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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 28050
------------------------
ONYX ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0577635
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
ONYX ACCEPTANCE CORPORATION
27051 TOWNE CENTRE DRIVE, SUITE 100
FOOTHILL RANCH, CA 92610
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(949) 465-3900
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK ($0.01 PAR VALUE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The number of shares outstanding of the Company's Common Stock as of the
closing of the market on October 15, 1999 was 6,177,804. The registrant does not
have different classes of Common Stock. Based on the closing sale price of $6.75
the registrant's Common Stock as quoted on the Nasdaq National Market on October
15, 1999, the aggregate market value of such stock held by non-affiliates of the
registrant was approximately $21,932,073 on that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders held on May 27, 1999, as filed with the Commission pursuant to
Regulation 14A, were incorporated by reference in Part III of the Registrant's
Report on Form 10-K filed on March 31, 1999. The Executive Compensation
information which was incorporated from the Proxy Statement into Item 11 of the
Report on Form 10-K is superseded by Item 11 as restated in this Form 10-K/A.
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AMENDED ANNUAL REPORT ON FORM 10-K/A
Onyx Acceptance Corporation (the "Company") hereby amends its Annual Report
on Form 10-K for the year ended December 31, 1998. The purpose of the amendment
is to correct information and provide additional detail regarding the repricing
of employee stock options in 1998, and certain other compensation information.
Information regarding option repricing and other compensation matters was
reported in the Company's Proxy Statement for its May 27, 1999 annual meeting of
stockholders. The compensation information in the Proxy Statement was
incorporated by reference into the original Annual Report in Item 11
- -- Executive Compensation. As required by Rule 12b-15 of the Exchange Act of
1934 regarding amendments to reports, Item 11 -- Executive Compensation is
restated in its entirety in this amendment. The restated Item 11 in this
amendment includes the new information regarding option repricing. The new
information regarding option repricing and certain other compensation matters
has been included by adding the section "Option Repricing" to the Executive
Compensation discussion that originally appeared in the Proxy Statement, by
adjusting option and other figures and footnotes in the tables that appeared in
the Executive Compensation discussion in the Proxy Statement, and by adding the
section "Special Option Regrant Program" to the Report of the Compensation
Committee that appeared in the Proxy Statement.
The information regarding executive compensation in this amended Annual
Report supersedes the executive compensation information in the Proxy Statement
for the Company's May 27, 1999 annual meeting, and readers should rely only on
the information in this amendment regarding executive compensation for the
periods reported.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four additional most highly compensated executive officers (the "Named Executive
Officers") for the years ended December 31, 1998, December 31, 1997 and December
31, 1996 whose compensation was in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
YEAR ENDED -------------------- UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION DECEMBER SALARY BONUS OPTIONS(1)
----------------------------------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C>
John W. Hall................................ 1998 $318,000 $165,100 262,313
President, Chief Executive Officer 1997 $318,000 -- 75,000
and Director 1996 $318,000 -- 51,021
Don P. Duffy................................ 1998 $194,565 $101,120 119,374
Chief Financial Officer, 1997 $178,600 -- 25,000
Executive Vice President and Director 1996 $161,083 -- 4,373
Frank L. Marraccino......................... 1998 $169,500 $ 78,750 139,374
Executive Vice President 1997 $179,301 $ 15,000 20,000
1996 $152,000 $ 29,775 29,373
Eugene J. Warner, Jr.(2).................... 1998 $144,200 $ 57,680 60,000
Executive Vice President 1997 $140,000 -- --
1996 $ 11,667 -- 50,000
Regan E. Kelly.............................. 1998 $137,197 $ 31,299 25,000
Executive Vice President and 1997 $133,550 -- 5,000
General Counsel 1996 $127,762 $ 5,788 --
</TABLE>
- ---------------
(1) Stock options for shares of Onyx common stock were awarded in the year
indicated. Figures for 1998 include options granted in 1998 at a new
exercise price in cancellation of preexisting options originally granted
from 1995 to 1998 but with a higher exercise price as follows:
John W. Hall...........................................197,313
Don P. Duffy........................................... 74,374
Frank L. Marraccino.................................... 94,374
Eugene J. Warner, Jr................................... 60,000
Regan E. Kelly......................................... 15,000
See the "Option Repricing" section below for a discussion of the
cancellation and reissuance of options in 1998.
(2) Joined Company in December, 1996.
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STOCK OPTIONS
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1998. No stock appreciation rights were granted to these individuals during such
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(11)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR(8) PRICE(9) DATE(10) 5% 10%
---- ---------- -------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Hall............. 6,291(2) 0.5% $5.75 5/11/05 $ 58,922 $ 93,824
51,021(3) 3.9% $5.75 3/17/06 $477,870 $ 760,928
75,001(4) 5.8% $5.75 1/1/07 $702,470 $1,118,566
65,000(5) 5.0% $5.75 1/1/08 $608,799 $ 969,411
Don P. Duffy............. 4,373(3) 0.3% $5.75 3/17/06 $ 40,958 $ 65,219
25,000(4) 1.9% $5.75 1/1/07 $234,153 $ 372,850
45,001(5) 3.5% $5.75 1/1/08 $421,485 $ 671,145
Frank L. Marraccino...... 4,373(3) 0.3% $5.75 3/17/06 $ 40,958 $ 65,219
25,000(6) 1.9% $5.75 7/28/06 $234,153 $ 372,851
20,000(4) 1.5% $5.75 1/1/07 $187,323 $ 298,280
45,001(5) 3.5% $5.75 1/1/08 $421,486 $ 671,146
Eugene J. Warner, Jr..... 50,000(7) 3.9% $5.75 10/31/06 $468,307 $ 745,701
10,000(5) 0.8% $5.75 1/1/08 $ 93,662 $ 149,140
Regan E. Kelly........... 5,000(4) 0.4% $5.75 1/1/07 $ 46,831 $ 74,570
10,000(5) 0.8% $5.75 1/1/08 $ 93,661 $ 149,140
</TABLE>
- ---------------
(1) All options listed in the column were regranted on October 27, 1998 in
cancellation of higher-priced options, as discussed in "Option Repricing"
below. A one-year "blackout" period for the regranted options was
established, according to which none of the options can be exercised unless
the optionee remains in the Company's service on October 27, 1999. If the
optionee remains in the Company's service through October 27, 1999, his
options will become exercisable at that time for the number of shares for
which the option would have been exercisable on October 27, 1999 absent the
regrant, and any options not then exercisable will become exercisable in
installments at the same rate the option would have become exercisable
absent the regrant. The footnotes for each option indicate the option's
original exercise schedule. If an optionee's service with the Company is
terminated before October 27, 1999, the optionee can exercise the option
for that number of shares for which the option would have been exercisable
upon termination of service absent the regrant at exercise price of the
prior higher-priced option.
(2) Option granted on May 12, 1995 and was immediately exercisable in full.
(3) Option granted on March 18, 1996, of which 25% was immediately exercisable,
with the remainder becoming exercisable thereafter in 48 equal monthly
installments from the grant date upon the optionee's completion of each
month of service, subject to the "blackout" period described in footnote 1.
(4) Option granted January 2, 1997, of which 25% became exercisable one year
from the grant date and the balance exercisable thereafter in 36 equal
monthly installments upon the optionee's completion of each month of
service, subject to the "blackout" period described in footnote 1.
(5) Option granted January 2, 1998, of which 25% became exercisable one year
from the grant date and the balance exercisable thereafter in 36 equal
monthly installments upon the optionee's completion of each month of
service, subject to the "blackout" period described in footnote 1.
(6) Option granted July 29, 1996 which became exercisable in 48 equal monthly
installments beginning one year from the grant date upon the optionee's
completion of each month of service, subject to the "blackout" period
described in footnote 1.
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(7) Option granted November 1, 1996, of which 50% was immediately exercisable
and the balance exercisable thereafter in 24 equal monthly installments
upon the optionee's completion of each month of service, subject to the
"blackout" period described in footnote 1.
(8) Based on options granted for a total of 1,296,878 shares, including
regrants of approximately 914,318 shares granted to employees during 1998.
(9) The exercise price of these options initially ranged from $7.25 to $11.49
per share. As a result of repricing options on October 27, 1998, the option
exercise price was reduced to $5.75. The exercise price may be paid in
cash, in shares of Common Stock valued at fair market value on the date of
exercise or pursuant to a cashless exercise procedure involving a same-day
sale of the purchased shares.
(10) Options were granted from 1995 through 1998 and expired ten years from
their grant date. The options were cancelled and reissued pursuant to
repricing on October 27, 1998, but the expiration date remained the same as
when the options were originally granted.
(11) The 5% and 10% assumed annual rates of compounded stock price appreciation
are permitted by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the value of
unexercised options held by each of the Named Executive Officers for the year
ended December 31, 1998. No options or stock appreciation rights were exercised
during such year and no stock appreciation rights were outstanding at the end of
that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Hall..................................... 137,719 116,023 $295,693 N/A
Don P. Duffy..................................... 32,215 59,048 $ 88,503 N/A
Frank L. Marraccino.............................. 21,782 72,591 N/A N/A
Eugene J. Warner, Jr. ........................... 38,542 21,458 N/A N/A
Regan E. Kelly................................... 8,518 12,605 $ 32,084 N/A
</TABLE>
- ---------------
(1) Based on the fair market value of the option shares at fiscal year-end
($5.75 per share) less the average exercise price ($0.51 per share) payable
for such in-the-money shares.
OPTION REPRICING
On October 27, 1998 the Company implemented a special option
cancellation/regrant program for all of its employees (including executive
officers) holding stock options that were granted prior to that date with an
exercise price per share in excess of the fair market value of the Company's
Common Stock on the regrant date ($5.75 per share). The cancellations/regrants
were effected on October 27, 1998, and approximately 914,318 outstanding options
with an exercise price in excess of $5.75 per share were surrendered for
cancellation and new options for the same aggregate number of shares were
granted with an exercise price of $5.75 per share. The expiration date of the
new options is the same as the expiration date of the options that were
cancelled. The new options are subject to a one-year "blackout" period,
according to which none of the options can be exercised unless the optionee
remains in the Company's service on October 27, 1999. If the optionee remains in
the Company's service through October 27, 1999, his options will become
exercisable at that time for the number of option shares for which the option
would have been exercisable on October 27, 1999 absent the regrant, and any
options not then exerciseable will become exerciseable in installments at the
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<PAGE> 6
same rate the option would have become exercisable absent the regrant. If an
optionee's service with the Company is terminated before October 27, 1999, the
optionee can exercise the option for that number of shares for which the option
would have been exercisable upon termination of service absent the regrant at
exercise price of the prior higher-priced option. Details regarding vesting of
the repriced options, as well as other details regarding the regrant program are
discussed below in the Report of the Compensation Committee under the heading
"Special Option Regrant Program."
The following table sets forth information concerning the repricing,
replacement or cancellation and regrant of options which has occurred over the
last ten fiscal years with respect to options held by executive officers of the
Company. The only repricing, replacement, or cancellation and regrant that has
occurred was on October 27, 1998 when the options listed below were cancelled
and regranted at a new exercise price of $5.75 per share, which was equal to the
closing market price of the Company's common stock at the time of the regrant.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH
OF ORIGINAL
NUMBER OF MARKET EXERCISE OPTION TERM
SECURITIES PRICE OF PRICE REMAINING
UNDERLYING STOCK AT AT TIME NEW AT TIME OF
OPTION TIME OF OF EXERCISE REPRICE
NAME DATE REPRICED REPRICING REPRICE PRICE (YEARS)
---- -------- ---------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
John W. Hall....................... 10/27/98 6,291 $5.75 $10.29 $5.75 6.4
President, Chief Executive 10/27/98 51,021 $5.75 $11.49 $5.75 7.2
Officer and Director 10/27/98 75,001 $5.75 $ 8.00 $5.75 8.0
10/27/98 65,000 $5.75 $ 7.25 $5.75 9.0
Don P. Duffy....................... 10/27/98 4,373 $5.75 $11.49 $5.75 7.2
Chief Financial Officer, 10/27/98 25,000 $5.75 $ 8.00 $5.75 8.0
Executive Vice President 10/27/98 45,001 $5.75 $ 7.25 $5.75 9.0
and Director
Frank L. Marraccino................ 10/27/98 4,373 $5.75 $11.49 $5.75 7.2
Executive Vice President 10/27/98 25,000 $5.75 $10.50 $5.75 7.6
10/27/98 20,000 $5.75 $ 8.00 $5.75 8.0
10/27/98 45,001 $5.75 $ 7.25 $5.75 9.0
Eugene J. Warner, Jr............... 10/27/98 50,000 $5.75 $ 8.00 $5.75 7.8
Executive Vice President 10/27/98 10,000 $5.75 $ 7.25 $5.75 9.0
Regan E. Kelly..................... 10/27/98 5,000 $5.75 $ 8.00 $5.75 8.0
Executive Vice President 10/27/98 10,000 $5.75 $ 7.25 $5.75 9.0
and General Counsel
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors during 1998 were Messrs. Hoff and Jones. None of these individuals was
at any time during the year ended December 31, 1998 or at any other time an
officer or employee of the Company.
No executive officer of the Company served as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee during the last completed fiscal year.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
None of the Company's executive officers have employment agreements with
the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. Stock options granted under the Company's
1996 Stock Option/Stock Issuance Plan may be accelerated at the discretion of
the Board in the event of a change of control of the Company or in the event of
an involuntary termination following a change of control.
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DIRECTOR REMUNERATION
The directors, with the exception of the Chairman of the Board, do not
receive compensation for services on the Board of Directors or any committee
thereof but are reimbursed for their out-of-pocket expenses in serving on the
Board of Directors. Certain non-employee members of the Board of Directors have
been granted options to purchase shares of the Company's Common Stock from time
to time in connection with their appointment to and performance on the Board of
Directors. Additionally, each of the non-employee members of the Board of
Directors is eligible to receive options to purchase Common Stock under the
Amended and Restated 1996 Plan's Automatic Option Grant Program.
Under the Automatic Option Grant Program, at each annual Stockholders
Meeting each individual with at least six months of Board service who is to
continue to serve as a non-employee Board Member after the meeting will receive
an option grant to purchase 7,000 shares of Common Stock, whether or not such
individual has been in the prior employ of the Company or joined the Board prior
to the Offering.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. The initial
automatic option grants under the Automatic Option Grant Program will vest in a
series of twenty-four (24) successive equal monthly installments upon the
optionee's completion of each month of Board service over the twenty-four
(24)-month period measured from the grant date and that the annual automatic
option grants will vest in a series of twelve (12) equal monthly installments
upon the optionee's completion of each month of Board service over the twelve
(12)-month period measured from the grant date. However, each outstanding option
will immediately vest upon (i) certain changes in the ownership or control of
the Company or (ii) the death or disability of the optionee while serving as a
Board member.
The non-employee directors received a grant of 7,000 shares each following
the Annual Shareholders Meeting in 1999.
REPORT OF THE COMPENSATION COMMITTEE
The Company applies a consistent philosophy to compensation for all
employees, including senior management. This philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives.
COMPENSATION PHILOSOPHY
Under the supervision of the Compensation Committee of the Board of
Directors, the Company has developed and implemented compensation policies,
plans and programs which seek to enhance the profitability of the Company, and
thus shareholder value, by aligning closely the financial interests of the
Company's senior managers and employees with those of its shareholders. The
Compensation Committee endorses the belief that stock ownership by a significant
percentage of the Company's employees, including the granting of stock options
to employees, furthers that goal and fosters decision-making by its employees
with the Company's long-term performance in mind.
The compensation plans and programs are structured to integrate pay with
the Company's annual and long-term performance goals. The plans and programs are
designed to recognize initiative and achievement and to assist the Company in
attracting and retaining qualified employees. In furtherance of these goals,
annual base salaries are generally set at competitive levels and the Company
relies to a large degree on annual incentive compensation to attract and retain
key employees with outstanding abilities and to motivate them to perform to the
full extent of their abilities. For the longer term, stock options (incentive
stock options and non-qualified stock options) are awarded by the Company, the
stock of which is traded on NASDAQ. Incentive compensation is variable and
closely tied to corporate, business unit and individual performance in a manner
that encourages a sharp and continuing focus on building profitability and
shareholder value. As a result of the increased emphasis on tying executive
compensation to corporate performance, in any particular year the total
compensation of the Company's executives may be more or less than the executives
of the Company's competitors, depending upon the Company's or the individual
business unit's performance.
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<PAGE> 8
In evaluating the performance and setting the incentive compensation of the
Chief Executive Officer and other senior executives, the Compensation Committee
takes into account their commitment to the long-term success of the Company
through management of their respective units as dictated by existing and
anticipated market conditions. Certainly, the Compensation Committee expects and
rewards recognition by the Chief Executive Officer and senior executives of
managing in both adverse and advantageous market conditions for each of the
Company's major divisions.
At the beginning of each year, performance goals to determine annual
incentive compensation are established for each executive. Financial goals
include loan volume growth, operating earnings, loan losses, delinquency levels,
cost controls, productivity and profitability. Certain members of senior
management have their bonuses tied exclusively to earnings per share.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In determining the Chief Executive Officer's compensation for 1998, the
Compensation Committee discussed and considered all of the factors discussed
above in the overall context of the Company's performance in 1998. The
Compensation Committee acknowledged the continued focus on purchasing quality
auto contracts, building infrastructure, managing the performance of the auto
contracts portfolio, and the Company's continued expansion and growth.
Significant emphasis is placed on the above relative to measuring the quality of
the Chief Executive Officer's performance. Ultimately, however, for the purpose
of achieving a bonus, the Committee relies primarily on earnings per share. The
Company significantly exceeded the objectives set out by the Committee at the
beginning of 1998 and as a result the Chief Executive Officer received a bonus
for 1998 reflective of this outstanding performance by the Company.
STOCK OPTION GRANTS
Onyx Acceptance Corporation uses stock options as long-term incentives and
expects that it will continue to issue this compensation alternative in the
future. In 1996, the Company adopted the 1996 Stock Option/ Stock Issuance Plan
that made 600,000 shares of Common Stock of the Company available for just such
purposes. The Onyx Compensation Committee grants incentive stock options and, in
certain circumstances, non-qualified stock options to employees of the Company
and views such grants less as compensation and more as an incentive mechanism.
Grants were made in 1998 to some executives as shown in the Summary Compensation
Table, and to other key employees, which are reflected in the appropriate
tables. Also in 1998, the Company adopted certain amendments to its 1996 Stock
Option/Stock Issuance Plan which were ratified by a vote of the shareholders at
the Annual Shareholders Meeting in 1998. The key amendments provided the
following:
(i) increased the maximum number of shares of Common Stock authorized
for issuance over the term of the 1996 Plan by 200,000 shares, from
1,133,304 shares to 1,333,304 shares,
(ii) implemented an automatic share increase feature pursuant to which
the number of shares available for issuance under the 1996 Plan will
automatically increase on the first trading day of each calendar year,
beginning in calendar year 1999, by an amount equal to three percent (3%)
of the total number of shares of Common Stock outstanding on the last
trading day of the immediately preceding calendar year,
(iii) allowed unvested shares issued under the 1996 Plan and
subsequently repurchased by the Company at the purchase price paid per
share to be reissued under the 1996 Plan,
(iv) increased the number of shares of Common Stock subject to the
automatic option grants to be made to the non-employee Board members under
the Automatic Option Grant Program from 8,000 shares to 10,000 shares for
the initial automatic grants and from 2,000 shares to 7,000 shares for the
annual automatic grants,
(v) provided that the initial automatic option grants under the
Automatic Option Grant Program will vest in a series of twenty-four (24)
successive equal monthly installments upon the optionee's completion of
each month of Board service over the twenty-four (24)-month period measured
from the
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<PAGE> 9
grant date and that the annual automatic option grants will vest in a
series of twelve (12) equal monthly installments upon the optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date,
(vi) made the non-employee Board members who are serving as Plan
Administrator eligible for discretionary grants and direct stock issuances
under the Discretionary Option Grant and Stock Issuance Programs in effect
under the 1996 Plan;
(vii) removed certain restrictions on the eligibility of non-employee
Board members to serve as Plan Administrator, and
(viii) effected a series of additional changes to the provisions of
the 1996 Plan, including the stockholder approval requirements, the
transferability of non-statutory stock options and the elimination of the
six (6)-month holding period requirement as a condition to the exercise of
stock appreciation rights, in order to take advantage of the most recent
amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the 1996 Plan from
the short-swing liability provisions of the federal securities laws.
The share increase provisions (including the annual three percent (3%)
increase) will assure that a sufficient reserve of Common Stock is available
under the 1996 Plan to attract and retain the services of key individuals
essential to the Company's long-term growth and success. The remaining
amendments will provide the Company with more opportunities to make equity
incentives available to the non-employee Board members as an inducement for
their continued service and will facilitate plan administration by eliminating a
number of limitations and restrictions previously incorporated into the 1996
Plan to comply with the applicable requirements of SEC Rule 16b-3 prior to its
most recent amendment.
The 1996 Plan is the successor to the Company's 1994 Stock Option Plan and
1994 Special Performance Option Grant Plan (the "Predecessor Plans"). The 1996
Plan became effective upon its adoption by the Board on February 28, 1996 (the
"Effective Date") and was approved by the Company's stockholders on February 28,
1996. The Board adopted the amendments to the 1996 Plan on January 2, 1998, and
the stockholders approved the amendments at the Annual Meeting Shareholders on
May 20, 1998.
SPECIAL OPTION REGRANT PROGRAM
During the 1998 fiscal year, the Compensation Committee felt that
circumstances had made it necessary for the Company to implement an option
cancellation/regrant program. Accordingly, on October 27, 1998, all of the
Company's employees (including executive officers) were given the opportunity to
surrender their outstanding options issued prior to that date with exercise
prices in excess of $5.75 per share in return for a new option grant for the
same number of shares but with a lower exercise price of $5.75 per share, the
fair market value per share of the Company's Common Stock on the regrant date.
The cancellations/regrants were effected on October 27, 1998, and 914,318
outstanding options with an exercise price in excess of $5.75 per share were
surrendered for cancellation and new options for the same aggregate number of
shares were granted with an exercise price of $5.75 per share. The expiration
date of the new options remained the same as the expiration date of the options
that were cancelled, however, the new options are subject to a new vesting
schedule discussed below.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total compensation
package of each Company employee and play a substantial role in the Company's
ability to retain the services of individuals essential to the Company's
long-term financial success. Prior to the implementation of the program, the
market price of the Company's Common Stock had fallen as a result of market
factors which adversely impacted the Company's stock value and which did not
necessarily reflect the employees' contributions to the Company's progress. The
Compensation Committee felt that the Company's ability to retain key employees
would be significantly impaired, unless value was restored to their options in
the form of regranted options at the current market price of the Company's
Common Stock.
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<PAGE> 10
In order for the regranted options to serve their primary purpose of
assuring the continued service of each optionee, a new exercise schedule was
imposed with respect to the option shares. None of the new options granted in
cancellation of prior options can be exercised unless the optionee remains in
the Company's service on October 27, 1999, which is one year from the regrant
date. If the optionee remains in the Company's service through October 27, 1999,
then the new option will become exercisable at that time for a portion of the
option shares equal to the same percentage for which the option would have been
exercisable on October 27, 1999 in the absence of such repricing. The new option
will subsequently become exercisable for the balance of the option shares, if
any, in one or more installments at the same dates the option would have become
exercisable for those installments in the absence of repricing.
Upon the termination of an optionee's service with the Company, during the
twelve-month period following October 27, 1998, the optionee will be entitled to
exercise for that number of shares for which the option would have been
exercisable upon the optionee's termination of service in the absence of
repricing, and the exercise price in effect shall be equal to the exercise price
of the prior higher-priced option.
In the event of a change in control of the Company during the twelve-month
period following the October 27, 1998, the new option will become exercisable at
the revised price of $5.75 per share in accordance with the same schedule for
which the option would have been exercisable in the absence of the repricing.
POLICY REGARDING COMPLIANCE WITH I.R.C. SECTION 162(m)
Section 162(m) of the Internal Revenue Code, as enacted by the Omnibus
Budget Reconciliation Act of 1993, provides in general that, beginning in 1994,
compensation paid to certain executives of publicly held corporations will not
be deductible for federal income tax purposes to the extent it exceeds
$1,000,000 per year unless certain conditions are met. It is the present policy
of the Compensation Committee that individual compensation shall not exceed the
deductibility requirements of Internal Revenue Code, Section 162(m) and the
Company intends to take the necessary steps to comply, but also reserves the
right to enter into incentive and other compensation arrangements that do not
comply when it determines that the benefits to the Company outweigh the cost of
the possible loss of federal income tax deductions.
COMPENSATION COMMITTEE
Robert A. Hoff
G. Bradford Jones
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STOCK PRICE PERFORMANCE GRAPH(2)
Set forth below is a line graph depicting the quarterly percentage change
in the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the NASDAQ composite and a compiled peer group
for the period commencing March 25, 1996, the date of the Company's initial
public offering, and ending December 31, 1998.
The following graph compares the value of a $100 investment made on 3/25/96
in each of Onyx, Onyx Peer Group, and the NASDAQ Composite Index as of 12/31/96,
12/31/97 and 12/31/98.
<TABLE>
<CAPTION>
ONYX ONYX PEER GROUP NASDAQ COMPOSITE
---- --------------- ----------------
<S> <C> <C> <C>
3/25/96 100.00 100.00 100.00
12/31/96 73.90 109.56 118.00
12/31/97 67.39 54.40 144.47
12/31/98 50.00 31.10 201.72
</TABLE>
(1) Companies in peer group are WFS Financial, Inc., Union Acceptance
Corporation and Arcadia Financial Corporation.
(2) This section is not "soliciting material," is not deemed filed with the SEC
and is not to be incorporated by reference into any filing of the Company
under the Securities Act or the Exchange Act whether made before or after
the date hereof and irrespective of any general incorporation language in
such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized
on October 15, 1999.
ONYX ACCEPTANCE CORPORATION
By: /s/ JOHN W. HALL
------------------------------------
John W. Hall
President and Chief Executive
Officer
(Principal Executive Officer)
10
