SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
Preliminary information statement
Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
Definitive information statement
FRANKLIN CREDIT MANAGEMENT CORPORATION
(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):
No fee required.
$125 per Exchange Rules 0-11(c)(i)(ii),
or 14c-5(g) and 0-11.
Fee computed on table below per Exchange
Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set-forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary
materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION
INFORMATION STATEMENT
GENERAL INFORMATION
GENERAL
This Information Statement (the "Information Statement") is furnished to
the holders of Common Stock, $0.01 par value per share (the "Common Stock"), of
Franklin Credit Management Corporation (the "Company") in connection with
certain actions taken by a Written Consent of Stockholders in Lieu of Special
Meeting dated September 9, 1997 (the "Written Consent"). WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. This Information
Statement is being provided pursuant to the requirements of Rule 14c-2
promulgated under Section 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to inform holders of Common Stock entitled to vote or give
an authorization or consent in regard to the actions authorized by the Written
Consent, of the actions having been taken by the Written Consent. All
information set forth in this Information Statement assumes the effect of a
stock dividend (the "Stock Dividend"), resulting in stockholders holding five
shares for each share previously held, with a Record Date of August 20, 1997 and
a Distribution Date of September 2, 1997.
By executing and delivering the Written Consent to the Company,
stockholders holding no less than a majority of the outstanding shares of the
Company's Common Stock (the "Majority Stockholders") authorized the following
actions taken by the Board of Directors of the Company (the "Board") on June 10,
1997: (i) the amendment (the "Charter Amendment") of the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") to
(x) increase the authorized capital stock of the Company to 25,000,000 shares
from 10,000,000 shares and to create a new class of "blank check" preferred
stock, $0.01 par value per share (the "Preferred Stock") consisting of 3,000,000
shares and (y) modernize the provisions of the Certificate of Incorporation
governing indemnification of officers and directors of the Company; and (ii) an
increase to 800,000 from 600,000 in the shares reserved for issuance under the
1996 Stock Incentive Plan (the "Plan"). Additionally, the Majority Stockholders
entered into a written termination (the "Termination") of a Shareholders
Agreement, dated May 17, 1992, between the Company and certain stockholders.
RECORD DATE
On September 9, 1997 (the "Record Date"), there were 5,510,385 shares of
Common Stock outstanding and entitled to one vote upon each of the matters
approved by the Written Consent. On the Record Date, the Majority Stockholders
owned or had the right to vote 3,867,215 shares of Common Stock constituting
approximately 70% of the Company's outstanding Common Stock. All of the shares
of Common Stock, of which the Majority Stockholders owned or had the right to
vote on the Record Date, consented to the actions authorized or taken by the
Written Consent. Only stockholders of record of the Company at the close of
business on the Record Date are entitled to receive this Information Statement.
ITEM 1. INFORMATION REQUIRED BY
ITEMS OF SCHEDULE 14A
1. Date, time and place information:
(a) The Written Consent was executed as of September 9, 1997 and delivered
by the Majority Stockholders to the Company's principal executive offices at Six
Harrison Street, New York, NY 10013.
6. Voting Securities and Principal Holders Thereof: (a) As of September 9,
1997, there were 5,510,385 outstanding shares of Common Stock, each entitled to
one vote on the matters authorized pursuant to the Written Consent.
(b) Holders of Common Stock and entitled to vote where calculated, as of
the Effective Date, to determine the number of shares constituting a majority of
the outstanding shares of Common Stock (required to approve the Written
Consent).
(d) The following table sets forth, as of September 9, 1997, the number of
shares of Common Stock (and the percentage of the Company's Common Stock)
beneficially owned by (i) each person known (based solely on Schedules 13D or
13G filed with the Securities and Exchange Commission (the "Commission")) to the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each Director and nominee for Director of the Company, (iii) the Named
Executives (as defined in "Executive Compensation" below), and (iv) all
Directors and Executive Officers of the Company as a group (based upon
information furnished by such persons). Under the rules of the Commission, a
person is deemed to be a beneficial owner of a security if such person has or
shares the power to vote or direct the voting of such security or the power to
dispose of or to direct the disposition of such security. In general, a person
is also deemed to be a beneficial owner of any securities of which that person
has the right to acquire beneficial ownership within 60 days. Accordingly, more
than one person may be deemed to be a beneficial owner of the same securities.
Name and Address Number of Shares Percentage (%)
Beneficially Owned of-Common Stock
Thomas J. Axon(1)(2) 2,981,120 54.6%
Frank B. Evans, Jr.(1)(3) 902,930 16.4%
Joseph Caiazzo(1)(4) 53,550 *
Vincent A. Merola 295,935 5.4%
25 Wildwood Court
Montvale, NJ 07645
Joseph Bartfield(1)(5) 99,790 1.8%
Robert Chiste(1)(5)(6) 65,843 1.2%
Steven W. Lefkowitz(1)(7) 88,250 1.6%
Allan R. Lyons(1)(5)(8) 14,888 *
William F. Sullivan(1)(9) 10,950 *
Eugene T. Wilkinson(1)(5) 17,010 *
All Directors and Executive Officers as a
group (9 persons)(10) 4,234,331 74.4%
__________________________
* Indicates beneficial ownership of less than one (1%) percent.
(1) Mailing address: c/o Franklin Credit Management Corporation, Six
Harrison Street, New York, New York 10013.
(2) Includes 11,610 shares beneficially owned by Mr. Axon's mother, Ann
Axon, with respect to which shares Mr. Axon disclaims beneficial
ownership and 1,030 shares owned of record by him as custodian for a
minor child.
(3) Includes 5,225 shares beneficially owned by Mr. Evans' father, Frank
Evans, with respect to which shares Mr. Evans disclaims beneficial
ownership and 4,000 shares owned of record by him as a custodian for
minor children.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of options
exercisable within sixty days.
(5) Includes 2,500 shares of Common Stock issuable upon exercise of options
exercisable within sixty days.
(6) Includes 18,288 shares of Common Stock issuable upon exercise of
warrants exercisable within sixty days.
(7) Includes 88,250 shares of Common Stock issuable upon exercise of options
exercisable within sixty days.
(8) Includes 11,898 shares issuable upon exercise of warrants exercisable
within sixty days.
(9) Includes 1,250 shares of Common Stock issuable upon exercise of options
exercisable within sixty days.
(10) Includes 179,686 shares of Common Stock issuable upon exercise of
options or warrants exercisable within sixty days.
8. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth compensation earned by or paid to Thomas J.
Axon, the Chief Executive Officer of the Company (the "Named Executive"). The
Company awarded or paid such compensation to Mr. Axon for services rendered in
all capacities during the applicable fiscal years.
SUMMARY COMPENSATION TABLE
=========================================================================
Annual Compensation
=========================================================================
Other Annual
Name and Fiscal Year Salary Bonus Compensation
Principal Position ($) ($) ($)
=========================================================================
Thomas J. Axon-Chief 1996 $ 0 - $7,000(1)
Executive Officer 1995 $ 0 - $7,000(1)
1994 $ 0 - $7,000(1)
=========================================================================
(1)Represents health insurance benefits received by Mr. Axon.
Compensation of Directors
Directors of the Company received no compensation for their service as
such. Effective June 5, 1996, each non-employee director of the Company who had
served as a director since 1994 was granted an option to purchase 10,000 shares
of Common Stock, and each other non-employee director was granted an option to
purchase 5,000 shares of Common Stock, pursuant to the Company's 1996 Stock
Incentive Plan. These options vest 25% each year on the first four anniversaries
of the date of grant at $1.56 per share. To date none of these options have been
exercised.
Employment Agreements
The Company and its subsidiaries have written employment agreements with
two of its senior employees. Mr. Joseph Caiazzo, the Company's Chief Operation
Officer and Ms. Marcia Vacacela, President of Liberty Lending Corporation, a
wholly-owned subsidiary of the Company. Mr. Caiazzo entered into a five year
contract for annual compensation of $125,000 effective March 25, 1996. In
addition, under his employment contract Mr. Caiazzo will receive a bonus of 3.5%
of the Company's post-tax profits in excess of $500,000. Mr. Caiazzo also
received a grant of 100,000 options to purchase Common Stock, of which 50,000
vested immediately and the balance of which will vest on March 26, 1998.
Ms. Vacacela entered into a two year employment agreement with Liberty
Lending effective January 1, 1997. The agreement provides for an annual
compensation of $104,000 and provides for a renewal term of four years, upon
agreement of the parties. Ms. Vacacela also received a signing bonus of $12,000
and a grant of 50,000 options to purchase Common Stock, of which 10,000 vest
after each year of service is completed. In addition, under her employment
agreement Ms. Vacacela will receive a bonus based on 1.5% of post-tax profits of
Liberty Lending from $250,000 up to $2 million and 1% of any post-tax profits in
excess of $2 million.
10. COMPENSATION PLANS:
The Board of Directors, believing it to be in the best interests of the
Company and its stockholders to amend and restate the Plan to increase the
number of shares reserved for issuance and options available to be granted under
the Plan to 800,000 from 600,000, on June 10, 1997 voted to so amend and restate
the Plan. The amended and restated Plan was approved by the Majority
Stockholders, in the Written Consent.
General
The Plan is designed to provide additional incentives for Officers, other
key employees and non-employee Directors of the Company to promote the success
of the business and to enhance the Company's ability to attract and retain the
services of qualified persons.
The Plan provided for the issuance of a total of up to 600,000 authorized
and unissued shares of Common Stock, treasury shares and/or shares acquired by
the Company for purposes of the Plan. Options to purchase 256,000 shares have
been granted under the Plan leaving available only 344,000 shares for future
grants under the Plan. Generally, shares subject to an award that remain
unissued upon expiration or cancellation of the award are available for other
awards under the Plan. The Board of Directors believes that in order to continue
to attract qualified directors, employees and consultants who can contribute to
the Company's growth, additional shares will have to be available for grant
under the Plan.
Awards under the Plan may be made in the form of (i)-incentive stock
options or (ii) non-qualified stock options (incentive and non-qualified stock
options are collectively referred to as "options"). Awards may be made to such
Officers, Directors and other employees of the Company and its subsidiaries
(including employees who are Directors), and to such consultants to the Company
as the Committee shall in its discretion select (collectively, "key persons").
Administration
The Administrator of the Plan (the "Administrator") will be either the
Board of Directors, or, at the discretion of the Board of Directors, a
committee, composed of not fewer than two Directors. To the extent required for
compensation realized from awards under the Plan to be deductible by the Company
pursuant to Section 162(m) of the Code, Committee members shall be "outside
Directors" within the meaning of Section 162(m). The Administrator will be
authorized to construe, interpret and implement the provisions of the Plan, to
select the key persons to whom awards will be granted, to determine the terms
and provisions of such awards, and to amend outstanding awards. The
determinations of the Administrator will be made in its sole discretion and are
conclusive.
Unless sooner terminated by the Board of Directors, the provisions of the
Plan respecting the grant of incentive stock options shall terminate on the
tenth anniversary of the adoption of the Plan by the Board of Directors. All
awards made under the Plan prior to its termination shall remain in effect until
they are satisfied or terminated. The Board of Directors may, without
Stockholder approval, suspend, discontinue, revise or amend the Plan at any time
or from time to time, subject to certain limitations. In the event of a stock
dividend, stock split, recapitalization or the like, the Administrator will
equitably adjust the aggregate number of shares subject to the Plan, the number
of shares subject to each outstanding award, and the exercise price of each
outstanding option.
Grants Under the Plan
Options granted under the Plan may be either incentive stock options or
non-qualified stock options. Incentive stock options are intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The exercise price of any incentive stock options granted under the Plan may not
be less than the fair market value of the Common Stock at the time the option is
granted, provided that, with respect to an incentive stock option granted to an
optionee who is or will be the beneficial owner of more than 10% of the combined
voting power of all classes of the Company's stock, the exercise price may not
be less than 110% of the fair market value of the Common Stock on the date of
grant. The exercise price of any non-qualified stock options granted under the
Plan may be less than the fair market value of the Common Stock but not less
than $.01 per share, the par value thereof.
Incentive stock options and non-qualified stock options may be granted with
terms of no more than ten years from the date of grant, provided that in the
case of an incentive stock option granted to an optionee who is or, after such
grant, will be the beneficial owner of more than 10% of the combined voting
power of all classes of the Company's stock, the term of such option may not
exceed five years. Options will survive for a limited time after the optionee's
death, disability or normal retirement from the Company. Any shares as to which
an option expires, lapses unexercised, or is terminated or cancelled may be
subject to a new option.
Unless otherwise determined by the Administrator, in his sole discretion,
options are to become exercisable cumulatively over a four-year period, with 25%
of the options becoming exercisable on each of the first four anniversaries of
the date of grant. The purchase price per share payable upon the exercise of an
option (the "option exercise price") will be established by the Administrator,
provided that in the case of an incentive stock option the option exercise price
shall be no less than 100% of the closing price of Common Stock on the date of
grant and, in the case of a non-qualified stock option, the option exercise
price shall be no less than par value. The option exercise price is payable in
cash, or, with the consent of the Administrator, by surrender of shares of
Common Stock having a fair market value on the date of the exercise equal to
part or all of the option exercise price, or by such other payment method as the
Administrator may prescribe.
Termination of Employment or Service
Unless the Administrator otherwise specifies: (i) all options not yet
exercised shall terminate upon termination of the grantee's employment or
service by reason of discharge for cause; (ii) if a grantee's employment or
service terminates for reasons other than cause or death or disability, the
grantee's options generally will be exercisable for 90 days (extendable to one
year by the Administrator) after termination to the extent that they were
exercisable at termination, but not after the expiration date of the award; and
(iii) if a grantee dies while in the Company's employ or service or during the
aforementioned post-employment exercise period, the grantee's options will, to
the extent exercisable immediately prior to death, generally remain exercisable
for one year after the date of death, but not after the expiration date of the
award.
Federal Income Tax Consequences of Plan Awards
The following brief description of the tax consequences of awards under the
Plan is based on present Federal tax laws, and does not purport to be a complete
description of the Federal tax consequences of the Plan.
There are generally no Federal tax consequences either to the optionee or
to the Company upon the grant of an option. Upon exercise of an incentive stock
option, the optionee will not recognize any income, and the Company will not be
entitled to a deduction for tax purposes, although such exercise may give rise
to liability for the optionee under the alternative minimum tax provisions of
the Code. Generally, if the optionee disposes of shares acquired upon exercise
of an incentive stock option within two years of the date of grant or one year
of the date of exercise, the optionee will recognize compensation income, and
the Company will be entitled to a deduction for tax purposes, in the amount of
the excess of the fair market value of the shares of Common Stock on the date of
exercise over the option exercise price (or the gain on sale, if less); the
remainder of any gain to the optionee will be treated as capital gain.
Otherwise, the Company will not be entitled to any deduction for tax purposes
upon disposition of such shares, and the entire gain for the optionee will be
treated as a capital gain. Upon exercise of a non-qualified stock option, the
amount by which the fair market value of the Common Stock on the date of
exercise exceeds the option exercise price will generally be taxable to the
optionee as compensation income, and will generally be deductible for tax
purposes by the Company. The disposition of shares of Common Stock acquired upon
exercise of a non-qualified stock option will generally result in a capital gain
or loss for the optionee, but will have no tax consequences for the Company.
Limitations on the Company's Compensation Deduction. Section 162(m) of the
Code will limit the deduction which the Company may take for otherwise
deductible compensation payable to certain executive Officers to the extent that
compensation paid to such Officers for a year exceeds $1 million, unless such
compensation is performance-based, is approved by the Company's Stockholders and
meets certain other criteria. Although the Company believes that compensation
realized from stock options and stock appreciation rights granted under the Plan
generally will satisfy the requirements to be considered performance-based for
purposes of Section 162(m) of the Code, there is no assurance that such awards
will satisfy such requirements, and, accordingly, the Company may be limited by
Section 162(m) in the amount of deductions it would otherwise be entitled to
take with respect to such awards under the Plan.
Tax Withholding. The Committee may require payments from participants in
the Plan, or withhold from payments due to be made thereunder, in order to
satisfy applicable withholding tax requirements.
19. AMENDMENT OF CHARTER, BY-LAWS OR OTHER DOCUMENTS:
GENERAL
The Board of Directors, believing it to be in the best interests of the
Company and its stockholders to amend and restate Articles IV and VI of the
Company's Restated Certificate of Incorporation to (i) increase the authorized
capital stock of the Company to 25,000,000 shares from 10,000,000 shares,
(ii)-create a new class of "blank check" preferred stock consisting of 3,000,000
shares, and (iii) modernize the provisions of the Certificate of Incorporation
governing the indemnification of officers and directors of the Company
(collectively, the "Charter Amendments"), on June 10, 1997 voted to file a
Certificate of Amendment and Restatement to the Amended and Restated Certificate
of Incorporation to effect the Charter Amendments. The amended and restated text
of Articles IV and VI, substantially in the form of Annex A to this Information
Statement, was approved by the Majority Stockholders in the Written Consent.
(a) Increase in Authorized Capital Stock of the Company to 25,000,000 from
10,000,000
The Board of Directors adopted a resolution unanimously approving and
recommending to the Stockholders for their approval by written consent, an
amendment to the Certificate of Incorporation to provide therein for the
authorization of a total of 25,000,000 shares of capital stock. The text of the
Article IV of the Certificate of Incorporation, as amended and restated, is set
forth in Annex A to this Information Statement. The Written Consent approved
such amendment.
The Company's Certificate of Incorporation currently authorizes the Company
to issue up to 10,000,000 shares of Common Stock. The Company, currently has
issued and outstanding 5,510,385 shares of Common Stock and has reserved an
additional 207,358 shares of Common Stock for issuance upon exercise of
outstanding warrants of the Company and 800,000 shares of Common Stock for
issuance under the Company's stock option plan (assuming the increase in Common
Stock reserved for issuance upon exercise of options under the Plan to 800,000).
As a result, the number of authorized, non-designated shares of Common Stock
available for issuance by the Company in the future has been greatly reduced.
Additionally, the Company has entered into a letter of intent for a private
placement of a maximum amount of $6.3 million of its equity and convertible
securities. Hence, the Company's flexibility with respect to possible future
stock splits, equity financings, stock-for-stock acquisitions, stock dividends
or other transactions that involve the issuance of Common Stock has been
diminished. The Board believes that by increasing the shares of authorized
capital stock to 25,000,000 from 10,000,000, the Company will restore its
ability to take such actions.
(b) Creation of "Blank Check" Preferred Stock
The Board of Directors on June 10, 1997 also adopted a resolution
unanimously approving and recommending to the Stockholders for their approval by
written consent, an amendment to the Certificate of Incorporation to provide
therein for the creation of 3,000,000 shares of "Blank Check" Preferred Stock.
The text of the Article IV of the Certificate of Incorporation, as amended and
restated is included in Annex A to this Information Statement. The Written
Consent approved such amendment. The Board of Directors believes that having
such Blank Check Preferred Stock available for, among other things, possible
issuance in connection with such activities as public or private offerings of
shares for cash, dividends payable in stock of the Company, acquisitions of
other companies or businesses, and otherwise, is in the best interest of the
Company and its Stockholders.
The term "Blank Check" Preferred Stock refers to stock for which the
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof (collectively, the
"Limitations and Restrictions") are determined by the board of directors of a
company. As such, the Board of Directors of the Company will be entitled to
authorize the creation and issuance of 3,000,000 shares of Preferred Stock in
one or more series with such Limitations and Restrictions as may be determined
in the Board's sole discretion, with no further authorization by stockholders
required for the creation and issuance thereof.
The Board of Directors is required to make any determination to issue
shares of Common Stock or Preferred Stock based on its judgment as to the best
interests of the stockholders and the Company. Although the Board of Directors
has no present intention of doing so, it could issue shares of Common Stock or
Preferred Stock that may, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. When, in the judgment of
the Board of Directors, this action will be in the best interest of the
stockholders and the Company, such shares could be used to create voting or
other impediments or to discourage persons seeking to gain control of the
Company. Such shares could be privately placed with purchasers favorable to the
Board of Directors in opposing such action. In addition, the Board of Directors
could authorize holders of a series of Common or Preferred Stock to vote either
separately as a class or with the holders of the Company's Common Stock, on any
merger, sale or exchange of assets by the Company or any other extraordinary
corporate transaction. The existence of the additional authorized shares could
have the effect of discouraging unsolicited takeover attempts. The issuance of
new shares also could be used to dilute the stock ownership of a person or
entity seeking to obtain control of the Company should the Board of Directors
consider the action of such entity or person not to be in the best interest of
the stockholders and the Company.
While the Company may consider effecting an equity offering of Preferred
Stock in the proximate future for purposes of raising additional working capital
or otherwise, the Company, as of the date hereof, has no agreements or
understandings with any third party to effect any such offering, to purchase any
shares offered in connection therewith, and no assurances are given that any
offering will in fact be effected.
(c) Modernization of Indemnification Provision
The Board of Directors, in light of recent Delaware caselaw relating to
payment of expenses in connection with indemnification under Section 145 of the
General Corporation Law of the State of Delaware ("Section 145") on June 10,
1997 adopted a resolution unanimously approving and recommending to the
Stockholders for their approval by written consent, an amendment to the
Certificate of Incorporation to make explicit that (a) the Company would advance
expenses in connection with any action for which any person could be indemnified
pursuant to Section 145, (b) that any such indemnification would be in addition
to other rights of indemnification that such persons might otherwise have and
(c) that any amendment or repeal of the indemnification provision of the
Certificate of Incorporation would not adversely affect any rights of persons
pursuant to such provisions with respect to acts or omissions prior to such
repeal or amendment. The Board of Directors believes that this amendment will
facilitate maintaining the broadest indemnification permissible under Delaware
law and will assist the Company in retaining the most qualified possible
officers, directors, employees and consultants. Such amendment was approved by
the Majority Stockholders in the Written Consent.
20. TERMINATION OF SHAREHOLDERS AGREEMENT:
The Shareholders Agreement, pursuant to its terms, may be terminated upon
the agreement of the company and the holders of a majority of then outstanding
Shares who vote on the issue. In the Termination, the Majority Stockholders
approved the termination of the Shareholders Agreement, which Termination has
also been entered into by the Company. The Termination is effective as of
October 5, 1997. The principal effect of the Termination will be to terminate
(i) certain rights of first refusal and other restrictions on transfers of
shares held by such stockholders; (ii) certain piggyback registration rights of
the stockholders party to such agreement; (iii) certain preemptive rights of
the stockholders party to such agreement. The parties to the Shareholders
Agreement include the five principal stockholders of a predecessor by merger
to the company, including the Majority Stockholders who are directors and
executive officers of the Company, certain purchasers of stock issuable upon
conversion or exercise of the Company's 15% Subordinated Convertible
Debentures and the related common stock purchase warrants.
By Order of the Board of Directors
/s/Thomas J. Axon
Thomas J. Axon
President
Dated: September 15, 1997
<PAGE>
Annex A
Text of Articles IV and VI of Amended and Restated Certificate of Incorporation
ARTICLE IV
A. The aggregate number of shares which the Corporation shall have
authority to issue is twenty five million (25,000,000), consisting of twenty two
million (22,000,000) shares of Common Stock, par value $.01 per share (the
"Common Stock") and three million (3,000,000) shares of undesignated Preferred
Stock, par value $.001 per share (the "Preferred Shares").
B. Authority is hereby expressly granted to the Board of Directors (or a
committee thereof designated by the Board of Directors pursuant to the
Corporation's By-Laws, as from time to time amended, to issue the Preferred
Shares from time to time as preferred shares of any series and to declare and
pay dividends thereon in accordance with the terms thereof and, in connection
with the creation of each such series, to fix by the resolution or resolutions
providing for the issue of shares thereof, the number of share of such series,
and the designations, powers, preferences, and rights (including voting rights),
and the qualifications, limitations, and restrictions, of such series, to the
full extent now or hereafter permitted by the laws of the State of Delaware.
ARTICLE VI
A. All persons whom the Corporation is empowered to indemnify pursuant to
the provisions of Section 145 of the General Corporation Law of the State of
Delaware (or any similar provision or provisions of applicable law at the time
in effect) shall be indemnified by the Corporation to the full extent permitted
thereby. The foregoing right of indemnification shall include, without
limitation, indemnification for and as incurred, reasonable attorneys' fees and
expenses incurred in connection with investigating, preparing or defending any
claims, or, if not a party, of responding as a custodian of documents or in any
manner related thereto. The foregoing right of indemnification shall not be
deemed to be exclusive of any other such rights to which those seeking
indemnification from the Corporation may be entitled, including, but not limited
to, any rights of indemnification to which they may be entitled pursuant to any
agreement, insurance policy, other by-law or charter provision, vote of
stockholders or directors, or otherwise. No repeal or amendment of this Article
VI shall adversely affect any rights of any person pursuant to this Article VI
which existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
B. No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i)-for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No amendment to or
repeal of this Article VI.B shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
<PAGE>
Annex B
FRANKLIN CREDIT MANAGEMENT CORPORATION
1996 STOCK INCENTIVE PLAN
<PAGE>
ARTICLE I
GENERAL
1.1 Purpose
The purpose of the Franklin Credit Management Corporation 1996 Stock
Incentive Plan (the "Plan") is to provide for officers, directors and other
employees of, and consultants to, Franklin Credit Management Corporation (the
"Company") an incentive (a)-to enter into and remain in the service of the
Company, (b)-to enhance the long-term performance of the Company, and (c)-to
acquire a proprietary interest in the success of the Company.
1.2 Administration
1.2.1 All determinations under the Plan concerning the selection of persons
eligible to receive awards with respect to the timing, pricing and amount of an
award shall be made by the administrator (the "Administrator") of the Plan. The
Administrator shall be either: (a) the Board of Directors or (b) in the
discretion of the Board of Directors, a committee (the "Committee") of not less
than two members of the Board of Directors. In the event the Plan is
administered by the Committee, the Committee shall select one of its members to
serve as the chairman thereof and shall hold its meetings at such times and
places as it may determine. In such case, a majority of the total number of
members of the Committee shall be necessary to constitute a quorum; and (i) the
affirmative act of a majority of the members present at any meeting at which a
quorum is present, or (ii) the approval in writing by a majority of the members
of the Committee, shall be necessary to constitute action by the Committee.
1.2.2 The Administrator shall have the authority (a) to exercise all of the
powers granted to it under the Plan, (b) to construe, interpret and implement
the Plan and any Plan Agreements executed pursuant to Section 2.1, (c) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e)-to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, and (f) to
amend the Plan to reflect changes in applicable law.
1.2.3 The determination of the Administrator on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.4 Neither the Administrator nor any member thereof shall be liable for
any action or determination made in good faith with respect to the Plan or any
award thereunder.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such officers, directors and employees
of the Company, and to such consultants to the Company (collectively, "key
persons"), as the Administrator shall in its sole discretion select.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a)-incentive stock
options, and/or (b)-nonqualified stock options, all as more fully set forth in
Article II. The term "award" means any of the foregoing. No incentive stock
option may be granted to a person who is not an employee of the Company on the
date of grant.
1.5 Shares Available for Awards
1.5.1 The total number of shares of common stock of the Company, par value
$.01 per share ("Common Stock"), with respect to which awards may be granted
pursuant to the Plan shall not exceed eight hundred thousand (800,000) shares.
Such shares may be authorized but unissued Common Stock or authorized and issued
Common Stock held in the Company's treasury or acquired by the Company for the
purposes of the Plan. The Administrator may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend setting forth
such restrictions on transferability as may apply to such shares pursuant to the
Plan.
1.5.2 If there is any change in the outstanding shares of Common Stock by
reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding award, and the purchase price per share
under outstanding awards, shall be equitably adjusted by the Administrator,
whose determination shall be final, binding and conclusive. After any adjustment
made pursuant to this Section 1.5.2, the number of shares subject to each
outstanding award shall be rounded to the nearest whole number.
1.5.3 Any shares subject to an award under the Plan that remain unissued
upon the cancellation or termination of such award for any reason whatsoever
shall again become available for awards under the Plan. Except as provided in
this Section 1.5 and in Section 2.2.4, there shall be no limit on the number or
the value of the shares of Common Stock issuable to any individual under the
Plan.
1.5.4 In no event shall the number of shares of Common Stock subject to
options awarded during the term of the Plan to any employee exceed 480,000
shares.
1.6 Definitions of Certain Terms
1.6.1 The "Fair Market Value" of a share of Common Stock on any day shall
be determined as follows.
(a) If the principal market for the Common Stock (the "Market") is a
national securities exchange or the Nasdaq National Market, the last sale price
or, if no reported sales take place on the applicable date, the average of the
high bid and low asked price of Common Stock as reported for such Market on such
date or, if no such quotation is made on such date, on the next preceding day on
which there were quotations, provided that such quotations shall have been made
within the ten (10) business days preceding the applicable date;
(b) If the Market is the Nasdaq Small Cap Market or another market, the
average of the high bid and low asked price for Common Stock on the applicable
date, or, if no such quotations shall have been made on such date, on the next
preceding day on which there were quotations, provided that such quotations
shall have been made within the ten (10) business days preceding the applicable
date; or,
(c) In the event that neither paragraph (a) nor (b) shall apply, the Fair
Market Value of a share of Common Stock on any day shall be determined by the
Administrator.
1.6.2 The term "incentive stock option" means an option that is intended to
qualify for special federal income tax treatment pursuant to sections 421 and
422 of the Internal Revenue Code of 1986, as now constituted or subsequently
amended (the "Code"), or pursuant to a successor provision of the Code, and
which is so designated in the applicable Plan Agreement. Any option that is not
specifically designated as an incentive stock option shall under no
circumstances be considered an incentive stock option. Any option that is not an
incentive stock option is referred to herein as a "nonqualified stock option."
1.6.3 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company as a director, consultant or otherwise.
1.6.4 A grantee shall be deemed to have a "termination of employment" upon
ceasing to be employed by the Company and all of its subsidiaries or by a
corporation assuming awards in a transaction to which section 424(a) of the Code
applies. The Administrator may in its discretion determine (a) whether any leave
of absence constitutes a termination of employment for purposes of the Plan, (b)
the impact, if any, of any such leave of absence on awards theretofore made
under the Plan, and (c) when a change in a non-employee's association with the
Company constitutes a termination of employment for purposes of the Plan. The
Administrator shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Administrator may retroactively deem to be the date of
the action that is cause for dismissal. Such determinations of the Administrator
shall be final, binding and conclusive. 1.6.5 The terms "parent corporation" and
"subsidiary corporation" have the meanings given them in section 424(e) and (f)
of the Code, respectively.
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards
Each award granted under the Plan shall be evidenced by a written agreement
("Plan Agreement") which shall contain such provisions as the Administrator may
in its sole discretion deem necessary or desirable. By accepting an award
pursuant to the Plan, a grantee thereby agrees that the award shall be subject
to all of the terms and provisions of the Plan and the applicable Plan
Agreement.
2.2 Grant of Stock Options
2.2.1 The Administrator may grant incentive stock options and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company, to such key persons, and in such amounts and subject to such terms
and conditions, as the Administrator shall determine in its sole discretion,
subject to the provisions of the Plan.
2.2.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Administrator in its sole discretion; provided,
however, that the option exercise price of an incentive stock option shall be at
least 100% of the Fair Market Value of a share of Common Stock on the date the
option is granted, and provided further that in no event shall the option
exercise price be less than the par value of a share of Common Stock.
2.2.3 Each Plan Agreement with respect to an option shall set forth the
periods during which the award evidenced thereby shall be exercisable, whether
in whole or in part. Such periods shall be determined by the Administrator in
its sole discretion; provided, however, that no incentive stock option shall be
exercisable more than 10 years after the date of grant.
2.2.4 To the extent that the aggregate Fair Market Value (determined as of
the time the option is granted) of the stock with respect to which incentive
stock options are first exercisable by any employee during any calendar year
shall exceed $100,000, or such higher amount as may be permitted from time to
time under section 422 of the Code, such options shall be treated as
nonqualified stock options. In applying this provision, there shall be taken
into account solely incentive stock options granted after December 31, 1986 to
the employee under this Plan and under all other plans of the Company and any
subsidiary thereof.
2.2.5 Notwithstanding the provisions of Section 2.2.2 and 2.2.3, an
incentive stock option may not be granted under the Plan to an individual who,
at the time the option is granted, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of his employer corporation
or of its parent or subsidiary corporations (as such ownership may be determined
for purposes of section 422(b)(6) of the Code) unless (a) at the time such
incentive stock option is granted the option exercise price is at least 110% of
the Fair Market Value of the shares subject thereto and (b) the incentive stock
option by its terms is not exercisable after the expiration of 5 years from the
date it is granted.
2.3 Exercise of Options
Subject to the provisions of this Article II, each option granted under the
Plan shall be exercisable as follows:
2.3.1 Unless the applicable Plan Agreement otherwise provides, an option
shall become exercisable in four substantially equal installments, the first of
which shall become exercisable on the first anniversary of the date of grant and
the remaining three of which shall become exercisable, respectively, on the
second, third and fourth anniversaries of the date of grant.
2.3.2 Unless the applicable Plan Agreement otherwise provides, once an
installment becomes exercisable, it shall remain exercisable until expiration,
cancellation or termination of the award.
2.3.3 Unless the applicable Plan Agreement otherwise provides, an option
may be exercised from time to time as to all or part of the shares as to which
such award is then exercisable.
2.3.4 An option shall be exercised by the filing of a written notice with
the Company, on such form and in such manner as the Administrator shall in its
sole discretion prescribe.
2.3.5 Any written notice of exercise of an option shall be accompanied by
payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; or (b) with the consent of the
Administrator, by delivery of shares of Common Stock having a Fair Market Value
(determined as of the exercise date) equal to all or part of the option exercise
price (but only if held by the grantee for a period of time sufficient to
prevent a pyramid exercise that would create a charge to the Company's earnings)
and a certified or official bank check (or the equivalent thereof acceptable to
the Company) for any remaining portion of the full option exercise price; or (c)
at the discretion of the Administrator and to the extent permitted by law, by
such other provision, consistent with the terms of the Plan, as the
Administrator may from time to time prescribe.
2.3.6 Promptly after receiving payment of the full option exercise price,
the Company shall, subject to the provisions of Section 3.2, deliver to the
grantee or to such other person as may then have the right to exercise the
award, a certificate or certificates for the shares of Common Stock for which
the award has been exercised. If the method of payment employed upon option
exercise so requires, and if applicable law permits, an optionee may direct the
Company to deliver the certificate(s) to the optionee's stockbroker.
2.3.7 No grantee of an option (or other person having the right to exercise
such award) shall have any of the rights of a stockholder of the Company with
respect to shares subject to such award until the issuance of a stock
certificate to such person for such shares. Except as otherwise provided in
Section 1.5.2, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
2.4 Termination of Employment; Death
2.4.1 Except to the extent otherwise provided in Section 2.4.2 or 2.4.3 or
in the applicable Plan Agreement, all options not theretofore exercised shall
terminate upon termination of the grantee's employment for any reason (including
death).
2.4.2 If a grantee's employment terminates for any reason other than death
or dismissal for cause, the grantee may exercise any outstanding option on the
following terms and conditions: (a) exercise may be made only to the extent that
the grantee was entitled to exercise the award on the date of employment
termination; and (b) exercise must occur within three months after employment
terminates, except that the three-month period shall be increased to one year if
the termination is by reason of disability, but in no event after the expiration
date of the award as set forth in the Plan Agreement. The term "Disability"
shall be defined as determined by the Administrator in its sole discretion
provided, however, that if any such determination in the case of an Incentive
Stock Option does not meet the requirements of Section 422(c)(6) of the Code,
the option shall be converted to a non-qualified stock option.
2.4.3 If a grantee dies while employed by the Company or any subsidiary, or
after employment termination but during the period in which the grantee's awards
are exercisable pursuant to Section 2.4.2, any outstanding option shall be
exercisable on the following terms and conditions: (a)-exercise may be made only
to the extent that the grantee was entitled to exercise the award on the date of
death; and (b)-exercise must occur by the earlier of the first anniversary of
the grantee's death or the expiration date of the award. Any such exercise of an
award following a grantee's death shall be made only by the grantee's executor
or administrator or personal representative, unless the grantee's will
specifically disposes of such award, in which case such exercise shall be made
only by the recipient of such specific disposition. If a grantee's personal
representative or the recipient of a specific disposition under the grantee's
will shall be entitled to exercise any award pursuant to the preceding sentence,
such representative or recipient shall be bound by all the terms and conditions
of the Plan and the applicable Plan Agreement which would have applied to the
grantee including, without limitation, the provisions of Sections 3.2 and 3.7
hereof.
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time suspend, discontinue, revise or amend
the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
upon the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Administrator
that alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
3.1.2 Shareholder approval shall be required with respect to any amendment
which: (a) increases the aggregate number of shares which may be issued pursuant
to incentive stock options or changes the class of employees eligible to receive
such options; or (b) materially increases the benefits under the Plan to persons
whose transactions in Common Stock are subject to Section 16(b) of the
Securities Exchange Act of 1934 (the "1934 Act"), materially increases the
number of shares which may be issued to such persons, or materially modifies the
eligibility requirements affecting such persons.
3.1.3 The Administrator may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would (a)-accelerate the time
or times at which the award may be exercised, or (b) waive or amend any goals,
restrictions or conditions set forth in the Plan Agreement, or (c)-extend the
scheduled expiration date of the award. However, any such cancellation or
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 Restrictions
3.2.1 If the Administrator shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have- been effected or obtained to the full satisfaction of
the Administrator.
3.2.2 The term "Consent" as used herein with respect to any Plan Action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b)-any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Administrator shall deem necessary or desirable to
comply with the terms of any such listing, registration or qualification or to
obtain an exemption from the requirement that any such listing, qualification or
registration be made and (c) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies.
3.3 Nonassignability
No award or right granted to any person under the Plan or under any Plan
Agreement shall be assignable or transferable other than by will or by the laws
of descent and distribution. All rights granted under the Plan or any Plan
Agreement shall be exercisable during the life of the grantee only by the
grantee or the grantee's legal representative.
3.4 Requirement of Notification of Election
Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under section 83(b) of
the Code (i.e., an election to include in gross income in the year of transfer
the amounts specified in section 83(b)), such grantee shall notify the Company
of such election within 10 days of filing notice of the election with the
Internal Revenue Service, in addition to any filing and notification required
pursuant to regulations issued under the authority of Code section 83(b).
3.5 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code
Each Plan Agreement with respect to an incentive stock option shall require
the grantee to notify the Company of any disposition of shares of Common Stock
issued pursuant to the exercise of such option under the circumstances described
in section 421(b) of the Code (relating to certain disqualifying dispositions),
within 10 days of such disposition.
3.6 Withholding Taxes
3.6.1 Whenever shares of Common Stock are to be delivered pursuant to an
award under the Plan, the Company shall be entitled to require as a condition of
delivery that the grantee remit to the Company an amount sufficient in the
opinion of the Company to satisfy all federal, state and other governmental tax
withholding requirements related thereto. With the approval of the
Administrator, which it shall have sole discretion to grant, the grantee may
satisfy the foregoing condition by electing to have the Company withhold from
delivery shares having a value equal to the amount of tax to be withheld. Such
shares shall be valued at their Fair Market Value on the date as of which the
amount of tax to be withheld is determined (the "Tax Date"). Fractional share
amounts shall be settled in cash. Such a withholding election may be made with
respect to all or any portion of the shares to be delivered pursuant to an
award.
3.7 Right of Discharge Reserved
Nothing in the Plan or in any Plan Agreement shall confer upon any grantee
the right to continue in the employ of the Company or affect any right which the
Company may have to terminate such employment.
3.8 Nature of Payments
3.8.1 Any and all grants of awards and issuances of shares of Common Stock
under the Plan shall be in consideration of services performed for the Company
by the grantee.
3.8.2 All such grants and issuances shall constitute a special incentive
payment to the grantee and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the purpose of determining
any benefits under any pension, retirement, profit-sharing, bonus, life
insurance or other benefit plan of the Company or under any agreement between
the Company and the grantee, unless such plan or agreement specifically provides
otherwise.
3.9 Non-Uniform Determinations
The Administrator's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Administrator
shall be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan Agreements, as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan, and (c) the treatment of leaves of absence
pursuant to Section 1.6.4.
3.10 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
3.11 Section Headings
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of said sections.
3.12 Effective Date and Term of Plan
3.12.1 The Plan was adopted by the Board in May 1996, subject to approval
by the Company's shareholders. All awards under the Plan prior to such
shareholder approval are subject in their entirety to such approval. If such
approval is not obtained prior to the first anniversary of the date of adoption
of the Plan, the Plan and all awards thereunder shall terminate on that date.
3.12.2 Unless sooner terminated by the Board, the provisions of the Plan
respecting the grant of incentive stock options shall terminate on the tenth
anniversary of the adoption of the Plan by the Board, and no incentive stock
option awards shall thereafter be made under the Plan. All such awards made
under the Plan prior to its termination shall remain in effect until such awards
have been satisfied or terminated in accordance with the terms and provisions of
the Plan and the applicable Plan Agreements.
3.13 Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
