<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number: 0-22474
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 87-0418807
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Presidential Boulevard, Bala Cynwyd, PA 19004
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 668-2440
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of November 1, 1997, there were 3,503,166 shares of the registrant's Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format Yes ______ No __X__
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AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
FORM 10-QSB -SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page No
-------
Part I Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets.................................................................................2
Consolidated Statements of Operations.......................................................................3
Consolidated Statement of Stockholders' Equity..............................................................4
Consolidated Statements of Cash Flows.......................................................................5
Notes to Consolidated Financial Statements..................................................................7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.......................9
Part II Other Information..........................................................................................16
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
------------ ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,013,936 $ 3,932,032
Loans and lease receivables - net
Available for sale 35,711,821 25,369,744
Other 1,143,566 1,217,840
Other receivables 39,644,161 55,268,341
Prepaid expenses 1,181,654 2,243,385
Property and equipment - net of accumulated
depreciation and amortization 2,863,345 3,577,436
Other assets
18,430,049 32,734,969
------------ ------------
Total assets $103,988,532 $124,343,747
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 56,486,229 $ 70,125,180
Accounts payable and accrued expenses 6,081,630 7,824,113
Deferred income taxes 4,630,981 6,254,575
Other liabilities 5,877,664 6,128,863
------------ ------------
Total liabilities 73,076,504 90,332,731
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001
Authorized 1,000,000 shares
Issued and outstanding - none - -
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding 3,503,166 shares 3,503 3,503
Additional paid-in capital 22,669,477 22,669,477
Retained earnings 8,839,080 11,938,068
------------ ------------
31,512,060 34,611,048
Less note receivable 600,032 600,032
------------ ------------
Total stockholders' equity 30,912,028 34,011,016
------------ ------------
Total liabilities and stockholders' equity $103,988,532 $124,343,747
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
------------------------------
1997 1996
------------ -----------
REVENUES
Gain on sale of loans $ 8,521,389 $ 4,073,235
Interest and fees 2,304,367 1,135,228
Servicing income 380,313 74,669
Other income 205 978
----------- -----------
11,206,274 5,284,110
----------- -----------
EXPENSES
Interest 1,859,801 1,041,659
Provision for credit losses 30,887 --
Payroll and related costs 850,699 198,611
Sales and marketing 2,324,503 1,369,253
General and administrative 1,365,331 896,678
----------- -----------
6,431,221 3,506,201
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 4,775,053 1,777,909
PROVISION FOR INCOME TAXES 1,623,518 622,268
----------- -----------
NET INCOME $ 3,151,535 $ 1,155,641
=========== ===========
NET INCOME PER SHARE $ .87 $ .47
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 3,642,972 2,448,031
See notes to consolidated financial statements.
3
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AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
--------------------
Additional Total
Number of Paid-In Retained Notes Stockholders'
Shares Amount Capital Earnings Receivable Equity
--------- ------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE 3,503,166 $3,503 $22,699,477 $8,839,080 $(600,032) $30,912,028
July 1, 1997
Cash dividends
($.015 per share) -- -- -- ( 52,547) -- ( 52,547)
Net income -- -- -- 3,151,535 -- 3,151,535
---------- ------ ----------- ----------- ---------- -----------
BALANCE
September 30, 1997 3,503,166 $3,503 $22,669,477 $11,938,068 $ (600,032) $34,011,016
========= ====== =========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 3,151,535 $ 1,155,641
Adjustments to reconcile net income to net
cash provided by operating
activities
Gain on sales of loans/leases (10,909,361) (4,373,235)
Amortization of origination fees and costs 168,446 86,321
Amortization of deferred servicing rights 211,487 51,643
Provision for credit losses 567,532 300,000
Accounts written off (100,217) (50,443)
Depreciation and amortization of property
and equipment 208,530 106,980
Amortization of financing and organization costs 150,312 127,933
Loans originated for sale (50,411,255) (20,880,727)
Proceeds of loans and leases sold 59,721,676 26,676,311
Increase in accrued interest and fees on
loan and lease receivables (376,206) (44,809)
Increase in other receivables (1,809,685) (1,083,286)
Increase in prepaid expenses (1,061,731) (1,134,877)
Decrease (increase) in other assets (191,046) 299,466
Increase in accounts payable and accrued expenses 1,742,483 1,154,427
Increase in deferred income taxes 1,623,594 622,268
Increase in other liabilities 251,199 295,107
------------ ------------
Net cash provided by operating
activities 2,937,293 3,308,720
------------ ------------
Cash flows from investing activities
Leases originated for portfolio (4,634,257) (2,091,191)
Loan and lease payments received 1,796,920 856,130
Purchase of property and equipment (935,691) (231,783)
Decrease in securitization gain receivable 368,314
Principal receipts on investments 120,962 16,245
Initial overcollateralization of loans (2,000,000)
Purchase of investments (17,000,000)
Sale of investments 5,000,000
------------ ------------
Net cash used in investing activities (17,283,752) (1,450,599)
------------ ------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Financing costs incurred (321,849) (244,368)
Net principal payments on
revolving lines of credit (2,348,465)
Dividends paid (52,547) (35,297)
Principal payments on note payable, other (104)
Proceeds from issuance of subordinated debentures 16,669,927 5,945,884
Principal payments on subordinated debentures (3,030,976) (1,708,450)
------------ ------------
Net cash provided by financing activities 13,264,555 1,609,200
------------ ------------
Net increase (decrease) in cash and cash equivalents $ (1,081,904) $ 3,467,321
Cash and cash equivalents, beginning of period 5,013,936 5,345,269
------------ ------------
Cash and cash equivalents, end of period $ 3,932,032 $ 8,812,590
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,449,428 $ 888,622
------------ ------------
Income taxes $ -- $ --
------------ ------------
Noncash transaction recorded in connection with the sale of
loans receivable
Increase in other receivables, securitization gains $ 12,737,954 $ 5,563,603
Increase in other assets
Mortgage servicing rights 2,297,135 574,210
------------ ------------
$ 15,035,089 $ 6,137,813
------------ ------------
Reclassification of fixed assets, to other assets $ 13,070
------------
Noncash transaction recorded in connection with
reclassification of loan and lease receivable
Increase in loans receivable-other $ 18,500
------------
Decrease in other assets $ (7,700)
------------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements are unaudited and
include the accounts of American Business Financial Services, Inc.
(ABFS) and its wholly-owned subsidiaries, collectively the "Company".
All significant inter-company transactions and balances have been
eliminated.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
interim periods are not necessarily indicative of financial results
for the full year. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1997. The year end
balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted
accounting principles.
2. DEBT
Debt is summarized as follows:
Subordinated debentures (a) $ 69,216,459
Subordinated debentures (b) 908,721
-------------
$ 70,125,180
=============
(a) This represents aggregate sales made pursuant to total public
offerings of debentures. These debentures mature during the
period of October 1997 through September 2007 and are
subordinate to all of the Company's Senior Indebtedness.
(b) This represents aggregate sales made pursuant to a prior public
offering of debentures. These debentures mature in October 1997
through September 1999 and are subordinate to all of the
Company's Senior Indebtedness. Payment of principal and interest
is guaranteed by ABC but such guarantee is subordinate to ABC's
Senior Indebtedness.
7
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3. SUBSEQUENT EVENT
Effective October 1, 1997, the Company acquired all of the
outstanding stock of New Jersey Mortgage and Investment Corp.
(NJMIC), a mortgage and leasing company based in Roseland, New
Jersey. The purchase price for the stock consists of an initial
payment of cash and shares of common stock of the Company and a note
payable to the owners of NJMIC and includes a contingent payment in
the future if NJMIC achieves certain performance targets. The
acquisition of NJMIC will be accounted for using the purchase method
of accounting and accordingly, the purchase price will be allocated
to assets acquired and liabilities assumed based on the fair values
at the date of acquisition. The fair value of NJMIC's assets
approximated the liabilities assumed and accordingly, the majority of
the purchase price is anticipated to be recorded as goodwill. Any
contingent payments will result in an increase in the amount of
recorded goodwill.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes thereto
included in Item 1 of this Quarterly Report, and the financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on Form
10-KSB for the year ended June 30, 1997.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-QSB, the words or
phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "projected," or similar expressions are intended to
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to changes in
interest rates, the Company's dependence on debt financing and securitizations
to fund operations, the Company's ability to implement its growth strategy and
fluctuations in operating results. Such factors, which are discussed in
Management's Discussions and Analysis of Financial Condition and Results of
Operations, could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinion or statements expressed herein with respect to future periods. As a
result, the Company wishes to caution readers not to place undue reliance on
any such forward looking statements, which speak only as of the date made.
BALANCE SHEET INFORMATION
Total assets increased $20.4 million, or 19.5%, to $124.3 million at
September 30, 1997 from $104.0 million at June 30, 1997 due primarily to
increases in other receivables and other assets partially offset by a decrease
in loans and leases available for sale. Other receivables, consisting
primarily of interest only and residual strips created in connection with the
Company's securitizations, increased $14.2 million, or 37.9%, to $51.7 million
at September 30, 1997 from $37.5 million at June 30, 1997 as the Company
funded $60.0 million of loans as part of a $100.0 million securitization
during the period ended September 30, 1997. Other assets increased $14.3
million, or 77.7%, to $32.7 million at September 30, 1997 from $18.4 million
at June 30, 1997 due primarily to a $12.0 million increase in investments held
for sale and a $2.1 million increase in mortgage servicing rights obtained in
connection with the Company's loan securitization. Loans and leases available
for sale decreased $10.3 million, or 28.9%, from $35.7 million at June 30,
1997 to $25.4 million at September 30, 1997 due to a decrease in loans
available for sale used to fund $60.0 million of a $100.0 million
securitization. The Company anticipates funding the remaining $40.0 million of
loans during the second quarter of fiscal 1998.
Total liabilities increased $17.2 million, or 23.5%, to $90.3 million
at September 30, 1997 from $73.1 million at June 30, 1997 due primarily to an
increase in outstanding debt and to a lesser extent, increases in accounts
payable and accrued expenses and deferred income taxes. The increase in debt
of $13.6 million was due to net sales of subordinated debt. At September
9
<PAGE>
30, 1997, the Company had $70.1 million of subordinated debt outstanding. The
Company's ratio of total debt to equity at September 30, 1997 was 2.1:1
compared to 1.8:1 at June 30, 1997. Accounts payable and accrued expenses
increased $1.7 million, or 27.9%, to $7.8 million at September 30, 1997 from
$6.1 million at June 30, 1997 due to growth in the Company's lending and
leasing activities resulting in longer accruals for interest expense and other
operating expenses. Deferred income taxes increased $1.7 million, or 37.0%, to
$6.3 million at September 30, 1997 from $4.6 million at June 30, 1997 due to
tax accruals on the Company's income for the three months ended September 30,
1997.
Allowance for Credit Losses. The Company maintains an allowance for
credit losses based upon management's estimate of the expected collectibility
of loans and leases outstanding based upon a variety of factors, including but
not limited to, economic conditions and credit and collateral considerations.
Although the Company maintains its allowance for credit losses at the level it
considers adequate to provide for potential losses, there can be no assurances
that actual losses will not exceed the estimated amounts or that additional
provisions will not be required. The Company had an allowance for credit
losses of $2.2 million at September 30, 1997 as compared to $1.8 million at
June 30, 1997. The ratio of the allowance for credit losses to net loan and
lease receivables serviced was 1.03% at September 30, 1997 and 1.00% at June
30, 1997. Total delinquencies were $6.1 million at September 30, 1997 as
compared to $3.8 million at June 30, 1997. The Company's delinquency rate as a
percentage of the total portfolio serviced was 2.86% at September 30, 1997 as
compared to 2.15% at June 30, 1997
Stockholders' equity increased $3.1 million to $34.0 million at
September 30, 1997 from $30.9 million at June 30, 1997 due to net income for
the three months ended September 30, 1997 of $3.2 million partially offset by
dividends paid.
Results of Operations
During the three months ended September 30, 1997, the Company
experienced record levels of total revenues and net income as a result of
increases in originations and the dollar amount of loans securitized. Total
revenues increased $5.9 million, and net income increased $2.0 million for the
three months ended September 30, 1997 as compared to the three months ended
September 30, 1996.
Since the Company's securitization strategy requires the Company to
build an inventory of loans over time, the Company may experience fluctuations
in operating results as a consequence of incurring costs and expenses in a
fiscal period prior to the fiscal period in which the securitization is
consummated. As such, the results of operations for a given period may not be
indicative of results for subsequent comparable periods. In addition, as a
result of the Company's securitization strategy, the Company may operate on a
negative operating cash flow basis which could negatively impact the Company's
results of operations during such periods.
10
<PAGE>
The Company's growth strategy is dependent upon its ability to
increase its loan volume through geographic expansion. The implementation of
this strategy will depend in large part on a variety of factors outside the
control of the Company, including, but not limited to, the Company's ability
to obtain adequate financing on favorable terms and profitably securitize its
loans on a regular basis and continue to expand in the face of increasing
competition. The Company's failure with respect to any of these factors could
impair its ability to successfully implement its growth strategy which could
adversely affect the Company's results of operations and financial condition.
Total Revenues. Total revenues increased $5.9 million, or 111.3%, to
$11.2 million for the three months ended September 30, 1997 from $5.3 million
for the three months ended September 30, 1996. The increase in total revenue
was primarily the result of gains on sale of loans through securitization.
Gain on Sale of Loans. Gain on sale of loans increased $4.4 million,
or 107.3%, to $8.5 million for the three months ended September 30, 1997 from
$4.1 million for the three months ended September 30, 1996. The increase was
the result of sales of $12.0 million of loans secured by real estate and other
business assets ("Business Purpose Loans") and $48.0 million of loans secured
by real estate on single family residences ("Home Equity Loans") through a
securitization in September 1997, as compared to the sale of $9.9 million of
Business Purpose Loans and $17.0 million of Home Equity Loans through a
securitization in September 1996. During the three months ended September 30,
1997, the Company recognized a gain of $8.5 million (representing the fair
value of the interest only and residual strips of $11.1 million less $2.6
million of costs associated with the transaction) on the Company's initial
funding of $60.0 million of loans sold pursuant to a $100.0 million
securitization. The remaining $40.0 million of loans was in the form of a
pre-funded account which the Company anticipates funding in the second quarter
of fiscal 1998.
Interest and Fee Income. Interest and fee income consists of interest
income, fee income and amortization of origination costs. Interest and fee
income increased $1.2 million, or 109.1%, to $2.3 million for the three months
ended September 30, 1997 from $1.1 million for the three months ended
September 30, 1996. The increase in interest and fee income was the result of
an increase in the amount of loans and leases originated and retained in the
Company's portfolio prior to securitization.
Interest income consists primarily of interest income the Company
earns on loans and leases held in its portfolio. Interest income increased
$800,000, or 88.9%, to $1.7 million for the months ended September 30, 1997
from $900,000 for the three months ended September 30, 1996. The increases
were attributable to increased originations of Business Purpose Loans, Home
Equity Loans and small ticket leases for the acquisition of business equipment
("Equipment Leases").
During the three months ended September 30, 1997, the Company
originated approximately $43.8 million of Home Equity Loans, $10.4 million of
Business Purpose Loans and $4.5 million of Equipment Leases. During the three
months ended September 30, 1996, the Company originated $12.7 million of Home
Equity Loans, $7.4 million of Business Purpose
11
<PAGE>
Loans and $1.9 million of Equipment Leases.
Fee income, includes primarily premium and points earned when loans
are closed, funded and immediately sold to unrelated third party purchasers
and ancillary fees collected on loan originations. Fee income increased
$307,000 to $587,000 for the three months ended September 30, 1997 from
$280,000 for the three months ended September 30, 1996. The increase in fee
income was due to an increase in ancillary fees collected in connection with
increased originations partially offset by a reduction in fees earned on the
sale of loans to third parties.
The third component of interest and fee income is amortization of
origination costs. During the three months ended September 30, 1997,
amortization of origination costs increased to $168,000 compared to $86,000
recognized during the comparable period of fiscal 1997. The increase was
attributable to an increase in the amortization of lease origination costs
resulting from an increase in the Company's Equipment Lease portfolio.
Total Expenses. Total expenses increased $2.9 million, or 82.9%, to
$6.4 million for the three months ended September 30, 1997 from $3.5 million
for the three months ended September 30, 1996. As described in more detail
below, this increase was a result of increased interest attributable to the
Company's continued sale of subordinated debt and increases in payroll, sales
and marketing and general and administrative expenses related to increase loan
and lease originations.
Interest Expense. Interest expense increased $818,000, or 81.8%, to
$1.9 million for the three months ended September 30, 1997 from $1.0 million
for the three months ended September 30, 1996. The increase was primarily
attributable to an increase in the amount of the Company's subordinated debt
outstanding during that period, the proceeds of which were used to fund the
Company's loan and lease growth. Average subordinated debt outstanding was
$62.7 million during the three months ended September 30, 1997 compared to
$35.8 million during the three months ended September 30, 1996. Average
interest rates paid on the subordinated debt increased to 9.29% from 8.99%. As
a result of the higher rates offered during the first quarter of fiscal 1998
in order to attract additional funds. Interest expense on lines of credit
utilized by the Company for the three months ended September 30, 1997 was
$393,000, compared to $139,000 for the three months ended September 30, 1996.
The increase was due to the higher utilization of warehouse lines of credit to
fund Home Equity Loans and Business Purpose Loans.
Payroll and Related Costs. Payroll and related costs increased
$652,000, or 327.6%, to $851,000 for the three months ended September 30, 1997
from $199,000 for the three months ended September 30, 1996. The increase was
due to an increase in the number of administrative employees as a result of
the Company's growth in loan and lease originations as well as an increase in
loans and leases serviced. Management anticipates that these expenses will
continue to increase in the future as the Company's geographic expansion
continues.
Sales and Marketing Expenses. Sales and marketing expenses increased
$900,000, or 64.3%, to $2.3 million for the three months ended September 30,
1997 from $1.4 million for the three months ended September 30, 1996. The
increases were attributable to increases in advertising costs as a result of
increased newspaper, direct mail and radio advertising related to
12
<PAGE>
the Company's sales of subordinated debt and loan products. Subject to market
conditions, the Company plans to continue to expand its service area
throughout the eastern United States. As a result, it is anticipated that
sales and marketing expenses will continue to increase in the future.
General and Administrative Expenses. General and administrative
expenses increased $503,000, or 56.1%, to $1.4 million for the three months
ended September 30, 1997 from $897,000 for the three months ended September
30, 1996. This increase was primarily attributable to increases in rent,
telephone, office expense, professional fees and other expenses incurred as a
result of previously discussed increases in loan and lease originations and
loan servicing experienced during the three months ended September 30, 1997.
Income Taxes. Income taxes increased $1.0 million to $1.6 million for
the three months ended September 30, 1997 from $622,000 for the three months
ended September 30, 1996. The increases were due to increases in income before
taxes.
Net Income. Net income increased $2.0 million to $3.2 million for the
three months ended September 30, 1997 from $1.2 million for the three months
ended September 30, 1996. Earnings per share increased to $0.87 on weighted
average common shares outstanding of 3,642,972 for the three months ended
September 30, 1997 compared to $.47 per share on weighted average common
shares outstanding of 2,448,031 for the three months ended September 30, 1996.
LIQUIDITY AND CASH RESOURCES
The Company continues to fund its loans principally through (i) the
securitization and sales of loans which it originates, (ii) the sale of the
Company's registered subordinated debentures, (iii) institutional debt
financing, and (iv) retained earnings. In addition the Company utilized the
capital market to sell additional common stock. The Company's cash
requirements include the funding of loan originations, payment of interest
expense, funding of over-collaterization requirements in connection with its
securitizations, operating expenses and capital expenditures.
To a limited extent, the Company presently intends to continue to
augment the interest and fee income it earns on its loan and lease portfolios,
from time to time, by selling loans either at the time of origination or from
its portfolio to unrelated third parties. These transactions also create
additional liquid funds available for lending activities.
The Company continues to significantly rely on securitizations to
generate cash proceeds for the repayment of debt and to fund its ongoing
operations. As a result of the terms of the securitizations, the Company will
receive less cash flow from the portfolios of loans securitized than it would
otherwise receive absent securitizations. Additionally, pursuant to the terms
of the securitizations, the Company will act as the servicer of the loans and
in that capacity will be obligated to advance funds in certain circumstances
which may create greater demands on the Company's cash flow than either
selling loans or maintaining a portfolio of loans. See "- Results of
Operations."
13
<PAGE>
Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan
portfolios and may in the future securitize its lease portfolio. Any delay or
impairment in the Company's ability to securitize its loans, as a result of
market conditions or otherwise, could adversely affect the Company's results
of operations.
The Company also relies on borrowings such as its subordinated debt
and warehouse credit facilities or lines of credit to fund its operations. At
September 30, 1997, the Company had a total of $70.1 million of subordinated
debt outstanding and available credit facilities and lines of credit totaling
$150.0 million, none of which was drawn upon at such date.
Between 1990 and 1993, American Business Finance Corporation
("ABFC"), an indirect subsidiary of ABFS, sold approximately $1.7 million in
principal amount of subordinated debt which mature at varying times between
October 1997 and September 1998. In December 1993, the Company ceased selling
subordinated debt through ABFC. As of September 30, 1997, ABFC had
approximately $908,000 of the subordinated debt outstanding.
In addition, during the three months ended September 30, 1997, ABFS
sold $17.3 million in principal amount of subordinated debt (including
redemptions and repurchases by investors), pursuant to registered public
offerings with maturities ranging between one day and ten years. As of
September 30, 1997, ABFS had approximately $69.2 million of subordinated debt
outstanding (excluding the debt of ABFC). The proceeds of such sales of debt
have been used to fund general operating and lending activities. The Company
intends to meet its obligations to repay such debt as it matures with income
generated through its lending activities and funds generated from repayment of
outstanding loans. The repayment of such obligations should not adversely
affect the Company's operations.
The Company's subsidiaries have an aggregate $50.0 million Interim
Warehouse and Security Agreement with Prudential Securities Realty Funding
Corporation. In July 1997, the Company and certain of its subsidiaries
obtained a $100.0 million warehouse credit facility from a syndicate of banks
led by Chase Manhattan Bank/Texas Commerce Bank National Association ("TCB").
Under this warehouse facility, the Company may obtain advances, subject to
certain conditions, including sublimits, based upon the type of collateral
securing the advance. The Company's obligations under the TCB warehouse
facility are collateralized by certain pledged loans and leases and other
collateral related thereto. The TCB warehouse facility also requires the
Company to meet certain financial ratios and contains restrictive covenants,
including covenants limiting loans to and transactions with affiliates, the
incurrence of additional debt, and the types of investments that can be made
by the Company and its subsidiaries. The TCB warehouse facility has a term of
two years. At September 30, 1997, neither of these credit facilities was being
utilized.
The Company is currently discussing the possibility of obtaining
additional lines of credit with other lenders and providers of credit.
14
<PAGE>
As of September 30, 1997, the Company had $39.2 million of debt
scheduled to mature during the twelve months ending September 30, 1998 which
was comprised of maturing subordinated debt. The Company currently expects to
refinance the maturing debt through extensions of maturing debt or new debt
financing and, if necessary, may retire the debt through cash flow from
operations and loan sales or securitizations. Despite the Company's current
use of securitizations to fund loan growth, the Company is also dependent upon
other borrowings to fund a portion of its operations. As a result, the Company
intends to continue to utilize debt financing to fund its operations in the
future.
From time to time, the Company considers potential acquisitions of
related businesses or assets which could have a material impact upon the
Company's results of operations and liquidity position. See Footnote 3 of the
Notes to Consolidated Financial Statements for information regarding the
Company's acquisition of New Jersey Mortgage and Investment Corp. completed on
October 1, 1997.
The Company leases certain of its facilities under a five-year
operating lease expiring in January 2003 at a minimum annual rental of
approximately $700,000. The lease contains a renewal option for an additional
period at increased annual rental.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
(a) Exhibits
S-B Exhibit
Number Description of Exhibit
- - ----------- ----------------------
10.1 1997 Non-Employee Director Stock Option Plan
(including form of Option Agreement)
10.2 Amended and Restated Stock Option Plan
10.3 Amendment One to Anthony J. Santilli, Jr.'s Employment
Agreement
10.4 Amendment One to Beverly Santilli's Employment Agreement
27 Financial Data Schedule
(b) Reports on form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1997.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
DATE: November 14, 1997 BY: /s/ David M. Levin
---------------------- ---------------------------------
David M. Levin
Senior Vice President and
Chief Financial Officer
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1997 Non Employee Director Stock Option Plan (the
"Plan") is to provide additional incentive to non-employee directors of
American Business Financial Services, Inc., a Delaware Corporation (the
"Company") by encouraging them to invest in shares of the Company's common
stock, $0.001 par value per share ("Common Stock"), and thereby acquire a
proprietary interest in the Company and an increased personal interest in the
Company's continued success and progress.
2. Aggregate Number of Shares
120,000 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination
of shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares,
may be used for the purpose of this Plan. Common Stock of the Company subject
to options which have terminated unexercised, either in whole or in part,
shall be available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All directors of the Company who are not full-time employees of the
Company or its subsidiaries are eligible to receive an option or options under
this Plan and shall receive awards under the Plan as provided in Section 6
hereof. No individual may receive options under this Plan for more than the
total number of shares of the Company's Common Stock authorized for issuance
under this Plan.
4. Administration of Plan
(a) This Plan shall be administered either by the Company's Board of
Directors or an option committee appointed by the Company's Board of
Directors. The committee appointed to administer the Plan, if any, shall
consist of a minimum of two and a maximum of five members of the Board of
Directors, each of whom shall be a "disinterested person" within the meaning
of Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended,
or any future corresponding rule. The term "Committee," as used herein, shall
refer to either the Company's Board of Directors or such option committee,
depending upon who is administering the Plan.
<PAGE>
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes.
The vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter.
The Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of
Directors shall be liable for any act or omission (whether or not negligent)
taken or omitted in good faith, or for the exercise of an authority or
discretion granted in connection with the Plan to a Committee or the Board of
Directors, or for the acts or omissions of any other members of a Committee or
the Board of Directors. Subject to the numerical limitations on Committee
membership set forth in Section 4(a) hereof, the Board of Directors may at any
time appoint additional members of the Committee and may at any time remove
any member of the Committee with or without cause. Vacancies in the Committee,
however caused, may be filled by the Board of Directors, if it so desires.
5. Non-Qualified Stock Options
(a) Options issued pursuant to this Plan shall be non-qualified
stock options. The option price for options issued under this Plan shall be
equal to the fair market value (as defined below) of the Company's Common
Stock on the date of the grant of the option. The fair market value of the
Company's Common Stock on any particular date shall mean the last reported
sale price of a share of the Company's Common Stock on any stock exchange on
which such stock is then listed or admitted to trading, or on the NASDAQ
National Market System or NASDAQ Small Cap, on such date, or if no sale took
place on such day, the last such date on which a sale took place, or if the
Common Stock is not then quoted on the NASDAQ National Market System or NASDAQ
Small Cap, or listed or admitted to trading on any stock exchange, the average
of the bid and asked prices in the over-the-counter market on such date, or if
none of the foregoing, a price determined in good faith by the Committee to
equal the fair market value per share of the Common Stock.
(b) Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to directors pursuant to this
Plan shall be issued substantially in the form set forth in Appendix I hereof,
which form is hereby incorporated by reference and made a part hereof, and
shall contain substantially the terms and conditions set forth therein.
Non-Qualified Stock Options shall expire ten years after the date they are
granted, unless terminated earlier under the option terms. At the time of
granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in
Appendix I.
(c) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event of any adverse tax consequences resulting from the grant
of an option.
2
<PAGE>
6. Awards Under the Plan
On October 1st of each year, each director of the Company who is not
an employee of the Company shall be automatically granted, without any further
action on the part of the Committee, an option to purchase 5,000 shares of
Common Stock, subject to availability of shares in the Plan to fund such
awards to all non-employee directors at the time of grant. Any option granted
pursuant to this Plan shall vest in full on the date of grant and shall be
exercisable over a three-year period provided that the optionee remains a
director of the Company. Notwithstanding the foregoing, no awards shall be
made pursuant to such Plan unless approved by the Board of Directors prior to
the automatic grant date.
7. Amendment, Supplement, Suspension and Termination
The Board of Directors reserves the right at any time, and from time
to time, to amend or supplement this Plan in any way, or to suspend or
terminate it, effective as of such date, which date may be either before or
after the taking of such action, as may be specified by the Board of
Directors; provided, however, that such action shall not affect options
granted under the Plan prior to the actual date on which such action occurred.
If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such
submission shall not require any future amendments, supplements, suspensions
or terminations (whether or not relating to the same provision or subject
matter) to be similarly submitted for shareholder approval.
8. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of
the Company's Common Stock. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
9. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director the right to continue as a director
of the Company or any affiliated or subsidiary corporation or interfere in any
way with the rights of the Company or any affiliated or subsidiary
corporation, or their respective shareholders, to terminate the directorship
of any such director.
(b) Corporate action constituting an offer of stock for sale to any
person under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option
to the such person, regardless of when the option is actually delivered to
such person or acknowledged or agreed to by him.
3
<PAGE>
(c) The terms "parent corporation" and "subsidiary corporation" as
used throughout this Plan, and the options granted pursuant to this Plan,
shall (except as otherwise provided in the option form) have the meaning that
is ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(d) References in this Plan to the Code shall be deemed to also refer
to the corresponding provisions of any future United States revenue law.
(e) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
10. Duration of the Plan
The Plan shall remain in effect until all awards under the Plan have
been satisfied by the issuance of shares, provided that options shall not be
granted pursuant to this Plan after the expiration of three years from the
date the Plan is adopted by the Board of Directors of the Company.
Adopted September 30, 1997
by the Board of Directors of
American Business Financial Services, Inc.
/s/Anthony J. Santilli, Jr.
---------------------------------------
Anthony J. Santilli, Jr., President
4
<PAGE>
APPENDIX I
NON-QUALIFIED STOCK OPTION FOR NON-EMPLOYEE DIRECTORS
To: _______________________________
Name
_______________________________
Address
Date of Grant: ____________________
You are hereby granted an option, effective as of the date hereof, to
purchase ______ shares of common stock, $0.001 par value per share ("Common
Stock"), of American Business Financial Services, Inc., a Delaware corporation
(the "Company") at a price of $ per share pursuant to the Company's 1997
Non-Employee Director Stock Option Plan (the "Plan").
Your option shall be exercisable in full on the date of grant and shall
remain exercisable for a period of three years, except if terminated earlier
as provided herein. This option shall not be exercisable after three years
from the date of its grant (the "Scheduled Termination Date"). During the
period during which this option is exercisable, the number of shares subject
to such option and the exercise price per share shall be adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason
of a stock dividend, stock split, combination of shares, recapitalization,
merger, consolidation, transfer of assets, reorganization, conversion or what
the Committee deems in its sole discretion to be similar circumstances.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of
Common Stock of the Company, which will be valued by the Secretary of the
Company at the fair market value per share of the Company's Common Stock (as
determined in accordance with the Plan) on the date of delivery of such
certificates to the Company, accompanied by an assignment of the stock to the
Company; or (c) (unless prohibited by the Committee) any combination of cash
and Common Stock of the Company valued as provided in clause (b). Any
assignment of stock shall be in a form and substance satisfactory to the
Secretary of the Company, including guarantees of signature(s) and payment of
all transfer taxes if the Secretary deems such guarantees necessary or
desirable.
I-1
<PAGE>
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be
a director of the Company (whether by death, disability, resignation, removal,
failure to be reappointed, reelected or otherwise and regardless of whether
the failure to continue as a director was for cause or without cause or
otherwise), but in no event later than three years from the date this option
is granted. After the date you cease to be a director, you may exercise this
option only for the number of shares which you had a right to purchase and did
not purchase on the date you ceased to be a director. Your directorship shall
not be deemed to have terminated if you cease being a director of the Company
but are or concurrently therewith become a director of the Company or another
subsidiary corporation.
In the event of any change in the outstanding shares of the Common Stock
of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion
to be similar circumstances, the number and kind of shares subject to this
option and the option price of such shares shall be appropriately adjusted in
a manner to be determined in the sole discretion of the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the
Code and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies
and securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited
by the Committee) (i) all
I-2
<PAGE>
federal, state and local income tax withholding required to be withheld by the
Company in connection with the option exercise and (ii) the employee's portion
of other federal, state and local payroll and other taxes due in connection
with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments or representations, as counsel to the Company deems
advisable to avoid any violation of federal, state, local or securities
exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not
be offered, sold, transferred, pledged or otherwise disposed of without
an effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion of
counsel acceptable to the Company that the proposed transaction will be
exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not be
an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
I-3
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association or
its successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the
arbitrator(s) being rendered, you and the Company may resolve the dispute by
settlement. You and the Company shall equally share the costs charged by the
American Arbitration Association or its successor, but you and the Company
shall otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding
and conclusive on you and the Company. Further, neither you nor the Company
shall appeal any such award. Judgment of a court of competent jurisdiction may
be entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the
terms of this option and the terms of the Plan in effect on the date of this
option, the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of
the State of Delaware.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its
terms and conditions.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By: _________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
________________________________ __________________________________
(Signature) (Date)
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
1. Purpose. The purpose of the American Business Financial Services, Inc.
Stock Option Plan (the "Plan") is to further the earnings of American Business
Financial Services, Inc. (the "Company"). The Plan provides for the award of
long-term incentives to those officers and other key employees who make
substantial contributions to the Company by their loyalty, industry, and
invention. The Company intends that the Plan will facilitate attracting,
retaining, and motivating management employees of high caliber and potential.
2. Administration. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors of American Business Financial
Services, Inc. (the "Board"). The Committee shall consist of three (3) or more
persons selected by the Board of Directors, each of whom shall be (i) an
outside director as defined under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") or any successor section; and (ii) a
"non-employee" director within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any corresponding rule, except
that failure of the Committee for any reason to be composed solely of
non-employee directors for any reason shall not prevent any option from being
considered granted under this Plan. Without limiting the foregoing, the
Committee shall have full and final authority in its discretion to interpret
the provisions of the Plan and to decide all questions of fact arising in its
application; to determine the employees to whom awards shall be made under the
Plan; to determine the type of awards to be made and the amount, size and
terms of each such award; to determine the time when awards shall be granted;
and to make all other determinations necessary or advisable for the
administration of the Plan.
3. Stock Subject to the Plan. The shares that may be issued under the
Plan shall not exceed in the aggregate more than 560,000 shares of common
stock, par value $.001 per share (the "Common Stock") of the Company. Such
shares may be authorized and unissued shares or treasury shares. Except as
otherwise provided herein, any shares subject to an outstanding option or
right which for any reason expires or is terminated unexercised as to such
shares shall again be available under the Plan.
4. Eligibilily to Receive Awards. Persons eligible to receive awards
under the Plan shall be limited to those officers and other key employees of
the Company who are in positions in which their decisions, actions and counsel
will have a significant impact upon the profitability and success of the
Company. Directors of the Company who are not otherwise officers or employees
of the Company shall not be eligible to participate in the Plan.
Notwithstanding anything to this Plan to the contrary, no individual shall
receive option awards with respect to more than 75% of the shares reserved for
issuance under the Plan.
5. Form of Awards. Awards may be made from time to time by the Committee
in the form of stock options to purchase shares of Common Stock. Stock options
may be options which are intended to qualify as incentive stock options within
the meaning of Section 422 of the Code, or any amendment or substitute thereto
("Incentive Stock Options") or options which are not intended
<PAGE>
to so qualify ("Non-Qualified Stock Options").
6. Stock Options. Stock options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with the Plan as
the Committee shall approve from time to time, which shall contain, in
substance, the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the options
represented thereby as Incentive Stock Options or Non-Qualified Stock Options,
as the case may be.
(b) Option Price. Subject to the restrictions set forth below
regarding Incentive Stock Options, the purchase price of stock subject to an
option shall be no less than the fair market value at the time of grant, as
determined by the Committee.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the option may be exercised, in whole or in part,
which shall be such period or periods of time as may be determined by the
Committee, provided that no option shall be exercisable after ten (10) years
from the date of grant thereof. The Committee may, in its discretion, provide
in the option agreement circumstances under which the option shall become
immediately exercisable, and may, notwithstanding the foregoing, accelerate
the exercisability of any option at any time.
(d) Payment for Shares. The purchase price of the shares with respect
to which an option is exercised shall be payable in full at the time of
exercise in cash, Common Stock of the Company (valued at the fair market value
thereof), or a combination thereof, as the Committee may determine and subject
to such terms and conditions prescribed by the Committee for such purpose.
(e) Rights Upon Termination of Employment. The award agreement shall
specify a Participant's rights upon termination of employment. In the case of
Incentive Stock Options, the restrictions set forth below must be followed.
(f) Nontransferability. Each option agreement shall state that the
option is not transferable other than by will or the laws of descent and
distribution, and that during the lifetime of the optionee the option is
exercisable only by him.
(g) Incentive Stock Options. In the case of an Incentive Stock
Option, each option agreement shall contain such other terms, conditions and
provisions as the Board determines necessary or desirable in order to qualify
such option as a tax favored option (within the meaning of Section 422 of the
Code, or any amendment or substitute thereto or regulation thereunder)
including without limitation, the following:
(i) The purchase price of stock subject to an Incentive
Stock Option shall not be less than 100% of the fair market value of such
stock on the date the option is granted, as determined by the Committee;
2
<PAGE>
(ii) The aggregate fair market value (determined as of the
time the option is granted) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by any employee during any calendar
year (under all plans of the Company) shall not exceed One Hundred Thousand
($100,000) Dollars;
(iii) No Incentive Stock Option shall be granted to any
employee if at the time the option is granted the individual owns stock
possessing more than ten (10%) percent of the total combined voting power of
all classes of stock of the Company or subsidiary corporation unless at the
time such option is granted the option price is at least one hundred ten
(110%) percent of the fair market value of the stock subject to the option and
such option by its terms is not exercisable after the expiration of five (5)
years from the date of grant; and
(iv) In the event that the recipient of an Incentive Stock
Option ceases to be an employee of the Company for any cause other than death
or disability, his Incentive Stock Options shall terminate ninety (90) days
following termination. In the event that such an optionee dies or becomes
disabled prior to the expiration of his Incentive Stock Options and without
having fully exercised such options, the optionee or his successor shall have
the right to exercise such options during its term but in no event later than
twelve (12) months after termination of death or termination due to
disability to the extent that such option was exercisable at the time of
termination, or within such other period, and subject to such terms and
conditions, as may be specified by the Committee.
7. General Restrictions. Each award under the Plan shall be subject to
the requirement that if at any time the Committee shall determine the (i) the
listing, registration or qualification of the shares of Common Stock subject
or related thereto upon any securities exchange or under any state or federal
law, or (ii) the consent or approval of any government regulatory body, or
(iii) an agreement by the recipient of an award with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such award or the issuance or
purchase of shares of Common Stock thereunder, such award shall not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained, free of any conditions not acceptable to the Committee.
8. Single or Multiple. Multiple forms of awards or combinations thereof
may be evidenced by a single agreement or multiple agreements, as determined
by the Committee.
9. Rights of a Shareholder. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for shares of Common Stock
are issued to him.
10. Rights to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right
which the Company may have to terminate the employment of such participant.
3
<PAGE>
11. Withholding. Wherever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares.
12. Non-Assignability. No award under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve in
writing. During the life of the recipient, such award shall be exercisable
only by such person or by such person's guardian or legal representative.
13. Non-Uniform Determinations. The Committee's determination under the
Plan (including without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions
of such awards and the agreements evidencing same, and the establishment of
values) need not be uniform and may be made selectively among persons who
receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated.
14. Adjustments.
(a) In the event of any change in the outstanding stock of the
Company, by reason of a stock dividend or distribution, supplemental offering
of shares, recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like, the Committee may, in its discretion, adjust
the number of shares of Common Stock which may be issued under the Plan.
(b) The number of shares of Common Shares purchasable upon the
exercise of the outstanding stock options ("Options") and the option price
shall be subject to adjustment from time to time as provided in this paragraph
14.
(i) If the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Common Stock, the
number of shares of Common Stock purchasable upon exercise of an Option shall
be increased by multiplying such number of shares by a fraction of which the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such increase to become effective inunediately after the opening of business
on the date following such distribution.
(ii) If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the number of
shares of Common Stock purchasable upon exercise of an Option at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased, and, conversely, if outstanding
shares of Common Stock shall each be combined into a smaller number of shares
of Common Stock, the number of shares of Common Stock purchasable upon
exercise of an Option at the
4
<PAGE>
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately decreased, such increase or
decrease, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision
or combination becomes effective.
(iii) The reclassification of Common Stock into securities
(other than Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number or amount of securities and/or cash and/or
other consideration outstanding immediately thereafter and the effective date
of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination becomes
effective, as the case may be, within the meaning of the clause (ii) above.
(iv) The Committee may in its discretion make such increases
in the number of shares of Common Stock purchasable upon exercise of an
Option, in addition to those required by this subparagraph (b), as shall be
determined by the Company's Board of Directors to be advisable in order to
achieve an equitable result or to avoid taxation so far as practicable of any
dividend of stock or stock rights or any event treated as such for federal
income tax purposes to the recipients.
(c) Whenever the number of shares of Common Stock purchasable upon
exercise of an Option is adjusted as provided in this paragraph 14, the option
price shall be adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock purchasable prior to this adjustment and the
denominator is equal to the number of shares of Common Stock purchasable after
the adjustment.
(d) For the purpose of this paragraph 14, the term "Common Stock"
shall include any shares of the Company of any class or series which has no
preference or priority in the payment of dividends or in the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company and which is not subject to redemption by the Company.
15. Amendment. The Committee may terminate or amend the Plan at any time,
except without shareholder approval, the Committee may not increase the
maximum number of shares which may be issued under the Plan (other than
increases pursuant to paragraph 14 hereof), extend the period during which any
award may be exercised, extend the term of the Plan or change the minimum
option price (other than pursuant to paragraph 14 hereof). The termination or
any modification or amendment of the Plan shall not, without the consent of a
participant, affect his rights under an award previously granted.
16. Effect on Other Plans. Participation in this Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan
of the Company. Any awards made pursuant to this Plan shall not be used in
determining the benefits provided under any other plan of the Company unless
specifically provided.
5
<PAGE>
17. Duration of the Plan. The Plan shall rernain in effect until all
awards under the Plan have been satisfied by the issuance of shares, but no
award shall be granted more than ten years after the earlier of the date the
Plan is adopted by the Company or is approved by the Company's shareholders.
Adopted February 9, 1993
by the Board of Directors of
American Business Financial Services, Inc.
Amended October 22, 1996
by the Board of Directors of
American Business Financial Services, Inc.
Amended and Restated December 10, 1996
by the Board of Directors of
American Business Financial Services, Inc.
Amended and Restated September 30, 1997
by the Board of Directors of
American Business Financial Services, Inc.
/s/ Anthony J. Santilli, Jr.
-------------------------------------
Anthony J. Santilli, Jr., President
6
<PAGE>
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One to the Employment Agreement dated January 29, 1997,
by and between AMERICAN BUSINESS FINANCIAL SERVICES, INC., a Delaware
corporation (the "Company"), and ANTHONY J. SANTILLI, JR., an individual (the
"Employee") is entered into this 1st day of October, 1997 ("Amendment One").
BACKGROUND
The Executive is currently employed by the Company in the position of
President and Chief Executive Officer. The Company and the Executive desire to
amend the Employment Agreement to revise the terms of the bonus payable to
Executive as more fully set forth below.
NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
Section 3 of the Employment Agreement entitled "Compensation" be and
hereby is amended to read as follows:
Compensation. During the Term, the Executive shall be
entitled to a minimum base annual salary of not less than
$200,000. The foregoing figure shall be adjusted in January
of each calendar year during the Term for any increase in
the cost of living (based upon the Consumer Price Index,
Philadelphia, PA - New Jersey: all items, 1982-84=100, as
published by the U.S. Department of Labor) from May, 1996 to
November of the immediately preceding calendar year. The
minimum base annual salary of the Executive, as adjusted for
the cost of living, shall be reviewed annually, and may be
increased from time to time by the Company's Board of
Directors during the Term, and once increased may not
thereafter be decreased. The Board of Directors shall
establish a cash bonus plan which provides for the following
bonuses to be paid for each fiscal year during the Term: (a)
if the Executive achieves 80% of the targets approved by the
Board of Directors for the fiscal year (the "Targets"), a
cash bonus equal to 50% of base annual salary; (b) if the
Executive achieves 100% of the Targets, a cash bonus equal
to 100% of base annual salary, and if the Executive achieves
more than 80% and less than 100% of the Targets, the cash
bonus will be proportional to the achievement (e.g., if 90%
of the Targets are achieved, the cash bonus would equal 75%
of base annual salary); (c) if the Executive achieves more
than 100% of the Targets, the cash bonus will be 100% of the
base annual salary plus an additional 2.5% for each 1% over
100% of the Targets actually achieved (for example, if the
Executive achieves 120% of the Targets, the cash bonus would
equal 150% of the base annual salary). The Targets
established by the Board of Directors may not be increased
by more than twenty-five percent (25%) from one fiscal year
to the next subsequent fiscal year and may not be increased
after a Change of Control (as defined in Section 6 hereof)
to which the Executive does not give her written consent as
provided in Section 6. The Executive shall also be entitled
to such stock options and other incentive payments as are
determined from time to time by the Company's Board of
Directors.
<PAGE>
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment One as of the date first written above.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(Corporate Seal) By: /s/ Jeffrey M. Ruben
--------------------------------------
Attest: /s/ David M. Levin
--------------------------------------
Witness: /s/ David M. Levin
- - ---------------------------
/s/ Anthony J. Santilli, Jr. (SEAL)
------------------------------------------------
ANTHONY J. SANTILLI, JR.
2
<PAGE>
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One to the Employment Agreement dated January 29, 1997,
by and between AMERICAN BUSINESS FINANCIAL SERVICES, INC., a Delaware
corporation (the "Company"), and BEVERLY SANTILLI, an individual (the
"Employee") is entered into this 1st day of October, 1997 ("Amendment One").
BACKGROUND
The Executive is currently employed by the Company in the position of
Executive Vice President and Secretary. The Company and the Executive desire
to amend the Employment Agreement to revise the terms of the Bonus payable to
Executive as more fully set forth below.
NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
Section 3 of the Employment Agreement entitled "Compensation" be and
hereby is amended to read as follows:
Compensation. During the Term, the Executive shall be
entitled to a minimum base annual salary of not less than
$200,000. The foregoing figure shall be adjusted in January
of each calendar year during the Term for any increase in
the cost of living (based upon the Consumer Price Index,
Philadelphia, PA - New Jersey: all items, 1982-84=100, as
published by the U.S. Department of Labor) from May, 1996 to
November of the immediately preceding calendar year. The
minimum base annual salary of the Executive, as adjusted for
the cost of living, shall be reviewed annually, and may be
increased from time to time by the Company's Board of
Directors during the Term, and once increased may not
thereafter be decreased. The Board of Directors shall
establish a cash bonus plan which provides for the following
bonuses to be paid for each fiscal year during the Term: (a)
if the Executive achieves 80% of the targets approved by the
Board of Directors for the fiscal year (the "Targets"), a
cash bonus equal to 50% of base annual salary; (b) if the
Executive achieves 100% of the Targets, a cash bonus equal
to 100% of base annual salary, and if the Executive achieves
more than 80% and less than 100% of the Targets, the cash
bonus will be proportional to the achievement (e.g., if 90%
of the Targets are achieved, the cash bonus would equal 75%
of base annual salary); (c) if the Executive achieves more
than 100% of the Targets, the cash bonus will be 100% of the
base annual salary plus an additional 2.5% for each 1% over
100% of the Targets actually achieved (for example, if the
Executive achieves 120% of the Targets, the cash bonus would
equal 150% of the base annual salary). The Targets
established by the Board of Directors may not be increased
by more than twenty-five percent (25%) from one fiscal year
to the next subsequent fiscal year and may not be increased
after a Change of Control (as defined in Section 6 hereof)
to which the Executive does not give her written consent as
provided in Section 6. The Executive shall also be entitled
to such stock options and other incentive payments as are
determined from time to time by the Company's Board of
Directors.
<PAGE>
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment One as of the date first written above.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
(Corporate Seal) By: /s/ Jeffrey M. Ruben
--------------------------------------
Attest: /s/ David M. Levin
--------------------------------------
Witness: /s/ David M. Levin
- - ---------------------------
/s/ Beverly Santilli (SEAL)
-------------------------------------------------
Beverly Santilli
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN BUSINESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES AS OF SEPTEMBER 30, 1997 AND THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 3,932,032
<SECURITIES> 0
<RECEIVABLES> 25,638,724
<ALLOWANCES> 268,980
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,109,749
<DEPRECIATION> 1,532,313
<TOTAL-ASSETS> 124,343,747
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,503
<OTHER-SE> 34,007,513
<TOTAL-LIABILITY-AND-EQUITY> 124,343,747
<SALES> 0
<TOTAL-REVENUES> 11,206,274
<CGS> 0
<TOTAL-COSTS> 6,431,221
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,887
<INTEREST-EXPENSE> 1,859,801
<INCOME-PRETAX> 4,775,053
<INCOME-TAX> 1,623,518
<INCOME-CONTINUING> 3,151,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,151,535
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
