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As Filed with the Securities and Exchange Commission November 24, 1995
Registration No. ____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
--------------------------
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PACIFIC UNITED GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 6162 95-4465729
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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21031 VENTURA BOULEVARD
WOODLAND HILLS, CALIFORNIA 91364
(818) 992-8999
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive office)
--------------------------
JOEL R. SCHULTZ
21031 VENTURA BOULEVARD, SUITE 102
WOODLAND HILLS, CALIFORNIA 91364
(818) 992-8999
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
CATHERINE DEBONO HOLMES, ESQ.
JEFFER, MANGELS, BUTLER & MARMARO
2121 AVENUE OF THE STARS
LOS ANGELES, CA 90067
(310) 201-3553
Approximate date of commencement of proposed sale of the securities to the
public: As soon as possible after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of each Amount Proposed maximum Proposed maximum Amount of
class of securities to be offering price aggregate registration
to be registered registered per unit offering price fee
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Common Stock, par 1,430,000 $10.00 $14,300,000 $4,931
value $.01 per share
General Partner Warrants 476,667 $.73 $350,000 $121
Common Stock 476,667 $12.50 $5,958,338 $2,055
Issuable Upon Exercise of
General Partner Warrants
Common Stock Issuable Upon
Exercise of Bank Warrant 38,133 $2.66 $38,132 $13
Total Registration Fee $7,120
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 416, there are also being registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable by
reason of stock splits, stock dividends and similar adjustments as set forth in
the provisions of the Redeemable Warrants and the Representative's Warrants.
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PACIFIC UNITED GROUP, INC.
CROSS-REFERENCE SHEET
FOR
REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS
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FORM S-4 REGISTRATION STATEMENT CAPTION OR
ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . Front Cover Page
2. Inside Front, Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . . . . . . . . . . . Available Information
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other
Information . . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Investment Considerations; Selected
Financial Data; Historical Pro Forma
Financial Statements of the Corporation;
The Restructuring Plan -- Conditions to the
Restructuring Plan; Federal Income Tax
Consequences
4. Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . Summary -- Changes in Business Conditions Which
Necessitate Restructuring; Summary -- Summary of
the Restructuring Plan; Description of Capital
Stock; Comparison of Rights of Limited Partners of
the Partnership and Stockholders of the
Corporation; Federal Income Tax Consequences;
Fairness of the Restructuring Plan
5. Pro Forma Financial Information . . . . . . . . . . . . . . . . . Historical Pro Forma Financial Statements of the
Corporation
6. Material Contracts with the Company
Being Acquired . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
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7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters . . . . . . . . . . . . . . . . . . . . . . . Selling Security Holders
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Matters
9. Disclosure of Commission Position on
Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . . . . . . . . . Fiduciary Responsibility
10. Information with Respect to S-3
Registrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
11. Incorporation of Certain
Information by Reference . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
12. Information With Respect to S-2
or S-3 Registrants . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
13. Incorporation of Certain
Information by Reference . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
14. Information With Respect to
Registrants Other than S-3 or
S-2 Registrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business; Dividend Policy; Market for Limited
Partnership Units and Common Stock of the
Corporation; Financial Statements; Selected
Financial Data; Management's Discussion and
Analysis of Financial Conditions and Results of
Operations
15. Information With Respect to S-3
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
16. Information With Respect to S-2
or S-3 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
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17. Information With Respect to
Companies Other Than S-3 or
S-2 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business; Dividend Policy; Market for Limited
Partnership Units and Common Stock of the
Corporation; Financial Statements; Selected
Financial Data; Management's Discussion and
Analysis of Financial Conditions and Results of
Operations
18. Information if Proxies, Consents or
Authorizations are to be
Solicited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voting Requirements; Conflicts of Interest;
Fiduciary Responsibility; Beneficial Ownership of
Common Stock; Management; Certain Transactions
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
20. Indemnification of Directors and
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II - Item 20
21. Exhibits and Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II - Item 21
22. Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II - Item 22
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PRESIDENTIAL MORTGAGE COMPANY
21031 Ventura Boulevard
Woodland Hills, California 91364
January __, 1996
Dear Limited Partner:
From 1981 through 1992, Presidential Mortgage Company (the
"Partnership") operated a profitable real estate lending business and made
regular quarterly distributions of net profits to all of Limited Partners and
the General Partner (collectively, the "Partners"). Changes in business
conditions since 1990, however, resulted in net losses for 1993 and 1994, and
have necessitated changes in the Partnership's lending business. The
Partnership has made substantial progress in its goal of returning to
profitable operations, and management believes that the Partnership's business
will continue to improve through the last quarter of 1995 and all of 1996.
However, restrictions under the Partnership's bank loan agreement will require
that the Partnership continue the current suspension of distributions and
withdrawal payments until June 30, 1997. Thereafter, the General Partner does
not believe that the Partnership will have the ability to make quarterly
distributions comparable to the amounts paid from 1981 through 1992, or to
allow partners to withdraw capital upon request as previously permitted. The
General Partner therefore believes that it is necessary for all of the Partners
to consider whether a change in the business structure of the Partnership would
result in greater benefits to the Partners than the current structure.
The General Partner has given substantial consideration to several
alternative business plans over the past year, including liquidation of the
business and various restructuring plans. Based upon its analysis of the
Partnership's business prospects, the General Partner believes that a
restructuring of the business into a corporation with publicly traded common
stock would result in the highest potential value to all of the partners of the
Partnership. Accordingly, the General Partner has determined to propose a
restructuring plan (the "Restructuring Plan") to the Limited Partners, the
terms of which are described in the Proxy Statement/Prospectus which
accompanies this letter. However, because the General Partner believes that
some Limited Partners may wish to cash out their interests in the Partnership
at this time, the Restructuring Plan provides a cash out option (the "Cash Out
Option") that may be exercised at the option of every Partner, as further
summarized below.
The terms of the Restructuring Plan provide for the Partnership to
transfer all of its assets and liabilities to a new
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Delaware corporation, Pacific United Group, Inc. (the "Corporation"), in
exchange for [830,000] shares of the common stock (the "Common Stock") of the
Corporation, less the number of shares that would otherwise be issued to the
Partners electing the Cash Out Option. The number of shares to be issued in
exchange for the Partnership's assets and liabilities has been determined as
one share for every $10 of the total partners' equity less goodwill and
unamortized capitalized organization costs, as determined on its audited
consolidated balance sheet as of [December 31, 1995]. The Partnership will
then distribute all of the shares of Common Stock received by it pro rata to
the Partners of the Partnership based upon their respective capital accounts
in the Partnership. The exact number of shares of Common Stock that will be
received by each Limited Partner is stated on the Ballot which accompanies
this Proxy Statement/Prospectus.
Every Partner who elects the Cash Out Option will receive cash from
the Partnership in lieu of Common Stock equal to $10 per share times the number
of shares such Partner would otherwise be entitled to receive from the
Partnership, as stated on each Limited Partner's Ballot. However, the total
amount of shares that may be cashed out will be limited so that the completion
of the Restructuring Plan will not cause an "ownership change" as defined in
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable regulations promulgated thereunder (the "Cash Out Limitation").
This limitation is necessary in order to preserve the Corporation's ability to
fully utilize a $6.8 million net operating loss carryforward as of December 31,
1994 to offset future taxable income of the Corporation. Therefore, to the
extent that requests are received for the Cash Out Option which exceed the Cash
Out Limitation, the Partnership will allocate the amount of shares to be cashed
out among all Partners requesting the Cash Out Option, pro rata in accordance
with their Capital Accounts.
LIMITED PARTNERS WHO WISH TO ELECT THE CASH OUT OPTION MUST VOTE "FOR"
THE RESTRUCTURING PLAN IN ORDER TO RECEIVE CASH FOR THEIR INTERESTS.
In order to raise additional capital to fund the Corporation's growth
plan, subject to the approval of the Restructuring Plan, the Corporation will
simultaneously offer to all of the existing Partners of the Partnership, pro
rata in accordance with their respective capital accounts in the Partnership,
the right (the "Basic Subscription Right") to purchase an aggregate of 400,000
additional shares of Common Stock, at a purchase price of $10 per share (the
"Subscription Price"), for a total of $4,000,000. All Partners will also have
the right to oversubscribe (the "Oversubscription Privilege") for any
additional shares not purchased by other Partners through the exercise of their
Basic Subscription Rights, subject to allocation in the event subscriptions are
received for an amount in excess of 400,000 shares.
2
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LIMITED PARTNERS WHO WISH TO EXERCISE BASIC SUBSCRIPTION RIGHTS AND
OVERSUBSCRIPTION PRIVILEGES MUST VOTE "FOR" THE RESTRUCTURING PLAN.
The Basic Subscription Right allocable to the General Partner will be
exercisable by each partner of the General Partner, pro rata in accordance with
each partner's interest in the General Partner, and each such partner will also
have the right to exercise the Oversubscription Privilege. In addition, the
Corporation has extended the Oversubscription Privilege to certain employees of
the Partnership and its subsidiaries, so that these employees will be entitled
to subscribe for shares of Common Stock to the extent existing Partners do not
exercise their Basic Subscription Rights or the Oversubscription Privilege. To
the extent that shares are available, I have committed to subscribe for a
minimum of 115,000 shares ($1,150,000) through the exercise of Basic
Subscription Privileges and the Oversubscription Privilege.
If the Restructuring Plan is completed, the General Partner will
terminate all management fees and other compensation it receives from the
Partnership, and will not receive any management fees or other compensation
from the Corporation. The General Partner will receive no additional
consideration for its general partner's interest in the Partnership other than
its pro rata interest in shares of Common Stock based upon its capital account
in the Partnership. However, as consideration for the cancellation of $350,000
in outstanding debt owed by the Partnership to the General Partner, the General
Partner will receive a two-year warrant to purchase between 443,333 and 476,667
additional shares of the Common Stock, to be determined as the amount
representing 25% of the total outstanding shares of Common Stock, at an
exercise price of $12.50 per share, equal to 125% of the Subscription Price
paid by Limited Partners, partners of the General Partner and standby
Purchasers for Additional Shares.
The Corporation has entered into Standby Purchase Agreements with
outside investors ("Standby Purchasers"), under which Standby Purchasers have
agreed irrevocably to purchase that number of shares of Common Stock as is
equal to the shares that would otherwise be issued by the Corporation to the
Cashed Out Partners, at a price equal to the Subscription Price. In addition,
the Standby Purchasers have agreed irrevocably to purchase all shares of Common
Stock that are not subscribed for by Partners pursuant to the Basic
Subscription Rights or the Oversubscription Privilege, plus any additional
shares of Common Stock as are necessary for the Corporation to raise a minimum
of $5,000,000 in gross proceeds from the sale of Common Stock. The Standby
Purchasers will be guaranteed a minimum purchase of 200,000 shares ($2,000,000)
so that a maximum of 600,000 additional shares may be issued if the
Corporation is required to issue additional shares in order to meet the
guaranteed minimum purchase amount to the Standby Purchasers.
Upon completion of the Restructuring Plan, the Corporation will
continue the existing businesses of the Partnership and its
3
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subsidiaries. Two organizational charts illustrating the changes from the
partnership to the corporate holding company structure appear on page 5 of the
Proxy Statement/Prospectus accompanying this letter.
[SUBJECT TO NASDAQ APPROVAL: The Common Stock of the Corporation has
been conditionally approved for trading on the Nasdaq National Market, subject
to completion of the Restructuring Plan and notification of issuance of the
Common Stock.] It is anticipated that the Common Stock will be listed for
trading immediately upon issuance to the Limited Partners. If, for any reason,
the Common Stock is not listed for trading, the Limited Partners will be
notified and a new vote will be required as a condition to the closing of the
Restructuring Plan.
THE GENERAL PARTNER RECOMMENDS THAT LIMITED PARTNERS VOTEFOR THE
RESTRUCTURING PLAN BECAUSE THE GENERAL PARTNER BELIEVES THAT IT REPRESENTS THE
BEST AVAILABLE ALTERNATIVE FOR MAXIMIZING THE VALUE AND LIQUIDITY OF THE
LIMITED PARTNERS' EXISTING INVESTMENT IN THE PARTNERSHIP. Only Limited
Partners as of the record date of January __, 1996, will be entitled to vote on
the Restructuring Plan. The Restructuring Plan must be approved by Limited
Partners holding a majority of capital contributions in the Partnership (voting
as a single class), without considering the capital contributions of the
General Partner.
The vote of the Limited Partners on the Restructuring Plan will be
conducted by written Ballot in lieu of a meeting. To indicate your vote FOR or
AGAINST the proposed Restructuring Plan, a form of Ballot (which is included
herewith) properly completed and signed, must be received by [DISTRIBUTION
AGENT] by 5:00 P.M. (California time), February __, 1996 (the "Expiration
Date"), or such later date as the Expiration Date may be extended by the
General Partner. See "Restructuring Plan - Voting Procedures" in the Proxy
Statement/Prospectus for the exact procedure. Please complete, sign, date and
return your Ballot in the enclosed envelope.
FAILURE TO RETURN YOUR BALLOT BY THE EXPIRATION DATE WILL BE TREATED
AS A VOTE AGAINST THE RESTRUCTURING PLAN.
If you have any questions regarding the proposed Restructuring Plan or
any of the information contained in the Proxy Statement/Prospectus, please call
Richard B. Fremed at (818) 992-8999 ext. 250.
Very truly yours,
JOEL R. SCHULTZ,
President, Presidential Services
Corporation, the general partner of
Presidential Management Company,
the general partner of the
Partnership
4
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PROXY STATEMENT/PROSPECTUS
PACIFIC UNITED GROUP, INC.
UP TO 1,430,000
Shares of Common Stock
Including
830,000 Shares in Exchange for the Assets
and Liabilities of Presidential Mortgage Company
and
Up to 600,000 Shares at a Cash Purchase Price
of $10 Per Share
The General Partner of Presidential Mortgage Company, a California
limited partnership (the "Partnership"), is proposing a restructuring plan (the
"Restructuring Plan") whereby the Partnership will contribute all of its assets
(including stock in all subsidiaries) and liabilities to Pacific United Group,
Inc., a newly formed Delaware corporation (the "Corporation), and the business
of the Partnership will thereafter be conducted by the Corporation. The terms
of the Restructuring Plan, including an option to cash out of the Partnership
in lieu of receiving Common Stock of the Corporation and a concurrent offering
of additional Common Stock (the "Additional Shares") by the Corporation, are
described herein.
The Restructuring Plan must be approved by Limited Partners holding at
least 51% of the total Capital Contributions in the Partnership, not including
the Capital Contributions of the General Partner representing either its
general partner's interest or its limited partner's interests.
Following the distribution of Common Stock, the Corporation will
continue all of the existing business operations of the Partnership and the
Partnership will dissolve.
There has been no previous trading market for limited partnership
interests in the Partnership or the Common Stock. [The Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "PUGG,"
subject to completion of the Restructuring Plan and official notice of issuance
of the Common Stock.] It is anticipated that a public trading market will
develop for the Common Stock, providing Limited Partners a readily available
means of liquidating their interest in the Corporation at any time. However,
the trading price of the Common Stock will be subject to fluctuation, and
initially may be less than the net equity per share of the Corporation. The
General Partner believes that the value of the Common Stock will stabilize
within a reasonable period of time after the completion of the Restructuring
Plan, but there can be no assurance of the trading value of the Common Stock at
any future date, or that the Common Stock will continue to be traded on the
Nasdaq National Market, or that an active and liquid market for the Common
Stock will develop.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF FACTORS THAT SHOULD BE
CONSIDERED BY EACH LIMITED PARTNER.
NEITHER THIS TRANSACTION NOR THE SHARES OF COMMON STOCK TO BE ISSUED UNDER THE
RESTRUCTURING PLAN HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE
FAIRNESS OR MERITS OF
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THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY __, 1996.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................. 2
SUMMARY................................................................ 3
The Partnership...................................................... 3
The Corporation...................................................... 4
Current Organizational Structure of the Partnership.................. 5
Proposed Organizational Structure of the Corporation................. 5
Changes in Business Conditions Which Necessitate Restructuring....... 6
Summary of Expected Benefits of the Restructuring Plan............... 7
Summary of Expected Detriments of the Restructuring Plan............. 8
Summary of Fairness of Restructuring Plan............................ 9
Summary of Investment Considerations................................. 10
Summary of The Restructuring Plan.................................... 10
INVESTMENT CONSIDERATIONS.............................................. 15
Investment Considerations if the Restructuring Plan is Approved...... 15
Changes in Nature of Investment...................................... 15
Conflicts of Interest................................................ 18
Investment Considerations if the Restructuring Plan is Not Completed
and the Partnership Continues under its Present Structure.......... 19
Business Considerations Which Apply Whether or Not the Restructuring
Plan is Approved................................................... 19
COMPARISON OF OWNERSHIP OF LIMITED PARTNERSHIP UNITS OF THE PARTNERSHIP
AND COMMON STOCK OF THE CORPORATION.................................. 22
Form of Organization............................................... 22
Length of Investment............................................... 23
Distribution of Net Profits........................................ 23
Withdrawal of Capital.............................................. 24
Permitted Investments.............................................. 25
Additional Equity.................................................. 26
Borrowing Policies................................................. 27
Restrictions Upon Related Party Transactions....................... 27
Management Control and Responsibility.............................. 28
Management Liability and Indemnification........................... 29
Anti-Takeover Provisions........................................... 30
Voting Rights...................................................... 32
Special Meetings and Action Without a Meeting...................... 33
Compensation, Fees and Distributions............................... 33
Limited Liability of Investors..................................... 34
Review of Investor Lists........................................... 35
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THE RESTRUCTURING PLAN............................................... 36
Transfer of Assets and Liabilities and Distribution of Common
Stock............................................................ 36
Cash Out Option.................................................... 36
Rights Offering.................................................... 37
Standby Agreements................................................. 41
General Partner Warrants........................................... 43
Conditions to Restructuring Plan................................... 44
Manner of Effecting the Restructuring Plan......................... 45
Expenses of the Restructuring Plan................................. 46
Right to Inspect List of Limited Partners.......................... 47
USE OF PROCEEDS...................................................... 47
CAPITALIZATION....................................................... 47
FAIRNESS OF THE RESTRUCTURING PLAN................................... 49
General Partner Conclusions........................................ 49
Alternatives to the Restructuring Plan............................. 49
Fairness Opinion................................................... 51
Experience of Houlihan Lokey....................................... 51
Summary of Methodology............................................. 51
Assumptions........................................................ 51
Limitations and Qualifications..................................... 52
Compensation....................................................... 52
VOTING REQUIREMENTS.................................................. 53
Distribution of Solicitation Materials............................. 53
Vote Required...................................................... 53
Voting Procedures and Ballots...................................... 54
Ballot Completion Instructions..................................... 54
Withdrawal and Change of Election Rights........................... 55
Solicitation of Ballots by Soliciting Agent........................ 55
Tabulation of Ballots.............................................. 55
CONFLICTS OF INTEREST................................................ 56
Benefits and Detriments to the General Partner in Completing the
Restructuring Plan............................................... 56
Directors and Officers of the Corporation.......................... 56
Lack of Independent Representation of Limited Partners............. 56
FIDUCIARY RESPONSIBILITY............................................. 57
Directors and Officers of the Corporation.......................... 57
General Partner of the Partnership................................. 58
SELECTED FINANCIAL DATA.............................................. 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................. 64
General.......................................................... 64
Financial Condition.............................................. 66
Results of Operations............................................ 69
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Liquidity and Capital Resources......................................... 78
Asset/Liability Management.............................................. 81
Effect of Federal Laws and Regulations.................................. 83
Impact of Inflation and Changing Prices................................. 84
Effect of New Accounting Standards...................................... 84
HISTORICAL PRO FORMA FINANCIAL STATEMENTS OF THE CORPORATION.............. 87
BUSINESS.................................................................. 95
The Partnership......................................................... 95
The Corporation......................................................... 95
Pacific Thrift.......................................................... 95
Consolidated and Lenders................................................ 96
Unified................................................................. 97
Lending Activities...................................................... 97
Lending Policies........................................................ 101
Maturities and Rate Sensitivities of Loan Portfolio..................... 105
Classified Assets and Loan Losses....................................... 107
Investment Activities................................................... 115
Sources of Funds........................................................ 115
Deposit Analysis........................................................ 115
Competition............................................................. 118
Employees............................................................... 119
Properties.............................................................. 119
Legal Proceedings....................................................... 120
DIVIDEND POLICY........................................................... 121
MARKET FOR LIMITED PARTNERSHIP UNITS AND COMMON STOCK OF THE
CORPORATION............................................................. 124
Limited Patnership Units................................................ 124
Common Stock............................................................ 125
SUPERVISION AND REGULATION................................................ 125
California Law.......................................................... 125
Federal Law............................................................. 127
Restrictions on Transfers of Funds to the Partnership
by Pacific Thrift..................................................... 128
Regulatory Actions...................................................... 129
Governmental Policies and Recent Legislation............................ 131
Capital Adequacy Guidelines............................................. 137
Potential Enforcement Actions........................................... 139
BENEFICIAL OWNERSHIP OF COMMON STOCK...................................... 140
MANAGEMENT................................................................ 144
Directors and Executive Officers........................................ 144
Board of Directors and Committees....................................... 145
Compensation of Board of Directors...................................... 146
Executive Compensation.................................................. 147
Employment Agreements................................................... 149
Plans and Arrangements.................................................. 153
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1995 Stock Option Plan.................................................. 153
Retirement Plan......................................................... 158
Stock Purchase Plan..................................................... 158
Supplemental Executive Retirement Plan.................................. 160
Limitation of Liability and Indemnification of Directors................ 163
Director and Officer Indemnification.................................... 164
CERTAIN TRANSACTIONS...................................................... 166
Management Fees......................................................... 166
Supervision Fees and Personnel Reimbursements........................... 166
Managing Officers' Employment Agreements................................ 167
Trustee and Foreclosure Services........................................ 168
Loan Account Services................................................... 168
Purchase of Equipment................................................... 168
General Partner Capital Note............................................ 169
Amounts Owed From and to the General Partner and the
Partnership........................................................... 169
Personal Guaranty of Partnership Debt by Managing Officers.............. 170
Consulting Agreement with Director of Pacific Thrift.................... 170
DESCRIPTION OF CAPITAL STOCK.............................................. 170
Common Stock............................................................ 171
Preferred Stock......................................................... 171
Transfer Agent.......................................................... 172
Certain Anti-Takeover Provisions........................................ 172
Effect of Quasi-California Corporation Law.............................. 175
Market for Common Stock................................................. 176
General Partner Warrants................................................ 176
Bank Warrant............................................................ 177
SHARES ELIGIBLE FOR FUTURE SALE........................................... 178
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE RESTRUCTURING PLAN...... 180
Introduction............................................................ 180
Summary of Tax Consequences............................................. 180
Qualification of Restructuring Plan under Code Section 351.............. 182
Tax Consequences to the Limited Partners................................ 184
Allocation of Final Items............................................... 187
Net Operating Losses.................................................... 187
Potential Application of Section 304 to Transfer of
Stock of Subsidiary................................................... 188
Treatement of Stockholders of Corporation............................... 189
State, Local and Other Taxation......................................... 191
SELLING SECURITY HOLDERS.................................................. 192
LEGAL MATTERS............................................................. 194
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EXPERTS................................................................... 194
GLOSSARY.................................................................. 194
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AVAILABLE INFORMATION
The Corporation has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the Common Stock. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Corporation
and the Common Stock, reference is made to the Registration Statement and to
the exhibits and schedules filed therewith. Statements made in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048, and copies of all or
any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission upon payment of the prescribed fee.
The Partnership is (and, following the Restructuring Plan the
Corporation will be) subject to the requirements of the Securities Exchange Act
of 1934 (the "Exchange Act") and, in accordance therewith, each files (or will
file) reports, proxy statements and other information with the Commission.
Copies of such reports, proxy statements and other information can be obtained,
at prescribed rates, from the public reference facilities at the offices of the
Commission. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
The Corporation will be required to furnish its stockholders with
annual reports containing financial statements audited by its independent
accountants.
2
<PAGE> 17
The shares of Common Stock are not deposits or savings accounts and
are not insured by the Federal Deposit Insurance Corporation or any other
government agency. The Common Stock may not be used to secure a loan from
Pacific Thrift and Loan Company.
SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the detailed information and financial
statements and notes thereto set forth elsewhere in this Proxy
Statement/Prospectus. Capitalized terms referred to in this summary and
elsewhere herein are defined in the Glossary section appearing at the end of
this Proxy Statement/Prospectus.
THE PARTNERSHIP
The Partnership is a California limited partnership, organized on June
15, 1981. Since its formation, the Partnership has been engaged in the
business of originating, purchasing and selling real estate secured loans and
loan participations. The Partnership conducts business primarily through four
operating subsidiaries, Pacific Thrift and Loan Company ("Pacific Thrift"), a
California corporation which is a licensed industrial loan company,
Consolidated Reconveyance Company ("Consolidated"), a trust deed foreclosure
service company, Consolidated Reconveyance Corporation, a Washington
corporation ("CRC Washington"), a trust deed foreclosure company and Lenders
Posting and Publishing Company ("Lenders"), a foreclosure related services
company. When referring to the assets held and business engaged in directly by
the Partnership, excluding the assets held and businesses engaged in by Pacific
Thrift, Consolidated, CRC Washington and Lenders, the Partnership is referred
to herein as "Presidential". The term "Partnership", on the other hand, refers
to Presidential and its subsidiaries on a consolidated basis.
If the Restructuring Plan is completed, Presidential will transfer all
of its loans receivable, subject to the bank debt, to the Corporation. In
addition, Presidential will transfer all of the stock of Pacific Thrift and CRC
Washington and all of Presidential's interests in Consolidated and Lenders to
the Corporation. The Corporation will then transfer all of the loans
receivable received from Presidential to a new corporate subsidiary, Pacific
Unified Mortgage, Inc. ("Unified"). The Corporation will also transfer all of
the assets and liabilities of Consolidated to a new Delaware corporate
subsidiary which will take the name Consolidated Reconveyance Company, Inc. and
all of the assets and liabilities of Lenders to a new Delaware corporate
subsidiary which will take the name Lenders Posting and Publishing Company,
Inc. Two organizational charts illustrating the current ownership structure of
the Partnership and the proposed ownership structure of the Corporation are
contained on page 5 of this Proxy Statement/Prospectus.
3
<PAGE> 18
The Partnership's General Partner is Presidential Management Company,
a California limited partnership. The Partnership currently has 2,493 Limited
Partners holding six classes of Limited Partnership Units. No single Limited
Partner or group of Limited Partners owns more than 5% of the total Limited
Partnership Units, and the largest owner of Limited Partnership Units is the
General Partner, which owns 4.57% of the total Limited Partnership Units.
The principal executive offices of the Partnership are located at
21031 Ventura Boulevard, Woodland Hills, California 91364, telephone number
(818) 992-8999.
THE CORPORATION
The Corporation is a Delaware corporation organized on February 22,
1994. Presidential is currently the sole stockholder of the Corporation. The
principal executive offices of the Corporation are located at 21031 Ventura
Boulevard, Woodland Hills, California 91364, telephone number (818) 992-8999.
The Corporation is not a bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHC" Act") or a savings and loan association
holding company under the Home Owners Loan Act of 1933, as amended (the
"HOLA"), and therefore is not regulated or supervised by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") or the Office of
Thrift Supervision (the "OTS").
If the Restructuring Plan is approved, the Corporation will acquire
all of the assets and liabilities of Presidential, and will continue to operate
the businesses of Pacific Thrift, Consolidated, CRC Washington and Lenders as
separate subsidiaries.
Concurrently with the transfer of assets by the Partnership to the
Corporation, Presidential will distribute 830,000 shares of the Common Stock to
the Partners, less the number of shares that would otherwise be issued to the
Partners electing the Cash Out Option, allocated in accordance with their
respective Capital Accounts in the Partnership, as determined pursuant to the
provisions of the Partnership Agreement.
Following are two organizational charts, one illustrating the current
structure of the Partnership, and the other illustrating the proposed structure
of the Corporation after the Restructuring Plan is completed.
4
<PAGE> 19
CURRENT ORGANIZATIONAL STRUCTURE OF THE PARTNERSHIP
<TABLE>
<S> <C> <C> <C>
-------------------------
Presidential Services
Company ("Services")
-------------------------
-------------------------
Presidential Management
Company (the "General
Partner")
-------------------------
-------------------------
Presidential Mortgage
Company
(the "Partnership")
-------------------------
- -------------------- -------------------- -------------------- --------------------
Pacific Thrift and Consolidated Lenders Posting Consolidated
Loan Company Reconveyance and Reconveyance
("Pacific Thrift") Company Publishing Co. Corporation, a
("Consolidated") ("Lenders") Washington, corp.
(CRC/WA)
- -------------------- -------------------- -------------------- --------------------
</TABLE>
PROPOSED ORGANIZATIONAL STRUCTURE OF THE CORPORATION
<TABLE>
<S> <C> <C> <C> <C>
-----------------------------
Pacific United Group, Inc.
(the "Corporation")
a Del. Corp.
-----------------------------
- -------------------- -------------------- -------------------- -------------------- ------------------
Pacific Thrift and Consolidated Lenders Posting Pacific Unified Consolidated
Loan Company Reconveyance and Mortgage, Inc. Reconveyance
("Pacific Thrift") Company, Inc. Publishing Co. ("Unified") Corporation, a
("Consolidated") ("Lenders") Washington corp.
(CRC/WA)
- -------------------- -------------------- -------------------- -------------------- ------------------
</TABLE>
Upon completion of the Restructuring Plan, the Corporation will own
100% of the stock of Pacific Thrift, Consolidated, Lenders and Unified. The
Corporation may also form other corporate subsidiaries in the future for
specific lending or related business operations. The Corporation intends to
conduct business exclusively through its subsidiaries.
5
<PAGE> 20
CHANGES IN BUSINESS CONDITIONS WHICH NECESSITATE RESTRUCTURING
From 1981 through 1993, the Partnership's primary business consisted
of the origination of high interest yield residential loans, which the
Partnership retained and serviced for the life of the loans. The Partnership
further increased its return on partners' equity by using credit lines to
increase lending volume. The Partnership's lending volume and rate structure
on the Partnership's loans enabled the Partnership to provide distributions to
its Partners based upon specified percentages above the Bank of America
reference rate for each class of Partners, as set forth in the Partnership
Agreement (the "Specified Annual Return Rates"). However, there have been
significant changes in the availability of credit to the Partnership and in the
residential lending market over the past four years, which have changed the
nature of the Partnership's lending business. These changes make it unlikely
that the Partnership could earn sufficient net profits to pay the Specified
Annual Return Rates.
As Limited Partners are aware from prior reports, the Partnership has
been required since 1990 to pay down over $73 million on its bank debt, which
in 1990 totalled over $82 million. This has required the Partnership to
substantially reduce its loan portfolio, from a high of $130.2 million in 1989,
to $51.6 million as of September 30, 1995. As a result, the Partnership has
experienced substantial reductions in interest income over the past five years.
Moreover, the Partnership has been unable to replace the existing bank debt
with a new credit line. Without a reliable source of available debt financing,
the Partnership can no longer originate the volume of loans it was formerly
able to fund using credit lines.
Secondly, the residential lending market has substantially changed
over the past several years, due to the consolidation of the lending industry
and the proliferation of loan securitization. These two factors have
dramatically increased competition for all grades of residential loans, with a
resulting decrease in market interest rates for these loans. The Partnership
has therefore modified the nature of its lending business in order to originate
loans primarily for sale to other lending companies. These purchasers pool and
securitize residential loans for resale in the secondary mortgage market. As a
result of this change in the lending market, the Partnership's primary source
of revenues has changed from interest income on portfolio loans to fee income
from loans originated for sale. Although management believes that the
Partnership can operate profitably as an originator of loans for sale, the
level of profits that may be achieved for the foreseeable future are not
sufficient to support future distributions to Partners equal to the Specified
Annual Return Rates.
Finally, the Partnership's current capital, $9.3 million at September
30, 1995, does not allow the Partnership to approve requests to withdraw
capital upon request, as originally intended. If the Partnership were to honor
requests to withdraw capital at
6
<PAGE> 21
this time, it would impair the ability of the Partnership to continue its
business operations, which would harm all of the Partners. Due to the limited
capital available to the Partnership, management does not anticipate that the
Partnership will have the ability to honor any additional requests to withdraw
capital for the foreseeable future.
For all of the above reasons, even if, as management anticipates, the
Partnership does return to profitable operations by 1996, the Partnership will
be unable to make distributions to Partners or to approve withdrawals of
capital by Partners for the foreseeable future. The General Partner has
developed the Restructuring Plan as a way to allow the Partnership's business
operations to continue and to provide the Partners greater liquidity and
opportunity for capital appreciation of their existing investment in the
Partnership.
SUMMARY OF EXPECTED BENEFITS OF THE RESTRUCTURING PLAN
If the Restructuring Plan is completed, the General Partner believes
that the following benefits will result:
o MULTIPLE INVESTMENT OPTIONS FOR PARTNERS. Under the
Restructuring Plan, every Partner has four investment options,
which provide maximum flexibility to suit the needs of each
individual Partner. These options are: (1) accept Common
Stock in exchange for Partnership Units and purchase
Additional Shares; (2) accept Common Stock in exchange for
Partnership Units and not purchase Additional Shares; (3)
accept Common Stock in exchange for Partnership Units and sell
the Common Stock through the Nasdaq National Market; or (4)
elect the Cash Out Option and receive the Cash Buyout Price in
lieu of shares of Common Stock, subject to certain limitations
on the total amount of Common Stock that may be cashed out by
the Partnership. See "THE RESTRUCTURING PLAN -- Cash Out
Option." Management believes that this Restructuring Plan
provides a means for every Partner to achieve that Partner's
own investment objectives.
o LIQUIDITY. For Partners who accept shares of Common Stock in
exchange for their interests in the Partnership, the Common
Stock will be publicly traded on the Nasdaq National Market,
which will provide a public market for investors seeking to
liquidate their investment at any time in the future.
o OPPORTUNITY FOR CAPITAL APPRECIATION AND DIVIDENDS. Partners
who accept shares of Common Stock in exchange for their
interests in the Partnership will have the opportunity to
realize potential capital appreciation of the value of their
Common Stock to the extent the Corporation successfully
increases earnings. In addition, if the Corporation does
successfully increase
7
<PAGE> 22
its earnings, the Board of Directors intends to consider the
payment of dividends by approximately the fourth quarter of
1997.
o ADDITIONAL CAPITAL TO EXPAND BUSINESS OPERATIONS. Under the
Restructuring Plan, the Corporation will raise at least $5
million gross proceeds from the sale of additional Common
Stock, which will be used in part to pay off existing debt of
the Partnership and in part to fund expansion of the
Corporation's businesses.
SUMMARY OF EXPECTED DETRIMENTS OF THE RESTRUCTURING PLAN
If the Restructuring Plan is completed, the General Partner believes
that the following detriments will result:
o NO ENTITLEMENT TO DISTRIBUTIONS. Limited Partners will no
longer be entitled to regular quarterly distributions of the
Net Profits, if any, earned by the Corporation. However,
Presidential has suspended all distributions since 1993 as
required under the terms of its Loan Agreement with NatWest
Bank ("NatWest" or the "Bank"), and the General Partner does
not believe that the Partnership will earn sufficient net
profits in the foreseeable future to pay distributions equal
to the Specified Annual Return Rates.
o NO RIGHT TO WITHDRAW CAPITAL. Limited Partners will no longer
be entitled to request withdrawals of capital. However, no
requests to withdraw capital have been approved since July 1,
1993 due to restrictions under the Loan Agreement, which will
continue through June 30, 1997. Thereafter, the General
Partner does not believe that the Partnership will have the
ability to allow capital withdrawals upon request for the
foreseeable future.
o UNCERTAIN TRADING PRICE FOR COMMON STOCK. The Common Stock
has been approved for trading on the Nasdaq National Market.
However, the market price of the Common Stock will be subject
to fluctuation, and there can be no assurance that an active
and liquid market will develop, or that the Common Stock will
remain listed for trading on the Nasdaq National Market. See
"MARKET FOR LIMITED PARTNERSHIP UNITS OF THE PARTNERSHIP AND
COMMON STOCK OF THE CORPORATION."
o MORE LIMITED ABILITY TO REMOVE MANAGEMENT. Stockholders in
the Corporation will not have the right to remove management
of the Corporation by vote of a majority in interest, as
Limited Partners currently have the right to remove the
General Partner by vote of a majority in interest. The
Certificate of Incorporation and Bylaws of the Corporation
contain a number of provisions which
8
<PAGE> 23
limit the ability of the Stockholders to make changes in the
management of the Corporation, although the Board of Directors
will be subject to regular election by the Stockholders. See
"DESCRIPTION OF CAPITAL STOCK -- Anti-Takeover Provisions."
o INCREASE IN TAXABLE INCOME AT THE CORPORATE LEVEL. Any
dividends that may be paid by the Corporation in the future
will be taxable to the holders of the Common Stock, just as an
allocated share of the Partnership's net income is taxable to
the Limited Partners. In addition, the Corporation will pay
income tax on its net taxable income at corporate income tax
rates, which will have the effect of double taxation of the
earnings of the Corporation, once at the corporate level, and
again at the stockholder level. However, Limited Partners
should note that, even if the Partnership continued in
business as presently structured, the General Partner
anticipates that a substantial majority of the Partnership's
future earnings would be derived from Pacific Thrift, which is
already a corporation subject to taxation, so there will be no
change with respect to taxation of the earnings of Pacific
Thrift. See "FEDERAL INCOME TAX CONSEQUENCES --Treatment of
Stockholders of the Corporation."
o RISK OF LOSS OF NET OPERATING LOSS CARRYFORWARD. The Pacific
Thrift's ability to utilize a $6.8 million net operating loss
carryforward ("NOL") depends upon whether there is an
"ownership change", as defined in Section 382 of the Code.
Management does not believe that the completion of the
Restructuring Plan alone will cause an "ownership change."
However, Section 382 requires that all changes in ownership of
Pacific Thrift be tracked for a period of three years to
determine if an "ownership change" occurs. Therefore, there
is a risk that changes in ownership after the completion of
the Restructuring Plan may cause an "ownership change," which
would limit Pacific Thrift's ability to utilize the NOL as an
offset against future taxable income by requiring a reduction
in the amount of NOL that may be utilized annually. See
"FEDERAL INCOME TAX CONSEQUENCES -- Net Operating Loss
Carryforward." and "CONFLICTS OF INTEREST."
A more detailed discussion of these factors is found under the heading
"BACKGROUND AND EXPECTED BENEFITS AND DETRIMENTS OF THE Restructuring Plan"
below.
SUMMARY OF FAIRNESS OF RESTRUCTURING PLAN
The General Partner believes that the Restructuring Plan is fair to
the Limited Partners of the Partnership because it will increase liquidity and
potential for capital appreciation of the Partner's existing investment in the
Partnership. In addition, the
9
<PAGE> 24
Restructuring Plan provides immediate liquidity to any Limited Partner who
chooses to exercise the Cash Out Option.
The Partnership has obtained a fairness opinion (the "Fairness
Opinion") from Houlihan, Lokey, Howard & Zukin ("Houlihan Lokey") that the
consideration to be received by the Limited Partners collectively in connection
with the Restructuring Plan is fair, from a financial point of view, to the
Limited Partners collectively. Houlihan Lokey is a nationally recognized
provider of financial advisory services that regularly engages in, among other
things, the valuation of businesses and their securities in connection with
mergers and acquisitions, private placements, going-private transactions, and
in valuations for estate, corporate and other purposes.
SUMMARY OF INVESTMENT CONSIDERATIONS
In evaluating the Restructuring Plan, Limited Partners should
carefully consider the contents of this Proxy Statement/Prospectus and should
give particular consideration to the investment considerations described
herein. Certain investment considerations relate to potential detriments of
completing the Restructuring Plan, while others relate to potential detriments
of continuing the Partnership in its present structure. In addition, a number
of investment considerations apply to the lending business in general, whether
the business is conducted by the Corporation or the Partnership. See the more
detailed discussion under the headings "INVESTMENT CONSIDERATIONS" and
"COMPARISON OF RIGHTS OF LIMITED PARTNERS OF THE PARTNERSHIP AND STOCKHOLDERS
OF THE CORPORATION" below.
SUMMARY OF THE RESTRUCTURING PLAN
Following is a summary of the proposed Restructuring Plan:
Restructuring Offer . . . . . . The Partnership will transfer all of its
assets and liabilities to Pacific United
Group, Inc. (the "Corporation"), in exchange
for 830,000 shares of Common Stock of the
Corporation, less the shares that would
otherwise be distributed to Partners
electing the Cash Out Option. The
Partnership will then liquidate, making a
final distribution of the Common Stock to
all of the Partners (except the Partners
electing the Cash Out Option, as described
below), pro rata in accordance with their
existing Capital Accounts in the
Partnership. The General Partner will
receive no additional compensation for its
general partner's interest or the
discontinuation of all compensation and fees
from the Partnership.
10
<PAGE> 25
Rights Offering . . . . . . . . The Corporation will concurrently offer
non-transferable subscription rights to all
Partners, entitling them to purchase up to
400,000 Additional Shares of Common Stock
for a purchase price of $10 per share (the
"Subscription Price"). Each Partner will
have the right to subscribe for a percentage
of the total Additional Shares offered equal
to that Partner's pro rata share of the
Partnership (the "Basic Subscription
Right"). Each Partner will also have the
right to subscribe (the "Oversubscription
Privilege") at the Subscription Price for an
unlimited number of shares of Common Stock
that are not otherwise purchased pursuant to
the exercise of the Basic Subscription
Rights, subject to proration in the event
there are insufficient Additional Shares
available to satisfy all oversubscriptions
received, in amounts proportionate to the
amount of Basic Subscription Rights
exercised by each Partner. See
"RESTRUCTURING PLAN -- Rights Offering."
LIMITED PARTNERS WHO WISH TO PARTICIPATE IN
THE RIGHTS OFFERING MUST VOTE "FOR" THE
RESTRUCTURING PLAN.
Cash Out Option . . . . . . . . Any Limited Partner who does not wish to
receive Common Stock of the Corporation may
elect the Cash Out Option, pursuant to which
the Partnership will pay cash equal to $10
per share times the number of shares that
would otherwise be issued to such Partner,
as shown in the Ballot provided to each
Limited Partner, subject to certain
limitations with respect to the total number
of shares that may be cashed out. In the
event that the total number of shares for
which the Cash Out Option is elected exceeds
the Cash Out Limitation, the Partnership
will pay cash for a portion of the shares to
each Partner electing the Cash Out Option,
pro rata in accordance with such Partner's
Capital Account, and will issue shares of
Common Stock for any amount that is not
cashed out. See "THE RESTRUCTURING PLAN --
Cash Out Option." Except for the Cash Out
Option, there are no dissenters' rights
offered in connection with the Restructuring
Plan.
LIMITED PARTNERS WHO WISH TO ELECT THE CASH
OUT OPTION MUST VOTE "FOR" THE RESTRUCTURING
PLAN.
11
<PAGE> 26
General Partner
Participation . . . . . . . . . The General Partner has committed to accept
Common Stock in exchange for all of its
general and limited partner's interests in
the Partnership. The Basic Subscription
Rights and Oversubscription Privileges of
the General Partner will be exercisable by
the individual partners of the General
Partner. Joel R. Schultz, Chief Managing
Officer of the Partnership and Chief
Executive Officer of the Corporation, has
indicated his commitment to purchase 115,000
Additional Shares ($1,150,000) through the
exercise of Basic Subscription Rights and
the Oversubscription Privilege, to the
extent that Additional Shares are available.
Oversubscription Privilege
Extended to Employees . . . . . The Partnership has extended the
Oversubscription Privilege to certain
employees of the Partnership and its
subsidiaries, to the extent that Basic
Subscription Rights and the Oversubscription
Privilege are not exercised by existing
Partners and partners of the General
Partner.
Standby Purchase Agreements . . The Corporation has entered into Standby
Purchase Agreements under which the Standby
Purchasers have agreed irrevocably to
purchase all shares of Common Stock that are
not subscribed for pursuant to the exercise
of the Basic Subscription Rights or the
Oversubscription Privilege, plus any
additional amount of shares necessary for
the Corporation to sell a minimum of 500,000
($5,000,000) Additional Shares. In
addition, the Standby Purchasers have agreed
irrevocably to purchase an additional amount
of shares equal to the amount of shares that
would otherwise be issued to Partners
electing the Cash Out Option. All shares
will be purchased at the same price as the
Subscription Price paid by the Partners.
The Standby Purchasers will be guaranteed a
minimum purchase of 200,000 Additional
Shares ($2,000,000). Therefore, if the
existing Partners exercised all of their
Basic Subscription Rights and the
Oversubscription Privilege, and no Partner
elected the Cash Out Option, the Corporation
would be required to sell an additional
200,000 shares to meet the minimum purchase
requirement to the Standby Purchasers. In
that event, a total of 600,000 shares would
be sold pursuant to the Rights Offering and
the Standby Offering.
Market for Common Stock . . . . The Corporation has been approved for
listing on the Nasdaq National Market under
the symbol [PUGG].
12
<PAGE> 27
General Partner Warrants . . . The General Partner will forgive
approximately $350,000 in outstanding debt
owed to it by the Partnership in exchange
for General Partner Warrants to purchase 25%
of the Common Stock at an exercise price of
$12.50 per share, equal to 125% of the
Subscription Price. The General Partner
Warrants will become exercisable on the
Initial Exercise Date, which is defined as
the earlier of (i) the date that Pacific
Thrift has fully utilized as an offset to
taxable income, at least $6,773,000 of a net
operating loss carryforward ("NOL") existing
as of December 31, 1994; (ii) the date that
the utilization of the NOL is limited as a
result of an "ownership change" as defined
in Section 382 of the Code, which is not
caused by the exercise of General Partner
Warrants, (iii) the acquisition by any
person other than a holder of General
Partner Warrants of voting stock in excess
of 10% of the total outstanding voting stock
of the Corporation or (iv) June 30, 1997.
The General Partner warrants expire on the
date which is two years after the Initial
Exercise Date.
Extension of Bank Line
of Credit . . . . . . . . . . . NatWest has agreed to extend the existing
bank debt (approximately $8.0 million as of
November 7, 1995) for one additional year to
June 30, 1997, with an interest rate
increase of one-half of one percent to 1.5%
over prime, plus certain modification fees
and a 5-year warrant (the "Bank Warrant") to
purchase 2% of the outstanding Common Stock
of the Corporation, exercisable at a price
equal to 25% of the book value per share of
the stock at December 31, 1995, as adjusted
for the increase in book value after the
completion of the Restructuring Plan. The
Corporation will have the right to redeem
the Bank Warrant at any time after one year
from the date of issuance for $200,000.
13
<PAGE> 28
Use of Proceeds . . . . . . . . The net proceeds of the additional capital
raised in the Rights Offering will be used
as follows:
approximately $1 million to pay down
the bank debt;
approximately $1.3 million, to pay the
amount owing to former Limited
Partners who are now creditors of the
Partnership, whose withdrawal requests
were approved prior to June 30, 1993;
and
the balance of the net proceeds will be
added to working capital of the
Corporation, which may be contributed
from time to time as additional
capital of Pacific Thrift, as
management deems appropriate.
Fairness Opinion . . . . . . . The consideration to be received by the
Limited Partners collectively has been
reviewed by Houlihan Lokey and determined to
be fair, from a financial point of view, to
the Limited Partners collectively. See
"FAIRNESS OF THE RESTRUCTURING PLAN."
Solicitation Agent . . . . . . [SOLICITATION AGENT]
Subscription Agent . . . . . . [SUBSCRIPTION AGENT]
Distribution Agent . . . . . . [DISTRIBUTION AGENT]
Fractional Share Interests . . No fractional shares will be issued. Any
fraction equal to or greater than one-half
shall be rounded up to the next full share,
and any fraction less than one-half shall be
eliminated. See "THE RESTRUCTURING PLAN - -
Manner of Effecting the Restructuring Plan."
Record Date . . . . . . . . . . January __, 1996
Distribution Date . . . . . . . ___ days after the Expiration Date of the
Solicitation Period. Certificates
representing the Common Stock will be mailed
to Partners commencing on the Distribution
Date or as soon thereafter as is
practicable.
Solicitation Period . . . . . . Commencing on the date of distribution of
this Proxy Statement/Prospectus and expiring
on February __, 1996, or such later date as
the General Partner determines in its sole
discretion.
14
<PAGE> 29
Tax Consequences . . . . . . . See "FEDERAL INCOME TAX CONSEQUENCES."
Dissolution of
the Partnership . . . . . . . . If the proposed Restructuring Plan is
approved, all of the assets and business
operations of the Partnership will be
transferred to the Corporation and the
Partnership will be dissolved.
INVESTMENT CONSIDERATIONS
In evaluating the Restructuring Plan, Limited Partners should
carefully consider the contents of this Proxy Statement/ Prospectus and should
give particular consideration to the following investment factors. The
investment considerations described herein have been classified into three
categories: (1) investment considerations which apply only if the Restructuring
Plan is completed; (2) investment considerations which apply if the
Restructuring Plan is not completed, and Limited Partners continue to hold
Limited Partnership Units in the Partnership as currently structured; and (3)
investment considerations which apply generally to the lending business of
either the Partnership or the Corporation, regardless of whether or not the
Restructuring Plan is approved.
INVESTMENT CONSIDERATIONS IF THE RESTRUCTURING PLAN IS APPROVED
If the Restructuring Plan is completed, the Limited Partners will no
longer hold Limited Partnership Units of the Partnership, but Common Stock of
the Corporation. The nature of an investment in the Common Stock is different
in many respects from an investment in Limited Partnership Units, which Limited
Partners should consider when determining whether to approve the Restructuring
Plan. In addition, Limited Partners should consider whether the terms of the
Restructuring Plan are fair. The terms of the Restructuring Plan were
determined by the General Partner, which has certain conflicts of interest, as
further described below in this section, with respect to the determination of
certain terms of the Restructuring Plan.
CHANGES IN NATURE OF INVESTMENT
NO ENTITLEMENT TO DISTRIBUTIONS OF NET PROFITS. If the Restructuring
Plan is completed, Limited Partners will no longer have the right to receive
quarterly distributions of the Net Profits, if any, earned by the Partnership
or the Corporation. The Partnership has suspended all distributions since June
1993, and distributions will continue to be suspended due to restrictions under
the Loan Agreement until at least June 30, 1997. Thereafter, the General
Partner does not anticipate that the Partnership will earn sufficient net
profits to make distributions equal to the Specified Annual Return Rates for
the foreseeable future.
15
<PAGE> 30
LIMITATIONS ON DIVIDENDS. To the extent that the Corporation earns
net profits in the future, the Board of Directors may, but is not required to,
declare dividends on the Common Stock. The Board of Directors does not intend
to consider the payment of any dividends until the fourth quarter of 1997,
depending upon the earnings and financial condition of the Corporation and its
operating subsidiaries. Payment of future dividends will be subject to the
discretion of the Board of Directors and will depend upon the consolidated
earnings and financial condition of the Corporation, the capital requirements
of Pacific Thrift, applicable governmental policies and regulations and such
other matters as the Board deems appropriate. The Corporation's ability to pay
cash dividends is also limited by the provisions of Delaware law, which permit
the payment of dividends from either surplus (as defined by Delaware law) or
retained earnings. If the Corporation is deemed to be a quasi-California
corporation (as defined below), different and more restrictive limitations on
the payment of dividends will apply, including in particular the prohibition on
payment of dividends from surplus. Following the completion of the
Restructuring Plan, the Corporation's only assets will be its investments in
the stock of Pacific Thrift, Consolidated, CRC Washington, Lenders and Unified.
The Corporation's ability to pay dividends on the Common Stock in future years
will be dependent upon the earnings and capital of its subsidiaries. See
"DIVIDEND POLICY". Pacific Thrift's ability to pay cash dividends is limited
by the provisions of California law with respect to licensed industrial loan
companies and by regulatory policies of the Federal Deposit Insurance
Corporation ("FDIC") and the California Department of Corporations ("DOC").
See "SUPERVISION AND REGULATION."
NO RIGHT TO WITHDRAW CAPITAL. If the Restructuring Plan is approved,
the Corporation will assume the obligation of the Partnership to repay the
remaining $1,120,379 owed to Limited Partners who had withdrawn from the
Partnership prior to June 1993, after the restrictions on such payments are
removed under the Loan Agreement. However, no further requests to withdraw
capital will be approved, and all remaining Limited Partners will receive
either Common Stock or cash equal to the Cash Buyout Price in liquidation of
their interests in the Partnership. Limited Partners who receive Common Stock
will thereafter be required to sell their Common Stock in order to liquidate
their investment in the Corporation.
UNCERTAINTIES OF COMMON STOCK TRADING MARKET. The Common Stock has
been conditionally approved, subject to completion of the Restructuring Plan,
for listing on the Nasdaq National Market, under the symbol "[PUGG]." An
investment banking firm has indicated an intention to make a market in the
Common Stock. That firm is not obligated, however, to make a market in the
Common Stock and any market making may be discontinued at any time. No
assurance can be given that the Common Stock will continue to be quoted on the
Nasdaq National Market, or that an active and liquid market for the Common
Stock will develop. There has been no prior
16
<PAGE> 31
public market for either the Common Stock or the Limited Partnership Units of
the Partnership. Furthermore, there is substantial uncertainty as to the
prices at which the Common Stock will trade following the completion of the
Restructuring Plan. It is possible that the Common Stock will initially trade
below the net equity per share of the Corporation. Historically, equity
securities of new companies formed through the consolidation of partnerships
have traded below, and in many cases substantially below, the net equity per
share of the consolidated entity. Among the factors that might adversely
affect the initial trading prices of the Common Stock are the following:
potential pent-up selling pressure as a result of the historic illiquidity of
the Limited Partnership Units; the recent net operating losses of the
Partnership; the absence of an active market for the Common Stock; and the
unfamiliarity of institutional investors, financial analysts and broker/dealers
with the Corporation and its prospects as an investment when compared against
other equity securities (including securities issued by other financial
institution holding companies).
ADDITIONAL MANAGEMENT CONTROL PROVISIONS. Limited Partners currently
have the right to remove the General Partner, elect a new general partner,
amend the Partnership Agreement, sell all or substantially all the assets of
the Partnership, or dissolve the Partnership by vote of a majority interest.
The Corporation has a number of provisions in its Certificate of Incorporation
and its Bylaws which limit the right of the Stockholders to change the
management of the Corporation or approve certain business combinations,
including the election of only one-third of the total number of directors
annually, the requirement that an elected director be removed only for cause
and only upon the vote of 66-2/3% of the total outstanding Common Stock, the
requirement that the number of directors may be increased or decreased only by
a majority vote of the directors then in office, the requirement that any
vacancy on the Board of Directors be filled only by a majority vote of
directors then in office, the requirement that certain business combinations be
approved by 66-2/3% of the outstanding Common Stock unless the transaction is
first approved by the Board of Directors, and the requirement that amendments
to these provisions be adopted by 66-2/3% of the outstanding Common Stock. In
addition, Stockholders have no right to call special meetings, and no right to
take actions by written consent unless approved by the Board of Directors. See
"DESCRIPTION OF THE CAPITAL STOCK OF THE CORPORATION -- Anti-Takeover
Provisions."
TAXATION OF THE CORPORATION. The Corporation is subject to taxation
at corporate income tax rates under federal and state tax laws. The earnings
of Presidential, Consolidated and Lenders are not subject to taxation, although
the earnings of Pacific Thrift are subject to taxation, and the Partners are
each subject to taxation of their allocated shares of taxable income of the
Partnership. The future tax liability of the Corporation will decrease the net
operating income of Presidential, Consolidated and Lenders. However, Limited
Partners should note that, since a
17
<PAGE> 32
substantial portion of the anticipated earnings of the Corporation is expected
to be earned by Pacific Thrift, which is already a corporation subject to
federal and state taxation at the rates applicable to corporations, the
increased tax on the consolidated earnings of the Corporation is not expected
to be substantially different than if the Partnership were to continue under
its present structure. In addition, the Stockholders will be subject to income
tax liability for any dividends that may be paid by the Corporation in the
future. See "FEDERAL INCOME TAX CONSEQUENCES -- Taxation of Stockholders of
the Corporation."
RISK OF LOSS OF NET OPERATING LOSS CARRYFORWARD. The Pacific Thrift's
ability to utilize a $6.8 million net operating loss carryforward ("NOL")
depends upon whether there is an "ownership change", as defined in Section 382
of the Code. Management does not believe that the completion of the
Restructuring Plan alone will cause an "ownership change." However, Section
382 requires that all changes in ownership of Pacific Thrift be tracked for a
period of three years to determine if an "ownership change" occurs. Therefore,
there is a risk that changes in ownership after the completion of the
Restructuring Plan may cause an "ownership change," which would limit Pacific
Thrift's ability to utilize the NOL as an offset against future taxable income
by requiring a reduction in the amount of NOL that may be utilized annually.
See "FEDERAL INCOME TAX CONSEQUENCES -- Net Operating Loss Carryforward." and
"CONFLICTS OF INTEREST."
CONFLICTS OF INTEREST
LACK OF INDEPENDENT REPRESENTATION. The terms of the Restructuring
Plan have been established by the General Partner, and the Limited Partners
were not separately represented in structuring and negotiating the terms of the
Restructuring Plan, by representative groups of Limited Partners or outside
experts and consultants, such as investment bankers, legal counsel, accountants
and financial experts, who would have been engaged solely to represent the
independent interests of the Limited Partners. Had separate representation
been arranged for the Limited Partners, the terms of the Restructuring Plan
might have been different and possibly more favorable to the Limited Partners.
See "CONFLICTS OF INTEREST." However, Houlihan Lokey has issued a Fairness
Opinion to the effect that the consideration to be received by the Limited
Partners collectively in connection with the Restructuring Plan is fair to the
Limited Partners collectively from a financial point of view.
COMPENSATION OF DIRECTORS AND OFFICERS OF THE CORPORATION. Certain
executive officers of the General Partner will become executive officers and
directors of the Corporation if the Restructuring Plan is approved. The total
amount of compensation to be paid to the executive officers and directors of
the Corporation is described in full herein under the heading "MANAGEMENT --
Executive Compensation." The terms of compensation of the executive officers
were established by management and were
18
<PAGE> 33
approved by a committee of independent directors of the Corporation, subject to
completion of the Restructuring Plan. The Board of Directors believes that the
compensation payable to the officers, directors and employees of the
Corporation is reasonable based upon compensation payable to officers,
directors and employees of comparable lending companies in the Southern
California area.
INVESTMENT CONSIDERATIONS IF THE RESTRUCTURING PLAN IS NOT COMPLETED AND THE
PARTNERSHIP CONTINUES UNDER ITS PRESENT STRUCTURE
If the Restructuring Plan is not completed, the Partnership will
continue under its present structure unless and until an alternative plan is
presented by either the General Partner or the Limited Partners. If the
Partnership is continued under its present structure, Limited Partners should
consider the following factors that will affect their investment in Limited
Partnership Units.
CONTINUING SUSPENSION OF DISTRIBUTIONS. The Partnership has suspended
all distributions of Net Profits since July 1993 due to restrictions under the
Loan Agreement and the fact that no Net Profits have been earned by the
Partnership. The terms of the Loan Agreement will restrict the payment of all
distributions through June 30, 1997. Thereafter, the General Partner does not
believe that the Partnership will have the ability to pay distributions equal
to the Specified Annual Return Rates for the foreseeable future.
CONTINUING SUSPENSION OF WITHDRAWAL PAYMENTS AND APPROVAL OF REQUESTS
TO WITHDRAW CAPITAL. The Partnership has suspended all withdrawal payments to
Limited Partners whose requests to withdraw capital were previously approved,
and the General Partner has not approved any requests to withdraw capital
received since July 1993. If the Restructuring Plan is not approved and the
Partnership continues under its present structure, the terms of the Loan
Agreement will restrict all payments of capital to withdrawing Limited Partners
through June 30, 1997. Thereafter, the General Partner does not believe that
the Partnership will have the ability to allow capital withdrawals upon
request. Therefore, if the Restructuring Plan is not approved, it will
continue to be extremely difficult for Limited Partners to liquidate their
investment in the Partnership.
BUSINESS CONSIDERATIONS WHICH APPLY WHETHER OR NOT THE RESTRUCTURING PLAN IS
APPROVED
There are certain business factors inherent in the lending business
and other factors particular to the Partnership's existing lending business,
which apply whether the lending business continues to be conducted by the
Partnership or is transferred to the Corporation, as described below.
19
<PAGE> 34
TWO YEARS OF NET OPERATING LOSSES. For the two years ended December
31, 1994, the Partnership sustained net operating losses of $5.9 million and
$9.5 million, respectively. These losses have been due in part to loan losses
on portfolio loans originated prior to 1994. The Partnership has sustained
higher than historical loan losses over the past four years because of declines
in the value of California real estate, which has resulted in higher default
and foreclosure rates and lower recoveries on sales of real estate acquired in
settlement of loans ("OREO"). The Partnership continues to hold a combined
loan portfolio of approximately $21.5 million (net of specific reserves of
approximately $.7 million) originated prior to 1994, and may, therefore,
continue to experience higher than historical loan losses.
CHANGES IN THE RESIDENTIAL LENDING INDUSTRY. For the past three
years, the lending industry has experienced substantial consolidation, as large
banks and mortgage banks have acquired smaller lending operations. In
addition, the residential lending market has substantially changed as a result
of the proliferation of securitization of residential loans. As more loans
have become eligible for securitization, competition for loan product has
driven interest margins down on residential loans. To meet this challenge, the
Partnership has changed its lending business to emphasize the origination of
securitizable loans for sale. Management believes that the Partnership can
continue to increase its earnings by expanding the volume of securitizable
loans originated for sale. In addition, management believes that there will be
opportunities to increase portfolio lending in the future. However, management
does not believe that the Partnership will earn a level of net profits
sufficient to make distributions equal to the Specified Annual Return Rates for
the foreseeable future, because those distribution levels were based on a
business dependent upon many factors, including high interest yield portfolio
loans. Moreover, there can be no assurance that further changes will not occur
which will make it more difficult for the Partnership, or the Corporation if
the Restructuring Plan is approved, to operate profitably as a residential loan
originator.
REGULATORY ACTIONS. Pacific Thrift is currently operating under a
Cease and Desist Order (the "1995 Order") issued by the FDIC which requires it
to: have and retain qualified management; by September 30, 1995, increase and
maintain core capital (consisting of shareholders' equity) at 8% of its total
assets; eliminate assets classified "loss" as of September 26, 1994; reduce the
level of adversely classified assets; in certain instances, refrain from
extending additional credit to borrowers whose prior credits have been
adversely classified; maintain a fully funded allowance for loan losses;
implement Pacific Thrift's capital restoration and business/profitability
plans; correct a past violation of the thrift ratio requirement and comply with
all applicable laws and regulations; file reports of condition and income which
accurately reflect its financial condition; obtain FDIC approval prior to
payment of any cash dividends; continue to comply with its Policy for
Transactions and Relationships Between Affiliates; obtain FDIC
20
<PAGE> 35
approval before opening additional offices; and furnish written quarterly
progress reports to the FDIC detailing actions taken to comply with the 1995
Order. Management of Pacific Thrift believes that it is in full compliance
with the terms of the 1995 Order. However, if the conditions of the 1995 Order
were not met, Pacific Thrift could be subject to civil penalties or other
regulatory enforcement actions which could have a material adverse effect upon
its business.
INTEREST RATE RISK. Management attempts to match interest sensitive
assets with interest sensitive liabilities to minimize the impact on
profitability of fluctuations in interest rates. Nonetheless, fluctuations in
interest rates due to general economic conditions and other economic factors
beyond management's control can have adverse effects on borrowers' abilities to
repay loans and on the Partnership's or the Corporation's profitability. A
rise in interest rates could result in more defaults and loan losses if
borrowers are unable to pay the higher rates. This risk will be greater if the
rise in rates was accompanied by a continuation of the recession in California.
REDUCED VALUE OF REAL ESTATE COLLATERAL. Presidential and Pacific
Thrift have experienced higher loan losses over the past five years, as
California real estate values have declined substantially during this period.
Declining real estate values have reduced the value of collateral held by
Presidential and Pacific Thrift as collateral for loans. There can be no
assurance that real estate values will not experience further declines in the
future, which could result in continued high loan losses by Presidential and
Pacific Thrift.
GOVERNMENT REGULATION. Pacific Thrift, the Partnership's principal
operating subsidiary, is subject to extensive governmental supervision,
regulation and control. Recent legislation has had the effect of increasing
the cost of doing business, limiting or expanding permissible activities of, or
affecting the competitive balance between banks and other financial
institutions. Other applicable laws, regulations, interpretations and
enforcement policies have been subject to significant and sometimes
retroactively applied changes in recent years and may be subject to significant
future changes. There can be no assurance that future changes will not
adversely affect the business of Pacific Thrift, and thereby negatively impact
either the Partnership or the Corporation. See "SUPERVISION AND REGULATION."
COMPETITION. The Partnership and Pacific Thrift have significant
competition in California for loans from other thrift and loans, commercial
banks, savings and loan associations, credit companies, mortgage bankers and,
to a lesser extent, life insurance companies and pension funds. Pacific Thrift
faces competition for depositors' funds from other thrift and loans, banks,
savings and loans, credit unions and, increasingly, from mutual funds and life
insurance annuity products. See "BUSINESS -- Competition."
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<PAGE> 36
COMPARISON OF OWNERSHIP OF
LIMITED PARTNERSHIP UNITS OF THE PARTNERSHIP
AND COMMON STOCK OF THE CORPORATION
The information below highlights a number of the significant
differences between the Partnership and the Corporation relating to, among
other things, form of organization, distribution policies, liquidity of
investment, management structure, compensation and fees and investor rights.
These comparisons are intended to assist Limited Partners in understanding how
their investments will be changed if, as a result of the Restructuring Plan,
their investment in Limited Partnership Units of the Partnership becomes an
investment in Common Stock of the Corporation. Following the captioned
sections is a summary discussion of the expected effects of the Restructuring
Plan upon Limited Partners as a result of the change in their investment from
Limited Partnership Units to Common Stock.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
FORM OF ORGANIZATION
The Partnership is a limited partnership organized The Corporation is a recently organized Delaware
under California law, formed for the purpose of corporation formed for the purpose of engaging in
engaging in the business of originating, the business of originating, purchasing and
purchasing and selling real estate secured loans selling real estate secured loans and loan
and loan participations and related business participations and related business activities.
activities. The Partnership has not been subject The Corporation will be a taxable corporation for
to tax under federal tax laws. The Partnership federal and state income tax purposes. The
may continue in existence until December 31, 2025 Corporation may remain in existence in perpetuity.
under the Partnership Agreement.
</TABLE>
The Partnership and the Corporation are each vehicles recognized as
appropriate for investing in business enterprises by passive investors, such as
Limited Partners and Stockholders. The Partnership is under the control of the
General Partner, while the Corporation is governed by its Board of Directors.
There are significant differences in the tax treatment of the Partnership and
the Corporation, as summarized below under the caption "Federal Income Tax
Consequences."
22
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
LENGTH OF INVESTMENT
The Partnership is engaged in an ongoing business The Corporation will engage in an ongoing lending
operation, and reinvests the proceeds from loan business, and will reinvest all revenues in new
repayments in new lending activity and related lending activity and related businesses, except to
businesses. The Limited Partners are entitled to the extent the Board of Directors may declare
receive distributions of Net Profits earned from dividends from the earnings of the Corporation.
Partnership operations. Under the Partnership The Corporation could continue in business in
Agreement, the Partnership's stated term of perpetuity.
existence is for approximately 40 years.
</TABLE>
The Partnership could continue in business for a substantial period of
time unless sooner dissolved by the vote of the Limited Partners, whereas the
Corporation could continue in business for an indefinite period of time unless
liquidated or merged into another entity by its Board of Directors.
DISTRIBUTION OF NET PROFITS
<TABLE>
<S> <C>
The Partnership Agreement provides for regular The Corporation is not required to distribute net
quarterly distributions of the Net Profits, if profits except as dividends may be declared by its
any, earned by the Partnership, to the Partners in Board of Directors. The Board of Directors does
accordance with specified initial return rates. not intend to consider the payment of dividends
If the Partnership were to continue as presently until at least the fourth quarter of 1997,
structured, distributions of Net Profits will be depending upon the future earnings of the
suspended until at least June 30, 1997 under the Corporation. The Corporation's earnings will be
Loan Agreement. Thereafter the General Partner dependent upon the earnings of its subsidiaries.
does not believe that the Partnership will have In the case of Pacific Thrift, dividends payable
the ability to earn or distribute Net Profits at to the Corporation will be limited by statutory
the levels distributed from 1981 through 1992. and regulatory requirements. See "DIVIDEND
POLICY."
</TABLE>
Limited Partners have the right to receive distributions of the Net
Profits, if any, earned by the Partnership, although distributions have been
suspended since July 1993, and are expected to remain suspended until at least
June 30, 1997. If Limited Partners receive Common Stock upon completion of the
Restructuring Plan, they will have no right to receive distributions of net
profits, although the Board of Directors intends to consider the
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<PAGE> 38
payment of dividends in approximately the fourth quarter of 1997. Neither the
Partnership nor the Corporation provides the right to its investors to receive
distributions of loan repayment proceeds, which are reinvested by both the
Partnership and the Corporation into continuing business operations.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
WITHDRAWAL OF CAPITAL
<S> <C>
The Partnership Agreement provides that any Stockholders of the Corporation will have no right
Limited Partner may request a withdrawal of his or to request a return of their capital from the
her Capital Account at any time, which request may Corporation. However, Stockholders will have the
be disapproved by the General Partner if, in the ability to sell their Common Stock in a public
opinion of the General Partner, it will impair the trading market, as the Common Stock will be listed
capital or operations of the Partnership. In for trading on the Nasdaq National Market. The
addition, the Partnership Agreement limits the value of the Common Stock, however, will be
total amount of capital that may be withdrawn subject to fluctuation as a result of a number of
during any calendar year to no more than 10% of factors, and could be less than the net equity per
the total capital of the Partnership. However, share of the Common Stock, as shown on the books
all capital withdrawal payments have been of the Corporation. See "INVESTMENT
suspended since June 1993 due to restrictions CONSIDERATIONS -- Change in Nature of Investment -
imposed under the Loan Agreement, and no new - Uncertainties of Market for Common Stock" and
requests to withdraw capital have been approved "MARKET FOR LIMITED PARTNERSHIP UNITS AND COMMON
since June 1993 due to the restrictions under the STOCK."
Loan Agreement. Under the terms of the Loan
Agreement, withdrawal payments will continue to be
suspended until June 30, 1997. Thereafter, the
General Partner does not believe that the
Partnership will have the ability to allow capital
withdrawals upon request.
</TABLE>
The Partnership Agreement provides limited rights to withdraw capital
from the Partnership, but these rights have been restricted since 1993. There
is no public trading market for the Limited Partnership Units, so it is very
difficult for the Limited Partners to liquidate their investment in the
Partnership without the ability to withdraw capital. If the Restructuring Plan
is not completed, it cannot be predicted when the Partnership will resume
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<PAGE> 39
payment of capital withdrawals or begin approving new requests to withdraw
capital. In contrast, the Common Stock of the Corporation is expected to be
listed for trading on the Nasdaq National Market. Although no assurance can be
given, it is anticipated that there will be substantially increased liquidity
for the Common Stock compared to the current liquidity of Limited Partnership
Units. However, the market price for the Common Stock will be subject to all
of the risks normally attendant to a publicly traded security, including
fluctuations in price due to market conditions and the future value of the
Corporation's business operations.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
PERMITTED INVESTMENTS
<S> <C>
The Partnership is permitted to engage in the Under its Bylaws, the Corporation may engage in
business of originating, purchasing and selling any lawful business activity. The Corporation
loans and loan participations and related business intends to engage in the same lending and trust
activities. The Partnership has engaged in deed service businesses as the Partnership, and
lending activities directly and through Pacific has no intention of conducting any other business
Thrift, and has engaged in the trust deed activities at this time. However, the Corporation
servicing business through Consolidated and will have the authority to engage in other
Lenders. The Partnership is required to obtain business activities unrelated to the lending
the consent of the Limited Partners before business if approved by its Board of Directors.
engaging in any other business activities.
</TABLE>
The Partnership's business is limited under the Partnership Agreement
to real estate secured lending and related businesses. The Corporation expects
to engage only in the businesses of real estate secured lending and related
businesses, but the Corporation is not limited in its authority to engage in
other businesses which the Board of Directors determine to be in the best
interests of the Corporation.
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<PAGE> 40
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
ADDITIONAL EQUITY
<S> <C>
The Partnership is authorized to issue and sell The Board of Directors of the Corporation may, in
new classes of Limited Partnership Units in the its discretion, issue additional equity securities
discretion of the General Partner. The consisting of Common Stock or Preferred Stock,
Partnership has sold six classes of Limited provided that the total number of shares issued
Partnership Units over the past twelve years of does not exceed the authorized number of shares of
its operations. The consent of the Limited Common Stock or of Preferred Stock set forth in
Partners is not required to sell new classes of the Corporation's Certificate of Incorporation.
Limited Partnership Units unless the return or The rights of any Preferred Stock could be more
other rights granted to the new Limited Partners favorable than the rights of the Common
would be more favorable than the return or the Stockholders, without the consent of the
rights of any existing class of Limited Partners. Stockholders. The Corporation may issue warrants
convertible into Common Stock in connection with
the proposed debt offering to refinance the bank
debt. The Corporation expects to issue options to
its officers, directors and employees to acquire
Common Stock pursuant to the Corporation's Stock
Option Plan. See "MANAGEMENT -- Plans and
Arrangements." In addition, the Corporation may
raise additional equity from time to time to
increase its available capital as necessary to
fund its business operations.
</TABLE>
Both the Partnership and the Corporation have substantial flexibility
to raise equity to finance their businesses. The issuance of additional equity
securities by the Corporation would dilute the percentage ownership interest of
the Limited Partners and, if new equity interests were issued at a price below
the net equity value of the Corporation, it would dilute the book value per
share of the Common Stock. In addition, the rights of the holders of any
Preferred Stock may be senior to the holders of the Common Stock, without the
consent of the holders of the Common Stock, whereas the consent of the Partners
is currently required for the Partnership to issue any class of Limited
Partnership Units with a more favorable return or rights than any existing
class of Limited Partners.
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<PAGE> 41
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
<S> <C>
The Partnership is authorized to borrow funds for The Corporation is authorized to borrow funds for
use in its lending business in such amounts as the use in its lending business in such amounts as the
General Partner determines appropriate. The Board of Directors determines appropriate. The
Partnership has historically used substantial Corporation intends to pay off the remaining $8.0
amounts of bank debt to fund its lending million bank debt owed by the Partnership by
activities, but has been required to reduce its June 30, 1997, but the Corporation may seek
bank borrowings over the past five years due to a additional debt financing if the Board of
reduction in the availability of such financing Directors determines that the Corporation would
and adverse conditions in the real estate lending benefit from the use of such funds in the
market. The Partnership's subsidiary, Pacific Corporation's business. In addition, Pacific
Thrift, also uses borrowed financing derived from Thrift will continue to fund its lending
the issuance of FDIC insured thrift certificates operations through the issuance of FDIC insured
to fund its lending activities. thrift certificates.
</TABLE>
Both the Partnership and the Corporation have the authority to obtain
debt financing. The Partnership has historically utilized substantial amounts
of debt financing but such financing has not been available for the past five
years. The Corporation may obtain new debt financing to the extent that such
debt financing is available on terms approved by the Board of Directors.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
RESTRICTIONS UPON RELATED PARTY TRANSACTIONS
<S> <C>
The Partnership Agreement authorizes the The Corporation may engage in transactions with
Partnership to engage in certain transactions with affiliates, provided that such transactions are
affiliates of the General Partner, including the approved by a majority of the directors or
purchase and sale of loans, the temporary stockholders not interested in the transaction, and
placement of surplus funds with affiliates at provided that the independent directors determine
specified interest rate minimums, the engagement the transaction to be fair, competitive and
of affiliates to provide loan referral, loan commercially reasonable.
servicing and trustee services and the use of
lines of credit provided by affiliates. The
Partnership could not engage in any other
</TABLE>
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<PAGE> 42
transactions with an affiliate without the
specific approval of a majority of the Limited
Partners.
The Partnership Agreement specifically authorizes the Partnership to
engage in certain transactions with affiliates. Except for transactions
specifically approved in the Partnership Agreement, the Partnership is not
authorized to enter into transactions with the General Partner and its
affiliates unless such transactions are approved in advance by a vote of the
Limited Partners. The Corporation may enter into transactions with interested
parties, such as directors, officers, significant stockholders and affiliates
thereof, provided that any such transaction may be voidable unless it is
approved or ratified by a majority of disinterested directors or stockholders.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
MANAGEMENT CONTROL AND RESPONSIBILITY
Under the Partnership Agreement, the General The Board of Directors of the Corporation will
Partner is, subject to certain narrow limitations, have exclusive control over the Corporation's
vested with all management authority to conduct business and affairs subject only to the
the business of the Partnership, including restrictions in the Certificate of Incorporation
authority and responsibility for overseeing all and the Bylaws. Stockholders have the right to
executive, supervisory and administrative services elect one-third of the members of the Board of
rendered to the Partnership. The General Partner Directors at each annual meeting of the
has the right to continue to serve as general Stockholders. Stockholders also have the
partner unless removed by a majority vote of the authority to remove directors for cause upon the
Limited Partners. Limited Partners have no right vote of at least 66-2/3% of the total outstanding
to participate in the management and control of Common Stock. The directors are accountable to
the Partnership and have no voice in its affairs the Corporation as fiduciaries and are required to
except for certain limited matters that may be exercise good faith and integrity in conducting
submitted to a vote of the Limited Partners, the Corporation's affairs. See "FIDUCIARY
including removal of the General Partner; election RESPONSIBILITY" and "MANAGEMENT."
of a new general partner; amendment of the
Partnership Agreement; sale of all or
substantially all of the assets of the
Partnership; or dissolution of the Partnership.
The General Partner is account-
</TABLE>
28
<PAGE> 43
<TABLE>
<S> <C>
able as a fiduciary to the Partnership and is
required to exercise good faith and integrity
in its dealings in conducting the Partnership's
affairs.
</TABLE>
The Partnership is managed by the General Partner and the Corporation
is managed by its Board of Directors. Limited Partners currently have the
authority to remove the General Partner and elect a new general partner by
majority vote. Stockholders will have the power to elect one-third of the
members of the Board of Directors annually, and to remove directors for cause
by a vote of 66-2/3% of the outstanding Common Stock.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of state law, the General Partner has The Certificate of Incorporation provides that a
liability for the payment of Partnership director's liability for breach of a fiduciary
obligations and debts, unless limitations are duty will be limited to the full extent allowable
expressly stated in the obligation. The under Delaware law. The Bylaws and state law
Partnership Agreement provides that neither the provide broad indemnification rights to directors
General Partner nor any of its affiliates and officers who act in good faith, and in a
performing services on behalf of the Partnership manner reasonably believed to be in or not opposed
will be liable to the Partnership or its Limited to the best interests of the Corporation and, with
Partners for any act or omission performed in good respect to criminal actions or proceedings,
faith pursuant to authority granted by the without reasonable cause to believe their conduct
Partnership Agreement, and in a manner reasonably was unlawful. In addition, the Corporation has
believed to be within the scope of authority entered indemnification agreements with all of the
granted and in the best interests of the directors and executive officers of the
Partnership, provided that such act did not Corporation which indemnify such directors and
constitute fraud, misconduct, bad faith or gross officers against amounts paid in settlement,
negligence. In addition, the Partnership authorize the Corporation to advance expenses
Agreement indemnifies the General Partner and its incurred in defense, upon the Corporation's
affiliates for liability, loss, damage, costs and receipt of an appropriate undertaking to repay
expenses, including attorneys' fees, incurred by such amounts if appropriate, and authorize the
them in conducting the Partnership's business, Corporation to carry insurance for the benefit of
except in the event of fraud, its officers and
</TABLE>
29
<PAGE> 44
<TABLE>
<S> <C>
misconduct, bad faith or gross negligence. directors even for matters as to which such
persons are not entitled to indemnification.
See "FIDUCIARY RESPONSIBILITY." If the
Restructuring Plan is approved, the
Corporation will assume all existing and
contingent liabilities of the Partnership,
including its obligation to indemnify the General
Partner and others for litigation expenses that
might be incurred by them for serving as General
Partner of the Partnership or for sponsoring the
Restructuring Plan.
</TABLE>
Although the standards are expressed somewhat differently, there are
similar limitations upon the liability of the General Partner and its
affiliates and upon the directors and officers of the Corporation when acting
on behalf of the Partnership or on behalf of the Corporation, respectively.
The Corporation believes that the scope of the liability and indemnification
provisions in the Corporation's governing documents provides protection against
claims for personal liability against the Corporation's directors and officers
which is comparable to, though not identical with, the protections afforded to
the General Partner and its Affiliates under the Partnership Agreement. The
Corporation may provide enhanced protection to officers and directors by
obtaining a policy of insurance on their behalf, the cost of which would be
borne by the Corporation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
ANTI-TAKEOVER PROVISIONS
Changes in management of the Partnership can be The Certificate of Incorporation and Bylaws of the
effected only by removal of the General Partner, Corporation contain a number of provisions that
which requires a majority vote of Limited might have the effect of entrenching current
Partners. management and delaying or discouraging a hostile
takeover of the Corporation. These provisions
include, among others, the following:
(a) election of only one-third of the Board of
Directors annually and the lack of cumulative
voting;
</TABLE>
30
<PAGE> 45
<TABLE>
<S> <C>
(b) limitations on the ability to increase or
decrease the Board of Directors and to appoint new
directors to fill vacancies on the Board;
(c) the requirement that directors only be removed
for cause with the vote of 66-2/3% of the total
outstanding Common Stock unless approved by a
majority of disinterested directors;
(d) restrictions on the ability to call special
meetings of Stockholders which permit only the
Board of Directors, the Chairman of the Board or
the President to call a meeting for only such
business as directed by the Board;
(e) restrictions on the ability of Stockholders to
take action by written consent without a meeting
unless the Board first approves the action;
(f) requirements that certain business
combinations be approved by a vote of 66-2/3% of
the total outstanding Common Stock unless approved
by a majority of the disinterested Board of
Directors, in addition to certain anti-takeover
provisions provided under Delaware law; and
(g) requirements that amendments to the
Certificate of Incorporation and Bylaws concerning
certain control provisions receive the consent of
66-2/3% of the total outstanding Common Stock
unless first approved by a majority of
disinterested directors;
(h) authorization of the Board of Directors to
issue up to 2,000,000 shares of Preferred Stock,
having such rights and
</TABLE>
31
<PAGE> 46
<TABLE>
<S> <C>
preferences as the Board
may determine, which may be used by the Board to
deter a future takeover attempt;
(i) provisions in the stock options granted to
employees of the Corporation which accelerate the
exercisability of such options in the event of a
change in control, unless the Board of Directors
prior to the change in control approves a
carryover of the options to the new entity.
</TABLE>
Certain provisions of the governing documents of the Corporation could
be used to deter attempts to obtain control of the Corporation in transactions
not approved by the Board of Directors. However, since the Common Stock will
be freely transferable and a market for the Common Stock is expected to develop
facilitating the transfers of the Common Stock, and the Corporation's Board of
Directors is subject to election by the Stockholders, there could be a greater
likelihood of changes in control in the case of the Corporation than the
Partnership, notwithstanding those provisions that might be employed by the
Board of Directors to resist efforts to change control.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
VOTING RIGHTS
Limited Partners by a majority vote may, without Stockholders are entitled to elect one-third of
the concurrence of the General Partner, remove the the Corporation's Board of Directors at each
General Partner, elect a new General Partner, annual meeting of the Corporation. Stockholders
amend the Partnership Agreement, sell all or may elect to remove one or more directors for
substantially all the assets of the Partnership, cause upon the vote of at least 66-2/3% of the
or dissolve the Partnership. Limited Partners are total outstanding Common Stock. The vote of at
not entitled to vote on any other matters. least 66-2/3% of the total outstanding Common
Stock is also required to approve certain business
combinations unless previously approved by a
majority of disinterested directors of the
Corporation. Stockholders are also entitled to
vote to amend the Certificate of Incorporation or
Bylaws of the Corporation, provided that certain
</TABLE>
32
<PAGE> 47
<TABLE>
<S> <C>
amendments in the control and voting provisions
require the vote of at least 66-2/3% of the total
outstanding Common Stock. See "DESCRIPTION OF
CAPITAL STOCK -- Common Stock."
</TABLE>
Stockholders have broader voting rights than those currently afforded
to Limited Partners, although certain matters upon which Stockholders may vote
require a higher majority vote (66-2/3%) than the Partnership Agreement
currently requires for the limited matters upon which Limited Partners are
allowed to vote.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
SPECIAL MEETINGS AND ACTION WITHOUT A MEETING
Limited Partners holding 10% or more of the Stockholders of the Corporation have no right to
Capital Contributions of all Limited Partners may call special meetings of the Corporation. In
call a special meeting of the Limited Partners to addition, no action may be taken by the
vote upon any matter that may be presented for the Stockholders by written consent unless first
vote of Limited Partners. In addition, the approved by the Board of Directors.
Partnership Agreement allows Limited Partners to
take actions by written consent in lieu of a
meeting.
</TABLE>
Stockholders of the Corporation would have more limited rights than
Limited Partners currently have to hold special meetings and take actions by
written consent.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
COMPENSATION, FEES AND DISTRIBUTIONS
The Partnership currently pays the following The Corporation will not pay any management fees,
compensation, fees and distribution to the General servicing fees, employee reimbursements or
Partner: distributions of net profits to the General
Partner or any other third parties. However, the
(a) a management fee based upon the amount of Net Corporation will hire the employees of the General
Profits allocated to each class of Limited Partner, and will enter into employment agreements
Partners; with certain executive officers of the
Corporation. In addition, the Corporation will
(b) loan origination, processing and servicing provide employee benefits, and will
fees equal to 35% of the loan origination fee paid
by the borrower of each
</TABLE>
33
<PAGE> 48
<TABLE>
<S> <C>
loan made by the Partnership or Pacific Thrift; provide stock option plans and retirement
plans to the officers, directors and
(c) an additional servicing fee equal to 3/8ths employees of the Corporation.
of 1% of every loan made by the Partnership of
Pacific Thrift with an original maturity of three
or more years;
(d) reimbursement of salary and employee expenses
for every employee who devotes part of all of his
or her time to the business operations of the
Partnership or any of its subsidiaries; and
(e) distributions of any Partnership Net Profits
equal to 50% of any remaining undistributed Net
Profits after each class of Partners has received
a return on their Capital Contribution equal to
their specified initial return rate.
</TABLE>
Under the Partnership Agreement, the Partnership pays compensation,
fees and distributions to the General Partner. If the Restructuring Plan is
completed, the Corporation will pay no management fees or distributions to any
outside management company. The Corporation or its subsidiaries will directly
employ the former employees of the General Partner, including the current
managing officers of the Partnership and its subsidiaries. See "PRO FORMA
HISTORICAL FINANCIAL STATEMENTS OF THE CORPORATION" for a comparison of the
anticipated expenses of the Corporation compared with the actual expenses of
the Partnership in 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- -------------------------------------------------------------------------------------------------------------
LIMITED LIABILITY OF INVESTORS
<S> <C>
Under the Partnership Agreement and California The Common Stock, upon issuance, would be fully
state law, the liability of Limited Partners for paid and nonassessable. Under Delaware law,
the Partnership's debts and obligations is Stockholders would not be liable for Corporation
generally limited to the amount of their debts or obligations.
investment in the Partnership, together with an
interest in undistributed income, if any. The
Limited Partnership Units
</TABLE>
34
<PAGE> 49
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
</TABLE>
are fully paid and (except
for Class A Units) nonassessable.
The limitations on personal liability of stockholders of the
Corporation are substantially the same as that of Limited Partners in the
Partnership.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PARTNERSHIP CORPORATION
- ----------------------------------------------------------------------------------------------------------------
REVIEW OF INVESTOR LISTS
<S> <C>
Limited Partners of the Partnership are entitled A stockholder is entitled, upon written demand, to
to request, at their own cost, copies of investor inspect and copy the stock records of the
lists showing the names and addresses of all Corporation, at any time during usual business
Limited Partners of the Partnership. hours, for a purpose reasonably related to an
interest as a stockholder.
</TABLE>
Limited Partners and Stockholders have the right to obtain investor
lists. The Corporation has the right to refuse a demand for the stockholder
list if the purpose is not related to a person's interest as a Stockholder.
This right could be used by the Corporation to delay or refuse a demand for the
stockholder list.
35
<PAGE> 50
THE RESTRUCTURING PLAN
TRANSFER OF ASSETS AND LIABILITIES AND DISTRIBUTION OF COMMON STOCK
The Corporation was formed by the Partnership on February 22, 1994.
The Partnership is currently the sole stockholder of the Corporation. If the
Restructuring Plan is approved, the Partnership will transfer all of its assets
and liabilities to the Corporation. The Partnership will concurrently file a
Certificate of Dissolution of the Partnership with the California Secretary of
State. In connection with the dissolution, the Partnership will distribute
830,000 shares of the Common Stock of the Corporation to all of the Partners
pro rata based upon their respective Capital Accounts in the Partnership, less
the shares that would otherwise be issued to the Partners electing the Cash Out
Option.
As defined in the Partnership Agreement, each Partner's Capital
Account is equal to the amount of his or her original capital contribution, as
adjusted by (i) increases for: (a) any additional contributions or property
later contributed to the Partnership, and (b) the amount of Partnership Net
Profits allocated to that Partner, and (ii) decreases for: (x) cash
distributions previously received by that Partner; (y) distributions of
property received by that Partner; and (z) any items of expense (including
sales commissions on purchase of Limited Partnership Units) or Net Losses
allocated to that Partner. The term "Net Profits is defined in the Partnership
Agreement as net profits determined in accordance with generally accepted
accounting principles, plus any nonrefundable loan origination fees treated as
income for allocation and distribution purposes by the Partnership. Each
Limited Partner will receive a pro rata portion of the Common Stock based upon
his or her Capital Account in relation to the Capital Accounts of all Partners.
CASH OUT OPTION
Any Partner who elects the Cash Out Option will receive, in lieu of
shares of Common Stock, $10 times the number of shares that would otherwise be
issued to such Partner, provided that the Partnership will not cash out any
Units over an amount which would result in an "ownership change" as defined in
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable regulations promulgated thereunder (the "Cash Out Limitation").
This limitation is necessary in order to preserve the Corporation's ability to
fully utilize Pacific Thrift's existing net operating loss carryforward of $6.8
million at December 31, 1994 to offset future taxable income. Therefore, to
the extent that requests are received for the Cash Out Option which exceed the
Cash Out Limitation, the Partnership will allocate the amount of shares to be
cashed out among all Partners requesting the Cash Out Option, pro rata in
accordance with their Capital Accounts. Any amount of shares allocable to each
Partner electing the Cash Out Option which are not cashed out because the Cash
Out Limitation is exceeded will be delivered to the Partners electing
36
<PAGE> 51
the Cash Out Option. See "FEDERAL INCOME TAX CONSEQUENCES -- Net Operating
Loss Carryforward." Except for the Cash Out Option, there are no dissenter's
rights offered in connection with the Restructuring Plan.
LIMITED PARTNERS WHO WISH TO EXERCISE THE CASH OUT OPTION MUST VOTE
"FOR" THE RESTRUCTURING PLAN.
RIGHTS OFFERING
BASIC SUBSCRIPTION RIGHTS. The Corporation is concurrently issuing
non-transferable Basic Subscription Rights to all Partners of the Partnership
pursuant to the Restructuring Plan, subject to the completion of the
Restructuring Plan. The Basic Subscription Rights entitle each Partner to
purchase a portion of 400,000 Additional Shares, at a Subscription Price of $10
per share, pro rata in accordance with that Partner's Capital Account in the
Partnership. The Basic Subscription Rights must be exercised by the Expiration
Date. Each Partner is entitled to subscribe for all, or any portion of, the
shares subject to the Basic Subscription Rights.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation and possible
reduction described below, Partners who exercise their own Basic Subscription
Rights will also be eligible to exercise the Oversubscription Privilege to
subscribe for and purchase, at the Subscription Price of $10 per share, an
unlimited number of the Additional Shares, but only up to the amount available
after satisfaction of all exercises of the Basic Subscription Privilege. A
Partner's election to exercise that Partner's Oversubscription Privilege must
be made at the same time that Partner exercises the Basic Subscription Right.
If the Additional Shares are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the Additional Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among those Partners exercising Oversubscription Privileges in proportion to
the Basic Subscription Rights exercised by such Partners, relative to the
number of Basic Subscription Rights exercised by all Partners; provided,
however, that if such pro rata allocation results in any Partner being
allocated a greater number of Additional Shares than such Partner subscribed
for pursuant to the exercise of the Oversubscription Privilege, then such
Partner will be allocated only that number of Additional Shares for which such
Partner subscribed, and the remaining Additional Shares will be allocated among
all other Partners exercising the Oversubscription Privilege on the same pro
rata basis outlined above. Payments for subscriptions will be deposited upon
receipt by the Subscription Agent and held in escrow pending a final
determination of the number of Additional Shares to be issued pursuant to the
exercise of Oversubscription Privileges. If a proration of the Additional
Shares results in a Partner's receiving fewer Additional Shares than the
Partner subscribed for pursuant to its Oversubscription Privilege, then the
excess funds
37
<PAGE> 52
paid by that Partner as the Subscription Price for shares not issued will be
returned promptly without interest or deduction.
In order to exercise the Oversubscription Privilege, banks, brokers
and other nominee record holders of Partnership interests will be required to
certify to the Subscription Agent and the Corporation the aggregate number of
Basic Subscription Rights that have been exercised on behalf of each beneficial
owner of such rights and the number of Additional Shares subscribed for
pursuant to the Oversubscription Privilege by each such beneficial owner on
whose behalf of such nominee record holder is acting.
RIGHTS EXPIRATION DATE. The Basic Subscription Rights and the
Oversubscription Privilege will expire on the Expiration Date.
EXERCISE OF SUBSCRIPTION RIGHTS AND THE SUBSCRIPTION AGENT. Partners
may exercise their Subscription Rights by delivering to the Subscription Agent
at the address specified below, at or prior to the Expiration Date, the
properly completed and executed Subscription Agreement, together with payment
in full of the Subscription Price for each Additional Share subscribed for
pursuant to the exercise of such Subscription Rights.
Payment in full must be made by (i) check or bank draft drawn upon a
United States bank, or postal, telegraphic or express money order, payable to
_______________, as Subscription Agent, or (ii) wire transfer of funds to the
account maintained for this purpose at ________________, Account
No._________________. The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) clearance of any uncertified
check, (ii) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a United States bank or of any postal, telegraphic or express
money order or (iii) receipt of collected funds in the Subscription Agent's
account designated above. Funds paid by uncertified personal check may take at
least five business days to clear. Accordingly, Partners who wish to pay the
Subscription Price by means of uncertified personal check are urged to make
payment sufficiently in advance of the Expiration Date to ensure that the
payment is received and clears by that time, and are urged to consider in the
alternative payments by means of certified or cashier's check, money order or
wire transfer of funds.
Pending disbursement to the Corporation upon issuance of the
Additional Shares, all funds received in payment of the Subscription Price will
be held in an escrow account by the Subscription Agent and invested at the
direction of the Corporation in short-term certificates of deposit, short-term
obligations of the United States, any state or any agency thereof, or money
market mutual funds investing in the foregoing instruments. The account in
which these funds will be held is not insured by the FDIC. Any interest earned
on these funds will be retained by the Corporation if the Restructuring Plan is
approved, or returned to Partners if the Restructuring Plan is not approved.
38
<PAGE> 53
The Subscription Agent's address to which the Subscription Agreement
and payment of the Subscription Price should be delivered is as follows:
______________________________________________________________________________
__________________________________________________________________.
The Corporation will pay the fees and expenses of the Subscription
Agent, and has also agreed to indemnify the Subscription Agent against certain
liabilities that it may incur in connection with the Rights Offering.
If an exercising Partner does not indicate the number of shares of
Common Stock being subscribed for pursuant to the exercise of Rights, or does
not forward full payment of the aggregate Subscription Price for the number of
shares of Common Stock indicated as being subscribed for, then such Partner
will be deemed to have exercised the maximum number of Basic Subscription
Rights that may be exercised for the aggregate Subscription Price payment
delivered by such Partner, and, to the extent the aggregate Subscription Price
payment delivered by the Partner exceeds the product of the Subscription Price
multiplied by the number of Basic Subscription Rights evidenced by the
Subscription Agreement delivered by such Partner, such Partner will be deemed
to have exercised the Oversubscription Privilege to purchase, to the extent
available, the number of whole Additional Shares equal to the quotient obtained
by dividing the Subscription Excess by the Subscription price. Any amount
remaining after application of the foregoing procedures shall be returned to
such Partner promptly by mail without interest or deduction.
Certificates representing shares of Common Stock purchased pursuant to
the exercise of Basic Subscription Rights and Oversubscription Privilege will
be issued to Partners promptly after the Expiration Date and completion of all
prorations and adjustments contemplated by the terms of the Rights Offering.
Pending issuance of certificates representing shares of Common Stock,
funds received for the exercise of Subscription Rights will be held in a
segregated escrow account maintained by the Subscription Agent and, if and when
Additional Shares are issued in respect of exercises of Subscription Rights,
payment therefor will be transferred to the Corporation. If for any reason
shares are not issued pursuant to the exercise of Basic Subscription Rights, or
a Partner exercising an Oversubscription Privilege is allocated less than all
of the Additional Shares for which that Partner subscribed pursuant to the
Oversubscription Privilege, then the funds paid by the Partner that are held in
escrow as the Subscription Price for shares not issued or for Additional Shares
not allocated to such Partner will be returned by mail without interest or
deduction after the Expiration Date promptly following completion of all
prorations and adjustments contemplated by the terms of the Rights Offering.
Record owners of Partnership interests who hold such interests for the
account of others, such as brokers, trustees or
39
<PAGE> 54
depositories for securities, should contact the respective beneficial owners of
such Partnership interests as soon as possible to ascertain those beneficial
owners' intentions and to obtain instructions with respect to Subscription
Rights. If a beneficial owner so instructs, the record holder of that
Partnership interest should complete a Subscription Agreement and submit it to
the Subscription Agent together with payment for the number of shares of Common
Stock subscribed for thereby. In addition, beneficial owners of Partnership
interests held through such a nominee should contact the nominee and request
the nominee to effect transactions in accordance with the beneficial owner's
instructions.
The instructions accompanying the Subscription Agreement should be
read carefully and followed in detail. SUBSCRIPTION AGREEMENTS SHOULD BE SENT
WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION AGREEMENTS OR
PAYMENTS TO THE PARTNERSHIP OR THE CORPORATION.
THE METHOD OF DELIVERY OF SUBSCRIPTION AGREEMENTS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE PARTNERS. IF SUBSCRIPTION AGREEMENTS AND PAYMENTS ARE SENT BY MAIL,
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, IS
RECOMMENDED. PERSONS WISHING TO EXERCISE SUBSCRIPTION RIGHTS ARE URGED TO
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT
AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, PARTNERS ARE
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Subscription Rights will be determined by the
Corporation, whose determinations will be final and binding. The Corporation,
in its sole discretion, may waive any defect or irregularity, or permit a
defect or irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Subscription Rights because of any defect
or irregularity. Subscription Agreements will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Corporation determines, in its sole discretion. Neither the
Corporation nor the Subscription Agent will be under any duty to give
notification of any defect or to give such notification. The Corporation
reserves the right to reject any exercise if such exercise is not in accordance
with the terms of the Rights Offering or not in proper form or if the
acceptance thereof or the issuance of shares of Common Stock pursuant thereto
could be deemed unlawful or materially burdensome. See "Stock Purchase
Limitations" above.
Any questions or requests for assistance concerning the method of
exercising Basic Subscription Rights or Oversubscription Rights or requests for
additional copies of this Offering Circular, should
40
<PAGE> 55
be directed to Richard B. Fremed, at telephone: (818) 992-8999, ext. 250.
No Revocation. EXERCISES OF SUBSCRIPTION RIGHTS ARE NOT REVOCABLE BY
PARTNERS.
Determination of Subscription Price. The Subscription Price has been
determined by negotiation between the General Partner and the Standby
Purchasers. Prior to this offering, there has not been an established public
market for the Common Stock of the Corporation or the Partnership interests of
the Partnership. The major factors considered in determining the Subscription
Price were the prevailing market conditions, the market prices relative to
earnings, cash flow and assets for publicly traded common stock of comparable
companies, the revenues and earnings of the Partnership and comparable
companies in recent periods, the Corporation's earning potential, the
experience of its management and the position of the Partnership in the lending
industry. There can be no assurance, however, that the market price of the
Common Stock will not decline, or that a person will be able to sell shares of
Common Stock at a price equal to or greater than the Subscription Price.
Exercise of Basic Subscription Rights and Oversubscription Privilege
by Partners of General Partner. The Basic Subscription Rights and
Oversubscription Privilege allocable to the General Partner for its pro rata
share of the Partnership will not be exercised by the General Partner directly.
Instead, these rights shall be exercisable by the individual partners of the
General Partner. Basic Subscription Rights will be exercisable by these
partners pro rata based on the amount of their respective investment in the
General Partner, up to the full amount of the Basic Subscription Rights
allocable to the General Partner. In addition, each of these partners will be
allowed to exercise the Oversubscription Privilege to the extent Partners do
not exercise their Basic Subscription Rights.
Exercise of Oversubscription Privilege by Employees. Certain
employees of the Partnership and its subsidiaries will have the opportunity to
subscribe for Additional Shares through the Oversubscription Privilege.
However, employees will only be entitled to subscribe for shares to the extent
not purchased by existing Partners through their Basic Subscription Rights and
the Oversubscription Privilege.
Condition to Exercise of Basic Subscription Rights and
Oversubscription Privilege by Limited Partners. LIMITED PARTNERS WHO WISH TO
EXERCISE BASIC SUBSCRIPTION RIGHTS AND OVERSUBSCRIPTION PRIVILEGES MUST VOTE
"FOR" THE RESTRUCTURING PLAN.
STANDBY AGREEMENTS
Prior to the commencement of this offering, the Corporation entered
into legally binding agreements that give the Corporation
41
<PAGE> 56
the right to sell Common Stock in connection with the Rights Offering (the
"Standby Agreements") to institutional and other investors as Standby
Purchasers. Pursuant to the Standby Agreements, the Standby Purchasers have
severally agreed, if and to the extent requested by the Corporation, and if the
Restructuring Plan is approved by the requisite vote of Limited Partners, to
purchase, in the aggregate, up to 500,000 shares of Common Stock, plus an
additional amount of Common Stock equal to the shares that would otherwise be
issued to the Partners electing the Cash Out Option (the "Purchase
Commitment"); the maximum amount of Common Stock that each Standby Purchaser is
required to purchase is referred to herein as the "Maximum Purchase
Commitment"). The obligations undertaken by the Standby Purchasers are subject
to the limitations that (i) the Corporation must issue and sell an aggregate of
at least 200,000 shares ($2,000,000) to the Standby Purchasers (including
Additional Shares and shares equal to the Common Stock repurchased by the
Corporation from the Partners exercising the Cash Out Option); (ii) the Standby
Purchasers are not obligated to purchase any shares of Common Stock prior to
the Effective Date of the Restructuring Plan; and (iii) each Standby
Purchaser's Maximum Purchase Commitment shall be proportionately reduced to the
extent that Additional Shares are purchased pursuant to the exercise of Basic
Subscription Rights and Oversubscription Privileges, such reduction to be
calculated by multiplying the dollar amount of the Standby Purchaser's Maximum
Purchase Commitment by a fraction, the numerator of which shall be the amount
of Additional Shares purchased in the Rights Offering and the denominator of
which shall be 500,000 shares ($5,000,000). Accordingly, the Corporation will
sell at least 500,000 Additional Shares ($5,000,000) of Common Stock in
connection with the Restructuring Plan, if any shares are sold, regardless of
the extent to which Subscription Rights are exercised by Partners, and the
Corporation may sell up to 600,000 Additional Shares ($6,000,000).
The following table sets forth certain information relating to the
Standby Purchasers. Certain Standby Purchasers are acting on behalf of
investment accounts over which they have discretionary authority or otherwise
have been empowered to act.
<TABLE>
<CAPTION>
Standby Purchaser Maximum Standby Minimum Standby
----------------- Commitment Commitment
--------------- ---------------
<S> <C> <C>
[TO BE PROVIDED BY AMENDMENT.]
</TABLE>
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<PAGE> 57
The Standby Purchase Agreements also provide that the Corporation will
not be required to sell any shares of Common Stock to any Standby Purchaser
who, in the opinion of the Corporation, would be required to obtain prior
approval or nonobjection from any state or federal regulatory authority to own
or control such shares if such prior approval or nonobjection has not been
obtained or any required waiting period has not expired prior to the Expiration
Date.
The obligations of the Standby Purchasers under the Standby Purchase
Agreements are not subject to any conditions relating to the absence of a
material adverse change in the financial condition, business or results of
operations of the Corporation or the Partnership, or to the absence of adverse
developments in financial markets, the outbreak of hostilities or other matters
beyond the control of the Corporation or the Partnership. The obligations of
the Standby Purchasers will also not be subject to the purchase of any minimum
number of Additional Shares pursuant to the exercise of Basic Subscription
Rights or Oversubscription Privilege or to purchases of Common Stock by other
Standby Purchasers. A draft form of Standby Purchase Agreement is filed as an
exhibit to the Registration Statement.
GENERAL PARTNER WARRANTS
The General Partner will receive, in lieu of repayment of $350,000
owed by Presidential to the General Partner, warrants (the "General Partner
Warrants") to purchase up to 25% of the Common Stock, at an exercise price of
$12.50 per share, equal to 125% of the Subscription Price paid by the Partners
for shares in the Rights Offering.
The General Partner Warrants will become exercisable on the Initial
Exercise Date, which is defined as the earlier of (i) the date that Pacific
Thrift has fully utilized as an offset to taxable income, at least $6,773,000
of a net operating loss carryforward ("NOL") existing as of December 31, 1994;
(ii) the date that the utilization of the NOL is limited as a result of an
"ownership change" as defined in Section 382 of the Code, which is not caused
by the exercise of General Partner Warrants, (iii) the acquisition by any
person other than a holder of General Partner Warrants of voting stock in
excess of 10% of the total outstanding voting stock of the Corporation or (iv)
June 30, 1997. The General Partner Warrants expire on the date which is two
years after the Initial Exercise Date.
The General Partner Warrants will be non-transferable, except to and
between partners of the General Partner. The Common Stock issuable upon
exercise of the General Partner Warrants ("Warrant Stock") has been registered
concurrently with the registration of the Additional Shares, and the
Corporation will commit to maintain the effectiveness of such registration
until the earlier of the sale of all the Warrant Stock or five years after the
Initial Exercise Date. In addition, under certain circumstances, the
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<PAGE> 58
holders of the General Partner Warrants will have one demand registration right
and unlimited "piggyback" registration rights for a period of five years
following the Initial Exercise Date, for the purpose of resale of the Warrant
Stock.
Holders of General Partner Warrants will not be entitled, by virtue of
being such holders, to receive dividends or subscription rights, vote, consent,
or receive notice as Stockholders of the Corporation in respect of any meeting
of Stockholders for the election of directors of the Corporation or any other
matter, or exercise any other rights whatsoever as Stockholders of the
Corporation.
CONDITIONS TO RESTRUCTURING PLAN
The Partnership will not complete the Restructuring Plan unless each
of the following conditions is satisfied on or prior to the Distribution Date:
(a) Limited Partners holding at least 51% of the total Capital
Contributions of all Limited Partners (except the General Partner to
the extent of its ownership of Limited Partnership Units) vote to
approve the Restructuring Plan;
(b) the Common Stock is listed on the Nasdaq National Market;
(c) the Bank consents to the completion of the Restructuring Plan;
(d) the FDIC consents to the change in control of Pacific Thrift
as a result of the Restructuring Plan; and
(e) a minimum of 500,000 shares ($5,000,000) of additional Common
Stock are issued and sold through the exercise of Subscription Rights
and/or the performance of Standby Purchase Agreements.
Except with respect to the required consent of the FDIC, there are no
federal or state regulatory requirements that must be complied with or
approvals that must be obtained as a condition of completion of the
Restructuring Plan.
None of the conditions specified in paragraphs (a), (b), (c), (d) or (e) above
may be waived, except with respect to the listing of the Common Stock on the
Nasdaq National Market, which may only be waived if the Common Stock is listed
on the American Stock Exchange or as a Tier I security (Selected Market
Companies) of the Pacific Stock Exchange.
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<PAGE> 59
In addition, completion of the Restructuring Plan is subject to the
satisfaction of the following conditions:
(x) there is no moratorium resulting from federal or state
legislative action that would prohibit the closing of the
Restructuring Plan;
(y) there is no material adverse change in the business or prospects
of the Partnership; and
(z) there is no injunction or court order relating to the
Restructuring Plan that would have a material adverse effect upon the
Corporation or which would prevent the completion of the Restructuring
Plan.
The conditions specified in paragraphs (x), (y) and (z) may be waived
by the General Partner and the Corporation if they determine that the failure
of the condition does not have a material adverse impact upon the Restructuring
Plan.
MANNER OF EFFECTING THE RESTRUCTURING PLAN
If the conditions to the Restructuring Plan are satisfied by the
Distribution Date, the Partnership will effect the Restructuring Plan on the
Distribution Date by delivering an aggregate of 830,000 shares of Common Stock,
less the shares that would otherwise be distributed to Partners electing the
Cash Out Option, to the Partners of record on the Record Date, pro rata in
accordance with their Capital Accounts. Certificates for Common Stock will be
mailed to Partners who choose to receive Common Stock for their Units and cash
will be mailed to the Partners whose Units are cashed out by the Partnership,
on or about the Distribution Date. Simultaneously, the Corporation will issue
between 500,000 and 600,000 Additional Shares to the individuals who have
validly subscribed for such shares in accordance with the Rights Offering and
the Standby Offering. Following the completion of the Restructuring Plan, the
Partnership will file a Certificate of Dissolution of the Partnership with the
California Secretary of State.
No certificates or scrip representing fractional shares of Common
Stock will be issued to Partners as part of the Restructuring Plan. Any
fraction equal to or greater than one-half shall be rounded up to the next full
share, and any fraction less than one-half shall be eliminated.
No Partner will be required to pay any cash for the shares of Common
Stock received in exchange for partnership interests or to surrender or
exchange any Limited Partner Certificate in order to receive Common Stock.
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<PAGE> 60
EXPENSES OF THE RESTRUCTURING PLAN
Substantial expenses have been and will be incurred by the Corporation
in connection with the Restructuring Plan. These expenses include, among
others, the costs and expenses of organizing the Corporation, structuring the
terms and conditions of the Restructuring Plan, obtaining the Fairness Opinion
from Houlihan Lokey, the offering and issuance of the Common Stock by the
Corporation, the registration of the Common Stock with the Securities and
Exchange Commission, the listing of the Common Stock on the Nasdaq National
Market, soliciting Ballots from Limited Partners and selling commissions and
costs associated with the offering and sale of Common Stock pursuant to the
Rights Offering and the Standby Offering.
If the Restructuring Plan is approved by Limited Partners holding 51%
of the Capital Contributions in the Partnership (excluding the Limited
Partnership Units held by the General Partner), all transaction and
solicitation expenses will be borne by the Corporation, even if the
Restructuring Plan is not completed because one of the other conditions to the
Restructuring Plan is not met. If the Restructuring Plan is not approved by
Limited Partners holding a majority of Capital Contributions in the
Partnership, the Partnership will pay the transaction and solicitation expenses
of the Restructuring Plan.
The General Partner estimates that the solicitation expenses and
transaction costs will total approximately $_______. Set forth below is an
itemization of the estimated expenses:
<TABLE>
<S> <C>
BALLOT SOLICITATION EXPENSES
Printing and Postage . . . . . . . . . . . . . . . . . . . . $
--------
Soliciting Agent . . . . . . . . . . . . . . . . . . . . . .
--------
Subscription Agent . . . . . . . . . . . . . . . . . . . . .
--------
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
SUBTOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
OFFERING EXPENSES IN CONNECTION WITH SALE OF ADDITIONAL SHARES
Selling Commissions . . . . . . . . . . . . . . . . . . . .
--------
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
SUBTOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
PRECLOSING TRANSACTION COSTS
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 160,000
Registration, Listing and Filing Fees . . . . . . . . . . . 26,000
Accounting . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
--------
SUBTOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 496,000
</TABLE>
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<PAGE> 61
<TABLE>
<S> <C>
CLOSING TRANSACTION COSTS
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . .
--------
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .
--------
SUBTOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
========
</TABLE>
RIGHT TO INSPECT LIST OF LIMITED PARTNERS
Limited Partners of the Partnership are entitled to request at their
own cost copies of investor lists showing the names and addresses of all
Limited Partners of the Partnership. Limited Partners who desire to request a
list of Limited Partners may do so by written request addressed to Richard B.
Fremed, Presidential Mortgage Company, 21031 Ventura Boulevard, Woodland Hills,
California 91364. A check for $50, representing the approximate costs of
copying and mailing of such list, payable to Presidential Mortgage Company,
must be included with the request.
USE OF PROCEEDS
The net proceeds of the Rights Offering and the Standby Offering will
be used as follows:
<TABLE>
<S> <C>
Pay down of bank debt $1,000,000
Pay off debts owed to Partners whose withdrawal
requests were approved prior to June 1993 $1,300,000
Working Capital $
----------
$
----------
</TABLE>
The Corporation may contribute some or all of the balance of net
proceeds from time to time as additional capital of Pacific Thrift.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Partnership at September 30, 1995, and of the Corporation as adjusted to give
effect to the minimum and maximum additional capital that may be raised in
connection with the Rights Offering and the Standby Offering.
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<PAGE> 62
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------------------------
(Dollars in Thousands)
Partnership Corporation As Adjusted
------------------ ------------------------------------------
Minimum Maximum
Historical Offering Offering
------------------ -------------------- --------------------
<S> <C> <C> <C>
Deposits . . . . . . . . . . . . . . . . 54,811 54,811 54,811
Borrowings:
Bank debt . . . . . . . . . . . . . 8,450 7,450 7,450
Liabilities owed to Withdrawing
Partners . . . . . . . . . . . . . . 1,297 -- --
Liabilities owed to General Partner 395 45 45
Other Liabilities . . . . . . . . . 5,787 5,787 5,787
Equity
Partners' capital accounts . . . . .
(Stockholders' Equity) 9,511 9,511 9,511
Additional Shares . . . . . . . . . --
------- ------- -------
Total Equity . . . . . . . . . . . . . . 9,511
------- ------- -------
Total Liabilities and Equity $80,002 $ $
======= ======= =======
Number of shares of Common Stock
outstanding(1) . . . . . . . . . . . -- 1,330 1,430
Tangible book value per share . . . . . . $____ $____
</TABLE>
(1) Not including shares issuable pursuant to the Bank Warrant or the General
Partner Warrants, or shares issuable under stock options granted pursuant to
the Corporation's 1995 Stock Option Plan. See "MANAGEMENT -- Plans and
Arrangements."
48
<PAGE> 63
FAIRNESS OF THE RESTRUCTURING PLAN
GENERAL PARTNER CONCLUSIONS
The General Partner believes that the terms of the Restructuring Plan,
when considered as a whole, are fair to the Limited Partners. This belief is
based upon the General Partner's analysis of the terms of the Restructuring
Plan, an assessment of its potential economic impact upon the Limited Partners,
a consideration of the potential benefits and detriments of the Restructuring
Plan and the available alternatives, and a review of the financial condition
and performance of the Partnership. This section of the Proxy
Statement/Prospectus is devoted to a discussion of the factors upon which the
General Partner has based its conclusions as to the fairness of the
Restructuring Plan and should be carefully reviewed by the Limited Partners.
The General Partner is not in a position to quantify the relative importance of
these factors but has, where appropriate, noted which of the factors support or
detract from its belief as to the fairness of the Restructuring Plan to the
Limited Partners.
ALTERNATIVES TO THE RESTRUCTURING PLAN
The following is a brief discussion of the benefits and disadvantages
of alternatives to the Restructuring Plan that were considered by the General
Partner.
LIQUIDATION. One alternative to the Restructuring Plan would have
been to liquidate the assets of the Partnership and distribute the net
liquidation proceeds to the Partners. Management believes that the value of
the Partnership's business as a going concern is significantly in excess of its
current liquidation value. However, the benefit of a liquidation would be that
Limited Partners could liquidate their investment in the Partnership and use
the proceeds for investment, business and other purposes. The detriment would
be that Limited Partners might receive less value for their investment if the
Partnership were liquidated than the fair market value of the Common Stock
Limited Partners would receive if the Restructuring Plan is completed. The
Partnership's primary assets consist of (1) the loan portfolio of Presidential;
(2) the shares of Pacific Thrift; and (3) the interests of Presidential in
Consolidated and Lenders.
The General Partner believes that the loan portfolio of the
Presidential could not be sold in an immediate liquidation without significant
discounts to the book value of such loans. Moreover, based upon sales of
comparable companies, the General Partner believes that the selling price of
Pacific Thrift would be no more than the book value of its net equity, and the
selling price of Consolidated and Lenders would be no more than one and a half
times their net equity. Based upon these beliefs, the General Partner believes
that a liquidation of the Partnership would result in net proceeds to the
Partners below the current net equity value of the Partnership.
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<PAGE> 64
If the Partnership were to continue to experience net losses for the
next one to two years, there can be no assurance that a liquidation of the
Partnership at this time would not result in a higher return to the Limited
Partners. However, based upon current trends in its lending business,
management believes that the Partnership may return to profitable operations in
1996. In that event, the going concern value of the Partnership and its
subsidiaries would exceed the liquidation value of the Partnership.
CONTINUATION OF THE PARTNERSHIP UNDER THE CURRENT STRUCTURE. Another
alternative to the Restructuring Plan would be to continue the Partnership in
accordance with the existing Partnership Agreement. The benefit of this
alternative is that Limited Partners would retain their existing rights under
the Partnership Agreement, including the rights to remove the General Partner,
dissolve the Partnership or amend the Partnership Agreement by the vote of a
majority in interest of Limited Partners. The General Partner estimates that
limited annual distributions could be resumed sometime in 1997, but these
distributions would be a fraction of the Specified Annual Return Rates provided
in the Partnership Agreement. The General Partner further believes that no
additional requests to withdraw capital could be permitted for the foreseeable
future, because such withdrawals would impair the capital and operations of the
Partnership. Since there is no trading market for Limited Partner Units, this
would effectively continue the illiquidity of the Units indefinitely.
Although a continuation of the Partnership would, in the General
Partner's view, result in a higher potential value of the Partnership's
business than liquidation, it would not meet the investment objectives of the
Limited Partners. For the reasons described elsewhere herein, the Partnership
is no longer capable of meeting its original investment objectives of regular
distributions equal to the Specified Annual Return Rates or withdrawal of
capital upon demand. See "Summary - Changes in Business Conditions Which
Necessitate Restructuring." Therefore, the General Partner believes that a
continuation of the Partnership under the Partnership Agreement is not in the
best interests of the Limited Partners.
OTHER RESTRUCTURING PLANS. The General Partner considered various
other forms of restructuring plans. One such plan was the same as the
Restructuring Plan but without a concurrent sale of Additional Shares. That
alternative would have the advantage of not causing a dilution of the existing
Partner's interests in the Corporation. However, the net tangible net worth of
the Corporation would not be sufficient to satisfy the listing standards of the
Nasdaq National Market, which could reduce the liquidity of an investment in
Common Stock. In addition, without the commitment of the Standby Purchasers to
purchase Common Stock in an amount equal to the Common Stock that would
otherwise be issued to the Cashed Out Limited Partners, it would not be
possible for the Partnership to offer the Cash Out Option as a part of the
Restructuring Plan. Therefore, the General Partner believes that
50
<PAGE> 65
the Restructuring Plan described herein is preferable to a restructuring
without a concurrent offering of additional Common Stock and a standby purchase
commitment.
FAIRNESS OPINION
In a written opinion dated ____________, 199_, Houlihan Lokey stated
that, based upon the considerations set forth therein and on other factors it
deemed relevant, it was its opinion that, assuming the Restructuring Plan is
completed as proposed, the consideration to be received by the Limited Partners
collectively in connection with the Restructuring Plan is fair, from a
financial point of view. As used in its Fairness Opinion, "consideration"
solely means Common Stock of the Corporation.
EXPERIENCE OF HOULIHAN LOKEY
Houlihan Lokey is a nationally recognized provider of financial
advisory services that regularly engages in, among other things, the valuation
of businesses and their securities in connection with mergers and acquisitions,
private placements, going-private transactions, and in valuations for estate,
corporate and other purposes.
SUMMARY OF METHODOLOGY
In rendering its opinion, Houlihan Lokey made such reviews, analyses,
and inquiries as it deemed necessary and appropriate under the circumstances,
including, but not limited to, a review of the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994 and other filings with the
Securities and Exchange Commission, a review of material agreements, meetings
with members of senior management of the Partnership to discuss operations,
financial condition, future prospects, and projected operations and
performance, visits to certain facilities and business offices of the
Partnership, and review of forecasts and projections prepared by management
through 199__. In arriving at its opinion, Houlihan Lokey did not make any
physical inspection or independent appraisal of any of the properties or assets
of the Partnership.
ASSUMPTIONS
In conducting its review and arriving at its Fairness Opinion,
Houlihan Lokey relied upon and assumed the accuracy and completeness of the
financial and other information provided to it and did not attempt to
independently verify such information. Houlihan Lokey relied upon the
statements and information provided it by management of the Partnership as to
the reasonableness of the financial forecasts and projections (and the
assumptions and bases therefor). Houlihan Lokey relied upon and assumed,
without independent verification, that the financial forecasts and projections
have been reasonably prepared and reflect the best currently available
estimates of the future financial results and
51
<PAGE> 66
condition of the Partnership. For purpose of its analysis, Houlihan Lokey
assumed that there has been no material adverse change in the assets, financial
condition, business or prospects of the Partnership since the date of the most
recent financial statements made available to Houlihan Lokey.
Houlihan Lokey reviewed and considered possible liquidation of the
Partnership assets and corresponding distributions of net liquidation proceeds
to the Limited Partners as an alternative to the Restructuring Plan. In
conducting its analysis, Houlihan Lokey relied upon and assumed, without
independent verification, that the orderly liquidation analysis prepared by the
Partnership's management was reasonably prepared and reflects the best
currently available estimates of the net amount that the Partnership would
realize if its businesses were terminated, its assets sold piecemeal at fair
market value, and its debts were repaid. Houlihan Lokey did not solicit
third-party indications of interest concerning the acquisition of all or any
part of the Partnership or any of its underlying assets. Houlihan Lokey did
not negotiate the Restructuring Plan on behalf of any party or provide advice
or counsel to any party with respect to the Restructuring Plan or any of the
alternatives which may otherwise be available to the Partnership or to the
Limited Partners.
LIMITATIONS AND QUALIFICATIONS
Houlihan Lokey was not asked to opine on and is not expressing any
opinion as to (i) the terms of the Restructuring Plan (other than the
consideration to be received by the Partners as discussed in the Fairness
Opinion), (ii) the relative fairness of the Restructuring Plan to each
Partnership class individually, or (iii) tax consequences of the Restructuring
Plan for the Limited Partners or any other party to the Restructuring Plan.
Houlihan Lokey's opinion does not address the Partnership's underlying business
decision to proceed with the Restructuring Plan and the Fairness Opinion should
not be construed or interpreted as a recommendation by Houlihan Lokey either
for or against the Restructuring Plan. Houlihan Lokey's opinion is based on
business, economic, market and other conditions as they existed on the date of
the Fairness Opinion and can be evaluated as of that date.
COMPENSATION
The Partnership agreed to pay Houlihan Lokey total fees and expenses
of approximately $165,000 for rendering the Fairness Opinion. The fee was
negotiated between the Partnership and Houlihan Lokey and payment thereof is
not dependent upon completion of the Restructuring Plan. The Partnership has
not previously engaged Houlihan Lokey to render other consulting or related
services prior to the present engagement.
52
<PAGE> 67
VOTING REQUIREMENTS
DISTRIBUTION OF SOLICITATION MATERIALS
This Proxy Statement/Prospectus, together with the Limited Partner
Ballot and the Subscription Agreement enclosed herewith constitutes the
solicitation materials to be distributed to the Limited Partners to obtain
their votes for or against the Restructuring Plan. The Solicitation Period
commences upon delivery of this Proxy Statement/Prospectus and will continue
until the later of (i) February __, 1996 or (ii) such later date as may be
selected by the General Partner in its sole discretion (the "Expiration Date").
Any Ballots received by [DISTRIBUTION AGENT] prior to 11:59 p.m. on the last
date of the Solicitation Period will be effective provided that such Ballots
have been properly completed, signed and delivered.
There will be no meeting of the Partnership to discuss the
solicitation materials or the terms of the Restructuring Plan. The General
Partner intends to actively solicit the support of the Limited Partners for the
Restructuring Plan and may, subject to applicable federal and state securities
laws, hold informal meetings with Limited Partners, answer questions about the
Restructuring Plan and the solicitation materials and explain the General
Partner's reasons for recommending the approval of the Restructuring Plan.
VOTE REQUIRED
The Partnership will not complete the Restructuring Plan unless it is
approved by Limited Partners whose Capital Contributions equal at least 51% of
the total Capital Contributions of all Limited Partners (excluding Limited
Partnership Units held by the General Partner). See "THE RESTRUCTURING PLAN --
Conditions to Completion of Restructuring Plan" for a discussion of the other
conditions precedent to the Partnership's completion of the Restructuring Plan.
Upon expiration of the Solicitation Period, the Partnership will
proceed to (a) determine whether Limited Partners holding at least 51% of the
total Capital Contributions of all Limited Partners (including Limited
Partnership Units held by the General Partner) have approved the Restructuring
Plan, (b) assess whether the conditions to the Restructuring Plan have been
satisfied or, to the extent applicable, waived by the General Partner, and (c)
if the conditions to the Restructuring Plan have been satisfied, proceed to
close the Restructuring Plan as soon as reasonably practicable following the
completion of the Solicitation Period.
VOTING PROCEDURES AND BALLOTS
Limited Partners of record as of the date the Solicitation Period
commences will receive notice of, and be entitled to vote, with respect to the
Restructuring Plan. If Limited Partnership
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<PAGE> 68
Units are transferred after the date the Solicitation Period commences but
before the expiration of the Solicitation Period, and the holders of the Units
are admitted as Limited Partners, the solicitation materials will be sent to
the new substitute Limited Partners along with notice of their admission. Such
substitution will terminate the right of the prior holder of the Units to vote
in connection with the Restructuring Plan.
By marking the Ballot enclosed with this Proxy Statement/Prospectus,
each Limited Partner may either vote "for," "against" or "abstain" as to the
Restructuring Plan. Any Limited Partner who fails to submit a Ballot,
completes his or her Ballot in an unintelligible manner, or votes "abstain"
will be deemed to have voted "against." Limited Partners who submit signed
Ballots but fail to make the election required by the Ballot will be deemed to
have voted "for" the Restructuring Plan.
Persons who own Limited Partnership Units through Individual
Retirement Accounts or other trust accounts must instruct the banks or other
trustees of such accounts, as the record owners of such Limited Partnership
Units, of the manner in which they wish their Ballots to be voted. For this
purpose the Partnership has provided Special Instructions that each beneficial
owner must send to the bank or trustee to vote the Limited Partnership Units
held in such account in accordance with the Ballot completed by the beneficial
owner. A copy of the letter and the completed Ballot should be sent to
[DISTRIBUTION AGENT] in the enclosed return envelope.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Ballots will be determined by
[DISTRIBUTION AGENT] whose determination will be final and binding. The
General Partner reserves the absolute right to reject any or all Ballots that
are not in proper form or the acceptance of which, in the opinion of the
General Partner's counsel, would be unlawful. The General Partner also
reserves the right to waive any irregularities or conditions of the Ballots as
to particular Limited Partnership Units. Unless waived, any irregularities in
connection with the Ballots must be cured within such time as the General
Partner shall determine. The delivery of the Ballots will not be deemed to
have been made until such irregularities have been cured or waived.
BALLOT COMPLETION INSTRUCTIONS
Each Limited Partner is requested to complete and execute the Ballot
in accordance with the instructions contained therein. For his or her Ballot
to be effective, each Limited Partner must deliver his or her Ballot at any
time on or prior to ____________, 1995, or such later date as the Solicitation
Period is extended in the sole discretion of the General Partner. Ballots must
be delivered to [DISTRIBUTION AGENT].
A self-addressed stamped envelope for return of the Ballot has been
included with the solicitation materials. Completed Ballots
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<PAGE> 69
may also be delivered to the General Partner for forwarding to [DISTRIBUTION
AGENT]. The Ballots will be effective only upon actual receipt by
[DISTRIBUTION AGENT]. The method of delivery of the Ballot to [DISTRIBUTION
AGENT] is at the election and risk of the Limited Partner, but if such delivery
is by mail it is suggested that the mailing be made sufficiently in advance of
February __, 1996 to permit delivery to [DISTRIBUTION AGENT] prior to the
expiration of the Solicitation Period.
If a Limited Partner has any questions regarding the completion of his
or her Ballot or the options available to him or her or needs an additional
Ballot, he or she should call Richard Fremed at (818) 992-8999, ext. 250.
WITHDRAWAL AND CHANGE OF ELECTION RIGHTS
Ballots may be withdrawn at any time prior to the expiration of the
Solicitation Period. For a withdrawal or change in election to be effective,
the Limited Partner must submit to [DISTRIBUTION AGENT] a second Ballot,
properly signed and completed, together with a letter indicating that the prior
Ballot has been revoked. The new Ballot and letter must specify the name of
the person having executed the Ballot to be withdrawn or election changed and
the name of the registered holder of the Limited Partnership Units in which the
Ballot applies, if different from that of the person who executed the old
Ballot.
SOLICITATION OF BALLOTS BY SOLICITING AGENT
[SOLICITING AGENT] has entered into a Soliciting Agent Agreement with
the Partnership under which it will use its best efforts to solicit Limited
Partners to approve the Restructuring Plan. A copy of the Soliciting Agent
Agreement has been filed as an exhibit to the Registration Statement. All
out-of-pocket expenses (including telephone, mailing and legal expenses)
incurred by the Soliciting Agent will be treated as solicitation expenses and
shall be handled as described under the "THE RESTRUCTURING PLAN -- Expenses of
the Restructuring Plan."
The Partnership has agreed to indemnify the Soliciting Agent against
certain liabilities, including certain liabilities under the Securities Act and
state securities laws. TO THE EXTENT THAT SUCH INDEMNIFICATION PROVISIONS
PURPORT TO INCLUDE INDEMNIFICATION FOR LIABILITIES UNDER THE SECURITIES ACT, IN
THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS
CONTRARY TO PUBLIC POLICY AND, THEREFORE, UNENFORCEABLE.
TABULATION OF BALLOTS
[DISTRIBUTION AGENT] has been engaged to receive and tabulate the
Ballots. [DISTRIBUTION AGENT] has also been engaged as the transfer agent for
the Common Stock of the Corporation if the Restructuring Plan is completed.
[DISTRIBUTION AGENT] will be paid
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<PAGE> 70
total fees of $__________ in connection with the Restructuring Plan.
CONFLICTS OF INTEREST
A number of conflicts of interest are inherent in the relationships of
the Partnership, the General Partner and the officers and directors of the
Corporation. Certain of these conflicts of interest are summarized below.
BENEFITS AND DETRIMENTS TO THE GENERAL PARTNER IN COMPLETING THE RESTRUCTURING
PLAN
Because the General Partner has a financial interest in completing the
Restructuring Plan, insofar as the General Partner would receive the General
Partner Warrants to purchase shares of Common Stock equal to 25% of the total
Common Stock of the Company after the completion of the Restructuring Plan,
there is an inherent conflict of interest in its structuring the terms and
conditions of the Restructuring Plan. The manner in which the Restructuring
Plan has been structured might have been different if structured by persons
having no financial interest in whether or not the Restructuring Plan is
completed. In addition, the General Partner currently has substantial control
over the business and affairs of the Partnership. If the Restructuring Plan is
completed, the General Partner will relinquish its control of the Partnership,
since the Corporation will be controlled by its Board of Directors, one-third
of which will be elected annually by the Stockholders. While the investors in
the General Partner will acquire Common Stock in the Corporation, such
interests are not expected, in the aggregate, to be sufficient to permit those
persons to elect members to the Board of Directors.
DIRECTORS AND OFFICERS OF THE CORPORATION
The Corporation has entered into employment agreements with seven of
the executive officers of the Corporation, all of whom are current managing
officers of the Partnership and its subsidiaries. The Board of Directors of
the Corporation established the terms of compensation of the Corporation's
officers and directors, which were approved by the independent directors of the
Corporation, subject to completion of the Restructuring Plan. The terms of
compensation of the Corporation's officers and directors might have been
different if the initial Board of Directors had been elected by the
Stockholders.
LACK OF INDEPENDENT REPRESENTATION OF LIMITED PARTNERS
The terms of the Restructuring Plan were established by the General
Partner, and the Proxy Statement/Prospectus was prepared by the General Partner
in consultation with the Partnership's legal counsel. The Partnership's legal
counsel has not represented the General Partner or the Limited Partners in
connection with the Restructuring Plan. However, legal counsel to the
Partnership
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receives its directions from the General Partner. Bruce P. Jeffer, a partner
of the Partnership's legal counsel, Jeffer, Mangels, Butler & Marmaro, LLP,
owns a 4.5% beneficial limited partner's interest in the General Partner.
There are inherent conflicts of interest between the General Partner
and the Limited Partners in connection with the Restructuring Plan. In
recognition of these conflicts of interest, the Partnership has obtained a
fairness opinion from Houlihan Lokey. However, due to the lack of independent
legal representation, every Limited Partner is urged to consult with his, her
or its own legal counsel in connection with the Restructuring Plan.
FIDUCIARY RESPONSIBILITY
DIRECTORS AND OFFICERS OF THE CORPORATION
The directors are accountable to the Corporation and its Stockholders
as fiduciaries and must perform their duties in good faith, in a manner
believed to be in the best interests of the Corporation and its Stockholders
and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances. The
Corporation's Certificate of Incorporation provides that the directors will not
be personally liable to the Corporation or to any Stockholder for the breach of
a fiduciary responsibility, to the full extent that such limitation or
elimination of liability is permitted under Delaware law. The Bylaws provide
that the Corporation will indemnify its directors and officers to the full
extent permitted under the Delaware law. Pursuant to the Bylaws and Delaware
law, the Corporation will indemnify each director and officer against any
liability and related expenses (including attorneys' fees) incurred in
connection with any proceeding in which he or she may be involved by reason of
serving in such capacity so long as the director or officer acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A director or officer is also entitled to indemnification against expenses
incurred in any action or suit by or in the right of the Corporation to procure
a judgment in its favor by reason of serving in such capacity if he or she
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Corporation, except that no such indemnification
will be made if the director or officer is judged to be liable to the
Corporation, unless the applicable court of law determines that despite the
adjudication of liability the director or officer is reasonably entitled to
indemnification for such expenses. The Bylaws require the Corporation to
advance funds to a director or officer for costs and expenses (including
attorneys' fees) incurred in a suit or proceeding upon receipt of an
undertaking by such director or officer to repay such amounts if it is
ultimately determined that he or she is not entitled to be
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indemnified. The Corporation will enter into agreements with the Corporation's
directors and executive officers, indemnifying them to the fullest extent
permitted by Delaware law. Stockholders may have more limited recourse against
such persons than would apply absent these provisions. To the extent that the
foregoing provisions concerning indemnification apply to actions arising under
the Securities Act, the Corporation has been advised that, in the opinion of
the Commission, such provisions are contrary to public policy and therefore are
not enforceable. The Corporation is attempting to obtain insurance policies
indemnifying the directors and officers against certain civil liabilities,
including liabilities under the federal securities laws, which might be
incurred by them in such capacity.
GENERAL PARTNER OF THE PARTNERSHIP
Under California partnership law, the General Partner is accountable
to the Partnership as a fiduciary and is required to exercise good faith and
integrity in all its dealings in Partnership affairs. The Partnership Agreement
provides that neither the General Partner nor any of its Affiliates performing
services on behalf of the Partnership will be liable to the Partnership or any
of the Limited Partners for any act or omission by any such person if done
pursuant to advice of legal counsel employed by the General Partner on behalf
of the Partnership, or if done in good faith to promote the best interest of
the Partnership, provided that such act or omission did not constitute gross
negligence, willful or wanton misconduct or failure to adhere to its fiduciary
obligations to the Partnership, or from or out of a violation of any federal or
state securities laws associated with the offer and sale of any Limited
Partnership Units. As a result, Limited Partners might have a more limited
right of action in certain circumstances than they would have in the absence of
such a provision in the Partnership Agreement.
The Partnership Agreement also provides that the General Partner and
certain related parties shall be indemnified by the Partnership from any and
all liability, damage and costs (including reasonable attorneys' fees) incurred
by reason of any act performed or omitted to be performed by them in connection
with the business of the Partnership, including all such liabilities under the
state and federal securities laws, provided that no indemnity shall be provided
for acts or omissions constituting fraud, bad faith, or gross negligence.
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SELECTED FINANCIAL DATA
The following selected financial information is based upon the
financial statements of the Partnership on a consolidated basis appearing
elsewhere herein. The consolidated financial statements for the year ended
December 31, 1992 were audited by KPMG Peat Marwick, independent certified
public accountants. The consolidated financial statements for the year ended
December 31, 1993, were audited by Kenneth Leventhal & Co. ("KL & Co."), which
merged with Ernst & Young LLP ("E&Y") in 1995. The consolidated financial
statements for the year ended December 31, 1994 were audited by E&Y.
On July 29, 1993, KPMG Peat Marwick ("KPMG") terminated its
relationship as independent accountants of the Partnership and its
subsidiaries.
KPMG's report for the two years ended December 31, 1992 did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to audit scope or accounting principles. The report for the two
years ended December 31, 1992 contained explanatory paragraphs concerning the
uncertainties regarding the ultimate outcome of litigation arising in the
normal course of the Partnership's business, the financial impact, if any, of
any regulatory actions that might be taken by the FDIC in connection with a
review of the compliance of Pacific Thrift with the terms of a Memorandum of
Understanding with the FDIC, and the financial impact, if any, of any
regulatory actions that might be taken by the Department of Housing and Urban
Development ("HUD") in connection with a notice of violation sent by HUD
regarding certain of Pacific's Title I federally insured loan origination
activities.
Subsequent to the date of KPMG's report for the two years ended
December 31, 1992, Pacific Thrift entered into a stipulated Cease and Desist
Order (the "1993 Order") on November 10, 1993. See "SUPERVISION AND REGULATION
- -- Regulatory Actions." No adverse regulatory action was taken by HUD in
connection with the notice of violation referenced in the audit report for the
two years ended December 31, 1992.
There was one disagreement between the Partnership and KPMG with
respect to the amount of the allowance for loan losses which should be recorded
by the Partnership for the year ended December 31, 1992. The disagreement was
resolved by the Partnership's increase in the allowance for loan losses, as
reported in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1992.
On September 15, 1993, the Partnership engaged Kenneth Leventhal &
Company ("KL&Co."), as its independent certified public accountants to audit
the Partnership's financial statements. The Partnership did not, at any time
prior to engaging KL&Co., consult it regarding the application of accounting
principles to a specified transaction; the type of audit opinion that might be
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rendered on the Partnership's financial statements; any matter that was the
subject of a disagreement with the Partnership's former independent accountant;
or any reportable event. KL&Co. was merged into Ernst & Young, LLP ("E&Y") in
1995.
On September 12, 1995, the Registrant dismissed E&Y as independent
accountants of the Registrant and its subsidiaries, and engaged BDO Seidman,
LLP ("BDO"), as independent accountants of the Registrant and its subsidiaries.
The report of E&Y for the year ended December 31, 1994 did not contain
an adverse opinion or a disclaimer of an opinion, and was not qualified or
modified as to audit scope or accounting principles. The report for the year
ended December 31, 1994 contained an explanatory paragraph concerning a
substantial doubt about the ability of the Company to continue as a going
concern due to losses from nonperforming loans that resulted in significant
recurring losses from operations, substantial debt service and other
requirements of the note payable to the Registrant's lender, and the regulatory
capital classification of Pacific Thrift and Loan Company ("Pacific Thrift"),
the Registrant's wholly owned subsidiary. In addition, the report for 1994
contained an explanatory paragraph concerning certain securities litigation
containing allegations of securities fraud and aiding and abetting a breach of
fiduciary duty relating to the Registrant and its Chief Executive Officer.
The report of KL&Co. for the year ended December 31, 1993, did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to audit scope or accounting principles. The report for the year
ended December 31, 1993 contained an explanatory paragraph concerning the
securities litigation referred to in the report for 1994 and an explanatory
paragraph concerning the Company's liability for environmental remediation of
two properties acquired in foreclosure and possible government action if the
Company did not comply with a consent agreement regarding one of the
properties. The environmental remediation matter was not referred to in the
report for the year ended December 31, 1994, as there was no material
uncertainty regarding any further liability as of that date.
As of the date hereof, Pacific Thrift has been reclassified as
"adequately capitalized" by the FDIC, and its regulatory capital ratios meet
the FDIC's regulatory definition of "well capitalized," though it would be
classified as "adequately capitalized" due to the provisions of the 1995 Order
requiring the maintenance of a certain capital level (which it currently
meets). No action has occurred since 1993 with respect to the securities
litigation referred to in the explanatory paragraphs contained in the 1994 and
1993 reports.
During the Partnership's two most recent fiscal years and subsequent
interim period, there were disagreements between the
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Partnership and its accountants. The disagreements were as follows:
There was a disagreement concerning the scope of the work necessary to
be performed by E&Y in connection with a proposed restructuring of the
Partnership, including procedures and issues raised with respect to the
allowance for loan losses, deferred tax asset and other transactions recorded
by the Partnership in its unaudited financial information as of June 30, 1995.
Prior to resolving the disagreement, the client-auditor relationship was
terminated by the Partnership.
There were disagreements regarding the amount of the provision and
allowance for loan losses for the fiscal years ended December 31, 1994 and
1993, which were resolved by the Partnership recording an additional provision
for each year.
There were disagreements about the scope of audit procedures to be
performed to ascertain the status of certain regulatory matters concerning
Pacific and the ability of the Partnership to continue as a going concern for
the fiscal year ended December 31, 1994, which were resolved by E&Y performing
the additional procedures.
There was a disagreement about the need to add an explanatory
paragraph to the report of E&Y for the year ended December 31, 1994 concerning
the ability of the Partnership to continue as a going concern, which was
resolved by the Partnership accepting such explanatory paragraph.
There were disagreements regarding the interpretation of regulatory
accounting principles applicable to sales of senior loan participation
interests to third parties by Pacific Thrift which were resolved by Pacific
Thrift requesting an opinion of the FDIC and revising its regulatory reports to
conform to the FDIC's interpretation of such principles.
There was a disagreement regarding the scope of audit procedures
necessary and the necessity of footnote disclosure concerning certain
litigation in which allegations of securities fraud and aiding and abetting in
the breach of fiduciary duty were made against the Partnership and its Chief
Executive Officer by investors in companies affiliated with the Partnership
until 1984. The disagreement was resolved by the Partnership adding footnote
disclosure in its financial statements for the fiscal years ended December 31,
1994 and 1993. On October 31, 1995, the plaintiff in the action filed against
the Partnership and the Chief Executive Officer filed a request for dismissal
of the action without prejudice, which was entered by the court on November 2,
1995.
There was a disagreement concerning the disclosure required in
connection with the Partnership's liability for remediation of environmental
contamination of two properties acquired in foreclosure in 1993. At the time
the audit of the Partnership's
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1993 financial statements was completed there existed potential civil or
criminal claims against the Partnership, and the Partnership was engaged in
negotiations with governmental authorities to settle any potential claims.
Until the settlement agreement was completed, the Partnership's counsel was
unable to provide an opinion as to whether civil or criminal liability was
probable or remote. The Partnership delayed issuance of the financial
statements until the settlement agreement was entered and an opinion of counsel
was obtained to the effect that the possibility of criminal liability was
remote. The disagreement was resolved by the Partnership increasing the
disclosure in its financial statement footnotes in 1993, including the
disclosure that, in the opinion of its legal counsel, the likelihood of
criminal action was remote if the terms of a settlement agreement reached with
regulatory authorities were complied with. As of the date hereof, the
Partnership is in full compliance with the terms of the Settlement Agreement.
There was a disagreement regarding the accounting and footnote
disclosure of certain related party transactions, which was resolved by
adjustments to the accounting and by additional disclosures for the related
party transactions.
E&Y has advised the Partnership that there are certain deficiencies in
its lending and credit administration procedures and its procedures for
determination of its allowance for loan losses that, taken as a whole,
constitute a material weakness in its internal controls and a "reportable
event" pursuant to Item 304 of Rule S-K. The Partnership has taken or is in
the process of taking the necessary steps to improve each of the procedures
identified by its accountants as requiring improvement, to the extent deemed
appropriate by management.
The managing officers of the Partnership's general partner discussed
the subject matter of each disagreement with the Partnership's former
accountants. The Partnership has authorized its former accountants to respond
fully to all inquiries of the Partnership's successor accountants concerning
the subject matter of each disagreement.
Prior to the engagement of BDO as the independent accountants for the
Partnership and its subsidiaries, the Partnership did not consult BDO
concerning the application of accounting principles to any specified
transaction or any matter that was the subject of a disagreement with E&Y or a
reportable event.
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<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA
---------------------------
Years Ended December 31, Nine Months Ended September 30
---------------------------------------------------------- ------------------------------
(Dollars in Thousands) (Dollars in Thousands)
Except Per Unit Data Except Per Unit Data
1994 1993 1992 1991 1990 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets(1) 103,747 $114,324 $120,216 $138,405 $138,388 80,048 109,255
Total Loans Receivable, gross 58,780 88,910 106,226 126,171 124,449 51,639 74,534
Allowance for Loan Losses (4,307) (3,122) (2,646) (1,821) (1,111) (3,675) (3,167)
Loans Receivable, net(1) 53,045 84,183 101,405 122,628 125,825 46,992 70,171
Total Liabilities 93,322 94,385 91,386 101,699 99,377 70,768 94,967
Total Partners' Capital 10,425 19,939 28,830 36,706 39,011 9,280 14,288
SELECTED INCOME STATEMENT DATA
------------------------------
Net Interest Income 6,477 8,494 10,101 9,985 9,015 3,308 5,013
Provision for Loan Losses (6,096) (4,655) (3,887) (2,617) (2,033) (1,861) (2,749)
Net Interest Income After 381 3,839 6,214 7,368 6,982 1,447 2,264
provision for loan losses
Non-interest Income 6,002 5,305 5,315 4,865 4,064 8,832 4,647
Non-interest Expenses 15,897 15,013 11,381 8,398 6,425 11,991 12,561
Net Income (Loss)(2) (9,514) (5,869) 148 3,835 4,621 (1,145) (5,650)
Distributions to Partners
and Net Income (Loss) Per Unit
Class A Limited Partners(3)(4) -0- 52 220 264 296 -0- -0-
Net Income Per Unit (1,157) (708) 17 756 806 (147) (687.55)
Distributions Per Unit -0- 148 628 756 806 -0- -0-
Class B Limited Partners(5) -0- 74 324 429 490 -0- -0-
Net Income Per Unit (1,157) (708) 17 448 706 (147) (687.55)
Distributions Per Unit -0- 123 528 448 706 -0- -0-
Class C Limited Partners(6) -0- 298 1,383 1,887 2,231 -0- -0-
Net Income Per Unit (1,157) (708) 17 414 656 (147) (687.55)
Distributions Per Unit -0- 111 478 414 656 -0- -0-
Class D Limited Partners(7) -0- 280 1,314 1,802 2,074 -0- -0-
Net Income Per Unit (1,157) (708) 17 414 656 (147) (687.55)
Distributions Per Unit -0- 111 478 414 656 -0- -0-
Class E Limited Partners(8) -0- 198 857 1,086 780 -0-
Net Income Per Unit (1,157) (708) 17 363 631 (147) (687.55)
Distributions Per Unit -0- 92 394 363 631 -0- -0-
DRP Units -0- 3 12 9 2 -0- -0-
Net Income Per Unit (1,157) (708) 17 311 506 (147) (687.55)
Distributions Per Unit -0- 74 328 311 506 -0- -0-
General Partner(9) -0- 12 50 118 120 -0- -0-
</TABLE>
____________________
(1) These amounts include net deferred loan fees and costs and allowances
for loan losses, but do not include loans held for sale.
(2) Net loss before tax provision for the nine months ended September 30,
1995 was $1,712,000. Net income increased by $567,000 due to the
recognition of a tax benefit for prior net operating losses, for a
total net loss of ($1,145,000).
(3) These amounts include income earned in the reported periods but not
distributed until 45 days after the end of each quarter and 90 days
after the end of each year, and also include interests of the General
Partner(s) in Class A, B, C and D Units.
(4) All per Unit information is reported on the basis of one Unit
equalling a $5,000 Capital Contribution.
(5) Distributions to Class B Limited Partners commenced on February 15,
1984.
(6) Distributions to Class C Limited Partners commenced on August 15,
1986.
(7) Distributions to Class D Limited Partners commenced on August 15,
1987.
(8) Distributions to Class E Limited Partners commenced on February 15,
1990.
(9) Includes distributions based on the General Partner's Interests only,
not on the Class A, B, C or D Units owned by the General Partner.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Corporation has only recently been formed and, accordingly, has no
results of operations. The following discussion is intended to provide
information to facilitate the understanding and assessment of significant
changes and trends related to the financial condition of the Partnership and
its current operating subsidiaries, Pacific Thrift, Consolidated and Lenders.
GENERAL
The Partnership operates two business segments: (i) the real estate
lending business, which is conducted through the Partnership and Pacific Thrift
and (ii) the trust deed foreclosure services business, which is conducted
through Consolidated and Lenders. The Partnership reports its financial
condition and results of operations on a consolidated basis with Pacific
Thrift, Consolidated and Lenders.
The primary source of operating income of the Partnership's lending
business became fee income from origination and sale of residential loans in
1994. This reflects a change from prior years in which the primary source of
operating income was net interest income, which is the difference between the
interest income earned on its real estate secured loan portfolio and investment
portfolio and the cost of funds, consisting primarily of interest and fees on
the Partnership's bank debt, and interest paid on deposits issued by Pacific
Thrift. The market for residential loans has undergone substantial
consolidation over the past three years, and competition for residential loans
has caused lenders to substantially reduce the net interest margins on these
loans. As a result, management of Pacific Thrift, the Partnership's primary
operating subsidiary, determined in 1994 that Pacific Thrift could operate more
profitably in the current residential loan market as a correspondent lender for
larger mortgage banking companies than by originating residential loans for its
own portfolio.
Over the past two years, Pacific Thrift's ability to originate
portfolio loans has been limited by its capital levels. In 1994, Pacific
Thrift's capital was reduced by loan losses and expenses associated with the
changes in its lending business operations. In addition, certain differences
between regulatory accounting principles and generally accepted accounting
principles resulted in a reduction of Pacific Thrift's regulatory capital
levels. As a result of these factors, Pacific Thrift's regulatory capital
declined to levels which substantially restricted new portfolio lending.
However, between November 1994 and September 1995, Pacific Thrift has restored
its capital with fee income from its loan sale programs, capital contributions
from the Partnership and savings from staff reductions and changes in
compensation structure for loan representatives. If capital levels continue to
increase during the remainder of 1995, management anticipates that Pacific
Thrift may increase portfolio lending in 1996.
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For the last two years, the Partnership has experienced net operating
losses due to higher loan losses caused by substantial declines in California
real estate values. In addition, the Partnership has experienced a decline in
net interest income over the past four years as a result of the steady
reduction of its loan portfolio, which has been necessary to pay down its bank
debt. Over the past five years, the bank debt had been reduced from a high of
$82 million in 1990 to $8.4 million as of September 30, 1995, and to $8.0
million at November 7, 1995. The bank debt is required to be fully repaid by
June 1997. Management of Presidential anticipates that the debt will be paid
off with a combination of interest income and principal reductions on
Presidential's existing loan portfolio (which had an aggregate principal
balance of $10.7 million net of specific reserves of $.6 million as of
September 30, 1995), sales of OREO ($1.6 million at September 30, 1995, net of
senior liens) and sales of portfolio loans as necessary to augment interest and
fee income.
The Partnership's goal for its lending business is to build core
earnings while serving customers in its market area. To accomplish this goal,
management has adopted a business strategy designed to: (i) build Pacific
Thrift's capital with fee income from loans originated for sale; (ii) gradually
rebuild the loan portfolio; (iii) improve asset quality; and (iv) maintain
capital ratios in excess of regulatory requirements.
The primary source of operating income of the trust deed foreclosure
services business is fee income for services performed by Consolidated on
behalf of other lenders, including the Partnership and Pacific Thrift.
Consolidated currently provides foreclosure services nationwide for over 300
banks, thrifts, mortgage companies, life insurance companies and federal
regulatory agencies. Neither Consolidated nor Lenders own substantial tangible
assets or have substantial operating expenses other than general and
administrative and personnel expenses.
The Partnership's basic goal for its trust deed foreclosure services
business is to increase fee income through growth of Consolidated's customer
base. Trust deed foreclosure services fees are limited by statute in
substantially all cases, and therefore the primary means of increasing fee
income is by increasing the volume of services provided and reducing the costs
of providing the services. Consolidated doubled its customer base between 1991
and 1993, from approximately 150 to 300 customers. However, during the past
year, some customers have been lost as a result of mergers and acquisitions.
While many of these customers were replaced with new accounts during the year,
they were not replaced soon enough to fully offset declines in revenues from
accounts lost. Less than 5% of the revenues of each of Consolidated and
Lenders are provided by the Partnership and Pacific Thrift.
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FINANCIAL CONDITION
GENERAL
Total consolidated assets decreased $40.2 million to $80.0 million at
September 30, 1995 from $120.2 million at December 31, 1992, a decrease of
33.4%. The decrease in consolidated assets during this period was due
primarily to a decrease of $41.3 million in net loans of Presidential and a
$13.1 million decrease in net loans of Pacific Thrift, for a net decrease of
$54.4 million in net loans receivable to $47.0 million at September 30, 1995
from $101.4 million at December 31, 1992.
A substantial amount of the proceeds from loan payoffs and loan sales
of Presidential have been used to pay down the bank debt over the past five
years. The bank debt has been reduced $25 million to $8.4 million at September
30, 1995 from $33.4 million at December 31, 1992.
Deposits taken by Pacific Thrift have increased $4.2 million to $54.8
million at September 30, 1995 from $50.6 million at December 31, 1992, an
increase of 8.3%.
Total Partnership capital decreased by $19.5 million to $9.3 million
at September 30, 1995 from $28.8 million at December 31, 1992. Reductions in
capital were due to capital withdrawals of $1.4 million paid in 1993 to
withdrawing Limited Partners in accordance with the terms of the Partnership
Agreement, $1.9 million in distributions paid in 1993 (which were in excess of
net profits and were therefore a return of capital) and net losses on
operations of $1.1 million, $9.5 million and $5.9 million for the nine months
of 1995 ended September 30, 1995 and the years ended December 31, 1994 and
1993, respectively, partially offset by $.3 million in capital contributions in
1993. See Item 5. "Market for Registrant's Common Equity and Related
Stockholder Matters -- Dividends." During the first nine months of 1995 and
the years ended December 31, 1994 and 1993, the Partnership received additional
requests to withdraw capital of approximately $.2 million, $.9 million and $8.2
million which were not approved, in accordance with the restrictions provided
in the Partnership Agreement and the Loan Agreement with NatWest. The
Partnership does not expect to approve any requests to withdraw capital for the
foreseeable future due to current restrictions under the Loan Agreement and the
Partnership's financial condition.
AT SEPTEMBER 30, 1995 COMPARED WITH DECEMBER 31, 1994.
Total consolidated assets of the Partnership decreased $23.7 million
(22.8%) to $80.0 million at September 30, 1995 from $103.7 million at December
31, 1994. The decrease resulted primarily from declines in cash and cash
equivalents, loans receivable, excess yield receivable, real estate acquired in
settlement of loans ("OREO") and interest receivable, offset by increases in
accounts receivable. Loans receivable decreased by $6.0 million (11.4%), to
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$47.0 million from $53.0 million, as a result of loan pay offs and loan sales.
Cash and cash equivalents decreased by $9.6 million (49.0%), to $10.0 million
from $19.6 million. However, this decline in cash and cash equivalents was
offset by a $3.9 million (70.5%) increase in accounts receivable, to $9.5
million at September 30, 1995 from $5.6 million at December 31, 1994. Accounts
receivable reflected $3.6 million due for loans sold as of September 30, 1995,
for which payment was not received until October 1995. Excess yield receivable
decreased $.4 million, (48.0%) to $.5 million from $.9 million. See "Business
- -- Lending Activities -- Loans Originated for Sale." OREO declined by $2.3
million (30.0%), to $5.3 million at September 30, 1995 from $7.6 million at
December 31, 1994, reflecting sales of OREO. Interest receivable declined by
$.2 million (17.9%), to $.9 million from $1.1 million, primarily due to the
reduction of the loan portfolio.
Total liabilities decreased $22.5 million (24.1%) to $70.8 million at
September 30, 1995 from $93.3 million at December 31, 1994. The decrease
resulted from declines in notes payable, thrift certificates payable, accounts
payable, accrued expenses and interest payable and mortgages payable on OREO.
Notes payable decreased by $6.3 million (42.8%), to $8.4 million from $14.8
million, due to pay down of the bank debt. Thrift certificates payable
decreased by $14.7 million (21.1%) to $54.8 million from $69.5 million,
reflecting the reduction in total assets of Pacific Thrift. Accounts payable,
accrued expenses and interest payable decreased by $.3 million (5.7%), to $5.3
million from $5.6 million at December 31, 1994, primarily due to a $.4 million
reduction in accrued expenses for the environmental remediation of OREO
acquired by Pacific Thrift after receiving a lower bid for completion of the
work. Mortgages payable on OREO decreased by $1.2 million (52.7%), to $1.1
million from $2.3 million, due to sale of OREO.
Total Partnership capital decreased by $1.1 million (10.6%) to $9.3
million from $10.4 million, due to consolidated net losses of $1.1 million
incurred during the nine months ended September 30, 1995. The consolidated net
loss was comprised of a $3.8 million net loss of Presidential, partially offset
by a $2.1 million net profit after tax provision of Pacific Thrift, a $.4
million net profit of Consolidated and a $.2 million net profit of Lenders.
AT DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
Total consolidated assets decreased $10.6 million to $103.7 million at
December 31, 1994 from $114.3 million at December 31, 1993, a decrease of 9.3%.
The decrease in assets during the year was primarily due to reductions in the
Partnership's loans receivable and OREO, offset by an increase in cash and cash
equivalents held to maintain Pacific Thrift's required liquidity ratio.
Presidential's loans receivable declined by $21.6 million, and Pacific Thrift's
loans receivable by $9.6 million, resulting in a net decline of $31.2 million
in 1994, to $53.0 million at December 31, 1994 from $84.2 million at December
31, 1993, a net decline of 37.0%. OREO increased by $1.6 million in 1994 to
$7.6
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million at December 31, 1994 from $6.0 million at December 31, 1993, an
increase of 26.7%. Offsetting these declines was an increase in cash and cash
equivalents, which increased by $6.4 million in 1994, to $19.6 million at
December 31, 1994 from $13.2 million at December 31, 1993.
Total deposits taken by Pacific Thrift increased $7.1 million to $69.5
million at December 31, 1994 from $62.4 million at December 31, 1993, an
increase of 11.4%.
Total Partners' capital decreased $9.5 million to $10.4 million at
December 31, 1994 from $19.9 million at December 31, 1993, a decline of 47.7%.
Reductions in capital were due to a $9.5 million net operating loss for 1994.
During 1994, the Partnership received additional requests to withdraw capital
of approximately $0.9 million which were not approved, in accordance with the
restrictions provided in the Partnership Agreement and the Loan Agreement with
NatWest. The Partnership does not anticipate that it will be possible to
approve any capital withdrawal requests for the foreseeable future due to the
restrictions under the loan agreement and the Partnership's current financial
condition.
AT DECEMBER 31, 1993 COMPARED WITH DECEMBER 31, 1992
Total consolidated assets decreased $5.9 million to $114.3 million at
December 31, 1993 from $120.2 million at December 31, 1992, a decrease of 4.9%.
The decrease in assets during the year was primarily due to reductions in the
Partnership's loans receivable and OREO, offset by an increase in cash and cash
equivalents held to maintain Pacific Thrift's required liquidity ratio.
Presidential's loans receivable declined by $17.7 million, while Pacific
Thrift's loans receivable increased by $.5 million, resulting in a net decline
of $17.2 million in 1993, to $84.2 million at December 31, 1993 from $101.4
million at December 31, 1992, a net decline of 17.0%. OREO declined by $3.5
million in 1993 to $6.0 million at December 31, 1993 from $9.5 million at
December 31, 1992, a decline of 36.8% Offsetting these declines was an
increase in cash and cash equivalents, which increased by $12.7 million in
1993, to $13.2 million at December 31, 1993 from $0.5 million at December 31,
1992.
Total deposits taken by Pacific Thrift increased $11.8 million to
$62.4 million at December 31, 1993 from $50.6 million at December 31, 1992, an
increase of 23.3%.
Total Partners' capital decreased $8.9 million to $19.9 million at
December 31, 1993 from $28.8 million at December 31, 1992, a decline of 30.9%.
Reductions in capital were due to capital withdrawals of $1.4 million paid to
withdrawing Limited Partners in accordance with the terms of the Partnership
Agreement, $1.9 million in distributions, capital contributions of $.3 million
and a $5.9 million net operating loss for 1993. During 1993, the Partnership
received additional requests to withdraw capital of approximately $8.2 million
which were not approved, in accordance
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with the restrictions provided in the Partnership Agreement and the Loan
Agreement with NatWest. The Partnership does not expect to approve any
requests to withdraw capital for the foreseeable future due to restrictions
under the Loan Agreement and the Partnership's financial condition.
RESULTS OF OPERATIONS
NET INTEREST INCOME ANALYSIS
The following table sets forth certain information concerning average
interest-earning assets and interest bearing liabilities and the yields and
rates thereon. Average balances are calculated on a quarterly basis and
nonaccrual loans have been included in interest earning assets for the
computations. Fee income on loans included in interest income and in the
calculation of average yields was $540,472, $1,678,494 and $2,709,813 for the
first nine months of 1995 and the years ended December 31, 1994 and 1993,
respectively.
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YIELDS AND RATES ON INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
------------------ -----------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Assets (Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $61,594 6,803 14.77% $84,776 11,003 12.98%
Interest-bearing deposits in
other financial institutions
and securities purchased under
agreements to sell 13,511 584 5.78% 10,138 401 3.96%
------ ------ ----- ------ ------ -----
Total interest-earning assets 75,105 7,387 13.15% 94,914 11,404 12.02%
====== ====== ======= ====== ====== ======
Noninterest-earning assets:
Cash and due from banks 3,750 3,782
Premises & equipment, net 1,511 1,452
Real estate acquired in settlement 6,044 6,276
of loans
Other Assets 13,155 6,734
------- -------
Total noninterest-earning assets 24,460 18,244
------- -------
Less allowance for loan losses 3,805 3,085
------- -----
95,760 7,387 110,073 11,404
======= ====== ======= ======
Liabilities & Partners' Capital
Interest-bearing liabilities:
Notes payable 14,956 1,125 10.06% 18,734 1,982 10.58%
Savings deposits 12,109 474 5.16% 23,867 904 3.79%
Time CDs 53,166 2,480 6.24% 44,241 2,041 4.61%
------ ----- ----- ------ ----- -----
Total interest-bearing liabilities 80,231 4,079 6.80% 86,842 4,927 5.67%
------ ----- ---- ------ ----- ----
Noninterest-bearing liabilities:
Accounts payable & accrued
expenses 5,515 8,047
------ ------
Total liabilities 85,746 94,889
Partners' Capital 10,014 15,184
------ ----- ------ -----
$ 95,760 4,079 $110,073 4,927
======= ===== ======= =====
Net interest income/spread 3,308 6.35% 6,477 6.34%
===== ===== ===== =====
Net interest margin 5.89% 6.82%
Net Income (loss) (1,145) (9,514)
======= =======
Average interest earning assets to 0.936% 1.093%
average interest bearing liabilities
</TABLE>
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Interest income and interest expense can fluctuate widely based on
changes in the level of interest rates in the economy. Pacific Thrift attempts
to minimize the effect of interest rate fluctuations on net interest margin by
matching as nearly as possible interest sensitive assets and interest sensitive
liabilities. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset/Liability Management."
Net interest income can also be affected by a change in the
composition of assets and liabilities, such as when higher yielding loans
replace lower yielding loans. Net interest income is affected by changes in
volume and changes in rates. Volume changes are caused by differences in the
level of earning assets and interest-bearing liabilities. Rate changes result
from differences in yields earned on assets and rates paid on liabilities.
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest- earning assets
and interest-bearing liabilities due to changes in volume and interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume;
(i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e.
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume which cannot be segregated, have been
allocated proportionately to changes due to volume and changes due to rate.
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<PAGE> 86
Rate Volume Analysis
(Dollars in Thousands)
<TABLE>
<CAPTION>
9/30/95 compared to 12/31/94 1994 compared to 1993
Increase (decrease) Increase (decrease)
due to change in due to change in
----------------------------------- --------------------------------
Volume Yield/ Net Volume Yield/ Net
Rate Change Rate Change
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (5,802) 1,602 (4,200) (1,821) (1,385) (3,206)
Interest-bearing deposits in
other financial institutions
and securities purchased
under agreements to sell 56 127 183 399 (1) 398
------ ----- ------ ------ ------ ------
Total interest-earning assets (5,746) 1,729 (4,017) (1,422) (1,386) (2,808)
====== ===== ====== ====== ====== ======
Liabilities & Partners'
Capital
Interest-bearing liabilities:
Notes payable (693) (164) (857) (1,243) 728 (515)
Savings deposits (692) 262 (430) 734 10 744
Time CDs 159 280 439 (382) (638) (1,020)
------ ----- ------ ------ ------ ------
Total interest-bearing
liabilities (1,226) 378 (848) (891) 100 (791)
====== ===== ====== ====== ====== ======
Change in net interest income (4,520) 1,351 (3,169) (531) (1,486) (2,017)
====== ===== ====== ====== ====== ======
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
GENERAL
The Partnership incurred a net operating loss of $.8 million before
tax provision for the quarter ended September 30, 1995, compared with a net
operating loss of $2.8 million for the quarter ended September 30, 1994. Net
operating losses for the nine months ended September 30, 1995 were $1.7 million
before tax provision and $1.1 million after tax provision reflecting a tax
benefit due to Pacific Thrift's net operating loss carryforwards of $.6
million, compared with net operating losses of $5.7 million for the nine months
ended September 30, 1994. Pacific Thrift has a remaining net operating loss
carryforward of $6.8 million as of December 31, 1994, which may be used to
offset tax liability on future taxable income of the Corporation. However, if
the ownership of the Corporation changes by more than 50% as a result of the
Restructuring Plan, Pacific Thrift will be subject to certain annual
limitations on the use of the net operating loss carryforward. See "FEDERAL
INCOME TAX CONSEQUENCES -- Net Operating Loss Carryforward." The reduction in
the net operating loss in the first three quarters of 1995 was due primarily to
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increases in noninterest income and decreases in noninterest expenses from the
same period of 1994.
NET INTEREST INCOME
Net interest income before provision for loan losses decreased by $.5
million (30.5%) for the third quarter of 1995, and by $1.7 million (34.0%) for
the nine months ended September 30, 1995, compared to the same periods of 1994,
as a result of the reduction in total interest income and increase in total
interest expense.
TOTAL INTEREST INCOME
Total interest income decreased by $.4 million (15.1%) for the third
quarter of 1995 and by $1.2 million (13.9%) for the nine months ended September
30, 1995, compared to the same periods of 1994, due to reductions in the loan
portfolio.
TOTAL INTEREST EXPENSE
Total interest expense increased by $.1 million (5.7%) for the third
quarter of 1995 and by $.5 million (14.3%) for the nine months ended September
30, 1995, compared to the same periods of 1994, due to higher market interest
rates on thrift certificates by Pacific Thrift.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $.9 million for the third quarter
and $1.9 million for the nine months ended September 30, 1995, compared with
$2.1 million and $2.7 million for the same periods of 1994. The total
allowance for loan losses was $3.7 million at September 30, 1995 compared with
$4.3 million at December 31, 1994, reflecting sales and payoffs of loans as to
which reserves had previously been taken and improvements in status in some
portfolio loans.
The calculation of the adequacy of the allowance for loan losses is
based on a variety of factors, including loan classifications and underlying
loan collateral values, and is not directly proportional to the level of
nonperforming loans. See "Business -- Classified Assets and Nonperforming
Loans -- Allowance for Loan Losses." The ratio of nonaccrual loans past due 90
days or more to total loans was 2.53% at September 30, 1995. The ratio of the
allowance for loan losses to nonaccrual loans past due 90 days or more was
281.61% at September 30, 1995.
NONINTEREST INCOME
Total noninterest income increased by $1.6 million (88.3%) for the
quarter and by $4.2 million (90.0%) for the nine months ended September 30,
1995, compared to the same periods of 1994, due to increases in gains on sale
of loans by Pacific Thrift. Gains on sale of loans increased by $1.7 million
(263.7%) for the third
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quarter of 1995 and by $4.4 million (350.5%) for the three quarters ended
September 30, 1995, compared to the same periods of 1995. Pacific Thrift has
sold a total of $106 million of loans during the first nine months of 1995, for
a total gain on sale of $5.6 million. These sales included $98 million of
Securitizable loans, for a gain on sale of $5.4 million, $7 million of
portfolio loans, for a gain on sale of $.2 million and $1 million of home
improvement loans, sold at par value. Trustee and reconveyance fees decreased
by less than $.1 million (2.2%) for the third quarter of 1995 and by $.2
million (7.4%) for the nine months ended September 30, 1995, compared to the
same periods of 1994.
NONINTEREST EXPENSE
Noninterest expense increased by $.4 million (8.6%) for the third
quarter and decreased by $.6 million (4.5%) for the nine months ended September
30, 1995, compared to the same periods of 1994. Reductions in noninterest
expense were primarily due to reductions in expenses on OREO, partially offset
by increases in salaries, employee benefits and personnel services and net
losses on sales of OREO. General and administrative expenses increased by $.1
million (6.5%) for the third quarter of 1995 and decreased by $.1 million
(1.3%) for the nine months ended September 30, 1995, compared to the same
periods of 1994. Salaries, employee benefits and personnel services increased
by $.4 million (18.2%) for the third quarter and by $.3 million (5.3%) for the
nine months ended September 30, 1995, compared to the same periods of 1994.
Expenses on OREO decreased by $.2 million (51.5%) for the third quarter and by
$1.1 million (82.5%) for the nine months ended September 30, 1995, compared to
the same periods of 1994. The Partnership recognized net losses on sales of
OREO of $47,000 for the third quarter of 1995 and $.4 million for the nine
months ended September 30, 1995, compared with gains of $.1 million and $6,000
for the same periods of 1994.
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
GENERAL
The Partnership incurred a net operating loss of $9.5 million for the
year ended December 31, 1994, compared with a net loss of $5.9 million for the
year ended December 31, 1993. The increase in net loss in 1994 from 1993 was
due primarily to a $3.4 million decline in net interest income after provision
for loan losses to $.4 million in 1994 from $3.8 million in 1993, and a $.9
million increase in non- interest expense to $15.9 million in 1994 from $15.0
million in 1993 offset by a $.7 million increase in non-interest income.
NET INTEREST INCOME
Net interest income before provision for loan losses for the year
ended December 31, 1994 was $6.5 million, a decrease of $2.0 million from the
year ended December 31, 1993. This decrease
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<PAGE> 89
resulted primarily from the decrease in average interest earning assets, which
declined by $3.3 million, or 3.4%, to $94.9 million in 1994 from $98.2 million
in average interest earning assets in 1993.
TOTAL INTEREST INCOME
Total interest income decreased $2.8 million, or 19.7%, to $11.4
million in 1994 from $14.2 million in 1993 due to the reduction of $3.3 million
in average interest earning assets.
TOTAL INTEREST EXPENSE
Total interest expense decreased $0.8 million to $4.9 million in 1994
from $5.7 million in 1993. The decline in interest expense was due primarily
to a substantial reduction in the bank debt balance, which was partially offset
by an increase in deposits, principally time certificates of deposit, issued by
Pacific Thrift at lower rates of interest than the rate payable on the bank
debt.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $6.1 million in 1994 compared with
$4.6 million in 1993. The provision for loan losses remained high in 1994 and
1993 due to the continuing high levels of loan delinquencies and declines in
California real estate values over the past five years. The total allowance
for loan losses has increased as a percentage of the total loan portfolio to
7.33% of the combined portfolio at December 31, 1994 compared with 3.49% of the
combined portfolio at December 31, 1993. New policies and procedures were
initiated by Pacific Thrift in 1993, which included obtaining new outside
appraisals for most delinquent loans when the most recent outside appraisal was
over six months old. In the last quarter of 1993, new management was hired for
Pacific Thrift, and it determined to make changes in the method of determining
the allowance for loan losses, which resulted in significant adjustments to the
provision for loan loss in the fourth quarter of 1993. In 1994, management of
the Partnership conducted a further review of its portfolio, which included
review appraisals of many properties. As a result, a substantial adjustment to
the provision for loan losses of the Partnership was made in the fourth quarter
of 1994. "Business -- Classified Assets and Loan Losses."
The ratio of nonaccrual loans past due 90 days or more to total loans
was 5.35% at December 31, 1994 and 5.98% at December 31, 1993. The ratio of
the allowance for loan losses to nonaccrual loans past due 90 days or more was
136.94% at December 31, 1994 and 58.74% at December 31, 1993.
NONINTEREST INCOME
Noninterest income increased by $0.7 million to $6.0 million in 1994
compared to $5.3 million in 1993. Noninterest income was primarily provided by
trustee and reconveyance fees earned by
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<PAGE> 90
Consolidated and Lenders. Trustee and reconveyance fees decreased by $0.5
million in 1994 to $3.3 million in 1994 compared to $3.8 million in 1993, due
to a reduction in loan default levels in 1994. It is possible that trustee and
reconveyance income could further decrease as the general economy improves, but
management will attempt to retain or increase such income with further
geographic expansion of the customer bases of Consolidated and Lenders.
Gain on sale of loans increased by $0.8 million (800%) in 1994, to
$0.9 million in 1994 from $0.1 million in 1993. The increase is the result of
the steady increase in loan originations for sale in 1994. A total of $58
million in loans were sold in 1994, including $29.6 million of loans originated
for sale by Pacific Thrift.
NONINTEREST EXPENSE
Noninterest expense increased by $0.9 million to $15.9 million in 1994
from $15.0 million in 1993. The major components of this increase included a
$1.4 million increase in salaries and employee benefits, a $1.6 million
increase in general and administrative expenses and a $.5 million increase in
depreciation and amortization, offset by a decrease of $2.6 million in
operation of OREO. The increase in salaries and benefits was due to increased
staffing at Pacific Thrift in 1994 and reduced deferred loan origination costs
pursuant to FASB 91. The increase in general and administrative expenses was
due to increased professional fees.
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
GENERAL
The Partnership incurred a net operating loss of $5.9 million for the
year ended December 31, 1993, compared with net income of $.1 million for the
year ended December 31, 1992. The net loss in 1993 was due primarily to a $2.4
million decline in net interest income after provision for loan losses to $3.8
million in 1993 from $6.2 million in 1992, and a $3.6 million increase in
non-interest expense to $15.0 million in 1993 from $11.4 million in 1992.
NET INTEREST INCOME
Net interest income before provision for loan losses for the year
ended December 31, 1993 was $8.5 million, a decrease of $1.6 million from the
year ended December 31, 1992. This decrease resulted primarily from the
decrease in average interest earning assets, which declined by $17.7 million,
or 15.3%, to $98.2 million in 1993 from $115.9 million in average interest
earning assets in 1992.
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TOTAL INTEREST INCOME
Total interest income decreased $2.6 million, or 15.5%, to $14.2
million in 1993 from $16.8 million in 1992 due to reductions in loans
receivable. Reductions in Presidential's loans receivable were partially
offset by increases in Pacific Thrift's average loans receivable to $57.3
million in 1993 from $50.6 million in 1992. Although there was no increase in
interest rates on loans made in 1993, loans that paid off in 1993 were at lower
average interest rates than existing loans that did not pay off in 1993,
resulting in a higher average rate of interest on the average portfolio in
1993.
TOTAL INTEREST EXPENSE
Total interest expense decreased $1.0 million to $5.7 million in 1993
from $6.7 million in 1992. The decline in interest expense was due primarily
to a substantial reduction in the bank debt balance, which was partially offset
by an increase in deposits, principally time certificates of deposit, issued by
Pacific Thrift at lower rates of interest than the rate payable on the bank
debt.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $4.7 million in 1993 compared with
$3.9 million in 1992. The provision for loan losses remained high in 1993 and
1992 due to the continuing high levels of loan delinquencies and declines in
California real estate values over the past three years. The total allowance
for loan losses has increased as a percentage of the total loan portfolio to
3.49% of the combined portfolio at December 31, 1993 compared with 2.49% of the
combined portfolio at December 31, 1992. New policies and procedures were
initiated by Pacific Thrift in 1993, which included obtaining new outside
appraisals for most delinquent loans when the most recent outside appraisal was
over six months old. In the last quarter of 1993, new management was hired for
Pacific Thrift, and it determined to make changes in the method of determining
the allowance for loan losses, which resulted in significant adjustments to the
provision for loan loss in the fourth quarter of 1993. "Business -- Classified
Assets and Loan Losses."
The ratio of nonaccrual loans past due 90 days or more to total loans
was 5.94% and 3.06% at December 31, 1993 and 1992, respectively. The ratio of
the allowance for loan losses to nonaccrual loans past due 90 days or more was
58.74% and 81.34% at December 31, 1993 and 1992, respectively.
NONINTEREST INCOME
Noninterest income remained the same at $5.3 million in 1993 and in
1992. Noninterest income was primarily provided by trustee and reconveyance
fees earned by Consolidated and Lenders in 1993. Trustee and reconveyance fees
increased $.7 million in 1993 to $3.8 million in 1993 compared to $3.1 million
in 1992. Trustee and
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reconveyance fee income has increased due to generally higher loan default
levels in California over the past two years and increases in the customer
bases of Consolidated and Lenders. It is possible that trustee and
reconveyance income could decrease as the general economy improves, but
management expects to retain or increase such income with further geographic
expansion of the customer bases of Consolidated and Lenders.
The increase in trustee and reconveyance fee income was entirely
offset by decreases in other income and gain on sale of home improvement loans.
Gain on sale of home improvement loans decreased to $15,177 from $.4 million in
1992. The decrease in gain on sale of home improvement loans was due to the
discontinuation of the home improvement loan division in March 1993, which
management determined was necessary because of the lack of resources available
to support the volume expansion of the program necessary to make it profitable.
NONINTEREST EXPENSE
Noninterest expense increased by $3.6 million to $15.0 million in 1993
from $11.4 million in 1992. The major components of this increase included a
$1.4 million increase in salaries and employee benefits, a $1.8 million
increase in expenses on operation of OREO and a $.5 million increase in net
loss on sale of OREO. The increase in salary and employee expenses is due to a
reduction in loan originations in 1993, which reduced the amount of employee
expenses which could be deferred under FASB 91 over the life of loans
originated in 1993. Therefore, although the total amount of salaries and
benefits paid in 1993 declined by $.1 million from 1992, the Partnership
recognized $1.3 million more in expense in 1993. Similar costs had been
deferred in 1992. The increase in expenses on operation of OREO was due to an
increase in the number of properties acquired and held as OREO.
In 1993, the General Partner voluntarily reduced the base compensation
it receives for providing personnel services to Presidential and Pacific Thrift
from 35% of loan origination fees to 30% of such fees, which resulted in a
reduction of $.1 million in 1993 from the amount that otherwise would have been
paid to the General Partner.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Presidential does not maintain significant cash and cash equivalent
assets on its own behalf, and uses substantially all of its cash flow to pay
down the bank debt on a monthly basis. The primary source of Pacific Thrift's
liquidity is the cash and cash equivalents maintained by Pacific Thrift in
connection with its deposit-taking and lending activities. At September 30,
1995, cash and cash equivalent assets totalled $10.0 million, compared with
$19.6 million at December 31, 1994. However, this did not reflect
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an additional receivable of $3.6 million for loans sold as of September 30,
1995 which was paid for in October 1995.
At September 30, 1995, neither Presidential nor Pacific Thrift had
material outstanding commitments to fund loans. Certificates of deposit which
are scheduled to mature in one year or less from September 30, 1995 totalled
$36.3 million. Based upon historical experience, management believes that a
significant portion of such deposits will be renewed and will remain with
Pacific Thrift.
Presidential's primary sources of funds are principal and interest
payments on loans, whereas Pacific Thrift's primary sources of funds are
deposits and principal and interest payments on loans. While scheduled
principal amortization on loans and deposit flows are a reasonably predictable
source of funds, and mortgage loan prepayments are greatly influenced by the
level of interest rates, economic conditions and competition.
The primary lending and investment activities of Presidential and
Pacific Thrift are the origination of fixed and adjustable rate real estate
loans. Since November 1991, substantially all new loans (other than loan
rewrites of existing loans) have been originated by Pacific Thrift. Effective
January 1, 1994, Pacific Thrift began to invest in short-term investment
securities, primarily federal funds sold and U.S. Treasury Notes, which
provides income from those assets required for liquidity. The levels of these
assets depend on Pacific Thrift's operating, financing, lending and investing
activities during any given period.
For the past four years, Presidential has reduced its lending
activities as a result of the need to reduce its borrowings under the bank
debt. Beginning in 1991, Presidential began to pay down the bank debt, which
has been reduced by $42.8 million to $14.8 million at December 31, 1994 from
$57.6 million at December 31, 1991. Pacific Thrift has increased its lending
activities over the same period with funding from deposits and payments on
loans. Deposits issued by Pacific Thrift have increased $51.8 million to
$69.5 million at December 31, 1994 from $17.7 million at December 31, 1990.
Pacific Thrift maintains minimum levels of liquid assets as required
under the liquidity policy adopted by the board of directors of Pacific Thrift.
The relationship between short-term liquid assets and total deposits at
December 31, 1994 was 26.9%, which exceeded the 10% minimum established by the
board. The liquidity ratio was substantially increased in 1993 from the prior
levels maintained in 1992. At December 31, 1992, the relationship between
short-term liquid assets and total deposits was 2.04%, respectively.
Presidential is not required to and does not maintain significant liquid
assets.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions.
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At December 31, 1994, Pacific Thrift was classified by the FDIC as
"undercapitalized." However, by March 31, 1995, Pacific Thrift was
reclassified by the FDIC as "adequately capitalized." As of September 30,
1995, Pacific Thrift's regulatory capital levels have increased to levels
meeting the FDIC's definition of "well capitalized", although the FDIC has not
yet confirmed this classification. See Item 1. "Business -- Supervision and
Regulation -- Governmental Policies and Recent Legislation -- Capital Adequacy
Guidelines."
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
As indicated in the Statements of Cash Flows, the Partnership used
$2.6 million in cash from operating activities from January 1, 1995 through
September 30, 1995. This includes a deduction from cash for the $3.6 million
receivable for loans sold at September 30, 1995 which were paid for in October
1995.
The Partnership realized $14.0 million from investing activities for
the nine months ended September 30, 1995, primarily due to a net decrease of
$15.3 million in loans receivable.
The Partnership used $21.0 million in financing activities for the
nine months ended September 30, 1995, primarily reflecting a $14.7 million
decrease in thrift certificates and a $6.3 million decrease in the bank debt.
No distributions or withdrawal payments were made to limited partners in
accordance with the restrictions on such payments under the bank loan
agreement.
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
As indicated in the Partnership's Statements of Cash Flows included in
the Consolidated Financial Statements of the Partnership included elsewhere
herein, the Partnership has utilized $5.0 million in cash from operating
activities from January 1, 1992 through December 31, 1994. Uses of cash from
operations included primarily the $9.5 million net loss in 1994 and the $5.9
million loss in 1993.
The Partnership has realized cash flow from investing activities of
$45.9 million from January 1, 1992 through December 31, 1994, primarily from
proceeds of loan sales and sales of OREO. Combined loan sales of the
Partnership and Pacific Thrift provided $28.4 million, $25.9 million and $26.9
million in proceeds in 1994, 1993 and 1992, respectively. Proceeds from sales
of OREO provided $6.0 million, $7.0 million and $2.1 million in 1994, 1993 and
1992, respectively.
The Partnership has used $23.0 million from financing activities from
January 1, 1992 through December 31, 1994. Cash has been used primarily to pay
off the bank debt, to make distributions to the Partners and to pay capital
withdrawals to withdrawing Limited Partners. Presidential paid off $8.4
million, $10.2 million and $24.1 million of the bank debt in 1994, 1993 and
1992,
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<PAGE> 95
respectively. The primary source of cash provided by financing activities was
the increase in deposits by Pacific Thrift, which increased a total of $30.0
million between January 1, 1992 and December 31, 1994, including increases of
$7.1 million in 1994, $11.9 million in 1993 and $11.0 million in 1992. The
funds provided from deposit activities by Pacific Thrift were used to fund loan
originations by Pacific Thrift during these respective periods, which were
offset by net decreases in loans receivable held by Presidential.
Presidential is required under the Loan Agreement to utilize 100% of
its net cash flow to pay interest and reduce principal on the outstanding
balance owed to NatWest. The Loan Agreement prohibits any distributions or
withdrawal payments to the Partners, and any payments to the General Partner
other than overhead expenses until the bank debt is repaid in full.
Presidential is also obligated to pay an additional $1,120,379 to
Limited Partners whose capital withdrawal requests were previously approved and
not paid as of December 31, 1993. These Limited Partners are currently general
unsecured creditors of the Partnership whose right to payment is subordinated
to the Bank's rights under the Loan Agreement. The Partnership will be unable
to pay these amounts until the bank debt is repaid in full.
ASSET/LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap". An asset
or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would generally tend
to adversely affect net interest income while a positive gap would generally
tend to result in an increase in net interest income. During a period of
declining interest rates, a negative gap would generally tend to result in
increased net interest income while a positive gap would generally tend to
adversely affect net interest income. At September 30, 1995, total
interest-earning assets maturing or repricing during each period exceeded total
interest-bearing liabilities maturing or repricing in the same periods by $.8
million, representing a cumulative interest rate sensitivity gap ratio of 1%.
However, because interest rates for different asset
81
<PAGE> 96
and liability products offered by depository institutions respond differently
to changes in the interest rate environment, the gap is only a general
indicator of interest rate sensitivity.
Presidential does not actively originate new loans, and has not done
so in approximately four years. Therefore, Presidential does not actively
monitor its interest rate risk at this time.
Pacific Thrift actively monitors its interest rate risk. Pacific
Thrift has an asset/liability committee which includes its President, Chief
Financial Officer and Deposit Operations Manager. The committee meets
regularly to review Pacific Thrift's interest rate risk position and make
whatever adjustments are necessary. In addition, the board of directors of
Pacific Thrift reviews its asset/liability position on a quarterly basis.
To the extent consistent with its interest rate spread objectives,
Pacific Thrift attempts to reduce its interest rate risk and has taken a number
of steps to match its interest sensitive assets and liabilities to minimize the
potential negative impact of changing interest rates. Pacific Thrift has
focused on making adjustable rate real estate loans, virtually all of which
adjust quarterly, and focuses its investment activity on short-term obligations
of banks and U.S. government securities.
The following table sets forth the interest rate sensitivity of
Pacific Thrift's assets and liabilities at September 30, 1995 on the basis of
certain assumptions. Except as stated below, the amounts of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of the repricing timing or
contractual term of the asset or liability. Pacific Thrift has assumed that
its savings accounts, which totalled $18.5 million at September 30, 1995
reprice immediately. Certificates of deposit are included in the table below
at their dates of maturity.
Certain shortcomings are inherent in the method of analysis presented
in the following table. For example, interest rate floors on some adjustable
rate loans can have the effect of increasing the net interest income as
interest rates decline or, conversely, limiting net interest income as interest
rates rise. Also, loan prepayments and early withdrawal of certificates of
deposit could cause the interest sensitivities to vary from what appears in the
table. Finally, the ability of many borrowers to service their adjustable rate
debt may be adversely affected by an interest rate increase.
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<PAGE> 97
INTEREST RATE SENSITIVITY GAP AS OF SEPTEMBER 30, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
After One
Day But After Three After One
Within Months But Year
Assets or Liabilities Which Three Within But Within After
Mature or Reprice Months One Year Five Years Five Years Total
--------------------------- ---------- ----------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Cash and Investments . . . . . . . . . 9,357 -0- -0- -0- 9,357
Loans Receivable . . . . . . . . . . . 32,048 1,530 2,197 4,432 40,207
Loans Held for Sale (1) . . . . . . . . 6,027 -0- -0- -0- 6,027
------ ----- ----- ----- ------
Total interest-earning assets . . . . 47,432 1,530 2,197 4,432 55,591
====== ===== ===== ===== ======
Certificates of deposit . . . . . . . . 15,021 21,080 190 -0- 36,291
Savings accounts . . . . . . . . . . . 18,520 -0- -0- -0- 18,520
Total interest-bearing liabilities . 33,541 21,080 190 -0- 54,811
------ ----- ----- ----- ------
Interest rate sensitivity gap . . . . . 13,891 (19,550) 2,007 4,432 780
====== ======= ===== ===== ======
Cumulative interest rate sensitivity gap
Interest rate sensitivity ratio (2) . . 1.41 .07 11.56 -0- 1.01
Cumulative interest rate sensitivity
gap ratio (3) . . . . . . . . . . . . .29 (.12) (0.07) 0.01 0.01
</TABLE>
(1) Includes pre-approved loans sold at each month end, for which cash has
not yet been received.
(2) The interest rate sensitivity gap ratio represents total
interest-earning assets divided by total interest-bearing liabilities.
(3) The cumulative interest rate sensitivity gap ratio represents the
cumulative interest rate sensitivity gap divided by total interest-
earning assets.
EFFECT OF FEDERAL LAWS AND REGULATIONS
Pacific Thrift's operating results are impacted by Federal laws and
regulations. For a discussion of certain provisions that impact Pacific
Thrift, see Item 1. "Business -- Supervision and Regulation."
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<PAGE> 98
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of operations of the Partnership and its
subsidiaries. Like most mortgage companies and industrial loan companies,
nearly all the assets and liabilities of the Partnership and Pacific Thrift are
monetary. As a result, interest rates have a greater impact on the
Partnership's consolidated performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
EFFECT OF NEW ACCOUNTING STANDARDS
In December 1991, the Financial Accounting Standards Board (FASB)
issued its Statement of Financial Accounting Standards No. 107 ("SFAS 107")
"Disclosures About Fair Value of Financial Instruments." SFAS 107 requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
condition, for which it is practicable to estimate fair value. SFAS 107 is
effective for fiscal years ending after December 15, 1995, for entities with
less than $150 million in total assets, as of its December 1991 issuance date.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 applies to all loans except large
groups of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or a lower of cost or fair value,
leases, and debt securities as defined in SFAS No. 115. SFAS No. 114 requires
that impaired loans be valued at the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair market value of
the collateral if the loan is collateral dependent. SFAS No. 114 is effective
for fiscal years beginning after December 15, 1994, with earlier adoption
encouraged. SFAS No. 114 applies primarily to the Partnership's combined
mortgage loan portfolio. Presidential and Pacific Thrift actively monitor this
portfolio and evaluate the net realizable value of any loan which is deemed to
be impaired. Net realizable value is assessed based upon current appraised
value of the underlying collateral. If carrying value exceeds this estimated
realizable value, carrying value is reduced to the estimated realizable value
by a charge to earnings. As such, SFAS No. 114 does not represent a material
change from the Partnership's and Pacific Thrift's current accounting practices
and neither the Partnership nor Pacific Thrift expect implementation of SFAS
No. 114 to have any material effect on their reported financial results.
84
<PAGE> 99
In October, 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS
No. 118 amends Statement No. 114 to allow a creditor to use existing methods
for recognizing interest income on impaired loans and also amends the
disclosure requirements of Statement No. 114 to require information about the
recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to these impaired loans. SFAS No. 118 is
effective concurrent with the effective date of Statement 114, that is, for
financial statements for fiscal years beginning after December 15, 1994. As
with Statement No. 114, management believes it is following the requirements
of SFAS No. 118.
In March, 1995, the FASB used SFAS No. 121 "Accounting for the
impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of"
SFAS 121 requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset.
This Statement is effective for financial statements for fiscal years
beginning after December 15, 1995. Earlier application is encouraged.
Restatement of previously issued financial statements is not permitted.
Impairment losses resulting from the application of this Statement should be
reported in the period in which the recognition criteria are first applied and
met. The initial application of this Statement to assets that are being held
for disposal at the date of adoption should be reported as the cumulative
effect of a change in accounting principle. Management does not believe that
the adoption of SFAS 121 will have a material impact on the Company's financial
statements.
In May, 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122
requires that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others, however those servicing rights are
acquired. A mortgage banking enterprise that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
or securitizes those loans with servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values if
it is practicable to estimate those fair values. If it is not practicable to
estimate
85
<PAGE> 100
the fair values of the mortgage servicing rights and the mortgage loans
(without the mortgage servicing rights), the entire cost of purchasing or
originating the loans should be allocated to the mortgage loans (without the
mortgage servicing rights) and no cost should be allocated to the mortgage
servicing rights.
This Statement requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair value of
those rights. A mortgage banking enterprise should stratify its mortgage
servicing rights that are capitalized after the adoption of this Statement
based on one or more of the predominant risk characteristics of the underlying
loans. Impairment should be recognized through a valuation allowance for each
impaired stratum.
This Statement applies prospectively in fiscal years beginning after
December 15, 1995, to transactions in which a mortgage banking enterprise sells
or securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights, including
those purchased before the adoption of this Statement. Earlier application is
encouraged. Retroactive capitalization of mortgage servicing rights retained
in transactions in which a mortgage banking enterprise originates mortgage
loans and sells or securitizes those loans before the adoption of this
Statement is prohibited. Based on management's belief that no material amount
of portfolio loans will be sold for the foreseeable future, management does not
believe that the adoption of SFAS 122 will have a material impact on the
Company's financial statements.
86
<PAGE> 101
HISTORICAL PRO FORMA FINANCIAL STATEMENTS OF THE CORPORATION
The following table illustrates the historical pro forma financial
condition and results of operation of the Corporation based upon an assumption
that the Restructuring Plan had been completed as of January 1, 1994. Other
than changes in the cost of employees and directors of the Corporation and
costs of completing the Restructuring Plan, no other adjustments are believed
material to these pro forma financial statements.
The primary differences between the operating expenses of the
Partnership and those of the Corporation will be that (1) the Corporation will
pay all of the salaries of the three managing officers and one additional
employee of the Partnership which are now paid by the General Partner; and (2)
the Corporation will pay no management fees to the General Partner or any other
third party. While the salaries of the three managing officers and one
additional employee will increase the expenses of the Corporation, if the
Corporation is able to increase its earnings in the future, the absence of
management fees would result in lower operating expenses to the Corporation.
This is due to the fact that the management fees payable by the Partnership to
the General Partner are determined using formulas based on (i) the net profits
of the Partnership and (ii) the origination fees earned by the Partnership on
new loan originations. Under these formulas, the fees payable to the General
Partner increase in years when the Partnership originates more loans and/or
when the Partnership earns net profits.
For the year ended December 31, 1994, the Partnership sustained a net
loss and had a substantial reduction in loan origination fees. Therefore, fees
paid to the General Partner were the lowest ever paid by the Partnership. For
this reason, there would have been an increase in expenses if the Corporation
had been in operation in 1994 in place of the Partnership, because the
management fees paid to the General Partner in 1994 were not sufficient to
cover the salaries paid to the four managing officers.
For the nine months ended September 30, 1995, the Partnership
substantially improved its financial performance, although it has sustained a
net loss for the year to date. Based upon the increase in loan originations in
1995 from 1994, the General Partner has earned fees moderately in excess of the
amounts that would be necessary for the Corporation to pay the salaries of the
three managing officers and one additional employee now paid by the General
Partner. Therefore, if the Corporation had been in operation in place of the
Partnership for the first nine months of 1995, the operating expenses of
Corporation would have been lower than those of the Partnership, as illustrated
in the Pro Forma Statement of Earnings for the nine months ended September 30,
1995, which appears following the Pro Forma Financial Statements for the year
ended December 31, 1994.
87
<PAGE> 102
If, as management believes, the Corporation achieves profitable
operations in 1996, the expenses of the Corporation will be substantially less
than those of the Partnership, because the Corporation will pay no fees based
on net profits to the General Partner or any other third party.
88
<PAGE> 103
PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
ASSETS BALANCE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Cash & cash equivalents $ 19,628,000 $ 19,628,000
Accounts receivable, net 5,071,000 5,071,000
Interest receivable 1,125,000 1,125,000
Loans receivable, net 65,056,000 65,056,000
Excess yield receivable 888,000 888,000
Loans Held For Sale
------------ -------- ------------
Real estate acquired in settlement
of loans 7,621,000 7,621,000
Receivable from general partner 478,000(1,2,3) 255,000 733,000
Organization costs, net 0 0
Property and equipment, net 1,322,000 1,322,000
Goodwill 1,749,000 1,749,000
Other assets 809,000(7) 62,000 871,000
------------ -------- ------------
$103,747,000 $317,000 $104,064,000
============ ======== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Thrift certificates payable $ 69,501,000 $ 69,501,000
Accounts payable, accrued expenses
and interest payable 4,876,000(4,5,6)
------------ -------- ------------
Partnership withdrawals payable 1,120,000 1,120,000
Notes payable 15,512,000 15,512,000
Mortgages payable - secured by real
estate acquitted in settlement of
loans 2,313,000 2,313,000
------------ -------- ------------
$ 93,322,000 $ $
------------ -------- ------------
Stockholders' Equity: 10,425,000(1,2,3,4,5,6)
------------ -------- ------------
103,747,000 $
============ ======== ============
Total Liabilities and Stockholders
Equity
</TABLE>
- ------------------
(1) To adjust for $ 589,000 base fee paid to Presidential Management.
(2) To adjust for $216,000 3/8% fee paid to Presidential Management.
(3) To adjust for $550,000 salaries paid by Presidential Management.
(4) To adjust for [$250,000] premium on directors and officer liability
insurance.
89
<PAGE> 104
(5) To adjust for [__________] annual amortization of solicitation
expenses and transaction costs of the Restructuring Plan of
$__________ over five years.
(6) To adjust for $86,000 in directors' fees.
(7) To adjust for $62,000 in legal fees paid to one managing officer.
90
<PAGE> 105
PRO FORMA STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
BALANCE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable 11,003,000 11,003,000
Interest on deposits with banks 401,000 401,000
---------- ----------
Total interest income 11,404,000 0 11,404,000
Interest Expense:
Interest on thrift certificates 2,945,000 2,945,000
Interest on notes payable 1,982,000 1,982,000
---------- ----------
Total interest expense 4,927,000 0 4,927,000
---------- ----------
Net interest income 6,477,000 0 6,477,000
Provision for loan losses 6,096,000 6,096,000
---------- ----------
Net interest after provision for loan losses 381,000 0 381,000
Noninterest income:
Trustee and reconveyance fees 3,344,000 3,344,000
Other income 1,712,000 1,712,000
Gain on sale of Title I loans 946,000 946,000
---------- -------- ----------
6,002,000 0 6,002,000
Noninterest Expense:
General and administrative 6,493,000(4,5,6,7)
---------- -------- ----------
Salaries, employee benefits and personnel
services 7,090,000(1,2,3) (255,000) 6,835,000
Related party fees 805,000 805,000
Depreciation and amortization 776,000 776,000
Expense on real estate acquired in settlement
of loans 732,000 732,000
Net loss (gain) on sales of real estate
acquired in settlement of loans -0- 0
---------- -------- ----------
15,896,000
---------- ----------
Net income before management fee (9,513,000) ( ) ( )
========== ======== ==========
Management fee 0 0 0
Net income before taxes (9,513,000) ( ) ( )
---------- -------- ----------
Income Taxes 1,000 0
---------- -------- ----------
NET INCOME (9,514,000) ( ) ( )
========== ======== ==========
</TABLE>
(footnotes on previous page)
91
<PAGE> 106
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
ASSETS BALANCE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Cash & cash equivalents $10,013,000 $10,013,000
Accounts receivable, net 9,462,000 9,462,000
Interest receivable 924,000 924,000
Loans receivable, net 46,992,000 46,992,000
Loans Held for sale 2,380,000 2,380,000
Excess yield receivable 462,000 462,000
Loans in process of foreclosure 0 0
Real estate acquired in settlement of
loans 5,336,000 5,336,000
Receivable from general partner 0(1,2,3) 290,000 290,000
Property and equipment, net 1,484,000 1,484,000
Goodwill 1,752,000 1,752,000
Other assets 1,243,000(7) 104,000 1,347,000
----------- -------- -----------
$80,048,000 $394,000 $80,442,000
=========== ======== ===========
Liabilities and Partners'
Capital
Liabilities:
Thrift certificates payable $54,811,000 $54,811,000
Accounts payable, accrued expenses and
interest payable 5,292,000(4,5,6)
Partnership withdrawals payable 1,120,000 1,120,000
Notes payable 8,450,000 8,450,000
Mortgages payable - secured by real
estate acquired in settlement of loans 1,095,000 1,095,000
----------- -------- -----------
$70,945,000 $ $
----------- -------- -----------
Partners' Capital 9,280,000(1,2,3,4,5,6,7)
----------- -------- -----------
$80,048,000 $ $
=========== ======== ===========
</TABLE>
______________________________________________________________________
(1) To adjust for $609,000 base fee paid to Presidential Management.
(2) To adjust for $186,000 3/8% fee paid to Presidential Management.
(3) To adjust for $505,000 in salaries paid by Presidential Management.
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<PAGE> 107
(4) To adjust for $188,000 in premium for directors and officer liability
insurance.
(5) To adjust for $__________ of amortization of solicitation expenses and
transaction costs of $__________ over five years.
(6) To adjust for $72,000 of directors fees.
(7) To adjust for $104,000 in legal fees paid to a managing officer of the
Partnership.
93
<PAGE> 108
PRO FORMA STATEMENT OF EARNINGS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
BALANCE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable 6,803,000 6,803,000
Interest on deposits with banks 584,000 584,000
---------- -------- ---------
Total interest income 7,387,000 0 7,387,000
Interest Expense:
Interest on thrift certificates 2,954,000 2,954,000
Interest on notes payable 1,125,000 1,125,000
---------- -------- ---------
Total interest expense 4,079,000 0 4,079,000
---------- -------- ---------
Net interest income 3,308,000 0 3,308,000
Provision for loan losses 1,861,000 1,861,000
---------- -------- ---------
Net interest after provision for loan losses 1,447,000 0 1,447,000
Noninterest income:
Trustee and reconveyance fees 2,320,000 2,320,000
Other income 822,000 822,000
Gain on sale of loans 5,690,000 5,690,000
---------- -------- ---------
8,832,000 0 8,832,000
Noninterest Expense:
General and administrative 4,920,000(4,5,6,7)
---------- -------- ---------
Salaries, employee benefits and personnel
services 5,960,000(1,2,3) (290,000) 5,670,000
Related party fees 129,000 129,000
Depreciation and amortization 366,000 366,000
Expense on real estate acquired in settlement
of loans 243,000 243,000
Net loss (gain) on sales of real estate
acquired in settlement of loans 373,000 373,000
---------- -------- ---------
11,991,000
---------- -------- ---------
Net income before management fee (1,712,000)
---------- -------- ---------
Management fee 0 0 0
Net income before taxes (1,712,000)
---------- -------- ---------
Income Taxes (567,000) 0 ( )
---------- -------- ---------
NET INCOME (1,145,000)
========== ======== =========
</TABLE>
(footnotes on previous page)
94
<PAGE> 109
BUSINESS
THE PARTNERSHIP
The Partnership is a California limited partnership formed in 1981.
Since 1986, Presidential Management Company has been the sole general partner
of the Partnership. The Partnership currently originates substantially all of
its new loans through Pacific Thrift, although the Partnership rewrites
existing loans held directly by the Partnership.
THE CORPORATION
The Corporation is a newly organized financial institution holding
company that was formed by the Partnership in preparation for the Restructuring
Plan. If the Restructuring Plan is approved and the other conditions to
completion are met, the Partnership will transfer to the Corporation all of the
loans receivable held by Presidential, all of the stock of Pacific Thrift, and
all of Presidential's interests in Consolidated and Lenders. The executive
offices of the Partnership and the Corporation are located at 21031 Ventura
Boulevard, Woodland Hills, California, telephone number (818) 992-8999.
If the Restructuring Plan is completed, the Corporation currently
intends to conduct business primarily through its operating subsidiaries,
Pacific Thrift, Consolidated, Lenders and Unified.
PACIFIC THRIFT
Pacific Thrift is a California licensed industrial loan company that
commenced business in 1988 and is supervised and regulated by the California
Department of Corporations ("DOC") and the Federal Deposit Insurance
Corporation ("FDIC"). The deposits of Pacific Thrift are insured by the FDIC
up to applicable limits. Pacific Thrift conducts its operations at its main
office in Woodland Hills, and originates loans through five loan production
offices located in Walnut Creek, San Jose, Costa Mesa and West Covina,
California and, as of June 27, 1994, Bellevue, Washington. In addition,
Pacific Thrift originates loans through loan representatives who reside in
other states, but Pacific Thrift does not maintain any offices for such
representatives. Pacific Thrift focuses its lending activities exclusively on
real estate secured loans to individuals and small businesses. Pacific Thrift
does not offer lease financing or credit lines. Pacific Thrift offers passbook
accounts, term certificates and money market certificates. Pacific Thrift does
not offer other traditional banking services, such as checking accounts,
travelers' checks or safe deposit boxes.
Pacific Thrift incurred a net loss on its operations of approximately
$2.9 million for the year ended December 31, 1994, compared with net losses of
$3.2 million and $0.6 million for the years ended December 31, 1993 and 1992,
respectively. Net losses
95
<PAGE> 110
in 1994, 1993 and 1992 were due primarily to increased loan losses caused by
continuing declines in the value of California real estate.
CONSOLIDATED AND LENDERS
Consolidated is a California limited partnership formed by the General
Partner in December 1986 which was purchased by the Partnership in 1990. See
Item 13. "Certain Relationships and Related Transactions." Consolidated
provides foreclosure related services on real estate trust deeds. Lenders was
formed by the General Partner in 1990 and purchased by the Partnership in the
same year. Lenders provides posting and publishing of notices of default and
notices of sale and conducts foreclosure sales for Consolidated and other trust
deed foreclosure companies. Consolidated provides services on California trust
deeds to over 300 banks, thrifts, mortgage banks, life insurance companies and
federal regulatory agencies located across the country. Approximately
one-third of Consolidated's revenues are derived from lenders located outside
of California, and management anticipates that this percentage will continue to
grow. Less than 5% of the revenues of Consolidated or of Lenders are derived
from services provided to the Partnership and Pacific Thrift.
In October 1995, the Partnership incorporated a new wholly-owned
subsidiary, Consolidated Reconveyance Corporation, a Washington corporation
("CRC Washington"). CRC Washington will provide foreclosure related services
on real estate trust deeds secured by property located in the State of
Washington. CRC Washington will reimburse Pacific Thrift for office space used
by CRC Washington at the office of Pacific Thrift in Bellevue, Washington. CRC
Washington has not conducted significant business operations as of the date
hereof.
Trustee foreclosure services accounted for net income of approximately
$.9 million for the year ended December 31, 1994, compared with net income of
approximately $1.4 million for each of the years ended December 31, 1993 and
1992. Management believes that the primary reason for the decline in net
income has been the merger or acquisition of many small lending companies into
larger banks and lending companies. The acquiring entities often have
affiliated foreclosure service companies or arrangements with other foreclosure
service companies, resulting in the loss of business to Consolidated.
Consolidated has been able to replace many of its lost customers with new
customers, which has partially mitigated the loss of some accounts.
Consolidated has now refocused its marketing strategy to target primarily small
and medium-sized lenders. Consolidated has hired a sales representative in the
San Diego area, and is seeking a sales representative for the northern
California area. In the meantime, Consolidated's southern California sales
representatives are covering the northern California area. Management of
Consolidated believes that it can increase net income by increasing its volume
of sales through its
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<PAGE> 111
current marketing strategy. There can be no assurance, however, that it will
successfully increase net income.
UNIFIED
Unified is a newly formed corporation with no business operations as
of this date. If the Restructuring Plan is completed, the Corporation will
assign all of the loan receivables transferred to it by the Partnership to
Unified. The loans will continue to be serviced by Pacific Thrift for a
servicing fee of 1.5% per year of the principal balance of each loan serviced.
Although management currently does not anticipate that Unified will
actively originate new loans for the foreseeable future, it is expected that
Unified would obtain a California finance lender's license. Unified may also
obtain mortgage lender licenses in other states, as management deems
appropriate. Unified is expected to rewrite loan receivables as they mature or
are otherwise refinanced in the future. In addition, Unified may from time to
time purchase loans from other lenders for securitization or for its own
portfolio. It is not anticipated at this time that Unified would have a full
time staff or separate office.
Pacific Thrift would continue to be the primary focus of the
Corporation's lending business. However, Pacific Thrift, as a regulated
financial institution, is subject to certain regulatory requirements and
restrictions which may preclude it from making certain loans. Unified will
have the ability to make these loans, which may consist of higher risk and
higher yield loans in comparison to loans made by Pacific Thrift.
LENDING ACTIVITIES
For the past three years, all new lending activity has been conducted
exclusively by Pacific Thrift pursuant to its lending guidelines. Under an
arrangement between Presidential and Pacific Thrift effective January 1, 1994,
Pacific Thrift provides loan servicing for all of Presidential's outstanding
loans for a loan servicing fee of 1.5% per annum of the principal amount of
each loan serviced. On or before the maturity of Presidential's loans, Pacific
Thrift will consider rewriting, for its own loan portfolio, those loans that
meet Pacific Thrift's lending guidelines. Pacific Thrift has received the
necessary regulatory approvals to rewrite Presidential's loans which meet
Pacific Thrift's underwriting guidelines. In addition, Presidential may
continue to rewrite existing loans when appropriate.
Over the past year, Pacific Thrift has substantially increased its
origination of loans for immediate sale to the secondary loan market. This
business plan has allowed Pacific Thrift to earn fee income and dramatically
expand its customer base and lending areas with its existing capital base.
Pacific Thrift's current business plan calls for continuing expansion of loans
originated for sale, with fee income generated from sales being used to
increase its
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<PAGE> 112
capital. When capital has increased to a level sufficient to support growth of
Pacific Thrift's own loan portfolio, it plans to expand its existing portfolio
loan programs, while continuing the loan sales programs at optimum levels. All
of Pacific Thrift's loans are real estate secured loans. Following is a brief
description of the types of loans originated by Pacific Thrift.
Loans Originated for Sale.
Pacific Thrift originates nonconforming first and second trust deed
residential loans for immediate sale in the secondary loan market. Loans
originated for sale generally have loan-to-value ratios of from 60% to 85% and
meet the credit criteria established in advance by the loan purchasers.
Pacific Thrift originated and sold the following amounts of loans during each
of the months of 1994 and the first nine months of 1995:
<TABLE>
<CAPTION>
Originated Sold
----------- -----------
1994
<S> <C> <C>
January $ 1,088,000 -0-
February $ 239,000 -0-
March $ 1,609,000 -0-
April $ 734,000 -0-
May $ 1,319,000 -0-
June $ 3,526,000 $ 3,969,000
July $ 981,000 $ 1,210,000
August $ 4,218,000 $ 4,561,000
September $ 3,598,000 $ 5,272,000
October $ 4,853,000 $ 3,560,000
November $ 4,594,000 $ 6,897,000
December $ 8,023,000 $ 4,130,000
1995
January $ 8,621,000 $ 8,917,000
February $ 6,953,000 $ 9,133,000
March $10,358,000 $11,425,000
April $11,294,000 $11,575,000
May $10,708,000 $ 9,299,000
June $12,711,000 $12,672,000
July $10,587,000 $12,040,000
August $10,235,000 $ 9,707,000
September $14,312,000 $13,225,000
October $17,080,000 $15,728,000
</TABLE>
Pacific Thrift and Presidential each entered agreements with Aames
Capital Corporation ("Aames") as of December 1, 1993, pursuant to which Pacific
Thrift and the Partnership agreed to sell to Aames an aggregate of up to $75
million of loans secured by residential property over a period of up to 18
months. Pacific Thrift had sold $75 million of loans under that agreement as
of May 26, 1995. All loans sold by Pacific Thrift were included in pools of
loans securitized by Aames. Credit enhancement was provided for each
securitization through private credit insurance, and each pool was rated AAA by
one or more rating services. Aames
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<PAGE> 113
acts as loan servicer for each of the pools. All loans were sold nonrecourse
except for the obligation to repurchase any loan which does not meet certain
customary representations and warranties or to repurchase loans adversely
affected by any breach of general representations and warranties. As of
September 30, 1995, five loans ($349,250 aggregate principal amount) have been
repurchased by Pacific Thrift and no loans additional loans have been requested
to be repurchased. Pacific Thrift does not expect to incur a loss on the five
loans repurchased. Except for an initial sale of approximately $3.9 million in
loans, all loans sold by Pacific Thrift to Aames were sold for a premium above
face value of the loans sold. Pacific Thrift received a servicing released fee
payable quarterly on the principal amount of each loan sold from September 19,
1994 to January 1995. Effective February 1, 1995, the servicing released fee
was increased on the principal amount of each loan sold, including the loans
sold from September 1994 to May 26, 1995, until each loan is paid off. Pacific
Thrift retains an interest in the net spread (i.e. all interest and fees paid
on the loans less servicing and other costs) in $3.9 million in loans sold to
Aames in December 1993, which management estimates will represent a return of
approximately 3.3% on the principal amount of the $3.9 million of loans sold.
Pacific Thrift entered into a new agreement with Aames Capital
Corporation effective June 21, 1995, pursuant to which it will continue to sell
pre-approved residential loans to Aames. The new agreement provides for
Pacific Thrift to receive a higher premium on the face amount of each loan
sold which meets preset interest rate requirements upon date of sale. An
additional premium will be paid for all loans sold during any quarter if at
least $22.5 million of loans are sold during that quarter. The premium for all
loans sold in excess of $25 million per calendar quarter will be further
increased. In addition, Pacific will receive a servicing released fee on the
principal amount of each loan sold, payable on a quarterly basis, until the
loan is paid off.
During the first nine months of 1995, Pacific Thrift has sold an
aggregate of $98 million of pre-approved securitizable loans to Aames and other
purchasers. Pacific Thrift has no commitment to offer or sell any specified
amount of loans to any purchaser, but has entered arrangements whereby other
purchasers may pre-approve loans to be made by Pacific Thrift prior to funding,
which are sold within approximately one month from origination.
To the extent that Pacific Thrift originates loans for sale, it bears
an interest rate risk between the date of origination of each loan and the time
that each loan is sold. However, loans are generally sold on a monthly basis,
which reduces the risk of interest rate fluctuations between the date of
origination and date of sale. Loans which are held for sale during the period
prior to sale are accounted for at the lower of cost or market value of such
loans.
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<PAGE> 114
Portfolio Lending.
Pacific Thrift has historically originated for its own loan portfolio
primarily first and second trust deed real estate loans secured by one-to-four
family residential, multi-family residential, commercial and, to a very minor
extent, undeveloped, property. The loan origination and underwriting criteria
for these loans are described in detail under Item 1. "Business -- Lending
Activities -- Loan Origination and Underwriting." For the past 18 months,
Pacific Thrift has significantly reduced the origination of loans for its own
portfolio due to a reduction in capital in 1994. Pacific Thrift has now
restored its capital, and plans to gradually expand portfolio lending during
1996 after it reaches a capital level of approximately $7 million. Management
intends to manage Pacific Thrift's future portfolio growth within a range that
will allow it to maintain capital levels meeting the FDIC regulatory definition
of "well capitalized".
Over the past five years, as California real property values declined
substantially, Presidential and Pacific Thrift have incurred higher than
anticipated loan losses and losses on foreclosures, particularly on loans made
prior to 1995. The characteristics of the combined loan portfolio of
Presidential and Pacific Thrift are described herein under Item 1. "Business --
Lending Activities."
Home Improvement Loans.
From 1990 until March 31, 1993, Pacific Thrift operated a home
improvement loan division, which originated three types of home improvement
loans, including (i) loans partially insured by the Federal Housing
Administration ("FHA") under Title I of the National Housing Act ("Title I
Loans"); (ii) loans partially insured by a policy of credit insurance issued by
a private insurer; and (iii) uninsured loans subject to an additional annual
fee paid by the borrower to Pacific Thrift. The program was discontinued on
March 31, 1993. All home improvement loans were made under substantially the
same loan underwriting standards and policies set by the U.S. Department of
Housing and Urban Development ("HUD"), including a requirement that each loan
be secured by a first or second priority lien on residential property having a
value of at least 100% of the loan amount plus all prior encumbrances. Home
improvement loans were made in amounts not in excess of $25,000 on loans
secured by single family residences and not in excess of $60,000 on loans
secured by multi-family residences.
Pacific Thrift held $3.4 million of home improvement loans and loan
participations at December 31, 1994, compared with $7.7 million and $8.4
million at December 31, 1993 and 1992, respectively. Due to claims made on
Title I Loans and privately insured loans for the four years ended December 31,
1994, there is no material amount of insurance coverage remaining on any of the
outstanding home improvement loans. Pacific Thrift has continued
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<PAGE> 115
to service all outstanding home improvement loans in the manner that is
required pursuant to its contracts with the purchasers of loan participations.
However, the fact that there is no material insurance coverage available on any
home improvement loans exposes Pacific Thrift to contingent risks of loss on
home improvement loans and loan participations held by Pacific Thrift.
Pacific Thrift has resumed a Title I Loan origination program, in
which Pacific Thrift acts exclusively as a correspondent lender for one or more
larger mortgage lenders who securitize Title I Loans. Pacific Thrift
anticipates that these loans would be sold without recourse within 30 days of
origination, and would result in additional fee income, which would be received
immediately upon sale of the loans.
No home improvement loans were originated between March 1993 and July,
1995. In August, 1995, Pacific Thrift resumed originating Title I loans for
sale. Over the past nine months, Pacific Thrift has sold $1,241,307 of home
improvement loans, including $1,126,307 of seasoned home improvement loans
originated prior to March 1993 at par value and $115,000 in new Title I loans
at a premium.
LENDING POLICIES
The following description of lending policies refers to the lending
policies of Pacific Thrift for portfolio loans. The Partnership does not
presently originate new loans. The description of the existing loan portfolio
as of September 30, 1995, refers to the combined loan portfolio of both the
Partnership and Pacific Thrift.
GEOGRAPHIC CONCENTRATION. At September 30, 1995, the combined loan
portfolio of the Partnership and Pacific Thrift included loans geographically
distributed approximately 77% in Southern California (south of San Luis
Obispo), 17% in Northern California, 5% in Washington and 1% in Oregon, based
on principal loan balances. Pacific Thrift's loan policy limits the total
dollar amount of loans and total number of loans made in each zip code area to
no more than 5% of its total outstanding loans.
Although Pacific Thrift originates loans in states outside California,
substantially all of such loans (by dollar volume) are pre- approved loans for
immediate sale. At the present time, Pacific Thrift intends to limit the
origination of loans for retention in its loan portfolio to loans secured by
California real estate, and, to a minor extent to loans secured by real estate
located in the various other states in which it does business.
COLLATERAL REQUIREMENTS. Although substantially all of the loans
originated by Pacific Thrift for sale are residential loans, changes in the
pricing structure for residential loans due to increased competition have
caused management to redirect Pacific Thrift's portfolio lending over the past
year to loans secured by
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<PAGE> 116
commercial property. Commercial properties accepted by Pacific Thrift as
collateral include primarily retail, multi-unit residential and light
industrial properties. No more than 30% of Pacific Thrift's total loan
portfolio may be secured by multi-unit residential property, and no more than
3% by unimproved land. Loans secured by commercial property are generally made
at 65% or less loan to value ratios.
At September 30, 1995, approximately 35% of the aggregate principal
amount of loans comprising the combined loan portfolio of Presidential and
Pacific Thrift were secured by one-to-four family residential property, 20% by
multi-family residential property, 41% by commercial property, and 4% by
undeveloped property.
At each of the dates set forth below the combined gross loan portfolio
of Presidential and Pacific Thrift (which does not reflect reserves for loan
losses) was collateralized by the following types of real property:
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<PAGE> 117
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
Sept. 30, 1995 Percentage of Dec. 31, 1994 Percentage of Dec. 31, 1993 Dec. 31, 1993
Principal Loan Total Principal Loan Total Principal Loan Percentage of
Balances Portfolio Balances Portfolio Balances Total Portfolio
-------------- -------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
One-to-four
family
residential
property
1st TDs $ 7,503,667 14.53% $ 6,271,007 10.66% $22,629,958 25.29%
2nd TDs 7,287,576 14.11 11,983,931 20.39 20,454,710 22.86
3rd TDs 1,329,590 2.58 1,833,001 3.12 3,103,656 3.47
Home Imp. Loans 1,925,583 3.73 2,298,050 3.91 7,699,823 8.60
----------- ------ ----------- ------ ----------- ------
TOTAL 18,046,416 34.95 22,385,989 38.08 53,888,147 60.22
=========== ====== =========== ====== =========== ======
Five and Over
Multi-Family
residential
property
1st TDs 8,152,148 15.79 13,531,290 23.02 10,266,956 11.48
2nd TDs 2,126,215 4.12 3,154,197 5.37 4,284,452 4.79
3rd TDs -0- -0- 34,993 .06 35,062 0.04
----------- ------ ----------- ------ ----------- ------
TOTAL 10,278,363 19.91 16,720,480 28.45 14,586,470 16.31
=========== ====== =========== ====== =========== ======
Commercial
Property
1st TDs 18,243,195 35.33 14,184,456 24.13 16,036,924 17.92
2nd TDs 3,105,751 6.01 3,579,936 6.09 2,759,898 3.08
3rd TDs 104,727 .20 104,212 .18 266,523 0.30
----------- ------ ----------- ------ ----------- ------
TOTAL 21,453,673 41.54 17,868,604 30.40 19,063,345 21.30
=========== ====== =========== ====== =========== ======
Undeveloped
Property
1st TDs 1,861,069 3.60 1,805,151 3.07 1,944,519 2.17
2nd TDs -0- -0- -0- 0.00 -0- 0.00
3rd TDs -0- -0- -0- 0.00 -0- 0.00
----------- ------ ----------- ------ ----------- ------
TOTAL 1,861,069 3.60 1,805,151 3.07 1,944,519 2.17
=========== ====== =========== ====== =========== ======
TOTAL PORTFOLIO
1st TDs 35,760,079 69.25 35,791,904 60.88 50,878,357 56.86
2nd TDs 12,519,542 24.24 18,718,064 31.85 27,499,060 30.73
3rd TDs 1,434,317 2.78 1,972,206 3.36 3,405,241 3.81
Home Imp. Loans 1,925,583 3.73 2,298,050 3.91 7,699,823 8.60
----------- ------ ----------- ------ ----------- ------
TOTAL $51,639,521 100.00% $58,780,224 100.00% $89,482,481 100.00%
=========== ====== =========== ====== =========== ======
</TABLE>
LOAN ORIGINATION AND UNDERWRITING. Pacific Thrift's loans are
primarily originated through referrals from mortgage loan brokers and other
licensed referral sources for which the borrower pays a referral fee. As of
September 30, 1995 Pacific Thrift employed 41 loan representatives, who
maintain contacts with loan referral sources and provide customer service.
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<PAGE> 118
At September 30, 1995, the maximum amount that Pacific Thrift could
loan to one borrower was $1,134,000. On that date, the largest Presidential
loan in the combined portfolio was $803,770 and the largest Pacific Thrift loan
in the portfolio was $599,350. There were 10 loans in the combined loan
portfolio which exceeded $500,000. The average loan balance at September 30,
1995, not including Home Improvement Loans, was $104,309 for Pacific Thrift and
$77,387 for Presidential.
Following an analysis of a loan applicant's credit, repayment ability
and collateral appraisal, every loan must be approved by one of four senior
officers. Loans over $150,000 and up to $500,000 must be approved by two of
the four senior officers. If the loan does not meet all credit guidelines, but
has satisfactory explanations or compensating factors, or the loan exhibits
other unusual characteristics, it requires approval of the President or the
Chief Executive Officer and one of the other two senior officers. Any loan in
excess of $500,000 must be approved by the President or the Chief Executive
Officer and one of the other two senior officers and one non-officer director.
In addition, all loans in excess of $150,000 must be approved by at least two
of the four outside directors of Pacific Thrift. Loan rewrites, extensions and
troubled debt restructurings require the approval of the Vice President of the
Debt Restructuring Department or the President of Pacific Thrift.
Pacific Thrift obtains independent third party appraisals or
evaluations of all properties securing its loans prior to loan origination.
Presidential also required third party appraisals on all of its outstanding
loans at loan origination. Pacific Thrift maintains an approved appraiser list
and specifies minimum criteria which must be met by every appraisal.
Pacific Thrift's loan policies, in conformity with FDIC regulations,
require that maximum loan to value ratios be limited as follows with respect to
the following types of properties (except for home improvement loans described
below): 90% for owner-occupied one-to-four family residential property with
mortgage insurance or readily marketable collateral; 85% for all other improved
property; 85% for construction of one-to-four family residential property; 80%
for construction of commercial, multi-family and non-residential property; 75%
for land development and 65% for unimproved land. Pacific Thrift generally
seeks to originate portfolio loans with loan to value ratios which are
generally 5% or more lower than these maximum ratios. Loans to facilitate sale
of properties acquired in settlement of loans (also known as "other real estate
owned, or "OREO") may be higher than the maximum loan to value ratios allowed
for new loans. Due to the significant decline in Southern California real
estate values over the past five years, management believes that the current
values of properties securing loans made prior to 1994 do not meet the original
loan to value ratios.
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It is anticipated by management that Pacific Thrift's Board of
Directors will periodically adjust and modify its collateral requirements and
underwriting criteria in response to economic conditions and business
opportunities.
The following table sets forth the number and aggregate loan balances
of loans, not including Home Improvement Loans, originated by both Presidential
and Pacific Thrift (not including loans originated specifically for sale) since
1988 and currently held in the combined portfolio:
<TABLE>
<CAPTION>
Aggregate Original Aggregate
Number Balance Loan Balances Average Amount
of Loan at Time of at September 30, of Loan
Originations Origination 1995 Originated
------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
1988 793 $59,486,049 $1,251,750 $75,014
1989 1159 $95,428,656 $ 441,734 $82,337
1990 882 $72,778,968 $2,460,841 $82,516
1991 716 $60,278,404 $3,856,478 $84,188
1992 632 $53,207,352 $4,626,627 $84,189
1993 547 $48,611,898 $9,533,355 $88,870
1994 272 $42,055,615 $17,748,603 $154,616
1995* 86* $15,127,400* $10,218,939* $175,900*
</TABLE>
* For the nine months ended September 30, 1995
MATURITIES AND RATE SENSITIVITIES OF LOAN PORTFOLIO
The table below sets forth the amounts of loans in the combined
portfolio at September 30, 1995 that have fixed interest rates and floating or
adjustable interest rates. Loans that have adjustable or floating interest
rates are shown as maturing in the period during which the loan prices. The
table does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
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<PAGE> 120
<TABLE>
<CAPTION>
Loan Balances due in: As of September 30, 1995
-------------------- -------------------------
Number of Loans Principal Percentage of
--------------- --------- -------------
Balances Portfolio
-------- ---------
<S> <C> <C> <C>
One year or less:
Variable Rate 391 38,320,192 74.21
Fixed Rate 45 4,156,144 8.05
After one year but
within five years:
Variable Rate 43 2,737,601 5.30
Fixed Rate 27 1,068,903 2.07
After five years but
within ten years:
Variable Rate -0- -0- -0-
Fixed Rate 91 1,457,670 2.82
After ten years:
Variable Rate -0- -0- -0-
Fixed Rate 924 3,899,011 7.55
</TABLE>
Pacific Thrift and Presidential generally rewrite loans at maturity if
the borrower makes a new loan application. In cases where the loan to value
ratio has declined on an existing loan and no longer meets Pacific Thrift's
loan to value guidelines, Pacific Thrift's policy is to make an exception and
rewrite the loan. The Partnership follows generally the same policy for loan
rewrites.
A substantial portion of the combined loan portfolio is repriced, pays
off or matures approximately every two years. Of the 20% of all loans bearing
fixed rates at September 30, 1995, 40% were due in two years or less. Based
upon these facts, over 88% of the combined loan portfolio (exclusive of home
improvement loans) at September 30, 1995, consisted of either variable rate
loans or fixed rate loans which mature within two years. Management therefore
expects that within two years, approximately 88% of the combined loan portfolio
(excluding home improvement loans) will reprice at the rate in effect on the
existing loan at the time the loan is repriced or the then applicable rate for
new or refinanced loans.
The initial interest rate on variable rate loans is set as of the date
of origination of each loan based upon the then prevailing reference rate
established by Bank of America, which initial rate may increase by not less
than .125% in any three-month period, but
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<PAGE> 121
may not increase by more than five (10 in some cases) percentage points in the
aggregate. Such increases (or decreases, as the case may be) occur at
three-month intervals as the result of changes in the Bank of America reference
rate. Although the interest rate may decrease, it cannot decrease below the
original interest rate set for each loan.
CLASSIFIED ASSETS AND LOAN LOSSES
The general policy of Pacific Thrift is to discontinue accrual of
interest and make a provision for anticipated loss on a loan when: (i) it is
more than two payments contractually past due and the current estimated
loan-to-value ratio is 90% or more; or (ii) the loan exhibits the
characteristics of an in-substance foreclosure, generally including any loan as
to which the borrower does not have the ability, willingness or motivation to
repay the loan. The current estimated loan-to-value ratio of substantially all
delinquent loans are determined by a new independent appraisal, unless an
independent appraisal was obtained no more than twelve months prior to review,
in which case the current estimated loan-to-value ratio is determined by
in-house review. When a loan is reclassified from accrual to nonaccrual
status, all previously accrued interest is reversed at Pacific Thrift in
accordance with regulatory requirements. Consistent with generally accepted
accounting principles, Presidential's policy for determination of nonaccrual
status is the same as Pacific Thrift's, except that the Partnership only
reverses that portion of accrued interest which is not covered by the current
estimated net realizable value of the underlying real estate collateral.
Interest income on nonaccrual loans is subsequently recognized when the loan
resumes payment or becomes contractually current as appropriate. Accounts
which are deemed fully or partially uncollectible by management are generally
fully reserved or charged off for the amount that exceeds the estimated net
realizable value (net of selling costs) of the underlying real estate
collateral. Gains on the sale of OREO are not recognized until the close of
escrow upon sale. Home improvement loans are classified nonaccrual when they
are two or more payments past due, and are charged off when they become five
payments delinquent.
Unless an extension, modification or rewritten loan is obtained,
Pacific Thrift's policy is to commence procedures for a non-judicial trustee's
sale within 30 to 60 days of a payment delinquency on a loan under the power of
sale provisions of the trust deed securing such loan, as regulated by
applicable law. Pacific Thrift's policy is to extend or rewrite a delinquent
loan only if it can be determined that the borrower has the ability to repay
the loan on the modified terms.
The determination of the adequacy of the allowance for loan losses is
based on a variety of factors, including loan classifications and underlying
loan collateral values, and the level of nonaccrual loans. See Item 1.
"Business -- Classified Assets and Nonperforming Assets -- Allowance for Loan
Losses."
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<PAGE> 122
Therefore, changes in the amount of nonaccrual loans will not necessarily
result in increases in the allowance for loan losses. The ratio of nonaccrual
loans past due 90 days or more to total loans was 2.53% at September 30, 1995
and 5.35%, 5.98% and 3.06% at December 31, 1994, 1993 and 1992, respectively.
The ratio of the allowance for loan losses to nonaccrual loans past due 90 days
or more was 281.61% at September 30, 1995 and 136.94%, 58.74% and 81.34% at
September 30, 1995 and December 31, 1994, 1993 and 1992, respectively.
The following table sets forth the number and remaining gross balances
of all loans in the combined loan portfolio (net of specific reserves for loan
losses) that were more than 30 days delinquent at December 31, 1994, 1993 and
1992.
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<PAGE> 123
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
PRESIDENTIAL PACIFIC COMBINED
Loan Principal Amount Principal Amount Principal Amount Percent of
Delinquencies Loans Delinquent Loans Delinquent Loans Delinquent Total Loans
------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
30 to 59 days $ 332,483 $ 692,497 $1,024,980 1.98%
60 to 89 days 39,096 335,853 374,949 .73%
90 days or more 855,873 1,344,979 2,200,852 4.26%
---------- ---------- ---------- ----
TOTAL $1,227,452 $2,373,329 $3,600,781 6.97%
========== ========== ========== ====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
PRESIDENTIAL PACIFIC COMBINED
Loan Principal Amount Principal Amount Principal Amount Percent of
Delinquencies Loans Delinquent Loans Delinquent Loans Delinquent Total Loans
------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
30 to 59 days $ 0 $ 513,191 $ 513,191 .87%
60 to 89 days 342,239 790,677 1,132,916 1.93%
90 days or more 3,053,613 2,695,109 5,748,722 9.78%
---------- ---------- ---------- -----
TOTAL $3,395,852 $3,998,977 $7,394,829 12.58%
========== ========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993
PRESIDENTIAL PACIFIC COMBINED
Loan Principal Amount Principal Amount Principal Amount Percent of
Delinquencies Loans Delinquent Loans Delinquent Loans Delinquent Total Loans
------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
30 to 59 days $1,705,555 $1,118,064 $ 2,823,619 3.16%
60 to 89 days 1,211,248 1,310,969 2,522,217 2.82%
90 days or more 6,855,650 3,224,410 10,080,060 11.26%
---------- ---------- ----------- ------
TOTAL $9,772,453 $5,653,443 $15,425,896 17.24%
========== ========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1992
PRESIDENTIAL PACIFIC COMBINED
Loan Principal Amount Principal Amount Principal Amount Percent of
Delinquencies Loans Delinquent Loans Delinquent Loans Delinquent Total Loans
------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
30 to 59 days $2,591,342 $1,501,447 $4,092,789 3.85%
60 to 89 days 1,885,353 786,090 2,671,442 2.51%
90 days or more 6,327,849 2,514,182 8,842,031 8.32%
----------- ---------- ---------- -----
TOTAL $10,804,544 $4,801,719 $15,606,262 14.68%
=========== ========== =========== =====
</TABLE>
109
<PAGE> 124
NONACCRUAL AND RESTRUCTURED LOANS. The following table sets forth the
aggregate amount of loans at September 30, 1995 and December 31, 1994, 1993 and
1992 which were (i) accounted for on a nonaccrual basis; (ii) accruing loans
which are contractually past due 90 days or more as to principal and interest
payments; and (iii) troubled debt restructurings. Presidential and Pacific
Thrift follow a practice of extending or modifying loans in certain
circumstances. Loans modified to reduce interest rates below market rates, to
reduce amounts due at maturity to reduce accrued interest or to loan additional
funds are considered "troubled debt restructurings" as defined in SFAS 15.
<TABLE>
<CAPTION>
Accruing Loans Nonaccruing Loans
Past Due Past Due 90 Days Troubled Debt
90 Days or More or More Restructurings Total
--------------- ------------------ -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
At September 30, 1995
Presidential $478 $378 $360 $1,216
Pacific 433 927 588 1,948
---- ------ ---- ------
Combined $911 $1,305 $948 $3,164
==== ====== ==== ======
At December 31, 1994
Presidential $1,612 $1,442 $ 0 $3,054
Pacific 991 1,709 0 2,695
------ ------ --- ------
Combined $2,603 $3,146 $ 0 $5,749
====== ====== === ======
At December 31, 1993
Presidential $2,626 4,229 $ 0 $6,856
Pacific 2,137 1,087 0 3,224
------ ------ --- ------
Combined $4,764 $5,316 $ 0 $10,080
====== ====== === =======
At December 31, 1992
Presidential $3,392 $2,936 $ 0 $6,328
Pacific 2,197 317 0 2,514
------ ------ --- ------
Combined $5,589 $3,253 $ 0 $8,842
====== ====== === ======
</TABLE>
The following table sets forth information concerning interest
accruals and interest on nonaccrual loans as of September 30, 1995 and December
31, 1994, 1993 and 1992.
110
<PAGE> 125
<TABLE>
<CAPTION>
Interest Interest Not
Contractually Recognized on
Due on Loans Interest Accrued Nonaccrual
Past Due on Loans Past Due Loans Past Due
90 Days or More 90 Days or More 90 Days or More
--------------- ------------------ ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
At September 30, 1995
Presidential 95 19 76
Pacific 140 52 88
------ ---- ------
Combined 235 71 164
====== ==== ======
At December 31, 1994
Presidential $962 $187 $775
Pacific 562 75 487
------ ---- ------
Combined $1,524 $262 $1,262
====== ==== ======
At December 31, 1993
Presidential $1,377 617 760
Pacific 429 188 241
------ ---- ------
Combined $1,806 $805 $1,001
====== ==== ======
At December 31, 1992
Presidential $1,824 $486 $1,338
Pacific 754 255 499
------ ---- ------
Combined $2,578 $741 $1,837
====== ==== ======
</TABLE>
Upon request of a borrower, Presidential or Pacific Thrift has
generally granted one to two months extensions of payments during the term of a
loan. In 1994, Presidential and Pacific Thrift extended 37 loans with an
aggregate principal balance of $5,532,814. No loan was extended for a term of
more than six months. In addition, Presidential or Pacific Thrift may modify a
loan by allowing temporary reductions in the amount of principal or interest
payable on a loan for up to twelve months. In 1994, Presidential and Pacific
Thrift modified 37 loans with aggregate principal balances of $3,364,486.
Presidential and Pacific Thrift rewrote 37 delinquent loans in 1994 in amounts
of $3,297,722 which represented approximately 3.88% of the average loans
outstanding in 1994. Presidential and Pacific Thrift apply the same
documentation standards on a rewritten loan as on an original loan.
Presidential and Pacific Thrift make these accommodations only if it can be
determined that the borrower has the ability to repay the loan on the modified
terms. Management believes that these accommodations are a reasonable and
necessary response to the increased level of delinquencies experienced during
the past three years. Presidential and Pacific Thrift have had generally
favorable experience with repayment of loans extended, modified or rewritten on
this basis.
Procedures upon delinquency of home improvement loans vary from the
foreclosure procedures ordinarily used to collect other loans. Upon 10 days'
delinquency, the borrower is contacted and an
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<PAGE> 126
attempt to schedule payments is made; if this is not possible, a determination
is made whether the proceeds of a foreclosure sale would result in a recovery
of all or part of the loan amount, after costs of foreclosure. In almost every
case, there is insufficient equity to foreclose on a home improvement loan, and
the loan is charged off if it becomes five payments delinquent. In addition to
losses on its retained interest in home improvement loans, Pacific Thrift may
be required to repurchase participation interests sold in Title I Loans if
Pacific Thrift is found to have breached its warranties that such loans
complied with insurance requirements. Pacific Thrift has never been required
to repurchase any loan participation interests. However, no assurance can be
given that Pacific Thrift will not be required to repurchase any loan
participation interests in the future.
The initiation of foreclosure proceedings against a borrower does not
suggest that the recovery of the loan is dependent solely on the underlying
collateral. In fact, many borrowers will bring payments current or undertake
other remedies so that foreclosure is not required.
At September 30, 1995, Presidential and Pacific Thrift held OREO (net
of specific reserves) of $5,336,256 (inclusive of senior liens of $1,094,904).
In accordance with the policy for recognizing losses upon acquisition of OREO,
Presidential and Pacific Thrift charge off or post specific reserves for those
portions of the loans with respect to which OREO has been acquired to the
extent of the difference between the loan amount and the estimated fair value
of the OREO. Included in OREO at September 30, 1995 are 20 single family
residences with an aggregate net book value of $2,454,101 (inclusive of
$977,651 senior liens); two multi-family units with an aggregate net book value
of $348,070 (inclusive of $117,253 senior liens) 16 commercial properties with
an aggregate net book value of $2,380,992 (with no senior liens); and four
undeveloped properties with an aggregate net book value of $153,093 (with no
senior liens). For the nine months ended September 30, 1995, total expenses on
operation and losses on sale of OREO were $1,611,307 and gains on sale of OREO
and OREO income were $994,852 (including a $403,000 reversal of a specific
reserve on one OREO property due to a reduction in the cost of environmental
remediation of the property, as described herein under the heading "BUSINESS --
Legal Proceedings" for a total expense of $616,455. There can be no assurance
that net losses on the sale of OREO will not be experienced in the future.
ALLOWANCE FOR LOAN LOSSES. The following is a summary of the changes
in the consolidated allowance for loan losses of Presidential and Pacific
Thrift for the nine months ended September 30, 1995 and each of the three years
ended December 31, 1994:
112
<PAGE> 127
<TABLE>
<CAPTION>
Nine Months
ending Year ending Year ending Year ending
Sept. 30, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, beginning of year 4,307,000 $3,123,000 $ 2,646,000 $ 1,821,000
Provision charged to 1,861,000 6,096,000 4,655,000 3,887,000
expenses
Loans charged off (2,492,000) (4,912,000) (4,179,000) (3,062,000)
Recoveries on loans -0-
---------
previously
charged off -0- -0- -0-
---------- ----------- -----------
Balance, end of year 3,675,000 $4,307,000 $ 3,122,000 $ 2,646,000
========= ========== =========== ===========
Ratio of chargeoffs during
year to average loans
outstanding 4.07% 5.79% 4.12% 2.67%
===== ===== ===== =====
</TABLE>
Management performed an extensive review and analysis of the entire
combined loan portfolio at year end 1992, including performing and
nonperforming loans. Over 300 new independent or in-house appraisals were
performed at that time, resulting in a significant adjustment to the allowance
for loan losses in the fourth quarter of 1992. In 1993, new management of
Pacific Thrift implemented new policies and procedures for determining the
allowance for loan losses. In connection with the implementation of these new
policies and procedures, new outside appraisals were ordered for almost every
loan delinquent 60 days or more with a balance of $75,000 or more as to which
an outside appraisal had not been performed for at least six months. As a
result of that review and analysis, additional charge offs and reserves were
taken by Pacific Thrift during the fourth quarter of 1993.
In December 1993, Pacific Thrift engaged an independent consulting
firm to assist Pacific Thrift in devising a comprehensive asset classification
system for the purpose of analyzing the allowance on a monthly basis.
Effective in March 1994, the Board of Directors adopted an asset classification
system pursuant to which every delinquent loan and every performing loan which
exhibits certain risk characteristics is graded monthly, and a general reserve
percentage is assigned to each classification level. Management also reviews
every delinquent loan on a monthly basis and reviews the current estimated fair
market value of the property securing that loan. To the extent that the amount
of the delinquent loan exceeds the estimated fair market value of the property,
an additional reserve is made for that loan.
At year end 1994, due to the continuing declines in California real
estate values which occurred in 1994, management of the Partnership determined
that additional reserves were necessary. Accordingly, management analyzed the
amount of loans charged off throughout 1993 and 1994, and obtained broker price
opinions on a substantial number of loans. As a result of this analysis, the
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<PAGE> 128
Partnership determined to make a significant adjustment to the provision for
loan losses for the forth quarter of 1994.
Pacific Thrift's current policy is to maintain an allowance for loan
losses equal to the amount determined necessary based upon Pacific Thrift's
asset classification policy, which is written to conform with generally
accepted accounting principles and FDIC requirements. The Partnership's
current policy is to maintain an allowance for loan losses determined in
accordance with generally accepted accounting principles.
The allowance for loan losses was 6.00%, 5.08%, 3.08% and 2.31% of the
average loans outstanding in the combined loan portfolio for the nine months
ended September 30, 1995 and the years ended December 31, 1994, 1993 and 1992
and 7.12%, 7.33%, 3.49% and 2.49% of the total loans outstanding at September
30, 1995 and December 31, 1994, 1993 and 1992, respectively. The allowance for
loan losses was 102.06%, 58.24%, 20.24% and 16.95% of the total amount of
delinquent loans at September 30, 1995 and December 31, 1994, 1993 and 1992,
respectively. Based upon management's review of the risk characteristics of
the combined loan portfolio, the allowance was considered adequate at September
30, 1995 to absorb losses arising from all known and inherent risks.
Management utilizes its best judgment in providing for possible loan
losses and establishing the allowance for loan losses. However, the allowance
is an estimate which is inherently uncertain and depends on the outcome of
future events. In addition, regulatory agencies, as an integral part of their
examination process, periodically review Pacific Thrift's allowance for loan
losses. Such agencies may require Pacific Thrift to recognize additions to the
allowance based upon their judgment of the information available to them at the
time of their examination.
Implicit in lending activities is the fact that losses will be
experienced and that the amount of such losses will vary from time to time,
depending upon the risk characteristics of the portfolio. The allowance for
loan losses is increased by the provision for loan losses charged to expense.
The conclusion that a loan may become uncollectible, in whole or in part, is a
matter of judgment.
Adverse economic conditions and a declining real estate market in
California have adversely affected certain borrowers' ability to repay loans.
A continuation of these conditions or a further decline in the California
economy could result in further deterioration in the quality of the loan
portfolio and continuing high levels of nonperforming assets and charge-offs,
which would adversely effect the financial condition and results of operations
of the Partnership and Pacific Thrift.
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<PAGE> 129
INVESTMENT ACTIVITIES
Except for Pacific Thrift, neither the Partnership nor any of the
operating subsidiaries maintain an investment portfolio. Pacific Thrift's
investment portfolio is used primarily for liquidity purposes and secondarily
for investment income. Effective January 1, 1994, Pacific Thrift's policy is
to invest cash in short-term U.S. government securities or federal funds sold
due in less than 30 days. Overnight federal funds sold are limited to no more
than 100% of total capital at any single financial institution that is either
adequately or well capitalized. If the financial institution is neither
adequately nor well capitalized, then the limit is $100,000. As of September
30, 1995, and December 31, 1994, Pacific Thrift held investments in federal
funds totaling $4,500,000 and $12,500,000, respectively. As of December 31,
1993 and 1992, Pacific Thrift held excess cash in interest-earning bank
accounts and there were no investments.
SOURCES OF FUNDS
DEPOSITS. Pacific Thrift's major source of funds is FDIC-insured
deposits, including passbook savings accounts, money market accounts and
investment certificates (similar to certificates of deposit). Pacific Thrift
attracts customers for its deposits by offering rates that are slightly higher
than rates offered by large commercial banks and savings and loans. Pacific
Thrift has no brokered deposits as of the date hereof. Management believes its
deposits are a stable and reliable funding source. At September 30, 1995,
Pacific Thrift had outstanding 1,382 deposit accounts of approximately $54.8
million.
The following table sets forth the average balances and average rates
paid on each category of Pacific Thrift's deposits for the nine months ended
September 30, 1995 and the three years ended December 31, 1994.
DEPOSIT ANALYSIS
<TABLE>
<CAPTION>
Average for Nine
----------------
Months Ended
------------
September 30, 1995 Averages for 1994 Averages for 1993 Averages for 1992
------------------ ----------------- ----------------- -----------------
(Dollars in (Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands) Thousands)
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings Deposits $12,109 5.16% $23,868 3.79% $4,451 3.59% $3,298 4.75%
Deposits under $100,000 $53,033 6.23% $43,828 4.59% $46,609 5.92% $38,157 6.66%
Deposits over $100,000 $ 133 6.72% $ 415 6.68% $4,621 6.58% $4,208 7.09%
------- ----- ------ ----- ------- ----- ------- -----
Total $65,275 6.05% $68,111 4.32% $55,681 5.78% $45,663 6.55%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The following schedule sets forth the time remaining until maturity
for all certificates at September 30, 1995 and December 31, 1994, 1993 and
1992.
115
<PAGE> 130
DEPOSIT MATURITIES
<TABLE>
<CAPTION>
At At As of As of
September 30, December 31, December 31, December 31,
1995 1994 1993 1992
(Dollars in (Dollars in (Dollars in (Dollars in
Thousands) Thousands) Thousands) Thousands)
<S> <C> <C> <C> <C>
Passbook/Money Market $18,520 $11,443 $21,004 $ 3,170
------- ------- ------- -------
Accounts under $100,000
3 months or less $15,021 $25,522 $ 5,886 $ 6,173
Over 3 months through 6 months 11,430 17,201 7,663 4,663
Over 6 months through 12 months 9,650 10,654 12,634 7,330
Over 12 months 190 4,579 13,441 24,699
------- ------- ------- -------
Total 36,291 $57,956 $39,624 $42,865
------- ------- ------- -------
Accounts over $100,000
3 months or less -0- $102 $ 300 $ 300
Over 3 months through 6 months -0- -0- 100 600
Over 6 months through 12 months -0- -0- 1,092 200
Over 12 months -0- -0- 300 3,426
------- ------- ------- -------
Total -0- $102 $ 1,792 $ 4,526
------- ------- ------- -------
TOTAL DEPOSITS $54,811 $69,501 $62,420 $50,561
======= ======= ======= =======
</TABLE>
OTHER BORROWINGS. Presidential has historically used bank financing
to increase the amount of funds available to it for lending operations.
Presidential currently has borrowings outstanding under a Loan Agreement (the
"Loan Agreement") with NatWest Bank N.A. (the "Bank"), dated August 30, 1990,
as amended and restated May 20, 1992, and as further amended and restated as of
September 28, 1994. (as amended and currently in effect, the "Loan
Agreement").
The Bank originally offered a revolving credit line of $105 million to
Presidential in 1990, under which Presidential borrowed a maximum of $82
million during 1990. The credit line was reduced by mutual agreement in 1991
to $48 million with an $18 million interim loan, which interim loan was fully
repaid by April 1992. In March 1992, Presidential was informed that the Bank's
management had determined to reduce its exposure to California real estate
secured lending due to the general decline in California real estate values and
increasing delinquency rates. Accordingly, the Loan Agreement provided for
continuing monthly pay downs of from $1 million to $1.5 million, which reduced
the available credit line to $30.3 million by March 31, 1993. Further paydowns
of $1 million per month were required from April 30 to June 30, 1993, and
$300,000 per month from July 1, 1993 through June 30, 1994. At
116
<PAGE> 131
September 30, 1995, Presidential owed a total balance of $8.4 million under the
Loan Agreement.
Presidential exceeded the scheduled monthly pay down requirements
through December 31, 1994, from a combination of cash flow from operations and
loan sales, including sales of approximately $3.8 million, $6.4 million and
$12.6 million of loans during 1994, 1993 and 1992, respectively. However, due
to an increase in loan delinquencies, management determined that Presidential
was not in compliance with loan eligibility requirements in December 1993.
Under the terms of the Loan Agreements, this required Presidential to make
additional prepayments, which it was unable to make. Presidential informed the
Bank of this event of default on December 8, 1993. All events of default
identified by Presidential to the Bank, including the failure to meet certain
financial ratios and the failure to make prepayments required as a result, were
automatically waived when the amended and restated Loan Agreement was closed on
September 30, 1994. As of September 30, 1995, Presidential was in compliance
with all paydown requirements under the amended and restated Loan Agreement but
certain technical conditions relating to expenses payable to the General
Partner and total collateral coverage had not been met. [THE BANK AGREED TO
WAIVE THESE TECHNICAL VIOLATIONS OF THE LOAN AGREEMENT ON ________, 1995.]
Under the current terms of the Loan Agreement, Presidential has until
June 30, 1997, to fully repay the outstanding balance owed to the Bank. The
Loan Agreement requires Presidential to utilize 100% of its net cash flow to
pay down the loan. Net cash flow is defined as total cash receipts less
collection costs, loan servicing expenses and general and administrative
expenses, subject to certain maximum levels based upon projected expenses
prepared by Presidential. The loan balance bears interest at prime plus 1.5%.
Mandatory pay down levels require reduction of the loan balance by
approximately $1 million per quarter through June 30, 1997. Presidential is
further required to maintain a collateral coverage ratio of performing loans
relative to its loan balance equal to 1.1:1, increasing to 1.2:1 after June 30,
1995 and a total collateral coverage ratio of total loans receivable and net
OREO relative to its loan balance equal to 1.6:1, increasing to 1.8:1 after
June 30, 1995. Presidential was not in compliance with this ratio at September
30, 1995. However, the Bank has agreed to reduce the total collateral coverage
ratio to 1.6:1 and to waive Presidential's non-compliance with the current
ratio. Presidential was in compliance with the 1.6:1 collateral coverage ratio
as of September 30, 1995.
Cash distributions by Presidential to the General Partner are
restricted to the General Partner's overhead expenses, and all distributions
and withdrawal payments are and will remain restricted for the full term of the
loan. The General Partner and the three managing officers of Presidential
reaffirmed their personal guarantees of the loan in connection with the
amendment of the Loan Agreement dated as of September 28, 1994.
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<PAGE> 132
Borrowings under the Loan Agreement are secured by Presidential's
loans receivable and other assets. As additional security for the bank debt,
the General Partner has pledged its Class A and B Units in Presidential.
Further, the General Partner made an unsecured loan to Presidential of $600,000
on May 15, 1992, which accrues interest at the Bank's prime rate (currently
8.75%), but which will not be repaid as to principal or interest without
consent of the Bank.
If the Restructuring Plan is approved, the Corporation will assume the
bank debt, and will receive the Presidential loan receivables subject to the
prior lien of the Bank. The Corporation will offset the amount owed to the
General Partner under the $600,000 note by debts owed by the General Partner to
the Partnership, which totalled $320,635 as of September 30, 1995, plus any
other amounts that may be accrued to or from the General Partner pending the
completion of the Restructuring Plan. Any amount owed to or from the General
Partner on the completion date of the Restructuring Plan, net of the $350,000
to be paid by the General Partner for the General Partners' Warrants, will be
paid within 30 days of the effective date of the Restructuring Plan.
In addition, if the Restructuring Plan is approved, the Bank will
receive a five-year warrant to purchase up to 2% of the total outstanding
Common Stock of the Corporation, exercisable at a price equal to 25% of the
tangible book value of the Corporation at December 31, 1995 (as adjusted for
the sale of Additional Shares). The Corporation will have the right to reclaim
the warrant at any time after one year from the date of issuance for $200,000.
COMPETITION
Pacific Thrift has significant competition in California for the
origination of mortgage loans from banks, savings and loans, other thrift and
loans and mortgage companies. Some of the these companies are headquartered in
California, and have extensive branch systems and advertising programs which
Pacific Thrift does not have. Pacific Thrift compensates for these competitive
disadvantages by seeking niche lending markets underserved by other lenders and
by providing a higher level of personal service to borrowers.
Pacific Thrift faces competition for depositors' funds from other
thrift and loans, banks, savings and loans, credit unions and, increasingly,
from mutual funds and life insurance annuity products. Pacific Thrift does not
offer checking accounts, travelers' checks or safe deposit boxes and thus has a
competitive disadvantage to commercial banks and savings associations in
attracting depositors. Pacific Thrift compensates for the lack of a full array
of services by offering slightly higher interest rates for deposits than most
large banks and savings and loans, while remaining interest rate competitive
with smaller banks, savings and loan associations and thrift and loans.
118
<PAGE> 133
EMPLOYEES
As of September 30, 1995, Presidential had no employees, but received
full time services from four full-time employees of the General Partner.
Consolidated and Lenders received the services of 33 full time and 1 part time
employees on the payroll of the General Partner. As of the same date, Pacific
Thrift had 136 of its own full time employees and 2 part time employees.
PROPERTIES
Presidential Pacific Thrift, Consolidated and Lenders do business at
their main office in Woodland Hills, California. Pacific Thrift also does
business at five loan production offices in Costa Mesa, West Covina, Walnut
Creek and San Jose, California and, as of June 27, 1994, Bellevue, Washington.
All of the offices at which Presidential and its subsidiaries conduct
business are leased. Information with respect to each of the offices as of
September 30, 1995 is as follows:
<TABLE>
<CAPTION>
Floor Space Annual Expiration
Location in Square Ft. Rental(1) Date
- -------- ------------- ------ ----------
<S> <C> <C> <C>
Woodland Hills, CA(2)(3) 19,600 $487,570 07/31/03
Costa Mesa, CA 6,331 150,728 11/14/96
West Covina, CA 3,877 67,460 05/30/99
Walnut Creek, CA(4)(5) 4,682 101,131 03/14/00
San Jose, CA 1,483 24,914 02/28/97
Bellevue, WA 2,224 36,696 08/31/98
</TABLE>
(1) Subject to annual adjustment in accordance with customary escalation
clauses, except as provided in footnote 2 below with respect to the
Woodland Hills lease, which only provides for escalation of expense
sharing obligations.
(2) Pursuant to a lease entered January 11, 1993, annual rental increases
to $505,680 from March 1, 1996 to July 31, 1998, to $517,440 from
August 1, 1998 through January 31, 2001, and to $529,200 from February
1, 2001 through July 31, 2003. The lease is accounted for on the
straight line average method of accounting, in accordance with
generally accepted accounting principles.
(3) Does not include a month-to-month lease for an additional 1295 square
feet in the same building, at an annualized rental rate of $26,412.
(4) Pursuant to a lease entered in March 1995, annualized rent is set at
$101,124 through September 1995, increasing to $103,944 through
September 1997, and to $106,752 through March 2000.
(5) Does not include a separate lease for an additional 1,937 square feet
in the same building, for which rent will not commence until occupancy,
which is anticipated to occur by December 1, 1995 and continue for a
period of two years at an annual rental of $46,488.
119
<PAGE> 134
LEGAL PROCEEDINGS
Presidential and Pacific Thrift are parties to certain legal
proceedings incidental to its lending business, some of which seek unspecified
damages or substantial monetary damages in the form of punitive damages. The
ultimate outcome of such litigation cannot presently be determined.
Management, after review and consultation with counsel, and based upon
historical experience with prior collection actions, has determined that the
outcome of such proceedings would not have a material adverse impact on
Presidential or Pacific Thrift's business, financial condition or results of
operations.
In addition to actions incidental to its lending business, Presidential
and/or its subsidiaries are parties to the following actions.
Environmental Actions. Presidential and Pacific Thrift acquired two
properties in foreclosure which were used by borrowers unaffiliated with the
Partnership for metal plating operations involving hazardous materials. After
acquisition of the two properties, the Partnership and Pacific Thrift each
received notices from local government authorities requiring removal of
hazardous materials left by the prior owners of each of the properties and
remediation of soil contamination.
Presidential and Pacific Thrift engaged an independent environmental
consulting firm to determine the extent of soil contamination of each of the
properties, and to prepare proposed remediation plans for each site. The
proposed remediation plans, which were completed in September 1994, had an
estimated cost of $674,000 to Presidential and $820,000 to Pacific Thrift,
including consulting and special counsel fees. These amounts were accrued at
December 31, 1993 and reserved for payment as expenses were incurred.
In April 1995, Pacific Thrift obtained a revised estimate for the cost
of environmental remediation of the Whittier property it acquired in
foreclosure. The new estimated cost is significantly lower than the original
estimate. Therefore, in April and May, 1995, Pacific Thrift reversed $403,000
of the reserve which had been set aside to pay for remediation. Remediation
was completed as of July, 1995, and the property is now listed for sale.
Presidential obtained a revised bid of $500,000 to complete
environmental remediation of the San Bernardino property it acquired in
foreclosure. Remediation is currently in progress, and it is presently
anticipated that remediation will be completed by December 15, 1995. When
remediation is complete, this property will be listed for sale.
On January 2, 1994, Presidential and Pacific Thrift implemented a
comprehensive environmental policy which requires environmental risk assessment
by appraisers of every new loan made by
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<PAGE> 135
Presidential or Pacific Thrift and a full environmental risk report on any
commercial or industrial property used as collateral for a loan of $250,000 or
more. The policy provides that no loan will be made in the event an
environmental risk assessment or report indicates the possible presence of
environmental contamination. In addition, the policy provides that no property
will be acquired in foreclosure if facts are discovered indicating the
existence of significant environmental contamination. If Presidential or
Pacific Thrift determines not to foreclose on a secured property due to
environmental contamination, the collectability of a loan could be
substantially reduced.
Foreclosure Publication Fees Action. On June 6, 1995, Consolidated and
Lenders were served with a complaint by Consumer Action and two consumers suing
both individually and on behalf of the general public in a purported class
action filed in the Superior Court of Contra Costa County, California. The
complaint names Consolidated and Lenders, along with thirteen other foreclosure
service and foreclosure publishing companies, and alleges that all named
defendants charge fees in excess of the statutorily permitted amount for
publication of notices of trustee sales. The complaint seeks restitution of
all excess charges, an injunction against the charging of excessive fees in the
future and attorneys fees. The case is still in the pleading stage, discovery
has not yet commenced and the purported class of plaintiffs has not yet been
certified. Management believes that Consolidated and Lenders have charged
publication fees in compliance with applicable law. However, if the action
were decided against Consolidated and Lenders management estimates that their
potential liability would be under $1 million, which would have a material
adverse effect on annual earnings of the Partnership, but would not have a
material adverse effect on the financial condition or longer term earnings of
the Partnership.
DIVIDEND POLICY
The Partnership paid regularly quarterly distributions to the Partners
in accordance with the provisions of the Partnership Agreement until June 1993.
The total amount of distributions was based upon the Partnership Agreement,
which provided for distributions based upon the Net Profits of the Partnership,
defined as net profits calculated in accordance with generally accepted
accounting principles, except that loan origination fees are allowed to be
treated as income in the year in which loans are originated, whereas generally
accepted accounting principles require that such income be deferred over the
life of the loan. To the extent that distributions paid out between 1981 and
1993 exceed net profits under generally accepted accounting principles, such
distributions represented a return of capital under generally accepted
accounting principles.
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<PAGE> 136
For the year ended December 31, 1992, the Partnership distributed
$1,730,385 to the Partners in excess of Net Profits as determined under the
Partnership Agreement. Such distributions constituted a return of capital.
For the year ended December 31, 1993, the Partnership distributed
$916,309, all of which was determined at year end to be in excess of Net
Profits as determined under the Partnership Agreement.
No distributions were made by the Partnership in 1994 or 1995.
Information respecting the payment of distributions to the Limited
Partners of the Partnership for the past five years is as follows:
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<PAGE> 137
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
-----------------------------------------------------------------------------------------------
Class of Quarterly Quarterly Quarterly Quarterly
Limited Distribu- Quarterly Distribu- Quarterly Distribu- Quarterly Distribu- Quarterly
Partners tions Returns tions Returns tions Returns butions Returns
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Class A -- -- -- -- -- -- -- --
Class B -- -- -- -- -- -- -- --
Class C -- -- -- -- -- -- -- --
Class D -- -- -- -- -- -- -- --
Class E -- -- -- -- -- -- -- --
DRP Units -- -- -- -- -- -- -- --
1994
Class A -- -- -- -- -- -- -- --
Class B -- -- -- -- -- -- -- --
Class C -- -- -- -- -- -- -- --
Class D -- -- -- -- -- -- -- --
Class E -- -- -- -- -- -- -- --
DRP Units -- -- -- -- -- -- -- --
1993
Class A 51,725 2.959 -- -- -- -- -- --
Class B 73,603 2.517 -- -- -- -- -- --
Class C 298,289 2.244 -- -- -- -- -- --
Class D 279,867 2.244 -- -- -- -- -- --
Class E 197,583 1.866 -- -- -- -- -- --
DRP Units 3,404 1.376 -- -- -- -- -- --
1992
Class A $ 54,330 3.125% $ 54,330 3.125% $ 54,927 3.125% $ 54,927 3.125%
Class B 82,447 2.625% 80,571 2.625% 80,539 2.625% 78,784 2.625%
Class C 352,009 2.500% 348,356 2.500% 344,269 2.500% 329,694 2.375%
Class D 337,460 2.500% 330,490 2.500% 325,920 2.500% 310,862 2.375%
Class E 222,171 2.020% 209,099 1.916% 210,119 1.937% 209,003 1.937%
DRP Units 2,536 1.625% 2,886 1.625% 3,199 1.625% 3,481 1.625%
1991
Class A $ 64,657 3.750% $ 65,375 3.750% $ 66,094 3.750% $ 66,094 3.750%
Class B 107,556 3.250% 106,204 3.250% 105,987 3.250% 105,044 3.250%
Class C 473,573 3.000% 469,951 3.000% 466,953 3.000% 456,281 3.000%
Class D 448,578 3.000% 448,211 3.000% 447,982 3.000% 439,004 3.000%
Class E 245,602 2.708% 264,268 2.708% 287,387 2.636% 273,833 2.466%
DRP Units 1,496 2.250% 2,024 2.250% 2,547 2.250% 3,027 2.250%
1990
Class A $ 75,497 4.000% $ 74,556 4.000% $ 72,214 4.000% $ 71,040 4.000%
Class B 121,298 3.500% 121,660 3.500% 122,512 3.500% 120,479 3.500%
Class C 561,713 3.250% 559,802 3.250% 551,322 3.250% 537,064 3.250%
Class D 524,226 3.250% 519,480 3.250% 509,832 3.250% 500,933 3.250%
Class E 99,456 3.120% 173,168 3.120% 230,747 3.120% 268,688 3.120%
DRP Units 59 2.500% 320 2.500% 729 2.500% 1,186 2.500%
Initial Return (1)
</TABLE>
<TABLE>
<CAPTION>
Fifth Total
Class of Level Fifth Annual
Limited Distri- Level Distribu- Annual
Level butions Returns tions Returns
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Class A -- -- -- --
Class B -- -- -- --
Class C -- -- -- --
Class D -- -- -- --
Class E -- -- -- --
DRP Units -- -- -- --
1994
Class A -- -- -- --
Class B -- -- -- --
Class C -- -- -- --
Class D -- -- -- --
Class E -- -- -- --
DRP Units -- -- -- --
1993
Class A -- -- 51,725 2.959
Class B -- -- 73,603 2.517
Class C -- -- 298,289 2.244
Class D -- -- 279,867 2.244
Class E -- -- 197,583 1.866
DRP Units -- -- 3,404 1.376
1992
Class A $ 1,092 0.063% $ 219,606 12.5625%
Class B 1,919 0.063% 324,260 10.5625%
Class C 9,043 0.063% 1,383,371 9.5625%
Class D 9,491 0.063% 1,314,223 9.5625%
Class E 6,691 0.063% 857,083 7.8113%
DRP Units 116 0.063% 12,218 6.5625%
1991
Class A $ 2,185 .125% $ 264,406 15.125%
Class B 4,088 .125% 428,879 13.125%
Class C 19,960 .125% 1,886,718 12.125%
Class D 18,596 .125% 1,802,371 12.125%
Class E 15,175 .125% 1,086,265 10.643%
DRP Units 127 .125% 9,220 9.125%
1990
Class A $ 2,289 .125% $ 295,595 16.125%
Class B 4,332 .125% 490,281 14.125%
Class C 21,218 .125% 2,231,119 13.125%
Class D 19,726 .125% 2,074,196 13.125%
Class E 8,007 .125% 780,066 12.635%
DRP Units 27 .125% 2,320
Initial Return (1)
</TABLE>
(1) Represents the lower initial investment return on Class E Units paid
on new subscriptions for Class E Units monthly in excess of $2 million
per month, at a rate equal to 0.125% above the Merrill Lynch Ready
Asset Trust annualized average rate of return after expenses for the
past 30 days.
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<PAGE> 138
The Corporation, which was recently organized, has never paid a cash
dividend on its Common Stock and does not intend to consider the payment of
dividends until at least the fourth quarter of 1997. The Corporation's ability
to pay dividends is subject to restrictions set forth in the Delaware General
Corporation law. The Delaware Corporation Law provides that a Delaware
corporation may pay dividends either (i) out of the corporation's surplus (as
defined in Delaware law), or (ii) if there is no surplus, out of the
corporation's net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. However, pursuant to Section 2115 of the
California General Corporation Law, under certain circumstances, certain
provisions of the California General Corporation Law may be applied to foreign
corporations qualified to do business in California, which may reduce the
amount of dividends payable by the Corporation. See "DESCRIPTION OF CAPITAL
STOCK -- Effect of Quasi-California Corporation Law."
The Corporation's ability to pay cash dividends in the future will
depend in large part on the ability of its operating subsidiaries to pay
dividends to the Corporation. The ability of Pacific Thrift to pay dividends
to the Corporation is subject to restrictions set forth in the California
Industrial Loan Law and the provisions of the California General Corporation
Law, and the regulations of the FDIC and the DOC. In addition, the provisions
of the 1995 Order require the consent of the FDIC for the payment of any
dividends by Pacific Thrift. See "SUPERVISION AND REGULATION -- Restrictions
on Transfers of Funds to the Partnership or the Corporation by Pacific Thrift."
In addition, the Corporation's ability to pay cash dividends is
expected to be limited by covenants in the Notes, if issued, limiting the
percentage amount of consolidated net earnings that may be paid in dividends.
See "PROPOSED SALE OF SENIOR NOTES."
MARKET FOR LIMITED PARTNERSHIP UNITS
AND COMMON STOCK OF THE CORPORATION
LIMITED PARTNERSHIP UNITS
There is no public trading market for the Limited Partnership Units of
the Partnership and there are restrictions on the transferability of such
interests. For the first nine months of 1995, management has knowledge of five
sales of Limited Partnership Units. Management has no information concerning
the sale price with respect to three of the five sales. Management is informed
that Class C Units originally purchased for $30,000 sold for $4,500 and that
Class E Units originally purchased for $9,500 sold for $3,800. Management has
no information concerning the circumstances of each sale or the basis used to
establish the purchase price of any of the Units sold and management does not
believe that these sales are representative of the market value of Limited
Partnership Units.
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<PAGE> 139
COMMON STOCK
There has been no public market for the Common Stock. The Common
Stock has been conditionally approved for listing on the Nasdaq National Market
under the symbol "PUGG." An investment banking firm has indicated its
intention to make a market in the Common Stock. This firm is not obligated,
however, to make a market in the Common Stock and any market making may be
discontinued at any time.
SUPERVISION AND REGULATION
Pacific Thrift is subject to regulation, supervision and examination
by the DOC and, as an insured depository institution, by the FDIC. Pacific
Thrift is not regulated or supervised by the Office of Thrift Supervision,
which regulates savings and loan institutions. The Partnership is regulated by
the DOC but is not, under current law and applicable regulations, directly
regulated or supervised by the FDIC, the Federal Reserve Board or any other
bank regulatory authority, except with respect to the general regulatory and
enforcement authority of the DOC and the FDIC over transactions and dealings
between the Partnership and Pacific Thrift, and except with respect to both the
specific limitations regarding ownership of the capital stock of the parent
corporation of any thrift and loan, and the specific limitations regarding the
payment of dividends from Pacific Thrift.
CALIFORNIA LAW
The thrift and loan business conducted by Pacific Thrift is governed
by the California Industrial Loan Law and the rules and regulations of the DOC
which, among other things, regulate collateral requirements and maximum
maturities of the various types of loans that are permitted to be made by
California-licensed industrial loan companies, better known as thrift and loan
companies.
Subject to restrictions imposed by applicable California law, Pacific
Thrift is permitted to make secured and unsecured consumer and non-consumer
loans. The maximum term of repayment of loans made by thrift and loan
companies ranges up to 40 years and 30 days depending upon collateral and
priority of the secured position, except that loans with repayment terms in
excess of 30 years and 30 days may not in the aggregate exceed 5% of the total
outstanding loans and obligations of the company. Although secured loans may
generally be repayable in unequal periodic payments during their respective
terms, consumer loans secured by real property with terms in excess of three
years must be repayable in substantially equal periodic payments unless such
loans are covered under the Garn-St. Germain Depository Institutions Act of
1982 (primarily one-to-four family residential mortgage loans).
California law limits loans by thrift and loan companies to persons
who do not reside in California to no more than 20% of
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<PAGE> 140
total assets, or up to 30% of total assets with approval of the DOC.
California law contains extensive requirements for the diversification of the
loan portfolio of thrift and loan companies. A thrift and loan with
outstanding investment certificates may not, among other things, have more than
25% of its loans or other obligations in loans or obligations which are secured
only partially, but not primarily, by real property; may not make any one loan
secured primarily by improved property which exceeds 20% of its paid-up and
unimpaired capital stock and surplus not available for dividends; may not lend
an amount in excess of 5% of its paid-up and unimpaired capital stock and
surplus not available for dividends upon the security of the stock of any one
corporation; may not make loans to, or hold the obligations of, any one person
or control group as primary obligor in an aggregate principal amount exceeding
20% of its paid-up and unimpaired capital stock and surplus not available for
dividends; and may have no more than 70% of its total assets in loans which
have remaining terms to maturity in excess of seven years and are secured
solely or primarily by real property.
A thrift and loan generally may not make any loan to, or hold an
obligation of, any of its directors or officers or any director or officer of
its holding company or affiliates, except in specified cases and subject to
regulation by the DOC. A thrift and loan may not make any loan to, or hold an
obligation of, any of its shareholders or any shareholder or its holding
company or affiliates, except that this prohibition does not apply to persons
who own less than 10% of the stock of a holding company or affiliate which is
listed on a national securities exchange. There are currently no outstanding
loans made by either the Partnership or Pacific Thrift to any officers or
directors of the Partnership or any of its affiliates. Any person who wishes
to acquire 10% or more of the capital stock of a California thrift and loan
company or 10% or more of the voting capital stock or other securities giving
control over management of its parent company must obtain the prior written
approval of the DOC.
A thrift and loan is subject to certain leverage limitations which are
not generally applicable to commercial banks or savings and loan associations.
In particular, thrift and loans may not have outstanding at any time investment
certificates that exceed 20 times paid-up and unimpaired capital and surplus.
Under California law, thrift and loans that desire to increase their leverage
must meet specified minimum standards for liquidity reserves in cash, loan loss
reserves, minimum capital stock levels and minimum unimpaired paid-in surplus
levels. As approved by the DOC, Pacific Thrift can currently operate with a
ratio of deposits to unimpaired capital and unimpaired surplus of 15:1.
At December 31, 1994, Pacific Thrift's total deposits were 22.3 times
its paid-up and unimpaired capital and unimpaired surplus not available for
dividends, which was in violation of its authorized thrift ratio, due to a
reduction in capital. Pacific Thrift returned to compliance with the 15:1
thrift ratio as of
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<PAGE> 141
April 30, 1995. As of September 30, 1995, Pacific Thrift had a 9.6:1 thrift
ratio.
Under provisions of the FDIC Improvement Act and regulations issued by
the FDIC, additional limitations have been imposed with respect to depository
institutions' authority to accept, renew or rollover brokered deposits.
Pacific Thrift does not have any brokered deposits as of the date hereof.
Thrift and loan companies are not permitted to borrow, except by the
sale of investment or thrift certificates, in an amount exceeding 300% of
tangible net worth, surplus and undivided profits, without the DOC's prior
consent. All sums borrowed in excess of 150% of tangible net worth, surplus
and undivided profits must be unsecured borrowings or, if secured, approved in
advance by the DOC, and be included as investment or thrift certificates for
purposes of computing the maximum amount of certificates a thrift and loan may
issue. However, collateralized Federal Home Loan Bank advances are excluded
for this test of secured borrowings and are not specifically limited by
California law. Pacific Thrift had no borrowed funds other than deposits at
September 30, 1995.
Under California law, thrift and loan companies are generally limited
to investments, other than loans, that are legal investments for commercial
banks. California commercial banks are prohibited from investing an amount
exceeding 15% of shareholders' equity in the securities of any one issuer,
except for specified obligations of the United States, California and local
governments and agencies. A thrift and loan company may acquire real property
only in satisfaction of debts previously contracted, pursuant to certain
foreclosure transactions or as may be necessary for the transaction of its
business, in which case such investment, combined with all investments in
personal property, is limited to one-third of a thrift and loan's paid-in
capital stock and surplus not available for dividends. For the period between
September 30, 1994 and February 28, 1995, Pacific Thrift was not in compliance
with these restrictions due to the reduction in its capital. However, by March
31, 1995 Pacific Thrift had returned to compliance with the restrictions.
Although investment authority and other activities that may be engaged
in by Pacific Thrift generally are prescribed under the California Industrial
Loan Law, certain provisions of FDIC Improvement Act may limit Pacific
Thrift's ability to engage in certain activities that otherwise are authorized
under the California Industrial Loan Law. See "Governmental Policies and
Recent Legislation -- "Federal Deposit Insurance Corporation Improvement Act
of 1991" under this heading.
FEDERAL LAW
Pacific Thrift's deposits are insured by the FDIC to the full extent
permissible by law. As an insurer of deposits, the FDIC issues regulations,
conducts examinations, requires the filing of
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<PAGE> 142
reports and generally supervises the operations of institutions for which it
provides deposit insurance. Among the numerous applicable regulations are
those issued under the Community Reinvestment Act of 1977 ("CRA") to encourage
insured state nonmember banks, such as Pacific Thrift, to meet the credit needs
of local communities, including low and moderate income neighborhoods
consistent with safety and soundness, and a rating system to measure
performance. Inadequacies of performance may result in regulatory action by
the FDIC. Pacific Thrift received a satisfactory rating with respect to its
CRA compliance in its most recent FDIC compliance examination completed in
March 1994.
Pacific Thrift is subject to the rules and regulations of the FDIC to
the same extent as all other state banks that are not members of the Federal
Reserve System. The approval of the FDIC is required prior to any merger,
consolidation or change in control, or the establishment or relocation of any
branch office of Pacific Thrift. This supervision and regulation is intended
primarily for the protection of the deposit insurance funds.
Pacific Thrift is subject to certain capital adequacy guidelines
issued by the FDIC. See "Governmental Policies and Recent Legislation --
Capital Adequacy Guidelines" under this heading.
RESTRICTIONS ON TRANSFERS OF FUNDS TO THE PARTNERSHIP BY PACIFIC THRIFT
There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Partnership by Pacific Thrift. Under
California law, a thrift and loan is not permitted to declare dividends on its
capital stock unless it has at least $750,000 of unimpaired capital plus
additional capital of $50,000 for each branch office maintained. In addition,
no distribution of dividends is permitted unless: (i) such distribution would
not exceed a thrift's retained earnings; or, (ii) in the alternative, after
giving effect to the distribution, (a) the sum of a thrift's assets (net of
goodwill, capitalized research and development expenses and deferred charges)
would be not less than 125% of its liabilities (net of deferred taxes, income
and other credits), or (b) current assets would be not less than current
liabilities (except that if a thrift's average earnings before taxes for the
last two years had been less than average interest expenses, current assets
must not be less than 125% of current liabilities).
In addition, a thrift and loan is prohibited from paying dividends
from that portion of capital which its board of directors has declared
restricted for dividend payment purposes. The amount of restricted capital
maintained by a thrift and loan provides the basis of establishing the maximum
amount that a thrift may lend to a single borrower and determines the amount of
capital that may be counted by the thrift for purposes of calculating the
thrift to capital ratio. Pacific Thrift has, in the past, restricted as much
capital as necessary to achieve its maximum thrift ratio limit.
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<PAGE> 143
The board of directors of Pacific Thrift may unrestrict all or any portion of
its equity in the future for dividends to the Partnership, provided that
Pacific Thrift remains adequately capitalized.
The FDIC also has authority to prohibit Pacific Thrift from engaging
in what, in the FDIC's opinion, constitutes an unsafe or unsound practice in
conducting its business. It is possible, depending upon the financial
condition of the bank in question and other factors, that the FDIC could assert
that the payment of dividends or other payments might, under some
circumstances, be such an unsafe or unsound practice. Further, the FDIC has
established guidelines with respect to the maintenance of appropriate levels of
capital by banks under their jurisdiction. Compliance with the standards set
forth in such guidelines and the restrictions that are or may be imposed under
the prompt corrective action provisions of the FDIC Improvement Act could limit
the amount of dividends which Pacific Thrift may pay to the Partnership. See
"Federal Deposit Insurance Corporation Improvement Act of 1991 -- Prompt
Corrective Regulatory Action" and "Governmental Policies and Recent Legislation
- -- Capital Adequacy Guidelines" under this heading for a discussion of these
additional restrictions on capital distributions.
Pacific Thrift is subject to certain restrictions imposed by federal
law on any extensions of credit to, or the issuance of a guarantee or letter of
credit on behalf of, the Partnership or other affiliates, the purchase of or
investments in stock or other securities thereof, the taking of such securities
as collateral for loans and the purchase of assets of the Partnership or other
affiliates. Such restrictions prevent the Partnership and other affiliates
from borrowing from Pacific Thrift unless the loans are secured by marketable
obligations of designated amounts. Further, such secured loans and investments
by Pacific Thrift to or in the Partnership or to or in any other affiliate is
limited to 10% of Pacific Thrift's capital and surplus (as defined by federal
regulations) and such secured loans and investments are limited, in the
aggregate, to 20% of Pacific Thrift's capital and surplus (as defined by
federal regulations). In addition, any transaction with an affiliate of
Pacific Thrift must be on terms and under circumstances that are substantially
the same as a comparable transaction with a non-affiliate. Additional
restrictions on transactions with affiliates may be imposed on Pacific Thrift
under the prompt corrective action provisions of the FDIC Improvement Act. See
"Governmental Policies and Recent Legislation -- Federal Deposit Insurance
Corporation Improvement Act of 1991" under this heading.
REGULATORY ACTIONS
As a result of an FDIC examination conducted as of June 15, 1993, the
FDIC and the DOC requested Pacific Thrift to enter into a stipulated Cease and
Desist Order (the "1993 Order") issued November 10, 1993. The Order primarily
required Pacific Thrift to
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<PAGE> 144
(i) adopt a written policy acceptable to the FDIC and the DOC governing Pacific
Thrift's relationships with its affiliates; (ii) reduce its volatile liability
deposits to specified maximum levels; (iii) increase its liquidity to specified
minimum levels; and (iv) develop a comprehensive asset/liability management
policy. The Order did not require any increase in capital or loan loss
reserves, or a decrease in adversely classified assets. In order to comply
with the Order, Pacific Thrift terminated its personnel services and facilities
arrangements with the Partnership. Substantially all of the requirements of
the Order were met by January 31, 1994, well in advance of the required dates
for compliance specified in the Order.
At the end of August 1994, the FDIC requested Pacific Thrift to enter
into a supplemental stipulated Cease and Desist Order (the "Supplemental
Order") issued October 13, 1994. The Supplemental Order required Pacific
Thrift to obtain the prior consent of the FDIC before opening any new offices
and to design, file and implement plans to increase its net earnings. The
Supplemental Order did not require any increase in capital or loan loss
reserves. The Supplemental Order also required that detailed budgets and
comparisons of budgets with actual results of operations be filed with the FDIC
and DOC.
In December 1994, the FDIC notified Pacific Thrift that it was
classified as "critically undercapitalized" as of October 31, 1994. Pacific
Thrift had sufficiently restored its regulatory capital ratios from net
operating profits and capital contributions as of April 30, 1995 to be
classified as "adequately capitalized" under FDIC regulations. The FDIC
confirmed Pacific Thrift's adequate capitalization by letter dated May 8, 1995.
On May 18, 1995, the FDIC issued a new cease and desist order (the
"1995 Order") replacing the 1993 Order and Supplemental Order. The terms of
the 1995 Order require Pacific Thrift to: have and retain qualified
management; by September 30, 1995, increase and maintain Tier 1 capital
(consisting of shareholders' equity) at 8% of its total assets; eliminate
assets classified "loss" as of September 26, 1994; reduce the level of
adversely classified assets; in certain instances, refrain from extending
additional credit to borrowers whose prior credits have been adversely
classified; maintain a fully funded allowance for loan losses; implement
Pacific Thrift's capital restoration and business/profitability plans; correct
a past violation of the thrift ratio requirement and comply with all applicable
laws and regulations; file reports of condition and income which accurately
reflect its financial condition; obtain FDIC approval prior to payment of any
cash dividends; continue to comply with its Policy for Transactions and
Relationships Between Affiliates; obtain FDIC approval before opening
additional offices; and furnish written quarterly progress reports to the FDIC
detailing actions taken to comply with the 1995 Order.
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<PAGE> 145
Management of Pacific Thrift believes that it is in full compliance
with the terms of the 1995 Order. As of September 30, 1995, Pacific Thrift has
increased its capital ratios to the levels which meet the regulatory definition
of "well capitalized." However, since the 1995 Order contains a provision
requiring the maintenance of a certain capital level (which it currently
meets), Pacific Thrift would be classified as "adequately capitalized" under
the regulations.
GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on interest rate differentials.
Although in 1994 fee income from loans originated for sale by Pacific Thrift
exceeded interest income, interest income constitutes a significant portion of
the income from the Partnership's lending operations. The difference between
the interest rate paid by Pacific Thrift on its thrift deposits and its other
borrowings and the interest rates received by Pacific Thrift on portfolio loans
constitutes the net interest margin earned on portfolio loans. These margins
are highly sensitive to many factors that are beyond the control of Pacific
Thrift. Accordingly, and just as with any other regulated financial
institution which accepts deposits, the earnings and growth of Pacific Thrift
will be subject to the influence of local, domestic and foreign economic
conditions, including recession, unemployment and inflation.
Pacific Thrift's business, just like that of any other financial
institution, is not only affected by general economic conditions but is also
influenced by the monetary and fiscal policies of the federal government and
the policies of regulatory agencies, particularly the Federal Reserve Board.
The Federal Reserve Board implements national monetary policies (with
objectives such as curbing inflation and combating recession) by its
open-market operations in United States Government securities, by adjusting the
required level of reserves for financial intermediaries subject to its reserve
requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve Board in these
areas influence the growth of bank loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial intermediaries. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding companies and
other financial intermediaries are frequently made in Congress, in the
California legislature and before various bank regulatory and other
professional agencies. The likelihood of any major changes and the impact such
changes might have on the Partnership are impossible to predict. Certain
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<PAGE> 146
of the potentially significant changes which have been enacted and proposals
which have been made recently are discussed below.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. On
December 19, 1991, the FDIC Improvement Act was enacted into law. Set forth
below is a brief discussion of certain portions of this law and implementing
regulations that have been adopted or proposed by the Federal Reserve Board,
the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC
(collectively, the "Federal Banking Agencies").
BIF RECAPITALIZATION. The FDIC Improvement Act provides the FDIC with
three additional sources of funds to protect deposits insured by the Bank
Insurance Fund (the "BIF") administered by the FDIC, The FDIC is authorized to
borrow up to $30 billion from the U.S. Treasury; borrow from the Federal
Financing Bank up to 90% of the fair market value of assets of institutions
acquired by the FDIC as receiver, and borrow from financial intermediaries that
are members of the BIF. Any borrowings not repaid by asset sales are to be
repaid through insurance premiums assessed to member institutions. Such
premiums must be sufficient to repay any borrowed funds within 15 years and
provide insurance fund reserves of $1.25 for each $100 of insured deposits.
IMPROVED EXAMINATIONS. All insured depository institutions must
undergo a full-scope, on-site examination by their appropriate Federal Banking
Agency at least once every 12 months. The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate
Federal Banking Agency against each institution or affiliate as it deems
necessary or appropriate.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the FDIC Improvement
Act, the FDIC has issued proposed safety and soundness standards on matters
such as loan underwriting and documentation, internal controls and audit
systems, interest rate risk exposure and compensation and other employee
benefits. The proposal also establishes the maximum ratio of classified assets
to total capital plus allowance for loan losses at 100% and the minimum level
of earnings sufficient to absorb losses without impairing capital. The proposal
provides that a bank's earnings are sufficient to absorb losses without
impairing capital if the bank is in compliance with minimum capital
requirements and the bank would, if its net income or loss over the last four
quarters continued over the next four quarters, remain in compliance with
minimum capital requirements. Any institution which failed to comply with these
standards would be required to submit a compliance plan. A failure to submit a
plan or to comply with an approved plan would subject the institution to
further enforcement action. No assurance can be given as to the final form of
the proposed regulations or, if adopted, the impact of such regulations on
Pacific Thrift.
In December 1992, the Federal Banking Agencies issued final
regulations prescribing uniform guidelines for real estate lending. The
regulations, which became effective March 19, 1993, require
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<PAGE> 147
insured depository institutions to adopt written policies establishing
standards, consistent with such guidelines, for extensions of credit secured by
real estate. The policies must address loan portfolio management, underwriting
standards and loan-to-value limits that do not exceed the supervisory limits
prescribed by the regulations.
PROMPT CORRECTIVE REGULATORY ACTION. The FDIC Improvement Act
requires each Federal Banking Agency to take prompt corrective action ("PCA")
to resolve the problems of insured depository institutions that fall below one
or more prescribed minimum capital ratios. The purpose of this law is to
resolve the problems of insured depository institutions at the least possible
long-term cost to the appropriate deposit insurance fund.
The law required each Federal Banking Agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios:
well-capitalized (significantly exceeding the required minimum capital
requirements), adequately capitalized (meeting the required capital
requirements), undercapitalized (failing to meet any one of the capital
requirements), significantly undercapitalized (significantly below any one
capital requirement) and critically undercapitalized (failing to meet all
capital requirements).
In September 1992, the Federal Banking Agencies issued uniform final
regulations implementing the PCA provisions of the FDIC Improvement Act. Under
the regulations, an insured depository institution will be deemed to be:
o "well capitalized" if it (i) has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage
ratio of 5% or greater and (ii) is not subject to an order, written agreement,
capital directive or PCA directive to meet and maintain a specific capital
level for any capital measure;
o "adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage
ratio of 4% or greater (or a leverage ratio of 3% or greater if the institution
is rated composite 1 under the applicable regulatory rating system in its most
recent report of examination);
o "undercapitalized" if it has a total risk-based capital ratio that is less
than 8%, a Tier 1 risk-based capital ratio that is less than 4% or a leverage
ratio that is less than 4% (or a leverage ratio that is less than 3% if the
institution is rated composite 1 under the applicable regulatory rating system
in its most recent report of examination);
o "significantly undercapitalized" if it has a total risk-based capital ratio
that is less than 6%, a Tier 1 risk-based capital
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<PAGE> 148
ratio that is less than 3% or a leverage ratio that is less than 3%; and
o "critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as
well capitalized, adequately capitalized or undercapitalized may be
reclassified to the next lower capital category if the appropriate Federal
Banking Agency, after notice and opportunity for hearing, (i) determines that
the institution is in an unsafe or unsound condition or (ii) deems the
institution to be engaging in an unsafe or unsound practice and not to have
corrected the deficiency. At each successive lower capital category, an insured
depository institution is subject to more restrictions and Federal Banking
Agencies are given less flexibility in deciding how to deal with it.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions, including dividends, if after such transaction
the institution would be undercapitalized. If an insured depository institution
is undercapitalized, it will be closely monitored by the appropriate Federal
Banking Agency, subject to asset growth restrictions and required to obtain
prior regulatory approval for acquisitions, branching and engaging in new lines
of business. Any undercapitalized depository institution must submit an
acceptable capital restoration plan to the appropriate Federal Banking Agency
45 days after becoming undercapitalized. The appropriate Federal Banking Agency
cannot accept a capital plan unless, among other things, it determines that the
plan (i) specifies the steps the institution will take to become adequately
capitalized, (ii) is based on realistic assumptions and (iii) is likely to
succeed in restoring the depository institution's capital. In addition, each
company controlling an undercapitalized depository institution must guarantee
that the institution will comply with the capital plan until the depository
institution has been adequately capitalized on an average basis during each of
four consecutive calendar quarters and must otherwise provide adequate
assurances of performance. The aggregate liability of such guarantee is limited
to the lesser of (a) an amount equal to 5% of the depository institution's
total assets at the time the institution became undercapitalized or (b) the
amount which is necessary to bring the institution into compliance with all
capital standards applicable to such institution as of the time the institution
fails to comply with its capital restoration plan. Finally, the appropriate
Federal Banking Agency may impose any of the additional restrictions or
sanctions that it may impose on significantly undercapitalized institutions if
it determines that such action will further the purpose of the PCA provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or in a material
respect to implement, an acceptable capital restoration
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plan, is subject to additional restrictions and sanctions. These include, among
other things: (i) a forced sale of voting shares to raise capital or, if
grounds exist for appointment of a receiver or conservator, a forced merger;
(ii) restrictions on transactions with affiliates; (iii) further limitations on
interest rates paid on deposits; (iv) further restrictions on growth or
required shrinkage; (v) modification or termination of specified activities;
(vi) replacement of directors or senior executive officers, subject to certain
grandfather provisions for those elected prior to enactment of the FDIC
Improvement Act; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate Federal Banking Agency. Although the appropriate Federal Banking
Agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the PCA provisions. In addition, without the
prior written approval of the appropriate Federal Banking Agency, a
significantly undercapitalized institution may not pay any bonus to its senior
executive officers or provide compensation to any of them at a rate that
exceeds such officer's average rate of base compensation during the 12 calendar
months preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on
insured depository institutions that are critically undercapitalized. For
example, a critically undercapitalized institution generally would be
prohibited from engaging in any material transaction other than in the ordinary
course of business without prior regulatory approval and could not, with
certain exceptions, make any payment of principal or interest on its
subordinated debt beginning 60 days after becoming critically undercapitalized.
Most importantly, however, except under limited circumstances, the appropriate
Federal Banking Agency, not later than 90 days after an insured depository
institution becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
shareholders or creditors for consenting in good faith to the appointment of a
receiver or conservator or to an acquisition or merger as required by the
regulator.
OTHER ITEMS. The FDIC Improvement Act also, among other things, (1)
limits the percentage of interest paid on brokered deposits and limits the
unrestricted use of such deposits to only those institutions that are
well-capitalized; (ii) requires the FDIC to charge insurance premiums based on
the risk profile of each institution; (iii) eliminates "pass through" deposit
insurance for certain employee benefit accounts unless the depository
institution
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<PAGE> 150
is well-capitalized or, under certain circumstances, adequately capitalized;
(iv) prohibits insured state chartered banks from engaging as principal in any
type of activity that is not permissible for a national bank unless the FDIC
permits such activity and the bank meets all of its regulatory capital
requirements; (v) directs the appropriate Federal Banking Agency to determine
the amount of readily marketable purchased mortgage servicing rights that may
be included in calculating such institution's tangible, core and risk-based
capital; and (vi) provides that, subject to certain limitations, any federal
savings association may acquire or be acquired by any insured depository
institution.
The FDIC has adopted final regulations implementing the risk-based
premium system mandated by the FDIC Improvement Act. Under the final
regulations insured depository institutions are required to pay insurance
premiums within a range of 23 cents per $100 of deposits to 31 cents per $100
of deposits depending on their risk classification. To determine the risk-based
assessment for each institution, an institution will be categorized as well
capitalized, adequately capitalized or undercapitalized based on its capital
ratios. A well-capitalized institution is one that has at least a 10% total
risk-based capital ratio, a 6% Tier 1 risk-based capital ratio and a 5% Tier 1
leverage capital ratio. An adequately capitalized institution has at least an
8% total risk-based capital ratio, a 4% Tier 1 risk-based capital ratio and a
4% Tier 1 leverage capital ratio. An undercapitalized institution will be one
that does not meet either of the above definitions. The FDIC will also assign
each institution to one of three subgroups based upon reviews by the
institution's primary federal or state regulator, statistical analyses of
financial statements and other information relevant to evaluating the risk
posed by the institution. As a result, the assessment rates within each of
three capital categories are as follows (expressed as cents per $100 of
deposits):
<TABLE>
<CAPTION>
Supervisory Subgroup
--------------------
A B C
<S> <C> <C> <C>
Well capitalized 0 3 17
Adequately capitalized 3 10 24
Undercapitalized 10 24 27
</TABLE>
Supervisory subgroups are set once every six months, based upon an
institution's last supervisory and capital classification. Pacific Thrift is
currently paying deposit insurance premiums at the rate of 31 cents per $100 of
deposits because it was categorized as "undercapitalized" and was in
supervisory subgroup 3C at December 31, 1994. Pacific Thrift has since been
classified as "adequately capitalized" as of March 31, 1995, and expects its
assessment rate to be changed effective January 1, 1996.
In addition, the FDIC has issued final regulations implementing
provisions of the FDIC Improvement Act relating to powers of insured state
banks (which for this purpose includes Pacific
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Thrift). Final regulations issued in October 1992 prohibit insured state banks
from making equity investments of a type, or in an amount, that are not
permissible for national banks. In general, equity investments include equity
securities, partnership interests and equity interests in real estate. Under
the final regulations, non-permissible investments must be divested by no later
than December 19, 1996. Pacific Thrift has no non-permissible investments as of
September 30, 1995.
The FDIC has recently approved final regulations which prohibit
insured state banks from engaging as principal in any activity not permissible
for a national bank, without FDIC approval. The regulations also provide that
subsidiaries of insured state banks may not engage as principal in any activity
that is not permissible for a subsidiary of a national bank, without FDIC
approval. To management's best knowledge, Pacific Thrift is not engaging in
any activity that would not be permissible under FDIC regulations.
The impact of the FDIC Improvement Act on Pacific Thrift is uncertain,
especially since many of the regulations promulgated thereunder have only been
recently adopted and certain of the law's provisions still need to be defined
through future regulatory action. Certain provisions, such as the recently
adopted real estate lending standards and the limitations on investments and
powers of state banks and the rules to be adopted governing compensation, fees
and other operating policies, may affect the way in which Pacific Thrift
conducts its business, and other provisions, such as those relating to the
establishment of the risk-based premium system, may adversely affect Pacific
Thrift's results of operations. Furthermore, if Pacific Thrift were to become
undercapitalized in the future, which management does not anticipate, the
actual and potential restrictions and sanctions that apply to or may be imposed
on undercapitalized institutions under the prompt corrective action and other
provisions of the FDIC Improvement Act could significantly adversely affect
operations and liquidity of Pacific Thrift, and the ability of the Partnership
to raise funds in the financial markets.
CAPITAL ADEQUACY GUIDELINES.
The FDIC has issued guidelines to implement new risk-based capital
requirements. The guidelines are intended to establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, take off-balance
sheet items into account in assessing capital adequacy and minimize
disincentives to holding liquid, low-risk assets. Under these guidelines,
assets and credit equivalent amounts of off-balance sheet items, such as
letters of credit and outstanding loan commitments, are assigned to one of
several risk categories, which range from 0% for risk-free assets, such as cash
and certain U.S. government securities, to 100% for relatively high-risk
assets, such as loans and investments in fixed assets, premises and other real
estate owned. The aggregated
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dollar amount of each category is then multiplied by the risk-weight associated
with that category. The resulting weighted values from each of the risk
categories are then added together to determine the total risk-weighted assets.
On and after December 31, 1992, the guidelines require a minimum ratio
of qualifying total capital to risk-weighted assets of 8%, of which at least 4%
must consist of Tier 1 capital. Higher risk-based ratios are required to be
considered well capitalized.
A banking organization's qualifying total capital consists of two
components: Tier 1 capital (core capital) and Tier 2 capital (supplementary
capital). Tier 1 capital consists primarily of common stock, related surplus
and retained earnings, qualifying noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1 capital;
however, purchased mortgage servicing rights and purchase credit card
relationships may be included, subject to certain limitations. At least 50% of
the banking organization's total regulatory capital must consist of Tier 1
capital.
Tier 2 capital may consist of (i) the allowance for possible loan and
lease losses in an amount up to 1.25% of risk-weighted assets; (ii) cumulative
perpetual preferred stock and long-term preferred stock and related surplus;
(iii) hybrid capital instruments (instruments with characteristics of both debt
and equity), perpetual debt and mandatory convertible debt securities; and (iv)
eligible term subordinated debt and intermediate-term preferred stock with an
original maturity of five years or more, including related surplus, in an
amount up to 50% of Tier 1 capital. The inclusion of the foregoing elements of
Tier 2 capital are subject to certain requirements and limitations of the
Federal Banking Agencies.
The FDIC has also adopted a minimum leverage ratio of Tier 1 capital
to average total assets of 3% for banks that have a uniform composite ("CAMEL")
rating of 1. All other institutions and institutions experiencing or
anticipating significant growth are expected to maintain capital at least 100
to 200 basis points above the minimum level. Furthermore, higher leverage
ratios are required to be considered well capitalized or adequately
capitalized.
As of December 31, 1994, Pacific Thrift had a total risk-based capital
ratio of 6.66%, a Tier 1 risk-based capital ratio of 5.41% and a leverage
capital ratio of 3.87%, which resulted in Pacific Thrift being classified as
"undercapitalized" as of that date. As of September 30, 1995, Pacific Thrift
had improved its total risk-based capital ratio to 11.93%, its Tier 1
risk-based capital ratio to 10.68% and its leverage capital ratio to 8.19%,
which meet the FDIC definition of "well capitalized." However, since the 1995
Order contains a provision requiring the maintenance of a certain
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<PAGE> 153
capital level (which it currently meets), Pacific Thrift would be classified as
"adequately capitalized" under the regulations.
In addition, the Federal Reserve Board and the FDIC have issued
proposed rules, in accordance with the FDIC Improvement Act, seeking public
comment on methods for measuring interest rate risk, and two alternative
methods for determining what amount of additional capital, if any, a bank may
be required to have for interest rate risk. Pacific Thrift cannot yet
determine whether such proposals will be adopted or the impact of such
regulations, if adopted, on Pacific Thrift.
POTENTIAL ENFORCEMENT ACTIONS
Insured depository institutions, such as Pacific Thrift, and their
institution-affiliated parties, which include the Partnership, may be subject
to potential enforcement actions by the FDIC and the DOC for unsafe or unsound
practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order that can be
judicially enforced, the termination of insurance of deposits and with respect
to Pacific Thrift and the Partnership, could also include the imposition of
civil money penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the imposition of
restrictions and sanctions under the PCA provisions of the FDIC Improvement
Act. Management knows of no pending or threatened enforcement actions against
Pacific Thrift; however, Pacific Thrift is currently operating under the 1995
Order. See "Supervision and Regulation -- Regulatory Actions" above.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The only stockholder of the Corporation prior to the Restructuring
Plan is the Partnership, which owns 3,000 shares of the Common Stock. After
the Distribution, the Partnership will own no shares of Common Stock. The
Corporation is unaware of any person or group that will control the Corporation
following the completion of the Distribution. Based upon the ownership of the
Partnership at September 30, 1995, Joel R. Schultz would be the only
Stockholder to beneficially own more than 5% of the Common Stock after the
Distribution.
After the Restructuring Plan is completed, Limited Partners of the
Partnership, the General Partner and the Standby Purchasers will be the
Stockholders of the Corporation. As of September 30, 1995, there were 2,493
Limited Partners of the Partnership.
The following tables sets forth the anticipated ownership of Common
Stock after the completion of the Restructuring Plan by (i) the four directors
of the Corporation, (ii) the Chief Executive Officer and the six other
executive officers of the Corporation whose total annual compensation after the
completion of the Restructuring Plan will exceed $100,000 (the "Named
Executives"), and (iii) all executive officers and directors of the
Corporation, as a group, based upon the Limited Partnership Units and interests
in the General Partner beneficially owned by each such person at September 30,
1995.
<TABLE>
<CAPTION>
Common
Stock Percent
Name and Address of Beneficially of
Beneficial Owner Owned(1) Class
------------------- ------------ -----
<S> <C> <C>
Joel R. Schultz
21031 Ventura Boulevard 524,734(2) 27.52%
Woodland Hills, CA 91364
Richard D. Young
21031 Ventura Boulevard * *
Woodland Hills, CA 91364
Kenneth A. Carmona
21031 Ventura Boulevard 788(3) *
Woodland Hills, CA 91364
Richard B. Fremed
21031 Ventura Boulevard 1,251(4) *
Woodland Hills, CA 91364
Norman A. Markiewicz
21031 Ventura Boulevard 2,164(5) *
Woodland Hills, CA 91364
</TABLE>
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<TABLE>
<CAPTION>
Common
Stock Percent
Name and Address of Beneficially of
Beneficial Owner Owned(1) Class
------------------- ------------- -----
<S> <C> <C>
Charles J. Siegel
21031 Ventura Boulevard * *
Woodland Hills, CA 91364
Frank Landini
500 Ygnacio Road * *
Walnut Creek, CA
Russell A. Allison
4409 Via Valmonte * *
Palos Verdes Estates, CA 90274
Ermyas Amelga
1127 Pinto Drive * *
La Habra Heights, CA 90631
All Directors, Proposed Directors and Executive Officers,
as a group (9 persons)(6) 528,937 27.74%
</TABLE>
_____________________
* Less than 1%.
(1) This includes Additional Shares which the named individuals have
indicated the intention to acquire through the exercise of Basic
Subscription Rights, but does not include (i) Additional Shares which
each individual may purchase through the exercise of Oversubscription
Rights; and (ii) Common Stock issuable upon exercise of stock options
to be granted to the named individuals, which are not exercisable for
six months after the effectiveness of the Restructuring Plan, as
described herein under the heading "MANAGEMENT -- Plans and
Arrangements -- Stock Option Plan." Except as otherwise noted and
except as required by applicable community property laws, each person
will have sole voting and disposition powers with respect to the
shares.
(2) In addition to the 4,255 shares Mr. Schultz intends to purchase
through the exercise of Basic Subscription Rights as a partner of the
General Partner, this amount includes (i) all of the 43,612 shares of
Common Stock issuable to the General Partner by the Partnership and
(ii) all of the maximum number of General Partner Warrants for 476,667
shares, as to which Mr. Schultz, as the controlling shareholder of
Presidential Services Corporation, holds sole voting and investment
power. However, the General Partner intends, at some time in the near
future, to distribute out substantially all of the Common
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Stock and Warrants it receives from the Partnership pro rata to its
partners in accordance with their percentage interests in the
Partnership. Mr. Schultz holds a 20.25% beneficial interest in the
General Partner. Accordingly, at such time as the General Partner
distributes the Common Stock and General Partner Warrants received by
it to its partners, Mr. Schultz expects to receive: (i) 8,830 shares
of Common Stock, and (ii) General Partner Warrants to purchase a
maximum of 96,510 shares, which would result in Mr. Schultz'
beneficial ownership of 109,595 shares of Common Stock, or 5.75% of
the total shares outstanding if all of the maximum General Partner
Warrants were exercised. This amount does not include the following
shares which the adult daughter and son-in-law of Mr. Schultz would
receive from the General Partner, as to which he has no voting or
investment power: (i) 130 shares of Common Stock issuable to the
General Partner by the Partnership; (ii) 63 shares purchasable through
Basic Subscription Rights; or (iii) General Partner Warrants to
purchase a maximum of 1,418 shares.
(3) This amount includes only the 788 shares that Mr. Carmona intends to
purchase through the exercise of Basic Subscription Rights as a
partner of the General Partner, and does not include: (i) 1,635
shares of Common Stock issuable to the General Partner by the
Partnership and (ii) General Partner Warrants to purchase a maximum of
17,870 shares, which Mr. Carmona would receive from the General
Partner, which would increase his total ownership to 20,293 shares,
representing 1.06% of the total outstanding Common Stock if all of the
maximum General Partner Warrants were exercised.
(4) This amount includes only 1,251 shares that Mr. Fremed intends to
purchase through the exercise of Basic Subscription Rights as a
partner of the General Partner, and does not include (i) 2,595 shares
of Common Stock issuable to the General Partner by the Partnership and
(ii) General Partner Warrants to purchase a maximum of 28,365 shares,
which Mr. Fremed would receive from the General Partner, which would
increase his total ownership to 32,211 shares, representing 1.69% of
the total outstanding Common Stock if all of the maximum General
Partner Warrants were exercised. This amount also does not include
the following shares which two adult sons of Mr. Fremed would receive
from the General Partner, as to which he has no voting or investment
power: 597 shares of Common Stock issuable to the General Partner by
the Partnership; (ii) 288 shares purchasable through Basic
Subscription Rights; and (iii) General Partner Warrants to purchase a
maximum of 6,523 shares.
(5) This amount includes only 2,164 shares that Mr. Markiewicz intends to
purchase through the exercise of Basic Subscription Rights as a
partner of the General Partner, and does not include (i) 4,490 shares
of Common Stock issuable to the General Partner by the Partnership and
(ii) General Partner
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Warrants to purchase a maximum of 49,071 shares, which Mr. Markiewicz
would receive from the General Partner, which would increase his total
ownership to 55,725 shares, representing 2.92% of the total
outstanding Common Stock if all of the maximum General Partner
Warrants were exercised.
(6) This amount includes (i) all of the 43,612 shares issuable to the
General Partner by the Partnership, (ii) all of the Basic Subscription
Rights of the named directors and officers and (iii) all of the
General Partner Warrants to purchase a maximum of 476,667 shares. At
such time as the General Partner distributes the Common Stock and
General Partner Warrants to its partners, the actual amounts of Common
Stock and General Partner Warrants that would be owned by the
directors and officers (without including any shares that may be
purchased by them through the Oversubscription Privilege) would be
217,824, representing 11.42% of the total outstanding shares if all of
the maximum General Partner Warrants were exercised.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Corporation. The Corporation's
Restated Certificate of Incorporation states that the Board of Directors shall
be divided into three classes of directors, with the directors in each class
elected for three-year staggered terms except for the initial directors. The
terms of the initial Board will expire at the annual meetings of stockholders
in 1997, 1998 and 1999. Officers will serve at the pleasure of the Board of
Directors, subject to restrictions set forth in employment agreements. See
"MANAGEMENT -- Employment Agreements.
<TABLE>
<CAPTION>
Principal Occupation or Employment and
Name Age Occupation for the Past Five Years
--------------- --- --------------------------------------
<S> <C> <C>
Joel R. Schultz(3) 58 Chairman of the Board, President, Chief Executive Officer and
Chief Operating Officer of the Corporation; Chief Managing
Officer of Presidential from 1981 to the present; Chairman of
the Board and Chief Executive Officer of Pacific Thrift since
1988 and President of Pacific Thrift from 1988 to December 1993;
director of CRC Washington since November 1995; Proposed
Chairman of the Board of Consolidated and Lenders; proposed
Chairman of the Board, President, Chief Executive Officer and
Chief Operating Officer of Unified.
Richard D. Young(1) 56 Director and Senior Executive Vice President of the Corporation
and Unified; President and Chief Operating Officer of Pacific
Thrift from November 1993 to present; director of Pacific Thrift
from November 1993 to present; President and Chief Executive
Officer of Topa Thrift and Loan from 1983 to 1993; President of
Thrift Guaranty Corporation from 1984 to 1988; director of
Thrift Guaranty Corporation from 1983 to 1988 and from 1989 to
1995, when the Thrift Guaranty Corporation was liquidated.
Kenneth A. Carmona 39 Executive Vice President of the Corporation; President and Chief
Executive Officer of Consolidated from inception in 1985 to
present and of Lenders from inception in 1990 to the present;
Senior Vice President of Pacific Thrift from 1989 to the
present; President and director of CRC Washington since November
1995; proposed director of Consolidated, Lenders and Unified.
Norman A. Markiewicz 48 Executive Vice President of the Corporation; Chief Operating
Officer of Presidential since 1981; Chief Operating Officer of
Pacific Thrift from 1988 to September 1993; Executive Vice
President of Pacific Thrift from 1993 to present; director of
Pacific Thrift from 1988 to present; proposed Executive Vice
President of Unified and proposed director of Consolidated,
Lenders and Unified.
</TABLE>
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<PAGE> 159
<TABLE>
<S> <C> <C>
Richard B. Fremed 52 Executive Vice President and Secretary of the Corporation; Chief
Financial Officer of Presidential from 1981 to April 1994; Chief
Financial Officer of Pacific Thrift from 1988 to December 1993;
Secretary of Pacific Thrift from December 1988 to present;
Treasurer of Pacific Thrift from December 1993 to present;
director of Pacific Thrift from 1988 to present; Chief Financial
Officer of Consolidated from inception in 1985 to present and of
Lenders from inception in 1990 to present; Chief Financial
Officer of CRC Washington since November 1995; proposed Chief
Financial Officer of Unified and proposed director of
Consolidated, Lenders and Unified; certified management
accountant.
Frank Landini 44 Executive Vice President of Pacific Thrift since December 1994;
Senior Vice President of Pacific Thrift from October 1993 to
December 1994; Senior Vice President of Topa Thrift and Loan
from 1983 to 1993.
Charles J. Siegel 45 Chief Financial Officer and Assistant Secretary of the
Corporation; Chief Financial Officer of Pacific Thrift from
December 1993 to present; Chief Financial Officer of
Presidential from May 1994 to present; Chief Financial Officer
of Topa Thrift and Loan from 1983 to 1993; certified public
accountant.
Russell G. Allison(1) 38 Proposed director of the Corporation; director of Pacific Thrift
from June 1992 to present; Vice President of Smith Barney from
October 1994 to present; Vice President of Kidder, Peabody &
Co., Inc. from January 1994 to October 1994; Assistant Vice
President of Kidder, Peabody & Co., Inc. from 1983 to 1993.
Ermyas Amelga(2) 39 Proposed director of the Corporation; director of Pacific Thrift
from June 1992 to present; co-owner and managing director of
AMRAY Capital Advisors from 1992 to present; Vice President of
Kidder, Peabody & Co., Inc. from 1988 to 1992.
</TABLE>
____________
(1) Terms of office will expire in 1997.
(2) Term of office will expire in 1998.
(3) Term of office will expire in 1999.
BOARD OF DIRECTORS AND COMMITTEES
The business of the Corporation's Board of Directors will be conducted
through its meetings, as well as through meetings of its committees. Set forth
below is a description of the committees of the Board.
The Audit Committee will review and report to the Board on various
auditing and accounting matters, including the annual audit
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report from the Corporation's independent public accountants. The Audit
Committee consists of Ermyas Amelga and Russell G. Allison. Mr. Amelga is its
Chairman.
The Employee Compensation Committee will determine the salary and
bonus structure for the Corporation's employees who are not employed under
written contracts and will also determine the annual bonuses of Messrs.
Markiewicz and Fremed. The Employee Compensation Committee consists of Joel R.
Schultz and Richard D. Young. Mr. Schultz is its Chairman.
The Executive Compensation and Stock Option Committee will determine
the salary and performance-based bonuses of the Corporation's executive
officers, appropriate awards under the Corporation's 1995 Stock Option Plan and
administer the Corporation's Retirement Plans. See "MANAGEMENT -- Plans and
Arrangements -- 1995 Stock Option Plan" and " -- Retirement Plan." The
Executive Compensation and Stock Option Committee consists of Ermyas Amelga and
Russell G. Allison. Mr. Amelga is its Chairman.
The Executive Committee will have the authority to act on behalf of
the full Board of Directors in between meetings of the Board, except that the
Executive Committee will not have the authority to amend the Certificate of
Incorporation or the Bylaws of the Corporation, adopt an agreement of merger or
consolidation, recommend to the stockholders a dissolution of the Corporation
or a revocation of dissolution or remove or indemnify a director. To the
extent authorized by the Board of Directors, the Executive Committee will also
be authorized to declare dividends of the Corporation and to issue shares of
authorized and unissued Common Stock or any series of Preferred Stock of the
Corporation. The Executive Committee will also act as the Nominating Committee
that nominates officers and directors of the Corporation for election. The
Executive Committee consists of Joel R. Schultz and Ermyas Amelga. Mr. Schultz
is its Chairman.
COMPENSATION OF BOARD OF DIRECTORS
It is the Corporation's intention to pay fees to its officer and
non-officer directors for serving on the Board of Directors and for their
attendance at Board and committee meetings. The Corporation will pay each
employee director an annual fee of $500, plus $200 per board or committee
meeting attended. The Corporation will pay each non-employee director an
annual fee of $2,500, plus $750 for each board meeting attended, plus $300 for
each telephonic meeting of over 30 minutes in length, plus $350 per committee
meeting for committee chairman and $250 per committee meeting for other
committee members. Only one meeting fee will be paid for meetings of the
Boards of Directors of the Corporation and one or more of its subsidiaries on
the same day and for meetings of two or more committees of the Board of
Directors of the Corporation or any of its subsidiaries on the same day. The
Assistant Corporate Secretary will receive a fee of $200 per meeting attended.
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<PAGE> 161
Each of Pacific Thrift, Consolidated, CRC Washington, Common Lenders
and Unified will also pay fees to its officer and non-officer directors for
serving on the Board of Directors and for their attendance at Board and
committee meetings. Pacific Thrift will pay the same fees as the Corporation
pays to its officer and non-officer directors. Consolidated, Lenders and
Unified will pay each employee director an annual fee of $250 plus $200 for
each meeting attended. Consolidated, CRC Washington, Lenders and Unified will
pay each non-employee director an annual fee of $1,000, plus $500 for each
board meeting attended, plus $200 for each telephonic meeting of over 30
minutes in length, plus $350 per committee meeting for committee chairman or
$250 per committee meeting for other committee members. Only one meeting fee
will be paid for meetings of the Boards of Directors of the Corporation and one
or more of its subsidiaries on the same day and for meetings of two or more
committees of the Board of Directors of the Corporation or any of its
subsidiaries on the same day. It is the intention of the Board of Directors to
have as many board and committee meetings on the same day as possible. The
Assistant Corporate Secretary will receive a fee of $200 per meeting attended.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table
sets forth certain summary information concerning compensation paid or accrued
by the General Partner, the Partnership, Pacific Thrift, Consolidated or
Lenders to or on behalf of the five most highly compensated executive officers
who earned at least $100,000 in 1994:
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
Name and Principal Position Year Salary($)(1) Bonus($)
--------------------------- ---- ------------ --------
<S> <C> <C> <C>
Joel R. Schultz,(2) 1994 $214,200 -0-
Chief Executive Officer, 1993 285,530 -0-
1992 371,091 -0-
Richard D. Young, President and Chief 1994 $161,600
Operating Officer, Partnership and Pacific 1993 51,012(3)
Thrift
Norman Markiewicz, 1994 $158,534 -0-
Senior Managing Officer (Partnership); 1993 186,838 -0-
Executive Vice President (Pacific Thrift) 1992 242,660 -0-
Kenneth Carmona, 1994 $150,150 -0-
President 1993 196,745(4) -0-
(Consolidated and Lenders) 1992 192,312(4) -0-
Charles J. Siegel,(5) 1994 $125,967 -0-
Chief Financial Officer 1993 9,133 -0-
Presidential and Pacific Thrift
</TABLE>
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- --------------
(1) The amounts specified above do not include life insurance or medical
insurance premiums for benefits in excess of group benefits provided
to employees, the aggregate amount of which do not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus reported
for each of the above named executives in each reported year.
(2) Mr. Schultz's salary includes legal fees of $100 per loan paid by
borrowers in connection with legal services related to loan
origination. SEE, "CERTAIN TRANSACTIONS - Loan Account Services."
(3) Mr. Young commenced employment with Pacific Thrift in September 1993,
and he received compensation for only four months in 1993.
(4) Includes amounts paid to a wholly owned corporation of Mr. Carmona.
(5) Mr. Siegel commenced employment with Pacific Thrift in December 1993,
and he received compensation for only one month in 1993.
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EMPLOYMENT AGREEMENTS
The Corporation has entered into employment agreements with Messrs.
Joel R. Schultz, Richard D. Young, Kenneth A. Carmona, Norman A. Markiewicz
and Richard B. Fremed, subject to completion of the Restructuring Plan. In
addition, Pacific Thrift has entered into an employment agreement with Mr.
Frank Landini. If the Restructuring Plan is completed, all of the employment
agreements would be deemed to take effect as of January 1, 1996. The Board of
Directors believes that this will provide an incentive to all of the executive
officers to maximize the earnings potential of the Corporation as soon as
possible.
Mr. Schultz will be employed for an initial term of three years, which
will be automatically extended for additional one year terms thereafter unless
either party gives at least six months written notice of its or his intention
not to renew the agreement. Mr. Schultz will be employed as the President and
Chief Executive Officer of the Corporation, Chief Executive Officer of Pacific
Thrift, and President and Chief Executive Officer of Unified. Mr. Schultz'
annual salary will equal $225,000 per year, as adjusted annually for increases
in the cost of living index, plus an annual bonus of 2-1/2% of the net pre-tax
profits of the Corporation if the Corporation earns net after tax profits
(after payment of annual bonuses) equal to a minimum return on equity (as
determined on January 1 of the applicable year) of 20% (reduced to 10% for each
year after the Corporation reaches equity of at least $20 million). The bonus
will increase to 5% of the net pre-tax profits of the Corporation if the
Corporation earns net after tax profits equal to a minimum return on equity (as
determined on January 1 of the applicable year) of 30% or more (reduced to 20%
for each year after the Corporation reaches equity of at least $20 million).
The bonus will be reduced to the amount that would allow the Corporation to
retain the applicable minimum return on equity. Up to 50% of each year's
annual bonus will be payable in quarterly installments during the applicable
year for which the bonus is earned, determined by annualizing the quarterly
return on equity for each of the first three quarters of the year. Mr. Schultz
is not eligible to participate in the employee cash bonus pool of the
Corporation.
Mr. Young will be employed for an initial term of two years, which
will be automatically extended for additional one year terms thereafter unless
either party gives at least six months written notice of its or his intention
not to renew the agreement. Mr. Young will be employed as the President of
Pacific Thrift and Senior Executive Vice President of the Corporation and
Unified. Mr. Young's annual salary will equal $225,000 per year, as adjusted
annually for increases in the cost of living index, plus an annual bonus of
2-1/2% of the net pre-tax profits of the Corporation if the Corporation earns
net after tax profits (after payment of annual bonuses) equal to a minimum
return on equity (as determined on January 1 of the applicable year) of 20%
(reduced to 10% for each year after the Corporation reaches equity of at least
$20
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<PAGE> 164
million). The bonus will increase to 5% of the net pre-tax profits of the
Corporation if the Corporation earns net after tax profits equal to a minimum
return on equity (as determined on January 1 of the applicable year) of 30% or
more (reduced to 20% for each year after the Corporation reaches equity of at
least $20 million). The bonus may be reduced to the amount that would allow
the Corporation to retain the applicable minimum return on equity. Up to 50%
of each year's annual bonus will be payable in quarterly installments during
the applicable year for which the bonus is earned, determined by annualizing
the quarterly return on equity for each of the first three quarters of the
year. Mr. Young is not eligible to participate in the employee cash bonus
pool of the Corporation.
Mr. Carmona will be employed for an initial term of two years, which
will be automatically extended for additional one year terms thereafter unless
either party gives at least six months written notice of its or his intention
not to renew the agreement. Mr. Carmona will be employed as the President and
Chief Executive Officer of Consolidated and Lenders, Senior Vice President of
Pacific Thrift and Executive Vice President of the Corporation. Mr. Carmona's
annual salary will equal $150,000 per year, as adjusted annually for increases
in the cost of living index, plus an annual bonus of up to 5% of the net pretax
profits of Consolidated and Lenders on a combined basis, if they earn a
combined net after tax profit (after payment of all annual bonuses based upon
this same formula) in excess of $600,000 for the year. Mr. Carmona will also
be eligible to participate in the employee cash bonus pool of the Corporation.
Mr. Markiewicz will be employed for a term of one year, which will be
automatically extended for additional one year terms thereafter unless either
party gives at least six months written notice of its or his intention not to
renew the agreement. Mr. Markiewicz will be employed as Executive Vice
President of the Corporation, Unified and Pacific Thrift. Mr. Markiewicz'
annual salary will equal $135,000 per year, as adjusted annually for increases
in the cost of living index, and Mr. Markiewicz will also be eligible to
participate in the employee cash bonus pool of the Corporation.
Mr. Fremed will be employed for a term of one year, which will be
automatically extended for additional one year terms thereafter unless either
party gives at least six months written notice of its or his intention not to
renew the agreement. Mr. Fremed will be employed as Executive Vice President
and Secretary of the Corporation, Chief Financial Officer of Unified,
Consolidated, CRC Washington and Lenders, and Treasurer of Pacific Thrift. Mr.
Fremed's annual salary will equal $125,000 per year, as adjusted annually for
increases in the cost of living index, and Mr. Fremed will also be eligible to
participate in the employee cash bonus pool of the Corporation.
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Mr. Landini will be employed as Executive Vice President of Pacific
Thrift for a term of two years by Pacific Thrift, which will be automatically
extended for additional one year terms thereafter unless either party gives at
least six months written notice of its or his intention not to renew the
agreement. Mr. Landini will receive an annual base salary of $150,000, as
adjusted annually for increases in the cost of living index. Mr. Landini will
also receive an annual bonus based upon net profits earned from wholesale loans
originated by Pacific Thrift for sale (the "Securitizable Loan Division"), over
which Mr. Landini has primary responsibility. Net profits from the
Securitizable Loan Division consists of revenues earned from premiums on loan
sales, net interest earned on securitizable loans prior to sale, and net fees
charged to borrowers (less fees paid to brokers and other referral sources)
less employee related and overhead expenses of the Securitizable Loan Division.
For the 1996 fiscal year, up to $100,000 of Mr. Landini's bonus plus one-half
of any bonus earned in excess of $200,000 will be paid in January 1997, and any
bonus earned between $100,000 and $200,000, plus one-half of the bonus earned
in excess of $200,000, will be payable 36 months later unless Mr. Landini's
employment is terminated voluntarily by him or by Pacific Thrift "for cause."
For fiscal years after 1996, one-half of the bonus earned for each year is
payable in January of the following year, and the remaining half is payable 36
months later unless Mr. Landini's employment is terminated voluntarily by him
or by Pacific Thrift for cause. If Mr. Landini's employment agreement
continues for a total of ten years or more, the provision delaying one-half of
his bonus for 36 months will terminate. Events which are deemed termination
"for cause" include conviction of a felony or any crime involving moral
turpitude, commission of an act of fraud, theft or embezzlement against Pacific
Thrift or conduct materially injurious to Pacific Thrift's business or
reputation. Mr. Landini is not eligible for the employee bonus pool.
The employment agreements of Messrs. Schultz, Young, Markiewicz and
Fremed will provide that an executive may voluntarily terminate his employment
with the Corporation upon the occurrence of a corporate change, as defined in
the employment agreement. In that event, the employee will be entitled to
continuation of certain benefits, and severance pay equal to his salary and
bonus for either six months, one year, or one and one-half years, as provided
in his agreement. Corporate changes under the employment agreements shall
include any one (or more) of the following events: (i) any person, including a
group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, becomes the beneficial owner of shares of the Corporation with respect
to which twenty percent (20%) or more of the total number of votes for the
election of the Board may be cast; (ii) as a result of, or in connection with,
any cash tender offer, exchange offer, merger or other business combination,
sale of assets, or contested election for the Board, or combination of the
foregoing, persons who were directors of the Corporation just prior to such
event(s) shall cease to constitute a majority of the Board; (iii)
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a transaction in which the Corporation will cease to be an independent publicly
owned corporation that is required to file quarterly and annual reports under
the Securities Exchange Act of 1934, or a sale or other disposition of all or
substantially all the assets of the Corporation (including but not limited to
the assets or stock of Corporation's subsidiaries that results in all or
substantially all of the assets or stock of Corporation on a consolidated basis
being sold); (iv) a tender offer or exchange offer is made for shares of the
Corporation's Common Stock (other than one made by the Corporation) and shares
of Common Stock are acquired thereunder; (v) the stockholders of the
Corporation cause a change in the majority of the members of the Board within a
twelve (12) month period; provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period; or (vi) with respect to Joel
Schultz only, a change in his duties or a reduction in compensation.
The Corporation will retain the right to terminate the employment
agreement in the event of an employee's physical or mental disability which
will render him unable to perform under the agreement for any period of one
hundred and twenty consecutive days or for an aggregate period of one hundred
and twenty or more days during any twelve-month period. In the event of
termination due to disability, an employee would be entitled to receive as
disability compensation a lump sum payment equal to the annual bonus earned by
employee during the fiscal year preceding the year of termination, one year's
annual salary, payable not less frequently than monthly and continuation of
certain benefits for the greater of one year or the remainder of the term under
the agreement. In the event of death, an employee's personal representative
will be entitled to receive as a death benefit, in addition to any other
payments which he may be entitled to receive under any of the Corporation's
benefit plans, payment of one year's salary, payable not less frequently than
monthly. In addition, the personal representative of Mr. Schultz, Young,
Carmona or Landini would also be entitled to receive a lump sum payment equal
to the annual bonus earned by the employee for the prior fiscal year or, in the
case of Mr. Schultz or Mr. Young, the higher of the bonus earned in the prior
year or the bonus that would have been earned in the current year had the
employee continued his employment for the full year.
The Corporation will have the right to terminate the employee for
cause, which is defined in the agreement as conviction of a felony or any crime
involving moral turpitude, commission of an act of fraud, theft or embezzlement
against the Corporation, or conduct materially injurious to the Corporation's
business or reputation. In the event of termination of the agreement without
cause, the employee would be entitled to the continuation of certain benefits
and severance pay for either six months or one year, as provided in his
agreement.
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PLANS AND ARRANGEMENTS
GENERAL. Employees of the Corporation, including executive officers,
will be entitled to participate in various benefit plans established by the
Corporation. Prior to the completion of the Distribution, the Board of
Directors will adopt, subject to consummation of the Restructuring Plan, the
plans described below and the Partnership, as the sole stockholder of the
Corporation, will approve the adoption of the plans.
1995 STOCK OPTION PLAN
The 1995 Pacific United Group, Inc. Stock Option Plan (the "1995
Plan") is designed to promote and advance the interests of the Corporation and
its stockholders by (1) enabling the Corporation to attract, retain, and reward
managerial and other key employees and non-employee directors, and (2)
strengthening the mutuality of interests between participants and the
Stockholders of the Corporation in its long term growth, profitability and
financial success by offering stock options.
SUMMARY OF THE 1995 PLAN. The 1995 Plan will empower the Corporation
to award or grant from time to time until December 31, 2003, when the 1995 Plan
expires except with respect to options then outstanding, to officers, directors
and key employees of the Corporation and its subsidiaries, Incentive and
Non-Qualified Stock Options ("Options") authorized by the Committee which will
administer the 1995 Plan.
ADMINISTRATION. The 1995 Plan will be administered by the Stock
Option and Retirement Plans Committee of the Board of Directors (the
"Committee"). The 1995 Plan provides that the Committee must consist of at
least two directors of the Corporation who are both "disinterested directors"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and "outside directors" within the meaning of
proposed Treasury Regulations Section 1.162-27(c)(3). The Committee has the
sole authority to construe and interpret the 1995 Plan, to make rules and
procedures relating to the implementation of the 1995 Plan, to select
participants, to establish the terms and conditions of Options and to grant
Options, with broad authority to delegate its responsibilities to others,
except with respect to the selection for participation of, and the granting of
Options to, persons subject to Sections 16(a) and 16(b) of the Exchange Act.
Members of the Stock Option and Retirement Plans Committee will not be eligible
to receive discretionary Options under the 1995 Plan.
ELIGIBILITY CONDITIONS. Managerial employees, including all officers
of the Corporation, and other key employees of the Corporation and its
subsidiaries who hold positions of significant responsibility and nonemployee
directors will be eligible to receive Options under the 1995 Plan.
Non-employee directors are only eligible to receive Non-Qualified Stock Options
under the 1995 Plan. Except for Non-Qualified Stock Options granted to
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non-employee directors, the selection of recipients of, and the nature and size
of, Options granted under the 1995 Plan will be wholly within the discretion of
the Committee. The 1995 Plan is subject to specific formula provisions
relating to the grant of options to non-employee directors, the exercisability
of Incentive Stock Options and the total shares available for option grants.
In addition, there is a 50,000 share limit on the number of shares of Common
Stock in respect of which any type of Options may be granted to any person in
each calendar year.
SHARES SUBJECT TO 1995 PLAN. The maximum number of shares of Common
Stock in respect of which Options may be granted under the Plan (the "Plan
Maximum") shall be 170,000 with an increase of two percent (2%) of the total
issued and outstanding shares of the Common Stock on the first day of each
subsequent calendar year, up to a maximum 250,000 shares, commencing January 1,
1997.
For the purpose of computing the total number of shares of Common
Stock available for Options under the 1995 Plan, the above limitations shall be
reduced by the number of shares of Common Stock subject to issuance upon
exercise or settlement of Options, determined at the date of the grant of such
Options. However, if any Options are forfeited, terminated, settled in cash or
exchanged for other Options or expire unexercised, the shares of Common Stock
previously subject to such Options shall again be available for further Option
grants. The shares of Common Stock which may be issued to participants in the
1995 Plan may be either authorized and unissued Common Stock or issued Common
Stock reacquired by the Corporation. No fractional shares may be issued under
the 1995 Plan.
The maximum numbers of shares of Common Stock in payment of Options
granted or which may be subject to Options, as applied to the 1995 Plan and its
several components, are subject to appropriate equitable adjustment in the
event of a reorganization, stock split, stock dividend, combination of shares,
merger, consolidation or other recapitalization of the Corporation.
TRANSFERABILITY. No Option granted under the 1995 Plan, and no right
or interest therein, shall be assignable or transferable by a participant
except by will or the laws of descent and distribution.
TERM, AMENDMENT AND TERMINATION. The 1995 Plan will terminate on
December 31, 2003, except with respect to Options then outstanding. The Board
or Directors may amend or terminate the 1995 Plan at any time, except that, (i)
to the extent restricted by Rule 16b-3 promulgated under the Exchange Act, as
amended and in effect from time to time (or any successor rule), the Board of
Directors may not, without approval of the Stockholders of the Corporation,
make any amendment that would (1) increase the total number of shares available
for issuance (except as permitted by the 1995 Plan to reflect changes in
capital structure), (2) materially change the eligibility requirements, or (3)
materially increase the
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benefits accruing to participants under the 1995 Plan, and (ii) the provisions
of the 1995 Plan governing the award of options to Non-Employee Directors may
not be amended more than once every six months other than to comport with
changes to the Code, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or the regulations promulgated thereunder.
CHANGE OF CONTROL. The 1995 Plan provides that the exercisability of
outstanding Options shall be accelerated upon any of the following events: (i)
any person, including a group as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the beneficial owner of shares of the
Corporation with respect to which twenty percent (20%) or more of the total
number of votes for the election of the Board may be cast; (ii) as a result of,
or in connection with, any cash tender offer, exchange offer, merger or other
business combination, sale of assets, or contested election for the Board, or
combination of the foregoing, persons who were directors of the Corporation
just prior to such event(s) shall cease to constitute a majority of the Board;
(iii) a transaction in which the Corporation will cease to be an independent
publicly owned corporation that is required to file quarterly and annual
reports under the Securities Exchange Act of 1934, or a sale or other
disposition of all or substantially all the assets of the Corporation
(including but not limited to the assets or stock of Corporation's subsidiaries
that results in all or substantially all of the assets or stock of Corporation
on a consolidated basis being sold); (iv) a tender offer or exchange offer is
made for shares of the Corporation's Common Stock (other than one made by the
Corporation ) and shares of Common Stock are acquired thereunder; or (v) the
stockholders of the Corporation cause a change in the majority of the members
of the Board within a twelve (12) month period; provided, however, that the
election of one or more new directors shall not be deemed to be a change in the
membership of the Board if the nomination of the newly elected directors was
approved by the vote of three-fourths of the directors then still in office who
were directors at the beginning of such twelve (12) month period.
INCENTIVE STOCK OPTIONS. Options designated as Incentive Stock
Options, within the meaning of Section 422 of the Code, in respect of up to the
Plan Maximum may be granted under the 1995 Plan. The number of shares of
Common Stock in respect of which Incentive Stock Options are first exercisable
by any optionee during any calendar year shall not have a fair market value
(determined at the date of grant) in excess of $100,000 (or such other limit as
may be imposed by the Code). To the extent the fair market value of the shares
for which options are designated as Incentive Stock Options that are first
exercisable by any optionee during any calendar year exceed $100,000, the
excess amount shall be treated as Non-Qualified Stock Options. Incentive Stock
Options shall be exercisable for such period or periods, not in excess of ten
years after the date of grant, as shall be determined by the Committee.
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GRANT OF INCENTIVE STOCK OPTIONS. The Board of Directors of the
Corporation intends to grant Incentive Stock Options to acquire a total of
155,000 shares of Common Stock to certain key employees, including the
executive officers, of the Corporation, at an exercise price equal to the
average closing sale price of the Common Stock for the first 15 trading days
after the Distribution. For employees who have been employed by the
Partnership for five years or more, options will become exercisable 20% after
the first six months following the grant, and an additional 20% on the first,
second, third and fourth anniversary dates of the grant thereafter. For
employees who have been employed by the Partnership for less than five years,
options will become exercisable 25% on each of the first, second, third and
fourth anniversary dates of the grant.
The following executive officers of the Corporation will receive
Incentive Stock Options for the following amounts of shares of Common Stock if
the Restructuring Plan is completed.
<TABLE>
<CAPTION>
Name Dollar Value Number of Shares
---- ------------ ----------------
<S> <C> <C>
Joel R. Schultz * 40,000
Richard D. Young * 40,000
Kenneth A. Carmona * 8,000
Frank Landini * 8,000
Norman A. Markiewicz * 8,000
Richard B. Fremed * 8,000
Charles J. Siegel * 8,000
Non-officer directors as a group 4,000
Executive Officers and directors as a group (9 124,000
persons)
</TABLE>
____________________
* Not yet determinable.
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options may be
granted for such number of shares of Common Stock and will be exercisable for
such period or periods as the Committee shall determine, up to a maximum term
of ten years.
OPTIONS TO NON-EMPLOYEE DIRECTORS. The 1995 Plan also provides for
the grant of options to Non-Employee Directors of the Corporation or any of its
subsidiaries, without any action on the part of the Board or the Committee,
only upon the terms and conditions set forth in the 1995 Plan. Subject to
completion of the Restructuring Plan, each eligible non-employee director of
the Corporation or any of its subsidiaries on the Effective Date of the 1995
Plan shall automatically receive, for each directorship held
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by such person, Non-Qualified Options to acquire (i) 1,000 shares of Common
Stock and (ii) 100 shares of Common Stock after each 12 month period of
continuous service as a director of the Corporation thereafter for up to a
maximum of five such periods. In no event, however, shall any person receive
options upon becoming a director for more than 1,000 shares or options for any
subsequent year in excess of 200 shares per year. Each person who thereafter
becomes a Non-Employee Director shall automatically receive Non-Qualified
Options to acquire (i) 1,000 shares of Common Stock for each directorship held
by such person on the date such person becomes a Non-Employee Director and (ii)
100 shares of Common Stock after each 12 month period of continuous service as
a director of the Corporation thereafter for up to a maximum of five such
periods. In no event, however, shall any person receive options upon becoming
a director for more than 1,000 shares or options for any subsequent year in
excess of 200 shares per year. Each option shall become exercisable as to 50%
of the shares of Common Stock subject to the option on each of the first
anniversary date of the grant and 50% on the second anniversary date of the
grant, and will expire ten years from the date the option was granted. The
exercise price of such options shall be equal to 100% of the fair market value
of the Common Stock subject to the option on the date on which such options are
granted. Each option shall be subject to the other provisions of the 1995
Plan.
Subject to the completion of the Restructuring Plan, the Non-Employee
Directors of the Corporation will be granted pursuant to the formula provisions
of the 1995 Plan Non-Qualified Options to acquire a maximum of 5,000 shares of
Common Stock, at an exercise price equal to the average closing sale price of
the Common Stock for the first 15 trading days after the Distribution.
OPTION EXERCISE PRICES. The exercise price of an Incentive Stock
Option shall be at least 100% of the fair market value of the Common Stock on
the date of grant. Except for Options to Non-Employee Directors, Non-Qualified
Stock Options may be issued at such option exercise price as the Committee
shall determine, but not less than par value per share. The fair market value
of all Options granted on the Distribution Date will be determined as the
average closing sale price of the Common Stock for the first 15 trading days.
EXERCISE OF OPTIONS. No Stock Option may be exercised, except as
provided below, unless the holder thereof remains in the continuous employ or
service of the Corporation or one of its subsidiaries.
Stock Options shall be exercisable only upon the payment in full of
the applicable option exercise price in cash or, if approved by the Committee,
in shares of the Common Stock (at the fair market value thereof at exercise
date) or, if approved by the Committee, by surrendering outstanding Options
denominated as to which the participant is vested. No Incentive or
Non-Qualified
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Stock Option may be exercised within six months following the date of grant.
RETIREMENT PLAN
The General Partner, on behalf of the Partnership, Pacific Thrift and
Consolidated, established a 401(k) Plan in 1994 in which executive officers and
other employees participate. The Pacific United Group Retirement Plan will
constitute an amendment of the existing 401(k) Plan (the "Retirement Plan").
Following the completion of the Restructuring Plan, the Corporation will adopt
the Retirement Plan as sponsor.
All employees (including officers) of the Corporation and its
subsidiaries on the Distribution Date will be eligible to participate in the
Retirement Plan and future employees will be eligible following the completion
of 1,000 hours of service and their first year of employment. Subject to
certain limitations, participants in the Retirement Plan may make contributions
from 2% to 15% of their pretax compensation, up to a maximum of $9,240 per year
(in 1995), subject to certain limitations and annual adjustments for inflation.
The Corporation may, in its discretion, make a matching contribution equal to a
percentage of compensation contributed by each participant, not to exceed 6% of
compensation. The Retirement Plan is designed to qualify under Section 401(k)
of the Code and therefore contributions by the Corporation and the participants
are deductible by the Corporation and not includible in the income of the
participants for federal income tax purposes. Participants will always be
fully vested in all of their individual contributions to the Retirement Plan
(and in earnings on such contributions). Participants will be fully vested in
employer contributions (and earnings on such contributions) to the Retirement
Plan, regardless of years of service, upon the attainment of normal retirement
age (age 65), such participant's death or permanent and total disability while
employed by the Corporation or the termination or complete discontinuance of
the Retirement Plan. If a participant terminates employment with the
Corporation for any other reason other than retirement, then such participant's
interest in employer contributions to the Retirement Plan shall vest 20% after
one year of service, 20% for each year of service thereafter, so they will be
vested 100% after five or more years of service. An employee's service with
the Partnership, the General Partner, and former affiliates is counted for
purposes of vesting under the Retirement Plan.
STOCK PURCHASE PLAN
The 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan")
provides for eligible employees of the Corporation and its subsidiaries to
participate in the ownership of the Corporation by acquiring the right to
purchase shares of the Corporation's Common Stock. The Stock Purchase Plan
will cover a total of 50,000 shares of Common Stock, which may be purchased by
the Plan in the open market or issued by the Corporation from authorized and
unissued
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treasury stock. The purpose of the Stock Purchase Plan is to promote the
interests of the Corporation by providing a method whereby employees of the
Corporation may participate in the ownership of the Corporation by acquiring an
interest in the Corporation's growth and productivity.
THE OPTIONS. The Stock Purchase Plan provides that, during each
specified period ("Option Period"), the Corporation may grant options to
participants to purchase, at the termination of that Option Period, shares of
Common Stock under the Stock Purchase Plan. The Option Periods coincide with
the Corporation's calendar year.
The price at which each share covered by an option under the Stock
Purchase Plan may be purchased is in all instances the lower of (i) 100% of the
fair market value of a share of Common Stock on the first day of the applicable
Option Period, and (ii) 90% of the fair market value of a share of Common Stock
on the last day of that Option Period. Accordingly, in no event does an
employee's purchase price exceed 90% of the fair market value of a share of
Common Stock on the last day of the Option Period.
Unless terminated, options granted at the commencement of an Option
Period are exercised automatically on the last day of that Option Period. An
option terminates upon a voluntary withdrawal from participation in the Stock
Purchase Plan by a participant, which may be effected any time prior to the
last day of the Option Period by completing a notice of termination form. An
option also terminates automatically if the participant holding the option
ceases to be employed by the Corporation or a subsidiary of the Corporation for
any reason (including death, disability or retirement) prior to the last day of
the Option Period.
An option may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution, and may be exercised, during the lifetime of the
optionee, only by such optionee. Optionees do not have rights as Stockholders
with respect to option shares until they exercise their options.
ELIGIBILITY AND PARTICIPATION. All full-time employees of the
Corporation and its subsidiaries who have been employed continuously for at
least 30 days and who work more than 20 hours per week are eligible to
participate in the Stock Purchase Plan at their election. However, no employee
may be granted an option if such employee would immediately thereafter own,
directly or indirectly, 5% or more of the combined voting power of all classes
of stock, of the Corporation, as determined pursuant to Section 424(d) of the
Code.
Eligible employees may enroll as participants in the Stock Purchase
Plan by executing a form provided by the Corporation prior to the commencement
of each Option Period on which they may designate the stated maximum set forth
on the form, to (1) the
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portion of their compensation, in any amount up to the stated maximum set forth
on the form, to be deducted semi-monthly, and accumulated for the purchase of
shares of Common Stock, and/or (2) the amount of funds, if any, which they will
deposit at the beginning of the Option Period for the purchase of shares of
Common Stock. Once chosen, the semi-monthly contribution for that Option
Period cannot be decreased or increased without terminating the option. The
aggregate maximum dollar amount which may be designated by a participant to be
applied to the purchase of shares under the Stock Purchase Plan may not exceed
the lesser of 15% of base compensation or $25,000 per year.
ADMINISTRATION AND AMENDMENT. The Stock Purchase Plan will be
administered by the Stock option and Retirement Plans Committee of the Board of
Directors. That Committee will be empowered to interpret and construe any
provision of the Stock Purchase Plan and may adopt such rules and regulations
for administering the Stock Purchase Plan as it deems necessary.
The Board of Directors of the Corporation may at any time, insofar as
is permitted by law, alter, amend, suspend or discontinue the Stock Purchase
Plan with respect to any shares not already subject to options; provided,
however, that without the approval of the Stockholders no modification or
amendment may increase the number of shares subject to the Stock Purchase Plan,
extend the term of the Stock Purchase Plan, alter the option price formula,
otherwise materially increase the benefits accruing to participants, materially
modify the requirements as to eligibility for participation, or amend the Stock
Purchase Plan in any manner that will cause it to fail to meet the requirements
of an "Employee Stock Purchase Plan" as defined in Section 423 of the Code.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Pacific United Group Supplemental Executive Retirement Plan (the
"Supplemental Plan"), an unfunded retirement plan, is designed to provide
benefits to certain long-term executive officers of the Corporation and its
predecessors. Participants' years of service with the General Partner,
Presidential (and its former affiliate, Pacific Thrift and Loan Association)
Consolidated, Lenders and Pacific Thrift prior to the completion of the
Restructuring Plan will carry forward for vesting and benefit accrual purposes.
The Supplemental Plan will initially cover the following seven employees: Joel
R. Schultz, Richard B. Fremed, Norman A. Markiewicz, Richard D. Young, Kenneth
A. Carmona, Charles J. Siegel and Frank Landini. Future participants, if any,
will be determined by the Board of Directors. Administration of the
Supplemental Plan will be the responsibility of the Executive Compensation and
Stock Option Committee. Participants in the Supplemental Plan will not be
permitted to make contributions to the Supplemental Plan.
Under the Supplemental Plan, a participant's 65th birthday is deemed
his or her normal retirement date ("Normal Retirement
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Date"). The yearly benefit that a participant will receive at his or her
Normal Retirement Date will be 1-2/3% of his or her average compensation
(whether paid by the General Partner, the Partnership or the Corporation) for
his or her highest 3 consecutive years, multiplied by the actual number of his
or her years of service. However, in no event will any years of service in
excess of 30 be taken into account. The participant's benefits are reduced by
his estimated Social Security Benefit and by his estimated Section 401(k) Plan
Benefit. The estimated 401(k) Plan Benefit is determined as a straight life
annuity that is the actuarial equivalent of the sum of the elective deferral
and company matching contributions made to the Retirement Plan, based on the
assumption that the maximum elective deferrals and company match are
contributed to the Retirement Plan on behalf of the participant each year and
the participant's account yields an assumed earnings rate. Benefits are
payable monthly upon the participant's retirement.
A participant is entitled to elect early retirement before his or her
Normal Retirement Date, and still receive retirement benefits, at any time
after (a) he or she has completed 15 years of service and (b) the sum of his or
her age and years of service equals or exceeds 75 ("Early Retirement Date").
The dollar amount of a participant's early retirement benefit equals the normal
retirement benefit reduced 1/4% for each month prior to his or her 65th
birthday.
If a participant dies while employed by the Corporation at any time
when he or she is eligible for early or normal retirement, his or her surviving
spouse will receive the survivor portion of a benefit determined as if the
participant had retired on the day before his or her death, and had elected to
receive his or her benefit in the form of a 50% joint and survivor annuity.
Participants' benefits will become fully vested upon the attainment of
their Early Retirement Date or Normal Retirement Date; however, participants
will forfeit all of their benefits in the event they are terminated for cause,
or they engage in competition with the Corporation without express written
consent of the Corporation, either before or after retirement.
Special rules apply following a Change of Control of the Corporation.
If a participant's employment is terminated within 5 years following a Change
of Control:
(a) the participant will be entitled to receive a benefit even if
he or she voluntarily terminates employment prior to eligibility for
retirement, provided it is for "Good Reason," which includes, among other
circumstances, reduction in the participant's annual base salary, the failure
to pay within 7 days of the due date any portion of the participant's
compensation, and the Corporation's failure to continue in effect any material
compensation plan in which the participant participated immediately before the
Change of Control;
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(b) the participant will be credited with an additional 5 years of
service and entitled to receive a lump sum distribution of the present value of
his or her accrued benefit; and
(c) the participant's benefit can be forfeited because he or she
is terminated for cause only if (i) the termination is because of the willful
and continued failure by the participant to substantially perform his or her
duties with the Corporation after a written demand for substantial performance
is delivered to the participant by the Board of Directors, or (ii) the
participant's theft or embezzlement from the Corporation, fraud or other acts
of dishonesty in the conduct of the Corporation's business, conviction or plea
of nolo contendere to any felony or any crime involving moral turpitude, or
willful and knowing action which is materially injurious to the business or
reputation of the Corporation.
A participant shall have the right to appeal a dismissal for cause to
the Board of Directors. Such participant shall not be deemed to have been
terminated for cause within 5 years following a Change of Control unless and
until he or she receives a copy of a resolution stating that the participant
had committed an act described in clause (i) or (ii) of paragraph (c) above,
duly adopted by the affirmative vote of not less than 75% of the entire
membership of the Board of Directors.
A participant also will have the right to receive a lump sum benefit
under the Plan in the event of a voluntary termination of employment within one
year following a Change of Control, based on his actual Years of Service.
The Board of Directors of the Corporation may amend or terminate the
Supplemental Plan at any time, provided that neither the accrual or vesting
rights of any participant at the time of amendment or termination may be
adversely affected without the consent of that participant. Plan termination
will not result in immediate vesting of accrued benefits.
The following table shows the estimated annual retirement benefits,
before any applicable offset for estimated Social Security benefits or
estimated 401(k) benefits under the Retirement Plan. Such benefits would be
payable to participants in the Supplemental Plan on their Normal Retirement
Date on a straight life annuity basis. Offsets for social security and 401(k)
contributions made under the Retirement Plan may be substantial for certain
participants.
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<TABLE>
<CAPTION>
Average Annual
Eligible Annual Compensation
Compensation Years of Service at Retirement
------------ --------------------------------------------------------------------
15 20 25 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
$100,000 $25,005 $33,340 $41,675 $50,010
$200,000 $50,010 $66,680 $83,350 $100,020
$300,000 $75,015 $100,020 $125,025 $150,030
$400,000 $100,020 $133,360 $166,700 $200,040
$500,000 $125,025 $166,700 $208,375 $250,050
</TABLE>
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Corporation's Certificate of Incorporation provides that a
director of the Corporation will have no personal liability to the Corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director except (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) as
provided under Section 174 of the Delaware General Corporation Law (the
"Delaware GCL") for the payment of certain unlawful dividends and the making of
certain stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit. This provision would
absolve directors of personal liability for negligence in the performance of
their duties, including gross negligence. It would not permit a director to be
exculpated, however, for liability for actions involving conflicts of interest
or breaches of the traditional "duty of loyalty" to the Corporation and its
shareholders, and it would not affect the availability of injunctive or other
equitable relief as a remedy.
The provision does not eliminate or alter the duty of the
Corporation's directors; it merely limits personal liability for monetary
damages to the maximum extent now permitted by the Delaware GCL. Moreover, it
applies only to claims against a director arising out of his role as a
director; it does not apply to claims arising out of his role as an officer (if
he is also an officer) or arising out of any other capacity in which he serves.
While this provision does not affect the availability of injunctive or other
equitable relief as a remedy for breach of duty by directors, it does limit the
remedies available to a Stockholder who has an otherwise valid claim that a
director acted in violation of his duties, if the action is among those as to
which liability is limited. Because of this provision, Stockholders will not
have a claim for monetary damages based on breach of the directors' duty, even
if the directors' conduct involved gross negligence (including a grossly
negligent business decision involving a takeover proposal for the Corporation),
unless the conduct is of a
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type for which the Delaware GCL does not permit limitation of liability. If
the Stockholders do not have a claim for monetary damages, their only remedy
may be a suit to enjoin completion of the Board's action or to rescind
completed action. The Stockholders may not be aware of a proposed transaction
that might otherwise give rise to a claim until the transaction is completed or
until it is too late to prevent its completion by injunction. In such a case,
the Corporation and its Stockholders may have no effective remedy for an injury
resulting from the Board's action.
This provision may reduce the likelihood of Stockholder derivative
litigation against directors and may discourage or deter Stockholders or
management from bringing a lawsuit against directors for breach of their
duties, even though such action, if successful, might otherwise have benefited
the Corporation and its Stockholders. The Securities and Exchange Commission
has taken the position that similar provisions added to other corporations'
certificates of incorporation would not protect those corporations' directors
from liability for violations of the federal securities laws.
The Corporation included this exculpation provision in its
Certificate of Incorporation to provide its directors with the maximum
protection from personal liability made available by the Delaware GCL. It is
believed that this provision will help the Corporation to attract and retain as
directors the persons most qualified for those positions.
DIRECTOR AND OFFICER INDEMNIFICATION
The Corporation's Bylaws generally require the Company to indemnify
and advance expenses to its directors, officers, employees and other agents to
the fullest extent permitted by Delaware law. The Corporation also has entered
into indemnification agreements with each of its directors and executive
officers whereby the Corporation will indemnify each such person against
certain claims arising out of certain past, present or future acts, omissions
or breaches of duty committed by an indemnitee while serving as a director of
the Corporation or any of its subsidiaries. Such indemnification does not
apply to acts or omissions which are knowingly fraudulent, deliberately
dishonest or arise from willful misconduct. Indemnification will only be
provided to the extent that the indemnitee has not already received payments in
respect of a claim from the Corporation or from an insurance company. Under
certain circumstances, such indemnification (including reimbursement of
expenses incurred) will be allowed for liability arising under the Securities
Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or person controlling
the Corporation pursuant to the foregoing provisions, the Corporation has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against
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public policy as expressed in the Securities Act and is therefore
unenforceable.
The Corporation may purchase a directors' and officers' liability
policy insuring directors and officers of the Corporation upon the completion
of the Restructuring Plan.
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CERTAIN TRANSACTIONS
MANAGEMENT FEES
Pursuant to the Partnership Agreement, the General Partner earns its
management fees based upon the amount of Net Profits allocated to each class of
Partners of the Partnership. The General Partner receives as a draw against
management fees an amount equal to 10% of the net pre-tax profits earned by the
Partnership each quarter. To the extent that this draw results in an
overpayment of management fees at the end of the year, the General Partner is
required to repay the excess amount paid within 30 days.
In 1991, the General Partner received an overpayment of the management
fee of $274,000 due to increases in the provision for loan losses and
accounting adjustments for a change in the method for determination of
deferrable loan origination costs. In addition, the General Partner determined
voluntarily to reduce the management fee by an additional $553,000, which
allowed the Partnership to make distributions of Net Profits equal to the
initial allocation rates of each class of Partners. The General Partner,
therefore, repaid a total of $827,000 to the Partnership in 1992 under a
one-year note to the Partnership.
In 1992, the General Partner received an overpayment of the management
fee of $441,002 due to increases in the provision for Partnership loan losses.
The overpayment was repaid with interest at the NatWest prime rate plus 1% from
December 31, 1992 until full repayment on May 13, 1994.
In 1993, the General Partner received management fees of $440,530 in
the first and second calendar quarters, which is required to be repaid as a
result of the Partnership's net loss for 1993. As a result, the General
Partner delivered a promissory note to the Partnership for the balance owed,
payable in four equal quarterly principal installments commencing December 20,
1994. As of September 30, 1995, the General Partner owed $220,000 on this
note. No interest was paid or accrued for 1993. However, interest at the
NatWest prime rate plus 1% has been accrued from January 1, 1994. All accrued
interest owed on this amount has been paid through September 30, 1995.
The General Partner received no management fees in 1994 or the first
nine months of 1995.
SUPERVISION FEES AND PERSONNEL REIMBURSEMENTS
The Partnership pays fees to the General Partner for supervision and
oversight of the lending and general business operations of the Partnership, up
to a maximum of 35% of the loan origination fee paid by the borrower of each
loan originated by the Partnership and Pacific Thrift (the "Base Fee"), plus
3/8ths of 1%
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annually on the principal balance of each loan with an initial maturity of over
three years.
For the years ended December 31, 1994, 1993 and 1992, the General
Partner received supervision fees of $805,000, $845,508 and $1,432,139 from the
Partnership. The General Partner voluntarily reduced the amount of the base
fee for personnel services from 35% to 30% in 1993, which reduced the amount of
fees which otherwise would have been payable to the General Partner by
$111,431.
The Partnership reimburses the General Partner for the employee
salaries and related expenses of each of the employees of the General Partner
who devote 100% of their time to the business of the Partnership and who do not
own more than a 1% interest in the General Partner. There was an average of
135 full time employees and one part time employee of the General Partner who
met these criteria in 1993, for which the Partnership reimbursed the General
Partner a total of $5,183,922, compared with $4,907,403 in 1992.
Effective January 1, 1994, in response to the demand of the FDIC, the
General Partner transferred all of its employees who worked for Pacific Thrift
directly to Pacific Thrift's payroll. The General Partner still provides
employees to the Partnership, Consolidated and Lenders, and the General Partner
receives reimbursement for the salaries and benefits of those employees. For
the year ended December 31, 1994, the Partnership, Consolidated and Lenders
reimbursed the General Partner a total of $90,000.
MANAGING OFFICERS' EMPLOYMENT AGREEMENTS
Two of the Managing Officers, Joel R. Schultz and Norman A.
Markiewicz, are under employment agreements with the Partnership originally
entered into on May 9, 1984. The employment agreement with Mr. Schultz
provides that he will serve as Chief Managing Officer of the Partnership for an
initial term of three years, which term shall be automatically extended for
successive one year terms thereafter unless either party notifies the other
that he or it does not wish to extend the agreement. Mr. Schultz receives
incentive compensation from the Partnership calculated annually as 2% of the
net income of the Partnership, up to a maximum of $40,000 per year. Mr.
Markiewicz serves as Chief Operating Officer of the Partnership under an
employment agreement on substantially the same terms as Mr. Schultz, and
receives incentive compensation from the Partnership calculated annually as 1%
of the net income of the Partnership, up to a maximum of $20,000 per year.
Fifty percent of the total incentive compensation payable to each of the
Managing Officers is subject to the Partnership's earning annual net income
equal to at least 70% of the prior years' net income. For the year ended
December 31, 1994, Messrs. Schultz and Markiewicz received no compensation
under these agreements. For the years ended December 31, 1993 and 1992,
Messrs. Schultz and Markiewicz received
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$30,000 and $30,000, respectively. Upon the completion of the Restructuring
Plan, these employment agreements will be terminated.
TRUSTEE AND FORECLOSURE SERVICES
Effective July 1, 1990, the Partnership purchased Consolidated from
the General Partner, for a total purchase price of $908,000, which was
determined on the basis of an independent appraisal of the fair market value of
Consolidated. The purchase price was paid $458,000 in cash and $450,000 by
delivery of a promissory note to the General Partner payable on February 15,
1991, bearing interest at the Bank of America, NT & SA, reference rate. The
note was repaid in full at maturity. In addition, the Partnership has agreed
to pay to the General Partner an additional amount annually for five years, to
be calculated as 50% of the total annual net profits earned by Consolidated in
excess of $465,396 (the "Base Profit Amount"). Consolidated's net profits have
exceeded the Base Profit Amount every year since 1990. In 1994, 1993 and 1992,
the Partnership paid the General Partner $224,000, $465,551 and $514,924
pursuant to this provision. The General Partner has guaranteed that
Consolidated shall earn annual net profits at least equal to the Base Profit
Amount for 1990 through 1995. The guaranteed income level has been exceeded
from 1990 through 1994. For the years ended December 31, 1994, 1993 and 1992,
net income of $907,000, $1,396,000 and $1,436,000, from the combined operations
of Consolidated and Lenders, respectively, is included in the Partnership's
income.
LOAN ACCOUNT SERVICES
Joel R. Schultz provides legal services in connection with the
Partnership's loan accounts (excluding home improvement loans), for which he
receives $100 from the fees paid by each borrower for legal services related to
loan origination. Total fees of $62,000, $56,400 and $64,400 were paid to Mr.
Schultz for the years ended December 31, 1994, 1993 and 1992. Upon completion
of the Restructuring Plan, these amounts will no longer be paid.
PURCHASE OF EQUIPMENT
In 1990, the General Partner purchased certain computer equipment and
software from the Partnership at its net book value of $369,225, which was at
least equal to the fair market value of such assets. The Partnership received
a note from the General Partner, payable in increments of $11,000 per month
plus accrued interest at the Bank of America prime rate. The note was fully
repaid as of September 31, 1993.
Effective December 31, 1993, Pacific Thrift purchased certain computer
equipment, software and office furniture and equipment from the General Partner
and the Partnership in connection with its obligations to discontinue fee
arrangements with affiliates under the Cease and Desist Order issued by the
FDIC dated November 10, 1993. The value of the computer equipment and software
(which
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included upgrades and enhancements added since 1990) was determined by an
independent appraisal. The value of the office furniture and equipment was
based on estimates received from furniture and office equipment dealers to
replace the furniture and office equipment, less a 10% discount. Pacific
Thrift paid $547,500 to the General Partner and $497,000 to the Partnership in
connection with these purchases. As a result of a revaluation and reallocation
of the software purchased by Pacific, the purchase price of the software was
reduced by a total of $349,407. The General Partner repaid $176,793 of this
amount to Pacific Thrift on June 30, 1994, and the remaining $172,614 was
repaid under a one-year promissory note fully paid by June 15, 1995.
GENERAL PARTNER CAPITAL NOTE
As of December 31, 1992, after adjustments in the Partnership's
allowance for loan losses, the General Partner determined that the Partnership
had made distributions to the Partners in excess of Net Profits earned by the
Partnership in 1992 of $1,730,385. Such distributions constituted a return of
capital to the Partners. To make up for this unintended distribution of
capital of the Partnership, the General Partner voluntarily contributed a note
(the "Capital Note") to the Partnership, dated May 15, 1993. The Capital Note
bears interest at a rate equal to 1% above the NatWest prime rate. Payments
made under the Capital Note are added to the capital of the Partnership. As of
September 30, 1995, the General Partner had made payments of $266,213 plus
accrued interest under the Capital Note.
The General Partner's obligation to pay the Capital Note is
conditioned upon the continuing operation of the Partnership at a level which
generates loan origination fees (from which the General Partner receives fees
with which to pay the Note) equal to at least $2.5 million per year for each of
the years ending December 31, 1994 and 1995, and at least $1.55 million for the
period from January 1 to August 15, 1996. The General Partner has not made any
installment payments since January 1994, because the loan origination condition
has not been met by the Partnership. The General Partner has committed to
resume payment of the Capital Note at such time as loan origination fees reach
$2.5 million per year, although there can be no assurance that this condition
will be met, or that any further payments will be made on the capital note.
Upon completion of the Restructuring Plan, the Capital Note will be cancelled,
because the General Partner will no longer receive the fees which are a
condition to its payment obligation.
AMOUNTS OWED FROM AND TO THE GENERAL PARTNER AND THE PARTNERSHIP
In order to facilitate an extension of the Loan Agreement with the
Bank, the General Partner made an unsecured loan to the Partnership of $600,000
on May 15, 1992, which accrues interest at the Bank's prime rate. The loan may
not be repaid without the consent of the Bank. As of September 30, 1995,
$44,112 had been accrued in interest on the loan.
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Offsetting this loan are debts owed by the General Partner to
Presidential for salaries, rent and overhead paid by Presidential and overpaid
management fees in 1994 and 1995, which totalled $321,605 at September 30,
1995. Of the remaining amount owed to the General Partner, $350,000 will be
forgiven by the General Partner in return for the General Partner Warrants.
See "DESCRIPTION OF CAPITAL STOCK -- General Partner Warrants." Any remaining
debt owed from or to the General Partner will be paid within 30 days following
completion of the Restructuring Plan.
PERSONAL GUARANTY OF PARTNERSHIP DEBT BY MANAGING OFFICERS
Messrs. Joel R. Schultz, Norman A. Markiewicz and Richard B. Fremed
have personally guaranteed the collectability of the Partnership's bank debt.
CONSULTING AGREEMENT WITH DIRECTOR OF PACIFIC THRIFT
Effective August 31, 1992, Pacific Thrift and the Partnership entered
into an Advisory Agreement with Ermyas Amelga, a director of Pacific Thrift
which was amended under the terms of a restated Advisory Agreement dated
December 28, 1993. Mr. Amelga was retained to provide financial advisory
services in connection with: (i) the establishment of a $75 million
securitization program with Aames Capital Corporation; and (ii) an offering of
debt or equity securities. The agreement terminated on June 30, 1994. Mr.
Amelga received compensation of $125 per hour, provided that monthly billings
relating to any transaction other than the Aames securitization are limited to
no more than $7,500 per month. In addition, Mr. Amelga received incentive fees
equal to the following amounts: for the Aames securitization, .50% of the first
$5 million of loans sold, .25% of the next $10 million loans sold; .30% of the
next $35 million loans sold; and .35% of the next $25 million loans sold. In
addition, Mr. Amelga is entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with the performance of his
services under the agreement. Mr. Amelga received $165,130, $111,000, $84,148
in compensation under the Advisory Agreement in 1995, 1994 and 1993,
respectively.
DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of certain terms and provisions of the
Corporation's capital stock, which is qualified in its entirety by reference to
the Corporation's Certificate of Incorporation. A copy of the Certificate of
Incorporation has been filed as an exhibit to the Registration Statement of
which this Proxy Statement/Prospectus forms a part.
Under the Certificate of Incorporation. the authorized but unissued
and unreserved shares of the Corporation's capital stock will be available for
issuance for general corporate purposes, including, but not limited to,
possible stock dividends, future mergers or acquisitions, or public or private
offerings. Except as
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may otherwise be required, stockholder approval will not be required for the
issuance of those shares.
COMMON STOCK
The Corporation's Certificate of Incorporation authorizes the issuance
of up to 8,000,000 shares of Common Stock. The Partnership currently owns all
of the 3,000 outstanding shares of Common Stock. If the Restructuring Plan is
approved, an additional 830,000 shares will be issued to the Partnership for
distribution to the General Partner and the Limited Partners for their
interests in the Partnership, less shares that would otherwise be issued to the
Cashed Out Partners and up to 600,000 Additional Shares may be issued in
connection with the Rights Offering and the Standby Offering. An additional
143,000 shares of Common Stock have been reserved for issuance under the
Corporation's 1995 Stock Option Plan and 50,000 shares have been reserved for
issuance under the Stock Purchase Plan. See "MANAGEMENT -- Plans and
Arrangements."
The holders of Common Stock will be entitled to dividends when, as,
and if declared by the Corporation's Board of Directors out of funds legally
available therefor. The payment of dividends by the Corporation will depend on
the Corporation's net income, financial condition, regulatory capital
requirements and other factors deemed relevant by the Board of Directors. In
addition, a substantial source of funds for the payment of cash dividends will
be dividends paid by Pacific Thrift, the payment of which is limited by the
provisions of California law, FDIC regulation and the 1995 Order. See
"SUPERVISION AND REGULATION -- Restrictions on Transfers of Funds to the
Partnership by Pacific Thrift." Each share of Common Stock will entitle the
holder to one vote on all matters upon which Stockholders have the right to
vote. The Common Stock will not have cumulative voting rights in the election
of directors.
In the event of liquidation, dissolution or winding up of the
Corporation, the holders of shares of Common Stock will be entitled to share
equally after payment of all debts and liabilities of the Corporation, and
subject to the prior rights of holders of any shares of the Corporation's
Preferred Stock, if issued in the future, in the remaining assets of the
Corporation.
Holders of shares of Common Stock are not entitled to preemptive
rights with respect to any shares of Stock of the Corporation that may be
subsequently issued. The Common Stock is not subject to call or redemption
and, as to shares of Common Stock currently outstanding, are fully paid and
nonassessable.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors of
the Corporation to issue up to 2,000,000 shares of Preferred Stock of the
Corporation, in one or more series, having such rights and preferences as the
Board of Directors may
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determine, in its sole discretion. No consent of the Common Stockholders is
required to authorize the issuance of any class of Preferred Stock. The rights
of the holders of the Preferred Stock may be senior to the holders of the
Common Stock. The Board of Directors currently has no plans to issue any class
of Preferred Stock.
TRANSFER AGENT
The transfer agent for the Common Stock will be [TRANSFER AGENT].
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Corporation's Certificate of Incorporation
and Bylaws, as currently in effect or as proposed to be amended, as well as
certain provisions of Delaware law, could have the effect of deterring
takeovers. The Board of Directors believes that the provisions of the
Corporation's Certificate of Incorporation and Bylaws described below are
prudent and in the best interests of the Corporation and its Stockholders.
Although these provisions may discourage a future takeover attempt in which
stockholders might receive a premium for their shares over the then current
market price and may make removal of incumbent management more difficult, the
Board of Directors believes that the benefits of these provisions outweigh
their possible disadvantages. Management is not aware of any current effort to
effect a change in control of the Corporation.
The following discussion is a general summary of material provisions
of the Corporation's Certificate of Incorporation and Bylaws, as currently in
effect, and certain other regulatory provisions, which may be deemed to have an
"anti-takeover" effect. The following description of certain of these
provisions is necessarily general and, with respect to provisions contained in
the Corporation's Certificate of Incorporation and Bylaws, as currently in
effect, reference should be made in each case to the document in question, each
of which is part of the Registration Statement filed with the Commission. See
"ADDITIONAL INFORMATION."
DIRECTORS. Certain provisions of the Certificate of Incorporation and
Bylaws will impede changes in majority control of the Board of Directors. The
Corporation's Certificate of Incorporation provides that the Board of Directors
of the Corporation, other than those who may be elected pursuant to the terms
of any series of Preferred Stock or any other securities of the Corporation
having a preference to the Common Stock, be divided into three classes, with
directors in each class elected for three-year staggered terms except for the
initial directors. The Corporation's Bylaws provide that, except as may be
provided by the terms of any series of Preferred Stock or any other securities
of the Corporation having a preference to the Common Stock, the size of the
Board of Directors may be increased or decreased only by a majority vote of the
whole Board. The Bylaws also provide that, except as may be
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provided by the terms of any series of Preferred Stock or any other securities
of the Corporation having a preference over the Common Stock, any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. The number of
directors constituting the Board will initially be five and, therefore, a
majority of the Board may not be replaced at one annual election. The
Certificate of Incorporation provides that, except as otherwise provided by the
terms of any series of Preferred Stock or any other securities of the
Corporation having preference over the Common Stock, that a director may only
be removed for cause by the affirmative vote of 66-1/2% of the shares eligible
to vote.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of
Incorporation provides that, subject to the terms of any series of Preferred
Stock or any other securities of the Corporation having a preference over the
Common Stock, that a special meeting of stockholders may be called only by the
Board of Directors, the Chairman of the Board or the President and for only
such business as directed by the Board. Common Stockholders are not authorized
to call a special meeting.
ACTION WITHOUT A MEETING OF STOCKHOLDERS; SPECIAL MEETINGS. The
Certificate of Incorporation provides that, except as may be provided by the
terms of any series of Preferred Stock or any other securities of the
Corporation having a preference over the Common Stock, stockholders may not
consent in writing, without a meeting, to the taking of any action unless such
action is first approved by a majority of the "Disinterested Directors" of the
Corporation. Special meetings may only be called by a majority of the Board of
Directors, the Chairman of the Board or the President.
ABSENCE OF CUMULATIVE VOTING. The Certificate of Incorporation does
not provide for cumulative voting rights in the election of directors.
AUTHORIZATION OF PREFERRED STOCK. The Certificate of Incorporation
authorizes 2,000,000 shares of Preferred Stock. The Corporation is authorized
to issue Preferred Stock from time to time in one or more series subject to
applicable provisions of law, and the Board of Directors is authorized to fix
the designations, powers, preferences and relative, participating, optional and
other special rights of such shares, including voting rights (which could be
multiple or as a separate class) and conversion rights. In the event of a
proposed merger, tender offer or other attempt to gain control of the
Corporation that the Board of Directors does not approve, it might be possible
for the Board of Directors to authorize the issuance of a series of Preferred
Stock with rights and preferences that would impede the completion of such a
transaction. An effect of the possible issuance of Preferred Stock, therefore,
may be to deter a future takeover attempt. The Board of Directors has no
present plans or understandings for the issuance of any Preferred Stock, and
does not intend to issue any
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Preferred Stock except on terms which the Board deems to be in the best
interests of the Corporation and its stockholders.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The Certificate of
Incorporation requires that certain business combinations (including
transactions initiated by management) between the Corporation (or any
majority-owned subsidiary thereof) and a 10% or more stockholder either (i) be
approved by a vote of 66-2/3% of all of outstanding voting shares, voting as a
single class, of the Corporation and by a majority of the voting shares held by
other than the interested stockholder and its affiliates, (ii) be approved by a
majority of the disinterested Board of Directors (i.e., persons other than the
interested stockholder and its affiliates and the affirmative vote of the
stockholders, as required by law,) or (iii) involve consideration per share
generally equal to that paid by such 10% stockholder when it acquired its block
of stock and be approved by a majority of the outstanding voting shares, voting
as a single class.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to
the Certificate of Incorporation requires the approval of a majority vote of
the Corporation's Board of Directors and also by a majority of the outstanding
shares of the Corporation's voting stock, provided, however, that approval by
at least 66-2/3% of the outstanding voting stock is generally required for
certain provisions (i.e., provisions relating to number, classification,
election and removal of directors; amendment of bylaws; call of special
stockholder meetings; offers to acquire and acquisitions of control; director
liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the Certificate of
Incorporation).
The Bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of a majority of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
DELAWARE ANTI-TAKEOVER STATUTE. The Delaware General Corporation Law
provides that buyers who acquire more than 15% of the outstanding stock of a
Delaware corporation, such as the Corporation, are prohibited from completing a
hostile takeover of such corporation for three years. However, the takeover
can be completed if (i) the buyer, while acquiring the 15% interest, acquires
at least 85% of the corporation's outstanding stock (the 85% requirement
excludes shares held by directors who are also officers and certain shares held
under employee stock plans), or (ii) the takeover is approved by the target
corporation's board of directors and two-thirds of the shares of outstanding
stock of the corporation (excluding shares held by the bidder). The foregoing
provisions of the Delaware General Corporation Law do not apply to Delaware
corporations which do not have a class of voting stock listed on a national
exchange, authorized for quotation on an inter-dealer quotation system of a
registered national securities association or held of record by more than 2,000
stockholders. The
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Corporation may exempt itself from the requirements of the statute by adopting
an amendment to its Certificate of Incorporation or Bylaws electing not to be
governed by this provision. At the present time, the Board of Directors does
not intend to propose any such amendment.
EFFECT OF QUASI-CALIFORNIA CORPORATION LAW
Section 2115 of the California GCL provides that quasi-California
corporations will be subject to certain substantive provisions in the
California GCL notwithstanding comparable provisions in the law of the
jurisdiction where the corporation is incorporated. Section 2115 is applicable
to foreign corporations which have more than half of their shareholders
residing in California and more than half of their business deriving from
California. The determination of whether a corporation is a quasi-California
corporation is based upon information contained in a certificate required to be
filed within three months and fifteen days after the end of the corporation's
fiscal year or within 30 days after the filing of its franchise tax return, if
an extension of time to file such return was granted. Quasi-California
corporations that are Large Public Corporations (i.e., that have securities
listed on the New York or American stock exchanges, or securities designated
for trading on the Nasdaq National Market, if the corporation has at least 800
holders of its equity securities as of the record date for its most recent
annual meeting), are exempt from the application of Section 2115.
The Corporation has qualified to do business in the State of
California. The Corporation's subsidiaries will each have substantially all of
their property, employees and operations in California. Therefore, absent an
exemption, the Corporation would be deemed to be a quasi-California
corporation.
Management believes that, immediately following the Distribution, the
Corporation would constitute a Large Public Corporation and would thereby be
exempt from the application of Section 2115. The Corporation's Common Stock
has been conditionally approved for listing on the Nasdaq National Market.
Furthermore, as of the September 30, 1995, there were more than 800 holders of
record of the Limited Partnership Units and more than 2,493 beneficial owners
of such Limited Partnership Units. However, there can be no assurance that the
Common Stock will continue to be listed on the Nasdaq National Market or that
the Corporation's equity securities will continue to be held by at least 800
persons. If the Corporation's equity securities were ever to be held by fewer
than 800 persons, or the Common Stock was no longer listed on the NASDAQ
National Market for any reason the Corporation could become subject to the
provisions of the California law as a result of the application of Section
2115. If the Corporation were determined to be a quasi-California corporation,
certain of the provisions of the Corporation's Certificate of Incorporation and
Bylaws would not be authorized by California law, including the Corporation's
classified board of directors and the supermajority voting provisions.
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In addition, under California law cumulative voting for the election of
directors is mandatory unless a corporation that is a Large Public Corporation
has expressly eliminated cumulative voting in its articles of incorporation.
The Corporation has eliminated cumulative voting in its Articles of
Incorporation. Furthermore, California law with respect to the payment of
dividends is more restrictive than Delaware law. Since the Corporation is
expected to derive a substantial amount of its revenues from Pacific Thrift, a
California corporation, California law and FDIC regulations with respect to
dividends will have a substantial effect on the Corporation's ability to pay
dividends. Under California law, a corporation is prohibited from paying
dividends unless (i) the retained earnings of the corporation immediately prior
to the distribution exceeds the amount of the distribution; (ii) the assets of
the corporation exceed 1-1/4 times its liabilities; or (iii) the current assets
of the corporation exceed its current liabilities, but if the average pretax
net earnings of the corporation before interest expense for the two years
preceding the distribution was less than the average interest expense of the
corporation for those years, the current assets of the corporation must exceed
1-1/4 times its current liabilities.
MARKET FOR COMMON STOCK
There has been no public market for the Common Stock. The Common
Stock has been conditionally approved for listing on the Nasdaq National Market
under the symbol "____." An investment banking firm has indicated its
intention to make a market in the Common Stock. This firm is not obligated,
however, to make a market in the Common Stock and any market making may be
discontinued at any time.
GENERAL PARTNER WARRANTS
The General Partner will receive, in lieu of repayment of $350,000
owed by Presidential to the General Partner, warrants (the "General Partner
Warrants") to purchase up to 25% of the Common Stock, at an exercise price of
$12.50 per share, equal to 125% of the Subscription Price paid by the Partners
for shares in the Rights Offering.
The General Partner Warrants will become exercisable on the Initial
Exercise Date, which is defined as the earlier of (i) the date that Pacific
Thrift has fully utilized as an offset to taxable income, at least $6,773,000
of a net operating loss carryforward ("NOL") existing as of December 31, 1994;
(ii) the date that the utilization of the NOL is limited as a result of an
"ownership change" as defined in Section 382 of the Code, which is not caused
by the exercise of General Partner Warrants, (iii) the acquisition by any
person other than a holder of General Partner Warrants of voting stock in
excess of 10% of the total outstanding voting stock of the Corporation or (iv)
June 30, 1997. The General Partner warrants expire on the date which is two
years after the Initial Exercise Date.
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The General Partner Warrants will be non-transferable, except to and
between partners of the General Partner. The Common Stock issuable upon
exercise of the General Partner Warrants ("Warrant Stock") has been registered
concurrently with the registration of the Additional Shares, and the
Corporation will commit to maintain the effectiveness of such registration
until the earlier of the sale of all the Warrant Stock or five years after the
Initial Exercise Date. In addition, under certain circumstances, the holders
of the General Partner Warrants will have one demand registration right and
unlimited "piggyback" registration rights for a period of five years following
the Initial Exercise Date, for the purpose of resale of the Warrant Stock.
Holders of General Partner Warrants will not be entitled, by virtue of
being such holders, to receive dividends or subscription rights, vote, consent,
or receive notice as Stockholders of the Corporation in respect of any meeting
of Stockholders for the election of directors of the Company or any other
matter, or exercise any other rights whatsoever as Stockholders of the
Corporation.
BANK WARRANT
In connection with the extension of the Loan Agreement, if the
Restructuring Plan is completed, the Corporation has agreed to issue the Bank
Warrant to NatWest. The Bank Warrant is non-transferable, and entitles NatWest
to purchase up to 2% of the total outstanding Common Stock of the Corporation,
at an exercise price equal to 125% of the net book value of the Corporation
following the completion of the Restructuring Plan. The Bank Warrant is
exercisable for a period of five years following the completion date of the
Restructuring Plan. The Corporation may redeem the Bank Warrant at any time
after one year for $200,000.
The Bank will not be entitled by virtue of the Bank Warrant to receive
dividends or subscription rights, vote, consent, or receive notice as
Stockholders of the Corporation in respect of any meeting of Stockholders for
the election of directors of the Company or any other matter, or exercise any
other rights whatsoever as Stockholders of the Corporation.
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SHARES ELIGIBLE FOR FUTURE SALE
The offering made by this Prospectus is the initial registered public
offering of the Common Stock. There is no public trading market for any of the
Corporation's securities at the present time. There can be no assurance that a
public trading market will ever develop or, if a market develops, that it will
be sustained.
Upon the consummation of this offering, a maximum of 1,430,000 shares
of Common Stock will be outstanding, excluding (a) an aggregate of 155,000
shares of Common Stock underlying options granted pursuant to the Company's
1995 Stock Option Plan; (b) an aggregate of 15,000 additional shares reserved
for issuance pursuant to the Company's 1995 Stock Option Plan; (c) an aggregate
maximum of 476,667 shares of Common Stock issuable under the General Partner
Warrants; or (d) an aggregate maximum of 38,133 shares of Common Stock issuable
under the Bank Warrant.
All of the maximum 1,430,000 shares of Common Stock that will be
issued and outstanding upon the consummation of this offering (subject to the
assumptions in the preceding paragraph), will be freely tradeable without
further registration under the Securities Act. Although shares of Common Stock
purchased by an "affiliate" of the Corporation are not freely tradeable in the
absence of a registration statement, the Company has committed to maintain
effective the Registration Statement of which this Proxy Statement/Prospectus
is a part for a period of five years from the Initial Exercise Date of the
General Partner Warrants. For so long as the Registration Statement is in
effect, affiliates of the Corporation may sell shares without restriction.
The Corporation may issue up to 476,667 General Partner Warrants,
which would entitle the holders thereof to one share of Common Stock for each
warrant. The General Partner Warrants are not exercisable until the Initial
Exercise Date, which is defined as the earlier of (i) the date that Pacific
Thrift has fully utilized as an offset to taxable income, at least $6,773,000
of a net operating loss carryforward ("NOL") existing as of December 31, 1994;
(ii) the date that the utilization of the NOL is limited as a result of an
"ownership change" as defined in Section 382 of the Code, which is not caused
by the exercise of General Partner Warrants; (iii) the acquisition by any
person other than a holder of General Partner Warrants of voting stock in
excess of 10% of the total outstanding voting stock of the Corporation; or (iv)
June 30, 1997. The General Partner Warrants expire on the date which is two
years after the Initial Exercise Date. The Company is required to maintain a
registration statement in effect for a period of five years following the
Initial Exercise Date of the Warrants, or until all Warrant Stock is sold or
may be sold without limitation. Sales of Warrant Stock, or even the existence
of the right to exercise the General Partner Warrants, may depress the price of
the Common Stock may develop for the Common Stock.
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The Company has granted options for the purchase of 155,000 shares of
Common Stock to certain key employees, officers, directors and employees
pursuant to the Company's 1995 Stock Option Plan. None of the options are
presently exercisable. All Common Stock issuable upon exercise of such options
will be "restricted stock" and will be subject to resale pursuant to Rule 144
as described above. Following completion of this offering, however, the
Company intends to take action to register all such options and the underlying
Common Stock under the Securities Act. Upon the effectiveness of such
registration, the Common Stock issuable upon exercise of the options will be
freely tradeable. See "Management -- 1995 Stock Option Plan."
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SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
OF THE RESTRUCTURING PLAN
INTRODUCTION
The discussion below summarizes the principal Federal income tax
consequences to the Limited Partners as a result of the Restructuring Plan.
Jeffer, Mangels, Butler and Marmaro LLP, tax counsel to the Partnership, has
reviewed the following summary of Federal income tax consequences and believes
it to be a reasonable summary of the matters discussed. The discussion is
based upon current Federal income tax law, including provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated
thereunder, legislative history, published rulings, judicial decisions, and
other interpretations of the Federal income tax law as well as the assumption
that the Partnership is a partnership for Federal income tax purposes and that
the transactions constituting the Restructuring Plan will be carried out in the
manner described in this Proxy Statement/Prospectus.
No rulings have been or will be requested from the Internal Revenue
Service ("IRS") concerning any of the matters described in the Proxy
Statement/Prospectus, and there can be no assurance that the IRS will concur
with the views expressed herein. Existing authorities are subject to change by
future legislation, regulations, interpretations by the IRS and court
decisions, and such changes could be retroactively applied to the Restructuring
Plan and alter the tax consequences described below. The discussion below is a
general one and does not describe every tax consequence of the Restructuring
Plan, nor does it take into account the particular tax situation of, or
particular tax consequences to, any of the Limited Partners.
IT IS IMPORTANT THAT EACH LIMITED PARTNER CONFER WITH HIS OR HER
INDIVIDUAL TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE RESTRUCTURING
PLAN. THE PARTNERSHIP, THE CORPORATION AND THEIR ADVISORS ASSUME NO
RESPONSIBILITY FOR THE TAX CONSEQUENCES OF THE RESTRUCTURING PLAN TO A LIMITED
PARTNER AND NOTHING HEREIN SHOULD BE CONSIDERED AS TAX ADVICE TO ANY INDIVIDUAL
OR ENTITY.
SUMMARY OF TAX CONSEQUENCES
As described above, the Restructuring Plan will most likely qualify as
a tax-free transaction under the provisions of Code Section 351, resulting in
the following income tax consequences to the Limited Partners:
o No gain or loss will be recognized by a Limited Partner
receiving solely Common Stock in exchange for such Limited
Partner's Units.
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o A Limited Partner receiving solely cash in exchange for such
Limited Partner's Units will recognize a capital loss if the
amount of cash received is less than such Limited Partner's
adjusted tax basis in such Limited Partner's Units in the
Partnership immediately prior to the Restructuring Plan (or
capital gain if the amount of cash received is greater than
such tax basis).
o A Limited Partner receiving both Common Stock and cash
pursuant to the Restructuring Plan will not recognize any loss
on the transaction. Gain will be recognized only to the
extent that the amount of cash received exceeds such Limited
Partner's adjusted tax basis of such Limited Partner's Units
immediately prior to the Restructuring Plan.
o A Limited Partner's tax basis in Common Stock received
pursuant to the Restructuring Plan (other than Common Stock
acquired pursuant to Basic Subscription Rights or the
Oversubscription Privilege) will equal the adjusted tax basis
of such Limited Partner's Units immediately prior to the
Restructuring Plan, reduced by cash received, if any, pursuant
to the Cash Out Option.
o Each share of Common Stock received by a Limited Partner
pursuant to the Restructuring Plan (other than Common Stock
acquired pursuant to Basic Subscription Rights or the
Oversubscription Privilege) will have several holding periods,
depending on the nature and holding period of assets
transferred by the Partnership to the Corporation.
Approximately thirty (30) days after the effective date of the
Restructuring Plan, the Corporation anticipates providing
Limited Partners with the information necessary to determine
the various holding periods associated with each share of
Common Stock. The holding period of the Common Stock will
determine whether any gain realized upon disposition of the
Common Stock is taxed as short-term or long-term capital gain
(assuming a Limited Partner holds Common Stock as a capital
asset). Because a holding period of more than one year is
required for long-term capital gains treatment, any gains from
a subsequent sale of Common Stock by a Limited Partner will
result in 100% long-term capital gains only after the
expiration of the one year period immediately following the
date of completion of the Restructuring Plan.
o A Limited Partner's tax basis in Common Stock purchased
pursuant to Basic Subscription Rights or the Oversubscription
Privilege will equal the cash purchase price of such Common
Stock. A Limited Partner's holding period with respect to
such Common Stock will commence as of the date of its
acquisition.
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QUALIFICATION OF RESTRUCTURING PLAN UNDER CODE SECTION 351
Section 351(a) of the Code sets forth the general rule that no gain or
loss will be recognized by one or more persons transferring assets to a
corporation solely in exchange for the corporation's stock if, immediately
after the exchange, the transferors are "in control" of the transferee
corporation. As explained below, tax counsel for the Partnership believes that
it is more likely than not that Section 351(a) of the Code will apply to the
Restructuring Plan. If, for any reason, Section 351(a) did not apply, each
Limited Partner could recognize gain or loss upon completion of the
Restructuring Plan. Counsel for the Partnership has been informed, and has
therefore assumed for purposes of this discussion, that the Partnership would
recognize a taxable loss with respect to each asset transferred to the
Corporation if the Restructuring Plan did not qualify under the provisions of
Section 351 of the Code. Accordingly, Limited Partners should be aware that,
unless a Limited Partner receives solely cash pursuant to the Restructuring
Plan, Limited Partners generally will not recognize any taxable loss as a
result of the Restructuring Plan.
CONTROL. In order for a transaction to qualify under Code Section
351, the persons (including entities) transferring property to the corporation
issuing the stock must be in "control" of such issuing corporation immediately
after the exchange transaction. For this purpose, "control" is defined as the
ownership of stock possessing at least 80% of the total combined voting power
of all classes entitled to vote and at least 80% of the total number of shares
outstanding of all other classes of stock of the issuing corporation (the
"Control Test").
If the Restructuring Plan is completed, the Partnership and the
Standby Purchasers will receive all of the shares of Common Stock of the
Corporation. The Corporation initially shall issue only one class of stock.
The shares of Common Stock issued to the Partnership and the Standby Purchasers
will be the only outstanding stock of the Corporation immediately following the
Restructuring Plan. Thus, the Partnership and the Standby Purchasers will
collectively own 100% of the Common Stock and the Control Test will be met.
Although the Partnership plans to liquidate as part of the Restructuring Plan,
the distribution by the Partnership of Common Stock to its Partners will not
likely be considered a transfer or part of a group of transfers which would
cause the Partnership to fail the Control Test, because the Partners would be
treated as part of the control group for purposes of Code Section 351. See
Rev. Rul. 84-111, 1984-2 C.B. 88.
EFFECT OF SUBSEQUENT EVENTS ON CONTROL TEST. As described above, the
persons comprising the control group must meet the Control Test "immediately
after the exchange." If, following a transfer of property to the issuing
corporation, the transferring parties have a plan to sell or otherwise dispose
of control of the Corporation, and more than 20% of the Common Stock is sold
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immediately following the completion of the Restructuring Plan, the exchange
may be deemed to fail the Control Test.
Subsequent to the Restructuring Plan, the Common Stock will be
publicly traded. However, it is unlikely that, in the event that more than 20%
of the Common Stock is sold immediately following the completion of the
Restructuring Plan, the Restructuring Plan would fail to qualify pursuant to
the provisions of Code Section 351, since such subsequent sales of Common Stock
generally should not be considered an integrated part of the Restructuring
Plan. Accordingly, Limited Partners should not anticipate the recognition of
tax losses in the event more than 20% of the Common Stock is sold in the NASDAQ
National Market immediately following the Restructuring Plan.
EFFECT OF RECEIPT OF CASH. Code Section 351 provides that gain, but
not loss, will be recognized in the event that property other than stock is
received in connection with the transfer of property to a corporation in
exchange for more than eighty percent (80%) of its stock. In connection with
the Restructuring Plan, the Partnership will receive cash from the Corporation
as a result of Limited Partners' exercise of the Cash Out Option. Counsel has
been informed and has therefore assumed that the transfer of each material
asset of the Partnership would result in the recognition of a loss in the event
the transaction did not qualify pursuant to Section 351. However, due to the
application of Code Section 351, no loss will be recognized by the Limited
Partners as a result of the receipt by the Partnership of cash. For the
specific tax consequence to the Limited Partners, see "Tax Consequences to
Limited Partners" discussed below.
BASIS OF ASSETS ACQUIRED BY THE CORPORATION. Code Section 362
provides that the tax basis of assets received by a corporation in connection
with a transaction described in Code Section 351 will equal the tax basis of
the assets in the hands of the transferor, increased by any gain recognized by
the transferor. Accordingly, since it is not anticipated that any gain will be
recognized, the Corporation's tax basis in the assets received from the
Partnership will equal the Partnership's adjusted tax basis in those assets
immediately prior to the Restructuring Plan.
ASSUMPTION OF LIABILITIES. Section 357(a) of the Code provides
generally that if, pursuant to a Section 351 exchange, the issuing corporation
assumes the liability of a person or entity transferring property to such
corporation, or if the issuing corporation acquires from such transferor
property subject to a liability, the transfer of such liability to the issuing
corporation will not prevent the exchange from qualifying under the provisions
of Section 351. However, even though an exchange qualifies under Section 351,
Section 357(c) provides that a transfer of a liability to the issuing
corporation will result in the recognition of gain or other income to a
particular transferor if and to the extent that the aggregate amount of
liabilities transferred to the issuing corporation by that transferor exceeds
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the total of the adjusted bases of assets transferred to the issuing
corporation by such transferor pursuant to the Section 351 exchange.
The Partnership has advised Counsel that the aggregate amount of
liabilities transferred to the Corporation by the Partnership will not exceed
the total of the adjusted bases of property transferred to the Corporation by
the Partnership. Thus, it is unlikely that there will be gain to the
Partnership or the Limited Partners under Code Section 357(c) as a result of
the Restructuring Plan.
Additionally, even if Section 357(c) does not apply, the transfer of a
liability to the issuing corporation will, in certain instances, result in the
recognition of gain or other income by the transferor in an amount equal to the
amount of the liability transferred. For example, Section 357(b) of the Code
provides that if the transferor's principal purpose in transferring a liability
to the issuing corporation is either (i) to avoid federal income tax or (ii)
not a bona fide business purpose, the amount of such liability is considered to
be money received by the transferor in the Section 351 exchange, thereby
possibly resulting in the recognition of gain or other income by the
transferor. Counsel does not believe it is likely that the IRS would determine
that the principal purpose for the transfer of the Partnerships' liabilities
was to avoid federal income tax or was not a bona fide business purpose.
Therefore, it is unlikely that there will be gain to the Partnership or the
Limited Partners as a result of the application of Code Section 357(b).
TAX CONSEQUENCES TO THE LIMITED PARTNERS
The tax consequences to each individual Limited Partner of the
Partnership as a result of the Restructuring Plan will depend upon whether such
Limited Partner is exercising his, her or its rights pursuant to the Cash Out
Option.
With respect to each Limited Partner who does not exercise the Cash
Out Option, such Limited Partner will receive only Common Stock in exchange for
such Limited Partner's Units. No gain or loss will be recognized by such
Limited Partner as a result of the distribution of Common Stock. A Limited
Partner's basis in the Common Stock will equal the adjusted basis of the
Limited Partner's Units immediately before the effective date of the
Restructuring Plan. Because Counsel has been informed by the General Partner
that the Partnership's liabilities are all recourse liabilities as to the
General Partner, the transfer of Partnership liabilities to the Corporation
should not affect the Limited Partners' bases in the Common Stock. A Limited
Partner's holding period (and the tax basis allocated to such holding period)
of the Common Stock will be a fragmented holding period as described below.
Limited Partners who receive solely Common Stock pursuant to the Restructuring
Plan should not anticipate the use of any suspended passive losses attributable
to such Limited Partners' Units.
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With respect to each Limited Partner who receives solely cash in
exchange for such Limited Partner's Units, such Limited Partner should
recognize a capital loss (assuming the Units are held as a capital asset) in an
amount equal to the excess of such Limited Partner's adjusted tax basis in such
Limited Partner's Units (as determined immediately prior to the Restructuring
Plan) over the amount of cash received by such Limited Partner. Limited
Partners who receive solely cash pursuant to the Restructuring Plan should
consult with their own advisors regarding the application of Section 469 of the
Code to any suspended passive losses attributable to such Limited Partners'
Units.
With respect to each Limited Partner who receives both cash and Common
Stock pursuant to the Restructuring Plan, which would most likely occur if the
Corporation received requests to exercise the Cash Out Option in excess of the
Cash Out Limitation (as described below under the subheading "Net Operating
Losses"); such Limited Partner generally will not recognize any loss upon the
exchange of his, her or its Units. Instead, a Limited Partner's tax basis in
Common Stock received will equal such Limited Partner's adjusted tax basis in
his, her, or its Units as determined immediately prior to the Restructuring
Plan, reduced by the amount of any cash received. A Limited Partner's holding
period (and the tax basis allocated to such holding periods) of the Common
Stock will be the fragmented holding period as described below. Limited
Partners who receive both Common Stock and cash should consult with their own
tax advisors regarding the application of Section 469 of the Code to any
suspended losses attributable to such Limited Partners' Units.
A Limited Partner's tax basis in Common Stock acquired pursuant to
Basic Subscription Rights or the Oversubscription Privilege will be equal to
the amount of cash paid for such Common Stock. The holding period for such
Common Stock will commence as of the date of acquisition of such shares.
Counsel does not believe that Basic Subscription Rights or the
Oversubscription Privilege will be deemed to constitute a "warrant."
Accordingly, there should be no allocation of tax basis required between the
Common Stock and such subscription rights. However, in the event the IRS were
to determine that Limited Partners received both Common Stock and warrants, an
allocation between the two components would be required, which allocation could
affect a Limited Partner's tax basis in Common Stock. Such allocation is
typically made on a fair market value basis. Because there is no bargain
element inherent in Basic Subscription Rights or the Oversubscription
Privilege, no fair market value should be allocable to the subscription rights.
DETERMINATION OF HOLDING PERIOD OF COMMON STOCK RECEIVED IN EXCHANGE
FOR UNITS. The following discussion assumes that a Limited Partner holds his,
her or its Units as a capital asset. (Generally, a Limited Partner's interest
in the Partnership will be
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considered a capital asset unless the Limited Partner is a "dealer" in
partnership interests and/or other securities).
Following the Restructuring Plan, the holding period for which a
Limited Partner will be treated as having held the shares of Common Stock
(other than Common Stock received pursuant to Basic Subscription Rights or the
Oversubscription Privilege) will include (i.e. have "tacked-on") the
Partnership's holding period for the assets transferred to the Corporation
pursuant to the Restructuring Plan, to the extent such assets were capital
assets or "Section 1231 assets" (the "capital gain assets") in the possession
of the Partnership. However, to the extent that the assets transferred by the
Partnership to the Corporation are not capital gain assets (for example, loans
held for sale) in the possession of the Partnership, then a Limited Partner's
holding period for the Common Stock will not include the Partnership's holding
period for such assets. For this purpose, capital gain assets do not include
cash, accounts receivable, property of a kind which would be properly included
in inventory or property held primarily for sale to customers in the ordinary
course of business (the "ordinary income assets"). Thus, to the extent that
the assets transferred to the Corporation by the Partnership consist of
ordinary income assets, shares of Common Stock attributable to such assets will
have a holding period which begins on the day following the effective date of
the Restructuring Plan. Management of the Partnership has advised Counsel that
it understands the assets to be transferred by the Partnership to the
Corporation will consist of a combination of both ordinary income assets and
capital gain assets. Accordingly, a portion of each share of Common Stock
received by a Limited Partner (other than Common Stock received pursuant to
Basic Subscription Rights or the Oversubscription Privilege) will not qualify
for a tacked-on holding period.
Additionally, the Partnership's holding periods with respect to its
various capital gain assets vary from asset to asset. Accordingly, the portion
of each Limited Partner's shares of Common Stock attributable to capital gains
assets will likewise have various holding period components. Tax basis
allocated to each component of a share of Common Stock will be determined in
accordance with the relative fair market values of the assets transferred by
the Partnership to the Corporation.
Approximately thirty (30) days after the Effective Date of the
Restructuring Plan, the Corporation shall provide Limited Partners with the
information necessary to calculate the various holding periods and basis
allocated to each holding period for Common Stock received pursuant to the
Restructuring Plan (other than stock acquired pursuant to Basic Subscription
Rights or the Oversubscription Privilege).
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ALLOCATION OF FINAL ITEMS
In addition to the foregoing, each Limited Partner will be required to
report his, her or its distributive share of all income, gains, losses,
deductions and credits of the Partnership for the taxable period prior to the
close of the Partnership's taxable year (which will end as of the date of the
final liquidation of the Partnership) even though there will be no operating
cash distributions from the Partnership. The at-risk rules under Code Section
465, the passive activity rules under Code Section 469 or the basis rules under
Code Section 704 may prevent or may have prevented some Limited Partners from
deducting a portion of their distributive shares of losses of the Partnership.
Such previously disallowed losses may not be deductible by the Limited Partners
following the consummation of the Restructuring Plan. Each Limited Partner is
urged to consult his or her own tax adviser concerning these issues.
NET OPERATING LOSSES
Pacific Thrift, which will be a subsidiary of the Corporation, has net
operating loss carryforwards of approximately $6.8 million as of December 31,
1994. Under Section 382 of the Code, the ability of Pacific Thrift to carry
forward its net operating losses is limited if Pacific Thrift experiences an
"ownership change" as a consequence of the Restructuring Plan. Section 382
defines an "ownership change" as an increase of more than fifty (50) percentage
points in ownership of stock owned by one or more five percent (5%)
shareholders over the lowest percentage of stock owned by such shareholders
during the preceding three year period.
Taking into account all transfers of Units within the three year
period immediately preceding the effective date of the Restructuring Plan, the
Restructuring Plan has been designed to avoid an "ownership change" by limiting
the amount of shares that may be purchased by the Standby Purchasers, by
limiting the number of shares that may be cashed out through the Cash Out
Option and by limiting the exercise of the General Partner Warrants. However,
any future changes in ownership for three years following the completion of the
Restructuring Plan will also be counted towards an "ownership change."
Therefore, it will be necessary for the Corporation to track ownership changes
for three years following the completion of the Restructuring Plan or until the
net operating losses are completely utilized.
For tracking purposes under Section 382, certain groups of
shareholders are deemed to constitute a single shareholder. Pacific Thrift is
currently deemed to be owned by two separate public groups. The Partnership is
considered a "first tier entity" since it directly owns five percent (5%) or
more of the outstanding stock of Pacific Thrift. However, because no Limited
Partner (other than the General Partner), through attribution of their
ownership percentage of Presidential, owns five percent (5%) or more of the
stock of Pacific Thrift, all of the Limited Partners
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(other than the General Partner) are considered as one separate public group
for purposes of Code Section 382. Since the General Partner owns 5.25% of
Presidential, it is deemed beneficially to own more than five percent (5%) of
the stock of Pacific Thrift, and is therefore deemed to be a second public
group.
In connection with the Restructuring Plan, the Standby Purchasers will
also become Stockholders of the Corporation. Assuming none of the Standby
Purchasers individually will own 5% or more of the Corporation, the Standby
Purchasers will be deemed to be a third public group.
The changes in ownership of these three public groups, plus any other
person who subsequently becomes an owner of five percent (5%) or more of the
Common Stock, will be tracked by the Corporation for three years following the
completion of the Restructuring Plan, or until the net operating loss
carryforwards of Pacific Thrift are fully utilized. If there is an "ownership
change" within the meaning of Code Section 382, the utilization of any
remaining carryforwards would be limited under Section 382. These limitations
would be determined as follows: First, the fair market value of Pacific Thrift
would have to be determined. Then, a percentage equal to the long-term tax
exempt-rate determined by the Treasury Department (currently, 5.75%) of the
value of Pacific Thrift would equal the amount of the net operating loss
carryforwards of Pacific Thrift which could be used in any given year to offset
taxable income of the Corporation (subject to certain exemptions for built-in
gain items).
In order to reduce the possibility of that the exercise of General
Partner Warrants would cause an "ownership change" in ownership, these warrants
will not be exercisable until the earlier of: (i) the date Pacific Thrift has
fully utilized its existing net operating loss carryforwards; (ii) the date
such utilization becomes limited through an "ownership change" caused by an
event other than the exercise of General Partner Warrants; (iii) the date any
purchaser of shares acquires 10% or more outstanding Common Stock or (iv) June
30, 1997. However, there can be no assurance that other ownership changes will
not occur which would cause an ownership change under Section 382 that would
result in a limitation in the Corporation's ability to fully utilize the net
operating loss carryfowards to the extent now available.
POTENTIAL APPLICATION OF SECTION 304 TO TRANSFER OF STOCK OF SUBSIDIARY.
Code Section 304 provides that, notwithstanding the nonrecognition
provisions of Code Section 351, the transfer by the Partnership of stock in a
controlled corporation such as Pacific Thrift to the Corporation also
controlled by such transferors (the "acquiring corporation") is treated as a
distribution from the acquiring corporation to the extent of certain property
received by the transferors. The Partnership will receive Common Stock and
cash in the Restructuring Plan. If Section 304 applies, the
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Partnership may be deemed to receive property from the Corporation resulting in
a distribution equal to the amount of liabilities transferred by the
Partnership to the Corporation as well as the cash received by the Partnership.
However, a distribution may be treated as dividend income only to the extent
that the Corporation has current or accumulated earnings and profits.
Management has informed Counsel that neither the Corporation nor Pacific Thrift
will have current or accumulated earnings and profits as of the effective date
of the Restructuring Plan. Assuming no earnings and profits for either entity
during the remaining tax year, distributions as a result of the application of
Code Section 304 should not be treated as dividends to the Limited Partners.
However, if Code Section 304 applies, Limited Partners may be deemed to receive
dividends (taxed as ordinary income) to the extent of any such subsequent
earnings and profits. Finally, if the cash and deemed distribution were to
exceed the Partnership's tax basis in the assets transferred to the
Corporation, the Limited Partners could recognize capital gains to that extent;
however, management of the Partnership believes that this is unlikely since the
tax basis of the Partnership's assets exceeds the sum of liabilities to be
transferred to the Corporation and the cash received by the Partnership.
TREATMENT OF STOCKHOLDERS OF CORPORATION
As part of the Restructuring Plan, the Limited Partners of the
Partnership will become the Stockholders of the Corporation and will no longer
be partners of a partnership. Distributions of the Corporation's earnings and
profits to the Stockholders in the form of dividends will be subject to tax as
ordinary income if the Corporation has current or accumulated earnings and
profits. To the extent that there is no current or accumulated earnings and
profits, any distribution would be treated as a return of capital and would
reduce each Stockholder's basis in his, her or its Common Stock. Distributions
in excess of each Stockholder's basis in shares will be taxed as capital gains
assuming the Common Stock is a capital asset in the hands of the Stockholders.
If a Stockholder disposes of shares of Common Stock in the
Corporation, the difference between the Stockholder's basis in the shares and
the consideration received in exchange for the shares would be subject to tax
as either a capital gain or loss or ordinary income, depending on the holding
period of the shares. See "Tax Consequences to the Partnership and the Limited
Partners--Determination of Holding Period of Common Stock." If a Stockholder
transfers shares to the Corporation, such transfer may, under some
circumstances, be treated as a dividend rather than a taxable exchange.
In addition, if the Corporation sells appreciated property (including
in liquidation of the Corporation), the gain will be taxable as ordinary income
or capital gain to the Corporation, depending on the character of the asset in
the hands of the Corporation. The Corporation, unlike the Partnership, will
itself
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be subject to corporate income tax. The top corporate income tax rate
currently is 35%. The Corporation's taxable income will not be reduced by the
amount of any dividends paid to Stockholders, as dividends are not deductible
to the Corporation. The additional tax burden to the Corporation will
increase the expenses of the Corporation and reduce its net income. However,
since a substantial majority of the Corporation's income is expected to be
derived from the earnings of Pacific Thrift, which is already a corporation
subject to corporate income tax, the tax burden to the Corporation is not
expected to be materially different from the tax burden on the Partnership,
insofar as a substantial portion of its income would also be expected to be
derived from Pacific Thrift.
COLLAPSIBLE CORPORATION RULES
Section 341 of the Code provides that the gain from the sale of stock
of a "collapsible corporation" shall be considered as ordinary income. A
"collapsible corporation" is defined as a corporation that is formed or availed
of principally for the manufacture, construction or production of property, for
the purchase of "Section 341 assets," or for the holding of stock in a
corporation so formed or availed of, with a view to the sale of stock by its
shareholders before the realization by the corporation of two-thirds of the
taxable income to be derived from such property, and the realization by such
shareholders of gain attributable to such property. Although Counsel believes
it is unlikely, it is possible that the IRS could view the transfer of assets
by the Partnership to the Corporation as a transfer of Section 341 assets.
If Section 341 of the Code were to apply, any gain from the sale of
Common Stock would be subject to tax as ordinary income. There is no clear
rule or regulation that would provide guidance as to whether any of the
Partnership's assets would be deemed Section 341 assets, and it is therefore
not possible to conclude whether the Corporation could be characterized by the
IRS as a "collapsible corporation." However, for the reasons explained below,
an exception will apply to every stockholder who owns less than 5% of the
Common Stock, which will prevent the application of the collapsible corporation
rule to those stockholders.
If the Corporation is found to be a collapsible corporation, gain
realized by a Stockholder from the sale of Common Stock will not be subject to
the collapsible corporation provisions if any one of the following four
exceptions applies: (i) the selling stockholder does not own, directly or
indirectly, more than 5% in value of the Common Stock outstanding, (ii) gain
recognized by the selling Stockholder during the taxable year is not more than
70% attributable to "Section 341 assets," (iii) gain is realized after the
expiration of three years following the completion of the applicable
manufacture, construction, production or purchase, or (iv) less than 15% of the
net worth of the Corporation is attributable to the net unrealized appreciation
of certain ordinary income assets.
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Based on the first of these exceptions, the collapsible corporation
provisions would not apply to Stockholders of the Corporation that were
considered to own, directly and by attribution from related parties (including
other partners in a partnership), less than or equal to 5% of the outstanding
Common Stock of the Corporation. The Partnership has informed Counsel that no
Limited Partner will directly or indirectly own more than 5% of the outstanding
Common Stock. In the event a Stockholder were to acquire more than 5% of the
outstanding Common Stock, any gain recognized from the sale of shares of Common
Stock could be treated as ordinary income under the collapsible corporation
provisions if the Corporation was found to be a collapsible corporation and
provided none of the other exceptions listed above applied at the time of the
sale of such shares.
STATE, LOCAL AND OTHER TAXATION
The Partnership, its Partners and the Corporation may, as a result of
the Restructuring Plan, be subject to state, local or other tax in their states
or countries of residence, and possibly in states where the properties
transferred to the Corporation are located. It is impractical to discuss
general principles which may be applicable to a particular Partner as such
state, local and other tax effects depend on each set of facts or
circumstances. Accordingly, each Partner should consult with his or her own
tax adviser with respect to state, local, or other taxes which may be
applicable.
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SELLING SECURITY HOLDERS
An aggregate maximum of 128,777 shares of Common Stock are being
registered in this offering for the account of certain affiliates of the
Partnership (the "Selling Security Holders"). These shares include (i) shares
of Common Stock distributable to the General Partner by the Partnership, which
the General Partner intends to distribute to its partners at some time in the
future; (ii) shares that may be purchased by the partners of the General
Partner through the exercise of Basic Subscription Rights; and (iii) shares
that may be purchased by Joel R. Schultz through the exercise of the
Oversubscription Privilege. The Selling Security Holders do not presently
intend to sell any specific number of shares in connection with the
Restructuring Plan. However, the shares are being registered for resale in
order that the Selling Security Holders may, from time to time in the future as
they determine in their discretion, sell any number of shares which they own in
the open market.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Common Stock for resale to the
public. The Company will not receive any of the proceeds of such sale of
Common Stock. Seven of the Selling Security Holders are executive officers of
the Corporation. The Selling Security Holders' Common Stock is not being
underwritten in connection with this offering.
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<TABLE>
<CAPTION> Shares to be
Shares Purchased through
Distributable the exercise of
to the Basic Total Shares
Partners of the General Subscription That May
General Partner Partner Rights Be Sold
--------------- ------- ------ -------
<S> <C> <C> <C>
Bruce Ackerman 130 63 193
Kenneth & Mary Carmona 1,529 737 2,266
Cal Trust, Kenny & Mary 106 51 157
Carmona
John A. DeRosa 3,568 1,720 5,288
Constance M. DeRosa 3,568 1,720 5,288
Deanna V. DeRosa 649 313 962
Vincent P. DeRosa 649 313 962
John Alan DeRosa 649 313 962
Richard B. Fremed & Ellen 1,641 791 2,432
F. Fremed
Cal Trust, TTEE FBO Richard 357 172 529
Fremed
Jay Fremed 260 125 385
Marc Fremed 337 163 500
Norman A. & Roslyn 3,244 1,563 4,807
Markiewicz
Cal Trust, TTEE FBO Norman 1,246 600 1,846
Markiewicz
Harvey & Beatric Schultz 1,298 625 1,923
Trust
Joel R. Schultz 7,526 3,627 11,153
Ricky Schultz 649 313 962
Toby Schultz 1,298 625 1,923
Presidential Services 13 6 29
------ ------ ------
28,587 13,777 41,364
====== ====== ======
</TABLE>
In addition to the number of shares to be acquired by Joel R. Schultz
as shown above, Mr. Schultz intends to purchase 115,000 shares through the
exercise of the Oversubscription Privilege, to the extent available. These
shares are also being registered for resale.
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LEGAL MATTERS
Certain legal matters in connection with the issuance of the Common
Stock will be passed upon for the Corporation by Jeffer, Mangels, Butler &
Marmaro LLP, Los Angeles, California. Bruce P. Jeffer, Esq., a partner of
Jeffer, Mangels, Butler & Marmaro LLP, owns a 4.46% interest in the General
Partner.
EXPERTS
The consolidated financial statements of the Partnership and its
subsidiaries at and for the year ended December 31, 1992 appearing in this
Proxy Statement/Prospectus and Registration Statement have been audited by KPMG
Peat Marwick, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing. KPMG Peat Marwick resigned from its engagement as
independent auditor of the Partnership and its subsidiaries on May 27, 1993.
The consolidated financial statements of the Partnership and its subsidiaries
at and for the year ended December 31, 1993 appearing in this Proxy
Statement/Prospectus and Registration Statement have been audited by Kenneth
Leventhal & Company ("KL&Co."), independent auditors, as set forth in their
report therein appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing. KL&Co. was merged with Ernst &
Young, LLP, in 1995. The consolidated financial statements of the Partnership
and its subsidiaries at and for the year ended December 31, 1994 appearing in
this Proxy Statement/Prospectus and Registration Statement have been audited by
Ernst & Young, LLP independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing. The Partnership terminated its accounting
relationship with Ernst & Young, LLP in September 1995. The Partnership has
engaged BDO Seidman, LLP, independent auditors, to perform the audit of the
financial statements of the Partnership and its subsidiaries for the nine
months ended September 30, 1995.
GLOSSARY
The capitalized terms appearing in this Prospectus have the meanings
specified below:
Additional Shares. Up to 600,000 shares of Common Stock offered for
purchase in connection with the Rights Offering and the Standby Offering.
Bank or NatWest. National Westminster Bank USA, the lender of the
Partnership's outstanding bank debt.
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Bank Warrant. The Warrant to be issued by the Corporation to NatWest
to purchase up to 2% of the outstanding Common Stock of the Corporation.
Basic Subscription Rights. The right of each Partner to subscribe for
a pro rata share of 400,000 additional shares of Common Stock for a purchase
price equal to the Subscription Price per share.
BIF. Bank Insurance Fund administered by the FDIC to protect deposits.
Board of Directors. The board of directors of the Corporation.
California Industrial Loan Law. Laws regulating investment authority
and other activities of the thrift and loan business conducted by Pacific
Thrift.
CAMEL. Standard rating given to financial institutions by federal
banking regulators consisting of a composite of five critical categories of
banking strength: capital, assets, management, earnings and liquidity.
Ratings range from 1 to 5, with 1 denoting outstanding strength and 5
characterizing insolvency.
Capital Accounts. Each Partner's capital account, as determined
pursuant to the Partnership Agreement.
Capital Contribution. Each Partner's original capital contribution,
and additional capital contributions if any, less any withdrawals of capital by
such Partner.
Capital Note. The $1,730,135 promissory note to the Partnership which
was voluntarily contributed by the General Partner in 1993 to increase the
capital of the Partnership by an amount equal to the excess distributions to
Partners made in 1992 in excess of Net Profits.
Cash Out Option. The option of every Partner to request cash in lieu
of shares of Common Stock that would otherwise be issued to the Partner in
connection with the Restructuring Plan, subject to certain limitations as
described under "THE RESTRUCTURING PLAN -- Cash Out Option."
Change of Control. A Change of Control is deemed to have occurred
when (i) any person becomes the beneficial owner of shares of the Corporation
with respect to which 20% or more of the total number of votes for the election
of the Board of Directors of the Corporation may be cast; (ii) in connection
with any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, the persons who were
Directors of the Corporation just prior to such event cease to constitute a
majority of the Board of Directors of the Corporation; (iii) the
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stockholders of the Corporation approve an agreement in which the Corporation
ceases to be an independent publicly owned corporation or for a sale of
substantially all of the assets of the Corporation; or (iv) at the discretion
of the Board of Directors, when a tender offer or exchange offer is made for
shares of the Corporation's Common Stock and shares of Common Stock are
acquired thereunder.
Code. The Internal Revenue Code of 1986, as amended.
Common Stock. The common stock of the Corporation.
Consolidated. Consolidated Reconveyance Corporation.
Corporation. Pacific United Group, Inc., a Delaware corporation.
CRA. Community Reinvestment Act of 1977.
Distribution. The distribution by the Partnership of the Common Stock
of the Corporation held by the Partnership to all of the Partners pro rata
based upon their respective Capital Accounts in the Partnership.
Distribution Date. ____ days after the expiration of the Solicitation
Period.
DOC. California Department of Corporations.
Exercise Price. The price at which a stock option granted under the
1994 Pacific United Group Stock Option Plan may be exercised.
Expiration Date. The expiration date of the Solicitation Period and
the Rights Offering Period, which is February __, 1996, or such later date as
the General Partner may extend the Solicitation Period.
Fairness Opinion. The fairness opinion issued by Houlihan Lokey in
connection with the Restructuring Plan.
FDIC. Federal Deposit Insurance Corporation.
FDICIA. Federal Deposit Insurance Corporation Improvement Act of 1991.
General Partner Warrants. The warrants to be issued to the General
Partner to purchase up to 25% of the total Common Stock of the Corporation for
a purchase price of $12.50 per share.
Houlihan Lokey. Houlihan Lokey Howard & Zukin, the independent
valuation firm which has issued the Fairness Opinion.
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Lenders. Lenders Posting and Publishing Corporation, a California
corporation and a wholly owned subsidiary of the Corporation.
Loan Agreement. Loan Agreement between the Partnership and NatWest
Bank N.A.
Maximum Purchase Commitment. The maximum number of shares of Common
Stock that the Standby Purchasers are obligated to purchase under the Standby
Purchase Agreements.
Net Profits. Partnership net profits as defined in the Partnership
Agreement, including net profits determined in accordance with generally
accepted accounting principles, plus any nonrefundable loan origination fees
treated as income for allocation and distribution purposes by the Partnership.
Notes. Senior Unsecured Notes proposed to be offered by the
Corporation in a public or private offering if the Restructuring Plan is
completed.
OREO. Other real estate owned by the Partnership or Pacific Thrift,
consisting of real estate acquired in settlement of loans.
OTS. Office of Thrift Supervision, a federal agency regulating
savings and loans institutions.
Oversubscription Privilege. The rights offered to Partners to
purchase the Additional Shares not subscribed for by Partners entitled to
purchase pursuant to their Basic Subscription Rights.
PCA. Prompt corrective action required to be taken by FDICIA to
resolve the problems of insured depository institutions that fall below one or
more prescribed minimum capital ratios.
Pacific Thrift. Pacific Thrift and Loan Company, a California
corporation.
Preferred Stock. The 2,000,000 authorized shares of Preferred Stock
which may be issued by the Corporation under its Certificate of Incorporation.
Purchase Commitment. The obligations of the Standby Purchasers to
purchase shares of Common Stock under the Standby Purchase Agreements.
Record Date. The date as of which the identity of the Partners of the
Partnership and the amount of the Partner's Capital Account shall be determined
for purposes of voting rights of the Partners with respect to the Restructuring
Plan.
Restructuring Plan. The plan proposed for the vote of the Limited
Partners whereby the Partnership would distribute to the
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Partners the stock of the Corporation in liquidation of the Partnership.
Rights Offering. The rights offered to the Partners of the
Partnership, the Partners of the General Partner and the employees of the
Partnership and its subsidiaries to purchase Additional Shares.
Solicitation Period. The period during which the General Partner
shall solicit Limited Partners to approve the Restructuring Plan and which
shall commence on January __, 1996 and expire on February __, 1996, or such
later date as the General Partner determines in its sole discretion.
Specified Annual Return Rates. The specified annual return rates
payable from the Net Profits, if any, of the Partnership, to each class of
Partners under the Partnership Agreement.
Standby Offering. The offering of up to 500,000 Additional Shares
($5,000,000) plus an amount equal to the Shares repurchased by the Corporation
from Partners electing the Cash Out Option to the Standby Purchasers pursuant
to the Standby Agreements.
Standby Purchase Agreements. The irrevocable agreements between the
Corporation and the Standby Purchasers to purchase specified minimum and
maximum amounts of shares of Common Stock concurrently with and subject to the
completion of the Restructuring Plan.
Standby Purchasers. The unaffiliated third parties who have entered
Standby Purchase Agreements to purchase up to 500,000 Additional Shares plus
all shares that would otherwise be issued to Cashed Out Partners.
Stockholders. The record holders of the Common Stock.
Stock Purchase Plan. The 1995 Employee Stock Purchase Plan providing
for eligible employees of the Corporation and its subsidiaries to participate
in the ownership of the Corporation by acquiring the right to purchase shares
of the Corporation's Common Stock.
Subscription Rights. The Basic Subscription Rights and
Oversubscription Privilege to purchase Additional Shares in the Corporation.
Supplemental Plan. The Supplemental Executive Retirement Plan
designed to provide benefits to certain long-term executive officers of the
Corporation and its predecessors.
Tier I. Core capital component used by the FDIC to evaluate
compliance with risk-based capital requirements and which consists primarily of
common stock, related surplus and retained earnings,
198
<PAGE> 213
qualifying noncumulative perpetual preferred stock and minority interests in
the equity accounts of consolidated subsidiaries.
Tier II. Supplementary capital component used by the FDIC to evaluate
compliance with risk-based capital requirements and which may consist of (i)
the allowance for possible loan and lease losses in an amount up to 1.25% of
risk-weighted assets; (ii) cumulative perpetual preferred stock and long-term
preferred stock and related surplus; (iii) hybrid capital instruments
(instruments with characteristics of both debt and equity), perpetual debt and
mandatory convertible debt securities; and (iv) eligible term subordinated debt
and intermediate-term preferred stock with an original maturity of five years
or more, including related surplus, in an amount up to 50% of Tier I capital.
Unified. Pacific Unified Mortgage, Inc., a Delaware corporation.
Warrant Stock. Common Stock issued or issuable under the General
Partner Warrants.
199
<PAGE> 214
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Presidential Mortgage Company
Successor Independent Auditors' Report (omitted) . . . . . . . . . . . . . . . . . F-1
Predecessor Independent Auditors' Report (omitted) . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Operations for the
years ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Changes in Partners'
Capital for the years ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows
for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements
for the years ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11
Consolidated Balance Sheets as of December 31,
1994 and September 30, 1995 (unaudited). . . . . . . . . . . . . . . . . . F-45
Consolidated Statements of Operations for the
Three Months Ended September 30,
1995 and 1994 and the Nine Months Ended
September 30, 1995 and 1994 (unaudited). . . . . . . . . . . . . . . . . . F-46
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1995
and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47
Notes to Consolidated Financial Statements
for the Nine Months ended September 30, 1995 . . . . . . . . . . . . . . . F-48
</TABLE>
<PAGE> 215
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS - Note 2C $ 19,628,000 $ 13,220,000
ACCOUNTS RECEIVABLE 5,071,000 3,340,000
ACCRUED INTEREST RECEIVABLE 1,125,000 2,091,000
LOANS RECEIVABLE - Notes 2D, 2E, and 3 53,045,000 84,183,000
LOANS HELD FOR SALE - Notes 2F and 3 12,011,000 572,000
RECEIVABLE FROM RELATED PARTY - Notes 9 and 10 478,000 794,000
EXCESS YIELD RECEIVABLE - Notes 2G and 3 888,000 895,000
OTHER REAL ESTATE - Notes 2H and 4 7,621,000 6,003,000
PROPERTY AND EQUIPMENT - Notes 2I and 5 1,322,000 1,215,000
GOODWILL - Notes 2J and 11 1,749,000 1,622,000
OTHER ASSETS 809,000 389,000
---------------- ----------------
$ 103,747,000 $ 114,324,000
================ ================
LIABILITIES AND PARTNERS' CAPITAL
THRIFT CERTIFICATES PAYABLE - Note 6
Full-paid certificates $ 58,058,000 $ 41,417,000
Installment certificates 11,443,000 21,004,000
---------------- ----------------
Total thrift certificates payable 69,501,000 62,421,000
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 4,471,000 4,508,000
ACCRUED INTEREST PAYABLE 405,000 182,000
PAYABLE TO RELATED PARTY - Note 10 134,000 576,000
MORTGAGE NOTES PAYABLE - Note 4 2,313,000 1,778,000
NOTE PAYABLE - Note 7 14,778,000 23,200,000
NOTE PAYABLE TO RELATED PARTY - Note 7 600,000 600,000
PARTNERSHIP WITHDRAWALS PAYABLE - Note 15 1,120,000 1,120,000
---------------- ----------------
Total liabilities 93,322,000 94,385,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES -
Notes 12, 13, 19, and 20 - -
PARTNERS' CAPITAL 10,425,000 19,939,000
---------------- ----------------
$ 103,747,000 $ 114,324,000
================ ================
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 216
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable - Notes 2D, 2E, and 3 $ 11,003,000 $ 14,209,000 $ 16,789,000
Deposits with financial institutions 401,000 3,000 38,000
------------ ------------ ------------
Total interest income 11,404,000 14,212,000 16,827,000
------------ ------------ ------------
INTEREST EXPENSE
Thrift certificates greater than $100,000 28,000 304,000 308,000
Other thrift certificates 2,917,000 2,917,000 2,689,000
Notes payable 1,982,000 2,497,000 3,728,000
------------ ------------ ------------
Total interest expense 4,927,000 5,718,000 6,725,000
------------ ------------ ------------
Net interest income 6,477,000 8,494,000 10,102,000
PROVISION FOR LOAN LOSSES -
Notes 2D, 2E, and 3 6,096,000 4,655,000 3,888,000
------------ ------------ ------------
Net interest income after
provision for loan losses 381,000 3,839,000 6,214,000
------------ ------------ ------------
NONINTEREST INCOME
Trustee and reconveyance fees 3,344,000 3,781,000 3,107,000
Other income 1,712,000 1,381,000 1,819,000
Gain on sale of loans 946,000 143,000 390,000
------------ ------------ ------------
Total noninterest income 6,002,000 5,305,000 5,316,000
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits - Note 10 6,493,000 5,064,000 3,093,000
General and administrative - Note 10 7,090,000 5,491,000 5,353,000
Related party fees - Notes 9 and 10 805,000 847,000 1,647,000
Operations of other real estate - Note 4 732,000 3,307,000 1,014,000
Depreciation and amortization 776,000 303,000 274,000
------------ ------------ ------------
Total noninterest expense 15,896,000 15,012,000 11,381,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (9,513,000) (5,868,000) 149,000
INCOME TAXES - Notes 2K and 8 1,000 1,000 1,000
------------ ------------ ------------
NET INCOME (LOSS) $ (9,514,000) $ (5,869,000) $ 148,000
============ ============ ============
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 217
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Statements of Changes in Partners' Capital
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<S> <C>
CAPITAL - December 31, 1991 $ 36,706,000
CONTRIBUTIONS 74,000
DISTRIBUTIONS (4,610,000)
WITHDRAWALS (3,488,000)
NET INCOME - 1992 148,000
------------
CAPITAL - December 31, 1992 28,830,000
CONTRIBUTIONS 301,000
DISTRIBUTIONS (1,943,000)
WITHDRAWALS (1,380,000)
NET LOSS - 1993 (5,869,000)
------------
CAPITAL - December 31, 1993 19,939,000
CONTRIBUTIONS --
DISTRIBUTIONS --
WITHDRAWALS --
NET LOSS - 1994 (9,514,000)
------------
CAPITAL - December 31, 1994 $ 10,425,000
============
</TABLE>
See notes to the consolidated financial statements.
F-7
<PAGE> 218
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) income $ (9,514,000) $ (5,869,000) $ 148,000
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities
Provision for loan losses 6,096,000 4,655,000 3,888,000
Provision for losses on other
real estate 202,000 1,069,000 572,000
Net (gain) on sale of other
real estate (625,000) (345,000) (295,000)
Proceeds from sale of loans 29,315,000 4,252,000 8,889,000
Originations of loans held for sale (41,055,000) (6,320,000) (11,914,000)
Depreciation and amortization 776,000 303,000 274,000
Net change in assets and liabilities
Accounts receivable (1,731,000) (359,000) (1,314,000)
Accrued interest receivable 966,000 122,000 1,081,000
Receivable from related party 316,000 (411,000) --
Excess yield receivable 7,000 117,000 (184,000)
Goodwill (127,000) (309,000) (627,000)
Other assets (420,000) (79,000) 120,000
Payable to related party (442,000) 576,000 --
Accounts payable, accrued expenses,
and accrued interest payable 186,000 2,200,000 655,000
------------ ------------ ------------
Net cash (used in) provided by
operating activities (16,050,000) (398,000) 1,293,000
------------ ------------ ------------
</TABLE>
See notes to the consolidated financial statements.
F-8
<PAGE> 219
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of loans 28,402,000 25,884,000 26,937,000
Increase in loans receivable (10,249,000) (16,069,000) (9,179,000)
Proceeds from sale of other real estate 5,994,000 7,001,000 2,125,000
Mortgages assumed (repaid) in
connection with other real estate 536,000 (730,000) (1,862,000)
Purchase of property and equipment (883,000) (853,000) (86,000)
------------ ------------ ------------
Net cash (used in) provided by
investing activities 23,800,000 15,233,000 17,935,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase in thrift certificates 7,080,000 11,860,000 11,606,000
Paydowns of note payable (8,422,000) (10,200,000) (24,150,000)
Proceeds from issuance of
partnership shares -- 35,000 74,000
Capital contribution from
general partner -- 266,000 --
Distributions to partners -- (1,943,000) (4,610,000)
Withdrawals of partnership shares -- (2,086,000) (2,557,000)
------------ ------------ ------------
Net cash used in financing
activities (1,342,000) (2,068,000) (19,637,000)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 6,408,000 12,767,000 (409,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 13,220,000 453,000 862,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 19,628,000 $ 13,220,000 $ 453,000
============ ============ ============
</TABLE>
See notes to the consolidated financial statements.
F-9
<PAGE> 220
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for
Interest $4,704,000 $5,838,000 $6,544,000
State franchise taxes 1,000 1,000 1,000
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Loans transferred to other real estate $7,542,000 $7,270,000 $7,443,000
Mortgages payable assumed in
connection with other real estate 2,499,000 3,289,000 2,507,000
Loans to facilitate sales of other
real estate 898,000 3,344,000 4,129,000
</TABLE>
See notes to the consolidated financial statements.
F-10
<PAGE> 221
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
NOTE 1 - GENERAL
Organization
Presidential Mortgage Company is a California limited partnership whose
principal purpose is to make loans secured by real estate. In these
financial statements, "the Partnership" refers to Presidential Mortgage
Company itself and "the Company" refers to Presidential Mortgage
Company and its subsidiaries.
The Partnership's general partner, Presidential Management Company, is
a California limited partnership. Presidential Management Company's
general partner, Presidential Services Corporation, is a California
corporation owned by Joel R. Schultz and John A. DeRosa.
The Partnership's limited partners consist of approximately 2,500
individuals and entities in classes A, B, C, D, and E. The differences
between the various classes primarily relate to the different offering
dates and unit prices as well as profit priorities and percentages. In
addition, certain partners have elected to reinvest their distributions
in Distribution Reinvestment Plan (DRP) Units.
In 1988, Pacific Thrift and Loan Company (Pacific Thrift), a California
corporation, was formed as a wholly owned subsidiary of the
Partnership. Pacific Thrift conducts business under the California
Industrial Loan Law and makes loans secured by real estate.
Pacific Thrift issues certificates to investors that are redeemable at
maturity at the option of investors, although penalties for early
withdrawal may be assessed. The California Industrial Loan Law
maintains provisions governing the amount of thrift certificates that
may be issued, the amount of funds that may be borrowed, and the types
of loans that may be made. During 1988, the Federal Deposit Insurance
Corporation approved Pacific Thrift for deposit insurance coverage.
Accordingly, Pacific Thrift is subject to annual assessments by the
FDIC.
In 1990, the Partnership purchased 100% of the limited partnership
interests (which constitutes 99% of all partnership interests) of
Consolidated Reconveyance Company (CRC) and Lenders Posting and
Publishing Company (LPPC). These entities provide trustee and related
foreclosure services to the Partnership, Pacific Thrift, and
unaffiliated lenders. Both CRC and LPPC were purchased from the
Partnership's general partner.
F-11
<PAGE> 222
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - GENERAL (CONTINUED)
Partnership Agreement
The Partnership is governed by the Fifth Amended and Restated
Certificate and Agreement of Limited Partnership entered into as of
September 1989, as amended by the First Amendment, dated as of May
1993, and the Second Amendment, dated as of January 1, 1994. The First
Amendment provides for a special allocation of loss to the general
partner and income to the limited partners based on certain capital
contributions by the general partner from 1993 through 1996 (the
"Capital Plan"). The Second Amendment provides that Pacific Thrift will
directly hire its own employees and directly pay its own overhead and
that the Partnership will continue to pay the general partner for fees
in connection with loans of Pacific Thrift and the Partnership. The
agreement and amendments are collectively referred to as the
"Partnership Agreement."
In accordance with the Partnership Agreement, the net profits of the
Partnership (after deduction of the management fee) are allocated to
the partners, based on specified annual percentage rates for each class
of partners and the average daily balance of each partner's capital
contributions. Net losses are allocated to all partners in proportion
to their capital contributions. In addition, there is a special
allocation based on the Capital Plan.
The Partnership Agreement provides certain rights to the partners to
withdraw the balance in their capital accounts. Such withdrawal rights
are restricted by certain percentage limitations and a determination by
the general partner that such withdrawal will not impair the capital or
operations of the Partnership. Since July 1993, no distributions have
been made and no withdrawals have been permitted.
Upon dissolution of the Partnership, the Partnership Agreement provides
that the net assets will be distributed to the partners in proportion
to their capital accounts and that the general partner will fund any
deficit balance in its capital account as defined in the Partnership
Agreement.
Operating Results and Business Plan
The Company has suffered losses from operations of the Partnership and
Pacific Thrift from 1992 through 1994. These losses have resulted
primarily from significant amounts of nonperforming loans, large
provisions for loan losses, and relatively high levels of overhead and
have caused a substantial reduction in the capital of the Company.
These losses have also caused Pacific Thrift to become
"undercapitalized" at the end of 1994 and subject to certain regulatory
mandates. See Notes 19 and 20.
F-12
<PAGE> 223
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - GENERAL (CONTINUED)
Operating Results and Business Plan (Continued)
Management expects that stabilizing real estate values and general
economic conditions will result in reduced loan losses in 1995. In
connection with the Partnership, management is in the process of
evaluating alternative business strategies. In connection with Pacific
Thrift, management is taking certain steps to return the operations to
profitability and improve the financial condition. These steps include
an emphasis on originating residential real estate loans for sale in
order to generate fee income, a reduction in portfolio lending until
targeted capital ratios are achieved, and controlling overhead
expenses.
Management expects that Pacific Thrift, CRC, and LPPC will be
profitable in 1995 and that Pacific Thrift will substantially comply
with the regulatory mandates. Management also expects that, although
the Partnership will probably incur a loss, the Company will break even
or be profitable in 1995. In connection with the note payable to its
lender, management expects that the Partnership will be able to
generate sufficient cash flow from operations (including real estate
sales) and loan sales to satisfy its debt service requirements. See
Note 7.
There is no assurance that the Company will be successful. These
consolidated financial statements do not include any provisions or
adjustments that might result from the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles.
B. Consolidation
The consolidated financial statements include the accounts of the
Partnership, Pacific Thrift, CRC, and LPPC. All significant
intercompany balances and transactions have been eliminated.
Consolidating information is presented in Schedules I and II.
F-13
<PAGE> 224
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
D. Loans Receivable
Loans receivable are stated at the principal amount outstanding,
less unamortized deferred fees and costs and the allowance for loan
losses. Loans receivable are primarily secured by first and second
trust deeds.
Interest income is accrued as earned and is based on the principal
balance outstanding. The Company's policy is to cease accruing
interest on loans that are more than two monthly payments past due
and for which there appears to be insufficient collateral to support
collectibility. In many cases, interest, late fees, and other
charges continue to accrue until the time management deems that such
amounts are not collectible.
Nonrefundable loan fees and direct costs associated with the
origination of loans are deferred and netted against outstanding
loan balances. The net deferred fees and costs are recognized in
interest income over the loan term as an adjustment to the yield,
using a method that approximates the effective interest (level
yield) method.
E. Allowance for Loan Losses
Loan losses are charged to the allowance for loan losses; recoveries
are credited to the allowance. The provision for loan losses charged
to expense and added to the allowance for loan losses is based upon
management's judgment and evaluation of the known and inherent risks
in the loan portfolio. Management's judgment takes into
consideration such factors as changes in the nature and volume of
the portfolio, continuing review of delinquent loans, current
economic conditions, risk characteristics of the various categories
of loans, and other pertinent factors that may affect the borrower's
ability to repay. While management uses available information to
recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions.
F-14
<PAGE> 225
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Allowance for Loan Losses (Continued)
The Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," in May 1993.
Statement No. 114 requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or fair value of the collateral if
the loan is collateral dependent. A loan is considered impaired
when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Statement No. 114 is
effective for fiscal years beginning after December 15, 1994, with
early application encouraged. The Company has not yet adopted
Statement No. 114 and does not expect it to have a material impact
on the financial position or results of operations.
F. Loans Held for Sale
The Company has designated certain of its loans receivable as being
held for sale. In determining the level of loans held for sale, the
Company considers the extent to which loans will be required to be
sold in response to liquidity needs, regulatory capital needs,
asset/liability management requirements, and other factors.
Loans held for sale are recorded at the lower of cost or market
value. Any unrealized losses are recorded as a reduction in income.
Realized gains and losses from the sale of loans receivable are
based on the specific identification method.
G. Excess Yield Receivable
Excess yield receivable represents the excess of the estimated
present value of net amounts to be received over normal servicing
fees for loan sales for which the Company continues to service the
loans. Excess yield receivable also represents the estimated present
value of the excess interest income to be received over the yield
acquired by the investor for loan sales for which the Company does
not continue to service the loans. The receivable is amortized to
income based on a method which approximates the effective interest
method.
F-15
<PAGE> 226
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Other Real Estate
Other real estate is comprised of formally foreclosed property and
in-substance foreclosed property to which the Company does not have
legal title. These assets are recorded at the lower of the net
investment in the loan or the fair value of the property. At the
time of foreclosure, any excess of the net investment in the loan
over its fair value is charged to the allowance for loan losses.
Estimated selling costs and any subsequent declines in value are
charged to operations, and a valuation allowance is established.
Loans are classified as in-substance foreclosures when they exhibit
characteristics more closely associated with the risk of real estate
ownership than with loans. Collateral that has been classified as an
in-substance foreclosure is reported in the same manner as
collateral that has been formally foreclosed.
I. Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation of property and equipment is based on the
asset's estimated useful life, ranging from two to eight years, and
is computed using the straight-line method. Expenditures that
improve or extend the service lives of assets are capitalized.
Repairs and maintenance are charged to expense as incurred.
J. Goodwill
Goodwill represents the excess of the total purchase price
(consisting of the initial consideration and subsequent
consideration) of CRC and LPPC over the fair value of purchased net
assets. Goodwill is being amortized using the straight-line method
over approximately 20 years.
K. Income Taxes
Partnerships are generally not subject to income taxes; accordingly,
the Partnership income or loss is reported in the individual
partners' tax returns. However, Pacific Thrift, the Partnership's
wholly owned corporate subsidiary, is subject to federal income and
state franchise taxes.
In 1993, Pacific Thrift adopted Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes" (Statement No.
109). The new standard requires the use of the "asset and liability"
method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates to
differences between the financial statement carrying amount and the
tax basis of existing assets and liabilities. The effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-16
<PAGE> 227
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. Income Taxes (Continued)
Under Statement No. 109, the tax benefit of net operating loss
carryforwards is recorded if the tax benefit is more likely than not
to be realized.
In 1992, Pacific Thrift applied Accounting Principles Board Opinion
No. 11 (Opinion No. 11), which required the use of the "deferred
method" of accounting for income taxes. Under the deferred method,
deferred income taxes were recognized for income and expense items
that were reported in different years for financial reporting and
income tax purposes, using the tax rate applicable to the year of
the calculation. Deferred taxes were not adjusted for subsequent
changes in tax rates.
Under Opinion No. 11, the tax benefit of net operating loss
carryforwards was not recorded unless the tax benefit was assured
beyond any reasonable doubt.
L. Reclassifications
Certain reclassifications of balances from prior years have been
made to conform to the current year's reporting format.
F-17
<PAGE> 228
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans Receivable
Loans receivable at December 31, 1994 and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Residential real estate loans $ 55,235,000 $ 84,129,000
Participations sold (16,129,000) (16,226,000)
------------- -------------
Residential real estate loans - net 39,106,000 67,903,000
------------- -------------
Commercial real estate loans 30,153,000 20,663,000
Participations sold (10,479,000) 344,000
------------- -------------
Commercial real estate loans - net 19,674,000 21,007,000
------------- -------------
Total loans receivable $ 58,780,000 $ 88,910,000
============= =============
Loans receivable held for investment $ 58,780,000 $ 88,910,000
Less net deferred loan fees and costs (1,428,000) (1,604,000)
Less allowance for loan losses (4,307,000) (3,123,000)
------------- -------------
$ 53,045,000 $ 84,183,000
============= =============
The components of the loan portfolio at December 31 were as follows:
1994 1993
------------- -------------
One-to-four family residential $ 20,088,000 $ 45,617,000
Five-or-more family residential 16,720,000 14,586,000
Home improvement 2,298,000 7,700,000
Commercial 17,869,000 17,117,000
Land and other 1,805,000 2,130,000
Multiproperties -- 1,760,000
------------- -------------
$ 58,780,000 $ 88,910,000
============= =============
</TABLE>
During 1994 and 1993, the Company sold approximately $25,632,000 and
$25,884,000, respectively, of real estate loans to various outside
parties at the approximate book value of such loans.
F-18
<PAGE> 229
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Significant Concentrations of Risk
The Company makes mortgage loans to its borrowers, primarily secured by
first or second trust deeds on Southern California real estate. The
loans are secured by single-family residential and other types of real
estate and collateralized by the equity in the borrowers' real estate.
Prior to the fourth quarter of 1993, these borrowers generally had a
credit standing such that the Company relied heavily on the value of
the underlying collateral in its lending practices. In the fourth
quarter of 1993, however, the Company began implementing a revised
policy to place more emphasis on the creditworthiness of the borrower.
Loans are expected to be repaid either by cash from the borrower at
maturity or by borrower refinancing.
Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 3,123,000 $ 2,646,000 $ 1,821,000
Provision charged to expense 6,096,000 4,655,000 3,888,000
Loan charge-offs (4,912,000) (4,178,000) (3,063,000)
----------- ----------- -----------
Balance at end of year $ 4,307,000 $ 3,123,000 $ 2,646,000
=========== =========== ===========
</TABLE>
At December 31, 1994 and 1993, loans with interest more than two
monthly payments past due and on nonaccrual status totaled $3,408,000
and $5,781,000, respectively. If interest on these loans had been
accrued, interest income would have increased by approximately $955,000
and $1,025,000 in 1994 and 1993, respectively. At December 31, 1994 and
1993, loans with interest more than two monthly payments past due and
on accrual status totaled $3,474,000 and $6,821,000, respectively.
Interest income recognized on these loans totaled approximately
$298,000 and $609,000 in 1994 and 1993, respectively.
Pledging of Partnership Loans Receivable
In connection with the origination of the line of credit, the
Partnership pledged all of its loans receivable as security to its
lender.
F-19
<PAGE> 230
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Loans Held for Sale
Loans held for sale at December 31, 1994 and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Real estate loans $10,885,000 $ 572,000
Title I loans 1,126,000 -
----------- ---------
$12,011,000 $ 572,000
=========== =========
</TABLE>
Accounts receivable of $1,713,000 at December 31, 1994 consisted of
proceeds from loan sales. These proceeds were received in early January
1995.
In December 1993, management developed a loan securitization program
under which the Partnership or Pacific Thrift may sell certain loans
receivable. The securitization agreements provide that the Partnership
or Pacific Thrift will offer to sell all newly originated qualifying
loans, up to $75,000,000, to the buyer through June 1995. The
agreement, as amended, also provides that the Partnership or Pacific
Thrift will earn a premium and retain a portion of the interest-income
cash flows from the loans. As of December 31, 1994, the Partnership had
not sold any loans under its loan securitization agreement. However, in
1994 and 1993, Pacific Thrift sold loans totaling $29,616,000 and
$3,838,000, respectively, and recognized gains, based on the premiums
and projected excess cash flows, of $865,000 and $128,000,
respectively.
Prior to March 31, 1993, Pacific Thrift originated Title I home
improvement loans that were 90% insured by the Federal Housing
Administration, provided that the total amount of claims did not exceed
10% of the amount of all Title I loans. During 1994, 1993, and 1992,
Pacific Thrift sold $2,770,000, $557,000, and $9,279,000, respectively,
of these loans and recorded gains (losses) totaling $(39,000), $15,000,
and $390,000, respectively. As of March 31, 1993, Pacific Thrift
discontinued the origination and sale of Title I and other similar
loans.
F-20
<PAGE> 231
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 4 - OTHER REAL ESTATE
Other real estate consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Foreclosed real estate $ 7,478,000 $ 6,266,000
In-substance foreclosures 545,000 520,000
Less allowance for losses on other real estate (402,000) (783,000)
----------- -----------
$ 7,621,000 $ 6,003,000
=========== ===========
</TABLE>
Changes in the allowance for losses on other real estate for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 783,000 $ 867,000
Provisions for losses 202,000 1,069,000
Net (charge-offs) recoveries (583,000) (1,153,000)
----------- -----------
Balance at end of year $ 402,000 $ 783,000
=========== ===========
</TABLE>
Operations of other real estate for the years ended December 31 consisted
of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Provisions for losses $ 202,000 $ 1,069,000 $ 572,000
Net (gain) on sales (625,000) (345,000) (295,000)
Other expenses 1,155,000 2,583,000 737,000
----------- ----------- -----------
$ 732,000 $ 3,307,000 $ 1,014,000
=========== =========== ===========
</TABLE>
Other expenses in 1993 included $1,494,000 of estimated costs for
remediation of toxic substances on other real estate. See Note 13.
Upon foreclosure of a junior lien, the Company takes title to the real
estate, subject to existing senior liens. These mortgage notes payable
totaled $2,313,000 and $1,778,000 at December 31, 1994 and 1993,
respectively.
F-21
<PAGE> 232
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Computer equipment and software $ 1,078,000 $ 1,083,000
Furniture and fixtures 583,000 334,000
Leasehold improvements 455,000 326,000
----------- -----------
2,116,000 1,743,000
Accumulated depreciation and amortization (794,000) (528,000)
----------- -----------
$ 1,322,000 $ 1,215,000
=========== ===========
</TABLE>
As of December 31, 1993, Pacific Thrift purchased computer equipment
and software, and furniture and fixtures from the Partnership and the
general partner.
NOTE 6 - THRIFT CERTIFICATES PAYABLE
Thrift certificates are comprised of full-paid certificates and
installment certificates. The approximate weighted average interest
rate of full-paid and installment certificate accounts at December 31,
1994 was 5.4% and 3.9%, respectively. The interest payable on the
thrift certificates totaled $171,000 and $1,000 at December 31, 1994
and 1993, respectively.
At December 31, 1994 and 1993, full-paid thrift certificates consisted
of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Certificates greater than $100,000 $ 102,000 $ 1,792,000
Certificates less than $100,000 57,956,000 39,625,000
----------- -----------
$58,058,000 $41,417,000
=========== ===========
</TABLE>
At December 31, 1994, scheduled maturities of full-paid thrift
certificates were as follows:
<TABLE>
<S> <C>
Less than 3 months $25,624,000
3 to 6 months 17,201,000
6 to 12 months 10,654,000
1 to 5 years 4,579,000
Over 5 years --
-----------
$58,058,000
===========
</TABLE>
F-22
<PAGE> 233
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7 - NOTE PAYABLE
In 1990, the Partnership obtained financing under a $105,000,000 line
of credit agreement with National Westminster Bank (NatWest), as agent
for a group of banks, which was modified on September 30, 1991 to
$56,000,000 and subsequently modified further. The amounts advanced
under the agreement were based upon a specified percentage of the
amount of eligible loans assigned as security. Under the agreement that
existed at December 31, 1991, the Partnership could elect any of three
interest rates: (i) 0.50% above NatWest's prime rate, (ii) 2.0% above
the certificate of deposit rate, or (iii) 1.875% above LIBOR. At
December 31, 1991, the Partnership had $56,250,000 outstanding on the
line of credit.
In April 1992, NatWest delivered a commitment letter to the
Partnership, followed by a formal amendment of the loan agreement, to
continue to provide a revolving loan of $48,000,000, decreasing to
$44,000,000 by May 15, 1992, and decreasing by $1,500,000 each month to
a new maximum of $36,500,000 by September 30, 1992.
In connection with the amendment, the general partner loaned the
Partnership $600,000 in subordinated debt, which bears interest at the
prime rate and may only be repaid upon consent by NatWest or at such
time as the Partnership repays all of its outstanding indebtedness to
NatWest. In addition, the general partner and the three managing
officers of the general partner personally guaranteed the performance
by the Partnership of all terms of the line of credit agreement.
On September 30, 1992, NatWest amended and extended the term of the
revolving loan through March 31, 1993, requiring further paydowns of
$1,000,000 per month for four of the months and $1,100,000 for two of
the months during the six-month extension period.
Under the terms of the September 30, 1992 amendment, the Partnership
could borrow, on a revolving credit basis, up to the lesser of (i) a
specified borrowing base equal to 93.75% of the aggregate principal
balance of all eligible mortgage loans secured by first or second trust
deeds on single-family residences, and 85% of the aggregate principal
balance of all eligible mortgage loans secured by first or second trust
deeds on multifamily residences or commercial properties; or (ii)
$36,500,000 as of September 30, 1992, reduced by required reductions
through March 31, 1993. Total loans secured by trust deeds on
multifamily residences and commercial properties that could be included
as eligible loans could not exceed 35% of all eligible loans.
Under the September 30, 1992 amendment, the interest rate charged on
new advances was based on (i) 1% above NatWest's prime rate; (ii)
3.125% over NatWest's certificate of deposit rate; or (iii) 3% over the
LIBOR rate. In addition, the Partnership paid a commitment fee equal to
0.50% per annum of the average daily unused portion of the aggregate
commitment. During 1993, the Partnership elected an interest rate of 1%
above the NatWest prime rate.
F-23
<PAGE> 234
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7 - NOTE PAYABLE (CONTINUED)
On April 1, 1993, the line of credit agreement was further amended and
extended to June 30, 1993. The amendment required paydowns of
$1,000,000 per month to a new maximum of $27,300,000 as of June 30,
1993.
In June 1993, the line of credit was further amended and extended until
June 30, 1994. Under the terms of the extension, the Partnership was
required to make monthly payments of $300,000, plus the amount by which
80% of the Partnership's monthly net operating cash flow (after payment
of rent, salaries and employee benefits, interest under the line of
credit agreement, senior liens on mortgage loans and other real estate,
and up to $50,000 per month of office expenses) exceeded $300,000. In
addition, the Partnership was not allowed to make distribution or
withdrawal payments to the partners.
The line of credit agreement, as amended in June 1993, could terminate
upon certain customary events of default. Events of default included
failure to meet the following financial standards: (i) minimum excess
tangible financial assets not less than $15,000,000; (ii) a maximum
ratio of total liabilities to excess tangible financial assets not
greater than 3.25-to-1; and (iii) a minimum interest coverage ratio of
net income plus interest expense to interest expense of 1.5-to-1. Upon
the occurrence of an event of default under the agreement, NatWest had
the right, among other remedies, to declare all advances due
immediately, cease making any further advances, and sell the collateral
assigned as security. NatWest also had the right to charge a higher
interest rate (3% above prime) on amounts due and unpaid.
In December 1993, the Partnership notified NatWest that certain loans
in the borrowing base had become ineligible loans. Such reduction in
the eligible loans caused a payment of approximately $2,100,000 to
become immediately due. Subsequently, the Partnership notified NatWest
that other loans had become ineligible loans, resulting in a total
payment in excess of $6,000,000 being immediately due.
In May 1994, the Partnership notified NatWest of additional defaults on
the line of credit, including those pertaining to the financial
standards for excess tangible financial assets and interest coverage as
well as material litigation, environmental liabilities, and defaults
under other provisions.
During the period April 1994 through September 1994, the Partnership
and NatWest negotiated to restructure and renew the line of credit. In
September 1994, the line of credit was amended and extended through
June 30, 1996 under the following primary terms:
(1) the Partnership is required to make mandatory quarterly
principal payments sufficient to reduce the outstanding
balance to $15,410,000 by December 31, 1994; $13,222,000 by
March 31, 1995; $10,978,000 by June 30, 1995; $8,878,000 by
September 30, 1995; $6,883,000 by December 31, 1995;
$4,993,000 by March 31, 1996; and $0 by June 30, 1996;
F-24
<PAGE> 235
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7 - NOTE PAYABLE (CONTINUED)
(2) the Partnership will incur interest on the line of credit
at the rate of prime plus 1%;
(3) the Partnership is required to pay 100% of its net cash
flow to NatWest;
(4) the Partnership is required to maintain a ratio, based on
the outstanding principal balance of performing loans
compared to the outstanding principal balance of the line
of credit, greater than or equal to 1.10 to June 30, 1995
and 1.20 from July 1, 1995 to June 30, 1996;
(5) the Partnership is required to maintain a ratio, based on
the outstanding principal balance of all loans and the
estimated fair value of other real estate compared to the
outstanding principal balance of the line of credit,
greater than or equal to 1.60 to June 30, 1995 and 1.80
from July 1, 1995 to June 30, 1996;
(6) the Partnership is allowed to make actual cash
disbursements equal to 110% of budgeted cash disbursements
for general and administrative expenses;
(7) the Partnership is allowed to make actual cash
disbursements equal to 120% of budgeted cash disbursements
for loan and real estate expenses, other than specified
environmental remediation costs;
(8) the Partnership is allowed to pay specified environmental
remediation costs up to $1,465,000;
(9) CRC and LPPC are required to pay cash balances in excess of
$250,000 as of January 31, 1995 and January 31, 1996 to the
Partnership;
(10) the Partnership is not allowed to pay any amounts to the
general partner, including fees, reimbursements, or
distributions, except to the extent of 110% of the budgeted
overhead of the general partner;
(11) the Partnership is not allowed to pay any distributions or
withdrawals to the limited partners;
(12) the Partnership is not allowed to make capital
contributions to Pacific Thrift, except for specified
environmental remediation costs of Pacific Thrift and other
limited purposes; and
(13) in the event that the Partnership does not reduce the
outstanding principal balance of the line of credit to
$10,455,000 by June 30, 1995, $8,455,000 by September 30,
1995, $6,555,000 by December 31, 1995, $4,755,000 by March
31, 1996, and $0 by June 30, 1996, the Partnership will
incur a nonperformance fee of $1,000,000 for each target,
up to a maximum of $5,000,000, payable on June 30, 1996;
however, if the Partnership incurs one or more
nonperformance fees and subsequently repays the entire line
of credit by June 30, 1996, the nonperformance fees are
reduced to the greater of 25% of the nonperformance fees or
$500,000.
In addition, the general partner and three managing officers reaffirmed
their guarantees.
F-25
<PAGE> 236
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7 - NOTE PAYABLE (CONTINUED)
As consideration for the September 1994 amended and restated loan
agreement, NatWest waived the defaults which existed under the previous
agreement. In addition, certain financial standards under the previous
agreement are no longer required, including the borrowing base and
eligible loan restrictions, a minimum amount of excess tangible
financial assets, a maximum ratio of total liabilities to excess
tangible financial assets, and a minimum interest coverage ratio.
Upon the occurrence of an event of default under the line of credit,
NatWest has the right, among other remedies, to charge prime plus 3% on
amounts due and unpaid. In addition, NatWest has the right to declare
all advances due immediately and sell the collateral assigned as
security.
As of December 31, 1994, the Partnership reduced the outstanding
balance of the note payable to $14,778,000 and was in compliance with
the principal reduction requirement of the new agreement. However, the
Partnership was not in compliance with certain technical conditions of
such agreement.
NOTE 8 - INCOME TAXES
The Partnership is not subject to income taxes. However, the
Partnership is still required to file partnership returns in order to
report its income or loss in total as well as the distributable share
of income or loss of each of the partners. These partnership returns,
as all tax returns, are potentially subject to examination by the
taxing authorities.
The cumulative differences between the total capital of the Partnership
for financial reporting purposes and the total capital reported for
federal income tax purposes at December 31, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Total partners' capital for
financial reporting purposes $10,614,000 $20,128,000
Investment in Pacific Thrift,
syndication costs, bad debt and
real estate reserves, and various
other differences 17,336,000 13,682,000
----------- -----------
Total partners' capital for
federal income tax purposes $27,950,000 $33,810,000
=========== ===========
</TABLE>
Pacific Thrift is subject to federal income and California franchise
taxes but has incurred net operating losses. Accordingly, the provision
for income taxes consists of the minimum California franchise taxes for
the years ended December 31, 1994, 1993, and 1992.
F-26
<PAGE> 237
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 8 - INCOME TAXES (CONTINUED)
Pacific Thrift adopted Statement No. 109 as of January 1, 1993. The
adoption of the statement had no significant effect on the financial
position or results of operations.
The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities on Pacific Thrift's books at December 31 are
as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 2,457,000 $ 1,854,000
Loan loss reserves 477,000 267,000
Interest reserves 226,000 215,000
Write-down of other real estate 39,000 48,000
Loans held for sale 78,000 --
Deferred rent 59,000 --
Environmental remediation 270,000 336,000
Other 3,000 2,000
----------- -----------
Total deferred tax assets 3,609,000 2,722,000
----------- -----------
Less valuation allowance (2,946,000) (1,805,000)
----------- -----------
663,000 917,000
----------- -----------
Deferred tax liabilities
Depreciation 28,000 36,000
Deferred loan costs 433,000 573,000
Excess yield 202,000 308,000
----------- -----------
Total deferred tax liabilities 663,000 917,000
----------- -----------
Total net deferred tax asset $ - $ -
=========== ===========
</TABLE>
A valuation allowance has been established to reduce the deferred tax
assets to the amount considered realizable at December 31, 1994 and
1993. The valuation allowance fully reserves the amount of income tax
benefit recognized that is dependent on future taxable income to be
realizable.
At December 31, 1994, Pacific Thrift has net operating loss
carryforwards for federal income tax purposes of $6,773,000 that are
available to offset future federal taxable income. These federal net
operating losses expire in the years 2004 through 2009. Pacific Thrift
has net operating loss carryforwards for California franchise tax
purposes of $2,209,000. These California carryforwards expire in the
years 1997 through 1999.
F-27
<PAGE> 238
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 8 - INCOME TAXES (CONTINUED)
The following summarizes the difference between the 1994 and 1993
provision for income taxes and the federal statutory tax rate:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal statutory tax rate (34)% (34)%
Nonrecognition of
net operating loss carryforward 34 34
--- ---
Effective tax rate 0% 0%
=== ===
</TABLE>
NOTE 9 - ANNUAL MANAGEMENT FEE
The general partner receives an annual management fee based on the
proportion that net profits, before the effects of the management fee,
bear to the total capital contributions as defined in the Partnership
Agreement.
The Partnership Agreement permits the general partner to calculate the
management fee based on annual net income that includes loan
origination fees generated. During 1992, the annual management fee was
calculated on such basis. During 1994 and 1993, there was no management
fee because the Partnership incurred net losses in excess of loan
origination fees generated.
During 1993, the general partner received payments of $441,000 on the
anticipated annual management fees. Since the general partner
ultimately did not earn such fees, the general partner agreed to repay
these amounts to the Partnership under a promissory note. No interest
was paid or accrued for 1993. However, quarterly principal payments of
approximately $110,000 commenced in December 1994 and interest at prime
plus 1% will be accrued from January 1994 through September 1995.
NOTE 10 -RELATED PARTIES AND AFFILIATES
Accounts receivable from the general partner consisted of the following
at December 31:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Unearned annual management fees $330,000 $661,000
Capital contribution due under the Capital Plan -- 133,000
Amounts due for salaries, rent and overhead 148,000 --
-------- --------
$478,000 $794,000
======== ========
</TABLE>
F-28
<PAGE> 239
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 10- RELATED PARTIES AND AFFILIATES (CONTINUED)
Accounts payable to the general partner consisted of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Base fees and loan servicing fees $ 86,000 $ 39,000
Contingent consideration in connection with the
purchase of CRC and LPPC 48,000 166,000
Proceeds owed for the purchase of computer
equipment and software by Pacific Thrift -- 371,000
-------- --------
$134,000 $576,000
======== ========
</TABLE>
The Partnership had various related party transactions with the
following entities:
- Presidential Management Company - The general partner received
specified fees for services performed and reimbursements of certain
expenses. Under the Partnership Agreement, the general partner
receives a base fee of up to 35% of the loan origination fees paid
by borrowers to the Company. The base fee was 35% of loan
origination fees for the Company in 1994 and 30% in 1993. The
general partner also received a loan servicing fee of 3/8 of 1% per
annum on loans with terms over three years.
Amounts charged by the general partner for services performed and
overhead- related expenses for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Base fee $ 589,000 $ 669,000 $1,240,000
Loan servicing fee 216,000 178,000 192,000
Annual management fee -- -- 215,000
---------- ---------- ----------
Total fees $ 805,000 $ 847,000 $1,647,000
========== ========== ==========
Salaries and overhead
reimbursements $ 90,000 $5,184,000 $4,908,000
========== ========== ==========
</TABLE>
During 1992, the general partner absorbed certain expenses (data
processing, legal, and business promotion) related to the Company.
During 1994 and 1993, however, the general partner did not absorb
any such expenses for the Company.
F-29
<PAGE> 240
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 10- RELATED PARTIES AND AFFILIATES (CONTINUED)
Effective January 1, 1994, in order for Pacific Thrift to comply
with a section of a regulatory agreement covering payments to
affiliates, Pacific Thrift commenced directly employing personnel
for loan origination, processing, and servicing. In addition,
Pacific Thrift revised its policies for payment of rent and other
overhead expenses. As a result, Pacific Thrift terminated
reimbursements to the Partnership and general partner for such
services and expenses. However, the Partnership is continuing to
pay the general partner for base fees and loan servicing fees of
Pacific Thrift and the Partnership in accordance with the
Partnership Agreement.
During 1994, Pacific Thrift paid and allocated certain salaries and
overhead for the Partnership, CRC, and general partner totaling
$495,000, $220,000 and $356,000, respectively, and was reimbursed on
a monthly basis.
The Company incurs salary and employee-related expenses for
individuals who perform services for the Partnership and Pacific
Thrift and do not own more than a 1% interest in the general
partner. The Company also incurs these expenses for all individuals
who perform services for CRC and LPPC, regardless of their ownership
interest in the general partner. The general partner, however,
incurs salary and employee-related expenses for three managing
officers who perform services for the Partnership and Pacific Thrift
and own more than a 1% interest in the general partner.
- Consolidated Reconveyance Company (CRC) serves as trustee on all
trust deeds obtained by the Company as security for portfolio loans
originated or purchased by the Company. Fees paid to CRC are paid by
the borrowers.
A managing officer of the Partnership and general partner provides
legal services in connection with the Company's loan accounts, for
which he receives $100 from the fees paid by each borrower for legal
services related to loan origination. Total fees of $62,000, $56,000,
and $64,000 were paid by the Partnership to the managing officer for
the years ended December 31, 1994, 1993, and 1992, respectively.
A limited partner of the Partnership and of the general partner is a
partner with a law firm that provides legal services to the Company.
Total fees for the services provided to the Company by the law firm
were approximately $716,000, $432,000, and $489,000 for the years ended
December 31, 1994, 1993, and 1992, respectively.
A member of the Board of Directors of Pacific Thrift was paid hourly
and contingent fees for services related to the sale of loans under the
loan securitization agreement entered into in December 1993. Total fees
for the services provided by the board member were approximately
$111,000 and $84,000 for the years ended December 31, 1994 and 1993,
respectively.
F-30
<PAGE> 241
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 10- RELATED PARTIES AND AFFILIATES (CONTINUED)
Former officers of the Partnership have loans payable to the
Partnership, secured by real estate, totaling approximately $271,000
and $575,000 as of December 31, 1994 and 1993, respectively. These
loans are included in loans receivable.
Thrift certificates purchased by members of management totaled
approximately $236,000, $158,000, and $148,000 at December 31, 1994,
1993, and 1992, respectively, on terms slightly more favorable than the
terms for unrelated parties. Interest expense on these certificates
totaled approximately $11,000, $8,000, and $8,000 for the years ended
December 31, 1994, 1993, and 1992, respectively.
As of December 31, 1993, Pacific Thrift purchased various furniture and
office equipment from the Partnership. The replacement value was
determined by an experienced interior design consultant (a related
party) who obtained information from used furniture dealers, and the
purchase price of $223,000, 10% under the replacement value, was
approved by the Board of Directors of Pacific Thrift. The Partnership
realized a gain, including depreciation recapture, of $135,000 on the
sale of the furniture and office equipment; however, such gain was
eliminated upon consolidation.
The Partnership and general partner sold computer equipment and
software to Pacific Thrift as of December 31, 1993. Subsequently,
management obtained additional information about the value of the
software and the need to reallocate the price. As a result of the
additional information, management determined that Pacific Thrift had
overpaid for the software. To correct the situation, the general
partner repaid $177,000. In addition, the Partnership agreed to repay
$173,000 by causing CRC to issue an interest-bearing promissory note,
secured by CRC's accounts receivable, payable in monthly installments
through June 1995. As of December 31, 1993, the Partnership and the
general partner realized gains on the sale of $54,000 and $333,000,
respectively, including depreciation recapture and adjustment for the
subsequent refunds.
During 1994, the Partnership paid to Pacific Thrift a loan servicing
fee at the rate of 1.5% of the outstanding balances of the
Partnership's loans and other real estate. Such fees totaled $545,000
in 1994 and were eliminated in the consolidation.
Also during 1994, the Partnership had loans receivable, with balances
totaling $464,000, that were refinanced into two loans: one a Pacific
Thrift loan in first position and the remainder a Partnership loan in
second position. In order to satisfy regulatory requirements applicable
to affiliate transactions, such refinances were subject to certain
underwriting and performance requirements.
F-31
<PAGE> 242
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 11- PURCHASE OF CONSOLIDATED RECONVEYANCE COMPANY (CRC) AND
LENDERS POSTING AND PUBLISHING COMPANY (LPPC)
Effective July 1, 1990, the Partnership purchased 100% of the limited
partnership interests in CRC and LPPC from the general partner for
their combined estimated fair market value of $908,000, as determined
by an independent appraiser. CRC serves as trustee on all trust deeds
obtained by the Company as security for portfolio loans originated or
purchased by the Company, as well as trust deeds for many unaffiliated
lenders. LPPC publishes information regarding sales of foreclosed
properties. The transaction was treated as a purchase and resulted in
goodwill of approximately $651,000.
The Partnership also agreed to pay the general partner an additional
amount (contingent consideration) annually for five years beginning
January 1, 1991. The contingent consideration, based on an amended
agreement, is calculated as 50% of the total annual net profits earned
by CRC and LPPC in excess of a base profit amount of $465,000. The
contingent consideration totaled $224,000 and $466,000 for the years
ended December 31, 1994 and 1993, respectively, and was treated as an
addition to goodwill. Accumulated amortization relating to the goodwill
totaled $253,000 and $157,000 at December 31, 1994 and 1993,
respectively.
NOTE 12- LITIGATION AND UNASSERTED CLAIMS
Although they have never been served, the Partnership and its Chief
Executive Officer (CEO) received a complaint in October 1993 that named
them as defendants, along with four other unaffiliated defendants. The
complaint contains allegations of securities fraud and breach of
fiduciary duty in connection with companies affiliated with Alexander
Spitzer (who, until ten years ago but not thereafter, was an affiliate
of the Partnership and CEO). The complaint was filed by two long-time
business associates of Spitzer, including one individual who was a
general partner of a Spitzer-affiliated entity and one individual who
owned another Spitzer-affiliated entity.
The complaint charges all defendants with participation in securities
fraud in connection with the sale of securities of the Spitzer entities
(although there are no allegations that either the Partnership or CEO
participated in the sale of such securities) and charges the
Partnership and CEO with aiding and abetting other defendants in a
violation of their fiduciary duties to the Spitzer-affiliated entities.
The primary facts alleged against the Partnership and CEO are alleged
to have occurred in 1984. The Partnership and CEO deny the merits of
all allegations stated against them in the complaint.
Counsel for both the Partnership and CEO, in a letter dated October 20,
1993, advised counsel for the plaintiffs that the complaint appeared to
state no claim on the merits against the Partnership or CEO and that no
claims could be stated because of statute of limitations problems. The
only response of plaintiffs' counsel, by letter dated November 16,
1993, was to notify all defendants that they had an open extension of
time to answer. No action has been taken to date by anyone since the
extension of time was unilaterally granted by plaintiffs' counsel in
November 1993.
F-32
<PAGE> 243
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 12- LITIGATION AND UNASSERTED CLAIMS (CONTINUED)
An earlier class action involving Spitzer-affiliated entities was filed
in March 1990 by investors and certain lenders in the bankrupt
Spitzer-affiliated entities. Although the Partnership and CEO are
discussed in the complaint, neither the Partnership nor CEO has ever
been named as a defendant in that class action.
The allegations involving the Partnership and CEO in both complaints
concern the May 1984 sales of the general partnership interests in the
Partnership (which were owned at that time by entities owned by the CEO
and a relative of Spitzer) and of the stock of a former affiliated
thrift and loan company to a large, unaffiliated mortgage banking group
headquartered in the state of New York (the Buyer). The complaints
allege that, in connection with the sales to the Buyer, the CEO and
Spitzer agreed for the former affiliated thrift and loan company to
sell certain allegedly poor-quality loans to other Spitzer-affiliated
entities. The complaints further allege that Spitzer and his affiliates
engaged in a continuing scheme, both before and after the sales to the
Buyer, to lend money and sell real estate to nominees (which did not
include the Partnership or CEO), who assertedly purchased the real
estate at inflated prices and were guaranteed against loss.
Although not mentioned in either of the two complaints, but based on
hearsay contained in a document prepared in 1985, Spitzer allegedly
stated that in 1984 the CEO reimbursed Spitzer for the CEO's share of
funding such guarantees involving one Spitzer-affiliated entity in 1982
through 1984. The CEO acknowledges that he made payments to Spitzer but
has stated that they were for proper purposes.
Neither the Partnership nor CEO had any ownership interest in any
Spitzer-affiliated entity after the sales to the Buyer in May 1984.
However, as a result of loans made to Spitzer-affiliated entities prior
to the sales to the Buyer, the Partnership continued to be a creditor
to these entities. These loans were substantially performing in
accordance with their terms and were considered by management to be
well secured until 1989, shortly before certain Spitzer-affiliated
entities declared bankruptcy in November 1989. Ultimately, as
previously reported, the Partnership wrote off the loans not secured by
real estate, disposed of real estate collateral securing one of the
loans to the Spitzer-affiliated entities, and recorded losses on these
loans in 1990 and 1991 in excess of $3.7 million.
The Partnership and CEO deny the merits of the allegations stated
against them in the complaints. Management does not believe that any of
these matters will result in any material additional losses to the
Partnership or any material adjustments to these financial statements.
F-33
<PAGE> 244
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13- COMMITMENTS AND CONTINGENCIES
In January and February 1993, the Partnership and Pacific Thrift
foreclosed on two loans secured by real estate that contained toxic
substances. The real estate was used by the former owners for
metal-plating purposes. Management commenced the process of obtaining
environmental studies.
In connection with the activities of the former owner of the
Partnership's property, the District Attorney's office filed a civil
complaint against the Partnership alleging violations of hazardous
waste control laws. In September 1994, the Partnership entered into a
consent agreement requiring the Partnership to pay a civil compromise
of $115,000 and to develop and implement a remedial action plan. Legal
counsel has stated that the likelihood of further civil or any criminal
action is remote if the Partnership complies with the terms of the
consent agreement. Management states that the Partnership intends to
comply with the consent agreement.
In July and September 1994, management obtained soil investigation
studies for the foreclosed properties to determine the extent of the
toxic substances. Management was completing proposed remediation plans
for approval by local government agencies. Based on the proposed
remediation plans, management estimated that the cost of remediation,
including consulting and legal expenses, would be approximately
$1,494,000. Accordingly, the Company recorded a provision for the
liability of $1,494,000 in the financial statements for 1993.
Management does not expect the extent of the liability to exceed
$1,494,000; however, such estimate is based on the assumption that the
appropriate government authorities will approve the remediation plans
and that no additional toxic substances will be discovered during the
remediation.
The Company conducts its operations from leased facilities. Rental
expenses of approximately $926,000, $908,000, and $776,000 have been
charged to general and administrative expenses in the consolidated
statements of operations for the years ended December 31, 1994, 1993,
and 1992, respectively. At December 31, 1994, the approximate minimum
rental commitments under all noncancelable operating leases (which are
subject to annual escalations based on the consumer price index) are as
follows:
<TABLE>
<CAPTION>
Year Amount
-------------------- ----------
<S> <C>
1995 $ 717,000
1996 967,000
1997 701,000
1998 687,000
1999 693,000
2000 and thereafter 2,100,000
----------
$5,865,000
==========
</TABLE>
F-34
<PAGE> 245
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13- COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1994 and 1993, the Company was servicing Title I loans
for others totaling approximately $12,545,000 and $15,643,000,
respectively. In addition, the Company has filed claims with the
Federal Housing Administration that depleted the insurance on these
loans during 1994.
In connection with certain real estate loan sales by Pacific Thrift in
1994, the Partnership guaranteed one buyer against losses up to
$1,800,000. As security for the guarantee, the Partnership deposited
$180,000 with the buyer.
The California Franchise Tax Board is examining the California
corporate tax returns of Pacific Thrift for 1990, 1991, and 1992.
Although management does not expect that the examination will result in
any significant tax liability, the ultimate outcome cannot be
determined at the present time.
The Partnership, Pacific Thrift, CRC, and LPPC are involved in certain
lawsuits and there are claims pending against these entities which
management considers incidental to normal operations. The legal
responsibility and financial impact with respect to such litigation and
claims cannot presently be determined. However, management considers
that any ultimate liability which would likely arise from these
lawsuits and claims would not materially affect the financial position
or results of operations of the Company.
NOTE 14- RETIREMENT SAVINGS PLAN
The Company implemented a retirement savings plan (defined contribution
plan) in 1994. All full-time employees who have completed six months of
service and reached age 21 are eligible to participate in the plan.
Contributions are made from employee-elected salary deferrals. The
Company matched the first 6% of employee contributions to the plan at
the rate of $.50 on the dollar. During the year ended December 31,
1994, the Company's contribution to the plan totaled $111,000.
NOTE 15- DISTRIBUTIONS AND WITHDRAWALS
During 1993 and 1992, primarily as a result of significant fourth
quarter adjustments, the Partnership determined that distributions were
made significantly in excess of the net income and distributable net
profits under the Partnership Agreement. Distributions relating to 1993
were made to partners in the amount of $916,000, although there was a
net loss and no distributable profits for 1993. Distributions relating
to 1992 were made to limited partners in the amount of $4,111,000,
which exceeded distributable profits for 1992 by approximately
$1,730,000. The excess distributions represent a return of capital to
the limited partners. However, under the Capital Plan, the general
partner agreed to contribute, over a three-year period, additional
capital up to $1,730,000 if the Company generates certain levels of
loan origination fees. Pursuant to the agreement, the general partner
contributed $266,000 of the $1,730,000 in late 1993 and early 1994, but
does not expect to contribute any additional amounts based on the
current level of loan origination fees.
F-35
<PAGE> 246
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 15- DISTRIBUTIONS AND WITHDRAWALS (CONTINUED)
Partnership withdrawals payable of $1,120,000 at December 31, 1994 and
1993 represent the capital withdrawals by limited partners that were
approved by the general partner but not paid by the Partnership. At
December 31, 1994 and 1993, respectively, other limited partners with
original capital contributions totaling $9,103,000 and $8,192,000 have
requested withdrawals; however, these requests have not been approved.
Withdrawals were not paid or approved after July 1993 due to
limitations on withdrawals in the Partnership Agreement and the
restriction on such withdrawals in the amendments to the line of credit
agreement with NatWest.
NOTE 16- CHANGES IN GENERAL AND LIMITED PARTNERS' CAPITAL (UNAUDITED)
The unaudited changes in general and limited partnership interests for
1994, 1993, and 1992 are as follows:
<TABLE>
<CAPTION>
General Limited
Partnership Partnership
Interest Interests Total
------------ ------------ ------------
<S> <C> <C> <C>
Capital (deficit) -
December 31, 1991 $ (228,000) $ 36,934,000 $ 36,706,000
Contributions -- 74,000 74,000
Distributions (50,000) (4,560,000) (4,610,000)
Withdrawals -- (3,488,000) (3,488,000)
Net income - 1992 1,000 147,000 148,000
------------ ------------ ------------
Capital (deficit) -
December 31, 1992 (277,000) 29,107,000 28,830,000
Contributions 266,000 35,000 301,000
Distributions (11,000) (1,932,000) (1,943,000)
Withdrawals -- (1,380,000) (1,380,000)
Net loss - 1993 (57,000) (5,812,000) (5,869,000)
Special allocation - 1993 (266,000) 266,000 --
------------ ------------ ------------
Capital (deficit) -
December 31, 1993 (345,000) 20,284,000 19,939,000
Contributions -- -- --
Distributions -- -- --
Withdrawals -- -- --
Net loss - 1994 (93,000) (9,421,000) (9,514,000)
------------ ------------ ------------
Capital (deficit) -
December 31, 1994 $ (438,000) $ 10,863,000 $ 10,425,000
============ ============ ============
</TABLE>
F-36
<PAGE> 247
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 16- CHANGES IN GENERAL AND LIMITED PARTNERS' CAPITAL(UNAUDITED)
(CONTINUED)
Presidential Management Company holds the entire general partnership
interest in the Partnership. In addition, Presidential Management
Company holds approximately 4.5% of the limited partnership interests.
NOTE 17- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income $ 2,915,000 $ 3,514,000 $ 3,414,000 $ 1,561,000
Interest expense 1,185,000 1,200,000 1,182,000 1,360,000
------------ ------------ ------------ ------------
Net interest income 1,730,000 2,314,000 2,232,000 201,000
Provision for loan losses 217,000 468,000 2,064,000 3,347,000(1)
Other income 1,143,000 1,091,000 1,149,000 2,619,000
Other expense 3,684,000 4,738,000 4,139,000 3,336,000
------------ ------------ ------------ ------------
Net loss $ (1,028,000) $ (1,801,000) $ (2,822,000) $ (3,863,000)
============ ============ ============ ============
Quarter Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
------------ ------------ ------------ ------------
Interest income $ 3,925,000 $ 4,031,000 $ 3,624,000 $ 2,632,000
Interest expense 1,474,000 1,436,000 1,399,000 1,409,000
------------ ------------ ------------ ------------
Net interest income 2,451,000 2,595,000 2,225,000 1,223,000
Provision for loan losses 384,000 464,000 575,000 3,232,000(1)
Other income 1,245,000 1,282,000 1,458,000 1,320,000
Other expense 2,977,000 3,224,000 3,692,000 5,120,000(2)
------------ ------------ ------------ ------------
Net income (loss) $ 335,000 $ 189,000 $ (584,000) $ (5,809,000)
============ ============ ============ ============
</TABLE>
(1) The substantial increase in the provision for loan losses is due to
an increase in the level of nonperforming loans and the high level
of charge-offs. Management represents that it was not practical to
determine whether or not a portion of these substantial additional
provisions should have been recorded in earlier quarters.
(2) The substantial increase in other expense during the fourth quarter
of 1993 resulted from the $1,494,000 provision for the estimated
cost of environmental remediation for the foreclosed properties.
F-37
<PAGE> 248
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 18- SEGMENT FINANCIAL REPORTING
The Company operates principally in two industries, real estate secured
lending (including the origination and sale of loans) and trustee and
foreclosure services. A summary of selected financial information by
industry segment is as follows:
<TABLE>
<CAPTION>
1992
1994 1993 (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Interest and other income from
real estate secured lending $ 13,475,000 $ 15,210,000 $ 18,632,000
Fees from trustee
and foreclosure services 3,931,000 4,307,000 3,511,000
------------- ------------- -------------
Total revenues $ 17,406,000 $ 19,517,000 $ 22,143,000
============= ============= =============
Operating profit (loss)
Real estate secured lending $ (9,741,000) $ (6,737,000) $ (779,000)
Trustee and foreclosure services 811,000 1,319,000 1,396,000
General expenses (583,000) (450,000) (468,000)
------------- ------------- -------------
Income (loss) before
income taxes $ (9,513,000) $ (5,868,000) $ 149,000
============= ============= =============
Identifiable assets
Real estate secured lending $ 97,930,000 $ 108,966,000 $ 115,998,000
Trustee and foreclosure services 5,564,000 5,201,000 4,157,000
General assets 253,000 157,000 61,000
------------- ------------- -------------
Total assets $ 103,747,000 $ 114,324,000 $ 120,216,000
============= ============= =============
</TABLE>
F-38
<PAGE> 249
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19- REGULATORY MATTERS AND CAPITAL ADEQUACY
Memorandum of Understanding and Initial Orders to Cease and Desist with
the Federal Deposit Insurance Corporation and California Department of
Corporations
In February 1993, Pacific Thrift, the FDIC, and the California
Department of Corporations (DOC) entered into a Memorandum of
Understanding (MOU). In connection with the MOU, Pacific Thrift was
required to maintain primary capital in an amount that equals or
exceeds 7.5% of its total assets; obtain and retain qualified
management; notify and obtain approval from the FDIC and the DOC prior
to adding any individual to the Board of Directors or employing any
individual as a senior executive officer of Pacific Thrift; eliminate
loans classified loss and reduce loans classified substandard to
specified levels within a specified period of time; revise, adopt, and
implement policies to provide effective guidance and control over
Pacific Thrift's lending function; develop, adopt, and implement
written policies governing relationships between Pacific Thrift, the
Partnership, and other affiliated companies; establish and maintain an
adequate reserve for loan losses and develop, adopt, and implement a
policy and methodology for determining the adequacy of the reserve for
loan losses; formulate and implement a budget for all categories of
income and expense; revise, adopt, and implement a written liquidity
and funds management policy; maintain assets within certain limits;
obtain written consent from the FDIC and DOC prior to paying any cash
dividends; refrain from extending additional credit to any borrower who
has a loan from Pacific Thrift that has been adversely classified,
unless the loan is classified as substandard or doubtful and the proper
approval has been obtained; and take certain other actions.
As of March 31, 1993, Pacific Thrift's total assets had moderately
exceeded the limitation provided in the MOU. In addition, Pacific
Thrift made certain payments in 1993 to the Partnership in excess of
the amounts authorized under the Personnel Services Agreement between
Pacific Thrift and the Partnership. The overpayment amount was repaid
by the Partnership in April 1993. The Audit Committee of the Board of
Directors of Pacific Thrift performed an investigation of the
circumstances that allowed the overpayments to occur and determined
that such overpayments reflected a weakness in the internal control
procedures of Pacific Thrift with respect to intercompany payments.
Accordingly, new control procedures were adopted by the Board of
Directors of Pacific Thrift to prevent overpayments of any kind by
Pacific Thrift to the Partnership in the future.
F-39
<PAGE> 250
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19- REGULATORY MATTERS AND CAPITAL ADEQUACY (CONTINUED)
Memorandum of Understanding and Initial Orders to Cease and Desist with
the Federal Deposit Insurance Corporation and California Department of
Corporations (Continued)
In November 1993, the FDIC and DOC terminated the MOU and issued an
Order to Cease and Desist (C&D) with the consent of Pacific Thrift. The
C&D prohibits Pacific Thrift from paying excessive fees to affiliates
in such a manner as to produce operating losses; prohibits Pacific
Thrift from including accrued interest in the carrying amount of a
property acquired by foreclosure on a loan; prohibits Pacific Thrift
from accepting or renewing brokered deposits unless it is adequately
capitalized and a waiver is obtained; requires Pacific Thrift to
disclose any extensions of credit to executive officers or principal
shareholders from a correspondent bank; requires Pacific Thrift to
prepare and display minimum information in its disclosure statement;
requires Pacific Thrift to comply with the limits specified in the
California Industrial Loan Company regulations on the amount of
outstanding thrift certificates, based on its unimpaired capital and
surplus; requires Pacific Thrift to develop a comprehensive
asset/liability management policy, including establishing a range for,
and reducing, the volatile liability dependency ratio; requires Pacific
Thrift to adopt and implement a written policy to increase its
liquidity; and requires Pacific Thrift to adopt and implement a
satisfactory policy governing the relationship between Pacific Thrift
and its affiliates and to reduce the payment of management, consulting,
and other fees to the affiliates to amounts that are reasonable and
necessary for the services. See Note 20.
In September 1994, the FDIC issued a second C&D with the consent of
Pacific Thrift. The second C&D prohibits Pacific Thrift from operating
in such a manner as to produce low earnings; requires Pacific Thrift to
refrain from opening any additional offices without the prior written
approval of the FDIC; requires Pacific Thrift to formulate and
implement a written profit plan; and requires Pacific Thrift to provide
the FDIC with a study of the operations and profitability of its loan
production office opened in June 1994. See Note 20.
Capital Adequacy
Pacific Thrift is subject to various regulatory capital requirements
administered by the FDIC. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly discretionary - actions
by the FDIC that, if undertaken, could have a direct material effect on
Pacific Thrift's financial statements. The regulations require Pacific
Thrift to meet specific capital adequacy guidelines that involve
quantitative measures of Pacific Thrift's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. Pacific Thrift's capital classification is also
subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
F-40
<PAGE> 251
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19- REGULATORY MATTERS AND CAPITAL ADEQUACY (CONTINUED)
Capital Adequacy (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require Pacific Thrift to maintain minimum amounts and ratios
of Tier 1 capital (as defined in the regulations) to total average
assets (as defined), and minimum ratios of Tier 1 and total capital (as
defined) to risk-weighted assets (as defined). To be considered
adequately capitalized as defined under the Prompt Corrective Action
(PCA) provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991, Pacific Thrift must maintain the minimum Tier
1 leverage, Tier 1 risk- based, and total risk-based ratios presented
in the table. Pacific Thrift's actual unaudited capital amounts and
ratios as of December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Capital Adequacy
as of December 31, 1993
(Unaudited)
------------------------------------------
Required Actual
Amount (Ratio) Amount (Ratio)
------------------ --------------------
<S> <C> <C>
Tier 1 capital (to average assets) $ 2,646,000 (4.0%) $ 4,654,000 (7.0%)
Tier 1 capital (to risk-weighted
assets) 2,161,000 (4.0%) 4,654,000 (8.6%)
Total capital (to risk-weighted
assets) 4,322,000 (8.0%) 5,330,000 (9.9%)
</TABLE>
Pacific Thrift incurred losses in 1994 and, in December 1994, Pacific
Thrift was notified by the FDIC that its tangible capital ratio
(tangible capital compared to average total assets) as of October 31,
1994 was less than 2%. Based on the tangible and other capital ratios,
Pacific Thrift was considered to be "critically undercapitalized" as
defined under the PCA provisions. The PCA notice also stated that the
FDIC may be required to place Pacific Thrift in receivership in March
1995. See Subsequent Events, Note 20.
As a result of such PCA designation, Pacific Thrift became subject to
mandatory requirements as of October 31, 1994, including, but not
limited to, a requirement to submit a capital restoration plan to the
FDIC and various restrictions on asset growth, acquisitions, new
activities and branches, dividend payments, management fees, and
executive compensation.
F-41
<PAGE> 252
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19- REGULATORY MATTERS AND CAPITAL ADEQUACY (CONTINUED)
Capital Adequacy (Continued)
Subsequent to October 31, 1994, Pacific Thrift improved its capital
position from "critically undercapitalized" to "undercapitalized" as a
result of certain capital contributions and loan sales prior to
December 31, 1994. Pacific Thrift's actual unaudited capital amounts
and ratios as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Capital Adequacy
as of December 31, 1994
(Unaudited)
------------------------------------------------------
Required Actual
Amount(Ratio) Amount(Ratio)
-------------------- --------------------
<S> <C> <C>
Tier 1 capital (to average assets) $ 3,216,000 (4.0%) $ 3,112,000 (3.9%)
Tier 1 capital (to risk-weighted
assets) 2,301,000 (4.0%) 3,112,000 (5.4%)
Total capital (to risk-weighted
assets) 4,602,000 (8.0%) 3,831,000 (6.7%)
</TABLE>
In addition, Pacific Thrift received an Order to Cure Deficiency of Net
Worth (Order) from the DOC in connection with a $1,414,000 deficiency
in its capital as of December 31, 1994. The Order requires that Pacific
Thrift increase its capital to a level where the ratio of its
outstanding thrift certificates compared to capital does not exceed the
permitted ratio of 15 to 1. Based on the applicable section of the
California Financial Code, failure to increase its capital within 120
days would require the DOC to take possession of the property and
business of Pacific Thrift. See Subsequent Events, Note 20.
Settlement with Department of Housing and Urban Development
In April 1993, Pacific Thrift was notified by the Mortgagee Review
Board of the Department of Housing and Urban Development (HUD) of
certain alleged violations of certain requirements in the origination
of 59 loans selected during its examination of Title I loan origination
activities. Pacific Thrift was advised that HUD intended to seek civil
money penalties and was considering an administrative action. Pacific
Thrift filed a response to the allegations affirming its compliance
with HUD requirements. On September 15, 1993, HUD and Pacific Thrift
entered into a settlement agreement in which Pacific Thrift agreed not
to seek claims for insurance on 24 loans that violated the prohibition
against subordinating Title I loans to non-Title I loans, as well as on
three loans in which the proceeds were used for ineligible purposes.
HUD did not impose any penalties or take any other action.
F-42
<PAGE> 253
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 20- SUBSEQUENT EVENTS
During February 1995, Pacific Thrift submitted its original capital
restoration plan to the FDIC, but the FDIC denied approval of the plan
and required certain modifications. During March 1995, Pacific Thrift
submitted a revised capital restoration plan, including a guarantee by
the Partnership and, in May 1995, the revised capital restoration plan
was incorporated by reference in a new C&D (see below).
In May 1995, Pacific Thrift was informed by the FDIC that, based on
unaudited financial information in the Consolidated Report of Condition
and Income (Call Report) filed for the first quarter of 1995, Pacific
Thrift was "adequately capitalized" as of March 31, 1995. Based on such
Call Report, Pacific Thrift's unaudited capital ratios as of March 31,
1995 were as follows:
<TABLE>
<CAPTION>
Capital Ratio
as of March 31, 1995
(Unaudited)
--------------------
<S> <C>
Tier 1 capital (to average assets) 5.5%
Tier 1 capital (to risk-weighted assets) 7.2
Total capital (to risk-weighted assets) 8.5
</TABLE>
In addition, Pacific Thrift was informed by the DOC that Pacific Thrift
had cured the deficiency in its net worth as of April 30, 1995 and had
complied with the Order.
Also in May 1995, the FDIC terminated the prior C&Ds, and the FDIC and
DOC issued a new comprehensive Order to Cease and Desist (the new C&D)
with the consent of Pacific Thrift. The new C&D:
(1) requires that Pacific Thrift have and retain qualified management;
(2) requires that Pacific Thrift have Tier 1 capital which equals or
exceeds 8% of total assets on or before September 30, 1995;
(3) requires that Pacific Thrift maintain at least the minimum
risk-based capital levels throughout the life of the new C&D;
(4) requires Pacific Thrift to eliminate from its books, through
charge-off or collection, all assets classified "loss" as of
September 1994 within 10 days from the effective date of the new
C&D;
(5) requires Pacific Thrift to reduce assets classified "substandard"
as of September 1994 to $6.5 million within 180 days and to $5
million within 365 days;
(6) prohibits Pacific Thrift from extending any additional credit to
any borrower who has a loan with Pacific Thrift which has been
charged off or classified "loss";
(7) requires Board of Directors or loan committee approval prior to the
extension of additional credit to a borrower who has a loan
classified "substandard";
(8) requires Pacific Thrift to establish within 10 days, and then to
maintain on a quarterly basis, an adequate allowance for loan
losses;
F-43
<PAGE> 254
PRESIDENTIAL MORTGAGE COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 20- SUBSEQUENT EVENTS (CONTINUED)
(9) requires that Pacific Thrift implement within 60 days the
provisions of the capital restoration and
business/profitability plans submitted to the FDIC in order to
control overhead and other expenses and restore profitability;
(10) requires that Pacific Thrift correct the violation of the
thrift-to-capital ratio required under California law within 60
days;
(11) requires that Pacific Thrift file with the FDIC amended Call
Reports as of December 31, 1993 and as of the end of the first
three quarters of 1994 which accurately reflect Pacific Thrift's
financial condition as of those dates;
(12) requires that throughout the life of the new C&D, Pacific Thrift
shall file Call Reports which accurately reflect Pacific Thrift's
financial condition as of the end of each period;
(13) prohibits Pacific Thrift from paying cash dividends in any amount
without the prior written approval of the FDIC;
(14) prohibits Pacific Thrift from opening any additional offices
without the prior written approval of the FDIC; and
(15) requires the Company to submit written progress reports on a
quarterly basis until the Company accomplishes the corrections
and is released by the Regional Director of the FDIC and the
Commissioner of the DOC.
Noncompliance with the terms of the new C&D could result in various
regulatory actions, including the assessment of civil money penalties,
termination of deposit insurance, and placing Pacific Thrift in
conservatorship or receivership. Although management expects that
Pacific Thrift will substantially comply with the new C&D, there is no
assurance as to the ultimate outcome. These consolidated financial
statements do not include any provisions or adjustments that might
result from the outcome of these uncertainties.
F-44
<PAGE> 255
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Balance Sheets
Unaudited
December 31, 1994 and September 30, 1995
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
<S> <C> <C>
Assets
Cash & cash equivalents $ 10,013,000 $ 19,628,000
Accounts receivable, net 9,462,000 5,549,000
Interest receivable 924,000 1,125,000
Loans receivable, net (note 2) 46,992,000 53,045,000
Loans held for sale 2,380,000 12,011,000
Excess yield receivable 462,000 888,000
Real estate acquired in settlement of loans 5,336,000 7,621,000
Property and equipment, net 1,484,000 1,322,000
Goodwill 1,752,000 1,749,000
Other assets 1,243,000 809,000
------------- -------------
$ 80,048,000 $ 103,747,000
============= =============
Liabilities and Partners' Capital
Liabilities:
Thrift certificates payable $ 54,811,000 $ 69,501,000
Accounts payable, accrued expenses and interest payable 5,292,000 5,610,000
Partnership withdrawals payable 1,120,000 1,120,000
Notes payable 8,450,000 14,778,000
Mortgages payable - secured by real estate acquired in
settlement of loans 1,095,000 2,313,000
------------- -------------
$ 70,768,000 $ 93,322,000
------------- -------------
Partners' Capital 9,280,000 10,425,000
------------- -------------
$ 79,983,000 $ 103,747,000
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
discussion and Analysis of Financial Condition and Results of Operations
F-45
<PAGE> 256
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable 2,223,000 2,614,000 6,803,000 8,296,000
Interest on deposits with banks 125,000 151,000 584,000 284,000
------------ ------------ ------------ ------------
Total interest income 2,348,000 2,765,000 7,387,000 8,580,000
Interest Expense:
Interest on thrift certificates greater than $100,000 0 5,000 6,000 24,000
Interest on other thrift certificates 927,000 746,000 2,948,000 2,071,000
Interest on notes payable 321,000 430,000 1,125,000 1,472,000
------------ ------------ ------------ ------------
Total interest expense 1,248,000 1,181,000 4,079,000 3,567,000
------------ ------------ ------------ ------------
Net interest income 1,100,000 1,584,000 3,308,000 5,013,000
Provision for loan losses 861,000 2,064,000 1,861,000 2,749,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 239,000 (480,000) 1,447,000 2,264,000
Noninterest income:
Trustee and reconveyance fees 797,000 815,000 2,320,000 2,505,000
Other income 229,000 334,000 822,000 879,000
Gain on Sale of Loans 2,360,000 649,000 5,690,000 1,263,000
------------ ------------ ------------ ------------
3,386,000 1,798,000 8,832,000 4,647,000
Noninterest expense:
General and administrative 1,778,000 1,669,000 4,920,000 4,986,000
Salaries, employee benefits and personnel services 2,268,000 1,918,000 5,960,000 5,660,000
Amortization of organization costs 56,000 111,000 129,000 150,000
Depreciation and amortization 127,000 115,000 366,000 386,000
Expenses on real estate acquired in settlement of loans 218,000 450,000 243,000 1,385,000
Net loss (gain) on sales of real estate acquired
in settlement of loans 47,000 (123,000) 373,000 (6,000)
------------ ------------ ------------ ------------
4,494,000 4,140,000 11,991,000 12,561,000
------------ ------------ ------------ ------------
Net income before tax provision (869,000) (2,822,000) (1,712,000) (5,650,000)
------------ ------------ ------------ ------------
Tax provision (53,000) 0 (567,000) 0
------------ ------------ ------------ ------------
Net income (816,000) (2,822,000) (1,145,000) (5,650,000)
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's discussion and Analysis of Financial Condition and
Results of Operations
F-46
<PAGE> 257
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9-30-95 9-30-94
<S> <C> <C>
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Net income (1,145,000) (5,650,000)
Depreciation & Amortization 495,000 536,000
Provision for loan losses 1,861,000 2,749,000
Net (gain) loss on sales of real estate
acquired in settlement of loans 373,000 (6,000)
(Increase) decrease in asset accounts:
Accounts Receivable (3,913,000) (6,073,000)
Interest receivable 201,000 558,000
Excess yield receivable 426,000 242,000
Goodwill (3,000) (106,000)
Other assets (563,000) (748,000)
Increase (decrease) in liability accounts:
Accounts payable and accrued expenses
(318,000) (1,149,000)
Net cash provided by (used in) operating ------------ ------------
activities (2,586,000) (9,647,000)
------------ ------------
Cash flows from investing activities:
(Increase) Decrease in Loans Receivable 15,260,000 11,835,000
Increase in Property & Equipment (204,000) (638,000)
Decrease in Mortgages Payable on Other
Real Estate 1,218,000 207,000
Decrease in Other Real Estate (2,285,000) (341,000)
Proceeds from repayment of receivable
from related party 0 0
------------ ------------
Net cash provided by (used in) investing 13,989,000 11,063,000
activities ------------ ------------
Cash flow from financing activities:
Distribution to Partners 0 0
Withdrawal of Partnership Shares 0 0
Decrease in Thrift Certificates (14,690,000) 7,009,000
Decrease in Line of Credit (6,328,000) (5,485,000)
Proceeds from issuance of partnership
shares 0 0
------------ ------------
Net cash provided by (used in) financing (21,018,000) 1,524,000
activities ------------ ------------
Net decrease in Cash and Cash Equivalents (9,615,000) 2,940,000
Cash and Cash Equivalents at Year End 19,628,000 13,219,000
------------ ------------
Cash and Cash Equivalents at Sept 30, 10,013,000 16,159,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's discussion and Analysis of Financial Condition and Results
of Operations
F-47
<PAGE> 258
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1) The unaudited financial information furnished herein, in the
opinion of management, reflects all adjustments (all of which are of
a normal recurring nature) which are necessary to fairly state the
Partnership's financial position, its cash flows and the results of
its operations. The Partnership presumes that users of the interim
financial information herein have read or have access to the audited
financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the preceding
fiscal year and that the adequacy of additional disclosure needed
for a fair presentation, except in regard to material contingencies,
may be determined in that context. Accordingly, footnote and other
disclosures which would substantially duplicate the disclosure
contained in the Partnership's most recent annual report has been
omitted. The interim financial information herein is not
necessarily representative of operations for a full year for various
reasons including changes in interest rates, volume of loans origi-
nated and loans paid off.
2) Loans Receivable
The following is a summmary of Loans Receivable:
<TABLE>
<CAPTION>
@ 9-30-95 @ 12-31-94
<S> <C> <C>
Interest bearing loans $ 51,639,000 $ 58,780,000
Deferred loan fees, net (972,000) (1,428,000)
Allowance for loan losses (3,675,000) (4,307,000)
------------ ------------
Total $ 46,992,000 $ 53,045,000
============ ============
</TABLE>
The following is a summmary of Allowance for Loan Losses:
<TABLE>
<S> <C>
Balance at 12-31-94 $ 4,307,000
Additions to reserve 1,861,000
Charge offs/recoveries (2,493,000)
------------
Balance at 9-30-95 $ 3,675,000
============
</TABLE>
F-48
<PAGE> 259
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Corporation's Certificate of Incorporation provides that
the directors will not be personally liable to the Corporation or to any
Stockholder for the breach of a fiduciary responsibility, to the full extent
that such limitation or elimination of liability is permitted under Delaware
law.
The Bylaws provide that the Corporation will indemnify its
directors and officers to the full extent permitted under the Delaware law.
Pursuant to the Bylaws and Delaware law, the Corporation will indemnify each
director and officer against any liability and related expenses (including
attorneys' fees) incurred in connection with any proceeding in which he or she
may be involved by reason of serving in such capacity so long as the director
or officer acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interest of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful.
A director and officer is also entitled to indemnification
against expenses incurred in any action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of serving in such
capacity if he or she acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Corporation, except that
no such indemnification will be made if the director or officer is judged to be
liable to the Corporation, unless the applicable court of law determines that
despite the adjudication of liability the director or officer is reasonably
entitled to indemnification for such expenses.
The Bylaws authorize the Corporation to advance funds to a
director or officer for costs and expenses (including attorneys' fees) incurred
in a suit or proceeding upon receipt of an undertaking by such director or
officer to repay such amounts if it is ultimately determined that he or she is
not entitled to be indemnified.
The Corporation will enter into agreements with the
Corporation's directors and executive officers, indemnifying them to the
fullest extent permitted by Delaware law. Stockholders may have more limited
recourse against such persons than would apply absent these provisions.
The Corporation intends to obtain insurance policies
indemnifying the directors and officers against certain civil
1
<PAGE> 260
liabilities, including liabilities under the federal securities laws, which
might be incurred by them in such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Restructuring Plan of Presidential Mortgage Company (the
"Partnership") (to be filed by amendment).
2.2 Standby Purchase Agreement (to be filed by amendment).
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Fifth Amended and Restated Certificate and Agreement of
Limited Partnership of the Registrant (the "Partnership
Agreement"), dated as of September 7, 1989, incorporated
by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-2, as filed with the Securities
and Exchange Commission August 15, 1989, as amended by
Amendment No. One thereto, as filed with the Securities and
Exchange Commission on October 10, 1989 (Registration
No. 33-30517) (the "1989 Registration Statement").
3.4 Certificate of Limited Partnership of the Registrant on
Form LP-1, as filed with the California Secretary of State
and currently in effect, incorporated by reference to
Exhibit 3.2 of the Registration Statement on Form S-11,
filed with the Securities and Exchange Commission on
November 13, 1984, as amended on February 4 and March 1, 1985,
and declared effective on March 6, 1985 (Registration No.
2-94289) (the "1984 Registration Statement").
3.5 First Amendment to the Partnership Agreement dated as of
May 15, 1993, incorporated by reference to Exhibit 3.3 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, as filed with the Securities and Exchange
Commission on November 27, 1994 (the "1993 Annual Report").
3.6 Second Amendment to the Partnership Agreement dated as of
January 1, 1994, incorporated by reference to Exhibit 3.4
of the 1993 Annual Report.
4.1 Specimen Common Stock Certificate (to be filed by amendment).
</TABLE>
2
<PAGE> 261
<TABLE>
<S> <C>
4.2 General Partner Warrant Agreement and Warrant.
5.1 Opinion of Jeffer, Mangels, Butler & Marmaro re: legality of
the securities being registered (to be filed by amendment).
10.1 Employment Agreement by and between the Registrant and
Joel R. Schultz.
10.2 Employment Agreement by and between the Registrant and
Richard D. Young.
10.3 Employment Agreement by and between the Registrant and
Kenneth A. Carmona.
10.4 Employment Agreement by and between the Registrant and
Norman A. Markiewicz.
10.5 Employment Agreement by and between the Registrant
and Richard B. Fremed.
10.6 Employment Agreement by and between Pacific Thrift and
Loan Company, Inc. and Frank Landini.
10.7 Form of Indemnification Agreement by and between the
Registrant and each of its directors and executive officers.
10.8 Pacific United Group, Inc. Stock Option Plan, dated
January 1, 1996, subject to completion of Restructuring Plan.
10.9 Pacific United Group, Inc. Stock Purchase Plan, dated
January 1, 1996, subject to completion of Restructuring Plan.
10.10 Pacific United Group, Inc. Supplemental Executive Retirement
Plan, dated January 1, 1996, subject to completion of
Restructuring Plan.
10.11 Employment Agreement, dated May 9, 1984, by and among Pacific
and Loan Association and the Registrant, as employers, and Joel R.
Schultz, as employee, as currently in effect only with the
Registrant, incorporated by reference to Exhibit 10.2 of the 1984
Registration Statement.
</TABLE>
3
<PAGE> 262
<TABLE>
<S> <C>
10.12 Employment Agreement, dated May 9, 1984, by and among Pacific and
Loan Association and the Registrant, as employers, and Norman A.
Markiewicz, as employee, as currently in effect only with the
Registrant, incorporated by reference to Exhibit 10.3 of the 1984
Registration Statement.
10.13 Loan Agreement (the "Loan Agreement"), dated as of August 28, 1990,
as amended and restated May 20, 1992, and as further amended and
restated as of September 28, 1994, by and among National Westminster
Bank USA ("NatWest"), as Agent and a participating Bank, the banks
signatory thereto (the "Banks"), and the Registrant, incorporated by
reference to Exhibit 10.4 of the 1993 Annual Report.
10.14 Letter Agreement to amend Loan Agreement, dated October 26, 1995.
10.15 Agreement for Purchase of Limited Partnership Interests of
Consolidated Reconveyance Company and Lenders Posting and Publishing
Company, dated as of July 1, 1990, incorporated by reference to
Exhibit 10.6 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, as filed with the Securities and
Exchange Commission on March 31, 1991.
10.16 Master Loan Purchase Agreement dated as of June 21, 1995 by
and between Pacific Thrift and Loan Company and Aames
Capital Corporation, incorporated by reference to Exhibit 10.7
of the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994, as filed with the Securities and
Exchange Commission on July 26, 1995.
16.1 Letter of KPMG Peat Marwick regarding resignation dated August 4,
1993, incorporated by reference to the Partnership's Report on Form
8-K dated July 29, 1993, as filed with the Securities and Exchange
Commission on August 5, 1993.
16.2 Letter of Ernst & Young regarding termination dated September
27, 1995, incorporated by reference to the Partnership's
Report on Form 8-K dated September 12, 1995, as filed with
the Securities and Exchange Commission on September 28, 1995.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Attorney.
23.2 Consent of Accountants (to be filed by amendment).
23.3 Consent of Accountants (to be filed by amendment).
</TABLE>
4
<PAGE> 263
<TABLE>
<S> <C>
24.1 Power of attorney, incorporated by reference to Power of Attorney
set forth on page 7 of Part II of the Registration Statement.
99.1 Fairness Opinion by Houlihan, Lokey, Howard and Zukin. (to be
filed by amendment).
99.2 Limited Partner Ballot and related Instructions.
99.3 Subscription Agreement.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
None.
(C) OPINIONS OR APPRAISALS RELATING TO TRANSACTION
Fairness Opinion by Houlihan, Lokey, Howard and Zukin, to be filed by
amendment as Exhibit 99.1 of the Registration Statement.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the amount of unsubscribed securities to be
purchased by others, and the terms of any subsequent reoffering thereof. If
any public offering is to be made on terms differing from those set forth on
the cover page of the Prospectus, a post-effective amendment will be filed to
set forth the terms of such offering.
The undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (h) (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415 will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement
5
<PAGE> 264
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
6
<PAGE> 265
POWER OF ATTORNEY
The undersigned officers and directors of Pacific United Group, Inc.
severally constitute and appoint Joel R. Schultz and Richard B. Fremed, and
each of them, our true and lawful attorneys-in-fact, with full power of
substitution and resubstitution, to sign, execute, certify, acknowledge and
deliver for us and in our names and in the capacities indicated below, the
Registration Statement of Pacific United Group, Inc. on Form S-4 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and generally to do all things in our names and behalf
in our capacities as officers and directors to enable Pacific United Group,
Inc. to comply with the provisions of the Securities Act of 1933, as amended,
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys-in-fact, or any of them, to said Registration Statement and any and
all amendments thereto. The foregoing grant of authority is a special power of
attorney coupled with an interest, is irrevocable and shall survive the death
or disability of any of the undersigned, and may be exercised by such attorneys
by listing the names of the undersigned along with the names of all other
persons for whom such attorneys-in-fact are acting.
7
<PAGE> 266
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on November 20, 1995.
(Registrant)
PACIFIC UNITED GROUP, INC.
By: /s/ JOEL R. SCHULTZ
Joel R. Schultz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
s/JOEL R. SCHULTZ President, Chief Executive November 20, 1995
Joel R. Schultz Officer, and Director
s/CHARLES J. SIEGEL Chief Financial and November 20, 1995
Charles J. Siegel Accounting Officer
s/RICHARD D. YOUNG Senior Executive Vice November 20, 1995
Richard D. Young President and Director
s/RUSSELL G. ALLISON Director November 20, 1995
Russell G. Allison
s/ERMYAS AMELGA Director November 20, 1995
Ermyas Amelga
</TABLE>
<PAGE> 267
PACIFIC UNITED GROUP, INC.
EXHIBITS TO
REGISTRATION STATEMENT
ON FORM S-4
<PAGE> 268
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Restructuring Plan of Presidential Mortgage Company (the "Partnership") (to be filed by amendment).
2.2 Standby Purchase Agreement (to be filed by amendment).
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Fifth Amended and Restated Certificate and Agreement of Limited Partnership of the Registrant (the "Partnership
Agreement"), dated as of September 7, 1989, incorporated by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-2, as filed with the Securities and Exchange Commission August 15, 1989, as amended by Amendment No.
One thereto, as filed with the Securities and Exchange Commission on October 10, 1989 (Registration No. 33-30517) (the
"1989 Registration Statement").
3.4 Certificate of Limited Partnership of the Registrant on Form LP-1, as filed with the California Secretary of State and
currently in effect, incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-11, filed with the
Securities and Exchange Commission on November 13, 1984, as amended on February 4 and March 1, 1985, and declared
effective on March 6, 1985 (Registration No. 2-94289) (the "1984 Registration Statement").
3.5 First Amendment to the Partnership Agreement dated as of May 15, 1993, incorporated by reference to Exhibit 3.3 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, as filed with the Securities and Exchange
Commission on November 27, 1994 (the "1993 Annual Report").
3.6 Second Amendment to the Partnership Agreement dated as of January 1, 1994, incorporated by reference to Exhibit 3.4 of
the 1993 Annual Report.
4.1 Specimen Common Stock Certificate (to be filed by amendment).
4.2 General Partner Warrant Agreement and Warrant.
5.1 Opinion of Jeffer, Mangels, Butler & Marmaro re: legality of the securities being registered (to be filed by amendment).
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10.1 Employment Agreement by and between the Registrant and Joel R. Schultz.
10.2 Employment Agreement by and between the Registrant and Richard D. Young.
10.3 Employment Agreement by and between the Registrant and Kenneth A. Carmona.
10.4 Employment Agreement by and between the Registrant and Norman A. Markiewicz.
10.5 Employment Agreement by and between the Registrant and Richard B. Fremed.
10.6 Employment Agreement by and between Pacific Thrift and Loan Company, Inc. and Frank Landini.
10.7 Form of Indemnification Agreement by and between the Registrant and each of its directors and executive officers.
10.8 Pacific United Group, Inc. Stock Option Plan, dated January 1, 1996, subject to completion of Restructuring Plan.
10.9 Pacific United Group, Inc. Stock Purchase Plan, dated January 1, 1996, subject to completion of Restructuring Plan.
10.10 Pacific United Group, Inc. Supplemental Executive Retirement Plan, dated January 1, 1996, subject to completion of
Restructuring Plan.
10.11 Employment Agreement, dated May 9, 1984, by and among Pacific and Loan Association and the Registrant, as employers, and
Joel R. Schultz, as employee, as currently in effect only with the Registrant, incorporated by reference to Exhibit 10.2
of the 1984 Registration Statement.
10.12 Employment Agreement, dated May 9, 1984, by and among Pacific and Loan Association and the Registrant, as employers, and
Norman A. Markiewicz, as employee, as currently in effect only with the Registrant, incorporated by reference to Exhibit
10.3 of the 1984 Registration Statement.
10.13 Loan Agreement (the "Loan Agreement"), dated as of August 28, 1990, as amended and restated May 20, 1992, and as further
amended and restated as of September 28, 1994, by and among National Westminster Bank USA ("NatWest"), as Agent and a
participating Bank, the banks signatory thereto (the "Banks"), and the Registrant, incorporated
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by reference to Exhibit 10.4 of the 1993 Annual Report.
10.14 Letter Agreement to amend Loan Agreement, dated October 26, 1995.
10.15 Agreement for Purchase of Limited Partnership Interests of Consolidated Reconveyance Company and Lenders Posting and
Publishing Company, dated as of July 1, 1990, incorporated by reference to Exhibit 10.6 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, as filed with the Securities and Exchange Commission on March
31, 1991.
10.16 Master Loan Purchase Agreement dated as of June 21, 1995 by and between Pacific Thrift and Loan Company and Aames
Capital Corporation, incorporated by reference to Exhibit 10.7 of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, as filed with the Securities and Exchange Commission on July 26, 1995.
16.1 Letter of KPMG Peat Marwick regarding resignation dated August 4, 1993, incorporated by reference to the Partnership's
Report on Form 8-K dated July 29, 1993, as filed with the Securities and Exchange Commission on August 5, 1993.
16.2 Letter of Ernst & Young regarding termination dated September 27, 1995, incorporated by reference to the Partnership's
Report on Form 8-K dated September 12, 1995, as filed with the Securities and Exchange Commission on September 28, 1995.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Attorney.
23.2 Consent of Accountants (to be filed by amendment).
23.3 Consent of Accountants (to be filed by amendment).
24.1 Power of attorney, incorporated by reference to Power of Attorney set forth on page 7 of Part II of the Registration
Statement.
99.1 Fairness Opinion by Houlihan, Lokey, Howard and Zukin. (to be filed by amendment).
99.2 Limited Partner Ballot and related Instructions.
99.3 Subscription Agreement.
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PACIFIC UNITED GROUP, INC.
FIRST: The name of the corporation is PACIFIC UNITED GROUP, INC. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name and address of
the Corporation's registered agent in the State of Delaware is Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,000,000 consisting of 8,000,000
shares of Common Stock, $.01 par value ("Common Stock"), and 2,000,000 shares
of Preferred Stock, $.01 par value. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby
authorized to fix or alter the voting rights, designations, powers, preferences
and relative and other special rights, and the qualifications, limitations and
restrictions of any wholly unissued series of Preferred Stock, and the number
of shares constituting any such series, or any of them, and to increase or
decrease the number of shares of any such series subsequent to the issue of
shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of that series.
FIFTH: The business and affairs of the Corporation shall be managed
by and under the direction of the Board of Directors. Except as may be
otherwise provided by the terms of any series of Preferred Stock or any other
securities of the Corporation having a preference over the Common Stock, the
exact number of directors of the Corporation shall be fixed by or in the manner
provided in the bylaws of the Corporation (the "Bylaws") and such number may
from time to time be increased or decreased in accordance with the provisions
thereof. Except as otherwise provided by the terms of any series of Preferred
Stock or any other securities of the Corporation having a preference over the
Common Stock, any director of the Corporation, other than those who may be
elected pursuant to the terms of any series
<PAGE> 2
of Preferred Stock or any other securities of the Corporation having a
preference over the Common Stock, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the Bylaws. The terms of the
initial directors shall be determined by the Board of Directors, with one class
designated as elected for a one year term, the second class designated as
elected for a two year term and the third class designated as elected for a
three year term. At the first annual meeting of stockholders of the
Corporation, and at each subsequent annual meeting, the successors of the class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third
year following the year of their election. Except as may be otherwise provided
by the terms of any series of Preferred Stock or any other securities of the
Corporation having a preference over the Common Stock, no decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any
respect the Bylaws, and to confer in the Bylaws powers and authorities upon the
directors of the Corporation in addition to the powers and authorities
expressly conferred upon them by statute;
(b) from time to time to set apart out of any funds or
assets of the Corporation available for dividends an amount or amounts to be
reserved as working capital or for any other lawful purpose and to abolish any
reserve so created and to determine whether any, and, if any, what part, of the
surplus of the Corporation or its net profits applicable to dividends shall be
declared in dividends and paid to its stockholders, and all rights of the
holders of stock of the Corporation in respect of dividends shall be subject to
the power of the Board of Directors so to do;
(c) subject to the laws of the State of Delaware, from
time to time to sell, lease or otherwise dispose of any part or parts of the
properties of the Corporation and to cease to conduct the business connected
therewith or again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities
hereinbefore and by the laws of the State of Delaware conferred upon the Board
of Directors, to execute all such powers and to do all acts and things as may
be exercised or done by the Corporation; subject, nevertheless, to the express
provisions of said laws and of the Certificate of Incorporation of the
Corporation and its Bylaws.
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SEVENTH: Notwithstanding Article Sixth hereof, the Bylaws may be
adopted, repealed, rescinded, altered or amended in any respect by the
stockholders of the Corporation, but only by the affirmative vote of the
holders of not less than 66-2/3% of the voting power of all outstanding shares
of Voting Stock (as defined in paragraph (f) of Section 3 of Article Fourteenth
hereof), regardless of class and voting together as a single voting class, and
where such action is proposed by an Interested Stockholder as defined in
paragraph (d) of Section 3 of Article Fourteenth hereof), or by any Affiliate
or Associate (each as defined in paragraph (g) of Section 3 of Article
Fourteenth hereof) of an Interested Stockholder, also by the affirmative vote
of the holders of a majority of the voting power of all outstanding shares of
Voting Stock, regardless of class and voting together as a single voting class,
other than shares held by the Interested Stockholder which proposed (or the
Affiliate or Associate of which proposed) such action, or any Affiliate or
Associate of such Interested Stockholder; provided, however, that where such
action is approved by a majority of the Disinterested Directors (as defined in
paragraph (a) of Section 3 of Article Fourteenth hereof), or by a majority of a
quorum of the full Board of Directors if such proposal is not made by or on
behalf of an Interested Stockholder or his Affiliate or Associate, the
affirmative vote of a majority of the voting power of all outstanding shares of
Voting Stock, regardless of class and voting together as a single voting class,
shall be required for approval of such action.
EIGHTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, each director shall serve until his successor is elected
and qualified or until his death, resignation or removal, and no decrease in
the authorized number of directors shall shorten the term of any incumbent
director.
NINTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, newly created directorships resulting from any increase
in the number of directors, or any vacancies on the Board of Directors
resulting from death, resignation, removal or other causes, shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term in which the next directorship was created or the
vacancy occurred and until such director's successor shall have been elected
and qualified or until such director's death, resignation or removal, whichever
first occurs.
TENTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, any
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director may be removed from office only for cause and only by the affirmative
vote of the holders of not less than 66-2/3% of the voting power of all
outstanding shares of Voting Stock entitled to vote in connection with the
election of such director, regardless of class and voting together as a single
voting class; provided, however, that where such removal is approved by a
majority of the Disinterested Directors, the affirmative vote of a majority of
the voting power of all outstanding shares of Voting Stock entitled to vote in
connection with the election of such director, regardless of class and voting
together as a single voting class, shall be required for approval of such
removal.
ELEVENTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called Annual
Meeting or at a special meeting of stockholders of the Corporation, unless such
action requiring or permitting shareholder approval is approved by a majority
of the Disinterested Directors, in which case such action may be authorized or
taken by the written consent of the holders of outstanding shares of Voting
Stock not less than the minimum voting power that would be necessary to
authorize or take such action at a meeting of stockholders at which all shares
entitled to vote thereon were present and voted, provided all other
requirements of applicable law and this Certificate of Incorporation have been
satisfied.
TWELFTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, special meetings of the stockholders of the Corporation
for any purpose or purposes may be called at any time by a majority of the
Board of Directors or by the Chairman of the Board or President. Except as
otherwise provided by the terms of any series of Preferred Stock or any other
securities of the Corporation having a preference over the Common Stock,
special meetings may not be called by any other person or persons. Each
special meeting shall be held at such date and time as is requested by the
person or persons calling the meeting, within the limits fixed by law.
THIRTEENTH: Meetings of stockholders of the Corporation may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision of applicable law)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws.
FOURTEENTH: 1. Subject to the provisions of Section 2 of
this Article Fourteenth, in addition to any vote required by law or by this
Certificate of Incorporation or the terms of any series of Preferred Stock or
any other securities of the Corporation having a preference over the Common
Stock, a
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Business Combination (as defined in paragraph (b) of Section 3 of this Article
Fourteenth) shall be approved by the affirmative vote of the holders of not
less than:
(a) 66-2/3% of the voting power of all
outstanding shares of Voting Stock, regardless of class and voting together as
a single voting class and
(b) a majority of the voting power of
all outstanding shares of Voting Stock, other than shares held by (i) an
Interested Stockholder which is (or the Affiliate or Associate of which is) a
party to such Business Combination or (ii) an Affiliate or Associate of such
Interested Stockholder, regardless of class and voting together as a single
voting class.
The affirmative votes referred to in paragraphs (a) and (b) of this Section 1
shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage or proportion may be specified, by law, or by this
Certificate of Incorporation or by the term of any series of Preferred Stock or
any other securities of the Corporation having a preference over the Common
Stock or in any agreement between the Corporation and any other person,
including a national securities exchange, or otherwise.
2. Notwithstanding the provisions of Section 1
of this Article Fourteenth, a Business Combination may be approved if all of
the conditions specified in either of the following paragraphs (a) or (b) have
been satisfied:
(a) both of the following conditions
specified in clauses (i) and (ii) of this paragraph (a) have been satisfied;
(i) there are one or more
Disinterested Directors and a majority of such Disinterested Directors shall
have approved such Business Combination; and
(ii) such Business Combination
shall have been approved by the affirmative vote of the Corporation's
stockholders required by law, if any, such vote is so required; or
(b) all of the following conditions
specified in clauses (i) through (vii) of this paragraph (b) have been
satisfied:
(i) such Business Combination
shall have been approved by the affirmative vote of holders of a majority of
the voting power of all outstanding shares of Voting Stock, regardless of class
and voting together as a single voting class;
(ii) the aggregate amount of (A)
the cash and (B) the Fair Market Value (as defined in
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paragraph (i) of Section 3 of this Article Fourteenth), as of the date of the
consummation of the Business Combination (the "Consummation Date"), of
consideration other than cash received or to be received, per share, by holders
of shares of Common Stock in such Business Combination, shall be at least equal
to the greatest per share amount determined under the following alternatives;
(1) the highest per
share price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid or agreed to be paid by or on behalf of the Interested
Stockholder or any Affiliate or Associate of such Interested Stockholder which
is (or the Affiliate or Associate of which is) a party to such Business
Combination for any shares of Common Stock in connection with the acquisition
by such Interested Stockholder or any such Affiliate or Associate of beneficial
ownership of shares of Common Stock (x) within the two-year period immediately
prior to and including the date of the final public announcement of the terms
of the proposed Business Combination (the "Announcement Date"), or (y) in the
transaction in which such Interested Stockholder became an Interested
Stockholder, whichever is higher; and
(2) the Fair Market
Value per share of Common Stock (x) on the Announcement Date, or (y) on the
date on which the Interested Stockholder became an Interested Stockholder (the
"Determination Date"), whichever is higher;
(iii) the aggregate amount of (A)
the cash and (B) the Fair Market Value, as of the Consummation Date, of
consideration other than cash received or to be received, per share, by holders
of shares of any class or series of outstanding Voting Stock, other than Common
Stock in such Business Combination, shall be at least equal to the highest
amount determined under clauses (1), (2), and (3) below (it being intended that
the requirements of this clause (iii) shall be required to be met with respect
to every class or series of outstanding Voting Stock other than Common Stock,
whether or not such Interested Stockholder (or such Affiliate or Associate) has
previously acquired any shares of a particular class or series of Voting
Stock);
(1) the highest per
share price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid or agreed to be paid by or on behalf of the
Interested Stockholder or any Affiliate or Associate of such Interested
Stockholder which is (or the Affiliate or Associate of which is) a party to
such Business Combination for any shares of such class or series of Voting
Stock in connection with the acquisition by such Interested Stockholder or any
such Affiliate or Associate of beneficial ownership of shares of such class or
series of Voting Stock (x) within the two-year period immediately prior to the
Announcement
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<PAGE> 7
Date, or (y) in the transaction in which such Interested Stockholder became an
Interested Stockholder, whichever is higher;
(2) (if applicable)
the highest preferential amount per share to which the holders of shares of
such class or series of Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
regardless of whether the Business Combination to be consummated constitutes
such an event; and
(3) the Fair Market
Value per share of such class or series of Voting Stock (x) on the
Announcement Date, or (y) on the Determination Date, whichever is higher;
(iv) the consideration to be
received by the holders of a particular class of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form as the Interested
Stockholder (or any Affiliate or Associate of such Interested Stockholder) has
previously paid (or agreed to pay) for shares of such class or series of Voting
Stock. If the Interested Stockholder and/or his Affiliates or Associates paid
for shares of any class of Voting Stock with varying forms of consideration,
the form of consideration to be received by holders of shares of such class or
series of Voting Stock shall be either cash or the form used to acquire the
largest number of shares of such class of Voting Stock previously acquired by
such Interested Stockholder and his Affiliates and Associates. The price
determined in accordance with clauses (ii) and (iii) of this paragraph (b)
shall be subject to appropriate adjustment in the event of any stock dividend,
stock split, combination of shares or similar event;
(v) after the Determination
Date and prior to the consummation of such Business Combination, neither such
Interested Stockholder nor any of its Affiliates or Associates shall have
become the beneficial owner of any additional shares of Voting Stock, except
(A) as part of the transaction which resulted in such Interested Stockholder
becoming an Interested Stockholder, (B) upon the exercise of options or
warrants granted prior to, or the conversion of convertible securities acquired
prior to, the Determination Date, (C) pursuant to any employee benefit plan,
including without limitation a stock plan, maintained by the Corporation or any
Subsidiary, regardless of the date of acquisition of such beneficial ownership,
or (D) as a result of a stock split or a pro rata stock dividend;
(vi) after the Determination
Date and prior to the consummation of such Business Combination, neither such
Interested Stockholder nor any of its Affiliates or Associates shall have
received the benefit, directly or
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<PAGE> 8
indirectly (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation (other than any of the foregoing
provided under an employee benefit plan of the Corporation or any subsidiary,
including without limitation stock option plans), whether in anticipation of or
in connection with such Business Combination or otherwise; and
(vii) a proxy or information
statement describing the proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (or any subsequent provisions replacing such act,
rules and/or regulation) shall be mailed to stockholders of the Corporation at
least thirty (30) days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be mailed
pursuant to such act, rules and/or regulations or such subsequent provisions).
3. For purposes of this Certificate of
Incorporation, the following definitions shall apply:
(a) "Disinterested Director" means,
with respect to any Business Combination with, or proposed by or on behalf of,
Stockholder (or his Affiliate or Associate) and with respect to any proposal by
or on behalf of an Interested Stockholder (or his Affiliate or Associate) to
amend or repeal any provision of this Certificate of Incorporation the
amendment or repeal of which is governed by Article Sixteenth hereof, any
member of the Board of Directors of the Corporation who is not such Interested
Stockholder or an Affiliate or Associate of such Interested Stockholder and who
was a member of the Board of Directors of this Corporation prior to the time
that the Interested Stockholder became an Interested Stockholder. The term
"Disinterested Director" includes a successor to any such director if the
successor is neither the Interested stockholder nor an Affiliate or Associate
of the Interested Stockholder and was recommended or elected to succeed the
Disinterested Director on the Board by a majority of Disinterested Directors
then on the Board.
(b) "Business Combination" means:
(i) any merger or consolidation
of the Corporation or any Subsidiary (as defined in paragraph (h) of this
Section 3) with or into (A) any Interested Stockholder or (B) any other
corporation (whether or not itself an Interested Stockholder) which immediately
before is, or after such merger or consolidation would be, an Affiliate or
Associate of an Interested Stockholder.
(ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one
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transaction or a series of related transactions) to or with any Interested
Stockholder, Affiliate and/or any Associate of any Interested Stockholder of
any assets of the Corporation or any Subsidiary, where such assets have an
aggregate Fair Market Value of $1,000,000 or more;
(iii) the issuance or transfer by
the Corporation or any Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any Subsidiary, to a
person which, immediately prior to such issuance or transfer, is an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder, where
such equity securities have an aggregate Fair Market Value of $1,000,000 or
more;
(iv) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation proposed by or
on behalf of any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder;
(v) any reclassification of
securities (including any reverse stock split) or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its
Subsidiaries or any similar transaction (whether or not with or into or
otherwise involving an Interested Stockholder), which has the effect, directly
or indirectly, of increasing the percentage of the outstanding shares of any
class of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or by any
Affiliate or Associate of any Interested Stockholder; or
(vi) any agreement, contract or
other arrangement providing for any of the transactions described in clauses
(i) through (v) of this paragraph (b).
(c) A "person" means an individual,
firm, partnership, trust, corporation or other entity.
(d) "Interested Stockholder" means, as
of any given date, any person who or which:
(i) is the beneficial owner (as
defined in paragraph (e) of this Section 3), directly or indirectly, of 10% or
more of the voting power of (A) all outstanding shares of Voting Stock or (B)
all outstanding shares of the capital stock of a Subsidiary having general
voting power ("Subsidiary Stock");
(ii) is an Affiliate of the
Corporation and at any time within the two-year period immediately prior to
such date was the beneficial owner, directly or indirectly, or 10% or more of
the voting power of all
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outstanding shares of Voting Stock or all outstanding shares of Subsidiary
Stock; or
(iii) is an assignee of or has
otherwise succeeded to any shares of Voting Stock or Subsidiary Stock which
were, at any time within the two-year period immediately prior to such date,
beneficially owned by any person who at such time was an Interested
Stockholder, unless such assignment or succession shall have occurred in the
course of a transaction or series of transactions involving the purchase of
shares in a public offering within the meaning of the Securities Act of 1933,
as amended, or open market purchases of shares, if in either case the price and
other terms of sale are not negotiated by the purchaser and seller of such
shares;
provided, however, that the term "Interested Stockholder" shall not include (A)
the Corporation or any Subsidiary or (B) Presidential Mortgage Company for so
long as it owns 100% of the outstanding Common Stock of the Corporation, (C)
any employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary, or any trustee of, or fiduciary with respect to, any such
plan when acting in such capacity.
(e) A person is the "beneficial
owner" of any shares of capital stock:
(i) which such person or any of
its Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such person or any of
its Affiliates or Associates has (A) the right to acquire (whether such right
is exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially
owned, directly or indirectly, by any other person with which such first-
mentioned person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation or a Subsidiary, as
the case may be.
(f) "Voting Stock" means the
capital stock of the Corporation entitled to be voted generally in the election
of directors. For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (d) of this Section 3, the number of shares
of Voting Stock or Subsidiary Stock, as the case may be, deemed to be
outstanding shall include shares deemed owned by a beneficial owner through
application of paragraph (e) of this Section 3, but
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shall not include any other shares of Voting Stock or Subsidiary Stock, as the
case may be, which are not then outstanding but which may be issuable to any
person pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(g) A person shall be deemed to be
an "Affiliate" of a specified person if such person directly, or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such specified person. A person shall be deemed to be an
"Associate" of a specified person, if such person is (a) a corporation or
organization (other than the Corporation or any Subsidiary) of which such
specified person is an officer or partner or of which such specified person is,
directly or indirectly, the beneficial owner of 10 percent or more of any class
of equity securities, (b) a trust or other estate (other than any pension,
profit-sharing, employee stock ownership or other employee benefit plan of the
Corporation or any Subsidiary) in which such specified person has a substantial
beneficial interest or as to which such specified person serves as trustee or
in a similar fiduciary capacity, or (c) a relative or spouse of such specified
person, or a relative of such spouse, who has the same home as such specified
person.
(h) "Subsidiary" means any corporation
of which a majority of any class of equity security (as defined in Rule 3a11-1
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended, as in effect on January 1, 1986) is owned, directly or indirectly,
by the Corporation.
(i) "Fair Market Value" means (i) in the
case of stock, (A) the average of the last reported sale price per share of the
Common Stock on the NASDAQ National Market, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, for ten consecutive Trading Days (as defined below) preceding the date
of such computation, or (B) if not quoted as described in clause (A), the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau Incorporated, or any similar system of
dissemination of quotations of securities prices, if at least two securities
dealers have inserted both bid and asked quotations for the Common Stock on at
least fifteen of the thirty preceding Trading Days, or (C) if the Common Stock
is listed or admitted for trading on any national securities exchange, the last
reported sale price, or the closing bid price if no sale occurred, of the
Common Stock on the principal securities exchange on which the Common Stock is
listed, or (D) if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined in good faith by a
majority of the Disinterested Directors (or if there are no Disinterested
Directors, then by a majority of the Board of
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Directors), and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined in good
faith by a majority of the Disinterested Directors (or if there are no
Disinterested Directors, then by a majority of the Board of Directors). As
used herein, the term "Trading Days" means (x) if the Common Stock is quoted on
the NASDAQ National Market or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system, or (y) if not quoted as described in clause (x), days on which
quotations are reported by the National Quotation Bureau Incorporated, or any
similar system of dissemination of quotations of securities prices, or (z) if
the Common Stock is listed or admitted for trading or any national securities
exchange, days on which such national securities exchange is open for business.
(j) In the event of any Business
Combination in which the Corporation survives, the phrase "consideration other
than cash received or to be received" as used in clauses (ii) and (iii) of
paragraph (b) of Section 2 of this Article Fourteenth shall include the shares
of Common Stock and/or the shares of any other class of Voting Stock retained
by the holder of such shares.
4. A majority of the Disinterested Directors
shall have the power and duty to determine, for purposes of this Article of
information known to them: (a) whether a person is an Interested Stockholder,
(b) the number of shares of Voting Stock or Subsidiary Stock beneficially owned
by any person, (c) whether a person is an Affiliate or Associate of another
person, (d) whether a person has an agreement, arrangement or understanding
with another person as to the matters referred to in clause (vi) of paragraph
(b), or clause (ii) or (iii) of paragraph (e), of Section 3 of this Article
Fourteenth, (e) whether any particular assets of the Corporation and/or any
Subsidiary have an aggregate Fair Market Value of $1,000,000 or more, or (f)
whether the consideration received for the issuance or transfer of securities
by the Corporation and/or any Subsidiary has an aggregate Fair Market Value of
$1,000,000 or more. In furtherance and not in limitation of the preceding
powers and duties set forth in this Section 4, a majority of the Disinterested
Directors shall have the power and duty to interpret all of the terms and
provisions of this Article Fourteenth.
5. Nothing contained in this Article Fourteenth
shall be construed to relieve any Interested Stockholder or any Affiliate or
Associate thereof from any fiduciary obligation imposed by law.
6. The fact that any action or transaction
complies with the provisions of this Article Fourteenth shall not be construed
to impose any fiduciary duty,
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obligation or responsibility on the Board of Directors or any member thereof to
approve such action or transaction or recommend its adoption or approval to the
stockholders of the Corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of, or actions and responses taken with respect to,
such action or transactions.
FIFTEENTH: To the maximum extent permissible under Section 262 of the
General Corporation Law of the State of Delaware, the stockholders of the
Corporation shall be entitled to the statutory appraisal rights provided
therein, notwithstanding any exception otherwise provided therein, with respect
to any Business Combination involving the Corporation and any Interested
Stockholder (or any Affiliate or Associate of any Interested Stockholder),
which requires the affirmative vote specified in paragraph (a) of Section 1 of
Article Fourteenth hereof.
SIXTEENTH: Notwithstanding any requirements of law and other
provisions of this Certificate of Incorporation, or the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock (and notwithstanding the fact that a lesser percentage
may be specified by law, this Certificate of Incorporation, or the terms of any
series of Preferred Stock or any other securities of the Corporation having a
preference over the Common Stock), the provisions set forth in this Article
Sixteenth and in Articles Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Fourteenth, Fifteenth, Seventeenth and Eighteenth hereof may
not be repealed, rescinded, altered or amended in any respect, and no other
provision or provisions may be adopted which impair(s) in any respect the
operation or effect of any such provision, except by the affirmative vote of
the holders of not less than 66-2/3% of the voting power of all outstanding
shares of Voting Stock regardless of class and voting together as a single
voting class, and, where such action is proposed by an Interested Stockholder
or by any Associate or Affiliate of an Interested Stockholder, also by the
affirmative vote of the holders of a majority of the voting power of all
outstanding shares of Voting Stock, regardless of class and voting together as
a single class, other than shares beneficially owned by the Interested
Stockholder which proposed (or the Affiliate or Associate of which proposed)
such action, or beneficially owned by any Affiliate or Associate of such
Interested Stockholder; provided, however, that where such action is approved
by a majority of the Disinterested Directors (or by a majority of a quorum of
the full Board of Directors if such proposal is not made by or on behalf of an
Interested Stockholder or his Affiliate or Associate), the affirmative vote of
a majority of the voting power of all outstanding shares of Voting Stock,
regardless of class and voting together as a single voting class, shall be
required for approval of such action.
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SEVENTEENTH: A director of the Corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. No amendment to or
appeal of this Article Seventeenth shall apply to or have an effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
EIGHTEENTH: The Corporation reserves the right to adopt, repeal,
rescind, alter or amend in any respect any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
applicable law, and all rights conferred on stockholders herein are granted
subject to this reservation, except that notwithstanding any requirements of
law and other provisions of this Certificate of Incorporation, or the terms of
any series of Preferred Stock or any other securities of the Corporation having
a preference over the Common Stock (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation, or the
terms of any series of Preferred Stock or any other securities of the
Corporation having a preference over the Common Stock) the provisions set forth
in Articles Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth,
Fourteenth, Fifteenth, Sixteenth Seventeenth and Eighteenth may not be
repealed, rescinded, altered or amended in any respect, and no other provision
or provisions may be adopted which impair(s) in any respect the operation or
effect of any such provision, unless such action is approved as specified in
Article Sixteenth hereof.
IN WITNESS WHEREOF, this Certificate of Incorporation has been
executed this ____ day of _____________, 1995.
____________________________
By:_________________________
Joel R. Schultz, President and
Chief Executive Officer
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ATTEST:
______________________________
Ann White, Assistant Secretary
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EXHIBIT 3.2
BYLAWS
OF
PACIFIC UNITED GROUP, INC.
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office of Pacific
United Group, Inc. (the "Corporation") in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801, and the name of the registered agent at that address
shall be Corporation Trust Company.
SECTION 1.2 Principal Executive Office. The principal executive
office of the Corporation shall be located at such place within or outside of
the State of Delaware as the Board of Directors of the Corporation ("Board of
Directors") from time to time shall designate.
SECTION 1.3 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors may, from time to time determine
or as the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place,
either within or without the State of Delaware, as may be designated by the
Board of Directors from time to time. In the absence of any such designation,
stockholders' meetings shall be at the chief executive offices of the
Corporation. Any other proper business may be transacted at the annual
meeting. At the annual meeting of stockholders in 1997, the stockholders shall
elect two members of Class I of the Board of Directors for a term of one (1)
year; at the annual meeting of stockholders in 1998, the stockholders shall
elect one member of Class II of the Board of Directors for a term of two (2)
years; and at the annual meeting of stockholders in 1998, the stockholders
shall elect one member of Class III of the Board of Directors for a term of
three (3) years. Thereafter, the stockholders at each annual meeting shall
elect members of the Board of Directors for each class for terms of three (3)
years to succeed those members of the Board of Directors whose terms shall have
expired.
SECTION 2.2 Special Meetings. Subject to the rights of the
holders of any class or series of stock having a preference over the
Corporation's Common Stock, special meetings
<PAGE> 2
of stockholders for any purpose or purposes may be called at any time by a
majority of the Board of Directors, by the Chairman of the Board or by the
President. Special meetings may not be called by any other person or
persons. Each special meeting shall be held at such date and time as is
requested by the person or persons calling the meeting, within the limits
fixed by law.
SECTION 2.3 Notice of Meetings. Except as may be otherwise
provided by the terms of any series of Preferred Stock or any other securities
of the Corporation having a preference over the Common Stock, whenever
stockholders are required or permitted to take any action at a meeting, a
written notice of the meeting shall be given which shall state the place, date
and hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, unless otherwise provided by law, the
written notice of a meeting shall be given not less than ten nor more than
sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
SECTION 2.4 Adjournments. Except as may be otherwise provided by
the terms of any series of Preferred Stock or any other securities of the
Corporation having a preference over the Common Stock, any meeting of
stockholders, annual or special, may adjourn from time to time to reconvene at
the same or some other place, and notice need not be given of any such
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the reconvened meeting the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the reconvened meeting, a notice of the reconvened
meeting shall be given to each stockholder of record entitled to vote at the
reconvened meeting.
SECTION 2.5 Quorum. At each meeting of stockholders, except
where otherwise provided by law, the Certificate of Incorporation, the terms of
any series of Preferred Stock or any other securities of the Corporation having
a preference over the Common Stock, or these Bylaws, the holders of a majority
of the outstanding shares of each class of stock entitled to vote at the
meeting, present in person or represented by proxy, shall constitute a quorum.
For purposes of the foregoing, two or more classes or series of stock of stock
shall be considered a single class if the holders thereof are entitled to vote
together as a single class at the meeting. In the absence of a quorum the
stockholders so present may, by majority vote, adjourn the meeting from time to
time in the manner provided by Section 2.4 of these Bylaws until a quorum shall
attend. Shares of its own capital stock belonging on the record date for the
meeting to the Corporation or to another
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corporation, if a majority of the shares entitled to vote in the election
of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for
quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation to vote stock, including but not limited to its
own stock, held by it in a fiduciary capacity.
SECTION 2.6 Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in his absence by an Executive Vice President, or in the absence
of the foregoing persons, by a chairman designated by the Board of Directors,
or in the absence of such designation, by a chairman chosen at the meeting.
The Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 2.7 Proxies. Unless otherwise provided in the
Certificate of Incorporation, or the terms of any series of Preferred Stock or
other securities of the Corporation having a preference over the Common Stock,
each stockholder entitled to vote at any meeting of stockholders shall be
entitled to one vote for each share of stock held by him which has voting power
upon the matter in question. If the Certificate of Incorporation provides for
more or less than one vote for any share on any matter, every reference in
these Bylaws to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. A stockholder may
vote the shares owned of record by him either in person or by proxy executed in
writing (which shall include writings sent by telex, telegraph, cable or
facsimile transmission) by the stockholder himself or his duly authorized
attorney-in-fact. No such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date
with the Secretary of the Corporation. Voting at meetings of stockholders need
not be by written ballot and need not be conducted by inspectors unless the
holders of a majority of the outstanding shares of all classes of stock
entitled to vote thereon present in person or by proxy at such meeting shall so
determine. At all meetings of stockholders for the election of directors or
otherwise, all elections and questions shall, unless otherwise provided by law,
by the Certificate of Incorporation, the terms of any series of Preferred Stock
or other securities of the Corporation having a preference over the Common
Stock or these Bylaws, be decided by the vote of the holders of a majority of
the outstanding shares of all classes of
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stock entitled to vote thereon present in person or by proxy at the meeting.
SECTION 2.8 Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed: (1) the record date for determining stockholders entitled to notice
of or to vote at the meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held; (2) the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting (to the extent
such action by the stockholders is permitted by these Bylaws) when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 2.9 List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
SECTION 2.10 Inspectors of Election. Before any meeting of
stockholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of
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election at the meeting or any reconvened meeting upon adjournment of the
original meeting. If no inspectors of election are appointed, the chairman of
the meeting shall appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If any person appointed as
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment by the Board of Directors before the meeting, or by, the meeting
chairman at the meeting.
The duties of these inspectors shall be as follows:
(a) To determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) To receive votes, ballots, or consents;
(c) To hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) To count and tabulate all votes or consents;
(e) To determine the election results; and
(f) To do any other acts that may be proper to conduct
the election or vote with fairness to all stockholders.
SECTION 2.11 Stockholder Action. Except as may be otherwise
provided by the terms of any series of Preferred Stock or any other securities
of the Corporation having a preference over the Common Stock, any action
required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual meeting or special meeting of stockholders
of the Corporation, unless such action requiring or permitting stockholder
approval is approved by a majority of the Disinterested Directors (as defined
in the Certificate of Incorporation), in which case such action may be
authorized or taken by the written consent of the holders of outstanding shares
of stock having not less than the minimum voting power that would be necessary
to authorize or take such action at a meeting of stockholders at which all
shares entitled to vote thereon were present and voted, provided all other
requirements of applicable law and the Certificate of Incorporation have been
satisfied.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, except as
may be otherwise provided by law or in the Certificate of Incorporation.
SECTION 3.2 Number of Directors. Except as may be provided by
the terms of any series of Preferred Stock or other securities of the
Corporation having a preference over the Common Stock, the number of directors
of the Corporation shall be fixed from time to time by resolution of the Board
of Directors, but shall not be less than four (4) divided into three classes,
with two directors in Class I, one director in Class II, and one director in
Class III with the terms of office of one class expiring each year. The
classes shall be initially comprised of directors appointed by the Board of
Directors. If the number of directors is changed by the Board of Directors,
then any newly created directorships or any decrease in directorships shall be
apportioned among the classes as to make all classes as nearly equal as
possible; provided that no decrease in the number of directors shall shorten
the term of any incumbent director. Subject to the rights of the holders of
any class or series of stock having a preference over the common stock as to
dividends or upon liquidation, at each annual meeting, the successors of the
class of directors whose terms expire at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. The first Board of Directors
and subsequent Boards of Directors shall consist of four (4) directors until
changed as herein provided. Directors need not be stockholders.
SECTION 3.3 Election and Term of Office. Except as may be
otherwise provided by the terms of any series of Preferred Stock or any other
securities of the Corporation having a preference over the Common Stock, each
director shall hold office until (i) the annual meeting of stockholders in the
calendar year in which his term of office expires and until his successor is
elected and qualified or (ii) his earlier death, resignation or removal in the
manner that the directors of the Corporation, other than those who may be
elected pursuant to the terms of any series of preferred stock or any other
securities of the Corporation other than Common Stock, may determine from time
to time. Except as may be otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation, no decrease in the
authorized number of directors shall shorten the term of any incumbent
directors.
SECTION 3.4 Election of Chairman of the Board. At the
organizational meeting immediately following the annual meeting of
stockholders, the directors shall elect a Chairman of
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the Board from among the directors who shall hold office until the
corresponding meeting of the Board of Directors in the next year and until his
successor shall have been elected or under his earlier resignation or removal.
Any vacancy in such office may be filled for the unexpired portion of the term
in the same manner by the Board of Directors at any regular or special meeting.
SECTION 3.5 Vacancies and Additional Directorships. Except as
may be otherwise provided by the terms of any series of Preferred Stock or any
other securities of the Corporation having a preference over the Common Stock,
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the director in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been
elected and qualified.
SECTION 3.6 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine
and, if so determined, notice thereof need not be given.
SECTION 3.7 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the
President, or by any two directors. Reasonable notice thereof shall be given
by the person or persons calling the meeting.
SECTION 3.8 Telephonic Meetings Permitted. Members of the Board
of Directors, or any committee thereof, as the case may be, may participate in
a meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Bylaw shall constitute presence in person at such
meeting.
SECTION 3.9 Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors unless the Certificate of Incorporation or these
Bylaws shall require a vote of a greater number. In case at any meeting of the
Board of Directors a quorum shall not be present, the members of the Board of
Directors present may
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adjourn the meeting from time to time until a quorum shall attend.
SECTION 3.10 Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his absence
by the Chief Executive Officer, or in their absence by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
SECTION 3.11 Action by Directors Without a Meeting. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
SECTION 3.12 Compensation of Directors. The Board of Directors
shall have the authority to fix the compensation of directors.
SECTION 3.13 Removal. Except as may be otherwise provided by the
terms of any series of Preferred Stock or any other securities of the
Corporation having a preference over the Common Stock, any director may be
removed from office only as provided in Article Tenth of the Certificate of
Incorporation.
ARTICLE IV
COMMITTEES
SECTION 4.1 Committees. The Board of Directors may by resolution
passed by a majority of the Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have
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<PAGE> 9
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially, all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending these Bylaws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 4.2 Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
adopt, amend and repeal rules for the conduct of its business. In the absence
of a provision by the Board of Directors or a provision in the rules of such
committee to the contrary, a majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a meeting at the
time of such vote if a quorum is then present shall be the act of such
committee, and in other respects each committee shall conduct its business in
the same manner as the Board of Directors conducts its business pursuant to
Article III of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.1 Officers; Election. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a Chairman of the Board, President and a Secretary. The Board of Directors may
also elect one or more Executive Vice Presidents, one or more Vice Presidents,
one or more Assistant Secretaries, a Treasurer or Chief Financial Officer and
one or more Assistant Treasurers and may give any of them such further
designations or alternate titles as it considers desirable. Any number of
offices may be held by the same person.
SECTION 5.2 Term of Office; Resignation; Removal; Vacancies.
Except as otherwise provided in the resolution of the Board of Directors
electing any officer, each officer shall hold office until the first meeting of
the Board of Directors after the annual meeting of stockholders next succeeding
this election, and until his successor is elected and qualified or until his
earlier death, resignation or removal. Any officer may resign at any time upon
written notice to the Board of Directors or to the President or the Secretary
of the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary, to make it effective. The Board of Directors
may remove any officer with or without cause at any time. Any such removal
shall be without prejudice to the contractual rights
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of such officer, if any, with the Corporation, but the election of an officer
shall not of itself create contractual rights. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise may be
filled for the unexpired portion of the term by the Board of Directors at any
regular or special meeting.
SECTION 5.3 Powers and Duties. The officers of the Corporation
shall have such powers and duties in the management of the Corporation as shall
be stated in these Bylaws or in a resolution of the Board of Directors which is
not inconsistent with these Bylaws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors. The Secretary shall have the duty to record the
proceedings of the meetings of stockholders, the Board of Directors and any
committees in a book to be kept for that purpose and shall have custody of the
corporate seal of the Corporation with the authority to affix such seal to any
instrument requiring it. The Board of Directors may require any officer, agent
or employee to give security for the faithful performance of his duties.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER CORPORATE AGENTS
SECTION 6.1 Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, or was a director, officer, employee or
agent of a foreign or domestic corporation or partnership which was a
predecessor of the Corporation or of another enterprise at the request of such
predecessor corporation or partnership, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized or permitted by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) actually and reasonably
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incurred or suffered by such person in connection therewith. Such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 6.2 of this Article VI, the Corporation shall indemnity any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 6.1 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred
from time to time in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses in advance of
the final disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers. This
Article VI shall create a right of indemnification for each such indemnifiable
party whether or not the proceeding to which the indemnification relates arose
in whole or in part prior to adoption of this Article VI.
SECTION 6.2 Right of Claimant to Bring Suit. If a claim under
Section 6.1 of this Article VI is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. The claimant shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition, upon tender of any required undertaking) and thereafter
the Corporation shall have the burden of proof to overcome the presumption that
the claimant is so entitled. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant is not entitled to
indemnification shall be a defense to the action or create a presumption that
the claimant is not so entitled. If an action is brought pursuant to this
Section a final nonappealable order in such action shall constitute the
ultimate determination of the claimant's right to indemnification.
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<PAGE> 12
SECTION 6.3 Nonexclusivity of Rights. The right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 6.4 Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnity such person against such
expense, liability or loss under the Delaware General Corporation Law.
ARTICLE VII
STOCK
SECTION 7.1 Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman of the Board of Directors, if any, or the
President, or a Vice President, and by the Treasurer or an Assistant Treasurer,
if any, or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by him in the Corporation. Any or all
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 7.2 Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
the Corporation a bond sufficient to indemnify against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
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<PAGE> 13
SECTION 8.2 Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
SECTION 8.3 Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these Bylaws. Unless either proper notice of a meeting of
the Board of Directors, or any committee thereof, has been given or else the
persons entitled thereto have waived such notice (either in writing or by
attendance as set forth above), any business transacted at such meeting shall
be null and void.
SECTION 8.4 Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (1) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (3) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of
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<PAGE> 14
Directors or of a committee which authorizes the contract or transaction.
SECTION 8.5 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
SECTION 8.6 Amendment of Bylaws. Except as may be otherwise
provided by the terms of any series of Preferred Stock or any other securities
of the Corporation having a preference over the Common Stock, these Bylaws may
be amended or repealed, and new Bylaws adopted, by the Board of Directors, but
the stockholders entitled to vote may adopt additional Bylaws and may amend or
repeal any Bylaw whether or not adopted by them. The vote required to amend
these Bylaws shall be as specified in the Certificate of Incorporation of the
Corporation.
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<PAGE> 1
EXHIBIT 4.2
PACIFIC UNITED GROUP, INC.
and
PRESIDENTIAL MANAGEMENT COMPANY
____________________
GENERAL PARTNER'S WARRANT AND
REGISTRATION RIGHTS AGREEMENT
Dated as of ____________ __, 1996
____________________
<PAGE> 2
GENERAL PARTNER'S WARRANT AND
REGISTRATION RIGHTS AGREEMENT
THIS GENERAL PARTNER'S WARRANT AND REGISTRATION RIGHTS AGREEMENT (the
"Agreement"), dated as of ___________ __, 1996, is made and entered into by and
between PACIFIC UNITED GROUP, INC., a Delaware corporation (the "Company"), and
PRESIDENTIAL MANAGEMENT COMPANY, a California limited partnership ("the General
Partner").
The Company agrees to issue and sell to the General Partner and the
General Partner agrees to purchase from the Company, in exchange for the
forgiveness of indebtedness in the amount of $350,000 owed by Presidential
Mortgage Company, the predecessor-in-interest of the Company ("the
Partnership"), to the General Partner (who has served as the general partner of
the Partnership), warrants, as hereinafter described (together with any
warrants subsequently issued hereunder, the "Warrants"), to purchase up to
_____________ shares, as may be adjusted from time to time as set forth herein,
of the Company's common stock, par value $.01 per share ("Common Stock"). The
shares of Common Stock purchasable upon exercise of the Warrants, as may be
adjusted from time to time as set forth herein, are hereinafter referred to as
the "Warrant Stock."
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants, the Warrant Stock and the respective
rights and obligations hereunder and thereunder, the Company and the General
Partner, for value received, hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 Registration. All Warrants shall be numbered and
shall be registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on
the books of the Company maintained at its principal office, wherever its
principal office may then be located, upon delivery thereof duly endorsed by a
Warrant holder (a "Warrantholder") or by its duly authorized attorney or
representative and with the signatures properly guaranteed, accompanied by
proper evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver a new
certificate evidencing each such Warrant to each person entitled thereto.
1.3 Limitations on Transfer of the Warrants. Warrants
shall not be sold, transferred, assigned or hypothecated, except that Warrants
may be transferred: (i) to and between the partners of the General Partner,
provided that any such transferee agrees to be bound by the terms and
provisions of this Agreement; (ii) to the grantor of any trust which is a
partner of the General Partner; (iii) to a trust in which a partner of the
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<PAGE> 3
General Partner is the primary beneficiary; or (iv) by will, pursuant to the
laws of descent or distribution or by operation of law. The Warrants may be
divided or combined, upon request to the Company by a Warrantholder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Warrant Stock. Unless the context indicates otherwise, the
term "Warrantholder" shall include the General Partner and any transferee or
transferees of the Warrants pursuant to this subsection 1.3 and as otherwise
permitted by this Agreement, and the term "Warrants" shall include any and all
Warrants outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of
the form of election to purchase Warrant Stock shall be substantially as set
forth in Exhibit A attached hereto. The aggregate number of shares of Common
Stock issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall
be executed on behalf of the Company by its Chief Executive Officer or its
President and attested to by its Chief Financial Officer or its Secretary. A
Warrant bearing the signature of an individual who was at any time the proper
officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement or at any
time thereafter.
The Warrants shall be dated as of the date of
signature thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate
may be exchanged for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of shares of Warrant Stock as
the certificate or certificates surrendered then entitled such Warrantholder to
purchase. Any Warrantholder desiring to exchange a Warrant certificate shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the
Warrantholder shall have the right, at any time during the period commencing at
9:00 a.m., Pacific Time, on the Initial Exercise Date (as defined below) and
ending at 5:00 p.m., Pacific Time, on the two-year anniversary of the Initial
Exercise Date (the "Termination Date"), to purchase from the Company up to the
number of fully paid and nonassessable shares of Warrant Stock to
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<PAGE> 4
which the Warrantholder may at the time be entitled to purchase pursuant to
this Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the purchase
form on the reverse thereof duly completed and executed, and upon payment to
the Company of the Warrant Price (as defined in and determined in accordance
with the provisions of this Section 3 and Sections 7 and 8 hereof) for the
number of shares of Warrant Stock in respect of which such Warrants are then
exercised. This Warrant may be exercised from time to time in whole or in
part. The "Initial Exercise Date" of the Warrants shall be determined as the
earlier of (i) the date Pacific Thrift and Loan Company ("Pacific Thrift"), a
wholly owned subsidiary of the Company, has fully utilized as an offset against
taxable income at least $6,800,000 of a net operating loss carryforward (the
"NOL") existing as of December 31, 1994; (ii) the date that the NOL becomes
subject to limitation as a result of an "ownership change" as determined by
Section 382 of the Internal Revenue Code of 1986, as amended, which is not
caused by the exercise of Warrants; (iii) the acquisition by any person other
than a Warrantholder of more than ten percent (10%) of the total outstanding
voting stock of the Company; or (iv) June 30, 1997. The Company shall cause to
be mailed to each Warrantholder by first class mail, postage prepaid, notice of
the Initial Exercise Date within two business days after such date occurs.
(b) Payment of the Warrant Price shall be made in
cash, by certified or official bank check in Los Angeles Clearing House funds
(next day funds), or any combination thereof.
(c) In addition to the method of payment set
forth in Section 3(b) above and in lieu of any cash payment required
thereunder, unless otherwise prohibited by law, the Warrantholders shall have
the right at any time and from time to time to exercise the Warrants in full or
in part (i) by receiving from the Company the number of shares of Warrant Stock
equal to the number of shares of Warrant Stock otherwise issuable upon such
exercise less the number of shares of Warrant Stock having an aggregate value
on the date of exercise equal to the Warrant Price multiplied by the number of
shares of Warrant Stock for which this Warrant is being exercised and/or (ii)
by delivering to the Company the number of shares of Common Stock having an
aggregate value on the date of exercise equal to the Warrant Price multiplied
by the number of shares of Warrant Stock for which this Warrant is being
exercised.
Upon surrender of the Warrants and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrantholder,
and in such name or names as the Warrantholder may designate (provided that any
designee is a permitted transferee as described in Section 1.3 hereof),
certificates for the number of full shares of Warrant Stock so purchased upon
such exercise of the Warrant, together with cash,
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<PAGE> 5
as provided in Section 9 hereof, in respect of any fractional shares otherwise
issuable upon such surrender. Such certificate or certificates, to the extent
permitted by law, shall be deemed to have been issued and any person so
designated to be named therein shall be defined to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the
certificate or certificates representing such securities shall not actually
have been delivered or that the stock transfer books of the Company shall then
be closed. The Warrants shall be exercisable, at the election of the
Warrantholder, either in full or from time to time in part and, in the event
that a Warrant is exercised in respect of less than all of the shares of
Warrant Stock specified therein at any time prior to the Termination Date, a
new Warrant evidencing the remaining shares of the Warrant Stock purchasable by
such Warrantholders hereunder shall be issued by the Company to such
Warrantholders.
SECTION 4. VALIDITY; PAYMENT OF TAXES. All securities delivered upon
exercise of a Warrant shall be duly and validly issued and non-assessable. The
Company shall pay all documentary stamp taxes, if any, attributable to the
initial issuance of the Warrants and the shares of Warrant Stock issuable upon
the exercise of the Warrants; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the Warrant Stock.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of
such loss, theft or destruction of such Warrant.
SECTION 6. RESERVATION OF SHARES. The Company represents and
warrants to the Warrantholder that there has been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding,
out of its authorized Common Stock, such number of shares of Common Stock as
shall be subject to purchase under the Warrants. Every transfer agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Warrants shall be irrevocably authorized and directed at all times to
reserve such number of authorized shares and other securities as shall be
requisite for such purpose. The Company shall keep a copy of this Agreement on
file with every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants. The Company shall supply
every such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and
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shall provide or otherwise make available any cash which may be payable in lieu
of the issuance of fractional shares, as provided in Section 9 hereof.
SECTION 7. WARRANT PRICE. The price per share at which shares of
Warrant Stock shall be purchasable upon the exercise of the Warrants shall be
$12.50, subject to adjustment pursuant to Section 8 hereof (as so adjusted from
time to time, the "Warrant Price").
SECTION 8. ADJUSTMENTS OF NUMBER OF SHARES OF WARRANT STOCK AND
WARRANT PRICE. The number and kind of securities purchasable upon the exercise
of the Warrants and the Warrant Price shall be subject to adjustment from time
to time upon the happening of certain events, as follows:
8.1 Adjustments. The number of shares of Warrant Stock
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend
or make a distribution on its Common Stock in shares of its capital stock or
other securities, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding Common Stock into a
smaller number of shares or (iv) issue, by reclassification of its Common
Stock, shares of its capital stock or other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), shares of Common
Stock, the number of shares of Warrant Stock purchasable upon exercise of a
Warrant immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the kind and number of shares of Warrant Stock,
shares of its capital stock and other securities of the Company which such
holder would have owned or would have been entitled to receive immediately
after the happening of any of the events described above, had the Warrant been
exercised immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this subsection 8.1(a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights,
options (other than options issued under, and pursuant to, the Company's 1995
Stock Option Plan (the "1995 Option Plan"), warrants or convertible securities
to holders of its Common Stock, without any charge to such holders, containing
the right to subscribe for or purchase Common Stock, the number of shares of
Warrant Stock thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of shares of Warrant Stock theretofore
purchasable upon exercise of a Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately prior to
the
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<PAGE> 7
issuance of such rights, options, warrants or convertible securities plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities. Such adjustment shall be made whenever
such rights, options, warrants or convertible securities are issued, and shall
become effective immediately and retroactive to the record date for the
determination of shareholders entitled to receive such rights, options,
warrants or convertible securities.
(c) In case the Company shall distribute to
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions out of current earnings made in the ordinary
course of business consistent with past practices), then in each case the
number of shares of Warrant Stock thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of shares of Warrant
Stock theretofore purchasable upon exercise of such Warrant by a fraction, of
which the numerator shall be the then Current Market Price (as defined in
Section 9 hereof) on the date of such distribution, and of which the
denominator shall be such Current Market Price on such date minus the then fair
value (determined as provided in subsection 8(f) below) of the portion of the
assets or evidences of indebtedness so distributed applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(d) No adjustment in the number of shares of
Warrant Stock purchasable pursuant to subsections 8.1(b) or (c) hereof shall be
required unless such adjustment would require an increase or decrease of at
least one percent in the number of shares of Warrant Stock then purchasable
upon the exercise of the Warrants or, if the Warrants are not then exercisable,
the number of shares of Warrant Stock purchasable upon the exercise of the
Warrants on the first date thereafter that the Warrants would become
exercisable; provided, however, that any adjustments which by reason of this
subsection 8.1(d) are not required to be made immediately shall be carried
forward and taken into account in any subsequent adjustment.
(e) Whenever the number of shares of Warrant
Stock purchasable upon the exercise of a Warrant is adjusted as herein
provided, the Warrant Price payable upon exercise of the Warrant shall be
adjusted by multiplying such Warrant Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of shares of Warrant
Stock purchasable upon the exercise of such Warrant immediately prior to such
adjustment, and of which the denominator shall be the
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number of shares of Warrant Stock purchasable immediately thereafter.
(f) To the extent not covered by subsections
8.1(b) or (c) hereof, in case the Company shall sell or issue Common Stock
(other than Common Stock issued pursuant to the Company's 1995 Employee Stock
Purchase Plan (the "1995 Purchase Plan")) or rights, options (other than
options issued under and pursuant to the 1995 Option Plan), warrants or
convertible securities containing the right to subscribe for, purchase or
exchange into shares of Common Stock at a price per share (determined, in the
case of such rights, options, warrants or convertible securities, by dividing
(i) the total amount received or receivable by the Company in consideration of
the sale or issuance of such rights, options, warrants or convertible
securities, plus the total consideration payable to the Company upon exercise,
conversion or exchange thereof, by (ii) the total number of shares covered by
such rights, options, warrants or convertible securities) lower than the then
Current Market Price or the Warrant Price in effect immediately prior to such
sale or issuance, then the Warrant Price shall be reduced to a price
(calculated to the nearest cent) determined by dividing (I) an amount equal to
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale or issuance multiplied by the then existing Warrant Price,
plus (B) the consideration received or receivable by the Company upon such sale
or issuance, by (II) the total number of shares of Common Stock outstanding
immediately after such sale or issuance. The number of shares of Warrant Stock
purchasable upon the exercise of a Warrant shall thereafter be that number
determined by multiplying the number of shares of Warrant Stock purchasable
upon exercise immediately prior to such adjustment by a fraction, of which the
numerator shall be the Warrant Price in effect immediately prior to such
adjustment and the denominator shall be the Warrant Price as so adjusted. For
the purposes of such adjustments, the Common Stock which the holders of any
such rights, options, warrants or convertible securities shall be entitled to
subscribe for, purchase or exchange into shall be deemed issued and outstanding
as of the date of such sale or issuance and the consideration received by the
Company therefor shall be deemed to be the consideration received by the
Company for such rights, options, warrants or convertible securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible securities to be payable for the Common Stock covered thereby. In
case the Company shall sell or issue Common Stock or rights, options, warrants
or convertible securities containing the right to subscribe for, purchase or
exchange into Common Stock for a consideration consisting, in whole or in part,
of property other than cash or its equivalent, then, in determining the "price
per share" of Common Stock and the "consideration received by the Company" for
purposes of the first sentence of this subsection 8.1(f), the Board of
Directors shall determine the fair value of said property, and such
determination, if based upon the Board of Directors, good faith
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<PAGE> 9
business judgment, shall be binding upon the Warrantholders. In determining
the "price per share" of Common Stock, any underwriting discounts or
commissions paid to brokers, dealers or other selling agents shall not be
deducted from the price received by the Company for sales of securities
registered under the Securities Act of 1933, as amended (the "Act") or issued
in a private placement. There shall be no adjustment of the Warrant Price
pursuant to this subsection 8.1(f) if the amount of such adjustment would be
less than $.05 per share of Common Stock; provided, however, that any
adjustment which by reason of this provision is not required to be made
immediately shall be carried forward and taken into account in any subsequent
adjustment.
(g) For the purpose of this Section 8, the term
"Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a result
of an adjustment made pursuant to this Section 8, a Warrantholder shall become
entitled to purchase any securities of the Company other than Common Stock, (i)
if the Warrantholder's right to purchase is on any other basis than that
available to all holders of the Company's Common Stock, the Company shall
obtain an opinion of a reputable investment banking firm valuing such other
securities and (ii) thereafter the number of such other securities so
purchasable upon exercise of a Warrant and the Warrant Price of such securities
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in this Section 8.
(h) Upon the expiration of any rights, options,
warrants or conversion privileges, if such shall not have been exercised, the
number of shares of Warrant Stock purchasable upon exercise of a Warrant and
the Warrant Price, to the extent a Warrant has not then been exercised, shall,
upon such expiration, be readjusted and shall thereafter be such number and
such price as they would have been had they been originally adjusted (or had
the original adjustment not been required, as the case may be) on the basis of
(A) the fact that the only shares of Common Stock issued in respect of such
rights, options, warrants or conversion privileges were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion privileges, and (B) the fact that such shares
of Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion privileges whether or not exercised;
provided, however, that no such readjustment shall have the effect of
decreasing the numbers of shares of Warrant Stock purchasable upon exercise of
a Warrant or increasing the Warrant
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<PAGE> 10
Price by an amount in excess of the amount of the adjustment made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion
privileges.
(i) Whenever the number of shares of Warrant
Stock purchasable upon the exercise of a Warrant or the Warrant Price is
adjusted pursuant to this Section 8, the Company shall cause to be promptly
mailed to each Warrantholder by first class mail, postage prepaid, notice of
such adjustment or adjustments and a certificate of the chief financial officer
of the Company setting forth the number of shares of Common Stock, capital
stock and other securities purchasable upon the exercise of such
Warrantholder's Warrant and the applicable Warrant Price after such adjustment,
a brief statement of the facts requiring such adjustment and the computation by
which such adjustment was made.
8.2 No Adjustment for Dividends, 1995 Plans. Except as
specifically provided in subsection 8.1, no adjustment in respect of any cash
dividends or distributions on the Company's Common Stock out of current
earnings made in the ordinary course of business shall be made during the term
of the Warrants or upon the exercise of the Warrants. No adjustment in respect
of options issued under, and pursuant to, the 1995 Option Plan shall be made
during the term of the Warrants or upon the exercise of the Warrants. No
adjustment in respect of Common Stock issued under, and pursuant to, the 1995
Purchase Plan shall be made during the term of the Warrants or upon the
exercise of the Warrants.
8.3 Preservation of Purchase Rights upon
Reclassification, Consolidation, etc. In case of any consolidation of the
Company with or merger of the Company into another corporation or other entity
or in case of any sale, lease, conveyance or other transfer to another
corporation, person or other entity of the property, assets or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, person or other entity, as the case may
be, shall execute with the Warrantholder, and the agreements governing such
consolidation, merger, sale, lease, conveyance or other transfer shall require
such execution of, an agreement that the Warrantholder shall have the right
thereafter upon payment of the Warrant Price in effect immediately prior to
such event, upon exercise of the Warrants, to receive the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale,
lease, conveyance or other transfer had the Warrants (and each underlying
security) been exercised immediately prior to such action. The Company shall
promptly mail to each Warrantholder by first class mail, postage prepaid,
notice of the execution of any such agreement. In the event of a merger
described in Section 368(a)(2)(E) of the Internal Revenue Code of 1986, in
which the Company is the surviving corporation, the right to purchase shares of
Warrant Stock under the Warrants shall terminate on the date of such
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<PAGE> 11
merger and thereupon the Warrants shall become null and void, but only if the
controlling corporation shall agree to substitute for the Warrants its warrants
which entitle the holders thereof to purchase upon exercise the kind and amount
of shares and other securities and property which such holders would have owned
or been entitled to receive had the Warrants been exercised immediately prior
to such merger. Any such agreements referred to in this subsection 8.3 shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 8 hereof, and shall
provide for terms and provisions at least as favorable to the Warrantholder as
those contained in this Agreement. The provisions of this subsection 8.3 shall
similarly apply to successive consolidations, mergers, sales, leases,
conveyances or other transfers.
8.4 Par Value of Shares of Common Stock. Before taking
any action which would cause an adjustment effectively reducing the portion of
the Warrant Price allocable to each share of Warrant Stock below the then par
value per share, if any, of the Warrant Stock issuable upon exercise of the
Warrants, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Stock upon exercise of the Warrants.
8.5 Independent Public Accountants. The Company shall
retain BDO Seidman, LLP, or any other nationally recognized accounting firm
qualified to practice in front of the Securities and Exchange Commission (the
"Commission") to make any computation required under this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 8.
8.6 Statement on Warrant Certificates. Irrespective of
any adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement, provided that such expression
shall in no way affect the number of shares of Warrant Stock actually
purchasable upon the exercise of such Warrants.
SECTION 9. FRACTIONAL SHARES; CURRENT MARKET PRICE. The Company
shall not be required to issue fractional shares of Common Stock on the
exercise of a Warrant. If any fraction of a share of Common Stock would,
except for the provisions of this Section 9, be issuable upon the exercise of a
Warrant (or specified portion thereof), the Company shall in lieu thereof pay
an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price"
shall mean (i) if the Common Stock is traded on the Nasdaq National Market
("NNM") or on a national securities exchange, as will be the case upon the
issuance of the
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<PAGE> 12
Warrant, the per share closing price of the Common Stock in the NNM or on the
principal stock exchange on which it is listed, as the case may be, on the date
of exercise of the Warrant or, with respect to any adjustment pursuant to
Section 8.1 hereof, on the date immediately preceding the announcement of the
event causing such adjustment or (ii) if the Common Stock is traded in the
over-the-counter market and no longer traded in the NNM or on any national
securities exchange, the average of the per share closing bid prices of the
Common Stock on the thirty (30) consecutive trading days immediately preceding
the date in question, as reported by The Nasdaq Small Cap Market (or an
equivalent generally accepted reporting service if quotations are not reported
on The Nasdaq Small Cap Market). The closing price referred to in clause (i)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NNM or on the principal stock exchange on which
the Common Stock is then listed. For purposes of clause (ii) above, if trading
in the Common Stock is not reported by The Nasdaq Small Cap Market, the bid
price referred to in said clause shall be the lowest bid price as reported in
the Nasdaq Electronic Bulletin Board or, if not reported thereon, as reported
in the "pink sheets" published by National Quotation Bureau, Incorporated, and,
if such Common Stock is not so reported, shall be the price of a share of
Common Stock determined by the Company's Board of Directors in good faith.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Except as expressly provided herein, nothing contained in this Agreement or in
the Warrants shall be construed as conferring upon the Warrantholder or its
transferees any rights as a shareholder of the Company, including the right to
vote, receive dividends or subscription rights, consent or receive notices as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Company or any other matter. If, however, at any time prior
to the expiration of the Warrants and prior to their exercise, any one or more
of the following events shall occur:
(a) any action which would require an adjustment
pursuant to Section 8 hereof;
(b) an issuance by the Company of rights,
options, warrants or convertible securities to all or substantially all holders
of its Common Stock, without any charge to such holders, containing the right
to subscribe for or purchase Common Stock; or
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation, merger or sale of
its property, assets and business as an entirety or substantially as an
entirety) shall be proposed; then the Company shall give notice in writing of
such event to the Warrantholders, as provided in Section 13 hereof, at least 20
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<PAGE> 13
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to any
relevant dividend, distribution or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be.
SECTION 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS;
OBLIGATIONS IN REGISTRATION.
(a) The Warrants are not transferable other than
as provided for in Section 1.3. Each holder of Warrant Stock agrees that prior
to making any disposition of the Warrant Stock, it shall give written notice to
the Company describing briefly the manner in which any such proposed
disposition is to be made; and, assuming no Registration Statement (as defined
below) is in effect covering such disposition, no such disposition shall be
made unless the holder of Warrant Stock has notified, or concurrently with such
disposition notifies, the Company that in the opinion of counsel reasonably
satisfactory to the Company a Registration Statement, application or other
notification, filing or post-effective amendment or supplement thereto
(hereinafter collectively a "Registration Statement") under the Act or the
state securities or "blue sky" laws of any applicable jurisdiction is not
required with respect to such disposition and no such Registration Statement
has been filed by the Company with, and declared effective, if necessary, by,
the Commission or state securities commission or agency. The Warrantholder
agrees that it shall use its reasonable best efforts to obtain from any
permitted transferee who acquires any Warrants or Warrant Stock in a private
transaction with the Warrantholder an agreement by such transferee that it
agrees to be bound by any transfer restrictions set forth in this subsection
11(a) then applicable to such transferees.
(b) The Company has prepared and filed a
Registration Statement, and amendments thereto, with the Commission for the
registration of (i) certain shares of Common Stock issued to the General
Partner, and certain additional shares of Common Stock issued to partners of
the General Partner (collectively "General Partner Affiliate Stock"), (ii) the
Warrants and (iii) the Warrant Stock under the Act (collectively, the General
Partner Affiliate Stock and the Warrant Stock are sometimes referred to herein
as the "Stock"). Such Registration Statement was declared effective by the
Commission on _____________, 199__. The Company shall be obligated to the
General Partner, the partners of the General Partner and the registered holders
of the Warrant Stock to continually maintain, at the Company's own expense, the
currency and effectiveness of such Registration Statement of the Company,
including the filing of any and all applications and other notifications,
filings and post-effective amendments and supplements (collectively, the
"Initial Registration Statement"), as may be necessary, so as to
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<PAGE> 14
permit the resale of the Stock and such applications or other filings, as
required under applicable state securities or blue sky laws sufficient to
permit the public offering of the Stock, until the earlier of the time that all
shares of the Stock have been sold pursuant to the Initial Registration
Statement or the fifth anniversary date of the Initial Exercise Date (the
"Registration End Date"). In the event of the failure of the Company to
maintain the effectiveness of the Registration Statement, any original record
owner of General Partner Affiliate Stock or Warrant Stock issued or issuable
under outstanding Warrants shall have the right to bring an action for specific
performance of the Company's obligation under this Section 11(b), which shall
include the filing of a new Registration Statement if necessary to register the
Stock for resale.
(c) If at any time after the date hereof the
Initial Registration Statement is no longer in effect other than because all
shares of the Stock have been sold pursuant to the Initial Registration
Statement or because the Registration End Date has already occurred, the
Company shall be obligated as follows, which shall not limit the right of any
original record holder of General Partner Affiliate Stock or any holder of
Warrants or Warrant Stock to bring an action for specific performance under
Section 11(b) hereof:
(i) Whenever during the period beginning
on the date hereof and ending on the Registration End Date, the Company
proposes to file with the Commission a registration statement (other than as to
securities issued pursuant to an employee benefit plan or as to a transaction
subject to Rule 145 promulgated under the Act), it shall, at least thirty (30)
days prior to each such filing, give written notice of such proposed filing to
each holder of the Warrants and the Stock at their respective addresses as they
appear on the records of the Company, and shall offer to include and shall
include in such filing any proposed disposition of the Stock upon receipt by
the Company, not more than twenty (20) days following the receipt of such
notice, of a request therefor setting forth the facts with respect to such
proposed disposition and all other information with respect to such person
reasonably necessary to be included in such Registration Statement. In the
event that such Registration Statement relates to an underwritten offering on a
"firm commitment" basis and the managing underwriter for said offering advises
the Company in writing that the inclusion of the Stock in the offering would be
materially and substantially detrimental to the completion of the offering, the
Stock shall nevertheless be included in the Registration Statement, provided
that each holder of the Stock desiring to have such securities included in the
Registration Statement agrees in writing for a period of ninety (90) days
following such offering not to sell or otherwise dispose of the Stock pursuant
to such Registration Statement, which Registration Statement the Company shall
keep effective for a period of at least nine (9) months following the
expiration of such ninety (90) day period.
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<PAGE> 15
(ii) In addition to any Registration
Statement pursuant to subparagraph (i) above, during the period beginning on
the date hereof and ending on the Registration End Date, the Company will, as
promptly as practicable (but in any event within sixty (60) days), after
written request (the "Request") by persons holding at least fifty percent (50%)
of the shares of General Partner Affiliate Stock and Warrant Stock which have
been (or may be) issued upon exercise of the Warrants, prepare and file at the
Company's expense a Registration Statement with the Commission and such
applications or other filings as required under applicable state securities or
blue sky laws sufficient to permit the public offering of the Stock, and shall
use its reasonable best efforts at its own expense through its officers,
directors, auditors and counsel, in all matters necessary or advisable, to
cause such Registration Statement to become effective as promptly as
practicable and to maintain such effectiveness until the earlier of the time
that all such Stock has been sold or the expiration of ninety (90) days from
the effective date of the Registration Statement; provided, however, that the
Company shall only be obligated to file one such Registration Statement under
this Section 11(c)(ii). Notwithstanding the foregoing, once and only once
during the period would the Company have an obligation to register the Stock
pursuant to this Section 11(c)(ii), and the Company shall not be obligated to
effect a registration pursuant to this Section 11(c)(ii) during the three (3)
month period starting with the date thirty (30) days prior to the Company's
estimated date of filing of an underwritten public offering of securities
solely for the account of the Company; provided that the Company is actively
employing in good faith all reasonable efforts to cause such Registration
Statement to become effective and that the Company's estimate of the date of
filing such Registration Statement is made in good faith; provided further,
that the Company shall furnish to each holder of Stock a certificate signed by
the managing underwriter stating that it would be seriously detrimental to the
Company or its shareholders for the Registration Statement to be filed in the
near future.
(d) All fees, disbursements and out-of-pocket
expenses (other than brokerage fees and commissions and legal fees of counsel
to the holders of the Stock) in connection with the filing of any Registration
Statement or maintaining the currency and effectiveness of the Initial
Registration Statement (or obtaining any opinion of counsel or any no-action
position of the Commission with respect to sales under Rule 144 or other
exemption from registration) and in complying with applicable federal
securities and state securities and blue sky laws shall be borne by the
Company. The Company at its expense shall supply any holder of Stock with
copies of such Registration Statement and the prospectus included therein and
other related documents and any opinions and no-action letters in such
quantities as may be reasonably requested by such holder.
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<PAGE> 16
(e) The Company shall not be required by this
Section 11 to file or maintain the effectiveness of a Registration Statement
if, in the opinion of counsel reasonably satisfactory to the holders of a
majority of the Stock, the proposed public offering or other transfer as to
which such Registration Statement is requested is exempt from applicable
federal securities and state securities and blue sky laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act.
(f) The provisions of this Section 11 and of
Section 12 hereof shall apply to the extent provided herein if the Company
chooses to file an Offering Statement under Regulation A promulgated under the
Act.
(g) The Company agrees that until all of the
Stock has been sold, either (i) under a Registration Statement, (ii) pursuant
to Rule 144 under the Act or (iii) pursuant to an exemption from the
registration requirements of the Act, it shall keep current in filing all
materials required to be filed with the Commission in order to permit the
holders of such securities to sell the same under Rule 144.
(h) In the event any holder of the Stock timely
elects to participate in an offering by including Warrant Stock in a
Registration Statement pursuant to subsections 11(b) or 11(c) above, the
Company shall use its reasonable best efforts to effect such registration to
permit the sale of the Stock in accordance with the intended method or methods
of disposition thereof, and pursuant thereto, the Company shall, as
expeditiously as possible:
(i) Prepare and file with the Commission
a Registration Statement or Registration Statements on a form available for the
sale of the Stock, and to cause any such Registration Statement filed under the
Act pursuant to subsection 11(c) above to become effective at the earliest
possible date after the filing thereof and remain effective as provided herein
and to comply with all applicable rules and regulations of the Commission (the
"Rules and Regulations") in connection therewith; provided, however, that
before filing a Registration Statement or prospectus or any amendments or
supplements thereto, including documents which would be incorporated or deemed
to be incorporated by reference in the Registration Statement after the initial
filing of any Registration Statement, the Company will furnish to the holders
of the Stock, their respective counsel, and the underwriters, if any, to be
engaged in connection with the offering and sale by the Company (for purposes
of this Section 11(i), the "Public Underwriter"), copies of all such documents
proposed to be filed, which documents will be subject to their review, and the
Company will not file any Registration Statement, amendment thereto, any
prospectus or any supplement thereto (including such documents incorporated or
deemed to be
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<PAGE> 17
incorporated by reference) to which holders of a majority of outstanding shares
of the Stock or the Public Underwriter, if any, shall reasonably object;
(ii) Prepare and promptly file with the
Commission such amendments and post-effective amendments to a Registration
Statement as may be necessary to keep such Registration Statement continuously
effective for a period of twelve (12) months; cause the related prospectus to
be supplemented, by any required prospectus supplement, and as so supplemented,
to be filed pursuant to Rule 424 under the Act; and comply with the provisions
of the Act with respect to the disposition of all Stock covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition as set forth in such Registration Statement or
supplement to such prospectus. The Company shall not be deemed to have used
its reasonable best efforts to keep a Registration Statement effective during
the applicable period if it intentionally or voluntarily takes any action that
would result in any holder of Stock not being able to sell such Stock;
(iii) As soon as the Company is advised or
obtains knowledge thereof, advise each holder of Stock and confirm the same in
writing (A) when the Registration Statement, as amended, becomes effective and
when any post-effective amendment to the Registration Statement becomes
effective, (B) of the issuance by the Commission or any State or other
regulatory body of any stop order or other order, or of the initiation or the
threat or contemplation of any proceeding, the outcome of which may result in
the suspension of the effectiveness of the Registration Statement or the
issuance of any order preventing or suspending the use of any preliminary
prospectus or the prospectus, or any amendment or supplement thereto, or the
institution of any proceedings for that purpose, (C) of the issuance by the
Commission or any State or other regulatory body of any proceedings for the
suspension of the qualification of any of the Stock for offering or sale in any
jurisdiction or of the initiation or the threat or contemplation of any
proceeding for that purpose, (D) of the receipt of any comments from the
Commission and (E) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the prospectus related
thereto or for additional information. If the Commission or any State or other
regulatory body shall enter a stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of any preliminary prospectus or the prospectus, or any amendment or supplement
thereto, or suspend such qualification at any time, the Company shall make
every effort to obtain promptly the lifting of such order or suspension;
(iv) If requested by holders of a
majority of the Stock or the Public Underwriter, if any, (1) immediately
incorporate in a prospectus supplement or post-effective
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<PAGE> 18
amendment such information as such holders and the Public Underwriter, if any,
agree should be included therein relating to such sale and distribution of the
Stock, including, without limitation, information with respect to the number of
shares of Stock being sold to such Public Underwriter, the purchase price being
paid therefor by such Public Underwriter and with respect to any other terms of
the underwritten offering of the Stock to be sold in such offering; (2) make
all required filings of such prospectus supplement or post-effective amendment
as soon as notified of the matters to be so incorporated in such prospectus
supplement or post-effective amendment; and (3) supplement or amend any
Registration Statement;
(v) Furnish to each holder of Stock and
their respective counsel, without charge and at such place as such holder may
designate, copies of each preliminary prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto, the prospectus,
and all amendments and supplements thereto, including any prospectus prepared
after the effective date of the Registration Statement and any term sheet, in
each case as soon as available and in such quantities as each such holder may
reasonably request;
(vi) During the time when a prospectus is
required to be delivered under the Act, comply with all requirements imposed
upon it by the Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Stock in accordance with the
provisions hereof and the prospectus, or any amendments or supplements thereto;
(vii) If, at any time when a prospectus
relating to the Stock and Warrant Stock is required to be delivered under the
Act, any event shall have occurred as a result of which, in the opinion of the
Company or counsel for the Company or a majority of the holders of Stock, the
prospectus, as then amended or supplemented, would include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, or if it is necessary at
any time to amend or supplement the prospectus to comply with the Act, notify
the Public Underwriter, if any, and prepare and file, at the Company's expense,
with the Commission an appropriate amendment or supplement to the Registration
Statement or an amendment or supplement to the prospectus which will correct
such statement or omission, or effect such compliance, each such amendment or
supplement to be reasonably satisfactory to a majority of the holders of Stock
and their counsel; and furnish to each holder of Stock copies of such amendment
or supplement as soon as available and in such quantities as such holders may
request;
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<PAGE> 19
(viii) As soon as practicable, but in any
event not later than forty-five (45) days after the end of the twelve (12)
month period beginning after the effective date of the Registration Statement
occurs, make generally available to its security holders, in the manner
specified in Rule 158(b) promulgated under the Act, and to the Warrantholders,
an earnings statement which will comply with the provisions of Section 11(a) of
the Act and Rule 158(a) promulgated under the Act;
(ix) Deliver to each holder of Stock,
their respective counsel and the Public Underwriter, if any, without charge, as
many copies of the prospectus or prospectuses (including each preliminary
prospectus) and any amendment or supplement thereto as such persons may
reasonably request; the Company consents to the use of any such prospectus or
any amendment or supplement thereto by the holders of Stock and the Public
Underwriter, if any, in connection with the offering and sale of the Stock
covered by such prospectus or any amendment or supplement thereto;
(x) Prior to any public offering of
Stock, use its best efforts, at or prior to the time the Registration Statement
becomes effective, to qualify the Stock for offering and sale under the
securities or "blue sky" laws of such jurisdictions as holders of a majority of
Stock may reasonably designate to permit the continuance of sales and dealings
therein for as long as may be necessary to complete the distribution, and make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to service
of process in any such jurisdiction; in each jurisdiction where such
qualification shall be effected, use its best efforts to file and make such
statements or reports at such times as are or may be required by the laws of
such jurisdiction to continue such qualification;
(xi) Cooperate with the holders of the
Stock and the Public Underwriter, if any, to facilitate the timely preparation
and delivery of certificates representing the Stock to be sold, which
certificates shall not bear any restrictive legends; and enable such Stock to
be in such denominations and registered in such names as the Public
Underwriter, if any, may request at least two (2) business days prior to any
sale of the Stock;
(xii) Use its reasonable best efforts to
cause the Stock covered by the Registration Statement to be registered with or
approved by such other governmental bodies, agencies or authorities as may be
necessary to enable the holders of Stock or the Public Underwriter, if any, to
consummate the disposition of the Stock;
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<PAGE> 20
(xiii) Make every reasonable effort to cause
all Stock covered by such Registration Statement to be (1) listed on each
securities exchange, if any, in which equity securities issued by the Company
are then listed or (2) authorized to be quoted on the NNM if the Company's
Common Stock is then authorized to be quoted on the NNM;
(xiv) Enter into such agreements
(including, without limitation, if applicable, an underwriting agreement, in
form, scope and substance as is customary in underwritten offerings) and take
all such other actions in connection therewith in order to expedite or
facilitate the disposition of the Stock and, in such connection, whether or not
an underwriting agreement is entered into and whether or not the registration
is an underwritten registration, (1) make such representations and warranties
to the holders of the Stock with respect to the business of the Company and its
subsidiaries and the Public Underwriter, if any, the Registration Statement,
the prospectus, the prospectus supplement (if any) and documents, if any,
incorporated or deemed to be incorporated by reference in the Registration
Statement, in each case in such form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings and confirm the same
if and when requested; (2) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the majority of holders of the Stock),
addressed to the holders of the Stock with respect to the matters referred to
in the preceding clause in such form, scope and substance as are customarily
rendered to underwriters in underwritten offerings and such other matters as
may be reasonably requested by counsel to the majority of holders of the Stock
or the Public Underwriter, if any; (3) obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement) addressed to the holders of the Stock
and the Public Underwriter, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters to
underwriters in connection with underwritten offerings; (4) if an underwriting
agreement is entered into, the same shall set forth in full the indemnification
and contribution provisions and procedures of Section 12 hereof (or such other
provisions and procedures as shall be acceptable to the holders of the Stock
and to the Public Underwriter of such underwritten offering) with respect to
all parties to be indemnified pursuant to said section; and (5) deliver such
documents and certificates as may be reasonably requested by the holders of the
Stock and the Public Underwriter, if any, to evidence the continued validity of
the representations and warranties made pursuant to clause (1) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement
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<PAGE> 21
entered into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(xv) Make available for inspection by a
representative of the holders of a majority of the Stock or any Public
Underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such holders of the Stock
or such Public Underwriter, all financial and other records, pertinent
corporate documents and properties and assets of the Company and its
subsidiaries and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information reasonably requested by
such holders, Public Underwriter, attorney or accountant in connection with any
registration of the Stock; provided, however, that any records, information or
documents that are designated by the Company in writing at the time of delivery
of such records, information or documents as confidential shall be kept
confidential by such persons unless (1) disclosure of such records, information
or documents is required by court or administrative order or is necessary to
respond to inquiries of governmental or regulatory bodies, agencies or
authorities, (2) disclosure of such records, information or documents is, in
the opinion of counsel to any holder of the Stock or to any Public Underwriter,
required by law, regulations or legal process, (3) such records, information or
documents are otherwise publicly available or (4) such records, information or
documents become available to such person from a source other than the Company,
and such source is not bound by a confidentiality agreement;
(xvi) If the Company, in the exercise of
its reasonable judgment, objects to any change reasonably requested by holders
of a majority of the Stock or the Public Underwriter, if any, to any
Registration Statement or prospectus or any amendments or supplements thereto
(including documents incorporated or deemed to be incorporated therein by
reference), the Company shall not be obligated to make any such change and any
holder of the Stock may withdraw the Stock from such registration, in which
event the Company shall pay all registration expenses (including, without
limitations, attorneys' fees and expenses) incurred by the holders of the Stock
in connection with such Registration Statement or prospectus or any amendment
thereto or supplement thereof; provided, that if the Company provides the
holders of such Stock, as applicable, with a written opinion of independent
counsel (which counsel may be the Company's regular outside counsel), upon
which such holders may rely, that the change so requested is not required in
order that the Registration Statement comply with all applicable securities
laws (including any rules and regulations promulgated thereunder), such holders
may withdraw Stock from such registration but the Company shall not be
obligated to pay any registration expenses incurred by such holders; and
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<PAGE> 22
(xvii) Pay all costs and expenses incident
to the performance of or compliance with the Company's obligations under
subsections 11(b) or 11(c) above and under this subsection 11(i) (collectively,
"Registration Expenses") whether or not any Registration Statement is filed or
becomes effective, including, without limitation, the fees and disbursements of
the Company's auditors, legal counsel, special legal counsel, legal counsel
responsible for qualifying the Stock under blue sky laws, all filing fees and
printing expenses, all expenses in connection with the transfer and delivery of
the Stock, and all expenses in connection with the qualification of the Stock
under applicable blue sky laws; provided, however, that the Company shall not
bear the Public Underwriter's discount or commission with respect to, or any
transfer taxes imposed on, the Stock or the fees and expenses of counsel to any
holder of such stock; provided, further, however, that the holders of the Stock
shall not be responsible in any way for any fees or expenses of the Company's
counsel, except, in each case, as provided in Subsection 11(h)(xvi) above.
SECTION 12. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold
harmless the Warrantholders and any Holder of Stock (for purposes of this
Section 12, "Holder" shall include the officers, directors, partners,
employees, agents and counsel of a Warrantholder or holder of Stock), and each
person, if any, who controls a Holder ("controlling person") within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against
any and all losses, claims, damages, expenses (including, without limitation,
reasonable attorneys' fees and expenses) or liabilities and all actions, suits,
proceedings, injuries, arbitrations, investigations, litigation or governmental
or other proceedings (in this Section 12, collectively, "actions") in respect
thereof, whatsoever (including, without limitation, any and all expenses
whatsoever reasonably incurred in investigating preparing or defending against
any action, commenced or threatened, or any claim whatsoever), as such are
incurred, to which a Holder or such controlling person may become subject under
the Act, the Exchange Act or any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained (i) in any preliminary prospectus, the Initial
Registration Statement, any Registration Statement or any prospectus (as from
time to time amended and supplemented), any post-effective amendment or
amendments or any new Registration Statement and prospectus in which the Stock
is included or (ii) in any application or other document or written
communication (in this Section 12, collectively, "application") executed by the
Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Stock under the securities or blue sky
laws thereof or filed with the Commission, any state securities commission or
agency, the National Association of Securities Dealers, Inc. (the "NASD")
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<PAGE> 23
or the NNM or any other securities exchange; or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of any
prospectus, in light of the circumstances in which they were made), unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to a Holder by or on behalf
of such Holder expressly for use in any preliminary prospectus, Registration
Statement or any prospectus, or any amendment thereof or supplement thereto, or
in any application, as the case may be. In addition to its other obligations
under this subsection 12(a), the Company agrees that, as an interim measure
during the pendency of any action arising out of or based upon any untrue
statement or omission, or alleged untrue statement or alleged omission as
described in this subsection 12(a), it shall reimburse the Holders (and, to the
extent applicable, each controlling person) on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such action notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligations to reimburse the Holders (and, to the extent applicable, each
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement is so held to have been
improper as to the Company, the Holders (and, to the extent applicable, each
controlling person) shall promptly return it to the Company, together with
interest compounded daily, based on the "reference rate" announced from time to
time by Bank of America NTSA (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the applicable Holder within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
The indemnity agreement in this subsection 12(a)
shall be in addition to any liability which the Company may have at common law
or otherwise.
(b) Each Holder severally agrees to indemnify and
hold harmless the Company (for purposes of this Section 12, "Company" shall
include the officers, directors, partners, employees, agents and counsel of the
Company) and each other person, if any, who controls the Company ("controlling
person") within the meaning of the Act, to the same extent as the foregoing
indemnity from the Company to the Holders, but only with respect to statements
or omissions, if any, made in any preliminary prospectus, the Initial
Registration Statement, any Registration Statement or any prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to such Holder by or on behalf of such Holder expressly
for use in any preliminary prospectus, the Initial Registration Statement, any
Registration
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<PAGE> 24
Statement or any prospectus or any amendment thereof or supplement thereto or
in any application, provided that such written information or omissions only
pertain to disclosures in any preliminary prospectus, the Initial Registration
Statement, any Registration Statement or any prospectus directly relating to
the transactions in connection with the offering contemplated hereby. In
addition to its other obligations under this subsection 12(b), each Holder
severally agrees that, as an interim measure during the pendency of any action
arising out of or based upon any untrue statement or omission, or alleged
untrue statement or alleged omission as described in this subsection 12(b), it
shall reimburse the Company (and, to the extent applicable, each controlling
person) on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any action with respect to such
Holder notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Holder's obligations to reimburse the
Company (and, to the extent applicable, each controlling person) for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement is so held to have been improper as to such Holder,
the Company (and, to the extent applicable, each controlling person) shall
promptly return it to such Holder, together with interest compounded daily,
based on the Prime Rate. Any such interim reimbursement payments which are not
made to the company within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
Notwithstanding the provisions of this subsection 12(b), in connection with a
registration that includes Stock pursuant to subsection 11(c)(i) hereof, no
such Holder shall be required to indemnify or hold harmless the Company or any
controlling person for any amounts in excess of the net proceeds (before
deducting expenses) applicable to the Stock sold by such Holder pursuant to a
Registration Statement. Notwithstanding the provisions of this subsection
12(b), in connection with a registration that includes that Holder's Stock
pursuant to subsections 11(b) or 11(c)(ii), no such Holder shall be required to
indemnify and hold harmless the Company or any controlling person for any
amounts in excess of that portion of all expenses as to which indemnification
is properly claimed under this Agreement equal to such Holder's relevant
proportion of all net proceeds (before deduction of expenses) applicable to all
securities sold pursuant to the Initial Registration Statement or any
Registration Statement, as applicable.
(c) Promptly after receipt by an indemnified
party under this Section 12 of notice of the commencement of any action, such
indemnified party shall notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 12 except to the extent that it has been materially
prejudiced by such failure). In case any
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<PAGE> 25
such action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties shall be entitled to participate therein, and to the extent it
or they may elect by written notice delivered to the indemnified party or
parties promptly after receiving the aforesaid notice from such indemnified
party or parties, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, an
indemnified party shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action at the expense of the indemnifying party or parties,
(ii) the indemnifying party or parties shall not have employed counsel
reasonably satisfactory to such indemnified party to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action or (iii) such indemnified party shall have reasonably concluded that
there may be one or more defenses available to it which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any
of which events such fees and expenses of one additional counsel (in addition
to appropriate local counsel) shall be borne by the indemnifying parties. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to appropriate local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this Section 12 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 12, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Section 12 provide
for indemnification in such case or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection
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<PAGE> 26
with the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by such Holder,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to in the
first sentence of this subsection 12(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection 12(d), in a registration that includes a Holder's
Stock pursuant to subsection 11(c)(i) hereof, no Holder shall be required to
contribute any amount in excess of the net proceeds (before deducting expenses)
applicable to the shares of Stock sold by such Holder pursuant to such
Registration Statement and prospectus. Notwithstanding the provisions of this
subsection 12(d), in a registration that includes a Holder's Stock pursuant to
subsections 11(b) or 11(c)(ii), no such Holder shall be required to contribute
any amount in excess of that portion of all expenses as to which contribution
is properly claimed under this Agreement equal to such Holder's relevant
portion of all net proceeds (before deducting expenses) applicable to all
securities sold pursuant to the Initial Registration Statement or any
Registration Statement, as applicable. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act and the cases
and promulgations thereunder) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action against such party in respect to which a claim for contribution may be
made against another party or parties under this subsection 12(d), notify such
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection 12(d) except to the extent it has been
materially prejudiced by such failure. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party may
have at common law or otherwise.
SECTION 13. NOTICES. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and shall
be deemed to have been duly given if mailed, delivered by hand or transmitted
by any standard form of telecommunication. Notices to the Warrantholders or a
holder of General Partner Affiliate Stock or Warrant Stock shall be directed to
each of them at their addresses as they appear on the
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<PAGE> 27
books of the Company. Notices to the Company shall be directed to the Company
at 21031 Ventura Boulevard, Woodland Hills, California 91364, Attention: Joel
R. Schultz, with a copy to Jeffer, Mangels, Butler & Marmaro LLP, 2121 Avenue
of the Stars, Los Angles, California 90067 Attention: Catherine DeBono Holmes,
Esq.
SECTION 14. PARTIES. This Agreement shall inure solely to the
benefit of and shall be binding upon, the General Partner, the Company, the
Warrantholders and the holders of General Partner Affiliate Stock Warrant Stock
and the controlling persons, officers, directors and others referred to in
Section 12 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained.
SECTION 15. MERGER OR CONSOLIDATION OF THE COMPANY. The Company
shall not merge or consolidate with or into any other corporation or sell all
or substantially all of its property to another corporation, unless the
provisions of Section 8.3 hereof are complied with.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
statements contained in the Proxy Statement/Prospectus, any schedule, exhibit,
certificate or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties
to this Agreement or pursuant hereto shall survive the termination of this
Agreement and the issuance, sale and delivery of the Warrant and the Warrant
Stock.
SECTION 17. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to conflict of laws principles thereof.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which taken together shall be deemed to be one and the same instrument.
SECTION 19. ENTIRE AGREEMENT, AMENDMENTS. This Agreement constitutes
the entire agreement of the parties hereto concerning the subject matter hereof
and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended, modified or altered except in a writing signed by a majority of all
Warrantholders and holders of Warrant Stock and the Company.
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<PAGE> 28
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
PACIFIC UNITED GROUP, INC.
By: ____________________________
Name:
Title:
PRESIDENTIAL MANAGEMENT COMPANY
By: ____________________________
Name:
Title:
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<PAGE> 29
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 1.3 OF THE GENERAL PARTNER'S WARRANT AGREEMENT PURSUANT
TO WHICH THEY WERE ISSUED.
WARRANT CERTIFICATE NO. __
WARRANT TO PURCHASE _______________
SHARES OF COMMON STOCK
PACIFIC UNITED GROUP, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received, PRESIDENTIAL MANAGEMENT
COMPANY, the registered holder hereof or assigns (the "Warrantholder"), is
entitled to purchase from PACIFIC UNITED GROUP, INC. (the "Company"), at any
time during the period commencing at 9:00 am., Pacific time, on the Initial
Exercise Date (as defined below), and before 5:00 p.m., Pacific time, on the
two-year anniversary date of the Initial Exercise Date (the "Expiration Date"),
at the purchase price per share of Common Stock of $12.50 (the "Warrant
Price"), _____________ shares of Common Stock of the Company (the "Warrant
Stock "). The "Initial Exercise Date" of the Warrants shall be determined as
the earlier of (i) the date Pacific Thrift and Loan Company ("Pacific Thrift"),
a wholly owned subsidiary of the Company, has fully utilized as an offset
against taxable income at least $6,800,000 of a net operating loss carryforward
(the "NOL") existing on the date hereof; (ii) the date that the NOL becomes
subject to limitation as a result of an "ownership change" as determined by
Section 382 of the Internal Revenue Code of 1986, as amended, which is not
caused by the exercise of Warrants; (iii) the acquisition by any person other
than a Warrantholder of more than ten percent (10%) of the total outstanding
voting stock of the Company; or (iv) June 30, 1997. The number of shares of
Common Stock of the Company purchasable upon exercise of each Warrant evidenced
hereby shall be subject to adjustment from time to time as set forth in the
General Partner's Warrant Agreement, dated as of ___________ __, 1996, by and
between the Company and the General Partner (the "General Partner's Warrant
Agreement").
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to _______________ shares of Warrant Stock (subject to
adjustment as provided in the General Partner's Warrant Agreement) and are
issued under and subject to the terms and provisions contained in the General
Partner's Warrant Agreement, to all of which the Warrantholder by acceptance
hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature
<PAGE> 30
guarantee as provided hereon) and simultaneous payment of the Warrant Price at
the principal office of the Company. Payment of such price shall be made at
the option of the Warrantholder in any manner allowed in the General Partner's
Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the shares of Warrant Stock as to which the Warrants evidenced
hereby shall not have been exercised. These Warrants may be exchanged at the
office of the Company by surrender of this Warrant Certificate properly
endorsed for one or more new Warrants of the same aggregate number of shares of
Warrant Stock as evidenced by the Warrant or Warrants exchanged. No fractional
securities shall be issued upon the exercise of rights to purchase hereunder,
but the Company shall pay the cash value of any fraction upon the exercise of
one or more Warrants. These Warrants are transferable at the office of the
Company in the manner and subject to the limitations set forth in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
PACIFIC UNITED GROUP, INC.
By: ____________________________
Name:
Title:
Dated: _____________ __, 1996
ATTEST: [Seal]
_____________________________
Name:
Title:
<PAGE> 31
PACIFIC UNITED GROUP, INC.
PURCHASE FORM
PACIFIC UNITED GROUP, INC. (the "Company")
[21031 Ventura Boulevard
Woodland Hills, California 91364]
Attention:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _________ shares of common stock of the Company (the "Warrant
Stock") provided for therein, and requests that certificates for the Warrant
Stock be issued in the name of:
-----------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
-----------------------------------------------------------------
-----------------------------------------------------------------
and, if said number of shares of Warrant Stock shall not be all the Warrant
Stock purchasable hereunder, that a new Warrant Certificate for the balance of
the Warrant Stock purchasable under the within Warrant Certificate be
registered in the name of the undersigned Warrantholder or his assignee as
below indicated and delivered to the address stated below.
Dated:_________________
Name of Warrantholder
or Assignee: _________________________
(Please Print)
Address: _________________________
_________________________
Signature: _________________________
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank, trust company or savings and loan
association, having an office or correspondent in the United States or by a
member firm of a registered securities exchange or the National Association of
Securities Dealers, Inc.)
<PAGE> 32
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers the right to purchase ______________ shares of Warrant Stock
represented by the within Warrant Certificate unto, and requests that a
certificate for such Warrant be issued in the name of:
-----------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-----------------------------------------------------------------
-----------------------------------------------------------------
hereby irrevocably constituting and appointing _______________ as attorney to
transfer said Warrants on the books of the Company, with full power of
substitution in the premises and, if said number of shares of Warrant Stock
shall not be all of the Warrant Stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the Warrant
Stock purchasable under the within Warrant Certificate be registered in the
name of the undersigned Warrantholder and delivered to such Warrantholder's
address as then set forth on the Company's books.
Dated:_______________ ______________________________
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank, trust company or savings and loan
association having an office or correspondent in the United States or by a
member firm of a registered securities exchange or the National Association of
Securities Dealers, Inc.)
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC UNITED GROUP, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and JOEL R. SCHULTZ
(hereinafter referred to as "SCHULTZ"), on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. EMPLOYER hereby agrees to employ SCHULTZ as
the President and Chief Executive Officer of EMPLOYER, Chief Executive Officer
of Pacific Thrift and Loan Company, Inc., a California corporation ("Pacific
Thrift"), and President and Chief Executive Officer of Pacific Unified
Mortgage, Inc., a Delaware corporation ("PUM"), both of which are operating
subsidiaries of the EMPLOYER, for a three-year term, commencing on the date
hereof, and SCHULTZ hereby agrees to accept such employment for such term,
subject to earlier termination under the circumstances provided herein. The
term of this Agreement shall be extended automatically to cover successive
terms of one year commencing on each anniversary date of the date hereof after
the initial three-year term, unless, at least six months prior to the end of
the initial term or any renewal term hereof, SCHULTZ gives written notice to
the Board of Directors of EMPLOYER (the "Board"), or EMPLOYER gives written
notice to SCHULTZ, of an intent to terminate this Agreement at the end of such
term.
(b) Duties. SCHULTZ, subject to the direction and
control of the Board, shall devote all of SCHULTZ'S productive time, attention
and energies to discharging, and shall perform, such executive duties and
managerial responsibilities as may from time to time be specified by EMPLOYER,
and will use SCHULTZ'S best efforts to promote the interests of EMPLOYER and
its subsidiaries and affiliates. The performance of such duties and
responsibilities shall be SCHULTZ'S exclusive employment for compensation;
provided, however, that nothing herein contained shall be deemed to limit
SCHULTZ'S right, with the consent of the Board, to engage in other activities
that do not interfere with SCHULTZ'S duties hereunder.
2. COMPENSATION.
(a) As compensation for the services to be rendered by SCHULTZ
hereunder during the term of SCHULTZ'S employment, including all services to be
rendered as an officer and executive of EMPLOYER, its subsidiaries and
affiliates, EMPLOYER agrees to pay SCHULTZ a Base Salary as defined and in
accordance with the terms of Section 2 (a) (i) herein, plus a Bonus as defined
and in accordance with the terms of Section 2 (a) (ii) herein:
<PAGE> 2
(i) During the term of this Agreement, EMPLOYER shall pay
SCHULTZ a salary at an annual base rate of two hundred twenty five thousand
dollars ($225,000) per year, which shall be adjusted annually to reflect any
increase from the previous year in the Consumer Price Index for the Los
Angeles, California area (the "Base Salary"). The applicable Base Salary shall
be payable not less frequently than monthly in accordance with the regular
salary procedure from time to time adopted by EMPLOYER. There shall be
deducted from all compensation paid to SCHULTZ such sums, including but not
limited to Social Security, income tax withholding, employment insurance, and
any and all other such deductions, as EMPLOYER is by law obligated to withhold.
(ii) In addition to the Base Salary, EMPLOYER shall pay
SCHULTZ an annual bonus earned as of December 31 of the respective year (the
"Bonus") to be paid to SCHULTZ upon issuance in due course of the EMPLOYER'S
annual certified financial report. The Bonus shall equal 2 1/2% of the annual
net pre-tax profits of EMPLOYER if EMPLOYER earns annual net after tax profits
(after payment of the Bonus and such bonuses to any other employee who is
entitled to receive a bonus from the EMPLOYER based upon the same formula as
set forth in this Section 2 (a) (ii) under a contract of employment dated as of
the same date as this Agreement) equal to a minimum annual return on equity (as
determined on January 1 of the applicable year) of twenty percent (20%),
reduced to ten percent (10%) for each year after the Corporation reaches equity
of at least $20 million. As used in this Section 2 (a) (ii), net pre-tax
profits and net after tax profits refer to the net pre-tax profits and net
after tax profits as determined under generally accepted accounting principles.
The Bonus will increase to five percent (5%) of such annual net pre-tax profits
of EMPLOYER if EMPLOYER earns annual net after tax profits (after payment of
the Bonus and such bonuses to any other employee who is entitled to receive a
bonus from the EMPLOYER based upon the same formula as set forth in this
Section 2 (a) (ii) under a contract of employment dated as of the same date as
this Agreement) equal to a minimum annual return on equity (as determined on
January 1 of the applicable year) in excess of thirty percent (30%), reduced to
twenty percent (20%) for each year after the Corporation reaches equity of at
least $20 million. To the extent that the collective bonus amounts of SCHULTZ
and any other employee under a contract of employment dated as of the same date
as this Agreement determined according to this formula result in the reduction
of annual net after tax profits of EMPLOYER to an amount less than the
applicable minimum annual return levels, then the amount of Bonus paid to
SCHULTZ and the amount of bonus paid to such other employee shall be reduced to
such amount as will result in EMPLOYER retaining the applicable minimum annual
return levels, and such amount shall be divided equally between each of them.
Up to 50% of each year's annual bonus will be payable in quarterly installments
during the applicable year for which the bonus is earned, determined by
annualizing the quarterly return on equity for each of the first three quarters
of the year. In
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the event that the quarterly payment of bonus amounts results in an overpayment
to SCHULTZ, any excess bonus payments shall be deducted from SCHULTZ's Base
Salary and any other amounts owed to SCHULTZ.
(iii) SCHULTZ shall be reimbursed for SCHULTZ'S reasonable
and actual out-of-pocket expenses incurred by SCHULTZ in performance of
SCHULTZ'S duties and responsibilities hereunder, provided that SCHULTZ shall
first furnish to EMPLOYER proper vouchers and/or receipts.
(iv) SCHULTZ shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase and other employee benefit plans, excluding the employee cash
bonus pool, of EMPLOYER as are in effect from time to time during the term of
this Agreement and provided to other senior executive employees of EMPLOYER,
including, but not limited to, EMPLOYER'S Supplemental Executive Retirement
Plan (all of which are collectively referred to herein as the "Benefit Plans").
(v) SCHULTZ shall also be entitled to all perquisites
provided in accordance with EMPLOYER'S policy for senior management executives
from time to time in effect (all of which are collectively referred to herein
as the "Perquisites"). Notwithstanding the foregoing, in no event shall each
or any of the Perquisites provided pursuant to the terms of this Section 2 (a)
(v) be lesser in value than such perquisites as were provided to SCHULTZ by
Pacific Thrift and/or Presidential Mortgage Company, a California Partnership
("Presidential") and in effect immediately prior to the transfer of assets by
Presidential to EMPLOYER. Perquisites provided pursuant to this Section
2(a)(v) shall include, without limitation, use of an automobile or automobile
allowances, expense allowances, vacation days, sick days and holidays, and
medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental
disability, SCHULTZ shall fail or be unable to perform under this Agreement for
any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty (120) or more days during any consecutive
twelve-month period, EMPLOYER may, at its option, at any time thereafter, upon
written notice to SCHULTZ, terminate the employment relationship provided for
in this Agreement. In such event, SCHULTZ'S requirement to render services
hereunder and EMPLOYER'S requirement to compensate SCHULTZ hereunder shall
terminate and come to an end upon the date provided in such notice. In that
event, SCHULTZ shall be entitled to receive, as disability compensation: (i) a
lump sum payment to be paid on the effective date of termination pursuant to
this Section 3, which shall consist of the full annual Bonus earned, if any, at
the end of the prior year, (ii) SCHULTZ'S Base Salary for one year following
termination of this Agreement payable not less frequently than monthly, and
(iii) use
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of an automobile or automobile allowance, full automobile insurance coverage,
and health insurance coverage under any health insurance policies maintained by
EMPLOYER for its other senior executives, all of which shall be provided
pursuant to the terms of Section 2 (a) (v) herein and shall continue to be
provided without interruption for the greater of one year following the
effective date of termination pursuant to this Section 3 or the remainder of
the term of this Agreement. If, after the end of the fiscal year following the
effective date of termination pursuant to this Section 3, it is determined that
the annual Bonus compensation which would have been earned by SCHULTZ for such
year if the SCHULTZ had continued to be employed under this Agreement would
have exceeded the Bonus actually paid, EMPLOYER shall pay SCHULTZ a lump sum
payment equal to the difference between the Bonus amount previously paid to
SCHULTZ and the Bonus amount that would have been earned by SCHULTZ. Such
amount shall be paid on the earlier of ten (10) days after the issuance of
EMPLOYER'S annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year. SCHULTZ shall not be obligated to
reimburse EMPLOYER if the Bonus amount paid by EMPLOYER upon termination
exceeds the amount of any Bonus that would have been earned. EMPLOYER may, at
its option, apply for disability income insurance and, if so, any obligation on
the part of EMPLOYER to pay SCHULTZ any payments on account of any physical or
mental disability of SCHULTZ as specified above, shall be reduced by the amount
of any payments to SCHULTZ under any such disability income policy. Any
payments to SCHULTZ under any state disability insurance shall not reduce the
amount payable to SCHULTZ under this Agreement.
4. DEATH. In the event of SCHULTZ'S death during the term
hereof, this Agreement shall terminate immediately. In such event, SCHULTZ'S
personal representative shall be entitled to receive, as a death benefit, in
addition to any other payments which SCHULTZ'S personal representative may be
entitled to receive under any Benefit Plans: (i) a lump sum payment to be paid
within five (5) days of SCHULTZ'S death equal to the full annual Bonus earned
by the SCHULTZ, at the end of the prior year; and (ii) SCHULTZ'S Base Salary
for one year following SCHULTZ'S death, payable not less frequently than
monthly. If, after the end of the fiscal year following the SCHULTZ'S death,
it is determined that the annual Bonus compensation which would have been
earned by SCHULTZ for such year would have exceeded the Bonus actually paid if
Employee had continued to be employed under this Employment Agreement, EMPLOYER
shall pay SCHULTZ'S personal representatives a lump sum payment equal to the
difference between the Bonus amount previously paid to SCHULTZ'S personal
representatives and the Bonus amount that would have been earned by SCHULTZ.
Such amount shall be paid on the earlier of ten (10) days after the issuance of
EMPLOYER'S annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year. SCHULTZ'S personal representatives
shall not be obligated to reimburse EMPLOYER if the Bonus amount paid by
EMPLOYER within five (5) days following
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SCHULTZ'S death exceeds the amount of any Bonus that would have been earned.
EMPLOYER may maintain life insurance on the life of SCHULTZ in favor
of the EMPLOYER. SCHULTZ shall have no interest whatsoever in any such policy
or policies, except as otherwise provided in any split dollar life insurance
agreements, but SCHULTZ shall, at the request of EMPLOYER, submit to such
medical examinations, supply such information, consent to such blood tests and
execute such documents as may be required by the insurance company or companies
to whom EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge SCHULTZ at any
time for cause. "Cause" for discharge shall mean (i) theft or embezzlement by
SCHULTZ from EMPLOYER or its affiliates, (ii) fraud or other acts of dishonesty
by SCHULTZ in the conduct of EMPLOYER'S business or the fulfillment of
SCHULTZ'S assigned responsibilities hereunder, (iii) SCHULTZ'S conviction of,
or plea of nolo contendere to, any felony or any crime involving moral
turpitude, (iv) SCHULTZ'S willfully and knowingly taking any action which is
materially injurious to EMPLOYER'S business or reputation. Within 10 business
days following receipt of written notice of termination for Cause, SCHULTZ
shall have the right to demand and, if demanded, to receive within 30 days, an
opportunity to respond and defend himself before the Board and to have the
Board by resolution confirm by a three-fourths affirmative vote that EMPLOYER
has grounds to terminate SCHULTZ for Cause. If the Board does not determine
that Cause exists, SCHULTZ shall have the option to treat his employment as not
having terminated or as having been terminated by EMPLOYER without cause as
defined in Section 6 herein. Without limiting the foregoing, nothing in this
Section 5 shall be construed to require that SCHULTZ demand a hearing before
the Board as a condition to pursuing any claim or action with respect to the
matters contained in this Agreement. The occurrence of any event constituting
cause for discharge shall permit, but not require, EMPLOYER to terminate
SCHULTZ for Cause; provided, however, that EMPLOYER'S decision not to terminate
the SCHULTZ upon the occurrence of an event constituting cause for discharge
shall not operate as a waiver of its rights provided in this Section 5 or
otherwise.
If EMPLOYER terminates SCHULTZ for Cause, EMPLOYER shall be
obligated to provide to SCHULTZ only the Base Salary provided for in Section 2
(a) (i) herein through the date of termination of SCHULTZ at the rate in effect
on the date of such termination.
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, SCHULTZ shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any
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health insurance policies maintained by EMPLOYER for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2
(a) (v) herein and shall continue to be provided without interruption for one
year following the effective date of termination pursuant to this Section 6.
Upon termination pursuant to this Section 6, EMPLOYER shall additionally pay to
SCHULTZ a lump sum payment, to be paid on the effective date of termination
pursuant to this Section 6, which shall consist of: (i) the full annual Base
Salary, (ii) an amount equal to the annual Bonus compensation earned by SCHULTZ
at the end of the prior year, and (iii) the cash value of all vacation, holiday
and sick days which have accrued up to the date of termination and which would
have accrued for one year following termination pursuant to this Section 6.
(The sum of all amounts and benefits to be provided by EMPLOYER to SCHULTZ
pursuant to this Section 6 is collectively referred to herein as the
"Termination Payment".) If, after the end of the fiscal year following the
effective date of termination pursuant to this Section 6, it is determined that
the annual Bonus compensation which would have been earned by SCHULTZ for such
year if the SCHULTZ had continued to be employed under this Agreement would
have exceeded the Bonus actually paid, EMPLOYER shall pay SCHULTZ a lump sum
payment equal to the difference between the Bonus amount previously paid to
SCHULTZ and the Bonus amount that would have been earned by SCHULTZ. Such
amount shall be paid on the earlier of ten (10) days after the issuance of
EMPLOYER'S annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year. SCHULTZ shall not be obligated to
reimburse EMPLOYER if the Bonus amount paid by EMPLOYER upon termination
exceeds the amount of any Bonus that would have been earned.
7. CORPORATE CHANGES.
(a) Definition. SCHULTZ may terminate his employment
hereunder upon thirty (30) days written notice at any time within one year
following the occurrence of a Corporate Change. For purposes of this Section
7, a "Corporate Change" shall be deemed to have occurred upon the occurrence of
any one (or more) of the following events: (i) a transaction in which EMPLOYER
ceases to be an independent publicly owned corporation that is required to file
quarterly and annual reports under the Securities Exchange Act of 1934, (ii) a
sale or other disposition of all or substantially all of the assets, or a
majority of the outstanding capital stock, of EMPLOYER (including but not
limited to the assets or stock of EMPLOYER'S subsidiaries that results in all
or substantially all of the assets or stock of EMPLOYER on a consolidated basis
being sold), (iii) as a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination, sale of assets or
combination of the foregoing, persons who were directors of EMPLOYER just prior
to such event(s) shall cease to constitute a majority of the Board, (iv) any
person, including a group as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the
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beneficial owner of shares of EMPLOYER with respect to which twenty percent
(20%) or more of the total number of votes for the election of the Board may be
cast, (v) the EMPLOYER assigns to SCHULTZ duties, functions, responsibilities
or authority substantially inferior to the duties, functions, responsibilities
and authority contemplated by Section 1 (b) herein, (vi) EMPLOYER'S
stockholders cause a change in the majority of the members of the Board within
a twelve (12) month period; provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period, or (vii) a tender offer or exchange
offer is made for shares of the EMPLOYER'S common stock (other than one made by
the EMPLOYER) and shares of common stock are acquired thereunder.
(b) Payments. Upon termination of employment pursuant to this
Section 7, SCHULTZ shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executive officers, all of which shall be provided pursuant to the terms of
Section 2 (a) (v) herein and shall continue to be provided without interruption
for eighteen (18) months following the effective date of termination pursuant
to this Section 7. Upon termination pursuant to this Section 7, EMPLOYER shall
additionally pay to SCHULTZ a lump sum payment, to be paid within five (5) days
after the date of SCHULTZ'S notice pursuant to Section 7 (a) herein, which
shall consist of: (i) one and one-half times the full annual Base Salary, (ii)
an amount equal to one and one-half times the annual Bonus compensation earned
by SCHULTZ at the end of the prior year, and (iii) the cash value of all
vacation, holiday and sick days which have accrued up to the date of
termination and which would have accrued for eighteen (18) months following
termination pursuant to this Section 7. (The sum of all amounts and benefits
to be provided by EMPLOYER to SCHULTZ pursuant to this Section 7 (b) is
collectively referred to herein as the "Corporate Changes Termination
Payment"). Notwithstanding the foregoing, if SCHULTZ gives notice of
termination pursuant to this Section 7 prior to the closing of a transaction
referred to in Section 7(a)(i), (ii) or (iii) hereof, the Corporate Changes
Termination Payment must be made a condition to and must be paid concurrently
with the closing of such a transaction. If, after the end of the fiscal year
following the effective date of termination pursuant to this Section 7, it is
determined that the value of one and one-half times the full annual Bonus
compensation which would have been earned by SCHULTZ for such year if the
SCHULTZ had continued to be employed under this Agreement would have exceeded
the Bonus actually paid, EMPLOYER shall pay SCHULTZ a lump sum payment equal to
the difference between the Bonus amount previously paid to SCHULTZ and one and
one-half times the Bonus amount that would have been earned by SCHULTZ. Such
amount shall be paid on the
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earlier of ten (10) days after the issuance of EMPLOYER'S annual certified
financial report or one hundred twenty (120) days after the end of the fiscal
year. SCHULTZ shall not be obligated to reimburse EMPLOYER for any Bonus
payment included in the Corporate Changes Termination Payment in excess of any
Bonus which would have been earned.
(c) Tax Limitations on Corporate Changes Payments. If the
aggregate of all payments, including but not limited to, Corporate Changes
Termination Payments and earned Bonus differentials that are to be paid to
SCHULTZ contingent on those Corporate Changes specified in Section 7 (a) herein
(the "Aggregate Amount"), would constitute a "parachute payment" (as defined in
Section 280 G of the Internal Revenue Code of 1986, as amended or supplemented
(the "Code"), the Corporate Changes Termination Payment and/or earned Bonus
differential otherwise payable to the SCHULTZ pursuant to Section 7 (b) herein
shall be equal to the higher of: (i) the amount (referred to herein as the
"Reduced Amount") that would result in no portion of the Aggregate Amount being
subject to the excise tax imposed by Section 4999 of the Code, or (ii) the full
Aggregate Amount if the net after tax payments to SCHULTZ would exceed the
Reduced Amount. The determination of the Corporate Changes Termination
Payment, the earned Bonus differential under Section 7 (b), the Reduced Amount
and the net after tax amount payable to SCHULTZ on the full Aggregate Amount
shall be made by the SCHULTZ and the EMPLOYER in good faith, and in the event
they disagree, such determination shall be made by means of arbitration to be
conducted at the EMPLOYER'S expense. Any such arbitration shall be conducted
in Los Angeles, California, by one arbitrator, who shall be a member of a
nationally recognized accounting firm that is not then engaged by the EMPLOYER
or any of its major stockholders, and who shall be jointly designated by the
parties. If the parties cannot agree on the selection of an arbitrator,
EMPLOYER'S then current independent auditors shall select such arbitrator. The
findings of the arbitrator shall be conclusive and binding on the parties. For
purposes of this Section 7 (c), the net after tax amount payable to SCHULTZ
shall mean the present value, as determined in accordance with Section
280G(d)(4) of the Code, of any payment or distribution in the nature of
compensation to or for SCHULTZ'S benefit, whether paid or payable pursuant to
this Agreement or otherwise, net of all taxes imposed on the SCHULTZ with
respect thereto under Sections 1 and 4999 of the Code, determined by applying
the highest marginal rate under Section 1 of the Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that SCHULTZ learns of or
acquires through his employment by EMPLOYER; and 2. financial information,
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marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which SCHULTZ is exposed or has access as a consequence
of his employment by EMPLOYER. All of the Proprietary Information is, and at
all times shall be and remain, private and confidential and is the sole and
exclusive property of, and owned and controlled by EMPLOYER, regardless of
whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which SCHULTZ acquired other than as a consequence of his employment by
EMPLOYER, such as in the course of similar employment or work elsewhere shall
not be deemed part of the Proprietary Information.
(b) All Proprietary Information shall be the sole
property of EMPLOYER, its successors and assigns, and EMPLOYER, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. SCHULTZ hereby assigns to EMPLOYER any
rights SCHULTZ may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. SCHULTZ further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. SCHULTZ will execute all documents for use in
applying for, obtaining and enforcing such Rights on such Proprietary
Information as EMPLOYER may desire, together with any assumptions thereof to
EMPLOYER or persons designated by it. SCHULTZ's obligation to assist EMPLOYER
or any person designated by it in obtaining and enforcing Rights relating to
Proprietary Information shall continue beyond the cessation of his employment.
It is provided, however, that EMPLOYER shall compensate SCHULTZ at a reasonable
rate after the cessation of employment for time actually spent by SCHULTZ upon
EMPLOYER's request for such assistance. In the event that EMPLOYER is unable,
after reasonable effort, to secure SCHULTZ's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, SCHULTZ hereby irrevocably designates and appoints
EMPLOYER and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the
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same legal force and effect as if such acts were performed by SCHULTZ.
(c) At all times, both during his employment and after
the cessation of employment, whether the cessation is voluntary or involuntary,
for any reason or no reason, or by disability, SCHULTZ will keep in strictest
confidence and trust all Proprietary Information, and SCHULTZ will not
disclose, use, or induce or assist in the use or disclosure of any Proprietary
Information or Rights pertaining to Proprietary Information, or anything
related thereto, without the prior, express written consent of EMPLOYER, except
as may be necessary in the ordinary course of performing his duties as an
employee of EMPLOYER. SCHULTZ recognizes that EMPLOYER has received and in the
future will receive from third parties their confidential, trade secret, or
Proprietary Information subject to a duty on EMPLOYER's part to maintain the
confidentiality of such information and to use it only in connection with the
performance of his duties as an employee of EMPLOYER. SCHULTZ agrees that
SCHULTZ owes EMPLOYER and such third parties, during his employment and
thereafter, a duty to hold all such confidential, trade secret, or Proprietary
Information in the strictest confidence, and SCHULTZ will not disclose, use, or
induce or assist in the use or disclosure of any such confidential, trade
secret, or Proprietary Information without the prior, express written consent
of EMPLOYER, except as may be necessary in the ordinary course of performing
his duties as an employee of EMPLOYER consistent with EMPLOYER's agreement with
such third party.
(d) SCHULTZ agrees that all material or other original
works of authorship written, created, or developed by SCHULTZ in connection
with his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of SCHULTZ's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101), and shall
be the sole and absolute property of EMPLOYER, its successors and assigns, and
SCHULTZ agrees that he/she does not have and will not claim to have, either
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to said property.
(e) SCHULTZ will promptly disclose to EMPLOYER, and
EMPLOYER hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
SCHULTZ, either alone or jointly with others during
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the period of his employment, for the purpose of permitting EMPLOYER to
determine whether they constitute Proprietary Information, or copyrightable or
patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, SCHULTZ will not
directly or indirectly engage in any activity which competes with EMPLOYER, or
which EMPLOYER shall determine in good faith to be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER. In addition, during his employment
and after the cessation of employment, SCHULTZ will not, alone or in concert
with others, or on his own behalf, or on behalf of any other person, in any way
use or disclose Proprietary Information in order to solicit, entice, or in any
way divert any broker to do business with any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER. During his employment, SCHULTZ agrees not
to plan or otherwise take any preliminary steps, either alone or in concert
with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER.
(b) During his employment and for a period of two (2)
years after the cessation of employment, SCHULTZ will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) SCHULTZ recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to EMPLOYER because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by EMPLOYER in its operations. In the event of his breach of
those obligations, SCHULTZ therefore agrees that EMPLOYER shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee
of EMPLOYER whom SCHULTZ solicits, diverts, recruits, or employs in violation
of this paragraph 9, and for each broker or mortgage loan customer of EMPLOYER
whom such former employee handled for EMPLOYER and whom the former employee
contacts or otherwise services or works with for his benefit or for the benefit
of anyone in privity with SCHULTZ, including any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER with whom SCHULTZ accepts employment in
breach of this paragraph 9, SCHULTZ shall pay EMPLOYER liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by EMPLOYER from mortgage loan referrals from each broker, or the
amount of profit
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earned on loans to each mortgage loan customer, during the twelve (12) months
immediately preceding termination of such former employer with EMPLOYER, and
(ii) the amount of cost to EMPLOYER to recruit and train a replacement for each
such former employee plus the first six (6) month's salary paid to the
replacement(s) for the former employee. If the former employee was not in a
position of have contacts with brokers or to otherwise generate business from
mortgage loan customers, the liquidated damages shall be the amount of the cost
to EMPLOYER to recruit and train a replacement(s) for the former employee.
SCHULTZ further agrees that the cost to recruit and train replacement(s) for
each former employee as described in this paragraph 9 will be part of
EMPLOYER's damages and that the profit formula for former employees who had
broker or mortgage loan business contact, and the first six (6) months salary
paid to the replacement(s) for former employees, are conservative estimates of
the value, or a portion of the value, of the former employee to EMPLOYER.
10. SURRENDER OF PROPRIETARY INFORMATION. In the event of the
termination of his employment, SCHULTZ will deliver to EMPLOYER all devices,
records, sketches, reports, proposals, broker information, lists,
correspondence, equipment, software, computer disks, documents, photographs,
photostats, negatives, undeveloped film, notes, drawings, specifications, tape
recordings or other electronic recordings, programs, data and other materials
or property of any nature belonging to EMPLOYER or pertaining to his work with
EMPLOYER, and SCHULTZ will not take with SCHULTZ, or allow a third party to
take, any of the foregoing or any reproduction of any of the foregoing.
11. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle SCHULTZ to compensation from EMPLOYER in the same
amount and on the same terms as he would be entitled to hereunder if EMPLOYER
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in
this Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, SCHULTZ'S personal or legal representatives, executors,
administrators, successors, heirs, distributees,
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devisees and legatees. If SCHULTZ should die while any amount would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisees, legatee or other designees, or if there is no such
designee, to his estate.
12. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
If to EMPLOYER:
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Richard D. Young, Senior Executive Vice
President
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to SCHULTZ:
Joel R. Schultz
4267 Marina City Drive #606
Marina Del Rey, CA 90292
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
13. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
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<PAGE> 14
14. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
15. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. SCHULTZ shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by SCHULTZ, if EMPLOYER,
or any stockholder of EMPLOYER contests the validity or enforceability of this
Agreement or any part hereof.
16. Interest on Amounts Due. In addition to the amounts payable
to SCHULTZ as provided herein, EMPLOYER shall further be required to pay
interest upon any amount owed hereunder and not paid on the date such amount is
owed, at a rate of nine points above the Bank of America reference rate, as
determined on the date any such amount is due. If such interest rate exceeds
the maximum interest permitted by law, then the rate shall be the maximum rate
of interest permitted by law.
The parties hereto have executed this Agreement on the day and year
first above written.
"SCHULTZ"
________________________________
JOEL R. SCHULTZ
"EMPLOYER"
PACIFIC UNITED GROUP, INC.
By: _____________________________
Title:___________________________
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC UNITED GROUP, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and RICHARD D. YOUNG
(hereinafter referred to as "YOUNG"), on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. EMPLOYER hereby agrees to employ YOUNG as the
Senior Executive Vice President of EMPLOYER and President of Pacific Thrift and
Loan Company, Inc., a California corporation and operating subsidiary of the
EMPLOYER ("Pacific Thrift"), for a two-year term, commencing on the date
hereof, and YOUNG hereby agrees to accept such employment for such term,
subject to earlier termination under the circumstances provided herein. The
term of this Agreement shall be extended automatically to cover successive
terms of one year commencing on each anniversary date of the date hereof after
the initial two-year term, unless, at least six months prior to the end of the
initial term or any renewal term hereof, YOUNG gives written notice to the
Board of Directors of EMPLOYER (the "Board"), or EMPLOYER gives written notice
to YOUNG, of an intent to terminate this Agreement at the end of such term.
(b) Duties. YOUNG, subject to the direction and control
of the Board, shall devote all of YOUNG'S productive time, attention and
energies to discharging, and shall perform, such executive duties and
managerial responsibilities as may from time to time be specified by EMPLOYER,
and will use YOUNG'S best efforts to promote the interests of EMPLOYER and its
subsidiaries and affiliates. The performance of such duties and
responsibilities shall be YOUNG'S exclusive employment for compensation;
provided, however, that nothing herein contained shall be deemed to limit
YOUNG'S right, with the consent of the Board, to engage in other activities
that do not interfere with YOUNG'S duties hereunder.
2. COMPENSATION.
(a) As compensation for the services to be rendered by
YOUNG hereunder during the term of YOUNG'S employment, including all services
to be rendered as an officer and executive of EMPLOYER, its subsidiaries and
affiliates, EMPLOYER agrees to pay YOUNG a Base Salary as defined and in
accordance with the terms of Section 2 (a) (i) herein, plus a Bonus as defined
and in accordance with the terms of Section 2 (a) (ii) herein:
(i) During the term of this Agreement, EMPLOYER
shall pay YOUNG a salary at an annual base rate of two
<PAGE> 2
hundred twenty five thousand dollars ($225,000) per year, which shall be
adjusted annually to reflect any increase from the previous year in the
Consumer Price Index for the Los Angeles, California area (the "Base Salary").
The applicable Base Salary shall be payable not less frequently than monthly in
accordance with the regular salary procedure from time to time adopted by
EMPLOYER. There shall be deducted from all compensation paid to YOUNG such
sums, including but not limited to Social Security, income tax withholding,
employment insurance, and any and all other such deductions, as EMPLOYER is by
law obligated to withhold.
(ii) In addition to the Base Salary, EMPLOYER
shall pay YOUNG an annual bonus earned as of December 31 of the respective year
(the "Bonus") to be paid to YOUNG upon issuance in due course of the EMPLOYER'S
annual certified financial report. The Bonus shall equal 2 1/2% of the annual
net pre-tax profits of EMPLOYER if EMPLOYER earns annual net after tax profits
(after payment of the Bonus and such bonuses to any other employee who is
entitled to receive a bonus from the EMPLOYER based upon the same formula as
set forth in this Section 2 (a) (ii) under a contract of employment dated as of
the same date as this Agreement) equal to a minimum annual return on average
equity of ten percent (10%) (the "Minimum 10% Annual Return"). As used in this
Section 2 (a) (ii), net pre-tax profits and net after tax profits refer to the
net pre-tax profits and net after tax profits as determined under generally
accepted accounting principles. The Bonus will increase to five percent (5%)
of such annual net pre-tax profits of EMPLOYER if EMPLOYER earns annual net
after tax profits (after payment of the Bonus and such bonuses to any other
employee who is entitled to receive a bonus from the EMPLOYER based upon the
same formula as set forth in this Section 2 (a) (ii) under a contract of
employment dated as of the same date as this Agreement) equal to a minimum
annual return on average equity in excess of fifteen percent (15%) (the
"Minimum 15% Annual Return"). To the extent that the collective bonus amounts
of YOUNG and any other employee under a contract of employment dated as of the
same date as this Agreement determined according to this formula result in the
reduction of annual net after tax profits of EMPLOYER to an amount less than
the Minimum 10% Annual Return or the Minimum 15% Annual Return (collectively
referred to hereafter as the "Minimum Annual Returns"), then the amount of
Bonus paid to YOUNG and the amount of bonus paid to such other employee shall
be reduced to such amount as will result in EMPLOYER retaining the respective
Minimum Annual Return, and such amount shall be divided equally between each of
them. It is expressly acknowledged that for purposes of defining the Minimum
Annual Returns there shall not be deducted any new profit-based bonus
arrangements provided under written employment contracts with EMPLOYER entered
into after the date of this Agreement.
(iii) YOUNG shall be reimbursed for YOUNG'S
reasonable and actual out-of-pocket expenses incurred by YOUNG in
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performance of YOUNG'S duties and responsibilities hereunder, provided that
YOUNG shall first furnish to EMPLOYER proper vouchers and/or receipts.
(iv) YOUNG shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase and other employee benefit plans, excluding the employee cash
bonus pool, of EMPLOYER as are in effect from time to time during the term of
this Agreement and provided to other senior executive employees of EMPLOYER,
including, but not limited to, EMPLOYER'S Supplemental Executive Retirement
Plan (all of which are collectively referred to herein as the "Benefit Plans").
(v) YOUNG shall also be entitled to all perquisites
provided in accordance with EMPLOYER'S policy for senior management executives
from time to time in effect and such additional perquisites as may be agreed
from time to time between the Board and YOUNG (all of which are collectively
referred to herein as the "Perquisites"). Notwithstanding the foregoing, in no
event shall each or any of the Perquisites provided pursuant to the terms of
this Section 2 (a) (v) be lesser in value than such perquisites as were
provided to YOUNG by Pacific Thrift and/or Presidential Mortgage Company, a
California Partnership ("Presidential") and in effect immediately prior to the
transfer of assets by Presidential to EMPLOYER. Perquisites provided pursuant
to this Section 2(a)(v) shall include, without limitation, use of an
automobile, automobile allowances, expense allowances, vacation days, sick days
and holidays.
3. DISABILITY. If, on account of any physical or mental
disability, YOUNG shall fail or be unable to perform under this Agreement for
any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty (120) or more days during any consecutive
twelve-month period, EMPLOYER may, at its option, at any time thereafter, upon
written notice to YOUNG, terminate the employment relationship provided for in
this Agreement. In such event, YOUNG'S requirement to render services
hereunder and EMPLOYER'S requirement to compensate YOUNG hereunder shall
terminate and come to an end upon the date provided in such notice. In that
event, YOUNG shall be entitled to receive, as disability compensation: (i) a
lump sum payment to be paid on the effective date of termination pursuant to
this Section 3, which shall consist of the full annual Bonus earned, if any, at
the end of the prior year, (ii) YOUNG'S Base Salary for one year following
termination of this Agreement payable not less frequently than monthly, and
(iii) use of an automobile, full automobile insurance coverage, and health
insurance coverage under any health insurance policies maintained by EMPLOYER
for its other senior executives, all of which shall be provided pursuant to the
terms of Section 2 (a) (v) herein and shall continue to be provided without
interruption for the greater of one year following the effective date of
termination pursuant to this Section 3 or the remainder of the term of this
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<PAGE> 4
Agreement. If, after the end of the fiscal year following the effective date
of termination pursuant to this Section 3, it is determined that the annual
Bonus compensation which would have been earned by YOUNG for such year if the
YOUNG had continued to be employed under this Agreement would have exceeded the
Bonus actually paid, EMPLOYER shall pay YOUNG a lump sum payment equal to the
difference between the Bonus amount previously paid to YOUNG and the Bonus
amount that would have been earned by YOUNG. Such amount shall be paid on the
earlier of ten (10) days after the issuance of EMPLOYER'S annual certified
financial report or one hundred and twenty (120) days after the end of the
fiscal year. YOUNG shall not be obligated to reimburse EMPLOYER if the Bonus
amount paid by EMPLOYER upon termination exceeds the amount of any Bonus that
would have been earned. EMPLOYER may, at its option, apply for disability
income insurance and, if so, any obligation on the part of EMPLOYER to pay
YOUNG any payments on account of any physical or mental disability of YOUNG as
specified above, shall be reduced by the amount of any payments to YOUNG under
any such disability income policy. Any payments to YOUNG under any state
disability insurance shall not reduce the amount payable to YOUNG under this
Agreement.
4. DEATH. In the event of YOUNG'S death during the term hereof,
this Agreement shall terminate immediately. In such event, YOUNG's personal
representative shall be entitled to receive, as a death benefit, in addition to
any other payments which YOUNG's personal representative may be entitled to
receive under any Benefit Plans: (i) a lump sum payment to be paid within five
(5) days of YOUNG'S death equal to the full annual Bonus earned by the YOUNG,
at the end of the prior year; and (ii) YOUNG'S Base Salary for one year
following YOUNG'S death, payable not less frequently than monthly. If, after
the end of the fiscal year following the YOUNG'S death, it is determined that
the annual Bonus compensation which would have been earned by YOUNG for such
year would have exceeded the Bonus actually paid, EMPLOYER shall pay YOUNG'S
personal representatives a lump sum payment equal to the difference between the
Bonus amount previously paid to YOUNG'S personal representatives and the Bonus
amount that would have been earned by YOUNG. Such amount shall be paid on the
earlier of ten (10) days after the issuance of EMPLOYER'S annual certified
financial report or one hundred and twenty (120) days after the end of the
fiscal year. YOUNG'S personal representatives shall not be obligated to
reimburse EMPLOYER if the Bonus amount paid by EMPLOYER within five (5) days
following YOUNG'S death exceeds the amount of any Bonus that would have been
earned.
EMPLOYER may maintain life insurance on the life of YOUNG in favor of
the EMPLOYER. YOUNG shall have no interest whatsoever in any such policy or
policies, except as otherwise provided in any split dollar life insurance
agreements, but YOUNG shall, at the request of EMPLOYER, submit to such medical
examinations, supply such information, consent to such blood tests and execute
such documents as may be required by the
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<PAGE> 5
insurance company or companies to whom EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge YOUNG at any
time for cause. "Cause" for discharge shall mean (i) theft or embezzlement by
YOUNG from EMPLOYER or its affiliates, (ii) fraud or other acts of dishonesty
by YOUNG in the conduct of EMPLOYER'S business or the fulfillment of YOUNG'S
assigned responsibilities hereunder, (iii) YOUNG'S conviction of, or plea of
nolo contendere to, any felony or any crime involving moral turpitude, (iv)
YOUNG'S willfully and knowingly taking any action which is materially injurious
to EMPLOYER'S business or reputation. Within 10 business days following
receipt of written notice of termination for Cause, YOUNG shall have the right
to demand and, if demanded, to receive within 30 days, an opportunity to
respond and defend himself before the Board and to have the Board by resolution
confirm by a three-fourths affirmative vote that EMPLOYER has grounds to
terminate YOUNG for Cause. If the Board does not determine that Cause exists,
YOUNG shall have the option to treat his employment as not having terminated or
as having been terminated by EMPLOYER without cause as defined in Section 6
herein. Without limiting the foregoing, nothing in this Section 5 shall be
construed to require that YOUNG demand a hearing before the Board as a
condition to pursuing any claim or action with respect to the matters contained
in this Agreement. The occurrence of any event constituting cause for discharge
shall permit, but not require, EMPLOYER to terminate YOUNG for Cause; provided,
however, that EMPLOYER'S decision not to terminate the YOUNG upon the
occurrence of an event constituting cause for discharge shall not operate as a
waiver of its rights provided in this Section 5 or otherwise.
If EMPLOYER terminates YOUNG for Cause, EMPLOYER shall be
obligated to provide to YOUNG only the Base Salary provided for in Section 2
(a) (i) herein through the date of termination of YOUNG at the rate in effect
on the date of such termination.
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, YOUNG shall be entitled to use of an automobile, full automobile
insurance coverage, and health insurance coverage under any health insurance
policies maintained by EMPLOYER for its other senior executives, all of which
shall be provided pursuant to the terms of Section 2 (a) (v) herein and shall
continue to be provided without interruption for six months following the
effective date of termination pursuant to this Section 6. Upon termination
pursuant to this Section 6, EMPLOYER shall additionally pay to YOUNG a lump sum
payment, to be paid on the effective date of termination pursuant to this
Section 6, which shall consist of: (i) one-half of the full annual Base
Salary, and (ii) the cash value of all vacation, holiday and sick days which
have accrued up to the date of termination and which would have accrued for six
months following termination pursuant
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<PAGE> 6
to this Section 6. Finally, on the earlier of ten (10) days after the issuance
of EMPLOYER'S annual certified financial report or one hundred and twenty (120)
days after the end of the fiscal year in which termination pursuant to this
Section 6 takes place, EMPLOYER shall also pay to YOUNG the lesser of one-half
of the annual Bonus compensation earned by YOUNG at the end of the prior year
or one-half of the annual Bonus compensation which would have been earned by
YOUNG if the YOUNG had continued to be employed under this Agreement for the
year in which termination takes place. (The sum of all amounts and benefits to
be provided by EMPLOYER to YOUNG pursuant to this Section 6 is collectively
referred to herein as the "Termination Payment".)
7. CORPORATE CHANGES.
(a) Definition. YOUNG may terminate his employment
hereunder upon thirty (30) days written notice at any time within one year
following the occurrence of a Corporate Change. For purposes of this Section
7, a "Corporate Change" shall be deemed to have occurred upon the occurrence of
any one (or more) of the following events: (i) a transaction in which EMPLOYER
ceases to be an independent publicly owned corporation that is required to file
quarterly and annual reports under the Securities Exchange Act of 1934, (ii) a
sale or other disposition of all or substantially all of the assets, or a
majority of the outstanding capital stock, of EMPLOYER (including but not
limited to the assets or stock of EMPLOYER'S subsidiaries that results in all
or substantially all of the assets or stock of EMPLOYER on a consolidated basis
being sold), (iii) as a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination, sale of assets, or
contested election for the Board, or combination of the foregoing, persons who
were directors of EMPLOYER just prior to such event(s) shall cease to
constitute a majority of the Board, (iv) any person, including a group as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
becomes the beneficial owner of shares of Employer with respect to which twenty
percent (20%) or more of the total number of votes for the election of the
Board may be cast, (v) EMPLOYER'S stockholders cause a change in the majority
of the members of the Board within a twelve (12) month period; provided,
however, that the election of one or more new directors shall not be deemed to
be a change in the membership of the Board if the nomination of the newly
elected directors was approved by the vote of three-fourths of the directors
then still in office who were directors at the beginning of such twelve (12)
month period, or (vi) a tender offer or exchange offer is made for shares of
the EMPLOYER'S common stock (other than one made by the EMPLOYER) and shares of
common stock are acquired thereunder.
(b) Payments. Upon termination of employment pursuant to
this Section 7, YOUNG shall be entitled to use of an automobile, full
automobile insurance coverage, and health insurance coverage under any health
insurance policies maintained by EMPLOYER for its other senior executive
officers, all of which
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shall be provided pursuant to the terms of Section 2 (a) (v) herein and shall
continue to be provided without interruption for one year following the
effective date of termination pursuant to this Section 7. Upon termination
pursuant to this Section 7, EMPLOYER shall additionally pay to YOUNG a lump sum
payment, to be paid within five (5) days after the date of YOUNG'S notice
pursuant to Section 7 (a) herein, which shall consist of: (i) the full annual
Base Salary, (ii) an amount equal to the annual Bonus compensation earned by
YOUNG at the end of the prior year, and (iii) the cash value of all vacation,
holiday and sick days which have accrued up to the date of termination and
which would have accrued for one year following termination pursuant to this
Section 7. (The sum of all amounts and benefits to be provided by EMPLOYER to
YOUNG pursuant to this Section 7 (b) is collectively referred to herein as the
"Corporate Changes Termination Payment"). Notwithstanding the foregoing, if
YOUNG gives notice of termination pursuant to this Section 7 prior to the
closing of a transaction referred to in Section 7(a) (i) or (ii) hereof, the
Corporate Changes Termination Payment must be made a condition to and must be
paid on the date of the closing of such a transaction. If, after the end of
the fiscal year following the effective date of termination pursuant to this
Section 7, it is determined that the annual Bonus compensation which would have
been earned by YOUNG for such year if the YOUNG had continued to be employed
under this Agreement would have exceeded the Bonus actually paid, EMPLOYER
shall pay YOUNG a lump sum payment equal to the difference between the Bonus
amount previously paid to YOUNG and the Bonus amount that would have been
earned by YOUNG. If, on the other hand, it is determined that the Bonus amount
paid by EMPLOYER upon termination exceeds the amount of any Bonus that would
have been earned by YOUNG for such year, YOUNG shall pay EMPLOYER a lump sum
payment equal to the difference between the Bonus amount previously paid to
YOUNG and the Bonus amount that would have been earned by YOUNG for such year.
Such amount shall be paid on the earlier of ten (10) days after the issuance of
EMPLOYER'S annual certified financial report or one hundred twenty (120) days
after the end of the fiscal year.
(c) Tax Limitations on Corporate Changes Payments. If
the aggregate of all payments, including but not limited to, Corporate Changes
Termination Payments and earned Bonus differentials that are to be paid to
YOUNG contingent on those Corporate Changes specified in Section 7 (a) herein
(the "Aggregate Amount"), would constitute a "parachute payment" (as defined in
Section 280 G of the Internal Revenue Code of 1986, as amended or supplemented
(the "Code"), the Corporate Changes Termination Payment and/or earned Bonus
differential otherwise payable to the YOUNG pursuant to Section 7 (b) herein
shall be equal to the higher of: (i) the amount (referred to herein as the
"Reduced Amount") that would result in no portion of the Aggregate Amount being
subject to the excise tax imposed by Section 4999 of the Code, or (ii) the full
Aggregate Amount if the net after tax payments to YOUNG would exceed the
Reduced
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Amount. The determination of the Corporate Changes Termination Payment, the
earned Bonus differential under Section 7 (b), the Reduced Amount and the net
after tax amount payable to YOUNG on the full Aggregate Amount shall be made by
the YOUNG and the EMPLOYER in good faith, and in the event they disagree, such
determination shall be made by means of arbitration to be conducted at the
EMPLOYER'S expense. Any such arbitration shall be conducted in Los Angeles,
California, by one arbitrator, who shall be a member of a nationally recognized
accounting firm that is not then engaged by the EMPLOYER or any of its major
stockholders, and who shall be jointly designated by the parties. If the
parties cannot agree on the selection of an arbitrator, EMPLOYER'S then current
independent auditors shall select such arbitrator. The findings of the
arbitrator shall be conclusive and binding on the parties. For purposes of
this Section 7 (c), the net after tax amount payable to YOUNG shall mean the
present value, as determined in accordance with Section 280G(d)(4) of the Code,
of any payment or distribution in the nature of compensation to or for YOUNG'S
benefit, whether paid or payable pursuant to this Agreement or otherwise, net
of all taxes imposed on the YOUNG with respect thereto under Sections 1 and
4999 of the Code, determined by applying the highest marginal rate under
Section 1 of the Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that YOUNG learns of or
acquires through his employment by EMPLOYER; and 2. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which YOUNG is exposed or has access as a consequence of
his employment by EMPLOYER. All of the Proprietary Information is, and at all
times shall be and remain, private and confidential and is the sole and
exclusive property of, and owned and controlled by EMPLOYER, regardless of
whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which YOUNG acquired other than as a consequence of his employment by EMPLOYER,
such as in the course of similar employment or work elsewhere shall not be
deemed part of the Proprietary Information.
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(b) All Proprietary Information shall be the sole
property of EMPLOYER, its successors and assigns, and EMPLOYER, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. YOUNG hereby assigns to EMPLOYER any
rights YOUNG may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. YOUNG further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. YOUNG will execute all documents for use in applying
for, obtaining and enforcing such Rights on such Proprietary Information as
EMPLOYER may desire, together with any assumptions thereof to EMPLOYER or
persons designated by it. YOUNG's obligation to assist EMPLOYER or any person
designated by it in obtaining and enforcing Rights relating to Proprietary
Information shall continue beyond the cessation of his employment. It is
provided, however, that EMPLOYER shall compensate YOUNG at a reasonable rate
after the cessation of employment for time actually spent by YOUNG upon
EMPLOYER's request for such assistance. In the event that EMPLOYER is unable,
after reasonable effort, to secure YOUNG's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, YOUNG hereby irrevocably designates and appoints
EMPLOYER and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the same legal force and effect as if such acts were
performed by YOUNG.
(c) At all times, both during his employment and after
the cessation of employment, whether the cessation is voluntary or involuntary,
for any reason or no reason, or by disability, YOUNG will keep in strictest
confidence and trust all Proprietary Information, and YOUNG will not disclose,
use, or induce or assist in the use or disclosure of any Proprietary
Information or Rights pertaining to Proprietary Information, or anything
related thereto, without the prior, express written consent of EMPLOYER, except
as may be necessary in the ordinary course of performing his duties as an
employee of EMPLOYER. YOUNG recognizes that EMPLOYER has received and in the
future will receive from third parties their confidential, trade secret, or
Proprietary Information subject to a duty on EMPLOYER's part to maintain the
confidentiality of such information and to use it only in connection with the
performance of his duties as an employee of EMPLOYER. YOUNG agrees that YOUNG
owes EMPLOYER and such third parties, during his employment and thereafter, a
duty to hold all such confidential, trade secret, or Proprietary Information in
the strictest confidence, and YOUNG will not disclose, use, or induce or assist
in the use or disclosure of
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any such confidential, trade secret, or Proprietary Information without the
prior, express written consent of EMPLOYER, except as may be necessary in the
ordinary course of performing his duties as an employee of EMPLOYER consistent
with EMPLOYER's agreement with such third party.
(d) YOUNG agrees that all material or other original
works of authorship written, created, or developed by YOUNG in connection with
his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of YOUNG's services rendered hereunder, whether or not such rights
are now known, recognized or contemplated, and the complete, unconditional and
unencumbered ownership in and to such materials, results and proceeds for all
purposes whatsoever shall be "works for hire," as that term is defined in the
United States Copyright Act (17 U.S.C. Section 101), and shall be the sole and
absolute property of EMPLOYER, its successors and assigns, and YOUNG agrees
that he/she does not have and will not claim to have, either under this
Agreement or otherwise, any right, title or interest of any kind or nature
whatsoever in or to said property.
(e) YOUNG will promptly disclose to EMPLOYER, and
EMPLOYER hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
YOUNG, either alone or jointly with others during the period of his employment,
for the purpose of permitting EMPLOYER to determine whether they constitute
Proprietary Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, YOUNG will not
directly or indirectly engage in any activity which competes with EMPLOYER, or
which EMPLOYER shall determine in good faith to be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER. In addition, during his employment
and after the cessation of employment, YOUNG will not, alone or in concert with
others, or on his own behalf, or on behalf of any other person, in any way use
or disclose Proprietary Information in order to solicit, entice, or in any way
divert any broker to do business with any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER. During his employment, YOUNG agrees not
to plan or otherwise take any preliminary steps, either alone or in concert
with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER.
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(b) During his employment and for a period of two (2)
years after the cessation of employment, YOUNG will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) YOUNG recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to EMPLOYER because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by EMPLOYER in its operations. In the event of his breach of
those obligations, YOUNG therefore agrees that EMPLOYER shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee
of EMPLOYER whom YOUNG solicits, diverts, recruits, or employs in violation of
this paragraph 9, and for each broker or mortgage loan customer of EMPLOYER
whom such former employee handled for EMPLOYER and whom the former employee
contacts or otherwise services or works with for his benefit or for the benefit
of anyone in privity with YOUNG, including any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER with whom YOUNG accepts employment in
breach of this paragraph 9, YOUNG shall pay EMPLOYER liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by EMPLOYER from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former employer
with EMPLOYER, and (ii) the amount of cost to EMPLOYER to recruit and train a
replacement for each such former employee plus the first six (6) month's salary
paid to the replacement(s) for the former employee. If the former employee was
not in a position of have contacts with brokers or to otherwise generate
business from mortgage loan customers, the liquidated damages shall be the
amount of the cost to EMPLOYER to recruit and train a replacement(s) for the
former employee. YOUNG further agrees that the cost to recruit and train
replacement(s) for each former employee as described in this paragraph 9 will
be part of EMPLOYER's damages and that the profit formula for former employees
who had broker or mortgage loan business contact, and the first six (6) months
salary paid to the replacement(s) for former employees, are conservative
estimates of the value, or a portion of the value, of the former employee to
EMPLOYER.
10. SURRENDER OF PROPRIETARY INFORMATION. In the event of the
termination of his employment, YOUNG will deliver to EMPLOYER all devices,
records, sketches, reports, proposals, broker information, lists,
correspondence, equipment, software, computer disks, documents, photographs,
photostats, negatives,
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undeveloped film, notes, drawings, specifications, tape recordings or other
electronic recordings, programs, data and other materials or property of any
nature belonging to EMPLOYER or pertaining to his work with EMPLOYER, and YOUNG
will not take with YOUNG, or allow a third party to take, any of the foregoing
or any reproduction of any of the foregoing.
11. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle YOUNG to compensation from EMPLOYER in the same
amount and on the same terms as he would be entitled to hereunder if EMPLOYER
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in
this Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, YOUNG'S personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
YOUNG should die while any amount would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisees,
legatee or other designees, or if there is no such designee, to his estate.
12. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
If to EMPLOYER:
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz, President and Chief
Executive Officer
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with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to YOUNG:
Richard D. Young
________________
________________
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
13. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
14. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
15. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. YOUNG shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by YOUNG, if EMPLOYER,
or any stockholder of EMPLOYER contests the validity or enforceability of this
Agreement or any part hereof.
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<PAGE> 14
The parties hereto have executed this Agreement on the day and year
first above written.
"YOUNG"
________________________________
RICHARD D. YOUNG
"EMPLOYER"
PACIFIC UNITED GROUP, INC.
By: _____________________________
Title:___________________________
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC UNITED GROUP, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and KENNETH A. CARMONA
(hereinafter referred to as "CARMONA"), on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. EMPLOYER hereby agrees to employ CARMONA as
Executive Vice President of EMPLOYER, President and Chief Executive Officer of
each of Consolidated Reconveyance Corporation, a California corporation
("Consolidated"), Consolidated Reconveyance Corporation, a Washington
corporation ("CRC Washington") and Lenders Posting and Publishing Corporation,
a California corporation ("Lenders"), and Senior Executive Vice President of
Pacific Thrift and Loan Company, Inc., a California corporation ("Pacific
Thrift"), all of which are operating subsidiaries of the EMPLOYER, for a
two-year term, commencing on the date hereof, and CARMONA hereby agrees to
accept such employment for such term, subject to earlier termination under the
circumstances provided herein. The term of this Agreement shall be extended
automatically to cover successive terms of one year commencing on each
anniversary date of the date hereof after the initial two-year term, unless, at
least six months prior to the end of the initial term or any renewal term
hereof, CARMONA gives written notice to the Board of Directors of EMPLOYER (the
"Board"), or EMPLOYER gives written notice to CARMONA, of an intent to
terminate this Agreement at the end of such term.
(b) Duties. CARMONA, subject to the direction and
control of the Board, shall devote all of CARMONA'S productive time, attention
and energies to discharging, and shall perform, such executive duties and
managerial responsibilities as may from time to time be specified by EMPLOYER,
and will use CARMONA'S best efforts to promote the interests of EMPLOYER and
its subsidiaries and affiliates. The performance of such duties and
responsibilities shall be CARMONA'S exclusive employment for compensation;
provided, however, that nothing herein contained shall be deemed to limit
CARMONA'S right to engage in other activities that do not interfere with
CARMONA'S duties hereunder, with the consent of the Board.
2. COMPENSATION.
(a) As compensation for the services to be rendered by
CARMONA hereunder during the term of CARMONA'S employment, including all
services to be rendered as an officer and executive of EMPLOYER, its
subsidiaries and affiliates, EMPLOYER agrees to pay CARMONA a Base Salary as
defined and in accordance with the
<PAGE> 2
terms of Section 2 (a) (i) herein, plus a Bonus as defined and in accordance
with the terms of Section 2 (a) (ii) herein:
(i) During the term of this Agreement, EMPLOYER
shall pay CARMONA a salary at an annual base rate of one hundred fifty
thousand dollars ($150,000) per year, which shall be adjusted annually to
reflect any increase from the previous year in the Consumer Price Index for the
Los Angeles, California area (the "Base Salary"). The applicable Base Salary
shall be payable not less frequently than monthly in accordance with the
regular salary procedure from time to time adopted by EMPLOYER. There shall be
deducted from all compensation paid to CARMONA such sums, including but not
limited to Social Security, income tax withholding, employment insurance, and
any and all other such deductions, as EMPLOYER is by law obligated to withhold.
(ii) In addition to the Base Salary, EMPLOYER shall
pay CARMONA an annual bonus earned as of December 31 of the respective year
(the "Bonus") to be paid to CARMONA upon issuance in due course of the
EMPLOYER'S annual certified financial report. The Bonus shall equal 5% of the
annual net pre-tax profits of Consolidated, CRC Washington and Lenders on a
combined basis, if Consolidated, CRC Washington and Lenders earn annual net
after tax profits (after payment of the Bonus and such bonuses to any other
employee who is entitled to receive a bonus from the EMPLOYER based upon the
same formula as set forth in this Section 2 (a) (ii)) in excess of six hundred
thousand dollars ($600,000) for the year (the "Minimum Annual Profits"). As
used in this Section 2 (a) (ii), net pre-tax profits and net after tax profits
refer to the net pre-tax profits and net after tax profits as determined under
generally accepted accounting principles. To the extent that the collective
bonus amounts of CARMONA and any other employee who is entitled to receive a
bonus from the EMPLOYER based upon the same formula as set forth in this
Section 2 (a) (ii) result in the reduction of annual net after tax profits of
EMPLOYER to an amount less than the Minimum Annual Profits, then the amount of
Bonus paid to CARMONA and the amount of bonus paid to such other employee shall
be reduced to such amount as will result in EMPLOYER retaining the respective
Minimum Annual Profits, and such amount shall be divided equally between each
of them.
(iii) CARMONA shall be reimbursed for CARMONA'S
reasonable and actual out-of-pocket expenses incurred by CARMONA in performance
of CARMONA'S duties and responsibilities hereunder, provided that CARMONA shall
first furnish to EMPLOYER proper vouchers and/or receipts.
(iv) CARMONA shall be entitled to participate in,
and shall be included in, such insurance, pension, profit sharing, stock
option, stock purchase, employee cash bonus pools, and other employee benefit
plans of EMPLOYER as are in effect from time to time during the term of this
Agreement and provided to other senior executive employees of EMPLOYER,
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<PAGE> 3
including, but not limited to, EMPLOYER'S Supplemental Executive Retirement
Plan (all of which are collectively referred to herein as the "Benefit Plans").
(v) CARMONA shall also be entitled to all
perquisites provided in accordance with EMPLOYER'S policy for senior management
executives from time to time in effect (all of which are collectively referred
to herein as the "Perquisites"). Notwithstanding the foregoing, in no event
shall each or any of the Perquisites provided pursuant to the terms of this
Section 2 (a) (v) be lesser in value than such perquisites as were provided to
CARMONA by Consolidated and in effect immediately prior to the transfer of
assets by Presidential to EMPLOYER. Perquisites provided pursuant to this
Section 2(a)(v) shall include, without limitation, use of an automobile or
automobile allowances, expense allowances, vacation days, sick days and
holidays, and medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental
disability, CARMONA shall fail or be unable to perform under this Agreement for
any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty (120) or more days during any consecutive
twelve-month period, EMPLOYER may, at its option, at any time thereafter, upon
written notice to CARMONA, terminate the employment relationship provided for
in this Agreement. In such event, CARMONA'S requirement to render services
hereunder and EMPLOYER'S requirement to compensate CARMONA hereunder shall
terminate and come to an end upon the date provided in such notice. In that
event, CARMONA shall be entitled to receive, as disability compensation: (i) a
lump sum payment to be paid on the effective date of termination pursuant to
this Section 3, which shall consist of the full annual Bonus earned, if any, at
the end of the prior year, (ii) CARMONA'S Base Salary for one year following
termination of this Agreement payable not less frequently than monthly, and
(iii) use of an automobile or automobile allowance, full automobile insurance
coverage, and health insurance coverage under any health insurance policies
maintained by EMPLOYER for its other senior executives, all of which shall be
provided pursuant to the terms of Section 2 (a) (v) herein and shall continue
to be provided without interruption for the greater of one year following the
effective date of termination pursuant to this Section 3 or the remainder of
the term of this Agreement. EMPLOYER may, at its option, apply for disability
income insurance and, if so, any obligation on the part of EMPLOYER to pay
CARMONA any payments on account of any physical or mental disability of CARMONA
as specified above, shall be reduced by the amount of any payments to CARMONA
under any such disability income policy. Any payments to CARMONA under any
state disability insurance shall not reduce the amount payable to CARMONA under
this Agreement.
4. DEATH. In the event of CARMONA'S death during the term
hereof, this Agreement shall terminate immediately. In such
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<PAGE> 4
event, CARMONA's personal representative shall be entitled to receive, as a
death benefit, in addition to any other payments which CARMONA's personal
representative may be entitled to receive under any Benefit Plans: (i) a lump
sum payment to be paid within five (5) days of CARMONA'S death equal to the
full annual Bonus earned by the CARMONA, at the end of the prior year; and (ii)
CARMONA'S Base Salary for one year following CARMONA'S death, payable not less
frequently than monthly.
EMPLOYER may maintain life insurance on the life of CARMONA in favor
of the EMPLOYER. CARMONA shall have no interest whatsoever in any such policy
or policies, except as otherwise provided in any split dollar life insurance
agreements, but CARMONA shall, at the request of EMPLOYER, submit to such
medical examinations, supply such information, consent to such blood tests and
execute such documents as may be required by the insurance company or companies
to whom EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge CARMONA at any
time for cause. "Cause" for discharge shall mean (i) theft or embezzlement by
CARMONA from EMPLOYER or its affiliates, (ii) fraud or other acts of dishonesty
by CARMONA in the conduct of EMPLOYER'S business or the fulfillment of
CARMONA'S assigned responsibilities hereunder, (iii) CARMONA'S conviction of,
or plea of nolo contendere to, any felony or any crime involving moral
turpitude, (iv) CARMONA'S willfully and knowingly taking any action which is
materially injurious to EMPLOYER'S business or reputation. Within 10 business
days following receipt of written notice of termination for Cause, CARMONA
shall have the right to demand and, if demanded, to receive within 30 days, an
opportunity to respond and defend himself before the Board and to have the
Board by resolution confirm by a three-fourths affirmative vote that EMPLOYER
has grounds to terminate CARMONA for Cause. If the Board does not determine
that Cause exists, CARMONA shall have the option to treat his employment as not
having terminated or as having been terminated by EMPLOYER without cause as
defined in Section 6 herein. Without limiting the foregoing, nothing in this
Section 5 shall be construed to require that CARMONA demand a hearing before
the Board as a condition to pursuing any claim or action with respect to the
matters contained in this Agreement. The occurrence of any event constituting
cause for discharge shall permit, but not require, EMPLOYER to terminate
CARMONA for Cause; provided, however, that EMPLOYER'S decision not to terminate
the CARMONA upon the occurrence of an event constituting cause for discharge
shall not operate as a waiver of its rights provided in this Section 5 or
otherwise.
If EMPLOYER terminates CARMONA for Cause, EMPLOYER shall be
obligated to provide to CARMONA only the Base Salary provided for in Section 2
(a) (i) herein through the date of termination of CARMONA at the rate in effect
on the date of such termination.
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<PAGE> 5
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, CARMONA shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2
(a) (v) herein and shall continue to be provided without interruption for six
months following the effective date of termination pursuant to this Section 6.
Upon termination pursuant to this Section 6, EMPLOYER shall additionally pay to
CARMONA a lump sum payment, to be paid on the effective date of termination
pursuant to this Section 6, which shall consist of: (i) one-half of the full
annual Base Salary, and (ii) the cash value of all vacation, holiday and sick
days which have accrued up to the date of termination and which would have
accrued for six months following termination pursuant to this Section 6.
Finally, on the earlier of ten (10) days after the issuance of EMPLOYER'S
annual certified financial report or one hundred and twenty (120) days after
the end of the fiscal year in which termination pursuant to this Section 6
takes place, EMPLOYER shall also pay to CARMONA the lesser of one-half of the
annual Bonus compensation earned by CARMONA at the end of the prior year or
one-half of the annual Bonus compensation which would have been earned by
CARMONA if CARMONA had continued to be employed under this Agreement for the
year in which termination takes place. (The sum of all amounts and benefits to
be provided by EMPLOYER to CARMONA pursuant to this Section 6 is collectively
referred to herein as the "Termination Payment".)
7. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle CARMONA to compensation from EMPLOYER in the same
amount and on the same terms as he would be entitled to hereunder if EMPLOYER
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in
this Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, CARMONA'S personal or legal representatives, executors,
administrators, successors, heirs,
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<PAGE> 6
distributees, devisees and legatees. If CARMONA should die while any amount
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisees, legatee or other designees, or if
there is no such designee, to his estate.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that CARMONA learns of or
acquires through his employment by EMPLOYER; and 2. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which CARMONA is exposed or has access as a consequence
of his employment by EMPLOYER. All of the Proprietary Information is, and at
all times shall be and remain, private and confidential and is the sole and
exclusive property of, and owned and controlled by EMPLOYER, regardless of
whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which CARMONA acquired other than as a consequence of his employment by
EMPLOYER, such as in the course of similar employment or work elsewhere shall
not be deemed part of the Proprietary Information.
(b) All Proprietary Information shall be the sole
property of EMPLOYER, its successors and assigns, and EMPLOYER, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. CARMONA hereby assigns to EMPLOYER any
rights CARMONA may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. CARMONA further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. CARMONA will execute all documents for use in
applying for, obtaining and enforcing such Rights on such Proprietary
Information as EMPLOYER may desire, together with any assumptions thereof to
EMPLOYER or persons designated by it. CARMONA's obligation to assist EMPLOYER
or any
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<PAGE> 7
person designated by it in obtaining and enforcing Rights relating to
Proprietary Information shall continue beyond the cessation of his employment.
It is provided, however, that EMPLOYER shall compensate CARMONA at a reasonable
rate after the cessation of employment for time actually spent by CARMONA upon
EMPLOYER's request for such assistance. In the event that EMPLOYER is unable,
after reasonable effort, to secure CARMONA's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, CARMONA hereby irrevocably designates and appoints
EMPLOYER and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the same legal force and effect as if such acts were
performed by CARMONA.
(c) At all times, both during his employment and after
the cessation of employment, whether the cessation is voluntary or involuntary,
for any reason or no reason, or by disability, CARMONA will keep in strictest
confidence and trust all Proprietary Information, and CARMONA will not
disclose, use, or induce or assist in the use or disclosure of any Proprietary
Information or Rights pertaining to Proprietary Information, or anything
related thereto, without the prior, express written consent of EMPLOYER, except
as may be necessary in the ordinary course of performing his duties as an
employee of EMPLOYER. CARMONA recognizes that EMPLOYER has received and in the
future will receive from third parties their confidential, trade secret, or
Proprietary Information subject to a duty on EMPLOYER's part to maintain the
confidentiality of such information and to use it only in connection with the
performance of his duties as an employee of EMPLOYER. CARMONA agrees that
CARMONA owes EMPLOYER and such third parties, during his employment and
thereafter, a duty to hold all such confidential, trade secret, or Proprietary
Information in the strictest confidence, and CARMONA will not disclose, use, or
induce or assist in the use or disclosure of any such confidential, trade
secret, or Proprietary Information without the prior, express written consent
of EMPLOYER, except as may be necessary in the ordinary course of performing
his duties as an employee of EMPLOYER consistent with EMPLOYER's agreement with
such third party.
(d) CARMONA agrees that all material or other original
works of authorship written, created, or developed by CARMONA in connection
with his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of CARMONA's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States
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<PAGE> 8
Copyright Act (17 U.S.C. Section 101), and shall be the sole and absolute
property of EMPLOYER, its successors and assigns, and CARMONA agrees that
he/she does not have and will not claim to have, either under this Agreement or
otherwise, any right, title or interest of any kind or nature whatsoever in or
to said property.
(e) CARMONA will promptly disclose to EMPLOYER, and
EMPLOYER hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
CARMONA, either alone or jointly with others during the period of his
employment, for the purpose of permitting EMPLOYER to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, CARMONA will not
directly or indirectly engage in any activity which competes with EMPLOYER, or
which EMPLOYER shall determine in good faith to be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER. In addition, during his employment
and after the cessation of employment, CARMONA will not, alone or in concert
with others, or on his own behalf, or on behalf of any other person, in any way
use or disclose Proprietary Information in order to solicit, entice, or in any
way divert any broker to do business with any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER. During his employment, CARMONA agrees not
to plan or otherwise take any preliminary steps, either alone or in concert
with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER.
(b) During his employment and for a period of two (2)
years after the cessation of employment, CARMONA will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) CARMONA recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to EMPLOYER because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information
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used by EMPLOYER in its operations. In the event of his breach of those
obligations, CARMONA therefore agrees that EMPLOYER shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee
of EMPLOYER whom CARMONA solicits, diverts, recruits, or employs in violation
of this paragraph 9, and for each broker or mortgage loan customer of EMPLOYER
whom such former employee handled for EMPLOYER and whom the former employee
contacts or otherwise services or works with for his benefit or for the benefit
of anyone in privity with CARMONA, including any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER with whom CARMONA accepts employment in
breach of this paragraph 9, CARMONA shall pay EMPLOYER liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by EMPLOYER from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former employer
with EMPLOYER, and (ii) the amount of cost to EMPLOYER to recruit and train a
replacement for each such former employee plus the first six (6) month's salary
paid to the replacement(s) for the former employee. If the former employee was
not in a position of have contacts with brokers or to otherwise generate
business from mortgage loan customers, the liquidated damages shall be the
amount of the cost to EMPLOYER to recruit and train a replacement(s) for the
former employee. CARMONA further agrees that the cost to recruit and train
replacement(s) for each former employee as described in this paragraph 9 will
be part of EMPLOYER's damages and that the profit formula for former employees
who had broker or mortgage loan business contact, and the first six (6) months
salary paid to the replacement(s) for former employees, are conservative
estimates of the value, or a portion of the value, of the former employee to
EMPLOYER.
10. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
If to EMPLOYER:
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz, President and Chief
Executive Officer
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
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Attention: Catherine De Bono Holmes, Esq.
and
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to CARMONA:
Kenneth A. Carmona
__________________________
__________________________
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
11. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
12. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
13. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. CARMONA shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by CARMONA, if EMPLOYER,
or any stockholder of EMPLOYER contests the validity or enforceability of this
Agreement or any part hereof.
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The parties hereto have executed this Agreement on the day and year
first above written.
"CARMONA"
________________________________
KENNETH A. CARMONA
"EMPLOYER"
PACIFIC UNITED GROUP, INC.
By: _____________________________
Title:___________________________
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC UNITED GROUP, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and NORMAN A. MARKIEWICZ
(hereinafter referred to as "MARKIEWICZ") on the following terms and
conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. EMPLOYER hereby agrees to employ MARKIEWICZ as
Executive Vice President of EMPLOYER, Executive Vice President of Pacific
Unified Mortgage, Inc., a Delaware corporation ("PUM"), and Executive Vice
President of Pacific Thrift and Loan Company, Inc., a California corporation
("Pacific Thrift"), all of which are operating subsidiaries of the EMPLOYER,
for a one-year term, commencing on the date hereof, and MARKIEWICZ hereby
agrees to accept such employment for such term, subject to earlier termination
under the circumstances provided herein. The term of this Agreement shall be
extended automatically to cover successive terms of one year commencing on each
anniversary date of the date hereof after the initial one-year term, unless, at
least six months prior to the end of the initial term or any renewal term
hereof, MARKIEWICZ gives written notice to the Board of Directors of EMPLOYER
(the "Board"), or EMPLOYER gives written notice to MARKIEWICZ, of an intent to
terminate this Agreement at the end of such term.
(b) Duties. MARKIEWICZ, subject to the direction and
control of the Board, shall devote all of MARKIEWICZ'S productive time,
attention and energies to discharging, and shall perform, such executive duties
and managerial responsibilities as may from time to time be specified by
EMPLOYER, and will use MARKIEWICZ'S best efforts to promote the interests of
EMPLOYER and its subsidiaries and affiliates. The performance of such duties
and responsibilities shall be MARKIEWICZ'S exclusive employment for
compensation; provided, however, that nothing herein contained shall be deemed
to limit MARKIEWICZ'S right to engage in other activities that do not interfere
with MARKIEWICZ'S duties hereunder, with the consent of the Board.
2. COMPENSATION.
(a) In consideration for the services to be rendered by
MARKIEWICZ hereunder during the term of MARKIEWICZ'S employment, including all
services to be rendered as an officer and executive of EMPLOYER, its
subsidiaries and affiliates, EMPLOYER agrees to compensate MARKIEWICZ as
follows:
(i) During the term of this Agreement, EMPLOYER
shall pay MARKIEWICZ a salary at an annual base rate of one hundred thirty five
thousand dollars ($135,000) per year,
<PAGE> 2
which shall be adjusted annually to reflect any increase from the previous year
in the Consumer Price Index for the Los Angeles, California area (the "Base
Salary"). The applicable Base Salary shall be payable not less frequently than
monthly in accordance with the regular salary procedure from time to time
adopted by EMPLOYER. There shall be deducted from all compensation paid to
MARKIEWICZ such sums, including but not limited to Social Security, income tax
withholding, employment insurance, and any and all other such deductions, as
EMPLOYER is by law obligated to withhold.
(ii) MARKIEWICZ shall be reimbursed for
MARKIEWICZ'S reasonable and actual out-of-pocket expenses incurred by
MARKIEWICZ in performance of MARKIEWICZ'S duties and responsibilities
hereunder, provided that MARKIEWICZ shall first furnish to EMPLOYER proper
vouchers and/or receipts.
(iii) MARKIEWICZ shall be entitled to participate in,
and shall be included in, such insurance, pension, profit sharing, stock
option, stock purchase, employee cash bonus pools, and other employee benefit
plans of EMPLOYER as are in effect from time to time during the term of this
Agreement and provided to other senior executive employees of EMPLOYER,
including, but not limited to, EMPLOYER'S Supplemental Executive Retirement
Plan (all of which are collectively referred to herein as the "Benefit Plans").
(iv) MARKIEWICZ shall also be entitled to all
perquisites provided in accordance with EMPLOYER'S policy for senior management
executives from time to time in effect (all of which are collectively referred
to herein as the "Perquisites"). Notwithstanding the foregoing, in no event
shall each or any of the Perquisites provided pursuant to the terms of this
Section 2 (a) (iv) be lesser in value than such perquisites as were provided to
MARKIEWICZ by Pacific Thrift and/or Presidential Mortgage Company, a California
Partnership ("Presidential") and in effect immediately prior to the transfer of
assets by Presidential to EMPLOYER. Perquisites provided pursuant to this
Section 2(a) (iv) shall include, without limitation, use of an automobile or
automobile allowance, expense allowances, vacation days, sick days and
holidays, and medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental
disability, MARKIEWICZ shall fail or be unable to perform under this Agreement
for any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty (120) or more days during any consecutive
twelve-month period, EMPLOYER may, at its option, at any time thereafter, upon
written notice to MARKIEWICZ, terminate the employment relationship provided
for in this Agreement. In such event, MARKIEWICZ'S requirement to render
services hereunder and EMPLOYER'S requirement to compensate MARKIEWICZ
hereunder shall terminate and come to an end upon the date provided in such
notice. In
<PAGE> 3
that event, MARKIEWICZ shall be entitled to receive, as disability
compensation: (i) MARKIEWICZ'S Base Salary for one year following termination
of this Agreement payable not less frequently than monthly, and (ii) use of an
automobile or automobile allowance, full automobile insurance coverage, and
health insurance coverage under any health insurance policies maintained by
EMPLOYER for its other senior executives, all of which shall be provided
pursuant to the terms of Section 2 (a) (iv) herein and shall continue to be
provided without interruption for the greater of one year following the
effective date of termination pursuant to this Section 3 or the remainder of
the term of this Agreement. EMPLOYER may, at its option, apply for disability
income insurance and, if so, any obligation on the part of EMPLOYER to pay
MARKIEWICZ any payments on account of any physical or mental disability of
MARKIEWICZ as specified above, shall be reduced by the amount of any payments
to MARKIEWICZ under any such disability income policy. Any payments to
MARKIEWICZ under any state disability insurance shall not reduce the amount
payable to MARKIEWICZ under this Agreement.
4. DEATH. In the event of MARKIEWICZ'S death during the term
hereof, this Agreement shall terminate immediately. In such event,
MARKIEWICZ's personal representative shall be entitled to receive, as a death
benefit, in addition to any other payments which MARKIEWICZ's personal
representative may be entitled to receive under any Benefit Plans, MARKIEWICZ'S
Base Salary for one year following MARKIEWICZ'S death, payable not less
frequently than monthly.
EMPLOYER may maintain life insurance on the life of MARKIEWICZ in
favor of the EMPLOYER. MARKIEWICZ shall have no interest whatsoever in any
such policy or policies, except as otherwise provided in any split dollar life
insurance agreements, but MARKIEWICZ shall, at the request of EMPLOYER, submit
to such medical examinations, supply such information, consent to such blood
tests and execute such documents as may be required by the insurance company or
companies to whom EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge MARKIEWICZ at
any time for cause. "Cause" for discharge shall mean (i) theft or embezzlement
by MARKIEWICZ from EMPLOYER or its affiliates, (ii) fraud or other acts of
dishonesty by MARKIEWICZ in the conduct of EMPLOYER'S business or the
fulfillment of MARKIEWICZ'S assigned responsibilities hereunder, (iii)
MARKIEWICZ'S conviction of, or plea of nolo contendere to, any felony or any
crime involving moral turpitude, (iv) MARKIEWICZ'S willfully and knowingly
taking any action which is materially injurious to EMPLOYER'S business or
reputation. Within 10 business days following receipt of written notice of
termination for Cause, MARKIEWICZ shall have the right to demand and, if
demanded, to receive within 30 days, an opportunity to respond and defend
himself before the Board and to have the Board by resolution confirm by a
three-fourths affirmative vote that
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<PAGE> 4
EMPLOYER has grounds to terminate MARKIEWICZ for Cause. If the Board does not
determine that Cause exists, MARKIEWICZ shall have the option to treat his
employment as not having terminated or as having been terminated by EMPLOYER
without cause as defined in Section 6 herein. Without limiting the foregoing,
nothing in this Section 5 shall be construed to require that MARKIEWICZ demand
a hearing before the Board as a condition to pursuing any claim or action with
respect to the matters contained in this Agreement. The occurrence of any event
constituting cause for discharge shall permit, but not require, EMPLOYER to
terminate MARKIEWICZ for Cause; provided, however, that EMPLOYER'S decision not
to terminate the MARKIEWICZ upon the occurrence of an event constituting cause
for discharge shall not operate as a waiver of its rights provided in this
Section 5 or otherwise.
If EMPLOYER terminates MARKIEWICZ for Cause, EMPLOYER shall be
obligated to provide to MARKIEWICZ only the Base Salary provided for in Section
2 (a) (i) herein through the date of termination of MARKIEWICZ at the rate in
effect on the date of such termination.
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, MARKIEWICZ shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2
(a) (iv) herein and shall continue to be provided without interruption for six
months following the effective date of termination pursuant to this Section 6.
Upon termination pursuant to this Section 6, EMPLOYER shall additionally pay to
MARKIEWICZ a lump sum payment, to be paid on the effective date of termination
pursuant to this Section 6, which shall consist of: (i) one-half of the full
annual Base Salary, and (ii) the cash value of all vacation, holiday and sick
days which have accrued up to the date of termination and which would have
accrued for six months following termination pursuant to this Section 6. (The
sum of all amounts and benefits to be provided by EMPLOYER to MARKIEWICZ
pursuant to this Section 6 is collectively referred to herein as the
"Termination Payment".)
7. CORPORATE CHANGES.
(a) Definition. MARKIEWICZ may terminate his employment
hereunder upon thirty (30) days written notice at any time within one year
following the occurrence of a Corporate Change. For purposes of this Section
7, a "Corporate Change" shall be deemed to have occurred upon the occurrence of
any one (or more) of the following events: (i) a transaction in which EMPLOYER
ceases to be an independent publicly owned corporation that is required to file
quarterly and annual reports under the Securities Exchange Act of 1934, (ii) a
sale or other disposition of all or substantially all of the assets, or a
majority of the
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<PAGE> 5
outstanding capital stock, of EMPLOYER (including but not limited to the assets
or stock of EMPLOYER'S subsidiaries that results in all or substantially all of
the assets or stock of EMPLOYER on a consolidated basis being sold), (iii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets, or contested election for the
Board, or combination of the foregoing, persons who were directors of EMPLOYER
just prior to such event(s) shall cease to constitute a majority of the Board,
(iv) any person, including a group as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
shares of EMPLOYER with respect to which twenty percent (20%) or more of the
total number of votes for the election of the Board may be cast, (v) EMPLOYER'S
stockholders cause a change in the majority of the members of the Board within
a twelve (12) month period; provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period, or (vi) a tender offer or exchange
offer is made for shares of the EMPLOYER'S common stock (other than one made by
the EMPLOYER) and shares of common stock are acquired thereunder.
(b) Payments. Upon termination of employment pursuant to
this Section 7, MARKIEWICZ shall be entitled to use of an automobile or
automobile allowance, full automobile insurance coverage, and health insurance
coverage under any health insurance policies maintained by EMPLOYER for its
other senior executive officers, all of which shall be provided pursuant to the
terms of Section 2 (a) (iv) herein and shall continue to be provided without
interruption for six months following the effective date of termination
pursuant to this Section 7. Upon termination pursuant to this Section 7,
EMPLOYER shall additionally pay to MARKIEWICZ a lump sum payment, to be paid
within five (5) days after the date of MARKIEWICZ'S notice pursuant to Section
7 (a) herein, which shall consist of: (i) one-half of the full annual Base
Salary, and (ii) the cash value of all vacation, holiday and sick days which
have accrued up to the date of termination and which would have accrued for six
months following termination pursuant to this Section 7. (The sum of all
amounts and benefits to be provided by EMPLOYER to MARKIEWICZ pursuant to this
Section 7 (b) is collectively referred to herein as the "Corporate Changes
Termination Payment"). Notwithstanding the foregoing, if MARKIEWICZ gives
notice of termination pursuant to this Section 7 prior to the closing of a
transaction referred to in Section 7(a)(i) or (ii) hereof, the Corporate
Changes Termination Payment must be made a condition to and must be paid on the
date of the closing of such a transaction.
(c) Tax Limitations on Corporate Changes Payments. If
the aggregate of all payments, including but not limited to, the Corporate
Changes Termination Payment that is to
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<PAGE> 6
be paid to MARKIEWICZ contingent on those Corporate Changes specified in
Section 7 (a) herein (the "Aggregate Amount"), would constitute a "parachute
payment" (as defined in Section 280 G of the Internal Revenue Code of 1986, as
amended or supplemented (the "Code"), the Corporate Changes Termination Payment
otherwise payable to the MARKIEWICZ pursuant to Section 7 (b) herein shall be
equal to the higher of: (i) the amount (referred to herein as the "Reduced
Amount") that would result in no portion of the Aggregate Amount being subject
to the excise tax imposed by Section 4999 of the Code, or (ii) the full
Aggregate Amount if the net after tax payments to MARKIEWICZ would exceed the
Reduced Amount. The determination of the Corporate Changes Termination
Payment, the Reduced Amount and the net after tax amount payable to MARKIEWICZ
on the full Aggregate Amount shall be made by the MARKIEWICZ and the EMPLOYER
in good faith, and in the event they disagree, such determination shall be made
by means of arbitration to be conducted at the EMPLOYER'S expense. Any such
arbitration shall be conducted in Los Angeles, California, by one arbitrator,
who shall be a member of a nationally recognized accounting firm that is not
then engaged by the EMPLOYER or any of its major stockholders, and who shall be
jointly designated by the parties. If the parties cannot agree on the selection
of an arbitrator, EMPLOYER'S then current independent auditors shall select
such arbitrator. The findings of the arbitrator shall be conclusive and
binding on the parties. For purposes of this Section 7(c), the net after tax
amount payable to MARKIEWICZ shall mean the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of any payment or distribution
in the nature of compensation to or for MARKIEWICZ'S benefit, whether paid or
payable pursuant to this Agreement or otherwise, net of all taxes imposed on
the MARKIEWICZ with respect thereto under Sections 1 and 4999 of the Code,
determined by applying the highest marginal rate under Section 1 of the Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that MARKIEWICZ learns of or
acquires through his employment by EMPLOYER; and 2. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which MARKIEWICZ is exposed or has access as a
consequence of his employment by EMPLOYER. All of the
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<PAGE> 7
Proprietary Information is, and at all times shall be and remain, private and
confidential and is the sole and exclusive property of, and owned and
controlled by EMPLOYER, regardless of whether such Proprietary Information is
in tangible or intangible form. The parties understand that information that
is generally known to the public, or which MARKIEWICZ acquired other than as a
consequence of his employment by EMPLOYER, such as in the course of similar
employment or work elsewhere shall not be deemed part of the Proprietary
Information.
(b) All Proprietary Information shall be the sole
property of EMPLOYER, its successors and assigns, and EMPLOYER, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. MARKIEWICZ hereby assigns to EMPLOYER
any rights MARKIEWICZ may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. MARKIEWICZ further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. MARKIEWICZ will execute all documents for use in
applying for, obtaining and enforcing such Rights on such Proprietary
Information as EMPLOYER may desire, together with any assumptions thereof to
EMPLOYER or persons designated by it. MARKIEWICZ's obligation to assist
EMPLOYER or any person designated by it in obtaining and enforcing Rights
relating to Proprietary Information shall continue beyond the cessation of his
employment. It is provided, however, that EMPLOYER shall compensate MARKIEWICZ
at a reasonable rate after the cessation of employment for time actually spent
by MARKIEWICZ upon EMPLOYER's request for such assistance. In the event that
EMPLOYER is unable, after reasonable effort, to secure MARKIEWICZ's signature
on any document or documents needed to apply for or enforce any Right relating
to Proprietary Information, whether because of his physical or mental
incapacity or for any other reason whatsoever, MARKIEWICZ hereby irrevocably
designates and appoints EMPLOYER and its duly authorized officers and agents as
his agents and attorneys-in-fact to act for and in his behalf and stead in the
execution and filing of any such application and in furthering the application
for an enforcement of Rights with the same legal force and effect as if such
acts were performed by MARKIEWICZ.
(c) At all times, both during his employment and after
the cessation of employment, whether the cessation is voluntary or involuntary,
for any reason or no reason, or by disability, MARKIEWICZ will keep in
strictest confidence and trust all Proprietary Information, and MARKIEWICZ will
not disclose, use, or induce or assist in the use or disclosure of any
Proprietary Information or Rights pertaining to Proprietary Information, or
anything related thereto, without the prior, express written consent of
EMPLOYER, except as may be necessary
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<PAGE> 8
in the ordinary course of performing his duties as an employee of EMPLOYER.
MARKIEWICZ recognizes that EMPLOYER has received and in the future will receive
from third parties their confidential, trade secret, or Proprietary Information
subject to a duty on EMPLOYER's part to maintain the confidentiality of such
information and to use it only in connection with the performance of his duties
as an employee of EMPLOYER. MARKIEWICZ agrees that MARKIEWICZ owes EMPLOYER
and such third parties, during his employment and thereafter, a duty to hold
all such confidential, trade secret, or Proprietary Information in the
strictest confidence, and MARKIEWICZ will not disclose, use, or induce or
assist in the use or disclosure of any such confidential, trade secret, or
Proprietary Information without the prior, express written consent of EMPLOYER,
except as may be necessary in the ordinary course of performing his duties as
an employee of EMPLOYER consistent with EMPLOYER's agreement with such third
party.
(d) MARKIEWICZ agrees that all material or other original
works of authorship written, created, or developed by MARKIEWICZ in connection
with his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of MARKIEWICZ's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101), and shall
be the sole and absolute property of EMPLOYER, its successors and assigns, and
MARKIEWICZ agrees that he/she does not have and will not claim to have, either
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to said property.
(e) MARKIEWICZ will promptly disclose to EMPLOYER, and
EMPLOYER hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
MARKIEWICZ, either alone or jointly with others during the period of his
employment, for the purpose of permitting EMPLOYER to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, MARKIEWICZ will
not directly or indirectly engage in any activity which competes with EMPLOYER,
or which EMPLOYER shall determine in good faith to be in competition with
EMPLOYER or any subsidiary or affiliate of EMPLOYER. In addition, during his
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<PAGE> 9
employment and after the cessation of employment, MARKIEWICZ will not, alone or
in concert with others, or on his own behalf, or on behalf of any other person,
in any way use or disclose Proprietary Information in order to solicit, entice,
or in any way divert any broker to do business with any competitor of EMPLOYER
or any subsidiary or affiliate of EMPLOYER. During his employment, MARKIEWICZ
agrees not to plan or otherwise take any preliminary steps, either alone or in
concert with others, or on his own behalf, or on behalf of any other person, to
set up or engage in any business enterprise that would be in competition with
EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(b) During his employment and for a period of two (2)
years after the cessation of employment, MARKIEWICZ will not, either directly
or indirectly, either alone or in concert with others or on his own behalf or
on behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) MARKIEWICZ recognizes that the immediate and
continuous performance of his obligations in this paragraph 9 is extremely
important and valuable to EMPLOYER because of the extensive and costly training
given to its employees and the knowledge gained by such employees of the
Proprietary Information used by EMPLOYER in its operations. In the event of
his breach of those obligations, MARKIEWICZ therefore agrees that EMPLOYER
shall be entitled to estimated or liquidated damages, as defined herein. For
each former employee of EMPLOYER whom MARKIEWICZ solicits, diverts, recruits,
or employs in violation of this paragraph 9, and for each broker or mortgage
loan customer of EMPLOYER whom such former employee handled for EMPLOYER and
whom the former employee contacts or otherwise services or works with for his
benefit or for the benefit of anyone in privity with MARKIEWICZ, including any
competitor of EMPLOYER or any subsidiary or affiliate of EMPLOYER with whom
MARKIEWICZ accepts employment in breach of this paragraph 9, MARKIEWICZ shall
pay EMPLOYER liquidated damages. The liquidated damages for each such broker
or customer shall be (i) the amount of profit earned by EMPLOYER from mortgage
loan referrals from each broker, or the amount of profit earned on loans to
each mortgage loan customer, during the twelve (12) months immediately
preceding termination of such former employer with EMPLOYER, and (ii) the
amount of cost to EMPLOYER to recruit and train a replacement for each such
former employee plus the first six (6) month's salary paid to the
replacement(s) for the former employee. If the former employee was not in a
position of have contacts with brokers or to otherwise generate business from
mortgage loan customers, the liquidated damages shall be the amount of the cost
to EMPLOYER to recruit and train a replacement(s) for the former employee.
MARKIEWICZ further agrees that the cost to recruit and train
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replacement(s) for each former employee as described in this paragraph 9 will
be part of EMPLOYER's damages and that the profit formula for former employees
who had broker or mortgage loan business contact, and the first six (6) months
salary paid to the replacement(s) for former employees, are conservative
estimates of the value, or a portion of the value, of the former employee to
EMPLOYER.
10. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle MARKIEWICZ to compensation from EMPLOYER in the
same amount and on the same terms as he would be entitled to hereunder if
EMPLOYER were to terminate employment pursuant to Section 7 hereof, except that
for purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in
this Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, MARKIEWICZ'S personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
MARKIEWICZ should die while any amount would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to his
devisees, legatee or other designees, or if there is no such designee, to his
estate.
11. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
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If to EMPLOYER:
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz, President and Chief
Executive Officer
with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to MARKIEWICZ:
Norman A. Markiewicz
__________________________
__________________________
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
12. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
13. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
14. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. MARKIEWICZ shall be
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deemed to be the prevailing party if he is awarded any amounts in any such
proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by MARKIEWICZ, if
EMPLOYER, or any stockholder of EMPLOYER contests the validity or
enforceability of this Agreement or any part hereof.
The parties hereto have executed this Agreement on the day and year
first above written.
"MARKIEWICZ"
________________________________
NORMAN A. MARKIEWICZ
"EMPLOYER"
PACIFIC UNITED GROUP, INC.
By: _____________________________
Title:___________________________
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC UNITED GROUP, INC., a Delaware
corporation (hereinafter referred to as "EMPLOYER") and RICHARD B. FREMED
(hereinafter referred to as "FREMED"), on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. EMPLOYER hereby agrees to employ FREMED as
Chief Financial Officer of EMPLOYER, Chief Financial Officer of Pacific Unified
Mortgage, Inc., a Delaware corporation ("PUM"), Chief Financial Officer of
Consolidated Reconveyance Corporation, a California corporation
("Consolidated"), Chief Financial Officer of Lenders Posting and Publishing
Corporation, a California corporation ("Lenders") and Treasurer of Pacific
Thrift and Loan Company, Inc., a California corporation ("Pacific Thrift"), all
of which are operating subsidiaries of the EMPLOYER, for a one-year term,
commencing on the date hereof, and FREMED hereby agrees to accept such
employment for such term, subject to earlier termination under the
circumstances provided herein. The term of this Agreement shall be extended
automatically to cover successive terms of one year commencing on each
anniversary date of the date hereof after the initial one-year term, unless, at
least six months prior to the end of the initial term or any renewal term
hereof, FREMED gives written notice to the Board of Directors of EMPLOYER (the
"Board"), or EMPLOYER gives written notice to FREMED, of an intent to terminate
this Agreement at the end of such term.
(b) Duties. FREMED, subject to the direction and control
of the Board, shall devote all of FREMED'S productive time, attention and
energies to discharging, and shall perform, such executive duties and
managerial responsibilities as may from time to time be specified by EMPLOYER,
and will use FREMED'S best efforts to promote the interests of EMPLOYER and its
subsidiaries and affiliates. The performance of such duties and
responsibilities shall be FREMED'S exclusive employment for compensation;
provided, however, that nothing herein contained shall be deemed to limit
FREMED'S right to engage in other activities that do not interfere with
FREMED'S duties hereunder, with the consent of the Board.
2. COMPENSATION.
(a) In consideration for the services to be rendered by
FREMED hereunder during the term of FREMED'S employment, including all services
to be rendered as an officer and executive of EMPLOYER, its subsidiaries and
affiliates, EMPLOYER agrees to compensate FREMED as follows:
<PAGE> 2
(i) During the term of this Agreement, EMPLOYER
shall pay FREMED a salary at an annual base rate of one hundred twenty five
thousand dollars ($125,000) per year, which shall be adjusted annually to
reflect any increase from the previous year in the Consumer Price Index for the
Los Angeles, California area (the "Base Salary"). The applicable Base Salary
shall be payable not less frequently than monthly in accordance with the
regular salary procedure from time to time adopted by EMPLOYER. There shall be
deducted from all compensation paid to FREMED such sums, including but not
limited to Social Security, income tax withholding, employment insurance, and
any and all other such deductions, as EMPLOYER is by law obligated to withhold.
(ii) FREMED shall be reimbursed for FREMED'S
reasonable and actual out-of-pocket expenses incurred by FREMED in performance
of FREMED'S duties and responsibilities hereunder, provided that FREMED shall
first furnish to EMPLOYER proper vouchers and/or receipts.
(iii) FREMED shall be entitled to participate in, and
shall be included in, such insurance, pension, profit sharing, stock option,
stock purchase, employee cash bonus pools, and other employee benefit plans of
EMPLOYER as are in effect from time to time during the term of this Agreement
and provided to other senior executive employees of EMPLOYER, including, but
not limited to, EMPLOYER'S Supplemental Executive Retirement Plan (all of which
are collectively referred to herein as the "Benefit Plans").
(iv) FREMED shall also be entitled to all
perquisites provided in accordance with EMPLOYER'S policy for senior management
executives from time to time in effect (all of which are collectively referred
to herein as the "Perquisites"). Notwithstanding the foregoing, in no event
shall each or any of the Perquisites provided pursuant to the terms of this
Section 2 (a) (iv) be lesser in value than such perquisites as were provided to
FREMED by Pacific Thrift and/or Presidential Mortgage Company, a California
Partnership ("Presidential") and in effect immediately prior to the transfer of
assets by Presidential to EMPLOYER. Perquisites provided pursuant to this
Section 2 (a) (iv) shall include, without limitation, use of an automobile or
automobile allowances, expense allowances, vacation days, sick days and
holidays, and medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental
disability, FREMED shall fail or be unable to perform under this Agreement for
any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty (120) or more days during any consecutive
twelve-month period, EMPLOYER may, at its option, at any time thereafter, upon
written notice to FREMED, terminate the employment relationship provided for in
this Agreement. In such event, FREMED'S requirement to
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render services hereunder and EMPLOYER'S requirement to compensate FREMED
hereunder shall terminate and come to an end upon the date provided in such
notice. In that event, FREMED shall be entitled to receive, as disability
compensation: (i) FREMED'S Base Salary for one year following termination of
this Agreement payable not less frequently than monthly, and (ii) use of an
automobile or automobile allowance, full automobile insurance coverage, and
health insurance coverage under any health insurance policies maintained by
EMPLOYER for its other senior executives, all of which shall be provided
pursuant to the terms of Section 2 (a) (iv) herein and shall continue to be
provided without interruption for the greater of one year following the
effective date of termination pursuant to this Section 3 or the remainder of
the term of this Agreement. EMPLOYER may, at its option, apply for disability
income insurance and, if so, any obligation on the part of EMPLOYER to pay
FREMED any payments on account of any physical or mental disability of FREMED
as specified above, shall be reduced by the amount of any payments to FREMED
under any such disability income policy. Any payments to FREMED under any
state disability insurance shall not reduce the amount payable to FREMED under
this Agreement.
4. DEATH. In the event of FREMED'S death during the term hereof,
this Agreement shall terminate immediately. In such event, FREMED's personal
representative shall be entitled to receive, as a death benefit, in addition to
any other payments which FREMED's personal representative may be entitled to
receive under any Benefit Plans, FREMED'S Base Salary for one year following
FREMED'S death, payable not less frequently than monthly.
EMPLOYER may maintain life insurance on the life of FREMED in favor of
the EMPLOYER. FREMED shall have no interest whatsoever in any such policy or
policies, except as otherwise provided in any split dollar life insurance
agreements, but FREMED shall, at the request of EMPLOYER, submit to such
medical examinations, supply such information, consent to such blood tests and
execute such documents as may be required by the insurance company or companies
to whom EMPLOYER has applied for such insurance.
5. TERMINATION FOR CAUSE. EMPLOYER may discharge FREMED at any
time for cause. "Cause" for discharge shall mean (i) theft or embezzlement by
FREMED from EMPLOYER or its affiliates, (ii) fraud or other acts of dishonesty
by FREMED in the conduct of EMPLOYER'S business or the fulfillment of FREMED'S
assigned responsibilities hereunder, (iii) FREMED'S conviction of, or plea of
nolo contendere to, any felony or any crime involving moral turpitude, (iv)
FREMED'S willfully and knowingly taking any action which is materially
injurious to EMPLOYER'S business or reputation. Within 10 business days
following receipt of written notice of termination for Cause, FREMED shall have
the right to demand and, if demanded, to receive within 30
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<PAGE> 4
days, an opportunity to respond and defend himself before the Board and to have
the Board by resolution confirm by a three-fourths affirmative vote that
EMPLOYER has grounds to terminate FREMED for Cause. If the Board does not
determine that Cause exists, FREMED shall have the option to treat his
employment as not having terminated or as having been terminated by EMPLOYER
without cause as defined in Section 6 herein. Without limiting the foregoing,
nothing in this Section 5 shall be construed to require that FREMED demand a
hearing before the Board as a condition to pursuing any claim or action with
respect to the matters contained in this Agreement. The occurrence of any event
constituting cause for discharge shall permit, but not require, EMPLOYER to
terminate FREMED for Cause; provided, however, that EMPLOYER'S decision not to
terminate the FREMED upon the occurrence of an event constituting cause for
discharge shall not operate as a waiver of its rights provided in this Section
5 or otherwise.
If EMPLOYER terminates FREMED for Cause, EMPLOYER shall be obligated
to provide to FREMED only the Base Salary provided for in Section 2 (a) (i)
herein through the date of termination of FREMED at the rate in effect on the
date of such termination.
6. TERMINATION WITHOUT CAUSE. Should EMPLOYER terminate this
Agreement for reasons other than those specified in Sections 3, 4, 5, or 7
herein, FREMED shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executives, all of which shall be provided pursuant to the terms of Section 2
(a) (iv) herein and shall continue to be provided without interruption for six
months following the effective date of termination pursuant to this Section 6.
Upon termination pursuant to this Section 6, EMPLOYER shall additionally pay to
FREMED a lump sum payment, to be paid on the effective date of termination
pursuant to this Section 6, which shall consist of: (i) one-half of the full
annual Base Salary, and (ii) the cash value of all vacation, holiday and sick
days which have accrued up to the date of termination and which would have
accrued for six months following termination pursuant to this Section 6. (The
sum of all amounts and benefits to be provided by EMPLOYER to FREMED pursuant
to this Section 6 is collectively referred to herein as the "Termination
Payment".)
7. CORPORATE CHANGES.
(a) Definition. FREMED may terminate his employment
hereunder upon thirty (30) days written notice at any time within one year
following the occurrence of a Corporate Change. For purposes of this Section
7, a "Corporate Change" shall be deemed to have occurred upon the occurrence of
any one (or more) of the following events: (i) a transaction in which EMPLOYER
ceases to be an independent publicly owned corporation that is required to file
quarterly and annual reports under the
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Securities Exchange Act of 1934, (ii) a sale or other disposition of all or
substantially all of the assets, or a majority of the outstanding capital
stock, of EMPLOYER (including but not limited to the assets or stock of
EMPLOYER'S subsidiaries that results in all or substantially all of the assets
or stock of EMPLOYER on a consolidated basis being sold), (iii) as a result of,
or in connection with, any cash tender offer, exchange offer, merger or other
business combination, sale of assets, or contested election for the Board, or
combination of the foregoing, persons who were directors of EMPLOYER just prior
to such event(s) shall cease to constitute a majority of the Board, (iv) any
person, including a group as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the beneficial owner of shares of
EMPLOYER with respect to which twenty percent (20%) or more of the total number
of votes for the election of the Board may be cast, (v) EMPLOYER'S stockholders
cause a change in the majority of the members of the Board within a twelve (12)
month period; provided, however, that the election of one or more new directors
shall not be deemed to be a change in the membership of the Board if the
nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period, or (vi) a tender offer or exchange
offer is made for shares of the EMPLOYER'S common stock (other than one made by
the EMPLOYER) and shares of common stock are acquired thereunder.
(b) Payments. Upon termination of employment pursuant to
this Section 7, FREMED shall be entitled to use of an automobile or automobile
allowance, full automobile insurance coverage, and health insurance coverage
under any health insurance policies maintained by EMPLOYER for its other senior
executive officers, all of which shall be provided pursuant to the terms of
Section 2 (a) (iv) herein and shall continue to be provided without
interruption for six months following the effective date of termination
pursuant to this Section 7. Upon termination pursuant to this Section 7,
EMPLOYER shall additionally pay to FREMED a lump sum payment, to be paid within
five (5) days after the date of FREMED'S notice pursuant to Section 7 (a)
herein, which shall consist of: (i) one-half of the full annual Base Salary,
and (ii) the cash value of all vacation, holiday and sick days which have
accrued up to the date of termination and which would have accrued for six
months following termination pursuant to this Section 7. (The sum of all
amounts and benefits to be provided by EMPLOYER to FREMED pursuant to this
Section 7 (b) is collectively referred to herein as the "Corporate Changes
Termination Payment"). Notwithstanding the foregoing, if FREMED gives notice
of termination pursuant to this Section 7 prior to the closing of a transaction
referred to in Section 7(a)(i) or (ii) hereof, the Corporate Changes
Termination Payment must be made a condition to and must be paid on the date of
the closing of such a transaction.
(c) Tax Limitations on Corporate Changes Payments. If
the aggregate of all payments, including but not
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limited to, the Corporate Changes Termination Payment that is to be paid to
FREMED contingent on those Corporate Changes specified in Section 7 (a) herein
(the "Aggregate Amount"), would constitute a "parachute payment" (as defined in
Section 280 G of the Internal Revenue Code of 1986, as amended or supplemented
(the "Code"), the Corporate Changes Termination Payment otherwise payable to
the FREMED pursuant to Section 7 (b) herein shall be equal to the higher of:
(i) the amount (referred to herein as the "Reduced Amount") that would result
in no portion of the Aggregate Amount being subject to the excise tax imposed
by Section 4999 of the Code, or (ii) the full Aggregate Amount if the net after
tax payments to FREMED would exceed the Reduced Amount. The determination of
the Corporate Changes Termination Payment, the Reduced Amount and the net after
tax amount payable to FREMED on the full Aggregate Amount shall be made by the
FREMED and the EMPLOYER in good faith, and in the event they disagree, such
determination shall be made by means of arbitration to be conducted at the
EMPLOYER'S expense. Any such arbitration shall be conducted in Los Angeles,
California, by one arbitrator, who shall be a member of a nationally recognized
accounting firm that is not then engaged by the EMPLOYER or any of its major
stockholders, and who shall be jointly designated by the parties. If the
parties cannot agree on the selection of an arbitrator, EMPLOYER'S then current
independent auditors shall select such arbitrator. The findings of the
arbitrator shall be conclusive and binding on the parties. For purposes of
this Section 7(c), the net after tax amount payable to FREMED shall mean the
present value, as determined in accordance with Section 280G(d)(4) of the Code,
of any payment or distribution in the nature of compensation to or for FREMED'S
benefit, whether paid or payable pursuant to this Agreement or otherwise, net
of all taxes imposed on the FREMED with respect thereto under Sections 1 and
4999 of the Code, determined by applying the highest marginal rate under
Section 1 of the Code.
8. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about EMPLOYER's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that FREMED learns of or
acquires through his employment by EMPLOYER; and 2. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which FREMED is exposed or has access as a
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consequence of his employment by EMPLOYER. All of the Proprietary Information
is, and at all times shall be and remain, private and confidential and is the
sole and exclusive property of, and owned and controlled by EMPLOYER,
regardless of whether such Proprietary Information is in tangible or intangible
form. The parties understand that information that is generally known to the
public, or which FREMED acquired other than as a consequence of his employment
by EMPLOYER, such as in the course of similar employment or work elsewhere
shall not be deemed part of the Proprietary Information.
(b) All Proprietary Information shall be the sole
property of EMPLOYER, its successors and assigns, and EMPLOYER, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. FREMED hereby assigns to EMPLOYER any
rights FREMED may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. FREMED further agrees as to all
Proprietary Information to assist EMPLOYER or any person designated by it in
every necessary or appropriate manner (but at EMPLOYER's expense) to obtain and
from time to time enforce Rights relating to said Proprietary Information
throughout the universe. FREMED will execute all documents for use in applying
for, obtaining and enforcing such Rights on such Proprietary Information as
EMPLOYER may desire, together with any assumptions thereof to EMPLOYER or
persons designated by it. FREMED's obligation to assist EMPLOYER or any person
designated by it in obtaining and enforcing Rights relating to Proprietary
Information shall continue beyond the cessation of his employment. It is
provided, however, that EMPLOYER shall compensate FREMED at a reasonable rate
after the cessation of employment for time actually spent by FREMED upon
EMPLOYER's request for such assistance. In the event that EMPLOYER is unable,
after reasonable effort, to secure FREMED's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, FREMED hereby irrevocably designates and appoints
EMPLOYER and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the same legal force and effect as if such acts were
performed by FREMED.
(c) At all times, both during his employment and after
the cessation of employment, whether the cessation is voluntary or involuntary,
for any reason or no reason, or by disability, FREMED will keep in strictest
confidence and trust all Proprietary Information, and FREMED will not disclose,
use, or induce or assist in the use or disclosure of any Proprietary
Information or Rights pertaining to Proprietary Information, or anything
related thereto, without the prior, express written
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consent of EMPLOYER, except as may be necessary in the ordinary course of
performing his duties as an employee of EMPLOYER. FREMED recognizes that
EMPLOYER has received and in the future will receive from third parties their
confidential, trade secret, or Proprietary Information subject to a duty on
EMPLOYER's part to maintain the confidentiality of such information and to use
it only in connection with the performance of his duties as an employee of
EMPLOYER. FREMED agrees that FREMED owes EMPLOYER and such third parties,
during his employment and thereafter, a duty to hold all such confidential,
trade secret, or Proprietary Information in the strictest confidence, and
FREMED will not disclose, use, or induce or assist in the use or disclosure of
any such confidential, trade secret, or Proprietary Information without the
prior, express written consent of EMPLOYER, except as may be necessary in the
ordinary course of performing his duties as an employee of EMPLOYER consistent
with EMPLOYER's agreement with such third party.
(d) FREMED agrees that all material or other original
works of authorship written, created, or developed by FREMED in connection with
his employment hereunder (whether alone or in conjunction with any other
person), and all rights of any and every kind whatsoever in and to the results
and proceeds of FREMED's services rendered hereunder, whether or not such
rights are now known, recognized or contemplated, and the complete,
unconditional and unencumbered ownership in and to such materials, results and
proceeds for all purposes whatsoever shall be "works for hire," as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101), and shall
be the sole and absolute property of EMPLOYER, its successors and assigns, and
FREMED agrees that he/she does not have and will not claim to have, either
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to said property.
(e) FREMED will promptly disclose to EMPLOYER, and
EMPLOYER hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
FREMED, either alone or jointly with others during the period of his
employment, for the purpose of permitting EMPLOYER to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
9. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, FREMED will not
directly or indirectly engage in any activity which competes with EMPLOYER, or
which EMPLOYER shall determine in good faith to be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER. In addition, during his employment
and
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after the cessation of employment, FREMED will not, alone or in concert with
others, or on his own behalf, or on behalf of any other person, in any way use
or disclose Proprietary Information in order to solicit, entice, or in any way
divert any broker to do business with any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER. During his employment, FREMED agrees not
to plan or otherwise take any preliminary steps, either alone or in concert
with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with EMPLOYER
or any subsidiary or affiliate of EMPLOYER.
(b) During his employment and for a period of two (2)
years after the cessation of employment, FREMED will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to EMPLOYER, or any subsidiary or affiliate of
EMPLOYER, to leave employment with or otherwise terminate employment with
EMPLOYER or any subsidiary or affiliate of EMPLOYER or work for any competitor
of EMPLOYER or any subsidiary or affiliate of EMPLOYER.
(c) FREMED recognizes that the immediate and continuous
performance of his obligations in this paragraph 9 is extremely important and
valuable to EMPLOYER because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by EMPLOYER in its operations. In the event of his breach of
those obligations, FREMED therefore agrees that EMPLOYER shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee
of EMPLOYER whom FREMED solicits, diverts, recruits, or employs in violation of
this paragraph 9, and for each broker or mortgage loan customer of EMPLOYER
whom such former employee handled for EMPLOYER and whom the former employee
contacts or otherwise services or works with for his benefit or for the benefit
of anyone in privity with FREMED, including any competitor of EMPLOYER or any
subsidiary or affiliate of EMPLOYER with whom FREMED accepts employment in
breach of this paragraph 9, FREMED shall pay EMPLOYER liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by EMPLOYER from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former employer
with EMPLOYER, and (ii) the amount of cost to EMPLOYER to recruit and train a
replacement for each such former employee plus the first six (6) month's salary
paid to the replacement(s) for the former employee. If the former employee was
not in a position of have contacts with brokers or to otherwise generate
business from mortgage loan customers, the liquidated damages shall be the
amount of the cost to EMPLOYER to recruit and train a replacement(s) for the
former employee. FREMED further agrees that the cost to recruit and train
replacement(s) for each former
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employee as described in this paragraph 9 will be part of EMPLOYER's damages
and that the profit formula for former employees who had broker or mortgage
loan business contact, and the first six (6) months salary paid to the
replacement(s) for former employees, are conservative estimates of the value,
or a portion of the value, of the former employee to EMPLOYER.
10. SUCCESSORS; BINDING AGREEMENT.
(a) EMPLOYER will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of EMPLOYER to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that EMPLOYER would be required to perform it if no such succession had taken
place. Any failure of EMPLOYER to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle FREMED to compensation from EMPLOYER in the same
amount and on the same terms as he would be entitled to hereunder if EMPLOYER
were to terminate employment pursuant to Section 7 hereof, except that for
purposes of implementing the foregoing, the day before any such succession
becomes effective shall be deemed the date that payment is due. As used in
this Agreement, "EMPLOYER" shall mean EMPLOYER as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be
enforceable by, FREMED'S personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
FREMED should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisees,
legatee or other designees, or if there is no such designee, to his estate.
11. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
If to EMPLOYER:
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Joel R. Schultz, President and Chief
Executive Officer
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with copies to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars
Los Angeles, CA 90067
Attention: Catherine De Bono Holmes, Esq.
and
Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Board of Directors
If to FREMED:
Richard B. Fremed
19917 Cantara Street
Canoga Park, CA 91306
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
12. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
13. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
14. ATTORNEY'S FEES.
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. FREMED shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) EMPLOYER shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by FREMED, if EMPLOYER,
or any stockholder of EMPLOYER contests the validity or enforceability of this
Agreement or any part hereof.
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The parties hereto have executed this Agreement on the day and year
first above written.
"FREMED"
________________________________
RICHARD B. FREMED
"EMPLOYER"
PACIFIC UNITED GROUP, INC.
By: _____________________________
Title:___________________________
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 1, 1996, by and between PACIFIC THRIFT AND LOAN COMPANY, a California
corporation (hereinafter referred to as "PACIFIC") and FRANK LANDINI
(hereinafter referred to as "LANDINI"), on the following terms and conditions:
1. TERM OF AGREEMENT; DUTIES.
(a) Term. PACIFIC hereby agrees to employ LANDINI as
Executive Vice President of PACIFIC, for a two-year term, commencing on the
date hereof, and LANDINI hereby agrees to accept such employment for such term,
subject to earlier termination under the circumstances provided herein. The
term of this Agreement shall be extended automatically to cover successive
terms of one year commencing on each anniversary date of the date hereof after
the initial two-year term, unless, at least six months prior to the end of the
initial term or any renewal term hereof, LANDINI gives written notice to the
President of PACIFIC, or PACIFIC gives written notice to LANDINI, of an intent
to terminate this Agreement at the end of such term.
(b) Duties. LANDINI, subject to the direction and
control of the President, shall devote all of LANDINI'S productive time,
attention and energies to discharging, and shall perform, such executive duties
and managerial responsibilities as may from time to time be specified by
PACIFIC, and will use LANDINI'S best efforts to promote the interests of
PACIFIC and its subsidiaries and affiliates. The performance of such duties
and responsibilities shall be LANDINI'S exclusive employment for compensation;
provided, however, that nothing herein contained shall be deemed to limit
LANDINI'S right, with the consent of the Board, to engage in other activities
that do not interfere with LANDINI'S duties hereunder.
2. COMPENSATION.
(a) As compensation for the services to be rendered by LANDINI
hereunder during the term of LANDINI'S employment, including all services to be
rendered as an officer and executive of PACIFIC, PACIFIC agrees to pay LANDINI
a Base Salary as defined and in accordance with the terms of Section 2 (a) (i)
herein, plus a Bonus as defined and in accordance with the terms of Section 2
(a) (ii) herein:
(i) During the term of this Agreement, PACIFIC shall pay
LANDINI a salary at an annual base rate of one hundred fifty thousand dollars
($150,000) per year, which shall be adjusted annually to reflect any increase
from the previous year in the Consumer Price Index for the Los Angeles,
California area (the "Base Salary"). The applicable Base Salary shall be
payable
<PAGE> 2
not less frequently than monthly in accordance with the regular salary
procedure from time to time adopted by PACIFIC. There shall be deducted from
all compensation paid to LANDINI such sums, including but not limited to Social
Security, income tax withholding, employment insurance, and any and all other
such deductions, as PACIFIC is by law obligated to withhold.
(ii) In addition to the Base Salary, LANDINI shall earn an
annual bonus (the "Bonus") based on the Pre-Tax Net Profits (as defined below)
of PACIFIC'S Securitizable Loan Division (the "Division"). The Bonus shall
equal the sum of (a) *confidentially requested* and (b) *confidentially
requested*. As used in this Section 2(a)(ii), the term "Pre-Tax Net
Profits" mean the sum of all Income (as defined below), less all Expenses (as
defined below) of the Division. The term "Income" shall include the following
with respect to all loans originated by the Division:
(1) premiums(1,2) on loan sales;
(2) all loan fees charged to borrowers on loans sold;
(3) all loan fees charged to borrowers on any unsold loans, as
earned;
(4) net interest income on all loans prior to their sale;
____________________
1/ For purposes of this Agreement, any deferred income included in premiums
on loan sales will be "present valued" to the extent permitted by regulatory,
accounting and internal policy. Any income earned in excess of the amount
"present valued" (on loans sold after December 31, 1995) will be credited only
as earned on PACIFIC's books.
2/ Notwithstanding the definition of Income set forth herein, should any
loans be securitized, directly or indirectly, by PACIFIC, or retained by
PACIFIC for its loan portfolio (except for any "piggyback" loans retained in
PACIFIC's portfolio); the premium from such loans shall be determined based
upon a formula to be mutually agreed upon by PACIFIC and LANDINI, which shall
reflect the parties' intent to determine premiums in such cases as equivalent
to the premiums that would have been received by PACIFIC had such loans been
sold.
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(5) net interest income on unsold and repurchased loans; and
(6) any other income collected as a result of the present loan
programs of the Division.
The term "Expenses" shall include all employee overhead expenses
related to the Division, except for expenses related to corporate
administration(3). Where personnel or premises are shared with other operations
of PACIFIC or its affiliates, a portion of such expense will be charged to the
Division, equal to the estimated allocation of use of such personnel or
premises by the Division, as determined by the President and Chief Executive
Officer of PACIFIC. Examples of expenses chargeable to the Division are:
(a) rent and other occupancy;
(b) data processing;
(c) depreciation;
(d) advertising;
(e) travel;
(f) conventions and conferences;
(g) losses and other costs, including reserves on all loans held
in PACIFIC's portfolio and/or repurchased;
(h) adjustment in any portion of the servicing released fee asset
that was created after December 31, 1995;
(i) legal judgments and settlements arising from loans originated
by the Division;
(j) servicing expense (1% per annum) on all loans held in
PACIFIC's portfolio;
(k) refunds by PACIFIC of any premiums paid by loan purchasers,
with respect to premiums earned after December 31, 1995;
____________________
3/ The Division will be charged for expenses incurred at the corporate office
that directly relate to the Division such as certain personnel department
expenses and secondary marketing department expenses.
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<PAGE> 4
LANDINI shall be entitled to receive one-half of the Bonus
earned during each year in the following January and shall be entitled to
receive the remainder of such Bonus three (3) years thereafter; provided that
(a) LANDINI shall no longer be entitled to the remainder of any such Bonus if,
prior to the date that such payment is due, LANDINI voluntarily terminates this
Agreement or PACIFIC terminates this Agreement "for cause" (as defined in
Section 5 hereof); (b) LANDINI shall be entitled to receive up to $100,000 of
the Bonus earned during 1996 (the "1996 Bonus") plus one-half of any portion of
the 1996 Bonus exceeding $200,000 in January 1997, and the remaining Bonus
earned in 1996 shall be paid in January 2000, subject to the condition
described in subsection (a) hereof; and (c) if this Agreement remains in effect
as of January 1, 2007, LANDINI shall be entitled to receive in January 2007 all
previously deferred portions of the Bonus earned in all years prior to 2007 and
all portions of the Bonus earned for 2007 and all years thereafter shall be
payable in January of the year immediately following the year in which the
Bonus is earned.
(iii) LANDINI shall be reimbursed for LANDINI'S reasonable
and actual out-of-pocket expenses incurred by LANDINI in performance of
LANDINI'S duties and responsibilities hereunder, provided that LANDINI shall
first furnish to PACIFIC proper vouchers and/or receipts.
(iv) LANDINI shall be entitled to participate in, and
shall be included in, such insurance, pension, 401(K) plans, stock option,
stock purchase, retirement plans and other employee benefit plans of PACIFIC as
are in effect from time to time during the term of this Agreement and provided
to other senior executive employees of PACIFIC (all of which are collectively
referred to herein as the "Benefit Plans"); provided that LANDINI shall not be
entitled to participate in any employee bonus pool during the term of this
Agreement.
(v) LANDINI shall also be entitled to all perquisites
provided in accordance with PACIFIC'S policy for senior management executives
from time to time in effect (all of which are collectively referred to herein
as the "Perquisites"). Notwithstanding the foregoing, in no event shall each
or any of the Perquisites provided pursuant to the terms of this Section 2 (a)
(v) be lesser in value than such perquisites as were provided to LANDINI by
PACIFIC immediately prior to the date of this Agreement. Perquisites provided
pursuant to this Section 2(a)(v) shall include, without limitation, use of an
automobile or payment of an automobile allowance, expense allowances, vacation
days, sick days, holidays, and medical, dental and life insurance benefits.
3. DISABILITY. If, on account of any physical or mental
disability, LANDINI shall fail or be unable to perform under this Agreement for
any period of one hundred twenty (120) consecutive days or for an aggregate
period of one hundred twenty
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<PAGE> 5
(120) or more days during any consecutive twelve-month period, PACIFIC may, at
its option, at any time thereafter, upon written notice to LANDINI, terminate
the employment relationship provided for in this Agreement. In such event,
LANDINI'S requirement to render services hereunder and PACIFIC'S requirement to
compensate LANDINI hereunder shall terminate and come to an end upon the date
provided in such notice. In that event, LANDINI shall be entitled to receive,
as disability compensation: (i) a lump sum payment to be paid on the effective
date of termination pursuant to this Section 3, which shall consist of the full
annual Bonus earned, if any, at the end of the prior year, along with any
portion of the Bonus earned in any previous year which was deferred and remains
unpaid as of such date, (ii) LANDINI'S Base Salary for one year following
termination of this Agreement payable not less frequently than monthly, and
(iii) use of an automobile or payment of an automobile allowance, full
automobile insurance coverage, and health insurance coverage under any health
insurance policies maintained by PACIFIC for its other senior executives, all
of which shall be provided pursuant to the terms of Section 2 (a) (v) herein
and shall continue to be provided without interruption for the greater of one
year following the effective date of termination pursuant to this Section 3 or
the remainder of the term of this Agreement. PACIFIC may, at its option, apply
for disability income insurance and, if so, any obligation on the part of
PACIFIC to pay LANDINI any payments on account of any physical or mental
disability of LANDINI as specified above, shall be reduced by the amount of any
payments to LANDINI under any such disability income policy. Any payments to
LANDINI under any state disability insurance shall not reduce the amount
payable to LANDINI under this Agreement.
4. DEATH. In the event of LANDINI'S death during the term
hereof, this Agreement shall terminate immediately. In such event, LANDINI's
personal representative shall be entitled to receive, as a death benefit, in
addition to any other payments which LANDINI's personal representative may be
entitled to receive under any Benefit Plans: (i) a lump sum payment to be paid
within five (5) days of LANDINI'S death equal to the full annual Bonus earned
by the LANDINI, at the end of the prior year, along with any portion of the
Bonus earned in any previous year which was deferred and remains unpaid as of
such date; and (ii) LANDINI'S Base Salary for one year following LANDINI'S
death, payable not less frequently than monthly.
PACIFIC may maintain life insurance on the life of LANDINI in favor of
the PACIFIC. LANDINI shall have no interest whatsoever in any such policy or
policies, except as otherwise provided in any split dollar life insurance
agreements, but LANDINI shall, at the request of PACIFIC, submit to such
medical examinations, supply such information, consent to such blood tests and
execute such documents as may be required by the insurance company or companies
to whom PACIFIC has applied for such insurance.
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<PAGE> 6
5. TERMINATION FOR CAUSE. PACIFIC may discharge LANDINI at any
time for cause. "Cause" for discharge shall mean (i) theft or embezzlement by
LANDINI from PACIFIC or its affiliates, (ii) fraud or other acts of dishonesty
by LANDINI in the conduct of PACIFIC'S business or the fulfillment of LANDINI'S
assigned responsibilities hereunder, (iii) LANDINI'S conviction of, or plea of
nolo contendere to, any felony or any crime involving moral turpitude, (iv)
LANDINI'S willfully and knowingly taking any action which is materially
injurious to PACIFIC'S business or reputation. Within 10 business days
following receipt of written notice of termination for Cause, LANDINI shall
have the right to demand and, if demanded, to receive within 30 days, an
opportunity to respond and defend himself before the Board and to have the
Board by resolution confirm by a three-fourths affirmative vote that PACIFIC
has grounds to terminate LANDINI for Cause. If the Board does not determine
that Cause exists, LANDINI shall have the option to treat his employment as not
having terminated or as having been terminated by PACIFIC without cause as
defined in Section 6 herein. Without limiting the foregoing, nothing in this
Section 5 shall be construed to require that LANDINI demand a hearing before
the Board as a condition to pursuing any claim or action with respect to the
matters contained in this Agreement. The occurrence of any event constituting
cause for discharge shall permit, but not require, PACIFIC to terminate LANDINI
for Cause; provided, however, that PACIFIC'S decision not to terminate the
LANDINI upon the occurrence of an event constituting cause for discharge shall
not operate as a waiver of its rights provided in this Section 5 or otherwise.
If PACIFIC terminates LANDINI for Cause, PACIFIC shall be
obligated to provide to LANDINI only the Base Salary provided for in Section 2
(a) (i) herein through the date of termination of LANDINI at the rate in effect
on the date of such termination.
6. TERMINATION WITHOUT CAUSE. Should PACIFIC terminate this
Agreement for reasons other than those specified in Sections 3, 4, or 5,
LANDINI shall be entitled to use of an automobile or the payment of an
automobile allowance, full automobile insurance coverage, and health insurance
coverage under any health insurance policies maintained by PACIFIC for its
other senior executives, all of which shall be provided pursuant to the terms
of Section 2 (a) (v) herein and shall continue to be provided without
interruption for six months following the effective date of termination
pursuant to this Section 6. Upon termination pursuant to this Section 6,
PACIFIC shall additionally pay to LANDINI a lump sum payment, to be paid on the
effective date of termination pursuant to this Section 6, which shall consist
of: (i) one-half of the full annual Base Salary, (ii) any portion of the Bonus
earned in any previous year which was deferred and remains unpaid as of such
date, and (ii) the cash value of all vacation, holiday and sick days which have
accrued up to the date of termination and which would have
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<PAGE> 7
accrued for six months following termination pursuant to this Section 6.
Finally, on the earlier of ten (10) days after the issuance of PACIFIC'S annual
certified financial report or one hundred and twenty (120) days after the end
of the fiscal year in which termination pursuant to this Section 6 takes place,
PACIFIC shall also pay to LANDINI the lesser of one-half of the annual Bonus
compensation earned by LANDINI at the end of the prior year or one-half of the
annual Bonus compensation which would have been earned by LANDINI if LANDINI
had continued to be employed under this Agreement for the year in which such
termination takes place. (The sum of all amounts and benefits to be provided
by PACIFIC to LANDINI pursuant to this Section 6 is collectively referred to
herein as the "Termination Payment".)
7. RIGHTS TO PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, the term "Proprietary
Information" means and includes: 1. all written, oral and visual information
about PACIFIC's customers, clients, employees, consultants and brokers that is
not readily known or available to the public, or that LANDINI learns of or
acquires through his employment by PACIFIC; and 2. financial information,
marketing techniques and materials, marketing and development plans, broker
lists, customer lists, other information concerning brokers and customers,
pricing information and policies, price lists, employee files, corporate and
business contacts and relationships, corporate and business opportunities,
telephone logs and messages, video or audio tapes and/or disks, photographs,
film and slides, including all negatives and positive and prints, computer
disks and files, rolodex cards, addresses and telephone numbers, contracts,
releases, other writings of any kind, and any and all other materials of a
proprietary nature to which LANDINI is exposed or has access as a consequence
of his employment by PACIFIC. All of the Proprietary Information is, and at
all times shall be and remain, private and confidential and is the sole and
exclusive property of, and owned and controlled by PACIFIC, regardless of
whether such Proprietary Information is in tangible or intangible form. The
parties understand that information that is generally known to the public, or
which LANDINI acquired other than as a consequence of his employment by
PACIFIC, such as in the course of similar employment or work elsewhere shall
not be deemed part of the Proprietary Information.
(b) All Proprietary Information shall be the sole
property of PACIFIC, its successors and assigns, and PACIFIC, its successors
and assigns shall be the sole owner of all patents, trademarks, service marks
and copyrights, and other rights (collectively referred to herein as "Rights")
pertaining to Proprietary Information. LANDINI hereby assigns to PACIFIC any
rights LANDINI may have or acquire in Proprietary Information or Rights
pertaining to the Proprietary Information. LANDINI further agrees as to all
Proprietary Information to assist PACIFIC or any person designated by it in
every necessary or
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<PAGE> 8
appropriate manner (but at PACIFIC's expense) to obtain and from time to time
enforce Rights relating to said Proprietary Information throughout the
universe. LANDINI will execute all documents for use in applying for,
obtaining and enforcing such Rights on such Proprietary Information as PACIFIC
may desire, together with any assumptions thereof to PACIFIC or persons
designated by it. LANDINI's obligation to assist PACIFIC or any person
designated by it in obtaining and enforcing Rights relating to Proprietary
Information shall continue beyond the cessation of his employment. It is
provided, however, that PACIFIC shall compensate LANDINI at a reasonable rate
after the cessation of employment for time actually spent by LANDINI upon
PACIFIC's request for such assistance. In the event that PACIFIC is unable,
after reasonable effort, to secure LANDINI's signature on any document or
documents needed to apply for or enforce any Right relating to Proprietary
Information, whether because of his physical or mental incapacity or for any
other reason whatsoever, LANDINI hereby irrevocably designates and appoints
PACIFIC and its duly authorized officers and agents as his agents and
attorneys-in-fact to act for and in his behalf and stead in the execution and
filing of any such application and in furthering the application for an
enforcement of Rights with the same legal force and effect as if such acts were
performed by LANDINI.
(c) At all times, both during his employment and after
the cessation of employment, whether the termination cessation is voluntary or
involuntary, for any reason or no reason, or by disability, LANDINI will keep
in strictest confidence and trust all Proprietary Information, and LANDINI will
not disclose, use, or induce or assist in the use or disclosure of any
Proprietary Information or Rights pertaining to Proprietary Information, or
anything related thereto, without the prior, express written consent of
PACIFIC, except as may be necessary in the ordinary course of performing his
duties as an employee of PACIFIC. LANDINI recognizes that PACIFIC has received
and in the future will receive from third parties their confidential, trade
secret, or Proprietary Information subject to a duty on PACIFIC's part to
maintain the confidentiality of such information and to use it only in
connection with the performance of his duties as an employee of PACIFIC.
LANDINI agrees that LANDINI owes PACIFIC and such third parties, during his
employment and thereafter, a duty to hold all such confidential, trade secret,
or Proprietary Information in the strictest confidence, and LANDINI will not
disclose, use, or induce or assist in the use or disclosure of any such
confidential, trade secret, or Proprietary Information without the prior,
express written consent of PACIFIC, except as may be necessary in the ordinary
course of performing his duties as an employee of PACIFIC consistent with
PACIFIC's agreement with such third party.
(d) LANDINI agrees that all material or other original
works of authorship written, created, or developed by LANDINI in connection
with his employment hereunder (whether
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<PAGE> 9
alone or in conjunction with any other person), and all rights of any and every
kind whatsoever in and to the results and proceeds of LANDINI's services
rendered hereunder, whether or not such rights are now known, recognized or
contemplated, and the complete, unconditional and unencumbered ownership in and
to such materials, results and proceeds for all purposes whatsoever shall be
"works for hire," as that term is defined in the United States Copyright Act
(17 U.S.C. Section 101), and shall be the sole and absolute property of
PACIFIC, its successors and assigns, and LANDINI agrees that he/she does not
have and will not claim to have, either under this Agreement or otherwise, any
right, title or interest of any kind or nature whatsoever in or to said
property.
(e) LANDINI will promptly disclose to PACIFIC, and
PACIFIC hereby agrees to receive such disclosures in confidence, all
discoveries, developments, designs, improvements, inventions, software
programs, processes, techniques, know-how, negative know-how and data, whether
or not patentable or registrable under patent, copyright or similar statutes or
reduced to practice, made or conceived or reduced to practice or learned by
LANDINI, either alone or jointly with others during the period of his
employment, for the purpose of permitting PACIFIC to determine whether they
constitute Proprietary Information, or copyrightable or patentable material.
8. NON-COMPETITION/NON-SOLICITATION.
(a) During the period of his employment, LANDINI will not
directly or indirectly engage in any activity which competes with PACIFIC, or
which PACIFIC shall determine in good faith to be in competition with PACIFIC
or any subsidiary or affiliate of PACIFIC. In addition, during his employment
and after the cessation of employment, LANDINI will not, alone or in concert
with others, or on his own behalf, or on behalf of any other person, in any way
use or disclose Proprietary Information in order to solicit, entice, or in any
way divert any broker to do business with any competitor of PACIFIC or any
subsidiary or affiliate of PACIFIC. During his employment, LANDINI agrees not
to plan or otherwise take any preliminary steps, either alone or in concert
with others, or on his own behalf, or on behalf of any other person, to set up
or engage in any business enterprise that would be in competition with PACIFIC
or any subsidiary or affiliate of PACIFIC.
(b) During his employment and for a period of two (2)
years after the cessation of employment, LANDINI will not, either directly or
indirectly, either alone or in concert with others or on his own behalf or on
behalf of any other person, solicit, divert, entice, recruit, or employ any
employee of or consultant to PACIFIC, or any subsidiary or affiliate of
PACIFIC, to leave employment with or otherwise terminate employment with
PACIFIC or any subsidiary or affiliate of PACIFIC or work for any
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competitor of PACIFIC or any subsidiary or affiliate of PACIFIC.
(c) LANDINI recognizes that the immediate and continuous
performance of his obligations in this paragraph 8 is extremely important and
valuable to PACIFIC because of the extensive and costly training given to its
employees and the knowledge gained by such employees of the Proprietary
Information used by PACIFIC in its operations. In the event of his breach of
those obligations, LANDINI therefore agrees that PACIFIC shall be entitled to
estimated or liquidated damages, as defined herein. For each former employee
of PACIFIC whom LANDINI solicits, diverts, recruits, or employs in violation of
this paragraph 8 and for each broker or mortgage loan customer of PACIFIC whom
such former employee handled for PACIFIC and whom the former employee contacts
or otherwise services or works with for his benefit or for the benefit of
anyone in privity with LANDINI, including any competitor of PACIFIC or any
subsidiary or affiliate of PACIFIC with whom LANDINI accepts employment in
breach of this paragraph 8, LANDINI shall pay PACIFIC liquidated damages. The
liquidated damages for each such broker or customer shall be (i) the amount of
profit earned by PACIFIC from mortgage loan referrals from each broker, or the
amount of profit earned on loans to each mortgage loan customer, during the
twelve (12) months immediately preceding termination of such former employer
with PACIFIC, and (ii) the amount of cost to PACIFIC to recruit and train a
replacement for each such former employee plus the first six (6) month's salary
paid to the replacement(s) for the former employee. If the former employee was
not in a position of have contacts with brokers or to otherwise generate
business from mortgage loan customers, the liquidated damages shall be the
amount of the cost to PACIFIC to recruit and train a replacement(s) for the
former employee. LANDINI further agrees that the cost to recruit and train
replacement(s) for each former employee as described in this paragraph 8 will
be part of PACIFIC's damages and that the profit formula for former employees
who had broker or mortgage loan business contact, and the first six (6) months
salary paid to the replacement(s) for former employees, are conservative
estimates of the value, or a portion of the value, of the former employee to
PACIFIC.
9. SURRENDER OF PROPRIETARY INFORMATION. In the event of the
termination of his employment, LANDINI will deliver to PACIFIC all devices,
records, sketches, reports, proposals, broker information, lists,
correspondence, equipment, software, computer disks, documents, photographs,
photostats, negatives, undeveloped film, notes, drawings, specifications, tape
recordings or other electronic recordings, programs, data and other materials
or property of any nature belonging to PACIFIC or pertaining to his work with
PACIFIC, and LANDINI will not take with LANDINI, or allow a third party to
take, any of the foregoing or any reproduction of any of the foregoing.
10. PARTIES IN INTEREST. This Agreement shall inure to the
benefit of, and be enforceable by, LANDINI'S personal or
10
<PAGE> 11
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If LANDINI should die while any amount
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisees, legatee or other designees, or if
there is no such designee, to his estate.
11. NOTICES. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time delivered, if personally delivered, or
twenty-four hours after deposit thereof for mailing at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
If to PACIFIC:
PACIFIC Thrift and Loan Company
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: Richard D. Young, President
with copies to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars
Los Angeles, California 90067
Attention: Catherine DeBono Holmes, Esq.
If to LANDINI:
Frank LANDINI
__________________________
__________________________
The parties hereto may designate a different place at which notice shall be
given, provided, however, that any such notice of change of address shall be
effective only upon receipt.
12. ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral agreements. This Agreement may not be
modified, amended, or terminated except by another instrument in writing
executed by the parties hereto.
13. GOVERNING LAW. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of California.
14. ATTORNEY'S FEES.
11
<PAGE> 12
(a) In the event it becomes necessary to commence any
proceeding or action to enforce the provisions of this Agreement, the court
before whom such action shall be tried may award to the prevailing party all
costs and expenses thereof, including but not limited to reasonable attorneys
fees, the usual, customary and lawfully recoverable Court costs, and all other
expenses in connection therewith. LANDINI shall be deemed to be the prevailing
party if he is awarded any amounts in any such proceeding or action.
(b) PACIFIC shall also pay and be responsible for all
attorneys and related fees, expenses or costs incurred by LANDINI, if PACIFIC,
or any stockholder of PACIFIC contests the validity or enforceability of this
Agreement or any part hereof.
The parties hereto have executed this Agreement on the day and year
first above written.
"LANDINI"
________________________________
FRANK LANDINI
"PACIFIC"
PACIFIC THRIFT AND LOAN COMPANY
By: _____________________________
Title:___________________________
12
<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
This Agreement is made as of November 30, 1995, by and between Pacific
United Group, Inc., a Delaware corporation (the "Company"), and the
undersigned, a director and/or officer of the Company or a company controlled
by or under common control with the Company ("Indemnitee"), with respect to the
following facts.
A. The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of
such directors and officers.
B. The following facts contribute to unfairness to directors and
officers: (i) laws regarding the duties of directors and officers are often
ambiguous; (ii) costs of litigation may be so enormous (whether or not the case
is meritorious) that the defense and/or settlement of such litigation is often
beyond the personal resources of officers and directors; and (iii) delay in
litigation may extend the period of exposure to an officer or director until
after retirement or death, thus forcing spouses, heirs, executors or
administrators to expend funds.
C. The Company has been advised that there can be no assurance
that directors' and officers' liability insurance will be available to the
Company and Indemnitee in the future, and that the cost of such insurance, if
available, may not be acceptable to the Company.
D. Indemnitee questions the adequacy and reliability of the
protection presently afforded by the Delaware General Corporation Law, the
California General Corporation Law (together with the Delaware General
Corporation Law, the "Corporation Laws") and the Company's Certificate of
Incorporation and Bylaws, in part because certain of the indemnification
provisions of the Corporation Laws are for the most part merely permissive and
because the impact of provisions of the Company's Certificate of Incorporation
and Bylaws is presently uncertain. In addition, the Company may be subject to
the provisions of certain other states' laws under statutes relating to
"nominally foreign" or "pseudo-foreign" corporations.
E. Indemnitee currently serves as a director and/or officer of
the Company. Indemnitee is concerned about continuing to serve the Company as
a director and/or officer without assurance that indemnities available to him
are, and will be, adequate to protect him against the risks associated with his
service to the Company.
<PAGE> 2
F. The Company, in order to induce Indemnitee to continue to
serve the Company as a director and/or officer without assurance that
indemnities available to him are, and will be, adequate to protect him against
the risks associated with his service to the Company, has agreed to provide
Indemnitee with the benefits contemplated by this Agreement, which benefits are
intended to provide Indemnitee with the maximum possible protection permitted
by law.
G. As a result of the provision of such benefits and in reliance
thereon Indemnitee is continuing to serve as a director or officer.
NOW, THEREFORE, in consideration of the foregoing and the promises,
conditions, representations and warranties set forth herein, the Company and
Indemnitee hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following respective meanings:
1.1 "Covered Act" means (i) any actual or alleged action
taken or attempted by Indemnitee (including, without limitation, any breach of
duty, neglect, error, misstatement, or misleading statement) in his capacity
as, or otherwise by reason of, or arising out of his being: (a) a director,
officer, employee or other agent of the Company, or (b) a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans, at
the request of the Company or (c) a director, officer, employee or agent of a
partnership which was a predecessor of the Corporation or of another enterprize
at the request of such predecessor partnership; or (ii) any inaction or
omission on Indemnitee's part while acting in any of the foregoing capacities.
For purposes solely of this Agreement, it shall be conclusively deemed between
the parties that the Indemnitee is serving at the request of the Company
whenever such director serves as an officer, director, employee or other agent
of any business entity controlling, controlled by or under common control with
the Company.
1.2 "D & O Insurance" means directors' and officers'
liability insurance with coverage sufficient to ensure performance of the
indemnification obligation of the Company hereunder issued by one or more
reputable insurers.
1.3 "Excluded Claim" means any payment for Losses or
Expenses in connection with any claim: (i) for the return by Indemnitee of any
remuneration which is illegal; or (ii) for an accounting of profits in fact
made from the purchase or sale by Indemnitee of securities of the Company
within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any state law, if the Company is in fact
entitled to recover such profits; or (iii) resulting from Indemnitee's
knowingly fraudulent, deliberately dishonest or
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<PAGE> 3
intentional misconduct; or (iv) the payment of which by the Company under this
Agreement is not permitted by applicable law; or (v) initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification or
advancement of Expenses and Losses or a proceeding initiated with the approval
of a majority of the members of the Board of Directors.
Any facts pertaining to any other director, officer,
employee or agent of the Company shall not be imputed to Indemnitee for the
purpose of determining an Excluded Claim.
1.4 "Expenses" means any reasonable expenses incurred by
Indemnitee as a result of a claim or claims whether brought by or in the right
of the Company (e.g., derivatively by stockholders of the Company for the
benefit of the Company) or otherwise and whether of a civil, criminal,
administrative or investigative nature made against him for, or otherwise in
respect of, Covered Acts including, without limitation, counsel fees, costs of
bonds, and other costs of proceedings or appeals.
1.5 "Loss" means any amount which Indemnitee pays or is
obligated to pay as a result of a claim or claims whether brought by or in the
right of the Company (e.g., derivatively by stockholders of the Company for the
benefit of the Company) or otherwise and whether of a civil, criminal,
administrative or investigative nature made against him or for or otherwise in
respect of Covered Acts including, without limitation, damages, judgments, sums
paid in settlement of such claim or claims, sums paid in respect of any
deductible under any policy of D & O Insurance, and fines and penalties other
than fines and penalties for which indemnification is not permitted by
applicable law.
2. Maintenance of D & O Insurance.
2.1 The Company hereby covenants and agrees that, as long
as Indemnitee shall continue to serve as a director or officer of the Company
and thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of his services to the Company, the
Company, subject to Section 2.3 hereof, shall obtain and maintain in full force
and effect D & O Insurance.
2.2 All policies of D & O Insurance shall be written in
such a manner as to provide Indemnitee the same rights and benefits, subject to
the same limitations, as are accorded to the Company's directors or officers
most favorably insured by such policy.
2.3 The Company shall have no obligation to maintain D &
O Insurance if the Board of Directors of the Company determines in good faith
that such insurance is not reasonably available, the premium costs for such
insurance are disproportionate
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<PAGE> 4
to the amount of coverage provided, or the coverage provided for such insurance
is limited by exclusions so as to provide an insufficient benefit.
3. Indemnification.
3.1 The Company, at the request of Indemnitee, shall
indemnify Indemnitee and hold him harmless to the full extent authorized or
permitted by (i) the applicable provisions of the Delaware General Corporation
Law, as the same exists or may hereafter be amended, and (ii) the applicable
provisions of the By-laws or Certificate of Incorporation of the Company.
3.2 In addition, the Company, at the request of
Indemnitee, shall indemnify Indemnitee and hold him harmless from any and all
Losses and Expenses subject, in each case, to the further provisions of this
Agreement.
3.3 If indemnification is sought by Indemnitee under this
Agreement, Indemnitee may seek such indemnification under statutory law, the
Company's Certificate of Incorporation or Bylaws, the D & O Insurance, the
provisions of Section 3.2 of this Agreement, or otherwise concurrently or in
such sequence as Indemnitee may choose, in his sole discretion.
3.4 The Company shall have no obligation to indemnify
Indemnitee for and hold him harmless from any Loss or Expense which constitutes
an Excluded Claim.
4. Indemnification Procedures.
4.1 Promptly after receipt by Indemnitee of notice of the
commencement of or the threat of commencement of any action, suit or
proceeding, Indemnitee shall notify the Company of the commencement or threat
thereof; but the omission so to notify or delay in notifying the Company will
not relieve it from any liability which it may have to Indemnitee except to the
extent that the Company is actually prejudiced by any such omission or delay.
4.2 The Company shall give prompt notice of the
commencement of such action, suit or proceeding to the insurers on the D & O
Insurance, if any, in accordance with the procedures set forth in the
respective policies in favor of Indemnitee. The Company shall thereafter take
all necessary or desirable action to cause such insurers to pay, on behalf of
Indemnitee, all amounts payable as a result of such action, suit or proceeding
in accordance with the terms of such policies.
4.3 If such action, suit or proceeding is other than by
or in the right of the Company, Indemnitee may, at his option but only to the
extent such decision would not jeopardize the coverage provided by the D & 0
Insurance, if any, to the other Indemnities and/or the Company, either control
the defense
-4-
<PAGE> 5
thereof himself, require the Company to defend him, or accept the defense
provided under the D & O Insurance. If (a) Indemnitee requires the Company to
defend him, or (b) the Company does not maintain any D & O Insurance pursuant
to Section 2.3 hereof or (c) Indemnitee proceeds under the D & O Insurance but
Indemnitee determines that the insurers under the D & O Insurance are unable or
unwilling to defend, contest and protect Indemnitee adequately against any such
action, suit or proceeding, then the Company shall promptly undertake to defend
any such action, suit or proceeding, at the Company's sole cost and expense,
utilizing counsel of the Indemnitee's choice who has been approved by the
Company. If appropriate the Company shall have the right to participate in the
defense of such action, suit or proceeding.
4.4 If such action, suit or proceeding is by or in the
right of the Company, Indemnitee may, at his option, either control the defense
thereof himself or accept the defense provided under the D & O Insurance, if
any; provided, however, that Indemnitee may not control the defense himself if
such decision would jeopardize the coverage provided by the D & O Insurance, if
any, to the Company and/or the other directors and officers covered thereby.
4.5 If the Company shall fail to defend, contest or
otherwise protect Indemnitee in a timely manner against any such action, suit
or proceeding which is not by or in the right of the Company, Indemnitee shall
have the right to do so, including without limitation, the right to make any
compromise or settlement thereof, and to recover from the Company all
attorney's fees, reimbursements and all amounts paid as a result thereof.
4.6 Expenses and Losses incurred or to be incurred by
Indemnitee from time to time as a result of any actions, suit or proceeding
covered by the indemnity provisions of this Agreement (including, without
limitation, an action, suit or proceeding by or in the right of the Company)
which have not been paid by the insurers under the D & O Insurance, if any,
shall be paid by the Company within 30 days of the written request of the
Indemnitee, whether or not the Company believes that such Expenses and Losses
may constitute an Excluded Claim. At the election of Indemnitee, Indemnitee
may from time to time request the Company to advance to him funds to pay any
expenses which would be subject to reimbursement hereunder. The Company shall
provide such advances within five business days after written request thereof.
Indemnitee agrees that he will reimburse the Company for all Losses and
Expenses paid or advanced by the Company in connection with any such action,
suit or proceeding against Indemnitee in the event, and only to the extent,
that a determination shall have been made by a non appealable court order that
Indemnitee is not entitled to be indemnified by the Company for such Losses and
Expenses because the claim is an Excluded Claim or because Indemnitee is not
otherwise entitled to payment under this Agreement.
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<PAGE> 6
5. Rights Not Exclusive. The protection afforded to Indemnitee
hereunder is intended to supplement the other protections to which Indemnitee
may be entitled now or hereafter under statutory law, the Company's Certificate
of Incorporation or Bylaws, the D & O Insurance, vote of stockholders or of
directors or otherwise, and all of such protections and the provisions hereof
are intended to be cumulative.
6. Settlement. Except as otherwise provided in Section 4.5,
hereof, Indemnitee shall not settle and the Company shall have no obligation to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any suit, action or proceeding without the Company's prior written consent.
The Company shall not settle any suit, action or proceeding in any manner which
would impose any obligation on Indemnitee which is not covered by
indemnification hereunder without Indemnitee's written consent. Neither the
Company nor Indemnitee shall unreasonably withhold their consent to any
proposed settlement.
7. Miscellaneous.
7.1 Notices. Any communication contemplated under this
Agreement shall be in writing and shall be effective upon personal delivery or
five days after deposit in the United States mail, postage prepaid, certified
or registered, return receipt requested, addressed as follows or to such other
address as may be specified in the same manner:
If to Company: Pacific United Group, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364
Attention: President
If to Indemnitee: To the address set forth on the
signature page hereof.
7.2 Enforcement; Choice of Forum; Consent to Jurisdiction.
(a) Indemnitee's rights under this Agreement
shall be enforceable by Indemnitee only in the state courts of the State of
Delaware. The burden of proving that indemnification is not appropriate shall
be on the Company and any actual determination by the Company (including any
determination made by its Board of Directors or stockholders, or by independent
legal counsel) that Indemnitee is not entitled to indemnification hereunder
shall not be a defense to such action or create a presumption that Indemnitee
has not met the applicable standard for indemnification. If Indemnitee
commences an action to enforce this Agreement, or the Company commences an
action for an adjudication that Indemnitee is not entitled to indemnification
under this Agreement, the Company shall nevertheless be obligated, subject to
Indemnitee's obligation to reimburse the Company contained in Section 4.6
hereof, to pay
-6-
<PAGE> 7
Expenses and Losses from time to time as incurred by Indemnitee until a
determination shall have been made by a final judgment or other final
adjudication of the court that the Indemnitee is not entitled to be indemnified
by the Company for such Losses and Expenses.
(b) If any action is instituted under this
Agreement, or to enforce or interpret any of the terms of this Agreement, all
court costs and expenses, including reasonable counsel fees, incurred or to be
incurred by Indemnitee with respect to such action shall be paid by the Company
within 30 days of written request by the Indemnitee, unless and until a court
of competent jurisdiction determines that each of the material assertions made
by Indemnitee as a basis for such action were not made in good faith or were
frivolous.
(c) All agreements and obligations of the Company
contained herein shall continue during the period the Indemnitee is a director,
officer, employee or agent of the Company (or is serving at the request of the
Company as a director, officer, employee or agent of another corporation or
other enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was a director or officer of the Company or serving in any
other capacity referred to herein.
(d) The Company's indemnity obligations hereunder
shall be applicable to any and all claims made after the date hereof regardless
of when the facts upon which such claims are based occurred, including times
prior to the date hereof.
(e) The Company expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
the Company hereby, in order to induce Indemnitee to serve, or continue to
serve, as a director and/or officer of the Company, and acknowledges that
Indemnitee is relying upon this Agreement in agreeing to serve or in continuing
to serve in such capacity.
(f) The Company agrees that any action instituted
by or on behalf of the Company under this Agreement or to enforce or interpret
any provision of this Agreement on behalf of the Company shall be brought only
in the state courts of the State of Delaware. Indemnitee and the Company each
hereby consent to the jurisdiction of the state courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement.
7.3 Provisions Not to Inure to Benefit of Insurers. It
is the intention of the parties in entering into this Agreement that the
insurers under the D & O Insurance, if any, shall be obligated ultimately to
pay any claims by Indemnitee which are covered by the D & O Insurance, and
nothing herein shall be
-7-
<PAGE> 8
deemed to diminish or otherwise restrict the Company's or Indemnitee's right to
proceed or collect against any insurers under the D & O Insurance or to give
such insurers any rights against the Company under or with respect to this
Agreement, including, without limitation, any right to be subrogated to
Indemnitee's rights hereunder, unless otherwise expressly agreed to by the
Company in writing and the obligation of such insurers to the Company and
Indemnitee shall not be deemed reduced or impaired in any respect by virtue of
the provisions of this Agreement.
7.4 Severability. In the event that any provision of
this Agreement is determined by a court to require the Company to do or to fail
to do any act which is in violation of applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to avoid
a violation of law and, as so limited or modified, such provision and the
balance of this Agreement shall be enforceable in accordance with their terms.
Without limiting the generality of the foregoing, if this Agreement or any
portion thereof shall be invalidated on any ground, the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated.
7.5 Partial Indemnification. If Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses and Losses but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses and Losses to which Indemnitee is entitled to
indemnification.
7.6 Choice of Law. The validity, construction,
performance, and enforcement of this Agreement, and each part thereof, shall be
governed by and construed in accordance with the laws of the State of Delaware,
applicable to agreements made and to be wholly performed in such state.
7.7 Successor and Assigns. This Agreement shall be (i)
binding upon all successors and assigns of the Company (including any
transferee of all or substantially all of its assets and any successor by
merger or otherwise by operation of law) and (ii) shall be binding on and inure
to the benefit of the heirs, personal representatives and estate of Indemnitee.
7.8 Amendment. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in writing and
signed by each of the parties hereto. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
7.9 Gender. Whenever the context so requires, the
masculine shall mean the feminine.
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<PAGE> 9
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the date and year first above written.
"Company" PACIFIC UNITED GROUP, INC.
By____________________________
"Indemnitee" ______________________________
JOEL R. SCHULTZ
Address:______________________
______________________
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<PAGE> 1
EXHIBIT 10.8
PACIFIC UNITED GROUP, INC.
STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Incentive and Non-Qualified Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.1 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.2 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.3 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.4 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.5 Disabled or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.6 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.7 Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.8 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.9 Incentive Stock Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.10 Non-Qualified Stock Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.11 Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.12 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.13 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.14 Stock Option or Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Administration by Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Administration by Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Shares Subject to Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Number of Shares Subject to Option . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Notice and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.4 Term of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Exercise of Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 No Transfer of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.7 Limit on Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.8 Restriction on Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.9 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.10 Rights as a Shareholder or Employee . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.11 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.12 Exercisability in the Event of Death . . . . . . . . . . . . . . . . . . . . . . . . 8
7.13 Recapitalization or Reorganization of Company . . . . . . . . . . . . . . . . . . . . 8
7.14 Modification, Extension, and Renewal of Options . . . . . . . . . . . . . . . . . . . 9
7.15 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.16 Non-Employee Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Termination or Amendment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
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9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Effective Date and Term of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 4
PACIFIC UNITED GROUP, INC.
STOCK OPTION PLAN
1. PURPOSE. The purpose of this Pacific United Group, Inc. Stock
Option Plan ("Plan") is to further the growth and development of Pacific United
Group, Inc. ("Company") by providing, through ownership of stock of the
Company, an incentive to officers and other key employees who are in a position
to contribute materially to the prosperity of the Company, to increase such
persons' interests in the Company's welfare, to encourage them to continue
their services to the Company or its subsidiaries, and to attract individuals
of outstanding ability to enter the employment of the Company or its
subsidiaries. The Plan is also intended to increase the proprietary and vested
interest of the non-employee directors of the Company in the growth and
performance of the Company by granting such directors options to purchase
shares of common stock of the Company, to encourage them to continue their
services to the Company, and to attract individuals of outstanding ability to
serve on the Board of Directors of the Company.
2. INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. Two types of Stock
Options (referred to herein as "Options" without distinction between such two
types) may be granted under the Plan: Options intended to qualify as Incentive
Stock Options under Section 422 of the Code and Non-Qualified Stock Options not
specifically authorized or qualified for favorable income tax treatment by the
Code.
3. DEFINITIONS. The following definitions are applicable to the
Plan:
3.1 BOARD. The Board of Directors of the Company.
3.2 CODE. The Internal Revenue Code of 1986, as amended
from time to time.
3.3 COMMON STOCK. The shares of the $.01 par value per
share common stock of the Company.
3.4 COMPANY. Pacific United Group, Inc., a Delaware
corporation.
3.5 DISABLED OR DISABILITY. For the purposes of Section
7.4, a disability of the type defined in Section 22(e)(3) of the Code. The
determination of whether an individual is Disabled or has a Disability is
determined under procedures established by the Plan Administrator for purposes
of the Plan.
<PAGE> 5
3.6 DISTRIBUTION. The transaction whereby the Company,
pursuant to the terms of the Plan of Distribution entered into between the
Company and Presidential Mortgage Company, a California limited partnership
(the "Partnership"), assumes the business operations of the Partnership, the
Common Stock of the Company is listed for trading on the NASDAQ National Market
System, and the Common Stock of the Company is distributed to the partners in
liquidation of the Partnership.
3.7 DISTRIBUTION DATE. The date on which the
Distribution is completed by distribution of the outstanding shares of the
Common Stock of the Company to the partners in liquidation of the Partnership.
3.8 FAIR MARKET VALUE. For purposes of the Plan, the
"fair market value" per share of Common Stock of the Company at any date shall
be (a) if the Common Stock is listed on an established stock exchange or
exchanges or the NASDAQ National Market System, the closing price per share on
the last trading day immediately preceding such date on the principal exchange
on which it is traded or as reported by NASDAQ, or (b) if the Common Stock is
not then listed on an exchange, the closing price per share on the last trading
day immediately preceding such date reported by NASDAQ, or if sales are not
reported by NASDAQ, the average of the closing bid and asked prices per share
for the Common Stock in the over-the-counter market as quoted on NASDAQ on the
last trading day immediately preceding such date, or (c) if the Common Stock is
not then listed on an exchange, the NASDAQ National Market System or quoted on
NASDAQ, an amount determined in good faith by the Plan Administrator.
Notwithstanding the foregoing, the "fair market value" per share of common
stock subject to any Option that is granted under this Plan on the Distribution
Date shall be the average of the closing prices per share of Common Stock of
the Company, as quoted on the NASDAQ National Market System as reported in the
Wall Street Journal for each of the 15 trading days beginning on the day
following the Distribution Date, and if there is no closing price reported on
the NASDAQ National Market System for the Common Stock of the Company for one
or more trading days during such period, the determination shall be made using
the earliest 15 days on which closing prices are reported for such stock
beginning on the day following the Distribution Date.
3.9 INCENTIVE STOCK OPTION. Any Stock Option intended to
be and designated as an "incentive stock option" within the meaning of Section
422 of the Code.
3.10 NON-QUALIFIED STOCK OPTION. Any Stock Option that is
not an Incentive Stock Option.
3.11 OPTIONEE. The recipient of a Stock Option.
3.12 PLAN. The Pacific United Group, Inc. Stock Option
Plan, as amended from time to time.
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3.13 PLAN ADMINISTRATOR. The Board or the Stock Option
and Retirement Plans Committee designated pursuant to Section 4.2 hereof to
administer, construe and interpret the terms of the Plan.
3.14 STOCK OPTION OR OPTION. Any option to purchase
shares of Common Stock granted pursuant to Section 7 hereof.
4. ADMINISTRATION.
4.1 ADMINISTRATION BY BOARD. Subject to Section 4.2
hereof, the Plan Administrator shall be the Board of Directors of the Company
(the "Board") during such periods of time as all members of the Board are both
"disinterested persons" as defined in Rule 16b-3(c)(2)(i) promulgated by the
Securities and Exchange Commission (a "disinterested person") and "outside
directors" as defined in Prop. Treas. Regs. Section 1.162-27(e)(3). Anything
to the contrary notwithstanding, the requirement that all members of the Board
be disinterested persons and outside directors shall not apply for any period
of time prior to the date the Company's Common Stock becomes registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
Subject to the provisions of the Plan, the Plan Administrator shall have
authority to construe and interpret the Plan, to promulgate, amend, and rescind
rules and regulations relating to its administration, from time to time to
select from among the eligible employees (as determined pursuant to Section 5)
of the Company and its subsidiaries those employees to whom Stock Options will
be granted, to determine the timing and manner of the grant of the Options, to
determine the exercise price, the number of shares covered by and all of the
terms of the Stock Options, to determine the duration and purpose of leaves of
absence which may be granted to Stock Option holders without constituting
termination of their employment for purposes of the Plan, and to make all of
the determinations necessary or advisable for administration of the Plan;
provided, however, that the Board shall have no discretion with respect to the
selection of directors to receive options under the Plan, the number of shares
of stock subject to any such options, or the purchase price thereof. The
interpretation and construction by the Plan Administrator of any provision of
the Plan, or of any agreement issued and executed under the Plan, shall be
final and binding upon all parties. No member of the Board shall be liable for
any action or determination undertaken or made in good faith with respect to
the Plan or any agreement executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its
sole discretion, delegate any or all of its duties as Plan Administrator and,
subject to the provisions of Section 4.1 of the Plan, at any time the Board
includes any person who is not a disinterested person and an outside director,
the Board shall delegate all of its duties as Plan Administrator during such
period of time to the Stock Option and Retirement Plans Committee
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<PAGE> 7
(the "Committee") of not fewer than two (2) members of the Board, all of the
members of which Committee shall be persons who, in the opinion of counsel to
the Company, are disinterested persons and outside directors, to be appointed
by and serve at the pleasure of the Board. From time to time, the Board may
increase or decrease (to not less than two members) the size of the Committee,
and add additional members to, or remove members from, the Committee. The
Committee shall act pursuant to a majority vote, or the written consent of a
majority of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the provisions of
the Plan and the directions of the Board, the Committee may establish and
follow such rules and regulations for the conduct of its business as it may
deem advisable. No member of the Committee shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or any
agreement executed pursuant to the Plan.
5. ELIGIBILITY. Any employee (including any officer who is an
employee) of the Company or any of its subsidiaries shall be eligible to
receive Options under the Plan; provided, however, that no person who owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its parent or subsidiary corporations
shall be eligible to receive an Incentive Stock Option under the Plan unless at
the time such Incentive Stock Option is granted the Option price (determined in
the manner provided in Section 7.2 hereof) is at least 110% of the Fair Market
Value of the shares subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted. An employee may receive more than one Option under the Plan. The
Plan also provides automatic formula Option grants to non-employee directors.
6. SHARES SUBJECT TO OPTIONS. The stock available for grant of
Options under the Plan shall be shares of the Company's authorized but
unissued, or reacquired, Common Stock. The aggregate number of shares which
may be issued pursuant to exercise of Options granted under the Plan, as
amended, shall not exceed 143,000 shares of Common Stock (subject to adjustment
as provided in Section 7.13 hereof), including shares previously issued under
the Plan. With respect to each calendar year beginning after December 31, 1995
the aggregate number of shares shall be increased by two percent (2%) of the
total issued and outstanding shares of the Common Stock as of the first day of
each succeeding calendar year. In no event shall more than 250,000 shares of
stock be cumulatively available for Options granted under the Plan. The
maximum number of shares with respect to which options may be granted to any
employee in any one calendar year shall be 50,000 shares. In the event that
any outstanding Option under the Plan for any reason expires, or is terminated,
the shares of Common Stock allocable to the unexercised portion of the Option
shall again be available for
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<PAGE> 8
Options under the Plan as if no Option had been granted with respect to such
shares.
7. TERMS AND CONDITIONS OF OPTIONS. Options granted under the
Plan shall be evidenced by agreements (which need not be identical) in such
form and containing such provisions which are consistent with the Plan as the
Plan Administrator shall from time to time approve. Such agreements may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the following terms and conditions:
7.1 NUMBER OF SHARES SUBJECT TO OPTION. Each Option
agreement shall specify the number of shares subject to the Option.
7.2 OPTION PRICE. The purchase price for the shares
subject to any Option shall be determined by the Plan Administrator at the time
of grant, but shall not be less than par value per share. Anything to the
contrary notwithstanding, the purchase price for the shares subject to any
Incentive Stock Option shall not be less than 100% of the Fair Market Value of
the shares of Common Stock of the Company on the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an employee who
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its parent or subsidiary
corporations, the Option price shall not be less than 110% of the fair market
value per share of the Common Stock of the Company on the date the Option is
granted.
7.3 NOTICE AND PAYMENT. Any exercisable portion of a
Stock Option may be exercised only by:
(a) delivery of a written notice to the Company,
prior to the time when such Stock Option becomes unexercisable under Section
7.4 hereof, stating the number of shares being purchased and complying with all
applicable rules established by the Plan Administrator;
(b) payment in full of the exercise price of such
Option by, as applicable, (i) cash or check for an amount equal to the
aggregate Option exercise price for the number of shares being purchased, (ii)
in the discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, a copy of instructions to a broker directing such
broker to sell the Common Stock for which such Option is exercised, and to
remit to the Company the aggregate exercise price of such Options (a "cashless
exercise"), or (iii) in the discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, the Optionee may pay all or a
portion of the purchase price for the number of shares being purchased by
tendering shares of the Company's Common Stock owned by the Optionee, duly
endorsed for transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate
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<PAGE> 9
purchase price of the shares with respect to which such Stock Option or portion
is thereby exercised (a "stock-for-stock exercise");
(c) payment of the amount of tax required to be
withheld (if any) by the Company or any parent or subsidiary corporation as a
result of the exercise of a Stock Option. At the discretion of the Plan
Administrator, upon such terms as the Plan Administrator shall approve, the
Optionee may pay all or a portion of the tax withholding by (i) cash or check
payable to the Company, (ii) cashless exercise, (iii) stock-for-stock exercise,
or (iv) a combination of one or more of the foregoing payment methods; and
(d) delivery of a written notice to the Company
requesting that the Company direct the transfer agent to issue to the Optionee
(or to his designee) a certificate for the number of shares of Common Stock for
which the Option was exercised or, in the case of a cashless exercise, for any
shares that were not sold in the cashless exercise. Notwithstanding the
foregoing, the Company may extend and maintain, or arrange for the extension
and maintenance of, credit to any Optionee to finance the Optionee's purchase
of shares pursuant to exercise of any Stock Option, on such terms as may be
approved by the Plan Administrator, subject to applicable regulations of the
Federal Reserve Board and any other laws or regulations in effect at the time
such credit is extended.
7.4 TERM OF OPTION. No Option shall be exercisable after
the expiration of the earliest of (a) ten years after the date the Option is
granted, (b) three months after the date the Optionee's employment with the
Company and its subsidiaries terminates if such termination is for any reason
other than Disability or death, (c) one year after the date the Optionee's
employment with the Company and its subsidiaries terminates if such termination
is a result of death or Disability; provided, however, that the Option
agreement for any Option may provide for shorter periods in each of the
foregoing instances. In the case of an Incentive Stock Option granted to an
employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or subsidiary
corporations, the term set forth in (a), above, shall not be more than five
years after the date the Option is granted.
7.5 EXERCISE OF OPTION. No Option shall be exercisable
during the lifetime of an Optionee by any person other than the Optionee or at
any time prior to six months from the date the Option is granted. Subject to
the foregoing, the Plan Administrator shall have the power to set the time or
times within which each Option shall be exercisable and to accelerate the time
or times of exercise. Unless otherwise provided by the Plan Administrator,
each Option granted under the Plan to employees who have been employed by the
Company, the Partnership, or any subsidiary of the Company or the Partnership
for five
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<PAGE> 10
years or more shall become exercisable on a cumulative basis as to 20% of the
total number of shares covered thereby on the six month anniversary of the date
the Option is granted, an additional 20% on the first anniversary of the date
the Option is granted, and an additional 20% at the end of each consecutive
one-year period thereafter until the Option has become exercisable as to all of
such total number of shares. Unless otherwise provided by the Plan
Administrator, each Option granted under the Plan to employees who have been
employed by the Company, the Partnership, or any subsidiary of the Company or
the Partnership for less than five years shall become exercisable on a
cumulative basis as to 25% of the total number of shares covered thereby on the
first anniversary of the date the Option is granted and an additional 25% at
the end of each consecutive one-year period thereafter until the Option has
become exercisable as to all of such total number of shares. To the extent
that an Optionee has the right to exercise an Option and purchase shares
pursuant thereto, the Option may be exercised from time to time by written
notice to the Company, stating the number of shares being purchased and
accompanied by payment in full of the exercise price for such shares.
7.6 NO TRANSFER OF OPTION. No Option shall be
transferable by an Optionee otherwise than by will or the laws of descent and
distribution.
7.7 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate fair
market value (determined at the time the Option is granted) of the stock with
respect to which Incentive Stock Options granted after 1986 are exercisable for
the first time by an Optionee during any calendar year (under all Incentive
Stock Option plans of the Company and its subsidiaries) shall not exceed
$100,000. To the extent that the aggregate Fair Market Value (determined at
the time of the Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by an Optionee
during any calendar year (under all Incentive Stock Option plans of the Company
and any parent or subsidiary corporations) exceeds $100,000, such Stock Options
shall be treated as Non-Qualified Stock Options. The determination of which
Stock Options shall be treated as Non-Qualified Stock Options shall be made by
taking Stock Options into account in the order in which they were granted.
7.8 RESTRICTION ON ISSUANCE OF SHARES. The issuance of
Options and shares shall be subject to compliance with all of the applicable
requirements of law with respect to the issuance and sale of securities,
including, without limitation, any required qualification under the California
Corporate Securities Law of 1968, as amended.
7.9 INVESTMENT REPRESENTATION. Any Optionee may be
required, as a condition of issuance of shares covered by his or her Option, to
represent that the shares to be acquired
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<PAGE> 11
pursuant to exercise of the Option will be acquired for investment and without
a view to distribution thereof; and in such case, the Company may place a
legend on the certificate evidencing the shares reflecting the fact that they
were acquired for investment and cannot be sold or transferred unless
registered under the Securities Act of 1933, as amended, or unless counsel for
the Company is satisfied that the circumstances of the proposed transfer do not
require such registration.
7.10 RIGHTS AS A SHAREHOLDER OR EMPLOYEE. An Optionee or
transferee of an Option shall have no right as a shareholder of the Company
with respect to any shares covered by any Option until the date of the issuance
of a share certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether cash, securities, or other
property) or distributions or other rights for which the record date is prior
to the date such share certificate is issued, except as provided in Section
7.13. Nothing in the Plan or in any Option agreement shall confer upon any
employee any right to continue in the employ of the Company or any of its
subsidiaries or interfere in any way with any right of the Company or any
subsidiary to terminate the Optionee's employment at any time.
7.11 NO FRACTIONAL SHARES. In no event shall the Company
be required to issue fractional shares upon the exercise of an Option.
7.12 EXERCISABILITY IN THE EVENT OF DEATH. In the event
of the death of the Optionee, any Option or unexercised portion thereof granted
to the Optionee, to the extent exercisable by him or her on the date of death,
may be exercised by the Optionee's personal representatives, heirs, or legatees
subject to the provisions of Section 7.4 hereof.
7.13 RECAPITALIZATION OR REORGANIZATION OF COMPANY.
Except as otherwise provided herein, appropriate and proportionate adjustments
shall be made in the number and class of shares subject to the Plan and to the
Option rights granted under the Plan, and the exercise price of such Option
rights, in the event of a stock dividend (but only on Common Stock), stock
split, reverse stock split, recapitalization, reorganization, merger,
consolidation, separation, or like change in the corporate or capital structure
of the Company. To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the Plan
Administrator, the determination of which in that respect shall be final,
binding, and conclusive, provided that each Incentive Stock Option granted
pursuant to the Plan shall not be adjusted in a manner that causes it to fail
to continue to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code. In the event of a Change in Control of the Company,
as defined below, any unexercised Option granted under the Plan which is not
then already exercisable as to all of the shares subject to the Option shall be
become immediately exercisable.
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<PAGE> 12
In any case in which a transaction referred to below would result in a complete
liquidation of the Company or a merger, reorganization, or consolidation of the
Company with any other corporation in which the Company is not the surviving
corporation or the Company becomes a wholly-owned subsidiary of another
corporation, any unexercised Options theretofore granted under the Plan shall
be deemed fully exercisable at any time within thirty days before the proposed
effective date of such transaction. A "Change in Control" shall be deemed to
have occurred upon the occurrence of any one (or more) of the following events:
(i) any person, including a group as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
shares of the Company with respect to which twenty percent (20%) or more of the
total number of votes for the election of the Board may be cast; (ii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets, or contested election for the
Board, or combination of the foregoing, persons who were directors of the
Company just prior to such event(s) shall cease to constitute a majority of the
Board; (iii) a transaction in which the Company will cease to be an independent
publicly owned corporation that is required to file quarterly and annual
reports under the Securities Exchange Act of 1934, or a sale or other
disposition of all or substantially all the assets of the Company (including
but not limited to the assets or stock of Company's subsidiaries that results
in all or substantially all of the assets or stock of Company on a consolidated
basis being sold); (iv) a tender offer or exchange offer is made for shares of
the Company's Common Stock (other than one made by the Company) and shares of
Common Stock are acquired thereunder; (v) the stockholders of the Company cause
a change in the majority of the members of the Board within a twelve (12) month
period; provided, however, that the election of one or more new directors shall
not be deemed to be a change in the membership of the Board if the nomination
of the newly elected directors was approved by the vote of three-fourths of the
directors then still in office who were directors at the beginning of such
twelve (12) month period.
7.14 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of the Plan, the
Plan Administrator may modify, extend, or renew outstanding Options granted
under the Plan, and accept the surrender of outstanding Options (to the extent
not theretofore exercised). The Plan Administrator shall not, however, modify
any outstanding Incentive Stock Option in any manner which would cause the
Option not to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code. Notwithstanding the foregoing, no modification of an
Option shall, without the consent of the Optionee, alter or impair any rights
of the Optionee under the Option.
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<PAGE> 13
7.15 OTHER PROVISIONS. Each Option may contain such other
terms, provisions, and conditions not inconsistent with the Plan as may be
determined by the Plan Administrator.
7.16 NON-EMPLOYEE DIRECTORS. Directors of the Company who
are not employees of the Company ("Non-Employee Directors") shall receive Stock
Options as set forth in this Section 7.16 without the requirement of any action
by the Plan Administrator. However, Non-Employee Directors shall only
participate in the Plan to the extent specified in this Section 7.16.
(a) Each person who is a Non-Employee Director of
the Company or any of its subsidiaries on the Distribution Date shall
automatically receive, as of that date, a Non-Qualified Stock Option to acquire
1,000 shares of Common Stock for each directorship held by such person, not to
exceed 1,000 shares. A person who subsequently becomes a Non-Employee Director
shall automatically receive, on the date that the person becomes a Non-Employee
Director, a Non-Qualified Stock Option to acquire 1,000 shares of Common Stock
for each directorship held by such person, not to exceed 1,000 shares.
(b) After each twelve (12) month period of
continuous service as a Non-Employee Director after the Distribution Date, each
Non-Employee Director shall automatically receive a Non-Qualified Stock Option
to acquire 100 shares of Common Stock for each directorship held by such
person, not to exceed 200 shares per year. However, the maximum number of
annual grants under this Paragraph (b) is limited to five (5).
(c) Each Non-Qualified Stock Option granted under
Section 7.16(a) and (b) above shall become exercisable as to 50% of the shares
of Common Stock subject to the Option on the first anniversary date of the
grant and the remaining 50% of the shares of Common Stock subject to the Option
on the second anniversary date of the grant. In the event of a Change in
Control of the Company, as defined in Section 7.13 hereof, any Non-Qualified
Stock Option shall become immediately exercisable to the same extent as
provided in Section 7.13.
(d) Each Non-Qualified Stock Option granted under
this Section 7.16 shall expire upon the earliest of the following events:
(i) Ten (10) years from the date the
Option was granted;
(ii) The termination of the Plan;
(iii) Three (3) months after the date on
which the person ceases to be a Non-Employee Director, except that if the
cessation of services was caused by the person's
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<PAGE> 14
death or Disability, the expiration of one (1) year after the cessation of such
services;
(iv) The effective date of a merger,
reorganization or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, unless the surviving
corporation elects to assume the Option or to issue substitute Options in place
thereof.
(e) The exercise price of the Non-Qualified Stock
Options granted under this Section 7.16 shall be one hundred percent (100%) of
the Fair Market Value of the Common Stock on the date of the grant.
8. TERMINATION OR AMENDMENT OF THE PLAN. The Board may at any
time terminate or amend the Plan; provided that, without approval of the
shareholders of the Company, there shall be, except by operation of the
provisions of Section 7.13, no increase in the total number of shares covered
by the Plan, no change in the class of persons eligible to receive Options
granted under the Plan, no reduction in the exercise price of Options granted
under the Plan, and no extension of the latest date upon which Options may be
exercised; and provided further that, without the consent of the Optionee, no
amendment may adversely affect any then outstanding Option or any unexercised
portion thereof. In addition, the provisions of Section 7.16 relating to
Non-Employee Directors may not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
9. INDEMNIFICATION. To the extent permitted by law, the
Certificate of Incorporation of the Company, the Bylaws of the Company and any
indemnity agreements between the Company and its directors or employees, the
Company shall indemnify each member of the Board and of the Plan Administrator,
and any other employee of the Company with duties under the Plan, against
expenses (including any amount paid in settlement) reasonably incurred by him
in connection with any claims against him by reason of his conduct in the
performance of his duties under the Plan.
10. EFFECTIVE DATE AND TERM OF PLAN. This Plan shall become
effective on the date of adoption, subject to the approval of Stockholders of
the Company within 12 months of the date of adoption and the completion of the
Company's Restructuring Plan with Presidential Mortgage Company. No options
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<PAGE> 15
granted under the Plan will be effective until the Distribution Date. Unless
sooner terminated by the Board in its sole discretion, the Plan will expire on
December 31, 2005.
Dated: January 1, 1996
PACIFIC UNITED GROUP, INC.
By:____________________________
Joel R. Schultz, President
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EXHIBIT 10.9
PACIFIC UNITED GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I PURPOSE AND TYPE OF OPTION . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Type of Option . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Base Compensation . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 1
2.6 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Continuous Employment . . . . . . . . . . . . . . . . . . . . 2
2.8 Distribution . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Distribution Date . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . 2
2.12 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . 2
2.14 Insider . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.15 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.16 Option Period . . . . . . . . . . . . . . . . . . . . . . . . 3
2.17 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.18 Plan Administrator . . . . . . . . . . . . . . . . . . . . . 3
2.19 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.20 Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 3
2.21 Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.22 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . 4
3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Payroll Withholding . . . . . . . . . . . . . . . . . . . . . 4
3.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Granting of Options . . . . . . . . . . . . . . . . . . . . . 5
3.5 Establishment of Accounts . . . . . . . . . . . . . . . . . . 6
ARTICLE IV OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Termination of Options . . . . . . . . . . . . . . . . . . . 6
4.2 Exercise of Options . . . . . . . . . . . . . . . . . . . . . 7
4.3 Non-Transferability of Options . . . . . . . . . . . . . . . 8
ARTICLE V COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Shares Subject to Plan . . . . . . . . . . . . . . . . . . . 8
5.2 Adjustment Upon Changes in Capitalization . . . . . . . . . . 8
ARTICLE VI PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Administration by Board . . . . . . . . . . . . . . . . . . . 8
6.2 Administration by Committee . . . . . . . . . . . . . . . . . 9
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
6.3 Indemnification of the Plan Administrator . . . . . . . . . . 9
ARTICLE VII MISCELLANEOUS MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Uniform Rights and Privileges . . . . . . . . . . . . . . . . 10
7.2 Rights as a Stockholder . . . . . . . . . . . . . . . . . . . 10
7.3 Application of Proceeds . . . . . . . . . . . . . . . . . . . 10
7.4 Holding Period . . . . . . . . . . . . . . . . . . . . . . . 10
7.5 Amendment and Termination . . . . . . . . . . . . . . . . . . 10
7.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 11
7.7 Stockholder Approval . . . . . . . . . . . . . . . . . . . . 11
7.8 No Right to Employment . . . . . . . . . . . . . . . . . . . 11
7.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VIII EFFECTIVE DATE AND TERM OF PLAN . . . . . . . . . . . . . . . . . . . . 12
8.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . 12
8.2 Term of Plan . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 4
PACIFIC UNITED GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND TYPE OF OPTION
1.1 Purpose of Plan. The purpose of the Plan is to provide
employment incentives for, and to encourage stock ownership by, Employees of
the Company in order to increase their proprietary interest in the success of
the Company.
1.2 Type of Option. The Options granted under the Plan are
intended to qualify for favorable tax treatment under Code Section 421(a)
pursuant to the terms of an employee stock purchase plan that satisfies the
requirements of Code Section 423(b).
ARTICLE II
DEFINITIONS
Whenever capitalized in the text, the following terms shall have the
meanings set forth below.
2.1 ACCOUNT. The account established pursuant to Section 3.5
hereof to hold a Participant's contributions to the Plan.
2.2 BASE COMPENSATION. An Employee's annualized rate of
compensation from the Company, as determined below.
(a) In the case of a salaried Employee, "Base
Compensation" shall be determined with respect to the Employee's salary in
effect at the commencement of the Option Period.
(b) In the case of an hourly Employee, "Base
Compensation" shall be the Employee's hourly rate in effect at the commencement
of the Option Period times the number of hours that the Employee is regularly
scheduled to work.
(c) "Base Compensation" does not include bonuses,
overtime, deferred compensation, or Company contributions to any Employee
benefit plan.
2.3 BOARD. The Board of Directors of Pacific United Group, Inc.
2.4 CODE. The Internal Revenue Code of 1986, as amended.
2.5 COMMON STOCK. The shares of the $.01 par value per share
common stock of Pacific United Group, Inc.
<PAGE> 5
2.6 COMPANY. Pacific United Group, Inc., a Delaware corporation,
as well as any Parent or Subsidiary corporations whose employees participate in
the Plan with the consent of the Board.
2.7 CONTINUOUS EMPLOYMENT. An Employee's employment by the
Company without interruption. Employment shall not be considered interrupted
because of:
(a) Transfers of employment between the Company and its
Subsidiary or Parent corporations, or
(b) Any leave of absence approved by the Company.
2.8 DISTRIBUTION. The transaction whereby the Company, pursuant
to the terms of the Plan of Distribution adopted by Presidential Mortgage
Company, a California limited partnership (the "Partnership"), assumes the
business operations of the Partnership, the Common Stock of the Company is
listed for trading on the NASDAQ National Market System, and the Common Stock
of the Company is distributed to the partners of the Partnership (the
"Partners") in liquidation of the Partnership.
2.9 DISTRIBUTION DATE. The date on which the Distribution is
completed by distribution of the outstanding shares of the Common Stock of the
Company to the Partners in liquidation of the Partnership.
2.10 EMPLOYEE. Any person, including officers and directors,
employed by the Company. This term shall not include directors unless they are
employed by the Company in a position in addition to their duties as a
director.
2.11 ELIGIBLE EMPLOYEE. Any Employee who has satisfied the
eligibility conditions of Section 3.1 below.
2.12 EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
2.13 FAIR MARKET VALUE. For purposes of the Plan, the "fair market
value" per share of Common Stock of the Company at any date shall be (a) if the
Common Stock is listed on an established stock exchange or exchanges or the
NASDAQ National Market System, the closing price per share on the last trading
day immediately preceding such date on the principal exchange on which it is
traded or as reported by NASDAQ, or (b) if the Common Stock is not then listed
on an exchange, the closing price per share on the last trading day immediately
preceding such date reported by NASDAQ, or if sales are not reported by NASDAQ,
the average of the closing bid and asked prices per share for the Common Stock
in the over-the-counter market as quoted on NASDAQ on the last trading day
immediately preceding such date, or (c) if the Common Stock is not then listed
on an exchange, the NASDAQ National Market System or quoted on NASDAQ, an
amount determined
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<PAGE> 6
in good faith by the Plan Administrator. Notwithstanding the foregoing, the
"fair market value" per share of common stock subject to any Option that is
granted under this Plan on the Distribution Date shall be the average of the
closing prices per share of Common Stock of the Company, as quoted on the
NASDAQ National Market System as reported in the Wall Street Journal for each
of the 15 trading days beginning on the day following the Distribution Date,
and if there is no closing price reported on the NASDAQ National Market System
for the Common Stock of the Company for one or more trading days during such
period, the determination shall be made using the earliest 15 days on which
closing prices are reported for such stock beginning on the day following the
Distribution Date.
2.14 INSIDER. A Participant who is an officer, director or more
than ten percent (10%) shareholder subject to the provisions of Section 16 of
the Exchange Act.
2.15 OPTION. A stock option granted pursuant to the Plan.
2.16 OPTION PERIOD. The period beginning on January 1 and ending
on the following December 31. For the Option Period beginning in 1994, the
Option Period shall begin on the Effective Date and end on December 31, 1994.
2.17 PLAN. The Pacific United Group, Inc. Employee Stock Purchase
Plan.
2.18 PLAN ADMINISTRATOR. The Board or the Stock Option and
Retirement Plans Committee designated pursuant to Section 6.2 hereof to
administer, construe and interpret the terms of the Plan.
2.19 PARTICIPANT. An Eligible Employee who has been granted an
Option under the Plan.
2.20 STOCKHOLDERS. The holders of outstanding shares of the Common
Stock.
2.21 PARENT. Any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if at the time in
question, each of the corporations (other than the Company) owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
2.22 SUBSIDIARY. Any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if at the time in
question, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in the chain.
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<PAGE> 7
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY
(a) All Employees of the Company:
(i) Who have completed a period of Continuous
Employment of at least thirty (30) days prior to the date Options are granted
under the Plan, and
(ii) Whose customary employment exceeds twenty
(20) hours per week,
shall be eligible to participate in the Plan.
(b) No Employee may be granted an Option if the Employee
would immediately thereafter own, directly or indirectly, five percent (5%) or
more of the combined voting power or value of all classes of stock of the
Company or of a Parent or Subsidiary corporation.
(c) For purposes of Paragraph (b), an Employee's
ownership interest shall be determined in accordance with the provisions of
Section 424(d) of the Code.
3.2 PAYROLL WITHHOLDING
(a) Eligible Employees may enroll as Participants by
executing, prior to the commencement of each Option Period, a form to be
provided by the Plan Administrator on which they may designate:
(i) The portion of their Base Compensation, in
any multiple of $5.00, to be deducted semi-monthly and contributed to
their Accounts for the purchase of shares of Common Stock, and/or
(ii) The amount of funds, if any, which they will
deposit at the beginning of the Option Period for the purchase of
shares of Common Stock.
(b) Once chosen, the semi-monthly contribution for that
Option Period cannot be decreased or increased without terminating the Option.
However, pursuant to rules and procedures prescribed by the Plan Administrator,
a Participant may make additional contributions to make up any contributions
that the Participant failed to make while on a Company-approved unpaid leave of
absence if the Participant returns to active employment and contributes those
amounts before the end of the Option Period during which the leave of absence
began.
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<PAGE> 8
3.3 LIMITATIONS.
(a) The aggregate maximum dollar amount which may be
designated by a Participant to be applied to the purchase of shares under the
Plan may not exceed fifteen percent (15%) of his or her Base Compensation.
(b) Notwithstanding anything herein to the contrary, a
Participant may not accrue a right to purchase shares of Common Stock at a rate
that exceeds twenty-five thousand dollars ($25,000) per Option Period.
(i) This limitation shall apply to the
Participant's right to purchase Common Stock under the Plan and under
all other employee stock purchase plans described in Section 423 of
the Code that are maintained by the Company and its Subsidiary and
Parent corporations.
(ii) This dollar limitation applies to the Fair
Market Value of Common Stock (determined at the time the Option is
granted) for the Option Period in which the Option is outstanding.
(iii) This limitation shall be applied in a manner
consistent with the provisions of Section 423(b)(8) of the Code.
3.4 GRANTING OF OPTIONS.
(a) Upon the Employee's completion and return of the
enrollment form, the Plan Administrator will, at the commencement of the Option
Period, grant an Option to allow the Participant to purchase the number of
whole shares of Common Stock calculated by:
(i) Multiplying the dollar amount of the
semi-monthly deduction designated by a Participant by twenty- four
(24),
(ii) Adding the resulting product to the amount of
funds (if any) to be deposited by the Participant with the Plan at the
beginning of the Option Period, and
(iii) Dividing this amount by the Fair Market Value
of one share of Common Stock on the first day of the Option Period.
(b) The price at which each share covered by an Option
may be purchased will in all instances be the lesser of:
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<PAGE> 9
(i) One hundred percent (100%) of the Fair Market
Value of a share of Common Stock on the first day of the applicable
Option Period, or
(ii) Ninety percent (90%) of the Fair Market Value
of a share of Common Stock on the last day of that Option Period.
(c) Options shall be evidenced by an agreement between
the Participant and the Company in a form approved by the Plan Administrator.
3.5 ESTABLISHMENT OF ACCOUNTS.
(a) All amounts contributed by the Participant to the
Plan (whether by means of payroll withholding or a lump sum advance
contribution) will be deposited into a separate Account maintained for the
Participant.
(i) All the Accounts will bear passbook interest
rates.
(ii) The Plan Administrator shall prescribe the
rules and procedures as it deems necessary or appropriate regarding
the handling of Participant contributions and, in its sole discretion,
may deposit such contributions in a passbook account maintained at an
institution that is a Subsidiary of the Company.
(b) A Participant may not withdraw any portion of the
funds accumulated in his or her Account without terminating his or her Option
pursuant to Section 4.1 below.
ARTICLE IV
OPTIONS
4.1 TERMINATION OF OPTIONS.
(a) An Option shall terminate upon the Participant's
voluntary withdrawal from the Plan. A Participant may withdraw from the Plan
at any time prior to the last day of the Option Period by submitting written
notice to the Plan Administrator.
(b) If a Participant who is an Insider ceases
participation in the Plan, he cannot recommence participation until the first
day on which he is permitted to do so under the terms of Article III above,
provided that date is at least six (6) months after the date on which he ceased
participation in the Plan.
(c) An Option also shall terminate automatically if the
Participant holding the Option ceases to be employed by
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<PAGE> 10
the Company for any reason (including death, disability or retirement) prior to
the last day of the Option Period.
(d) For purposes of Paragraph (c) above, a Participant's
employment will not be considered to have been terminated by reason of a leave
of absence taken in accordance with the Company's leave of absence policy,
provided the leave of absence does not exceed five (5) months. If the leave of
absence exceeds five (5) months, the Participant will be deemed to have ceased
to be employed on the first day following the end of the five (5) month period.
(e) Upon any termination of an Option, all amounts held
in the Participant's Account, including the interest earned thereon, shall be
refunded to the Participant.
4.2 EXERCISE OF OPTIONS.
(a) Unless terminated prior to the last day of the Option
Period, Options granted at the commencement of an Option Period will be
exercised automatically on the last day of that Option Period.
(b) As soon as practicable after the last day of the
Option Period, a Participant shall receive a certificate for the whole number
of shares of Common Stock purchased with the funds from the Participant's
Account.
(c) If the amount in the Participant's Account on the
date of purchase exceeds the total purchase price of the shares subject to the
Option, the surplus shall be refunded to the Participant as soon as reasonably
practicable after the end of the applicable Option Period.
(d) If at any time during an Option Period a Participant
ceases receiving compensation from the Company without terminating employment
(e.g., while on a Company-approved leave of absence), and, as a result, the
amount in the Participant's Account at the end of the Option Period is
insufficient to purchase all the shares covered by the Option granted to the
Participant, as many whole shares as can be purchased out of the contributed
funds will be acquired. The balance of the funds, if any, shall be refunded to
the Participant.
(e) Except as provided in Section 3.2(b), payment for
shares to be purchased at the termination of the Option Period may only be made
from funds:
(i) Deposited at the beginning of an Option
Period, and/or
(ii) Accumulated through payroll deductions made
throughout the Option Period.
-7-
<PAGE> 11
4.3 NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will and the laws of descent and distribution. During the lifetime of
the Participant, the Option may be exercised only by the Participant.
ARTICLE V
COMMON STOCK
5.1 SHARES SUBJECT TO PLAN.
(a) The maximum number of shares of Common Stock which
may be issued under the Plan is 50,000 shares, subject to adjustment in certain
circumstances as provided in Section 5.2 below.
(b) If any outstanding Option is terminated for any
reason, the shares allocable to the Option may again become subject to purchase
under the Plan.
(c) The Common Stock issuable under the Plan may either
be previously unissued Common Stock or may have been reacquired by the Company
in the open market or otherwise.
(d) If at any time the number of shares for which Options
are to be granted under the Plan pursuant to Participants' designation exceeds
the number of shares then remaining available under the Plan, the Plan
Administrator shall make pro rata adjustments to Participants' designations in
a uniform manner. Written notice of any the adjustments shall be given to each
affected Participant.
5.2 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. A proportionate
adjustment shall be made by the Plan Administrator in the number, price, and
kind of shares subject to outstanding Options if the outstanding shares of
Common Stock are increased, decreased, or exchanged for different securities,
through reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividends, or similar capital adjustment.
ARTICLE VI
PLAN ADMINISTRATION
6.1 ADMINISTRATION BY BOARD. Subject to Section 6.2, the Plan
Administrator shall be the Board during such periods of time as all members of
the Board are both "disinterested persons" as defined in Rule 16b-3(c)(2)(i)
promulgated by the Securities and Exchange Commission (a "disinterested
person") and "outside directors" as defined in Prop. Treas. Regs. Section
1.162-27(e)(3). Anything to the contrary notwithstanding, the requirement that
all members of the Board be disinterested persons and outside directors shall
not apply for any period of time prior to the date the Company's Common Stock
becomes registered pursuant to
-8-
<PAGE> 12
Section 12 of the Securities Exchange Act of 1934, as amended. Subject to the
provisions of the Plan, the Plan Administrator shall have authority to construe
and interpret the Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, to determine the timing and manner of the grant
of the Options, to determine the exercise price, the number of shares covered
by and all of the terms of the Stock Options, to determine the duration and
purpose of leaves of absence which may be granted to Stock Option holders
without constituting termination of their employment for purposes of the Plan,
and to make all of the determinations necessary or advisable for administration
of the Plan. The interpretation and construction by the Plan Administrator of
any provision of the Plan, or of any agreement issued and executed under the
Plan, shall be final and binding upon all parties. No member of the Board
shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
6.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan Administrator and,
subject to the provisions of Section 6.1 of the Plan, at any time the Board
includes any person who is not a disinterested person and an outside director,
the Board shall delegate all of its duties as Plan Administrator during such
period of time to the Stock Option and Retirement Plans Committee (the
"Committee") of not fewer than two (2) members of the Board, all of the members
of which Committee shall be persons who, in the opinion of counsel to the
Company, are disinterested persons and outside directors, to be appointed by
and serve at the pleasure of the Board. From time to time, the Board may
increase or decrease (to not less than two members) the size of the Committee,
and add additional members to, or remove members from, the Committee. The
Committee shall act pursuant to a majority vote, or the written consent of a
majority of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the provisions of
the Plan and the directions of the Board, the Committee may establish and
follow such rules and regulations for the conduct of its business as it may
deem advisable. No member of the Committee shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or any
agreement executed pursuant to the Plan.
6.3 INDEMNIFICATION OF THE PLAN ADMINISTRATOR. To the extent
permitted by law, the Certificate of Incorporation of the Company, the Bylaws
of the Company and any indemnity agreements between the Company and its
directors or employees, the Company shall indemnify each member of the Board
and of the Plan Administrator, and any other employee of the Company with
duties under the Plan, against expenses (including any amount paid in
settlement) reasonably incurred by him in connection with any claims against
him by reason of his conduct in the performance of his duties under the Plan.
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<PAGE> 13
ARTICLE VII
MISCELLANEOUS MATTERS
7.1 UNIFORM RIGHTS AND PRIVILEGES. Except for the limitations of
Section 3.3, the rights and privileges of all Participants under the Plan must
be the same.
7.2 RIGHTS AS A STOCKHOLDER.
(a) No person shall have any stockholder rights with
respect to shares covered by an Option until a stock certificate for the shares
is issued and delivered to the person.
(b) No adjustments will be made for cash dividends or
other rights for which the record date is prior to the date of the exercise of
the Option.
7.3 APPLICATION OF PROCEEDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Options shall be used for general
corporate purposes.
7.4 HOLDING PERIOD. Insiders acquiring Common Stock under the
Plan must hold the stock for at least six (6) months after the last day of the
Option Period prior to disposing of the stock.
7.5 AMENDMENT AND TERMINATION.
(a) The Board may at any time alter, amend, suspend, or
terminate the Plan with respect to any shares not already subject to Options.
(b) No amendment may be adopted without the approval of
the Stockholders that would:
(i) Materially increase the benefits accruing to
Participants in the Plan,
(ii) Increase the number of shares that may be
issued under the Plan,
(iii) Materially modify the requirements as to
eligibility for participation,
(iv) Extend the term of the Plan,
(v) Alter the option price formula, or
(vi) Cause the Plan to fail to meet the
requirements to qualify as an "employee stock purchase plan" under
Section 423 of the Code.
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<PAGE> 14
7.6 INTERPRETATION.
(a) If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions of the Plan, and the Plan will be construed and enforced as if the
provision had not been included in it.
(b) Unless the context clearly indicates otherwise, the
masculine gender shall include the feminine, the singular shall include the
plural, and the plural shall include the singular.
(c) Article and Section headings are for convenient
reference only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any Article or
Section.
7.7 STOCKHOLDER APPROVAL.
(a) No shares of Common Stock shall be issued under the
Plan unless it shall have been approved by the stockholders of the Company
within 12 months of the date of adoption. If the Plan is not approved by the
Company's stockholders within that time period, the Plan and all Options issued
under the Plan will terminate and all contributions will be refunded to the
Participants together with any interest earned thereon.
(b) This approval by the Company's stockholders must
relate to both:
(i) The aggregate number of shares to be granted
under the Plan, and
(ii) The corporations whose employees may be
Participants in the Plan.
7.8 NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor
the granting of any Option shall confer upon any Employee any right to
continued employment, nor shall it interfere in any way with the right of the
Company terminate the employment of any Employee at any time, with or without
cause.
7.9 GOVERNING LAW. The Plan and all actions taken under it shall
be governed by and construed in accordance with the laws of the state of
California.
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<PAGE> 15
ARTICLE VIII
EFFECTIVE DATE AND TERM OF PLAN
8.1 EFFECTIVE DATE. This Plan shall become effective on the date
of adoption, subject to the approval of Stockholders of the Company within 12
months of the date of adoption and the completion of the Distribution. No
options granted under the Plan will be effective until the Distribution Date.
8.2 TERM OF PLAN. Unless sooner terminated by the Board in its
sole discretion, the Plan will expire on December 31, 2005.
IN WITNESS WHEREOF, Pacific United Group, Inc. has caused this
instrument to be executed by its duly authorized officer.
PACIFIC UNITED GROUP, INC.
By:_____________________________
Joel R. Schultz, President
Date:___________________________
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<PAGE> 1
EXHIBIT 10.10
PACIFIC UNITED GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE> 2
PACIFIC UNITED GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
The principal objective of the Pacific United Group, Inc.
Supplemental Executive Retirement Plan ("Plan") is to help ensure that the
Company provides a competitive level of benefits in order to attract, retain,
and motivate selected executives. The Plan is designed to provide benefits
that will help the Company meet this objective.
The Plan was created in connection with the Plan of Distribution
entered into between the Company and Presidential Mortgage Company, a
California limited partnership (the "Partnership"), whereby the Company assumes
the business operations of the Partnership, the Common Stock of the Company is
listed for trading on the NASDAQ National Market System, and the Common Stock
of the Company is distributed to the partners in liquidation of the
Partnership.
The Plan was established for the purpose of providing benefits to a
select group of management or highly compensated employees. The benefits under
the Plan are unfunded. Accordingly, it is intended that the Plan be exempt
from the requirements of Parts II, III, and IV of Title I of Employee
Retirement Income Security Act of 1974 ("ERISA") pursuant to Sections 201(2),
301(a)(3), and 401(a)(1) of ERISA.
ARTICLE I
DEFINITIONS
1.1 Actuarial Equivalence. The "Actuarial Equivalence" of two
(2) forms of benefits shall be determined using the following actuarial
assumptions:
<TABLE>
<S> <C>
Interest rate: 9.0%
Mortality: 1983 Group Annuity Mortality Table
Wage base inflation: 5.0%
Consumer Price Increase: 4.5%
</TABLE>
1.2 Average Earnings.
(a) The sum of Participant's Earnings during the three
(3) consecutive calendar years preceding his Retirement in which he had the
greatest Earnings, divided by three (3).
(b) In the event that the Participant has less than
three (3) calendar years of employment with the Company, his Average Earnings
shall be the average amount of his annualized Earnings for the entire period.
<PAGE> 3
1.3 Board. The Board of Directors of the Pacific United Group,
Inc. or its delegate.
1.4 Cause. The definition of Cause contained in this Section
1.4 shall apply only for purposes of Article IV, Section 4.1. In all other
cases, the determination as to whether a Participant has been terminated for
Cause shall be made pursuant to the definition in Section 2.3(b) and without
reference to the provisions of this Section 1.4.
(a) A Participant's employment will be considered to
have been terminated for "Cause" if the Participant is terminated by reason of
the conditions described in either Subparagraph (i) or (ii) below.
(i) A Participant's employment is
terminated under the provisions of this Subparagraph (i) if it is because of
the willful and continued failure by the Participant to substantially perform
his duties with the Company after a written demand for substantial performance
is delivered to the Participant by the Board, which demand specifically
identifies the manner in which the Board believes that the Participant has not
substantially performed his duties. However, the provisions of this
Subparagraph (i) shall not apply to any such failure:
(A) Resulting from the
Participant's incapacity due to physical or mental illness, or
(B) Occurring after the Participant
has resigned for Good Reason, or upon a showing that Good Cause existed for the
Participant to terminate his employment before the Company's termination of a
Participant.
(ii) A Participant's employment is
terminated under the provisions Of this Subparagraph (ii) if it is because of
the Participant's:
(A) Theft or embezzlement from the
Company or its affiliates (regardless of whether or not such affiliates
maintain the Plan),
(B) Fraud or other acts of
dishonesty in the conduct of the business of the Company or its affiliates
(regardless of whether or not such affiliates maintain the Plan) or the
fulfillment of the Participant's assigned responsibilities thereunder,
(C) Conviction of, or plea of nolo
contendere to, any felony or any crime involving moral turpitude,
(D) Willful and knowing action
which is materially injurious to the business or reputation of the Company or
its affiliates (regardless of whether or not such affiliates maintain the
Plan).
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<PAGE> 4
(b) Notwithstanding the foregoing, within 10 business
days following receipt of written notice of termination for Cause, the
Participant shall have the right to demand and, if demanded, to receive within
30 days, an opportunity to respond and defend himself before the Board and to
have the Board determine that Cause exists by the affirmative vote of not less
than three-quarters of the entire membership of the Board. If the Board does
not determine that Cause exists, the Participant shall not be deemed to have
been terminated for Cause.
1.5 Change of Control. A "Change of Control" shall be deemed
to have occurred upon the occurrence of any one (or more) of the following
events:
(a) Any person, including a group as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of shares of the Company with respect to which twenty
percent (20%) or more of the total number of votes for the election of the
Board may be cast;
(b) As a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination, sale of
assets, or contested election for the Board, or combination of the foregoing,
persons who were directors of the Company just prior to such event(s) shall
cease to constitute a majority of the Board;
(c) A transaction in which the Company will cease to
be an independent publicly owned corporation that is required to file quarterly
and annual reports under the Securities Exchange Act of 1934, or a sale or
other disposition of all or substantially all the assets of the Company
(including but not limited to the assets or stock of Company's subsidiaries
that results in all or substantially all of the assets or stock of Company on a
consolidated basis being sold);
(d) A tender offer or exchange offer is made for
shares of the Company's Common Stock (other than one made by the Company) and
shares of Common Stock are acquired thereunder;
(e) The stockholders of the Company cause a change in
the majority of the members of the Board within a twelve (12) month period;
provided, however, that the election of one or more new directors shall not be
deemed to be a change in the membership of the Board if the nomination of the
newly elected directors was approved by the vote of three-fourths of the
directors then still in office who were directors at the beginning of such
twelve (12) month period; or
(f) In the case of a Participant who is a party to an
employment agreement with the Company or an affiliate that defines a "Corporate
Change" to include any diminution of the Participant's duties, functions,
responsibilities or authority provided thereunder (a "diminution"), any such
diminution.
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<PAGE> 5
1.6 Company. Pacific United Group, Inc. and any affiliated
companies that maintain the Plan.
1.7 Early Retirement Date.
(a) The first day of any month coincident with or next
following the month in which the Participant terminates employment with the
Company:
(i) After becoming eligible for Early
Retirement benefits, but
(ii) Before his Normal Retirement Date.
(b) A Participant first becomes eligible for early
retirement when:
(i) The sum of his age plus years of
Service equals or exceeds seventy-five (75), and
(ii) He has at least fifteen (15) years of
service.
1.8 Earnings. A Participant's annual compensation, as reported
in the Participant's IRS Form W-2 from the Company, prior to any reductions
caused by his pre-tax contributions to the Pacific United Group, Inc.
Retirement Plan or to the Pacific United Group, Inc. Cafeteria Plan.
1.9 Effective Date. The effective date of this Plan, which
shall be January 1, 1996.
1.10 Estimated Section 401(k) Plan Benefit.
(a) A Participant's annual retirement benefit payable
as a straight life annuity at Retirement, based on the Actuarial Equivalent
value of the sum of the Elective Deferral Contributions, plus the Company
Matching Contributions to the Section 401(k) Plan on his behalf (computed in
accordance with the rules of Paragraph (b) below).
(b) The amount of the Elective Deferral Contributions
and Company Matching Contributions is computed as if:
(i) The Participant had commenced
participation in the Section 401(k) Plan on the date when he first became
eligible to make Elective Deferral Contributions to that plan, and
(ii) The Participant elected the maximum
Elective Deferral Contributions and had received the maximum amount of Company
Matching Contribution that he could receive
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<PAGE> 6
each year, based upon the amount of his income that is taken into account under
the Section 401(k) Plan for that year.
1.11 Estimated Social Security Benefit.
(a) The annual Primary Insurance Amount estimated by
the Administrative Committee to be payable to the Participant under the Social
Security Act at his Retirement, determined without regard to any Late
Retirement Credit under the Social Security Act.
(b) The Estimated Social Security Benefit for a
Participant whose employment is terminated before age sixty-five (65) will be
calculated assuming the Participant will:
(i) Not receive any future wages that
would be treated as wages for purposes of the federal Social Security Act, and
(ii) Begin receiving Social Security
benefits at the first Social Security Retirement Age coincident with or next
following his Retirement Date under this Plan.
(c) The Estimated social Security Benefit of a
Participant will not be increased by reason of any increase in the Primary
Insurance Amount that occurs following the termination of his employment.
1.12 Good Reason. The occurrence of any of the following
circumstances after a Change of Control, unless, in the case of events
described in Paragraphs (a), (b), or (c) below, the circumstances are fully
corrected before the effective date of the Participant's notice that he is
resigning from the Company:
(a) The assignment to the Participant of any duties
inconsistent with his status with the Company or a substantial impairment of
the nature or status of his responsibilities from those in effect immediately
before the Change of Control;
(b) The Company's reduction in the Participant's
annual base salary (or any bonus provided for in a written employment agreement
between the Company and the Participant) as in effect immediately before the
Change of Control or as it may be subsequently increased;
(c) The Company's requiring the Participant to be
based anywhere outside the greater Los Angeles metropolitan area, other than an
office of the Company within a twenty-five (25) mile radius of the
Participant's principal place of employment by the Company immediately before
the Change of Control, except for required travel on Company business to an
extent substantially consistent with the Participant's business travel
obligations immediately before the Change of Control;
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<PAGE> 7
(d) The Company's failure to pay within seven (7) days
of the due date any portion of:
(i) The Participant's current
compensation, or
(ii) An installment of deferred
compensation under any deferred compensation plan of the Company;
(e) The Company's failure to continue in effect any
compensation plan in which the Participant participated immediately before the
Change of Control that is material to his total compensation, including but not
limited to this Plan or any similar plans adopted before the Change of Control.
(i) This provision shall not apply if an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan;
(f) The Company's failure to continue the
Participant's participation in any plan described in Paragraph (e) above on a
basis not materially less favorable, both in terms of:
(i) The amount of benefits provided, and
(ii) The level of the Participant's
participation in the plan (relative to that of the other Participants),
as it was in effect immediately before the Change of Control; or
(g) The Company's failure to continue to provide the
Participant with benefits substantially similar to those the Participant
enjoyed under any of the Company's pension, life insurance, medical, health and
accident, disability plans, or other material fringe benefit plans (including
vacation benefits) in which he was participating immediately before the Change
of Control.
1.13 Normal Retirement Date. The Participant's sixty-fifth
(65th) birthday.
1.14 Participant. An employee of (or consultant to) the Company
whom the Board designates as a person eligible to participate in the Plan.
1.15 Plan. Pacific United Group, Inc. Supplemental Executive
Retirement Plan.
1.16 Plan Year. The fiscal year of the Plan, which shall be the
period beginning on January 1 and ending on the following December 31.
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<PAGE> 8
1.17 Plan Administrator. The person, persons or entity
appointed by the Board pursuant to Article V to manage, administer, interpret,
and construe the Plan.
1.18 Postponed Retirement Date. The first day on which the
Participant terminates employment with the Company following his Normal
Retirement Date.
1.19 Retirement. The termination of a Participant's employment
with the Company after he has satisfied the requirements for benefits under
Section 2.2 below.
1.20 Retirement Date. A Participant's Normal, Early, or
Postponed Retirement Date (whichever is applicable).
1.21 Section 401(k) Plan. The Pacific United Group, Inc.
Retirement Plan as amended from time to time.
1.22 Year of Service.
(a) A Participant's years of service with the Company.
Only complete Years of Service will be taken into account under the Plan.
(b) A Participant will be credited with one (1) Year
of Service for each computation period during which the Participant completes
twelve (12) months of continuous service for the Company. A computation period
shall be the twelve month period beginning on the date the Participant first
performs any services for the Company. Except as otherwise set forth in
resolutions of the Board:
(i) Each Participant will receive credit
for all Years of Service with the Company prior to commencing participation in
the Plan, and
(ii) A Participant will be credited with
any time while he is on a leave of absence approved by the Company.
(c) Notwithstanding anything herein to the contrary,
service with the following entities shall be treated as service with the
Company:
Presidential Services Corporation
Presidential Management Company, L.P.
Presidential Mortgage Company, L.P.
Pacific Thrift and Loan Company
(formerly Inglewood Thrift and Loan Company)
Consolidated Reconveyance Company
Lenders Posting and Publishing Company
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<PAGE> 9
ARTICLE II
ELIGIBILITY FOR BENEFITS
2.1 Eligibility to Participate.
(a) An individual shall become a Participant at the
time, and on the conditions specified by the Plan Administrator.
(b) The Participants in the Plan as of the Effective
Date are the individuals specified in Exhibit A attached hereto. Additional
Participants may be added to Exhibit A by the Plan Administrator without
requiring an amendment to the Plan.
(c) If it is subsequently determined that the
participation of any individual in the Plan is inconsistent with the Plan being
exempt from the requirements of Parts II, III, and IV of Title I of ERISA, at
the election of the Plan Administrator, the benefit payable to that individual
shall be paid in a lump sum as soon as administratively possible after such
determination is made.
2.2 Entitlement to Benefits.
(a) A Participant who terminates employment on or
after his Retirement Date will be eligible to retire and receive benefits under
this Plan.
(b) Except an provided in Section 3.3 and Article IV
below, no benefits are payable under this Plan if a Participant terminates
employment for any reason before his Retirement Date.
2.3 Forfeiture of Benefits. Notwithstanding anything herein to
the contrary, the benefit payable hereunder to a Participant shall be forfeited
if he:
(a) Engages in competition with the Company (either
before or after Retirement) without the Board's prior authorization in writing,
or
(b) Is discharged for Cause. For purposes of this
Section 2.3(b), "Cause" shall mean:
(i) Theft or embezzlement from the Company
or its affiliates (regardless of whether or not such affiliates maintain the
Plan),
(ii) Fraud or other acts of dishonesty in
the conduct of the business of the Company or its affiliates (regardless of
whether or not such affiliates maintain the Plan) or the fulfillment of the
Participant's assigned responsibilities thereunder,
(iii) Conviction of, or plea of nolo
contendere to, any felony or any crime involving moral turpitude,
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<PAGE> 10
(iv) Willful and knowing action which is
materially injurious to the business or reputation of the Company or its
affiliates (regardless of whether or not such affiliates maintain the Plan).
In the case of a Participant whose employment is terminated following a Change
of Control, the special definition of "Cause" contained in Section 1.4 above
shall apply.
ARTICLE III
BENEFITS
3.1 Amount of Benefit. A Participant retiring in accordance
with Section 2.2 above will be eligible for a monthly retirement benefit.
(a) The annual retirement benefit payable at a
Participant's Normal Retirement Date will be one and two- thirds percent (1
2/3%) of his Average Earnings for each year of Service, not to exceed thirty
(30). However, in no event will a participant's years of Service in excess of
thirty (30) be taken into account in determining the amount of his benefit.
Furthermore, the Participant's benefit will be reduced by the following
amounts:
(i) His Estimated Social Security Benefit,
and
(ii) His Estimated Section 401(k) Plan
Benefit.
(b) The annual retirement benefit payable to a
Participant at an Early Retirement Date will equal his benefit determined in
accordance with Paragraph (a) above, but reduced by one-quarter percent (1/4%)
for each month that the benefit payment begins before age sixty-five (65).
(c) The annual retirement benefit payable to a
Participant at Postponed Retirement Date will equal his benefit determined in
accordance with Paragraph (a) above based on his Service and Average Earnings
as of his Postponed Retirement Date.
3.2 Form of Benefit.
(a) The benefit determined under this Plan will be
payable in the form of a straight life annuity.
(b) In accordance with rules and procedures prescribed
by the Plan Administrator, a Participant may elect that his benefit be paid in
one of the optional forms set forth in Paragraph (c) below. This election must
be made prior to the year in which the benefit becomes payable.
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<PAGE> 11
(c) All optional forms in which benefits under the
Plan may be paid (including the death benefit under Section 3.3 below) will be
the Actuarial Equivalent of the amount of the Participant's benefit calculated
pursuant to Paragraph (a) above. The permitted optional forms are:
(i) Joint and survivor annuity;
(ii) Ten-year certain and life thereafter
annuity; and
(iii) Fifteen-year certain and life
thereafter annuity.
3.3 Death Benefits.
(a) If a Participant should die while employed by the
Company at a time when he is eligible for Retirement, his surviving spouse will
receive a benefit calculated under Paragraph (b) below.
(b) The amount of the benefit payable to the surviving
spouse shall be determined as if:
(i) The Participant had retired on the day
before his death, and
(ii) Elected to receive his benefit in the
form of a fifty percent (50%) joint and survivor annuity. The value of the
joint and survivor annuity will be the Actuarial Equivalent of the Early,
Normal, or Postponed Retirement Benefit to which the Participant is entitled.
3.4 Payment of Benefits.
(a) Participants are not entitled to receive a
distribution of their benefits prior to Retirement.
(b) Benefits will begin on the first day of the month
coincident with or next following the Participant's Retirement Date. Benefits
will continue to be paid on the first day of each succeeding month.
(c) The last payment will be on the first day of the
month in which the retired Participant dies, unless the Participant has elected
that his benefit be paid in an optional form in accordance with the provisions
of Section 3.2(c) above.
3.5 Payees Under Legal Disability.
(a) If the Plan Administrator believes that any payee
is:
(i) A minor, or
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<PAGE> 12
(ii) Legally incapable of giving a valid
receipt and discharge for any payment due him,
the Plan Administrator may have the payment, or any part of it, made to the
person(s) or institution that it believes is caring for or supporting the
payee.
(b) any payment under Paragraph (a) above shall be a
payment for the benefit of the payee and shall, to the extent thereof, be a
complete discharge of any liability under the Plan to the payee.
3.6 Designation of Beneficiary.
(a) In the event of the death of a Participant, his
benefit shall be paid to a beneficiary other than his surviving spouse only if
the surviving spouse of the Participant consents in writing to the designation
of another person as the beneficiary.
(b) In the absence of a surviving spouse and/or an
effectively designated beneficiary, the Participant's benefit will be paid to
his estate.
3.7 Withholding for Taxes. Any payments out of the Plan may be
subject to withholding for taxes as may be required by any applicable federal
or state law. To the extent that the benefit under this Plan is considered
wages for income or employment tax purposes during any period prior to the time
benefits become payable hereunder, the Company may withhold such taxes from the
Participant's current compensation as may be required by any applicable federal
or state law.
3.8 Mailing of Payments.
(a) All payments under the Plan shall be delivered in
person or mailed to the last address of the Participant (or, in the case of the
death of the Participant, to the last address of his beneficiary).
(b) Each Participant shall be responsible for
furnishing the Plan Administrator with his current address and the name and
current address of his beneficiary.
ARTICLE IV
CHANGE OF CONTROL
Notwithstanding anything in this Plan to the contrary, the provisions
of this Article IV apply to those Participants whose employment is terminated
within a specified period of years following a Change of Control ("Affected
Participants"), as expressly provided herein.
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<PAGE> 13
4.1 Entitlement to Benefits.
(a) If the employment of an Affected Participant
terminates for any reason, including the Affected Participant's voluntary
resignation upon 30 days written notice at any time within one (1) year
following a Change of Control, prior to becoming entitled to Retire under
Section 2.2 above, he shall be entitled to receive a benefit computed according
to Section 3.1 above as if the termination of employment date was the Affected
Participant's Retirement Date, provided that this shall not increase the
Participant's years of Service.
(b) If the employment of an Affected Participant
terminates within five (5) years following a Change of Control, but prior to
becoming entitled to Retire under Section 2.2 above, he shall be entitled to
receive a benefit computed according to Section 3.1 above as if the termination
of employment date was the Affected Participant's Retirement Date, provided:
(i) In the event of an involuntary
termination, the Affected Participant is not terminated for Cause, as defined
in Section 1.4 above; and
(ii) In the event of a voluntary
resignation, the Affected Participant's resignation is for Good Reason, as
defined in a Section 1.12 above.
(c) For purposes of computing the amount of an
Affected Participant's benefit under Paragraph (b) above, the Affected
Participant shall be credited with an additional five (5) years of Service.
(i) However, in no event will more than
thirty (30) Years of Service be taken into account in computing the amount of
an Affected Participant's benefit.
4.2 Payment of Benefits.
(a) The benefit (if any) payable to each Affected
Participant shall be paid in a lump sum.
(i) The payment shall be the Actuarial
Equivalent value of his benefit calculated in accordance with Section 3.1
above.
(b) In the case of a Participant (other than an
Affected Participant) whose benefits are already in pay status at the time of
the Change of Control, he shall receive a lump sum benefit equal to the
Actuarial Equivalent value of his benefit calculated in accordance with Section
3.1 above, but reduced by the value of the benefits already received.
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<PAGE> 14
4.3 Legal Fees.
(a) The Company shall pay to the Participant or his
beneficiary any legal fees and expenses that the Participant or his beneficiary
reasonably incurs in seeking to obtain from or enforce against the Company any
right or benefit provided under this Plan after a Change of Control.
(b) In the event that it is determined that the
Participant is not entitled to the benefit claimed in the lawsuit, the
Participant or beneficiary shall be required to reimburse the Company for the
legal fees that the Company previously paid pursuant to Paragraph (a) above.
ARTICLE V
OPERATION AND ADMINISTRATION OF THE PLAN
5.1 Plan Administrator Powers. The Plan Administrator shall
have all powers necessary to supervise the administration of the Plan and
control its operations. In addition to any powers and authority conferred on
the Plan Administrator elsewhere in the Plan or by law, the Plan Administrator
shall have the following powers and authority:
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To employ such legal, actuarial, accounting,
clerical, and other assistance as it may deem appropriate in administering this
Plan;
(c) To establish rules and procedures for the conduct
of the Plan Administrator's business and the administration of this Plan;
(d) To administer this Plan and to decide all
questions which may arise under this Plan. All determinations by the Plan
Administrator shall be binding upon all parties, to the maximum extent
permitted by law; and
(e) To perform or cause to be performed such further
acts as it may deem to be necessary or appropriate in the administration of the
Plan.
5.2 Composition of Plan Administrator.
(a) The Plan Administrator (who need not be
Participants or even employees of the Company) shall be appointed by the Board
of the Company and shall continue until termination of such status in
accordance with the provisions of this Article V.
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<PAGE> 15
(b) The Plan Administrator or any individual member
thereof may resign at any time by giving written notice to the Board, effective
as the date stated in the notice. The Plan Administrator or any individual
member thereof may be removed by the Board at any time.
(c) In the case of a Plan Administrator or an
individual member thereof who is also an employee of the Company, his Status as
Plan Administrator shall terminate as of the effective date of the termination
of his employment, except as otherwise provided in resolutions adopted by the
Board.
(d) Upon the death, resignation, or removal of the
Plan Administrator, the Board may appoint a successor. Notice of the
appointment of a successor member shall be given by the Company in writing to
the other members of the Plan Administrator.
5.3 Plan Administrator Procedure.
(a) In the event the Plan Administrator is a committee
of two or more individuals, a majority of the members of the Plan Administrator
shall constitute a quorum. Any action authorized by a majority of the members:
(i) Present at any meeting, or
(ii) In writing without a meeting,
shall constitute the actions of the Plan Administrator.
(b) The Plan Administrator may designate one or more
individuals as authorized to execute any document or documents on behalf of the
Plan Administrator.
5.4 Notices and Communications.
(a) All communications from Participants to the Plan
Administrator shall be in writing, on forms prescribed by the Plan
Administrator. These communications shall be mailed or delivered to the office
designated by the Plan Administrator, and shall be deemed to have been given
when received by the Plan Administrator.
(b) Each communication from the Plan Administrator to
a Participant or beneficiary shall be in writing and may be delivered in person
or by mail. These communications shall be deemed to have been delivered and
received by the Participant three (3) days after the date when it is deposited
in the United States Mail with postage prepaid, addressed to the Participant or
beneficiary at his last address of record with the Plan Administrator.
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5.5 Reporting and Disclosure. The Company (and not the Plan
Administrator) shall be responsible for the reporting and disclosure of
information required to be reported or disclosed pursuant to ERISA or any other
applicable law.
5.6 Conflict of Interest. Any member of the Plan Administrator
who is also a Participant shall not be qualified to act or vote on any matter
relating solely to himself.
5.7 Indemnification. To the extent permitted by law, the
Certificate of Incorporation of the Company, the Bylaws of the Company and any
indemnity agreements between the Company and its directors or employees, the
Company shall indemnify each member of the Board and of the Plan Administrator,
and any other employee of the Company with duties under the Plan, against
expenses (including any amount paid in settlement) reasonably incurred by him
in connection with any claims against him by reason of his conduct in the
performance of his duties under the Plan.
ARTICLE VI
APPLICATION FOR BENEFITS
6.1 Application for Benefits.
(a) The Plan Administrator may require any person
claiming benefits under the Plan ("Claimant") to submit an application
therefor, together with such other documents and information as the Plan
Administrator may require.
(b) Within ninety (90) days following receipt of the
application and all necessary documents and information, the Plan
Administrator's authorized delegate reviewing the claim shall furnish the
Claimant with written notice of the decision rendered with respect to the
application.
(c) Should special circumstances require an extension
of time for processing the claim, written notice of the extension shall be
furnished to the Claimant prior to the expiration of the initial ninety (90)
day period.
(i) The notice shall indicate the special
circumstances requiring an extension of time and the date by which a final
decision is expected to be rendered.
(ii) In no event shall the period of the
extension exceed ninety (90) days from the end of the initial ninety (90) day
period.
6.2 Content of Denial. In the case of a denial of the
Claimant's application, the written notice shall sat forth:
(a) The specific reasons for the denial;
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<PAGE> 17
(b) References to the Plan provisions upon which the
denial is based;
(c) A description of any additional information or
material necessary for perfection of the application (together with an
explanation of why the material or information is necessary); and
(d) An explanation of the Plan's claims review
procedure.
6.3 Appeals.
(a) In order to appeal the decision rendered with
respect to his application for benefits or with respect to the amount of his
benefits, the Claimant must follow the appeal procedures set forth in this
Section 6.3.
(b) The appeal must be made, in writing:
(i) In the case where the claim is
expressly rejected, within sixty-five (65) days after the date of notice of the
decision with respect to the application, or
(ii) In the case where the claim has
neither been approved nor denied within the applicable period provided in
Section 6.1 above, within sixty-five (65) days after the expiration of the
period.
(c) The Claimant may request that his application be
given full and fair review by the Plan Administrator. The Claimant may review
all pertinent documents and submit issues and comments in writing in connection
with the appeal.
(d) The decision of the Plan Administrator shall be
made promptly, and not later than sixty (60) days after the Plan
Administrator's receipt of a request for review, unless special circumstances
require an extension of time for processing. In such a case, a decision shall
be rendered as soon as possible, but not later than one hundred twenty (120)
days after receipt of the request for review.
(e) The decision on review shall be in writing and
shall include specific reasons for the decision, written in a manner designed
to be understood by the Claimant, with specific references to the pertinent
Plan provisions upon which the decision is based.
6.4 Exhaustion of Remedies. No legal action for benefits under
the Plan may be brought unless and until the Claimant has exhausted his
remedies under this Article VI.
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ARTICLE VII
MISCELLANEOUS MATTERS
7.1 Amendment or Termination.
(a) The Board may, at its sole discretion, amend or
terminate this Plan at any time or from time to time, in whole or in part by a
duly adopted resolution, provided that, without the consent of each existing
Participant, no amendment or termination may adversely affect that
Participant's rights to accrue and receive benefits as provided in the Plan, as
in effect prior to such amendment or termination.
(b) The termination of the Plan will not result in the
immediate vesting of accrued benefits. Thus, participants will only become
entitled to receive benefits when they otherwise satisfy the conditions for
Retirement.
(c) All benefits will be payable at the time the
Participant would have otherwise been eligible to receive benefits under the
provisions of this Plan in effect before Plan termination. However, the Board
may elect to accelerate the payment of the benefits under the Plan, and to pay
such benefits in the form of lump sum distributions. Any lump sum benefits
paid under this Section 7.1(d) will be the Actuarial Equivalent of the benefits
determined under Section 3.1 above.
7.2 Effect of Reorganization or Transfer of Assets.
(a) In the event of a consolidation, merger, sale,
liquidation, or other transfer of substantially all of the operating assets of
the Company to any other company, the ultimate successor to the business of the
Company shall automatically be deemed to have elected to continue this Plan in
full force and effect, in the same manner as if the Plan had been adopted by
resolution of its board of directors.
(b) The presumption set forth in Paragraph (a) above
shall not apply if the successor, by resolution of its board of directors,
elects not to so continue this Plan in effect. In such a case, the Plan shall
terminate as of the effective date set forth in the board resolution.
7.3 Rights of Participants.
(a) Nothing contained herein will confer on any
Participant the right to be retained in the service of the Company, nor will it
interfere with the Company's right to discharge or otherwise deal with
Participants without regard to the existence of this Plan.
(b) The benefits under the Plan are unfunded.
Accordingly, no Participant shall have a preferred claim on, or a
-17-
<PAGE> 19
beneficial ownership interest in, any assets of the Company prior to the time
such assets are paid to him in the form of benefits.
(c) All rights created under the Plan shall be mere
unsecured contractual rights of Participants against the Company. However,
nothing in this document shall in any way diminish any rights of a Participant
to pursue his rights as a general creditor of Company with respect to his
benefits under the Plan.
7.4 Assignment of Benefits. To the maximum extent permitted by
law, no benefit under this Plan may be assigned or alienated.
7.5 Interpretation.
(a) The provisions of this Plan shall in all cases be
interpreted in a manner that is consistent with this Plan satisfying the
applicable requirements of ERISA.
(b) If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions of the Plan, and the Plan will be construed and enforced as if the
provision had not been included in it.
(c) Unless the context clearly indicates otherwise,
the masculine gender shall include the feminine, the singular shall include the
plural, and the plural shall include the singular.
(d) Article and section headings are for convenience
of reference only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any Article or
Section.
(e) In the event that any payment of benefits to any
Participant is not made as of the due date specified in Section 3.4(b) (a "Late
Payment"), the amount of the Late Payment then owed shall bear interest from
the due date at the lesser of the Bank of America, NTSA reference rate plus
nine percent (9%), or the maximum interest rate permitted by law. The initial
payment due under the Plan to any Participant shall not be considered to be a
Late Payment if it is delivered in person or mailed to the last address of the
Participant within 45 days of the initial due date, accompanied by any
subsequent monthly payments that became due prior to the date of payment. Any
subsequent monthly payments due under the Plan after the date the initial
payment is made shall not be considered to be a Late Payment if it is received
on or before the 15th days after the due date.
-18-
<PAGE> 20
IN WITNESS WHEREOF, Pacific United Group, Inc. has caused this
instrument to be executed by its duly authorized officer.
PACIFIC UNITED GROUP, INC.
By:________________________________
Joel R. Schultz, President & CEO
Date:______________________________
-19-
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Actuarial Equivalence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Average Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Early Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Estimated Section 401(k) Plan Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Estimated Social Security Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12 Good Reason . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.13 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.14 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.15 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.16 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.17 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.18 Postponed Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.19 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.20 Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.21 Section 401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.22 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II ELIGIBILITY FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Eligibility to Participate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Entitlement to Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Forfeiture of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Amount of Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Form of Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Payees Under Legal Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Withholding for Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Mailing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Entitlement to Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
-i-
<PAGE> 22
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V OPERATION AND ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Plan Administrator Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Composition of Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Plan Administrator Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Notices and Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI APPLICATION FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Application for Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Content of Denial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Exhaustion of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII MISCELLANEOUS MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Effect of Reorganization or Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Rights of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Assignment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 10.14
National Westminster Bank USA
175 Water Street
New York, NY 10038-4924
212 602-3282
Fax 212 602-2211
DOUGLAS J. MACINNES
Vice President
October 26, 1995
Presidential Mortgage Company
21031 Ventura Boulevard
Woodland Hills, CA 91364-2299
Attention: Mr. Joel R. Schultz
Re: Proposed Modifications to Loan Agreement
Dear Joel:
NatWest Bank N.A., formerly known as National Westminster Bank USA
("Bank"), is prepared to modify the Loan Agreement, dated as of August 28,
1990, as amended and restated on May 20, 1992 and September 28, 1994 (the "Loan
Agreement"), between Presidential Mortgage Company, a California limited
partnership ("Borrower"), and Bank as set forth below, subject to the
satisfactory review by Bank of its collateral for the obligations of Borrower
under the Loan Agreement, Bank's senior management approval and receipt and
approval by Bank of certain financial information relating to Borrower. The
proposed modifications to the Loan Agreement are as follows:
1. The maturity date will be extended from June 30, 1996 to June 30,
1997.
2. The existing $4,755,000 principal balance currently due June 30, 1996
will be paid down to: $3,755,000 by June 30, 1996; $2,755,000 by September 30,
1996; $1,755,000 by December 31, 1996; $755,000 by March 31, 1997; and to zero
by June 30, 1997;
3. The interest rate applicable to outstanding principal will be
increased by one-half of one percent (.5%) per annum;
4. Commencing December 31, 1995, the fee note penalties will be
eliminated;
5. Bank will consent to the conversion of Borrower from a limited
partnership to a public stock corporation upon the terms and conditions set
forth in exhibit "A" hereto; with such changes to such provisions as Bank shall
hereafter reasonably request and subject to any other rights of Bank under the
Loan Agreement; and
<PAGE> 2
Mr. Joel R. Schultz
October 26, 1995
Page Two
6. Borrower will pay Bank a $75,000 extension fee; $25,000 when the
documentation effectuating the above-described loan modifications is executed
and delivered by Borrower and Bank; $25,000 September 30, 1996; and $25,000
January 31, 1997. The existing $50,000 fee due January 31, 1996 will remain in
place.
Please indicate your acceptance of the proposed loan modification
terms set forth above by signing the enclosed copy of this letter and returning
it to the undersigned on or before October 31, 1995.
NATWEST BANK N.A.
By: s/DOUGLAS J. MAC INNES
Douglas J. MacInnes
Vice President
ACKNOWLEDGED AND ACCEPTED:
PRESIDENTIAL MORTGAGE COMPANY,
a California limited partnership
By: Presidential Management Company,
a California limited partnership
Title: General Partner
By: Presidential Services Corporation,
a California corporation
Title: General Partner
By:s/JOEL R. SCHULTZ
Joel R. Schultz
President
<PAGE> 3
EXHIBIT A
PRESIDENTIAL MORTGAGE COMPANY
Summary of Terms of Restructuring and Rights Offer
<TABLE>
<S> <C>
Restructuring The Partnership will transfer all of its and
Offer liabilities to Pacific United Group, Inc. (the
"Company"), in exchange for shares of Common Stock of
the Company. The Partnership will then liquidate,
making a final distribution of the Common Stock to
all of the Partners (except the Cashed Out Partners,
as described below), pro rata in accordance with
their existing ownership interests in the
Partnership. The General Partner will receive no
additional compensation for its general partner's
interest or the discontinuation of all compensation
and fees from the Partnership.
Rights The Company will also issue non-transferable
Offering subscription rights to all Partners of the
Partnership entitling the Partners to purchase
$4,000,000 of additional shares of Common Stock of
the Company, for a purchase price per share (the
"Subscription Price") to be determined immediately
prior to the exchange offer based on the tangible
book value of the Partnership. Each Right will
entitle a Partner to subscribe for one share of
Common Stock for a period of 15 days following the
completion of the exchange offer (the "Basic
Subscription Privilege"). Each Partner will also
have the right to subscribe (the "Oversubscription
Privilege") at the Subscription Price for an
unlimited number of shares of Common Stock that are
not otherwise purchased pursuant to the exercise of
the Basic Subscription Privilege, subject to
proration, in the event there are insufficient
additional shares available to satisfy all
oversubscriptions received, in amounts proportionate
to the amount of Basic Subscription Rights
exercised by each Partner.
Cash Buyout Any Limited Partner who does not wish to receive
of Limited Common Stock of the Company may elect to exercise a
Partners Cash Out Option, which will entitle the electing
Electing Not Partner to receive cash from the Partnership equal to
to Exchange the Subscription Price times the number of shares of
Common Stock that each Cashed-Out Partner would
otherwise have received (the "Cash
</TABLE>
1
<PAGE> 4
<TABLE>
<S> <C>
Buyout Price"). THE CASH BUYOUT PRICE WILL BE
REVIEWED BY HOULIHAN LOKEY FOR FAIRNESS.
General To the extent that Subscription Rights are not
Partner exercised by any Limited Partners, the General
Purchase Partner has committed to oversubscribe for a minimum
Commitment of $1,500,000 of additional shares.
Standby The Company will enter into Standby Purchase
Purchase Agreements under which Standby Purchasers (third
Agreements party investors having no affiliation with the
General Partner) have agreed irrevocably to purchase
all shares of Common Stock that are not subscribed
for pursuant to the exercise of the Basic
Subscription Privilege or the Oversubscription
Privilege, plus any additional amount of shares
necessary for the Company to raise a minimum of
$5,000,000 of additional capital. In addition, the
Standby Purchasers have agreed irrevocably to
purchase an additional amount of shares equal to the
amount of shares that would otherwise be issued to
the Cashed Out Limited Partners, the proceeds of
which will be used to pay the Cash Buyout Price. All
shares will be purchased at the same price as the
Subscription Price. The Standby Purchasers will be
guaranteed a minimum purchase of $2,000,000 of
shares, so that a maximum of $6,000,000 in additional
capital will be raised if the existing Partners
exercise all of the Basic Subscription Privilege and
the Oversubscription Privilege and the Company is
required to issue additional shares in order to meet
the guaranteed minimum purchase amount to the Standby
Purchasers.
Market for The Company will file an application for listing on
Common Stock the NASDAQ National Market, which must be approved
as a condition to the closing of the exchange offer
and the subscription rights offer.
General Partner The General Partner will forgive approximately
Warrants $350,000 in outstanding debt owed to it by the
Partnership in exchange for a 2-year Warrant to
purchase 25% of the Company at an exercise price
equal to 125% of the Subscription Price. THE
EXERCISE PRICE WILL BE REVIEWED BY HOULIHAN FOR
FAIRNESS.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
Extension of NatWest will agree to extend the existing bank debt
Bank Line of (approximately $8,400,000) for one additional year,
Credit with an interest rate increase of fifty basis points
to 1.5% over prime, plus certain modification fees
and a 5-year warrant to purchase 2% of the common
stock of the Company, exercisable at a price equal to
25% of the book value of the stock at December 31,
1995, as adjusted for the increase in book value after
the completion of the exchange and rights offering.
The Company will have the right to redeem the warrant
at any time after one year from the date of issuance
for $200,000.
Use of Proceeds The net proceeds of the additional capital raised in
the rights offering will be used as follows:
$1,000,000 to pay down the bank debt
approximately $1,200,000 to pay the amount
owing to limited partners whose withdrawal
requests were approved prior to June 30, 1993
the balance of the net proceeds will be
added to working capital of the Company,
which may be contributed from time to time
as additional capital of Pacific Thrift, as
management deems appropriate
</TABLE>
3
<PAGE> 1
EXHIBIT 22.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation or Organization
- ------------------ -----------------------------
<S> <C>
Pacific Thrift and Loan Company a California corporation
Consolidated Reconveyance Company a California limited partnership
Lenders Posting and Publishing Company a California limited partnership
Consolidated Reconveyance a Washington corporation
Corporation
Summit Mortgage Company a California limited partnership
(inactive)
Apex Loan Company a California limited partnership
(inactive)
</TABLE>
<PAGE> 1
EXHIBIT 99.2
Limited Partner:
Partner I.D. Code:__________________________
Class:______________________________________
Capital Contribution Percentage:____________%
Capital Account: $__________________________
No. of Shares Issuable to
Limited Partner:__________________________
PRESIDENTIAL MORTGAGE COMPANY
A CALIFORNIA LIMITED PARTNERSHIP
Limited Partner Ballot for Restructuring Plan
(IN ORDER TO VOTE YOU MUST COMPLETE AND RETURN THIS BALLOT)
LIMITED PARTNER BALLOT, DATED AS OF ____________ __, 1996 FOR
ACCEPTING, REJECTING OR ABSTAINING ON THE RESTRUCTURING PLAN OF
PRESIDENTIAL MORTGAGE COMPANY (THE "PARTNERSHIP"), IN WHICH EACH
PARTNER IN THE PARTNERSHIP WOULD BECOME A STOCKHOLDER OF PACIFIC
UNITED GROUP, INC. (THE "CORPORATION")
RETURN THIS BALLOT ON OR BEFORE FEBRUARY ___, 1996 TO:
[Distribution Agent]
[Address]
TO BE COUNTED, THIS BALLOT MUST BE RECEIVED BEFORE 5:00 P.M. (PACIFIC
TIME) ON ___________, FEBRUARY __, 1996, UNLESS EXTENDED BY THE
GENERAL PARTNER (THE "EXPIRATION DATE").
The Restructuring Plan referred to in this Ballot will be effectuated,
subject to the satisfaction of certain conditions, and thereby made binding on
you, if it is accepted by limited partners of the Partnership holding fifty-one
percent (51%) of the total capital contributions in the Partnership (excluding
any capital contributions of the General Partner of the Partnership).
THE GENERAL PARTNER OF THE PARTNERSHIP RECOMMENDS THAT YOU VOTE FOR
THE RESTRUCTURING PLAN. A VOTE TO ABSTAIN FROM ANY PROPOSAL OR A FAILURE TO
RETURN THIS BALLOT WILL BE DEEMED TO BE A VOTE AGAINST THE RESTRUCTURING PLAN.
IF YOU DO NOT COMPLETE AND RETURN THIS BALLOT SUCH THAT IT IS RECEIVED
BY THE EXPIRATION DATE, YOU WILL BE DEEMED TO HAVE VOTED AGAINST THE
RESTRUCTURING PLAN.
1
<PAGE> 2
IF YOU DO NOT COMPLETE AND RETURN THIS BALLOT SUCH THAT IT IS RECEIVED
BY THE EXPIRATION DATE, YOU WILL BE DEEMED TO HAVE VOTED AGAINST THE
RESTRUCTURING PLAN.
PRESIDENTIAL MORTGAGE COMPANY
Limited Partner:
Partner I.D. Code:__________________________
Class:______________________________________
Capital Contribution Percentage:____________%
Capital Account: $__________________________
No. of Shares Issuable to
Limited Partner:__________________________
The undersigned, as record owner of Limited Partnership Units of the
Partnership, hereby votes as follows:
1. Approval of the Restructuring Plan whereby (a) the Partnership will
contribute all of its assets and liabilities to the Corporation in
exchange for Common Stock of the Corporation, (b) the business of the
Partnership will thereafter be conducted by the Corporation, and (c)
the Partnership will liquidate and distribute the Common Stock of the
Corporation to all of the Partnership's partners pro rata in
accordance with their existing capital accounts in the Partnership
(other than those partners electing to cash out their investments in
the Partnership rather than receive Common Stock of the Corporation).
Check one: FOR ____ AGAINST ____ ABSTAIN ____
2.* Cash Out Option: The undersigned hereby elects to receive cash of $10
per share for the shares of Common Stock receivable by the undersigned
in connection with the Restructuring Plan.
(Initial here only if you want $10 cash per share in lieu of Common Stock)
________
*In order to elect the Cash Out Option, you must vote "FOR" Proposal 1. The
Partnership shall not be obligated to cash out an amount of shares that would
be deemed to result in an "ownership change," as defined in the Internal
Revenue Code of 1986, as amended. In the event that the Partnership receives
requests for the Cash Out Option for an excess number of shares, the
Partnership will allocate the amount of shares to be repurchased among all
limited partners requesting the Cash Out Option pro rata in accordance with
their existing capital accounts in the Partnership.
<TABLE>
<S> <C>
Dated:_________________________________ __________________________________________
(Signature of Limited Partner)
__________________________________________
(Print Name of Limited Partner)
__________________________________________
(Beneficial Owner, if different)
</TABLE>
THIS BALLOT SUPERSEDES ANY PREVIOUSLY DELIVERED BALLOTS, WHICH BALLOTS
ARE NULL AND VOID. THIS BALLOT MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE BY THE SUBMISSION OF A PROPERLY EXECUTED SECOND BALLOT,
TOGETHER WITH A LETTER INDICATING THAT THE PRIOR BALLOT HAS BEEN REVOKED.
2
<PAGE> 3
EXHIBIT ??
Record Holder:_______________________________
Address:_____________________________________
_____________________________________
Partner I.D. Code:___________________________
Class:_______________________________________
Beneficiary:_________________________________
No. of Shares Issuable:______________________
Basic Subscription Rights Exercisable:_______
PRESIDENTIAL MORTGAGE COMPANY
------------------
Solicitation of Approval of
Restructuring Plan
in which Partners Would Become
Stockholders in Pacific United Group, Inc.
and
Additional Subscription Rights
------------------
Pursuant to the Proxy Statement/Prospectus Dated January ___, 1996
THE SOLICITATION PERIOD FOR THE RESTRUCTURING PLAN WILL EXPIRE AT 5:00 P.M.,
PACIFIC TIME, ON _________, FEBRUARY __, 1996, UNLESS EXTENDED (THE "EXPIRATION
DATE"). PLEASE RETURN YOUR INSTRUCTIONS TO THE RECORD HOLDER OF YOUR
BENEFICIAL INTEREST AS SOON AS POSSIBLE.
PLEASE NOTE THAT YOU MUST VOTE "FOR" THE RESTRUCTURING PLAN IF YOU WISH TO
ELECT THE CASH OUT OPTION OR IF YOU WISH TO SUBSCRIBE FOR ADDITIONAL SHARES.
IF YOU DO NOT COMPLETE AND RETURN THESE INSTRUCTIONS SO THAT THE RECORD HOLDER
MAY RETURN A BALLOT ON YOUR BEHALF BY THE EXPIRATION DATE, YOU WILL BE DEEMED
TO HAVE VOTED AGAINST THE RESTRUCTURING PLAN.
To Our Clients:
Enclosed for your consideration is the Proxy Statement/Prospectus
dated January ___, 1996 (the "Proxy Statement/Prospectus"), distributed to us
by the general partner of Presidential Mortgage Company, a California limited
partnership (the "Partnership") in which you are a limited partner, and the
related Limited Partner Ballot (the "Ballot") and Subscription Agreement (the
"Subscription Agreement," and collectively with the Proxy Statement/Prospectus
and the Ballot, the "Transaction Documents") as each may be supplemented or
amended from time to time, pursuant to which the Partnership is:
(i) soliciting its limited partners to accept the terms of a
restructuring plan (the "Restructuring Plan") pursuant to
which each partner's investment in the Partnership, as
represented by the Limited Partnership Units ("Units") held by
such partner, would be converted into shares of common stock
("Common Stock") of Pacific United Group, Inc., a newly formed
Delaware corporation (the "Corporation"), the number of shares
to be received based on such partner's capital account in the
Partnership;
(ii) offering each partner who votes in favor of the Restructuring
Plan the option to receive cash in lieu of Common Stock from
the Corporation at a price of $10 per share, subject to
certain limitations;
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(iii) offering those partners who vote in favor of the Restructuring
Plan the opportunity, through the exercise of Basic
Subscription Rights, to purchase an aggregate of 400,000
additional shares of Common Stock of the Corporation at a
purchase price of $10 per share, pro rata in accordance with
their capital accounts in the Partnership, conditioned upon
the successful completion of the Restructuring Plan; and
(iv) offering those partners who vote in favor of the Restructuring
Plan the opportunity, through the exercise of Oversubscription
Privileges, to purchase additional shares not purchased by
other partners, subject to proration among all partners
exercising Oversubscription Privileges.
Any exercise of either Basic Subscription Rights or the
Oversubscription Privilege (collectively, the "Rights Offering") must be made
prior to the Expiration Date in order to participate in the Rights Offering.
Capitalized terms used herein without definition are used as defined in the
Proxy Statement/Prospectus.
We are the registered holder of Units held for your account. A vote
for or against the Restructuring Plan or an election to exercise Basic
Subscription Rights or the Oversubscription Privilege may be made only by us as
the registered holder thereof pursuant to the terms of the Restructuring Plan,
and then, only pursuant to your instructions. The Ballot and the Subscription
Agreement are furnished to you for your information only and cannot be used by
you directly to vote for or against the Restructuring Plan or to purchase
shares of Common Stock of the Corporation in the Rights Offering. As
registered holder of Units for your account, we are required to complete the
Ballot and Subscription Agreement on your behalf. Therefore, we request your
instructions as to how you wish to vote on the Restructuring Plan and whether
you wish to participate in the Rights Offering.
We urge you to read the Transaction Documents carefully before
conveying your instructions to us. In order to be entitled to participate in
the Rights Offering, a Ballot with respect to Units held by us for your
account, voted in favor of the Restructuring Plan, and a Subscription Agreement
must be submitted by us pursuant to your instructions so that they are received
by the Distribution Agent and the Subscription Agent, respectively, by the
Expiration Date.
If you fail to provide us with instructions in time for us to act on
your behalf by the Expiration Date, you will be deemed to have voted against
the Restructuring Plan and you will be unable (i) to elect to have the
Corporation repurchase shares distributed to you if the Restructuring Plan is
approved and (ii) to participate in the Rights Offering. If you do not vote in
favor of the Restructuring Plan, yet it is approved by limited partners holding
fifty-one percent (51%) of the capital contributions in the Partnership, you
will receive shares of Common Stock of the Corporation pro rata in accordance
with your capital account in the Partnership, but will risk dilution of your
equity interest due to the fact that you will be unable to participate in the
Rights Offering.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to vote and/or exercise on your behalf by the Expiration
Date and otherwise in accordance with the provisions of the Restructuring Plan.
THE SOLICITATION PERIOD WILL EXPIRE AT 5:00 P.M., PACIFIC TIME, ON
____________, FEBRUARY __, 1996, UNLESS EXTENDED. BALLOTS MAY BE REVOKED
AND/OR REPLACED AT ANY TIME PRIOR TO THE EXPIRATION DATE IN ACCORDANCE WITH THE
PROCEDURES SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS.
Please instruct us as to how we should vote your Units by completing,
detaching and returning to us the instruction form set forth below. In
addition, if you vote in favor of the Restructuring Plan, please inform us
whether you wish to retain the shares of Common Stock of the Corporation to be
distributed in connection therewith or have the Corporation repurchase such
shares at the purchase price of $10 per share if the Restructuring Plan is
approved. Please note that the Corporation will not repurchase an amount of
shares that would be deemed to cause an "ownership change," as such term is
defined in the Internal Revenue Code of 1986, as amended. In the event that
requests are received which exceed this amount, the Corporation will allocate
the amount of shares to be repurchased among all limited partners requesting
such a repurchase pro rata in accordance with their existing capital accounts
in the Partnership.
Finally, if you intend to vote in favor of the Restructuring Plan and
wish to participate in the Rights Offering, please instruct us on the
instruction form as to how many Basic Subscription Rights you wish to exercise
to receive shares of Common Stock of the Corporation (based on your total
entitlement listed on line (a) of the form) and how many shares you wish to
purchase pursuant to the Oversubscription Privilege, and enclose with the
instruction form a check or bank draft drawn upon a United States bank, or
postal, telegraphic or express money order, in the amount of $10 multiplied by
the number of shares you wish to purchase in the Rights Offering (including
pursuant to the Oversubscription Privilege). We will forward your payment to
_____________________, the Subscription Agent for the Rights Offering. In the
event that the Corporation receives subscriptions for shares in excess of
400,000, the Subscription Agent will return any portion of your subscription
funds, together with any interest earned
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thereon that is not used to acquire shares of Common Stock of the Corporation
for your account, directly to you. In the event that the Restructuring Plan is
not approved, the Subscription Agent will return all of your subscription
funds, together with any interest earned thereon, directly to you. An envelope
to return your instructions is enclosed. Your instructions should be forwarded
to us in ample time to permit us to submit a Ballot and/or a Subscription
Agreement on your behalf prior to the Expiration Date.
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Record Holder:_______________________________
Address:_____________________________________
_____________________________________
Partner I.D. Code:___________________________
Class:_______________________________________
Beneficiary:_________________________________
No. of Shares Issuable:______________________
Basic Subscription Rights Exercisable:_______
PRESIDENTIAL MORTGAGE COMPANY
BALLOT INSTRUCTIONS TO ACCOUNT HOLDER
(Return this Form to the Record Holder of Limited Partnership Units
Held for Your Account)
The undersigned acknowledge(s) receipt of your letter and the enclosed
Proxy Statement/Prospectus dated January __, 1996 and the related Limited
Partner Ballot and Subscription Agreement in connection with the Restructuring
Plan. In order for you to make certain representations, warranties and
acknowledgments to the Partnership and the Corporation as set forth in the
Ballot and the Subscription Agreement, the undersigned hereby represents,
warrants and acknowledges to you that the representations, warranties and
acknowledgements set forth in the Ballot and the Subscription Agreement are
true and correct with respect to the undersigned.
This will instruct you as to how to vote as indicated below for or
against the Restructuring Plan and whether to exercise rights to purchase
shares of Common Stock of the Corporation in the Rights Offering, upon the
terms and subject to the conditions set forth in the Proxy
Statement/Prospectus.
<TABLE>
<S> <C>
Restructuring Plan SIGN HERE
_______________________________________________
Check one: Signature(s)
FOR ______ AGAINST ______ ABSTAIN_____ _______________________________________________
Name(s) (Please Print)
Cash Out Option(1)
_______________________________________________
Check here if you wish to elect the Cash Out Option shares Address
for $10 per share: _____
_______________________________________________
Zip Code
Participation in the Rights Offering(2) _______________________________________________
Area Code and Telephone No.
(a) Basic Subscription Rights Exercised(3) ______________
_______________________________________________
(b) Maximum Rights Exercised Pursuant to Dated:
Oversubscription Privilege(3) ______________
(c) Maximum Shares Subscribed For(3)
((a)+(b)) ______________
Subscription Price(3) $_____________
(enclosed)
</TABLE>
_______________
(footnotes on next page)
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________________
1/ You may not elect to have the Corporation repurchase the shares to be
distributed to you if you have not voted in favor of the Restructuring Plan.
If you fail to make any election hereunder, you shall be deemed to have elected
to retain such shares of Common Stock of the Corporation.
2/ In order to participate in the Rights Offering, you must have voted "FOR"
the Restructuring Plan above. Each Right entitles you to one share of Common
Stock of the Corporation.
3/ If you do not indicate the number of shares which you are willing to
subscribe for or do not forward full payment for the number of shares of Common
Stock indicated as being subscribed for, then you will be deemed to have
exercised the maximum number of Basic Subscription Rights and/or that portion
of the Oversubscription Privilege that may be exercised for the aggregate
subscription price delivered herewith.
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EXHIBIT 99.3
Limited Partner:_____________________________
Partner I.D. Code:___________________________
Class:_______________________________________
Basic Subscription
Rights:____________________________shares
ALL RIGHTS WILL EXPIRE AT 5:00 P.M., PACIFIC TIME,
ON FEBRUARY __, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"),
AND THIS SUBSCRIPTION AGREEMENT (THIS "AGREEMENT")
IS VOID THEREAFTER
SUBSCRIPTION AGREEMENT FOR COMMON STOCK OF
PACIFIC UNITED GROUP, INC.
The undersigned ("Subscriber") hereby subscribes for shares of Pacific
United Group, Inc., a Delaware corporation (the "Corporation") pursuant to the
exercise of Basic Subscription Rights and/or its Oversubscription Privilege
(collectively, the "Rights"), subject to the completion of the Restructuring
Plan of Presidential Mortgage Company, a California limited partnership (the
"Partnership") that is the predecessor-in-interest of the Corporation and that
will cease to exist upon completion of the Restructuring Plan. Capitalized
terms used herein without definition are used as defined in the Proxy
Statement/Prospectus dated January ___, 1996 with respect to the Restructuring
Plan (the "Proxy Statement/Prospectus").
In consideration of the Corporation's agreement to sell shares of
Common Stock of the Corporation to Subscriber upon the exercise of the Rights,
and upon the following terms and conditions, Subscriber and the Corporation
hereby agree, represent and warrant as follows:
Basic Subscription Rights:
The undersigned hereby subscribes for the number shares of Common
Stock shown on page 4 hereof under item (a) Basic Subscription Rights (which
number may not be more than the number shown above as the undersigned's Basic
Subscription Rights).
Oversubscription Privilege:
The undersigned hereby subscribes for that number of additional shares
of Common Stock, to the extent such shares are available in accordance with the
terms of the Proxy Statement/Prospectus, shown on page 4 hereof under item (b)
Oversubscription Privilege.
The purchase price for the shares obtained by the exercise of each
Right shall be $10.00 per share, such amount to
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be forwarded in full by Subscriber to the Subscription Agent, together with a
fully completed and originally executed copy of this Agreement, either (a) by
check or bank draft drawn upon a United States bank, (b) by postal, telegraphic
or express money order, payable to the Subscription Agent, or (c) by wire
transfer of funds to the account maintained by the Subscription Agent for this
purpose at _________________________, Account No. ________________.
Subscriber acknowledges receipt of the Proxy Statement/Prospectus, in
which the Restructuring Plan, as well as a description of the Basic
Subscription Rights, the Oversubscription Privilege and the function of this
Agreement are each fully disclosed. Subscriber further acknowledges that it
has read the Proxy Statement/Prospectus to enable it to obtain an understanding
of the terms of the Restructuring Plan.
Subscriber further acknowledges and/or represents the following:
(a) The Corporation or the Subscription Agent may accept
or reject this Agreement or all or any portion of the Rights exercised
hereunder, in whole or in part; provided that such rejection is based on
Subscriber's failure to comply with any of the requirements contained herein or
in the Proxy Statement/Prospectus, including, without limitation, the failure
to properly complete or execute this Agreement or deliver it to the
Subscription Agent by the Expiration Date, the failure of the Restructuring
Plan to be approved, the failure to submit full payment herewith, the failure
of such monies paid by Subscriber to be deemed received by the Subscription
Agent by the Expiration Date (as described in the Proxy Statement/Prospectus)
or the inability of the Corporation to satisfy Subscriber's Oversubscription
Privileges as exercised. Acceptance by the Corporation or the Subscription
Agent of Subscriber's subscription and payment will occur only when each of the
Corporation and the Subscription Agent execute this Agreement and execute and
tender delivery of the share certificates representing the shares of Common
Stock of the Corporation purchased by Subscriber hereunder.
(b) Checks or other monies received from Subscriber will
be held in escrow by the Subscription Agent and invested at the direction of
the Corporation in short-term certificates of deposit, short-term obligations
of the United States, any state or any agency thereof, or money market mutual
funds investing in any of the foregoing instruments. Such amounts will be
retained by the Corporation if the Restructuring Plan is approved and the
shares subscribed for by Subscriber are ultimately issued in Subscriber's name,
or will be returned to Subscriber without interest or deduction if the
Restructuring Plan is not approved, the Corporation or the Subscription Agent
rejects this Agreement or Subscriber's Oversubscription Privilege, as
exercised, cannot be fully satisfied (in which case, the amounts to be so
returned shall be based on the percentage of such Oversubscription Privilege
for which
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Subscriber ultimately receives shares of Common Stock of the Corporation).
Subscriber understands that if it does not indicate the number of
Rights to be exercised or does not forward full payment for the number of
shares indicated to be received (or if such monies paid have not been deemed to
be received by the Subscription Agent by the Expiration Date), Subscriber will
be deemed to have exercised the maximum number of Rights that may be exercised
for the aggregate price delivered herewith that has cleared by the Expiration
Date. Any additional monies deemed received by the Subscription Agent after
the Expiration Date will be returned to Subscriber without interest or
deduction as soon as practicable after receipt thereof.
Subscriber is under no obligation to exercise all of its Basic
Subscription Rights (as listed on the signature page hereto) and may in lieu
thereof elect to exercise none or only a portion of those Rights owned;
provided that Subscriber understands that other stockholders will, as a result
thereof, obtain increased Oversubscription Privileges that could dilute
Subscriber's percentage equity interest in the Corporation. Such dilution
could also occur if the Corporation elects to reject this Agreement; as a
result, the Corporation urges Subscriber to exercise great care in deciding
whether to exercise Rights hereunder, in completing and executing this
Agreement, and in opting for a particular payment method to ensure receipt of
such amounts by the Expiration Date.
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Limited Partner:_____________________________
Partner I.D. Code:___________________________
Class:_______________________________________
Basic Subscription Rights:_____________shares
PRESIDENTIAL MORTGAGE COMPANY
<TABLE>
<S> <C>
(a) Basic Subscription Rights Total Price Enclosed:
Exercised:________________ $___________________
($10.00 x (c))
(b) Maximum Rights Exercised
Pursuant to Oversubscription SUBSCRIBER:
Privilege:________________ _________________________
[Name]
(c) Maximum Shares Subscribed
for ((a)+(b)):____________ _________________________
Signature(1)
Taxpayer ID or Social Security Number:
_____________________________________ _________________________
Signature of Co-Signer
(if any)
Citizen of: _________________________ _________________________
Name of Co-Signer
(type or print)
_____________________________________________________
Name as you would like it to appear on Certificate(s)
Subscriber is a resident of the State of _______________________
______________________________ _________________________
Residence (or Business, if not Address for Sending
an individual) Address Notices (if different)
_____________________________ _________________________
City, State and Zip Code City, State and Zip Code
_____________________________ _________________________
Telephone Number Telephone Number
ACCEPTED as of ________ ___, 1996
PACIFIC UNITED GROUP, INC.
By:________________________
Name:______________________
Title:_____________________
</TABLE>
____________________
1/ If the Subscription Agreement is executed by an executor,
administrator, trustee, guardian, or other fiduciary, or by a
corporation, and the Subscription Agreement is not issued in the
name of such fiduciary or corporation, the person executing the
Subscription Agreement must give his full title and furnish
proper evidence of authority to act. If the form is executed by
an attorney-in-fact (except where such execution is by a bank,
trust company, or broker as agent for the subscriber), and the
shares are to be registered in the said name as stated on the
Subscription Agreement, evidence of authority to act must be
furnished.
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