Schedule 14(a) Information
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Affinity Technology Group, Inc.
(Name of Registrant as Specified in Charter)
______________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):______
(4) Proposed maximum aggregate value of transaction:
___________________________________________________
(5) Total fee paid:
___________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box is any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________
(3) Filing Party:
___________________________________________________
(4) Date Filed:
___________________________________________________
<PAGE>
April 21, 1997
Dear Fellow Stockholder:
On behalf of the Board of Directors of Affinity Technology Group, Inc.,
it is my pleasure to invite you to attend the 1997 Annual Meeting of
Stockholders of Affinity Technology Group, Inc. to be held at the Adams Mark
Hotel, 1200 Hampton Street, Columbia, South Carolina, on Tuesday, May 20, 1997,
at 10:00 a.m., local time.
The principal business of the meeting will be the election of directors
and the ratification of the appointment of independent auditors. In addition, we
plan to review developments in the Company's business during the past year and
our outlook for the current year.
This booklet, which contains the Notice of Annual Meeting and the Proxy
Statement, describes the business to be transacted at the meeting and provides
certain other information about the Company and its directors and executive
officers which you should consider when voting your shares.
It is important that your shares be represented at the meeting, whether
or not you plan to attend. In order to be certain that your shares will be voted
at the meeting, please complete, date and sign the accompanying proxy card and
return it in the enclosed postage prepaid envelope, which requires no postage if
mailed in the United States.
I look forward to seeing you at the meeting.
Very truly yours,
JEFF A. NORRIS
President and Chief Executive Officer
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC.
1201 Main Street, 20th Floor
Suite 2080 Capital Center
Columbia, SC 29201-3201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Affinity Technology Group, Inc.:
The Annual Meeting of the Stockholders of Affinity Technology Group,
Inc. (the "Company") will be held at the Adams Mark Hotel, 1200 Hampton Street,
Columbia, South Carolina, on Tuesday, May 20, 1997, at 10:00 a.m.
Eastern Daylight Saving Time, for the following purposes:
o To elect five members to the Board of Directors;
o To consider and vote upon a proposal to ratify the appointment
of Ernst & Young LLP as independent auditors for the year
ending December 31, 1997; and
o To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 1, 1997
as the record date for the determination of stockholders entitled to vote at the
meeting. Accordingly, only stockholders who are holders of record at the close
of business on that date are entitled to notice of and to vote at the meeting.
A list of stockholders entitled to vote at the Annual Meeting will be
open for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the principal executive offices of the Company at 1201 Main
Street, Suite 2080 Capital Center, Columbia, South Carolina.
By order of the Board of Directors:
JEFF A. NORRIS
President and Chief Executive Officer
You are urged to complete, date and sign the accompanying proxy card
and to return it promptly in the enclosed envelope, which requires no postage if
mailed in the United States.
April 21, 1997
<PAGE>
AFFINITY TECHNOLOGY GROUP, INC.
PROXY STATEMENT
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Affinity Technology Group, Inc. (the "Company") of
proxies to be voted at the 1997 Annual Meeting of Stockholders of the Company to
be held at the Adams Mark Hotel, 1200 Hampton Street, Columbia, South Carolina,
on Tuesday, May 20, 1997, at 10:00 a.m. Eastern Daylight Saving Time. The entire
cost of such solicitation will be borne by the Company. In addition to
solicitation by mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxy materials to their
principals, and the Company may reimburse them for their expenses in doing so.
Personal solicitations may be conducted by directors, officers and employees of
the Company. This Proxy Statement and accompanying proxy card will be mailed to
stockholders on or about April 21, 1997.
Voting Procedures
The Company's common stock, par value $0.0001 per share ("Common
Stock"), is the only outstanding voting security of the Company. Holders of
record of the Common Stock at the close of business on April 1, 1997 are
entitled to vote at the Annual Meeting and are entitled to one vote for each
share held. At the close of business on April 1, 1997, there were 28,150,603
shares of Common Stock issued and outstanding.
Under Article II, Section 6 of the Amended and Restated By-Laws of the
Company (the "By-Laws"), the holders of a majority of the shares of Common Stock
entitled to vote at the Annual Meeting, present in person or represented by
proxy, constitute a quorum for the transaction of business at the Annual
Meeting. The By-Laws further provide that if a quorum is initially present, the
stockholders of the Company may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken is approved by a majority of the stockholders
initially constituting a quorum for the meeting. Abstentions, shares that are
withheld as to voting with respect to one or more of the nominees for director
and shares held by a broker, as nominee, that are voted at the discretion of
such broker on any matter will be counted in determining the existence of a
quorum.
Under the Company's By-Laws, directors are elected by a plurality of
the votes of shares of Common Stock present in person or represented by proxy at
the Annual Meeting and entitled to vote on the election of directors. Shares
that are withheld as to voting with respect to a nominee for director and shares
held of record by a broker, as nominee, that are not voted will not be treated
as votes cast with respect to the election of directors. The proposal to ratify
the appointment of independent auditors for the year ending December 31, 1997
will be approved if it receives the affirmative vote of the holders of a
majority of shares of Common Stock present in person or by proxy at the Annual
Meeting and entitled to vote on such matter. For such purposes, abstentions will
be treated as shares present and entitled to vote and, consequently, will be
treated as a vote against such proposal. However, shares held of record by a
broker, as nominee, that are not voted on such proposal will not be treated as
shares present and entitled to vote on such proposal and, accordingly, will not
affect the outcome of such proposal.
Voting of Proxies
The shares represented by the accompanying proxy card and entitled to
vote will be voted if the proxy card is properly signed and received by the
Assistant Secretary of the Company prior to the meeting. Where a choice is
specified on any proxy card as to the vote on any matter to come before the
meeting, the proxy will be voted in accordance with such specification. Where no
choice is specified, the proxy will be voted for the election of the persons
nominated to serve as the directors of the Company named in this Proxy
Statement, for the proposal to ratify the appointment of Ernst & Young LLP as
independent auditors for the year ending December 31, 1997 and in such manner as
the persons named on the enclosed proxy card in their discretion determine upon
such other business as may properly come before the meeting or any adjournment
thereof. Any stockholder giving a proxy has the right to revoke it at any time
before it is voted by giving written notice to the Assistant Secretary of the
Company, by attending the meeting and giving notice of his or her intention to
vote in person or by executing and delivering to the Company a proxy bearing a
later date.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of April 5, 1997 by (i) each
director and nominee for director of the Company, (ii) each executive officer of
the Company named under the caption "Executive Compensation--Summary
Compensation Table," below, (iii) each person who is known by the Company to
beneficially own more than five percent of the outstanding shares of Common
Stock (a "five percent stockholder") and (iv) all directors and executive
officers as a group. Except as set forth in the footnotes to the table below,
each of the stockholders identified in the table below has sole voting and
investment power over the shares beneficially owned by such person. Except as
noted in the footnotes to the following table, the address of each five percent
stockholder is 1201 Main Street, 20th Floor, Suite 2080 Capital Center,
Columbia, South Carolina, 29201-3201.
<TABLE>
<CAPTION>
Percent of
Number of Shares Outstanding
DIRECTORS AND EXECUTIVE OFFICERS Beneficially Owned Shares Owned
- -------------------------------- ------------------ ------------
<S> <C>
Jeff A. Norris (1) 10,602,120 37.7%
Alan H. Fishman (2) 2,647,088 9.4%
Steven J. Gilbert (2) 1,222,498 4.3%
Paul A. Jones, Jr. (3) 424,000 1.5%
Peter R. Wilson 413,400 1.5%
Robert M. Price (2)(4) 273,752 1.0%
Edward J. Sebastian (2)(5) 123,635 *
John D. Rogers (6) 29,500 *
Terrence J. Sabol, Sr. (7) 27,300 *
Directors and executive officers as a group (8 persons) (8) 15,339,293 54.5%
OTHER FIVE PERCENT STOCKHOLDERS
Carolina First Corporation (9) 5,999,706 17.6%
Mel Ray (10) 3,302,900 11.7%
</TABLE>
- -------------------
* Indicates less than one percent.
(1) Includes (i) 2,650,000 shares of Common Stock held by the Norris Family
Limited Partnership and 95,400 shares of Common Stock held by the J&L
Extended Family Limited Partnership and (ii) 2,120 shares of Common Stock
issuable to Lynda Norris, the wife of Mr. Norris, upon the exercise of
options granted under the 1995 Stock Option Plan of Affinity Technology
Group, Inc. (the "1995 Option Plan") .
(2) Includes 4,240, 2,120, 4,240 and 2,120 shares of Common Stock issuable upon
the exercise of options granted under the 1995 Option Plan to Messrs.
Fishman, Gilbert, Price and Sebastian, respectively.
(3) Mr. Jones resigned as a director and executive officer of the Company in
February 1997. Pursuant to a stock purchase agreement between the Company
and Mr. Jones, the Company has elected to repurchase 204,933 shares of
Common Stock held by Mr. Jones for an aggregate consideration of $483.
(4) Includes 2,838 shares of Common Stock issuable upon exercise of a warrant.
(5) Includes 11,353 shares of Common Stock issuable upon the exercise of a
warrant and 2,000 shares of Common Stock held by Mr. Sebastian's wife, over
which he shares voting and investment control.
(6) Includes 12,500 shares of Common Stock issuable upon the exercise of
options granted under the 1996 Stock Option Plan of Affinity Technology
Group, Inc. (the "1996 Option Plan").
(7) Includes (i) 26,500 shares of Common Stock issuable upon exercise of
options granted under the 1995 Option Plan and (ii) 100 shares of Common
Stock held by the son of Mr. Sabol.
(8) Includes (i) 53,840 shares of Common Stock issuable upon exercise of
options granted under the 1995 Option Plan and the 1996 Option Plan and
(ii) 14,191 shares of Common stock issuable upon exercise of warrants. Does
not include 424,000 shares of Common Stock held by Mr. Jones. See footnote
(3) above.
(9) Based on information set forth in a Schedule 13D filed by Carolina First
Corporation with the Securities and Exchange Commission, includes 128,366
shares of Common Stock and a warrant to purchase an additional 5,871,340
shares of Common Stock held by Blue Ridge Finance Company, a wholly owned
subsidiary of Carolina First Corporation. Carolina First Corporation's
address is Post Office Box 1029, Greenville, South Carolina 29602.
(10) Includes (i) approximately 481,947 shares of Common Stock currently
subject to a repurchase right of the Company upon termination of Mr. Ray's
employment with the Company and (ii) 100 shares of Common Stock held
by the daughter of Mr. Ray. Mr. Ray's address is 11124 Flora Lee Drive,
Fairfax Station, Virginia 22039.
BOARD OF DIRECTORS
The business and affairs of the Company is managed by or under the
direction of the Board of Directors, as provided by Delaware law and the
Company's By-Laws. The directors establish overall policies and standards for
the Company and review the performance of management. The directors are kept
informed of the Company's operations at meetings of the Board, through reports
and analyses and through discussions with management.
Meetings of the Board
The Board of Directors meets on a regularly scheduled basis and met
five times during the year ended December 31, 1996. During 1996, all directors
except Mr. Price attended at least 75% of the aggregate of all meetings of the
Board of Directors and of the Committees of the Board of Directors on which they
served.
Committees of the Board
The Board of Directors has established an Audit Committee and a
Compensation Committee. There is no nominating committee of the Board of
Directors.
The Audit Committee, established in 1996, has the authority to
recommend the annual appointment of the Company's independent auditors, with
whom the Audit Committee reviews the scope of audit and non-audit assignments
and related fees, the accounting principles used by the Company in financial
reporting and the adequacy of the Company's internal control procedures. The
members of the Audit Committee, which met twice during the year ended December
31, 1996, are Dr. Peter R. Wilson (Chairman) and Edward J. Sebastian.
The Compensation Committee has the authority, among other things, to
(i) determine the cash and non-cash compensation of each of the Company's
executive officers and any other employee with an annual salary in excess of
$100,000; (ii) consider and recommend to the Board such general and specific
employee equity and other incentives as it may from time to time deem advisable;
and (iii) administer the Company's stock option plans. The members of the
Compensation Committee, which met three times during the year ended December 31,
1996, are Alan H. Fishman (Chairman), Steven J. Gilbert and Robert M. Price. Mr.
Gilbert will not stand for re-election to the Board of Directors at the Annual
Meeting.
Nominees for Director
Article III, Section 2 of the By-Laws of the Company provides that the
Board of Directors shall consist of at least three and no more than 15 members,
which number will be determined, from time to time, by resolution adopted by the
Board of Directors of the Company. The Board of Directors has set the number of
directors at five, effective at the Annual Meeting. The five persons named below
are nominated to serve on the Board of Directors until the 1998 Annual Meeting
of Stockholders or until their successors are elected and qualified.
Each nominee is currently a director of the Company.
The age and a brief biographical description of each nominee for director are
set forth below.
Alan H. Fishman (51), Chairman, has been a director of the Company since March
1995 and became Chairman of the Board in April 1996. Formerly Chief Financial
Officer of Chemical Bank from 1979 to 1983, he founded Columbia Financial
Partners, L.P., an investment firm that specializes in the area of financial
services assets, in February 1992 and serves as its Managing Partner. Between
March 1990 and February 1992 he was a Managing Partner of Adler & Shaykin, a
private investment firm. Mr. Fishman earned a bachelor's degree at Brown
University and a master's degree in economics at Columbia University Graduate
School of Business. Mr. Fishman also serves as a member of the Board of
Directors of Brooklyn Union Gas Co., a public utility company.
Jeff A. Norris (36), founder of the Company, has served as the Company's Chief
Executive Officer and as a director since March 1994 and served as Chairman of
the Board from March 1994 to April 1996 and as Treasurer from March 1994 to
February 1996. He held the position of President from March 1994 to May 1994 and
reassumed that position in October 1995. Prior to founding the Company, Mr.
Norris was employed as a salesman by Digital Equipment Corporation for nine
years. Mr. Norris received a bachelor's degree in finance from the University of
South Carolina and earned a Masters of Business Administration at the Fuqua
School of Business at Duke University.
Robert M. Price (66) has served as a director of the Company since November
1994. He has been President of PSV, Inc., a technology consulting business
located in Burnsville, Minnesota, since 1990. Between 1961 and 1990, Mr. Price
served in various executive positions, including Chairman and Chief Executive
Officer, with Control Data Corporation, a mainframe computer manufacturer and
business services provider. Mr. Price is a graduate of Duke University, and
earned a master's degree at the Georgia Institute of Technology. Mr. Price is a
director of International Multifood Inc., Public Service Company of New Mexico,
Rohr Incorporated, Fourth Shift Corporation and Tupperware Corporation.
Edward J. Sebastian (50) has served as a director of the Company since July
1995. Mr. Sebastian has been Chairman of the Board and Chief Executive Officer
of Resource Bancshares Corporation since it was founded by him in September
1986. Resource Bancshares Corporation owns specialty asset companies that engage
in commercial mortgage banking, credit card transaction processing and
origination and small ticket equipment leasing. Mr. Sebastian has also been
Chairman of the Board and Chief Executive Officer of Resource Bancshares
Mortgage Group, Inc., a publicly traded residential mortgage company, since he
organized it as a division of Republic National Bank in May 1989. In addition,
Mr. Sebastian serves as Chairman of a number of wholly owned subsidiaries of
Resource Bancshares Corporation and serves as a director for First Sun South
Corporation, Baker Communications Fund, Republic Leasing Company, Dart, Inc.,
Southeast Bank Fund, Founders Fund, Inc. and Virtual Emporium, Inc.
Mr. Sebastian earned a bachelor's degree at Pennsylvania State University.
Dr. Peter R. Wilson (44) has been a director of the Company since March 1994.
Mr. Wilson served as Secretary of the Company from March 1994 until
February 1996 and has been an Associate Professor at the Fuqua School of
Business at Duke University since September 1991. He was an Assistant
Professor at New York University's Stern School of Business between
January 1983 and August 1991. Dr. Wilson teaches in the areas of
financial accounting, financial reporting, financial statement analysis
and strategic cost management. He earned a bachelor's degree and a Ph.D.
in accounting at the University of North Carolina.
The Company's Certificate of Incorporation as in effect prior to the
Company's initial public offering in May 1996 provided that as long as certain
shares of preferred stock remained outstanding, the holders of a majority of
such shares would have the right to elect one director to the Board of Directors
of the Company. Mr. Fishman was elected to the Company's Board of Directors
pursuant to such provisions. All outstanding shares of preferred stock
automatically converted into shares of Common Stock upon the consummation of the
initial public offering.
Compensation of Directors
The Company's non-employee directors are eligible to receive options
under the Nonemployee Directors' Stock Option Plan of Affinity Technology Group,
Inc. (the "Directors' Option Plan"). Under the Directors' Option Plan, directors
who are not employees of the Company or any of its subsidiaries are entitled to
receive an initial award ("Initial Awards") in the form of an option to purchase
shares of Common Stock having an aggregate fair market value of $50,000. In
addition, each eligible director is entitled to receive a subsequent award
("Annual Awards") in each year in the form of an option to purchase shares of
Common Stock having an aggregate fair market value of $15,000. Initial Awards
will be granted to each non-employee director who is elected to the Board of
Directors at the 1997 Annual Meeting of Stockholders of the Company and,
thereafter, to each new non-employee director upon his or her first election or
appointment to the Board of Directors. Annual Awards will be granted to each
continuing non-employee director upon his or her re-election to the Board of
Directors by the Stockholders of the Company at each annual meeting of
stockholders of the Company, beginning with the 1998 Annual Meeting of
Stockholders. Initial Awards and Annual Awards will be exercisable on a per
share basis at the fair market value per share of the Common Stock as reported
on The Nasdaq National Market on the date of grant. Initial Awards will vest in
equal quarterly installments over the three-year period following the date of
grant, and Annual Awards will vest in equal quarterly installments over the
one-year period following the date of grant. Initial Awards and Annual Awards
will expire on the fifth anniversary of the date of grant. Messrs. Fishman,
Price, Sebastian and Wilson will each receive Initial Awards upon their election
to the Board of Directors at the Annual Meeting.
During 1995 certain non-employee directors of the Company (Messrs.
Fishman, Gilbert, Price and Sebastian) were each granted an option to purchase
10,600 shares of Common Stock at an exercise price of approximately $0.44 per
share. Prior to consummation of the Company's initial public offering in May
1996, the Company had a consulting agreement with Mr. Fishman. No cash or other
payments were made by the Company to Mr. Fishman during the year ended December
31, 1996 in connection with Mr. Fishman's consulting agreement with the Company.
In addition, the Company currently subleases office space in New York, New York
from a partnership of which Mr. Fishman is the Managing Partner. See "Certain
Transactions."
Effective in February 1996, the Company terminated a consulting
arrangement with Dr. Wilson and, in connection therewith, determined to waive
its right to repurchase certain shares of Common Stock held by Dr. Wilson at
such time. See "Certain Transactions." No cash or other payments were made by
the Company to Dr. Wilson during the year ended December 31, 1996 in connection
with Dr. Wilson's consulting arrangement with the Company.
Other than reimbursement for out-of-pocket expenses, directors receive
no cash compensation for their service as directors or attendance at Board or
Committee meetings.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation earned by the Chief Executive Officer and the four most
highly compensated executive officers other than the Chief Executive Officer
(the "Named Executives") for services rendered to the Company and its
subsidiaries in all capacities for the years ended December 31, 1996 and
December 31, 1995.
<TABLE>
<CAPTION>
Long Term
Compensation
-------------------------
-------------------------
Annual Compensation Awards
---------------------------- -------------------------
Securities Underlying
Name and Principal Position Year Salary Bonus Options/SARs (#) (1)
- --------------------------- ---- ------- ----- --------------------
<S> <C> <C> <C> <C>
Jeff A. Norris 1996 $ 175,000 - -
President and Chief 1995 123,229 - -
Executive Officer
Joseph A. Boyle (2) 1996 48,478 $75,000(3) 67,500
Senior Vice President and 1995 - - -
Chief Financial Officer
John D. Rogers (4) 1996 116,777 - -
Senior Vice President - Sales 1995 - - -
Terrence J. Sabol, Sr. 1996 85,237 - -
Senior Vice President - Technology 1995 9,128 - 132,500
Paul A. Jones, Jr. (5) 1996 106,346 - -
Senior Vice President - 1995 46,978 - 10,600
Business Development and
Secretary
</TABLE>
- -------------------
(1) On January 16, 1997, the Compensation Committee of the Board of Directors
granted to Mr. Boyle options to purchase 32,500 shares of Common Stock at a
price of $7.38 per share and granted to Mr. Rogers options to purchase
100,000 shares of Common Stock at a price of $7.38 per share.
(2) Mr. Boyle began his employment with the Company in September 1996.
(3) Reflects a relocation bonus paid to Mr. Boyle in connection with his
employment with the Company.
(4) Mr. Rogers began his employment with the Company in March 1996.
(5) Mr. Jones resigned as a director and employee of the Company in February
1997.
The current base salaries for Messrs. Norris, Boyle, Rogers and Sabol are
$175,000, $175,000, $175,000 and $105,000, respectively.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information with respect to
stock options granted to the Named Executives during the year ended December 31,
1996 and the hypothetical "value" of these options to the Named Executives
assuming an annual compound stock price appreciation of 5% and 10% from the date
such options were granted over the full option term (10 years). The actual value
realized may be greater than or less than the potential realizable values set
forth in the table.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rates of
Securities Options/SARs Exercise Stock Price
Underlying Granted to or Base Appreciation for Option
Options/SARs Employees in Price Expiration Term
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Boyle 67,500 (1) 24.5% $11.88 9/11/2006 $504,098 $1,277,484
</TABLE>
(1) Such options vest and become exerciseable in five equal installments on
September 3, 1997, 1998, 1999, 2000 and 2001, and will immediately vest and
become exerciseable in the event Mr. Boyle is terminated other than for
cause or there is a change in control of the Company.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth the number of shares of the Company's
Common Stock covered by outstanding stock options held by each of the Named
Executives at December 31, 1996. None of the Named Executives decided to
exercise his outstanding options during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
<S> <C> <C>
Joseph A. Boyle - / 67,500 - / $0
Terrence J. Sabol, Sr. 22,132/110,368 $134,034/$668,457
</TABLE>
Compensation Committee Interlocks and Insider Participation
No interlocking relationships exist between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past. Prior to the consummation of the Company's initial public
offering in May 1996, the Company had a consulting agreement with Mr. Fishman,
who is Chairman of the Committee. Also, the Company currently sub-leases office
space in New York, New York on a month to month basis from a partnership of
which Mr. Fishman is the Managing Partner. See "Certain Transactions." Jeff A.
Norris, the Company's President and Chief Executive Officer, took part in the
process of determining compensation paid to certain executive officers during
1996. See "Report of the Compensation Committee and President and Chief
Executive Officer on Executive Compensation."
PERFORMANCE GRAPH
The graph set forth below compares, for the period beginning
immediately after the Company's initial public offering on April 26, 1996, the
"cumulative stockholder return" to stockholders of the Company as compared with
the return of The Nasdaq Stock Market Index (U.S. Companies) (the "Nasdaq Market
Index") and of the Hambrecht & Quist Technology Index ("H&Q Technology Index"),
the Company's industry index. "Cumulative stockholder return" has been computed
assuming an investment of $100, at the beginning of the period indicated, in the
Common Stock of the Company and the stock of the companies included in the
Nasdaq Market Index and the H&Q Technology Index, and assuming the reinvestment
of dividends.
<TABLE>
<CAPTION>
April 26, 1996 June 30, 1996 September 30, 1996 December 31, 1996
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Nasdaq Market Index $100.00 $100.22 $103.79 $108.88
H&Q Technology Index 100.00 94.47 100.60 106.26
Affinity Technology Group, Inc. 100.00 65.38 91.35 50.00
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE AND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ON
EXECUTIVE COMPENSATION
This report has been prepared to describe the Company's executive
compensation policies and the basis for the compensation earned by Jeff A.
Norris, the Company's President and Chief Executive Officer, during the year
ended December 31, 1996.
Overview
The Compensation Committee of the Board of Directors of the Company was
formed in July 1995 to approve certain matters with respect to compensation paid
to highly compensated employees of the Company, including executive officers.
The Committee, which currently consists of three nonemployee directors, has the
authority, among other things, to (i) determine the cash and non-cash
compensation of each of the Company's executive officers and any other employee
with an annual salary in excess of $100,000; (ii) consider and recommend to the
Board such general and specific employee equity and other incentives as it may
from time to time deem advisable; and (iii) administer the Company's stock
option plans. The Committee currently consists of Alan H. Fishman (Chairman),
Steven J. Gilbert and Robert M. Price.
The Company recently has experienced a period of rapid growth, which
created during 1996 an immediate need for talented executives to fill key
positions in management. With the exception of Jeff A. Norris, the Company's
President and Chief Executive Officer, all of the Company's executive officers
joined the Company during the latter part of 1995 or during 1996. The Company's
executive compensation policy has been designed to attract qualified executives
to fill key management positions and to offer such executives equity incentives
that provide them with the right to share in any future appreciation in the
market price of the Company's Common Stock. As discussed in more detail below,
compensation paid to such officers primarily reflects discussions between the
Company and such officers at the time such officers were offered employment with
the Company.
During 1997, the Compensation Committee intends to evaluate the
Company's overall executive compensation program with a view towards developing
a formal executive compensation program that more closely links executive
compensation to performance. To ensure that compensation paid by the Company to
executive officers is sufficient to attract and retain qualified executives and
is fair and reasonable to the Company and its stockholders, the Committee also
intends to review the compensation practices of companies that either have a
similar market capitalization as the Company or are engaged in a similar
business ("peer companies"). Although the Committee currently does not intend to
modify the Company's policies with respect to salaries paid to executive
officers, it plans to consider other forms of incentive compensation as well as
the mix between fixed and incentive compensation.
Components of Compensation
Executive compensation presently consists of base salaries and options
awarded under the Company's stock option plans. In a few instances, the Company
also has paid relocation and other forms of signing bonuses to executives to
entice them to accept employment with the Company.
Base Salaries. The base salary paid to each of the Company's executive
officers (other than Jeff A. Norris) during 1996 was determined primarily based
on negotiations between the Company and each officer at the time such officer
was offered employment with the Company. Jeff A. Norris, the Company's President
and Chief Executive Officer, played an active role in such negotiations and
determined, after informal discussions with certain members of the Compensation
Committee, the amount of base salary to offer such individuals, which amount was
based primarily on an assessment of prevailing market rates and the amount of
compensation earned by such individuals with their former employers. To date,
there has been no established relationship between executive compensation and
operating performance or the compensation practices of peer companies. However,
as discussed above, the Compensation Committee intends to review the Company's
executive compensation program with a view towards establishing a more
incentive-based compensation policy, which may include the adoption of objective
performance targets or goals to be used to determine cash or non-cash incentive
compensation. The Committee believes that competition for qualified executives
in the industry in which the Company operates is intense and that the Company
may be required to maintain an incentive compensation program that is similar to
the incentive programs maintained by peer companies in order to attract and
retain such executives.
In 1996, the amount of base salary paid to Jeff A. Norris, the
Company's President and Chief Executive Officer, increased from $110,000 to
$175,000, reflecting a 59.1% increase. The increase in Mr. Norris's compensation
primarily reflects the increase in Mr. Norris's responsibilities caused by the
Company's rapid growth during 1995 and 1996 and the Company's initial public
offering in May 1996, as well as the level of compensation paid to certain other
highly compensated executive officers employed by the Company during 1996.
Options. In December 1995, the Company adopted the 1995 Stock Option
Plan of Affinity Technology Group, Inc. (the "1995 Option Plan"), pursuant to
which the Compensation Committee authorized the grant of options to several
employees of the Company, including certain executives officers, in late 1995
and early 1996. In connection with the Company's initial public offering in May
1996, the Company adopted the 1996 Stock Option Plan of Affinity Technology
Group, Inc. ( the "1996 Option Plan") and terminated the 1995 Option Plan, which
action did not affect options outstanding under such plan. All options granted
under the 1995 Option Plan are exercisable at a price of approximately $0.44 per
share, which the Board of Directors determined to be the fair market value of
the Company's Common Stock at the time of grant based on a valuation report
prepared by a third party. Options granted under the 1996 Option Plan generally
are exercisable at the last reported sale price of the Common Stock on The
Nasdaq National Market on the business day preceding the date of grant.
The number and terms of options granted by the Compensation Committee
to executive officers during 1996 were based principally on recommendations made
by Mr. Norris after negotiations with such officers at the time such officers
were offered employment with the Company. The Committee has not adopted any
objective criteria that relate the number of options granted to executive
officers to the Company's performance. The Compensation Committee has determined
not to grant stock options to Jeff A. Norris since Mr. Norris has a significant
equity interest in the Company. By awarding stock options to executive officers
that otherwise do not have a significant equity interest in the Company, the
Committee believes the Company's stock option plans will more closely align the
interests of executive officers with those of the stockholders of the Company.
This report is submitted by the Compensation Committee and the
President and Chief Executive Officer of the Company.
Compensation Committee: President and Chief Executive Officer:
Alan H. Fishman (Chairman) Jeff A. Norris
Steven J. Gilbert
Robert M. Price
CERTAIN TRANSACTIONS
Prior to the consummation of the Company's initial public offering in
May 1996, the Company had a consulting agreement with Mr. Fishman. Such
agreement has been terminated. See "Board of Directors --Compensation of
Directors." Also, the Company currently sub-leases office space in New York, New
York on a month to month basis from a partnership of which Mr. Fishman is the
Managing Partner. The monthly rentals under the arrangement currently are
$5,000. Aggregate lease payments under such lease were $36,000 for the year
ended December 31, 1996.
Prior to the initial public offering, the Company maintained an oral
consulting arrangement with Dr. Wilson, and in April 1994, the Company issued
Dr. Wilson a promissory note in the principal amount of $20,000 in consideration
of consulting services rendered by Dr. Wilson. Dr. Wilson subsequently forgave
this note. In conjunction with Dr. Wilson's consulting arrangement, the Company
and Dr. Wilson entered into a stock purchase agreement on October 20, 1994
pursuant to which Dr. Wilson purchased 413,400 shares of Common Stock, paying an
aggregate consideration of $0.39. The stock purchase agreement provided that
certain of these shares could be repurchased by the Company at the original
purchase price in the event of termination of the consulting arrangement within
a certain time period. In February 1996, the Company terminated its consulting
arrangement with Dr. Wilson and, in connection therewith, determined to waive
its right to repurchase the shares of Common Stock held by Dr. Wilson subject to
repurchase (186,030 shares at such time). In reaching such determination, the
Board of Directors considered, among other things, the consulting services
provided by Dr. Wilson to the Company since inception, the relatively small
amount of cash compensation that Dr. Wilson received for such services and the
desire to retain Dr. Wilson as a member of the Board of Directors and Audit
Committee.
During 1996, the Company entered into a lease agreement with Carolina
First Corporation ("Carolina First") with respect to automated loan machines.
Under such agreement, the Company recognized approximately $300,000 in revenue
during 1996. Carolina First is the beneficial owner of in excess of five percent
of the outstanding shares of Common Stock. See "Security Ownership of Management
and Certain Beneficial Owners."
PROPOSALS TO BE VOTED UPON
Election of Directors
The five individuals set forth under the caption "Board of
Directors--Nominees for Director" have been nominated by the Board of Directors
for election at the 1997 Annual Meeting of Stockholders. Each nominee for
director has indicated that he is willing and able to serve as a director if
elected. However, if any nominee should become unable to serve or for good cause
will not serve, the persons named on the enclosed proxy card will vote for such
other nominees and substituted nominees as designated by the Board of Directors.
Appointment of Independent Auditors
The firm of Ernst & Young LLP, Greenville, South Carolina, has been
selected by the Board of Directors of the Company as independent auditors for
the year ending December 31, 1997, subject to ratification of that appointment
by the stockholders of the Company. Ernst & Young LLP has acted as independent
auditors for the Company since January 1996. Representatives of Ernst & Young
LLP are expected to be present at the Annual Meeting with the opportunity to
make a statement if they so desire and will also be available to respond to
appropriate questions.
In January 1996, the Company's Board of Directors dismissed the
Company's former independent auditors, Elliott Davis & Company L.L.P. The
decision to change independent auditors was approved by resolution of the Board
of Directors. The former auditors' report on the Company's financial statements
as of and for the period ended December 31, 1994 did not contain any adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. Elliott Davis & Company
L.L.P. was not engaged to audit the Company's financial statements for any other
period. There were no disagreements with the former auditors on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope and procedure with respect to the Company's consolidated financial
statements up through the time of dismissal that, if not resolved to the former
auditor's satisfaction, would have caused them to make reference to the matter
in their report.
The persons named on the accompanying proxy card intend to vote in
favor of the ratification of the appointment of Ernst & Young LLP as independent
auditors for the year ending December 31, 1997, unless a contrary choice is
indicated on the enclosed proxy card. The Board of Directors unanimously
recommends that each stockholder vote FOR this proposal.
PROPOSALS BY STOCKHOLDERS
Under certain conditions, stockholders may request the Company to
include a proposal for action at a forthcoming meeting of the stockholders of
the Company in the proxy material of the Company for such meeting. All proposals
of stockholders intended to be presented at the 1998 Annual Meeting of
Stockholders of the Company must be received by the Company no later than
December 22, 1997 for inclusion in the Proxy Statement and proxy card relating
to such meeting.
In addition, under Article II, Section 9 of the Company's By-Laws,
nominations for election as a director of the Company and proposals for
stockholder action must be made in writing and be delivered or mailed to the
Secretary of the Company (i) in the case of an annual meeting of stockholders
that is called for a date that is within 30 days before or after the anniversary
date of the immediately preceding annual meeting of stockholders, not less than
60 days nor more than 90 days prior to such anniversary date and (ii) in the
case of an annual meeting of stockholders that is called for a date that is not
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, or in the case of a special meeting of
stockholders, not later than the close of business on the tenth day following
the day on which the notice of meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. Such notification must
contain a written statement of the stockholder's proposal and of the reasons
therefor, and, in the case of a nomination for director, nominations must
contain the following information to the extent known by the notifying
stockholder: (a) the name, age and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the nominee's qualifications
to serve as a director; (d) the name and residence address of the notifying
stockholder; and (e) the number of shares owned by the notifying stockholder.
Nominations or proposals not made in accordance with these procedures may be
disregarded by the chairman of the meeting in his discretion, and upon his
instructions all votes cast for each such nominee or for such proposal may be
disregarded.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors and certain officers of the Company, and persons who own more
than 10% of the outstanding shares of the Company's Common Stock, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock. Such persons are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on the review of the copies of such reports furnished to
the Company by such persons and their written representations that such reports
accurately reflect all reportable transactions and holdings, the Company
believes that during 1996 all such persons filed such reports on a timely basis,
with the following exception; Terrence J. Sabol, Sr., an executive officer of
the Company, reported late in April 1997 on an amended Form 4 a purchase by him
on April 25, 1996.
OTHER MATTERS
The management of the Company knows of no other business which will be
presented for consideration at the Annual Meeting. However, if other matters are
properly presented at the meeting, it is the intention of the persons named on
the accompanying proxy card to vote such proxies in accordance with their best
judgment.
By order of the Board of Directors.
JEFF A. NORRIS
President and Chief Executive Officer
April 21, 1997
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