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, 1998
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 1998 Annual Meeting of
Stockholders of Affinity Technology Group, Inc. to be held at the Adam's Mark
Hotel, 1200 Hampton Street, Columbia, South Carolina, on Thursday, May 28, 1998,
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 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 Adam's Mark Hotel, 1200 Hampton Street,
Columbia, South Carolina, on Thursday, May 28, 1998, 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, 1998; 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, 1998
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, 1998
<PAGE>
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 1998 Annual Meeting of Stockholders of the Company to
be held at the Adam's Mark Hotel, 1200 Hampton Street, Columbia, South Carolina,
on Thursday, May 28, 1998, 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, 1998.
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, 1998 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, 1998, there were 30,200,673
shares of Common Stock 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, 1998
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
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, 1998 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 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.
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 1, 1998 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> <C>
Jeff A. Norris (1) 10,651,372 35.3%
Alan H. Fishman (2)(3) 2,673,509 8.9%
Peter R. Wilson (3) 417,701 1.4%
Robert M. Price (2)(3) 280,173 *
Edward J. Sebastian (2)(3)(4) 130,056 *
Terrence J. Sabol, Sr. (5) 53,800 *
John D. Rogers (6) 42,000 *
Joseph A. Boyle (7) 34,000 *
Clement D. Lamarre (8) 28,800 *
Directors and executive officers as a group (9 persons) (9) 13,826,807 47.3%
OTHER FIVE PERCENT STOCKHOLDERS
Carolina First Corporation (10) 5,999,706 19.9%
<FN>
* 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) 3,180 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 6,360, 6,360 and 4,240 shares of Common Stock issuable upon the
exercise of options granted under the 1995 Option Plan to Messrs. Fishman,
Price and Sebastian, respectively.
(3) Includes 4,301 shares of Common Stock issuable upon the exercise of options granted under the Nonemployee
Directors' Stock Option Plan of Affinity Technology Group, Inc. (the "Directors' Option Plan") to each of
Messrs. Fishman, Price, Sebastian and Wilson.
(4) Includes 2,000 shares of Common Stock held by Mr. Sebastian's wife, over
which he shares voting and investment control.
(5) Includes (i) 53,000 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.
(6) Includes 25,000 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) Consists of 34,000 shares of Common Stock issuable upon the exercise of options granted under the 1996
Option Plan.
(8) Includes 25,000 shares of Common Stock issuable upon the exercise of options granted under the 1996 Option
Plan.
(9) Includes 140,343 shares of Common Stock issuable upon the exercise of options granted under the 1995 Stock
Option Plan, 1996 Option Plan and Directors' Option Plan.
(10) Based on information set forth in a Schedule 13 D/A filed by Carolina First
Corporation with the Securities and Exchange Commission. Carolina First
Corporation's address is Post Office Box 1029, Greenville, South Carolina
29602.
</FN>
</TABLE>
Carolina First Corporation
On November 8, 1995, the Company issued a warrant (the "Carolina First
Warrant") to Carolina First Corporation ("Carolina First") that entitled
Carolina First to purchase an aggregate of 6,666,340 shares of Common Stock of
the Company for a purchase price of approximately $0.0001 per share. The terms
of the Carolina First Warrant provided, among other things, that such warrant
could not be exercised by Carolina First into a number of shares of Common Stock
equal to or greater than five percent of all outstanding shares of Common Stock
of the Company unless Carolina First obtained the written consent of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). During
1997, Carolina First obtained the consent of the Federal Reserve Board to
exercise the Carolina First Warrant in full, and at December 31, 1997, Carolina
First had exercised the warrant into an aggregate of 3,195,000 shares of Common
Stock (including 666,634 shares of Common Stock subsequently transferred by
Carolina First to certain of its officers). At December 31, 1997, the Carolina
First Warrant was exerciseable into an additional 3,471,340 shares of Common
Stock of the Company. As a bank holding company, Carolina First may be required
by the Federal Reserve Board to reduce its ownership of Common Stock of the
Company to less than five percent of the Company's outstanding shares of Common
Stock if Affinity engages in any business activity determined by the Federal
Reserve Board to be impermissible for a bank holding company.
Potential Change in Control
Jeff A. Norris, President and Chief Executive Officer of the Company,
has pledged approximately 7.9 million of his shares of Common Stock of the
Company for a personal loan in the amount of approximately $3.8 million. Such
loan is payable on demand at any time at the discretion of the lender. Mr.
Norris beneficially owns approximately 10.7 million shares of Common Stock, or
approximately 35.3% of the outstanding shares of Common Stock. The foreclosure
upon and subsequent sale in public markets of a substantial number of shares of
Common Stock owned by Mr. Norris could cause a change in control of the Company
and could have an adverse effect on the market price of the Common Stock.
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
eight times during the year ended December 31, 1997. During 1997, all directors
except Mr. Sebastian participated in 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, 1997, 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 six times during the year ended December 31,
1997, are Alan H. Fishman (Chairman), Robert M. Price and Edward J. Sebastian.
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. The five persons named below are nominated to serve on the
Board of Directors until the 1999 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 (52), 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 Keyspan Energy Corporation, a public utility company.
Jeff A. Norris (37) 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 resumed 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, Jr. (67) 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,
Fourth Shift Corporation and Tupperware Corporation.
Edward J. Sebastian (51) 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. ("RBMG"), 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 of
First Sun South Corporation, Baker Communications Fund, Southeast Bank Fund and
Founders Fund, Inc. Mr. Sebastian earned a bachelor's degree at Pennsylvania
State University.
Dr. Peter R. Wilson (45) 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.
Compensation of Directors
Under the Nonemployee Directors' Stock Option Plan of Affinity
Technology Group, Inc. (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 are granted to each
non-employee director upon his or her first election or appointment to the Board
of Directors after the adoption of the plan, beginning with the 1997 Annual
Meeting of Stockholders. Annual Awards are 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 are 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 vest in equal quarterly installments over the
three-year period following the date of grant, and Annual Awards vest in equal
quarterly installments over the one-year period following the date of grant.
Initial Awards and Annual Awards expire on the fifth anniversary of the date of
grant. During 1997, each of the Company's non-employee directors (Messrs.
Fishman, Price, Sebastian and Wilson) was granted an Initial Award consisting of
an option to purchase 12,903 shares of Common Stock of the Company under the
Directors' Option Plan. In addition, Messrs. Fishman, Price, Sebastian and
Wilson will each receive Annual Awards upon their re-election to the Board of
Directors at the Annual Meeting.
During 1995 certain non-employee directors of the Company (Messrs.
Fishman, 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. In
addition, the Company currently subleases office space in New York, New York
from a partnership of which Mr. Fishman is the Managing Partner. Further, a
subsidiary of the Company has entered into an agreement with a subsidiary of
Resource Bancshares Corporation, of which Mr. Sebastian serves as Chairman of
the Board and Chief Executive Officer, pursuant to which the Company will
underwrite and process mortgage loans on behalf of such subsidiary of Resource
Bancshares Corporation. See "Certain Transactions."
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, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Securities Underlying
Name and Principal Position Year Salary Bonus Options/SARs (#)
- --------------------------- ---- ------- ----- ----------------
<S> <C> <C> <C> <C>
Jeff A. Norris 1997 $175,000 - -
President and Chief 1996 175,000 - -
Executive Officer 1995 123,229 - -
Joseph A. Boyle
Senior Vice President, 1997 175,000 - 102,500
Chief 1996 48,478 $75,000(1) 67,500
Financial Officer, Secretary 1995 - - -
and Treasurer
John D. Rogers 1997 175,000 44,089(1) 100,000
Senior Vice President 1996 116,777 - -
1995 - - -
Terrence J. Sabol, Sr. 1997 111,154 - -
Senior Vice President - Technology 1996 85,237 - 132,500
1995 9,128 - -
Clement D. Lamarre (2) 1997 186,288 - 100,000
Senior Vice President - 1996 - - -
Operations and Sales 1995 - - -
- -------------------
<FN>
(1) Reflects a relocation bonus paid in connection with Mr. Boyle's and Mr. Rogers's employment with the
Company.
(2) Mr. Lamarre became an employee of the Company in May 1997. From June 1996 to May 1997, Mr. Lamarre
provided consulting services to the Company. During 1997, Mr. Lamarre was paid approximately $86,000
pursuant to the terms of his consulting arrangement with the Company, and such amount is included in the
salary shown as earned by Mr. Lamarre during 1997.
</FN>
</TABLE>
The annual base salaries currently in effect for Messrs. Norris, Boyle,
Lamarre, Rogers and Sabol are $175,000, $175,000, $175,000, $175,000 and
$155,000, respectively.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information with respect to
stock options granted to the Named Executives during the year ended December 31,
1997 and the hypothetical "value" of these options to the Named Executives
assuming an annual compound stock price appreciation of 5% and 10% from the date
such options were granted over the full option term (10 years). The actual value
realized may be greater than or less than the potential realizable values set
forth in the table.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Percent of Value
Number of Total at Assumed Annual Rates of
Securities Options/SARs Exercise Stock Price
Underlying Granted to or Base Appreciation for Option
Options/SARs Employees in Price Expiration Term
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Boyle 70,000 (1) 9.4% $ 3.75 7/8/2007 $ 165,085 $ 418,357
32,500 (1) 4.4% 7.38 1/15/2007 150,840 382,259
John D. Rogers 100,000 (2) 13.4% 7.38 1/15/2007 464,124 1,176,182
Clement D. Lamarre 75,000 (3) 10.1% 4.25 5/20/2007 200,460 508,005
25,000 (4) 3.4% 7.38 1/15/2007 116,031 294,045
- ----------------------- ----------------- ----------------- ----------- -------------- ------------- ---------------
<FN>
(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.
(2) Such options vest and become exerciseable in eight equal installments on
March 14, 1997, 1998, 1999, 2000, 2001, 2002, 2003 and 2004, and will
immediately vest and become exerciseable in the event there is a change in
control of the Company. Further, in the event Mr. Rogers is terminated for
cause or retires, such options shall be deemed to have vested in five equal
installments on March 14, 1997, 1998, 1999, 2000 and 2001.
(3) Such options vest and become exerciseable in five equal installments on
June 3, 1997, 1998, 1999, 2000 and 2001, and will immediately vest and
become exerciseable in the event Mr. Lamarre is terminated other than for
cause or there is a change in control of the Company.
(4) Such options vest and become exerciseable in five equal installments on May
20, 1998, 1999, 2000, 2001 and 2002, and will immediately vest and become
exerciseable if there is a change in control of the Company.
</FN>
</TABLE>
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, 1997. None of the Named Executives exercised any
outstanding options during the year ended December 31, 1997.
<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>
Terrence J. Sabol, Sr. 26,500 / 106,000 $51,187/$204,750
Joseph A. Boyle 34,000 / 136,000 $0 / $0
Clement D. Lamarre 20,000 / 80,000 $0 / $0
John D. Rogers 12,500 / 87,500 $0 / $0
</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. 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. Also, the Company has entered into an agreement with RBMG,
pursuant to which a subsidiary of the Company will underwrite and process
mortgage loans for RBMG. Mr. Sebastian is Chairman of the Board and Chief
Executive Officer of RBMG. 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. 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>
Nasdaq Market H&Q Technology Affinity Technology
Index Index Group, Inc.
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April 26, 1996 $100.00 $100.00 $100.00
June 30, 1996 100.22 94.08 65.38
September 30, 1996 103.78 99.87 91.38
December 31, 1996 108.88 107.09 50.00
March 31, 1997 102.98 102.08 41.38
June 30, 1997 121.86 122.86 29.85
September 30, 1997 142.47 148.90 29.85
December 31, 1997 133.61 125.55 18.31
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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, 1997.
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),
Robert M. Price and Edward J. Sebastian.
Since the Company's initial public offering of its Common Stock in
April 1996, the Company has experienced a period of rapid growth. With the
exception of Jeff A. Norris, the Company's founder, President and Chief
Executive Officer, and Clement D. Lamarre, Senior Vice President of Operations
and Sales, all of the Company's executive officers joined the Company during the
latter part of 1995 or during 1996. Mr. Lamarre joined the Company as an
employee in May 1997 after having served as a consultant to the Company from
June 1996 to May 1997. 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.
Components of Compensation
Executive compensation presently consists of base salaries and options
awarded under the Company's stock option plans. In prior years, 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. As indicated above, the base salary initially paid by
the Company to its executive officers (other than Jeff A. Norris) primarily
reflects negotiations between the Company and each such 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 generally determined, after consultation 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 in their
former employment. To date, there has been no established relationship between
executive compensation and operating performance or the compensation practices
of peer companies. The Compensation Committee believes that competition for
qualified executives in the industry in which the Company operates is intense.
Each of the Company's four most highly compensated executives
(including Jeff A. Norris) earned a base salary during 1997 of $175,000. With
the exception of Mr. Lamarre who became an employee of the Company in May 1997,
the Compensation Committee did not increase the rate of base salary paid to its
most highly compensated executives during 1997, and base salary in effect during
1997 for such executives was the same as the compensation in effect for such
executives at the end of 1996. The increase in base salary paid to the Company's
other executive officer generally reflects the Compensation Committee's
subjective evaluation of such officer's contributions to the Company prior to
and during 1997 and the relationship between compensation earned by such officer
and the compensation earned by the Company's other executive officers.
Options. By awarding stock options to executive officers that otherwise
do not have a significant equity interest in the Company, the Company attempts
to align the interests of its executive officers with those of the Company's
stockholders. The Compensation Committee has not adopted any objective criteria
that relate the number of options granted to executive officers to the Company's
performance. However, the Company has attempted to use its option plan to offer
a significant component of potential compensation paid to executive officers,
many of whom the Company believes would require additional cash compensation in
the absence of stock options. Options awarded to executive officers in 1997
primarily reflect negotiations between the Company and such executives at the
time of their employment. In addition, the Compensation Committee determined to
award additional options to certain executive officers to increase their equity
interests in the Company and their participation in future stock price
increases. The Compensation Committee has determined not to grant stock options
to Jeff A. Norris since Mr. Norris already has a significant equity interest in
the Company
During 1998, the Compensation Committee evaluated the Company's overall
executive compensation program and developed a discretionary incentive bonus
plan that links executive compensation to performance. Under the terms of such
plan, the Compensation Committee has established certain earnings per share
performance goals ("Performance Goals") which if met will result in the
formation of a cash bonus pool which will be paid, at the discretion of the
Compensation Committee, to the Company's senior executives. The Performance
Goals are based on the Company's internally generated revenue targets and
expense budgets (the "Financial Plan"), and the amount paid, if any, will be
based on the degree to which the Performance Goals are met. The achievement of
Performance Goals which will result in the formation of a cash bonus pool has
been established on a sliding scale ranging from attaining 90% of the Financial
Plan to surpassing the Financial Plan. Amounts which will be placed in the cash
bonus pool range from $250,000 to $1,750,000. Notwithstanding the incentive
program, the payment and allocation of the cash bonuses to each of the Company's
senior executives will be at the discretion of the Compensation Committee.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
to $1 million the deductible amount of compensation paid to any Named Executive
unless certain actions are taken by the Company. The Company's stock option
plans have been designed to qualify for a deduction without limitation under
these rules. Due to current salary levels, the Company believes that it is
unlikely that the application of these rules will prevent the Company from
claiming a deduction for the amount of compensation paid to executive officers.
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
Robert M. Price
Edward J. Sebastian
CERTAIN TRANSACTIONS
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, a director of
the Company, is the Managing Partner. The monthly rentals under the arrangement
currently are $5,000. During 1997 the Company recorded aggregate lease expense
of $90,000 under such lease for the twelve and six months ended December 31,
1997 and 1996, respectively.
During 1996, the Company entered into a lease agreement with Carolina
First with respect to the rental of automated loan machines. Under such
agreement, the Company recognized approximately $120,000 in revenue during 1997.
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."
During February 1998, Surety Mortgage, Inc., a wholly owned subsidiary
of the Company ("Surety"), entered into an agreement with RBMG, pursuant to
which Surety will underwrite and process mortgage loans in accordance with
guidelines specified by RBMG. Surety will receive a fee from RBMG for the
underwriting and processing services performed. At April 1, 1998, Surety has
processed and sold to RBMG approximately $1,600,000 in mortgage loans resulting
in approximately $18,000 in fee income for Surety. Mr. Sebastian, who is a
director of the Company, is Chairman of the Board and Chief Executive Officer of
RBMG.
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 1998 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
appointed by the Board of Directors of the Company as independent auditors for
the year ending December 31, 1998, 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, 1998, 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 1999 Annual Meeting of
Stockholders of the Company must be received by the Company no later than
December 21, 1998 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 1997 all such persons filed such reports on a timely basis,
with the following exception: Mel Ray, a former 10% shareholder, reported late
on a Form 4 filed on July 14, 1997 two sales of Common Stock made in June 1997;
and Carolina First, a present 10% shareholder, filed its initial Form 3 late and
failed to report a partial exercise of the Carolina First Warrant in December
1997.
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, 1998
