<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
First Alliance Corporation
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(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[_] Fee paid previously with preliminary materials:
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[_] 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
--------------------------------------------------------------------------------
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
To be Held Monday, December 18, 2000
10:00 a.m.
TO OUR STOCKHOLDERS:
The 2000 Annual Meeting of Stockholders (the "Annual Meeting") of First
Alliance Corporation, a Delaware corporation (the "Corporation") will be held at
the Corporation's corporate headquarters at 17305 Von Karman Avenue, Irvine,
California on Monday, December 18, 2000, at 10:00 a.m. local time, for the
following purposes:
1. To elect one director of the Corporation to hold office for a three
year term expiring at the 2003 Annual Meeting of stockholders or until
his respective successor is elected and qualified;
2. To ratify the appointment of Hein + Associates LLP as the independent
accountants for the Corporation for the year ending December 31, 2000;
and
3. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
The foregoing items of business, including the nominee for director,
are more fully described in the Proxy Statement, which is attached and made part
of this Notice.
The Board of Directors has fixed the close of business on November 3,
2000 as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponements 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
/s/ Susan E. Linder
Susan E. Linder, Secretary
Irvine, California
November 3, 2000
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
[This page intentionally left blank]
<PAGE>
FIRST ALLIANCE CORPORATION
17305 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92614
----------
PROXY STATEMENT
----------
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 18, 2000
GENERAL
This Proxy Statement and accompanying Proxy Card are being furnished to
the stockholders in connection with the solicitation by the Board of Directors
(the "Board") of First Alliance Corporation, a Delaware corporation (together
with its subsidiaries, the "Corporation"), of proxies in the enclosed form to be
voted at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
December 18, 2000 and at any and all postponements or adjournments thereof.
Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time prior to its use and exercise by written notice to
the Secretary of the Corporation (Susan Linder) 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 such stockholder. If no specific
instructions are given or the proxy is not returned to the Corporation, 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 enclosed Proxy Card, the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999, and the Corporation's
Form 10-Q for the second quarter of 2000 were first mailed to stockholders
entitled to vote at the Annual Meeting on or about November 15, 2000.
1
<PAGE>
VOTING RIGHTS
Only stockholders of record at the close of business on November 3,
2000 (the "Record Date") are entitled to receive notice of and to vote at the
Annual Meeting. On the Record Date the Corporation had outstanding approximately
17,864,788 shares of Class A Common Stock, $.01 par value (the "Class A Common
Stock"), each such share being entitled to one vote held of record by
approximately 800 stockholders. 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. For information regarding holders of more than 5% of the
outstanding common stock, see "Beneficial Ownership."
The Annual Meeting will be held if a quorum is present. 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 Class A
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, and
for ratification of the appointment of Hein + Associates, LLP as the designated
independent accountants under Proposal 2. 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 will be considered as
shares not entitled to vote and will therefore not be considered in the
tabulation of the votes.
As of November 3, 2000, the Record Date, Brian Chisick, Chairman of the
Board and Chief Executive Officer and a director of the Corporation, and his
spouse, Sarah Chisick, a director of the Corporation, (collectively, the
"Chisicks") are the beneficial owners of 14,870,709 outstanding shares of Class
A Common Stock, constituting approximately 82% of the outstanding voting power
of the Corporation. Pursuant to information included in Schedule 13(d)
(Amendment No. 4) filed on October 17, 2000 by the Chisicks: the above shares
include 2,222,600 shares (the "Escrow Shares") held in escrow pending (i) the
evaluation by the Corporation of the opportunity of the Corporation to purchase
such stock, and (ii) the review of the transaction by the U. S. Bankruptcy
Court. The Schedule 13(d) states that the Escrow Shares will not be voted by the
Chisicks pending the resolution by the U.S. Bankruptcy Court of certain matters
related to the Corporation's opportunity to purchase the Escrow Shares. See
Beneficial Ownership of Common Stock on page 25.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Corporation's transfer agent, American Stock Transfer and Trust
Company, which will act as Inspector of Elections. The Inspector of Elections
will also determine whether or not a quorum is present. The Inspector of
Elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as not voting for
purposes of determining the approval of any matter submitted to the stockholders
for a vote.
The shares represented by the proxies received, properly marked, dated,
signed and not revoked will be voted at the Annual Meeting. Where such proxies
specify a choice with respect to any matter to be acted upon, the shares will be
voted in accordance with the specifications made. Any proxy in the enclosed form
which is returned but is not marked will be voted FOR election of the nominee
named below, and FOR ratification of the appointment of the designated
independent accountants.
2
<PAGE>
The Corporation will pay the cost of this solicitation, which will be
made primarily by mail. Proxies may also be solicited in person, or by
telephone, facsimile or similar means, by directors, officers or employees of
the Corporation without additional compensation. Original solicitation of
proxies by mail may be supplemented by additional mailings, telephone, telegram
or personal solicitation by directors, officers or employees of the Corporation
or its representatives. No additional compensation will be paid for any such
services.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, the stockholders will elect one director to
serve until the 2003 Annual Meeting or until his respective successor is elected
and qualified. The nominee is currently serving as a director of the
Corporation.
INFORMATION CONCERNING THE NOMINEE AND CURRENT DIRECTORS
The Corporation's Certificate of Incorporation provides that the
members of the Board of Directors shall be divided into three classes. Each
class is comprised of approximately one third of the current Board of Directors.
The term of each director is three years. Each class of director stands for
election for staggered terms of three years. The total number of directors
comprising the Corporation's Board of Directors is currently set pursuant to the
Corporation's bylaws at eight. Of this number, three members of the Board of
Directors have terms expiring in December 2000 (two seats vacant) and one is a
nominee for election at the 2000 Annual Meeting of Stockholders. The Corporation
does not intend to fill the vacant seats at the Annual Meeting. Of the
aforementioned members, two have terms expiring at the 2001 Annual Meeting of
Stockholders and three have terms expiring at the 2002 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 nominee named below as a
director of the Corporation to hold office until the 2003 Annual Meeting of
Stockholders and until his respective successor is elected and qualified. The
nominee has indicated a willingness to be named as such and to serve as a
director if elected. The Board of Directors expects the nominee named below to
be available for election. Should the nominee not be a candidate at the time of
the Annual Meeting, the enclosed Proxy will be voted in favor of such substitute
nominee(s) (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 in
accordance with the Bylaws of the Corporation. As of this date, the Board has no
reason to believe that the person named below will be unable or unwilling to
serve as a nominee or as a director if elected. The nominee has been recommended
by the Board of Directors for a three-year term expiring at the 2003 Annual
Meeting of Stockholders.
3
<PAGE>
Certain information concerning the nominee including his age as of
November 3, 2000, is set forth below and based, in part, on information
furnished by the nominee.
NOMINEE(S) FOR DIRECTOR(S) FOR THREE-YEAR TERMS EXPIRING IN 2003
PRINCIPAL OCCUPATIONS AND
NOMINEE AGE DIRECTORSHIPS
--------------------------------------------------------------------------------
Francisco Nebot 43 President, Chief Financial
Officer and Member of the Board
(SINCE JULY 1998)
Member: Stock Incentive
Committee (SINCE APRIL 1999)
BACKGROUND OF NOMINEE FOR DIRECTOR
FRANCISCO NEBOT
Mr. Nebot has been a Director of the Board since July 1998 and was
appointed President and Chief Financial Officer of the Corporation as of
February 2, 2000. From July 1998 until his appointment as President, Mr. Nebot
served as Executive Vice President and Chief Financial Officer of the
Corporation and also serves on the Stock Incentive Committee since April 1999.
Mr. Nebot served as Vice President of Finance and Chief Accounting Officer for
AMRESCO Residential Credit Corporation from September 1995 to July 1998. Mr.
Nebot held the position of Senior Vice President and Chief Financial Officer at
ITT Residential Servicing Corporation/Federal Bank from January 1994 to
September 1995. From January 1986 to January 1994, he served as Executive Vice
President and Chief Financial Officer for Shearson Lehman Mortgage Corporation.
Mr. Nebot holds a Bachelor's degree in Business Administration, with an emphasis
in finance and accounting, from the University of Barcelona, Spain.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEE LISTED ABOVE.
4
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
On June 22, 2000, the United States Bankruptcy Court, at the request of
management, the Board of Directors and the Audit Committee of the Corporation,
approved the engagement of Hein + Associates LLP as the Corporation's
independent accountants for the fiscal year ending December 31, 2000. In the
event that ratification of this selection of accountants is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting, in person
or by proxy, management will review its future selection of accountants.
A representative of Hein + Associates LLP is expected to be at the
Annual Meeting. This representative will have an opportunity to make a statement
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF HEIN + ASSOCIATES LLP AS THE CORPORATION'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of the current executive officers and directors
and the nominee for election to the Board of Directors of the Corporation.
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE CORPORATION CLASS (1)
------------------------------- --------------------------------------------------- ----------
<S> <C> <C>
Brian Chisick (2) (3) Chairman of the Board, Chief Executive Officer, II
and Director
Sarah Chisick Director II
Merrill Butler (3) (4) Director III
Donald H. Kasle (2) (3) (4) Director III
Daniel K. Stevenson (3) (4) Director III
Francisco Nebot (2) President, Chief Financial Officer and I
Director, NOMINEE FOR REELECTION
Jerry Hager Vice President and General Counsel
Faez Kaabi Vice President and Controller
</TABLE>
----------
(1) Class I term expires 2000 Annual Meeting of Stockholders
Class II term expires 2001 Annual Meeting of Stockholders
Class III term expires 2002 Annual Meeting of Stockholders
(2) Member of the Stock Incentive Committee
(3) Member of the Compensation Committee
(4) Member of the Audit Committee
6
<PAGE>
BACKGROUND OF DIRECTORS
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. Nebot, for whom such information is provided above
under "Nominee for Director for Three-Year Term Expiring in 2003."
BRIAN CHISICK Director since 1996 Age 61
Mr. Chisick has been Chairman of the Board and Chief Executive Officer
of the Corporation and its subsidiaries since February 2000. From June 1996 to
February 2000 Mr. Chisick served as Chairman, Chief Executive Officer and
President of the Corporation and its subsidiaries. From 1971 to June 1996 he
served as Chairman of the Board, Chief Executive Officer and President of First
Alliance Mortgage Company, a subsidiary of First Alliance Corporation. Mr.
Chisick also serves on the Compensation and Stock Incentive Committees. He is a
past Vice President of the Mortgage Bankers Institute, a statewide trade
association of over 120 mortgage brokers. Mr. Chisick also served as a member of
the legislative committee of the Mortgage Brokers Institute. Mr. Chisick has
held a real estate broker's license since 1971.
SARAH CHISICK Director since 1996 Age 59
Mrs. Chisick has been a director of the Corporation since its formation
in 1996. From 1971 to November 1999 Mrs. Chisick was a Vice President of First
Alliance Mortgage Company. Her duties have in the past included projects in the
loan servicing, foreclosure, marketing and investment departments. Mrs. Chisick
is not active in the business operations of the Corporation. Mrs. Chisick is
married to Mr. Brian Chisick.
MERRILL BUTLER Director since 1996 Age 75
Mr. Butler has been a director of the Board of the Corporation since
its formation in 1996, and has served on the Compensation Committee since 1996
and the Audit Committee since 1999. 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 and which engages in small
residential construction projects. 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 that 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.
7
<PAGE>
DONALD H. KASLE Director since 1999 Age 56
Mr. Kasle has been a director of the Corporation since May 1999, serves
on the Stock Incentive Committee as its Chairman and also serves on the Audit
and Compensation Committees. Mr. Kasle is currently Managing Partner and Chief
Executive Officer of Alldas Partners, LLC, an investment banking and consulting
company. He has over 32 years experience in executive management, commercial
lending and capital formation. He is also Chairman of QOMLINQ, as well as
serving on the Boards of Directors of Commercial Capital Bancorp & Commercial
Capital Bank of Irvine, California, and ColumbusNewport of Arlington, Virginia.
Mr. Kasle co-founded the merchant banking firm, Newport Capital Partners, the
predecessor company of ColumbusNewport. Formerly Mr. Kasle was the President and
Chief Executive Officer of Western Financial Bank, a $3.5 billion institution
located in Irvine, California. Prior to being at Western Financial, he was
Chairman and CEO of Bank One, Dayton (Ohio), a $3.5 billion affiliate of Banc
One Corporation. During Mr. Kasle's nine-year tenure, Bank One, Dayton, achieved
record earnings every year and was named the top large bank affiliate within
Banc One Corporation three years in a row. Mr. Kasle was the founding Chairman
of the Institute of Certified Bankers of the American Bankers Association and
past Chairman of the Board of the Stonier Graduate of Banking. In 1993, Stonier
honored him with its Distinguished Alumni Award. He was also a former board
member of America's Community Bankers and previously taught Banking/Commercial
Lending at 10 national banking schools. He has served on the boards of numerous
charitable and philanthropic organizations, including the Miami University
(Ohio) Board of Trustees and Chairman of the Miami University School of Business
Administration Advisory Council. Mr. Kasle is a graduate of Miami University
(Ohio) and the Stonier Graduate School of Banking at Rutgers University.
DANIEL K. STEVENSON Director since 1999 Age 67
Mr. Stevenson has been a director of the Corporation since April 1999,
serves on the Audit Committee as its Chairman, and on the Compensation
Committee. Mr. Stevenson is Chairman of Management Action Programs, Inc., whose
principal activities consist of conducting personal growth and effectiveness
programs for chief executive officers and managers as well as productivity and
profit improvement programs for companies ("MAP"). Since joining MAP in 1977,
Mr. Stevenson has served in various other capacities, including President, Chief
Executive Officer and Senior Consultant. Prior to his employment at MAP, Mr.
Stevenson was President of Noland Paper Company and National Sales Manager for
Nationwide Papers, Inc. of Chicago, Illinois.
JERRY HAGER Officer since 1999 Age 43
Mr. Hager has been Vice President and General Counsel of the
Corporation since June 1999. From 1994 to June 1999, Mr. Hager served as Senior
Counsel at the law offices of Buchalter, Nemer, Fields & Younger in Los Angeles,
California. From 1989 to 1994, Mr. Hager served as Senior Counsel at the law
offices of Smith & Smith in Los Angeles, California. Mr. Hager received his
Juris Doctor in 1982 from Pepperdine University School of Law, Malibu,
California, and holds a Bachelor's degree in Political Science with a Minor in
Geography from California State University, Northridge, California. Mr. Hager is
an Adjunct Professor of Law, Pepperdine University School of Law, Malibu,
California, and is a member of the American Bar Association, Consumer Financial
Services Subcommittee, The Orange County Bar Association, Financial Lawyers
Conference, the Bankruptcy Forum, Aircraft Owners & Pilots Association, and
Experimental Aircraft Association.
8
<PAGE>
FAEZ KAABI Officer since 1998 Age 32
Mr. Kaabi has been Vice President and Controller for the Corporation
since October 1998. Since 1996, Mr. Kaabi has held various managerial positions
with the Corporation's operating company, First Alliance Mortgage Company. Prior
to joining First Alliance Mortgage Company, Mr. Kaabi was employed by Deloitte &
Touche LLP as a senior auditor. In 1990, Mr. Kaabi received his Bachelor's
degree in Accounting from California State University, Fullerton, California. He
received his C.P.A. in 1993.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1999 (the "Last Fiscal
Year"), the Board of Directors (the "Board") held four meetings and acted by
consent six times. Each of the incumbent directors attended at least 75% of the
aggregate of all meetings of the Board and of the committees, if any, upon which
such director served.
The Board has three standing committees: the Audit Committee, the
Compensation Committee, and the Stock Incentive Committee.
The Board has created and delegated certain authority to its Audit
Committee, Compensation Committee and Stock Incentive Committee. The Corporation
does not have a Nominating Committee.
The committees of the Board and the number of meetings held by each
such committee during 1999 were:
NUMBER OF MEETINGS
COMMITTEE NAME HELD DURING 1999
-------------- ----------------
Audit Committee Four
Compensation Committee Four
Stock Incentive Committee Four
AUDIT COMMITTEE
The Audit Committee consists of five directors (two seats vacant) of
which three are independent, non-employee directors of the Corporation.
9
<PAGE>
The Audit Committee members are:
Daniel K. Stevenson, Chairman
Merrill Butler
Donald H. Kasle
Daniel L. Perl (RESIGNED AS OF SEPTEMBER 25, 2000)
Jeffrey Smith (RESIGNED AS OF MAY 31, 2000)
The Audit Committee, among other things, reviews with management, the
Corporation's independent public accountants, and its internal auditors upon
completion of each audit, the annual financial statements of the Corporation,
the independent accountants report thereon and the other relevant financial
information to be included in the Corporation's Annual Report on Form 10-K and
its Annual Report to stockholders, and reports to and 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 Corporation.
The Audit Committee adopted its Charter on October 21, 1996. A copy of
the Audit Committee Charter is set forth in APPENDIX A to the Proxy Statement.
The Audit Committee is satisfied that it met its responsibilities during 1999 in
compliance with its Charter.
The Audit Committee conferred with the Corporation's auditors for the
year ended 1999, Deloitte & Touche LLP, at its January 2000 meeting and reviewed
the new requirements for Audit Committees adopted by the Securities and Exchange
Commission (the"SEC") effective December 14, 1999. The Corporation must satisfy
such requirements by June 14, 2001. The Audit Committee and the Board of the
Corporation support the Audit Committee's compliance with the new committee
structure and membership requirements set by the SEC.
COMPENSATION COMMITTEE
The Compensation Committee consists of five directors (one seat
vacant), three of which are independent, non-employee directors of the
Corporation. The Compensation Committee members are:
Merrill Butler, Chairman
Brian Chisick
Donald H. Kasle
Jeffrey Smith (RESIGNED AS OF MAY 31, 2000)
Daniel K. Stevenson
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 with respect to the foregoing.
10
<PAGE>
STOCK INCENTIVE COMMITTEE
The Stock Incentive Committee consists of four directors (one seat
vacant), one of which is an independent, non-employee director of the
Corporation. The Stock Incentive Committee members are:
Donald H. Kasle, Chairman
Brian Chisick
Francisco Nebot
Jeffrey Smith (RESIGNED AS OF MAY 31, 2000)
The Stock Incentive Committee is authorized to issue stock based
compensation grants under the Corporation's 1996 Stock Incentive Plan.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
Set forth in the Summary Compensation Table below is certain
compensation information concerning the annual and long-term compensation for
services in all capacities for the Corporation during 1999 and the preceding two
fiscal years of those persons who were, as of December 31, 1999, (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. Executive Officers are those officers considered
Corporate Officers of the Corporation. Share amounts have been adjusted to
reflect the October 31, 1997 three-for-two stock dividend.
11
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------- ----------------------
SECURITIES UNDERLYING
SALARY (1) BONUS (1) OPTIONS (2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
------------------------------------------------------ ------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Brian Chisick 1999 395,000 -- 200,000
CHAIRMAN AND CHIEF EXECUTIVE OFFICER 1998 395,000 -- 154,085
1997 395,000 -- --
Francisco Nebot (3) 1999 236,666 150,000 110,000
PRESIDENT AND CHIEF FINANCIAL OFFICER 1998 90,128 120,000 77,042
1997 -- -- --
Jeffrey W. Smith (4) 1999 240,000 100,000 143,662
EXECUTIVE VICE PRESIDENT AND CHIEF 1998 240,000 120,000 38,527
OPERATING OFFICER 1997 240,000 1,150,000 9,677
Jerry Hager (5) 1999 73,157 50,000 30,000
VICE PRESIDENT, GENERAL COUNSEL 1998 -- -- --
1997 -- -- --
Faez Kaabi (6) 1999 109,330 15,000 29,768
VICE PRESIDENT, CONTROLLER 1998 78,900 17,500 3,944
1997 -- -- --
Mark Chisick (7) 1999 105,000 -- --
PRESIDENT, COAST SECURITY MORTGAGE, 1998 -- -- --
INC. 1997 -- -- --
Edwin C. Summers (8) 1999 -- -- --
VICE PRESIDENT, GENERAL COUNSEL AND 1998 101,397 -- --
SECRETARY 1997 173,162 47,687 2,108
</TABLE>
----------
(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 Code. The cost of perquisites is not disclosed for any executive
officer named in the table because the disclosure threshold (the lower
of $50,000 or 10% of salary plus bonus) was not reached.
(2) Includes grants made under the Corporation's 1996 Stock Incentive Plan.
(3) Beginning in February 2000, Mr. Nebot began serving as President.
(4) Due to the Corporation's voluntary filing for relief under Chapter 11
of the U. S. Bankruptcy Court in the Central District of California,
discontinuance of new loan originations, and the closure of all the
Corporation's retail branches and origination centers, Mr. Smith's
employment was terminated on May 31, 2000.
(5) Mr. Hager was employed by the Corporation in June, 1999.
(6) Mr. Kaabi was appointed Vice President and Controller of the
Corporation in October, 1998.
(7) Due to the Corporation's voluntary filing for relief under Chapter 11
of the U. S. Bankruptcy Court in the Central District of California,
discontinuance of new loan originations, and the closure of all the
Corporation's retail branches and origination centers, Mark Chisick's
employment was terminated on March 27, 2000. Mark Chisick is the son of
Brian Chisick, Chairman and Chief Executive Officer of the Corporation.
(8) Mr. Summers resigned his position as of June 30, 1998. His successor,
Ms. Wendy P. Rianda, was employed from September 1998 to April 1999.
12
<PAGE>
STOCK OPTION GRANTS IN 1999
The following table is a summary of all stock options granted to the
named Executive Officers during 1999. Individual grants are listed separately
for each named officer. In addition, this table shows the potential gain that
could be realized if the fair market value of the Corporation's stock were to
appreciate at either a 5% or 10% annual rate over the period of the option term.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SECURITIES TOTAL OPTIONS PER SHARE VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF
OPTIONS EMPLOYEES IN OR BASE EXPIRATION STOCK PRICE (2)
NAME GRANTED (1) FISCAL YEAR PRICE DATE 5% 10%
(#) (%) ($) ($) ($)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brian Chisick 100,000 7.70 3.6250 04/26/09 227,974 577,732
100,000 7.70 2.5000 12/02/09 147,043 382,225
Francisco Nebot 50,000 3.85 3.6250 04/26/09 113,987 288,866
60,000 4.62 2.5000 12/02/09 88,226 229,335
Jeffrey W. Smith (3) 103,662 7.98 3.6250 04/26/09 236,323 598,888
40,000 3.08 2.5000 12/02/09 58,817 152,890
Jerry Hager 10,000 0.77 3.3910 06/06/09 21,320 54,034
20,000 1.54 2.5000 12/02/09 29,409 76,445
Faez Kaabi 3,768 0.29 3.6250 04/26/09 8,590 21,769
20,000 1.54 3.2813 05/23/09 41,271 104,589
6,000 0.46 2.5000 12/02/09 8,823 22,933
</TABLE>
(1) All Options vest incrementally beginning six months from the date of
grant in 25% increments in each year thereafter. No stock appreciation
rights have been granted.
(2) This chart assumes a market price for the Corporation's Class A Common
Stock, in the NASDAQ markets as of December 31, 1999, to determine the
"potential realizable value" of the shares underlying the options
described in this chart, as reduced by any lower exercise price for
such options. Further, the chart assumes the annual compounding of such
assumed market price over the relevant periods, without giving effect
to commissions or other costs or expenses relating to potential sales
of such securities. The Corporation's Class A Common Stock has a very
limited trading history. These values are not intended to forecast the
possible future appreciation, if any, price or value of the
Corporation's Class A Common Stock.
(3) Due to the Corporation's voluntary filing for relief under Chapter 11
of the U. S. Bankruptcy Court in the Central District of California,
discontinuance of new loan originations, and the closure of all the
Corporation's retail branches and origination centers, Mr. Smith's
employment was terminated on May 31, 2000.
The total number of options outstanding (vested and unvested) as of
December 31, 1999 for the named individuals as a group and for all employees as
a group represents approximately 4.9% and 10%, respectively, of the
Corporation's outstanding Class A Common Stock as of that date.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999; OPTIONS OUTSTANDING AND VALUES AT DECEMBER
31, 1999
The following table shows options that were exercised during 1999 and
the number of shares and the value of grants outstanding as of December 31, 1999
for each named Officer.
Share amounts in the table below have been adjusted to reflect the
October 31, 1997 three-for-two stock dividend.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN THE MONEY OPTIONS
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 (1)
ACQUIRED VALUE --------------------------- -------------------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
--------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brian Chisick -- -- 88,521 265,564 -- --
Francisco Nebot -- -- 31,760 155,282 -- --
Jeffrey W. Smith (2) -- -- 105,130 169,236 -- --
Jerry Hager -- -- 2,500 27,500 -- --
Faez Kaabi -- -- 9,358 28,122 -- --
</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, 1999 ($1.875),
less the exercise price of the option multiplied by the number of
options outstanding.
(2) Due to the Corporation's voluntary filing for relief under Chapter 11
of the U. S. Bankruptcy Court in the Central District of California,
discontinuance of new loan originations, and the closure of all the
Corporation's retail branches and origination centers, Mr. Smith's
employment was terminated on May 31, 2000.
COMPENSATION OF DIRECTORS
The non-employee directors of the Corporation or its subsidiaries
receive an annual retainer fee of $15,000 and a fee of $1,000 for each Board
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 or its subsidiaries do
not receive fees for their services as directors.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE CORPORATION'S
FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE STOCK PERFORMANCE
GRAPH WHICH FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
14
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee has furnished the following report on executive
compensation.
The Compensation Committee (the "Committee"), composed of a total of
five directors (one seat vacant), three of whom are non-employee directors,
makes recommendations to the Board of Directors (the "Board") regarding the
administration of compensation for Executive Officers (the "Executives") and the
terms and conditions of their employment.
OVERALL POLICY
The Committee and the Board believe that the Corporation's executive
compensation program should be designed to be linked closely to the Executive's
success in meeting specified performance goals and to appreciation in the
Corporation's stock price thereby creating value for stockholders. The overall
objectives are to retain the best executive talent, to motivate these executives
to achieve goals that will advance the Corporation's business strategies, to
link executive and stockholder interests through equity based plans, and to
provide a compensation package that recognizes individual contributions as well
as overall business results.
For 1999 the Committee 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). The Compensation Committee did not determine it
necessary to, and did not attempt to, specifically analyze compensation levels
at companies included in the index under the caption "Performance Graph."
The key elements of the Corporation's executive compensation program
consist of a 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 Mr. Chisick, such compensation and benefits are
specified in an employment contract entered into between said individual and the
Corporation prior to the formation of the Committee. See "Brian Chisick
Agreement" on page 19.
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.
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.
15
<PAGE>
With respect to Mr. Chisick's base salary in 1999, while in the
Committee's view a meaningful increase in Mr. Chisick's base salary was
warranted and would have been 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 1999.
ANNUAL BONUS; STOCK OPTIONS
The Corporation's executive officers, other than Messrs. Chisick, Nebot
and Smith, are eligible for an annual bonus under the Corporation's Incentive
Bonus Plan. Stock Option Committee members are not eligible to participate in
the Stock Incentive Plan except for grants that are approved by a majority of
the disinterested members of the Compensation Committee. Bonuses under the
Corporation's Incentive Stock Option Plan generally consist 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
stockholder value through improved liquidity of the Corporation's stock and
greater recognition of its worth. Each of the specified performance measures is
weighed 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.
Consistent with the Corporation's compensation plan for all employees,
the Corporation grants to its executive officers stock options with an aggregate
exercise price equal to a recipient's annual cash bonus. Options become
exercisable in four annual installments commencing six months from the date of
the 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
the amount of the total annual cash bonus award.
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 at an exercise price of $2.50 per share. The
exercise price is equal to 100% of the fair market value of such stock on
December 3, 1999, the date of the grant, calculated according to the procedure
described above.
16
<PAGE>
CONCLUSION
Through the program described above, the Committee believes that these
policies and programs are competitive and result in a significant portion of the
Corporation's executive compensation being linked directly to individual and
Corporation performance. In 1999, approximately 21.4% of the Corporation's
compensation of the executives listed on page 12 consisted of cash bonus awards.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no "interlocks" (within the meaning of the
Securities and Exchange Commission's Proxy rules) with respect to any member of
the Committee during 1999. "Interlocks" means that it was not the case that an
executive officer of the Corporation served as a director or member of the
Compensation Committee of another entity and as executive officer of the other
entity served as a director or member of the Compensation Committee of the
Corporation. Mr. Chisick, a member of the Compensation Committee, is also the
Chairman 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 under "Certain Transactions."
Compensation Committee:
Merrill Butler, Chairman
Brian Chisick
Donald H. Kasle
Jeffrey Smith (RESIGNED MAY 31, 2000)
Daniel K. Stevenson
17
<PAGE>
PERFORMANCE GRAPH
The following five-year graph 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, the SNL
Specialty Lender Index, and the SNL Home Equity Lenders Index since July 26,
1996, the date on which trading in the Corporation's Class A Common Stock began
following its registration under Section 12 of the Exchange Act. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[Total Return Performance graph here]
*Assumes $100 invested on July 26, 1996. The chart reflects the October 31, 1997
three-for-two stock dividend.
<TABLE>
<CAPTION>
PERIOD ENDING
----------------------------------------------------------------------
INDEX 7/26/96 12/31/96 12/31/97 12/31/98 12/31/99
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Alliance Corporation 100.00 177.95 162.14 33.09 16.54
NASDAQ - Total US 100.00 119.36 146.30 206.15 372.43
SNL Specialty Lender Index 100.00 125.27 176.81 221.65 219.60
SNL Home Equity Lenders Index 100.00 110.03 68.53 16.25 8.03
</TABLE>
Note: The Corporation used the SNL Specialty Lender Index for the comparison
used in the Total Return Performance graph and also included the SNL Home Equity
Lenders Index, as this index provides a more accurate comparison of the
performance of the Corporation's other peers in the industry.
18
<PAGE>
EMPLOYMENT AGREEMENTS
BRIAN 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. Provided under this Agreement, Mr.
Chisick was to receive an annual salary of $495,000, 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. Mr. Chisick received an annual salary in 1999 of $395,000.
FRANCISCO NEBOT AGREEMENT. The Corporation has entered into an
employment agreement with Mr. Nebot dated July 7, 1998 providing for an
indefinite employment term. The Corporation or Mr. Nebot may terminate the
employment agreement at any time. Under this Employment Agreement, Mr. Nebot
will receive an annual salary of at least $200,000 per annum, subject to annual
increases (but not decreases) and bonuses, as 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. Pursuant to the employment agreement, Mr. Nebot was
granted on July 7, 1998, options to purchase 50,000 shares of Class A Common
Stock under the Corporation's 1996 Stock Incentive Plan. In the event of a
change of control, a merger, acquisition or outright sale of the Corporation,
per amendment dated September 8, 1999, the Corporation will compensate Mr. Nebot
in an amount as determined as of the time of the merger, acquisition, outright
sale or transfer of all of the assets of the Corporation or any of its
subsidiaries and Mr. Nebot will be eligible for severance benefits as further
described in the employment agreement.
JEFFREY SMITH AGREEMENT. First Alliance Mortgage Company, a wholly
owned subsidiary of the Corporation, entered into an employment agreement with
Mr. Smith providing for an indefinite employment term which began on December 3,
1986. The Corporation or Mr. Smith may terminate his employment at any time. Per
the amended agreement between the Corporation and Mr. Smith dated September 8,
1999, in the event of a change of control, a merger, acquisition or outright
sale of the Corporation, the Corporation agrees to compensate Mr. Smith in an
amount as determined as of the time of the merger, acquisition, outright sale or
transfer of all of the assets of the Corporation or any of its subsidiaries. Due
to the Corporation's filing under Chapter 11 of the U. S. Bankruptcy Court in
the Central District of California, discontinuance of new loan originations, and
the closure of all the Corporation's retail branches and origination centers,
Mr. Smith's employment was terminated on May 31, 2000.
MARK CHISICK AGREEMENT. Coast Security Mortgage, Inc., a wholly owned
subsidiary of the Corporation, entered into an employment agreement with Mr.
Chisick providing for an indefinite employment term which began on July 2, 1999.
Mark Chisick and Brian Chisick are related (i.e., Mark Chisick is the son of
Brian Chisick). The Corporation or Mr. Chisick may terminate his employment at
any time. Under this Employment Agreement, Mr. Chisick will receive an annual
salary of at least $210,000 per annum, subject to annual increases (but not
decreases) and bonuses as further described in the employment agreement, as well
as certain other benefits including medical insurance, death and disability
benefits, use of an automobile and reimbursement of employment-related expenses.
Due to the Corporation filing under Chapter 11 of the U. S. Bankruptcy Court in
the Central District of California, discontinuance of new loan originations, and
the closure of all the Corporation's retail branches and origination centers,
Mark Chisick's employment was terminated on March 27, 2000.
19
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION OF COAST SECURITY MORTGAGE, INC. In July 1999 the
Corporation acquired Coast Security Mortgage, Inc. ("Coast"), a retail mortgage
company that originated approximately $100,000,000 of sub-prime first mortgages
in each of the last two years. Under the terms of the purchase agreement, the
Corporation paid $4 million for Coast. The purchase was finalized subject to
customary indemnification, monetary holdbacks and an independent third party
evaluation regarding pricing and terms of the transaction. Prior to the
acquisition, Coast was owned by, among others, Mark Chisick and Brad Chisick,
each of whom are sons of Brian Chisick, Chairman and Chief Executive Officer of
the Corporation.
PAYMENT OF UNITED KINGDOM SECURED TERM LOAN FACILITY WITH HAVERSTOCK,
L.P., A CALIFORNIA LIMITED PARTNERSHIP. In 1998, First Alliance Mortgage
Company, a wholly owned subsidiary of the Corporation, entered into a (pound)39
million secured term loan facility with Haverstock, L.P., a California Limited
Partnership ("Haverstock"). Haverstock is owned by Brian and Sarah Chisick, the
majority stockholders of the Corporation. The debt under the Haverstock facility
was secured by mortgages held for investment (which were generated by the
Corporation's affiliate, First Alliance Mortgage Company, which made loans in
the United Kingdom), bore a fixed interest rate of 8.5%, and matured as the
underlying pledged mortgages were liquidated. In July 1999, First Alliance
Mortgage Company sold the portfolio of its United Kingdom loans. The sale of the
portfolio allowed First Alliance Mortgage Company to completely exit its United
Kingdom operations. The proceeds of the sale were used to repay the secured term
loan facility.
EXTENSION OF WAREHOUSE FINANCING FACILITY AGREEMENT WITH LEHMAN
COMMERCIAL PAPER, INC., AND GRANT OF WARRANT. In October 1999, the Corporation
extended its $150 million warehouse financing facility due to expire in December
1999 to December 2000. As partial consideration for this facility, the
Corporation agreed to grant Lehman Commercial Paper, Inc., (the "Warehouse
Lender"), stock warrants to purchase an aggregate of 4.9% of the outstanding
shares of the Corporation's Class A Common Stock with an effective date of
January 15, 2000. This warehouse financing facility is secured by loans
originated or purchased by the Corporation, and bears interest at a rate ranging
between 1.25% to 1.75% over one-month United States ("US") dollar denominated
London Interbank Offered Rate. Additionally, in December 1999, the Corporation
amended the effective date of the stock warrants granted the Warehouse Lender in
1998, which represents the option to purchase 1% of the outstanding shares of
the Corporation's Class A Common Stock. The effective date was changed from
February 15, 1999 to January 15, 2001.
20
<PAGE>
BANKRUPTCY. On March 23, 2000, the Corporation, along with several of
its subsidiaries, filed voluntary petitions under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Filing") in the United States Bankruptcy
Court for the Central District of California. The Bankruptcy Filing is expected
to facilitate the reorganization, marketing and sale and/or liquidation of the
Corporation's remaining business and assets. The Corporation has closed all of
its loan origination operations, including its branches, and laid off over 350
employees throughout the United States. The affected offices were located in
California, New York, New Jersey, Illinois, Arizona, Colorado, Maryland, Oregon,
Utah and Washington.
The Corporation's filing is expected to facilitate the reorganization
and sale of the Corporation's remaining business and assets and operation of
those assets pending any such sale. As of the date of the Corporation's
voluntary bankruptcy petition, the United States Bankruptcy Court for the
Central District of California assumed jurisdiction and control over the assets
of the Corporation. As a debtor in possession, the Corporation is authorized to
operate its business, subject to the supervision of the Bankruptcy Court.
No assurance can be given that the Corporation will remain a
debtor-in-possession and that a trustee will not be appointed to operate the
Corporation's business. In addition, although the Corporation has begun the
process of formulating a plan of reorganization/liquidation to be submitted
eventually to the Bankruptcy Court, no assurance can be given that the
Bankruptcy Court will confirm the Corporation's plan of
reorganization/liquidation.
The fact that the Corporation filed a voluntary bankruptcy petition may
affect the Corporation's ability to maintain certain present business
arrangements and may also affect the Corporation's ability to successfully
negotiate future business arrangements. Among the relationships that may be
materially affected by the Corporation's commencement of a bankruptcy case is
the Corporation's relationship with its warehouse financing facility lender and
the Corporation's relationships with other suppliers of goods and services vital
to the Corporation's financing and business operations.
DEFAULTS. Parties to several of the Corporation's agreements, including
the Corporation's pooling and servicing agreements and warehouse financing
facility agreement contend the Corporation is in default thereunder for, among
other reasons, the Corporation's Bankruptcy Filing. The Corporation contends
that such agreements are not in default, pursuant to, among other things, 11 USC
ss.365(b)(2).
AFFINITY REAL ESTATE SECURED CREDIT CARD AGREEMENT WITH FIDELITY
FEDERAL BANK. In February 1997, the Corporation entered into an affinity real
estate secured credit card agreement (the "Agreement") with Fidelity Federal
Bank, a Federal Savings Bank ("Fidelity"). Under the terms of this agreement,
Fidelity would fund the affinity credit card balance and would pay the
Corporation for its solicitation services, customer services and collection
efforts. In June 1999, Fidelity notified the Corporation of its intent to
terminate the program by February 24, 2000. The Corporation disputed the terms
of the obligation to purchase the outstanding balance of the credit cards, and
the parties sought arbitration of the dispute. In addition, on February 25,
2000, the Corporation received written notification that the servicing
agreements would terminate on August 23, 2000 in accordance with the notice
requirements of the Agreement. Consequently, on September 30, 2000 the
Corporation transferred the credit card servicing to Fidelity.
21
<PAGE>
RESIGNATION OF ACCOUNTANTS. On April 5, 2000, Deloitte & Touche LLP
("Deloitte") resigned as the Corporation's independent auditors. The audit
report of Deloitte on the financial statements for the two years ended December
31, 1999 and 1998 contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to audit scope or accounting principles. Also, for
the two years ended December 31, 1999 and 1998 and the subsequent interim period
preceding such resignation, there were no disagreements with Deloitte on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events.
DELISTING FROM NASDAQ. The NASDAQ-Amex Market Group, a NASD Company,
delisted the Corporation's common stock from the NASDAQ National Market as of
the opening of business on April 20, 2000 due to (i) the uncertainty regarding
the timing of effectiveness for a plan of bankruptcy reorganization; (ii) the
uncertainty regarding the specific terms of the planned bankruptcy
reorganization; (iii) the Corporation's failure to satisfy NASDAQ's continued
listing requirements; (iv) concerns regarding the residual equity interest of
the existing listed securities holders; and (v) the Corporation's March 23, 2000
filing under Chapter 11 of the U.S. Bankruptcy Code and associated public
interest concepts set forth under Marketplace rules 4450(f) and 4430(a)(3). The
Corporation has reinstated trading of its stock on pink sheets. The Corporation
currently has 17,864,788 outstanding shares of common stock.
TERMINATION OF EMPLOYMENT. Due to the Corporation's voluntary filing
for relief under Chapter 11 of the U. S. Bankruptcy Code in the United States
Bankruptcy Court in the Central District of California, discontinuance of new
loan originations, and closure of all of its retail branches and origination
centers, effective May 31, 2000 the Corporation terminated the employment of
Jeffrey Smith, Executive Vice President and Chief Operating Officer
Subsequently, the Board of Directors accepted Mr. Smith's resignation from the
Board effective the same date.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS. On June 22, 2000, the U. S.
Bankruptcy Court, at the request of management, the Board of Directors and the
Audit Committee of the Corporation approved the engagement of Hein + Associates
LLP as the Corporation's principal independent public accountants for the fiscal
year ending December 31, 2000.
SALE OF SERVICING RIGHTS PORTFOLIO AND OTHER ASSETS. On July 14, 2000
the Corporation received authorization from the United States Bankruptcy Court
for the sale of its approximately $714 million servicing rights portfolio and
agreed to a price of $7.9 million. In addition, the Corporation was reimbursed
for servicing advances, totaling approximately $3.2 million. Proceeds from such
sale are subject to certain holdback provisions totaling approximately $5.7
million. This transaction allowed the Corporation to enter into a "Consent
Agreement" with the trustees and bond insurers, whereby the Corporation will be
deemed to have satisfied the events of default under the Corporation's pooling
and servicing agreements triggered as a result of the Bankruptcy Filing, subject
to monetary holdbacks provisions contained in the agreement. The Corporation's
ability to recover any portion of the holdback is partially contingent on the
outcome of the Corporation's liquidating plan of reorganization and claims
asserted in connection therewith. This transaction provides the Corporation the
ability to completely exit the business of loan servicing for others, except
with respect to the Corporation's servicing of its wholly owned loans. The
Corporation does not expect the sale transaction itself to have a material
adverse effect on the Corporation's Consolidated Statement of Net Assets. The
Corporation's source of future loan servicing revenues has significantly
diminished as a result of this sale.
22
<PAGE>
BUSINESS RELATIONSHIP WITH MANAGEMENT ACTIONS PROGRAMS, INC. Mr.
Stevenson is Chairman of the Board of M.A.P. and has served as a director of the
Corporation since April 1999. Since May 1981 First Alliance Mortgage Company, a
California corporation ("FAMCO"), has maintained a business consulting
relationship with Management Action Programs, Inc. In 1999 M.A.P. received
approximately $57,870 for consulting services provided to First Alliance
Mortgage Company.
BUSINESS RELATIONSHIP WITH FINANCIAL SERVICES FOR COLUMBUSNEWPORT. Mr.
Kasle has served as a director of the Corporation since May, 1999. Since late
1999 Financial Services for ColumbusNewport ("Financial Services") provides
FAMCO with consulting services. As of March 1, 2000 Financial Services received
approximately $110,400 for services rendered. In 1998 Mr. Kasle Co-Founded
Newport Capital Partners and served as President of Financial Services of its
successor company, ColumbusNewport.
BUSINESS RELATIONSHIP WITH MJB ASSOCIATES, INC. The Corporation's
corporate headquarters are located at 17305 Von Karman Avenue, Irvine,
California 92614-6203 where the Corporation leases approximately 40,000 square
feet from MJB Associates, Inc., a California Limited Partnership ("MJB"). MJB is
owned by Brian and Sarah Chisick, the majority stockholders of the Corporation.
The lease expires on January 31, 2003, and the Corporation has an option to
renew the lease for five years. In 1999 MJB received from the Corporation rental
income of approximately $507,477.
SERVICING OF CERTAIN LOANS. In 1999, the Corporation serviced mortgage
loans for certain related parties pursuant to written agreements entered into
prior to the Initial Public Offering in 1996 (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, 1999, the outstanding balances of
such loans serviced on behalf of Brian Chisick, Brad Chisick, Mark Chisick and
Jamie Chisick were $1,848,178, $255,540, $55,017 and $60,356 respectively. Brad,
Mark and Jamie Chisick are the sons of Brian and Sarah Chisick.
The 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 of
the Corporation.
AMENDMENT TO THE CORPORATION'S BYLAWS. In February 2000 the Board of
Directors determined that it was in the best interests of the Corporation and
its stockholders to amend and re-state the bylaws to provide for an increase in
the number of directors from seven to eight. As of March 1, 2000 the total
number of directors comprising the Corporation's Board of Directors is set
pursuant to the Corporation's Bylaws at eight. On March 1, 2000 Daniel L. Perl
agreed to serve as a director until his term expires at the Annual Stockholders
meeting in 2000. Mr. Perl resigned as a member of the Board of Directors of the
Corporation effective September 25, 2000.
23
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
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 (the "Act"), as amended, the "beneficial owner"
of the shares shown herein.
The following table sets forth certain information regarding beneficial
ownership of the Corporation's Class A Common Stock as of November 3, 2000 (the
"Record Date"), by (i) each person known by the Corporation to be the beneficial
owner of more than 5% of the outstanding shares of the Corporation's Class A
Common Stock, (ii) each director of the Corporation, and (iii) all directors and
officers named in the SUMMARY COMPENSATION TABLE on page 12 (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.
24
<PAGE>
BENEFICIAL OWNERSHIP OF
CLASS A COMMON STOCK
--------------------------------
PERCENT OF
CLASS A
NUMBER OF COMMON STOCK
NAME OF BENEFICIAL SHARES (1) OUTSTANDING
OWNER OR GROUP (#) (%)
----------------------------------------------- -------------- ---------------
Brian and Sarah Chisick Trust, 14,870,709(2) 82.4
DIRECTORS
Francisco Nebot, DIRECTOR, PRESIDENT, 80,521(4) (3)
AND CHIEF FINANCIAL OFFICER
Jeffrey W. Smith, DIRECTOR, EXECUTIVE 0(5)
VICE PRESIDENT AND CHIEF OPERATING
OFFICER
Merrill Butler, DIRECTOR 56,250(6) (3)
Donald H. Kasle, DIRECTOR 35,000(7) (3)
Daniel L. Perl, DIRECTOR 18,750(6,8) (3)
Daniel K. Stevenson, DIRECTOR 25,000(6) (3)
Jerry Hager, VICE PRESIDENT AND GENERAL 10,000(6) (3)
COUNSEL
Faez Kaabi, VICE PRESIDENT AND 19,391(9) (3)
CONTROLLER
Mark Chisick, PRESIDENT, COAST SECURITY 0(11) (3)
MORTGAGE, INC.
Edwin C. Summers 0(10) (3)
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
All Directors, Executive Officers and Named
Officers as a Group
(10 PERSONS) 15,115,621(12) 82.7
25
<PAGE>
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(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. Beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person's shares of Class A Common stock that can be acquired by such
person within 60 days from November 1, 2000 upon the exercise of
options and warrants are deemed outstanding. 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 November 1, 2000 have been
exercised.
(2) Pursuant to information included in Schedule 13(d) (Amendment No. 4)
filed on October 17, 2000 by Brian and Sarah Chisick: includes 177,042
shares with respect to which options are exercisable within 60 days
from November 1, 2000 and includes 12,383,200 shares held by the Brian
and Sarah Chisick Revocable Trust U/A 3-7-79, of which the Chisicks are
the trustees; includes 2,222,600 shares (the "Escrow Shares") held in
escrow pending (i) the evaluation by the Corporation of the opportunity
of the Corporation to purchase such stock and (ii) the review of the
transaction by the U. S. Bankruptcy Court. The Schedule 13(d) states
that the Escrow Shares will not be voted by the Chisicks pending the
resolution by the U.S. Bankruptcy Court of certain matters related to
the Corporation's opportunity to purchase the Escrow Shares. Also
includes a total of 24,867 shares held by grantor trusts established
for the benefit of four of the Chisicks grandchildren, of which trusts
Mr. Chisick is the sole trustee.
(3) Less than 1%.
(4) Includes 78,521shares with respect to which options are exercisable
within 60 days from November 1, 2000.
(5) Due to the Corporation's filing under Chapter 11 of the U. S.
Bankruptcy Court in the Central District of California, discontinuance
of new loan originations, and the closure of all the Corporation's
retail branches and origination centers, Mr. Jeffrey Smith's employment
was terminated on May 31, 2000.
(6) Represents shares with respect to which options are exercisable within
60 days from November 1, 2000.
(7) Includes 25,000 shares with respect to which options are exercisable
within 60 days from November 1, 2000.
(8) Mr. Perl resigned as a member of the Board of Directors effective
September 25, 2000.
(9) Includes 18,841 shares with respect to which options are exercisable
within 60 days from November 1, 2000.
(10) Mr. Summers resigned his position as of June 30, 1998.
(11) Mark Chisick's employment was terminated on March 27, 2000 as a result
of the Corporation filing under Chapter 11 of the U. S. Bankruptcy
Court in the Central District of California, discontinuance of new loan
originations, and the closure of all the Corporation's retail branches
and origination centers.
(12) Includes 409,404 shares with respect to which all Directors, Executive
Officers and Named Officers as a group hold options exercisable within
60 days from November 1, 2000.
On July 12, 2000 the Corporation terminated its 401(k) Plan as a result
of the Corporation's Bankruptcy filing. Before the termination of such Plan, the
Corporation's 401(k) Plan owned a total of 51,649 shares of the Corporation's
Class A Common Stock on December 31, 1999. Although the Corporation was the
Administrator of the 401(k) Plan, the 401(k) Plan was established and
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 were
entitled to vote all shares allocated to their accounts. Accordingly, the 401(k)
Plan did not constitute a "group" within the meaning of Section 13(d) of the
Securities and Exchange Act of 1934, as amended.
26
<PAGE>
GENERAL
OTHER BUSINESS
The Board does not know of any other business that 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
On June 22, 2000, the United States Bankruptcy Court, at the request of
management, the Board of Directors and the Audit Committee of the Corporation,
approved the engagement of Hein + Associates LLP to serve as the Corporation's
independent auditors for the 2000 fiscal year.
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 and its
subsidiaries, none of whom will receive any special compensation for such
services which will be performed in addition to their regular duties. 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 2001 proxy
solicitation material must set forth such proposal in writing and such proposal
must be received by the Secretary of the Corporation at 17305 Von Karman Avenue,
Irvine, CA 92614 (Attention: Susan Linder, Secretary) on or before January 31,
2001. 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 2001 proxy solicitation materials. Any eligible stockholder is
one who is the record or beneficial owner of at least 1% or $2,000 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. If the
Corporation is not notified of a stockholder proposal within the time period
described above, then the proxies held by management of the Corporation provide
discretionary authority to vote against such stockholder proposal, even though
such proposal is not discussed in the Proxy.
27
<PAGE>
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director, officer and other designated employee of the Corporation
who is subject to Section 16 of the Act, and each other person who beneficially
owns more than 10% of the Common Stock (collectively the "Reporting Person"), is
required to report to the SEC by a specified date his or her ownership of and
transactions in the Class A Common Stock. Reporting Persons are required to
provide copies of such reports to the Corporation. Based on the Corporation's
review of the copies of such forms and amendments it has received and written
representations from certain Reporting Persons, with the exception of certain
transactions that were not timely filed by the Chisicks pursuant to Section 16,
but otherwise reported under Section 13 of the Act, the Corporation believes
that all such forms were filed on a timely basis during 1999.
ANNUAL REPORT
The Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 without the exhibits thereto and the second quarter Form 10-Q
dated June 30, 2000, has been mailed to stockholders of record at or about the
close of business on November 15, 2000. The Corporation will provide a copy of
the exhibits to its Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 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 Susan Linder, Secretary, First Alliance Corporation, 17305 Von
Karman Avenue, Irvine, California 92614.
The Board knows of no other business that will be presented at the 2000
Annual Meeting. If any other business is properly brought before the Annual
Meeting, proxies in the enclosed form will be voted in respect thereof as the
proxy holders deem advisable in their judgment.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, MARK, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Susan Linder, Secretary
------------------------------------
Dated: November 3, 2000
Irvine, California
28
<PAGE>
APPENDIX A
FIRST ALLIANCE CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
-------
Purpose
-------
The Audit Committee shall with respect to this Corporation and its affiliates
and consolidated subsidiaries (collectively, the "Company") operate
independently of Company management, shall report regularly to the Board and
shall also, among other things:
o Make recommendations to the Board regarding the engagement of
independent public accountants, including the review and approval of
the scope of services and the annual audit plan;
o Monitor and review the quality and activities of the Company's internal
audit function and review and approve the scope of and annual audit
plans for such function;
o Monitor the adequacy of the Company's operating and internal controls;
o Review the significant accounting policies of the Company; and
o Review the Company's compliance with laws and regulations.
Members
-------
o Number: minimum of three directors, three of whom shall be independent
directors.
Term
----
Committee members shall be appointed by the Board of Directors each year at the
Board meeting immediately following the Annual Stockholders Meeting and shall
serve at the pleasure of the Board until their resignation or removal.
Meetings
--------
Subject to the bylaws of the corporation, frequency and content as determined by
the Chairman of the Committee.
Quorum
------
Two members, including the Committee Chairman
A-1
<PAGE>
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON
MONDAY, DECEMBER 18, 2000 AT
17305 VON KARMAN AVENUE, IRVINE, CA 92614
The undersigned hereby appoints Merrill Butler, Brian Chisick, Sarah Chisick,
Donald Kasle, Daniel Stevenson or each or any of them with full power of
substitution, as attorneys and proxies for the undersigned to act and vote at
the 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 Annual Meeting to be held
December 18, 2000, and, in their discretion, upon any other matters which may
properly come before the Annual Meeting.
The proxy agents present and acting in person or by their substitutes (or if
only one is present and acting, then that one) may exercise all of the powers
conferred by this Proxy. Discretionary authority is confirmed by this Proxy with
respect to certain matters as described in the Proxy Statement.
1. Proposal 1: Election of Directors
----------
NOMINEES: Francisco Nebot
2. Proposal 2: Ratification of Appointment of Independent Accountants.
----------
PLEASE SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES.
-------------------------------------------------------------
IF NO OTHER CHOICE IS MADE, THE PROXIES SHALL VOTE FOR THE ELECTION OF THE
DIRECTOR NOMINEE(S) AND APPROVAL OF RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS.
+-------------+
| SEE REVERSE |
| SIDE |
+-------------+
(continued and to be signed on other side)
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS EXAMPLE
A VOTE FOR THE NOMINEE(S) IS/ARE RECOMMENDED BY THE BOARD OF DIRECTORS
FOR WITHHELD
1. Election of Directors +----+ +----+
(page 5) | | | |
+----+ +----+
A VOTE FOR PROPOSAL NO. 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS
2. Ratification of Appointment of Independent Accountants
(page 7) FOR AGAINST ABSTAIN
+----+ +----+ +----+
| | | | | |
+----+ +----+ +----+
IMPORTANT - PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE TO: FIRST ALLIANCE CORPORATION, C/O AMERICAN STOCK TRANSFER
AND TRUST, ATTN: STEVEN KALTBAUM, 3RD FLOOR, 6201 15TH AVENUE, BROOKLYN, NY
11219. THANK YOU.
BY SIGNING THIS PROXY, YOU HEREBY ACKNOWLEDGE RECEIPT OF THE CORPORATION'S 1999
ANNUAL REPORT TO STOCKHOLDERS, FORM 10-Q FOR THE SECOND QUARTER 2000, NOTICE OF
THE CORPORATION'S 2000 ANNUAL MEETING OF STOCKHOLDERS, AND THE CORPORATION'S
PROXY STATEMENT DATED NOVEMBER 3, 2000.
Signature(s) of Stockholder(s) _______________________________Date _______, 2000
NOTE: If acting as attorney, executor, trustee, or in an other
representative capacity, please sign name exactly as your name(s)
appear(s) on the Proxy. If held in joint tenancy, all persons must
sign. Trustees, administrators, etc., should include title and
authority. Corporations should provide full name of corporation and
title of authorized officer signing proxy.
