LEVITTOWN, N.Y. -- Colonial Commercial Corp. announced that it has signed a letter of intent to merge with Community Mortgage Corp. of Memphis.

Colonial would issue 5,162,000 shares of common stock to shareholders of Community, with up to an additional 7,508,000 shares to be issued upon satisfaction of earn-out targets.

With Colonial trading recently at about 37.5 cents a share, the deal is valued at a minimum of about $2 million. Community's shareholders would appoint five of the nine Colonial directors.

Community is privately held and operates 34 mortgage banking branches in six southeastern states. Its majority shareholders are L. Patrick Sandlin, who will become president and chief executive, and Louis D. Hamric, who will become senior vice president, general counsel, and secretary.

In 1993, Community's revenues were about $23 million on $916 million in closed mortgages.

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