<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
sec. 240.14a-11(c) or sec. 240.14a-12
BNC MORTGAGE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
BNC LOGO NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
BNC MORTGAGE, INC.
You are cordially invited to attend the Annual Meeting of Stockholders of
BNC MORTGAGE, INC., a Delaware corporation (the "Company"), to be held at the
Hyatt Regency Irvine, 17900 Jamboree Boulevard, Irvine, California 92614, on
December 8, 1998 at 10:00 a.m. local time. The Annual Meeting of Stockholders of
the Company is being held for the following purposes:
1. To elect Evan R. Buckley as a Class I director to serve on the
Board of Directors until the Annual Meeting of Stockholders to be held in
2001.
2. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as the independent accountants of the Company for the
fiscal year ending June 30, 1999.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on October 15, 1998
as the record date for determining those stockholders who will be entitled to
vote at the meeting. The stock transfer books will not be closed between the
record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. Your proxy may be revoked at any
time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Dated: October 29, 1998
By Order of the Board of Directors
/s/ EVAN R. BUCKLEY
Evan R. Buckley,
Chairman of the Board,
Chief Executive Officer and Secretary
<PAGE> 3
BNC MORTGAGE, INC.
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING TO BE HELD
DECEMBER 8, 1998 AT 10:00 A.M. LOCAL TIME
BNC LOGO
This proxy statement is delivered to you by the Board of Directors of BNC
Mortgage, Inc. (the "Company"), a Delaware corporation, on behalf of the
Company, in connection with the Annual Meeting of Stockholders of the Company to
be held on December 8, 1998 at 10:00 a.m. local time at the Hyatt Regency
Irvine, 17900 Jamboree Boulevard, Irvine, California 92614 (the "Meeting") and
at any adjournments thereof. The approximate mailing date for this proxy
statement and the enclosed proxy is November 4, 1998.
VOTING RIGHTS AND SOLICITATION
If a proxy in the accompanying form is duly executed and returned, the
shares represented by the proxy will be voted as directed. If no direction is
given, the shares represented by the proxy will be voted for the election of the
one nominee for director named herein and for the ratification of the
appointment of Ernst & Young LLP as the Company's independent accountants for
the fiscal year ending June 30, 1999. Any proxy given may be revoked at any time
prior to its exercise by notifying the Secretary of the Company in writing of
such revocation, by duly executing and delivering another proxy bearing a later
date, or by attending and voting in person at the Meeting. The Company's
principal executive office is located at 1063 McGaw Avenue, Irvine, California
92614-5532.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made by mail. In addition, the officers and regularly
engaged employees of the Company may, in a limited number of instances, solicit
proxies personally or by telephone. The Company will reimburse banks, brokerage
firms, other custodians, nominees and fiduciaries for reasonable expenses
incurred in sending proxy materials to beneficial owners of Common Stock of the
Company.
The Company's Annual Report to Stockholders for the year ended June 30,
1998, is concurrently being provided to each stockholder.
Holders of Common Stock of record at the close of business on October 15,
1998 will be entitled to vote at the Meeting. There were 5,554,279 shares of
Common Stock, $.001 par value per share, outstanding at that date. Each share of
Common Stock is entitled to one vote and the presence in person or by proxy of
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum for the Meeting. The affirmative vote of a plurality of all
of the votes cast at a meeting at which a quorum is present is necessary for the
election of a director. For purposes of the election of the Class I director,
abstentions and broker non-votes will not be counted as votes cast and will have
no effect on the result of the vote, although they will count toward the
presence of a quorum. The affirmative vote of a majority of all votes cast at a
meeting at which a quorum is present is necessary for the ratification of the
appointment of Ernst & Young LLP as the Company's independent accountants. For
purposes of the vote on this matter, abstentions will be counted as votes cast
against the proposal, whereas broker non-votes will have no effect on the result
of the vote, although they will count toward the presence of a quorum.
<PAGE> 4
PROPOSAL NO. 1
ELECTION OF DIRECTOR
The Company's Board of Directors are divided into three classes, with each
class serving a three-year term and thereafter until their successors are duly
elected and qualified or until death, resignation or removal. One class of
Directors will be elected annually at the Annual Meeting of Stockholders. The
Company's Bylaws currently provide for a variable Board of Directors with a
range of between five and nine members. The Company currently has four members
on its Board of Directors, and one vacancy. At such time as the vacancy is
filled, the newly appointed director will serve as a Class III director. The
Company's Bylaws give the Board the authority to establish, increase or decrease
the number of directors.
Unless otherwise directed by stockholders within the limits set forth in
the Bylaws, the proxy holders will vote all shares represented by proxies held
by them for the election of Evan R. Buckley, who is currently a member of the
Company's Board of Directors. The Company has been advised by Mr. Buckley of his
availability and willingness to serve if elected. In the event that Mr. Buckley
becomes unavailable or unable to serve as a Director of the Company prior to the
voting, the proxyholders will refrain from voting for him or will vote for a
substitute nominee in the exercise of their best judgment.
INFORMATION CONCERNING NOMINEE
The following table sets forth certain information with respect to the
nominee for Director of the Company.
<TABLE>
<CAPTION>
CLASS AND YEAR
IN WHICH
NAME AGE TERM WILL EXPIRE POSITION
---- --- ---------------- ----------------------------------
<S> <C> <C> <C>
Evan R. Buckley+... 46 Class I (2001) Chairman of the Board, Chief
Executive Officer and Secretary
</TABLE>
- ---------------
+ Member of the Audit Committee
EVAN R. BUCKLEY has been the Chief Executive Officer, Secretary and a
Director of the Company since its inception. Mr. Buckley was the President of
the Company from its inception to December 1997. Prior to founding the Company,
Mr. Buckley was a co-founder of Quality Mortgage USA , Inc., ("Quality
Mortgage") a residential mortgage banker. From November 1991 to May 1995, Mr.
Buckley was the Vice President of Loan Production of Quality Mortgage, where he
was responsible for assembling and managing loan production activities. Mr.
Buckley brings over 21 years of experience in real estate financing and mortgage
banking to the Company.
DIRECTORS NOT STANDING FOR ELECTION
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting of Stockholders are set forth below.
<TABLE>
<CAPTION>
CLASS AND YEAR
IN WHICH
NAME AGE TERM WILL EXPIRE POSITION
---- --- ---------------- -------------------------------------------
<S> <C> <C> <C>
Kelly W. 42 Class II (1999) President, Chief Financial Officer and
Monahansec......... Director
Keith C. Honig+...... 38 Class II (1999) Director
Joseph R. 51 Class III (2000) Director
Tomkinsonsec.......
</TABLE>
- ---------------
+ Member of the Audit Committee
sec. Member of the Compensation Committee
KELLY W. MONAHAN has been Chief Financial Officer of the Company since its
inception, its President since December 1997 and a Director of the Company since
October 1997. From the Company's inception through December 1997, Mr. Monahan
was the Company's Executive Vice President. From July 1992 to July 1995, Mr.
Monahan served as Vice President and Chief Financial Officer of Quality
Mortgage, where his
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<PAGE> 5
responsibilities included the management of all financial aspects of a national
mortgage banker, including the issuance of mortgage backed securities, secondary
marketing, interest rate hedging, cash management, financial reporting, and
strategic planning. From February 1989 to July 1992, Mr. Monahan was a
practitioner for Monahan and Associates, an accounting and consulting firm, and
from 1987 to 1989, he was Equities Controller at the Koll Company, a real estate
development company. Mr. Monahan is a certified public accountant.
KEITH C. HONIG has been a director of the Company since February 1998. Mr.
Honig has been Associate Counsel of SunAmerica Inc., a financial services
company since December 1994 and, in addition, its Director of Mortgage Lending
and Real Estate since July 1997. From October 1991 through December 1994, Mr.
Honig was an associate at Gibson, Dunn & Crutcher, a law firm. Mr. Honig is also
a certified public accountant.
JOSEPH R. TOMKINSON has been a director of the Company since February 1998.
Mr. Tomkinson has been Chairman of the Board and Chief Executive Officer of
Impac Commercial Holdings (AMEX-ICH), Impac Commercial Capital Corporation, RAI
Advisors, LLC, Impac Funding Corporation and Impac Warehouse Lending Group, Inc.
since their respective inceptions. Mr. Tomkinson has been the Chairman of the
Board of Impac Mortgage Holdings, Inc. (AMEX-IMH) since April 1998 (after being
promoted from Vice Chairman of the Board) and its Chief Executive Officer since
its inception. Mr. Tomkinson served as President of Imperial Credit Industries,
Inc. (Nasdaq-ICII) ("ICII") from January 1992 to February 1996 and, from 1986 to
January 1992, he was President of Imperial Bank Mortgage, a subsidiary of
Imperial Bank, one of the companies that combined to form ICII in 1992. Mr.
Tomkinson has been a Director of ICII since December 1991. From 1984 to 1986,
Mr. Tomkinson was employed as Executive Vice President of Loan Production for
American Mortgage Network, a privately owned mortgage banker.
There are no family relationships between any of the Directors or executive
officers of the Company. Any vacancy on the Board of Directors for any cause
including an increase in the number of directors may be filled by a majority of
the remaining directors.
COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
One meeting of the Board of Directors was held in fiscal year 1998 since
the effectiveness of the Company's initial public offering in March 1998. Each
Director attended the meeting.
The Audit Committee was established by the Board of Directors on February
3, 1998. The purpose of the Audit Committee is to recommend engagement of the
Company's independent auditors, to approve the services performed by such
auditors, to consult with such auditors and review with them the results of
their examination, to review and approve any material accounting policy changes
affecting the Company's operating results and to review the Company's control
procedures and personnel. The Audit Committee did not meet during fiscal 1998.
The Compensation Committee was established by the Board of Directors on February
3, 1998. The purpose of the Compensation Committee is to review and approve the
compensation benefits and severance arrangements for the Company's officers and
other employees, administer the Company's Stock Plans and make recommendations
to the Board regarding such matters. The Compensation Committee did not meet
during fiscal 1998. The Board of Directors does not presently have a nominating
committee.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Executive Officers of the Company who are not also directors. For information
concerning Evan R. Buckley and Kelly W. Monahan, see "Election of
Director -- Information Concerning Nominee" and " -- Directors Not Standing For
Election."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -----------------------------
<S> <C> <C>
Al Lapena................................... 39 Vice President of Operations
Gary Vander-Haeghen......................... 43 Vice President of Sales
</TABLE>
3
<PAGE> 6
AL LAPENA has been the Vice President of Operations for the Company since
February 1998. From February 1997 to February 1998, Mr. Lapena was the Director
of Secondary Marketing for the Company. From 1992 to 1997, Mr. Lapena was the
Vice President of the Real Estate Finance Group of the Taxable Fixed Income
Division for Donaldson, Lufkin & Jenrette, Inc. where he was responsible for the
management of whole loan trades involving prime and subprime mortgage loans
purchased from sellers/originators with contractual relationships with DLJ
Mortgage Capital, Inc. From 1989 to 1992, he was an independent secondary market
mortgage consultant and from 1988 to 1989, he was Vice President/Operations
Manager of the West Coast Region for U.S. Mortgage Co., Inc.
GARY VANDER-HAEGHEN has been the Vice President of Sales for the Company
since September 1996. From November 1995 through September 1996, Mr.
Vander-Haeghen was with the Company in a non-executive capacity. From December
1991 to November 1995, Mr. Vander-Haeghen was a Branch Manager for Quality
Mortgage, where he opened and managed its San Diego branch. Mr. Vander-Haeghen
has been in the real estate financing industry for over 20 years.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company to its
Chief Executive Officer and the other executive officers whose annual salary and
bonus were in excess of $100,000 during the fiscal year ended June 30, 1998 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Evan R. Buckley............................. 1998 $231,923 $ 83,334 $ 406(1) --
Chairman of the Board 1997 $155,769 $189,200 $ 325(1) --
and Chief Executive Officer
Kelly W. Monahan............................ 1998 $181,154 $ 66,667 $1,141(1) 12,500
President and Chief 1997 $116,584 $ 52,500 $ 583(1) --
Financial Officer
Gary Vander-Haeghen......................... 1998 $100,000 $ 63,337 $1,500(1) 10,000
Vice President of Sales 1997 $119,800 $ 13,400 $1,900(1) --
Al Lapena................................... 1998 $136,290 $ 10,000 $ 487(1) 12,500
Vice President of Operations 1997 $ 36,538 $ 8,400 -- --
</TABLE>
- ---------------
(1) Represents a contribution under the Company's 401(k) Plan.
STOCK OPTIONS
In October 1997, the Board of Directors and stockholders of the Company
adopted the 1997 Stock Option, Deferred Stock and Restricted Stock Plan (the
"Stock Option Plan"), which provides for the grant of incentive stock options
("ISOs") that meet the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), stock options not so qualified ("NQSOs"),
deferred stock, restricted stock, stock appreciation rights and limited stock
appreciation rights awards ("Awards"). The Stock Option Plan may be administered
by the Board of Directors or a committee of the Directors (the "Administrator").
ISOs may be granted to the officers and key employees of the Company, any of its
subsidiaries or parent corporation. NQSOs and Awards may be granted to the
directors, officers and key employees of the Company or any of its subsidiaries
or parent corporation. The exercise price for any option granted under the Stock
Option Plan may not be less than 100% (or 110% in the case of ISOs granted to an
employee who is deemed to beneficially own in excess of 10% of the outstanding
Common Stock) of the fair market value of the shares of Common Stock at the time
the option is granted. The purpose of the Stock Option Plan is to provide a
means of performance-based compensation in order to attract and retain qualified
personnel and to provide an
4
<PAGE> 7
incentive to those whose job performance affects the Company. The effective date
of the Stock Option Plan was October 23, 1997.
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option Plan authorizes the grant of options to
purchase, and Awards of, up to 800,000 shares. As of June 30, 1998, 800,000
shares underlying options were available for issue. If an option granted under
the Stock Option Plan expires or terminates, or an Award is forfeited, the
shares subject to any unexercised portion of such option or Award will again
become available for the issuance of further options or Awards under the Stock
Option Plan.
Under the Stock Option Plan, the Company may make loans available to stock
option holders, subject to Board of Directors' approval, in connection with the
exercise of stock options granted under the Stock Option Plan. If shares of
Common Stock are pledged as collateral for such indebtedness, such shares may be
returned to the Company in satisfaction of such indebtedness. If so returned,
such shares shall again be available for issuance in connection with future
stock options and Awards under the Stock Option Plan.
Unless previously terminated by the Board of Directors, no options or
Awards may be granted under the Stock Option Plan after October 22, 2007.
Options granted under the Stock Option Plan will become exercisable in
accordance with the terms of the grant made by the Administrator. Awards will be
subject to the terms and restrictions of the award made by the Administrator.
The Administrator has discretionary authority to select participants from among
eligible persons and to determine at the time an option or Award is granted and,
in the case of options, whether it is intended to be an ISO or a NQSO, and when
and in what increments shares covered by the option may be purchased.
Under current law, ISOs may not be granted to any individual who is not
also an officer or employee of the Company, any subsidiary or parent
corporation.
Each option must terminate no more than 10 years from the date it is
granted (or 5 years in the case of ISOs granted to an employee who is deemed to
own in excess of 10% of the combined voting power of the Company's outstanding
Common Stock). Options may be granted on terms providing for exercise in whole
or in part at any time or times during their respective terms, or only in
specified percentages at stated time periods or intervals during the term of the
option, as determined by the Administrator.
The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's Common
Stock already owned by the option holder having a market value equal to the
aggregate exercise price of all shares to be purchased including, in the case of
the exercise of NQSOs, restricted stock subject to an Award under the Stock
Option Plan, (3) by cancellation of indebtedness owed by the Company to the
option holder, (4) by a full recourse promissory note executed by the option
holder, (5) by requesting that the Company withhold whole shares of Common Stock
then issuable upon exercise of an option, (6) by arrangement with a broker
acceptable to the Administrator, or (7) by any combination of the foregoing. The
terms of any promissory note may be changed from time to time by the Board of
Directors to comply with applicable United States Internal Revenue Service or
Securities and Exchange Commission (the "Commission") regulations or other
relevant pronouncements.
The Board of Directors may from time to time revise or amend the Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without his consent or may, without stockholder approval,
increase the number of shares subject to the Stock Option Plan or decrease the
exercise price of a stock option to less than 100% of fair market value on the
date of grant (with the exception of adjustments resulting from changes in
capitalization), materially modify the class of participants eligible to receive
options or Awards under the Stock Option Plan, materially increase the benefits
accruing to participants under the Stock Option Plan or extend the maximum
option term under the Stock Option Plan.
The Company has granted options to purchase 621,893 shares of Common Stock
at a per share exercise price ranging from $6.10 to $11.00 vesting from 33 % to
50% on each anniversary of the date of grant. The Company has 178,107 shares of
Common Stock underlying options available for grant.
5
<PAGE> 8
OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
- ---------------------------------------------------------------------------------------------- STOCK PRICE
PERCENTAGE APPRECIATION
NUMBER OF SHARES OF OPTIONS FOR OPTION TERM(4)
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) EMPLOYEES ($/SH)(2) DATE(3) 5%($) 10%($)
---- ------------------ ---------- -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Evan R. Buckley................ -- -- -- -- -- --
Kelly W. Monahan............... 12,500 2.1 9.50 3/09/08 5,938 11,875
Al Lapena...................... 12,500 2.1 9.50 3/09/08 5,938 11,875
Gary Vander-Haeghen............ 10,000 1.7 9.50 3/09/08 4,750 9,500
</TABLE>
- ---------------
(1) Such stock options vest 33.33% per year on each anniversary of the date of
grant.
(2) The exercise price for all options equals the fair market value of such
shares at the date of grant as determined by the Board of Directors.
(3) Such stock options expire ten years from the date of grant or earlier upon
termination of employment.
(4) Amounts reflect the assumed risks of appreciation set forth in the
Commission's executive compensation disclosure requirements. The actual
value, if any, an executive officer may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR OPTIONS AT FISCAL
END(#) YEAR END($)(1)
SHARES ------------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C>
Evan R. Buckley............................. -- -- --/-- --/--
Kelly W. Monahan............................ -- -- --/12,500 --/18,750
Al Lapena................................... -- -- --/12,500 --/18,750
Gary Vander-Haeghen......................... -- -- --/10,000 --/15,000
</TABLE>
- ---------------
(1) The value of in-the-money options is based on the $11.00 closing price of
the Company's Common Stock as reported by the Nasdaq National Market on June
30, 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into two and three-year employment agreements with
Messrs. Buckley and Monahan, respectively, pursuant to which they would receive
an annual base salary of $250,000 and $200,000, respectively, plus an annual
bonus of up to 100% of base salary. Compensation is subject to increase as
recommended by the Compensation Committee of the Board of Directors of the
Company. Pursuant to the employment agreements, if either employee's employment
is terminated by the Company without cause or by either of Messrs. Buckley or
Monahan for good reason (meaning the Company's uncured breach of any material
term of the agreement or any diminution of Messrs. Buckley's or Monahan's
powers, duties or authority), Messrs. Buckley or Monahan, as the case may be,
would be paid his annual salary, a semi-annual bonus equal to 50% of his annual
salary, $70,000 annually on a pro rata basis, and would receive benefits, such
as health insurance through the term of the agreement.
401(k) PLAN
The Company adopted a 401(k) savings plan (the "401(k) Plan") effective on
July 1, 1996. Eligible employees may participate in the 401(k) Plan.
Participants in the 401(k) Plan may defer compensation in an amount not in
excess of the annual statutory limit ($10,000 in 1998). The Company may make
matching
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<PAGE> 9
contributions in the amount determined annually by the Board of Directors. All
contributions are credited to separate accounts maintained in trust for each
participant and are invested, at the participant's direction, in one or more of
the investment funds made available under the 401(k) Plan. Matching
contributions, if any, vest after three years. The 401(k) Plan is intended to
qualify under Sections 401 and 501 of the Internal Revenue Code of 1986, as
amended, so that contributions to the 401(k) Plan and income earned on the plan
contributions are not taxable to employees until withdrawn so that the
contributions will be deductible by the Company when made.
COMPENSATION OF DIRECTORS
The Company pays its non-employee directors an annual fee of $10,000
payable quarterly, $2,500 for each board meeting attended (up to a maximum of
four meetings) and reimburses them for reasonable expenses incurred in attending
such meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is currently
comprised of Messrs. Monahan and Tomkinson. Mr. Monahan is the Company's
President and Chief Financial Officer.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Company's Board of Directors administers
the policies governing the Company's executive compensation program. All issues
pertaining to executive compensation are reviewed by the Compensation Committee
and approved by the Company's Board of Directors. The Compensation Committee is
comprised solely of one employee director and one non-employee director.
The Compensation Committee believes that executive compensation should
reward sustained earnings and long-term value created for stockholders and
reflect the business strategies and long-range plans of the Company. The guiding
principles affecting executive compensation are: (1) to attract and retain key
high caliber executives; (2) to provide levels of compensation competitive with
those offered by the Company's competitors; and (3) to motivate executives to
enhance earnings and long-term stockholder value by linking stock performance
(on a total returns basis) with long-term incentive compensation.
The Company's executive compensation philosophy is to set base salary at a
moderate market rate and then to provide performance-based variable compensation
which allows total compensation to fluctuate according to the Company's earnings
as well as to value received by stockholders. Targeted levels of executive
compensation are set at levels consistent with others in the Company's industry,
determined after comparison, with such compensation increasingly weighted
towards programs contingent upon the Company's level of annual and long-term
performance.
The executive officers' compensation is comprised of three principal
components: base salary, bonus and stock options or awards granted pursuant to
the Company's Stock Option Plan. Base salary and bonus for the Chief Executive
Officer and the President are determined by his employment agreement with the
Company and will be reviewed at least annually by the Compensation Committee.
See "Executive Compensation" for a description of the allocation of base salary.
The Compensation Committee believes that the total compensation package of the
executive officers should be linked to such factors as return on equity and to
the total return of the Company's stock, both on an absolute basis and relative
to similar companies, and to the attainment of planned objectives established at
the beginning of the year. The Company uses stock options to align the
long-range interest of its executive officers with the interests of
stockholders. The amount of stock options that is granted to executive officers
is determined by taking into consideration the officer's position with the
Company, overall individual performance, the Company's performance and an
estimate of the long-term value of the award considering current base salary and
any cash bonus awarded.
The Compensation Committee applies the foregoing principles and policies in
examining the compensation of Evan R. Buckley, the Company's Chief Executive
Officer. The Compensation Committee believes that Mr. Buckley, as Chief
Executive Officer, significantly and directly influences the Company's overall
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<PAGE> 10
performance. Pursuant to his employment agreement with the Company, the Chief
Executive Officer's compensation for fiscal 1998 for the four months that
followed the initial public offering of the Company's Common Stock consisted of
a base salary of $86,539, plus a bonus of $62,500. Such bonus was determined
based on the operating performance of the Company. The Company did not grant any
stock options to the Chief Executive Officer during fiscal 1998.
Section 162(m) was added to the Code as part of the Omnibus Budget
Reconciliation Act of 1993. Section 162(m) limits the deduction for compensation
paid to the Chief Executive Officer and the other Named Executive Officers to
the extent that compensation of a particular executive exceeds $1,000,000,
unless such compensation was based upon performance goals determined by a
compensation committee consisting solely of two or more outside directors, the
material terms of which are approved by a majority vote of the stockholders
prior to the payment of such remuneration, or paid pursuant to a binding
contract that was in effect on February 17, 1993. The compensation paid in
fiscal 1998 to the Named Executive Officers was deductible.
The Committee will review the Company's existing compensation program to
determine the deductibility of future compensation paid or awarded pursuant
thereto and will seek guidance with respect to changes to the Company's existing
compensation program that will enable the Company to continue to attract and
retain key individuals while optimizing the deductibility to the Company of
amounts paid as compensation.
The Committee believes that its overall executive compensation program will
be successful in providing competitive compensation appropriate to attract and
retain highly qualified executives and also to encourage increased performance
from the executive group which will create added stockholder value.
Respectfully submitted,
Kelly W. Monahan, Chairman
Joseph R. Tomkinson
8
<PAGE> 11
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a performance graph comparing the cumulative total
stockholder return on the Company's Common Stock with the cumulative total
return on the S&P 500 Stock Index and the Nasdaq Financial Index for the period
commencing on March 11, 1998 through June 30, 1998. The graph assumes $100
invested on March 11, 1998 in the Company's Common Stock at the at the closing
price of $11.625, the S&P 500 Stock Index and the Nasdaq Financial Index. The
stock price performance shown on the graph is required by the Rules and
Regulations of the Securities and Exchange Commission and is neither intended to
forecast, nor is it necessarily indicative of, future price performance.
COMPARE CUMULATIVE TOTAL RETURN
AMONG BNC MORTGAGE, INC.,
S&P 500 INDEX AND NASDAQ FINANCIAL INDEX
<TABLE>
<CAPTION>
BNC S&P
MORTGAGE COMPOSITE
INC. PEER GROUP INDEX
<S> <C> <C> <C>
3/11/98 100 100 100
3/31/98 111.83 102.75 105.12
4/30/98 108.6 104.3 106.18
5/29/98 94.62 100.52 104.35
6/30/98 94.62 100.11 108.59
</TABLE>
ASSUMES $100 INVESTED ON MAR. 11, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED JUNE 30, 1998
9
<PAGE> 12
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's Directors, officers, and persons who own more than ten
percent of a registered class of the Company's securities, to file with the
Commission initial reports of ownership and reports of changes in ownership of
the Common Stock of the Company. Officers, Directors and greater than ten
percent stockholders are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the fiscal year which ended June 30,
1998, all Section 16(a) filing requirements applicable to its officers,
Directors and greater than ten percent Stockholders were satisfied by such
persons.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1997, the Company loaned Evan R. Buckley an aggregate of $150,000
at an annual rate equal to the federal funds rate. As of June 30, 1997, the note
had been repaid in full.
In August 1997, the Company loaned Kelly W. Monahan $100,000 at an annual
rate equal to the federal funds rate. The note is secured by 41,237 shares of
the Common Stock of the Company held by Mr. Monahan. The principal balance, with
interest, is due upon the sale of such shares of Common Stock. As of June 30,
1998, no payments had been made on the loan.
In May 1998, the Board of Directors authorized the officers of the Company
to purchase all of the authorized and outstanding shares of capital stock of
Simple Mortgage USA, Inc. ("Simple Mortgage") for $258,000. At the time, Simple
Mortgage had a book value of $245,000. Simple Mortgage is in the business of
originating and selling conforming and non-conforming mortgage loans for cash.
Evan R. Buckley, the Company's Chief Executive Officer founded Simple Mortgage
in January 1997 and was the Company's sole stockholder. The purchase price
included a cash payment of $100,000 and the forgiveness of a note payable to the
Company by Mr. Buckley of $150,000 and accrued interest of $8,000. The excess of
the purchase price over the book value was charged to operations in fiscal 1998.
In April, 1998, BNC Equity Investors LLC, a California limited liability
company which was formed prior to the Company's initial public offering to
acquire and hold an ownership interest in the Company, distributed 329,896
shares of the Company's Common Stock held by it to its owners. Mr. Buckley and
Mr. Vander-Haeghen received 106,418 and 21,284 shares of the Company's Common
Stock as a result of this distribution, respectively. BNC Equity Investors LLC
was managed by the Company and has since been dissolved.
Prior to the closing of the Company's initial public offering in March
1998, DLJ Mortgage Capital, Inc. ("DLJ") was the beneficial owner of greater
than 44% of the Company's Common Stock. During fiscal 1998, the Company sold
loans to DLJ having an aggregate principal balance of $727.0 million pursuant to
a Master Loan Purchase Agreement. In connection with such sales, the Company
paid fees of $2.2 million to DLJ during fiscal 1998. DLJ is no longer a
significant stockholder of the Company.
10
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
October 15, 1998 by (1) each person known to the Company to beneficially own
more than five percent of the Company's Common Stock, (2) each Director, (3) the
Named Executive Officers, and (4) all Directors and executive officers as a
group. Unless otherwise indicated in the footnotes to the table, the beneficial
owners named have, to the knowledge of the Company, sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED(1)
------------------------ ------------ ------------
<S> <C> <C>
Evan R. Buckley(2)(3)....................................... 1,549,717 27.9
SAFECO Asset Management Company(4).......................... 628,100 11.3
Greenlight Capital, L.L.C.(5)............................... 539,900 9.7
SAFECO Common Stock Trust(6)................................ 496,100 8.9
Bay Pond Partners, L.P.(7).................................. 337,200 6.1
Kelly W. Monahan(2)......................................... 206,780 3.7
Gary Vander-Haeghen(2)...................................... 41,903 *
Al Lapena(2)................................................ 20,718 *
Joseph R. Tomkinson(8)...................................... -- --
Keith C. Honig(9)........................................... -- --
All directors and executive officers as a group (6
persons).................................................. 1,819,118 32.8
</TABLE>
- ---------------
(1) The percentage of beneficial ownership is calculated using 5,554,279 shares
of Common Stock which were outstanding on October 15, 1998. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to the securities.
(2) Each of such persons can be reached through the Company at 1063 McGaw
Avenue, Irvine, California 92614.
(3) All of such shares are owned directly by the Buckley Family Trust, a trust
created for the benefit of Mr. Buckley and his family, of which Mr. Buckley
is the trustee.
(4) The number of shares represented is based upon the joint filing of a
Schedule 13G with the Securities and Exchange Commission by SAFECO Asset
Management Company, SAFECO Corporation and SAFECO Common Stock Trust, which
states that SAFECO Asset Management Company and SAFECO Corporation entity
have both shared voting power and shared dispositive power with respect to
said shares. The Schedule 13G reports that the shares are owned beneficially
by registered investment companies for which SAFECO Asset Management Company
and SAFECO Corporation serve as investment advisers. Both of such entities
disclaim beneficial ownership of said shares. SAFECO Corporation can be
reached at SAFECO Plaza, Seattle, Washington 98185. SAFECO Asset Management
Company can be reached at 601 Union Street, Suite 2500, Seattle, Washington
98101.
(5) The number of shares represented is based upon the joint filing of a
Schedule 13D with the Securities and Exchange Commission by Greenlight
Capital, L.L.C., David Einhorn and Jeffrey A. Keswin, which states that each
has sole voting power and sole dispositive power with respect to said
shares. Messrs. Einhorn and Keswin are principals of Greenlight Capital,
L.L.C. Each of Messrs. Einhorn and Keswin and Greenlight Capital, L.L.C. can
be reached at 420 Lexington Avenue, Suite 875, New York, New York 10170.
(6) The number of shares represented is based upon the joint filing of a
Schedule 13G with the Securities and Exchange Commission by SAFECO Asset
Management Company, SAFECO Corporation and SAFECO Common Stock Trust, which
states that SAFECO Common Stock Trust has both shared
11
<PAGE> 14
voting power and shared dispositive power with respect to said shares.
SAFECO Common Stock Trust can be reached at SAFECO Plaza, Seattle,
Washington 98185.
(7) The number of shares represented is based upon the joint filing of a
Schedule 13G with the Securities and Exchange Commission by Bay Pond
Partners, L.P., Wellington Hedge Management, Inc. and Wellington Hedge
Management LLC, which states that each entity has both shared voting power
and shared dispositive power with respect to said shares. Each entity can be
reached at 75 State Street, Boston, Massachussetts 02109.
(8) Mr. Tomkinson can be reached at 20371 Irvine Avenue, Santa Ana Heights,
California 92707.
(9) Mr. Honig can be reached at 1 SunAmerica Center, Los Angeles, California
90067.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected and appointed Ernst &
Young LLP to act as the Company's independent accountants for the year ending
June 30, 1999. In recognition of the important role of the independent
accountants, the Board of Directors has determined that its selection of such
accountants should be submitted to the stockholders for review and ratification
on an annual basis.
Ernst & Young LLP has examined the financial statements of the Company
since its inception. Management is satisfied with their performance to date.
The affirmative vote of a majority of the shares voting on this proposal is
required for its adoption. In view of the difficulty and the expense involved in
changing independent accountants on short notice, if the proposal is not
approved, it is contemplated that the appointment of Ernst & Young LLP for 1999
may be permitted to stand, unless the Board of Directors finds other compelling
reasons for making a change. Disapproval of this Proposal will be considered as
advice to the Board of Directors to select other independent accountants for the
following year. Representatives of Ernst & Young LLP are expected to be present
at the Annual Meeting and will have the opportunity to make a statement if they
desire to do so. They will also be available to respond to appropriate
questions.
STOCKHOLDERS' PROPOSALS
Stockholders are hereby notified that if they wish a proposal to be
included in the Company's Proxy Statement and form of proxy relating to the 1999
Annual Meeting of Stockholders, they must deliver a written copy of their
proposal no later than August 9, 1999. Proposals must comply with the proxy
rules relating to stockholder proposals, in particular Rule 14a-8 under the
Exchange Act, to be included in the Company's proxy materials. Stockholders who
wish to submit a proposal for consideration at the Company's 1999 Annual Meeting
of Stockholders, but who do not wish to submit a proposal for inclusion in the
Company's Proxy Statement, must deliver a copy of their proposal no later than
September 14, 1999. In either case, proposals should be delivered to BNC
Mortgage, Inc., 1063 McGaw Avenue, Irvine, California 92614, Attention: Evan R.
Buckley, Chairman of the Board, Chief Executive Officer and Secretary. To avoid
controversy and establish timely receipt by the Company, it is suggested that
stockholders send their proposals by certified mail, return receipt requested.
12
<PAGE> 15
OTHER BUSINESS
The Board of Directors does not know of any other matter to be acted upon
at the meeting. However, if any other matter shall properly come before the
meeting, the proxyholders named in the proxy accompanying this Proxy Statement
will have authority to vote all proxies in accordance with their discretion.
By Order of the Board of Directors
/s/ EVAN R. BUCKLEY
Evan R. Buckley,
Chairman of the Board,
Chief Executive Officer and Secretary
Dated: October 29, 1998
Irvine, California
13
<PAGE> 16
BNC MORTGAGE, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON DECEMBER 8, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS ON BEHALF OF THE COMPANY
OCTOBER 29, 1998
The undersigned stockholder of BNC Mortgage, Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated October 29, 1998, and hereby
appoints Evan R. Buckley and Kelly W. Monahan, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Stockholders of BNC Mortgage, Inc., to be held on
December 8, 1998, at 10:00 a.m., local time, at the Hyatt Regency Irvine, 17900
Jamboree Boulevard, Irvine, California 92614, and at any adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below:
1. Election of Class I Director.
Nominee: Evan R. Buckley [ ] FOR [ ] WITHHELD
2. To ratify the appointment of Ernst & Young LLP as independent accountants
for the year ending June 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon any and all such other matters as may properly
come before the meeting or any adjournment thereof.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR CHANGE OF ADDRESS AND NOTE AT LEFT [ ]
<PAGE> 17
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF EVAN R.
BUCKLEY AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
This proxy must be signed exactly as
your name appears hereon. Executors,
administrators, trustees, etc. should
give full title as such. If the
stockholder is a corporation, a duly
authorized officer should sign on behalf
of the corporation and should indicate
his or her title.
Date:___________________________________
________________________________________
Signature
Date:___________________________________
________________________________________
Signature
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
