<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. ___ )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
First Alliance Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Registrant
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[x] No fee 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(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:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
FIRST ALLIANCE CORPORATION
17305 Von Karman Avenue
Irvine, California 92614
----------------------------------------
PROXY STATEMENT
----------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
April 28, 1997
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of First Alliance Corporation (together with its
subsidiaries, the "Corporation") of proxies to be voted at the Annual
Meeting of Stockholders to be held on April 28, 1997 (the "Annual Meeting")
and at any and all adjournments thereof. Proxies are revocable at any time
prior to exercise by written notice to the Secretary of the Corporation or
upon request if the stockholder is present at the Annual Meeting and chooses
to vote in person. If a proxy is properly signed and not revoked, the
shares it represents will be voted in accordance with the instructions of
the stockholder. If no specific instructions are given, the shares
represented by the proxy will be voted in favor of the proposals set forth
in the Notice attached hereto.
The Corporation has a policy that provides for the confidentiality of
stockholder proxies, ballots and vote tabulations, subject to certain
exceptions. The policy also provides for the tabulation of the vote by an
independent third party.
This proxy statement, the proxy and the Corporation's 1996 Annual Report
were first mailed to stockholders on April 3, 1997.
VOTING RIGHTS
Stockholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the Annual Meeting. On that date the
Corporation had outstanding 4,043,067 shares of Class A common stock, $.01
par value (the "Class A Common Stock"), each such share being entitled to
one vote, and 10,750,000 shares of Class B common stock, $.01 par value (the
"Class B Common Stock"), each such share being entitled to four votes. A
proxy given by any stockholder participating in the Corporation's 401(k)
Plan will govern the voting of all full shares held for such stockholder's
account under that plan.
A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum. If a quorum is present, a plurality vote of
the shares of the common stock of the Corporation present in person or by
proxy at the meeting and entitled to vote is required for the election of
directors. Abstentions are considered shares present and entitled to vote
and therefore have the same legal effect as a vote against a matter
presented at the meeting. Any shares as to which broker or nominee does not
have discretionary voting authority under applicable Nasdaq rules will be
considered as shares not entitled to vote and will therefore not be
considered in the tabulation of the votes.
Brian Chisick, Chairman of the Board, President and Chief Executive
Officer and a director of the Corporation, and Sarah Chisick, Vice President
and a director of the Corporation, are the beneficial owners of 48,745
shares of Class A Common Stock and 10,642,500 shares of Class B Common
Stock, together constituting approximately 90.6% of the outstanding voting
power of the Corporation. Mr. Chisick intends to vote such shares for the
nominees for election as directors named in this Proxy Statement.
1
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
INFORMATION CONCERNING THE NOMINEES AND CURRENT DIRECTORS
The Corporation's Certificate of Incorporation provides that the
members of the Board of Directors shall be divided into three classes with
approximately one third of the directors to stand for election each year for
three-year terms. The total number of directors comprising the
Corporation's Board of Directors is currently set pursuant to the
Corporation's bylaws at seven. Of this number, two members of the Board of
Directors have terms expiring, and are nominees for election, at the 1997
Annual Meeting of Stockholders. Two members have terms expiring at the 1998
Annual Meeting of Stockholders and three members have terms expiring at the
1999 Annual Meeting of Stockholders.
Unless instructions to the contrary are given, all proxies received by
the Corporation will be voted for the election of the two nominees named
below as directors of the Corporation to hold office until the 2000 Annual
Meeting of Stockholders and until their respective successors are elected
and qualified. Both of the nominees have indicated a willingness to be
named as such and to serve as directors if elected. Should either nominee
not be a candidate at the 1997 Annual Meeting, the enclosed Proxy will be
voted in favor of the other nominee with respect to whom a stockholder has
not withheld a vote on such Proxy and for such substitute nominee (if any)
as shall be designated by the proxies named in the enclosed Proxy, or the
number of directors may be reduced by the Board of Directors. Both nominees
have been recommended by the Board of Directors for three-year terms
expiring at the 2000 Annual Meeting of Stockholders.
Certain information concerning each of the two nominees for directors
is set forth below.
NOMINEES FOR DIRECTORS FOR THREE - YEAR TERMS EXPIRING IN 2000
MARK K. MASON Director since 1996 Age 37
Mr. Mason, a certified public accountant, has been Executive Vice President
and Chief Financial Officer of the Corporation since its formation in 1996,
and has held the same office at First Alliance Mortgage Company since
November 1995. From 1994 to 1995 Mr. Mason was Executive Vice President and
Chief Financial Officer of Fidelity Federal Bank, a Federal Savings Bank,
where he remains a member of the board of directors. From 1993 to 1994 Mr.
Mason was a Senior Manager with the international accounting firm of
Deloitte & Touche LLP. From 1990 to 1993 Mr. Mason was Executive Vice
President and Chief Financial Officer of the Eadington Companies, a
diversified real estate development company.
JEFFREY W. SMITH Director since 1996 Age 35
Mr. Smith has been Executive Vice President, Sales and Marketing, of the
Corporation since its formation in 1996, and has held the same office at
First Alliance Mortgage Company since November 1995. In September 1996 Mr.
Smith also became Chief Operating Officer of First Alliance Mortgage
Company. From 1984 to 1995 Mr. Smith held various positions at First
Alliance Mortgage Company, including Assistant Director of Marketing,
Director of Marketing and Vice President of Marketing, since he joined the
Company in 1981.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES
LISTED ABOVE.
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of the current executive officers and directors
and the nominees for election to the Board of Directors of the Corporation.
Name Positions with the Corporation Class
---- --------------------------------------- -----
Brian Chisick (1)(2).... Chairman of the Board, President, II
Chief Executive
Officer and Director of First
Alliance Corporation
Sarah Chisick (1)....... Vice President and Director of First II
Alliance Corporation
Mark K. Mason........... Executive Vice President, Chief I
Financial Officer, current Director
and Nominee for reelection as Director
of First Alliance Corporation
Jeffrey W. Smith (3).... Executive Vice President, Sales and I
Marketing, current Director and Nominee
for reelection as Director of First
Alliance Corporation
Merrill Butler (2)...... Director of First Alliance Corporation III
George Gibbs, Jr. (2)(3) Director of First Alliance Corporation III
Albert L. Lord (3)...... Director of First Alliance Corporation III
Edwin C. Summers........ Vice President, General Counsel and
Secretary of First Alliance Corporation
- ---------------------------
(1) Member of Stock Incentive Committee of the Corporation
(2) Member of the Compensation Committee of the Corporation
(3) Member of the Audit Committee of the Corporation
The age, present position with the Corporation, and principal
occupation during the past five years of each Director and executive officer
named above is set forth below, except Messrs. Mason and Smith for whom such
information is provided on page 2.
BRIAN CHISICK Director since 1996 Age 57
Mr. Chisick has been Chairman of the Board, Chief Executive Officer and
President of the Corporation since its formation in 1996, and has held the
same offices at First Alliance Mortgage Company since its founding in 1971.
Mr. Chisick has held a real estate broker's license since 1971. In 1985,
Mr. Chisick was Vice President of the Mortgage Brokers Institute, a
statewide trade association of over 120 mortgage brokers, and served as a
member of the legislative committee of the Mortgage Brokers Institute. His
present term as a Director expires in 1998.
SARAH CHISICK Director since 1996 Age 56
Ms. Chisick has been Vice President and a director of the Corporation since
its formation in 1996, and has held the same offices at First Alliance
Mortgage Company since its founding in 1971. Her duties have in the past
included projects in the loan servicing, foreclosure, marketing and
investment departments. She is not currently involved in the day to day
operations of the Company. Her present term as a Director expires in 1998.
3
<PAGE>
MERRILL BUTLER Director since 1996 Age 72
Since 1983 Mr. Butler has served as President of Merrill Butler, Inc., a
corporation formed to consult with savings and loan associations on real
estate matters. During 1995 Mr. Butler also served on the Volunteer
Executive Team organized to advise Orange County, California after the
County had declared bankruptcy. Mr. Butler was also a co-creator of the
Butler Popejoy Group, a general partnership which from 1992 to 1994
capitalized home builders with equity funds to develop entry level housing
projects. Mr. Butler is a past director of numerous organizations,
including the Federal National Mortgage Association (Fannie Mae), Financial
Corporation of America, American Savings and Loan, The Commodore
Corporation, Far Western Bank, National Association of Home Builders, and
the Building Industry Association of Southern California. His present term
as a Director expires in 1999.
GEORGE GIBBS, Jr. Director since 1996 Age 66
Mr. Gibbs has been Principal and Senior Vice President of Johnson & Higgins
since 1987. Since August 1994 Mr. Gibbs has also served as a director of
Fidelity Federal Bank, a Federal Savings Bank. Mr. Gibbs is a past Vice
President and Executive Committee member of the Los Angeles Chamber of
Commerce. His present term as a Director expires in 1999.
ALBERT L. LORD Director since 1996 Age 51
Since January 1994 Mr. Lord has been the President of LCL, Ltd., a financial
consulting and equity investment management company. From 1990 to 1994 Mr.
Lord was Chief Operating Officer and Executive Vice President of the Student
Loan Marketing Association (Sallie Mae), where he had since 1981 occupied
various executive positions. Mr. Lord is a director of the Student Loan
Marketing Association and of Princeton Bank. His present term as a Director
expires in 1999.
EDWIN C. SUMMERS Officer since 1996 Age 50
Mr. Summers has been Vice President, General Counsel and Secretary of the
Corporation since 1996. From 1991 to 1995 Mr. Summers served as Senior
Counsel, Finance and Senior Vice President, General Counsel and Secretary of
Transamerica Finance Group.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors
held five meetings. Each current Director attended at least 80% of the
meetings of the Board and all of the meetings of the committees of which he
or she was a member.
The Board of Directors has created and delegated certain authority to
its Audit Committee, Compensation Committee and Stock Incentive Committee.
The Corporation does not have a Nominating Committee.
Mr. Lord (Chairman), Mr. Gibbs and Mr. Smith are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other
things, makes recommendations to the Board concerning the engagement of
independent accountants, monitors and reviews the quality and activities of
any of the Corporation's audit function, monitors the adequacy of the
Corporation's internal operating controls, and reviews the significant
accounting policies of the Company. The Audit Committee was formed in
August 1996 and met twice during 1996.
Mr. Gibbs (Chairman), Mr. Butler and Mr. Chisick are members of the
Compensation Committee of the Board of Directors. Mr. Gibbs and Mr. Butler
are independent, non-employee directors of the Corporation. The
Compensation Committee, among other things, reviews salaries, benefits and
other compensation, excluding stock based compensation, of directors,
officers and other employees of the Corporation, and makes recommendations
to the Board. The Compensation Committee was formed in August 1996 and met
twice during 1996.
4
<PAGE>
Mr. Chisick (Chairman) and Mrs. Chisick are members of the Stock
Incentive Committee. The Stock Incentive Committee is authorized to make
stock based compensation grants under the Corporation's 1996 Stock Incentive
Plan. Except for grants that are approved by a majority of the
disinterested members of the Compensation Committee, no member of the Stock
Incentive Committee is eligible to participate in the Stock Incentive Plan.
The Stock Incentive Committee was formed in August 1996 and met once during
1996.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities for the Corporation during 1996
and the preceding two fiscal years of those persons who were, as of December
31, 1996, (i) the Chief Executive Officer and (ii) each other executive
officer whose total annual salary and bonus exceeded $100,000 during the
fiscal year ended December 31, 1996, and (iii) officers otherwise among the
four most highly compensated (the "Named Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long - Term Compensation
--------------------------
Annual Compensation Awards
----------------------------------- --------------------------
Restricted Securities
Stock Underlying
Name and Principal Position Year Salary ($)(1) Bonus ($)(1) Award ($) Options(2)
- ---------------------------------- ------ ------------- ------------ --------------------------
<S> <C> <C> <C> <C> <C>
Brian Chisick 1996 376,796 - - -
Chairman and Chief Executive 1995 288,000 500,000 - -
Officer 1994 288,000 - - -
Mark K. Mason 1996 240,000 10,000 1,599,500 (3)(4) 19,500
Executive Vice President and 1995 28,308 - - -
Chief Financial Officer 1994 - - - -
Jeffrey W. Smith 1996 198,065 50,000 - 55,000
Executive Vice President and 1995 167,259 30,000 - -
Chief Operating Officer 1994 155,780 45,000 - -
Randall K. Mc Phillips 1996 239,784 122,083 - 55,000
Vice President, Special 1995 239,124 102,994 - -
Projects 1994 310,066 173,854 - -
Patricia G. Sullivan 1996 185,628 10,000 - 14,706
Vice President, Staff 1995 166,232 10,000 - -
Development 1994 166,232 20,000 - -
</TABLE>
Edwin C. Summers, who became Vice President, General Counsel and Secretary
of the Corporation in August 1996 and is an executive officer of the
Corporation, was not included in the foregoing table because his total
salary and bonus did not exceed $100,000 during the fiscal year ended
December 31, 1996.
5
<PAGE>
(1) Amounts shown include amounts earned but deferred at the election of
executive officers under the Corporation's 401(k) Plan (the "401(k) Plan"),
a qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code").
(2) Includes grants made under the Company's 1996 Stock Incentive Plan.
(3) Consists of 107,500 shares of restricted FAMCO common stock granted to
Mr. Mason on June 29, 1996 pursuant to the terms of his employment agreement
with the Corporation. See "Mason Agreement" on page 9. The fair value of
such stock was independently determined to be $1,599,500.
(4) Restrictions on such stock lapsed with respect to 29,285 shares in July
and August 1996. The remaining shares of restricted stock are subject to
the following vesting schedule, but may be accelerated under certain
conditions:
Vesting Date Shares
-------------------- -----------
October 1, 1997 13,715
October 1, 1998 21,500
October 1, 1999 21,500
October 1, 2000 21,500
<TABLE>
STOCK OPTION GRANTS IN 1996
<CAPTION>
Number of Percent of Total
Securities Options Granted to Per Share
Underlying Employees In Exercise Expiration Grant Date
Name Options Granted (1) Fiscal Year Price($)(2) Date Present Value ($)(3)
- ---------------------- ------------------ ---------------- ----------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Brian Chisick 0 0 0 NA NA
Mark K. Mason 19,500 3.69% 17.00 July 24, 2006 250,770
Jeffrey W. Smith 55,000 10.40% 17.00 July 24, 2006 707,300
Randall K. McPhillips 55,000 10.40% 17.00 July 24, 2006 707,300
Patricia G. Sullivan 14,706 2.78% 17.00 July 24, 2006 189,119
</TABLE>
(1) Options become exercisable in four annual installments commencing six
months from the date of grant. No stock appreciation rights have been
granted.
(2) Subject to the discretion of the Stock Incentive Committee, the
exercise price and tax withholding obligations may be paid in stock.
(3) Option grant date values were determined using a Black-Scholes option
pricing model adapted for use in valuing executive stock options. In
determining the Black-Scholes value, the following underlying assumptions
were used: (i) because no trading in the Class A Common Stock took place
prior to the option grant date, stock price volatility has been based upon
the volatility of a comparable company in the same industry (58.78%); (ii)
no dividend yield, as the Corporation currently pays no dividends and,
consistent with its current dividend policy, does not anticipate declaring
or paying any cash dividends in the foreseeable future; (iii) the risk-free
rate of return represents the weekly average of the ten-year Treasury bond
rates for the 52 weeks immediately preceding the grant date of the options
(7.00%); and (iv) option term, representing the period from the date of
grant of each option to the expiration of the term of each option (10
years). The Black-Scholes option pricing model establishes a cash
equivalent value for an option on the date of grant. The Corporation's use
of such model is not intended to forecast any future appreciation in the
price of the Corporation's stock. In addition, no gain to the optionees is
possible without appreciation in the price of the Corporation's Class A
Common Stock, which will benefit all Class A stockholders. If the market
price of the stock does not exceed the exercise price of the options at some
time after the options become exercisable or if they terminate unvested or
unexercised, the value of the options will ultimately be zero.
6
<PAGE>
The total number of options outstanding (vested and unvested) as of March
31, 1997 for the named individuals as a group and for all employees as a
group represents approximately 3.57% and 12.78%, respectively, of the
Corporation's outstanding Class A Common Stock as of that date, and
approximately 0.97% and 3.49%, respectively, of the Corporation's
outstanding Class A and Class B Common Stock as of the same date.
<TABLE>
AGGREGATED OPTION EXERCISES IN 1996; OPTIONS OUTSTANDING AND VALUES AT DECEMBER 31, 1996
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Options at In the Money Options
Shares December 31, 1996 at December 31, 1996 ($)(1)
------------------------ ---------------------------
Acquired on Value Not Not
Name Exercise Realized Exercisable Exercisable Exercisable Exercisable
- --------------------- ----------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Brian Chisick 0 0 0 0 0 0
Mark K. Mason 0 0 0 19,500 0 251,063
Jeffrey W. Smith 0 0 0 55,000 0 708,125
Randall K. McPhillips 0 0 0 55,000 0 708,125
Patricia G. Sullivan 0 0 0 14,706 0 189,340
</TABLE>
(1) The value of unexercised options is based on the average of the high and
low prices of Class A Common Stock on December 31, 1996 ($29.875), less the
exercise price of the option multiplied by the number of options
outstanding.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation or its subsidiaries
receive an annual retainer of $15,000 and a fee of $1,000 for each board or
committee meeting attended, and are reimbursed for reasonable expenses
incurred in connection with attendance at board of directors' meetings or
committee meetings. A meeting fee of $500 is paid to non-employee directors
for telephonic meetings of 30 minutes or less. Committee chairs also
receive an annual retainer of $1,500. Directors who are employees of the
Corporation do not receive fees for their services as directors.
On July 25, 1996 the Corporation granted options to each of its non-
employee directors under the 1996 Stock Incentive Plan to purchase an
aggregate of 112,500 shares of Class A Common Stock at an exercise price of
$17.00 per share.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Compensation Committee are Messrs. Butler, Chisick
and Gibbs.
7
<PAGE>
The compensation and benefits of the Chief Executive Officer and the
executive officers and other officers of the Corporation in 1996 were
established prior to the existence of the board of directors of the
Corporation and, therefore, prior to the formation of the Compensation
Committee (the "Committee") on August 2, 1996. In the case of Messrs.
Chisick and Mason, such compensation and benefits are specified in
employment contracts entered into between said individuals and the
Corporation prior to the formation of the Committee. See "Chisick
Agreement" and "Mason Agreement" below. Accordingly, no independent review
of compensation packages or policies with respect to the chief executive
officer or other officers has been conducted by the Committee during 1996.
The Committee is in the process of developing policies applicable to the
compensation of its executive officers which will specify the relationship
of corporate performance to executive compensation, and on which a full
report will be prepared during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no "interlocks" (as defined by the Securities and Exchange
Commission) with respect to any member of the Compensation Committee of the
Board of Directors of the Corporation (the "Committee"). Mr. Chisick, a
member of the Compensation Committee, is also the President and Chief
Executive Officer of the Corporation, and has certain relationships
requiring disclosure under Item 404 of Regulation S-K, each of which is
described below under "Certain Transactions."
Compensation Committee:
Merrill Butler
Brian Chisick
George Gibbs, Jr.
PERFORMANCE GRAPH
The graph below compares the Corporation's cumulative stockholder
return on its Class A Common Stock with the cumulative total return,
assuming reinvestment of dividends, of the Nasdaq - Total U.S. Index, and
the SNL Finance Companies and Traditional Mortgage Index, since July 26,
1996, the date on which trading in the Corporation's Class A Common Stock
began.
Performance Graph Here
8
<PAGE>
EMPLOYMENT AGREEMENTS
Chisick Agreement
- -----------------
The Corporation has entered into an employment agreement with Mr.
Chisick providing for an initial term of three years, subject to automatic
three-year renewal unless either party provides notice of an intention not
to renew. Under this Agreement, Mr. Chisick will receive an annual salary
of $395,000, subject to annual increases (but not decreases) and bonuses as
may be determined by the Board of Directors, as well as certain other
benefits including medical, insurance, death and disability benefits, use of
an automobile and reimbursement of employment related expenses.
Mason Agreement
- ---------------
The Corporation has entered into an employment agreement with Mr.
Mason, providing for an indefinite employment term which began on October 1,
1995. The Corporation or Mr. Mason may terminate the employment agreement
at any time. Under the terms of the employment agreement, Mr. Mason is
entitled to receive an annual salary of at least $240,000, subject to annual
increases (but not decreases) as determined by the Board of Directors.
Pursuant to the employment agreement Mr. Mason was granted, on June 29,
1996, 107,500 shares of Class B Common Stock under the Corporation's 1996
Stock Incentive Plan, representing 1% of the total issued and outstanding
shares of Class B Common Stock, subject to vesting. These shares, to the
extent not vested, will vest in 20% increments beginning October 1, 1996
(subject to acceleration upon certain conditions). Approximately 27.24% of
these shares vested upon the closing of the Public Offering. In the event
that Mr. Mason's vested shares of Class B Common Stock are not freely
tradable under applicable federal and state securities laws, Mr. Mason is
entitled to sell such vested shares of Class B Common Stock to the
Corporation for the fair value of such stock at that time. Additionally, in
the event that vested shares are not publicly traded at the termination date
of the agreement, the Corporation has a right of first refusal to purchase
such shares for the fair value of such stock at that time.
CERTAIN TRANSACTIONS
During July and August 1996 the Corporation sold to the public 4,025,000
shares of its Class A Common Stock pursuant to an initial public offering of
such stock (the "Public Offering"). Immediately prior to the Public
Offering, pursuant to a reorganization of the Corporation, First Alliance
Mortgage Company, a California corporation ("FAMCO"), became a wholly-owned
subsidiary of the Corporation. References to the "Corporation" below
include the Corporation and its subsidiaries.
LEASE OF CORPORATE HEADQUARTERS. The Corporation leases approximately
40,000 square feet of office space for its corporate headquarters from MJB
Associates, a California limited partnership of which Borgi-Hesis, Inc., is
the general partner. Brian Chisick is the President of Borgi-Hesis, Inc.
and Brian and Sarah Chisick are the beneficial owners of Borgi-Hesis, Inc.
During 1996 the Corporation paid $463,000 in aggregate rents to the
partnership. The term of the lease expires on January 31, 2003, at which
time the Corporation has an option to renew the lease for an additional
period of five years.
STOCKHOLDER NOTE. In January 1996 the Corporation borrowed $1.5
million from Brian and Sarah Chisick. The note evidencing this debt, which
was repaid in full in February 1996, had an interest rate of 10% per annum.
In March 1996 the Corporation borrowed $1 million from Brian and Sarah
Chisick. The note evidencing this debt, which was repaid in full in May
1996, had an interest rate of 10% per annum.
S DISTRIBUTION NOTES. In connection with the revocation of the
Corporation's S corporation status prior to the consummation of the Public
Offering on July 31, 1996 (the "Closing Date"), the Corporation made
distributions to its shareholders of notes (the "S Corporation
Distribution") which included all of its previously earned and undistributed
S corporation earnings through the Closing Date, a total of $45.0 million.
Prior to the Public Offering the shareholders of Corporation were Brian and
Sarah Chisick and the grantor trusts for which they have the beneficial
voting interests, and Mark Mason. The S Corporation Distribution was
comprised of promissory notes bearing interest rates ranging from 5.61% to
5.88% per annum (the "S Distribution Notes"). The S Distribution Notes were
paid in full during 1996.
9
<PAGE>
TRANSACTIONS WITH NATIONSCAPITAL MORTGAGE CORPORATION AND COAST
SECURITY MORTGAGE, INC. Primarily to increase the volume of its loan
securitizations, the Corporation purchases loans originated by certain
companies that are controlled by the sons of Brian and Sarah Chisick.
Pursuant to an agreement between the Corporation and Nationscapital Mortgage
Corporation ("Nationscapital"), the Corporation purchased $2,932,000 of
loans from Nationscapital during 1996. Jamie and Brad Chisick are the
President and majority shareholder, and the Vice President and minority
shareholder, respectively, of Nationscapital, and the sons of Brian and
Sarah Chisick. Pursuant to an agreement between the Corporation and Coast
Security Mortgage, Inc. ("Coast Security"), the Corporation purchased
$28,101,000 of loans from Coast Security during 1996. Mark Chisick and Brad
Chisick are the President and majority shareholder, and the Vice President
and a minority shareholder, respectively, of Coast Security, and the sons of
Brian and Sarah Chisick. The Corporation's purchases of loans originated
by Nationscapital and Coast Security are documented by agreements similar to
those entered into with unaffiliated entities.
During the first and second quarters of 1996 Coast Security had a line
of credit with the Corporation, the maximum outstanding balance of which
during 1996 was approximately $1.0 million. The line of credit bore
interest at a rate of 10.0% per annum, and was terminated on June 30, 1996.
During 1996 the Corporation received fees of $93,000 from each of
Nationscapital and Coast Security from the sale of marketing data through
June, 1996, after which such sales were discontinued. The fees, which were
consistent with those charged to unaffiliated third parties, reflected
payments to the Corporation for customer lists developed by the Corporation
in its marketing efforts but with respect to which the potential customers
did not fit the Corporation's lending criteria or the Corporation had not
been able to originate loans. Nationscapital and Coast Security may utilize
this information and originate loans and, if such loans satisfy the
Corporation's underwriting guidelines, the Corporation may purchase such
loans.
SERVICING OF CERTAIN LOANS. The Corporation services mortgage loans
for certain related parties pursuant to written agreements entered into
prior to the Closing Date, under which no servicing fees are charged. All
such agreements entered into since the Closing Date provide for servicing
fees consistent with the servicing fees charged to third parties for such
services. At December 31, 1996, the outstanding balances of such loans
serviced on behalf of Brian Chisick, Brad Chisick, Mark Chisick and Jamie
Chisick were $5,918,000, $640,000, $174,000 and $139,000, respectively.
OTHER TRANSACTIONS. During 1996 the Corporation sold loans in the
amount of $515,000 to Brian Chisick. The Corporation discontinued the sale
of such loans to Mr. Chisick on July 31, 1996. In addition, immediately
prior to the consummation of the Public Offering, Brian and Sarah Chisick
contributed to the Corporation all outstanding shares of capital stock they
held in two corporations in the United Kingdom formed for the purposes of
initiating retail and wholesale loan operations, and a California
corporation formed to provide accounting, financial and computer services to
the Corporation.
First Alliance Corporation's bylaws require that all transactions
between it, on the one hand, and the immediate family of Brian Chisick, or
their affiliates, on the other hand, must be approved by a majority of the
independent directors.
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MASON LOAN. On December 31, 1996 the Corporation made a short term
loan in the amount of $319,000 to Mark Mason pursuant to a promissory note
which matures on August 8, 1997, bears interest at 10% Per Annum, and is
collateralized by a pledge of 29,285 unrestricted shares of Class B Common
Stock owned by Mr. Mason.
INDEMNITY AGREEMENTS. Prior to the completion of the Public Offering,
the Corporation entered into separate but identical indemnity agreements
("Indemnity Agreements") with each director and executive officer of the
Corporation and expects to enter into Indemnity Agreements with persons who
become directors or executive officers in the future. The Indemnity
Agreements provide that the Corporation will indemnify the director or
officer (the "Indemnitee") against any expenses or liabilities in connection
with any proceeding in which such Indemnitee may be involved as a party or
otherwise, by reason of the fact that such Indemnitee is or was a director
or officer of the Corporation or by reason of any action taken by or omitted
to be taken by such Indemnitee while acting as an officer or director of the
Corporation, provided that such indemnity shall only apply if (i) the
Indemnitee was acting in good faith and in a manner the Indemnitee
reasonably believed to be in the best interest of the Corporation and, with
respect to any criminal action, had no reasonable cause to believe the
Indemnitee's conduct was unlawful, (ii) the claim was not made to recover
profits made by such Indemnitee in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any successor statute, (iii)
the claim was not initiated by the Indemnitee, or (iv) the claim was not
covered by applicable insurance. Each Indemnitee has undertaken to repay
the Corporation for any costs or expenses paid by the Corporation if it
shall ultimately be determined by a court of competent jurisdiction in a
final, nonappealable adjudication that such Indemnitee is not entitled to
indemnification under the Indemnity Agreement. In addition to the Indemnity
Agreements, the Corporation has obtained a policy of directors and officers
liability insurance.
BENEFICIAL OWNERSHIP OF SHARES
Whenever in this proxy statement information is presented as to
"beneficial ownership," please note that such ownership indicates only that
the person shown, directly or indirectly, has or shares with others the
power to vote (or to direct the voting of) or the power to dispose of (or to
direct the disposition of) such shares; he or she may or may not have any
economic interest in the shares. The reporting of information herein does
not constitute an admission that any such person is, for the purpose of
Section 13 or 16 of the Securities Exchange Act of 1934, as amended, the
"beneficial owner" of the shares shown herein.
The following table sets forth information regarding beneficial
ownership of the Class A Common Stock and the Class B Common Stock of the
Corporation as of March 31, 1997, by (i) each person known to be the
beneficial owner of more than 5% of the outstanding Class A Common Stock or
Class B Common Stock; (ii) each Director of the Corporation; and (iii) all
Directors and officers named in the SUMMARY COMPENSATION TABLE on page 5
(the "Named Officers").
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Shares of Common Stock Beneficially Owned
---------------------------------------------
Percent Percent
Name Class A (1) of Class Class B (1) of Class
- -------------------------------------------- -------- ----------- ---------
First Union Corporation 471,772 (2) 11.7% - -
One First Union Center
Charlotte, NC 28288
Brian and Sarah Chisick 48,375 (3) 1.2% 10,642,500 99%
Mark K. Mason 7,136 (4) (5) 107,500 (6) 1%
Jeffrey W. Smith 13,650 (7) (5) - -
Albert L. Lord 9,375 (7) (5) - -
George Gibbs, Jr. 100 (5) - -
Merrill Butler 4,875 (7) (5) - -
Randall K. McPhillips 27,150 (7) (5) - -
Patricia G. Sullivan 4,677 (8) (5) - -
All Directors, Executive
Officers and Named Officers
as a Group (8 persons) 117,148 (9) 2.9% 10,750,000 100%
(1) Unless otherwise indicated and subject to community property laws
where applicable, each of the stockholders named in this table has sole
voting and investment power with respect to the shares shown as beneficially
owned by him or her. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from March 31,
1997 upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options that are held by
such person (but not those held by any other person) and that are
exercisable within 60 days from March 31, 1997 have been exercised.
(2) Owned through its subsidiary, Keystone Investment Management Company.
(3) Includes shares held by The Chisick Trust No. 1 U/D/T 3-30-96 and The
Chisick Trust No. 2 U/D/T 3-30-96, of which Brian Chisick is the sole
trustee, and the Brian and Sarah Chisick Revocable Trust U/A 3-7-79, of
which Brian and Sarah Chisick are the trustees. Also includes a total of
3,745 shares held by grantor trusts established for the benefit of three of
Mr. and Mrs. Chisick's grandchildren, of which trusts Mr. Chisick is the
sole trustee.
(4) Includes 4,875 shares with respect to which Mr. Mason holds options
exercisable within 60 days from March 31, 1997. Also includes 140 shares
held by a grantor trust established for the benefit of Mr. Mason's daughter,
of which trust Mr. Mason is the sole trustee, and 221 shares held in Mr.
Mason's account by the Corporation's 401(k) Plan.
(5) Less than 1%.
(6) Includes restricted stock subject to a vesting schedule. See "Mason
Agreement" above.
(7) Includes 13,500 shares with respect to which options are exercisable
within 60 days from March 31, 1997.
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(8) Includes 3,677 shares with respect to which options are exercisable
within 60 days from March 31, 1997.
(9) Includes 51,773 shares with respect to which all Directors, Executive
Officers and Named Officers as a group hold options exercisable within 60
days from March 31, 1997.
The Corporation's 401(k) Plan owned a total of 17,896 shares of the
Corporation's Class A Common Stock on December 31, 1996, or 0.44% of the
Class A Common Stock then outstanding. Although the Corporation is the
Administrator of the 401(k) Plan, the 401(k) Plan was established and is
administered to achieve the purposes for which it was created for the
exclusive benefit of its participants, and employees participating in the
401(k) Plan are entitled to vote all shares allocated to their accounts.
Accordingly, the 401(k) Plan does not constitute a "group" within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended.
GENERAL
OTHER BUSINESS
The Board does not know of any other business which will be presented
for consideration at the Annual Meeting. If any other business properly
comes before the Annual Meeting or at any adjournment or postponement
thereof, the proxy holders will vote in regard thereto according to their
discretion insofar as such proxies are not limited to the contrary.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to serve as
the Corporation's independent accountants for the 1997 fiscal year. One or
more representatives of Deloitte & Touche LLP will be present at the Annual
Meeting to respond to appropriate questions and will be given an opportunity
to make a statement if they so desire.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Corporation.
Proxies may be solicited by mail, telephone or telegraph, or personally by
directors, officers and regular employees of the Corporation, none of whom
will receive any special compensation for such services. The Corporation
will reimburse persons holding stock in their names or in the names of their
nominees for their reasonable expenses incurred in forwarding proxy material
to their principals.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any eligible stockholder (as defined below) of the Corporation wishing
to have a proposal considered for inclusion in the Corporation's 1998 proxy
solicitation material must set forth such proposal in writing and file it
with the Secretary of the Corporation on or before November 14, 1997. The
Board will review any proposals from eligible stockholders which it receives
by that date and will determine whether any such proposals will be included
in its 1998 proxy solicitation materials. Any eligible stockholder is one
who is the record or beneficial owner of at least 1% or $1,000 in market
value of securities entitled to be voted on the proposal at that annual
meeting and has held such securities for at least one year and who shall
continue to own such securities through the date on which the annual meeting
is held.
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ANNUAL REPORT
The Annual Report of the Corporation for the fiscal year ended December
31, 1996, including the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 without the exhibits thereto, has been
mailed to stockholders of record at the close of business on March 31, 1997.
The Corporation will provide a copy of the exhibits to its Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 upon the written
request of any beneficial owner of the Corporation's securities as of the
record date for the Annual Meeting and reimbursement of the Corporation's
reasonable expenses. Such request should be addressed to Edwin C. Summers,
Secretary, First Alliance Corporation, 17305 Von Karman Avenue, Irvine,
California 92614.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
Edwin C. Summers
Secretary
Dated: April 3, 1997
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- ----------------------------------------------------------------------------
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To be Held Monday, April 28, 1997
1:00 P.M.
TO THE STOCKHOLDERS:
The 1997 Annual Meeting of Stockholders of First Alliance Corporation
(the "Corporation") will be held in the main lobby of the corporate
headquarters of the Corporation at 17305 Von Karman Avenue, Irvine,
California on Monday, April 28, 1997, at 1:00 P.M. PDT, for the purpose of:
1. Electing two directors of the Corporation to hold office for three
year terms; and
2. Transacting such other business as may properly come before the
meeting and any adjournments thereof.
Stockholders of record at the close of business on March 31, 1997 are
entitled to notice of, and to vote at, the meeting and any adjournment
thereof. A list of such stockholders will be available at the time and
place of the meeting and, during the ten days prior to the meeting, at the
office of the Secretary of the Corporation, 17305 Von Karman Avenue, Irvine,
California.
By Order of the Board of Directors
Edwin C. Summers
Secretary
Irvine, California
April 3, 1997
<PAGE>
FIRST ALLIANCE CORPORATION
17305 Von Karman Avenue
Irvine, California 92614
April 3, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of First Alliance Corporation (the "Corporation"), which will be held in the
main lobby of the Corporation's executive offices, 17305 Von Karman Avenue,
Irvine, California 92614, on Monday, April 28, 1997, commencing at 1:00 p.m.
(Pacific Daylight Time). We hope that you will be able to attend the Annual
Meeting in person and look forward to seeing you.
At the Annual Meeting, stockholders will be asked to elect two Directors,
each of whom will serve for a three-year term.
You are requested to give your prompt attention to this matter, which is
more fully described in the accompanying proxy materials.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares be represented and voted at the Annual Meeting.
Accordingly, after reading the enclosed Notice of Annual Meeting and Proxy
Statement, you are urged to sign, date and return the enclosed Proxy Card in
the envelope provided at your earliest convenience.
Sincerely,
Brian Chisick
Chairman of the Board
and President
