<PAGE>
SCHEDULE 14A 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 ss. 240.14a-11(c) or ss. 240.14a-12
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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.):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LETTERHEAD OF ABFS]
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of American Business Financial Services, Inc. ("ABFS" or the "Company") which
will be held on December 15, 1998 at 2:00 P.M. (Eastern Standard Time) at the
office of ABFS, 111 Presidential Blvd., Bala Cynwyd, PA 19004. The official
notice of the Annual Meeting together with a proxy statement and form of proxy
are enclosed. Please give this information your careful attention. At the
meeting, stockholders of ABFS are being asked to elect two directors of ABFS.
Whether or not you expect to attend the meeting in person it is important
that your shares be voted at the meeting. I urge you to specify your choices by
marking the enclosed proxy and returning it promptly.
Sincerely,
/s/ Anthony J. Santilli, Jr.
----------------------------
Anthony J. Santilli, Jr.
Chairman and Chief Executive Officer
<PAGE>
American Business Financial Services, Inc.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held December 15, 1998
---------------------------
TO OUR STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of AMERICAN BUSINESS FINANCIAL SERVICES, INC. (the "Company" or
"ABFS") will be held on December 15, 1998 at 2:00 P.M. (Eastern Standard Time),
at the office of ABFS, 111 Presidential Boulevard, Bala Cynwyd, PA 19004 for the
following purposes:
1. To elect two Class II directors named herein to serve for terms described
in the accompanying Proxy Statement and until their successors are elected
and qualified, as more fully described in the accompanying Proxy Statement;
and
2. To act upon such other business as may properly come before this meeting or
any postponement or adjournment thereof.
The Board of Directors is not aware of any other business to come before
the Annual Meeting.
The Board has fixed October 21, 1998 as the record date for the
determination of stockholders entitled to vote at the Annual Meeting. Only
stockholders of record at the close of business on that date will be entitled to
notice of, and to vote at, the Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
/s/ Beverly Santilli
---------------------------
Beverly Santilli
Secretary
Bala Cynwyd, Pennsylvania
October 28, 1998
<PAGE>
American Business Financial Services, Inc.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
----------------------------
PROXY STATEMENT
----------------------------
The accompanying proxy is solicited by and on behalf of the Board of
Directors of American Business Financial Services, Inc. (the "Company" or
"ABFS") for use at the Annual Meeting of Stockholders (the "Annual Meeting") to
be held on December 15, 1998 at 2:00 P.M. (Eastern Standard Time) at the office
of ABFS, 111 Presidential Boulevard, Bala Cynwyd, PA 19004 and at any
postponement or adjournment thereof. The approximate date on which this proxy
statement and the accompanying form of proxy will first be sent or given to
stockholders is October 28, 1998.
Sending in a signed proxy will not affect the stockholder's right to attend
the annual meeting and vote in person since the proxy is revocable. Any
stockholder giving a proxy has the power to revoke it by, among other methods,
delivering a later dated proxy or giving written notice to the Secretary of ABFS
at any time before the proxy is exercised.
The expense of the proxy solicitation will be borne by ABFS. In addition to
solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or teletype by directors, officers or employees of ABFS and its
subsidiaries without additional compensation. Upon request by brokers, dealers,
banks or voting trustees, or their nominees who are record holders of the
Company's common stock, par value $0.001 per share (the "Common Stock"), ABFS is
required to pay the reasonable expenses incurred by such record holders for
mailing proxy materials and annual stockholder reports to any beneficial owners
of the Common Stock.
A form of proxy is enclosed. If properly executed and received in time for
voting, and not revoked, the enclosed proxy will be voted as indicated in
accordance with the instructions thereon. If no directions to the contrary are
indicated, the persons named in the enclosed proxy will vote all shares of the
Common Stock for election of all nominees for director hereinafter named.
The enclosed proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the Annual Meeting:
(i) matters which ABFS does not know, a reasonable time before the proxy
solicitation, are to be presented at the Annual Meeting; (ii) approval of the
minutes of a prior meeting of stockholders, if such approval does not amount to
ratification of the action taken at the Annual Meeting; (iii) the election of
any person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this proxy statement
and form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); and (v) matters
<PAGE>
incident to the conduct of the Annual Meeting. In connection with such matters,
the persons named in the enclosed form of proxy will vote in accordance with
their best judgment.
The Company is not currently aware of any matters which will be brought
before the Annual Meeting (other than procedural matters) which are not referred
to in the enclosed notice of the Annual Meeting.
The Company had 3,523,406 shares of Common Stock outstanding at the close
of business on October 21, 1998 (the "Record Date"). In order for a quorum to be
present at the Annual Meeting, a majority of the outstanding shares of the
Company's Common Stock as of the close of business on the Record Date must be
present in person or represented by proxy at the Annual Meeting. All such shares
that are present in person or represented by proxy at the Annual Meeting will be
counted in determining whether a quorum is present, including abstentions and
broker non-votes.
Each share of Common Stock outstanding is entitled to one vote on each
matter which may be brought before the Annual Meeting. The election of directors
will be determined by a plurality vote. The affirmative vote of a majority of
the shares present or represented by proxy is required to approve any other
business matters properly brought before the Annual Meeting. Under the Delaware
General Corporation Law, an abstention, withholding of authority to vote or
broker non-vote on any proposal, other than the election of directors, will have
the same legal effect as an "against" vote.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of October 21, 1998, the beneficial
ownership of the Company's Common Stock: (i) by each person known by the Company
to be the beneficial owner of five percent or more of the Company's outstanding
Common Stock, (ii) by each director and nominee for director of the Company,
(iii) by each executive officer whose compensation exceeded $100,000 during
fiscal 1998 and Mr. Albert Mandia (the "Named Officers"), and (iv) by the
directors, director nominees and executive officers of the Company as a group.
Unless otherwise specified, all persons listed below have sole voting and
investment power with respect to their shares. The business address of the
officers of ABFS is that of the Company.
-2-
<PAGE>
<TABLE>
<CAPTION>
Name, Position and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned(1) of Class
- ---------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Anthony J. Santilli, Jr., Chairman, President, 932,044 (2) (3) 26.0%
Chief Executive Officer, Chief Operating
Officer and Director of ABFS
and Beverly Santilli, President of ABC
and First Executive Vice President and Secretary of ABFS
Michael DeLuca, Director of ABFS 204,735 (4) 5.7
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 180,561 (4) 5.1
1126 Bryn Tyddyn Drive
Gladwyne, PA 19035
Leonard Becker, Director of ABFS 121,230 (4) 3.4
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Harold E. Sussman, Director of ABFS 111,711 (4) 3.1
Colliers, Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 25,500 (5) (6)
Executive Vice President and General
Counsel of ABFS
David M. Levin 17,500 (7) (6)
Senior Vice President - Finance of ABFS
Albert W. Mandia 12,500 (8) (6)
Executive Vice President and Chief Financial
Officer of ABFS
Wellington Management Company, LLP, 474,400 (9) 13.5
Bay Pond Partners, L.P., Wellington Hedge Management,
LLC and Wellington Hedge Management, Inc.
75 State Street
Boston, MA 02109
All executive officers and directors as a group (9 persons) 1,605,781(10) 42.5
</TABLE>
-3-
<PAGE>
- -------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the SEC. Accordingly they may include securities owned by or
for, among others, the wife and/or minor children or the individual and any
other relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or investment
power or has the right to acquire under outstanding stock options within 60
days after the date of this table. Beneficial ownership may be disclaimed
as to certain of the securities.
(2) Shares listed are held in joint tenancy by Mr. and Mrs. Santilli.
(3) Includes options to purchase 37,500 shares of Common Stock awarded to Mr.
Santilli pursuant to the Company's Stock Option Plan, all of which are
currently exercisable. Also includes options to purchase 12,500 and 5,000
shares of the Company's Common Stock awarded to Mrs. Santilli pursuant to
the Company's Stock Option Plan, of which options to purchase 14,000 shares
are not currently exercisable within 60 days of the Record Date.
(4) Includes options to purchase 27,500 shares of Common Stock awarded to each
non-employee director of the Company pursuant to the Company's 1995 Stock
Option Plan for Non-Employee Directors, and options to purchase 10,000
shares of Common Stock awarded to each non-employee director pursuant to
the Company's 1997 Stock Option Plan for Non-Employee Directors, all of
which are not currently exercisable.
(5) Includes 500 shares held directly and an option to purchase 7,500 shares of
the Company's Common Stock awarded to Mr. Ruben pursuant to the Company's
Stock Option Plan which option is currently exercisable. Also includes
options to purchase 12,500 and 5,000 shares of the Company's Common Stock
awarded to Mr. Ruben pursuant to the Company's Stock Option Plan, of which
options to purchase 14,000 shares are not exercisable within 60 days of the
Record Date.
(6) Less than one percent.
(7) Includes options to purchase 12,500 and 5,000 shares of the Company's
Common Stock awarded to Mr. Levin pursuant to the Company's Stock Option
Plan, of which options to purchase 14,000 shares are not currently
exercisable within 60 days of the Record Date.
(8) Represents options to purchase 12,500 shares of the Company's Common Stock
awarded to Mr. Mandia pursuant to the Company's Stock Option Plan, none of
which are currently exercisable.
(9) As reported in an amended Schedule 13G dated January 12, 1998 filed by
Wellington Management Company, LLP ("WMC"). Of the 474,000 shares reported
as beneficially owned by WMC, shared voting was reported with respect to
460,000 shares and shared dispositive power was reported with respect to
474,000 shares. All of the shares beneficially owned by WMC are owned of
record by clients of WMC, none of which hold more than 5.0% of such shares
except for Bay Pond Partners, L.P., whose ownership is described herein. In
a Schedule 13G dated February 17, 1998 filed by Bay Pond Partners, L.P.
("BPP"), a limited partnership, its general partner, Wellington Hedge
Management, LLC ("WHML"), and Wellington Hedge Management, Inc. ("WHMI"),
the managing member of WHML, each of BPP, WHML and WHMI reported shared
voting and dispositive power with respect to the 291,500 shares (8.3% of
the outstanding shares) beneficially owned by them.
(10) Includes options to purchase 260,000 shares of the Company's Common Stock
awarded to directors and officers of the Company pursuant to the Company's
stock option plans of which options to purchase 54,500 shares of the
Company's Common Stock are not currently exercisable.
-4-
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation currently
provides that the Board shall consist of not less than one nor more than fifteen
directors and that within these limits the number of directors shall be as
established by the Board. The Board has set the number of directors at five or
until their successors are elected and qualified. The Company's Amended and
Restated Certificate of Incorporation provides that the Board of Directors shall
be divided into three classes, having staggered terms of office, which are as
equal in number as possible. The members of each class of directors are to be
elected for a term of three years. The Company's Amended and Restated Articles
of Incorporation does not permit stockholders to cumulate their votes for the
election of directors.
The following table sets forth certain information, as of the Record Date,
regarding the Company's Board of Directors
<TABLE>
<CAPTION>
Position(s) Held Director Term to
Name Age(1) in the Company Since Expire
- ---- ------ ---------------- -------- -------
Nominees
--------
<S> <C> <C> <C>
Anthony J. Santilli, Jr. 55 Chairman, President, Chief 1993 2001
Executive Officer, Chief
Operating Officer and
Director
Richard Kaufman 56 Director 1993 2001
Directors Remaining in Office
-----------------------------
Leonard Becker 75 Director 1993 1999
Michael DeLuca 66 Director 1993 2000
Harold E. Sussman 72 Director 1993 2000
</TABLE>
(1) As of June 30, 1998.
The principal occupation of each director of the Company and each of the
nominees for director is set forth below. All directors have held their present
position for at least five years unless otherwise indicated.
Anthony J. Santilli, Jr. is the Chairman, President, Chief Executive
Officer and Chief Operating Officer of the Company and is an executive officer
of its subsidiaries. He has held the positions with the Company since early 1993
when the Company became the parent company of American Business Credit, Inc.
("ABC") and the positions with the subsidiaries since the formation of ABC in
June 1988.
-5-
<PAGE>
Prior to the founding of ABC in 1988, Mr. Santilli was Vice President and
Department Head of the Philadelphia Savings Fund Society ("PSFS"). As such, Mr.
Santilli was responsible for PSFS' commercial relationships with small and
middle market business customers. Mr. Santilli also served as the secretary of
PSFS' Asset/Liability Committee and Policy Committee from May 1983 to June 1985
and June 1986 to June 1987, respectively.
Leonard Becker is a former 50% owner and officer of the SBIC of the Eastern
States, Inc., a federally licensed small business corporation which made medium
term loans to small business concerns. For the last 30 years, Mr. Becker has
been heavily involved in the investment in and management of real estate; and,
has been involved in the ownership of numerous shopping centers, office
buildings and apartments. Mr. Becker formerly served as a director of Eagle
National Bank and Cabot Medical Corp.
Michael DeLuca was President, Chairman of the Board, Chief Executive
Officer and a former owner of Bradford-White Corporation, a manufacturer of
plumbing products, for a period of approximately thirty years. Presently, Mr.
DeLuca serves as a Director of BWC-West, Inc., Bradford-White International and
is Chief Executive Officer and a Director of Lux Products Corporation.
Richard Kaufman is a private investor. From 1982 to 1996, he was self
employed and involved in making and managing investments for his own benefit.
From 1976 to 1982, Mr. Kaufman was President and Chief Operating Officer of
Morlan International, Inc., a cemetery and financial services conglomerate. From
1970 to 1976, Mr. Kaufman served as a Director and Vice President-Real Estate
and Human Services Division of Texas International, Inc., an oil and gas
conglomerate.
Harold E. Sussman is currently a principal in and Chairman of the Board of
the real estate firm of Colliers, Lanard & Axilbund, a major commercial and
industrial real estate brokerage and management firm in the Philadelphia area,
with which he has been associated since 1972.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NOMINEES
FOR DIRECTOR.
- ---
Board, Committees and Attendance at Meetings
The Board of Directors of the Company held four meetings during the fiscal
year ended June 30, 1998. During fiscal 1998, no director attended fewer than
75% of the aggregate of the total number of Board meetings and the total number
of meetings held by committees of the Board of Directors on which he served. The
following is a description of each of the committees of the Board of Directors
of the Company.
-6-
<PAGE>
Audit Committee. The members of the Audit Committee are Messrs. DeLuca,
Sussman and Becker. The Audit Committee reviews the Company's audited financial
statements and makes recommendations to the Board concerning the Company's
accounting practices and policies and the selection of independent accountants.
The Audit Committee met once during the year ended June 30, 1998.
Compensation Committee. The members of the Compensation Committee are
Messrs. DeLuca, Sussman and Kaufman. The Compensation Committee is responsible
for establishing salaries, bonuses and other compensation for the executive
officers and administers the Company's stock option plans. The Compensation
Committee met once during the year ended June 30, 1998.
Finance Committee. The members of the Finance Committee are Messrs.
Santilli, Becker, Kaufman and DeLuca. The Finance Committee monitors and makes
suggestions as to the interest rates paid by the Company on its debt
instruments, develops guidelines and sets policy relating to the amount and
maturities of investments to be accepted by the Company and performs cash
management functions. The Finance Committee met four times during the year ended
June 30, 1998.
Executive Committee. The members of the Executive Committee are Messrs.
Santilli, Kaufman and Becker. The Executive Committee is empowered by the Board
to act in its stead between meetings of the Board. The Executive Committee met
twice during the year ended June 30, 1998.
Compensation of Directors
General. Non-employee directors of the Company receive an annual stipend of
$5,000 and a monthly stipend of $1,000 during fiscal 1998. During fiscal 1999,
non-employee directors will receive an annual stipend of $5,000, a monthly
stipend of $1,500 and $500 for each committee meeting attended. Mr. Santilli,
the only director who is also an officer of the Company, does not receive any
separate fee for acting in his capacity as a director.
1995 Non-Employee Director Plan. The Company adopted the 1995 Stock Option
Plan for Non-Employee Directors (the "1995 Non-Employee Director Plan") in order
to attract, retain and motivate non-employee directors and to encourage such
individuals to increase their ownership interest in the Company. The 1995
Non-Employee Director Plan was adopted by the Board of Directors on September
12, 1995 and became effective upon its ratification by the stockholders at the
annual meeting held on May 31, 1996. Such plan provides for the award of options
to purchase up to 135,000 shares of the Company's Common Stock from the
Company's authorized but unissued shares. As of June 30, 1998, 25,000 shares
remain available for future issuances under this plan.
-7-
<PAGE>
The 1995 Non-Employee Director Plan is administered by the Board of
Directors of the Company who shall have the exclusive right to determine the
amount and conditions applicable to the options issued pursuant to such plan.
Any non-employee director of the Company or its subsidiaries is eligible to
participate in such plan.
Options granted under the 1995 Non-Employee Director Plan are not incentive
stock options ("Non-Qualified Stock Options") as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The exercise price of
the stock options granted under the 1995 Non-Employee Director Plan shall be
equal to the fair market value of the Company's Common Stock on the date of
grant. Payment of the exercise price for options granted under the 1995
Non-Employee Director Plan may be made (i) in cash, or (ii) unless prohibited by
the Board of Directors in shares of Common Stock, or a combination of cash and
shares. Except in the event of death or disability of the director as described
below, all options granted pursuant to the 1995 Non-Employee Director Plan are
exercisable during the lifetime of the director only by the director and may not
be exercised more than ten years from the date of the grant. Unless terminated
earlier as provided in the 1995 Non-Employee Director Plan, all unexercised
options terminate three months following the date on which an optionee ceases to
be a director of the Company but in no event shall an option be exercisable
after ten years from the date of grant thereof. In the event that a non-employee
director dies or becomes disabled during the option term, the director's
executor or legal guardian, as applicable, may exercise such option during the
three month period following such event to the same extent that the director was
entitled to exercise such option prior to his death or disability but in no
event later than ten years from the date of grant.
In connection with the adoption of such plan, each non-employee director of
the Company received an option to purchase 22,500 shares of Common Stock at an
exercise price of $5.00 per share (the "Formula Award"). Each new outside
director elected subsequent to the adoption of the 1995 Non-Employee Director
Plan would also receive an option to purchase 22,500 shares of Common Stock,
subject to availability, at the market price on the date of grant. In addition,
on October 22, 1996, the Board of Directors awarded each non-employee director
an option to purchase 5,000 shares of the Company's Common Stock. Such options
had an exercise price of $17.75 per share.
1997 Non-Employee Director Plan. The Company adopted the 1997 Stock Option
Plan for Non-Employee Directors (the "1997 Non-Employee Director Plan") in order
to attract, retain and motivate non-employee directors and to encourage such
individuals to increase their ownership interest in the Company. The 1997
Non-Employee Director Plan was adopted by the Board of Directors on September
30, 1997 and became effective upon its ratification by the stockholders at the
annual meeting held on December 16, 1997. Only directors of the Company who are
not full-time employees of the Company or its subsidiaries may receive awards
under the 1997 Non-Employee Stock Option Plan. The aggregate number of shares
which may be issued upon the exercise of options under the 1997 Non-Employee
Director Plan is 120,000 shares of the Company's Common Stock. At October 21,
1998, options to purchase 40,000 shares were awarded under the 1997 Non-Employee
Director Plan.
-8-
<PAGE>
The Non-Employee Director Plan is administered by the Board of Directors of
the Company, or a committee appointed by the Company's Board of Directors who
shall adopt such rules and regulations for the conduct of its business and
administration of the 1997 Non-Employee Director Plan. References to the term
"Committee" in this section refer to either the Company's Board of Directors or
such committee.
Only Non-Qualified Stock Options may be awarded pursuant to the 1997
Non-Employee Director Plan. The exercise price of the stock options granted
under the 1997 Non-Employee Director Plan shall be equal to the fair market
value of the Company's Common Stock on the date of grant. Payment of the
exercise price for options granted under the 1997 Non-Employee Director Plan may
be made (i) in cash, or (ii) unless prohibited by the Board of Directors in
shares of Common Stock, or a combination of cash and shares. No option granted
under the 1997 Non-Employee Director Plan is assignable or transferable,
otherwise than by will or by the laws of descent and distribution. Except in the
event of death or disability, all options granted under the 1997 Non-Employee
Director Plan are exercisable during the lifetime of an optionee, and are
exercisable only by such optionee. In the event that a non-employee director
dies or becomes disabled during the option term, the director's executor or
legal guardian, as applicable, may exercise such option during the three month
period following such event to the same extent that the director was entitled to
exercise such option prior to his death or disability but in no event later than
ten years from the date of grant.
Each non-employee director of the Company shall be automatically granted an
option to purchase 5,000 shares of the Company's Common Stock on October 1st of
each year commencing in fiscal 1998 for a period of three years. Notwithstanding
the foregoing, no award of options may be made pursuant to the non-employee
director plan unless such award is approved by the Board of Directors prior to
October 1st of each year.
Options granted pursuant to the Non-Employee Director Plan shall be
immediately exercisable following their grant. Unless terminated earlier by the
option's terms, options granted under the 1997 Non-Employee Director Plan will
expire three years after the date they are granted. All unexercised options
terminate three months after the optionee ceases to be a director of the Company
(whether by death, disability, resignation, removal, failure to be reelected or
otherwise, and regardless of whether the failure to continue as a director was
for cause or otherwise), but not later than three years after the date of option
grant.
Unless terminated earlier by the Company's Board of Directors, the 1997
Non-Employee Director Plan will remain in effect until all awards granted
pursuant to such plan have been satisfied by the issuance of shares, provided
that no new awards shall be granted under the 1997 Non-Employee Director Plan
more than three years from the date of adoption of such plan by the Board of
Directors.
-9-
<PAGE>
The Non-Employee Director Plan provides for adjustments to the number of
shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the Board of Directors in event of a
declaration of stock dividend, stock split, merger, consolidation, split up,
combination, recapitalization, conversion or similar circumstances.
The Board of Directors may amend or supplement the Non-Employee Director
Plan in any way, or suspend or terminate such plan at any time, as determined by
the Board of Directors; provided, however, that such action shall not affect
options granted under the Non-Employee Director Plan prior to the actual date on
which such action occurred.
-10-
<PAGE>
Executive Compensation
The following table sets forth information regarding compensation paid by
the Company and its subsidiaries to the Chief Executive Officer and each Named
Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation Awards
--------------------------------------------- -----------------------------------------
Securities
Restricted Underlying
Name and Fiscal Other Annual Stock Options/ All Other
Principal Position Year Salary Bonus Compensation(1) Award(s) SARS (#) Compensation
------------------------------------ ------ -------- ---------- --------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 1998 $356,250 $579,030 -- -- 5,000(2) $2,000
Chairman, President, Chief Executive 1997 287,600 484,200 -- -- 5,000(3) --
Officer, Chief Operating Officer and 1996 237,500 300,000(4) -- -- 22,500(5) --
Director of ABFS
Beverly Santilli 1998 $237,503 $374,908 -- -- 5,000(6) $2,000
President, ABC and First Executive 1997 182,750 322,800 -- -- 12,500(7) --
Vice President and Secretary of ABFS 1996 120,000 65,000 -- -- -- --
Jeffrey M. Ruben 1998 $152,083 $71,250 -- -- 5,000(6) $1,979
Executive Vice President and 1997 118,750 62,500 -- -- 12,500(7) --
General Counsel of ABFS 1996 96,125 50,000 -- -- -- --
David M. Levin 1998 $152,083 $60,000 -- -- 5,000(6) $1,979
Senior Vice President - Finance and 1997 92,750 47,500 -- -- 12,500(7) --
Chief Financial Officer of ABFS 1996 85,000 20,000 -- -- -- --
Albert W. Mandia 1998 $22,917 $ -- -- -- 12,500(9) $ --
Executive Vice President and
Chief Financial Officer of ABFS (8)
</TABLE>
- -----------------------------
(1) Excludes perquisites and other personal benefits that do not exceed $50,000
or 10% of each officer's total salary and bonus.
(2) Represents an option to purchase 5,000 shares of Common Stock granted to
Mr. Santilli in fiscal 1998 at an exercise price of $23.25 per share.
(3) Represents an option to purchase 5,000 shares of Common Stock granted to
Mr. Santilli in fiscal 1997 at an exercise price of $17.75 per share.
(4) Represents Mr. Santilli's yearly bonus of $250,000 plus a one-time bonus of
$50,000 paid in October 1995.
(5) Represents an option to purchase 22,500 shares of Common Stock granted to
Mr. Santilli in fiscal 1996 at an exercise price of $5.00 per share.
(6) Represents an option to purchase 5,000 shares of Common Stock granted at an
exercise price of $23.50 per share. Such option will vest at a rate of 20%
per year over a five year period with the first portion vesting on
September 30,1998, the first anniversary of the date of grant.
(7) Represents an option to purchase 12,500 shares of Common Stock at an
exercise price of $20.00 per share. Such option will vest at a rate of 20%
per year over a five year period with the first portion vesting on February
13, 1998, the first anniversary of the date of grant.
(8) Albert W. Mandia became the Company's Chief Financial Officer and an
executive officer of the Company effective October 1, 1998 at an annual
salary of $275,000. Mr. Mandia was not employed by the Company prior to
fiscal 1998.
(9) Represents an option to purchase 12,500 shares of Common Stock at an
exercise price of $23.00 per share.
-11-
<PAGE>
Management Incentive Plan. During fiscal 1997, the Board of Directors
adopted a Management Incentive Plan for the benefit of certain officers of the
Company and its subsidiaries, including certain of the Company's executive
officers. The plan is intended to motivate management toward the achievement of
the Company's business goals and objectives by rewarding management in the form
of an annual cash bonus if certain established Company and individual goals are
attained. Officers eligible to participate in the plan include selected officers
at the level of Vice President and above. Bonuses are determined based upon the
achievement of qualitative and quantitative individual, departmental and Company
goals pursuant to an established formula under which the various factors are
weighted based upon each individual's position, years of service and
contribution to the overall performance of the Company or a subsidiary thereof.
The maximum annual bonus awarded can range from 15% to 50% of an individual's
annual salary for all officers of the Company, other than the President and
First Executive Vice President. The annual bonus payable to each of the
President and the First Executive Vice President under such plan is equal to
2.5% of such individual's base salary for each 1.0% the Company exceeds the
Board established net income target. For example, if 80% of an individual's
goals are met, a bonus of 50% of the individual's potential bonus is payable
under the plan. If 100% of the individual's goals are reached, a bonus equal to
100% of the individual's potential bonus is payable under the plan. No bonuses
will be paid in any year where the Company fails to meet at least 80% of its
performance goals. Bonuses may be prorated to the extent an eligible participant
has not been employed by the Company for a full 12 month period.
Stock Option Plan. In 1993, the Company adopted, and the stockholders
approved, the Company's Amended and Restated Stock Option Plan (the "Stock
Option Plan"). At June 30, 1998, there are 560,000 shares reserved for issuance
under the Stock Option Plan, 225,012 of which were exercised, 320,000 of which
are issued and outstanding and 14,988 shares of which were available for
issuance. Officers and 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 are eligible to receive options
under the Stock Option Plan. Options granted under the Stock Option Plan may be
Incentive Stock Options, or Non-Qualified Stock Options.
The Stock Option Plan is administered by the compensation committee which
is comprised of three or more members of the Board of Directors of the Company,
each of whom must meet the definition of a "non-employee" director within the
meaning of Rule 16b-3 of the Exchange Act and an "outside director" as defined
under Section 162(m) of the Code. The Compensation Committee has the discretion
to interpret the provisions of the Stock Option Plan; to determine the persons
to receive options under the Stock Option 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 Stock Option Plan.
Options granted under the Stock Option Plan may be options intended to
qualify under Section 422 of the Code ("Incentive Stock Options"), or
Non-Qualified Stock Options. The Stock Option Plan requires the exercise price
of all stock options to be at least equal to the fair market value of the Common
Stock on the date of the grant. Except as set forth below, all options granted
pursuant to the Stock Option Plan are exercisable in accordance with a vesting
schedule which is established at the time of grant and may not be exercised more
-12-
<PAGE>
than ten years from the date of the grant. No individual may receive more than
75% of the shares reserved for issuance under the Stock Option Plan. In the case
of incentive stock options granted to a stockholder owning, directly or
indirectly, in excess of 10% of the Common Stock, the option exercise price must
be at least equal to 110% of the fair market value of the Common Stock on the
date of grant and such options may not be exercised more than five years from
the date of grant. Payment of the exercise price for options granted under the
Stock Option Plan may be made in cash, shares of Common Stock, or a combination
of both as determined by the compensation committee.
All options granted pursuant to the Stock Option Plan are exercisable in
accordance with a vesting schedule (if any) which is set by the compensation
committee at the time of grant. The compensation committee may in its sole
discretion, provide in an option agreement the circumstances under which the
option shall become immediately exercisable and may accelerate the date on which
all or any portion of an option may be exercised. All unexercised Incentive
Stock Options terminate three months following the date on which an optionee's
employment by the Company terminates, other than by reason of disability or
death. An exercisable option held by an optionee who dies or who ceases to be
employed by the Company because of disability may be exercised by the employee
or his representative within one year after the employee dies or becomes
disabled (but not later than the scheduled option termination date). No option
granted under the Stock Option Plan is assignable or transferable, otherwise
than by will or by the laws of descent and distribution. Except in the event of
death or disability, all options granted under the Stock Option Plan are
exercisable during the lifetime of an optionee, and are exercisable only by such
optionee.
The Stock Option Plan provides for adjustments to the number of shares
subject to outstanding options and to the exercise price of such outstanding
options in the discretion of the compensation committee in the event of a
declaration of a stock dividend, distribution or other offering of shares,
merger, consolidation, split up, combination, exchange, or recapitalization.
The compensation committee may amend or terminate the Stock Option Plan at
any time except that the compensation committee may not amend the Stock Option
Plan without stockholder approval to (i) increase the number of shares which may
be issued under the Stock Option Plan (other than pursuant to Section 14 of the
Stock Option Plan); (ii) change the minimum option price (other than pursuant to
Section 14 of the Stock Option Plan); (iii) extend the term of the Stock Option
Plan, or (iv) extend the period during which an option may be exercised or
changed. In addition, no amendment or modification to the Stock Option Plan
shall impair the rights of any optionee under any previously granted award
without the consent of such optionee.
-13-
<PAGE>
The following table sets forth information regarding options exercised by
the Named Officers during fiscal 1998 under the Stock Option Plan and the option
values of options held by such individuals at fiscal year end.
AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money Options/SARs
Underlying Unexercised at
Options/SARs at Fiscal Year End
Shares Acquired Value Fiscal Year End Exercisable/
Name on Exercise(#) Realized($) Exercisable/Unexercisable Unexercisable(1)
- ------------------------------ --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. -- -- 32,500/0 $405,000/$0(2)
Chairman, President, Chief
Executive Officer, Chief
Operating Officer and
Director of ABFS
Beverly Santilli -- -- 2,500/15,000 $5,000/$20,000(3)
President of ABC and First
Executive Vice President and
Secretary of ABFS
Jeffrey M. Ruben -- -- 10,000/15,000 $149,979/$20,000(4)
Executive Vice President and
General Counsel of ABFS
David M. Levin -- -- 2,500/15,000 $5,000/$20,000(5)
Senior Vice President -
Finance and Chief Financial
Officer of ABFS
Albert W. Mandia -- -- 0/12,500 $0/$0(6)
Executive Vice President and
Chief Financial Officer of ABFS
</TABLE>
- ------------------------
(1) Represents the aggregate market value (market price of the Common Stock
less the exercise price) of the options granted based upon the closing
sales price per share of $22.00 on June 30, 1998.
(2) The exercise prices of options to purchase 22,500 shares, 5,000 shares and
5,000 shares held by Mr. Santilli are $5.00 per share, $17.75 per share and
$23.25 per share, respectively.
(3) The exercise prices of the options to purchase 12,500 and 5,000 shares held
by Mrs. Santilli are $20.00 per share and $23.50 per share, respectively.
Such options vest at a rate of 20% of the initial award per year over a
five year period commencing on February 13, 1998, and September 30, 1998,
respectively.
(4) The exercise price of options to purchase 7,500 shares held by Mr. Ruben is
$2.67 per share. The exercise prices of 12,500 and 5,000 shares held by Mr.
Ruben are $20.00 per share and $23.50 per share, respectively. Such options
vest at a rate of 20% of the initial award per year over a five year period
commencing on February 13, 1998, and September 30, 1998, respectively.
(5) The exercise prices of the options to purchase 12,500 and 5,000 shares held
by Mr. Levin are $20.00 and $23.50 per share, respectively. Such options
vest at a rate of 20% of the initial award per year over a five year period
commencing on February 13, 1998 and September 30, 1998, respectively.
(6) The exercise price of the options to purchase 12,500 shares held by Mr.
Mandia is $23.00. Such options vest at a rate of 20% of the initial award
per year over a five year period commencing June 1, 1999.
-14-
<PAGE>
The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers during fiscal 1998. The
Stock Option Plan does not provide for the grant of stock appreciation rights
("SARs").
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Potential Realized
Number of % of Total Value at Assumed
Securities Options/SARs Exercise Annual Rates of
Underlying Granted to or Base Stock Price
Options/SARs Employees in Price Expiration Appreciation for
Name Granted (#) Fiscal Year ($/sh) Date Option Term
---------------------------------- ------------ ------------ -------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
5% ($) 10% ($)
------ -------
Anthony J. Santilli, Jr. 5,000 (1) 5.4% $23.25 October 1, 2007 $18,324 $38,479
Chairman, President, Chief Executive
Officer, Chief Operating Officer and
Director of ABFS
Beverly Santilli 5,000 (2) 5.4% $23.50 September 30, 2007 $ 56,515 $136,665
President of ABC and First Executive
Vice President and Secretary of ABFS
Jeffrey M. Ruben 5,000 (2) 5.4% $23.50 September 30, 2007 $ 56,515 $136,665
Executive Vice President and General
Counsel of ABFS
David M. Levin 5,000 (2) 5.4% $23.50 September 30, 2007 $ 56,515 $136,665
Senior Vice President - Finance and
Chief Financial Officer of ABFS
Albert W. Mandia 12,500 (3) 13.5% $23.00 June 1, 2008 $138,281 $334,391
Executive Vice President and Chief
Financial Officer of ABFS
</TABLE>
- ----------------------
(1) Such options have a term of three years and are fully vested.
(2) Such options vest at a rate of 20% of the initial award per year over a
five year period commencing September 30, 1998.
(3) Such options vest at a rate of 20% of the initial award per year over a
five year period commencing June 1, 1999.
-15-
<PAGE>
Employment Agreements
On January 29, 1997, the Company entered into employment agreements with
each of Anthony J. Santilli, Jr., Beverly Santilli and Jeffrey M. Ruben pursuant
to which they are entitled to receive annual salaries of $300,000, $200,000 and
$125,000, respectively, during the term of the agreements. The employment
agreements with Mr. and Mrs. Santilli were subsequently amended in October 1997.
The salaries of Mr. and Mrs. Santilli are subject to increase but not decrease,
on an annual basis based upon the Consumer Price Index. Mr. Ruben's salary is
subject to increase on an annual basis based upon the Consumer Price Index and
may also be increased from time to time by Mr. Santilli. Once increased, Mr.
Ruben's salary may not be decreased following a "change in control" of the
Company. The employment agreements are designed to assist the Company in
maintaining a stable and competent management team. Certain of the terms of such
agreements, including the amendments thereto, are described below.
The term of each agreement terminates upon the earlier of: (a) the
employee's death, permanent disability, termination of employment for cause,
voluntary resignation (provided that no voluntary resignation may occur within
three years of February 20, 1997, the closing date of the public offering of the
Company's Common Stock absent a change in control) or seventieth birthday or (b)
the later of: (i) the fifth year anniversary of the execution of the agreement
(or three years in the case of Mr. Ruben); or (ii) five years (or three years in
the case of Mr. Ruben) from the date of notice to the employee of the Company's
intention to terminate the agreement. To the extent the Company gives Mr. or
Mrs. Santilli notice of its intent to terminate their agreements, other than for
cause, such individuals would be entitled to receive their salaries and certain
benefits for five years. To the extent Mr. Ruben is terminated without cause
during the term of his agreement, he would be entitled to receive his salary for
three years except that if such termination occurs while Mr. Santilli is Chief
Executive Officer of the Company, he shall receive a termination payment equal
to the current year's base salary.
The employment agreements with each of Mr. and Mrs. Santilli also provide
for a cash payment to each employee equal to 299% of the last five years'
average annual compensation as calculated in accordance with Section 280G of the
Code, (in addition to any other payments and benefits due under the agreements)
in the event of a "change in control" (as defined in such agreements), of the
Company during the term of the agreements to which such employee does not
consent in such individual's capacity as a director or stockholder of the
Company. Mr. Ruben's agreement provides for a similar cash payment only if his
employment is terminated in the event of a "change in control," which payment
shall be in lieu of any additional payment which may be due pursuant to the
terms of his agreement. The agreements with Mr. Ruben and Mrs. Santilli also
provide that in the event of a "change in control" of the Company each
employee's stock options shall vest in full (provided, that in the case of Mrs.
Santilli, she does not consent to such "change in control"). The vesting of
options and the receipt of other payments and benefits provided for under the
agreements upon a "change in control" of the Company may subject an employee to
the payment of an excise tax equal to 20% of all payments contingent upon a
"change in control" made
-16-
<PAGE>
in excess of the employee's base compensation. Under the terms of the
agreements, in such event the Company will pay the employees an additional
amount such that the net amount of payments retained by the employees after the
payment of any excise tax and any federal, state and local income and employment
taxes and the excise tax on the additional amount paid by the Company shall be
equal to the total payments or benefits to be received by the employees under
their respective agreements. The Company is not entitled to a deduction for any
payments subject to the excise tax made to employees pursuant to the terms of
the agreements. For purposes of all of the employment agreements, a "change in
control" of the Company shall include: (a) a change in the majority of the
members of the Board of Directors within a two-year period, excluding a change
due to the voluntary retirement or death of any board member (with respect to
Mr. Ruben's agreement, no "change in control" as a result of a change in the
majority of the directors will be deemed to occur under the terms of his
agreement if Mr. Santilli remains Chairman of the Board), or (b) a person or
group of persons acting in concert (as defined in Section 13(a) of the Exchange
Act) acquires beneficial ownership, within the meaning of Rule 13(d)(3) of the
Rules and Regulations of the Commission promulgated pursuant to the Exchange
Act, of a number of voting shares of the Company which constitutes (i) 50% or
more of the Company's shares voted in the election of directors, or (ii) more
than 25% of the Company's outstanding voting shares. Based upon their current
salaries, if Mr. and Mrs. Santilli and Mr. Ruben had been terminated as of June
30, 1998 under circumstances entitling them to change in control payments
(excluding the value realized upon the exercise of options or any excise tax and
other payments described above, which amounts may vary based upon a variety of
factors, including but not limited to, the acquisition price and the timing of
the change in control), Mr. Santilli, Mrs. Santilli and Mr. Ruben would have
been entitled to receive a lump sum payment of approximately $1,562,000,
$879,000 and $423,000, respectively. In addition, Mr. and Mrs. Santilli's
agreements would continue to be in force for the remainder of their term as
described above.
Each employment agreement also prohibits the employee from divulging
confidential information regarding the Company's business to any other party and
prohibits the employee, during the term of the agreement, from engaging in a
business or being employed by a competitor of the Company without the prior
written consent of the Company. The Company may extend the non-compete
provisions of any of the agreements at its option (or in the case of Mr. Ruben,
with his consent) for up to one year following the termination of such agreement
upon payment to the employee of an amount equal to the highest annual salary and
bonus received by the employee during the term of the agreement; provided,
however, that the non-compete provisions of Mr. Ruben's contract shall be
automatically extended for one year in the event he is terminated without cause
and receives a severance payment pursuant to the terms of his agreement unless
he returns a pro rata portion of the severance payment received from the
Company.
The employment agreements with Mr. and Mrs. Santilli also provide for the
payment of an annual cash bonus equal to 2.5% of each individual's base salary
for each 1.0% the Company exceeds the Board established net income target. Mr.
Ruben's agreement provides for his participation in the Company's bonus plan
established by the Board of Directors. Each
<PAGE>
employment agreement also provides the employees with certain other benefits
including a company car for each of Mr. and Mrs. Santilli, payment of certain
life, health (including the payment of health insurance benefits for the family
of Mr. and Mrs. Santilli) and disability insurance payments and reimbursement
for all reasonable expenses incurred by the employee in the performance of his
or her duties. In the event Mr. Santilli becomes disabled (as defined in the
agreement) during the term of his agreement, such employment agreement also
provides for the payment of monthly disability payments to him in an amount
equal to his monthly salary prior to the disability less any disability benefits
received by Mr. Santilli pursuant to any disability insurance paid for, in whole
or in part, by the Company for the period of his disability, but in no event
beyond the date Mr. Santilli reaches 65 years of age.
-18-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. The Company's Compensation Committee is comprised entirely of
non-employee members of the Company's Board of Directors. The Compensation
Committee reviews and approves each of the elements of the executive
compensation program of the Company. Certain aspects of executive compensation
are then submitted to the full Board for review. The Compensation Committee
recommends changes in compensation for those individuals whose compensation is
governed by employment agreements to the Board of Directors for action and
determines the compensation of the Company's officers whose compensation is not
governed by the terms of employments agreements.
Compensation Objectives. The Compensation Committee believes that
compensation for the Company's executive officers should be determined in a
manner which emphasizes increasing value for the Company's stockholders. Based
upon this objective, the Compensation Committee's executive compensation program
is designed to pay base salaries to executives at levels that enable the Company
to attract, motivate and retain talented executives. In addition, the
Compensation Committee may provide annual cash bonuses as well as stock option
grants as a component of compensation and/or as a reward for performance based
upon: (i) individual performance, (ii) the Company's operating and financial
results and departmental goals, and (iii) other performance measures. Stock
option grants which are made at the fair market value of the Company's Common
Stock on the grant date are intended to result in no reward if the stock price
does not appreciate, but may provide substantial rewards to executives as
stockholders benefit from stock price appreciation. Consistent with this overall
philosophy, the Compensation Committee's specific objectives are to:
o Align the financial interests of executive officers with those of
stockholders by providing Company equity-based incentives.
o Provide annual variable cash bonus compensation awards that take into
account the Company's overall performance, individual contributions
and other factors that increase stockholder value.
o Offer a total compensation program that takes into account the
compensation practices and financial performance of companies the
Company's industry and other comparable companies as well as the
Company's future needs.
o Emphasize performance-based and equity-based compensation for
officers at the level of vice president and above which reward
significantly upside performance that exceeds targeted goals. In
particular, for the Company's senior officers, the Compensation
Committee focuses more on Company performance, and individual
contributions to the achievement of established departmental and
Company goals and less on comparable marketplace compensation
comparisons in determining the amount of equity based compensation
and annual cash bonuses.
-19-
<PAGE>
Components of Compensation. There are three major components of the
Company's executive officer compensation: (i) base salary, (ii) annual cash
bonus awards, and (iii) equity-based incentive awards in the form of stock
option grants. Executive officers also receive other benefits including medical,
disability and life insurance and in certain cases family insurance coverage as
well as a car allowance.
The Compensation Committee uses its subjective judgment in determining
executive officer compensation levels and takes into account both qualitative
and quantitative factors. Except as described below, the Compensation Committee
does not generally assign specific weights to these factors. Among the factors
considered by the committee are the recommendations of the Chairman of the
Board, President and Chief Executive Officer, Mr. Santilli, with respect to the
compensation of the Company's other key executive officers (other than Mrs.
Santilli). However, the Compensation Committee makes the final compensation
decisions concerning all officers, other than those governed by employment
agreements that require full board approval or specific officer approval. In
these cases, the Compensation Committee makes recommendations on compensation to
the Board or officer with final approval authority.
In making compensation decisions, the Compensation Committee considers
compensation practices and financial performance of companies in the Company's
industry and other comparable companies. This information provides guidance and
a framework to the Compensation Committee, but the committee does not target
total executive compensation or any component thereof to any particular point
within, or outside, the range of companies in the Company's industry and other
comparable companies' results. Specific compensation for individual officers
will vary from these levels as the result of subjective factors considered by
the Compensation Committee unrelated to compensation practices of comparable
companies. In making compensation decisions, the Compensation Committee also
receives assessments and advice regarding the compensation practices of the
Company and others from independent compensation consultants. The Compensation
Committee believes that the attraction and retention of superior officers is
essential to the Company's ability to compete effectively with larger
competitors and continue to implement its growth strategy.
Base Salary and Cash Bonuses. Each Company executive receives a base
salary, which when aggregated with their bonus, is intended to be competitive
with similarly situated executives in the Company's industry and executives at
other comparable companies. The Company targets base pay at the level required
to attract and retain highly qualified executives. In determining salaries, the
Compensation Committee also takes into account, among other factors, individual
experience and performance and specific needs particular to the Company. During
fiscal 1997, the Company entered into employment agreements with Messrs.
Santilli and Ruben and Mrs. Santilli. The base salaries of Mr. Santilli, Mrs.
Santilli, and Mr. Ruben are structured in accordance with their employment
agreements which provide that salaries of such individuals may be increased but
not decreased and provide for annual increases which may not be less than the
increase in the cost of living for the prior year. For Mr. and Mrs. Santilli,
the Compensation Committee recommends compensation increases which are acted
upon by the full Board. Mr. Ruben's agreement provides that Mr. Santilli shall
determine the amount of any salary increases over the cost of living increases.
-20-
<PAGE>
In addition to base salary, officers at the level of vice president and
above are eligible to receive an annual cash bonus under the Management
Incentive Plan. The bonuses are based upon executive performance and certain
other factors. Bonuses are determined based upon the achievement of qualitative
and quantitative individual, departmental and Company goals pursuant to an
established formula under which the various factors are weighted based upon each
individual's position, years of service and contribution to the overall
performance of the Company or a subsidiary thereof. The maximum annual bonus
awarded can range from 15% to 50% of an individual's annual salary for all
officers of the Company, other than Mr. Santilli and Mrs. Santilli. The annual
bonus payable to each of Mr. Santilli and Mrs. Santilli under such plan is equal
to 2.5% of such individual's base salary for each 1.0% the Company exceeds the
Board established net income target. The Company believes that bonuses paid in
fiscal 1998 were reflective of such performance under the Management Incentive
Plan. The amount of bonus and the performance criteria vary with the position
and role of the executive within the Company, although bonuses are significantly
tied to the Company's financial performance.
Base salary and cash bonuses to Company executives for fiscal 1998 were
determined and paid in accordance with the compensation objectives discussed in
this report.
Stock Options. The Company believes that it is important for executives to
have an equity stake in the Company and, toward this end, makes stock option
grants to key executives from time to time. In making option awards, the
Compensation Committee reviews the level of awards granted to executives at
companies in the Company's industry and executives at other comparable
companies, the awards granted to other executives within the Company and the
individual officer's specific role and contribution at the Company. During
fiscal 1998, options to purchase approximately 100,000 shares were granted to
officers and employees of the Company at exercise prices ranging from $20.50 to
$27.00, which represent at least the fair market value of the Company's Common
Stock on the date of grant. Except for options granted to the Chief Executive
Officer which vest immediately, all other options granted become exercisable
over a five year period on each successive anniversary of the date of grant and
each vested portion is exercisable for five years from date vested. Of the
options granted in fiscal 1998, 32,500 were granted to Messrs. Santilli, Ruben,
Levin and Mandia and Mrs. Santilli.
Chief Executive Officer Compensation. Mr. Santilli was the founder of the
Company and has served as its Chairman, President and Chief Executive Officer
since the Company's inception. On January 29, 1997, the Company entered into an
employment agreement with Mr. Santilli. The agreement established Mr. Santilli's
base salary at $300,000 and provided that his base salary may be increased from
time to time and once increased may not be decreased. Mr. Santilli's base salary
is automatically adjusted each year based upon the increase in the cost of
living as determined by the Consumer Price Index. Pursuant to the terms of his
employment agreement, Mr. Santilli's salary increases above the cost of living
increase require full Board approval. On an annual basis, the Compensation
Committee reviews and approves the compensation of Mr. Santilli which is
submitted to the Board of Directors for its approval. For fiscal 1998, Mr.
Santilli's base salary was $365,250. During fiscal 1998, Mr. Santilli also
received a cash bonus of $579,030 under the Management Incentive Plan. Pursuant
to the terms of his employment agreement, Mr.
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<PAGE>
Santilli's bonus is equal to 2.5% of his base salary for each 1.0% of the
Company exceeds the Board established net income target. The Compensation
Committee believes that Mr. Santilli's compensation is consistent with the
compensation paid to Chief Executive Officers of comparable, publicly-held
finance companies, and other companies comparable to the Company. In addition,
Mr. Santilli is the largest stockholder of the Company, and to the extent his
performance as Chairman, President and Chief Executive Officer translates into
an increase in the stockholder value, all stockholders share the benefits,
including Mr. Santilli.
The Compensation Committee approved the compensation of Mr. Santilli and
the Company's executive officers for fiscal 1998, following the principles and
procedures outlined in this report.
Policy on Deductibility of Compensation in Excess of $1.0 Million.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held company, such as the Company, for certain
compensation exceeding $1.0 million paid during the taxable year to the chief
executive officer and the four other highest paid executive officers.
Notwithstanding the foregoing, performance-based compensation that has been
approved by stockholders is excluded from the $1 million limit if, among other
requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" (as defined for
purposes of Section 162(m)). All of the members of the Compensation Committee
qualify as "outside directors." As a result, the Company believes compensation
resulting from the grant/exercise of options under the Company's Amended and
Restated Stock Option Plan will be deductible. Any future employee incentive
plan or other form of compensation subject to this rule which is considered for
adoption by the Company will be evaluated prior to any such adoption to
determine the plan's anticipated compliance with the Section 162(m) limitation
and this policy.
The Compensation Committee.
Michael DeLuca Richard Kaufman Harold E. Sussman
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<PAGE>
Stock Performance Graph
The following graph shows a comparison of the cumulative total return for
the Company's Common Stock, the NASDAQ Stock Market and the Peer Group Index
(defined below), assuming an investment of $100 in each on February 14, 1997,
the date the Company's Stock began trading on the NASDAQ Stock Market, and the
reinvestment of all dividends. The data points used for the performance graph
are listed below.
The Peer Group Index reflects the performance of the following publically
traded companies in industries similar to that of the Company: Aames Financial
Corp., AMRESCO, Conti-Financial Corp., Delta Financial Corp., First Alliance
Corp., Homegold Financial, IMC Mortgage, United Companies Financial and First
Plus Financial.
[GRAPH]
Performance Graph Data Points 2/14/97 6/30/97 6/30/98
- --------------------------------------- --------- ---------- ---------
ABFS $ 100.00 $ 100.08 $ 110.37
- --------------------------------------- --------- ---------- ---------
NASDAQ $ 100.00 $ 105.48 $ 138.59
- --------------------------------------- --------- ---------- ---------
Peer Group Index $ 100.00 $ 98.45 $ 89.56
- --------------------------------------- --------- ---------- ---------
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company does not have any formal policy concerning the direct or
indirect pecuniary interest of any of its officers, directors, security holders
or affiliates in any investment to be acquired or disposed of by the Company or
in any transaction to which the Company is a party or has an interest. The
Company will not enter into any such transactions unless approved by a majority
of the entire Board of Directors, not including any interested director.
On September 29, 1995, the Company made a loan in the amount of $600,032 to
Anthony J. Santilli, Jr., its President and Chief Executive Officer. The
proceeds of the loan were used to exercise options to purchase 225,012 shares of
Common Stock of the Company at a price of $2.67 per share. The loan bears
interest at the rate of 6.46% with interest due annually or at maturity and the
principal due September 2005. The loan is secured by the stock purchased with
the proceeds of the loan as well as additional shares of the Company's Common
Stock owned by Mr. Santilli such that the value of the collateral is equal to
twice the outstanding loan amount.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors, executive officers, and persons who own more than 10% of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998 all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with except for the late filing of a report
in both fiscal 1997 and fiscal 1998 to disclose the grant of options by Messrs.
Santilli, Kaufman, Becker, DeLuca, Sussman, Levin and Ruben and Mrs. Santilli.
STOCKHOLDER PROPOSALS
Pursuant to recent amendments to the proxy rules under the Exchange Act,
the Company's stockholders are notified that the deadline for providing the
Company timely notice of any stockholder proposal to be submitted outside of the
Rule 14a-8 process for consideration at the Company's 1999 Annual Meeting of
Stockholders (the "1999 Meeting") will be September 14, 1999 As to all such
matters which the Company does not have notice on or prior to September 14,
1999, discretionary authority shall be granted to the persons designated in the
Company's proxy related to the 1999 Meeting to vote on such proposal. This
change in procedure does not affect the Rule 14a-8 requirements applicable to
inclusion of stockholder proposals in the Company's proxy materials related to
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<PAGE>
the 1999 Meeting. A stockholder proposal regarding the 1999 Meeting must be
submitted to the Company at its office located at Bala Pointe Office Centre, 111
Presidential Blvd., Bala Cynwyd, Pennsylvania, 19004, by July 1, 1998 to receive
consideration for inclusion in the Company's 1999 proxy materials. Any such
proposal must also comply with the proxy rules under the Exchange Act, including
Rule 14a-8.
INDEPENDENT PUBLIC ACCOUNTANTS
Based upon the recommendation of the Audit Committee, the Board of
Directors has selected BDO Seidman, LLP to be the Company's independent
certified public accountants for fiscal 1999.
A representative of BDO Seidman, LLP is expected to be present at the
Annual Meeting to have the opportunity to make a statement if he desires to do
so and to be available to respond to appropriate questions.
ANNUAL REPORT
This Proxy Statement is accompanied by the Annual Report to Stockholders
for the year ended June 30, 1998 (the "Annual Report"). The Annual Report
contains the Company's audited financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998 REQUIRED TO BE
FILED WITH THE SEC WITHOUT CHARGE, EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING
A WRITTEN REQUEST THEREFOR TO:
Jeffrey M. Ruben
Executive Vice President and General Counsel
111 Presidential Blvd.
Bala Cynwyd, PA 19004
By Order of the Board of Directors,
/s/ Beverly Santilli
-----------------------------------
Beverly Santilli, Secretary
<PAGE>
REVOCABLE PROXY
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Annual Meeting of Stockholders - December 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ABFS
The undersigned hereby constitutes and appoints Anthony J. Santilli,
Jr. and Jeffrey M. Ruben and each of them, as attorneys-in-fact and proxies of
the undersigned, with full power of substitution for and in the name, place and
stead of the undersigned to appear at the Annual Meeting of Stockholders (the
"Annual Meeting") of American Business Financial Services, Inc. ("ABFS"), to be
held on December 15, 1998, and at any postponement or adjournment thereof, and
to vote all of the shares of Common Stock of ABFS which the undersigned is
entitled to vote, with all the powers and authority the undersigned would
possess if personally present. The undersigned directs this proxy to vote as
indicated on the reverse side of this proxy card:
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED HEREIN INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES. IF ANY OTHER BUSINESS IS PRESENTED AT THE
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
<PAGE>
Please mark your votes as in this example. [X]
The Board of Directors recommends a VOTE "FOR" the election of the
nominees listed.
I. The election as directors of all of the following nominees for the terms
of three years (except as marked to the contrary):
ANTHONY J. SANTILLI, JR. RICHARD KAUFMAN
[ ] FOR [ ] VOTE WITHHELD
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below.
-----------------------------------------.
II. In their discretion, the proxies are authorized to vote on any other
business as may properly come before the Annual Meeting or any
postponement or adjournment thereof.
Should the undersigned be present and choose to vote at the Annual
Meeting or at any adjournments or postponements thereof, and after notification
to the Secretary of ABFS at the Annual Meeting of the stockholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
terminated and shall have no force and effect. This proxy may also be revoked by
filing a written notice of revocation with the Secretary or by duly executing a
proxy bearing a later date.
The undersigned hereby acknowledges receipt of the Company's 1998
Annual Report to Shareholders, Notice of the Company's Annual Meeting and the
Proxy Statement relating thereto.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
_________________________ _________________________ DATE:______________, 1998
Signature(s) (Please date
this Proxy)
NOTE: It would be helpful if you signed your name exactly as it appears on
your stock certificate(s), indicating any official position or
representative capacity. If shares are registered in more than one
name, all owners should sign.
Please date, sign and mail your
proxy card back as soon as possible.
Annual Meeting of Stockholders
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
December 15, 1998
