<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant X
Filed by a party other than Registrant
Check the appropriate box:
Preliminary Proxy Statement
X Definitive-Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FIRST MORTGAGE CORPORATION
(Name of Registrant as Specified in its Charter)
FIRST MORTGAGE CORPORATION
(Name of Person(s) Filing Proxy Statement
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c) (1) (ii), 14a-6(i), or 14a-6(i)(2)
$500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(I)(3)
Fee computed on table below per Exchange Act rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
4) Proposed maximum aggregate value of transaction
*Set forth the amount on which the filing fee is calculated and state
how it was determined.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and-identify the filing for which-the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
3230 Fallow Field Drive
Diamond Bar, CA 91765
_____________________________
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held September 23, 1998
This Proxy Statement and the accompanying form of proxy are being
mailed to shareholders on or about August 24, 1998 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 September
23, 1998, 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
12, 1998 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 July 27, 1998, there were
5,569,697 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, 1999, 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 12, 1998, 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 56 Chairman of the Board
and Chief Executive Officer
Bruce G. Norman 57 President, Chief Operating Officer
and Director
Pac W. Dong 48 Executive Vice President, Chief
Financial Officer, Controller
and Director
Harold Harrigian(1)(2) 63 Director
Robert E. Weiss (1)(2) 69 Director
<FN>
<F1>
(1) Member of the Audit Committee.
<F2>
(2) Member of the Compensation Committee.
</FN>
</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
86% 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 President and a
member of the Board of Directors of the California Mortgage Bankers
Association (the "CMBA"), previously served as the First and 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 was 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 served as a director of
The MacNeal-Schwendler Corporation from 1986 to June 1998.
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, 1998, 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 1998.
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 three
meetings during fiscal 1998.
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 56 Chairman of the
Board and Chief
Executive Officer
Bruce G. Norman 57 President, Chief Operating
Officer and Director
Pac W. Dong 48 Executive Vice President, Chief
Financial Officer,
Controller and Director
Ronald T. Vargas 53 Senior Vice President
Scott Lehrer 46 Senior Vice President
Robyn S. Fredericks 45 Vice President and Secretary
</TABLE>
Additional information regarding Messrs. Ziroli, Norman and 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. Mr. Lehrer serves as Chairman of the
Loan Servicing Committee of the CMBA during 1998-1999.
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, 1998 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, 1998 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>
Shares Percentage of Common Stock
Beneficially Beneficially
Name of Beneficial Owned as of Owned as of
Owner July 15, 1998 July 15, 1998
<S> <C> <C>
Fin-West Group (1) 4,793,375 86.0%
Clement Ziroli (1)(2) 4,868,875 86.2%
Wellington Management Co. (3) 454,875 7.8%
Bruce G. Norman (2) 67,500 1.2%
Pac W. Dong (2) 52,375 *
Harold Harrigian (2) 30,625 *
Robert E. Weiss (2) 33,750 *
All directors and
executive officers as a
group (9 persons)(2)(4) 5,106,400 86.9%
<FN>
<F1>
* Owns less than 1% of the Company's outstanding shares of Common
Stock.
<F2>
(1) The business address of Fin-West Group ("Fin-West") and Mr.
Ziroli is 3230 Fallow Field Drive, Diamond Bar, California 91765.
Fin-West is the record holder of 4,793,375 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 4,793,375 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 75,500 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, 1998 through the exercise of stock options, as follows:
Mr. Ziroli, 75,500 shares; Mr. Norman, 67,500 shares; Mr. Dong,
52,000 shares; Mr. Harrigian, 28,750 shares; Mr. Weiss, 28,750
shares; and all directors and executive officers as a group,
305,775 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 454,875 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 454,875 shares
and shared voting power with respect to 153,475 of such shares.
The foregoing information is based upon a Schedule 13G dated
January 13, 1998 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 4,793,375 shares that are owned 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, 1998, 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 1998, 1997 and 1996 fiscal
years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
Name and Securities
Principal Underlying All Other
Position Year Salary$(2) Bonus$(2) Options/SAR(#) Compensation
<S> <C> <C> <C> <C> <C>
Clement Ziroli 1998 $334,998 $181,443 11,000 $2,693
Chairman of the 1997 370,000 208,195 11,000 -
Board and Chief 1996 370,000 333,856 8,000 7,137
Executive
Officer
Bruce G. Norman 1998 235,000 139,716 10,000 2,693
President and 1997 210,000 204,050 10,000 -
and Chief 1996 185,000 190,486 7,000 3,568
Operating
Officer
Pac W. Dong 1998 130,000 83,075 9,000 2,188
Executive Vice 1997 117,500 74,442 9,000 -
President, 1996 105,000 91,951 6,000 2,,025
Chief
Financial
Officer and
Controller
<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 two other officers
who served as executive officers and whose total salary and bonus
for the 1998 fiscal year exceeded $100,000.
<F2>
(2) Includes amounts deferred by the named executive officer under
the Company's 401(k) Profit Sharing Plan.
<F3>
(3) Amounts included under All Other Compensation were contributed
by the Company to its 401(k) Profit Sharing Plan for the named
executive officer.
</FN>
</TABLE>
Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning stock
options granted during the fiscal year ended March 31, 1998 to the
individuals named in the Summary Compensation Table. No stock
appreciation rights were granted to any person.
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Granted Exercise Price Appreciation for
Options to Employees in Price Expiration Option Term (2)
Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Clement Ziroli 11,000 13.3% $3.85 7/30/2002 $11,701 $25,855
Bruce G. Norman 10,000 12.1% $3.50 7/30/2002 $9,670 $21,368
Pac W. Dong 9,000 10.9% $3.50 7/30/2002 $8,703 $19,231
<FN>
<F1>
(1) All of the stock options awarded to the named executive officers
were granted on July 31, 1997 and became exercisable in full on
January 31, 1998. 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>
The following table sets forth certain information concerning the
number and value of stock options as of March 31, 1998. None of the
named executive officers exercised any options during the fiscal year
ended March 31, 1998. No stock appreciation rights have been granted
by the Company.
<PAGE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
<CAPTION>
Number of Securities
Underlying Unexercised Options at Value of Unexercised In-The-Money
March 31, 1998 Options at March 31, 1998 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Clement Ziroli 75,500 0 0 0
Bruce G. Norman 67,500 0 $3,125 0
Pac W. Dong 52,000 0 $2,813 0
<FN>
<F1>
(1) The value of unexercised in-the-money options at March 31, 1998
represented the spread between the exercise price set at the date
of grant and the $3.8125 closing price of the Company's common
stock on March 31, 1998, the last business day of the 1998 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,
1997, Messrs. Harrigian and Weiss each received an option to purchase
5,750 shares of Common Stock at a purchase price of $3.50 per share.
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements
On October 1, 1997, 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, 1998 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 $300,000; 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, 1998.
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, 1998. 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, 1998, had an outstanding principal balance of
approximately $210,892. 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 owns 86% 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.
The Company leases the building which serves as its principal
executive office from Fin-West under the terms of a lease agreement
that expired on December 31, 1997. The Company negotiated a lease
extension to renew the lease for 3 times, each time for one additional
year, starting January 1, 1998. The monthly rental will be $22,000
effective April 1, 1998. 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, 1998. 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,
1998 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, 1998 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. In fiscal year 1998, Fin-West fully
repaid the Company $134,000 for net cash advances carried forward from
the prior fiscal year.
Fin-West owned 54% of the outstanding capital stock of Nations
Holding Group ("NHG") (formerly UTC Financial Corporation) at March
31, 1998. 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.
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.
<PAGE>
The Company anticipates that it will continue to engage in the
foregoing transactions or in other transactions with 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 1998 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 a large degree, however, the
Company also recognizes that stock price performance as it pertains to
the mortgage banking industry is substantially influenced by many
factors, especially the rapidly changing mortgage industry conditions,
and it may not necessarily be the best measure of executive
performance.
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.
Compensation Components
The components of the Company's compensation program for its
executive officers in fiscal year 1998 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
<PAGE>
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 other executive officers during the 1998
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 past performance, any increase in duties
and 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.
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.
Based upon the formula that is set forth in his employment
agreement, Mr. Ziroli received a bonus of $181,443 during the 1998
fiscal year. Even though the Company's 1998 fiscal year performance
showed improvements over its 1997 fiscal year results, Mr. Ziroli's
aggregate 1998 compensation was lower than his compensation in the
prior year, primarily attributable to the higher profit goal
established before the beginning of the fiscal year as required by his
latest contract.
Bonuses during the 1998 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 the size of the mortgage servicing portfolio
administrated by the Company. Each such executive officer's bonus
formula was developed after a review of his or her duties and
responsibilities.
<PAGE>
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
motivate and retain these officers and employees needed to execute the
long-term strategic plan for the growth of the Company. 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 1998 fiscal year, the Compensation Committee awarded
options covering a total of 40,500 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 42,000 shares of
common stock. All options were granted at an exercise price of $3.50
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, 1998.
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 1998 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.
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 NASDAQ - Total US, the SNL Traditional Mortgage Banks Index and a
Company constructed peer group index, for the period commencing March
31, 1993 and ending March 31, 1998. The stock price performance shown
below is not necessarily indicative of future price performance.
<TABLE>
PERFORMANCE GRAPH FOR FIRST MORTGAGE CORPORATION
Indexed Comparison of Cumulative Total Return
First Mortgage Corporation, the NASDAQ -- Total US, SNL Traditional Mortgage
Banks Index and a Self-determined Peer Group Index of Mortgage Bankers
<CAPTION>
Period Ending
Index 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Corporation 100.00 88.77 57.97 90.58 59.78 55.25
NASDAQ - Total US 100.00 107.94 120.07 163.03 181.21 275.21
SNL Traditional Mortgage Banks Index 100.00 80.42 84.08 108.06 124.84 250.27
Self-Determined Peer Group 100.00 91.50 80.60 113.99 128.96 237.41
</TABLE>
(1) This graph assumes $100 invested on 4/16/92 in First Mortgage
Corporation, the NASDAQ - Total US, SNL Traditional Mortgage Banks
Index and a self-determined peer group index consisting of Donal
Financial Corp. (formally known as 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>
(2) North American Mortgage Company was included in the peer group
until October 1997 when it was acquired by Dime Bancorp, Inc.
(3) The SNL Traditional Mortgage Bank index, consisting of mostly
independent full service mortgage banking firms, has been added to the
performance graph for comparison.
(4) The Company intends to delete the self-determined peer group
index from future proxy filings and replaces it by the more relevant
SNL Traditional Mortgage Banks Index.
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,
1999. 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 for inclusion in the Company proxy statement
and form of proxy relating to the next annual meeting of shareholders
must submit such proposals to the Company no later than April 26, 1999
in order to be included in the Company's proxy statement and form of
proxy. Such proposals must also comply with the requirements of Rule
14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") relating to proposals of shareholders. If notice of a
shareholder proposal submitted outside the processes of Rule 14a-8
under the Exchange Act is not received by the Company by July 10,
1999, the persons named in the Company's form of proxy for the next
annual meeting of shareholders will have discretionary authority to
vote on the proposal in accordance with their best judgment.
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
<PAGE>
August 24, 1998
Diamond Bar, California
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, 1998, 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.
<PAGE>
Exhibit A
Please mark
your votes as
indicated in
this example
FOR all nominees listed below (except as marked to the contrary below).
Discretionary authority to accumulate votes is granted.
WITHHOLD AUTHORITY to vote for all nominees listed below
ITEM 1-ELECTION OF DIRECTORS
Pac W. Dong, Harold Harrigian, Bruce G. Norman, Robert E. Weiss and
Clement Ziroli
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s),
write the name(s) of the nominee(s) on the space provided below.
ITEM 2--PROPOSAL to approve the appointment of Ernst & Young as independent
auditors of the Company for the fiscal year ending March 31, 1999.
FOR
AGAINST
ABSTAIN
IN THIER DISCRETION, the proxies are authorized to vote upon such other
business as may properly come before the meeting and at any adjournments
thereof.
THIS PROXY WHEN PROPELY EXECUTED WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DISCRETION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 2
DESCSRIBED ON THE REVERSE SIDE OF THIS PROXY
AND FOR THE ELECTION OF THE PERSONS NOMINATED
AS DIRECTORS BY THE BOARD OF DIRECTORS.
Receipt of the Notice of
Annual Meeting of
Shareholders, the Proxy
Statement accompanying
said Notice and the Annual
Report to Shareholders for
the fiscal year ended
March 31, 1998 hereby is
acknowledged. The
undersigned shareholder
hereby revokes any proxy
heretofore given to vote
at said meeting.
Signature Signature Date
NOTE: Please sign as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
FOLD AND DETACH HERE
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
FIRST MORTGAGE CORPORATION
The undersigned hereby appoints Clement
Ziroli and Bruce G. Norman, and each of them, as
proxies, with power to act without the other and
with power of substitution, and hereby authorizes
them to represent and vote, as designated on the
other side, all the shares of the common stock of
First Mortgage Corporation standing in the name of
the undersigned with all powers which the
undersigned would possess if present at the Annual
Meeting of Stockholders of the Company to be held
September 23, 1998 and at any and all adjournments
thereof.
(Continued, and to be marked, dated and signed, on the other side)
FOLD AND DETACH HERE
