SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998 Commission file number: 0-28152
Affinity Technology Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 57-0991269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Affinity Technology Group, Inc.
1201 Main Street, Suite 2080
Columbia, SC 29201-3201
(Address of principal executive offices)
(Zip code)
(803) 758-2511
(Registrant's telephone number, including area code)
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 X No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
29,499,673 shares of common stock, $.0001 par value, as of November 1, 1998.
<PAGE>
Form 10-Q/A
Amendment
The purpose of this amendment is to file Exhibit 10 which was not included on
the Registrant's Form 10-Q for the quarter ended September 30, 1998, filed
November 4, 1998.
The undersigned registrant hereby amends the following item of its Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, as set forth in
the pages attached hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10 - Nonqualified Stock Option Agreement, dated as of July 29, 1998,
between Affinity Technology Group, Inc. and R. Murray Smith.
Exhibit 27 - Financial Data Schedule
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Affinity Technology Group, Inc.
By: /s/ Joseph A. Boyle
Joseph A. Boyle
Senior Vice President, Chief Financial Officer and Treasurer
Date: November 5, 1998
<PAGE>
Exhibit 10 - Nonqualified Stock Option Agreement, dated as of July 29, 1998,
between Affinity Technology Group, Inc. and R. Murray Smith.
NONQUALIFIED STOCK OPTION AGREEMENT
OF
AFFINITY TECHNOLOGY GROUP, INC.
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as
of the 29th day of July, 1998, between AFFINITY TECHNOLOGY GROUP, INC., a
Delaware corporation (the "Corporation"), and R. MURRAY SMITH, an employee of
the Corporation (the "Executive").
Background Statement
To induce the Executive to accept employment with the Corporation as
the Corporation's President and Chief Executive Officer, the Corporation has
agreed, among other things, to grant to the Executive an option to acquire
250,000 shares of the common stock, par value $.0001 per share, of the Company
upon the terms and conditions set forth in this Agreement.
Statement of Agreement
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Grant of Option. The Corporation hereby grants to the Executive, as
a matter of separate inducement in connection with his agreement to accept
employment with the Corporation, and not in lieu of any salary or other
compensation for his services, the right and option (the "option") to purchase
all or any part of an aggregate of two hundred and fifty thousand (250,000)
shares (the "shares") of the common stock of the Corporation at the purchase
price of ninety-four cents ($0.94) per share. The Corporation hereby reserves
sufficient authorized shares of common stock for the exercise of the option. The
option shall become exercisable on the dates set forth on Schedule A attached
hereto, and the option will expire if not exercised in full on or before July
28, 2008. The period during which the option may be exercised shall be referred
to herein as the "option period." The option shall be designated as a
nonqualified option under the Internal Revenue Code of 1986, as amended (the
"Code").
Notwithstanding any provisions of this Agreement to the contrary, the
Compensation Committee of the Board of Directors (the "Committee") shall have
complete authority, in its discretion, to accelerate the date that the option
shall become exercisable, in whole or in part, without any obligation to
accelerate such date with respect to other options granted to the Executive.
Further, in the event of a "change in control" of the Corporation (as defined in
the next sentence), the option shall become fully exercisable, whether or not
then otherwise exercisable. For purposes of the immediately preceding sentence,
a "change in control" shall be deemed to occur as of: (i) the date on which any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of
shares representing more than 50% of the combined voting power of the
then-outstanding securities entitled to vote generally in elections of directors
of the Corporation ("Voting Stock"); (ii) the date on which the stockholders of
the Corporation approve a definitive agreement under which the Corporation will
consolidate with or merge into any other corporation, or convey, transfer or
lease all or substantially all of its assets to any person, or any other
corporation will merge into the Corporation, and, in the case of any such
transaction, the outstanding common stock of the Corporation will be converted
into cash, securities or other property, unless the stockholders of the
Corporation immediately before such transaction own, directly or indirectly
immediately following such transaction, at least 51% of the combined voting
power of the outstanding securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction; or (iii) the date on which
there shall have been a change in a majority of the Board of Directors of the
Corporation within a 12-month period unless the nomination for election of each
new director was approved by the vote of two-thirds of the directors then still
in office who were in office at the beginning of the 12-month period.
2. Exercise of Option.
(a) The option may be exercised by giving written notice of at least
ten days to the Corporation at such place as the Corporation may direct. Such
notice shall specify the number of shares to be purchased pursuant to the option
and the aggregate purchase price to be paid therefor, and shall be accompanied
by the payment of such purchase price. Such payment may be in the form of (i)
cash; (ii) shares of common stock owned by the Executive at the time of
exercise; (iii) shares of common stock withheld upon exercise; (iv) delivery of
a properly executed written notice of exercise to the Corporation and delivery
to a broker of written notice of exercise and irrevocable instructions to
promptly deliver to the Corporation the amount of sale or loan proceeds to pay
the option price; or (v) any combination of the foregoing methods. Shares of
common stock tendered or withheld in payment of the purchase price shall be
valued at their fair market value on the date of exercise, as determined by the
Committee.
(b) The option shall not be exercised unless the Executive is, at the
time of exercise, an employee of the Corporation or a subsidiary thereof and has
been an employee continuously since the date on which the option was granted,
subject to the following:
(i) In determining whether the Executive is an employee, the
regulations of the United States Treasury Department relating
to the determination of the employment relationship for the
purpose of collection of income taxes on wages at the source
shall be applied. An option shall not be affected by any
change in the terms, conditions or status of the Executive's
employment, provided that the Executive continues to be an
employee of the Corporation or any of its subsidiaries.
(ii) The employment relationship of the Executive shall be treated as
continuing intact for any period that the Executive is on military or sick leave
or other bona fide leave of absence, provided that the period of such leave does
not exceed 90 days or, if longer, as long as the Executive's right to
reemployment is guaranteed either by statute or contract. The employment
relationship of the Executive shall also be treated as continuing intact while
the Executive is not in active service because of disability. For purposes of
the immediately preceding sentence, "disability" shall mean the inability of the
Executive to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death, or which has lasted or can be expected to last for a continuous
period of not less than 12 months. The Committee shall determine whether the
Executive is disabled within the meaning of this paragraph.
(iii) If the employment of the Executive is terminated because of
disability within the meaning of paragraph (ii) above, or if the Executive dies
while he is an employee or dies after the termination of his employment because
of disability, the option may be exercised only to the extent exercisable on the
date of the Executive's termination of employment or death while employed (the
"termination date"), except that the Committee may in its discretion accelerate
the date for exercising all or any part of the option which was not otherwise
exercisable on the termination date. The option must be exercised, if at all,
prior to the first to occur of the following, whichever shall be applicable: (A)
the close of the period of 12 months next succeeding the termination date; or
(B) the close of the option period. If the Executive dies, the option shall be
exercisable by such persons as shall have acquired the right to exercise the
option by will or by the laws of intestate succession.
(iv) If the employment of the Executive is terminated for any reason other
than disability, death or for "cause" (as such term is defined in subparagraph
(v) below), his option may be exercised to the extent exercisable on the date of
such termination of employment, except that the Committee may in its discretion
accelerate the date for exercising all or any part of the option which was not
otherwise exercisable on the date of such termination of employment. The option
must be exercised, if at all, prior to the first to occur of the following,
whichever shall be applicable: (A) the close of the period of 90 days next
succeeding the termination date; or (B) the close of the option period. If the
Executive dies following such termination of employment and prior to the earlier
of the dates specified in clauses (A) and (B) of this subparagraph (iv), the
Executive shall be treated as having died while employed under subparagraph
(iii) above (treating for this purpose the Executive's date of termination of
employment as the termination date). If the Executive dies, the option shall be
exercisable by such person or persons as shall have acquired the right to
exercise the option by will or by the laws of intestate succession.
(v) If the employment of the Executive is terminated for "cause" (as
defined in the next sentence), his option shall lapse and no longer be
exercisable as the effective time and date of his termination of employment as
determined by the Committee. For purposes of this subparagraph (v) and
subparagraph (iv), the Executive's termination shall be for "cause" if such
termination results from the Executive's (a) dishonesty; (b) refusal to perform
his duties for the Corporation; or (c) engaging in conduct that could be
materially damaging to the Corporation without a reasonable good faith belief
that such conduct was in the best interests of the Corporation. The
determination of "cause" shall be made by the Committee, and its determination
shall be final and conclusive.
3. Tax Equivalent Note.
(a) Upon each exercise by the Executive of the option (each, an "Option
Exercise") and the acquisition by the Executive of shares of common stock
covered by the option ("option shares"), the Corporation shall be obligated to
loan to the Executive an amount of money necessary to enable the Executive to
pay the amount of federal and state income taxes ("Taxes") incurred by the
Executive in connection with the Option Exercise (the "Tax Amount"). The
Corporation shall pay the Tax Amount directly to the appropriate federal and
state tax authorities through its payroll withholding system as of the last day
of the calendar year in which the Option Exercise occurs, and the Executive
shall concurrently execute and deliver to the Corporation a non-interest bearing
promissory note payable to the Corporation (the "Tax Equivalent Note") in the
principal amount equal to the Tax Amount. The terms of the Tax Equivalent Note
shall require the Executive to repay to the Corporation, within 10 days after
the occurrence of a Taxable Event, an amount of money equal to (i) the Tax
Amount incurred by the Executive in connection with the exercise of the option
and acquisition of the option shares that are being disposed of by the Executive
in such Taxable Event less (ii) the Forgiven Amount. For purposes of the
immediately preceding sentence: (a) a "Taxable Event" shall mean any event
involving the sale, transfer, exchange or other disposition of option shares,
whether voluntary or involuntary, that causes the Executive to recognize taxable
gain or loss under the Code; and (b) the "Forgiven Amount" shall mean an amount
equal to (x) (i) the actual amount of Taxes incurred by the Executive in
connection with the exercise of the option and the disposition of the option
shares being disposed of in the Taxable Event, less (ii) the amount of Taxes
that would have been incurred by the Executive in connection with the exercise
of the option and the disposition of such option shares if the option were an
incentive stock option under the Code, divided by (y) one (1), minus the
Executive's combined effective federal and state tax rate for the year in which
the Taxable Event occurred. The Forgiven Amount shall represent a portion of the
Tax Equivalent Note that is forgiven by the Corporation upon the occurrence of a
related Taxable Event. The terms of the Tax Equivalent Note shall also require
the Executive (a) to pay all reasonable costs incurred by the Corporation of
collecting and enforcing the Tax Equivalent Note, including reasonable
attorneys' fees and expenses, and (b) to waive demand, notice of presentment,
protest and notice of dishonor.
(b) As of the end of each calendar year during which a Tax Equivalent
Note is outstanding, the Corporation shall pay to the Executive an amount equal
to the Taxes incurred by the Executive relating to interest income imputed with
respect to the Tax Equivalent Note during such year.
(c) The Corporation and the Executive acknowledge and agree that the
objective of this paragraph 3 is to allow the Executive to realize substantially
the same economic benefits (after Taxes) that would be realized if the option
were treated as an incentive stock option under the Code, as illustrated in
Exhibit A attached hereto. The Corporation and the Executive hereby agree that
the provisions of this paragraph 3 shall be interpreted in a manner that is
consistent with the foregoing sentence.
4. Nontransferability of Options and Shares. Except as may be permitted
by the Committee, this option shall not be transferable (including by pledge or
hypothecation) other than by will or the laws of intestate succession or
pursuant to a qualified domestic relations order (as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder); provided, however, that no such transfer shall be
effective unless the transaction has been registered under the Securities Act of
1933, as amended (the "Securities Act"), or, in the opinion of the Committee,
such registration is not required. This option shall be exercisable during the
Executive's lifetime only by the Executive. To the extent required by Section 16
of the Exchange Act, shares acquired upon the exercise of the option shall not,
without the consent of the Committee, be transferable (including by pledge or
hypothecation) until the expiration of six months after the date the option was
granted.
5. Dilution or Other Adjustment. If there is any change in the
outstanding shares of common stock of the Corporation as a result of a merger,
consolidation, reorganization, stock dividend, stock split to holders of shares
that is distributable in shares of common stock, or other change in the capital
stock structure of the Corporation, the Committee shall make such adjustments to
the option as the Committee deems equitable to prevent dilution or enlargement
of the option or otherwise advisable to reflect such change.
6. Withholding. Subject to paragraph 3 hereof, the Corporation shall
require the Executive to pay to the Corporation in cash the amount of any tax or
other amount required by any governmental authority to be withheld and paid over
by the Corporation to such authority for the account of the Executive.
Notwithstanding the foregoing, the Executive may satisfy such obligation in
whole or in part, and any other local, state or federal income tax obligations
relating to the exercise of the option, by electing (the "Election") to have the
Corporation withhold shares of common stock from the shares to which the
Executive is entitled. The number of shares to be withheld shall have a fair
market value (as determined by the Committee) as of the date that the amount of
tax to be withheld is determined (the "Tax Date") as nearly as equal as possible
to (but not exceeding) the amount of such obligations being satisfied. Each
Election must be made in writing to the Committee prior to the Tax Date. To the
extent the Executive makes an Election under this Section 6, the Corporation's
obligation under Section 3 shall be adjusted as is equitable to reflect the
intent of Section 3(c).
7. Restrictions on Shares. The Executive hereby acknowledges that the
option and the option shares have not been registered under the Securities Act,
are "restricted securities" as defined under Rule 144 under the Securities Act
and may not be sold, transferred or otherwise disposed of unless they are
registered under the Securities Act or there is an exemption from registration
available. The Corporation may impose such restrictions on any shares acquired
upon exercise of the option granted hereunder as it may deem advisable,
including, without limitation, restrictions necessary to ensure compliance with
the Securities Act, under the requirements of any applicable self-regulatory
organization and under any blue sky or securities laws applicable to such
shares. The Corporation may cause a restrictive legend to be placed on any
certificate issued pursuant to the exercise of an option in such form as may be
prescribed from time to time by applicable laws and regulations or as may be
advised by legal counsel.
8. Miscellaneous.
(a) The Executive and his legal representative, legatees or
distributees shall not be deemed to be the holder of any shares subject to the
option unless and until certificates for such shares are issued to him or them
pursuant to the terms of this Agreement. Nothing in this Agreement shall confer
upon the Executive any right to continue in the service of the Corporation or
any subsidiary thereof as an employee or to interfere in any way with the right
of the Corporation or any subsidiary thereof to terminate the Executive's
service at any time for any reason.
(b) Nothing contained in this Agreement shall require the Corporation
or any subsidiary thereof to continue to employ the Executive for any particular
period of time, nor shall it require the Executive to remain in the employ of
the Corporation or any subsidiary thereof for any particular period of time.
Except as otherwise expressly provided herein, all rights of the Executive with
respect to the unexercised portion of his option shall terminate upon
termination of the employment of the Executive with the Corporation or any
subsidiary thereof.
(c) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective executors, administrators,
next-of-kin, successors and assigns.
(d) Except as otherwise provided herein, this Agreement shall be
construed and enforced according to the laws of the State of Delaware.
(e) In the event of any dispute or disagreement arising out of or in
connection with this Agreement, the parties hereby agree that said dispute or
disagreement shall be finally settled by arbitration conducted in accordance
with the rules of the American Arbitration Association (the "AAA") as in effect
at such time. Any such arbitration shall take place in Columbia, South Carolina,
or such other place as the parties hereto shall agree, before three arbitrators
to be designated in accordance with the rules of the AAA. Any decision or award
by said arbitrators shall be binding on the Corporation and the Executive, and,
except in cases of gross fraud or misconduct by one or more of the arbitrators,
the decision or award rendered with respect to said dispute or disagreement
shall not be appealable. The Executive hereby submits himself, and the
Corporation hereby submits itself, to the jurisdiction of the courts of the
place where the arbitration is held for the entry of judgment with respect to
the decision of the arbitrators hereunder.
(f) This Agreement may be amended by action of the Committee, on
behalf of the Corporation, and the Executive.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on behalf of the
Corporation and by the Executive on the day and year first above written.
AFFINITY TECHNOLOGY GROUP, INC.
By: /s/ Joseph A. Boyle
Joseph A. Boyle, Senior Vice President,
Chief Financial Officer and Treasurer
ATTEST:
/s/ Gina Champion
Secretary
[Corporate Seal]
EXECUTIVE
/s/ R. Murray Smith
R. Murray Smith
<PAGE>
SCHEDULE A
Date option granted: July 29, 1998
Date option expires: July 28, 2008
Number of shares subject to option: 250,000 shares
Option price (per share): $0.94
Date Installment Number of Shares
First Exercisable In Installment
May 14, 1999 50,000
May 14, 2000 50,000
May 14, 2001 50,000
May 14, 2002 50,000
May 14, 2003 50,000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 4,765,309 4,765,309
<SECURITIES> 8,428,756 8,428,756
<RECEIVABLES> 856,729 856,729
<ALLOWANCES> 295,147 295,147
<INVENTORY> 2,418,011 2,418,011
<CURRENT-ASSETS> 18,146,999 18,146,999
<PP&E> 9,017,846 9,017,846
<DEPRECIATION> 3,827,504 3,827,504
<TOTAL-ASSETS> 28,060,444 28,060,444
<CURRENT-LIABILITIES> 1,346,191 1,346,191
<BONDS> 0 0
0 0
0 0
<COMMON> 3,157 3,157
<OTHER-SE> 26,242,091 26,242,091
<TOTAL-LIABILITY-AND-EQUITY> 28,060,444 28,060,444
<SALES> 0 0
<TOTAL-REVENUES> 442,337 2,181,560
<CGS> 227,293 878,784
<TOTAL-COSTS> 4,216,400 14,131,320
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 470,465 860,465
<INTEREST-EXPENSE> (209,111) (856,257)
<INCOME-PRETAX> (3,564,952) (11,093,503)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,564,952) (11,093,503)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,564,952) (11,093,503)
<EPS-PRIMARY> (0.12) (0.37)
<EPS-DILUTED> (0.12) (0.37)
</TABLE>
