SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
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):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
(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:
FRANKLIN CREDIT MANAGEMENT CORPORATION
Six Harrison Street
New York, New York 10013
April 22, 2005
To Our Stockholders:
You are cordially invited to attend the 2005 Annual Meeting of
Stockholders of Franklin Credit Management Corporation (the "Company"), which
will be held at the corporate offices of the Company, located at Six Harrison
Street, Fourth Floor, New York, New York, on Thursday, May 5, 2005, at 10:00
A.M., Eastern Daylight Time.
The Notice of Annual Meeting and Proxy Statement covering the formal
business to be conducted at the Annual Meeting follow this letter and are
accompanied by the Company's Annual Report for the fiscal year ended December
31, 2004.
We hope you will attend the Annual Meeting in person. Whether or not you
plan to attend, please complete, sign, date and return the enclosed proxy
promptly in the accompanying reply envelope to assure that your shares are
represented at the meeting.
Sincerely yours,
/s/ Thomas J. Axon
-----------------------
THOMAS J. AXON
Chairman
FRANKLIN CREDIT MANAGEMENT CORPORATION
Six Harrison Street
New York, New York 10013
----------------
(212) 925-8745
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
May 5, 2005
----------------
Notice is hereby given that the Annual Meeting of Stockholders of Franklin
Credit Management Corporation (the "Company") will be held at the corporate
offices of the Company, located at Six Harrison Street, Fourth Floor, New York,
New York, at 10:00 A.M., Eastern Daylight Time, on Thursday, May 5, 2005 for the
following purposes:
1. to elect nine directors to the Company's Board of Directors;
2. to ratify the appointment of Deloitte & Touche as the Company's
independent registered public accounting firm for the fiscal year
ending December 31, 2005; and
3. to transact such other business as may be properly brought before
the meeting and any adjournment or postponement thereof.
The Board of Directors unanimously recommends that you vote FOR the
election of all nine nominees as Directors and FOR the approval of the
appointment of the independent registered public accounting firm.
Stockholders of record at the close of business on March 28, 2005 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment or
postponement thereof.
Whether or not you plan to attend the Annual Meeting in person, please
complete, sign, date and return the enclosed proxy in the reply envelope
provided which requires no postage if mailed in the United States. Stockholders
attending the Annual Meeting may vote in person even if they have returned a
proxy. By promptly returning your proxy, you will greatly assist us in preparing
for the Annual Meeting.
By Order of the Board of Directors,
/s/ Thomas J. Axon
-------------------------
THOMAS J. AXON
Chairman
New York, New York
April 22, 2005
FRANKLIN CREDIT MANAGEMENT CORPORATION
Six Harrison Street
New York, New York 10013
(212) 925-8745
-----------------
PROXY STATEMENT FOR
2005 ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 5, 2005
-----------------
General Information
This Proxy Statement and the enclosed form of proxy are being furnished,
commencing on or about April 22, 2005, in connection with the solicitation of
proxies in the enclosed form by the Board of Directors of Franklin Credit
Management Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders ("Stockholders") of the Company (the "Annual
Meeting"). The Annual Meeting will be held at the corporate offices of the
Company, located at Six Harrison Street, Fourth Floor, New York, New York, at
10:00 A.M., Eastern Daylight Time, on Thursday, May 5, 2005, and at any
adjournment or postponement thereof, for the purposes set forth in the foregoing
Notice of 2005 Annual Meeting of Stockholders.
The annual report of the Company, containing financial statements of the
Company as of December 31, 2004, and for the year then ended (the "Annual
Report"), has been delivered to you or is included with this proxy statement.
A list of the Stockholders entitled to vote at the Annual Meeting will be
available for examination by Stockholders during ordinary business hours for a
period of ten days prior to the Annual Meeting at the corporate offices of the
Company. A Stockholder list will also be available for examination at the Annual
Meeting.
If you are unable to attend the Annual Meeting, you may vote by proxy on
any matter to come before that meeting. The enclosed proxy is being solicited by
the Board of Directors. Any proxy given pursuant to such solicitation and
received in time for the Annual Meeting will be voted as specified in such
proxy. If no instructions are given, proxies will be voted (i) FOR the election
as Directors of the nine nominees named below under the caption "Election of
Directors" to the terms specified under such caption, (ii) FOR the ratification
of the appointment of Deloitte & Touche LLP ("D&T") as independent registered
public accounting firm for the Company's fiscal year ending December 31, 2005,
and (iii) in the discretion of the proxies named on the proxy card with respect
to any other matters properly brought before the Annual Meeting. Attendance in
person at the Annual Meeting will not of itself revoke a proxy; however, any
Stockholder who does attend the Annual Meeting may revoke a proxy orally and
vote in person. Proxies may be revoked at any time before they are voted by
timely submitting a properly executed proxy with a later date or by sending a
written notice of revocation to the Secretary of the Company at the Company's
principal executive offices.
This Proxy Statement and the accompanying form of proxy are being mailed
to Stockholders of the Company on or about April 22, 2005.
Following the original mailing of proxy solicitation material, executive
and other employees of the Company and professional proxy solicitors may solicit
proxies by mail, telephone, telegraph and personal interview. Arrangements may
also be made with brokerage houses and other custodians, nominees and
fiduciaries who are record holders of the Company's Common Stock to forward
proxy solicitation material to the beneficial owners of such stock, and the
Company may reimburse such record holders for their reasonable expenses incurred
in such forwarding. The cost of soliciting proxies in the enclosed form will be
borne by the Company.
The Company's Board of Directors has unanimously voted to recommend that
you vote for the nominees for election to the Board of Directors listed below
and for the appointment of D&T as the independent public auditors of the Company
for the fiscal year ended December 31, 2005.
Voting of Shares
The holders of one-half of the outstanding shares entitled to vote,
present in person or represented by proxy, will constitute a quorum for the
transaction of business. Shares represented by proxies that are marked "abstain"
will be counted as shares present for purposes of determining the presence of a
quorum on all matters. Brokers holding shares for beneficial owners in "street
name" must vote those shares according to specific instructions they receive
from the owners of such shares. If instructions are not received, brokers may
vote the shares, in their discretion, depending on the type of proposals
involved. "Broker non-votes" result when brokers are precluded from exercising
their discretion on certain types of proposals. However, brokers have
discretionary authority to vote on all the proposals being submitted hereby to
the Stockholders. Shares that are voted by brokers on some but not all of the
matters will be treated as shares present for purposes of determining the
presence of a quorum on all matters, but will not be treated as shares entitled
to vote at the Annual Meeting on those matters as to which authority to vote is
withheld by the broker.
The election of each nominee for Director requires a plurality of votes
cast. Accordingly, abstentions and Broker non-votes will not affect the outcome
of the election; votes that are withheld will be excluded entirely from the vote
and will have no effect. The affirmative vote of the holders of a majority of
the shares present in person or represented by proxy at the meeting and entitled
to vote is required for the appointment of the independent public auditors. On
this matter the abstentions will have the same effect as a negative vote.
Because Broker non-votes will not be treated as shares that are present and
entitled to vote with respect to a specific proposal, a Broker non-vote will
have no effect on the outcome. Proxies solicited by the Board of Directors will
be voted for each of the nominees listed above, unless Stockholders specify
otherwise.
The Company will appoint an inspector to act at the Annual Meeting who
will: (1) ascertain the number of shares outstanding and the voting powers of
each; (2) determine the shares represented at the Annual Meeting and the
validity of the proxies and ballots; (3) count all votes and ballots; (4)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determinations by such inspector; and (5) certify
his determination of the number of shares represented at the Annual Meeting and
his count of all votes and ballots.
Only Stockholders of record at the close of business on March 28, 2005 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment or
postponement thereof. As of the close of business on March 28, 2005, there were
outstanding 6,082,295 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"). Each share of Common Stock entitles the record
holder thereof to one vote on all matters properly brought before the Annual
Meeting and any adjournment or postponement thereof, with no cumulative voting.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2005, 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 Executive Officers (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.
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Name and Address of Number of Shares Percentage (%) of
Beneficial Owner (1) Beneficially Owned Common Stock Outstanding
------------------------------------------------------------------------------
Lawrence J. Goldstein (2)......... 317,619 5.2%
1865 Palmer Avenue
Larchmont, New York 10538
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Thomas J. Axon (3)................ 3,312,619 53.5%
------------------------------------------------------------------------------
Jeffrey R. Johnson (4)............ 120,000 2.0%
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Joseph Caiazzo (5)................ 218,550 3.5%
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Michael Bertash (6)............... 33,667 *
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Frank B. Evans, Jr. (7)........... 867,425 14.2%
------------------------------------------------------------------------------
Alexander Gordon Jardin........... 0 -
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Steven W. Lefkowitz (8)........... 273,167 4.4%
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Allan R. Lyons (6)................ 71,167 1.2%
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William F. Sullivan (9)........... 63,367 1.0%
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Robert M. Chiste.................. 6,000 *
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Alan Joseph (10).................. 103,500 1.7%
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Paul D. Colasono.................. 0 *
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John Devine (11).................. 66,500 1.1%
------------------------------------------------------------------------------
All Directors and Executive
Officers as a group
(13 persons) (12)................. 5,164,962 75.7%
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* Indicates beneficial ownership of less than one (1%) percent.
(1) Unless otherwise indicated the address of each beneficial owner identified
is C/O Franklin Credit Management Corporation, Six Harrison Street, New
York, New York 10013.
(2) Includes 295,319 shares held by Santa Monica Partners, L.P. and its general
partner, SMP Asset Management, LLC, of which Mr. Goldstein is president and
sole owner; 7,800 shares held by Santa Monica Partners II, L.P. and its
general partner, Santa Monica Partners Asset Management LLC, of which Mr.
Goldstein is president and sole owner; and 14,500 shares held by Mr.
Goldstein.
(3) Includes 115,000 shares issuable upon exercise of options exercisable
within sixty days.
(4) Includes 100,000 restricted shares, of which 10,000 have vested, 5,000 vest
on the first day of each of the first eight calendar quarters beginning on
April 1, 2005, and 6,250 vest on the first day of each of the first eight
calendar quarters beginning on April 1, 2007, so long as Mr. Johnson
remains in the employ of the Company.
(5) Includes 190,000 shares issuable upon exercise of options exercisable
within sixty days.
(6) Includes 33,667 shares issuable upon exercise of options exercisable within
sixty days.
(7) Includes 5,000 shares beneficially owned by each of four minor children for
which Mr. Evans is the trustee. Includes 24,000 shares issuable upon
exercise of options exercisable within sixty days.
(8) Includes 87,000 shares issuable upon exercise of warrants exercisable
within sixty days and 28,667 shares issuable upon exercise of options
exercisable within sixty days. Includes 47,500 shares beneficially owned by
Mr. Lefkowitz's wife.
3
(9) Includes 28,667 shares issuable upon exercise of options exercisable within
sixty days.
(10) Includes 103,500 shares issuable upon exercise of options exercisable
within sixty days.
(11) Includes 60,000 shares issuable upon exercise of options exercisable within
sixty days.
(12) Includes 652,168 shares issuable upon exercise of options exercisable
within sixty days and 87,000 shares issuable upon exercise of warrants
exercisable within sixty days.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and Officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Reporting persons are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely on review of the copies of such reports furnished to the
Company during 2004 and 2005 prior to the date hereof, the Company believes that
all Section 16(a) filing requirements applicable to its Officers, Directors and
ten percent stockholders were complied with except: Mssrs. Johnson, Joseph and
Devine and Ms. Shaw each belatedly filed a report in connection with becoming an
executive officer; and Mssrs. Bertash, Evans, Lefkowitz, Lyons and Sullivan each
belatedly filed a report in connection with a single transaction.
PROPOSALS
The Company's Board of Directors has unanimously voted to recommend the
nominees for election to the Board of Directors listed below and for the
appointment of D&T as the independent registered public accounting firm of the
Company for the fiscal year ended December 31, 2005.
4
PROPOSAL 1 - ELECTION OF DIRECTORS
Nominees for Election
Effective upon the election of Directors at the 2005 Annual Meeting, the
Board of Directors will be divided into three classes. At each annual meeting
after the 2005 Annual Meeting, each class will be elected for a term of three
years, except to the extent that shorter terms may be required to effect an
appropriate balance among the classes in the event of an increase in the number
of Directors or to the extent any class of preferred stock issued in the future
entities the holders thereof to designate a director or directors with a longer
or shorter term. To effect the transition to a classified board, the nominees
for election at the Annual Meeting have been divided into classes and nominated
for terms of one, two or three years, so that the terms of three directors will
expire at each of the next three annual meetings. At each such meeting,
directors will be elected to the class the terms of which has then expired for a
new term of three years.
Unless instructed otherwise, the enclosed proxy will be voted FOR the
election of the nominees named below. Voting is not cumulative. While management
has no reason to believe that the nominees will not be available as candidates,
should such a situation arise, proxies may be voted for the election of such
other persons as a Director as the holders of the proxies may, in their
discretion, determine. Proxies cannot be voted for a greater number of persons
than the number of nominees named.
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees named below.
5
Director Nominee Information
The following sets forth certain information with respect to each of the
nine nominees to the Board of Directors:
Year First
Name Age Elected Director Position
---- --- ---------------- --------
Nominees to Board Terms Expiring 2006
Robert M. Chiste 58 N/A (1) Director-Nominee
Alexander Gordon Jardin 52 2005 Director
William F. Sullivan 55 1996 Director
Nominees to Board Terms Expiring 2007
Michael Bertash 52 1998 Director
Frank B. Evans, Jr. 53 1994 Director
Steven W. Lefkowitz 49 1996 Director
Nominees to Board Terms Expiring 2008
Thomas J. Axon 52 1988 Chairman and Director
Jeffrey R. Johnson 55 2004 President, Chief
Executive Officer
and Director
Allan R. Lyons 64 1995 Director
(1) Mr. Chiste served as a member of the Board of Directors from 1994 until
2001.
Nominees for Class 1 Directors with Terms Expiring in 2006
Robert M. Chiste has served as Chairman, President and Chief Executive
Officer of Comverge, Inc., a venture funded company in the utility solutions
business, since October 2001. Since September 1999, Mr. Chiste has served as
Chairman of FuelQuest, Inc., a business-to-business e-commerce enterprise in the
fuels and lubricant industry. Since July 1998, Mr. Chiste has served as Chairman
of TriActive, Inc., a network and systems management company. From March 2000
until October 2001, Mr. Chiste was a private investor. Mr. Chiste holds a
Bachelor of Science with honors in mathematics from The College of New Jersey
(formerly known as Trenton State College), a J.D. degree cum laude from Rutgers
University School of Law and a Master of Business Administration degree cum
laude from Rutgers University School of Management. Mr. Chiste served as a
Member of the Board of Directors from 1994 until 2001. Mr. Chiste was
recommended as a director-nominee by a non-management director. The Nominating
and Corporate Governance Committee recommended and the Board of Directors
nominated Mr. Chiste to stand for election as a Class 1 Director of the Company.
Alexander Gordon Jardin has served as President and Chief Operating
Officer of Fenimore Reinsurance Corporation, a company in formation that will
operate as a life and health reinsurer, since April 2004. From October 2000
until April 2004, Mr. Jardin served as Senior Vice President, Reinsurance of
Business Men's Assurance and then as President and Chief Operating Officer of
Generali USA Life Reinsurance Company, a wholly-owned subsidiary of
Assicurazioni Generali S.p.A., a leading international insurer, and the
successor of Business Men's Assurance. From July 1993 to August 2000, Mr. Jardin
was President and Chief Executive Officer of Partner Re Life Insurance Company
of the U.S. (previously known as Winterthur Life Re Insurance Company), the U.S.
life reinsurance subsidiary of Partner Re and a leading provider of multi-line
reinsurance on a global scale with principal offices in Bermuda, Greenwich,
Paris and Zurich. From 1986 to 1993, Mr. Jardin was Vice President and General
Manager, Reinsurance of Sun Life of Canada. Mr. Jardin holds a Bachelor of
Science degree from McGill University.
6
William F. Sullivan has been the sole proprietor of the Law Office of
William F. Sullivan since July 2004. From 1985 until June 2004, Mr. Sullivan was
a Partner at Marnik & Sullivan, a general practice law firm. Mr. Sullivan is
admitted to both the New York State and Massachusetts Bar Associations. Mr.
Sullivan graduated from Suffolk University School of Law and holds a Bachelor of
Arts degree in Political Science from the University of Massachusetts.
Nominees for Class 2 Directors with Terms Expiring in 2007
Michael Bertash has served as Chief Executive Officer of New York Capital
Advisers, LLC, an investment management firm, since August 2004. From February
1997 until July 2004, Mr. Bertash served as a Senior Vice President with J. & W.
Seligman &. Co., an investment management firm. Mr. Bertash was an Associate
Director of the asset management division of Bear, Stearns & Co., Inc., a
worldwide investment bank and brokerage firm, from October 1991 until January
1997. Mr. Bertash holds a Bachelor of Science degree in Operations Research from
Syracuse University and a Master of Business Administration degree from New York
University.
Frank B. Evans, Jr. served as Vice President, Treasurer, Secretary and
Chief Financial Officer of the Company from December 1994 until November 1998.
Mr. Evans also served as Secretary, Treasurer, a Vice President and a Director
of Franklin Credit Management Corporation ("Franklin") from its inception in
1990 when it was a privately held company until the merger of Franklin and
Miramar Resources, Inc. in December 1994 (the "Merger"). After the Merger, Mr.
Evans became a member of the Company's board of directors. Mr. Evans has served
as Chief Executive Officer of Core Engineered Solutions, Inc., a Herndon,
Virginia design/build firm that specializes in fuel and chemical storage
systems, since its inception in 1990. Mr. Evans is a Certified Public Accountant
and holds a Bachelor of Science degree from the University of Maryland and a
Masters in Business Administration degree from the University of Southern
California.
Steven W. Lefkowitz has served as the founder and President of Wade
Capital Corporation, a privately held investment firm, since 1990. From 1988 to
1990, Mr. Lefkowitz served as a Vice President of Corporate Finance for Drexel
Burnham Lambert, Incorporated, where he had been employed since 1985. Mr.
Lefkowitz serves on the Board of Directors of several private companies. Mr.
Lefkowitz holds a Bachelor of Arts degree in History from Dartmouth College and
a Masters in Business Administration degree from Columbia University.
Nominees for Class 3 Directors with Terms Expiring in 2008
Thomas J. Axon has served as Chairman of the Board of Directors of the
Company since December 1994 and as Chief Executive Officer and President from
December 1994 through June 2000. From the inception of Franklin until the
Merger, Mr. Axon served as the President and a Director of Franklin. Mr. Axon
served as President of Miramar Resources, Inc. from October 1991 until the
Merger, and as a member of Miramar Resources, Inc.'s board of directors from its
inception in 1988. Within the last five years, Mr. Axon has been the controlling
interest in, and acted directly and indirectly as a principal of, various
private companies, including RMTS, LLC, and its affiliated companies, an
insurance consulting and underwriting company; Axon Associates, Inc., Harrison
Street Realty Corporation, and its predecessors, 185 Franklin Street Development
Associates, L.P., Harrison Street Development Associates, L.P. and Thomas James
Realty, which hold various real estate interests and/or manage rental commercial
space; and AIS Ltd., a reinsurance company. Mr. Axon holds a Bachelor of Arts
degree in Economics from Franklin and Marshall College and attended the New York
University Graduate School of Business.
Jeffrey R. Johnson has served as President, Chief Executive Officer and
Director of the Company since October 2004. From August 2002 until his
engagement by the Company, Mr. Johnson pursued private equity investments in the
mortgage and financial services industry. From March 2000 until July 2002, Mr.
Johnson served as President and Chief Executive Officer of GMAC Bank, a
wholly-owned subsidiary of the General Motors Corporation, which provides
banking services to the various affiliates and customers of GM. From May 1997
until February 2000, Mr. Johnson served as President and Chief Executive Officer
of Equifax Secure, a wholly-owned subsidiary of Equifax Inc., which provided
advanced technology solutions that allow consumers and companies to securely
conduct financial transactions and exchange information over the Internet. From
March 1989 until January 1997, Mr. Johnson served as President and Chief
Executive Officer of The Prudential Bank & Trust Company, a wholly-owned
subsidiary of The Prudential Insurance Company, where he created a remote
consumer banking
7
business with over 1.5 million customer relationships. The bank offered an array
of retail and commercial products including credit cards, home equity loans,
consumer deposits and trust services. Mr. Johnson also held managerial and
executive positions with Citibank, NationsBank, The Clorox Company and Colgate
Palmolive. Mr. Johnson holds a Bachelor of Science degree in Business and a
Masters of Business Administration from Arizona State University.
Allan R. Lyons is a Certified Public Accountant and owns 21st Century
Strategic Investment Planning, LC, a Florida limited company, which offers
financial planning and investment structuring services and reviews financial
opportunities and private placements. Mr. Lyons also acts as a general partner
for two venture capital partnerships and as money manager for select clients.
From 1993 until his retirement in December 1999, Mr. Lyons was Chief Executive
Officer of Piaker & Lyons, P.C., an accounting firm, of which he was a member
from 1965 until December 1999. Mr. Lyons has served as a director of Source
Interlink Companies, Inc. since March 2003 and is the chair of its audit
committee. Mr. Lyons holds a Bachelor of Science degree in Accounting from
Harpur College and a Masters of Business Administration degree from Ohio State
University.
No familial relationships exist between any Directors and Executive
Officers.
Meetings of the Board of Directors and its Committees
During 2004, there were seven meetings of the Board of Directors of the
Company, four meetings of the Audit Committee and four meetings of the
Compensation Committee. The Nominating and Corporate Governance Committee was
formed in January 2005 and, as such, held no meetings in 2004. No Director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and of any committee on which he served.
Director Attendance at Annual Meetings
Each director of the Company is expected to be present at annual meetings
of stockholders, absent exigent circumstances that prevent his or her
attendance. Where a director is unable to attend an annual meeting in person but
is able to do so by electronic conferencing, the Company will arrange for the
director's participation by means of which the director can hear, and be heard,
by those present at the meeting. At last year's annual meeting, all of the
Company's directors attended in person.
Compensation of Directors
During fiscal year 2004, the Company's non-management directors, Messrs.
Bertash, Evans, Lefkowitz, Lyons and Sullivan, were granted options to purchase
3,000 shares of Common Stock pursuant to the Company's 1996 Stock Incentive
Plan, as amended (the "1996 Plan"), upon their election or re-election to the
Board, and received $1,000 for each Board or Committee meeting attended in
person and $500 for each Board or Committee meeting attended telephonically. The
options vest at the rate of 33 1/3% per year and are exercisable at an exercise
price equal to the fair market value of the underlying shares on the date of
grant as determined by the Board of Directors.
In December 2004, Messrs. Bertash, Lefkowitz, Lyons and Sullivan, were
granted additional options to purchase 5,000 shares of Common Stock, Mr. Evans
was granted additional options to purchase 6,000 shares of Common Stock and Mr.
Joseph was granted options to purchase 500 shares of Common Stock, pursuant to
the 1996 Plan as compensation for Board service in prior years. The options
vested on the date of grant. The exercise price for Messrs. Bertash, Lefkowitz,
Lyons and Sullivan's options is $0.85 per share, the exercise price for Mr.
Joseph's options is $0.75 per share and the exercise price for Mr. Evans'
options is $1.04 per share, which was determined with reference to the share
price during such prior years.
In April 2005, the Compensation Committee recommended and the Board of
Directors approved the following director compensation program, which replaces
in its entirety the Company's previous director compensation program:
o Each non-employee director will receive an annual retainer fee of
$20,000 for serving on the Board.
8
o Each non-employee director who serves as Chairman of the Board or
Chairman of the Audit Committee will receive an additional retainer
fee of $10,000 for such service.
o Each non-employee director will receive $500 for each meeting of the
Board of Directors, the Compensation Committee and the Nominating
and Corporate Governance Committee attended in person and $250 for
each such meeting attended telephonically.
o Each non-employee director will receive $1,000 for each meeting of
the Audit Committee attended in person and $500 for each such
meeting attended telephonically.
o Each non-employee director will be reimbursed for reasonable travel
expenses incurred in connection with serving on the Board.
o Each non-employee director will be granted an option to purchase
3,000 shares of common stock of the Company pursuant to the
Company's 1996 Stock Incentive Plan, as amended, upon such
director's election or re-election to the Board and, for each year
that such director serves during such director's term on the Board,
upon the anniversary of such director's election or re-election to
the Board. The options will vest on the date of grant and will be
exercisable at an exercise price equal to the fair market value of
the underlying shares of common stock on the date of grant.
Directors who are also employees of the Company do not receive any
additional compensation for their service as directors and are compensated as
described under "Executive Compensation."
Committees of the Board of Directors
The Board of Directors currently has, and appoints the members of,
standing Audit, Compensation and Nominating and Corporate Governance Committees.
The Board of Directors has determined that each member of the Audit,
Compensation and Nominating and Corporate Governance Committees is an
Independent Director as such term is defined by Rule 4200(a)(15) of NASD
Marketplace Rules. Each of these committees has a written charter approved by
the Board of the Directors in January 2005. A copy of each charter is posted on
the Company's website at www.franklincredit.com.
Audit Committee. The Audit Committee currently consists of directors Allan
R. Lyons, Michael Bertash and Alexander Gordon Jardin. During 2004, the Audit
Committee consisted of directors Frank B. Evans, Allan R. Lyons and Michael
Bertash, and held four meetings. The Board of Directors has determined that each
member of the Audit Committee is independent as such term is defined by Rule
4200(a)(15) of the NASD Marketplace Rules, and that Mr. Lyons is an "audit
committee financial expert" as defined by Regulation S-K under the Securities
Act of 1933, as amended. The purpose of the Audit Committee is to assist the
Board of Directors in the oversight of the integrity of the financial statements
of the Company, the Company's compliance with legal and regulatory matters, the
independent registered public accounting firm's qualifications and independence,
and the performance of the Company's independent registered public accounting
firm. The primary responsibilities of the Audit Committee are set forth in its
charter, and include various matters with respect to the oversight of the
Company's accounting and financial reporting process and audits of the financial
statements of the Company on behalf of the Board of Directors. The Audit
Committee also selects the independent registered public accounting firm to
conduct the annual audit of the financial statements of the Company; reviews the
proposed scope of such audit; reviews accounting and financial controls of the
Company with the independent registered public accounting firm and our financial
accounting staff; and reviews and approves transactions between us and our
directors, officers, and their affiliates. In addition to being available on the
Company's website at www.franklincredit.com, a copy of the Audit Committee
charter is included in this proxy statement as Annex A. Also see "Audit
Committee Report."
Compensation Committee. The Compensation Committee currently consists of
directors Steven Lefkowitz and Alexander Gordon Jardin. During 2004, the
Compensation Committee consisted of directors Joseph Caiazzo, Steven W.
Lefkowitz and William F. Sullivan, and held four meetings. The Compensation
Committee functions include reviewing and approving the compensation and
benefits for the Company's executive officers, administering the Company's stock
plans and making recommendations to the Board of Directors regarding these
matters.
9
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee, which currently consists of Allan R. Lyons and
William F. Sullivan, was formed in January 2005 and, as such, held no meetings
in 2004. The Nominating and Corporate Governance Committee is responsible for
searching for and recommending to the Board of Directors potential nominees for
director positions, making recommendations to the Board of Directors regarding
the size and composition of the Board of Directors and its committees,
monitoring the Board of Director's effectiveness and developing and implementing
the Company's corporate governance procedures and policies. A copy of the
Nominating and Corporate Governance Committee charter is available on the
Company's website at www.franklincredit.com. The Board of Directors has
determined that all of the members of the Nominating and Corporate Governance
Committee are independent as such term is defined by Rule 4200(a)(15) of the
NASD Marketplace Rules.
In identifying and evaluating candidates for the Board of Directors, the
Nominating and Corporate Governance Committee begins by determining whether the
incumbent directors whose terms expire at the annual meeting of stockholders
desire and are qualified to continue their service on the Board of Directors.
The Company is of the view that the continuing service of qualified incumbents
promotes stability and continuity in the board room, giving the Company the
benefit of the familiarity and insight into the Company's affairs that its
directors have accumulated during their tenure, while contributing to the Board
of Director's ability to work as a collective body. Accordingly, the Nominating
and Corporate Governance Committee will, absent special circumstances, propose
for re-election qualified incumbent directors who continue to satisfy the
Nominating Committee's criteria for membership on the Board of Directors, whom
the Nominating Committee believes will continue to make important contributions
to the Board of Directors and who consent to stand for re-election and, if
re-elected, to continue their service on the Board of Directors. If there are
positions on the Board of Directors for which the Nominating Committee will not
be re-nominating an incumbent director, or if there is a vacancy on the Board of
Directors, the Nominating and Corporate Governance Committee will consider
potential nominees recommended by members of the Board of Directors, the
management of the Company and stockholders. The Nominating and Corporate
Governance Committee may also engage a professional search firm to assist in the
identification of qualified candidates, but did not do so in 2004. As to each
recommended candidate that the Nominating and Corporate Governance Committee
believes merits serious consideration, the Committee will collect as much
information, including without limitation, soliciting views from other directors
and the Company's management and having one or more Committee members interview
each such candidate, regarding each candidate as it deems necessary or
appropriate in order to make an informed decision with respect to such
candidate. Based on all available information and relevant considerations, the
Nominating and Corporate Governance Committee will select, for each directorship
to be filled, a candidate who, in the view of the Committee, is most suited for
membership on the Board of Directors. In making its selection, the Nominating
and Corporate Governance Committee will evaluate candidates proposed by
stockholders under criteria similar to the evaluation of other candidates,
except that the Committee may consider, as one of the factors in its evaluation
of stockholder recommended nominees, the size and duration of the interest of
the recommending stockholder or stockholder group in the equity of the Company.
This consideration may also include how long the recommending stockholder
intends to continue holding its equity interest in the Company.
The Nominating and Corporate Governance Committee has adopted a policy
with regard to the minimum qualifications that must be met by a
Committee-recommended nominee for a position on the Company's Board of
Directors, which policy is described in this paragraph. The Committee generally
requires that all candidates for the Board of Directors be committed to
representing the Company and all of its stockholders, demonstrate the judgment
and knowledge necessary to assess Company strategy and management, manifest
willingness to meaningfully participate in the governance of the Company,
possess the ability to fulfill the legal and fiduciary responsibilities of a
director, undertake to make the appropriate time commitment for Board service,
and maintain standing and reputation in the business, professional and social
communities in which such candidate operates. The Committee requires that
candidates not have any interests that would, in the view of the Committee,
materially impair his or her ability to exercise independent judgment or
otherwise discharge the fiduciary duties owed as a director to the Company and
its stockholders. The Company also requires that at least a majority of the
directors serving at any time are independent, as such term is defined by Rule
4200(a)(15) of the NASD Marketplace Rules, that at least three of the directors
satisfy the financial literacy requirements required for service on the Audit
Committee under the NASD Marketplace Rules and the Audit Committee charter, and
that at least one of the directors qualifies as an audit committee financial
expert in accordance with the rules of the Commission and the Audit Committee
charter.
10
It is the policy of the Company that the Nominating and Corporate
Governance Committee will consider director candidates recommended by
stockholders entitled to vote generally in the election of directors. The
Committee will give consideration to such stockholder recommendations for
positions on the Board where the Committee has not determined to re-nominate a
qualified incumbent director. While the Committee has not established a minimum
number of shares that a stockholder must own in order to present a nominating
recommendation for consideration, or a minimum length of time during which the
stockholder must own its shares, the Committee may take into account the size
and duration of a recommending stockholder's ownership interest in the Company.
The Nominating Committee may also consider whether the stockholder making the
nominating recommendation intends to maintain an ownership interest in the
Company of substantially the same size as at its interest at the time of making
the recommendation. The Committee may refuse to consider stockholder-recommended
candidates who do not satisfy the minimum qualifications prescribed by the
Committee for board candidates.
The Nominating and Corporate Governance Committee has adopted procedures
to be followed by stockholders in submitting recommendations of candidates for
director. The procedures are posted on the Company's website at
www.franklincredit.com, and are described in this paragraph. A stockholder (or
group of stockholders) wishing to submit a recommendation of a candidate for
consideration as a potential director nominee by the Nominating and Corporate
Governance Committee should submit such recommendation in accordance with the
timing requirements set forth in connection with the submission of a
stockholder's notice of an intent to make a nomination under Article I, Section
11 of the Company's By-laws. All stockholder nominating recommendations should
be in writing, addressed to the Chair of the Nominating and Corporate Governance
Committee, Six Harrison Street, New York, New York 10013. Submissions should be
made by mail, courier or personal delivery. A nominating recommendation should
be accompanied by the information that is required to be provided in connection
with the submission of a stockholder's notice of an intent to make a nomination
under Article I, Section 11 of the Company's By-laws, a copy of which is posted
on the Company's website at www.franklincredit.com.
Stockholder Communications with the Board of Directors
Stockholders may send communications to the Board of Directors, any
committee of the Board of Directors or the non-management directors of the Board
of Directors. The process for sending such communications can be found on the
Company's website at www.franklincredit.com. All stockholder communications are
sent directly to board members, except for communications that contain
offensive, scurrilous or abusive content, communications that advocate the
Company's engaging in illegal activities, communications that have no rational
relevance to the business or operations of the Company, and communications
regarding individual grievances or other interests that are personal to the
party submitting the communication and could not reasonably be construed to be
of concern to security holders or other constituencies of the Company generally.
Code of Ethics
The Company has adopted a code of ethics and business conduct that applies
to its officers, directors and employees, including without limitations, our
Chief Executive Officer, President and Chief Financial Officer. The Code of
Ethics and Business Conduct is available on the Company's website at
www.franklincredit.com.
Audit Committee Report
The following Report of the Audit Committee does not constitute soliciting
material and is not filed or deemed to be incorporated by reference in any
previous or future documents filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates the
Report by reference in any such document.
The members of the Audit Committee have been appointed by the Board of
Directors. During the 2004 fiscal year, the Audit Committee consisted solely of
independent directors, as such term is defined by Rule 4200(a)(15) of the NASD
Marketplace Rules. The Audit Committee operates under a written charter that was
adopted by the Board of Directors in January 2005 in order to assure continued
compliance by the Company with SEC and NASDAQ rules and regulations enacted in
response to requirements of the Sarbanes-Oxley Act of 2002.
11
The Audit Committee assists the Board of Directors in monitoring the
integrity of the Company's financial statements, the independent registered
public accounting firm's qualifications and independence, the performance of the
independent registered public accounting firm, and the compliance by the Company
with legal and regulatory requirements. Management is responsible for the
Company's internal controls and the financial reporting process. The independent
registered public accounting firm is responsible for performing an independent
audit of the Company's financial statements in accordance with generally
accepted auditing standards and for issuing a report on those financial
statements. The Audit Committee monitors and oversees these processes.
In this context, the Audit Committee has reviewed and discussed the
audited financial statements for the year ended December 31, 2004 with
management and with Deloitte & Touche LLP, the Company's independent registered
public accounting firm. The Audit Committee has discussed with Deloitte & Touche
LLP the matters required to be discussed by Statement on Auditing Standards No.
61 (Communications with Audit Committees), which includes, among other items,
matters related to the conduct of the audit of the Company's annual financial
statements.
The Audit Committee has also received the written disclosures and the
letter from Deloitte & Touche LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with Deloitte & Touche LLP the issue of their independence from the
Company and management. In addition, the Audit Committee has considered whether
the provision of non-audit services by the independent registered public
accounting firm in 2004 is compatible with maintaining the auditors'
independence and has concluded that it is.
Based on its review of the audited financial statements and the various
discussions noted above, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The
Audit Committee has also appointed, subject to stockholder ratification, the
Company's independent registered public accounting firm for the year ending
December 31, 2005.
The members of the Audit Committee are Allan R. Lyons, Michael Bertash and
Alexander Gordon Jardin, none of whom is or, during the fiscal year 2004, was,
an employee of the Company. Mr. Jardin joined the Board of Directors in January
2005 and did not participate in the Audit Committee's deliberations in 2004.
Respectfully submitted by the Audit Committee,
Allan R. Lyons, Chairman
Michael Bertash
Alexander Gordon Jardin
12
MANAGEMENT
Executive Officers
The following table sets forth certain information with respect to the
executive officers of the Company:
Name Age Position
---- --- --------
Thomas J. Axon 52 Chairman of the Board of Directors
Jeffrey R. Johnson (1) 55 President, Chief Executive Officer and
Director
Paul D. Colasono (2) 58 Chief Financial Officer and Executive
Vice President
Joseph Caiazzo 47 Executive Vice President and Secretary
John Devine 36 Vice President - Credit/Acquisitions
Kimberly Shaw 43 Vice President - Finance, Treasurer and
Controller
(1) Jeffrey R. Johnson has served as President and Chief Executive Officer of
the Company since October 4, 2004.
(2) Paul D. Colasono became Chief Financial Officer in April 2005.
Paul D. Colasono became Chief Financial Officer and Executive Vice
President of the Company in April 2005. Mr. Colasono has more than 30 years of
experience in banking and mortgage banking in a broad range of senior management
positions. From 2003 until his engagement by the Company, Mr. Colasono served as
an independent business consultant providing strategic and financial consulting
services. From September 1997 until September 2001, Mr. Colasono served as Vice
President and Controller of GE Capital Mortgage Services Corporation. From
February 1981 until September 1997, Mr. Colasono was employed by The Dime
Savings Bank of New York ("Dime Bank") in a variety of executive and senior
management positions. From April 1994 until September 1997, Mr. Colasono held
the titles of Senior Vice President, Chief Administrative Officer and Chief
Financial Officer of Dime Bank's mortgage banking business. From November 1990
until April 1994, Mr. Colasono served as the President and Chief Executive
Officer of The Dime Savings Bank of New Jersey, a subsidiary of Dime Bank. Mr.
Colasono began his career with The Chase Manhattan Bank. Mr. Colasono holds a
Bachelor of Science degree in Accounting and a Masters of Business
Administration from St. John's University.
Joseph Caiazzo has served as Executive Vice President since September 2004
and as Secretary since March 1996. From March 1996 until August 2004, Mr.
Caiazzo served as Vice President and Chief Operating Officer. Mr. Caiazzo has
also served as President of the Company's mortgage banking subsidiary, Tribeca
Lending Corporation since 1997. From August 1989 until March 1996, Mr. Caiazzo
served as corporate controller of R.C. Dolner, Inc., a general contractor. Mr.
Caiazzo holds a Bachelor of Science degree from St. Francis College and a
Masters of Business Administration degree in Finance from Long Island
University.
John Devine has served as Vice President - Credit/Acquisitions of the
Company since April 2000. From September 1997 until April 2000, Mr. Devine
served as Vice President and Operations Manager of Tribeca Lending Corporation.
From September 1989 until August 1997, Mr. Devine served as Vice President,
Operations of the Company. Mr. Devine holds a Bachelor of Science Degree in
Business Management from The City University of New York - The College of Staten
Island.
Kimberly Shaw has served as Vice President - Finance of the Company since
April 2002, as Treasurer of the Company since November 2004 and as corporate
controller of the Company since September 1998. Ms. Shaw is a Certified Public
Accountant and holds a Bachelor of Science Degree in Business Management from
Ramapo College of New Jersey.
13
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 2004, 2003 and 2002, for each person who acted as
the Company's Chief Executive Officer at any time during the year ended December
31, 2004, and its four most highly compensated executive officers, other than
its Chief Executive Officer, whose salary and bonus for the fiscal year ended
December 31, 2004 in excess of $100,000 each (collectively, the "Named Executive
Officers").
All Other
Long-Term Compensation Compensation
Name and Principal Position Fiscal Year Annual Compensation Awards ($)
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Restricted Securities
Salary Bonus Other Annual Stock Underlying
Compensation Award(s) Options/SARs
($) ($) (1) ($) ($) (#)
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Jeffrey R. Johnson 2004 81,250 90,000 593,696 (3) 675,000 - -
President and Chief
Executive Officer (2)
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Seth Cohen 2004 137,726 - - - - 647,142 (6)
Chief Executive Officer and 2003 250,000 151,544 - - - -
President (4) 2002 227,000 139,937 - - 50,000 (5) -
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Thomas Axon 2004 150,000 290,000 - - -
Chairman 2003 150,000 151,544 - - -
2002 118,750 139,937 - - 50,000 (7) -
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Joseph Caiazzo 2004 224,167 140,000 -
Executive Vice President and 2003 200,000 151,544 -
Secretary 2002 165,000 139,937 50,000 (5) -
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
Alan Joseph 2004 252,500 225,000 - - 500 (9) -
Chief Financial Officer (8) 2003 150,000 120,740 - - - -
2002 103,250 97,535 - - 103,000 (10) -
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
John Devine 2004 115,000 85,000
Vice President - 2003 100,000 43,298
Credit/Acquisitions 2002 94,992 40,000
------------------------------ ------------ ------------- ----------- -------------- ------------ --------------- --------------
(1) Represents performance-based bonus earned for fiscal year 2004, 2003 and
2002.
(2) Jeffrey R. Johnson has served as President and Chief Executive Officer of
the Company since October 1, 2004.
(3) Includes $557,295 representing reimbursement for tax liability in respect
of a restricted stock award, $9,800 representing relocation expenses,
$5,304 representing a car allowance, $1,697 representing medical insurance
and $19,600 representing the dollar difference between the price paid to
the Company by Mr. Johnson for 20,000 shares of the Company's Common Stock
and the fair market value of such security at the date of purchase.
(4) Seth Cohen served as Chief Executive Officer and President of the Company
until May 15, 2004.
(5) Represents options to purchase shares of the Company's Common Stock
granted on May 5, 2002 at an exercise price of $0.75 per share, of which
25,000 vested on May 5, 2003 and 25,000 vested on May 5, 2004.
(6) Represents severance and related payments.
(7) Represents options to purchase shares of the Company's Common Stock
granted on May 5, 2002 at an exercise price of $0.75 per share, of which
16,667 vested on May 5, 2003, 16,667 vested on May 5, 2004 and 16,666 will
vest May 5, 2005.
(8) Alan Joseph served as Executive Vice President and Chief Financial Officer
of the Company until April 8, 2005.
(9) Represents options to purchase shares of the Company's Common Stock
granted on December 29, 2004 at an exercise price of $0.75 per share, all
of which vested immediately.
(10) Represents options to purchase shares of the Company's Common Stock
granted on May 5, 2002 at an exercise price of $0.75 per share, of which
51,500 vested on May 5, 2003 and 51,500 vested on May 5, 2004.
14
Stock Option Grants in Fiscal 2004
The following table sets forth individual stock options granted to the
Named Executive Officers in fiscal 2004:
------------------------------------------------------------------------------------------- -------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Options Term
------------------ ------------------ ------------------ ---------------- ----------------- -------------- ------------ ---------
Name Number Of
Securities Percent Of Total Exercise Price Expiration Date 5% ($) 10% ($) 0% ($)
Underlying Options Granted
Option Granted To Employees In
(#) Fiscal Year ($/Sh)
------------------ ------------------ ------------------ ---------------- ----------------- -------------- ------------ ---------
Alan Joseph 500 (1) 9.09% $0.75 12/29/14 $7,159 $11,621 $4,250
------------------ ------------------ ------------------ ---------------- ----------------- -------------- ------------ ---------
(1) Represents options to purchase shares of the Company's Common Stock
granted on December 29, 2004, all of which vested immediately.
Aggregated Options/SAR Exercises in Fiscal 2004 and Fiscal Year-End Options/SAR
Values
The following table sets forth the aggregate value, realized gain, and
number of options exercised by the Named Executive Officers.
--------------------------------------------------------------------------------------------------------------------------------
Shares Number of Securities Underlying
Acquired On Value Unexercised Options at Fiscal Value of Unexercised In-The-Money
Name Exercise (#) Realized ($) Year-End (#) Options at Fiscal Year-End (1) ($)
--------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------------------------------
Seth Cohen 25,000 118,750 (2) - - - -
--------------------------------------------------------------------------------------------------------------------------------
Joseph Caiazzo - - 190,000 - 1,532,600 -
--------------------------------------------------------------------------------------------------------------------------------
Thomas Axon - - 115,000 - 971,750 -
--------------------------------------------------------------------------------------------------------------------------------
Alan Joseph - - 103,500 - 874,575 -
--------------------------------------------------------------------------------------------------------------------------------
(1) Values are based on the closing bid price of the Common Stock on December
31, 2004 of $9.20. The value of unexercised stock options at December 31,
2004 is presented to comply with SEC regulations. The actual amount
realized upon any exercise of stock options will depend upon the excess of
the fair market value of the Common Stock over the grant price at the time
the stock option is exercised. There is no assurance that values of
unexercised stock options reflected in this table will be realized.
(2) Represents the difference between the fair market value of shares of
common stock of $5.50 on August 31, 2004, the date of exercise, and the
exercise price of $0.75 per share.
15
Equity Compensation Plans
The following table summarizes information, as of December 31, 2004,
relating to equity compensation plans of the Company pursuant to which grants of
options, restricted stock, restricted stock units or other rights to acquire
shares may be granted from time to time.
--------------------------------------- ----------------------------- -------------------------- ---------------------------------
Number of securities
remaining available for future
Number of securities to be Weighted-average exercise issuance under equity
issued upon exercise of price of outstanding compensation plans
outstanding options, warrants options, warrants and (excluding securities
and rights rights reflected in column (a))
Plan Category Column (a) Column (b) Column (c)
--------------------------------------- ----------------------------- -------------------------- ---------------------------------
Equity Compensation Plans Approved by 791,000 $1.04 809,000
Stockholders (1)
--------------------------------------- ----------------------------- -------------------------- ---------------------------------
Equity Compensation Plans Not Approved 100,000 - 0
by Stockholders (2)
--------------------------------------- ----------------------------- -------------------------- ---------------------------------
Total 891,000 $1.04 809,000
--------------------------------------- ----------------------------- -------------------------- ---------------------------------
(1) The Company's 1996 Stock Incentive Plan, as amended.
(2) October 2004 grant of 100,000 shares of restricted stock to Jeffrey R.
Johnson as compensation, of which 10,000 vested on January 1, 2005, 5,000
shall vest on the first day after each fiscal quarter from April 1, 2005
until January 1, 2007, and 6,250 shares shall vest on the first day after
each fiscal quarter from April 1, 2007 until January 1, 2009, so long as
Mr. Johnson remains in the employ of the Company. Since these shares of
restricted stock have no exercise price, they are not included in the
weighted average exercise price calculation.
Employment Agreements.
Jeffrey R. Johnson serves as President and Chief Executive Officer of the
Company under a five-year Employment Agreement expiring on September 30, 2009.
Under the agreement, Mr. Johnson is entitled to a base salary of $325,000,
subject to adjustment upward by the Board of Directors, to a 25% participation
in an executive bonus pool of 10% of the after tax consolidated net profits of
the Company in excess of $500,000, subject to adjustment of the size of the
bonus pool in the reasonable discretion of the Board of Directors. The Company
also agreed to reimburse Mr. Johnson for certain expenses associated with his
relocating, and a tax gross-up to the extent such payments are includable in
income. Additionally, Mr. Johnson was granted 100,000 shares of restricted stock
of the Company, of which 10,000 vested on January 1, 2005, 5,000 shall vest on
the first day after each fiscal quarter from April 1, 2005 until January 1,
2007, and 6,250 shares shall vest on the first day after each fiscal quarter
from April 1, 2007 until January 1, 2009, so long as Mr. Johnson remains in the
employ of the Company. Mr. Johnson agreed to make a prompt Internal Revenue Code
83(b) election with respect to the grant, and the Company agreed to a gross-up
to reimburse the taxes due in respect of such election In connection with his
employment, Mr. Johnson agreed to purchase from the Company 20,000 shares of
Common Stock at a purchase price per share equal to the weighted average closing
price of the Company's stock during the month of September 2004.
Pursuant to a Registration Rights Agreement, the Company granted Mr.
Johnson registration rights with respect the 20,000 shares purchased by him and
any of his restricted shares that have vested, including two "demand" and
unlimited piggyback rights, subject to customary limitations, holdbacks and
blackout periods.
The Company may terminate the employment agreement with or without cause
(as defined in the employment agreement) and Mr. Johnson may terminate the
employment agreement with or without good reason (as defined in the employment
agreement, which definition includes Mr. Johnson ceasing to be a director of the
Company). In the event of any termination Mr. Johnson shall receive any accrued
salary, unused vacation, and reimbursement of expenses incurred through the
termination. Additionally, in the event of any termination other than by the
Company for cause or by Mr. Johnson without good reason, including death or
disability, Mr. Johnson shall also receive a prorated bonus from the executive
bonus pool, a lump sum payment of $225,000, and, if such termination occurs on
or after January 1, 2006, payments of $13,542 for each month (or partial month)
of employment with the Company after December 31, 2005; provided that the total
amount paid shall not exceed his
16
salary as of the date of such termination plus his actual total benefits for the
twelve months before such termination. Upon such termination, any restricted
stock that has not yet vested will vest immediately.
Under the employment agreement, Mr. Johnson is subject to covenants not to
compete for twelve months following any termination of his employment (or for a
period equal in duration to his employment if his employment is less that twelve
months, and not to solicit employees of the Company or its affiliates for 9
months after such termination.
The parties agreed to negotiate in good faith any changes in Mr. Johnson's
employment arrangements necessary to avoid excise taxes under the American Jobs
Creation Act of 2004 and any regulations promulgated thereunder.
Paul D. Colasono serves as Chief Financial Officer and Executive Vice
President of the Company under an employment agreement that was entered into on
April 13, 2005, with an effective date of March 28, 2005. Mr. Colasono was
appointed to the position of Chief Financial Officer, effective April 11, 2005.
Mr. Colasono's employment term runs from the effective date of the employment
agreement until its termination by the Company or Mr. Colasono.
Under the employment agreement, Mr. Colasono is entitled to a base salary
of $250,000, subject to adjustment by the Board of Directors, and to participate
in an executive bonus pool of 10% of the after tax consolidated net profits of
the Company in excess of $500,000, subject to adjustment of the size of the
bonus pool in the reasonable discretion of the Board of Directors. Mr. Colasono
will be entitled to a targeted bonus in the amount of $150,000, prorated for the
period of his actual employment for 2005 and subject to the reasonable
discretion of the Board of Directors. Determination of the actual amount of Mr.
Colasono's bonus for 2005 will depend, as to 80% of the targeted amount, upon
the financial performance of the Company and as to 20% of the targeted amount
upon Mr. Colasono's personal performance. Additionally, Mr. Colasono will
receive a housing allowance of $1,500 per month.
In connection with his entry into the employment agreement, the Company
agreed to grant Mr. Colasono 17,000 shares of restricted stock of the Company,
of which 2,000 vested upon grant, 5,000 vest on March 28, 2006, 5,000 vest on
March 28, 2007 and 5,000 vest on March 28, 2008, if Mr. Colasono is then
employed by the Company. Any unvested shares of restricted stock vest
immediately upon occurrence of a change of control (as defined in the employment
agreement) or Mr. Colasono's death or disability. Except under those
circumstances, any unvested shares of restricted stock will be forfeited to the
Company in the event of a termination of Mr. Colasono's employment with the
Company. Mr. Colasono agreed to make an 83(b) election with respect to the
restricted shares and the Company agreed to reimburse Mr. Colasono for any
federal, state or local taxes due from having made such election at his
incremental tax rate.
Pursuant to the employment agreement, the Company may terminate Mr.
Colasono's employment with or without cause (as defined in the employment
agreement) and Mr. Colasono may terminate it with or without good reason (as
defined in the employment agreement). If Mr. Colasono is terminated by the
Company without cause or Mr. Colasono terminates his employment for good reason,
or his employment terminates as a result of his death or disability (as defined
in the employment agreement), Mr. Colasono will be entitled to severance,
including a lump sum payment equal to his salary for a specified period and, at
his option, either continued health benefits during the specified period or a
lump sum payment equal to the medical insurance premiums that would be payable
by the Company in respect of such specified period. If the termination occurs
prior to a change in control (as defined in the employment agreement) the
specified period will be (i) three months if the termination occurs prior to
September 1, 2005, (ii) six months if it occurs thereafter but prior to
September 1, 2006 and (iii) twelve months if it occurs thereafter. If the
termination occurs following a change in control, the specified period will be
(i) six months if the termination occurs prior to September 1, 2005, (ii) twelve
months if it occurs thereafter but prior to September 1, 2006 and (iii) eighteen
months if it occurs thereafter.
Under the employment agreement, Mr. Colasono is subject to covenants not
to compete and not to solicit customers or employees of the Company for certain
periods specified therein. Seth Cohen served as President and Chief Executive
Officer of the Company until May 15, 2004. Pursuant
17
to a separation agreement, as amended, between Mr. Cohen and the Company, the
Company agreed to make a one-time payment of $488,317 and monthly payments of
$22,975 from June 15, 2004 through April 15, 2005 to Mr. Cohen. Pursuant to such
agreement, the parties gave each other full releases from all other claims.
Compensation Committee Interlocks and Insider Participation.
During 2004, Joseph Caiazzo, Steven W. Lefkowitz and William F. Sullivan
served on the Company's Compensation Committee. Mr. Caiazzo served until the end
of August as Vice President, Chief Operating Officer and Secretary of the
Company and since the beginning of September 2004 as Executive Vice President
and Secretary of the Company.
The Compensation Committee of the Company was established in 2000. The
Compensation Committee establishes compensation for the chief executive officer
and reviews compensation for other officers and employees and other employee
benefit programs, when necessary. This Committee is responsible for the 2004
Compensation Committee Report on Executive Compensation.
REPORT OF THE COMPENSATION COMMITTEE
The following report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Committee Report on Executive Compensation.
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information with regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
the other executive officers of the Company. The disclosure requirements for
those executive officers include the use of a report explaining the rationale
and considerations that led to fundamental compensation decision affecting those
individuals. The Compensation Committee of the Board of Directors (the
Committee") establishes compensation for the chief executive officer and reviews
compensation for other officers and employees and other benefit programs, when
necessary. In fulfillment of the disclosure requirement, the Committee has
prepared the following report for inclusion in this proxy statement.
The Company has no employees who perform services for the Company without
additional compensation. The Committee evaluates the performance of each named
executive officer of the Company and reviews the compensation of all executives.
Compensation Policies.
The Committee's functions include establishing the general compensation
policies of the Company, reviewing and approving compensation for the executive
officers and members of the board of directors and administering the Company's
stock option plans. The goal of the committee is to design compensation packages
that will allow the Company to attract and retain, as well as motivate and
reward, executives and directors with the skills and talents to achieve both the
current and long term financial, strategic and operating goals of the Company.
The intended result is to align the interests of the executives and directors
with those of the Company's shareholders.
The Company's typical executive compensation package has historically
consisted of three main components: (1) base salary; (2) annual incentive cash
bonuses; and (3) long-term incentive compensation in the form of stock options
and/or restricted stock grants. The Committee manages all three components on an
integrated basis to attract and retain highly qualified management; to provide
short-term incentive compensation that varies directly with the Company's
financial performance; and to link long-term compensation directly with
long-term stock price performance.
Base Compensation
18
The Committee's approach is to offer executive salaries competitive with
those of other executives in the industry in which the Company operates. To that
end, the Committee evaluates the competitiveness of its base salaries based upon
information drawn from various sources, including published and proprietary
survey data, consultants' reports and the Company's own experience recruiting
executives and professionals as well as the recommendations of the chief
executive officer. The Company's base salary levels are intended to be
consistent with competitive practice and level of responsibility, with salary
increases reflecting competitive trends, the overall financial performance of
the Company and the performance of the individual executive.
Annual Incentive Cash Bonuses
In addition to base salary, executives and managers are eligible to
receive annual incentive cash bonuses, upon the achievement of certain
financial, strategic and operating goals, including, but not limited to,
profitable asset acquisitions, achieving servicing goals and achieving financial
targets. At the beginning of each year, the Committee and the Chief Executive
Officer review each individual's job responsibilities and goals for the upcoming
year. The amount of the bonus and any performance criteria vary with the
position and role of the individual within the Company. Such bonuses are
intended to recognize the contributions of key employees of the Company in
achieving its current goals. It is further intended to attract and retain key
employees of outstanding ability. Certain key executives are entitled to
participate in and may be awarded percentages of an Executive Bonus Pool the
size of which is determined each year by the Board of Directors and which was
set at 10% of all Net Income in excess of $500,000 for fiscal year 2004.
Stock Option and/or Restricted Stock Grants
The Committee considers long-term, stock-based compensation as an
essential tool in aligning the interests of management with that of the
Company's shareholders. In its evaluation of the appropriate level of long-term
stock-based compensation, the Committee considers industry peer group data, the
Company's prior long-term incentive compensation practice and the number of
stock options outstanding relative to the number of shares of the Company's
common stock outstanding. Incentive and/or Non-qualified options to purchase
common stock of the Company are granted to individuals under the 1996 Stock
Option Plan, as amended. The objective is to encourage these individuals to
manage the Company in a manner that would increase long-term shareholder value.
Options are generally granted at an exercise price of 100% of the common stock's
market value on the grant date, vest over varying amounts of time and expire 10
years from the date of grant unless the optionee no longer serves as an employee
or director of the Company or a subsidiary. Options are granted by the Committee
using the Black-Scholes option valuation model, and the Committee takes into
consideration other factors such as dilution, the number of shares of the
Company's common stock outstanding, the Company's financial performance and the
officer's individual performance. In 2004 the Committee increasingly recommended
the use of restricted stock grants rather than options in connection with the
retention of key executives. In addition, the Committee has recommended that the
Company consider implementing a new long-term incentive plan based on restricted
stock grants with a concomitant decrease of the options reserved under the 1996
Stock Option Plan, as amended.
Chief Executive Officer's Compensation
Mr. Johnson was hired in October 2004. The Committee negotiated the terms
and conditions of Mr. Johnson's employment agreement which is filed as an
exhibit with the SEC. Under the term of said agreement, Mr. Johnson's base
salary is $325,000 per annum. In addition his annual cash incentive bonus is 25%
of the executive bonus pool which was set for 2004 at 10% all net income in
excess of $500,000. Such salary and bonus was prorated for the actual period of
time for which Mr. Johnson was employed by the Company. In addition, the
Committee recommended that Mr. Johnson be awarded an additional bonus of $35,000
after considering Mr. Johnson's performance, leadership of the Company and the
discharge of his duties as chief executive officer.
Mr. Jardin joined the Board of Directors in January 2005 and did not
participate in the Compensation Committee's deliberations in 2004.
Respectfully submitted by the Compensation Committee,
Steven W. Lefkowitz, Chairman
Alexander Gordon Jardin
19
STOCK PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of the
Company's Common Stock with the Russell 2000 index and a peer group for the
period from December 31, 1999 through December 31, 2004. The measurement assumes
a $100 investment on December 31, 1997. The peer group is made up of the
following 10 publicly-held financial services companies: 21st Century
Technologies Inc., Advanta Corp., Asta Funding, Inc., Credit Acceptance
Corporation, Encore Capital Group, Inc., Equitex, Inc., First Investors
Financial Services Group, Inc., MFC Development Corp., Microfinancial
Incorporated and Temporary Financial Services, Inc. The comparisons in the graph
are required by the Securities and Exchange Commission and are not intended to
forecast or be indicative of possible future performance of the Company's Common
Stock, which performance could be affected by factors and circumstances outside
of the Company's control. Data for the Russell 2000 index and the peer group
assume reinvestment of dividends. The Company has not paid dividends on its
Common Stock in recent years and has no present plans to do so.
20
[GRAPHIC OMITTED][GRAPHIC OMITTED]
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently subleases approximately 2,500 square feet of office
space on the fifth floor at Six Harrison Street in New York, New York, from
RMTS, LLC, of which Mr. Axon owns 80%. Pursuant to the sublease, the Company
paid RMTS rent of approximately $50,500 in 2003 and $51,500 in 2004. The
sublease for the fifth floor space extends to August 31, 2009. However, in
connection with the anticipated move of most of its offices to Jersey City, New
Jersey, in July 2005, the Company initiated negotiations with RMTS and currently
expects to pay RMTS $125,000 to terminate the lease in August 2005.
The Company currently leases approximately 7,400 square feet of office
space at 185 Franklin Street in New York, New York from 185 Franklin Street
Development Associates, a limited partnership, of which 185 Franklin Street
Development Corp., which is wholly-owned by Mr. Axon, is the general partner.
Pursuant to the leases, the Company paid 185 Franklin Street Development
Associates rent of approximately $13,050 per month in 2003 and $18,600 per month
in 2004. Various leases govern the six floors of office space at 185 Franklin
Street, all of which expire in 2008. However, in connection with the anticipated
move of most of its offices to Jersey City, New Jersey, in July 2005, the
Company initiated negotiations with 185 Franklin Street Development Association
and has proposed to pay $462,859 to terminate the lease in August 2005.
The Company owns a condominium apartment unit at 350 Albany Street in New
York, New York. Mr. Axon owns a condominium apartment unit at 300 Albany Street
in New York, New York. The Company currently expects to sell the 350 Albany
Street apartment unit to Mr. Axon in exchange for $514,000 in cash, an amount
equal to the appraised value of the property less one-half the realtor fees that
would be incurred in an open-market sale. The terms of the transaction are
expected to be finalized and the transaction is expected to close on or about
April 30, 2005. Concurrently, with the sale of the 350 Albany Street apartment
unit to Mr. Axon, the Company proposes to enter into a one-year-rental agreement
with Mr. Axon to secure the use of either of the 300 Albany Street or 350 Albany
Street apartment units for 240 nights per year at the rate of $225 per night,
with such amount to cover all costs, including cleaning and maintenance fees.
Rockwell Drilling Company, a wholly-owned subsidiary of Miramar Resources,
Inc. at the time of Miramar's merger with the Company in 1994, is a holding
company for various gas and oil interests and has certain responsibilities in
aggregating and disbursing the proceeds from these interests. Rockwell is not
engaged in the business of the Company or its other subsidiaries. The interests
held by Rockwell must be liquidated under a plan of reorganization, with the
assets distributed to members in those interests and creditors. The Company has
proposed to sell 100% of its interest in Rockwell to Mr. Axon for $30,800, the
estimated value of the Company's membership interests in the assets held by
Rockwell. The terms of this transaction are expected to be finalized and the
transaction is expected to close on or about April 30, 2005.
At various times from January 1998 until October 2003, Mr. Axon provided
personal guarantees with regard to certain Franklin Credit debt outstanding to
Sky Bank. While the Compensation Committee of the Board of Directors had agreed
in principle to compensate Mr. Axon for providing these guarantees, he was not
compensated at the time. The Compensation Committee has determined that, based
on the amount of capital at risk, a reasonable reimbursement rate and the time
value of money, the reasonable compensation for these guarantees is $23,322,
which will be paid to Mr. Axon by April 30, 2005.
In 1998, Mr. Axon, the Company's Chairman, purchased from the Company, a
Florida condominium unit subject to considerable title defects, held by the
Company in its OREO available for sale. The consideration included forgiveness
of $184,335 of indebtedness of the Company to an affiliated company and issuance
by Mr. Axon of a note to the Company in the amount of $234,165. The note bore
interest at a rate of 8% per annum, was secured by the condominium property, and
was due June 1, 2001. During 2001, the parties agreed to extend the note until
December 31, 2003 and it has since been satisfied.
During 2000, Mr. Axon purchased from the Company a New York condominium
held by the Company in its OREO. The consideration included the issuance by Mr.
Axon of a note to the Company in the amount of $165,000. The note bore interest
at a rate of 8% per annum, was secured by the condominium property, and was due
together with all accrued interest and other charges on January 30, 2004. The
note has since been satisfied.
22
On March 31, 1999, Mr. Steven W. Lefkowitz, a board member, purchased from
the Company without recourse a delinquent non-performing note receivable held by
the Company. The consideration given included a note for $270,000 payable to the
Company. The note bore interest at a rate of 8% per annum, payable monthly, and
was secured by a mortgage on real estate. The note has since been satisfied.
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees listed above.
23
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed the firm of
Deloitte & Touche LLP ("D&T") as the Company's independent registered public
accounting firm to audit the financial statements of the Company for the fiscal
year ending December 31, 2005, and recommends that stockholders vote for
ratification of this appointment. D&T has audited the Company's financial
statements since January 1997. A representative of D&T is expected to be present
at the Annual Meeting and will have the opportunity to make a statement if he or
she desires to do so, and is expected to be available to respond to appropriate
questions.
Audit Fees
D&T has billed the Company the following fees for professional services
rendered in respect of the years ended December 31, 2004 and 2003:
2004 2003
---- ----
Audit Fees.............................. $400,000 $320,000
Audit-Related Fees...................... $14,000 -
Tax Fees................................ $143,600 $65,000
All Other Fees.......................... - -
Audit Fees consist of fees for the audit and review of the Company's
financial statements, statutory audits, comfort letters, consents, and
assistance with and review of documents filed with the SEC. Audit-related fees
consist of fees for employee benefit plan audits, accounting advice regarding
specific transactions, internal control reviews, and various attestation
engagements. 100% of tax fees, which generally represent fees for tax compliance
and advisory services, were approved by the Audit Committee.
Policy on Pre-Approval of Retention of Independent Auditor
The engagement of D&T for non-audit accounting and tax services performed
for the Company is limited to those instances in which such services are
considered integral to the audit services that it provides or in which there is
another compelling rationale for utilizing its services. Pursuant to the
requirements of the Sarbanes-Oxley Act of 2002, all audit and permitted
non-audited services to be performed by D&T require pre-approval by the Audit
Committee. Such pre-approval may be given by the chairman of the Audit Committee
under certain circumstances, with notice to the full Committee at its next
meeting.
Vote Required for Ratification of Deloitte &Touche
Ratification of the appointment of D&T requires the affirmative vote of a
majority of the shares of Common Stock present at the Annual Meeting and
entitled to vote thereon. If the Stockholders fail to ratify the selection, the
Audit Committee will reconsider its selection of D&T. Even if the selection is
ratified, the Audit Committee, in its discretion, may direct the appointment of
a different independent registered public accounting firm at any time during the
year, if it determines that such change would be in the best interests of the
Company and its Stockholders.
The Board of Directors recommends a vote FOR ratification of the
appointment of Deloitte & Touche LLP as the Company's independent registered
public accounting firm for the fiscal year ending December 31, 2005.
24
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not
aware of any other matter that is to be presented to Stockholders for formal
action at the Annual Meeting. If, however, any other matter or matters are
properly brought before the Annual Meeting or any adjournment or postponement
thereof, it is the intention of the persons named in the enclosed form of proxy
to vote such proxy in accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Any Stockholder proposal intended to be presented at the next annual
meeting of Stockholders must be received by the Company at its principal
executive offices, Six Harrison Street, New York, New York 10013, no later than
December 23, 2005 in order to be eligible for inclusion in the Company's proxy
statement and form of proxy to be used in connection with that meeting. Such
proposals must comply with the Company's By-laws and the requirements of
Regulation 14A of the Securities Exchange Act of 1934 (the "Exchange Act").
In addition, Rule 14a-4 of the Exchange Act governs the Company's use of
its discretionary proxy voting authority with respect to a stockholder proposal
that is not addressed in the proxy statement. With respect to the Company's 2006
Annual Meeting of Stockholders, if the Company is not provided notice of a
stockholder proposal prior to March 8, 2006, the Company will be allowed to use
its discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
OTHER INFORMATION
Although it has entered into no formal agreements to do so, the Company
will reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding proxy-soliciting
materials to their principals. The cost of soliciting proxies on behalf of the
Board of Directors will be borne by the Company. Such proxies will be solicited
principally through the mail but, if deemed desirable, may also be solicited
personally or by telephone, telegraph, facsimile transmission or special letter
by Directors, Officers and regular employees of the Company without additional
compensation.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE ANNUAL MEETING
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING. THE BOARD URGES YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID
REPLY ENVELOPE. YOUR COOPERATION AS A STOCKHOLDER, REGARDLESS OF THE NUMBER OF
SHARES OF STOCK YOU OWN, WILL REDUCE THE EXPENSES INCIDENT TO A FOLLOW-UP
SOLICITATION OF PROXIES.
IF YOU HAVE ANY QUESTIONS ABOUT VOTING YOUR SHARES, PLEASE TELEPHONE THE
COMPANY AT (212) 925-8745.
Sincerely yours,
/s/ Thomas J. Axon
-----------------------------
THOMAS J. AXON
Chairman
New York, New York
April 22, 2005
25
FRANKLIN CREDIT MANAGEMENT CORPORATION
Annual Meeting of Stockholders
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas J. Axon, Jeffrey R. Johnson and
Joseph Caiazzo, or if only one is present, then that individual, with full power
of substitution, to vote all shares of Franklin Credit Management Corporation
(the "Company"), which the undersigned is entitled to vote at the Company's
Annual Meeting to be held at the corporate offices of the Company, on Thursday,
May 5, 2005, at 10:00 a.m., New York time, and at any adjournment or
postponement thereof, hereby ratifying all that said proxies or their
substitutes may do by virtue hereof, and the undersigned authorizes and
instructs said proxies to vote as follows:
1. ELECTION OF DIRECTORS. To elect the nominees for the classes and terms
indicated below, please complete both of the sections below:
--------------------------------------------------------------------------
|_| FOR ALL NOMINEES LISTED BELOW |_| WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees listed below
contrary below)
--------------------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Class I Class II Class III
Nominees to Board Terms Nominees to Board Terms Nominees to Board Terms
Expiring 2006 Expiring 2007 Expiring 2008
Robert M. Chiste Michael Bertash Thomas J. Axon
Alexander Gordon Jardin Frank B. Evans, Jr. Jeffrey R. Johnson
William F. Sullivan Steve W. Lefkowitz Allan R. Lyons
2. APPROVAL OF AUDITORS: To ratify and approve the appointment of Deloitte &
Touche LLP as independent public auditors of the Company for the fiscal
year ending December 31, 2005;
FOR |_| AGAINST |_| ABSTAIN |_|
and in their discretion, upon any other matters that may properly come before
the meeting or any adjournments or postponements thereof.
(Continued and to be dated and signed on the other side.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE: |X|
Receipt of the Notice of Annual Meeting and of the Proxy Statement and
Annual Report of the Company accompanying the same is hereby acknowledged.
Dated: _______________________, 2005___________________________________________
(Signature of Stockholder)
___________________________________________
(Signature of Stockholder)
Your signature should appear the same as your name appears herein. If signing as
attorney, executor, administrator, trustee or guardian, please indicate the
capacity in which signing. When signing as joint tenants, all parties to the
joint tenancy must sign. When the proxy is given by a corporation, it should be
signed by an authorized Officer.
Annex A
Charter of the Audit Committee of the Board of Directors of
Franklin Credit Management Corporation
I. Purpose. The Audit Committee ("Committee") of the Board of Directors
("Board") of Franklin Credit Management Corporation ("Company") is
designated by and acts on behalf of the Board pursuant to Article II,
Section 9 of the Company's Bylaws ("Bylaws"). The Committee's purposes
shall be:
A. To assist the Board in its oversight of (i) the accounting and
financial reporting processes of the Company and the audits of its
financial statements; (ii) the integrity of the Company's financial
statements; (iii) the Company's internal controls and procedures
designed to promote compliance with accounting standards and
applicable laws and regulations; and (iv) the performance of the
Company's internal audit function;
B. To interact directly with and evaluate the performance of the
independent auditors, including to determine whether to engage or
dismiss the independent auditors and to monitor the independent
auditors' qualifications and independence; and
C. To prepare the report required by the rules of the Securities and
Exchange Commission ("SEC") to be included in the Company's proxy
statement.
The role of the Committee is oversight. The members of the Committee are not
employees of the Company and may or may not be accountants or auditors by
profession or experts in the fields of accounting or auditing and, in any event,
do not serve in such capacity. Consequently, it is not the duty of the Committee
to conduct audits, to independently verify management's representations, or to
determine that the Company's financial statements are complete and accurate,
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") or fairly present the financial condition, results of
operations, and cash flows of the Company. These are the responsibilities of
management and the independent auditors. The Committee's considerations and
discussions with management and the independent auditors do not assure that the
Company's financial statements are presented in accordance with GAAP, that the
audit of the Company's financial statements has been carried out in accordance
with applicable auditing standards, or that the Company's independent auditors
are in fact "independent."
II. Membership
A. The Committee shall be composed of at least three directors, each of
whom shall be free from any relationship that, in the opinion of the
Board, would interfere with his or her exercise of independent
judgment and must be found by the board to (i) qualify as an
"independent director" under applicable rules, unless the Board
determines that an exemption to such qualification is available
under applicable rules. Members of the Committee must also satisfy
the following additional independence requirements:
1. No Committee member may be an affiliated person of the Company
or any of its subsidiaries, as defined in SEC Rule 10A-3 under
the Securities Exchange Act of 1934, as amended ("Exchange
Act"); and
2. No Committee member shall accept directly or indirectly,
including through certain family members identified in SEC
Rule 10A-3 under the Exchange Act, any consulting, advisory,
or other fees from the Company or any subsidiary of the
Company, except for fees for services as a director and member
of the Audit Committee and any other Board committee and
certain fixed retirement benefits and deferred compensation,
as set forth in SEC Rule 10A-3.
B. In addition, all members of the Committee shall be able to read and
understand fundamental financial statements, including the balance
sheet, income statement and cash flow statement. At
least one member of the Committee must in the judgment of the Board
be an audit committee financial expert in accordance with the rules
and regulations of the Securities and Exchange Commission (the
"SEC") and shall have past employment experience in finance or
accounting, requisite professional certification in accounting, or
other comparable experience or background, which results in such
member's financial sophistication, including a current or past
position as a chief executive or financial officer or other senior
officer with financial oversight responsibilities.
C. The members of the Committee shall be nominated by the Nominating
and Corporate Governance Committee and appointed by a majority of
the Board for one-year terms. The Nominating and Corporate
Governance Committee shall recommend, and the Board shall designate,
one member of the Committee to serve as Chairperson. The members of
the Committee shall serve until their resignation, retirement, or
removal by the Board or until their successors shall be appointed.
III. Meetings and Procedures
A. The Committee shall meet as often as it may deem necessary and
appropriate in its judgment, but in no event less than quarterly. A
majority of the members of the Committee shall constitute a quorum.
B. The Committee shall meet with the independent auditors, the senior
executive of the Company who has responsibility for the internal
auditing functions, and management in separate meetings, as often as
it deems necessary and appropriate.
C. The Chairperson of the Committee or a majority of the members of the
Committee may call a special meeting of the Committee.
D. The Committee may request that any directors, officers, or employees
of the Company, or other persons whose advice and counsel are sought
by the Committee, attend any meeting to provide such information as
the Committee requests.
E. The Committee shall fix its own rules of procedure, which shall be
consistent with the Bylaws of the Company and this Charter.
F. The Committee shall report to the Board on the matters discussed at
each meeting of the Committee, including describing all actions
taken by the Committee at the meeting.
G. The Committee shall keep written minutes of its meetings, which
minutes shall be maintained with the books and records of the
Company.
H. The Committee may delegate authority to one or more members of the
Committee where appropriate, but no such delegation shall be
permitted if the authority is required by a law, regulation, or
listing standard to be exercised by the Committee as a whole.
IV. Duties and Responsibilities. The Committee shall have the following
resources, duties and responsibilities:
A. Resources. The Committee shall have:
1. Sole responsibility and the necessary funding, to retain, set
compensation and retention terms for, compensate and terminate
any internal and external legal, accounting and other advisors
that the Committee determines to employ to assist in the
performance of its duties.
2. Access to internal advisors and all other resources within the
Company to assist it in carrying out its duties and
responsibilities.
2
B. Duties with respect to the Financial Reporting Process. The
Committee shall:
1. Oversee the accounting and financial reporting processes of
the Company and the audits of its financial statements;
2. Generally oversee the disclosure controls and procedures
established to provide full, fair, accurate, timely and
understandable disclosure by the Company in periodic reports,
proxy statements and other filings filed or furnished by the
Company under the Exchange Act.
3. Review and discuss with management and the independent
auditors the annual audited financial statements to be
included in the Company's annual report on Form 10-K, the
quarterly financial statements to be included in the Company's
Form 10-Qs (including obtaining assurance from the independent
auditors that they have reviewed the Company's quarterly
financial reports within the meaning of the procedures set
forth in Statement on Auditing Standards No. 71 prior to the
filing of the Company's Form 10-Q for each quarter), the
Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
and any other financial disclosures to be included in SEC
filings prior to their release. In addition, the Committee
shall discuss with management and the independent auditors
major issues regarding accounting principles and financial
statement presentations, including any significant changes in
the Company's selection or application of accounting
principles; analyses prepared by management and/or the
independent auditors setting forth significant financial
reporting issues and judgments made in connection with the
preparation of financial statements, including analyses of the
effects of alternative GAAP methods on the financial
statements, the effects of regulatory and accounting
initiatives, as well as off-balance sheet arrangements, on the
financial statements; and the use of pro forma or non-GAAP
financial information. The Committee shall review with the
independent auditors such auditors' judgment of the quality of
the Company's accounting practices.
4. Review (if any) any material off-balance sheet transactions,
arrangements and obligations (including contingent
obligations) and any other relationships of the Company with
unconsolidated entities that may have a current or future
material effect on the Company's financial statements.
5. Review and discuss with management and the independent
auditors the adequacy of the Company's CEO and CFO financial
report certification process, any correspondence with
regulators, and any published reports that raise material
issues with respect to, or that could have a significant
effect on, the Company's financial statements.
6. Recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
7. Review earnings press releases prior to their release, as well
as the types of financial information and earnings guidance
and types of presentations to be provided to analysts and
rating agencies.
8. Prepare the report required by the rules of the SEC to be
included in the Company's annual proxy statement.
C. Duties with respect to Risk Assessment and the Control Environment.
The Committee shall:
1. Discuss periodically with management the Company's policies
and guidelines regarding risk assessment and risk management,
including environmental risk assessment and risk management,
as well as the Company's major financial risk exposures and
the steps that management has taken to monitor and control
such exposures.
3
2. Review and update periodically the Company's Code of Ethics
and Business Conduct and have the sole authority to grant
appropriate waivers of the application of the Company's Code
of Ethics and Business Conduct to a director or executive
officer. Any such waiver shall, to the extent legally
required, be promptly reported to the entire Board and
publicly disclosed.
3. Meet periodically with the senior members of the internal
audit function, the general counsel's office and, where
appropriate, the independent auditors, to review the Company's
policies and procedures regarding practices that may impact
the financial statements, and to review the Company's
performance relative to the Code of Ethics and Business
Conduct. Meet at least annually with the CFO and the
independent auditor in separate executive sessions.
4. Oversee the Company's internal controls and their adequacy and
effectiveness, including its internal control over financial
reporting; discuss with management and the independent
auditors the impact on the Company of any significant
deficiencies in the design or operation of internal control
over financial reporting or material weaknesses therein and
any special audit steps adopted in light of material control
deficiencies; consider any fraud involving management or other
employees that is reported to the Committee; and oversee
appropriate corrective actions in internal control.
D. Duties with respect to the Independent Auditors. The Committee
shall:
1. Have the sole authority to appoint, retain, set compensation
and retention terms for, terminate, oversee, and evaluate the
activities of the Company's independent auditors (including
resolution of their disagreements with management regarding
financial reporting). The independent auditors shall report
directly to the Committee. The Company shall provide for
appropriate funding, as determined by the Committee, to
compensate the independent auditors.
2. Review and approve in advance the retention of the independent
auditors for the performance of all audit and non-audit
services that are not prohibited and the fees for such
services. The Committee may establish policies and procedures
for the pre-approval of audit and non-audit services,
including the ability to delegate to one or more of its
members the authority to grant pre-approvals for the
performance of non-audit services, and any such Committee
member who pre-approves a non-audit service shall report the
pre-approval to the full Committee at its next meeting.
3. Prior to each audit, meet with the independent auditors to
discuss the planning and staffing of the audit, including the
impact of rotation requirements and other independence rules
on the staffing.
4. At least annually, obtain and review a report by the
independent auditors describing: (i) the auditing firm's
internal quality-control procedures; and (ii) any material
issues raised by the most recent internal quality-control
review, or Public Company Accounting Oversight Board review,
of the firm, or by any inquiry or investigation by
governmental or professional authorities or a private sector
regulatory board, within the preceding five years, respecting
one or more independent audits performed by the firm, and any
steps taken to deal with any such issues.
5. Annually review and discuss with the independent auditors all
relationships the independent auditors have with the Company
in order to evaluate their continued independence. In this
regard, the Committee shall (i) review on an annual basis a
written statement from the independent auditors (consistent
with Independent Standards Board Standard No. 1) that
discloses all relationships and services that may impact the
objectivity and independence of the independent auditors; (ii)
discuss with the independent auditors any disclosed
relationships or services that may impact their objectivity
and
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independence; and (iii) take, or recommend that the full Board
take, appropriate action to oversee the independence of the
independent auditors
6. Review periodically any reports prepared by the independent
auditors and provided to the Committee relating to significant
financial reporting issues and judgments including, among
other things, the Company's selection, application, and
disclosure of critical accounting policies and practices;
alternative treatments within GAAP for policies and practices
relating to material items that have been discussed with
management, including the ramifications of the use of such
alternative disclosures and treatments and the treatment
preferred by the independent auditors, and any other material
written communications between the independent auditors and
management, such as any management letter or schedule of
unadjusted differences.
7. Review with the independent auditor any problems or
difficulties the auditor may have encountered and any
management letter provided by the auditor and the Company's
response to such letter. Such review should include:
a. Any difficulties encountered in the course of the audit
work, including any restrictions on the scope of
activities or access to required information.
b. Any changes required in the planned scope of the
internal audit.
c. The financial and accounting department
responsibilities, budget and staffing.
8. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit. Document that such
discussion has taken place noting the date, participants and
place of the discussion, but not the nature and scope of such
discussion so that frank and open communication between the
Committee and the independent auditor may occur.
9. After reviewing the reports from the independent auditors and
the independent auditors' work throughout the audit period,
conduct an annual evaluation of the independent auditors'
performance and independence, including considering whether
the independent auditors' quality controls are adequate. This
evaluation also shall include the review and evaluation of the
lead partner of the independent auditors, including assuring
the regular rotation of the lead audit partner as required by
law. In making its evaluation, the Committee shall take into
account applicable legal and listing requirements as well as
the opinions of management and the senior member of the
Company's internal audit department. The Committee shall
present its conclusions with respect to the evaluation of the
independent auditors to the Board.
10. Set clear policies for the hiring by the Company of employees
or former employees of the independent auditors. Specifically,
the Company shall not hire as its Chief Executive Officer,
Chief Financial Officer, Controller, Chief Accounting Officer,
or any person serving in a financial reporting oversight role
any partner, employee, or former employee of the Company's
independent auditors who participated in any capacity in an
audit of the Company during the one-year period preceding the
date of initiation of the then-current audit.
E. Duties with respect to the Internal Audit Function. The Committee
shall:
1. Oversee the activities, organizational structure, and
qualifications of the persons performing the internal audit
function.
2. Review and approve the appointment and replacement of the
senior member of the internal audit function.
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3. Review and approve the annual internal audit plan of, and any
special projects undertaken by, the internal audit function,
and discuss the internal audit function's plan, operations and
budget with the Company's independent auditors.
4. Discuss with the internal audit function any changes to, and
the implementation of, the internal audit plan and any special
projects and discuss with the internal audit function the
results of the internal audits and special projects.
5. Review any significant reports to management prepared by the
internal audit function and management's responses.
F. Duties with respect to Evaluations and Reports. The Committee shall:
1. Under the guidance of the Nominating and Corporate Governance
Committee, annually review and assess the performance of the
Committee and deliver a report to the Nominating and Corporate
Governance Committee which will then deliver a report to the
Board setting forth the results of the Committee's evaluation.
In conducting this review, the Audit Committee shall address
matters that it considers relevant to its performance,
including at a minimum, the adequacy, appropriateness, and
quality of the information and recommendations presented to
the Committee, the manner in which they were discussed or
debated, and whether the number and length of meetings of the
Committee were adequate for the Committee to complete its work
in a thorough and thoughtful manner.
2. Make regular reports to the Board on its activities, including
reviewing any issues that arise respecting the quality and
integrity of the Company's public reporting, the Company's
compliance with legal and regulatory requirements, the
performance and independence of the Company's independent
auditors, the performance of the Company's internal audit
department, and the effectiveness of the Company's disclosure
controls and procedures.
G. Other Duties and Responsibilities. The Committee shall:
1. Review and approve all related party transactions.
2. Establish and maintain procedures for (i) the receipt,
retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or
auditing matters, and (ii) the confidential, anonymous
submission by Company employees of concerns regarding
questionable accounting or auditing matters.
3. Review and address any notifications regarding violations of
the Company's Code of Ethics and Business Conduct.
4. Review and assess the adequacy of this Charter annually and
recommend any proposed changes to the Nominating and Corporate
Governance Committee, which shall, if appropriate, recommend
such changes to the Board for its approval.
5. Maintain free and open communication with the Board,
management, the internal auditor, and the independent
auditors.
6. Perform any other activities consistent with this Charter, the
Company's Amended and Restated Certificate of Incorporation,
the Bylaws, and governing law, as the Committee or the Board
may deem necessary or appropriate.
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