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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Franchise Mortgage Acceptance Company
- - - - --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.001 par value
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(2) Aggregate number of securities to which transaction applies:
28,715,625
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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):
N/A
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
-------------------------------------------------------------------------
(5) Total fee paid:
N/A
-------------------------------------------------------------------------
[_] 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:
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Notes:
<PAGE>
[LOGO OF FRANCHISE MORTGAGE ACCEPTANCE COMPANY]
FRANCHISE MORTGAGE ACCEPTANCE COMPANY
1888 CENTURY PARK EAST, THIRD FLOOR
LOS ANGELES, CALIFORNIA 90067
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
The Annual Meeting of Stockholders of Franchise Mortgage Acceptance Company
(the "Company") will be held at the Century Plaza Hotel, 2025 Avenue of the
Stars, Los Angeles, California 90067, on Tuesday, June 16, 1998 at 10:00 a.m.,
Pacific Time, for the following purposes:
1. To elect a Board of eight directors to hold office until the 1999
Annual Meeting;
2. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants of the Company for the year ending December 31, 1998; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 15, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or at any adjournment thereof. A list of
stockholders entitled to vote at the Annual Meeting will be available at the
meeting and for a period of ten days prior to the meeting at the Company's
address above.
If you will not be able to attend the Annual Meeting to vote in person,
please complete, sign and date the accompanying proxy and return it promptly
in the enclosed envelope. The giving of the proxy will not affect your right
to revoke the proxy or to vote in person if you attend the Annual Meeting.
By Order of the Board of Directors
/s/ Raedelle Walker
Raedelle Walker
Secretary
Dated: May 25, 1998
<PAGE>
[LOGO OF FRANCHISE MORTGAGE ACCEPTANCE COMPANY]
FRANCHISE MORTGAGE ACCEPTANCE COMPANY
1888 CENTURY PARK EAST, THIRD FLOOR
LOS ANGELES, CALIFORNIA 90067
----------------
PROXY STATEMENT
----------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
The accompanying proxy is solicited by the Board of Directors of Franchise
Mortgage Acceptance Company (the "Company") for use at the Annual Meeting of
stockholders to be held on Tuesday, June 16, 1998 or at any adjournment
thereof. The proxy will be voted as directed if properly signed, received by
the Secretary of the Company prior to the close of voting at the Annual
Meeting and not revoked. If no direction is given in the proxy, it will be
voted for the election of the directors nominated by the Board of Directors
and the ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent accountants for the year ending December 31, 1998. Any
proxy given may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing of such revocation, by giving another
proxy bearing a later date, or by attending and voting in person at the Annual
Meeting.
Holders of record of the Company's Common Stock, $.001 par value, at the
close of business on May 15, 1998 are entitled to vote at the Annual Meeting.
On that date, 28,715,625 shares of Common Stock were outstanding. The
presence, in person or by proxy, of stockholders entitled to cast at least a
majority of the votes entitled to be cast by all stockholders will constitute
a quorum for the transaction of business at the Annual Meeting. Stockholders
are entitled to cast one vote per share on each matter presented for
consideration and action at the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting who will determine
whether or not a quorum is present. If a broker indicates on a proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, then those shares will not be considered as present and
entitled to vote with respect to that matter.
With regard to the election of Directors, votes may be cast in favor or
withheld. The eight nominees for director receiving a plurality of the votes
cast at the Annual Meeting in person or by proxy shall be elected.
Ratification of the appointment of the Company's independent accountants will
require the affirmative vote of at least a majority of the votes cast on the
matter in person or by proxy at the Annual Meeting. Approval of all other
proposals to be brought before the Annual Meeting will require the affirmative
vote of at least a majority in voting interest of the stockholders present in
person or by proxy at the Annual Meeting and entitled to vote thereon.
This Proxy Statement, together with the accompanying proxy, is first being
mailed to stockholders on or about May 25, 1998.
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of eight members. Directors
are elected annually to serve until the next annual meeting and until their
successors are elected and qualified. The Board of Directors proposes election
of the persons listed below, all of whom are currently directors. In the event
that any of the nominees is unable or unwilling to serve as director for any
reason, the proxy will be voted for the election of any substitute nominee
designated by the Board of Directors.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
FIRST BECAME A DIRECTOR AND OTHER DIRECTORSHIPS
------------------------- ------------------------------------------
<C> <S>
H. Wayne Snavely* (57)... Mr. Snavely has been Chairman of the Board of the Company since
1997 its inception. He was a Manager of Franchise Mortgage
Acceptance Company LLC, ("Franchise Mortgage LLC") from its
inception in June 1995 until November 1997, at which time the
Company was formed to succeed to the business of Franchise
Mortgage LLC. Mr. Snavely has been Chairman of the Board and
Chief Executive Officer of Imperial Credit Industries, Inc.
("ICII") since December 1991 and President of ICII since
February 1996. From 1986 to February 1992, Mr. Snavely served
as Executive Vice President of Imperial Bancorp and Imperial
Bank with direct management responsibility for the following
bank subsidiaries and divisions: Imperial Bank Mortgage,
Southern Pacific Bank, Imperial Trust Company, Wm. Mason &
Company, Imperial Ventures, Inc. and The Lewis Horwitz
Organization. From 1983 through 1986, Mr. Snavely was employed
as Chief Financial Officer of Imperial Bancorp and Imperial
Bank. Mr. Snavely served as a Director of Imperial Bank from
1975 to 1983 and currently serves as a Director. Mr. Snavely is
also Chairman of the Board of Southern Pacific Funding
Corporation and a Director of Imperial Credit Mortgage
Holdings, Inc. and Imperial Financial Group, Inc., a subsidiary
of Imperial Bank.
Wayne L. "Buz" Knyal
(51).................... Mr. Knyal has been the President, Chief Executive Officer and a
1997 Director of the Company since its inception and was the
President, Chief Executive Officer and a Manager of Franchise
Mortgage LLC from its inception in June 1995 until November
1997. Prior to founding the Company's predecessor in 1991, Mr.
Knyal founded and owned CBI Insurance Services, Inc. and
concurrently served as President of CBI Mortgage Company, a
residential mortgage banker. From 1968 to 1980, Mr. Knyal was
an Executive Vice President of Krupp/Taylor Advertising and
served clients in the fast food industry. Mr. Knyal is also a
Director of New Riders, Inc., a restaurant company.
Ronald V. Davis** (51)... Mr. Davis has been a Director of the Company since its
1997 inception and was a Manager of Franchise Mortgage LLC from its
inception in June 1995 until November 1997. Mr. Davis is the
Chairman of the Board of Davis Capital LLC, a private equity
investment company. From 1980 to 1994, Mr. Davis was the
President and Chief Executive Officer of the Perrier Group of
America, Inc. Mr. Davis twice held the presidency of the
International Bottled Water Association, serving 1,000 members
worldwide and in 1994, the industry inducted him into the
Beverage World Bottled Water Hall of Fame. Mr. Davis is also a
Director of Celestial Seasonings and Staff Leasing, Inc.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND YEAR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
FIRST BECAME A DIRECTOR AND OTHER DIRECTORSHIPS
- - - - ------------------------- ------------------------------------------
<C> <S>
G. Louis Graziadio,
III*(48)................ Mr. Graziadio has been a Director of the Company since its
1997 inception and was a Manager of Franchise Mortgage LLC from its
inception in June 1995 until November 1997. Mr. Graziadio has
been the Chairman of the Board and Chief Executive Officer of
Ginarra Holdings, Inc. (as well as its predecessor and
affiliated companies) since 1979. Ginarra Holdings, Inc. is a
privately held California corporation engaged in a wide range
of investment activities. Mr. Graziadio has been actively
involved, since 1972, in real estate development, construction
and home building. Mr. Graziadio is Co-Chairman and Chief
Executive Officer of Imperial Financial Group, Inc. and is also
a Director of the following companies: ICII, Imperial Bancorp,
Imperial Trust Company, an indirect subsidiary of Imperial
Bancorp, Lynx Golf, Inc., a golf club manufacturer, and Vista
2000, Inc.
Perry A. Lerner** (55)... Mr. Lerner has been a Director of the Company since its
1997 inception and was a Manager of Franchise Mortgage LLC from its
inception in June 1995 until November 1997. He has been a
principal in the investment firm of Crown Capital Group, Inc.
since 1996. Mr. Lerner was with the law firm of O'Melveny &
Myers from 1982 through 1996, having been a partner with the
firm from 1984 through 1996. Mr. Lerner was an Attorney-Advisor
of the International Tax Counsel of the United States Treasury
Department from 1973 to 1976. Mr. Lerner is also a Director of
ICII, Imperial Financial Group, Inc. and Vista 2000, Inc.
Richard J. Loughlin*
(66).................... Mr. Loughlin has been a Director of the Company since its
1997 inception. Mr. Loughlin co-founded Century 21 Real Estate of
Northern California, Inc. in 1973 and served as President and
Regional Director until 1981, when he was appointed President
and Chief Executive Officer of Century 21 Real Estate
Corporation. He held that position until November 1995 when he
retired and was appointed President Emeritus to serve as a
consultant and spokesperson. Mr. Loughlin is a Director of
Inspectech Corporation. Mr. Loughlin's prior affiliations
include Chairman of Western Relocation Management, Inc.,
Chairman of the Real Estate National Networks, Director of the
National Easter Seal Society, Director of the Housing
Roundtable, Director of the National Association of Realtors
and member of the Policy Advisory Board of the Center for Real
Estate and Urban Economics for the University of California at
Berkeley. Mr. Loughlin is a founding partner of the National
Football League's Carolina Panthers.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND YEAR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
FIRST BECAME A DIRECTOR AND OTHER DIRECTORSHIPS
- - - - ------------------------- ------------------------------------------
<C> <S>
John E. Martin* (52)..... Mr. Martin has been a Director of the Company since its
1997 inception. Mr. Martin has been the Chairman and Chief Executive
Officer of New Riders, Inc., since June 1997. Mr. Martin was
the Chairman and Chief Executive Officer of PepsiCo Casual
Dining from October 1996 to June 1997. From August 1983 through
October 1996 he was the Chairman and Chief Executive Officer of
Taco Bell Corp. In 1996, Mr. Martin was named the third most
successful restaurant executive in the Spenser Stuart/Cornell
Study. He received the first Innovator Award from the Multi-
Unit Foodservice Operators association in 1994; the Silver
Plate Award from the International Foodservice Manufacturers
Association in 1993 for his innovative leadership in the quick-
service industry; the National Association of Corporate Real
Estate Executives named him as the 1992 CEO of the Year; and
Restaurants and Institutions Magazine named him Executive of
the Year in 1991. Mr. Martin is a member of the Educational
Foundation of the National Restaurant Association's board of
trustees, and is a founding member of the Chief Executive Round
Table at the University of California, Irvine. Mr. Martin is
also a Director of The Good Guys, Inc. and Williams-Sonoma,
Inc.
Michael L. Matkins**
(53).................... Mr. Matkins has been a Director of the Company since its
1997 inception and was a Manager of Franchise Mortgage LLC from its
inception in June 1995 until November 1997. Mr. Matkins is a
founding partner with the law firm of Allen, Matkins, Leck,
Gamble & Mallory LLP. Mr. Matkins has advised institutional
investors, lenders, property owners and developers in all
aspects of purchase, sale, financing, leasing and construction
of real estate properties ranging from office and retail to
recreational and mixed-use projects for more than 20 years. He
has also represented institutional investors in the
restructuring of investments in real property as well as
institutional developers in acquiring, entitling and developing
master-planned communities. Mr. Matkins is a member of the
Urban Land Institute and Chair of the Los Angeles District
Urban Development Council.
</TABLE>
- - - - --------
* Member of Compensation Committee
** Member of Audit Committee
INFORMATION REGARDING BOARD OF DIRECTORS
The business and affairs of the Company are managed under the direction of
its Board of Directors. Directors are elected annually to serve until the next
Annual Meeting of stockholders and until their successors are elected and
qualified. Directors will not be able to stand for reelection unless they have
attended at least 75% of Board meetings and committee meetings, as applicable.
No family relationships exist between any of the executive officers or
directors of the Company.
During 1997, the Company's Board of Directors had Audit and Compensation
Committees but not a Nominating Committee. The Audit Committee is responsible
for making recommendations concerning the engagement of independent certified
public accountants, approving professional services provided by the
independent certified public accountants and reviewing the adequacy of the
Company's internal accounting controls. The Audit Committee is currently
comprised of Messrs. Lerner, Matkins and Davis. The Compensation Committee is
responsible for recommending to the Board of Directors all officer salaries,
management incentive programs and bonus payments. The Compensation Committee
is currently comprised of Messrs. Snavely, Graziadio, Martin and Loughlin.
4
<PAGE>
During 1997 (since the Company's inception in November, 1997), the Board of
Directors held 2 meetings and the Audit and Compensation Committees held no
meetings. Each Director attended each of the meetings of the Board of
Directors during 1997.
Directors who are not employees of the Company receive a fee of $12,000 per
year, payable quarterly, and $1,000 for each board meeting attended. Non-
employee directors who are members of the Compensation and Audit Committees
receive a fee of $1,000 for each committee meeting attended. Directors are
reimbursed reasonable expenses incurred in attending Board and committee
meetings per meeting attended. Concurrently upon the initial public offering
of the Company's Common Stock in November 1997, the Company granted each non-
employee director options to purchase 30,000 shares of Common Stock under the
Company's 1997 Stock Option, Deferred Stock and Restricted Stock Plan (the
"Stock Option Plan") at an exercise price of $18.00 per share. Such options
vest 100% upon the first anniversary of the date of grant.
5
<PAGE>
EXECUTIVE COMPENSATION AND RELATED MATTERS
ANNUAL AND LONG-TERM COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation earned by the Company's Chief Executive Officer and the
other four most highly compensated executive officers of the Company (the
"Named Executive Officers") for services rendered by them in all capacities in
which they served the Company during 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- - - - --------------------------- ---- --------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Wayne L. "Buz" Knyal(1).... 1997 $100,000 $665,292 $13,940(2) --
President, Chief Executive 1996 100,000 150,000 47,709(3) --
Officer
and Director 1995 -- -- -- --
John W. Rinaldi............ 1997 150,000 151,000 13,940(2) 75,000
Executive Vice President,
Loan Portfolio 1996 125,000 125,000 11,709(4) 25,000(5)
Management and President,
Equipment 1995 -- -- -- --
Finance Group
Thomas Kaplan(6)........... 1997 51,202 375,000 -- 150,000
Executive Vice President, 1996 -- -- -- --
Capital Markets 1995 -- -- -- --
Raedelle A. Walker(7)...... 1997 122,436 161,000 7,940(8) 55,000
Executive Vice President 1996 -- -- -- --
and Chief Financial
Officer 1995 -- -- -- --
Thomas J. Shaughnessy(9)... 1997 135,000 76,000 -- 90,000
Executive Vice President 1996 100,000 110,000 -- 25,000(5)
and Chief Credit Officer 1995 -- -- -- --
</TABLE>
- - - - --------
(1) Does not include distributions received by FLRT, Inc. as a member of
Franchise Mortgage Acceptance Company LLC. Beginning November 1997, the
annual base salary to be paid to Mr. Knyal pursuant to an employment
agreement with the Company is $400,000. The annual bonus to be paid to Mr.
Knyal will be no less than $82,000 and no greater than $682,000.
(2) Represents a car allowance of $6,000 and a $7,940 contribution by the
Company under its 401(k) Plan.
(3) Represents a car allowance of $6,000, reimbursement of living expenses of
$36,000 and a $5,709 contribution by the Company under its 401(k) Plan.
(4) Represents a car allowance of $6,000 and a $5,709 contribution by the
Company under its 401(k) Plan.
(5) Represents incentive stock options granted by Imperial Credit Industries,
Inc. ("ICII") to purchase shares of ICII common stock. The exercise price
of such options was the fair market value of ICII common stock at the time
of grant and such options vest 20% per year on each anniversary date of
the date of grant. The number of shares subject to the options has been
adjusted to reflect a 2 for 1 split on October 26, 1996.
(6) Thomas Kaplan joined the Company in October 1997 and serves as Executive
Vice President, Capital Markets at an annual salary of $225,000.
(7) Raedelle A. Walker joined the Company in February 1997 and serves as
Executive Vice President and Chief Financial Officer at an annual salary
of $160,000.
(8) Represents a $7,940 contribution by the Company under its 401(k) Plan.
(9) Effective April 8, 1997, Mr. Shaughnessy resigned as an officer of the
Company.
6
<PAGE>
OPTIONS GRANTED IN 1997
The following table sets forth information with respect to grants of options
to purchase shares of the Company's Common Stock to the Named Executive
Officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL REALIZED
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OF OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE(3) 5%($) 10%($)
---- -------------- --------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne L. "Buz" Knyal.... -- N/A N/A N/A N/A N/A
John W. Rinaldi......... 50,000 3.98% $18.00 11/18/03 $306,086 $ 694,405
John W. Rinaldi......... 25,000 1.99 16.32 12/23/03 138,759 314,797
Thomas Kaplan........... 50,000 3.98 18.00 11/18/03 306,086 694,405
Thomas Kaplan........... 100,000 7.96 16.32 12/23/03 555,036 1,259,188
Raedelle Walker......... 50,000 3.98 18.00 11/18/03 306,086 694,405
Raedelle Walker......... 5,000 0.40 16.32 12/23/03 27,752 62,959
Thomas J.
Shaughnessy(5)......... 80,000 6.37 18.00 11/18/03 489,738 1,111,048
Thomas J.
Shaughnessy(5)......... 10,000 0.80 16.32 12/23/03 55,504 125,919
</TABLE>
- - - - --------
(1) Each of these options vest 20% per year on each anniversary date of the
date of grant. Options exercisable at $18.00 per share were granted on
November 18, 1997 and options exerciseable at $16.32 per share were
granted on December 24, 1997.
(2) Based upon 1,256,300 options granted in 1997 under the Stock Option Plan.
(3) Such stock options expire 6 years from the date of grant or earlier upon
termination of employment.
(4) The dollar amounts set forth are the result of calculations of the 5% and
10% rates set forth in the Securities and Exchange Commission's rules
regarding the disclosure of executive compensation, and therefore are not
intended to forecast possible future appreciation of the Company's Common
Stock.
(5) Effective April 8, 1998, Mr. Shaughnessy resigned as an officer of the
Company and his options terminated.
1997 YEAR-END OPTION VALUES
The following table sets forth the number and dollar value of unexercised
options held by the Named Executive Officers at December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
------------------------------ ---------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------------------------ ---------------------
<S> <C> <C>
Wayne L. "Buz" Knyal..... 0/0 N/A
John W. Rinaldi.......... 5,000(1)/95,000(2) 49,688(1)/268,875(2)
Thomas Kaplan............ 0/150,000 0/224,250
Raedelle Walker.......... 0/ 55,000 0/29,025
Thomas J.
Shaughnessy(3).......... 5,000(1)/110,000(2) 49,688(1)/249,300(2)
</TABLE>
- - - - --------
(1) Exercisable options represent incentive stock options granted by Imperial
Credit Industries, Inc. ("ICII") to purchase shares of ICII common stock.
(2) Unexercisable options include incentive stock options granted by ICII to
purchase 20,000 shares of ICII common stock with a dollar value at
December 31, 1997 of $198,750.
(3) Effective April 8, 1998, Mr. Shaughnessy resigned as an officer of the
Company and his options terminated.
7
<PAGE>
1997 STOCK OPTION PLAN
The Company's Board of Directors has adopted and its stockholders have
approved the 1997 Stock Option, Deferred Stock and Restricted Stock Plan (the
"Stock Option Plan"), which provides for the grant of qualified incentive
stock options ("ISOs") that meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), stock options not so
qualified ("NQSOs"), deferred stock, restricted stock, stock appreciation
rights and limited stock appreciation rights awards ("Awards"). The Stock
Option Plan is administered by a committee of directors appointed by the Board
of Directors (the "Committee"). ISOs may be granted to the officers and key
employees of the Company or any of its subsidiaries. The exercise price for
any option granted under the Stock Option Plan may not be less than 100% (or
110% in the case of ISOs granted to an employee who is deemed to own in excess
of 10% of the outstanding Common Stock) of the fair market value of the shares
of Common Stock at the time the option is granted. The purpose of the Stock
Option Plan is to provide a means of performance-based compensation in order
to attract and retain qualified personnel and to provide an incentive to those
whose job performance affects the Company. The effective date of the Stock
Option Plan was November 18, 1997, the effective date of the Company's initial
public offering.
The Stock Option Plan authorizes the grant of options to purchase, and
awards of, an aggregate of up to 10% of the shares of the Company's Common
Stock outstanding after the Company's initial public offering, but not less
than 2,700,000 shares. The number of shares reserved for issuance under the
Stock Option Plan is subject to anti-dilution provisions for stock splits,
stock dividends and similar events. If an option granted under the Stock
Option Plan expires or terminates, or an Award is forfeited, the shares
subject to any unexercised portion of such option or Award will again become
available for the issuance of further options or Awards under the Stock Option
Plan.
Under the Stock Option Plan, the Company may make loans available to stock
option holders, subject to the Committee's approval, in connection with the
exercise of stock options granted under the Stock Option Plan. If shares of
Common Stock are pledged as collateral for such indebtedness, such shares may
be returned to the Company in satisfaction of such indebtedness. If so
returned, such shares shall again be available for issuance in connection with
future stock options and Awards under the Stock Option Plan.
Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the Stock Option Plan after November 18, 2007, the date
that is ten years after the effective date of the Company's initial public
offering.
Options granted under the Stock Option Plan will become exercisable
according to the terms of the grant made by the Committee. Awards will be
subject to the terms and restrictions of the Award made by the Committee. The
Committee has discretionary authority to select participants from among
eligible persons and to determine at the time whether an option or Award will
be granted and, in the case of options, whether it is intended to be an ISO or
an NQSO, and when and in what increments shares covered by the option may be
purchased.
Under current law, ISOs may not be granted to any individual who is not an
officer or employee of the Company or any subsidiary.
The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
Stock Option Plan, (3) by cancellation of indebtedness owed by the Company to
the optionholder, (4) by a full recourse promissory note executed by the
optionholder, or (5) by any combination of the foregoing. The terms of any
promissory note may be changed from time to time by the Board of Directors to
comply with applicable regulations of the Internal Revenue Service or
Securities and Exchange Commission or other relevant pronouncements.
8
<PAGE>
The Board of Directors may from time to time revise the Stock Option Plan or
may suspend or discontinue the plan at any time. However, no such revision or
amendment may impair the rights of any participant under any outstanding
option or Award without such participant's consent or may, without stockholder
approval, increase the number of shares subject to the Stock Option Plan or
decrease the exercise price of a stock option to less than 100% of fair market
on the date of grant (with the exception of adjustments resulting from changes
in capitalization), materially modify the class of participants eligible to
receive options or Awards under the Stock Option Plan, materially increase the
benefits accruing to participants under the Stock Option Plan or extend the
maximum option term under the Stock Option Plan.
EMPLOYMENT AGREEMENT
In November 1997, the Company and Mr. Knyal entered into a five-year
employment agreement terminating on October 31, 2002 pursuant to which Mr.
Knyal agreed to act as the President and Chief Executive Officer of the
Company for an annual base salary of $400,000, an annual bonus of not less
than $82,000 and not to exceed $682,000, and customary benefits. Commencing
June 1998, an amount of $82,000 per year will be deducted from the bonus
payable to Mr. Knyal in order to repay certain amounts owed by Mr. Knyal to
the Company, pursuant to the terms of a promissory note. If Mr. Knyal's
employment is terminated by the Company without cause or by Mr. Knyal for good
reason (meaning the Company's uncured breach of any material term of the
agreement, the removal of Mr. Knyal as Chief Executive Officer (other than for
cause) or any diminution by the Company of Mr. Knyal's powers, duties or
authority), Mr. Knyal would be paid his annual salary and provided with all
customary benefits through October 31, 2002. In addition, in such event, FLRT,
Inc. a stockholder of the Company of which Mr. Knyal owns an 85% beneficial
interest, would have registration rights similar to those granted to ICII
under the ICII Registration Rights Agreement described herein under "Certain
Transactions," without volume limitations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to 1997, Mr. Snavely served on ICII's compensation committee and
Messrs. Graziadio and Lerner are currently members of the ICII's compensation
committee. None of the executive officers of the Company has served on the
Board of Directors or on the compensation committee of any other entity which
had officers who served on the Company's Board of Directors or on the
Company's Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Company's Compensation Committee was established in November 1997 and
currently consists of Messrs. Snavely, Graziadio, Loughlin and Martin. The
Compensation Committee sets and administers the policies governing the
Company's compensation program, including incentive and stock option plans.
The Company participates in studies and surveys of compensation practices for
comparable companies in similar industries. The Committee considers these
studies and surveys in determining base salary, bonus and long-term stock-
based compensation. The Committee discusses and considers executive
compensation matters and makes its decisions, subject to review by the
Company's Board of Directors. Prior to the establishment of the Committee,
compensation decisions with regard to the Company's executive officers were
made by the Board of Managers of Franchise Mortgage LLC.
The Company's compensation policies are structured to link the compensation
of the Chief Executive Officer, Executive Vice Presidents and other executives
of the Company with corporate performance. Through the establishment of short-
and long-term compensation programs, the Company has attempted to align the
financial interests of its executives with the results of the Company's
performance, which is designed to put the Company in a competitive position
regarding executive compensation and also to ensure corporate performance,
which will enhance stockholder value.
9
<PAGE>
The Company's executive compensation philosophy is to set base salary at a
market rate and then to provide performance-based variable compensation which
allows total compensation to fluctuate according to the Company's earnings as
well as value received by stockholders. Targeted levels of executive
compensation are set at levels that the Committee believes to be consistent
with others in the Company's industry, with such compensation increasingly
weighted towards programs contingent upon the Company's level of annual and
long-term performance. As a result, the Named Executive Officers' actual
compensation levels in any particular year may be above or below those of the
Company's competitors, depending upon the Company's performance.
Section 162(m) of the Internal Revenue Code limits the Company's tax
deduction for compensation paid to any one of the five most highly compensated
executive officers in excess of $1,000,000, unless such compensation was based
upon attainment of pre-established, objective performance goals, the
Compensation Committee consists only of "outside directors" as defined for
purposes of Section 162(m), and such performance-based compensation has been
approved by stockholders. All of the members of the Compensation Committee
qualify as "outside directors." The Committee will review the Company's
existing compensation program to determine the deductibility of future
compensation paid or awarded pursuant thereto and will seek guidance with
respect to changes to the Company's existing compensation program that will
enable the Company to continue to attract and retain key individuals while
optimizing the deductibility to the Company of amounts paid as compensation.
The Committee believes that its overall executive compensation program
should be successful in providing competitive compensation appropriate to
attract and retain highly qualified executives and also to encourage increased
performance from the executive group which will create added stockholder
value.
COMPENSATION COMMITTEE:
H. Wayne Snavely
G. Louis Graziadio, III
Richard J. Loughlin
John E. Martin
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STOCK PRICE PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative return on
its Common Stock (i.e., change in price plus reinvestment of dividends) with
the Standard & Poor's 500 Index and a peer group index of companies engaged in
the Company's business focus (consisting of Conti Financial Corp., Franchise
Finance Corporation of America, Captec Net Lease Realty and Sirrom Capital
Corp.) (the "Peer Group Index"). The Performance Graph assumes that $100 was
invested on November 18, 1997 (the date of the Company's initial public
offering) in each of the Common Stock, the Standard & Poor's 500 Index and the
Peer Group Index. The stock price performance shown in this graph is not
necessarily indicative of and is not intended to suggest future stock price
performance.
<TABLE>
<CAPTION>
Measurement Period S&P
(Two Months Covered) FMAC 500 INDEX PEER GROUP
- - - - -------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-
11/19/97 $100.00 $100.00 $100.00
11/26/97 $ 88.89 $100.75 $ 97.91
12/03/97 $ 81.59 $103.41 $100.47
12/10/97 $ 86.98 $102.67 $ 99.73
12/17/97 $ 81.90 $102.22 $ 97.78
12/24/97 $ 85.40 $ 98.74 $ 97.91
12/31/97 $ 93.33 $102.74 $102.83
</TABLE>
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<PAGE>
SECURITY OWNERSHIP
PRINCIPAL STOCKHOLDERS AND OWNERSHIP BY MANAGEMENT
As of May 15, 1998, there were 28,715,625 shares of the Company's Common
Stock outstanding. The following table sets forth certain information known to
the Company with respect to the beneficial ownership of the Company's Common
Stock as of May 15, 1998, by (i) each director of the Company, (ii) each of
the Named Executive Officers of the Company, (iii) each person who is known to
the Company to beneficially own more than 5% of the Company's Common Stock,
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
---------------- ---------- --------
<S> <C> <C>
Imperial Credit Industries, Inc.(1).................... 11,023,492 38.4%
FLRT, Inc.(2).......................................... 6,192,133 21.6
Wayne L. Knyal(3)(4)................................... 5,263,313 18.3
John W. Rinaldi(3)..................................... -- --
Thomas Kaplan(3)....................................... -- --
Raedelle Walker(3)..................................... -- --
Thomas J. Shaughnessy(3)(5)............................ -- --
H. Wayne Snavely(3).................................... -- --
G. Louis Graziadio, III(3)............................. -- --
Perry A. Lerner(3)..................................... -- --
Michael L. Matkins(3).................................. -- --
Ronald V. Davis(3)..................................... -- --
John E. Martin(3)...................................... -- --
Richard J. Loughlin(3)................................. -- --
All Directors and Officers as a Group(12 Per-
sons)(3)(5)........................................... 5,263,313 18.3
</TABLE>
- - - - --------
(1) Imperial Credit Industries, Inc. may be reached at 23550 Hawthorne
Boulevard, Building One, Suite 110, Torrance, California, 90505.
(2) FLRT, Inc. may be reached through the Company at 1888 Century Park East,
Third Floor, Los Angeles, California, 90067.
(3) Franchise Mortgage Acceptance Company and each of such persons may be
reached at 1888 Century Park East, Third Floor, Los Angeles, California,
90067.
(4) Wayne L. Knyal is deemed to beneficially own 85% of the shares of the
Company's Common Stock held by FLRT, Inc.
(5) Effective April 8, 1997, Mr. Shaughnessy resigned as an officer of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's Directors, officers and persons holding more than 10% of the
Company's Common Stock are required to file forms reporting their beneficial
ownership of the Company's Common Stock and subsequent changes in that
ownership with the Securities and Exchange Commission. Such persons are also
required to furnish the Company copies of the forms so filed. Based solely
upon a review of copies of such forms filed with the Company, the Company
believes that during 1997 its officers and Directors complied with the Section
16(a) filing requirements.
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<PAGE>
CERTAIN TRANSACTIONS
THE REORGANIZATION
The Company's predecessor, FLRT, Inc. (formerly Franchise Mortgage
Acceptance Corporation), was incorporated by Wayne L. Knyal as a California
corporation in April 1991 and was wholly owned by him at that time. FLRT, Inc.
and certain individuals formed a limited partnership for the purpose of
originating and securitizing franchise loans. As the general partner of such
limited partnership, FLRT, Inc. owned the sole rights to service such loans
(the "FLRT Servicing Contracts"). In March 1993, Mr. Knyal entered into a
joint venture with Greenwich Capital Financial Products, Inc. ("Greenwich")
pursuant to which Mr. Knyal became the president of the Franchise Mortgage
Acceptance Company division (the "FMAC Division") of Greenwich. Between March
1993 and June 1995, the Company originated and securitized franchise loans
through the FMAC Division. FLRT, Inc., however, retained all rights to the
FLRT Servicing Contracts.
On June 30, 1995, Imperial Credit Industries, Inc. ("ICII") acquired from
Greenwich certain assets of the FMAC Division, including all of Greenwich's
rights under certain servicing contracts entered into by the FMAC Division
(the "FMAC Servicing Contracts") and a $410,000 obligation owed by Mr. Knyal
to Greenwich. The FMAC Servicing Contracts pertain to the servicing of
franchise loans that were previously securitized by Greenwich through the FMAC
Division and other franchise loans owned by Greenwich and not yet securitized.
Concurrent with the closing of the transactions described above, ICII entered
into an operating agreement with Mr. Knyal for the formation of Franchise
Acceptance Mortgage Company LLC ("Franchise Mortgage LLC"). In connection with
the acquisition, Franchise Mortgage LLC or its affiliates assumed certain
liabilities related to the FMAC Servicing Contracts and Greenwich agreed to
act as Franchise Mortgage LLC's exclusive agent in connection with the
securitization of franchise loans for a period of 24 months.
Franchise Mortgage LLC was formed to originate, securitize and service
franchise loans. Under the terms of the Company's operating agreement, in
exchange for a 66.7% ownership interest in Franchise Mortgage LLC, ICII was
obligated to contribute to Franchise Mortgage LLC $1.3 million in cash and all
of the assets purchased from Greenwich. In exchange for a 33.3% ownership
interest in Franchise Mortgage LLC, Knyal caused FLRT, Inc., to contribute to
Franchise Mortgage LLC all of its rights under the FLRT Servicing Contracts.
Immediately prior to the date of the Company's initial public offering on
November 18, 1997 (the "Effective Date"), Franchise Mortgage LLC merged into
the Company, which had been recently formed for the purpose of succeeding to
the business of Franchise Mortgage LLC (the "Reorganization"). As a result of
the Reorganization, the historical financial statements of Franchise Mortgage
LLC became those of the Company. Immediately prior to the Company's initial
public offering, ICII and FLRT, Inc. owned 66.7% and 33.3%, respectively, of
the Company's Common Stock. Immediately following the Company's initial public
offering, ICII and FLRT, Inc. owned 41.2% and 22.9%, respectively, of the
Company's Common Stock. Mr. Knyal currently beneficially owns 85% of the
Common Stock of the Company held by FLRT, Inc.
From July 1, 1995 until its merger with the Company in November 1997,
Franchise Mortgage LLC was treated as a partnership for federal and state
income tax purposes. As a result, it was not subject to federal or state
income taxation. The former members of Franchise Mortgage LLC (ICII and FLRT,
Inc.) are liable for individual federal and state income taxes on their
allocated portions of Franchise Mortgage LLC's taxable income. The Company has
agreed to indemnify each of ICII and FLRT, Inc. for any federal or state
income taxes, including penalties and interest thereon, imposed by any taxing
authority with respect to, for, or fairly attributable to the operations of
Franchise Mortgage LLC for the period from July 1, 1995 through the Effective
Date. Notwithstanding the foregoing, each of ICII and FLRT, Inc. has agreed to
indemnify the Company for all taxes, including penalties and interest thereon,
resulting from any determination made by a taxing authority that Franchise
Mortgage LLC should be determined for tax purposes to be an association
taxable as a corporation and only to the extent that such taxes pertain to the
income of Franchise Mortgage LLC as originally reported on its income tax
return for the period in question and solely to the extent of any
distributions made by Franchise Mortgage LLC to ICII and FLRT, Inc.
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<PAGE>
ARRANGEMENTS WITH ICII AND ITS AFFILIATES
The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationships. The agreements have been developed in
the context of a parent/subsidiary relationship and therefore are not the
result of arm's-length negotiations between independent parties. It is the
intention of the Company and ICII that such agreements and the transactions
provided for therein, taken as a whole, are fair to both parties, while
continuing certain mutually beneficial arrangements. However, there can be no
assurance that each of such agreements, or the transactions provided for
therein, have been effected on terms at least as favorable to the Company as
could have been obtained from unaffiliated parties.
Additional or modified arrangements and transactions may be entered into by
the Company, ICII and their respective subsidiaries. Any such future
arrangements and transactions will be determined through negotiation between
the Company and ICII, and it is possible that conflicts of interest will be
involved. All transactions by and between the Company and ICII must be
approved by a majority of the disinterested directors of the Company.
Following is a summary of certain arrangements and transactions between the
Company and ICII. Unless the context indicates otherwise, all references
herein to the Company refer to Franchise Mortgage Acceptance Company and its
predecessor entities, including Franchise Mortgage LLC.
Services Agreement
The Company and ICII entered into a services agreement effective as of the
Effective Date (the "Services Agreement") under which ICII provides human
resource administration, securitization capability and certain accounting
functions to the Company.
ICII charges fees for each of the above services which it provides under the
Services Agreement at a rate equal to $100 per month per employee employed by
the Company at the end of each month. The Services Agreement has an initial
term that ends one year from the Effective Date and is renewable annually
thereafter. The Company may terminate the Services Agreement, in whole or in
part, upon one month's written notice. As part of the services to be provided
under the Services Agreement, ICII provides the Company with insurance
coverage and self insurance programs, including health insurance. The charge
to the Company for insurance coverage is based upon a pro rata portion of the
costs to ICII of the various policies. ICII's total insurance expense is
allocated among ICII and its subsidiaries based on the number of employees at
each entity. The expense is annualized and charged to each entity monthly.
Management believes that the terms of the Services Agreement are as favorable
to the Company as could be obtained from independent third parties.
ICII Registration Rights Agreement
The Company has entered into a registration rights agreement with ICII (the
"ICII Registration Rights Agreement") pursuant to which the Company has agreed
to file one or more registration statements under the Securities Act of 1933,
as amended, in the future for shares of the Company held by ICII, subject to
certain conditions set forth therein. Pursuant to the ICII Registration Rights
Agreement, the Company will use its reasonable efforts to cause such
registration statements to be kept continuously effective for the public sale
from time to time of the shares of the Company held by ICII. Also, under the
ICII Registration Rights Agreement, FLRT, Inc. has certain piggyback
registration rights with respect to a demand registration statement initiated
by ICII concerning shares of the Company's Common Stock held by ICII; provided
however than for a period of three years following the Effective Date, FLRT,
Inc. is limited in the amount of shares of the Company's Common Stock it can
sell to that amount authorized pursuant to Rule 144. Thereafter, or in the
event that Mr. Knyal's employment is terminated by the Company without cause
or by Mr. Knyal for good reason (as defined in his employment agreement),
FLRT, Inc. shall have registration rights similar to those granted to ICII
under the ICII Registration Rights Agreement without volume limitations.
14
<PAGE>
Transactions Involving Southern Pacific Bank
At December 31, 1995, the Company had a net receivable of principal and
interest on loans from Southern Pacific Bank ("SPB"), ICII's wholly owned
subsidiary, of $579,000. In July 1995, the Company sold approximately $3.8
million of servicing rights to SPB, resulting in a gain of $31,000. The
Company also had a receivable from ICII of $924,000 bearing interest at 10.4%
as of December 31, 1995 and a payable of $526,000 relating to ICII's residual
interest in the Franchise Loan Receivables Trust 1995-B.
The Company previously provided subservicing on a contractual basis for
servicing rights on certain loans originated by the Company's predecessor and
sold to SPB. At September 30, 1997 and December 31, 1996 and 1995, there was
approximately $0 million, $183 million and $262 million, respectively, of
loans outstanding underlying this subservicing arrangement. On December 31,
1997, ICII purchased these servicing rights from the Company for approximately
$2.2 million and immediately sold them to SPB for the same consideration.
The Company purchased $55.3 million in loans at a $6.0 million premium from
SPB on December 29, 1995. These loans had originally been purchased by SPB
from Greenwich on November 30, 1995. The Company purchased $15.5 million in
loans at par value from SPB on June 26, 1997. These loans were purchased by
SPB from the Company in 1996 and 1997.
The Company also has a master purchase and sale agreement with SPB to
originate loans for SPB under mutual agreement, and subject to SPB
underwriting each such loan prior to sale of such loans. Under this agreement,
the Company also has the ability to repurchase loans, under mutual agreement
with SPB. There is no specified commitment by either party, and each
individual sale is negotiated separately as to pricing. This agreement has no
expiration date. At December 31, 1997, loans originated for SPB (and not
repurchased), totaled approximately $104.3 million. The Company does not
expect to originate a significant volume of loans for SPB under this
arrangement in the future.
Borrowings and Guarantees
At December 31, 1997 and 1996, the Company had borrowings from ICII
outstanding of $0 million and $17.7 million, respectively. The Company paid
interest at 12% on the outstanding balances. Franchise Mortgage LLC made a
final distribution of $3.0 million immediately prior to the Effective Date.
Such payment was funded with a short-term loan from ICII which was repaid with
a portion of the proceeds from the Company's initial public offering.
The Company, among other subsidiaries of ICII, jointly and severally and
fully and unconditionally guaranteed ICII's $200 million 9.875% senior notes
due January 15, 2007 and $70 million liquidation amount of remarketed par
securities. Such guarantee terminated upon the Effective Date.
In consideration of ICII's guarantee of the Company's warehouse lines of
credit outstanding at December 31, 1997, the Company pays to ICII monthly a
fee equal to 15 basis points on the Company's outstanding commitment amounts
covered by such guarantee. For the year ended December 31, 1997 and the year
ended December 31, 1996, the amount of such guarantee fees was $555,000 and
$0, respectively.
During 1997, ICII guaranteed the Company's lease obligations for its
executive and administrative offices located in Los Angeles, and Greenwich,
Connecticut. The parties to the leases negotiated a release of such guarantees
and ICII will not guarantee any of the Company's future leases.
From July 1, 1995 until its merger with the Company in November 1997,
Franchise Mortgage LLC was treated as a partnership for federal and state
income tax purposes. As a result, it was not subject to federal or state
income taxation. The members of Franchise Mortgage LLC (ICII and FLRT, Inc.)
are liable for individual federal and state income taxes on their allocated
portions of Franchise Mortgage LLC's taxable income. The Company has agreed to
indemnify each of ICII and FLRT, Inc. for any federal or state income taxes,
including penalties and interest thereon, imposed by any taxing authority with
respect to, for, or fairly attributable to the
15
<PAGE>
operations of Franchise Mortgage LLC for the period from July 1, 1995 through
the Effective Date. Notwithstanding the foregoing, each of ICII and FLRT, Inc.
has agreed to indemnify the Company for all taxes, including penalties and
interest thereon, resulting from any determination made by a taxing authority
that Franchise Mortgage LLC should be determined for tax purposes to be an
association taxable as a corporation and only to the extent that such taxes
pertain to the income of Franchise Mortgage LLC as originally reported on its
income tax return for the period in question and solely to the extent of any
distributions made by Franchise Mortgage LLC to ICII and FLRT, Inc.
ICII Options Granted to Executive Officers and Key Employees
In April 1996, ICII granted incentive stock options to purchase 25,000
shares of ICII common stock to each of Messrs. Shaughnessy and Rinaldi and
incentive stock options to purchase 10,000 shares of ICII common stock to
Brian V. Farren, a Senior Vice President of the Company. In December 1995 and
July 1996, ICII granted Raedelle A. Walker incentive stock options to purchase
an aggregate of 30,000 shares of ICII common stock. The exercise price of all
such options was the fair market value of ICII common stock at the time of the
grants and the number of shares subject to options granted by ICII as
described herein have been adjusted to reflect stock splits.
OTHER MATTERS
In the ordinary course of business, the Company has conducted transactions
with certain of its officers and directors and with affiliated companies and
entities. All such transactions are conducted at "arm's length" in accordance
with the Company's policies.
Equity Investments
Franchise Equity Fund L.L.C. The Company, ICII and Mr. Knyal are parties to
an Operating Agreement, dated April 1, 1996, pursuant to which such parties
organized Franchise Equity Fund L.L.C., a Delaware limited liability company
("FEF LLC"), for the purpose of making equity investments in franchisees of
PepsiCo related businesses. The Company owns a 99% membership interest in, and
is the manager of FEF LLC. ICII and Mr. Knyal own 0.67% and 0.33% membership
interests, respectively, in FEF LLC.
In June 1996, FEF LLC, Mr. Knyal and certain other investors entered into an
agreement to organize five limited partnerships in New Jersey and Pennsylvania
(the "Summerwood Partnerships") for the purpose of acquiring and operating 68
Taco Bell and KFC restaurant units. FEF LLC made a loan of $2.0 million to the
Summerwood Partnerships in exchange for warrants to purchase a 40% limited
partner interest in each of the Summerwood Partnerships. In December 1996, FEF
LLC exercised the warrants in full, the $2.0 million loan was converted into
capital contributions and FEF LLC acquired a 40% limited partner interest in
each of the Summerwood Partnerships. Under certain circumstances, the general
partner of the Summerwood Partnerships may require FEF LLC to make additional
loans or capital contributions to the Summerwood Partnerships in the aggregate
amount of $2.0 million until the third anniversary of the acquisition. The
other investors have certain rights to purchase FEF LLC's limited partner
interest after the fifth anniversary of the acquisition, and FEF LLC has
certain rights to sell its limited partner interest to the other investors
after the seventh anniversary of the acquisition. In addition, pursuant to the
terms of the agreement, Mr. Knyal is required to personally guarantee any
obligations of the Summerwood Partnerships that the limited partners of such
partnerships are required to personally guarantee. In connection with the
acquisition, the Company made 58 loans to the Summerwood Partnerships in the
initial aggregate amount of $40.6 million. The loans bear interest at annual
rates ranging from 9.19% to 10.8% and are due on dates ranging from July 2003
to July 2011. At December 31, 1997, the outstanding balance of such loans was
$39.3 million.
In November 1996, FEF LLC and certain other investors organized Restaurant
Management of Carolina, L.P., a Delaware limited partnership ("Restaurant
Management LP"), for the purpose of acquiring and operating 37 Taco Bell
restaurant units. FEF LLC made an initial capital contribution of $3.0 million
($2.0 million of
16
<PAGE>
which has been repaid to FEF LLC) to, and owns a 32.5% limited partner
interest in, Restaurant Management LP. Under certain circumstances, the
general partner may require FEF LLC to make additional capital contributions
to Restaurant Management LP in the aggregate amount of $2.0 million until the
third anniversary of the acquisition. The purchase price for the units was
funded in part through 27 loans from the Company in the initial aggregate
amount of $23.2 million. The loans bear interest at annual rates ranging from
9.19% to 10.0% and are due on dates ranging from June 1998 to December 2011.
At December 31, 1997, the outstanding balance of such loans was $22.6 million.
The other investors have certain rights to purchase FEF LLC's limited partner
interest after the fifth anniversary of the acquisition, and FEF LLC has
certain rights to sell its limited partner interest to the other investors
after the seventh anniversary of the acquisition. In addition, in March and
August 1996, prior to the acquisition, the Company made 15 loans to certain
affiliates of Restaurant Management LP in the initial aggregate amount of $9.9
million. The loans bear interest at annual rates ranging from 10.25% to
10.45%. At December 31, 1997, the outstanding balance of such loans was $9.4
million.
In December 1996, FEF LLC and certain other investors organized Family Eats
Limited Partnership, a Delaware limited partnership ("Family Eats LP"), for
the purpose of acquiring and operating 19 Taco Bell units. FEF LLC made a
capital contribution of $1.45 million to, and owns a 49% limited partner
interest in, Family Eats LP. Under certain circumstances, the general partner
may require FEF LLC to make additional capital contributions to Family Eats LP
in the aggregate amount of $1.55 million until the third anniversary of the
acquisition. The purchase price for the units was funded in part through 18
loans from Franchise Mortgage LLC in the initial aggregate amount of $10.1
million. The loans bear interest at annual rates ranging from 9.69% to 10.25%
and are due on dates ranging from July 1998 to October 2012. At December 31,
1997, the outstanding balance of such loans was $10.0 million. The other
investors have certain rights to purchase FEF LLC's limited partner interest
after the fifth anniversary of the acquisition, and FEF LLC has certain rights
to sell its limited partner interest to the other investors after the seventh
anniversary of the acquisition.
CVB, LLC. The Company, ICII and Mr. Knyal are parties to an Operating
Agreement, dated February 6, 1997, pursuant to which such parties organized
CVB, L.L.C., a Delaware limited liability company ("CVB LLC"), for the purpose
of making equity investments in franchisees of Church's Chicken units. The
Company owns a 99% membership interest in, and is the manager of, CVB LLC.
ICII and Knyal own 0.67% and 0.33% membership interests, respectively, in CVB
LLC.
In April 1997, CVB LLC and another investor organized Atlanta Franchise
Development Company, LLC, a Delaware limited liability company ("Atlanta
Franchise LLC"), for the purpose of acquiring and operating 100 Church's
Chicken units. CVB LLC made a nominal capital contribution to, and owns a 40%
membership interest in, Atlanta Franchise LLC. The purchase price for the
units was funded in part through 72 loans from Franchise Mortgage LLC in the
initial aggregate amount of $25.1 million. The loans bear interest at an
annual rate of 11.72% and are due in April 2012. At December 31, 1997, the
outstanding balance of such loans was $24.7 million.
The other investor has certain rights to purchase CVB LLC's membership
interest after the fifth anniversary of the acquisition, and CVB LLC has
certain rights to sell its membership interest to Atlanta Franchise LLC after
the seventh anniversary of the acquisition.
HNN Equity, L.L.C. The Company and ICII are parties to an Operating
Agreement, dated March 27, 1997, pursuant to which such parties organized HNN
Equity, L.L.C., a Delaware limited liability company ("HNN Equity LLC"), for
the purpose of making an equity investment in Hot N Now, L.L.C., a Delaware
limited liability company ("Hot 'N Now LLC"). The Company and ICII each own a
50% membership interest in, and share joint management of, HNN Equity LLC. In
April 1997, HNN Equity LLC and Davis/HNN, L.L.C. ("Davis/HNN LLC"), a limited
liability company principally owned by Ronald V. Davis, a director of the
Company, organized Hot 'N Now LLC under the laws of the state of Delaware for
the purpose of acquiring all franchisor and tradename rights to a quick
service restaurant concept named "Hot 'N Now" as well as acquiring and
operating 36 Not 'N Now units. HNN Equity LLC owns a 40% membership interest
in Hot 'N Now LLC.
17
<PAGE>
Davis/HNN LLC owns a 60% membership interest in, and is the manager of, Hot
'N Now LLC. The purchase price for the Units was $2.0 million and was funded
through a capital contribution of $ 1.5 million by Davis/HNN LLC and a loan of
$600,000 from Davis/HNN LLC. The loan bears interest at an annual rate of 8%
and is payable out of distributable cash from the operations of Hot 'N Now
LLC. Mr. Davis is the Chief Executive Officer of Hot 'N Now LLC and Davis/HNN
LLC is entitled to an annual base fee of $60,000 per year in its capacity as
manager of Hot 'N Now LLC. The manager may require the members to make
additional capital contributions to Hot 'N Now LLC to satisfy the obligations
of Hot 'N Now LLC to make rent payments under real estate leases for 19 units.
Such obligations are also guaranteed by ICII.
PRG Equity, L.L.C. On April 14, 1997, the Company organized PRG Equity,
L.L.C., a Delaware limited liability company ("PRO Equity LLC"), for the
purpose of making an equity investment in Pate Restaurant Enterprises, Ltd., a
Florida limited partnership which owns and operates seven Hardee's units
("Pate Restaurant LP"). The Company owns all of the membership interests in
and manages PRG Equity LLC. In April 1997, Franchise Mortgage LLC made seven
loans to Pate Restaurant LP in the initial aggregate amount of $3.5 million.
In connection with such loans, PRG Equity LLC acquired a 40% limited partner
interest in Pate Restaurant LP. The loans bear interest at annual rates
ranging from 9.94% to 10.79% and are due on dates ranging from November 1998
to May 2012. At December 31, 1997, the outstanding balance of such loans was
$3.4 million. The other investors in Pate Restaurant LP have certain rights to
purchase PRG Equity LLC's limited partner interest after the seventh
anniversary of the acquisition, and PRG Equity LLC has certain rights to sell
its limited partner interest to the other investors after the seventh
anniversary of the acquisition.
Certain Loans
In connection with the purchase of certain of the assets and liabilities of
the FMAC Division from Greenwich in June 1995, the Company assumed as a
receivable a $410,000 unsecured non-interest bearing note made by Mr. Knyal in
favor of Greenwich. The note was restructured in August 1997 to be payable in
five annual installments of $82,000 commencing June 30, 1998 out of the bonus
due to Mr. Knyal under his new employment agreement with the Company.
On July 15, 1997 the Company loaned Kevin T. Burke $170,000 for the purposes
of assisting Mr. Burke to purchase a home. The loan is evidenced by a
promissory note executed by Mr. Burke in favor of the Company that bears
interest at an annual rate of 8% and is payable in one installment on December
31, 1998.
On October 24, 1997 the Company loaned Donald Hakes $150,000 for the
purposes of assisting Mr. Hakes to purchase a home. The loan is evidenced by a
promissory note executed by Mr. Hakes in favor of the Company that bears
interest at an annual rate of 8%. On March 17, 1998, this loan was increased
to $170,000 and is payable in one installment on December 31, 1998.
Other Matters
Michael L. Matkins, a Director of the Company, is a partner in the law firm
Allen, Matkins, Leck, Gamble & Mallory LLP, which provides legal services to
the Company.
18
<PAGE>
RATIFICATION OF KPMG PEAT MARWICK LLP AS INDEPENDENT ACCOUNTANTS
The Board of Directors, with the concurrence of the Audit Committee, has
selected KPMG Peat Marwick LLP ("KPMG") to audit the accounts of the Company
for its fiscal year ending December 31, 1998. The Company has been advised by
KPMG that the firm has no relationship with the Company or its subsidiaries or
affiliates other than that arising from the firm's engagement as auditors, tax
advisors, and consultants. If the selection of KPMG is not ratified by the
affirmative vote of at least a majority of the shares casting votes on the
matter at the meeting, or if prior to the Annual Meeting, KPMG should decline
to act or otherwise become incapable of acting, or if its employment should be
otherwise discontinued by the Board of Directors, then in any such case the
Board of Directors will appoint other independent auditors whose employment
for any period subsequent to the 1998 Annual Meeting will be subject to
ratification by the stockholders at the 1999 Annual Meeting. A representative
of KPMG will be present at the Annual Meeting and will be available to make a
statement, if he or she so desires, and to respond to appropriate questions.
OTHER MATTERS
Management of the Company knows of no matters other than those referred to
above to be voted upon at the Annual Meeting. However, if any other matters
are properly presented to the meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy in accordance with their
judgment on such matters.
MISCELLANEOUS
The Company will bear the expense of this proxy solicitation. Directors
officers and employees of the Company may solicit proxies by telephone or in
person (but will receive no additional compensation for such solicitation). In
addition, brokerage firms and other custodians, nominees and fiduciaries will
be requested to forward the soliciting material to beneficial owners and to
obtain authorization for the execution of proxies, and the Company will
reimburse such brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy materials to beneficial owners
of Common Stock of the Company.
ANNUAL REPORT
A copy of the Annual Report of the Company for the year ended December 31,
1997, including financial statements for the year then ended, is transmitted
herewith.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders for consideration at the 1999 Annual Meeting of
Stockholders must be received by the Company no later than the close of
business on January 20, 1999, in order to be included in the Company's proxy
statement and proxy relating to that meeting.
By Order of the Board of Directors
/s/ Raedelle Walker
Raedelle Walker
Secretary
Dated: May 25, 1998
19
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JUNE 16, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wayne L. Knyal and Raedelle Walker,
or either of them, each with full power of substitution, as proxies of
the undersigned to attend and act for the undersigned at the Annual
Meeting of Stockholders of Franchise Mortgage Acceptance Company, a
Delaware corporation, to be held at the Century Plaza Hotel, 2025
Avenue of the Stars, Los Angeles, California 90067 on Tuesday, June 16,
1998 at 10:00 a.m., Pacific Time.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors. [_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below)
to vote for all the nominees listed below
</TABLE>
H. Wayne Snavely . Wayne L. Knyal . Ronald V. Davis
G. Louis Graziadio, III . Perry A. Lerner
Richard J. Loughlin . John E. Martin . Michael L. Matkins
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
---------------------------------------------------------------------------
2. To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the year ending December 31, 1998.
The Board of Directors recommends a vote FOR.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, upon any and all such other matters as may properly
come before the meeting or any adjournment or postponement thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE EIGHT NOMINEES FOR ELECTION AND FOR PROPOSALS 2 AND 3. (Please
sign exactly as name appears. When shares are held by joint tenants, both
should sign. When signing as attorney, as executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.)
_________________, 1998
Date
-----------------------
Signature
-----------------------
Signature, if held
jointly
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN, AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES
