<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:
[ x ] Preliminary Proxy Statement
[ ] 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 27, 1998
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 27, 1998 (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 1997 Annual Report
were first mailed to stockholders on April 10, 1998.
VOTING RIGHTS
Stockholders of record at the close of business on March 13, 1998 are
entitled to notice of and to vote at the Annual Meeting. On that date the
Corporation had outstanding 9,715,524 shares of Class A common stock, $.01 par
value (the "Class A Common Stock"), each such share being entitled to one vote.
Figures set forth in this proxy statement for Class A Common Stock have been
adjusted by subtracting therefrom shares held by the Corporation as treasury
stock as of the date with respect to which such figures are provided. On March
13, 1998 the Corporation also had outstanding 10,956,270 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 under
Proposal 1. Approval of the Amendment of the Certificate of Incorporation under
Proposal 2 requires an affirmative vote of the majority of the shares of
outstanding Class A Common Stock and Class B Common Stock, voting as a single
class. Approval of the Amendment to the 1996 Stock Incentive Plan under Proposal
3 requires the affirmative vote of a majority of the shares, represented in
person or by proxy at the Annual Meeting, of Class A Common Stock and Class B
Common Stock, voting as a single class. 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 a 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.
<PAGE>
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 72,562 shares of
Class A Common Stock and 10,875,000 shares of Class B Common Stock, together
constituting approximately 81% of the outstanding voting power of the
Corporation. Mr. Chisick intends to vote such shares for the nominees for
election as directors named in Proposal 1, for the amendment to the Certificate
of Incorporation set forth in Proposal 2 and for the amendment to the 1996 Stock
Incentive Plan set forth in Proposal 3.
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 1998 Annual Meeting of Stockholders. Three members have terms
expiring at the 1999 Annual Meeting of Stockholders and two members have terms
expiring at the 2000 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 2001 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
time of the 1998 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 2001 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 2001
BRIAN CHISICK Director since 1996 Age 58
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, a subsidiary of First Alliance
Corporation, since its founding in 1971. Mr. Chisick has held a real estate
broker's license since 1971.
SARAH CHISICK Director since 1996 Age 57
Mrs. 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. Mrs. Chisick is married to Mr. Chisick.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES
LISTED ABOVE.
2
<PAGE>
PROPOSAL 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
On March 24, 1998, the Board of Directors unanimously adopted, subject
to stockholder approval, an amendment to the Corporation's Certificate of
Incorporation that would (i) increase the number of authorized shares of Class A
Common Stock from 25,000,000 to 50,000,000 total shares and (ii) increase the
number of authorized shares of Class B Common Stock from 15,000,000 to
25,000,000 total shares (collectively, the "Certificate of Incorporation
Amendment").
The Corporation is currently authorized to issue 25,000,000 shares of
Class A Common Stock and 15,000,000 shares of Class B Common Stock. As of March
31, 1998, 9,715,524 shares of Class A Common Stock and 10,956,270 shares of
Class B Common Stock were outstanding. As of such date, options to purchase an
aggregate of 916,967 shares of Class A Common Stock were outstanding. The Class
A Common Stock is traded on NASDAQ under the symbol "FACO." Holders of shares of
Class A Common Stock and Class B Common Stock have no preemptive rights.
The Board of Directors believes that it is necessary to increase the
number of authorized shares of Class A Common Stock and Class B Common Stock to
provide for flexibility to issue additional shares in financings or acquisitions
when appropriate, to allow shares for stock splits or stock dividends in the
future when appropriate and to provide shares for issuance pursuant to employee
benefits plans.
The Board of Directors has adopted a resolution approving amending the
Certificate of Incorporation to effect the aforementioned increase, subject to
stockholder approval. Upon stockholder approval, all additional authorized
shares of Class A Common Stock and Class B Common Stock would be issuable at the
discretion of the Board of Directors without further stockholder action, unless
such approval is required by applicable law or the rules and regulations of
NASDAQ. If the proposed amendment is approved, the increase in the number of
authorized shares could enable the Board of Directors to render more difficult
or discourage an attempt by another person or entity to obtain control of the
Corporation in the future. Such additional shares could be issued by the Board
of Directors in a public or private sale, merger or similar transaction,
increasing the outstanding number of shares and thereby diluting the equity
interest and voting power of a person or entity attempting to obtain control of
the Corporation. In addition, the issuance of shares otherwise than on a pro
rata basis to all current stockholders would reduce the current stockholders'
proportionate interest in the Corporation and could therefore be dilutive to the
financial and voting interests of current stockholders. However, in any such
event, stockholders wishing to maintain their interests may be able to do so
through normal market purchases.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION.
3
<PAGE>
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE
1996 STOCK INCENTIVE PLAN
On January 26, 1998, the Board of Directors unanimously adopted, subject
to shareholder approval, an amendment to the Corporation's 1996 Stock Incentive
Plan ("Stock Incentive Plan") to increase the number of shares reserved for
issuance thereunder from 1,125,000 shares (168,750 of which have been reserved
for awards to non-employee directors) by 1,000,000 shares to 2,125,000 shares
(including 168,750 reserved for awards to non-employee directors) (the
"Increased Share Amendment"). The Board adopted the Increased Share Amendment to
ensure that the Corporation can continue to grant stock options to employees at
levels determined appropriate by the Board and the Compensation Committee.
Approval of the Amendment to the Stock Incentive Plan requires the
affirmative vote of a majority of the shares, represented in person or by proxy
at the Annual Meeting, of Class A Common Stock and Class B Common Stock, voting
as a single class. A copy of the proposed Amendment to the Stock Incentive Plan
is set forth in Appendix A to the Proxy Statement.
The Stock Incentive Plan provides for grants of options to purchase a
specified number of shares of Class A Common Stock ("Options"), awards of
restricted shares of Class A Common Stock and performance awards. Under the
Stock Incentive Plan, the total number of shares available to be granted prior
to the Amendment proposed herein was 1,125,000 shares of Class A Common Stock
(168,750 of which have been reserved for awards to non-employee directors). As
of March 13, 1998, Options and awards of restricted stock covering an aggregate
of 1,260,217 shares of the Corporation's Class A Common Stock had been granted
under the Stock Incentive Plan and no shares remained available for future
grants under the Stock Incentive Plan.
The Stock Incentive Plan is administered by the Stock Incentive
Committee, which is authorized to select from among the eligible participants
(which may include directors or officers of the Corporation) the individuals to
whom Options, grants of restricted stock and performance awards are to be
granted and to determine the number of shares to be subject thereto and the
terms and conditions thereof. The Stock Incentive Committee is also authorized
to adopt, amend and rescind the rules relating to the administration of the
Stock Incentive Plan. In the event of certain extraordinary events, the
Compensation Committee may make such adjustments in the aggregate number and
kind of shares reserved for issuance, the number of shares and kind covered by
outstanding awards and the exercise prices specified therein as may be
determined to be appropriate. Except for grants that are approved by a majority
of the disinterested members of the Compensation Committee, no member of the
Stock Incentive Committee will be eligible to participate in the Stock Incentive
Plan.
Non-qualified stock Options granted to the employee directors, officers
and employees provide for the right to purchase shares of Class A Common Stock
at a specified price which may be less than fair market value on the date of
grant, and usually will become exercisable in installments after the date of
grant. Non-qualified stock Options may be granted to employee directors,
officers and employees and consultants for any reasonable term.
Incentive stock Options are designed to comply with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and will be subject
to restrictions contained in the Code, including a requirement that exercise
prices be equal to at least 100% of the fair market value of the underlying
shares of Class A Common Stock on the date of grant and a ten-year restriction
on the option term, but may be subsequently modified to disqualify them from
treatment as incentive stock options. Under the Stock Incentive Plan and the
Code, non-employee directors are not permitted to receive incentive stock
Options.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT OF
THE COMPANY'S 1996 STOCK INCENTIVE PLAN.
4
<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.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE CORPORATION CLASS
- -------------------------- -------------------------------------------------------- ---------
<S> <C> <C>
Brian Chisick (1) (2) Chairman of the Board, President, Chief Executive
Officer, current Director and Nominee for reelection II
Sarah Chisick (1) Vice President, current Director and Nominee for
reelection as Director II
Merrill Butler (2) Director III
George Gibbs, Jr. (2) (3) Director III
Albert L. Lord (3) Director III
Mark K. Mason Executive Vice President, Chief Financial Officer and
Director I
Jeffrey W. Smith (3) Executive Vice President, Sales and Marketing and
Director I
Edwin C. Summers Vice President, General Counsel and Secretary
- -----------------------------
(1) Member of the Stock Incentive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
</TABLE>
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 Mr. and Mrs. Chisick, for whom such information is
provided above.
MERRILL BUTLER Director since 1996 Age 73
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.
5
<PAGE>
GEORGE GIBBS, JR. Director since 1996 Age 68
From 1987 until his retirement in 1997 Mr. Gibbs served as a Principal
and Senior Vice President of Johnson & Higgins. 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 52
Since 1997 Mr. Lord has been the Chief Executive Officer and Vice
Chairman of the Student Loan Marketing Association (Sallie Mae). Since 1994 Mr.
Lord has also been the President of LCL, Ltd., a financial consulting and equity
investment management company. From 1981 to 1994 Mr. Lord held several executive
positions including Chief Operating Officer and Executive Vice President for
Sallie Mae. Mr. Lord is a director of the Student Loan Marketing Association.
His present term as a Director expires in 1999.
MARK K. MASON Director since 1996 Age 38
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. His present term as a Director expires in 2000.
JEFFREY W. SMITH Director since 1996 Age 36
Mr. Smith has been Executive Vice President, Sales and Marketing, of the
Corporation since September 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 1981 to 1995
Mr. Smith held various positions at FAMCO, including Assistant Director of
Marketing, Director of Marketing and Vice President of Marketing. His present
term as a Director expires in 2000.
EDWIN C. SUMMERS Officer since 1996 Age 51
Mr. Summers has been Vice President, General Counsel and Secretary of
the Corporation and of First Alliance Mortgage Company 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.
6
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors
held eight meetings. Each current Director attended at least 87% of the meetings
of the Board and all of the meetings of the committees of which he or she was a
member except Mr. Lord, who attended 63% of the Board meetings and 75% of the
committee meetings of which he is 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 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 met four times during 1997.
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 met four times during 1997.
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 met four times during 1996.
7
<PAGE>
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 1997 and
the preceding two fiscal years of those persons who were, as of December 31,
1997, (i) the Chief Executive Officer (ii) each executive officer, and (iii)
officers otherwise among the four most highly compensated (the "Named
Officers"), other than the Chief Executive Officer. Share amounts have been
adjusted to reflect the October 31, 1997 three-for-two stock dividend.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING
NAME AND YEAR SALARY BONUS AWARD OPTIONS
PRINCIPAL POSITION ($)(1) ($)(1) ($) (2)
- ----------------------------------- ------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Brian Chisick 1997 395,000 -- -- --
Chairman and Chief Executive 1996 376,796 -- -- --
Officer 1995 288,000 500,000 -- --
Mark K. Mason 1997 240,000 650,000 -- 3,870
Executive Vice President and 1996 240,000 10,000 1,599,500(3)(4) 29,250
Chief Financial Officer 1995 28,308 -- -- --
Jeffrey W. Smith 1997 240,000 1,150,000 -- 9,677
Executive Vice President and 1996 198,065 50,000 -- 82,500
Chief Operating Officer 1995 167,259 30,000 -- --
Edwin C. Summers 1997 173,162 47,687 -- 2,108
Vice President, General Counsel 1996 69,669 7,500 -- 8,823
and Secretary 1995 -- -- -- --
Randall K. McPhillips (5) 1997 240,000 1,183,205 -- 7,741
Executive Vice President, 1996 239,784 122,083 -- 82,500
Marketing/Telemarketing 1995 239,124 102,994 -- --
- -----------------------------
(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. Also includes amounts paid by Mr. Chisick
individually and not by the Corporation in connection with the closing in
September 1997 of a public secondary offering.
(2) Includes grants made under the Corporation's 1996 Stock Incentive Plan.
(3) Consists of 161,250 shares of restricted First Alliance Mortgage Company
common stock, which was subsequently exchanged for Class B Common Stock
of First Alliance Corporation, granted to Mr. Mason on June 29, 1996
pursuant to the terms of his employment agreement with the Corporation. See
"Mason Agreement" on page 14. The fair value of such stock was independently
determined to be $1,599,500.
(4) Restrictions on such stock lapsed with respect to 43,928 shares in July and
August 1996, and with respect to 36,052 shares in September 1997. The
remaining shares of restricted stock are subject to the following vesting
schedule, but may be accelerated under certain conditions:
VESTING DATE SHARES
------------ ------
October 1, 1998 16,770
October 1, 1999 32,250
October 1, 2000 32,250
(5) Mr. McPhillips is an officer of First Alliance Mortgage Company.
</TABLE>
8
<PAGE>
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO PER SHARE GRANT DATE
OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED (1) IN FISCAL PRICE ($) DATE VALUE ($) (3)
YEAR
- -------------------- ------------ -------------- --------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Brian Chisick -- -- -- NA NA
Mark K. Mason 3,870 3.3% $15.50 December 19, 2007 35,952
Jeffrey W. Smith 9,677 8.2% $15.50 December 19, 2007 89,899
Edwin C. Summers 2,108 1.8% $15.50 December 19, 2007 19,583
Randall K. McPhillips 7,741 6.6% $15.50 December 19, 2007 71,914
- -----------------------------
</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) stock price volatility based on the trading volatility of the
Class A Common Stock during the fifteen week period preceding the grant date
(36.76%); (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 (6.00%); 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.
The total number of options outstanding (vested and unvested) as of
March 31, 1998 for the named individuals as a group and for all employees as a
group represents approximately 3.4% and 9.5%, respectively, of the Corporation's
outstanding Class A Common Stock as of that date, and approximately 1.6% and
4.4%, respectively, of the Corporation's outstanding Class A and Class B Common
Stock as of the same date.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997; OPTIONS OUTSTANDING AND VALUES AT DECEMBER
31, 1997
Share amounts in the table below have been adjusted to reflect the
October 31, 1997 three-for-two stock dividend.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF SECURITIES IN THE MONEY OPTIONS
SHARES UNDERLYING OPTIONS AT DECEMBER 31, 1997 (1)
ACQUIRED VALUE AT DECEMBER 31, 1997 NOT
NAME ON REALIZED NOT EXERCISABLE EXERCISABLE
EXERCISE ($) EXERCISABLE EXERCISABLE ($) ($)
- ---------------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brian Chisick -- -- -- -- -- --
Mark K. Mason -- -- 7,313 25,807 51,520 165,672
Jeffrey W. Smith -- -- 20,625 71,552 145,303 463,730
Edwin C. Summers 2,207 18,754 -- 8,724 -- 52,671
Randall K. -- -- 20,625 69,616 145,303 458,164
McPhillips
- -----------------------------
(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, 1997 ($18.375), less the
exercise price of the option multiplied by the number of options
outstanding.
</TABLE>
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 168,750 shares of Class A Common Stock at an exercise price of
$11.33 per share (adjusted to reflect the October 31, 1997 three-for-two stock
split).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee has furnished the following report on executive
compensation.
OVERALL POLICY
The Corporation's executive compensation program is designed to be
linked closely to the executive's success in meeting specified performance goals
and to appreciation in the Corporation's stock price. The overall objectives are
to attract and retain the best executive talent, to motivate these executives to
achieve goals that will advance the Corporation's business strategies, to link
executive and shareholder interests through equity based plans, and to provide a
compensation package that recognizes individual contributions as well as overall
business results.
For 1997 the Committee, which consists of two non-employee directors and
Mr. Chisick, conducted a review of the compensation of each of the Corporation's
executive officers, taking into account the detailed performance reviews and
recommendations of Mr. Chisick (except with respect to Mr. Chisick's own
performance).
10
<PAGE>
The key elements of the Corporation's executive compensation program
consist of base salary and an annual bonus including stock options. The
Committee's policies with respect to these elements, including the basis for the
compensation paid and awarded to Mr. Chisick, the Corporation's Chairman and
Chief Executive Officer, are discussed below. In addition, while the elements of
compensation described below are considered separately, the Committee takes into
account the full compensation package afforded by the Corporation to the
individual. 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" on pages 13 and 14 below.
BASE SALARIES
In reviewing base salaries for new executive officers, the Committee
will evaluate the responsibilities of the position to be held and the experience
of the individual, and will also refer to the competitive marketplace for
executive talent, including a comparison to base salaries for comparable
positions at other companies. No new executive officers joined the Corporation
during 1997.
Annual salary adjustments are not usually part of the Corporation's
executive compensation program, consistent with the Corporation's historical
practice of rewarding superior performance through annual bonus incentives.
With respect to Mr. Chisick's base salary in 1997, the Committee
(excluding Mr. Chisick) took into account a number of factors including the
Corporation's success in achieving operating and financial goals in 1997 in the
areas of branch expansion, growth in sales and operating efficiency, as well as
in overall earnings and earnings per share. The Committee also assessed Mr.
Chisick's individual performance in developing long-term business strategies to
improve the Corporation's economic value, and the longevity of Mr. Chisick's
service to the Corporation. While in the Committee's view a meaningful increase
in Mr. Chisick's base salary was warranted on these bases, consistent with the
Corporation's approach to annual salary adjustments for other executive officers
Mr. Chisick declined to accept any increase. Accordingly, no increase was made
in Mr. Chisick's base salary for 1997.
ANNUAL BONUS; STOCK OPTIONS
The Corporation's executive officers, other than Mr. Chisick, are
eligible for an annual bonus under the Corporation's Incentive Bonus Plan. The
bonus generally consists of equal amounts paid in cash and stock option grants,
and is based principally upon achievement of individual and corporate
performance objectives established at the beginning of each year, as determined
by Mr. Chisick and approved by the Committee. The total amount of the bonus
award can range from zero to 100% of base salary and, in the case of
extraordinary achievement, up to 200% of the executive's base salary.
Individual objectives generally relate to achieving targeted goals in
the areas of growth in sales, reduction in costs and improved operating
efficiencies for operating units. Non-operating executives' objectives are more
closely related to identification and realization of opportunities for reducing
costs and increasing productivity for staff functions, and in adding to
shareholder value through improved liquidity of the Corporation's stock and
greater recognition of its worth. Each of the specified performance measures is
weighted according to the executive's responsibilities for achieving them, and
progress toward the goals of each is assessed by Mr. Chisick and reported to and
considered by the Committee.
11
<PAGE>
Stock options with an aggregate exercise price equal to a recipient's
annual bonus are also granted to bonus recipients under the Corporation's 1996
Stock Incentive Plan. Options generally vest 25% per year over three and
one-half years, beginning six months from the date of grant, and have a term of
ten years. This approach is designed to promote the creation of stockholder
value over the long term, since the full benefit of the compensation package
cannot be realized unless stock price appreciation occurs over a number of
years. The number of options is determined by dividing the amount of the award
by the fair market value of the Corporation's Class A Common Stock on the date
of the award. The fair market value of this stock is calculated as the
arithmetic average of the high and low prices at which it traded on the date of
the award. The product of the option exercise price and the number of shares
with respect to which options are granted is thus equal to half of the total
bonus award.
Mr. Chisick's individual performance was also assessed by the Committee
in terms of the Corporation's achievement of goals in earnings and stock price
increase, as well as in sales growth and overall profitability, as measured by a
variety of standards. These included earnings per share, net income, cash flow,
sales, return on equity and total shareholder return. In 1997 each of these
goals was exceeded. The Committee determined, based upon Mr. Chisick's decision
to decline any cash bonus payment, to award him an option to purchase 100,000
shares of the Corporation's Class A Common stock (subject to stockholder
approval of Proposal 3 described on page 4 above) at an exercise price of $13.06
per share. The exercise price is equal to the fair market value of such stock on
January 27, 1998, the date of the grant, calculated according to the procedure
described above, as this is the only option to purchase Corporation stock owned
by Mr. Chisick.
CONCLUSION
Through the program described above, a significant portion of the
Corporation's executive compensation is linked directly to individual and
Corporation performance and stock price appreciation. In 1997, approximately 33%
of the Corporation's compensation of the executives listed on page 8 (excluding
amounts paid by Mr. Chisick as referred to in note (1) to the table on page 8)
consisted of these performance-based variable elements. The Committee intends to
continue the policy of linking executive compensation to the attainment of
stated annual goals and increases in the value of the Corporation's stock,
recognizing that the ups and downs of the business cycle from time to time may
result in an imbalance for a particular period.
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:
George Gibbs, Jr., Chairman
Merrill Butler
Brian Chisick
12
<PAGE>
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.
[TOTAL RETURN PERFORMANCE GRAPH HERE]
EMPLOYMENT AGREEMENTS
CHISICK AGREEMENT. The Corporation entered into an employment agreement
with Mr. Chisick dated July 1, 1996 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.
13
<PAGE>
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,
161,250 shares (as adjusted for the October 31, 1997 three-for-two stock
dividend) 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, began
vesting in 20% increments on October 1, 1996 (subject to acceleration upon
certain conditions). Approximately 27.2% of these shares vested upon the closing
of the initial public offering of the Corporation's Class A Common Stock in July
and August of 1996 (the "IPO"). An additional 22.4% vested after the closing of
the secondary offering to the public of the Corporation's Class A Common Stock
in September 1997. 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
SALE OF STOCK. During September 1997 Brian and Sarah Chisick sold to the
public 3,392,500 shares of the Corporation's Class A Common Stock, which had
been converted from a portion of the Class B Common Stock they theretofore
owned, pursuant to secondary public offering of such stock.
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 1997 the
Corporation paid $521,000 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.
TRANSACTIONS WITH NATIONSCAPITAL MORTGAGE CORPORATION AND COAST SECURITY
MORTGAGE, INC.. The Corporation has established strategic relationships with
certain companies controlled by the sons of Brian and Sarah Chisick, through
which the Corporation provides marketing support and warehouse financing
facilities, and purchases loans subject to a right of first refusal. Pursuant to
an agreement between the Corporation and Nationscapital Mortgage Corporation
("Nationscapital"), the Corporation purchased $11.1 million of loans from
Nationscapital during 1997. 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 $57.5 million of loans from
Coast Security during 1997. 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 three quarters of 1997 Nationscapital had a $5 million
warehouse credit facility with the Corporation, the maximum outstanding balance
of which during 1997 was $1.9 million. The obligation to repay advances under
this facility was secured by a first priority security interest in the mortgage
loans funded with the proceeds of such facility and the personal guarantees of
the stockholders of Nationscapital. Advances under the facility bore interest at
10% per annum. The facility also provided the Corporation with a first right of
refusal on Nationscapital's mortgage loan production. On October 31, 1997, this
facility was replaced by a repurchase facility on substantially the same terms
and conditions.
14
<PAGE>
During the first two quarters of 1997 Coast Security had a $10 million
warehouse credit facility with the Corporation. This facility was increased
during the third quarter to $12 million. The maximum outstanding balance of this
facility during 1997 was $11.9 million. The obligation to repay advances under
this facility was secured by a first priority security interest in the mortgage
loans funded with the proceeds of such facility and the personal guarantees of
the stockholders of Coast. Advances under the facility bore interest at 10% per
annum. The facility also provided the Corporation with a first right of refusal
on Coast Security's mortgage loan production. On October 31, 1997, this facility
was replaced by a repurchase facility on substantially the same terms and
conditions.
SERVICING OF CERTAIN LOANS. The Corporation services mortgage loans for
certain related parties pursuant to written agreements entered into prior to the
IPO, under which no servicing fees are charged. All such agreements entered into
since the IPO provide for servicing fees consistent with the servicing fees
charged to third parties for such services. At December 31, 1997, the
outstanding balances of such loans serviced on behalf of Brian Chisick, Brad
Chisick, Mark Chisick and Jamie Chisick were $3,120,000, $407,000, $125,000 and
$97,000, respectively. Brad, Mark and Jamie Chisick are the sons of Brian and
Sarah Chisick.
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.
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
matured on August 8, 1997, bore interest at 10% PER ANNUM, and was
collateralized by a pledge of 29,285 unrestricted shares of Class B Common Stock
owned by Mr. Mason. On August 6, 1997, with the approval of the independent
directors of the Corporation, the maturity of such loan was extended to October
27, 1997. The loan was repaid in full, with interest, on August 15, 1997.
INDEMNITY AGREEMENTS. Prior to the completion of the initial public
offering of its Class A Common Stock in July and August 1996, 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.
15
<PAGE>
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 Sections 13 or 16 of the
Securities Exchange Act of 1934, as amended, the "beneficial owner" of the
shares shown herein.
16
<PAGE>
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 December 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"). Share amounts set forth below reflect the October 31, 1997
three-for-two stock dividend, and percentage calculations are based upon
outstanding shares net of shares held by the Corporation as treasury stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
CLASS A COMMON STOCK CLASS B COMMON STOCK
--------------------------- ---------------------------
NUMBER OF NUMBER OF
NAME SHARES (1) PERCENT SHARES (1) PERCENT
- ------------------------------------- --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Investment Advisors, Inc. 1,226,050 12.1%
3700 First Bank
Minneapolis, MN 55440
The Capital Group Companies 750,000 7.4% -- --
Capital Guardian Trust Co.
333 South Hope Street
Los Angeles, CA 90071
FMR Corp. 605,250 6.0% -- --
82 Devonshire Street
Boston, MA 02109
First Union Corporation 504,822 5.0% -- --
One First Union Center
Charlotte, NC 28288
Brian and Sarah Chisick 72,562(2) (4) 10,875,000 99%
Mark K. Mason 61,483(3) (4) 81,270(5) (4)
Jeffrey W. Smith 41,250(6) (4) -- --
Albert L. Lord 28,125(6) (4) -- --
George Gibbs, Jr. 14, 212(7) (4) -- --
Merrill Butler 15,375(6) (4) -- --
Edwin C. Summers 2,955(8) (4) -- --
Randall K. McPhillips 60,545(9) (4) -- --
All Directors, Executive Officers
and Names Officers as a Group
(9 persons) 296,507(10) 3.0% 10,956,270 100%
- -----------------------------
</TABLE>
(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 December 31, 1997
upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options that
17
<PAGE>
are held by such person (but not those held by any other person) and that
are exercisable within 60 days from December 31, 1997 have been exercised.
(2) 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
5,618 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.
(3) Includes 14,625 shares with respect to which options are exercisable within
60 days from December 31, 1997. Also includes 210 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 1,446 shares held in Mr. Mason's account
by the Corporation's 401(k) Plan.
(4) Less than 1%.
(5) Represents restricted stock subject to a vesting schedule. See "Mason
Agreement" above.
(6) Represents shares with respect to which options are exercisable within
60 days from December 31, 1997.
(7) Includes 14,062 shares with respect to which options are exercisable within
60 days from December 31, 1997.
(8) Includes 2,205 shares with respect to which options are exercisable within
60 days from December 31, 1997.
(9) Includes 41,250 shares with respect to which options are exercisable within
60 days from December 31, 1997. Also includes 4,016 shares held in Mr.
McPhillips' account by the Corporation's 401(k) Plan.
(10) Includes 156,892 shares with respect to which all Directors, Executive
Officers and Named Officers as a group hold options exercisable within 60
days from December 31, 1997.
The Corporation's 401(k) Plan owned a total of 37,657 shares of the
Corporation's Class A Common Stock on December 31, 1997, or 0.4% 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
and 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 AUDITORS
The Board of Directors has selected Deloitte & Touche LLP to serve as
the Corporation's independent auditors for the 1998 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.
18
<PAGE>
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 1999 proxy
solicitation material must set forth such proposal in writing and file it with
the Secretary of the Corporation on or before November 13, 1998. 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 1999 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.
ANNUAL REPORT
The Annual Report of the Corporation for the fiscal year ended December
31, 1997, including the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 without the exhibits thereto, has been mailed to
stockholders of record at the close of business on March 13, 1998. The
Corporation will provide a copy of the exhibits to its Annual Report on Form
10-K for the fiscal year ended December 31, 1997 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 10, 1998
19
<PAGE>
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To be Held Monday, April 27, 1998
10:00 A.M.
TO THE STOCKHOLDERS:
The 1998 Annual Meeting of Stockholders of First Alliance Corporation
(the "Corporation") will be held at the corporate headquarters of the
Corporation at 17305 Von Karman Avenue, Irvine, California on Monday, April 27,
1998, at 10:00 A.M. PDT, for the purpose of:
1. Electing two directors of the Corporation to hold office for three
year terms;
2. Approving an amendment to the Corporation's Certificate of
Incorporation increasing the number of authorized shares of Class A
Common Stock, $0.01 par value per share, and Class B Common Stock,
$0.01 par value per share, from 25,000,000 and 15,000,000 to
50,000,000 and 25,000,000, respectively;
3. Approving an increase in the number of shares available for issuance
under the Corporation's 1996 Stock Incentive Plan by 1,000,000
shares; and
4. 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 13, 1998 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 10, 1998
<PAGE>
FIRST ALLIANCE CORPORATION
17305 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92614
PROXY
SOLICITED BY BOARD OF DIRECTORS
ANNUAL MEETING - APRIL 27, 1998
IRVINE, CALIFORNIA
The undersigned hereby appoints Merrill Butler, Albert Lord and Mark Mason or
each or any of them with power of substitution, proxies for the undersigned to
act and vote at the 1998 Annual Meeting of Stockholders of First Alliance
Corporation and at any adjournments thereof as indicated upon the matters
referred to on the reverse side and described in the proxy statement for the
meeting, and, in their discretion, upon any other matters which may properly
come before the meeting.
1. Proposal 1: Election of Directors
----------
NOMINEES: Brian Chisick and Sarah Chisick
2. Proposal 2: Amendment to the Certificate of Incorporation
----------
3. Proposal 3: Approval of Amendment to the 1996 Stock Incentive Plan
----------
IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL VOTE FOR
THE ELECTION OF THE DIRECTOR NOMINEES, AMENDMENT TO THE CERTIFICATE
OF INCORPORATION AND APPROVAL OF THE AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
SEE REVERSE
SIDE
(continued and to be signed on other side)
<PAGE>
- -------
| X | PLEASE MARK YOUR
| | VOTES AS IN THIS EXAMPLE
- -------
A VOTE FOR ALL NOMINEES IS RECOMMENDED BY THE BOARD OF DIRECTORS
FOR BOTH WITHHELD FROM BOTH AGAINST ABSTAIN
1. Election of
Directors [ ] [ ]
(page 1)
FOR BOTH
EXCEPT the following nominee:
---------------------------------------
FOR FOR
2. Amendment of Certificate of Incorporation [ ] [ ] [ ]
3. Amendment of 1996 Stock Incentive Plan
IMPORTANT - PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE. THANK YOU.
Signature(s) of Stockholder(s)__________________________ Date____________, 1997
NOTE: If acting as attorney, executor, trustee, or in other representative
capacity, please sign name and title
<PAGE>
APPENDIX A
----------
AMENDMENT NO. 1 TO
FIRST ALLIANCE CORPORATION
1996 STOCK INCENTIVE PLAN
This Amendment No. 1 (the "Amendment") to the First Alliance Corporation 1996
Incentive Stock Plan (the "Plan") is made as of January 26, 1998, subject to the
approval hereof by the stockholders of First Alliance Corporation (the
"Corporation") in the manner prescribed in the Plan and the Bylaws of the
Corporation. Unless indicated otherwise, capitalized terms used and not defined
herein have the meaning set forth in the Plan. All section references are to
sections of the Plan.
The Plan is hereby amended as follows:
1. Section 4 of the Plan is hereby amended to read in its entirety as follows:
"Section 4. STOCK SUBJECT TO PLAN
"(a) Subject to adjustment as provided in Section 7 hereof, at any time, the
aggregate number of Shares issued and issuable pursuant to all Awards
(including all Incentive Stock Options) granted under this Plan shall not
exceed 2,125,000.
"(b) The aggregate number of Shares subject to Awards granted during any
calendar year to any one Eligible Person (including the number of shares
involved in Awards having a value derived from the value of Shares) shall
not exceed 2,125,000; PROVIDED, however, that the limitation set forth in
this Section 4(b) shall not apply if such provision is not required in order
for Awards to qualify as "performance based compensation" under Section
162(m) of the Code. Further, such aggregate number of shares shall be
subject to adjustment under Section 7 only to the extent that such will not
affect the status of any Award intended to qualify as "performance based
compensation" under Section 162(m) of the Code.
"(c) Subject to adjustment as provided in Section 7 hereof, the aggregate
number of Shares issued and issuable pursuant to all Incentive Stock Options
granted under this Plan shall not exceed 2,125,000; PROVIDED, however, that
such aggregate number of shares shall be subject to adjustment under Section
7 only to the extent that such adjustment will not affect the status of any
Incentive Stock Option under Section 422 of the Code. Such maximum number
does not include the number of Shares subject to the unexercised portion of
any Incentive Stock Option granted under this Plan that expires or is
terminated.
"(d) The aggregate number of Shares issued under this Plan at any time shall
equal only the number of shares actually issued upon exercise or settlement
of an Award and shall not include Shares, or rights with respect to Shares,
that have been canceled or returned to the Company upon forfeiture of an
Award or in payment or satisfaction of the purchase price, exercise price or
tax withholding obligation of an Award."
2. Except as amended hereby, the Plan shall remain in full force and effect.
3. The amendment set forth herein shall become effective upon approval by the
holders of a majority of all outstanding shares of common stock of this
corporation entitled to vote thereon.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to First
Alliance Corporation 1996 Stock Incentive Plan to be duly executed by its
authorized representative as of the date first stated above.
FIRST ALLIANCE CORPORATION
By: /S/ BRIAN CHISICK
----------------------------
President
