will be held on October 16, 1997,
beginning at 10:00 a.m., at the Shilo Inn Hilltop Suites Hotel, 3101 Temple
Street, Pomona, California 91768 for the following purposes:
1. To elect a Board of Directors of five members;
2. To approve the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending March 31, 1998; and
3. To consider and transact such other business as may properly come
before the meeting and at any and all adjournments thereof.
The Board of Directors has fixed the close of business on August 28,
1997 as the record date for determining those shareholders entitled to
notice of, and to vote at, the meeting and at any and all adjournments
thereof.
By Order of the Board of Directors
Robyn S. Fredericks
Secretary
September 5, 1997
Diamond Bar, California
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED
FORM OF PROXY IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE SO THAT
YOUR SHARES WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH YOUR
INSTRUCTIONS.
<PAGE>
3230 Fallow Field Drive
Diamond Bar, CA 91765
_____________________________
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held October 16, 1997
This Proxy Statement and the accompanying form of proxy are being mailed
to shareholders on or about September 5, 1997 in connection with the
solicitation by the Board of Directors of First Mortgage Corporation, a
California corporation (the "Company"), of proxies for use at the annual
meeting of shareholders of the Company on October 16, 1997, and at any and
all adjournments thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting.
Although the principal solicitation of proxies is being made through
this Proxy Statement, proxies may also be solicited personally, by
telephone or by mail by directors, officers or employees of the Company.
Such persons will not receive any additional compensation for their
solicitation services. The Company will pay the entire expense of
preparing, printing and mailing proxy solicitation material on behalf of
the Board of Directors, including amounts paid in reimbursement to banks,
brokerage firms and others for their expenses in forwarding soliciting
material to beneficial owners of shares of the Company's common stock, no
par value ("Common Stock").
VOTING SECURITIES
The Board of Directors has fixed the close of business on August 28,
1997 as the record date for determining those shareholders entitled to
notice of, and to vote at, the annual meeting and at any and all
adjournments thereof. As of August 28, 1997, there were 5,859,117 shares
of Common Stock issued and outstanding and entitled to vote at the annual
meeting. The Company has no other voting securities outstanding. Each
shareholder of record is entitled to one vote per share owned on all
matters submitted to a vote of shareholders except that, as described in
more detail below, each shareholder is entitled to cumulate his or her
votes in electing directors.
Shares represented by duly executed and dated proxies in the
accompanying form and received before the annual meeting will be voted at
the annual meeting. Where a shareholder specifies a choice on the proxy
with respect to any matter to be acted upon, the shares will be voted
accordingly by the proxy holders named in the proxy. Where no choice is
specified, the shares represented by the proxy will be voted (i) as
described below with respect to the election of directors, (ii) to approve
the appointment of Ernst & Young LLP as independent auditors of the Company
for the fiscal year ending March 31, 1998, and (iii) in accordance with the
best judgment of the proxy holders with respect to any other business that
properly comes before the annual meeting.
<PAGE>
A shareholder has the power to revoke a proxy at any time before it is
exercised by filing with the Secretary of the Company either an instrument
revoking the proxy or a duly executed proxy bearing a later date. A proxy
may also be revoked by a shareholder who is present at the annual meeting
and who expresses a desire to vote in person.
The presence in person or by proxy of a majority of the shares of Common
Stock entitled to vote at the annual meeting will constitute a quorum for
the transaction of business. Abstentions on any particular matter will be
counted for purposes of determining the presence of a quorum. Abstentions
will also be treated as shares that are present and entitled to vote with
respect to the matter on which the abstentions are indicated but as unvoted
with respect to the matter. If a broker indicates on the proxy that it
does not have discretionary authority to vote certain shares on a
particular matter, those shares will be counted for purposes of determining
the presence of a quorum. However, the shares will not be treated as
shares that are present and entitled to vote with respect to the matter as
to which the broker indicates that it lacks voting authority.
Assuming the presence of a quorum: (a) the five persons receiving the
highest number of affirmative votes of the shares of Common Stock entitled
to be voted on the matter will be elected as directors of the Company; and
(b) approval of the appointment of Ernst & Young LLP requires the
affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the annual meeting and voting on the matter, provided
that such shares voting affirmatively must also constitute at least a
majority of the required quorum for the meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Voting Procedures
Five directors will be elected at the annual meeting, each to hold
office until the next annual meeting of shareholders and the election and
qualification of a successor or the director's earlier death, resignation
or removal.
Under California law, each shareholder who is entitled to vote at the
annual meeting has cumulative voting rights in connection with the election
of directors. Under cumulative voting, a shareholder may cast a number of
votes equal to the number of shares of Common Stock standing in such
shareholder's name as of August 28, 1997, multiplied by the number of
directors to be elected. A shareholder exercising cumulative voting rights
is entitled to cast all such votes for a single nominee for director or for
any two or more nominees in such proportion as the shareholder may decide.
However, under California law, a shareholder may not cumulate votes for a
candidate unless the candidate's name has been placed in nomination prior
to the voting and unless the shareholder has given notice at the annual
meeting prior to the voting of the shareholder's intention to cumulate
votes. If any one shareholder has given such notice, all shareholders are
entitled to cumulate their votes.
The Board of Directors recommends that shareholders grant proxies to
vote for all five of the nominees for directors listed below. In order to
permit the election of all or as many as possible of the following
nominees, the Board of Directors also recommends that shareholders do not
cast their votes on a cumulative basis. Unless marked otherwise, proxies
will be voted by the proxy holders in such a manner as to elect all or as
many of the following nominees as possible. Unless marked otherwise,
<PAGE>
proxies will give the proxy holders discretionary authority to cumulate
votes if they so choose and to allocate votes among the nominees in such
manner as they determine is necessary in order to elect all or as many of
such nominees as possible.
If any of the nominees listed below refuses or is unable to serve as a
director, the proxy holders will vote for a substitute nominee or nominees
recommended by the Board of Directors. Each of the following nominees has
agreed to serve if elected, and the Board of Directors has no reason to
believe that any of such nominees will be unwilling or unable to serve if
elected as a director.
Nominees to the Board of Directors
The following persons have been nominated for election as directors:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Clement Ziroli 55 Chairman of the Board
and Chief Executive Officer
Bruce G. Norman 56 President, Chief Operating Officer
and Director
Pac W. Dong 47 Executive Vice President, Chief
Financial Officer, Controller
and Director
Harold Harrigian 62 Director
Robert E. Weiss 68 Director
</TABLE>
Clement Ziroli has served as Chairman of the Board of Directors of the
Company and Chief Executive Officer since 1975. He also served as its
President from 1975 to 1995. Mr. Ziroli devotes approximately 90% of his
business time to the management of the Company. Since 1970, Mr. Ziroli has
also served as the Chairman of the Board of Directors, President and Chief
Executive Officer of Fin-West Group, which owns 81.5% of the outstanding
shares of the Company's Common Stock.
Bruce G. Norman has served as a director and Chief Operating Officer of
the Company since 1975. He also held the position of Executive Vice
President until December 1995 when he was promoted to President of the
Company. Mr. Norman is currently the First Vice President and a member of
the Board of Directors of the California Mortgage Bankers Association (the
"CMBA"), previously served as the Second Vice President during 1996-1997,
as the Chairman of its Employment Training Panel committee during 1993-
1996, as Chairman of its Education committee during 1991-92, as a member of
its Board of Directors and as its Secretary during 1990-91, and as Chairman
of the Single Family committee during 1989-90. He is also on the
Residential Loan Production and Membership Committees of the Mortgage
Bankers Association of America. Mr. Norman is a member of the Board of
Directors of Fin-West Group.
<PAGE>
Pac W. Dong has served as the Company's Chief Financial Officer and
Controller since 1976. He has served as a director of the Company since
June 1992. He held the position of Senior Vice President until December
1995 when he was promoted to an Executive Vice President of the Company.
He also served on the Warehouse/Treasury Committee of CMBA during 1994-
1995.
Harold Harrigian has served as a director of the Company and as a member
of its Compensation and Audit Committee since June 1992. Mr. Harrigian has
been a partner and has served as Director of the Corporate Finance
Department of the investment banking and securities firm of Crowell, Weedon
& Co. since 1984. He has served as a director of The MacNeal-Schwendler
Corporation since 1986.
Robert E. Weiss has served as a director of the Company and as a member
of its Compensation and Audit Committee since June 1992. Mr. Weiss is an
attorney and has practiced with the firm of Robert E. Weiss Incorporated
since 1959.
Committees and Meetings of the Board of Directors
The business of the Company is managed by and under the direction of the
Board of Directors as provided by the laws of California, the Company's
state of incorporation. During the fiscal year ended March 31, 1997, the
Board of Directors met four times. During the last fiscal year, each
director attended at least 75% of the aggregate number of meetings of the
Board of Directors and those committees of the Board of Directors on which
he served.
The Audit Committee of the Board of Directors reviews and comments upon
the scope of the independent auditors' assignments and related fees, the
accounting principles applied by the Company in financial reporting, the
scope of internal auditing procedures and the adequacy of internal
controls. The Audit Committee was appointed in July, 1992. Its members
are Harold Harrigian and Robert E. Weiss. The Audit Committee met one time
during fiscal 1997.
The primary function of the Compensation Committee, which was appointed
in July, 1992, is to review and approve the Company's executive
compensation policies and to administer the Company's 1992 Stock Incentive
Plan. Messrs. Harrigian and Weiss are the members of the Compensation
Committee. The Compensation Committee held two meetings during fiscal
1997.
The Board of Directors has not appointed a Nominating Committee. The
Board of Directors will consider director nominations recommended by
shareholders but has not established formal procedures for the submission
of such recommendations.
<PAGE>
Executive Officers
Set forth below is certain information about the Company's executive
officers. Each executive officer holds office until his or her successor
is elected or until his or her earlier death, resignation or removal by the
Company's Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Clement Ziroli 55 Chairman of the Board and Chief
Executive Officer
Bruce G. Norman 56 President, Chief Operating Officer
and Director
Pac W. Dong 47 Executive Vice President, Chief
Financial Officer, Controller and
Director
Ronald T. Vargas 52 Senior Vice President
Scott Lehrer 45 Senior Vice President
Robyn S. Fredericks 44 Vice President and Secretary
</TABLE>
Additional information regarding Messrs. Ziroli, Norman ad Dong is set
forth above under "Nominees to the Board of Directors."
Ronald T. Vargas has served as a Senior Vice President since 1975. Mr.
Vargas served as Chairman of the California Housing Agency Committee of the
CMBA during 1991-1992.
Scott Lehrer has served as a Senior Vice President of the Company since
May, 1994. Before joining the Company, he served as a Vice President at
Sanwa Bank in charge of the residential real estate department since
November 1987.
Robyn S. Fredericks has served as the Company's Secretary and as its
Vice President since 1975.
Security Ownership of Certain Beneficial Owners and Management
With respect to each person known by the Company to be the beneficial
owner of more than five percent of its Common Stock, each director and
nominee for director of the Company, each executive officer of the Company
named in the Summary Compensation Table, and all current directors and
executive officers of the Company as a group, the following table sets
forth (i) the number of shares of Common Stock beneficially owned as of
July 15, 1997 by each such person or group, and (ii) the percentage of the
outstanding shares of the Company's Common Stock beneficially owned as of
July 15, 1997 by each such person or group. Unless otherwise indicated,
each of the following shareholders has, to the Company's knowledge, sole
voting and investment power with respect to the shares beneficially owned,
except to the extent that such authority is shared by spouses under
applicable law.
<PAGE>
<TABLE>
<CAPTION>
Percentage of Common
Shares Beneficially Stock Beneficially
Owned as of Owned as of
Name of Beneficial Owner July 15, 1997 July 15, 1997
<S> <C> <C>
Fin-West Group (1) 4,776,275 81.5%
Clement Ziroli (1)(2) 4,840,775 81.7%
Wellington Management Co. (3) 459,375 7.8%
Bruce G. Norman (2) 57,500 *
Pac W. Dong (2) 43,375 *
Abby Hedengran 10,000 *
Harold Harrigian (2) 24,875 *
Robert E. Weiss (2) 28,000 *
All directors and
executive officers as a
group (9 persons)(2)(4) 5,047,300 82.4%
<FN>
<F1>
* Owns less than 1% of the Company's outstanding shares of Common Stock.
<F2>
(1) The business address of Fin-West Group and Mr. Ziroli is 3230 Fallow
Field Drive, Diamond Bar, California 91765. Fin-West is the record
holder of 4,776,275 shares of the Company's Common Stock. By reason of
his ownership of approximately 69.6% of the outstanding shares of the
capital stock of Fin-West, Mr. Ziroli shares voting and investment
power, and the beneficial ownership, of the 4,776,275 shares of the
Common Stock as to which Fin-West is the record holder. Mr. Ziroli is
not the record holder of any shares of Common Stock, although he does
hold options to acquire 64,500 shares. The foregoing information is
based in part upon a Schedule 13D dated April 22, 1992 that Fin-West
and Mr. Ziroli filed with the Securities and Exchange Commission.
<F3>
(2) Information presented includes shares which the specified person or
group has the right to acquire within sixty days after July 15, 1997
through the exercise of stock options, as follows: Mr. Ziroli, 64,500
shares; Mr. Norman, 57,500 shares; Mr. Dong, 43,000 shares; Mr.
Harrigian, 23,000 shares; Mr. Weiss, 23,000 shares; and all directors
and executive officers as a group, 263,775 shares.
<F4>
(3) The business address of Wellington Management Company ("WMC") is 75
State Street, Boston, Massachusetts 02109. In its capacity as
investment advisor, WMC (together with its wholly owned subsidiary,
Wellington Trust Company, N.A.) may be deemed the beneficial owner of
459,375 shares of the Company's Common Stock which are owned by various
investment advisory clients. WMC has shared investment power with
respect to all of such 459,375 shares and shared voting power with
respect to 154,575 of such shares. The foregoing information is based
upon a Schedule 13G dated January 24, 1997 that WMC filed with the
Securities and Exchange Commission.
<F5>
(4) Information regarding the number of shares of the Company's Common
Stock beneficially owned by all directors and executive officers
includes the 4,776,275 shares that are owned of record by Fin-West and
in which Mr. Ziroli has a beneficial ownership interest, as described
above.
</FN>
</TABLE>
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders are required
by Commission regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended March 31, 1997,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent beneficial owners were satisfied.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of the Chief Executive Officer and the other named executive
officers of the Company for the 1997, 1996 and 1995 fiscal years.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION(1) Securities All Other
Name and Principal Position Year Salary(2) Bonus $(2) Underlying Options/SARS(#) Compensation $(3)
<S> <C> <C> <C> <C> <C>
Clement Ziroli 1997 $370,000 $208,195 11,000 $ -
Chairman of the Board and 1996 370,000 333,856 8,000 7,137
Chief Executive Officer 1995 357,664 111,517 24,250 -
Bruce G. Norman 1997 210,000 204,050 10,000 -
President and Chief Operating 1996 185,000 190,486 7,000 3,568
Officer 1995 178,836 144,538 21,750 -
Pac W. Dong 1997 117,500 74,442 9,000 -
Executive Vice President 1996 105,000 91,951 6,000 2,025
Chief Financial Officer and 1995 101,500 72,028 15,500 -
Controller
Abby Hedengran(4) 1997 100,000 109,290 10,000 -
Executive Vice President 1996 36,410 30,032 - -
<PAGE>
<FN>
<F1>
(1) In accordance with Securities and Exchange Commission regulations,
this table does not include perquisites and other personal benefits
valued at the lesser of $50,000 or 10% of the total salary and bonus
reported for the named executive officer. In addition to Mr. Ziroli,
the Company had only three other officers who served as executive
officers and whose total salary and bonus for the 1997 fiscal year
exceeded $100,000.
<F2>
(2) Includes amounts deferred by the named executive officer under the
Company's 401(k) Profit Sharing Plan.
<F3>
(3) Amounts included under All Other Compensation were contributed by the
Company to its 401(k) Profit Sharing Plan for the named executive
officer.
<F4>
(4) Compensation data for Mr. Hedengran are provided only for 1997 and a
portion of 1996 since he was employed by the Company commencing
November 21, 1995. The Company accepted his resignation on May 9,
1997.
</FN>
</TABLE>
Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning stock
options granted during the fiscal year ended March 31, 1997 to the
individuals named in the Summary Compensation Table. No stock appreciation
rights were granted to any person.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Granted Exercise Price Appreciation for
Options to Employees Price Expiration Option Term (2)
Name Granted(#)(1) in Fiscal year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Clement Ziroli 11,000 13.2% $5.23 7/30/2001 $15,879 $35,089 $14,436$31,8
Bruce G. Norman 10,000 12.0% $4.75 7/30/2001 $13,123 $28,999
Pac W. Dong 9,000 10.8% $4.75 7/30/2001 $11,811 $26,099
Abby Hedengran 10,000 12.0% $4.75 7/30/2001 $13,123 $28,999
<FN>
<F1>
(1) All of the stock options awarded to the named executive officers were
granted on July 31, 1996 and became exercisable in full on January 31,
1997. All of the options were granted at an exercise price equal to
the closing price of a share of the Company's Common Stock on the grant
date. All of the options are incentive stock options, except that Mr.
Ziroli received nonqualified stock options for 11,000 shares.
<F2>
(2) The potential realizable value shown in this table represents the
hypothetical gain that might be realized based on assumed 5% and 10%
annual compound rates of stock price appreciation over the full option
term. These prescribed rates are not intended to forecast possible future
appreciation of the Common Stock. Actual gains, if any, on stock option
exercises are dependent upon the future performance of the Company's
Common Stock and overall market conditions.
</FN>
</TABLE>
<PAGE>
The following table sets forth certain information concerning the number
and value of stock options as of March 31, 1997. None of the named
executive officers exercised any options during the fiscal year ended March
31, 1997. No stock appreciation rights have been granted by the Company.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-Money
Name Options at March 31, 1997 Money Options at March 31, 1997 (1)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Clement Ziroli 64,500 0 0 0
Bruce G. Norman 57,500 0 0 0
Pac W. Dong 43,000 0 0 0
Abby Hedengran 10,000 0 0 0
<FN>
<F1>
(1) The value of unexercised in-the-money options at March 31, 1997
represented the spread between the exercise price set at the date of
grant and the $4.25 closing price of the Company's common stock on
March 31, 1997, the last business day of the 1997 fiscal year.
</FN>
</TABLE>
Compensation of Directors
The Company pays each of its directors who is not an officer or employee
of the Company an annual retainer fee of $8,000 plus a $750 fee for each
Board meeting attended by the director. Directors who are officers or
employees of the Company do not receive any additional compensation for
serving as directors. Each non-employee director who is a member of the
Compensation or Audit Committee also receives a fee of $500 for each
committee meeting attended.
Under the Company's 1993 Stock Option Plan for Non-Employee Directors,
each non-employee director also receives a nonqualified stock option each
year on the last business day of July to purchase 5,750 shares of the
Company's Common Stock at an exercise price equal to the closing price of a
share of Common Stock on that date. Each stock option becomes exercisable
in full on the 185th day after its grant date and terminates five years
after its grant date but is subject to earlier termination if the director
terminates his or her service as a director. In accordance with this plan,
on July 31, 1996, Messrs. Harrigian and Weiss each received an option to
purchase 5,750 shares of Common Stock at a purchase price of $4.75 per
share.
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements
On October 1, 1996, the Company entered into new employment agreements
with each of Clement Ziroli, Bruce G. Norman and Pac W. Dong. The
agreements are identical except for their provisions regarding employment
titles, base salaries and bonuses. Pursuant to his agreement, Mr. Ziroli
serves as the Company's Chairman of the Board of Directors and Chief
Executive Officer; pursuant to his agreement, Mr. Norman serves as the
Company's President and Chief Operating Officer; and pursuant to his
agreement, Mr. Dong serves as an Executive Vice President and as the
Company's Chief Financial Officer and Controller.
<PAGE>
Each employment agreement has a six-month term, which is subject to month-
to-month extensions beginning April 1, 1997 and continuing until the
Company and the executive officer have entered into a new agreement or the
officer's employment is otherwise terminated. Mr. Ziroli receives an
annual base salary of $370,000; Mr. Norman receives an annual base salary
of $235,000; and Mr. Dong receives an annual base salary of $130,000. Each
executive officer is also entitled to receive an annual cash bonus, which
is determined by, and calculated in accordance with, the Company's
satisfaction of certain objective performance goals established by the
Compensation Committee and described in the agreement. Each executive
officer also receives all standard Company employee benefits and the right
to participate in the Company's Stock Incentive Plan.
Each employment agreement provides that the executive officer may
terminate his employment voluntarily, and that the Company may terminate
his employment for cause, which is defined as the officer's conviction of a
felony, his willful and continued failure to perform his duties or his
willful and gross misconduct. The executive officer's right to receive
further compensation under the agreement ceases as of the date of such
employment termination, subject to his right to receive any previously
earned but unpaid salary and bonus and subject to his right to receive a
bonus on a pro rata basis for the portion of the term of employment in
which he was employed by the Company, the amount of such pro rata bonus to
be calculated in accordance with the objective performance goals described
in the employment agreement.
The Company has not entered into employment agreements or termination of
employment arrangements with any of its other executive officers, and the
Company has not entered into change-in-control agreements or arrangements
with any of its executive officers.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Harold
Harrigian and Robert E. Weiss. No other persons served as members of the
Compensation Committee during the fiscal year ended March 31, 1997.
Mr. Harrigian has served as a director of the Company since June 1992.
Mr. Harrigian is a partner with the investment banking and securities firm
of Crowell, Weedon & Co., which served as the managing underwriter of the
Company's initial public offering of 1,293,750 shares of Common Stock in
April 1992.
Mr. Weiss has served as a director of the Company since June, 1992. Mr.
Weiss is an attorney with the firm of Robert E. Weiss Incorporated, which
rendered legal services to the Company during the fiscal year ended March
31, 1997. The amount of the Company's payments to Robert E. Weiss
Incorporated for such services did not exceed five percent of that firm's
gross revenues for its last full fiscal year.
In March 1994, the Company made a loan to Mr. Weiss in the original
principal amount of $222,000. The loan bears interest at 7.5% per annum,
is secured by a first trust deed on Mr. Weiss' residence and, as of May 31,
1997, had an outstanding principal balance of approximately $213,225. The
loan was made in the ordinary course of the Company's business and on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with nonaffiliated
persons. After making the loan to Mr. Weiss, the Company sold the loan to
an institutional investor on March 1994, but retained the right to service
the loan.
<PAGE>
Fin-West Group ("Fin-West") owns 81.5% of the Company's outstanding
shares of Common Stock. Clement Ziroli, the Chairman of the Board and
Chief Executive Officer of the Company, owns approximately 69.6% of the
outstanding shares of the capital stock of Fin-West and is the Chairman of
the Board, President and Chief Executive Officer of Fin-West. Bruce G.
Norman is an executive officer and a director of the Company and Fin-West.
Pac W. Dong is an executive officer and a director of the Company and an
executive officer of Fin-West. Ronald T. Vargas is an executive officer of
the Company and an executive officer and a director of Fin-West. Robyn S.
Fredericks is an executive officer of both the Company and Fin-West.
Messrs. Norman, Dong, Vargas and Ms. Fredericks are also shareholders of
Fin-West and, in the aggregate, own approximately 15.3% of the outstanding
shares of the capital stock of Fin-West.
From time to time, the Company has engaged in various transactions with
(i) Mr. Ziroli, (ii) Fin-West, and (iii) several entities that are wholly-
owned or majority-owned by Fin-West.
Mr. Ziroli has entered into a loan agreement with the Company to provide
a $1.5 million unsecured line of credit that is subject to renewal on
December 31, 1997. Advances bear interest at a non-affiliated bank's
reference rate plus 1% per annum. Aggregate interest payments to Mr.
Ziroli during the fiscal year ended March 31, 1997 were $139,000.
The Company leases the building which serves as its principal executive
office from Fin-West under the terms of a lease agreement that expires on
December 31, 1997, subject to the Company's right to extend the lease for
one additional one-year term. The Company's lease payments are currently
$20,000 per month. The monthly rental payment for any lease extension is
subject to increase (but not decrease), provided that such payments may not
exceed the fair market rent for comparable facilities at the time of the
extension. The Company's annual lease payments were $240,000 for the
fiscal year ended March 31, 1997. The Company believes that the lease
payments are more favorable than the prevailing rates for comparable office
space within substantially the same geographic area.
In 1985, the Company made a $500,000 loan to Fin-West that was used to
construct, and is secured by, the building in which the Company's executive
offices are located. The loan was non-interest bearing until the 1991
fiscal year, when interest began to accrue at the rate of 6% per annum.
The unpaid principal amount of the loan on March 31, 1997 was $130,000 and
is due and payable in full in January, 2001. Aggregate interest payments
made by Fin-West to the Company during the fiscal year ended March 31, 1997
were $7,800.
The Company and Fin-West have made unsecured non-interest-bearing
advances to one another for the purpose of paying certain of their
respective operating expenses. As of March 31, 1997, Fin-West owed the
Company $134,000 for net cash advances carried forward from the prior
fiscal year.
Fin-West owned 50% of the outstanding capital stock of Nations Holding
Group ("NHG") (formerly UTC Financial Corporation) at March 31, 1997.
United Title Company ("UTC"), a subsidiary of NHG, provides title insurance
services to the general public and it charges a uniform rate to all of its
customers, including services rendered to the Company. Less than 5% of the
business of UTC was derived from the Company in the last fiscal year.
<PAGE>
Hacienda Service Corporation ("Hacienda Service") is a wholly-owned
subsidiary of Fin-West that provides homeowners' insurance policies to
purchasers of residential property. Substantially all of Hacienda
Service's revenues are derived from customers referred to it by the
Company. Hacienda Service charges a uniform rate for its services,
including services rendered as a result of the Company's referrals.
The Company anticipates that it will continue to engage in the foregoing
transactions or in other transactions with Mr. Ziroli, Fin-West and its
affiliated companies. To ensure that such transactions are fair and
reasonable to the Company and are on terms that are no less favorable to
the Company than those that could be obtained from an unaffiliated third
party, the Company has adopted a policy that prohibits engaging in any such
transaction without the authorization or approval of a majority of the
Company's directors who do not have a material financial or other interest
in the transaction.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of the Company's two independent
outside directors, neither of whom are officers or employees of the
Company. It was formed shortly after the Company became a publicly held
company in 1992. The Compensation Committee is responsible for making
decisions concerning, and the administration of programs regarding, the
compensation of the Company's executive officers. Decisions of the
Compensation Committee relating to the compensation of the Company's
executive officers are submitted to the full Board of Directors for review
and approval, except that decisions concerning awards to executive officers
under the Company's Stock Incentive Plan are made solely by the
Compensation Committee. The Board of Directors approved all of the
Compensation Committee's decisions that were submitted to it regarding the
executive officers' compensation for the 1997 fiscal year.
Compensation Philosophy
The policy of the Company and the Compensation Committee toward
executive compensation continues to be based upon the belief that the
compensation received by executive officers should be properly integrated
with the Company's annual and long-term profitability and operating
performance objectives. The Company's executive compensation program is
also based upon the belief that the compensation-related interests of its
executive officers should be directly aligned with the interests of its
shareholders, and that a significant portion of each executive officer's
compensation should be tied to the earnings of the Company. To achieve
these goals, the Company provides its executive officers with annual
bonuses that are based upon the Company's profitability and other elements
of financial performance as well as stock options which will increase in
value only upon increases in the market value of the Company's stock. The
Company and the Compensation Committee believe that this compensation
philosophy has permitted the Company to attract and retain motivated and
effective executive officers in a very competitive and highly volatile
industry.
<PAGE>
Compensation Components
The Company's April 1994 employment agreements with its Chief Executive
Officer, Clement Ziroli, and the Company's next two most highly compensated
executive officers, Bruce G. Norman and Pac W. Dong, were replaced by new
agreements effective October 1, 1996. Each of the new employment
agreements, has a six-month term, which is subject to month-to-month
extensions after March 31, 1997 and continuing until the Company and the
executive officer have entered into a new agreement or the officer's
employment is otherwise terminated.
The components of the Company's compensation program for its executive
officers in fiscal year 1997 are base salaries, bonuses and option awards
under the Stock Incentive Plan. The factors that the Compensation
Committee considered in connection with determining the amounts of various
components of the compensation received by the Company's executive officers
are described below. Except as specifically described below, the
Compensation Committee did not assign any specific weights to these factors
and the actual compensation in any particular year may be above or below
that of the Company's competitors.
Base Salaries
In establishing the base salaries for Messrs. Ziroli, Norman and Dong as
set forth in their employment agreements, and in determining the base
salary received by every other executive officer during the 1997 fiscal
year, the Compensation Committee continued its policy of establishing a
strong connection between the compensation of its executive officers and
the profitability and performance of the Company. It also considered the
past performance, the duties and the responsibilities of the executive
officers and the base salary levels of officers at competing companies of
comparable size. Several of the competing companies whose compensation
levels were reviewed by the Compensation Committee for purposes of
establishing the base salaries and other components of compensation are
included in the index of peer companies presented below in the stock
performance graph. The base salaries received by the Company's executive
officers were within the range of the base salaries received by executive
officers at comparable companies within the survey group.
Bonuses
Consistent with the Company's compensation philosophy, the Compensation
Committee believes that executive officers should be rewarded if the
Company achieves profitability and meets overall business goals.
Accordingly, bonuses vary substantially from year-to-year depending upon
whether the Company achieves superior results or fails to meet performance
expectations. Depending upon the Company's performance, the bonuses
awarded to the Company's executive officers may be above or below those
received by executive officers at comparably sized competitors in the
survey group.
In order to achieve a direct, objectively determined connection between
the financial performance of the Company and the compensation of its most
highly compensated executive officers, the employment agreements for
Messrs. Ziroli, Norman and Dong provide that the bonus (if any) to be
received by each executive officer is calculated solely in accordance with
the Company's performance under a predetermined formula that is based upon
mortgage loan production and net income before taxes. It is also noted
that contrary to a trend within the industry, the Company has increased its
loan servicing portfolio balance in fiscal year 1997, thus raising the
future stream of loan servicing income.
<PAGE>
Based upon the formula that is set forth in his employment agreement,
Mr. Ziroli received a bonus of $208,195 during the 1997 fiscal year. The
Company's 1997 fiscal year performance did not match its 1996 fiscal year
results, and as a result of the application of the formulas in his
employment agreement, Mr. Ziroli's aggregate 1997 compensation was lower
than his compensation in the prior year.
Bonuses during the 1997 fiscal year to executive officers other than
Messrs. Ziroli, Norman and Dong were also calculated solely in accordance
with the Company's performance under predetermined formulas that were
approved by the Compensation Committee and that were based upon objective
criteria such as mortgage loan production, net income before taxes and
trust deed loans serviced by the Company. Each such executive officer's
bonus formula was developed after a review of his or her duties and
responsibilities.
Stock Incentive Plan Awards
The Compensation Committee administers the Company's Stock Incentive
Plan, under which options to purchase shares of the Company's Common Stock
are awarded to executive officers and other eligible employees. The grant
of the stock options is intended to retain these officers and employees in
the employment of the Company, to motivate option recipients to increase
the Company's performance and, by doing so, to increase the market value of
the Company's stock. The Compensation Committee believes that granting the
stock options to executive officers and other employees aligns their
interests with those of the Company's shareholders since the value of the
options will increase only if the market value of the Company's stock
increases.
During the 1997 fiscal year, the Compensation Committee awarded options
covering a total of 48,500 shares of Common Stock to the Company's
executive officers of which options covering 11,000 shares of Common Stock
were awarded to Mr. Ziroli. Non-executive officers and employees received
options covering a total of 35,100 shares of common stock. All options
were granted at an exercise price of $4.75 per share, which was the market
value of the underlying Common Stock on the grant date, and options became
exercisable in full on January 31, 1997.
In determining the size of the option awards to executive officers
(other than Mr. Ziroli) and to other employees, the Compensation Committee
considered the recommendations of the Chief Executive Officer and other
members of management. These recommendations were based upon the same
objective and subjective factors described above which were used in
determining the bonuses for the 1997 fiscal year and also took into account
prior awards of options to the officers and employees and the option awards
made by comparable companies in the survey group. The same factors were
considered in determining the size of Mr. Ziroli's option award.
Compliance with Internal Revenue Code Section 162(m)
Internal Revenue Code Section 162(m), enacted in 1993, generally
precludes a publicly held corporation from taking a tax deduction for
compensation in excess of $1,000,000 that is paid in any year to its chief
executive officer or any of its four other highest paid executive officers.
Certain performance-based compensation is not subject to the deduction
limit if shareholder approval is obtained and if other specified
requirements are satisfied.
<PAGE>
The Compensation Committee believes that, under ordinary circumstances,
the Company's compensation programs should be structured in a manner that
is designed to comply with the requirements of Section 162(m) and any
regulations promulgated thereunder in order to ensure the full
deductibility of all compensation paid to the Company's executive officers.
The Compensation Committee does not anticipate that the compensation which
is payable to any of the Company's executive officers during the current
taxable year will exceed $1,000,000.
COMPENSATION COMMITTEE
Robert E. Weiss, Chairman
Harold Harrigian
<PAGE>
COMPANY STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative
total shareholder returns on the Company's Common Stock, the CRSP Total
Return Index for the NASDAQ Stock Market and a Company constructed peer
group index, for the period commencing April 16, 1992 (the date of the
Company's initial public offering of its Common Stock) and ending March 31,
1997. The stock price performance shown below is not necessarily
indicative of future price performance.
<TABLE>
INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN
FIRST MORTGAGE CORPORATION, CRSP TOTAL RETURN INDEX FOR THE NASDAQ
STOCK MARKET AND A SELF-DETERMINED PEER GROUP INDEX OF MORTGAGE BANKERS
<CAPTION>
4/16/92 3/31/93 3/31/94 3/31/95 3/29/96 3/31/97
<S> <C> <C> <C> <C> <C>
First Mortgage Corporation $100.0 $143.8 $127.6 $ 91.1 $130.2 $ 96.4
Self Determined Peer Group $105.1 $234.6 $213.3 $187.3 $263.6 $297.9
NASDAQ Stock Market (US Companies) $102.1 $117.4 $126.7 $140.9 $191.3 $212.7
<FN>
<F1>
(1) This graph assumes $100 invested on 4/16/92 in First Mortgage
Corporation, the CRSP Total Return Index for the NASDAQ Stock Market and
a custom peer group index consisting of First Financial Caribbean Corp.,
First City Financial Corp., Matrix Capital Corp., North American
Mortgage Company and Resource Bancshares Mortgage, Inc. Assumes
reinvestment of dividends on a daily basis.
<PAGE>
<F2>
(2) Two of the five companies included in the 1996 Proxy Statement's peer
group - Hamilton Financial Services and Imperial Credit Industries, Inc. -
have been removed to reflect changes in the mortgage banking industry.
Hamilton Financial Services is no longer in business and is replaced by
First City Financial Corp., and Matrix Capital Corp. replaces Imperial
Credit Industries, Inc. because its market capitalization is more
comparable to that of the Company.
</FN>
</TABLE>
Certain Relationships and Related Transactions
The Company is a participant in a profit sharing plan maintained by Fin-
West (the "Profit Sharing Plan") designed to qualify under Section 401(k)
of the Internal Revenue Code of 1986, as amended, in which all of the
employees of Fin-West and its affiliated companies who have completed at
least one year of service are eligible to participate other than the
employees at the Covina, California branch of Hacienda Escrow. The Profit
Sharing Plan purchases mortgage loans from the Company for investment
purposes, although the Profit Sharing Plan generally purchases no more than
five loans per year. The Company guarantees all loans that it sells to the
Profit Sharing Plan. The Company has adopted a policy that it will not
sell a mortgage loan to the Profit Sharing Plan for a price that is less
than the fair market price for such loan in the secondary mortgage market.
A description of certain transactions between the Company and its
directors, executive officers and entities in which such directors and
executive officers have an interest is presented above under "Compensation
Committee Interlocks and Insider Participation."
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has selected Ernst & Young LLP as its independent auditors
for the current fiscal year. Because appointment of the Company's
independent auditors is an important decision, the Board of Directors has
elected to seek ratification by the shareholders of the appointment of
Ernst & Young LLP. If the appointment is not ratified, the Board of
Directors will reconsider the appointment.
Ernst & Young LLP has examined the financial statements of the Company
since 1992 and management is satisfied with their quality of professional
services. It is anticipated that representatives of Ernst & Young LLP will
be present at the annual meeting. They will be afforded an opportunity to
make a statement if they desire to do so and will be available to respond
to appropriate questions from shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 1998. UNLESS MARKED TO THE
CONTRARY, PROXIES RECEIVED WILL BE VOTED FOR THIS PROPOSAL.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors knows of no other business to be presented at the
annual meeting. If any other business properly comes before the annual
meeting, it is the intention of the persons named in the accompanying form
of proxy or their substitute(s) to vote on that business in accordance with
their best judgment.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholders of the Company who intend to submit proposals to the
Company's shareholders at the next annual meeting of shareholders must
submit such proposals to the Company no later than May 7, 1998 in order to
be included in the Company's proxy statement and form of proxy relating to
that meeting. Such proposals must also comply with the requirements of the
Securities and Exchange Commission relating to proposals of security
holders. Shareholder proposals should be submitted in writing to the
Company's principal executive office at 3230 Fallow Field Drive, Diamond
Bar, California 91765, Attention: Robyn S. Fredericks, Secretary.
By Order of the Board of Directors
Robyn S. Fredericks
Secretary
September 5, 1997
Diamond Bar, California
<PAGE>
SHAREHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING MAY OBTAIN, WITHOUT
CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED MARCH 31, 1997, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES THERETO, UPON WRITTEN REQUEST TO THE COMPANY AT 3230
FALLOW FIELD DRIVE, DIAMOND BAR, CALIFORNIA 91765, ATTENTION: ROBYN S.
FREDERICKS, SECRETARY. UPON WRITTEN REQUEST DIRECTED TO MS. FREDERICKS,
THE COMPANY WILL ALSO FURNISH TO SUCH SHAREHOLDERS A COPY OF ANY EXHIBITS
TO ITS ANNUAL REPORT ON FORM 10-K FOR A FEE OF $.20 PER PAGE, PAYABLE IN
ADVANCE. THIS FEE COVERS ONLY THE COMPANY'S REASONABLE EXPENSES IN
FURNISHING SUCH EXHIBITS.
