DEGEORGE FINANCIAL CORP, 10-K405, 1998-03-31

DEGEORGE FINANCIAL CORP
10-K405, 1998-03-31
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _______________ to ________________

Commission File Number 0-20832

DEGEORGE FINANCIAL CORPORATION

Delaware 41-1625724
(State of Incorporation) (I.R.S. Employer Identification No.)

99 Realty Drive
Cheshire, Connecticut 06410
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(Address of principal executive offices)

Telephone Number (203) 699-3400

Securities registered pursuant to Section 12(b) of the act:

Title of each class Name of each exchange on which registered

Common Stock, par value $.10 per share None
12% Senior Notes due 2001 of DeGeorge Home Alliance, Inc. None

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of voting stock of DeGeorge Financial Corporation held by
nonaffiliates of the Registrant as of March 26, 1998, based on the closing price
of $1.375 as reported in the over-the-counter market: $6.7 million.

Shares of Common Stock outstanding on March 26, 1998: 10,810,193

DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement of DeGeorge Financial Corporation for Special Meeting of
Stockholders (to be filed)
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1

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PART I

ITEM 1. BUSINESS

GENERAL

As used in this Form 10-K, unless context otherwise requires, the term
"DeGeorge" refers to DeGeorge Home Alliance, Inc. and its wholly owned mortgage
banking subsidiary, Plymouth Capital Company, Inc. ("Plymouth Capital") and the
term the "Company" refers to DeGeorge Financial Corporation, the registrant, and
its direct and indirect subsidiaries, DeGeorge, Plymouth Capital, DeGeorge Homes
of Florida, Inc. ("DeGeorge/Florida") and DeGeorge Homes of New England, Inc.
("DeGeorge/New England"). In November 1995, the Company announced the closing
of its Patwil Homes, Inc. ("Patwil Homes") business. At that time, Patwil Homes
ceased new business activities and initiated an orderly plan of liquidation (see
"Discontinued Operations" below).

PENDING BUY-OUT PROPOSAL

On September 12, 1997, the Company received a proposal from the Company's
chairman to take the Company private in a negotiated business combination.
Under the buy-out proposal (the "Proposal"), a new company formed by the
Company's chairman and certain other persons offered to acquire all outstanding
common stock of the Company, other than shares owned by members of the buy-out
group, at a cash price of $1.30 per share. In connection with the Proposal, the
Company's Board of Directors appointed a special committee of the Board,
consisting of the Board's two independent directors, P. Peter Pascali and John
H. Warren (the "Special Committee"), to review, consider and respond to the
Proposal. The Special Committee retained Rogers & Wells as counsel to the
Special Committee and the Company and the investment banking firm of Houlihan
Lokey Howard & Zukin Capital ("Houlihan Lokey") to render an opinion to the
Special Committee as to the fairness of the Proposal, from a financial point of
view, to the stockholders of the Company, and to advise and assist the Special
Committee with respect to the Proposal.

On January 30, 1998, the Company announced that it had signed a definitive
agreement to be acquired through a merger by a company controlled by the
Company's Chairman of the Board and Chief Executive Officer, Peter R. DeGeorge,
and certain current and former directors, officers and related parties. Under
the merger agreement, each of the outstanding shares of common stock of the
Company, other than shares owned by members of the buy-out group, will be
converted into the right to receive $1.50 in cash.

The merger agreement and the consideration to be received by holders of
shares of common stock (other than members of the buy-out group) were approved
by the Company's Board of Directors at a meeting on January 29, 1998 following
the unanimous recommendation of the Special Committee of independent directors.
The Special Committee was advised by Houlihan Lokey, in the form of an opinion,
that the consideration to be received by DeGeorge's stockholders (other than
members of the buy-out group) in this merger is fair to them from a financial
point of view.

The merger is subject to obtaining all necessary corporate and regulatory
approvals, but is not subject to financing. The Company expects to complete the
merger by the second fiscal quarter of 1998.

SIGNIFICANT BUSINESS DEVELOPMENTS IN 1997

DeGeorge began 1997 in the midst of a wholesale disruption to its
established field sales force by former executives of the Company, against whom
the Company had initiated a lawsuit in federal court in August 1996.
Notwithstanding the action brought against them, these former executives and
their

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associates, who had formed a competing venture, continued to recruit DeGeorge's
most productive field sales representatives and, as alleged in the lawsuit,
continued to misappropriate DeGeorge sales leads and proprietary information,
activities that began when they were still employed by DeGeorge. (see
"Litigation Against Former Executives" below).

As a reaction to this disruption of its field sales activity, DeGeorge was
compelled to step up its recruitment efforts in order to replace the lost sales
representatives. The sales momentum that had been achieved in 1996 was lost.
Through the second quarter of 1997, DeGeorge recorded a significant decline in
sales, confirming management's assessment at the outset of 1997 that a massive
recruiting campaign to replace lost field sales representatives was essential.
In addition, to augment its diminished field sales capability, DeGeorge
accelerated its multi-year plan for developing telemarketing operations as a
secondary channel for pursuing sales leads. This change in strategy increased
selling costs in 1997, but more importantly, mitigated the reduction in sales
from field sales activity. Management believes that the Company averted more
serious problems through its timely, decisive actions in bolstering DeGeorge's
sales force.

At the same time in 1997 that DeGeorge was rebuilding its sales force and
expanding its telemarketing activities, DeGeorge also launched, as planned, its
new television advertising campaign. This national marketing strategy enabled
DeGeorge to reach new markets and increase its production of sales leads, which
were directed to a growing cadre of new sales representatives located throughout
the country. Although the vast majority of DeGeorge sales representatives had
less than one year of experience, resulting in lower sales representative
production, by the third and fourth quarters of 1997, the volume of new loan
applications had increased. This turnaround in sales activity was directly the
result of a greater emphasis on sales training, increased experience among new
sales representatives and continued growth in the field sales force (see
"Customers and Markets" below).

DeGeorge also changed its method of procuring materials on its customer's
behalf during 1997. Beginning in the second quarter, DeGeorge began arranging
for the purchase and delivery of materials to the customer's building site
through vendors located in the customer's area, closed all of its distribution
centers and expanded its customer service operations at its corporate
facilities. This change in business operations, which resulted in significant
charges to 1997 results of operations, removes previous geographic barriers
imposed by the distribution centers, thus extending DeGeorge's ability to serve
customers virtually anywhere in the continental United States (see "Description
of Business - MATERIALS PURCHASING SERVICES" below).

In addition to sales and operational changes, the Company also amended the
terms of the agreement under which it generates funds to meet its working
capital needs. Funds from the financing of notes receivable are now more
readily available, reserve requirements have been reduced and the interest
rate on borrowings has declined (see "Liquidity and Capital Resources" below).

The Company also changed independent accountants during 1997. On July 18,
1997, Price Waterhouse LLP resigned as auditor for the Company. On September
12, 1997, the Company retained McGladrey & Pullen, LLP as successor accountants
(see "Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" below).

On November 12, 1997, the Company reached agreement with the Securities and
Exchange Commission to a settle an investigation, which had lasted more than two
years. The Company neither admitted nor denied the allegations made by the
Securities and Exchange Commission in the order of settlement (see "Settlement
of Securities and Exchange Commission Investigation" below).

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DESCRIPTION OF BUSINESS

OVERVIEW

DeGeorge provides a combination of construction financing and support
services that facilitates home ownership with significantly lower equity
investments than are typically required by construction lenders and mortgage
financing institutions. Since its founding in 1946, DeGeorge has provided
access to home ownership for more than 40,000 families.

The DeGeorge approach, which has been developed and refined over the years,
offers many advantages. It provides access to home ownership for people who
lack a sufficient down payment or sufficient income to support the purchase of
the home that they desire through conventional mortgage programs. Most
traditional lenders typically require a down payment of 20%, which many people
find difficult to accumulate. For many persons in this category, DeGeorge
represents the only viable means of access to home ownership. For others, the
DeGeorge approach enables access to a larger and/or more upscale home than would
otherwise be affordable.

DeGeorge's financing package, which is underwritten by Plymouth Capital,
facilitates home ownership by offering single-source financing at competitive
rates for land purchased by its customers (up to 95% of land acquisition
costs) and 100% construction financing for services, materials and
construction work performed by approved subcontractors engaged by its
customers. Permanent financing, once the home is completed, is either
obtained by the customer from a third-party lender with assistance from
Plymouth Capital, or provided directly by Plymouth Capital with the loan
typically being sold in the secondary mortgage market.

DeGeorge's experience in arranging the purchase and timely delivery of
building materials on the customer's behalf, coupled with its extensive
construction support services, enable customers without prior building
experience to eliminate the need for general contractors. This yields savings
that translate into equity, which lowers customers' permanent mortgage financing
needs. The DeGeorge approach also offers customers the opportunity to earn
additional equity by doing some of the construction work themselves.

CUSTOMER FINANCING

The construction financing provided by Plymouth Capital is secured by a
mortgage on the home and home site. Plymouth Capital establishes a construction
loan account against which payment for land, closing costs, subcontractor
services, materials and the DeGeorge services are charged. DeGeorge commits to
extend a construction loan only after having received at least one independent
"site and plan appraisal" on the property and home to be constructed, which
appraisal indicates the permanent mortgage that the home will support when
complete, generally based on an 80% loan-to-value ratio. During the
construction period the customer only pays interest on the loan usually after an
initial interest-free grace period.

DeGeorge conducts standard credit checks on all applicants. Income is
verified, credit histories are researched and evaluated, and ratios of income to
total debt and to mortgage debt are calculated with the requirement that the
prospective customer meet third-party lending standards within the two-year
construction loan period. DeGeorge's basic guideline is that annual mortgage
debt service be no more than 30% of total annual income, which allows for modest
growth in the customer's income during the construction period. Similarly,
DeGeorge will accept a higher than 80% loan-to-value on the initial appraisal
when making its financing decision, assuming an increase in appraised value over
DeGeorge's construction loan period.

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After a preliminary review and approval of the customer's creditworthiness
based on credit bureau reports and information provided by the customer,
processing of the order continues and a customer service representative places
an introductory call to the customer to review the DeGeorge program.
Information is assembled and validated to complete the loan underwriting, a site
and plan appraisal is ordered and evaluated, and a title policy is procured.
The customer service representative works closely with the customer, verifying
home selection options, finalizing subcontractor costs and establishing the
final construction loan amount.

At the conclusion of the loan origination process, a formal loan closing
occurs at which the customer executes a promissory note representing the full
amount of the approved construction loan and a mortgage that secures the
construction loan against the land and home under construction. DeGeorge also
perfects its security priority at the earliest stage possible under the Uniform
Commercial Code, so that it has a security interest in the materials before they
are affixed to the real property.

LOAN APPLICATIONS IN PROCESS

Loan applications undergo several stages of processing and qualification.
Initially, customers are screened for underwriting attributes that measure
creditworthiness. Subsequent to this review, formal loan processing and
underwriting activities, which are typical in scope to the mortgage industry,
are performed. Qualified customers then finalize their home style and features,
complete the budgeting process, identify their home site and select
subcontractors to complete various stages of construction. Most of these
activities occur before the formal loan closing occurs between Plymouth Capital
and the customer. Since DeGeorge records its initial contract services income
only upon the completion of a loan closing, contract services income relating to
loan applications in process at the end of a reporting period is not reflected
in results of operations. The average period of time from initial receipt of a
loan application to the formal loan closing was 73 days during 1997.

BACKLOG

Backlog is the inventory of active loan applications in process. Loan
applications that have been disqualified or denied by DeGeorge or withdrawn by
the customer are not reflected in backlog. DeGeorge has historically considered
the conversion rate of loan applications received to loan closings, expressed as
a percentage, to be a meaningful indicator for reporting past results and to
estimate backlog value. Due to the common occurrence of approved loan
applications continuing in process while customers identify a building site or
resolve other open issues, the actual conversion rate for loan applications
received within a specific period is not available until a reasonable amount of
time following final processing of all applications received has passed.

For the years ending December 31, 1996 and 1995, the most recent full years
for which actual conversion rates are available, the conversion rates were 42.2%
and 40.1%, respectively. During 1997, DeGeorge began receiving loan
applications which were generated from a field sales force that, on average, had
less than one year of experience with DeGeorge (see "Litigation Against Former
Executives" below) and from relatively new marketing efforts. The loss of
seasoned sales representatives caused a fundamental change in the composition
of the DeGeorge sales force and this change, combined with the generation of
loan applications from telemarketing operations, has cast uncertainty on the
reliability of historical conversion rates as an indicator of expected
performance. Thus far, the conversion rate for 1997 is 32.7% as of March 1998
and is expected to increase with the passage of time as remaining loan
applications in the backlog are processed. The Company believes, based on the
sustained growth of loan applications in the third and fourth quarters of 1997,
that the productivity of the new sales force will continue to improve as newer
sales representatives gain experience and more fully develop their prospect
lists.

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During 1997, DeGeorge generated 2,966 loan applications as compared to
3,054 in 1996 and 3,153 in 1995. At December 31, 1997, DeGeorge had 775 loan
applications in active processing as compared to 477 at December 31, 1996, an
increase of 298, or 62.5%. Backlog includes 196 preliminary credit-approved
loan applications at December 31, 1997 for which customers had also identified
their building site as compared to 321 similar loan applications at December 31,
1996. Backlog also includes 276 and 74 loan applications at December 31, 1997
and 1996, respectively, which were in early stages of processing. The balance
of loan applications in inventory at the respective year end dates is
attributable to preliminary credit-approved customers who had not identified a
building site. DeGeorge has since discontinued accepting loan applications from
customers who have not identified their building site, since these loan
applications historically have demonstrated a significantly lower than average
conversion rate.

CONSTRUCTION SUPPORT SERVICES

DeGeorge's construction support services are a key element of the DeGeorge
program and a critical factor in enabling customers to successfully finish the
construction of their home. From the early stage when a customer receives
preliminary credit approval to the final phase of permanent financing, the
operations groups that make up construction support services (budget services,
technical support and customer service) assist customers in all facets of
project scheduling and management.

DeGeorge offers toll-free telephone assistance during weekday, evening and
weekend hours. In addition, DeGeorge provides customers with technical support
services, building plans, project management instructions and guidance in
selecting subcontractors.

MATERIALS PURCHASING SERVICES

The services that DeGeorge provides to its customers also include arranging
for the purchase and timely delivery of building materials to the customer's
homesite on the customer's behalf. During the second quarter of 1997, DeGeorge
introduced local purchase of building materials in the customer's area as its
exclusive method of providing materials purchasing services to customers. Local
purchasing enables DeGeorge to timely meet its customers' building materials
needs by arranging for direct delivery from local vendors. This approach
eliminates the process of purchasing and warehousing building materials by
DeGeorge for later delivery to customers from DeGeorge owned or leased
distribution centers, which locations restricted the Company's ability to expand
its sales areas and burdened DeGeorge with escalating shipping and fixed
facilities costs. Accordingly, DeGeorge closed all three of its distribution
centers in the second quarter of 1997 and began servicing customers through
local vendors at that time.

The overall objective of DeGeorge's materials purchasing services is to
procure, on behalf of the customer, materials of the desired quality, in a
timely manner and at the optimum price. To assure availability of supply,
DeGeorge establishes and maintains national, regional and local vendor
relationships, with needs determined based on customer scheduling. Vendor
performance and materials requirements are reviewed periodically for customer
service, price competitiveness and quality. DeGeorge has not experienced any
significant delays in arranging timely delivery of necessary materials since
they are generally available and DeGeorge has established purchasing
relationships with multiple manufacturers, distributors and vendors. In some
instances, DeGeorge does make minimum order commitments to suppliers of certain
products to insure availability during periods of heavy customer demand. These
commitments are cancelable without monetary penalty if subsequent requirements
change.

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CUSTOMERS AND MARKETS

DEGEORGE CUSTOMERS

DeGeorge's customers are typically moderate-income households, with annual
incomes ranging from an average of $46,400 to $53,300 per household for
contracts written for the three year period from 1995 to 1997. When they apply
to DeGeorge, the vast majority of customers are not homeowners. Customers who
successfully complete the process have a strong desire to acquire a home of
their own and have (or have the potential to develop) adequate family income to
make the necessary mortgage payments. The DeGeorge program requires a
substantial commitment of time and often labor from the customer to complete
construction of their home.

DeGeorge currently markets its program in 47 states with a historical
concentration during the last three years in the midwest and western states.
The midwest states of Michigan, Wisconsin, Ohio and Illinois collectively
accounted for 29%, 32% and 32% of contracts written in 1997, 1996, and 1995,
respectively, whereas the western states of Colorado, Idaho, Nevada and Utah
collectively represented 25%, 27% and 32%, respectively, of contracts written in
1997, 1996 and 1995. As expected, sales of DeGeorge's program began to expand
into new territories across the continental United States as a result of its
successful national television marketing campaign and introduction of local
distribution capabilities. This change in marketing and distribution enabled
DeGeorge to realize a four-fold increase in sales in the southern states of
North Carolina, Georgia and Florida, increasing the concentration of sales in
this area to 10% of total sales in 1997 from 3% in the previous year.

DEVELOPMENT OF OTHER MARKETS

The Company is also engaged in turnkey homebuilding operations through its
DeGeorge/Florida and DeGeorge/New England subsidiaries. DeGeorge/Florida
conducts homebuilding activities principally in the Florida counties of Palm
Beach, St. Lucie and Martin. During 1997, DeGeorge/Florida settled 44 homes as
compared to 28 homes in 1996 and 13 homes during its startup phase in 1995.
DeGeorge/New England, which conducts its operations in the state of Connecticut,
settled 7 homes in 1997 and 5 homes in 1996.

Since 1993, DeGeorge has been assisting in the homebuilding activities of
American Indian tribal groups and non-profit and community service
organizations, including Habitat for Humanity, a private-sector, non-profit
organization. Habitat for Humanity chapters build homes for families who could
not otherwise afford adequate housing with funding and volunteer labor
contributed by church groups and other charitable organizations throughout the
United States. Sales to American Indian and non-profit and community service
groups, which are usually at reduced profit margins, totaled 49, 62 and 127
units in 1997, 1996 and 1995, respectively. Typically, no construction
financing is provided to these groups.

MARKETING

During 1997, DeGeorge substantially expanded its direct marketing
activities for its core business, implementing a broad-based national marketing
strategy that included the launch and year-long airings of its long-form
television information commercial ("infomercial"), the growth of its
telemarketing activities and the expansion of its field sales force. In January
1997, DeGeorge introduced its infomercial on national and local cable as well as
local broadcast stations. The infomercial airings established a national direct
marketing source of customer leads for distribution to sales representatives.
The telemarketing group, which grew to 50 representatives at the close of 1997
from 10 at the beginning of the year, was effective in reaching customers in
areas where DeGeorge does not have field sales representatives.

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In addition to generating a significant lead stream, DeGeorge gained
considerable insight into the demographic base of its customers and the
potential reach of this direct marketing channel from its initial infomercial.
As a result, DeGeorge has embarked on the development of a second infomercial,
which is designed to target the program to those prospects who more closely fit
the profile of qualified applicants. The new infomercial, which is presently in
the final production phase, is scheduled to be released in April 1998.

EMPLOYEES

As of December 31, 1997, the Company had 389 employees, comprised of 253
salaried and 136 hourly employees. 310 of the Company's employees were located
in Cheshire, 40 were located in Florida and 39 were in other locations. For the
year ended December 31, 1996, the Company had 352 employees.

During 1997, DeGeorge significantly expanded its telemarketing operations
in Cheshire, to 50 representatives at December 31, 1997 as compared to 10 at
December 31, 1996. These individuals are hired as employees and are included in
the totals referenced above.

None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that its relations with its employees are
satisfactory.

FIELD SALES REPRESENTATIVES

DeGeorge's field sales representatives, who are independent contractors,
totaled 276 and 132 at December 31, 1997 and 1996, respectively. During 1997,
DeGeorge recruited 283 sales representatives of which 227 remained at year-end.
As a result of the wholesale disruption to field sales activity caused by former
executives of the Company (see "Litigation Against Former Executives" below),
only 49 of the 132 sales representatives associated with DeGeorge at December
31, 1996 remained with DeGeorge at the close of 1997.

TRADEMARKS

The Company's trademarks and service marks include "DeGeorge," "Miles
Homes," and "Pathway Homes" and "Patwil Homes." The Company does not believe
that its competitive position is dependent on trademark protection.

COMPETITION

DeGeorge believes that its ability to extend construction financing along
with providing customer support differentiates it from other participants in the
owner-involved homebuilding and home financing industries. Certain competitors
do offer similar services and more may provide them in the future. To the
extent that the element of DeGeorge-supplied financing is important in
attracting customers, DeGeorge also competes with financial institutions and
other providers of home construction loans. The homebuilding and home financing
industries are highly competitive and fragmented. DeGeorge competes for sales
with builders of new homes, sellers of existing homes and suppliers of modular
and manufactured homes. In virtually every geographic market in which DeGeorge
competes, single family homebuilding is dominated by the conventional,
wood-frame homebuilding to which DeGeorge provides access. DeGeorge believes
that most homebuyers who can afford wood-frame homes would prefer them to
modular and other types of alternative housing because of their higher quality,
design options and higher resale value. Accordingly, DeGeorge believes that it
has an advantage over most of its competitors because it is able to provide
access to this category of homes to persons who have the income but lack the
cash equity to purchase a conventional home through traditional means.

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During the course of its 50 year business history, DeGeorge has developed
efficient systems for underwriting construction loans, providing construction
support, arranging the purchase and delivery of building materials, tracking
customer activity and increasing the certainty of the eventual collection of a
high percentage of its customers' obligations. DeGeorge believes that these
systems could not be replicated quickly or inexpensively.

ENVIRONMENTAL IMPACT OF OPERATIONS

The Company is unaware of any asserted or unasserted adverse environmental
claims or impacts as a result of its operations.

YEAR 2000 ISSUE

The Year 2000 Issue relates to whether computer systems will properly
recognize and process date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or possibly fail. The Company is heavily dependent on computer processing
in the conduct of substantially all of its business activities.

In 1997, the Company launched a "Year 2000" initiative to assess the
potential impact on its data processing systems of the Year 2000 Issue. As part
of the Company's effort to address this issue, a formal plan was established to
analyze computer systems and equipment, purchased software and hardware, office
equipment and facilities, and external interfaces.

The formal plan was implemented in the fourth quarter of 1997 and is
expected to be completed by July 1999. Items were prioritized and scheduled for
completion based on the date that management estimated any impact could
adversely affect Company operations. All software that would have created a
potential impact on fiscal year 1998 was modified by December 31, 1997, without
incident. As of March 1998, half of the programming scheduled to be finished
during 1998 has been completed.

All purchased hardware, software and electronic devices will be certified
as Year 2000 compliant by the manufacturer or replaced before any potential
impact to Company operations can occur. The Company has very few electronic
external interfaces. In each such instance, the external resource will be
required to certify they are Year 2000 compliant.

The approximate cost of this project to date is $48,000, which principally
reflects employee wages and benefits. For the full period of implementation of
this plan, the Company estimates that the total cost of this initiative will be
$500,000.

ITEM 2. PROPERTIES

In September 1996, the Company completed and moved into its new 27,000
square foot corporate facility located in Cheshire, Connecticut, the cost of
which was $4.3 million, including $600,000 relating to the cost of the
underlying 14.8 acre land parcel. The project was partially financed with
proceeds of an $800,000 loan from the State of Connecticut, Department of
Economic Development, the balance of which was $600,000 at December 31, 1997.

DeGeorge leases additional office space in four other Cheshire locations in
close proximity to its principal office. The combined square footage of these
additional facilities is 15,600 square feet with an aggregate of monthly lease
payments totaling $13,000. The Company is presently building a 32,000 square
foot second office building on the corporate grounds for which it has disbursed
$1.9 million as of December 31, 1997. The Company expects to complete
construction and occupy this second facility in

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June 1998 at which time it intends to relinquish its occupancy of the
supplemental leased Cheshire locations.

DeGeorge opened branch offices in Jupiter, Orlando and Sarasota, Florida as
well as Carlsbad, California in 1997. Branch offices typically occupy from
2,000 to 4,000 square feet. Monthly lease costs aggregate $19,000 and generally
extend for five years. DeGeorge also maintains administrative offices in the
greater Minneapolis, Minnesota area.

During 1997 and 1996, DeGeorge/Florida leased sales and administrative
office space in Jupiter, Florida. Part of the DeGeorge/Florida office space is
sublet to DeG Capital Management, LC (see "Transactions with Directors and
Officers" below).

On February 7, 1996, as part of the Company's relocation plan, DeGeorge
sold its corporate facility located in the Minneapolis, Minnesota metropolitan
area for $4.2 million. $3.0 million of the proceeds from the sale were
substituted as collateral in place of the real property and deposited into a
fund that secures $2.6 million, principal amount, of Senior Secured Bonds. The
balance of this fund was $2.8 million at December 31, 1997.

On April 18, 1997, DeGeorge sold its product distribution facility in
Owatonna, Minnesota for $1.1 million, part of which was used to retire a capital
lease with an outstanding principal balance of $810,000. DeGeorge recorded a
gain on this sale of $200,000. DeGeorge's obligations under the lease for its
Denver, Colorado distribution facility terminated May 1, 1997 by mutual
agreement with the lessor. The facility in Fort Wayne, Indiana is presently
vacant and is listed for sublet with a local real estate broker. The lease on
this facility expires on September 30, 1998. On June 11, 1996, an owned
distribution facility in Mountain Top, Pennsylvania was sold for $1.3 million,
resulting in a gain of $600,000.

On January 12, 1996, the Company acquired a one-half interest in a jet
aircraft for a $1.5 million. The aircraft is managed by an independent aircraft
charter service and is regularly chartered by third parties. The aircraft is
also used by Company personnel for Company business as required. On July 31,
1997, the Company sold its one-half interest for $1.45 million and recorded a
loss of $200,000. On October 9, 1997, the Company repurchased the same one-half
interest for $1.45 million.

DeGeorge owns a condominium in Cheshire, Connecticut. An additional
condominium located in Cheshire, which was used by Company personnel during the
transfer of operations from Minnesota, was sold in February 1998. The Company
also owns two condominiums located in Jupiter, Florida which are used by various
Company employees assigned to the Florida operation from time to time.

During 1997, 1996 and 1995, DeGeorge leased administrative office space in
New York City from PRD Holdings, Inc. ("PRD"), an affiliate, at a total net
lease cost of approximately $205,000, $216,000 and $236,000, respectively. See
"Transactions with Star Services, BNC and PRD" below.

ITEM 3. LEGAL PROCEEDINGS

SETTLEMENT OF SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

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the order. No monetary sanction was imposed against the Company in the
settlement. The order also required the Company to retain a consultant to
review its internal procedures for recording and reporting related party
transactions and to adopt the consultant's recommendations or propose
alternatives. A consultant was hired by the Company in accordance with the
order on December 1, 1997 and the consultant's report was filed with the SEC on
February 9, 1998. It was the opinion of the consultant that an adequate system
of internal accounting controls had been developed and implemented by the
Company from late 1995 through 1996 and 1997 which was sufficient to provide
reasonable assurance that the Company's related party transactions were recorded
as necessary to permit the preparation of the Company's financial statements in
conformity with generally accepted accounting principles. The consultant also
made other recommendations which the Company either has adopted or intends to
adopt. The SEC investigation, which lasted more than two years, cost the
Company in excess of $600,000 in legal fees and related expenses.

Concurrent with the Company's settlement, Mr. DeGeorge also consented,
without admitting or denying the charges, to the entry by a federal district
court of an order of permanent injunction against him based upon the same
alleged violations. Mr. DeGeorge agreed to pay a fine of $50,000 to the SEC and
a payment to the Company in the nature of restitution of $248,000 (which
includes $44,000 of prejudgment interest).

LITIGATION AGAINST FORMER EXECUTIVES

In August 1996, DeGeorge initiated a lawsuit in federal court in Minnesota
against three former executives: Paul Vogel, David Gaither and Ray Parker. In
1997, DeGeorge added six other individuals and two corporations as additional
defendants in this action. The corporate defendants are Landvest Homes, Inc.
("LHI"), the entity formed by the defendants to compete with DeGeorge, and its
parent corporation, Landvest Development Corporation ("LDC"), a publicly traded
corporation located in Minneapolis, Minnesota. The six additional individual
defendants are all officers and/or directors of LDC and/or LHI.

The lawsuit alleges that the three original defendants, while still
employed by DeGeorge - aided and abetted by the other defendants - committed
various acts representing breaches of their duties to DeGeorge, including
improperly soliciting members of DeGeorge's independent sales force to work for
their new venture (LHI), encouraging the sales force to curtail its sales
activity and stealing DeGeorge-generated sales leads for solicitation by LHI.
The lawsuit also alleges that the defendants misappropriated proprietary
information, proprietary software and other trade secrets. The lawsuit further
alleges, among other claims, that the defendants disrupted DeGeorge's ongoing
business operations by falsely creating a grim view of DeGeorge's financial
situation among employees and sales representatives to convince them to leave
DeGeorge and join the defendants' new venture. DeGeorge alleges that the
defendants all conspired to commit these and other unlawful acts.

Discovery in this lawsuit is completed and the defendants have moved the
court for summary judgment to dismiss DeGeorge's claims. Messrs. Vogel and
Gaither have moved only for partial summary judgment, acknowledging that some of
DeGeorge's claims contain factual issues that must be presented to a jury. The
federal judge assigned to this matter recently recused himself, but a hearing on
the defendant's motion before the new judge assigned to this matter has been
scheduled for April 10, 1998. This matter is expected to go to trial in early
Summer 1998.

DeGeorge has also initiated separate lawsuits against certain former sales
representatives of DeGeorge who left to join LHI. These separate actions,
alleging theft of sales leads and other improper activities, are still in the
discovery phase.

11
<PAGE>

LITIGATION CHALLENGING THE MERGER

On September 30, 1997, a purported class action lawsuit (the "Blatnik
Litigation") was initiated in the Court of Chancery of Delaware by Frank
Blatnik, who purports to bring the action individually and on behalf of other
stockholders of the Company similarly situated against the Company and its
directors. The lawsuit is styled FRANK BLATNIK v. PETER R. DEGEORGE, JAMES G.
EINLOTH, P. PETER PASCALI, JOHN H. WARREN AND DEGEORGE FINANCIAL CORPORATION
(C.A. No. 15962-NC) and seeks, among other things, a preliminary and permanent
injunction against the merger of the Company into a corporation controlled by
Peter R. DeGeorge and an investor group, and damages. The complaint, filed
prior to the negotiations leading to the increase in the merger price from $1.30
to $1.50 per share, asserts that the Company and its directors breached
fiduciary duties to the plaintiffs and other minority stockholders in connection
with the original proposal by Mr. DeGeorge to acquire the Company's common stock
("Common Stock") not owned by his investor group for $1.30 per share in that
such proposed price constituted grossly inadequate consideration. The complaint
alleges, among other things, that (i) the monthly high trading price of the
Common Stock during each month from January 1993 through July 1997 was higher
than $1.30 per share; (ii) the loans by the Company to certain directors, and
the Company's acquisition of a one-half interest in a jet aircraft on April 12,
1996 - the alleged principal user of which is Mr. DeGeorge for personal travel
from Connecticut to Florida - may have affected the Company's recent financial
situation. The complaint further alleges, among other things, that because Mr.
DeGeorge controls a majority of the Common Stock, he will be able to proceed
with the proposed merger without an auction or other type of market check to
maximize value for the minority stockholders, that Mr. DeGeorge is intent on
paying the lowest buy-out price, that the defendants have conflicts of interest
and that the other directors are beholden to Mr. DeGeorge and are acting in the
interest of Mr. DeGeorge at the expense of the minority stockholders. The
defendants believe that this lawsuit is entirely without merit and intend to
defend it vigorously (see "Pending Buy-out Proposal" above).

OTHER LITIGATION

From time to time, the Company is named in legal actions arising from
normal business activities, such as foreclosures. Although the Company's
potential liability, if any, with respect to such routine litigation cannot be
precisely determined, management does not believe that any such liability will
be material to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in 1997. A
stockholders' meeting is anticipated in the near future in connection with the
pending going private transaction. See "Pending Buy-out Proposal" above.

12
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

(a) MARKET INFORMATION

The Company's common stock, $.10 par value ("Common Stock"), was publicly
traded on the Nasdaq National Market from December 3, 1992 (the date of the
Company's initial public offering) through December 3, 1997 under the symbol
DEGE (formerly "MIHO"). On December 3, 1997, the Company was notified by The
Nadsaq Stock Market, Inc. ("Nasdaq") that a Listing Qualifications Panel had
decided to delist the Common Stock from the Nasdaq National Market, effective
with the close of business on December 3, 1997. This decision of the Listings
Qualifications Panel followed Nasdaq's review of the Company's eligibility for
continued listing on Nasdaq in light of Nasdaq's minimum net tangible assets
requirement and the Company's reported net losses through June 30, 1997.

The following table sets forth the high and low sales price information as
quoted by Nasdaq for each of the periods indicated:

High Low
Period Reported Price Price
- --------------- ----- -----
<S> <C> <C>
October 1, 1997 through December 3, 1997 $1.38 $0.75
Quarter ended September 30, 1997 1.75 0.81
Quarter ended June 30, 1997 1.63 0.94
Quarter ended March 31, 1997 1.63 1.19
Quarter ended December 31, 1996 1.75 0.81
Quarter ended September 30, 1996 2.50 1.56
Quarter ended June 30, 1996 2.25 1.38
Quarter ended March 31, 1996 2.38 1.25
</TABLE>

Subsequent to December 3, 1997, the Common Stock traded in the
over-the-counter market. The high and low sales price for the period December
4, 1997 through December 31, 1997 was $1.38 and $1.06, respectively. The Common
Stock closed at $1.125 on December 31, 1997.

(b) HOLDERS

As of March 13, 1998, the Company estimated that there were approximately
550 holders of the Company's Common Stock, including individual participants in
security position listings.

The Company has not paid cash dividends on its Common Stock since its
initial public offering, and it does not anticipate paying any cash dividends in
the foreseeable future.

13
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT FOR PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total income $35,626 $38,492 $28,939 $27,945 $25,662
--------- ------- --------- -------- -------
--------- ------- --------- -------- -------
(Loss) income from continuing operations $(17,483) $827 $(11,055) $(4,845) $2,575
Discontinued operations-(loss) income(1) (297) 350 (16,618) (5,054) 958
--------- ------- --------- -------- -------
Net (loss) income $(17,780) $1,177 $(27,673) $(9,899) $3,533
--------- ------- --------- -------- -------
--------- ------- --------- -------- -------
COMMON STOCK DATA:(2)
Per share (loss) income-continuing operations $(1.62) $0.08 $(1.02) $(0.46) $0.28
Per share (loss) income-discontinued operations(1) (0.03) 0.03 (1.54) (0.48) 0.10
--------- ------- --------- -------- -------
Net (loss) income per share $(1.65) $0.11 $(2.56) $(0.94) $0.38
--------- ------- --------- -------- -------
--------- ------- --------- -------- -------

Basic weighted average shares outstanding 10,810 10,810 10,810 10,505 9,188
Diluted weighted average shares outstanding(3) 10,810 10,823 10,810 10,505 9,258
Shares outstanding at year end 10,810 10,810 10,810 10,810 10,470

BALANCE SHEET DATA (AT PERIOD end):(4)
Notes receivable, net $124,181 $29,507 $36,922 $73,131 $67,785
Total assets 167,762 95,815 85,662 123,343 105,307
Collateralized borrowings 103,430 - - - -
Notes payable(5) 47,576 47,265 47,849 72,307 40,450
Notes payable to related parties - - - - 1,592
Accumulated (deficit) (59,750) (41,970) (43,147) (15,474) (5,575)

OPERATING DATA:
Loan applications received 2,966 3,054 3,153 2,445 3,012
Loan closings 934 1,449 1,135 939 939
Average loan amount $133,800 $122,700 $110,400 $115,800 $102,200
Field sales representatives (at period end) 276 132 132 142 128
Telemarketing representatives (at period end) 50 10 - - -

</TABLE>

(1) (Loss) income from discontinued operations is stated net of taxes.

(2) In accordance with Statement of Financial Accounting Standards No. ("FAS")
128, "Earnings Per Share," the computation of net (loss) income per share
is based on the weighted average number of common shares and common share
equivalents outstanding during each period presented. Basic and diluted
(loss) income per common share is equal in each period presented.

(3) The diluted weighted average common shares outstanding includes the
weighted average number of common shares that may be acquired upon exercise
of outstanding stock options (12,924 and 69,728 common shares in 1996 and
1993, respectively), except when the inclusion of such common share
equivalents is anti-dilutive.

(4) Effective January 1, 1997, the Company adopted FAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". Under FAS 125, the Company began accounting for the transfer
of its notes receivable under the Construction Loan Purchase and Servicing
Agreement as a pledge of collateral in a borrowing arrangement for all
transactions occurring after December 31, 1996 (see "Liquidity and Capital
Resources" below).

14
<PAGE>

(5) Includes (a) 12% Senior Notes due 2001 of DeGeorge of which $43.8 and $43.7
million, net of unamortized issuance costs, were outstanding at December
31, 1997 and 1996, respectively; (b) Senior Secured bonds issued by
DeGeorge, of which $2.5 and $2.6 million were outstanding at December 31,
1997 and 1996, respectively; and, (c) a State of Connecticut term loan to
the Company, of which $600,000 and $800,000 of principal was outstanding at
December 31, 1997 and 1996, respectively.

SUMMARIZED FINANCIAL INFORMATION

Summarized financial information of DeGeorge as of December 31, 1997 and
1996 and for the years ended December 31, 1997, 1996 and 1995 is as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Total assets $174,382 $100,743
Total liabilities 178,137 88,083

</TABLE>

Total assets include intercompany receivables of $24.0 million and $25.2
million, respectively, at December 31, 1997 and 1996.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total income $34,535 $37,532 $28,859
Net (loss) income (17,240) 1,140 (8,696)

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following discussion makes various comparisons relevant to the results
of operations of the Company for the years ended December 31, 1997, 1996 and
1995 with regard to continuing and discontinued operations. Discontinued
operations relate to the phase out of operations for the Company's wholly owned
subsidiary, Patwil Homes, which ceased new business activities in late 1995 and
has since been executing a plan of liquidation. Except where noted, all
references herein are to continuing operations.

CHANGES IN BUSINESS OPERATIONS AND INCOME RECOGNITION

DeGeorge's contractual obligation to facilitate the delivery of building
materials to the customer's building site is one of the most important support
services that DeGeorge provides to its customers. DeGeorge's support services,
when combined with its construction lending activity, enable customers to
actively participate in the construction of their home. During the second
quarter of 1997, DeGeorge introduced local purchase of building materials in the
customer's area as its exclusive method of providing materials purchasing
services to its customers. Local purchasing enables DeGeorge to timely meet its
customers' building materials needs by arranging for direct delivery from local
vendors to customers' building sites. This approach eliminated the former
process of purchasing and warehousing building materials for later delivery to
customers from DeGeorge owned or leased distribution centers, which locations
restricted DeGeorge's ability to expand its sales areas and burdened DeGeorge
with escalating shipping and fixed facilities costs. Accordingly, DeGeorge
closed all three of its distribution centers in the second quarter of 1997 and
began servicing customers through local vendors at that time.

15
<PAGE>

In April 1997, concurrent with the closing of its distribution centers,
DeGeorge determined that recording contract services income ratably over the
service period based on the ratio of services performed at the time of sale and
thereafter to total services performed over the service period more closely
matched DeGeorge's business operations. Upon the closing of the construction
loan, which is the confirmed point of sale for DeGeorge, 60% of the related
contract service income is recognized with the balance of unearned contract
services income recognized ratably over the following ten month period. For
contracts fulfilled prior to April 1997, contract revenue and materials charges
were recognized based on the ratio of individual shipments of materials to total
shipments of materials.

CHANGES IN PRESENTATION OF OPERATING RESULTS

Changes in the presentation of results of operations are intended to
provide a more meaningful portrayal of the comparative results of operations for
the years ending December 31, 1997, 1996 and 1995. Total income has been recast
to present the combined contribution to operating expenses from the three
principal income activities of the Company's service-based operating groups.
Financial services income is comprised principally of interest charged to
customers on construction loans, net loan servicing income, loan origination
fees and customer insurance placement fees. Contract services income, as
described above, represents the income realized on DeGeorge's core business
support activities. Construction services income aggregates the results of
operations for the turnkey homebuilding activities of DeGeorge/Florida and
DeGeorge/New England as well as sales to American Indian and non-profit groups.

Materials and handling charges represent the cost of materials that
DeGeorge provides to customers and arranges to have delivered to customers'
construction sites and, for periods prior to the second quarter of 1997, also
includes distribution center warehousing and truck fleet costs.

Effective January 1, 1997, the Company adopted FAS 125, under which the
Company began accounting for the transfer of its notes receivable under the
Construction Loan Agreement as a pledge of collateral in a borrowing
arrangement for all transactions occurring after December 31, 1996 (see
"Liquidity and Capital Resources" below). Prior to January 1, 1997, the Company
had treated the transfer of its receivables as sales. Although there is no
difference in substance or form from transfer of notes receivable that occurred
prior to January 1, 1997 to those that transferred after December 31, 1996, the
transactions that occurred prior to 1997 retain their sale characteristics in
the financial statements since FAS 125 prohibits retroactive application to
transactions occurring before January 1, 1997. Thus, transactions occurring
prior to 1997 are not reflected as assets (or as pledged collateral) on the
balance sheets of the Company for the comparative periods presented while
transactions occurring in 1997 are so reflected.

Consistent with the adoption of FAS 125, financial services income for 1997
reflects $4.0 million of interest charged to customers on construction loans
transferred pursuant to the Construction Loan Agreement after December 31, 1996
without offset for related interest expense of $3.9 million. The cost of funds
on post-1996 notes receivable transferred is included in interest expense. For
loans underwritten prior to 1997, servicing income continues to be reflected net
of servicing expense in financial services income. Interest income on deposits
($800,000 and $300,000 in 1996 and 1995, respectively), previously reflected in
other (income) expense, has been reclassified to financial services income for
all periods presented. Other than recasting the presentation of results of
operations to reflect current business operations, no restatement of results of
operations for prior periods has been made.

16
<PAGE>

RESULTS OF OPERATIONS

NET INCOME (LOSS)

The Company reported a net loss of $17.8 million for the year ended
December 31, 1997, or $1.65 per share, as compared to net income of $1.2
million, or $0.11 per share, for 1996, and a net loss of $27.7 million, or $2.56
per share, for 1995. Per share amounts are based on 10.8 million weighted
average shares outstanding throughout the three year period.

FINANCIAL SERVICES INCOME

Financial services income increased to $12.1 million in 1997 from $7.1
million in 1996, an increase of $5.0 million. The key component of this
increase ($4.0 million) relates to the change in presentation of interest
earnings from customers under construction loans that were transferred after
December 31, 1996 (see "Changes in Presentation of Operating Results" above).
Other components of this increase include $2.7 million of additional service
fees collected on accounts sold pursuant to the Construction Loan Agreement
prior to January 1, 1997; $500,000 of fees earned on mortgage origination
activities; $200,000 of reduced service fee expenses; and $100,000 of increased
earnings on reserves held pursuant to the Construction Loan Agreement ($900,000
in 1997 as compared to $800,000 in 1996). Increases in financial services
income were offset by a reduction of $1.9 million in interest earnings on a
reduced portfolio of uncollateralized construction loans and $600,000 relating
to gain on the sale of a portfolio of promissory notes in fiscal 1996.

CONTRACT SERVICES INCOME

Contract services income was $22.1 million in 1997 as compared to $29.4
million for the similar period in 1996, a decrease of $7.3 million, or 24.9%.
The decrease in contract services income is attributable to the reduction in
loan closings recorded during the year, which totaled 934 in 1997 as compared to
1,449 in 1996, a decrease of 515, or 35.5%. The decrease in loan closings in
1997 is directly attributable to reduced order activity in the first and second
quarters of 1997, and the third and fourth quarters of 1996, that occurred as a
result of the departure of a large number of DeGeorge's most productive sales
representatives during the period from July 1996 to March 1997. Many of these
sales representatives were recruited to join a competing company set up by
former employees of DeGeorge (see "Litigation Against Former Executives" above).
As a reaction to the significant disruption of its field sales activity, the
Company was compelled to step up its recruitment of field sales representatives.
Accordingly, the Company implemented revisions to the field sales compensation
structure and recruitment processes in the latter part of 1996. Since
initiating these changes, DeGeorge has steadily rebuilt its field sales force.

Contract services income grew to $29.4 million in 1996 as compared to $21.3
million in 1995, an increase of $8.1 million, or 37.9%. The Company attributes
the significant growth in 1996 contract services income over 1995 to the
restructuring of operations that was completed in 1996 and the corresponding
increase in loan applications. From 1994 to 1996, the Company re-engineered its
systems and operations, revised its sales plans and marketing strategies,
relocated its operations from Plymouth, Minnesota to Cheshire, Connecticut and
shut down the operations of Patwil Homes. Management believes that its decision
in 1995 to close Patwil Homes enabled the Company to direct its full resources
to the growth and development of its core business. The Company did not
anticipate, however, the devastating impact to the Company in 1997 that would be
caused by the actions of the former executives against whom the Company is
vigorously pursuing legal remedies.

Materials and handling charges relating to contract services reflect the
cost of materials that DeGeorge provides to customers and arranges to have
delivered to customers' construction sites, and for periods prior to the second
quarter of 1997, also includes distribution center warehousing and truck fleet

17
<PAGE>

costs. For the years ended December 31, 1997, 1996 and 1995 materials and
handling charges as a percentage of contract revenue were 62.4%, 61.5% and
62.6%, respectively.

For marketing purposes, DeGeorge may offer sales promotions to customers at
the time of sale, typically consisting of free interest for the first several
months or merchandise (such as appliances). Contract revenue is reported net of
promotions.

CONSTRUCTION SERVICES INCOME

Construction services income decreased to $1.4 million in 1997 from
$1.9 million in 1996, a decrease of $500,000. The decrease in construction
services income is attributable to a reduced construction activity and
associated margin of $600,000 on community service sales and an increase of
$100,000 on turnkey homebuilding operations.

For the year ended December 31, 1996, construction services income
increased by $900,000, to $1.9 million from $1.0 million in 1995. This increase
was attributable to an $800,000 rise in margin on turnkey homebuilding
activities plus an increase of $100,000 on community service sales.

SELLING EXPENSES

Selling expenses increased by $3.0 million during 1997, to $15.8 million
from $12.8 million in 1996. The increase in 1997 selling expenses is primarily
attributable to an increase of $3.1 million in direct response advertising
costs, of which $2.4 million pertained to costs incurred for airings of
DeGeorge's infomercial, which amount includes the expensing at time of initial
airing of $700,000 of capitalized production costs that were included in prepaid
expenses and other assets at December 31, 1996. The increase in selling
expenses for 1997 also includes $2.0 million of wages relating to direct
marketing and sales management expansion costs and $1.5 million in costs
pertaining to permanent mortgage origination activities. The fiscal 1997
increases were offset by $3.0 million of reduced commission expenses in
connection with reduced sales volume and $600,000 of reduced recruitment costs
and related savings achieved through the elimination of reimbursed expenses to
sales representatives.

The increase of selling expenses in 1996 over 1995 was $800,000. This
increase is primarily attributable to additional compensation paid to sales
personnel in connection with increased order activity and was partially offset
by a reduction in costs for sales collateral material, which was a non-recurring
charge recorded in 1995.

At December 31, 1997 and 1996 DeGeorge had 276 and 132 full-time sales
representatives, respectively. The Company discontinued its use of part-time
affiliate sales representatives during the latter part of 1996.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $18.3 million for the year
ended December 31, 1997 as compared to $17.1 million for 1996 and $15.1
million for 1995. The $1.2 million increase in 1997 costs over 1996 can be
attributed to increases of $600,000 in depreciation and facilities charges
associated with expanded operations at the Company's headquarters to replace
services previously provided at the closed distribution centers; $700,000 in
personnel costs relating to increased staffing for improvements in processing
and information technology; and an increase of $300,000 in legal and
professional fees, partially attributable to the pending action against
former employees of the Company. These increases were partially offset by a
decrease of $400,000 for 1997 representing non-recurring costs paid in 1996
for outside consultants.

18
<PAGE>

The increase in general and administrative expense for 1996 was primarily
attributable to $1.6 million of compensation, transition and facilities costs
incurred in connection with the movement of operations from Plymouth, Minnesota
to Cheshire, Connecticut as well as legal costs of $400,000.

Legal costs and related expenses incurred in 1996 and 1995 were largely
associated ($600,000 of the $800,000 over the two year period) with the SEC
inquiry that was settled in 1997. (see "Settlement of Securities and Exchange
Commission Investigation" above).

PROVISION FOR CREDIT LOSSES

During the year ended December 31, 1997, the Company recorded a provision
for credit losses of $4.3 million as compared to $2.0 million in 1996 and $2.5
million in 1995. The provision for credit losses reflects the replenishment to
the allowance for credit losses based on management's estimate of the potential
impairment of notes receivable after taking into account specific charges to the
allowance during the period. For the years ending December 31, 1997, 1996 and
1995, provision for credit losses as a percentage of total opening customer
account balances for all loans serviced by the Company, which aggregated $173.1
million, $84.7 million and $81.6 million, respectively, was 2.5%, 2.3% and 3.0%,
respectively.

INTEREST EXPENSE

Interest expense for the year ended December 31, 1997 increased by $3.9
million, to $10.1 million from $6.2 million in 1996, all of which is directly
attributable to the change in presentation of interest earnings on construction
loans transferred after December 31, 1996 (see "Changes in Presentation of
Operating Results" above). Other principal components of interest expense
include $5.3 million of interest paid on $44.5 million of outstanding 12% Senior
Notes due 2001 of DeGeorge (the "12% Senior Notes") and $500,000 of related
amortization of debt issuance costs

For the year ended December 31, 1996, interest expense decreased by $1.3
million, to $6.2 million from $7.5 million. Of this decrease, $800,000 relates
to the retirement of a secured revolving credit facility with BT Commercial
Corporation in April 1995 with proceeds from the sale of construction loans
pursuant to the Construction Loan Agreement. Of the remaining decrease,
$400,000 is attributable to reduced interest costs relating to the Company's
purchases on July 28, 1995 and October 15, 1996, respectively, of $4.9 million
and $625,000, face value, of the 12% Senior Notes.

OTHER (INCOME) EXPENSE

Other expense for the year ended December 31, 1997 was $1.3 million as
compared to other income of $200,000 for the similar period in 1996, an increase
in other expense of $1.5 million. This difference is primarily attributable to
non-recurring gains on sales of fixed assets of $700,000 in fiscal 1996 and
$600,000 of non-recurring customer accommodations in connection with the
conversion to local purchase. In addition, the Company recorded a loss of
$200,000 on the sale of the Company's one-half interest in a jet aircraft,
primarily from the write-off of transaction fees and improvements and a gain of
$250,000 relating to the settlement of the SEC investigation (see "Settlement of
Securities and Exchange Commission Investigation" above). During 1997 and 1996,
the Company recorded $700,000 and $600,000, respectively, of maintenance and
disposition costs in connection with its servicing of real estate owned.

During 1996, the Company recorded a gain of $600,000 relating to the
disposal of DeGeorge's distribution facility in Mountain Top, Pennsylvania, and
$200,000 of gain from the sale of fixed assets which gains were largely offset
by costs associated with real estate owned as described above.

19
<PAGE>

DISTRIBUTION CENTER CLOSING COSTS

During the second quarter of 1997, DeGeorge closed its distribution centers
in Owatonna, Minnesota, Denver, Colorado and Ft. Wayne, Indiana. Total costs
relating to the closure of the distribution centers were $2.8 million for the
year ending December 31, 1997. This net non-recurring charge includes the
write-off of $800,000 of residual lease costs and leasehold improvements;
shut-down costs of $600,000, including the payment of $400,000 in severance,
wages and benefits; and losses of $1.2 million and $400,000, respectively, on
the disposal of inventory and equipment. An offsetting $200,000 gain was
recorded on the sale of DeGeorge's distribution center in Owatonna. In addition
to the sale of its Owatonna facility, DeGeorge's obligations under the lease for
its Denver distribution facility terminated May 1, 1997 by mutual agreement with
the lessor. The facility in Fort Wayne is presently vacant and is listed for
sublet with a local real estate broker. The lease on this facility expires on
September 30, 1998.

RESTRUCTURING OF OPERATIONS

During 1996, the Company completed its restructuring and relocation of
operations. From 1994 to 1996, the Company re-engineered its systems and
operations, revised its sales plans and marketing strategies, relocated its
operations from Minnesota to Connecticut and shut down the operations of Patwil
Homes. At December 31, 1995, the Company had recorded restructuring expenses of
$1.4 million, principally for employee severance wages and benefits relating to
the closing of its facility in the Minneapolis metropolitan area, where
operational and administrative functions were performed.

INCOME TAXES

The Company provides for the recognition of deferred tax assets and
liabilities based on expected future tax consequences of events that have been
recognized in the Company's financial statements. As of December 31, 1996, the
Company had accumulated a gross deferred tax asset of $14.0 million, against
which the Company recorded a valuation allowance of $13.7 million. During 1997,
the net loss for tax purposes and changes in temporary differences caused an
increase in the gross deferred tax asset to $20.9 million, against which a full
valuation allowance has been recorded. The decrease in deferred income taxes of
$300,000, originally recorded at December 31, 1996, is reflected in the full
valuation allowance recorded at December 31, 1997.

During 1997, the Company requested and the Internal Revenue Service
approved a change in the Company's tax year end to December 31 from September
30. For federal income tax purposes, the Company had net operating loss
carryovers of $43.5 million at December 31, 1997, which will fully expire by the
year 2012.

DISCONTINUED OPERATIONS

On November 27, 1995, the Company formally announced its intent to phase
out and close down the operations of its Patwil Homes subsidiary at which time
all selling and marketing activities ceased. As a result of the Company's
decision to discontinue the operations of Patwil Homes, the Company recorded at
December 31, 1995, an estimated loss on disposal of $8.2 million, which included
a provision of $1.7 million for losses during the phase out period, the
write-off of $5.7 million of goodwill and deferred costs, $600,000 relating to
the write-down of fixed assets (to net realizable value) and $200,000 of accrued
severance wages and benefits.

The liquidation of Patwil Homes and the plan for fulfilling its obligations
under contracts for the construction of customers' homes were substantially
completed during 1996 during which period assets

20
<PAGE>

of discontinued operations were reduced, through liquidation, by $5.1 million,
to $2.5 million at December 31, 1996. Net income from discontinued operations
was $350,000 for 1996.

During 1997, the Company continued the planned liquidation of its Patwil
Homes subsidiary, reducing assets of discontinued operations by $1.4 million, to
$1.1 million from $2.5 million. Loss from discontinued operations was $300,000
for 1997. Management expects that substantially all of the assets of
discontinued operations will be liquidated in 1998.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, cash and cash equivalents were $1.2 million as
compared to $3.7 million at December 31, 1996.

Since April 1995, the Company has been transferring its construction loans
to a mortgage financing company pursuant to the Construction Loan Purchase
and Servicing Agreement, as amended (the "Construction Loan Agreement"), under
which the Company may, at its discretion and subject to certain criteria,
transfer all of its construction loans. On June 1, 1997, certain provisions of
the Construction Loan Agreement were amended (the "June 1997 Amendment"),
including a reduction in the holdback deposit requirement from 12% to 8% and a
change in the benchmark for computing the interest rate on its borrowings, from
prime plus 1 1/2% to the three month London Interbank Offered Rate ("LIBOR")
plus 3% (10% and 8.91%, respectively, at December 31, 1997), effectively
reducing the interest rate on its borrowings 109 basis points at December 31,
1997. The June 1997 Amendment also extended the term of the Construction Loan
Agreement to June 1, 1999. As of August 1, 1997, the Construction Loan
Agreement was further amended to provide for transfer of construction loans for
turnkey activities and an earlier transfer of core business construction loans
involving customer land acquisition advances.

Under the Construction Loan Agreement, loans are transferred at face value,
net of cost of funds discounting. The Construction Loan Agreement also provides
for a deposit account, owned by the Company, for retention of a portion of the
proceeds from the transfer of construction loans as security for credit losses.
The balance of deposits at December 31, 1997 and December 31, 1996 was $12.4
million and $22.4 million, respectively. The significant decrease in the
balance of deposits is attributable to the one-third reduction in reserve
requirements as provided for in the June 1997 Amendment, which resulted in the
return of $7.5 million of deposits to the Company in June 1997. Deposits are
presented in the financial statements net of allowance for estimated credit
losses ($1.7 million and $3.6 million at December 31, 1997 and December 31,
1996, respectively) on construction loans transferred.

During 1997, the Company transferred $111.2 million, net face value ($117.8
million gross transfers less $6.5 million of repurchased accounts), of
construction loans pursuant to the Construction Loan Agreement. Net proceeds to
the Company for 1997 were $102.8 million, after discounting of $9.1 million and
net return of deposits of $700,000. For the year ended December 31, 1996, the
Company transferred $167.9 million, net face value ($171.1 million gross
transfers less $3.2 of repurchased accounts), of construction loans pursuant to
the Construction Loan Agreement. Net proceeds to the Company for 1996 were
$142.0 million, after discounting of $13.9 million and deposits of $12.0
million.

As of December 31, 1997, the Company was servicing $61.1 million, face
value, of previously transferred construction loans. Collateralized borrowings
at December 31, 1997 of $107.8 million represent financing transactions
occurring after December 31, 1996, which are reported in the financial
statements net of prepaid interest of $4.4 million, or $103.4 million. As of
December 31, 1996, the Company was servicing $180.0 million, face value, of
previously transferred construction loans.

The Company is currently dependent upon cash flow from the financing of
construction loans under the Construction Loan Agreement for its working capital
needs. At the close of 1997, the

21
<PAGE>

Company was committed to fund expenditures relating to contractual
obligations with customers of $41.4 million. In addition, debt service
requirements relating to the 12% Senior Notes and notes payable are expected
to be $6.2 million during fiscal 1998. The Company's available balance of
notes receivable at December 31, 1997 exceeded the Company's cash flow needs
at that date and the Company believes that a majority of its notes receivable
will be eligible for financing under the terms of the Construction Loan
Agreement. The Company also believes it will generate sufficient new notes
receivable for financing under the Construction Loan Agreement to meet its
anticipated cash needs. On most business days, the Company receives payoff
funds from customers in its capacity as servicer. Under terms of the
Construction Loan Agreement as in effect during 1997, the Company had an
obligation to immediately remit such funds to the mortgage financing company,
though in practice, the Company transferred such funds to the mortgage
financing company on a lag basis, usually in connection with a further
transfer of construction loans. This lag in payments was a technical
violation of the Construction Loan Agreement. Such agreement has since been
amended to require that such payoff funds be remitted to the mortgage
financing company within 15 days of receipt. While the Company gains a
"float" on such funds, which the Company uses to finance its operations, the
Company is still required to pay interest on such funds through the date of
remittance.

The Company has invested $4.3 million in its corporate facility, which is
subject to a mortgage, the balance of which was $600,000 at December 31, 1997.
In June 1997, the Company began construction of a second facility adjacent to
its corporate offices. The cost of completion for the second facility,
including furniture and fixtures, is expected to be $5.3 million of which $1.9
million had been disbursed as of December 31, 1997. The Company believes that
the mortgaging of these and other real estate holdings would provide a
significant source of working capital. Additional sources of cash available to
the Company also include the sale of certain other assets and the further
disposition of remaining assets of discontinued operations. The Company
believes that the proceeds from these asset sales would be reflective of their
carrying value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements, together with the report thereon of
independent accountants dated March 20, 1998, are included in Part IV, Item
14(a) and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On July 25, 1997, the Company filed a Form 8-K disclosing the resignation
of Price Waterhouse LLP ("PW") as auditor for the Company, effective July 18,
1997. In connection with PW's audit for the two most recent fiscal years, and
the subsequent interim periods preceding the resignation of PW, there were no
reportable disagreements on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of PW, would have caused PW to
make a reference to the subject matter of the disagreement in connection with
its report.

On September 19, 1997, the Company filed a Form 8-K disclosing the
engagement of McGladrey & Pullen, LLP as auditor for the Company effective
September 12, 1997.

22
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each person as
of March 1, 1998 who is a director and/or executive officer of the Company,
DeGeorge, Plymouth Capital, DeGeorge/Florida or DeGeorge/New England:

NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter R. DeGeorge 51 Chairman, Chief Executive Officer and
President of the Company; Chairman and
President of DeGeorge; Chairman of Plymouth
Capital; Chairman and Senior Vice President
of DeGeorge/Florida and DeGeorge/New England

P. Peter Pascali 38 Director of the Company

John H. Warren 56 Director of the Company

James G. Einloth 53 Director and Vice President of the Company;
Vice President of DeGeorge; President of
DeGeorge/Florida and DeGeorge/New England

Gregory J. Hendel 37 Executive Vice President of the Company;
Director and Executive Vice President of
DeGeorge, DeGeorge/ Florida and DeGeorge/New
England

Salvatore A. Bucci 42 Senior Vice President and Chief Financial
Officer of the Company; Director and
President of Plymouth Capital; Senior Vice
President of DeGeorge, DeGeorge/Florida and
DeGeorge/New England

James E. Fenske 55 Vice President and Treasurer of the Company;
Senior Vice President and Treasurer of
DeGeorge, Plymouth Capital and DeGeorge/New
England; Vice President and Treasurer of
DeGeorge/Florida

Jonathan K. Dodge 48 Vice President, Secretary and General Counsel
of the Company; Vice President and Secretary
of DeGeorge, Plymouth Capital,
DeGeorge/Florida and DeGeorge/ New England

</TABLE>

Mr. DeGeorge has served with the Company, DeGeorge, Plymouth Capital,
DeGeorge/Florida and DeGeorge/New England in the positions set forth in the
above table since the dates indicated: Chairman and Chief Executive Officer of
the Company and Chairman of DeGeorge and Plymouth Capital (June 1988); President
of the Company (May 1995 and for the period June 1988 to June 1992); President
of DeGeorge (October 1996) Chairman of DeGeorge/Florida (December 1994) and
DeGeorge/New England (January 1995); and, Senior Vice President of
DeGeorge/Florida and DeGeorge/New England (November 1996). He has also served
in the following capacities with the affiliates of the Company named below since
the dates indicated: Chairman (November 1989), President and Chief Executive
Officer (May 1990) of BNC Acquisition Corp., a Delaware corporation and a
corporation wholly-owned by Mr. DeGeorge ("BNC"); and Chairman (May 1990) of
Star Services, Inc.

23
<PAGE>

of Delaware, a Delaware corporation, ("Star Services"). From May 1990 to August
1993, he served as Chief Executive Officer of Star Services.

Mr. Pascali was appointed as a director of the Company in January 1993.
Mr. Pascali is the President and Chief Financial Officer of Pyrogenesis, Inc.,
a research and development firm specializing in advanced materials. Since
December 1990, Mr. Pascali has served as President of Phoenix & Associates, a
New Jersey-based financial consulting firm which has previously performed
consulting services for an affiliate of the Company. Prior to 1990, Mr. Pascali
was an officer in the corporate banking divisions of The Bank of Nova Scotia and
Westpac Banking Corporation in New York City.

Mr. Warren has been a director of the Company since January 1995. He has
been an attorney in private practice in St. Croix, United States Virgin Islands
(specializing in real estate and business) since 1987. From 1974 to 1987 he was
an acquisitions attorney and the Chairman of Roico, Inc.; Vice Chairman,
Quantrex, Inc.; and Director, Ferguson Propeller, Inc. and Columbian Bronze,
Ltd. From 1970 to 1974 Mr. Warren served as Vice President and Secretary of APL
Corporation (NYSE).

Mr. Einloth has served as a Director and Vice President of the Company
since November 1996. He is a Vice President of DeGeorge and has served as
President of DeGeorge/Florida and DeGeorge/New England since November 1996.
From June 1988 to December 1994, Mr. Einloth served as Vice Chairman, Vice
President and Treasurer of the Company and as Vice Chairman of DeGeorge and
Plymouth Capital. Mr. Einloth has also served in the following capacities with
the affiliates of the Company named below for the dates indicated: Vice
Chairman (November 1989 to December 1994) and Vice President and Treasurer (May
1990 to December 1994) of BNC; and Vice Chairman (May 1990 to January 1996),
President and Chief Operating Officer (November 1991 to December 1994) of Star
Services.

Mr. Hendel joined the Company in September 1996 after a fifteen year career
in the financial services industry. He has been Executive Vice President of the
Company and DeGeorge since April 1997 and January 1997, respectively. He is
also a Director of DeGeorge, DeGeorge/Florida and DeGeorge/New England since
April 1997. Previously, he served as Vice President, Sales and Marketing of the
Company from October 1996 to April 1997 and of DeGeorge from October 1996 to
January 1997. Prior to joining the Company, Mr. Hendel worked with The Dreyfus
Service Corporation, a New York based mutual fund company, as Senior Vice
President. Throughout his career he was responsible for developing new sales,
distribution, and customer service operations for Dreyfus. In addition, he was
responsible for expanding the core product offering to include insurance based
investment products and discount brokerage. His extensive business management
background includes responsibility for administering significant revenue and
expense budgets. Mr. Hendel holds various professional licenses associated with
the National Association of Securities Dealers.

Mr. Bucci joined the Company in December 1995 and has served as Senior Vice
President and Chief Financial Officer of the Company since April 1997. He is a
Director (since November 1996) and President (since March 1997) of Plymouth
Capital and a Senior Vice President of DeGeorge, DeGeorge/Florida and
DeGeorge/New England since April 1997. He was previously Vice President,
Financial Operations of the Company and a Vice President of DeGeorge,
DeGeorge/Florida and DeGeorge/New England from November 1996 to April 1997 and a
Vice President of Plymouth Capital from November 1996 to March 1997. He is also
a Vice President of Star Services since July 1996. Mr. Bucci also served as
Chief Accounting Officer of the Company from August 1996 to April 1997 and was
Corporate Controller of the Company from June 1996 until November 1996. From
December 1995 to May 1996, Mr. Bucci directed the transition of financial
operations from Minnesota to Connecticut for DeGeorge. Before joining DeGeorge,
Mr. Bucci was Chief Financial Officer of MHI, Ltd., a privately held restaurant
and lodging company, from September 1992 to November 1995. Previously, Mr.
Bucci served First National Realty Associates, Inc., a publicly traded national
real estate brokerage company,

24
<PAGE>

as Vice President, Financial Services from October 1990 to July 1992 and as a
private consultant during its conversion to public ownership from April 1990 to
September 1990. Prior to 1990, Mr. Bucci held management positions in mortgage
banking and real estate divisions of Merrill Lynch and was associated with the
accounting firm of Coopers & Lybrand. Mr. Bucci is a certified public
accountant.

Mr. Fenske has been employed by DeGeorge since 1970. He is currently Vice
President and Treasurer of the Company (since August 1996); Senior Vice
President of DeGeorge (since April 1989), Plymouth Capital (since February 1990)
and DeGeorge/New England (since January 1995); Vice President of
DeGeorge/Florida (since April 1995); and, Treasurer of DeGeorge and Plymouth
Capital (since September 1989), DeGeorge/Florida (since April 1995) and
DeGeorge/New England (since January 1995). He was a director of the Company
from October 1994 to December 1995. Mr. Fenske also served as Vice President
and Chief Financial Officer of the Company from April 1989 to December 1994. He
also serves in the capacity of Senior Vice President, Chief Financial Officer
and Treasurer of Star Services (since June 1990).

Mr. Dodge has served as Vice President, Secretary and General Counsel of
the Company since March 1993. He is also Vice President of DeGeorge and
Plymouth Capital (since March 1993); Secretary of DeGeorge and Plymouth Capital
(since August 1996); and Vice President and Secretary of DeGeorge/Florida (since
December 1994) and DeGeorge/New England (since January 1995). Mr. Dodge was
Assistant Secretary of DeGeorge and Plymouth Capital from October 1993 to August
1996. Mr. Dodge is also a Vice President of BNC and Star Services (since March
1993) and Secretary of Star Services (since July 1996). Prior to March 1993,
Mr. Dodge was affiliated with several law firms in senior capacities. From
January to March 1993 he was of counsel to Schneck, Weltman, Hashmall & Mischel.
From October 1990 to December 1992 he was a partner of Andrews & Kurth, L.L.P.,
a national law firm based in Houston, Texas. From February 1986 until October
1990, Mr. Dodge was first of counsel and then a partner in Ross & Korff and its
predecessor law firms. Ross & Korff merged with Andrews & Kurth, L.L.P. in
October 1990. While at Ross & Korff and its predecessor firms, Mr. Dodge
represented Messrs. DeGeorge and Einloth in their leveraged purchases of
DeGeorge, Plymouth Capital and Star Services.

There are no family relationships among any directors and executive
officers identified above. In addition, the Company is not aware of any current
or prior reportable event relative to legal proceedings against any of the
directors or executive officers, except as noted in "Settlement of Securities
and Exchange Commission Investigation" above.

Directors of DeGeorge, Plymouth Capital, DeGeorge/Florida and DeGeorge/New
England are elected annually. Each of the directors of DeGeorge, Plymouth
Capital, DeGeorge/Florida and DeGeorge/New England will serve until the next
annual meeting of the shareholders of DeGeorge, Plymouth Capital,
DeGeorge/Florida and DeGeorge/New England, respectively, or until his death,
resignation or removal, whichever is earlier. The Restated Certificate of
Incorporation of the Company provides that the Board of Directors of the Company
is divided into three classes as designated by the Board of Directors, each
class to be as nearly equal in number as possible to the other classes so
designated. The term of office of Class I expires at the annual meeting of
stockholders to be held in 1998, of Class II in 1999 and of Class III in 2000.
The directors whose terms expire at each annual meeting will be elected to hold
office for a term of office of three years. The classification of the Board of
Directors has the effect of requiring at least two annual stockholder meetings,
instead of one, to effect a change in control of the Board of Directors. The
By-Laws of the Company provide for a Board of Directors consisting of not less
than three nor more than fifteen directors. The Board of Directors currently
consists of four directors, two of which (Messrs. Pascali and Warren) are
independent directors.

Executive officers of the Company and its subsidiaries hold office for such
terms as may be determined by the respective Board of Directors of the Company
and such subsidiaries.

25
<PAGE>

COMPENSATION OF DIRECTORS

The outside directors, Messrs. Pascali and Warren, are paid $3,500 per
month and are reimbursed for their Company related travel and other business
expenses.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain compensation information as to the
most highly compensated executive officers, including the chief executive
officer, of the Company (the "Named Executive Officers") for each of the years
ended December 31, 1997, 1996 and 1995.

ANNUAL COMPENSATION

NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------ ---- ---------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter R. DeGeorge,
Chairman of the Board 1997 700,000 0 242,793(1) 20,350(3)
and Chief Executive 1996 623,654 0(4) 114,583(1) 21,350(3)
Officer 1995 709,615(2) 0 84,701(1) 10,700(3)

Gregory J. Hendel,
Executive Vice President 1997 171,154 85,750 2,202 24,513(6)
1996 40,385 0 16 23,283(6)
1995 0 0 0 0

Salvatore A. Bucci,
Senior Vice President and 1997 143,269 31,625 5,384 0
Chief Financial Officer 1996 81,923 0 140 0
1995 2,500 0 0 0

Jonathan K. Dodge(5),
Vice President, Secretary 1997 162,500 25,000 5,817 0
and General Counsel 1996 149,354 0 4,819 0
1995 150,000 0 8,240 0

James G. Einloth,
Vice President 1997 150,000 0 5,471 0
1996 138,462 0 3,473 0
1995 120,769 0 6,733 0

</TABLE>

(1) The amounts shown include compensation to Mr. DeGeorge relative to the
split-dollar life insurance policy. The actual premium paid by the Company
each year for this policy was $145,000 for 1997, 1996 and 1995. In
addition, the Company paid $13,688 of legal costs during 1995 related to
revisions of the split-dollar life insurance policy. The amounts included
in Mr. DeGeorge's W-2 forms as income relative to the split-dollar life
insurance policy, computed in accordance with the regulations of the
Internal Revenue Service, were $1,247, $1,080 and $936 in 1997, 1996 and
1995, respectively. See "Certain Relationships and Related Transactions -
Split-Dollar Life Insurance Policy" below. Also included are legal and
accounting fees paid by the Company for estate planning and tax services of
$2,000 and $1,590, respectively, for the years ended December 31, 1997 and
1996; and triathlon and biathlon racing team

26
<PAGE>

reimbursements of $1,109, $876 and $4,239 for the years ended December 31,
1997, 1996 and 1995, respectively, paid to Mr. DeGeorge and to his former
spouse during the period of their marriage. Mr. DeGeorge has elected to
include the racing team reimbursements in his compensation, notwithstanding
the fact that these expenses could be considered legitimate promotional
expenses for the benefit of the Company. The Company pays Mr. DeGeorge's
credit card bills and credits the amounts paid to compensation or business
expense according to the allocation provided by Mr. DeGeorge. For the
years ended December 31, 1997, 1996 and 1995, the Company included
$174,219, $90,288 and $56,279, respectively, in Mr. DeGeorge's
compensation for non-business related credit card charges. In addition,
the Company included in Mr. DeGeorge's compensation $46,144 and $11,880
of personal aircraft usage charges for the years ended December 31, 1997
and 1996, respectively.

(2) In 1995, Mr. DeGeorge received a salary of $709,615 of which $240,500 was
payment of salary accrued at December 31, 1994.

(3) The amounts shown reflect premiums paid by the Company, and included in Mr.
DeGeorge's W-2 forms, for a $10 million ($5 million in 1995) term
insurance policy on the life of Mr. DeGeorge for the years 1997, 1996 and
1995.

(4) At a Board of Directors meeting held on November 7, 1996, the Compensation
Committee of the Board of Directors of the Company awarded Mr. DeGeorge a
bonus for fiscal 1996, payable in 1997, in an amount to be determined by
him, not to exceed, however, 2% of the difference in the audited results of
the Company (net profit or loss) from 1995 to 1996. On March 14, 1997, Mr.
DeGeorge formally and irrevocably waived any right to any portion of this
bonus, the maximum amount of which could have been $577,000.

(5) Pursuant to a letter, dated January 15, 1993, between the Company and Mr.
Dodge, upon the commencement of Mr. Dodge's employment with the Company on
March 1, 1993, Mr. Dodge acquired the right to receive an aggregate 100,000
shares of Common Stock, with one third of such aggregate number of shares
of Common Stock being issuable as a bonus to Mr. Dodge on March 1 of each
of 1994, 1995 and 1996, subject to Mr. Dodge's continued employment by the
Company through the one-year period ending on such dates. Mr. Dodge agreed
on December 12, 1994 to relinquish a prior grant of 33,333 shares of Common
Stock to the Company in exchange for an incentive stock option for 50,000
shares of Common Stock.

(6) The amounts shown reflect relocation expenses paid and the corresponding
income attributable to reimbursement for related income tax payments.

(a) STOCK OPTIONS AND RESTRICTED STOCK PURCHASE

On October 13, 1994, the Company's stockholders approved the DeGeorge
Financial Corporation 1994 Stock Option and Restricted Stock Plan, (the "1994
Plan") and 1,000,000 additional shares of Common Stock (in addition to the
810,000 shares reserved under a prior plan) were reserved for issuance under the
1994 Plan. On December 12, 1994, the Stock Option Committee of the Board of
Directors authorized the surrender by Messrs. Herbert L. Getzler, a former
director and executive officer of the Company, and Einloth of the options held
by them (for 425,000 and 255,000 shares, respectively, of Common Stock) in
exchange for rights to purchase 212,500 and 127,500 shares, respectively, of
Common Stock at a price of $.10 per share. The Company granted a bonus to each
of Messrs. Getzler and Einloth equal to the purchase price of such shares
($38,048 for Mr. Getzler and $24,079 for Mr. Einloth) and such shares were
purchased on December 23, 1994. This bargain purchase transaction created
taxable income for Messrs. Getzler and Einloth equal to the difference between
the price they paid for the shares ($.10 per share) and the fair market value of
the shares on the purchase date ($637,500). The Company has paid the taxes on
this income and each of Messrs. Getzler and Einloth have given the Company a
personal note ($154,835 for Mr. Getzler and $106,480 for Mr. Einloth) for the
amount of taxes paid on their behalf by the Company, secured by the stock
purchased, payable on

27
<PAGE>

demand and bearing interest at 10% per annum. Mr. Getzler's note has since been
modified. See "Certain Relationships and Related Transactions - Transactions
with Directors and Officers".

On December 14, 1995 the Board approved ten year options for 10,000 shares
at an exercise price of $1.00 per share for each of Messrs. Warren and Pascali
and five year options for 20,000 shares at an exercise price of $1.00 for Mr.
Fenske at which time Mr. Fenske surrendered 18,900 options granted to him on
July 18, 1994.

The Board also approved on December 14, 1995 ten year options, vesting
one-third each year over three years, at an exercise price of $1.00 per share,
for Messrs. DeGeorge, Getzler, and Dodge for 325,850, 214,130, and 46,550 shares
of Common Stock, respectively, based upon the Company and individual business
units meeting certain performance criteria. All of these options were
surrendered in 1996.

On October 15, 1996, the Board approved ten year options, vesting one-third
each year, subject to certain vesting criteria, at an exercise price of $1.50
per share, for 400,000 shares of Common stock for Mr. DeGeorge; 200,000 shares
for Mr. Hendel; 100,000 shares each for Messrs. Getzler and Einloth; 80,000
shares for Mr. Fenske; 25,000 shares for Mr. Bucci and a total of 50,000 shares
for certain management employees. Mr. Bucci subsequently received an additional
ten year option on December 3, 1996, for 75,000 shares, at an exercise price of
$1.00 per share, also with similar vesting provisions.

On March 14, 1997 the Board approved ten year options for 10,000 shares at
an exercise price of $1.25 per share for each of Messrs. Warren and Pascali. In
connection with the pending transaction to take the Company private, Messrs.
Warren and Pascali have agreed to surrender all of their stock options in
exchange for a payment of $7,500 to each of them (see "Pending Buyout Proposal"
above). Also on March 14, 1997 and May 15, 1997, the Board approved ten year
options, vesting one-third each year, subject to certain vesting criteria, at an
exercise price of $1.25 per share, for 50,000 shares of Common Stock for
Mr. Dodge; 10,000 shares for Mr. Einloth and 335,000 shares for certain
management employees. During 1997, options for 210,000 shares were canceled in
connection with the departure of certain officer and non-officer employees.
Further, on February 6, 1997, Mr. Getzler surrendered the options granted to him
in 1996 in exchange for a ten year option, at an exercise price of $1.50 per
share, for 50,000 shares of Common Stock.

On January 29, 1998, the Board removed the earnings criteria for vesting
from all active options containing this qualification, leaving only the
requirement that such options vest one-third each year over a three year period.
As a result, options awarded during 1996 with three year vesting schedules
became one-third vested on their respective anniversary dates in 1997. At
December 31, 1997, options representing 505,897 shares of Common Stock were
vested.

(b) COMPENSATION COMMITTEE REPORT

Material issues relating to executive officer compensation are addressed by
the Board of Director's Compensation Committee and Stock Option Committee. The
Compensation Committee, which is comprised of Messrs. Pascali and Warren,
reviews and approves management recommendations for base salary and incentive
compensation plans for all executive officers and selected senior executives for
final approval by the Board of Directors. The Stock Option Committee, which
consists of Messrs. Pascali and Warren, reviews and approves management
recommendations for stock option plan participation levels for all executive
officers and selected senior executives. This report is submitted jointly by
the Compensation Committee and the Stock Option Committee.

The components of the Company's executive compensation program consist of
base salaries, bonuses and stock options. The Company's compensation program is
intended to provide executive

28
<PAGE>

officers with overall levels of compensation opportunity that are competitive
with the financial services industry, as well as within a broader spectrum of
companies of comparable size and complexity. The Company's compensation program
is administered to support the Company's business mission and generate favorable
returns for its stockholders.

BASE SALARY AND BONUS. Each executive officer's base salary and bonus are
derived from a review of industry and competitive labor markets for executive
officer services. Other factors in formulating base salary and bonus
recommendations include the level of an executive's compensation in relation to
other executives in the Company with the same, more or less responsibilities,
the performance of the particular executive's business unit in relation to
established strategic plans, the Company's operating budget for the year and the
overall performance of the Company.

STOCK OPTION AWARDS. The Company maintains stock option plans that are designed
to align executive officers' and stockholders' interests in the enhancement of
stockholder value. In formulating recommendations for stock option awards, the
Stock Option Committee evaluates the Company's overall financial performance for
the year, the desirability of long-term service from an executive and the number
of options held by other executives in the Company with the same, more or less
responsibility than the executive at issue.

CEO COMPENSATION. Compensation for Mr. DeGeorge, the Company's Chairman of the
Board and Chief Executive Officer, is based upon the same criteria used for
executive officers generally, including a review of chief executive compensation
of comparable companies. The Compensation Committee of the Board of Directors,
in a meeting held in March 1997, increased the approved total compensation for
Mr. DeGeorge from $750,000 in 1996 to $1 million for 1997.

29
<PAGE>

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative stockholder returns on the Company's
Common Stock, the Nasdaq Composite Index and the capital stock of a
representative group of three companies, in each case from December 31, 1992
through December 31, 1997. The values presented for each investment are based
upon share price appreciation plus reinvested dividends and assumes an initial
investment of $100.

COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG DEGEORGE FINANCIAL CORPORATION,
NASDAQ MARKET INDEX AND PEER GROUP INDEX

[GRAPH]

ASSUMES $100 INVESTED ON DECEMBER 31, 1992
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1997

12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
DEGEORGE FINANCIAL CORPORATION 100.00 64.87 22.60 14.86 12.96 10.60
PEER GROUP INDEX 100.00 113.05 93.88 147.36 143.04 207.96
NASDAQ MARKET INDEX 100.00 119.95 125.94 163.35 202.99 248.30

</TABLE>

The Peer Group of companies consists of Clayton Homes, Inc., Fleetwood
Enterprises, Inc. and Oakwood Homes Corporation.

The above report of the Compensation and Stock Option Committees and the Stock
Performance Graph will not be deemed to be soliciting material or to be filed
with or incorporated by reference into any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporated such report or graph by
reference.

30
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to (i) the
beneficial holders of more than five percent of the Common Stock of the Company,
(ii) beneficial ownership by each director and Named Executive Officer and (iii)
beneficial ownership by all directors and executive officers as a group, as of
March 1, 1998, except as noted below:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES(1) OF TOTAL
- ------------------- --------- --------
<S> <C> <C>
Peter R. DeGeorge 5,801,903(2) 53.7%
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

James G. Einloth 312,333(3) 2.9%
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

Jonathan K. Dodge 136,500(4) 1.3%
c/o DeGeorge Home Alliance, Inc.
591 Park Avenue
New York, New York 10021

Gregory J. Hendel 66,666(5) *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

Salvatore A. Bucci 33,333(6) *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

P. Peter Pascali 20,000(7) *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

John H. Warren 20,000(7) *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

All directors and executive officers as a group 6,440,401 59.6%

</TABLE>
- -----------------------------------------

* Less than 1% based on 10,810,193 shares outstanding.

31
<PAGE>

(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table. The shares listed include (i) shares of the Company's Common
Stock that may be acquired upon exercise of presently exercisable options,
or options that will become exercisable within 60 days from the date hereof
and (ii) shares of Common Stock issuable upon the exercise of presently
exercisable rights to purchase shares of Common Stock.

(2) Includes 5,668,570 shares of Common Stock owned by BNC Acquisition Corp.
and an option (one-third vested of 400,000 shares) to purchase 133,333
shares of Common Stock, acquired on October 15, 1996. Mr. DeGeorge owns
all of the capital stock of BNC and may be deemed to beneficially own the
5,668,570 shares of Common Stock owned by BNC.

(3) Includes an option (one-third vested of 100,000 shares) to purchase 33,333
shares of Common Stock acquired on October 15, 1996.

(4) Includes an option to purchase 67,000 shares of Common Stock acquired on
July 18, 1994 and an option to purchase 50,000 shares of Common Stock
acquired on December 12, 1994.

(5) Includes an option (one-third vested of 200,000 shares) to purchase 66,666
shares of Common Stock acquired on October 15, 1996.

(6) Includes an option (one-third vested of 25,000 shares) to purchase 8,333
shares of Common Stock acquired on October 15, 1996 and an option
(one-third vested of 75,000 shares) to purchase 25,000 shares of Common
Stock acquired on December 3, 1996.

(7) Includes an option to purchase 10,000 shares of Common Stock acquired on
December 14, 1995 and an option to purchase 10,000 shares of Common Stock
acquired on March 14, 1997, which options Messrs. Warren and Pascali have
agreed to surrender in exchange for a payment of $7,500 to each of them
(see "Pending Buy-out Proposal" above).

The information required by Item 402(c) and 402(d) of Regulation S-K
will be included in the Proxy Statement to be filed within 120 days of year
end and is incorporated herein by reference.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

To the best of the Company's knowledge, all statements of beneficial
ownership required to be filed with the SEC for fiscal 1997 have been timely
filed.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

GENERAL

The Company purchased the business of DeGeorge and Plymouth Capital from
Insilco Corporation ("Insilco") in June 1988. Another group of assets of
Insilco, the Star Services Division, was purchased by a special purpose
corporation controlled by Mr. Peter R. DeGeorge, Chairman, Chief Executive
Officer and principal stockholder of the Company, on May 31, 1990. The Star
Services Division was reorganized as Star Services, Inc. of Delaware ("Star
Services"), a wholly owned subsidiary of BNC.

BNC is currently the principal stockholder of the Company. Mr. DeGeorge
holds his controlling interest in the Company through BNC, a corporation wholly
owned by him. Mr. DeGeorge is also Chairman and Chief Executive Officer and a
director of BNC, Star Services and PRD. Certain other members of the Company's
management are also officers and/or directors of these corporations (see
"Directors and Executive Officers of the Registrant").

32
<PAGE>

SETTLEMENT OF SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

On November 12, 1997, the Company consented to the entry of an order by the
Securities and Exchange Commission (the "SEC") ordering the Company to cease and
desist from future violations of the anti-fraud provisions of the Securities Act
of 1933 and the Securities Exchange Act of 1934 and the reporting, books and
records and internal control provisions of the Securities Exchange Act of 1934
relating to the Company's disclosure or nondisclosure of certain related party
transactions. In consenting to the entry of this order, the Company neither
admitted nor denied the allegations made by the SEC in the order. No monetary
sanction was imposed against the Company in the settlement. The order also
required the Company to retain a consultant to review its internal procedures
for recording and reporting related party transactions and to adopt the
consultant's recommendations or propose alternatives. A consultant was hired by
the Company in accordance with the order on December 1, 1997 and the
consultant's report was filed with the SEC on February 9, 1998. It was the
opinion of the consultant that an adequate system of internal accounting
controls had been developed and implemented by the Company from late 1995
through 1996 and 1997 which was sufficient to provide reasonable assurance that
the Company's related party transactions were recorded as necessary to permit
the preparation of the Company's financial statements in conformity with
generally accepted accounting principles. The consultant also made other
recommendations which the Company either has adopted or intends to adopt. The
SEC investigation, which lasted more than two years, cost the Company in excess
of $600,000 in legal fees and related expenses.

TRANSACTIONS WITH STAR SERVICES, BNC AND PRD

The assets of Star Services consist principally of a portfolio of real
estate, mortgages and related accounts receivable in the process of liquidation.
Most of these assets were originally owned by the Miles Homes division of
Insilco, but were not purchased as part of the original acquisition transaction
in June 1988.

The Company provides computer, data processing, account management,
accounting and administrative services to Star Services, since Star Services has
no employees of its own. A significant percentage of Star Services' remaining
active accounts were sold during 1995. The number of accounts being liquidated
by Star Services has declined from a high of 2,352 in 1990 to 59 at December 31,
1997. The amount of time devoted to Star Services by the Company's employees
has likewise diminished substantially to a relatively insignificant amount.

As of November 8, 1995, Star Services sold a townhouse located at 591 Park
Avenue to PRD. By lease dated as of November 16, 1995, DeGeorge leased the
premises at 591 Park Avenue from PRD for a 15 year term commencing December 1,
1995 for a rental equal to the operating costs of the facility, plus the costs
of any repairs or capital improvements. A change in control of DeGeorge
constitutes an assignment under the lease to which PRD's consent is required.

This arrangement of zero rent, other than the costs listed above, is
essentially the same as the arrangement that had existed between DeGeorge and
Star Services. Prior to the sale to PRD, since January 1, 1994, the Company had
reimbursed Star Services, or paid in lieu of rent, the operating costs of this
facility in return for the usage of the building. The Company believes that the
fair market value of the usage of the premises at 591 Park Avenue by the Company
exceeds the expenses paid in lieu of rent,

33
<PAGE>

since a commercial lease would include, in addition to operating expenses, some
element of the return of capital invested in the building. The Company also
believes that the fair market value of the services provided by Company
personnel to Star Services in 1997 was less than or equal to the bargain element
of the rental arrangement for the use of 591 Park Avenue and, accordingly,
believes that the arrangements between the Company and Star Services were
comparable to, or more favorable to the Company than, those that would be
entered into by unaffiliated parties.

The operating expenses of 591 Park Avenue totaled $205,000, $216,000 and
$236,000 in 1997, 1996 and 1995, respectively. In addition, the Company
expended a total of $289,000 for capital improvements to this facility in 1997.

The property at 591 Park Avenue, in addition to serving as Mr. Dodge's
principal office and as accommodations in New York City for visiting Company
personnel, also serves as a convenient place for meetings of the Company's Board
of Directors and has been used for meetings with outside attorneys, accountants,
stockholders, investment bankers, commercial bankers and marketing personnel.
Maintenance of this office also satisfies a covenant in the indenture governing
the 12% Senior Notes due 2001. This facility has also been used for job
interviewing, meetings with acquisition candidates and securities analysts and
as a set for the filming of one of DeGeorge's infomercials.

On occasion, the Company's in-house general counsel and chief financial
officer have provided services, generally consisting of tax planning, to BNC,
Star Services or PRD. The fair value of these services was not material and was
not in excess of $60,000 for 1997, 1996 or 1995. In addition, during 1998 the
Company's general counsel began providing legal services to the brother of Mr.
DeGeorge. Fees for these services are paid to the Company on a fair market
value basis.

TRANSACTIONS WITH DIRECTORS AND OFFICERS

On May 9, 1994, DeGeorge purchased a condominium in Cheshire, Connecticut.
DeGeorge rented the property to Mr. DeGeorge for $2,500 per month or a total of
$30,000 for 1995 and $20,000 for the period January to August 1996 (at which
time he moved out). DeGeorge is holding this property for use by employees.
DeGeorge paid taxes and utilities on this property, and during 1997 disbursed
$33,700 for capital improvements. This property is predominantly utilized by an
employee of the Company, who cares for the property, and since December 1997,
by Mr. DeGeorge when he is in Connecticut. These individuals pay DeGeorge a
pro-rata estimated amount to reimburse DeGeorge for operating costs.

On April 11, 1996, Mr. Herbert L. Getzler, a former director and executive
officer of the Company, borrowed $608,000 from the Company. This amount was
used to repay (i) $154,000 borrowed from the Company by Mr. Getzler on December
30, 1994, to pay taxes on restricted Common Stock purchased by him on December
23, 1994, at a discount plus interest of $20,000 on that amount, (ii) a loan by
the Company to Mr. Getzler of $160,000 made on January 3, 1995, to meet margin
calls on his Common Stock plus interest on that amount of $20,000, and (iii) a
loan from Mr. DeGeorge to Mr. Getzler of $200,000 made on December 3, 1992 plus
interest on that amount at 7% per annum totaling $52,000.

34
<PAGE>

consecutive trading days after the date of such note. The note continues to
bear interest at a rate of 10% per annum and remains secured by 303,752 shares
of Common Stock. Interest accrues and is payable on the date the outstanding
principal balance is paid. This note is non-recourse to Mr. Getzler, except for
the stock pledged as security. There is no prepayment penalty on the note. It
is anticipated that Mr. Getzler will be a participant in the buyout group and
exchange the shares of Common Stock pledged as security for this note for shares
of the new private company, which new shares will remain subject to the pledge
(see "Pending Buyout Proposal" above).

Also, on April 11, 1996, Mr. James G. Einloth, currently a director and
vice president of the Company, borrowed $309,000 from the Company. This amount
was used to repay (i) $106,000 borrowed from the Company by Mr. Einloth on
December 30, 1994, to pay taxes on restricted Common Stock purchased by him on
December 23, 1994, at a discount plus interest of $14,000 on that amount, and
(ii) a loan from Mr. DeGeorge to Mr. Einloth of $150,000 made on December 3,
1992, plus interest on that amount at 7% per annum totaling $39,000.

The loan to Mr. Einloth described above is secured by 154,727 shares of
Common Stock. It is evidenced by a demand note which bears interest at a rate
of 10% per annum. Interest accrues and is payable on the date the outstanding
principal balance is paid. Mr. Einloth's note is non-recourse to him, except
for the stock to be pledged as security. There is no prepayment penalty on this
note. Mr. Einloth is also anticipated to be a participant in the buy-out group
and to exchange the shares of Common Stock pledged as security for this note for
shares of the new private company, which new shares will remain subject to the
pledge (see "Pending Buy-out Proposal" above).

Mr. DeGeorge's son, a college student who had a summer job with the Company
in 1997 and 1996, continues to work for the Company on a part-time basis and has
the occasional use of a company-owned vehicle.

DeG Capital Partners Ltd., a Florida limited partnership ("DEGC") whose
partners are the parents of Mr. DeGeorge, rents office space from
DeGeorge/Florida. DEGC is the managing member of DeG Capital Management, L.C.,
a Florida limited liability company ("DEGM"). The Company believes that the
terms of this arrangement are equivalent to an arm's length transaction. During
1997, rent and other costs charged to DEGM by the Company totaled $103,000. Of
this amount, the Company exchanged $25,000 for a 10% membership interest in
DEGM. The employees of DEGC and DEGM participate in the employee benefit plans
of the Company for which expense the Company is reimbursed by DEGC and DEGM.

THE FAT LOSS COACH VENTURE

On April 22, 1995, DeGeorge first televised an infomercial in a selected
market featuring Charles Remington, the "Fat Loss Coach" selling a customized
diet and exercise plan. Pursuant to an agreement dated as of May 17, 1995, 40%
of the net profits from this venture were to have been paid to Mr. Remington and
60% to DeGeorge after all costs have been recovered. Those costs (net of
revenue generated) totaled approximately $1.2 million as of December 31, 1997.
This venture was originally a project of DeGeorge Sports, Inc., a Delaware
corporation ("Sports"), which was then a wholly-owned subsidiary of BNC, which
undertook it, in part, to familiarize itself and Company executives with direct
response marketing, with the objective of utilizing this medium for the
marketing of the Company's products. The initial costs of filming the Fat Loss
Coach infomercials were funded by advances from DeGeorge to Sports. No term or
interest rate was specified. The oral arrangement surrounding these advances
provided for a personal guarantee of the amounts advanced by Mr. DeGeorge. At
year end 1994, the Sports bills paid by DeGeorge totaled $124,000 while the
gross compensation deferred by Mr. DeGeorge for that year totaled $240,000. Mr.
DeGeorge's deferred compensation amount was paid in January 1995, at which time
BNC determined to transfer all of its interest in Sports (and thus the

35
<PAGE>

venture) to DeGeorge for a nominal consideration. The transfer was delayed
because the then outstanding loan agreement between BT Commercial Corporation
and DeGeorge prohibited the formation or acquisition of new subsidiaries. The
transfer was completed on May 17, 1995. Mr. DeGeorge's oral guarantee
terminated upon the transfer. As of May 1996, Sports signed an agreement for an
outside party to manage the Fat Loss Coach venture in exchange for a royalty.
This outside party went out of business in 1997 after paying an additional
$56,000 in royalties.

THE DEGEORGE RACING TEAM

DeGeorge has sponsored, and continues to sponsor certain amateur athletes
(some of whom are or were employees of the Company or its subsidiaries) who
compete in biathlon or triathlon events by reimbursing travel, entrance fees and
equipment expenses. In the past certain professional athletes were also given
small stipends, although that is no longer the case. These athletes wear
DeGeorge logos and this sponsorship is a promotional venture for the Company.
Mr. DeGeorge also competed in some races and received reimbursements for
equipment and entrance fees. These amounts for Mr. DeGeorge totaled $1,109,
$876 and $4,239 for 1997, 1996 and 1995, respectively, and have been included in
computing Mr. DeGeorge's compensation reported herein. Expenses for
sponsorships totaled $68,500 in 1997, $79,600 in 1996 and $39,600 in 1995.

USAGE OF COMPANY JET AIRCRAFT

The jet aircraft in which the Company has a one-half interest is managed by
an independent aircraft charter service and is regularly chartered by third
parties or used by Company personnel for Company business as required. Mr.
DeGeorge has also used the aircraft for personal travel, the cost of which has
been charged to Mr. DeGeorge as compensation.

SPLIT-DOLLAR LIFE INSURANCE POLICY

During 1992, the Company entered into a "split-dollar" life insurance
agreement with Mr. DeGeorge and a trust established by him, pursuant to which
the Company has assisted in purchasing a survivorship insurance policy on the
lives of Mr. DeGeorge and his former spouse in the amount of $21.8 million.
Should Mr. DeGeorge remarry, the policy would be a survivorship policy on him
and his new spouse. The owner and beneficiary of the policy is a trust, of
which Mr. DeGeorge's descendants are beneficiaries. The trust reimburses the
Company for a minor portion of the premiums on such policy. Upon demand, the
Company is entitled to receive the lesser of (a) the cash surrender value of the
policy at such time, or (b) the total of premiums theretofore paid on the policy
by the Company, reduced by any other amounts previously received by the Company
under the agreement. In the event of the death of the survivor of Mr. DeGeorge
and his former spouse while the agreement is in effect, the Company will be
entitled to receive from the policy proceeds in amount equal to the premiums
paid by the Company, reduced by any other amounts previously received by the
Company under the agreement. The balance of the proceeds will be paid to the
trust, which will use such proceeds to purchase shares of Common Stock held by
the estate of Mr. DeGeorge. Annual premiums of $145,000 were paid in each of
the years 1997, 1996 and 1995 by the Company.

In addition, the Company maintains a term insurance policy on the life of
Mr. DeGeorge in the amount of $10 million. This policy was increased in
December 1996 from the previous level of $5 million. The increase in the face
amount of the policy was arranged to take advantage of favorable rates available
at the time and to take into account a possible increase in the value of the
Company's Common Stock. The owner and beneficiary of the policy is the
above-described trust for the benefit of Mr. DeGeorge's descendants. Should Mr.
DeGeorge predecease his former spouse, the term insurance would be paid to the
trust, which would use the proceeds to purchase shares of Common Stock held by
the estate of Mr. DeGeorge. The annual premium for this term insurance policy
increases annually and was

36
<PAGE>

$20,350 in 1997, $21,350 in 1996 (reflecting the increase in the face value of
the policy) and $10,700 in 1995, which amounts have been included in Mr.
DeGeorge's compensation for the respective years.

FLORIDA LITIGATION

DeGeorge/Florida paid the legal fees to defend Mr. DeGeorge in a lawsuit in
federal court against Mr. DeGeorge by a local Florida custom builder (GOZZO V.
DEGEORGE, S.D. FLA.). This action was settled with no payment by Mr. DeGeorge.
The Company's Board of Directors determined that the defense of this action was
a legitimate corporate expense of DeGeorge/Florida. On June 30, 1995, Mr.
DeGeorge and DeGeorge/Florida initiated a Florida state court action against Mr.
Gregory Gozzo and his related companies stating claims for tortious interference
and unfair trade practices. On January 5, 1996, Mr. Gozzo filed a counterclaim
alleging unjust enrichment, fraud, QUANTUM MERUIT, and theft of trade secrets.
This case is still in the discovery stage. The costs of this state court
lawsuit are also being borne by the Company. The expenses for both the federal
and state actions totaled $0, $2,400 and $132,000 in 1997, 1996 and 1995,
respectively.

37
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS

Independent Auditor's Report of McGladrey & Pullen, LLP on the consolidated
financial statements as of and for the year ending December 31, 1997

Report of Independent Accountants of Price Waterhouse LLP on the
consolidated financial statements as of and for each of the years in the
two year period ending December 31, 1996

Consolidated Balance Sheets as of December 31, 1997 and 1996

Consolidated Statements of Operations for the years ending December 31,
1997, 1996 and 1995

Consolidated Statements of Cash Flows for the years ending December 31,
1997, 1996 and 1995

Consolidated Statements of Changes in Stockholders' Equity for the years
ending December 31, 1997, 1996 and 1995

Notes to Consolidated Financial Statements

FINANCIAL STATEMENT SCHEDULES

All schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
are included in the Notes to Consolidated Financial Statements.

(b) REPORTS ON FORM 8-K

The registrant filed the following Current Report on Form 8-K during the
quarter ended December 31, 1997:

DATE ITEM REPORTED
- ---- -------------

December 5, 1997 Disclosure of action taken on December 1, 1997 by the Board
of Directors of the Company approving an agreement in
principle whereby a new company to be formed by Mr.
DeGeorge, and possibly certain other persons, would acquire
via merger all outstanding common stock of the Company,
other than shares owned by members of the buy-out group, at
a cash price of $1.50 per share pursuant to the
recommendation of the Special Committee of the Board
composed of the Company's two independent outside directors,
subject to the execution of a mutually satisfactory merger
agreement and obtaining all necessary corporate and
regulatory approvals, but not subject to financing.

Disclosure of a class action lawsuit challenging Mr.
DeGeorge's September 12, 1997 buy-out offer of $1.30 per
share having been filed in the Court of Chancery of the
State of Delaware in and for New Castle County.

Disclosure of notification received on December 3, 1997,
wherein the Company was notified by The Nasdaq Stock Market,
Inc. that a Listing Qualifications

38
<PAGE>

Panel had decided to delist the Company's common stock from
the Nasdaq National Market, effective with the close of
business on December 3, 1997.

2.1 Agreement and Plan of Merger among Peter R. DeGeorge, DeGeorge
Financial Acquisition Corp., BNC Acquisition Corp., the Continuing
Stockholders named therein and DeGeorge Financial Corporation,
dated as of January 29, 1998 is attached hereto as Exhibit 2.1.

3.1 Amended and Restated Certificate of Incorporation of the Company,
dated as of October 13, 1994, previously filed with the SEC as Exhibit
3.1 to the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, on November 11, 1994, is incorporated herein
by reference.

3.2 Amended By-Laws of the Company, as of December 10, 1992, previously
filed with the SEC as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, on March 25, 1993, are
incorporated herein by reference.

4.1 Specimen of the Company's Common Stock, previously filed with the SEC
as Exhibit 4.1 to Amendment No. 3 of the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 13, 1992, is
incorporated herein by reference.

4.2 Registration Rights Agreement, dated as of December 10, 1992,
previously filed with the SEC as Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, on March 25,
1993, is incorporated herein by reference.

4.3 Certificate of designations, preferences and rights of 10%
Non-Cumulative Preferred Stock of the Company, previously filed with
the SEC as Exhibit 4.4 to the registrant's registration statement on
Form S-1 (File No. 33-50696), on August 10, 1992, is incorporated
herein by reference.

4.4 Certificate of designations, preferences and rights of 121/2%
Cumulative Preferred Stock of DeGeorge, previously filed with the SEC
as Exhibit 4.5 to the registrant's registration statement on Form S-1
(File No. 33-50696), on August 10, 1992, is incorporated herein by
reference.

4.5 Stock Purchase and Shareholders Agreement dated as of November 22,
1988 among the Company, Peter R. DeGeorge, Kleinwort Benson Limited
and Creditanstalt Bankverein, ("Creditanstalt") previously filed with
the SEC as Exhibit 4.6 to Amendment No. 2 of the registrant's
registration statement on Form S-1 (File No. 33-50696), on November 4,
1992, is incorporated herein by reference.

4.6 Letter Agreement among the Company, Peter R. DeGeorge, Kleinwort
Benson Limited and Creditanstalt, dated October 7, 1992, amending the
Stock Purchase and Shareholders' Agreement, previously filed with the
SEC as Exhibit 4.7 to Amendment No. 2 of the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 4, 1992, is
incorporated herein by reference.

4.7 Indenture among the Company, DeGeorge, Plymouth Capital, Patwil Homes
and First Trust National Association, as Trustee, relating to the 12%
Senior Notes due 2001 previously filed with the SEC as Exhibit 4.7 to
the registrant's Annual Report on Form 10-K, for the year ended
December 31, 1994, on March 29, 1995 is incorporated herein by
reference.

4.8 Warrant Agreement between the Company and First Trust National
Association, as Warrant Agent, previously filed with the SEC as
Exhibit 4.8 to the registrant's Annual Report on Form 10-K, for the
year ended December 31, 1994, on March 29, 1995 is incorporated herein
by reference.

39
<PAGE>

4.9 $2,625,000 Senior Secured Bonds Series 1994, Combination Mortgage,
Security Agreement and Fixture Financing Statement, dated as of May 1,
1994, previously filed with the SEC as Exhibit 4.10 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, on August 12, 1994 is incorporated herein by reference.

10.1 Amended and Restated Credit Agreement, dated as of February 2, 1994,
among DeGeorge, Plymouth Capital, the banks listed therein and Morgan
Guaranty Trust Company of New York, as Agent, previously filed with
the SEC as Exhibit 10.1 to Amendment No. 3 of the registrant's
registration statement on Form S-1 (File No. 33-67362), on February
16, 1994, is incorporated herein by reference.

10.2 Pledge and Security Agreement, dated as of June 30, 1988, among
DeGeorge, Plymouth Capital, Morgan Guaranty Trust Company of New York,
as Agent, as Secured Party, and Morgan Bank (Delaware), as Collateral
Agent, as amended, previously filed with the SEC as Exhibit 10.2 to
the registrant's registration statement on Form S-1 (File No.
33-50696) on August 10, 1992, is incorporated herein by reference.

10.3 Tax Liability Allocation and Reimbursement Agreement, previously filed
with the SEC as Exhibit 10.3 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1992, on March 25, 1993, is
incorporated herein by reference.

10.4 1994 Stock Option and Restricted Stock Purchase Plan of the Company,
dated as of October 13, 1994, previously filed with the SEC as Exhibit
10.4 to the registrant's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1994, on November 11, 1994 is incorporated herein
by reference.

10.5 DeGeorge 401(k) Savings Plan, previously filed with the SEC as Exhibit
10.5 to the registrant's registration statement on Form S-1 (File No.
33-50696) on August 10, 1992, is incorporated herein by reference.

10.6 Split-dollar Life Insurance Agreement among the Company, Peter R.
DeGeorge and the Peter R. DeGeorge Trust, previously filed with the
SEC as Exhibit 10.6 to Amendment No. 2 to the registrant's
registration statement on Form S-1 (File No. 33-50696), on November 4,
1992, is incorporated herein by reference.

10.7 Consulting Services Agreement between the Company and BNC, previously
filed with the SEC as Exhibit 10.7 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 1992, on March 25, 1993,
is incorporated herein by reference.

10.8 Space and Services Agreement between DeGeorge and Star Services,
previously filed with the SEC as Exhibit 10.8 to Amendment No. 3 to
the registrant's registration statement on Form S-1 (File No.
33-50696), on November 13, 1992, is incorporated herein by reference.

10.9 Asset Purchase Agreement, dated April 19, 1988, between DeGeorge and
Insilco Corporation, as amended, previously filed with the SEC as
Exhibit 10.10 to Amendment No. 1 to the registrant's registration
statement on Form S-1 (File No. 33-50696), on October 7, 1992, is
incorporated herein by reference.

10.10 Employment Agreement, dated December 10, 1992 between the Company and
Herbert L. Getzler, previously filed with the SEC as Exhibit 10.10 to
the registrant's Annual Report on

40
<PAGE>

Form 10-K for the year ended December 31, 1992, on March 25, 1993, is
incorporated herein by reference.

10.11 Employment Agreement, dated December 10, 1992 between the Company and
Robert E. Reiner previously filed with the SEC as Exhibit 10.11 to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1992, on March 25, 1993, is incorporated herein by reference.

10.12 Letter Employment Agreement, dated January 15, 1993 between the
Company and Jonathan K. Dodge, previously filed with the SEC as
Exhibit 10.12 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, on March 25, 1993, is incorporated
herein by reference.

10.13 Sublease Agreement dated March 6, 1993 between KMART Corporation and
DeGeorge for the Fort Wayne, Indiana manufacturing and distribution
facility previously filed with the SEC as Exhibit 10.13 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1993, on May 11, 1993, is incorporated herein by reference.

10.14 Asset Purchase Agreement, dated August 23, 1993, among Patwil Homes,
Inc., Skor Exit, Inc. ("Skor"), Peter B. Orthwein and George Skakel,
III, previously filed with the SEC as Exhibit 1 to the registrant's
Current Report on Form 8-K, on September 2, 1993, is incorporated
herein by reference.

10.15 Covenant Not-to-Compete and Undertakings, dated August 23, 1993
between Skor and Patwil Homes, previously filed with the SEC as
Exhibit 10.24 to Amendment No. 1 to the registrant's registration
statement on Form S-1 (File No. 33-67362), on September 20, 1993, is
incorporated herein by reference.

10.16 Commercial Loan Note, dated August 23, 1993, issued by Patwil Homes to
Dauphin Deposit Bank and Trust, previously filed with the SEC as
Exhibit 10.25 to Amendment No. 1 to the registrant's registration
statement on Form S-1 (File No. 33-67362), on September 20, 1993, is
incorporated herein by reference.

10.17 Note Agreement, dated September 23, 1993, issued by the Company to
Peter R. DeGeorge, previously filed with the SEC as Exhibit 10.34 to
Amendment No. 2 to the registrant's registration statement on Form S-1
(File No. 33-67362), on September 30, 1993, is incorporated herein by
reference.

10.18 Demand Note, dated September 23, 1993, issued by the Company to Peter
R. DeGeorge, previously filed with the SEC as Exhibit 10.35 to
Amendment No. 2 to the registrant's registration statement on Form S-1
(File No. 33-67362), on September 30, 1993, is incorporated herein by
reference.

10.19 Registration Rights Agreement, dated January 14, 1994, between the
Company and the persons named in Schedule I thereto, previously filed
with the SEC as Exhibit 10.23 to Amendment No. 3 to the registrant's
registration statement on Form S-1 (File No. 33-67362), on February
16, 1994, is incorporated herein by reference.

10.20 Irrevocable Proxies, each dated January 14, 1994, granted to Peter R.
DeGeorge, previously filed with the SEC as Exhibit 10.24 to Amendment
No. 3 to the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, are incorporated herein by reference.

41
<PAGE>

10.21 Convertible Note due July 14, 1994 issued by Patwil Homes to Peter R.
DeGeorge, previously filed with the SEC as Exhibit 10.27 to Amendment
No. 3 to the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, is incorporated herein by reference.

10.22 Bridge Note dated February 2, 1994 from DeGeorge to Creditanstalt,
previously filed with the SEC as Exhibit 10.2 to Amendment No. 3 to
the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, is incorporated herein by reference.

10.23 Warrant Agreement dated as of February 2, 1994 between the Company and
Creditanstalt, previously filed with the SEC as Exhibit 10.3 to
Amendment No. 3 of the registrant's registration statement on Form S-1
(File No. 33-67362), on February 16, 1994, is incorporated herein by
reference.

10.24 Warrant Certificate dated February 2, 1994 evidencing 120,000 Common
Stock Purchase Warrants of the Company issued to Creditanstalt,
previously filed with the SEC as Exhibit 10.4 to Amendment No. 3 of
the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, is incorporated herein by reference.

10.25 Registration Rights Agreement dated as of February 2, 1994 between the
Company and Creditanstalt, previously filed with the SEC as Exhibit
10.5 to Amendment No. 3 of the registrant's registration statement of
Form S-1 (File No. 33-67362), on February 16, 1994, is incorporated
herein by reference.

10.26 Commitment letter, dated February 15, 1994, from BT Commercial
Corporation, as Agent, to the Company, previously filed with the SEC
as Exhibit 10.28 to Amendment No. 4 to the registrant's registration
statement on Form S-1 (File No. 33-67362), on March 10, 1994, is
incorporated herein by reference.

10.27 $800,000 loan by the State of Connecticut Department of Economic
Development to the Company and related documents, previously filed
with the SEC as Exhibit 10.27 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, on May 12, 1994 is
incorporated herein by reference.

10.28 Credit Agreement among DeGeorge and Plymouth Capital as borrowers, the
Company as guarantor and a group of lenders and BT Commercial
Corporation, as Agent, previously filed with the SEC as Exhibit 10.28
to the registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, on May 12, 1994 is incorporated herein by
reference.

10.29 Agreement of Indemnification dated as of October 13, 1994 by and among
the Company, BNC, Herbert L. Getzler and James G. Einloth, previously
filed with the SEC as Exhibit 10.28 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 on
November 11, 1994 is incorporated herein by reference.

10.30 Promissory note, in the principal amount of $154,835.47, dated as of
December 30, 1994 and the related Pledge Agreement from Herbert L.
Getzler to DeGeorge, previously filed with the SEC as Exhibit 10.30 to
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 on March 29, 1995, is incorporated herein by
reference.

10.31 Promissory note, in the principal amount of $106,480.03, dated as of
December 30, 1994 and the related Pledge Agreement from James G.
Einloth to DeGeorge, previously filed with the SEC as

42
<PAGE>

Exhibit 10.31 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 on March 29, 1995, is incorporated herein
by reference.

10.32 Promissory note, in the principal amount of $160,000 dated as of
January 3, 1995 from Herbert L. Getzler to DeGeorge, previously filed
with the SEC as Exhibit 10.32 to the registrant's Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1995 on May 11, 1995 is
incorporated herein by reference.

10.33 Construction Loan Purchase and Servicing Agreement dated as of April
14 1995, previously filed with the SEC as Exhibit 10.33 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, on May 11, 1995 is incorporated herein by reference.

10.34 Lease agreement, dated as of November 16, 1995, between DeGeorge and
PRD, previously filed with the SEC as Exhibit 10.34 to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1995, on March 29, 1996, is incorporated herein by reference.

10.35 Sale agreement, dated as of February 7, 1996, between DeGeorge and
Ryan Construction Company of Minnesota, Inc., previously filed with
the SEC as Exhibit 10.35 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1995, on March 29, 1996, is
incorporated herein by reference.

10.36 Promissory note, in the principal amount of $607,503.33 dated as of
April 11, 1996 from Herbert L. Getzler to the Company, previously
filed with the SEC as Exhibit 10.36 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, on May 10,
1996 is incorporated herein by reference.

10.37 Promissory note, in the principal amount of $309,453.98 dated as of
April 11, 1996 from James G. Einloth to the Company, previously filed
with the SEC as Exhibit 10.37 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, on May 10, 1996 is
incorporated herein by reference.

10.38 First Amendment to Construction Loan Purchase and Servicing Agreement
dated as of March 1, 1997, previously filed with the SEC as Exhibit
10.38 to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, on March 31, 1997, is incorporated herein by
reference.

10.39 Second Amendment to Construction Loan Purchase and Servicing Agreement
dated as of June 1, 1997, previously filed with the SEC as Exhibit
10.39 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, on August 19, 1997 is incorporated herein
by reference.

10.40 Third Amendment to Construction Loan Purchase and Servicing Agreement
dated as of August 1, 1997, previously filed with the SEC as Exhibit
10.40 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, on November 14, 1997 is incorporated
herein by reference.

11 Statement Regarding Computation of Per Share Earnings is attached
hereto as Exhibit 11.

21 Subsidiaries of the Company is attached hereto as Exhibit 21.

24 Powers of Attorney, dated March 16, 17, 18 and 30, 1998 are attached
hereto as Exhibit 24.

43
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DEGEORGE FINANCIAL CORPORATION
(Registrant)

Dated: March 31, 1998

By: /s/ PETER R. DEGEORGE
-----------------------
Peter R. DeGeorge
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following person on behalf of the Registrant and
in the capacities and on the dates indicated.

Dated: March 31, 1998

By: /s/ SALVATORE A. BUCCI
------------------------
Salvatore A. Bucci
Senior Vice President and
Chief Financial Officer

DIRECTORS:

PETER R. DEGEORGE
P. PETER PASCALI
JOHN H. WARREN
JAMES G. EINLOTH

Jonathan K. Dodge, by signing his name hereto, does hereby sign this
document on behalf of each of the above named directors of the Registrant
pursuant to powers of attorney duly executed by such persons.

Dated: March 31, 1998

By: /s/ JONATHAN K. DODGE
----------------------
Jonathan K. Dodge
(Attorney-in-fact)

44
<PAGE>

Independent Auditor's Report

To the Stockholders and
Board of Directors of
DeGeorge Financial Corporation

We have audited the accompanying consolidated balance sheet of DeGeorge
Financial Corporation as of December 31, 1997, and the related consolidated
statements of operations, cash flows and changes in stockholders' equity
(deficit) for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DeGeorge
Financial Corporation and its subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

The accompanying 1997 financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, during 1997 the Company incurred a loss from operations
of $17.8 million and its total liabilities exceeded its total assets by $11.3
million at December 31, 1997. In addition, the Company is currently
dependent on its ability to generate sufficient qualifying construction notes
receivable which could be financed to provide cashflow for its working
capital needs. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.

As discussed in Note 4 to the cosolidated financial statements, the Company
adopted Statement of Financial Accounting Standards, No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" on January 1, 1997 and changed its method of accounting for
transfers of loans.

/s/ McGLADREY & PULLEN, LLP

New Haven, Connecticut
March 20, 1998

45
<PAGE>

Report of Independent Accountants

To the Stockholders and
Board of Directors of
DeGeorge Financial Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' equity as of and for each of the two years in the period ended
December 31, 1996 (appearing on pages 47 through 50 of this Form 10-K Annual
Report) present fairly, in all material respects, the financial position,
results of operations and cash flows of DeGeorge Financial Corporation and
its subsidiaries as of and for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of DeGeorge Financial
Corporation for any period subsequent to December 31, 1996.

/s/ PRICE WATERHOUSE LLP

Stamford, Connecticut
March 14, 1997

46
<PAGE>

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,179 $ 3,737
Notes receivable, net 124,181 29,507
Mortgage loans held for sale 451 -
Receivables from related parties 661 1,047
Construction projects in process and inventory 4,774 7,833
Land held for sale 184 417
Prepaid expenses and other assets 3,777 4,587
Holdback reserve deposit, net 10,686 18,828
Mortgage servicing rights - 5,982
Senior Bond collateral fund 2,829 3,008
Real estate owned 3,280 3,787
Property, plant and equipment, less
accumulated depreciation of $3,024
and $2,751, at 1997 and 1996, respectively 13,146 12,191
Assets of discontinued operations 1,060 2,549
Deferred income taxes - 336
Intangible assets, less accumulated
amortization of $2,071 and $3,120
at 1997 and 1996, respectively 1,554 2,006
--------- --------
Total assets $ 167,762 $ 95,815
--------- --------
--------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 11,569 $ 7,053
Accrued construction costs and unearned
income on sold notes receivable 4,358 28,857
Accrued expenses 7,236 4,399
Deferred income 4,623 -
Customer deposits 255 821
Collateralized borrowings 103,430 -
12% Senior notes 43,819 43,738
Notes payable 3,757 3,527
Capital lease obligations - 925
--------- --------
Total liabilities 179,047 89,320
--------- --------
Commitments and contingencies (Note 13)

Stockholders' equity (deficit):
Common Stock; par value $.10, 25,000,000
shares authorized, 10,810,193 shares issued
and outstanding 1,081 1,081
Paid in capital 47,384 47,384
Accumulated deficit (59,750) (41,970)
--------- --------
Total stockholders' equity (deficit) (11,285) 6,495
--------- --------
Total liabilities and stockholders' equity (deficit) $ 167,762 $ 95,815
--------- --------
--------- --------
</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDING DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Financial services income $ 12,080 $ 7,088 $ 6,594
-------- ------- -------
Contract services:
Contract revenue 58,868 76,477 56,974
Materials and handling charges (36,763) (47,040) (35,656)
-------- ------- -------
Contract services income 22,105 29,437 21,318
-------- ------- -------
Construction services:
Construction revenue 10,676 9,685 3,641
Cost of construction (9,235) (7,718) (2,614)
-------- ------- -------
Construction services income 1,441 1,967 1,027
-------- ------- -------

Total income 35,626 38,492 28,939

Operating expenses:
Selling 15,777 12,786 11,998
General and administrative 18,270 17,104 15,138
Provision for credit losses 4,282 1,975 2,460
Interest expense 10,121 6,230 7,558
Other expense (income) 1,344 (194) 210
Distribution center closing costs 2,799 - -
Restructuring expense - - 1,358
-------- ------- -------
(Loss) income from continuing
operations before income taxes (16,967) 591 (9,783)

Income tax (provision) benefit (516) 236 (1,272)
-------- ------- -------
(Loss) income from continuing
operations (17,483) 827 (11,055)

Discontinued operations-Patwil Homes,
Inc.
(Loss) income from operations (297) 350 (8,412)
Estimated loss on disposal during
the phase out period - - (8,206)
-------- ------- -------
Net (loss) income $(17,780) $ 1,177 $(27,673)
-------- ------- -------
-------- ------- -------

Basic and diluted (loss) earnings per
common share:
(Loss) income from continuing
operations $ (1.62) $ 0.08 $ (1.02)
(Loss) income from discontinued
operations (0.03) 0.03 (1.54)
-------- ------- -------
Net (loss) income $ (1.65) $ 0.11 $ (2.56)
-------- ------- -------
-------- ------- -------

</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS)

1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (17,780) $ 1,177 $ (27,673)
---------- --------- ----------
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 7,645 12,118 5,772
Accretion of discount on collateralized borrowings 4,715 - -
Provision for credit losses 4,282 2,257 4,584
Provision for sales promotions and incentives 2,350 3,211 6,220
Loss (gain) on sale of property, plant and equipment 298 (651) 8
Gain on early debt extinguishment - (100) -
Loss (gain) from discontinued operations 297 (350) 16,619
Loss (gain) on sale of real estate owned (410) 760 1,126
Gain on sale of loans (728) - -
Loans originated for sale (39,425) - -
Proceeds from sales of loans 39,702 - -
Notes receivable originated for sale - (144,810) (80,969)
Proceeds from sales of notes receivable,
net of discounting and holdback - 142,131 105,401
Decrease (increase) in other operating assets13,996 (29,121) (18,314)
(Decrease) increase in other operating liabilities (13,115) 9,879 13,050
---------- --------- ----------
Total adjustments 19,607 (4,676) 53,497
---------- --------- ----------
Net cash provided by operating activities of:
Continuing operations 1,827 (3,499) 25,824
Discontinued operations 1,192 5,464 (672)
---------- --------- ----------
Net cash provided by operating activities 3,019 1,965 25,152
---------- --------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property, plant and equipment 2,829 5,373 2,628
Purchase of property, plant and equipment (4,955) (6,643) (3,409)
Proceeds from sales of real estate owned 3,037 1,166 1,887
Net increase in notes receivable (97,969) - -
Notes receivable repurchased (6,540) - -
---------- --------- ----------
Net cash (used in) provided by investing activities (103,598) (104) 1,106
---------- --------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from collateralized borrowings,
net of discounting 108,700 - -
Repayments of collateralized borrowings (9,985) - -
Principal payments on notes payable - revolver - - (61,372)
Borrowings on notes payable - revolver - - 40,600
Principal payments on notes payable - other (442) (118) -
Borrowings on notes payable - other 673 - -
Deferred debt issue cost - - (26)
Principal payments on 12% senior notes - (525) (3,601)
Principal payments on capital leases (925) (319) (322)
---------- --------- ----------
Net cash provided by (used in) financing activities 98,021 (962) (24,721)
---------- --------- ----------

Net change in cash and cash equivalents (2,558) 899 1,537

Cash and cash equivalents - beginning of the year 3,737 2,838 1,301
---------- --------- ----------
Cash and cash equivalents - end of the year $ 1,179 $ 3,737 $ 2,838
---------- --------- ----------
---------- --------- ----------
</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDING DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1994 10,810,193 $ 1,081 $ 47,384 $ (15,474) $ 32,991
Net Loss - - - (27,673) (27,673)
---------- ------- -------- --------- --------
December 31, 1995 10,810,193 1,081 47,384 (43,147) 5,318
Net Income - - - 1,177 1,177
---------- ------- -------- --------- --------
December 31, 1996 10,810,193 1,081 47,384 (41,970) 6,495
Net Loss - - - (17,780) (17,780)
---------- ------- -------- --------- --------
December 31, 1997 10,810,193 $1,081 $47,384 $(59,750) $(11,285)
---------- ------- -------- --------- --------
---------- ------- -------- --------- --------
</TABLE>

See accompanying notes to consolidated financial statements

50
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS OF THE COMPANY:

DeGeorge Financial Corporation (the "Company") is a holding company whose
significant assets are its investment in its wholly owned operating subsidiaries
DeGeorge Home Alliance, Inc. ("DeGeorge"), and its wholly owned subsidiary,
Plymouth Capital Company, Inc. ("Plymouth Capital"); DeGeorge Homes of Florida,
Inc. ("DeGeorge/Florida") and DeGeorge Homes of New England, Inc. ("DeGeorge/New
England"). The combined assets, liabilities, earnings and equity of DeGeorge,
Plymouth Capital, DeGeorge/Florida and DeGeorge/New England are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. Accordingly, separate financial statements and other
disclosures concerning DeGeorge, Plymouth Capital, DeGeorge/Florida and
DeGeorge/New England are not deemed to be material to investors. In November
1995, the Company announced the closing of its Patwil Homes' business (see "Note
20 - Discontinued Operations").

DeGeorge provides a combination of construction financing and support
services in 47 states, primarily from its Cheshire, Connecticut facility.
DeGeorge's financing package facilitates home ownership, with significantly
lower equity investments than are typically required by construction lenders and
mortgage financing institutions, by offering single-source financing at
competitive rates for land purchased by its customers (up to 95% of land
acquisition costs) and 100% construction financing for services, materials and
construction work performed by approved subcontractors engaged by its customers.
The construction financing provided by Plymouth Capital is secured by a mortgage
on the home and home site. Plymouth Capital establishes a construction loan
account against which payment for land, closing costs, materials, subcontractor
services and the DeGeorge services are charged. During the construction period
the customer pays only interest on the loan usually after an initial
interest-free grace period. Permanent financing, once the home is completed, is
either obtained by the customer from a third-party lender with assistance from
Plymouth Capital, or provided directly by Plymouth Capital with the loan
typically being sold in the secondary mortgage market.

The Company is also engaged in custom turnkey homebuilding operations
through its DeGeorge/Florida and DeGeorge/New England subsidiaries and mortgage
banking operations through Plymouth Capital, primarily in Connecticut and
Florida.

During the second quarter of 1997, DeGeorge introduced local purchase of
building materials in the customer's area as its exclusive method of providing
materials purchasing services to its customers. Local purchasing enables
DeGeorge to timely meet its customers' building materials needs by arranging for
direct delivery from local vendors to customers' building sites. This approach
eliminated the former process of purchasing and warehousing building materials
by DeGeorge for later delivery to customers from DeGeorge owned or leased
distribution centers, which locations restricted DeGeorge's ability to expand
its sales areas and burdened DeGeorge with escalating shipping and fixed
facilities costs. Accordingly, DeGeorge closed all three of its distribution
centers in the second quarter of 1997 and began servicing customers through
local vendors at that time (see "Note 15 - Restructuring Expense").

The Company is currently dependent upon cash flow from the financing of
construction loans for its working capital needs. Since April 1995, the Company
has been transferring its construction loans to a mortgage financing company
pursuant to the Construction Loan Purchase and Servicing Agreement (the
"Construction Loan Agreement"), under which the Company may, at its discretion
and subject to certain criteria, transfer all of its construction loans. On
June 1, 1997, certain provisions of

51
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

the Construction Loan Agreement were amended (the "June 1997 Amendment"),
including a reduction in the holdback deposit requirement from 12% to 8% and a
change in the benchmark for computing the interest rate on its borrowings, from
prime plus 11/2% to the three month London Interbank Offered Rate ("LIBOR") plus
3% (10% and 8.91%, respectively, at December 31, 1997), effectively reducing the
interest rate on its borrowings 109 basis points at December 31, 1997. The June
1997 Amendment also extended the term of the Construction Loan Agreement to June
1, 1999. As of August 1, 1997, the Construction Loan Agreement was further
amended to provide for transfer of construction loans for turnkey activities
and an earlier transfer of core business construction loans involving customer
land acquisition advances.

Under the Construction Loan Agreement, loans are transferred at face value,
net of cost of funds discounting. The Construction Loan Agreement also provides
for a deposit account, owned by the Company, for retention of a portion of the
proceeds from the transfer of construction loans as security for credit losses.
The balance of deposits at December 31, 1997 and December 31, 1996 was $12.4
million and $22.4 million, respectively. The significant decrease in the
balance of deposits is attributable to the one-third reduction in reserve
requirements as provided for in the June 1997 Amendment, which resulted in the
return of $7.5 million of deposits to the Company in June 1997. Deposits are
reflected in the financial statements net of provision for estimated credit
losses ($1.7 million and $3.6 million at December 31, 1997 and December 31,
1996, respectively) on construction loans transferred. (see "Note 5 - Transfer
and Servicing of Notes Receivable").

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. As a result of discontinuing the operations
of Patwil Homes, related assets as of December 31, 1997, and 1996, have been
classified as "Assets of discontinued operations" and operating results for each
of the years presented are separately stated as "Discontinued operations". All
intercompany accounts and transactions have been eliminated.

RECLASSIFICATIONS

Certain reclassifications have been made to the accompanying 1996 and 1995
consolidated financial statements to conform to the 1997 presentation. These
reclassifications had no effect on net (loss) income.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

52
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

FINANCIAL SERVICES INCOME

Financial services income is comprised principally of interest charged to
customers on construction loans, net loan servicing income, loan origination
fees and customer insurance placement fees. Net loan servicing income
represents fees collected by the Company for servicing construction loans that
have been sold, offset by amortization of mortgage servicing rights recorded at
the time of the construction loan sale. Interest on construction financing,
which is accrued and included in operating income, is based on contractually
established interest rates applied against outstanding customer loan balances,
and is posted monthly to customers' accounts. Interest is not recognized as
income on customer accounts where substantial doubt exists as to collectibility.
Loan origination fees, net of direct loan origination costs, are deferred and
amortized as an adjustment to the loan's yield generally over the contractual
life of the loan, utilizing a method which approximates the interest method.

Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. ("FAS") 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". Under FAS 125, the
Company began accounting for the transfer of its notes receivable under the
Construction Loan Agreement as a pledge of collateral under a borrowing
arrangement for all transactions occurring after December 31, 1996. Prior to
January 1, 1997, the Company accounted for the transfers of its receivables as
sales. Although there is no difference in substance or form from sales of
notes receivable that occurred prior to January 1, 1997 to those that
transferred after December 31, 1996, the transactions that occurred prior to
1997 retain their sale characteristics in the financial statements since FAS 125
prohibits retroactive application to transactions occurring before January 1,
1997. Thus, loans transferred prior to 1997 are not recognized as assets (or as
pledged collateral) on the balance sheets of the Company, while loans
transferred in 1997 are so recognized.

Consistent with the adoption of FAS 125, financial services income includes
interest accrued on construction loans transferred pursuant to the Construction
Loan Agreement after December 31, 1996 without offset for related interest
expense. The cost of the related collateralized borrowings on notes receivable
transferred after 1996 is included in interest expense. For loans underwritten
prior to 1997, servicing income continues to be recognized net of servicing
expense in financial services income.

CONTRACT SERVICES INCOME

Contract services income represents the revenue on DeGeorge's core business
of construction support activities. DeGeorge's closure of its distribution
centers in April 1997 fundamentally changed its method of operations. Contract
services income represents margin earned by DeGeorge from services rendered to
customers, including technical support services, budgeting services and
materials purchasing services. In April 1997, concurrent with the closing of
its distribution centers, DeGeorge determined that recording contract services
income ratably over the service period based on the ratio of services performed
at the time of sale and thereafter to total services performed over the service
period more closely matched DeGeorge's new business operations. Accordingly,
upon the closing of the construction loan, which is the confirmed point of sale
for DeGeorge, 60% of the related contract service income is recognized with the
balance of unearned contract services income recognized ratably over the
following ten month period.

For contracts fulfilled prior to April 1997, contract revenue and materials
charges were recognized based on the ratio of individual shipments of materials
to total shipments of materials. Contract revenue is reflected net of sales
discounts and allowances, which typically consist of a free interest period or
merchandise.

53
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

An allowance for sales promotions is established through a provision for
sales promotions charged to operations on a basis consistent with the
recognition of related contract services income and is recorded as an offset
against contract fee income. This allowance is recognized on the balance sheet
as a reduction of notes receivable and is maintained at a level considered
necessary by management to absorb sales discounts expected to be taken by
customers. Sales promotions are charged against the allowance at the time they
are earned by the customers.

Contract revenue for the years ended December 31, 1997, 1996 and 1995 is as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross contract revenue $61,218 $79,688 $63,019
Less: sales discounts and allowances (2,350) (3,211) (6,045)
------- ------- -------
Contract revenue $58,868 $76,477 $56,974
------- ------- -------
------- ------- -------
</TABLE>
CONSTRUCTION SERVICES INCOME

Construction services income reflects the results of operations for turnkey
homebuilding operations as well as sales to American Indian tribal groups,
community service and non-profit organizations ("Other construction revenue").
DeGeorge has adopted the completed contract method of accounting for recognizing
construction revenue from turnkey operations. Under this method, billings and
costs are accumulated during the period of construction, but no profits are
recorded before the completion of the work. Provisions for estimated losses on
uncompleted contracts are made when determined. Administrative costs are not
allocated to construction projects.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Turnkey construction revenue $9,095 $7,120 $1,105
Other construction revenue 1,581 2,565 2,536
------- ------- -------
Construction revenue $10,676 $9,685 $3,641
------- ------- -------
------- ------- -------
</TABLE>

MORTGAGE SERVICING RIGHTS

Transfers of construction loans prior to January 1, 1997 pursuant to the
Construction Loan Agreement are treated as sales of notes receivable. At the
time of sale, the fair value of mortgage servicing rights was calculated based
upon estimated service fees that the Company would expect to receive over the
life of the loans sold, less incremental costs associated with servicing the
loans. In the event of unanticipated prepayments and/or impairments on the sold
notes, the capitalized mortgage servicing rights are adjusted as necessary.

LOANS HELD FOR SALE

Loans held for sale are those loans the Company has the intent to sell in
the foreseeable future, and are carried at the lower of aggregate cost or market
value, taking into consideration all open positions. Gains and losses on the
sales of loans are recognized at the trade dates, and are determined by the
difference between the sales proceeds and the carrying value of the loans.
Loans are sold with servicing released.

54
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

ALLOWANCE FOR ESTIMATED CREDIT LOSSES

The allowance for estimated credit losses, a material estimate susceptible
to significant change in the near-term, is maintained at a level considered
necessary by management to absorb potential losses on notes receivable and is
established through a provision for credit losses charged against operations.
The adequacy of the allowance is based on management's evaluation of the factors
underlying the known and inherent risk characteristics of the notes receivable
portfolio, including actual credit and real estate owned ("REO") loss
experience, current and anticipated economic conditions, and other relevant
factors. In determining the allowance for estimated credit losses the Company
obtains appraisals for significant properties, when considered necessary.
Realized credit losses are charged against the allowance and include specific
writedowns to net realizable value when receivables are transferred to REO. The
Company is exposed to the risk that the customer will fail to complete their
home and the balance of the note receivable will exceed the market value of the
unfinished home. Because there are subjective judgments involved, future
adjustments to the allowance may be necessary if conditions differ from the
assumptions used in performing the evaluation. The Company's notes receivable
are comprised of smaller balance homogeneous loans which are collectively
evaluated for impairment.

ADVERTISING

The Company expenses costs of advertising when incurred, or if later, when
first aired or consumed. At December 31, 1997 and 1996, $400,000 and $700,000,
respectively, of advertising costs were included in prepaid expenses and other
assets. Total advertising expenses for the years ended December 31, 1997, 1996
and 1995 were $5.2 million, $2.0 million and $1.8 million, respectively.

STOCK-BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. ("APB") 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation. FAS 123, "Accounting for Stock-Based Compensation," issued in
1995 is effective for years beginning after December 15, 1995. Under FAS 123
the Company is not required to and did not change its method of accounting for
stock-based compensation. Pro forma net income and earnings per share based on
the fair value method of accounting are disclosed in Note 18.

INCOME TAXES

The Company recognizes income taxes under the asset and liability method as
required by FAS 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are recognized based on the future tax consequences
of events that have been recorded in the Company's financial statements.
Deferred tax assets and liabilities are measured using existing tax rates which
are expected to apply to taxable income in the years in which current temporary
differences are expected to be recovered or settled and are based on the
difference between the financial statement and income tax bases of assets and
liabilities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period of change.

Deferred tax assets are reduced by a valuation allowance that reflects, on
the weight of available evidence, the likelihood that the deferred tax asset
will more likely than not be realized. In determining whether the tax asset is
more likely than not to be realized, a probability of realization of more than
50% should be indicated by objectively verifiable evidence.

55
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

FAS 128, "Earnings Per Share," which supersedes APB 15 (also "Earnings Per
Share"), governs the presentation of earnings per share by all entities that
have common stock or potential common stock, such as options, warrants and
convertible securities, outstanding that trade in a public market. The Company
is required to present basic and diluted earnings (loss) per share in its
statements of operations. Diluted per share amounts assume the conversion,
exercise, or issuance of all potential common stock instruments unless the
effect is to reduce the loss or increase the income per common share from
continuing operations. In addition, for those entities with complex capital
structures, the statement also requires a reconciliation of the numerator and
denominator used in the computation of both basic and diluted earnings (loss)
per share to be disclosed.

The Company has initially applied FAS 128 for the year ending December 31,
1997. Basic and diluted earnings per share were equal in each of the years
ended December 31, 1997, 1996 and 1995.

For the years ended December 31, 1997 and 1995, basic and diluted loss per
common share is based on 10,810,193 weighted average number of shares
outstanding, as the effect of common stock equivalents (i.e. weighted
average effect of options outstanding) was anti-dilutive.

Weighted average shares for the 1996 computation of earnings per share are as
follows:

<TABLE>

<S> <C>
Weighted average shares outstanding - basic 10,810,193
Weighted average effect of options outstanding 12,924
----------
Weighted average shares outstanding - diluted 10,823,117
----------
----------

</TABLE>

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and investments in short-term money
market or U.S. Government Securities with an original maturity of three months
or less. Investments are valued at cost which approximates market. Cash flows
from notes receivable are reported net. The Company maintains amounts in banks
which, at times, may exceed federally insured limits. The Company has not
experienced any losses from such concentrations.

INVENTORY

Inventory is stated at the lower of cost or market with cost determined on
a first-in, first-out basis.

REO

REO consists of properties acquired through, or in lieu of, loan
foreclosure or other proceedings and is initially recorded at fair value at the
date of transfer, which establishes a new cost basis. After transfer,
properties are held for sale and are carried at the lower of cost or fair value
less estimated costs of disposal. Any write-down to fair value at the time of
acquisition is charged to the allowance for estimated credit losses. Properties
are evaluated regularly to ensure the recorded amounts are supported by current
fair values, and charges to operations are recorded as necessary to reduce the
carrying amount to fair value less estimated cost of disposal. Gains or losses
are included in operations upon disposal.

56
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment is stated at cost for purchased assets, and
at the lower of fair value or the net present value of the minimum lease
payments required over the term of the lease for assets under capital leases,
net of accumulated depreciation and amortization. Leasehold improvements are
capitalized and amortized over the shorter of the terms of the related leases or
the estimated economic lives of the improvements. Depreciation is charged to
operations using the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years. Amortization of property under
capital leases is charged to operations using the straight-line method over the
life of the lease. Gains and losses on dispositions are recognized upon
realization. Maintenance and repairs are expensed as incurred and improvements
are capitalized. Cost of buildings includes capitalized interest, which was
$127,000 in 1997.

LAND HELD FOR SALE

Land held for sale (building lots) is stated at the lower of cost or net
realizable value.

INTANGIBLE ASSETS, NET

Intangible assets include net deferred debt issuance costs which include
costs associated with the issuance of the 12% Senior Notes due 2001 (the "12%
Senior Notes"). Debt issuance costs are amortized on a straight line basis over
the terms of the related debt.

RELATED PARTY TRANSACTIONS

Directors and officers of the Company and their affiliates have had
transactions with the Company, and it is expected that such persons will
continue to have such transactions in the future. In the opinion of the
management, the transactions with related parties did not involve more than
normal risks of collectibility or favored treatment or terms, or present
other unfavorable features. Note 16 contains details regarding related party
transactions.

NOTE 3 - CURRENT OPERATING ENVIRONMENT AND
GOING CONCERN CONSIDERATIONS:

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
consolidated financial statements, during the year ending December 31, 1997, the
Company incurred a net loss of $17.8 million, and as of December 31, 1997, its
total liabilities exceed its total assets by $11.3 million.

The financial statements do not include any adjustment relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient new orders to
generate adequate cash flow to meet its obligations on a timely basis, to
continue to comply with the terms of its financing agreement and ultimately to
attain profitable operations. At December 31, 1997, the Company was
committed to fund $37.0 million of contractual obligations to its customers,
which are not recognized in the accompanying balance sheet; however, the
Company has received advances relating to these commitments under the
Construction Loan Agreement. Management is continuing its efforts to restructure
its operations to enhance profitability and cash flow so that the Company can
meet its obligations and sustain operations.

57
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During 1997, contract services income decreased by $7.3 million as compared
with 1996. This decrease was attributable to the reduction in loan closings
recorded during the year, which totaled 934 in 1997 as compared to 1,449 in
1996, a decrease of 515, or 35.5%. The departure of a large number of the
Company's most productive sales representatives occurred during the period from
July 1996 to March 1997 and caused a significant reduction in sales activity in
the third and fourth quarters of 1996 and the first and second quarters of 1997.

In August 1996, the Company initiated a lawsuit in federal court against
three former executives, alleging that these individuals, while still employed
by the Company, committed various acts representing breaches of their duties to
the Company, including improperly soliciting members of the Company's
independent sales force to work for their new venture, encouraging the sales
force to curtail its sales activity and stealing Company-generated sales leads.
The lawsuit also alleges that the defendants misappropriated proprietary
information, proprietary software and other trade secrets and further, that the
defendants disrupted the Company's ongoing business operations by falsely
creating a grim view of the Company's financial situation among employees and
sales representatives to convince them to leave the Company and join the
defendants' new venture.

Management's assessment at the outset of 1997 was that a massive recruiting
campaign to replace lost field sales representatives was essential. In
addition, to augment its diminished field sales capability, the Company
accelerated its multi-year plan for developing telemarketing operations as a
secondary channel for pursuing sales leads. This change in strategy increased
selling costs in 1997, by $3.0 million, primarily due to an increase of $3.1
million in direct response advertising costs, of which $2.4 million pertained to
costs incurred for airings of the Company's infomercial, $2.0 million of wages
relating to direct marketing and sales management expansion costs and $1.5
million in costs pertaining to expansion of permanent mortgage origination
activities. The 1997 increase was offset by $3.0 million of reduced commission
expenses in connection with reduced sales volume and $600,000 of reduced
recruitment costs and related savings achieved through the elimination of
reimbursed expenses to sales representatives.

The Company's 1997 net loss includes depreciation and amortization expense
of $7.6 million. Such expenses do not require current cash expenditures.

Management has attributed a portion of its net loss to the depreciation and
amortization expense incurred as a result of its investment in new facilities,
systems and other assets, as well as interest expense incurred to finance notes
receivable, and the Company's investment in business operations to increase the
number of loan closings necessary to realize economies of scale.

Although the factors discussed above may indicate that the Company may be
unable to continue as a going concern, management believes that a combination of
factors will enable the Company to generate sufficient cash flow to sustain
operations and to continue as a going concern. Such factors include the
following:

- During 1997, the Company changed its method of procuring materials for
its customers. Beginning in the second quarter, the Company began
arranging for the purchase and delivery of materials to the customer's
building site through vendors located in the customer's area and
closed all of its distribution centers. This change in business
operations resulted in a non-recurring charge of $2.8 million in 1997.
The Company also recorded $600,000 of non-recurring customer
accommodations in connection with the conversion to local purchasing.
The Company believes that this change will reduce its cost of

58
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

operations and allow the Company to expand sales in geographic areas
that could not be cost effectively served from its distribution
centers. As a result, it is expected that this change in operations
will provide for increased sales, and should contribute to improved
operations and cash flow.

- Also during 1997, the Company favorably amended the terms of the
Construction Loan Agreement, under which it generates funds to meet
its working capital needs. Funds from the financing of notes
receivable are now more readily available, reserve requirements have
been reduced and the interest rate on borrowings has declined.
The Construction Loan Agreement was also extended to June 1, 1999.

- While the Company is currently dependent upon cash flow from the
financing of construction loans under the Construction Loan Agreement
for its working capital needs, the available balance of notes
receivable at December 31, 1997 exceeded the Company's cash flow needs
at that date and the Company believes that a majority of its notes
receivable will be eligible for financing under the terms of the
Construction Loan Agreement. The Company also believes it will
generate sufficient new notes receivable for financing under the
Construction Loan Agreement to meet its anticipated cash needs.

- The Company has invested $4.3 million in its corporate facility, which
is subject to a mortgage, the balance of which was $600,000 at
December 31, 1997. In June 1997, the Company began construction of a
second facility adjacent to its corporate offices. The cost of
completion for the second facility, including furniture and fixtures,
is expected to be $5.3 million of which $1.9 million had been
disbursed as of December 31, 1997 and was financed through working
capital. The Company believes that the mortgaging of these and
other real estate holdings would provide a significant source of
working capital. Additional sources of cash available to the Company
also include the sale of certain other assets and the further
disposition of remaining assets of discontinued operations. The
Company believes that the proceeds from these asset sales would be
reflective of their carrying value.

Management believes that the above described measures will enhance the
operations and cash flows of the Company and ultimately will result in attaining
profitable operations which will enable the Company to continue as a going
concern.

NOTE 4 - NOTES RECEIVABLE:

Notes receivable at December 31, 1997, and 1996, are as follows (in
thousands):

DECEMBER31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Contractual value of notes receivable $166,662 $48,079
Less: unfunded contractual obligations (37,034) (15,072)
-------- -------
Less: $129,628 $33,007
Allowance for sales promotions and incentives (691) (878)
Allowance for estimated credit losses (3,571) (2,521)
Deferred loan origination fees, net (1,185) (101)
-------- -------
Notes receivable, net $124,181 $29,507
-------- -------
-------- -------
</TABLE>

59
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

At December 31, 1997, $107.8 million of the contractual value of notes
receivable have been pledged as collateral under the Construction Loan
Agreement. Loans transferred under the Construction Loan Agreement prior to
January 1, 1997, the balance of which was $61.1 million at December 31, 1997,
retained their sale characteristics and are not included in notes receivable.

Notes receivable includes accounts with contractual maturities which exceed
one year, as the contractual term of construction loans is generally 24 months.
As of December 31, 1997, and 1996, contractual maturities of the receivables
were as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Current $ 41,725 $12,360
Long-term 87,903 20,647
-------- -------
Total $129,628 $33,007
-------- -------
-------- -------
</TABLE>

Historically, a portion of the notes receivable portfolio has been repaid
before stated contractual maturity dates. Therefore, the above allocation
should not be regarded as a forecast of future cash collections.

The activity in the allowance for credit losses for the years ended
December 31, 1997, 1996 and 1995, is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $2,521 $3,106 $4,236
Provision for credit loss 4,282 1,975 2,460
Reclass from (to) holdback reserve deposit (see "Note 5") 1,781 (1,002) (2,540)
Charge-offs, net of recoveries (5,013) (1,558) (1,050)
------ ------ ------
Balance, end of year $3,571 $2,521 $3,106
------ ------ ------
------ ------ ------
</TABLE>

NOTE 5 - TRANSFER AND SERVICING OF NOTES RECEIVABLE:

Under the Construction Loan Agreement, loans are transferred at face value,
net of cost of funds discounting. The Construction Loan Agreement also provides
for a deposit account, owned by the Company, for retention of a portion of the
proceeds from the transfer of construction loans as security for credit losses.
Deposits are reflected in the financial statements net of allowance for
estimated credit losses representing the estimated impairment of the deposit in
connection with the recourse provisions of the Construction Loan Agreement on
construction loans transferred. The Company received interest income (reflected
in financial services income) on deposit funds, of $927,000, $817,000 and
$268,000 in 1997, 1996 and 1995, respectively.

60
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Funds retained under the holdback provision are presented as holdback
reserve deposit on the balance sheet, net of estimated credit losses anticipated
on construction loans sold, as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Holdback reserve deposit $12,447 $22,370
Allowance for estimated credit losses (1,761) (3,542)
-------- -------
Holdback reserve deposit, net $10,686 $18,828
-------- -------
-------- -------
</TABLE>
Mortgage servicing rights on receivables transferred prior to January 1,
1997, and accounted for as sales are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year $5,982 $3,036
Internally originated - 13,557
Less: Amortization (5,982) (10,611)
-------- -------
Balance, end of year $ - $5,982
-------- -------
-------- -------
</TABLE>
The amortization of mortgage servicing rights is included in financial
services income.

As described in Note 2, transfers of loans under the Construction Loan
Agreement subsequent to 1996 are considered financing arrangements and not loan
sales. At December 31, 1997, the balance of these collateralized borrowings is
$103.4 million, which is net of discount of $4.4 million. For the year ended
December 31, 1997, $4.7 million of discount accretion is included in interest
expense.

At December 31, 1997 and 1996, respectively, the Company was servicing, on
behalf of the mortgage finance company, $61.1 million and $180.0 million, face
value, of construction loans. At December 31, 1997 and 1996, accrued
construction costs and unearned income on sold notes receivable was $4.4 million
and $28.9 million, respectively, of which $4.4 million and $18.3 million,
respectively, related to unfunded contractual liabilities to customers.

NOTE 6 - CONSTRUCTION PROJECTS IN PROCESS AND INVENTORY:

Construction projects in process and inventory at December 31, 1997 and
December 31, 1996, is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Construction projects in process and model homes $4,733 $3,592
Raw materials inventory 41 4,241
------ ------
Construction projects in process and inventory $4,774 $7,833
------ ------
------ ------
</TABLE>

61
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT:

At December 31, 1997 and 1996, property, plant and equipment includes (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Land and land improvements $ 1,024 $1,092
Buildings and building improvements 6,798 4,942
Equipment 7,921 7,459
Capitalized leases 427 1,449
------- ------
16,170 14,942
Less: accumulated depreciation (2,747) (2,348)
Less: accumulated amortization of capitalized leases (277) (403)
------- ------
Property, plant and equipment, net $13,146 $12,191
------- ------
------- ------
</TABLE>

Depreciation expense for the years ended December 31, 1997, 1996 and 1995,
was $1.1 million, $873,000 and $914,000, respectively. Amortization of assets
recorded under capital leases for the years ended December 31, 1997, 1996 and
1995, was $66,000, $88,000 and $119,000 respectively.

NOTE 8 - ACCRUED EXPENSES:

Accrued expenses at December 31, 1997 and 1996, include (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Interest $3,802 $1,401
Insurance 881 808
Compensation and related costs 795 801
Other 674 653
Discontinued operations 258 337
Construction job cost expenses - 253
Professional fees 216 146
Distribution center closing costs 610 -
------ ------
Accrued expenses $7,236 $4,399
------ ------
------ ------

</TABLE>

62
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 9 - INCOME TAXES:

The components of the income tax (benefit) provision on a consolidated
basis, including discontinued operations for the years ended December 31, 1997,
1996 and 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current income tax:
Federal $ 109 $ - $ 207
State 71 - 36
----- ------ ------
180 - 243
----- ------ ------
Deferred income tax:
Federal 286 (286) 2,045
State 50 (50) 361
----- ------ ------
336 (336) 2,406
----- ------ ------
Income tax (benefit) provision $516 $(336) $2,649
----- ------ ------
----- ------ ------

Continuing operations $516 $(236) $1,272
Discontinued operations - (100) 1,377
----- ------ ------
Income tax (benefit) provision $516 $(336) $2,649
----- ------ ------
----- ------ ------
</TABLE>

For the years ended December 31, 1997, 1996 and 1995, the provision
(benefit) for income taxes from continuing operations differs from the amount of
income tax determined by applying the applicable U.S. statutory federal income
tax rate of 34% to pretax income from continuing operations as a result of the
following differences (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate $(5,761) $(201) $(3,326)
State taxes (965) (35) (587)
Valuation allowance 7,242 - 5,185
------- ----- -------
Income tax (benefit) provision from
continuing operations $ 516 $(236) $ 1,272
------- ----- -------
------- ----- -------
</TABLE>
The significant components of deferred income taxes at December 31, 1997
and 1996, are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Credit and refinancing allowances $ 2,179 $ 2,544
Goodwill 1,648 1,832
Net operating loss carryforward 17,399 7,012

Other, net (283) 2,649
-------- --------
Gross deferred tax assets 20,943 14,037
Less valuation allowance (20,943) (13,701)
-------- --------
Deferred income taxes $ - $ 336
-------- --------
-------- --------
</TABLE>

63
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Notwithstanding management's belief that the Company will be profitable,
the objective evidence of current and prior year losses necessitates, in
management's judgment, a full valuation allowance of gross deferred tax assets
at December 31, 1997.

The Company has requested and the Internal Revenue Service has approved a
change in the tax year end to December 31 from September 30. At December 31,
1997, the Company has net operating loss carryforwards of approximately $43.5
million available to reduce future federal taxable income, which will fully
expire by the year 2012.

NOTE 10 - 12% SENIOR NOTES:

At December 31, 1997 and 1996, the balances of the 12% Senior Notes, which
become due on April 1, 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Face value of the 12% Senior Notes $44,475 $44,475
Unamortized original issue discount (656) (737)
-------- --------
12% Senior Notes $43,819 $43,738
-------- --------
-------- --------
</TABLE>

Interest is payable semi-annually on April 1 and October 1. The 12% Senior
Notes contain covenants which limit indebtedness, issuance of preferred stock,
dividends and other restricted payments.

On October 15, 1996 and July 28, 1995, respectively, DeGeorge purchased
$625,000 and $4.9 million, face value, of outstanding 12% Senior Notes. After
write-off of original issue discount and unamortized bond issuance costs, the
Company realized gains of $63,000 and $925,000, for the years ending December
31, 1996 and 1995, respectively.

NOTE 11 - NOTES PAYABLE:

Notes payable at December 31, 1997 and 1996, consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Senior Secured Bonds, Series 1994, secured by
Senior Bond Collateral Fund, accruing interest at
10.125%, payable semi-annually; varying annual
payments beginning at $100,000 in 1997 through
final maturity in 2006 $2,525 $2,625
State of Connecticut term loan, secured by Company
office building, machinery and equipment; principal
and interest (5.0%) payable monthly until maturity
in 2001 598 763
Purchase money mortgage secured by building lots;
principal and interest (9.0%) payable monthly until
maturity in 2000 553 -
Land contract notes payable in connection with REO,
varying interest and principal payments 81 139
------ ------
Notes payable $3,757 $3,527

------ ------
------ ------
</TABLE>

64
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Principal payments required under notes payable are as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, PRINCIPAL PAYMENTS
-------------------------- ------------------
<S> <C>
1998 $ 464
1999 414
2000 919
2001 295
2002 270
Thereafter 1,395
-------
Total $ 3,757
-------
-------
</TABLE>

For the year ended December 31, 1997, total interest costs, which include
interest on the 12% Senior Notes, notes payable and collateralized borrowings,
were $10.4 million, of which $10.1 million was charged to operations and
$300,000 was capitalized. In 1996, all interest was charged to operations.

In July 1994, DeGeorge refinanced its corporate facilities in Plymouth,
Minnesota, by issuing Senior Secured Bonds in the principal amount of $2.6
million. On February 7, 1996, DeGeorge sold its Plymouth facility for $4.2
million. $3.0 million of the proceeds from the sale were substituted as
collateral in place of the real property and deposited into the Senior Bond
collateral fund which secures the Senior Secured Bonds, the balance of which
fund was $2.8 million at December 31, 1997.

In March 1994, the Company obtained an $800,000 loan from the State of
Connecticut, Department of Economic Development for partial financing of the
construction of its corporate office in Cheshire, Connecticut. Under terms of
the loan, interest accrued to principal for two years. Beginning in April 1996,
the Company commenced monthly principal and interest payments. The remaining
unpaid principal balance will be due and payable in March 2001.

In January 1997, DeGeorge/Florida financed the purchase of land in Martin
County, Florida, consisting of thirty-five (35) building lots, with a purchase
money mortgage in the amount of $673,000. Monthly principal and interest
payments began in February 1997, with additional principal payments (release
prices) made as lots are sold and released from security. The remaining
principal balance will be due and payable in January 2000.

NOTE 12 - CAPITAL LEASE OBLIGATIONS:

On April 18, 1997, DeGeorge sold its distribution center in Owatonna,
Minnesota, for $1.1 million in cash and retired the related capital lease with
an outstanding principal balance at that time of $810,000, plus closing costs.

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

DeGeorge has entered into several non-cancelable operating lease
commitments for sales offices, distribution facilities, transportation equipment
and computer equipment. The total operating lease expense during the years
ended December 31, 1997, 1996 and 1995, was $1.4 million, $2.2 million and $2.3
million, respectively.

65
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Future minimum lease obligations, by year and in the aggregate, at December
31, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
MINIMUM
YEAR ENDED DECEMBER 31, LEASE OBLIGATIONS
----------------------- -----------------
<S> <C>
1998 $ 721
1999 564
2000 424
2001 265
2002 116
-------
$ 2,090
-------
-------
</TABLE>

In addition to the above minimum lease obligations, the Company is
committed to a lease with a related party, which is more fully described at Note
16. The lease requires the Company to pay the operating costs of the property,
plus the cost of any repairs or capital improvements, through the 15 year lease
term. The annual operating costs charged to operations for 1997, 1996 and 1995
under this lease were $205,000, $216,000 and $236,000, respectively.

In June 1997, the Company began construction of a 32,000 square foot office
building in Cheshire, Connecticut. The facility, which will accommodate 240
employees, is expected to be completed in June 1998, at an approximate cost of
$5.3 million, including furniture and fixtures. At December 31, 1997, $1.9
million related to the construction of this building is included in property,
plant and equipment.

The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet financing needs of its customers. The
financial instruments consist of commitments to extend construction loans and
expose the Company to credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Company has in these particular financial instruments.

The Company uses the same credit policies in making off-balance sheet
commitments and contract obligations as it does for on-balance sheet
instruments. Management believes that the Company controls the credit risk of
these financial instruments through credit approvals, credit limits, monitoring
procedures and adequate real estate collateral as deemed necessary. The
contractual amounts of commitments to extend credit represent the amounts of
potential loss should the contract be fully drawn upon, the customer then
default, and the value of any existing real estate collateral become worthless.
The Company has construction loan commitments of approximately $7.1 million at
December 31, 1997, which it expects to fund in the first quarter of 1998. In
addition, the unadvanced portion of notes receivable was approximately $37.0
million at December 31, 1997.

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee by the borrower. Since
these commitments could expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.

DeGeorge and Patwil Homes have been named as defendants in various legal
actions in which various amounts, some of which are significant, are claimed
arising from normal business activities. Although the amount of any ultimate
liability with respect to such routine litigation cannot be precisely

66
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

determined, management does not believe that any such liability will have a
material effect on the Company's financial position or results of operations.

On September 30, 1997, a purported class action lawsuit was initiated in
the Court of Chancery of Delaware by Frank Blatnik, who purports to bring the
action individually and on behalf of other stockholders of the Company similarly
situated against the Company and its directors. The lawsuit seeks, among other
things, a preliminary and permanent injunction against the merger of the Company
into a corporation controlled by Peter R. DeGeorge, Chairman and Chief Executive
Officer of the Company, and an investor group, and damages. The complaint,
filed prior to the negotiations leading to the increase in the merger price from
$1.30 to $1.50 per share, asserts that the Company and its directors breached
fiduciary duties to the plaintiffs and other minority stockholders in connection
with the original proposal to acquire the Company's common stock not owned by
the investor group for $1.30 per share in that such proposed price constituted
grossly inadequate consideration. Management believes that the lawsuit is
without merit and will not have material effect on the Company's financial
position or results of operations.

On June 30, 1995, Mr. DeGeorge and DeGeorge/Florida initiated a Florida
state court action against Mr. Gregory Gozzo and his related companies stating
claims for tortious interference and unfair trade practices. On January 5,
1996, Mr. Gozzo filed a counterclaim alleging unjust enrichment, fraud, QUANTUM
MERUIT, and theft of trade secrets. This case is still in the discovery stage.
The costs of this state court lawsuit are being borne by the Company as approved
by the Board of Directors.

NOTE 14 - STOCKHOLDERS' EQUITY:

Holders of Common Stock are entitled to one vote per common share on all
matters submitted to a vote of stockholders and approval of matters brought
before the stockholders requires the affirmative vote of a majority of shares
represented and entitled to vote, except as required by law. Holders of Common
Stock are entitled to participate in dividends, as and when declared by the
Company's Board of Directors.

On April 1, 1997, 830,000 warrants outstanding to purchase common stock at
prices varying from $5.49 to $6.42 expired.

NOTE 15 - DISTRIBUTION CENTER CLOSING COSTS AND RESTRUCTURING EXPENSE:

67
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During 1996, the Company continued the restructuring and relocation of
operations which began in 1994. From 1994 to 1996, the Company re-engineered
its systems and operations, revised its sales plans and marketing strategies,
relocated its operations from Minnesota to Connecticut and shut down the
operations of Patwil Homes. At December 31, 1995, the Company had recorded
restructuring expenses of $1.4 million, principally for employee severance wages
and benefits relating to the closure of its facility in the Minneapolis
metropolitan area, where operational and administrative functions were
performed.

NOTE 16 - RELATED PARTY TRANSACTIONS:

The Company and Mr. DeGeorge reached settlements with the Securities and
Exchange Commission on November 12, 1997. Under the terms of these settlements,
Mr. DeGeorge agreed to make a payment in the nature of restitution of $248,000
to the Company, which is included in receivable from related parties at December
31, 1997.

DeG Capital Partners Ltd., a Florida limited partnership ("DEGC") whose
partners are the parents of Mr. DeGeorge, rents office space from
DeGeorge/Florida. DEGC is the managing member of DeG Capital Management, L.C.,
a Florida limited liability company ("DEGM"). The Company believes that the
terms of this arrangement are equivalent to an arm's length transaction. During
1997, rent and other costs charged to DEGM by the Company totaled $103,000. Of
this amount, $25,000 was exchanged for a 10% membership interest in DEGM. At
December 31, 1997, $78,000 was due from DEGM which is included in receivables
from related parties. The employees of DEGC and DEGM participate in the
employee benefit plans of the Company for which expense the Company is
reimbursed by DEGC and DEGM.

During 1997, 1996 and 1995, DeGeorge leased administrative office space in
New York City from PRD Holdings, Inc., an affiliate, at a total net lease cost
of $205,000, $216,000 and $236,000, respectively. In addition, as provided for
by the lease agreement, the Company expended $289,000 for capital improvements
during 1997.

DeGeorge provided minimal services to Star Services, Inc. of Delaware,
an affiliate whose operations are winding down, for which there were no
charges in the years ended December 31, 1997, 1996 and 1995.

DeGeorge has sponsored, and continues to sponsor certain amateur athletes
(some of whom are or were employees of the Company or its subsidiaries) who
compete in biathlon or triathlon events, by reimbursing travel, entrance fees
and equipment expenses. In the past, certain professional athletes were also
given small stipends, although that is no longer the case. These athletes wear
DeGeorge logos and this sponsorship is a promotional venture for the Company.
Mr. DeGeorge also competed in some races and received reimbursements for
equipment and entrance fees. The reimbursements for Mr. DeGeorge totaled
$1,109, $876 and $4,239 for 1997, 1996 and 1995, respectively, and have been
included in computing Mr. DeGeorge's compensation reported herein. Expenses for
sponsorships totaled $68,500 in 1997, $79,600 in 1996 and $39,600 in 1995.

68
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During 1992, DeGeorge entered into a "split-dollar" life insurance
agreement with Mr. DeGeorge and a trust established by him, pursuant to which
DeGeorge assists in purchasing a survivorship insurance policy on the lives of
Mr. DeGeorge and his former spouse in the amount of $21.8 million. The owner
and beneficiary of the policy is a trust, of which Mr. DeGeorge's descendants
are beneficiaries. The trust reimburses DeGeorge for a minor portion of the
premiums on such policy. Upon demand, DeGeorge is entitled to receive the
lesser of (a) the cash surrender value of the policy at such time, or (b) the
total of premiums theretofore paid on the policy by DeGeorge. In the event of
the death of the survivor of Mr. DeGeorge and his former spouse while the
agreement is in effect, DeGeorge will be entitled to receive from the policy
proceeds in an amount equal to the premiums paid by DeGeorge, reduced by any
other amounts previously received by DeGeorge under the agreement. The balance
of the proceeds will be paid to the trust, which will use such proceeds to
purchase shares of common stock of an affiliate held by the estate of
Mr. DeGeorge. Annual premiums of $145,000 were paid during 1997, 1996 and 1995.
Cash surrender value of $857,000 and $690,000 is included in prepaid expenses
and other assets as of December 31, 1997 and 1996, respectively.

Mr. Getzler resigned as a director of the Company in March 1997. In
connection with his resignation, he relinquished his existing stock options in
exchange for a fully vested 10 year option to acquire 50,000 shares of Common
Stock at an exercise price of $1.50. Also, in connection with his resignation,
Mr. Getzler executed a modified promissory note for $662,000 as of February 19,
1997, which represents the amount borrowed on April 11, 1996, as previously
disclosed, plus interest accrued to February 19, 1997. The modified promissory
note, instead of being a demand note, has a maturity date of February 19, 2000,
but becomes a demand note if and when the Common Stock closes on Nasdaq or any
other exchange on which it is then traded at a price of $5.00 per share or more
on any five consecutive trading days after the date of such note. The note
continues to bear interest at a rate of 10% per annum and remains secured by
303,752 shares of Common Stock. Interest accrues and is payable on the date the
outstanding principal balance is paid. This note is non-recourse to Mr.
Getzler, except for the stock pledged as security. There is no prepayment
penalty on the note. It is anticipated that Mr. Getzler will be a participant
in the buy-out group and exchange the shares of Common Stock pledged as security
for this note for shares of the new private company, which new shares will
remain subject to the pledge (see "Note 22"). At December 31, 1997, the balance
outstanding under this note is $713,000 including accrued interest, which is
reflected in prepaid expenses and other assets.

69
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 17 - STOCK OPTION PLAN:

Under the DeGeorge Financial Corporation 1994 Stock Option and Restricted
Stock Purchase Plan (the "Plan"), a total of 1,810,000 shares of Common Stock
has been reserved and may be distributed upon the exercise of stock options and
the award of rights to purchase Common Stock. Under the Plan, key employees may
be granted incentive stock options and non-qualified stock options to purchase
shares of DeGeorge Financial Corporation common stock. Options generally vest
over three years. The exercise prices of the incentive stock options are not
less than the fair market value of the stock on the date of the option grant.
The exercise prices of the non-qualified options are fixed by the Company's
Compensation Committee. The Plan also provides for the granting of restricted
stock awards to key employees. Information related to outstanding options is
summarized as follows:

<TABLE>
<CAPTION>
NUMBER WEIGHTED AVE. EXERCISABLE WEIGHTED AVE.
OF OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ------- --------------
<S> <C> <C> <C> <C>

Outstanding at December 31, 1994 180,000 $3.08 - -
Granted 977,000 1.00
Canceled (18,900) 3.50
----------

Outstanding at December 31, 1995 1,138,100 1.29 175,900 $2.51
Granted 1,276,550 1.49
Surrendered (679,630) 1.00
Canceled (329,120) 1.99
----------
Outstanding at December 31, 1996 1,405,900 1.45 175,900 2.51
Granted 465,000 1.26
Surrendered (100,000) 1.50
Canceled (210,000) 1.49
----------
Outstanding at December 31, 1997 1,560,900 1.53 505,897 1.83
----------
----------
</TABLE>

Options generally vest over three years, and expire if not exercised within
3-10 years after the grant date. At December 31, 1997 options for the purchase
of 505,897 shares are exercisable.

70
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 1997:

EXERCISE WEIGHTED AVERAGE NO. OF OPTIONS NO. OF OPTIONS
PRICE YEARS REMAINING OUTSTANDING EXERCISABLE
----- --------------- ----------- -----------
<S> <C> <C> <C>
$1.00 5.45 40,000 40,000
$1.19 9.50 120,000 -
$1.25 9.11 360,000 45,000
$1.50 8.81 905,000 284,997
$2.00 6.95 50,000 50,000
$3.50 0.55 85,900 85,900
</TABLE>

As permitted by FAS 123, "Accounting for Stock-Based Compensation," the
Company has elected to continue to measure compensation costs for stock based
compensation plans using the intrinsic value based method of accounting
presented under APB 25 and related interpretations, and to make pro forma
disclosure of net income and earnings per share, as if the fair value method of
accounting defined by FAS 123 had been applied. Accordingly, no compensation
cost has been recognized for the Plan. Had compensation cost for the Company's
Plan been determined based on the fair value at the grant date for awards under
the Plan consistent with the requirements of FAS 123, the Company's net (loss)
income and earnings per share would have been reduced (increased) to the pro
forma amounts indicated below.

1997 1996 1995
---- ---- ----
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
--------------------------------------
<S> <C> <C> <C>
Net (loss) income As reported $(17,780) $1,177 $(27,673)
Pro forma (18,869) 897 (27,673)

Basic and diluted
(loss) earnings per share As reported (1.65) 0.11 (2.56)
Pro forma (1.69) 0.10 (2.56)
</TABLE>

The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Risk-free interest rate 6.65% 6.72% 5.91%
Expected life 10 years 10 years 7.5 years
Expected volatility 96.74% 133.51% 153.34%
Dividend rate - - -

</TABLE>

The weighted-average grant date fair values of options granted during 1997,
1996 and 1995 were $1.26, $1.45 and $1.33, respectively.

NOTE 18 - EMPLOYEE BENEFIT PLANS:

The Company has a defined contribution profit sharing plan covering
substantially all employees. Under the plan, participants may contribute
between 1% and 15% of their "recognized compensation" (generally, pre-tax
compensation) subject to certain Federal annual limits. The

71
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Company also makes matching contributions, which changed on October 1, 1997,
from 20%-50% based on the participant's contribution percentage to 50% of the
first 7% contributed by the participant. All participant and employer
contributions vest immediately. Amounts expended for this plan totaled
$156,000, $420,000 and $464,000 for the years ended December 31, 1997, 1996 and
1995, respectively.

NOTE 19 - CONSOLIDATED STATEMENTS OF CASH FLOWS:

Changes in other operating assets and liabilities summarized in the
Consolidated Statements of Cash Flows are as follows (in thousands):

DECEMBER 31,
--------------------------------
Decrease (increase) in: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred loan origination fees $ 1,084 $ - $ -
Receivables from related parties 386 (581) (194)
Construction projects in process and inventory 3,059 (864) (3,398)
Prepaid expenses and other assets 810 (170) (143)
Holdback reserve deposit 8,142 (10,605) (8,412)
Mortgage servicing rights - (13,557) (7,216)
Senior Bond collateral fund 179 (3,008) -
Deferred income taxes 336 (336) 1,049
------- --------- ---------
Total decrease (increase) in other operating assets $13,996 $(29,121) $(18,314)
------- --------- ---------
------- --------- ---------

DECEMBER 31,
--------------------------------
Increase (decrease) in: 1997 1996 1995
---- ---- ----
Accounts payable and accrued expenses $ 7,328 $(4,829) $ 5,273
Accrued construction costs and unearned income
on sold notes receivable (24,499) 14,744 14,113
Customer deposits (567) (36) -
Deferred income 4,623 - -
Payable to related parties - - (6,336)
------- --------- ---------
Total increase (decrease) in other operating
liabilities $(13,115) $ 9,879 $13,050
------- --------- ---------
------- --------- ---------

Supplemental disclosures of cash flow information:
Interest paid $14,542 $5,768 $6,962
Income taxes paid (refunded), net 212 (740) (549)

Supplemental schedule of non-cash investing and financing activities:
Transfer of notes receivable to REO $2,983 $4,900 $4,387
Notes receivable originated from sales of REO 863 - -
</TABLE>

NOTE 20 - DISCONTINUED OPERATIONS:

72
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

goodwill and deferred costs, $600,000 relating to the write-down of fixed assets
(to net realizable value) and $200,000 of accrued severance wages and benefits.

During 1997 and 1996, the Company continued the phase out of operations for
its Patwil Homes subsidiary. Contractual obligations for the construction of
customers' homes were substantially completed during 1996 and assets of
discontinued operations were reduced, through liquidation, by $1.4 million and
$5.1 million in 1997 and 1996, respectively.

The results of Patwil Homes have been classified as discontinued operations
for all periods presented in the Consolidated Statements of Operations. The
assets of Patwil Homes have been classified as assets of discontinued operations
in the Consolidated Balance Sheets as of December 31, 1997 and 1996. In
addition, discontinued operations have been segregated in the Consolidated
Statements of Cash Flows for all periods.

Summarized below are the assets of discontinued operations at December 31,
1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash $ 57 $ 695
Notes Receivable 52 182
Inventory 142 357
Prepaid expenses 9 29
Deposits - 95
Costs of uncompleted contracts in excess of related
billings 354 348
Assets held for sale, net 446 843
------ ------
Assets of discontinued operations $1,060 $2,549
------ ------
------ ------

</TABLE>

Condensed income (loss) from operations, net of tax, for Patwil Homes for
the years ended December 31, 1997, 1996 and 1995, are as follows (in thousands):

DECEMBER 31,

1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 262 $ 5,655 $ 35,814
Cost of sales (272) (5,177) (31,748)
Selling, general and administrative expense (287) (228) (11,102)
Income tax (provision) benefit - 100 (1,376)
------- ------- ---------
Discontinued operations - (loss) income $ (297) $ 350 $ (8,412)
------- ------- ---------
------- ------- ---------
</TABLE>

Management expects substantially all of the assets of discontinued
operations will be liquidated in 1998.

NOTE 21 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

73
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CASH AND CASH EQUIVALENTS
RELATED PARTY RECEIVABLES
HOLDBACK RESERVE DEPOSIT
SENIOR BOND COLLATERAL FUND

The carrying amount approximates fair value because of the short-term
maturity of these instruments.

NOTES RECEIVABLE

The net carrying amount approximates fair value because of the short-term
maturity on these instruments. In addition, DeGeorge has entered into a
Construction Loan Purchase and Servicing Agreement whereby notes are
transferred, on an ongoing basis, to a mortgage servicing company at their face
value. Effective January 1, 1997, the Company adopted FAS 125, whereby
transfers to the mortgage servicing company are treated as a financing. Prior
to January 1, 1997, the Company had treated the transfer of its notes receivable
as sales.

MORTGAGE LOANS HELD FOR SALE

Fair value is based on quoted secondary market rates.

12% SENIOR NOTES

The fair value of the 12% Senior Notes presented in the financial
statements, net of original issue discount, is based on broker estimated
repurchase values at December 31, 1996. Estimated repurchase values were not
available at December 31, 1997 due to lack of trading activity, and therefore it
is not practicable to estimate the fair value at December 31, 1997.

NOTES PAYABLE

The fair value of notes payable is determined based on a discounted cash
flow calculation that applies interest rates currently being offered for similar
instruments to the remaining notes payable maturities.

The carrying amounts and fair values of the Company's financial instruments
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,179 $ 1,179 $ 3,737 $ 3,737
Notes receivable, net 124,181 124,181 29,507 29,507
Mortgage loans held for sale 451 451 - -
Receivables from related parties 661 661 1,047 1,047
Holdback reserve deposit 10,686 10,686 18,828 18,828
Senior Bond collateral fund 2,829 2,829 3,008 3,008
Collateralized borrowings 103,430 103,430 - -
12% Senior Notes 43,819 n/a 43,738 36,303
Notes payable 3,757 3,757 3,527 3,527
</TABLE>

74
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 22 - SUBSEQUENT EVENTS:

On January 30, 1998, the Company signed a definitive agreement to be
acquired through a merger by a company controlled by Mr. DeGeorge, and
certain current and former directors, officers and related parties. Under
the merger agreement, each of the outstanding shares of common stock of the
Company, other than shares owned by members of the buy-out group, will be
converted into the right to receive $1.50 in cash.

The merger agreement and the consideration to be received by holders of
shares of common stock, other than members of the buy-out group, were
approved by the Company's Board of Directors following the unanimous
recommendation of a Special Committee of independent directors. The merger
is subject to obtaining all necessary corporate and regulatory approvals, but
is not subject to financing. The Company expects to complete the merger by
the second fiscal quarter of 1998.

During March 1998, Plymouth Capital Company, Inc. changed its name to
DeGeorge Capital Corp., effective April 1, 1998.

NOTE 23 - YEAR 2000 ISSUE:

The Year 2000 Issue relates to whether computer systems will properly
recognize and process date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could generate
erroneous data or possibly fail. The Company is heavily dependent on
computer processing in the conduct of substantially all of its business
activities.

In 1997, the Company launched a "Year 2000" initiative to assess the
potential impact on its data processing systems of the Year 2000 Issue. As
part of the Company's effort to address this issue, a formal plan was
established to analyze computer systems and equipment, purchased software and
hardware, office equipment and facilities, and external interfaces.

The formal plan was implemented in the fourth quarter of 1997 and is
expected to be completed by July 1999. Items were prioritized and scheduled
for completion based on the date that management estimated any impact could
adversely affect Company operations. All software that would have created a
potential impact on fiscal year 1998 was modified by December 31, 1997,
without incident. As of March 1998, half of the programming scheduled to be
finished during 1998 has been completed.

All purchased hardware, software and electronic devices will be
certified as Year 2000 compliant by the manufacturer or replaced before any
potential impact to Company operations can occur. The company has very few
electronic external interfaces. In each such instance, the external resource
will be required to certify they are Year 2000 compliant.

The approximate cost of this project to date is $48,000, which
principally reflects employee wages and benefits. For the full period of
implementation of this plan, the Company estimates that the total cost of
this initiative will be $500,000.

75
<PAGE>

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 24 - EMERGING ACCOUNTING STANDARD:

FAS 130, "Reporting Comprehensive Income" requires an entity to include
a statement of comprehensive income in its full set of general-purpose
financial statements. Comprehensive income consists of the net income or
loss of the entity plus or minus the change in equity of the entity during
the period from transactions, other events, and circumstances resulting from
non-owner sources. FAS 130 is effective for the Company's year ending
December 31, 1998 and will require financial statements of earlier periods
that are presented for comparative purposes to be reclassified.

NOTE 25 - FOURTH QUARTER ADJUSTMENTS (Unaudited):

During the fourth quarter, the Company recorded year end adjustments
aggregating a $3.5 million charge to operations, as follows:

<TABLE>
<S> <C>
Increase in deferred tax asset valuation allowance $ 336,000
Plant closing costs 247,000
Provisions for credit losses 1,300,000
Change in estimate of construction support obligations 1,600,000
-----------
Total $ 3,483,000
-----------
-----------
</TABLE>
76
<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE
- ----------- ---------------------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of Merger 78

11 Statement Regarding Computation of Per 107
Share Earnings

21 Subsidiaries of the Company 108

24 Powers of Attorney 109

27 Financial Data Schedule
</TABLE>

<PAGE>

EXHIBIT 2.1

DEGEORGE FINANCIAL CORPORATION

AGREEMENT AND PLAN OF MERGER

among

PETER R. DEGEORGE,

DEGEORGE FINANCIAL ACQUISITION CORP.

BNC ACQUISITION CORP.,

THE CONTINUING STOCKHOLDERS named herein,

and

DEGEORGE FINANCIAL CORPORATION

January 29, 1998
<PAGE>

TABLE OF CONTENTS

ARTICLE I THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.1 MEETING OF THE COMPANY'S STOCKHOLDERS . . . . . . . . . 2
SECTION 1.2 PROXY STATEMENT; SCHEDULE 13E-3 . . . . . . . . . . . . 2

ARTICLE II THE CONTRIBUTION AND THE MERGER . . . . . . . . . . . . . . . 3
SECTION 2.1 THE CONTRIBUTION. . . . . . . . . . . . . . . . . . . 3
SECTION 2.2 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.3 EFFECTIVE TIME; CLOSING.. . . . . . . . . . . . . . . . 3
SECTION 2.4 EFFECT OF THE MERGER. . . . . . . . . . . . . . . . . . 4
SECTION 2.5 CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . 4
SECTION 2.6 STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.7 SURRENDER OF SHARES; STOCK TRANSFER BOOKS.. . . . . . . 5

ARTICLE III THE SURVIVING CORPORATION. . . . . . . . . . . . . . . . . . 7
SECTION 3.1 CERTIFICATE OF INCORPORATION. . . . . . . . . . . . . . 7
SECTION 3.2 BYLAWS. . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.3 DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . 7

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . 7
SECTION 4.1 ORGANIZATION AND STANDING.. . . . . . . . . . . . . . . 7
SECTION 4.2. CAPITALIZATION.. . . . . . . . . . . . . . . . . . . . 8
SECTION 4.3 AUTHORITY FOR AGREEMENT.. . . . . . . . . . . . . . . . 8
SECTION 4.4 NO CONFLICT.. . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.5 REQUIRED FILINGS AND CONSENTS.. . . . . . . . . . . . . 9
SECTION 4.6 COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.7 REPORTS AND FINANCIAL STATEMENTS. . . . . . . . . . . . 9
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . .10
SECTION 4.9 CHANGE OF CONTROL AGREEMENTS. . . . . . . . . . . . . .10

ARTICLE V REPRESENTATIONS AND WARRANTIES OF DFC ACQUISITION. . . . . . .10
SECTION 5.1 ORGANIZATION AND STANDING. . . . . . . . . . . . . . .10
SECTION 5.2 CAPITALIZATION OF DFC ACQUISITION. . . . . . . . . . . .11
SECTION 5.3 AUTHORITY FOR AGREEMENT.. . . . . . . . . . . . . . . .11
SECTION 5.4 NO CONFLICT.. . . . . . . . . . . . . . . . . . . . . .11
SECTION 5.5 REQUIRED FILINGS AND CONSENTS.. . . . . . . . . . . . .11
SECTION 5.6 SUBSIDIARIES AND EQUITY INVESTMENTS. . . . . . . . . . .12
SECTION 5.7 NO KNOWLEDGE OF CERTAIN FACTS. . . . . . . . . . . . . .12

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BNC AND THE CONTINUING
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 6.1 ORGANIZATION AND STANDING . . . . . . . . . . . . . . .12
SECTION 6.2 AUTHORITY FOR AGREEMENT.. . . . . . . . . . . . . . . .12
SECTION 6.3 NO CONFLICT.. . . . . . . . . . . . . . . . . . . . . .12

79
<PAGE>

SECTION 6.4 REQUIRED FILINGS AND CONSENTS.. . . . . . . . . . . . .13
SECTION 6.5 SHARE OWNERSHIP.. . . . . . . . . . . . . . . . . . . .13
SECTION 6.6 CAPITALIZATION OF BNC . . . . . . . . . . . . . . . . .13
SECTION 6.7 NO KNOWLEDGE OF CERTAIN FACTS . . . . . . . . . . . . .13

ARTICLE VII COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 7.1 CONDUCT OF THE BUSINESS PENDING THE MERGER. . . . . .13
SECTION 7.2 ACCESS TO INFORMATION, CONFIDENTIALITY. . . . . . . . .15
SECTION 7.3 NOTIFICATION OF CERTAIN MATTERS.. . . . . . . . . . . .15
SECTION 7.4 FURTHER ACTION; REASONABLE BEST EFFORTS . . . . . . . .16
SECTION 7.5 INDEMNIFICATION.. . . . . . . . . . . . . . . . . . . .16
SECTION 7.6 PUBLIC ANNOUNCEMENTS. . . . . . . . . . . . . . . . . .17
SECTION 7.7 NO MERGERS, CONSOLIDATIONS, SALE OF STOCK. . . . . . . .17
SECTION 7.8 CONDUCT OF DFC ACQUISITION.. . . . . . . . . . . . . . .17
SECTION 7.9 NO SALE OR DISPOSITION.. . . . . . . . . . . . . . . . .17
SECTION 7.10 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 7.11 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . .18

ARTICLE VIII CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 8.1 CONDITIONS TO THE OBLIGATION OF EACH PARTY. . . . . . .18
SECTION 8.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY.. . . . . .19
SECTION 8.3 CONDITIONS TO THE OBLIGATION OF THE PURCHASER GROUP.. .19

ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . .20
SECTION 9.1 TERMINATION.. . . . . . . . . . . . . . . . . . . . . .20
SECTION 9.2 EFFECT OF TERMINATION.. . . . . . . . . . . . . . . . .20
SECTION 9.3 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . .20
SECTION 9.4 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . .20

ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . .21
SECTION 10.1 NO THIRD PARTY BENEFICIARIES.. . . . . . . . . . . . .21
SECTION 10.2 ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . .21
SECTION 10.3 SUCCESSION AND ASSIGNMENT. . . . . . . . . . . . . . .21
SECTION 10.4 COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . .21
SECTION 10.5 HEADINGS.. . . . . . . . . . . . . . . . . . . . . . .21
SECTION 10.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . .21
SECTION 10.7 SEVERABILITY.. . . . . . . . . . . . . . . . . . . . .21
SECTION 10.8 SPECIFIC PERFORMANCE.. . . . . . . . . . . . . . . . .22
SECTION 10.9 CONSTRUCTION.. . . . . . . . . . . . . . . . . . . . .22
SECTION 10.10 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . .22
SECTION 10.11 CERTAIN DEFINITIONS.. . . . . . . . . . . . . . . . .22
SECTION 10.12 FEES AND EXPENSES.. . . . . . . . . . . . . . . . . .22
SECTION 10.13 NOTICES.. . . . . . . . . . . . . . . . . . . . . . .22

80
<PAGE>

INDEX TO DEFINED TERMS

Defined Term Where Defined
- ------------ -------------

Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Advisor's Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.3
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction
Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.5
BNC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction
Canceled Share . . . . . . . . . . . . . . . . . . . . . . . Section 2.5(a)(iii)
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . Section 2.3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2.6(e)
Company Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Company Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . .Section 4.1(a)
Company Certificate of Incorporation . . . . . . . . . . . . . . .Section 4.1(a)
Company Option . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2.6(a)
Company Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.7
Company Stock Option Plan. . . . . . . . . . . . . . . . . . . . .Section 2.6(a)
Continuing Stockholders. . . . . . . . . . . . . . . . . . . . . . .Introduction
Continuing Stockholders' Shares. . . . . . . . . . . . . . . . . . . . .Recitals
Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
DeGeorge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction
DeGeorge Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.2
DFCA Common. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
DFC Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction
Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . .Section 2.5(b)
Dissenting Stockholder . . . . . . . . . . . . . . . . . . . . . .Section 2.5(b)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.3
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . Section 4.7
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2.7(a)
Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . .Section 7.5(a)
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . Section 4.1
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2.7(a)
Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.2
Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Purchaser Group. . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction
Schedule 13E-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Share Certificates . . . . . . . . . . . . . . . . . . . . . . . .Section 2.7(b)
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Special Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 4.1(b)
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2

81
<PAGE>

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of January
29, 1998, among DeGeorge Financial Corporation, a Delaware corporation (the
"Company"), Peter R. DeGeorge ("DeGeorge"), DeGeorge Financial Acquisition
Corp., a Delaware corporation wholly owned by DeGeorge ("DFC Acquisition"), BNC
Acquisition Corp., a Delaware corporation wholly owned by DeGeorge ("BNC"), and
Herbert L. Getzler, James G. Einloth, Jonathan K. Dodge, Lawrence J. DeGeorge,
Florence A. DeGeorge, Lawrence F. DeGeorge and Mary M. Dunn (collectively, the
"Continuing Stockholders" and, together with DeGeorge, DFC Acquisition and BNC,
are collectively referred to as the "Purchaser Group").

W I T N E S S E T H

WHEREAS, as of the date hereof, DeGeorge owns (without giving effect
to any shares of Common Stock of the Continuing Stockholders that DeGeorge may
be deemed to beneficially own) 5,668,570 shares (the "DeGeorge Shares") of the
common stock, par value $.10 per share, of the Company (the "Shares"), of which
4,475,444 Shares are owned by BNC and 1,193,126 Shares are owned by DeGeorge,
representing approximately 52.4% of the total number of Shares issued and
outstanding as of the date hereof;

WHEREAS, as of the date hereof, the Continuing Stockholders own
(without giving effect to any Shares of DeGeorge that such Continuing
Stockholders may be deemed to beneficially own) an aggregate of 1,381,000 Shares
(the "Continuing Stockholders' Shares"), consisting of 465,000 Shares owned by
Mr. Getzler, 279,000 Shares owned by Mr. Einloth, 19,500 Shares owned by Mr.
Dodge, 52,500 Shares owned by Lawrence J. DeGeorge, 35,000 Shares owned by Ms.
DeGeorge, 400,000 Shares owned by Lawrence F. DeGeorge and 130,000 Shares owned
by Ms. Dunn, together representing approximately 12.8% of the total number of
Shares issued and outstanding as of the date hereof;

WHEREAS, 1,231,000 of the Continuing Stockholders' Shares,
representing approximately 11.4% of the total number of Shares, will be
contributed to DFC Acquisition immediately prior to the Effective Time of the
Merger (each as defined herein);

WHEREAS, the parties hereto desire to effect the merger of DFC
Acquisition with and into the Company (the "Merger") pursuant to the terms of
this Agreement;

WHEREAS, the Special Committee (the "Special Committee") of
independent directors of the Board of Directors of the Company (the "Company
Board") has unanimously (i) recommended that the Company Board approve and
authorize the Special Meeting (as defined below), the Proxy Statement (as
defined below), the Merger and this Agreement, which recommendation was based in
part on the opinion of Houlihan Lokey Howard & Zukin Capital (the "Advisor"),
independent financial advisors to the Special Committee, and (ii) determined
that the consideration to be received by the stockholders of the Company (other
than members of the Purchaser Group) in the Merger is fair to and in the best
interest of such stockholders;

WHEREAS, the Board of Directors of the Company has determined that the

82
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Merger contemplated hereby is fair to and in the best interests of the Company
and its stockholders;

WHEREAS, the Board of Directors of DFC Acquisition has determined that
the Merger contemplated hereby is fair to and in the best interests of DFC
Acquisition and its stockholder;

NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereto agree as follows:

ARTICLE I

THE SPECIAL MEETING

SECTION I.1 MEETING OF THE COMPANY'S STOCKHOLDERS The Company will
take all action necessary in accordance with applicable law to convene a meeting
of its stockholders (the "Special Meeting") as promptly as practicable after the
date hereof to consider and vote upon the Merger. The Board of Directors of the
Company, subject to its fiduciary duties as advised by counsel, will recommend
that the Company's stockholders vote in favor of the Merger and the approval and
adoption of this Agreement.

SECTION I.2 PROXY STATEMENT; SCHEDULE 13E-3. As soon as reasonably
practicable following the date hereof, the Company shall file with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"), and shall use its best efforts to
have cleared by the SEC, a proxy statement (together with any amendments or
supplements thereto, the "Proxy Statement"), with respect to the Special
Meeting. In addition, the Company and DFC Acquisition shall file with the SEC
and make available to the Company's stockholders, as required by applicable law,
a joint Rule 13e-3 Transaction Statement on Schedule 13E-3 (together with any
amendments or supplements thereto, the "Schedule 13E-3") with respect to the
Special Meeting, the Merger and the other transactions contemplated hereby
(collectively, the "Transactions"). The Purchaser Group and the Company shall
also take any action required to be taken under Blue Sky Laws (as defined below)
in connection with the Merger. The Purchaser Group and the Company shall
cooperate with each other in taking such action and in the preparation of each
of the Proxy Statement and the Schedule 13E-3. The Purchaser Group will provide
all information relating to the Purchaser Group or its affiliates (other than
the Company and its subsidiaries) for use in preparation of the Proxy Statement
and Schedule 13E-3. The Company will provide all information (other than that
relating to DFC Acquisition, BNC and the Purchaser Group or their respective
affiliates (other than the Company and its subsidiaries)) for use in the Proxy
Statement and in the Schedule 13E-3. The information provided and to be

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<PAGE>

provided by the Purchaser Group, DFC Acquisition and BNC, for use in the Proxy
Statement and in the Schedule 13E-3 shall be true and correct in all material
respects and shall not omit to state any material fact necessary in order to
make such information not misleading as of the date of the Proxy Statement or
the Schedule 13E-3, as the case may be, and as of the date of the Special
Meeting. The information provided and to be provided by the Company for use in
the Proxy Statement and in the Schedule 13E-3 shall be true and correct in all
material respects and shall not omit to state any material fact necessary in
order to make such information not misleading as of the date of the Proxy
Statement or the Schedule 13E-3, as the case may be, and as of the date of the
Special Meeting. The Company shall give the Purchaser Group and their counsel
reasonable opportunity to review and comment upon the Proxy Statement and the
Schedule 13E-3 and any amendments thereto prior to the filing thereof with the
SEC and prior to dissemination of the Proxy Statement to holders of Shares. The
Company shall provide the Purchaser Group and their counsel with a copy of any
written comments or telephonic notification of any verbal comments the Company
may receive from the SEC or its staff with respect to the Proxy Statement and
the Schedule 13E-3 promptly after the receipt thereof, shall permit the
Purchaser Group and their counsel to participate in the preparation of any
written responses or any verbal responses of the Company or its counsel and
shall provide the Purchaser Group and their counsel with a copy of any written
responses and telephonic notification of any verbal responses of the Company or
its counsel. Each of the Company and the Purchaser Group agrees to use its
reasonable best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of or requests by the SEC and to cause the
Proxy Statement and all required amendments and supplements to be mailed to the
holders of Shares entitled to vote at the Special Meeting at the earliest
practicable time. The Proxy Statement shall contain the recommendation of the
Company Board referred to in Section 1.1 as well as the conclusion of the
Company Board that the terms and conditions of the Merger are fair to the
stockholders of the Company (other than members of the Purchaser Group).

ARTICLE II

THE CONTRIBUTION AND THE MERGER

SECTION II.1 THE CONTRIBUTION. Immediately prior to the Effective
Time (as defined below), DeGeorge, BNC and the Continuing Stockholders shall
contribute or cause to be contributed (the "Contribution") all Shares owned by
them, other than 150,000 Shares beneficially owned by Mr. Getzler, to DFC
Acquisition in exchange for an equal number of shares of common stock, par value
$.01 per share, of DFC Acquisition (the "DFCA Common").

SECTION II.2 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the General Corporation Law
of the State of Delaware ("Delaware Law"), at the Effective Time, DFC
Acquisition shall be merged with and into the Company, and as a result of the
Merger, the separate corporate existence of DFC Acquisition shall cease and the
Company shall continue as the surviving corporation of the Merger. In its
capacity as the surviving corporation of the Merger, the Company is sometimes
referred to herein as the "Surviving Corporation."

SECTION II.3 EFFECTIVE TIME; CLOSING. As promptly as practicable
after the Contribution and the satisfaction or, if permissible, waiver of the
conditions set forth in Article VIII, the Company and DFC Acquisition shall file
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in such form as is required by, and executed in
accordance with, the relevant provisions of Delaware Law. The Merger shall

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become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware, or at such other time as the
parties hereto agree shall be specified in the Certificate of Merger (the date
and time the Merger becomes effective, the "Effective Time"). On the date of
such filing, a closing shall be held at the offices of Kirkland & Ellis, New
York, New York, or such other place as the parties shall agree.

SECTION II.4 EFFECT OF THE MERGER. From and after the Effective
Time, the Surviving Corporation shall possess all the rights, privileges, powers
and franchises and be subject to all of the restrictions, disabilities and
duties of the Company and DFC Acquisition, all as provided under Delaware Law.

SECTION II.5 CONVERSION OF SHARES.

(a) At the Effective Time:

(i) each Share held by the Company as treasury stock immediately
prior to the Effective Time or owned by any direct or indirect subsidiary of the
Company immediately prior to the Effective Time shall be canceled, and no
payment shall be made with respect thereto;

(ii) each Share other than Canceled Shares (as defined below)
outstanding immediately prior to the Effective Time shall, except as otherwise
provided in paragraph (a)(i) or paragraph (b) of this Section 2.5, be converted
into the right to receive in cash without interest $1.50 (the "Merger
Consideration");

(iii) each Share held by the Purchaser Group (other than
150,000 Shares held by Mr. Getzler) outstanding following the Contribution and
immediately prior to the Effective Time (a "Canceled Share" and, collectively,
the "Canceled Shares") shall, by virtue of the Merger, and without any action on
the part of the holder thereof, be canceled and retired and cease to exist,
without any conversion thereof; provided, however, that in connection with, and
only in connection with, the consummation of the Merger, each member of the
Purchaser Group (except Mr. Getzler with respect to 150,000 Shares) waives such
member's right to receive the Merger Consideration and consents to being treated
less favorably than the other stockholders of the Company; and

(iv) each share of common stock of DFC Acquisition outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.

(b) Anything in this Agreement to the contrary notwithstanding, any
issued and outstanding Shares held by a person (a "Dissenting Stockholder") who
objects to , does not vote in favor of, or has not consented in writing to, the
Merger and complies with all the provisions of Delaware Law concerning the right
of holders of Shares to dissent from the Merger and require appraisal of their
Shares ("Dissenting Shares") shall not be converted as described in Section
2.5(a)(ii) but shall become, by virtue of the Merger, the right to receive such
consideration as may

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be determined to be due to such Dissenting Stockholder pursuant to Delaware Law
unless such Dissenting Stockholder withdraws his demand for or fails to perfect
or loses his right to appraisal. If, after the Effective Time, such Dissenting
Stockholder withdraws his demand for appraisal or fails to perfect or otherwise
loses his right of appraisal, in any case pursuant to Delaware Law, such
Dissenting Shares shall be deemed to have been converted as of the Effective
Time into the right to receive the Merger Consideration without any interest
thereon or addition thereto. The Company shall give DeGeorge (i) prompt notice
of any demands for appraisal of Shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of DeGeorge, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.

SECTION II.6 STOCK OPTIONS.

(a) At the Effective Time, (i) each holder of an option to purchase
Shares issued pursuant to the DeGeorge Financial Corporation 1994 Stock Option
and Restricted Stock Plan (the "Company Stock Option Plan" and each option
issued thereunder, a "Company Option") shall continue to hold such option to
purchase shares of common stock of the Surviving Corporation and (ii) such
option shall remain subject to all the terms and conditions (including with
respect to the exercisability thereof) applicable to such Company Option
pursuant to the option agreement related to such Company Option and to the
Company Stock Option Plan pursuant to which such Company Option was issued.

(b) Notwithstanding anything to the contrary in this Agreement,
immediately prior to the Effective Time, all Company Options held by John H.
Warren and P. Peter Pascali which are then outstanding and exercisable in full,
shall be canceled and each holder thereof shall be entitled to receive from DFC
Acquisition at the Effective Time an amount in cash equal $7,500. Appropriate
arrangements shall be made for reduction of the amount to be paid to each holder
of such canceled Company Options for any applicable withholding taxes or other
amounts required by law to be paid or withheld, either through reducing the
amount paid to or by obtaining a cash payment from, such holder.

SECTION II.7 SURRENDER OF SHARES; STOCK TRANSFER BOOKS.

(a) Prior to the Effective Time, the Company, with the approval of
DeGeorge shall designate a bank or trust company to act as agent (the "Paying
Agent") for the holders of Shares in connection with the Merger to receive the
funds to which holders of Shares shall become entitled pursuant to Section
2.5(a)(ii). DFC Acquisition will deposit with the Paying Agent the aggregate
Merger Consideration to be paid in respect of the Shares (the "Fund"). The Fund
shall be invested by the Paying Agent as directed by DeGeorge. The Paying Agent
shall pay the Merger Consideration as provided in Section 2.7(b).

(b) Promptly after the Effective Time, the Surviving Corporation, or
the Paying Agent pursuant to an agreement in a form to be mutually agreed upon
by the Company and DFC Acquisition, shall cause to be mailed to each person who
was, at the Effective Time, a

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holder of record of Shares entitled to receive the Merger Consideration pursuant
to Section 2.5(a)(ii) and a holder of the Company Options referred to in Section
2.6(b), a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates evidencing such Shares
and such Company Options (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share or
Company Option, as applicable, formerly evidenced by such Certificate, and such
Certificate shall then be canceled. Until so surrendered, each such Certificate
shall, at and after the Effective Time, represent for all purposes, only the
right to receive such Merger Consideration. No interest shall accrue or be paid
to any beneficial owner of Shares or Company Options referred to in Section
2.6(b) or any holder of any Certificate with respect to the Merger Consideration
payable upon the surrender of any Certificate. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed in blank or to the Paying Agent or otherwise be in proper form
for transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. The
Surviving Corporation shall establish reasonable procedures for the delivery of
the Merger Consideration to holders of Shares whose stock certificates have been
lost, destroyed or mutilated.

(c) At any time following the eighth month after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any portion of the Fund which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all amounts held in the Fund or other funds made available to it),
and thereafter each such holder shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws), and
only as general creditors thereof, with respect to any Merger Consideration that
may be payable upon due surrender of the Share Certificates held by such holder.
The foregoing notwithstanding, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.

(d) After the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable law.

(e) The Paying Agent, and, after the release of funds described in
paragraph

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(c) above, the Surviving Corporation, shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of Shares such amounts that the Paying Agent or the Surviving
Corporation, as applicable, is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code of 1986, as amended
(the "Code"), the rules and regulations promulgated thereunder or any provision
of state, local or foreign tax law. To the extent that amounts are so withheld
by the Paying Agent or the Surviving Corporation, as applicable, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding was made
by the Paying Agent or the Surviving Corporation, as applicable.

ARTICLE III

THE SURVIVING CORPORATION

SECTION III.1 CERTIFICATE OF INCORPORATION. At the Effective Time
and subject to the terms of Section 7.5, the certificate of incorporation of DFC
Acquisition shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended in accordance with Delaware Law; provided,
however, that, at the Effective Time, Article I of the certificate of
incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is DeGeorge Financial Corporation".

SECTION III.2 BYLAWS. Subject to the terms of Section 7.5, the
bylaws of DFC Acquisition in effect at the Effective Time shall be the bylaws of
the Surviving Corporation until amended in accordance with Delaware Law, and the
certificate of incorporation and such bylaws of the Surviving Corporation.

SECTION III.3 DIRECTORS AND OFFICERS. From and after the Effective
Time, until successors are duly elected or appointed in accordance with
applicable law, (i) the directors of the Company at the Effective Time shall be
the directors of the Surviving Corporation, and (ii) the officers of the Company
at the Effective Time shall continue as the officers of the Surviving
Corporation in each ease until their respective successors are duly elected or
appointed and qualified.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Purchaser Group as follows:

SECTION IV.1 ORGANIZATION AND STANDING. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own its
properties and assets, to conduct its business as presently conducted and to
enter into and perform this Agreement and to carry out the Transactions. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in every jurisdiction in which the failure to so qualify could have a
Material Adverse Effect (as defined below) on the Company. The Company has
furnished to DeGeorge

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true and complete copies of its certificate of incorporation (the "Company
Certificate of Incorporation") and bylaws (the "Company Bylaws"), each as
amended to date and presently in effect. "Material Adverse Effect" shall mean,
with respect to any party hereto, any change, event or effect that, when taken
together with all other adverse changes, events or effects, is or is reasonably
likely to be materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, or liabilities (including, without
limitation, contingent liabilities) of such party and its subsidiaries, taken as
a whole.

(b) Each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to own its properties
and assets and to conduct its business as presently conducted. "Subsidiary"
means any corporation of which the Company owns, directly or indirectly, shares
of capital stock having in the aggregate 50% or more of the total combined
voting power of the issued and outstanding shares of capital stock entitled to
vote generally in the election of directors of such corporation. Schedule
4.1(b) contains a list of all the Subsidiaries together with the Company's
percentage of ownership of each such Subsidiary. Each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
every jurisdiction in which the failure to so qualify could have a Material
Adverse Effect on the Company or any of the Subsidiaries.

SECTION IV.2. CAPITALIZATION. The authorized capital stock of the
Company consists of 25,000,000 Shares and 1,000,000 shares of preferred stock,
$.10 par value per share (the "Preferred Shares"). As of the date hereof, (i)
10,810,193 Shares are issued and outstanding, all of which are validly issued,
fully paid and non-assessable, (ii) no Shares are held in the treasury of the
Company, (iii) 1,810,000 Shares are authorized and reserved for future issuance
under the Company Stock Option Plans, and (v) no Preferred Shares are issued and
outstanding. The Company has previously furnished to DeGeorge a detailed
schedule of outstanding Company Options, including, where available, the
exercise prices and existing provisions therefore. Except as provided in this
Section 4.2 and except for any rights of DeGeorge pursuant to prior agreements
between DeGeorge and the Company, (A) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or outstanding,
(B) the Company has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidence
of indebtedness or assets of the Company, (C) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof, (D) the Company has issued no stock
appreciation rights, phantom stock options or similar instruments and (E) no
outstanding shares of capital stock of the Company are subject to preemptive or
similar rights.

SECTION IV.3 AUTHORITY FOR AGREEMENT. The Company has the corporate
power to enter into this Agreement, to carry out its obligations hereunder, and
to consummate the Merger. The execution and delivery of this Agreement and the
performance of the Company's obligations hereunder have been duly authorized by
all necessary corporate action, including, without limitation, by the Company
Board. The consummation of the Merger has been duly

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authorized by all necessary corporate action, other than the affirmative vote of
the stockholders of the Company in accordance with applicable law and this
Agreement, and approval of the Merger by the stockholders of the Company has
been recommended by the Company Board. The Advisor has delivered to the Special
Committee its opinion (the "Advisor's Opinion") that the Merger Consideration is
fair from a financial point of view to the holders of the Shares other than the
Purchaser Group. This Agreement has been duly executed by the Company and
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and (ii) that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.

SECTION IV.4 NO CONFLICT. The execution and delivery of this
Agreement by the Company do not, and the performance of this Agreement by the
Company and the consummation of the Transactions will not, (i) conflict with or
violate the Company Certificate of Incorporation or Company Bylaws or equivalent
organizational documents of any of the Subsidiaries, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of the Subsidiaries is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any of the Subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of the Subsidiaries or any property or asset of any of
them is bound or affected, except (in the case of clauses (ii) and (iii) above
only) for such violations or breaches which would not, individually or in the
aggregate, have a material adverse effect on the business, assets or financial
condition of the Company and its Subsidiaries, taken as a whole.

SECTION IV.5 REQUIRED FILINGS AND CONSENTS. The execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except for applicable requirements, if any, of
the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and
filing and recordation of appropriate merger documents as required by Delaware
Law.

SECTION IV.6 COMPLIANCE. Neither the Company nor any of the
Subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
the Subsidiaries or by which any property, or asset of the Company or any of the
Subsidiaries is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries or any property or asset of the
Company or any of the Subsidiaries is bound or affected, except for any such
conflicts, defaults or violations that would not, individually of in the

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aggregate, have a Material Adverse Effect on the Company, or prevent or
materially delay the performance by the Company of any of its obligations under
this Agreement or the consummation of the Transactions.

SECTION IV.7 REPORTS AND FINANCIAL STATEMENTS. The Company has
previously furnished to DeGeorge complete and accurate copies, as amended or
supplemented, of its (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 and (iii) all other reports
or registration statements filed by the Company with the SEC since December 31,
1996 (such annual reports, quarterly reports, registration statements and other
filings, together with any amendments or supplements thereto, are collectively
referred to herein as the "Company Reports"). The Company Reports constitute
all of the documents filed or required to be filed by the Company with the SEC
since December 31, 1996. As of their respective dates, the Company Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of the
Company included in the Company Reports (together, the "Financial Statements")
(A) comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (B) have been prepared in accordance with United States generally
accepted accounting principles ("GAAP'') applied on a consistent basis
throughout the periods covered thereby except as may be indicated therein or in
the notes thereto, and in the case of quarterly financial statements, as
permitted by Form 10-Q under the Exchange Act), and (C) fairly present in all
material respects the consolidated financial condition, results of operations
and cash flows of the Company and its consolidated subsidiaries as of the
respective dates thereof and for the periods referred to therein.

SECTION IV.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
contemplated by this Agreement or as disclosed in the Company Reports filed
prior to the date hereof, since December 31, 1996, the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with prior practice and, as of the date hereof, there has
not been (i) to the best of the Company's knowledge, any event or occurrence of
any condition that has had or would have a Material Adverse Effect on the
Company (other than changes due to industry wide events or general economic
conditions) or (ii) any material change in accounting methods, principles or
practices employed by the Company.

SECTION IV.9 CHANGE OF CONTROL AGREEMENTS. Neither the execution and
delivery of this Agreement nor the consummation of the Transactions, will
(either alone or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee of the Company. Without limiting the
generality of the foregoing, to the best of the Company's knowledge, no amount
paid or payable by the Company in connection with the Transactions (either
solely as a result thereof or as a result of such Transactions in conjunction
with any other event) will be an "excess parachute payment" within the meaning
of Section 280G of the Code.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES OF DFC ACQUISITION

DFC Acquisition represents and warrants to the Company as follows:

SECTION V.1 ORGANIZATION AND STANDING. DFC Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and to enter into and perform this Agreement
and to carry out the Transactions. Since its date of incorporation, DFC
Acquisition has not engaged in any activities not related to the acquisition, or
proposed acquisition, of the Shares or the transactions contemplated by this
Agreement and the Merger, and as of the Effective Time, DFC Acquisition will
have no liabilities other than those incurred to facilitate or in connection
with the acquisition, or proposed acquisition, of Shares or the transactions
contemplated by this Agreement and the Merger.

SECTION V.2 CAPITALIZATION OF DFC ACQUISITION. The authorized capital
stock of DFC Acquisition consists of (i) 15,000,000 shares of common stock, par
value $.01 per share, one share of which is issued and outstanding and owned of
record by DeGeorge on the date hereof and (ii) 1,000 shares of preferred stock,
par value $.01 per share, none of which are issued and outstanding on the date
hereof. Following the Contribution, and immediately prior to the Effective
Time, 6,899,571 shares of DFCA Common will be issued and outstanding, of which
4,475,444 will be owned of record by BNC, 1,193,127 by DeGeorge, 315,000 by Mr.
Getzler, 279,000 by Mr. Einloth, 19,500 by Mr. Dodge, 52,500 by Lawrence J.
DeGeorge, 35,000 by Ms. DeGeorge, 400,000 by Lawrence F. DeGeorge and 130,000 by
Ms. Dunn.

SECTION V.3 AUTHORITY FOR AGREEMENT. DFC Acquisition has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement, the performance of DFC
Acquisition's obligations hereunder and the consummation of the Merger have been
duly authorized by the Board of Directors and by the sole shareholder of DFC
Acquisition and no other proceedings on the part of DFC Acquisition are
necessary to authorize such execution, delivery and performance. This Agreement
has been duly executed and delivered DFC Acquisition and constitutes a legal,
valid and binding obligation of DFC Acquisition enforceable against DFC
Acquisition in accordance with its terms, except (i) to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and (ii) that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.

SECTION V.4 NO CONFLICT. The execution and delivery of this
Agreement by DFC Acquisition do not, and the performance of this Agreement by
DFC Acquisition and the consummation of the Transactions, will not, (i) conflict
with or violate the certificate of incorporation or bylaws of DFC Acquisition,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to DFC Acquisition or by which any property or asset of DFC
Acquisition is bound or affected, or (iii) result in any breach of or constitute
a default (or an

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event which with notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of DFC Acquisition or any subsidiary of DFC Acquisition
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which DFC
Acquisition or any subsidiary of DFC Acquisition is a party or by which DFC
Acquisition or any subsidiary of DFC Acquisition or any property or asset of any
of them is bound or affected, except in the case of clauses (ii) and (iii) for
any such conflicts, violations, breaches, defaults or other occurrences which
would not, individually or in the aggregate, prevent or delay the performance by
DFC Acquisition of its obligations under this Agreement or the consummation of
the Transactions.

SECTION V.5 REQUIRED FILINGS AND CONSENTS. The execution and
delivery of this Agreement by DFC Acquisition do not, and the performance of
this Agreement by DFC Acquisition will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act, state securities or Blue Sky Laws and
filing and recordation of appropriate merger documents as required by Delaware
Law and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not, individually or in
the aggregate, prevent or delay the performance by DFC Acquisition of any of its
obligations under this Agreement or the consummation of the Transactions.

SECTION V.6 SUBSIDIARIES AND EQUITY INVESTMENTS. As of the date of
this Agreement, there are no corporations of which DFC Acquisition owns,
directly or indirectly, shares of capital stock having in the aggregate 50% or
more of the total combined voting power of the issued and outstanding shares of
capital stock entitled to vote generally in the election of directors of such
corporation.

SECTION V.7 NO KNOWLEDGE OF CERTAIN FACTS. DFC Acquisition has no
actual knowledge of any facts or circumstances that would make any of the
representations and warranties of the Company contained herein untrue in any
respect.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF BNC
AND THE CONTINUING STOCKHOLDERS

Each of BNC, each Continuing Stockholder and DeGeorge severally but
not jointly, as to matters pertaining to such person, represents and warrants to
the Company as follows:

SECTION VI.1 ORGANIZATION AND STANDING. If such person is a
corporation, it is duly organized, validly existing and in good standing under
the laws of the State of Delaware and

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has full corporate power and authority to conduct its business as presently
conducted and to enter into and perform this Agreement and to carry out the
Transactions.

SECTION VI.2 AUTHORITY FOR AGREEMENT. If such person is a
corporation, such person has the corporate power to enter into this Agreement
and carry out its obligations hereunder. If such person is a corporation, the
execution and delivery of this Agreement and the performance of such person's
obligations hereunder have been duly authorized by all necessary corporate
action. This Agreement has been duly executed by such person and constitutes
the valid and binding obligation of such person enforceable against such person
in accordance with its terms, except (i) to the extent that enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally and (ii) that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.

SECTION VI.3 NO CONFLICT. The execution and delivery of this
Agreement by such person do not, and the performance of this Agreement by such
person and the consummation of the Transactions will not, (i) conflict with or
violate the certificate of incorporation or bylaws of such person, if such
person is a corporation, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to such person or by which any
property or asset of such person is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of such person
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
person is a party or by which such person or any of its properties or assets is
bound or affected, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, prevent or delay the performance by such
person of its obligations under this Agreement or the consummation of the
Transactions.

SECTION VI.4 REQUIRED FILINGS AND CONSENTS. The execution and
delivery of this Agreement by such person do not, and the performance of this
Agreement by such person will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) for applicable requirements, if any,
of the Exchange Act, state securities or Blue Sky Laws and filing and
recordation of appropriate merger documents as required by Delaware Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not, individually or in the
aggregate, prevent or delay the performance by such person of any of such
person's obligations under this Agreement or the consummation of the
Transactions.

SECTION VI.5 SHARE OWNERSHIP. Immediately prior to the Effective
Time, DeGeorge, BNC and the Continuing Stockholders will own the Canceled
Shares, beneficially and of record, free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature, other than Canceled
Shares owned by Mr. Getzler, which have been pledged to secure

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a loan.

SECTION VI.6 CAPITALIZATION OF BNC. The authorized capital stock of
BNC consists of 100,000 shares of common stock, par value $.01 per share, all of
which are issued and outstanding and all of which are owned by DeGeorge and
10,000 shares of preferred stock, $.01 per share, none of which is outstanding.

SECTION VI.7 NO KNOWLEDGE OF CERTAIN FACTS. Neither BNC, DeGeorge
nor any Continuing Stockholder has actual knowledge of any facts or
circumstances that would make any of the representations and warranties of the
Company contained herein untrue in any respect.

ARTICLE VII

COVENANTS

SECTION VII.1 CONDUCT OF THE BUSINESS PENDING THE MERGER.

(a) From and after the date of this Agreement and until the Effective
Time, the Company shall, and shall cause each of the Subsidiaries to, conduct
its business solely in the ordinary course consistent with past practice, and
shall not, nor permit any of the Subsidiaries to, except as required or
permitted pursuant to the terms hereof or as may occur in the ordinary course of
business consistent with past practice:

(i) make any material change in the conduct of its businesses
and operations or enter into any material transaction;

(ii) make any change in its Certificate of Incorporation or By-
laws;

(iii) issue any additional shares of capital stock or equity
securities (other than upon exercise of options or convertible securities, in
each case outstanding on the date hereof), issue or grant any option, warrant or
right to acquire any capital stock or equity securities, issue any security
convertible into or exchangeable for its capital stock, alter in any material
respect the terms of any of its outstanding securities, or make any change in
its outstanding shares of capital stock or in its capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise or issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
stock appreciation rights, phantom stock options or similar instruments;

(iv) incur, assume or guarantee any indebtedness for borrowed
money, issue any notes, bonds, debentures or other corporate securities or grant
any option, warrant or right to purchase any thereof;

(v) make any sale, assignment, transfer, abandonment or other
conveyance of any of its assets or any part thereof;

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(vi) subject any of its assets, or any part thereof, to any
lien or suffer such to be imposed other than such liens as may arise by
operation of law;

(vii) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or declare, set aside or pay any
dividends or other distribution in respect of such shares, except for dividends
by a wholly owned Subsidiary to the Company or any other wholly owned
Subsidiary;

(viii) take any other action that would cause any of the
representations and warranties made in this Agreement not to remain true and
correct; or

(ix) commit itself to do any of the foregoing.

(b) From and after the date of this Agreement and until the
Effective Time, the Company shall use its best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers and employees of the Company and
the Subsidiaries and to preserve the current relationships of the Company and
the Subsidiaries with customers, suppliers and other persons with which the
Company and the Subsidiaries have significant business relations.

SECTION VII.2 ACCESS TO INFORMATION, CONFIDENTIALITY.

(a) From the date hereof to the Effective Time, the Company shall,
and shall cause the officers, directors, employees, auditors and agents of the
Company to, afford DeGeorge and the officers, employees, counsel, financial
advisors, auditors and agents of DeGeorge or DFC Acquisition, as the case may
be, access at all reasonable times to the officers, employees, agents,
properties, offices, plants and other facilities, books and records of the
Company and the Subsidiaries, and shall furnish DeGeorge and DFC Acquisition
with financial, operating and other data and information as DeGeorge or DFC
Acquisition, through its officers, employees, counsel, financial advisors,
auditors or agents, may reasonably request. From the date hereof to the
Effective Time, DFC Acquisition shall, and shall cause its officers, directors,
employees, auditors and agents to, afford the Company and its officers,
employees, counsel, financial advisors, auditors and agents access at all
reasonable times to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of DFC Acquisition, and shall furnish
the Company with financial, operating and other data and information as the
Company, through its officers, employees, counsel, financial advisors, auditors
or agents, may reasonably request.

(b) No investigation pursuant to this Section 7.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.

(c) Information afforded or furnished to DeGeorge, DFC Acquisition or
the Company or their agents by DeGeorge, DFC Acquisition or the Company pursuant
to this Section 7.2 shall be kept confidential and shall not be disclosed to
third parties except (i) with the consent of DeGeorge or the Company, as the
case may be, (ii) as may be required by law, regulation or by legal process
(including by deposition, interrogatory, request for documents, subpoena, civil

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investigative demand or similar process), or (iii) as may be necessary in
connection with the consummation of the Transactions.

SECTION VII.3 NOTIFICATION OF CERTAIN MATTERS. Each party to this
Agreement will give prompt notice to the other parties hereof of:

(a) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement;

(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;

(c) any action, suit, claim, investigation or proceeding commenced
or, to its knowledge, threatened against, relating to or involving or otherwise
affecting the Company on the one hand, or the Purchaser Group on the other hand,
which is reasonably likely to affect materially the transactions contemplated by
this Agreement;

(d) the occurrence, or failure to occur, of any event or change in
circumstances where such occurrence or failure to occur would be likely to cause
any representation or warranty contained in this Agreement to be untrue and
inaccurate in any material respect at any time from the date hereof to the
Effective Time; and

(e) any failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;

provided, however, that the delivery of any notice pursuant to this Section 7.3
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.

SECTION VII.4 FURTHER ACTION; REASONABLE BEST EFFORTS. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the Transactions, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the Transactions and to fulfill the conditions to the Merger. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, DeGeorge and the proper officers of
the Surviving Corporation shall use their reasonable best efforts to take all
such action. The Company shall use its best efforts to solicit from holders of
Shares entitled to vote at the Special Meeting proxies in favor of such approval
and shall take all other action necessary or, in the reasonable judgment of
DeGeorge, helpful to secure the vote or consent of such holders required by
Delaware Law to effect the Merger. At the Special Meeting, each member of the
Purchaser Group shall cause all Shares it beneficially owns to be voted in favor
of the approval and adoption of this Agreement, the Merger and the Transactions.

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<PAGE>

SECTION VII.5 INDEMNIFICATION.

(a) It is understood and agreed that all rights to indemnification by
the Company now-existing in favor of each present and former director and
officer of the Company (each an "Indemnified Party") as provided in the Company
Certificate of Incorporation or the Company Bylaws, in each case as in effect on
the date of this Agreement, or pursuant to any other agreements in effect on the
date hereof, copies of which have been provided to DeGeorge, shall survive the
Merger and shall continue in full force and effect until the expiration of the
statute of limitations relating to the claim for which such indemnification is
sought. Consistent with the foregoing, for such period, the Certificate of
Incorporation and Bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification set forth, respectively, in
DFC Acquisition's Certificate of Incorporation and Bylaws, which provisions
shall not be amended, repealed or otherwise modified during such period in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of the Company.

(b) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 7.5.

SECTION VII.6 PUBLIC ANNOUNCEMENTS. The Purchaser Group and the
Company shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any
Transaction and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement with a national securities exchange to which the Company is a
party.

SECTION VII.7 NO MERGERS, CONSOLIDATIONS, SALE OF STOCK. From and
after the date hereof, neither the Company nor any of the Subsidiaries will
directly or indirectly, through officers, employees, representatives or agents,
solicit any inquiries or proposals to enter into or continue any discussions,
negotiations or agreements relating to the sale or exchange of the Shares, the
merger, reorganization or business combination of the Company with, or the
disposition of a significant amount of the Company's or any of the Subsidiaries'
assets or business to, any person other than the Purchaser Group or their
affiliates.

SECTION VII.8 CONDUCT OF DFC ACQUISITION. From and after the date of
this Agreement and until the Effective Time, DFC Acquisition shall conduct its
business solely in the ordinary course consistent with past practice and,
without the prior written consent of the Company, shall not, except as required
or permitted pursuant to the terms hereof or as may occur in the ordinary course
of business consistent with past practice:

(a) make any change in its Certificate of Incorporation or By-Laws;

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<PAGE>

(b) take any other action that would cause any of the representations
and warranties made in this Agreement not to remain true and correct; or

SECTION VII.9 NO SALE OR DISPOSITION. From and after the date of this
Agreement and until the earlier of the Effective Time and termination of this
Agreement, except as provided in this Agreement, no member of the Purchaser
Group will sell or otherwise dispose of any Canceled Shares other than to any of
their affiliates or otherwise to facilitate the consummation of the transactions
contemplated by this Agreement.

SECTION VII.10 EXPENSES. The Company shall (i) reimburse the
Purchaser Group for out-of-pocket expenses incurred prior to or after the date
hereof by or on behalf of the Purchaser Group in connection with the negotiation
and preparation of this Agreement and the transactions contemplated hereby,
including without limitation, reasonable fees and expenses of the Purchaser
Group's attorneys, accountants, consultants and financing sources and (ii) pay
DeGeorge liquidated damages of $100,000, in each case in the event that the
Company Board approves a change of control transaction involving any person
other than DeGeorge or any affiliate of DeGeorge within one year of the date of
this Agreement or such a transaction is consummated within one year of the date
of this Agreement.

SECTION VII.11 FURTHER ASSURANCES. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or DFC
Acquisition, any deeds, bills of sale, assignments or assurances and to take and
do in the name and on behalf of the Company or DFC Acquisition any other actions
and things to vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the
rights, properties or assets of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.

ARTICLE VIII

CONDITIONS

SECTION VIII.1 CONDITIONS TO THE OBLIGATION OF EACH PARTY. The
respective obligations of DFC Acquisition and the Company to effect the Merger
and the respective obligations of DeGeorge, BNC and the Continuing Stockholders
to effect the Contribution are subject to the satisfaction of the following
conditions, unless waived in writing by all relevant parties:

(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of (i) at least the holders of
a majority of the Shares outstanding on the record date of the Special Meeting
or (ii) 66_ of the votes cast at the Special Meeting by the holders of the
Shares, whichever is greater.

(b) NO ORDER. No foreign, United States or state governmental
authority or

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other agency or commission or foreign, United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect, and no
action or proceeding shall have been commenced or threatened for the purpose of
obtaining a decree, injunction or other order or damages before any court or
governmental agency or other agency or commission, which has or would have the
effect of: (i) making the acquisition of Shares by DeGeorge or DFC Acquisition
or any affiliate of either of them pursuant hereto illegal or otherwise
restricting, preventing or prohibiting consummation of any of the Transactions,
(ii) seeking to prohibit or limit materially the ownership or operation by
either of the Company or any of its subsidiaries or DeGeorge of all or any
material portion of the business or assets of either of the Company or any of
its subsidiaries or DeGeorge as a result of any Transaction, or (iii) compelling
the Company, DFC Acquisition or any of their respective subsidiaries or DeGeorge
to dispose of or hold separate all or any material portion of the business or
assets of the Company, DeGeorge, DFC Acquisition or any Subsidiary as a result
of any Transaction; provided, however, that each of the parties shall have used
its reasonable efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as practicable any injunction or other order
that may be entered.

SECTION VIII.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY. The
obligation of the Company to consummate the Merger is subject to the
satisfaction or waiver of the following further conditions:

(a) DFC Acquisition shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time;

(b) the representations and warranties of the Purchaser Group
contained in this Agreement and in any certificate or other writing delivered by
the Purchaser Group pursuant hereto shall be true in all respects at and as of
the Effective Time as if made at and as of such time (other than any
inaccuracies in such representations or warranties that are attributable to the
Company); and

(c) receipt by the Company of (i) a certificate signed by an
executive officer of DFC Acquisition to the effect set forth in paragraphs (a)
and (b) of this Section and (ii) a certificate signed by or on behalf of
DeGeorge, BNC and each Continuing Stockholder to the effect set forth in
paragraph (b) of this Section.

(d) DFC Acquisition shall have deposited the aggregate Merger
Consideration as required by Section 2.7(a).

(e) Receipt of an opinion of Kirkland & Ellis, counsel to the
Purchaser Group, in a form reasonably satisfactory to the Company.

SECTION VIII.3 CONDITIONS TO THE OBLIGATION OF THE PURCHASER GROUP.
The obligation of DFC Acquisition to consummate the Merger and of the Purchaser
Group to

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<PAGE>

consummate the Contribution is subject to the satisfaction or waiver of the
following further conditions:

(a) The Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time;

(b) the representations and warranties of the Company contained in
this Agreement and in any certificate or other writing delivered by the Company
pursuant hereto shall be true in all respects at and as of the Effective Time as
if made at and as of such time;

(c) receipt by DFC Acquisition of a certificate signed by an
executive officer of the Company to the effect set forth in paragraphs (a) and
(b) of this Section; and

(d) the holders of not more than 5% of the outstanding Shares shall
have exercised their appraisal rights in the Merger in accordance with Delaware
Law.

(e) Receipt of an opinion of Rogers & Wells, counsel to the Company
and the Special Committee, in a form reasonably satisfactory to DFC Acquisition
and the Purchaser Group.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

SECTION IX.1 TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time:

(a) By mutual written consent duly authorized by DFC Acquisition and
the Company after approval of their respective Boards of Directors;

(b) By either DFC Acquisition or the Company if any court of
competent jurisdiction or administrative agency, commission, governmental or
regulatory authority, domestic or foreign, shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Contribution or the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or

(c) By any of DeGeorge, DFC Acquisition or the Company if (i) the
Effective Time shall not have occurred on or before June 30, 1998; provided,
however, that the right to terminate this Agreement under this Section 9.1(c)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date.

SECTION IX.2 EFFECT OF TERMINATION. In the event of the termination
of this Agreement pursuant to Section 9.1, this Agreement shall forthwith become
void, and except as set forth in Section 7.10, there shall be no liability on
the part of any party hereto, provided that nothing herein shall relieve any
party from liability for any willful breach hereof.

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<PAGE>

SECTION IX.3 AMENDMENTS. This Agreement may not be amended except by
action of the individuals parties hereto and the board of directors of each of
the other parties hereto (and, in the case of the Company, with the approval of
the Special Committee) set forth in an instrument in writing signed by or on
behalf of each of the parties hereto, as the case may be; provided, however,
that after approval of the Merger by the stockholders of the Company at the
Special Meeting, no amendment may be made without the further approval of the
stockholders of the Company if the effect of such amendment would be to (i)
reduce the Merger Consideration or change the form thereof or (ii) alter or
change any of the terms and conditions of this Agreement if any of such
alterations or changes, alone or in the aggregate, would be materially adverse
to the stockholders of the Company (other than the Purchaser Group).

SECTION IX.4 WAIVER. (a) At any time prior to the Effective Time,
whether before or after the Special Meeting, any party hereto, by action taken
by its board of directors, if necessary (and, in the case of the Company, with
the approval or the Special Committee), may (i) extend the time for the
performance of any of the covenants, obligations or other acts of any other
party hereto or (ii) waive any inaccuracy of any representations or warranties
or compliance with any of the agreements, covenants or conditions of any other
party or with any conditions to its own obligations. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by such party or on behalf of such
party by its duly authorized officer, as the case may be.

(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.

ARTICLE X

GENERAL PROVISIONS

SECTION X.1 NO THIRD PARTY BENEFICIARIES. Other than the provisions
of Section 7.5 and Section 2.5(a)(ii), nothing in this Agreement shall confer
any rights or remedies upon any person other than the parties hereto.

SECTION X.2 ENTIRE AGREEMENT. This Agreement (including any Annex or
Schedule hereto) constitutes the entire agreement among the parties with respect
to the subject matter hereof and supersedes any prior understandings,
agreements, or representations by or among the parties, written or oral, with
respect to the subject matter hereof.

SECTION X.3 SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties named herein and their
respective successors. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party, provided, however, that DFC Acquisition may freely assign
its rights to another wholly owned subsidiary of DeGeorge without such prior
written approval.

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SECTION X.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

SECTION X.5 HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.

SECTION X.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law thereof.

SECTION X.7 SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.

SECTION X.8 SPECIFIC PERFORMANCE. Each of the parties acknowledges
and agrees that the other party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other party shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions hereof in any action instituted in
any court of the United States or any state thereof having jurisdiction over the
parties and the matters in addition to any other remedy to which it may be
entitled, at law or in equity.

SECTION X.9 CONSTRUCTION. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction shall be applied against any
party.

SECTION X.10 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. Nothing
in this Section 10.10 shall limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time including,
without limitation, Sections 2.4, 2.5, 2.7, 3.1, 3.2, 3.3, 7.5, 7.10 and 7.11.

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SECTION X.11 CERTAIN DEFINITIONS. For purposes of this Agreement,
the term ""affiliate" shall have the same meaning as set forth in Rule 12B-2 of
the Regulation 12B of the General Rules and Regulations under the Exchange Act,
and the term "person" shall mean any individual, corporation, partnership
(general or limited), limited liability company, limited liability partnership,
trust, joint venture, joint-stock company, syndicate, association, entity,
unincorporated organization or government or any political subdivision, agency
or instrumentality thereof.

SECTION X.12 FEES AND EXPENSES. Except as set forth in Section 7.10,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, this Agreement and the Transactions shall be paid by
the party incurring such expenses.

SECTION X.13 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses, or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 10.13:

If to DeGeorge, BNC or DFC Acquisition:

Peter R. DeGeorge
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, CT 06410
Telecopier: (203) 699-3410

With a copy to:

Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Telecopier: (212 ) 446-4900
Attn: Lance C. Balk, Esq.

If to the Company:

DeGeorge Financial Corporation
99 Realty Drive
Cheshire, CT 06410
Telecopier: (203) 699-3410
Attn: John A. Brunjes, Esq.

with copies to:

Rogers & Wells
200 Park Avenue
New York, NY 10166
Telecopier: (212) 878-8375
Attn: Samuel M. Feder, Esq.

If to any Continuing Stockholders to the address set forth beneath
such person's name on the signature pages hereto:

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.

DEGEORGE FINANCIAL ACQUISITION CORP.

By: /s/ PETER R. DEGEORGE
-------------------------------------
Peter R. DeGeorge
President

DEGEORGE FINANCIAL CORPORATION

By: /s/ JONATHAN K. DODGE
-------------------------------------
Jonathan K. Dodge
Vice President, Secretary and General
Counsel

/s/ PETER R. DEGEORGE
-------------------------------------
Peter R. DeGeorge

BNC ACQUISITION CORP.

By: /s/ PETER R. DEGEORGE
-------------------------------------
Peter R. DeGeorge
President

/s/ HERBERT L. GETZLER
-------------------------------------
Herbert L. Getzler
2702 Captains Way
Jupiter, FL 33477

/s/ JAMES G. EINLOTH
-------------------------------------
James G. Einloth
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, CT 06410

105
<PAGE>

/s/ JONATHAN K. DODGE
-------------------------------------
Jonathan K. Dodge
c/o DeGeorge Home Alliance, Inc.
591 Park Avenue
New York, NY 10021

/s/ LAWRENCE J. DEGEORGE
-------------------------------------
Lawrence J. DeGeorge
140 Intracostal Point Drive, Suite 410
Jupiter, FL 33477

/s/ FLORENCE A. DEGEORGE
-------------------------------------
Florence A. DeGeorge
140 Intracoastal Point Drive, Suite 410
Jupiter, FL 33477

/s/ LAWRENCE F. DEGEORGE
-------------------------------------
Lawrence F. DeGeorge
3127 Casseekey Island Road
Jupiter, FL 33477

/s/ MARY M. DUNN
-------------------------------------
Mary M. Dunn
210 Weise Road
Cheshire, CT 06410

106

<PAGE>

EXHIBIT 11

DEGEORGE FINANCIAL CORPORATION

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

The Company is required, pursuant to FAS 128, to present basic and diluted
earnings (loss) per share. Basic earnings (loss) per share is based on the
weighted average number of shares outstanding during the period. Diluted
earnings (loss) per share amounts assume the conversion, exercise or issuance of
all potential common stock instruments, unless the effect is to reduce the loss
or increase the income per common share from continuing operations.

For the years ended December 31, 1997 and 1995, basic and diluted loss per
common share is based on 10,810,193 weighted average shares outstanding, as the
effect of common stock equivalents (i.e. weighted average effect of options
outstanding) was anti-dilutive.

Weighted average shares for the 1996 computation of earnings per share are as
follows:

</TABLE>

107

<PAGE>

EXHIBIT 21

DEGEORGE FINANCIAL CORPORATION

SUBSIDIARIES OF THE COMPANY

DeGeorge Home Alliance, Inc., a Delaware corporation.
Plymouth Capital Company, Inc., a Delaware corporation.
DeGeorge Homes of Florida, Inc., a Florida corporation
DeGeorge Homes of New England, Inc., a Delaware corporation.
Patwil Homes, Inc., a Delaware corporation.
DeGeorge Aviation, Inc., a Delaware corporation.

108

<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

The Director and/or Officer of DeGeorge Financial Corporation, a Delaware
corporation, having its principal place of business at 99 Realty Drive,
Cheshire, Connecticut 06410, whose signature appears below, does by these
presents hereby make, constitute and appoint Jonathan K. Dodge his true and
lawful Attorney in Fact and in his name, place and stead: to execute in his
name and on his behalf, any and all documents as may be necessary in periodic
communications between DeGeorge Financial Corporation and the Securities and
Exchange Commission and/or the National Association of Securities Dealers,
including, but not limited to Forms 10-K, Form 10-Q and Form 8-K under the
Securities Exchange Act of 1934.

Granting and giving unto said Attorney in Fact full authority and power to
do and perform any and all other acts necessary or incident to the performance
and execution of the powers herein expressly granted, with powers to do and
perform all acts authorized hereby, as fully to all intents and purposes as the
Grantor might or could do if personally present, with full power of
substitution.

IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this 30th
day of March, 1998.

By: /s/ PETER R. DEGEORGE
---------------------------
Peter R. DeGeorge
Chairman of the Board

STATE OF ________________________ )
) ss.
COUNTY OF ________________________ )

The foregoing instrument was acknowledged before me this 30th day of March,
1998.

------------------------------

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<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this 16th
day of March, 1998.

By: /s/ P. PETER PASCALI
----------------------
P. Peter Pascali
Director

STATE OF _________________________ )
) ss.
COUNTY OF ________________________ )

The foregoing instrument was acknowledged before me this 16th day of March,
1998.

------------------------------

110

<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this 18th
day of March, 1998.

By: /s/ JOHN H. WARREN
-------------------
John H. Warren
Director

STATE OF _________________________ )
) ss.
COUNTY OF ________________________ )

The foregoing instrument was acknowledged before me this 18th day of March,
1998.

------------------------------

111

<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this 17th
day of March, 1998.

By: /s/ JAMES G. EINLOTH
--------------------
James G. Einloth
Director

STATE OF ________________________ )
) ss.
COUNTY OF _______________________ )

The foregoing instrument was acknowledged before me this 17th day of March,
1998.

------------------------------

112

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,179
<SECURITIES> 0
<RECEIVABLES> 124,181
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0
0
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</TABLE>