<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 240.14a-11(c) or 240.14a-12
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box 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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
[LETTERHEAD OF ABFS]
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of American Business Financial Services, Inc. ("ABFS" or the
"Company") which will be held on November 30, 1999 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 one
director of ABFS and to ratify the adoption of the 1999 Stock Option Plan.
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
------------------------------------
Anthony J. Santilli
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 November 30, 1999
---------------------------
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 November 30, 1999 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 one Class III director named herein to serve for a
term described in the accompanying Proxy Statement and until
his successor is elected and qualified, as more fully
described in the accompanying Proxy Statement;
2. To ratify the adoption of the 1999 Stock Option Plan
("Proposal II"); and
3. 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 22, 1999 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, 1999
<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 November 30, 1999 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, 1999.
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 the nominee for director hereinafter named and for
the approval of Proposal II.
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 has not received notice at least 45 days prior to October
28, 1999, (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 incident to the conduct of the Annual Meeting. In
1
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connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
ABFS 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.
ABFS had 3,521,579 shares of Common Stock outstanding at the close of
business on October 22, 1999 (the "Record Date"). Stock price and share
information contained in this proxy statement has been adjusted to give effect
to a five percent stock dividend paid on September 27, 1999 (the "Stock
Dividend"). In order for a quorum to be present at the Annual Meeting, a
majority of the outstanding shares of ABFS' 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 Proposal II
and 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 22, 1999, the beneficial
ownership of ABFS' Common Stock: (i) by each person known by the Company to be
the beneficial owner of five percent or more of ABFS' outstanding Common Stock,
(ii) by each director and nominee for director of ABFS, (iii) by each executive
officer whose compensation exceeded $100,000 during fiscal 1999 (the "Named
Officers"), and (iv) by the directors, director nominee and executive officers
of ABFS 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 ABFS.
2
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<TABLE>
<CAPTION>
Name, Position and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned(1) of Class
- ----------------------------------------------------------- -------------------------------- ------------------------
<S> <C> <C>
Anthony J. Santilli, Chairman, President, 976,571 (2) (3) 27.3%
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 224,972 (4) 6.3
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 199,589 (4) 5.6
1126 Bryn Tyddyn Drive
Gladwyne, PA 19035
Leonard Becker, Director of ABFS 137,292 (4) 3.8
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Harold E. Sussman, Director of ABFS 127,297 (4) 3.6
Colliers, Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 14,700 (5) (6)
Executive Vice President and General
Counsel of ABFS
Albert W. Mandia 2,625 (7) (6)
Executive Vice President - Finance and Chief Financial
Officer of ABFS
All executive officers and directors as a group (8 persons) 1,683,046 (8) 44.5
</TABLE>
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(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 49,375 shares of Common Stock awarded to Mr.
Santilli pursuant to ABFS' stock option plans, all of which are exercisable
within 60 days of the Record Date. Of this amount, an option to purchase
10,000 shares is subject to stockholder ratification of the adoption of the
1999 Stock Option Plan. Also includes options to purchase 6,300 shares of
ABFS' Common Stock awarded to Mrs. Santilli pursuant to ABFS' Stock Option
Plan, which are currently exercisable. Excludes options to purchase 32,075
shares which are not currently exercisable.
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(4) Includes options to purchase 28,875 shares of Common Stock awarded to each
non-employee director of ABFS pursuant to ABFS' 1995 Stock Option Plan for
Non-Employee Directors, and options to purchase 10,500 shares of Common
Stock awarded to each non-employee director pursuant to ABFS' 1997 Stock
Option Plan for Non-Employee Directors. Also includes options to purchase
10,000 shares of Common Stock granted to each director, subject to
stockholder ratification of the adoption of the 1999 Stock Option Plan at
the Meeting.
(5) Includes 8,400 shares held directly. Also includes options to purchase
6,300 shares of ABFS' Common Stock awarded to Mr. Ruben pursuant to ABFS'
Stock Option Plan, which are currently exercisable. Excludes options to
purchase 32,075 shares which are not currently exercisable.
(6) Less than one percent.
(7) Represents options to purchase 2,625 shares of ABFS' Common Stock awarded
to Mr. Mandia pursuant to ABFS' Stock Option Plan which are currently
exercisable. Excludes options to purchase 30,500 shares of Common Stock
which are not currently exercisable.
(8) Includes options to purchase 262,100 shares of ABFS' Common Stock awarded
to directors and officers of ABFS pursuant to ABFS' stock option plans
which are currently exercisable. Excludes options to purchase 94,650 shares
of ABFS' Common Stock which are not currently exercisable.
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<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. The Board has nominated the
nominee named below, which nominee is currently serving as a director and has
indicated his willingness to continue serving as a director. The Board knows of
no reason why such nominee would be unable to serve as a director. If the
nominee should for any reason become unable to serve, then valid proxies will be
voted for the election of such substitute nominee as the Board of Directors may
designate or the Board may reduce the number of directors to eliminate the
vacancy.
<TABLE>
<CAPTION>
Position(s) Held Director Term to
Name Age(1) in the Company Since Expire
- ----------------------------------- -------- ---------------------------------- --------- ----------
Nominee
-------
<S> <C> <C> <C> <C>
Leonard Becker..................... 76 Director 1993 2002
Directors Remaining in Office
-----------------------------
Michael DeLuca..................... 68 Director 1993 2000
Harold E. Sussman.................. 74 Director 1993 2000
Anthony J. Santilli................ 57 Chairman, President, Chief 1993 2001
Executive Officer, Chief
Operating Officer and Director
Richard Kaufman.................... 57 Director 1993 2001
</TABLE>
- -------------------
(1) As of the Record Date.
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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 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.
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.
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 until the present, he
has been self employed and involved in making and managing various 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 NOMINEE
FOR DIRECTOR. ---
6
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Board, Committees and Attendance at Meetings
The Board of Directors of the Company held four meetings during the
fiscal year ended June 30, 1999. During fiscal 1999, 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.
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 twice during the year ended June 30, 1999.
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 twice during the year ended June 30, 1999.
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, 1999.
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, 1999.
Compensation of Directors
General. During fiscal 1999, non-employee directors of the Company
received 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
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up to 135,000 shares of the Company's Common Stock from the Company's authorized
but unissued shares. As of October 22, 1999, 25,000 shares remain available for
future issuances under this plan.
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 (as
adjusted to 23,625 shares as a result of the Stock Dividend) of Common Stock at
an exercise price of $4.75 per share as adjusted as a result of the Stock
Dividend (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 (as
adjusted to 5,250 as a result of the Stock Dividend) shares of the Company's
Common Stock. Such options had an exercise price of $16.86 as adjusted as a
result of the Stock Dividend.
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
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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.
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 1997 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. As of October 22, 1999, options to
purchase 10,500 shares of Common Stock (as adjusted as a result of the Stock
Dividend) were awarded to each non-employee director pursuant to the 1997
Non-Employee Director Plan. Pursuant to the terms of the plan, no more awards
may be made.
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
9
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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.
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.
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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 1999 $421,875 $512,344 -- -- 5,250(2) $2,000(9)
Chairman, President, Chief Executive 1998 356,250 579,030 -- -- 5,250(3) 2,000
Officer, Chief Operating Officer 1997 287,600 484,200 -- -- 5,250(4) --
Director of ABFS
Beverly Santilli 1999 $281,252 $341,562 -- -- 0 $ 961(9)
President, ABC and First Executive 1998 237,503 374,908 -- -- 5,250(5) 2,000
Vice President and Secretary of ABFS 1997 182,750 322,800 -- -- 13,125(6) --
Jeffrey M. Ruben 1999 $232,200 $112,500 -- -- 0 $2,018(9)
Executive Vice President and 1998 152,083 71,250 -- -- 5,250(5) 1,979
General Counsel of ABFS 1997 118,750 62,500 -- -- 13,125(6) --
Albert W. Mandia 1999 $282,825 $137,500 0 $ 0
Executive Vice President - Finance and 1998 22,917 -- -- -- 13,125(8) --
Chief Financial Officer of ABFS(7)
</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 5,250 shares of Common Stock (as adjusted
as a result of the Stock Dividend) granted to Mr. Santilli in fiscal 1999
at an exercise price of $13.00 per share as adjusted as a result of the
Stock Dividend.
(3) Represents an option to purchase 5,250 shares of Common Stock (as adjusted
as a result of the Stock Dividend) granted to Mr. Santilli in fiscal 1998
at an exercise price of $22.09 per share as adjusted as a result of the
Stock Dividend.
(4) Represents an option to purchase 5,250 shares of Common Stock (as adjusted
as a result of the Stock Dividend) granted to Mr. Santilli in fiscal 1997
at an exercise price of $16.86 per share as adjusted as a result of the
Stock Dividend.
(5) Represents an option to purchase 5,250 shares of Common Stock (as adjusted
as a result of the Stock Dividend) granted at an exercise price of $22.32
per share as adjusted as a result of the Stock Dividend. 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.
(6) Represents an option to purchase 13,125 shares of Common Stock (as adjusted
as a result of the Stock Dividend) at an exercise price of $19.00 per share
as adjusted as a result of the Stock Dividend. 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.
(7) 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.
11
<PAGE>
(8) Represents an option to purchase 13,125 shares of Common Stock (as adjusted
as a result of the Stock Dividend) at an exercise price of $21.85 per
share.
(9) Represents the Company's contribution to the 401(k) Plan on behalf of the
Named Officers.
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 Chairman and First
Executive Vice President. The annual bonus payable to each of the Chairman 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, 1999, there are 560,000 shares reserved for issuance
under the Stock Option Plan, 228,762 of which were exercised, 308,250 of which
are issued and outstanding and 22,988 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.
12
<PAGE>
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
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 1999 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
Underlying Unexercised Options/SARs at
Shares Options/ SARs at Fiscal Fiscal Year End
Acquired on Value Year End Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable (1) Unexercisable (2)
- ------------------------------- ------------- ------------ ------------------------- ----------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli -- -- 39,375/0 $163,133/$0 (3)
Chairman, President, Chief
Executive Officer, Chief
Operating Officer and
Director of ABFS
Beverly Santilli -- -- 6,300/12,075 $0/$0 (4)
President of ABC and First
Executive Vice President and
Secretary of ABFS
Jeffrey M. Ruben -- -- 14,175/12,075 $71,853/$0 (5)
Executive Vice President and
General Counsel of ABFS
Albert W. Mandia -- -- 2,625/10,500 $0/$0 (6)
Executive Vice President -
Finance and Chief Financial
Officer of ABFS
</TABLE>
- -------------------
(1) Shares subject to options and exercise prices have been adjusted as a
result of the Stock Dividend.
(2) 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 $11.67 on June 30, 1999.
(3) The exercise prices of options to purchase 23,625 shares, 5,250 shares, and
5,250 shares held by Mr. Santilli are $4.76 per share, $16.91 per share,
$22.14 per share and $14.29 per share, respectively.
(4) The exercise prices of the options to purchase 13,125 and 5,250 shares held
by Mrs. Santilli are $19.05 per share and $22.38 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 options to purchase 13,125 and 5,250 shares held by
Mr. Ruben are $19.05 per share and $22.38 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. Mr. Ruben was also
14
<PAGE>
granted options to purchase 7,875 shares of Common Stock at an exercise
price of $2.54 per share which were exercisable at June 30, 1999.
(6) The exercise price of the options to purchase 13,125 shares held by Mr.
Mandia is $21.91. Such options vest at a rate of 20% of the initial award
per year over a five year period commencing June 1, 1999.
The following table sets forth information regarding options to
purchase shares of Common Stock granted to the Named Officers during fiscal
1999. The Stock Option Plan does not provide for the grant of stock appreciation
rights ("SARs").
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs Black Scholes
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Present
Name Granted (#)(1) Fiscal Year ($/sh) Expiration Date Value ($)
- ------------------------------------ ------------------------------- ----------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Anthony J. Santilli 5,250 (2) 37.0% $14.29 October 1, 2008 $3.67(3)
Chairman, President, Chief Executive
Officer, Chief Operating Officer and
Director of ABFS
Beverly Santilli 0
President of ABC and First Executive
Vice President and Secretary of ABFS
Jeffrey M. Ruben 0
Executive Vice President and General
Counsel of ABFS
Albert W. Mandia 0
Executive Vice President - Finance
and Chief Financial Officer of ABFS
</TABLE>
- -------------------
(1) Shares subject to option have been adjusted as a result of the Stock
Dividend.
(2) Such options have a term of ten years and are fully vested. (3) The Company
utilized the Black-Scholes option pricing model. The following
Black-Scholes assumptions were utilized:
Risk-free interest rate 4.5%
Dividend yield 1.25%
Expected time of exercise 8 years
Market price at grant $12.00
Expected volatility 0.30
15
<PAGE>
Employment Agreements
On January 29, 1997, the Company entered into employment agreements
with each of Anthony J. Santilli, 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 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
16
<PAGE>
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, 1999 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 $2,015,000, $1,203,000 and $583,000, 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 employment agreement also
provides the employees with certain other benefits including an allowance for
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
17
<PAGE>
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.
The Company entered into a letter agreement with Albert Mandia in
connection with his employment as Chief Financial Officer of the Company. The
agreement provides that Mr. Mandia shall receive an annual salary of $275,000
per year and shall be eligible to receive a bonus of up to 40% of salary,
beginning in fiscal 1999, if the Company achieves certain goals as described in
the Management Incentive Plan. The agreement also provides Mr. Mandia with
certain other benefits including a car allowance and life insurance. Mr. Mandia
also received options to purchase 13,125 shares (as adjusted as a result of the
Stock Dividend) of the Company's Common Stock.
If Mr. Mandia's employment is terminated for any reason, except for
cause as defined in the letter agreement, he will be entitled to receive one
year's base salary.
18
<PAGE>
PROPOSAL II -- APPROVAL OF THE 1999 STOCK OPTION PLAN
General
On September 22, 1999, the Board of Directors of ABFS adopted the 1999
Stock Option Plan, subject to ratification by the stockholders of ABFS. Key
employees, officers and directors of the Company, as well as certain consultants
of the Company, are eligible to receive options under the 1999 Stock Option
Plan. The purpose of the 1999 Stock Option Plan is to provide additional
incentive to these individuals by encouraging them to invest in the Company's
Common Stock and thereby acquire a further proprietary interest in the Company
and an increased personal interest in the Company's continued success and
progress.
The Company is seeking stockholder ratification of Proposal II to
satisfy a NASDAQ Stock Market requirement that requires companies whose shares
are reported on the NASDAQ National Market to obtain stockholder approval when
stock option plans are established pursuant to which stock may be acquired by
officers or directors. The second reason the Company is asking stockholders to
ratify the adoption of such plan is to satisfy requirements of the Internal
Revenue Code which require shareholder approval in order for options granted
under the 1999 Stock Option Plan to qualify as Incentive Stock Options to the
extent so designated and for the 1999 Stock Option Plan to satisfy one of the
conditions of Section 162(m) of the Internal Revenue Code applicable to
performance-based compensation.
Set forth below is a summary of the provisions of the 1999 Stock Option
Plan. This summary is qualified in its entirety by the detailed provisions of
the text of the actual 1999 Stock Option Plan set forth as Appendix "A" to this
Proxy Statement.
Eligibility
All officers and key employees of the Company and of any present or
future Company parent or subsidiary corporation are eligible to receive an
option or options under the 1999 Stock Option Plan. All directors of, and
important consultants to, the Company and of any present or future Company
parent or subsidiary corporation are also eligible to receive an option or
options under the 1999 Stock Option Plan.
Awards Under the 1999 Stock Option Plan
Options granted under the 1999 Stock Option Plan may be Incentive Stock
Options, or Non-Qualified Stock Options. Unless the context otherwise requires,
the term "option" includes both Incentive Stock Options and Non-Qualified Stock
Options.
Administration
The 1999 Stock Option Plan shall be administered by the Board of
Directors of the Company, or a compensation committee appointed by the Company's
Board of Directors. Pursuant to the terms of the 1999 Stock Option Plan, the
compensation committee must consist of a minimum of two and
19
<PAGE>
a maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the compensation committee for any reason to be
composed solely of Non-Employee Directors shall not prevent an option from being
considered granted under the 1999 Stock Option Plan. References to the term
"Committee" herein refer to either the Company's Board of Directors or such
committee. Under the 1999 Stock Option Plan, the Committee has the right to
adopt such rules for the conduct of its business and the administration of the
1999 Stock Option Plan as it considers desirable. The Committee has the right to
construe the 1999 Stock Option Plan and the options issued pursuant to it, to
correct defects and omissions and to reconcile inconsistencies to the extent
necessary to effectuate the purpose of the 1999 Stock Option Plan and the
options issued pursuant to it.
Common Stock Subject to the 1999 Stock Option Plan
The aggregate number of shares which may be issued upon the exercise of
options under the 1999 Stock Option Plan is 500,000 shares of the Company's
Common Stock.
Limitation on Maximum Number of Options Awarded
The 1999 Stock Option Plan provides that the maximum number of options
which may be awarded to any single optionee under the 1999 Stock Option Plan
shall be no more than is equal to 90% of the shares reserved for issuance under
the 1999 Stock Option Plan. The purpose of this limitation is to enable awards
made pursuant to the 1999 Stock Option Plan to comply with the conditions of
Section 162(m) of the Internal Revenue Code which provide for the deductibility
of compensation paid to the Company's Named Officers if it is performance based.
Exercise Price of Options/Payment of Exercise Price
The option price for options issued under the 1999 Stock Option Plan
shall be equal to the fair market value of the Company's Common Stock on the
date of grant of the option. The exercise price of an option may be paid in
cash, the delivery of already owned shares of Common Stock of the Company having
a fair market value equal to the exercise price, or a combination thereof.
The Board has interpreted the provision of the 1999 Stock Option Plan
which allows payment of the option price in Common Stock of the Company to
permit the "pyramiding" of shares in successive exercises. Thus, an optionee
could initially exercise an option in part, acquiring a small number of shares
of Common Stock, and immediately thereafter effect further exercises of the
option, using the Common Stock acquired upon earlier exercises to pay for an
increasingly greater number of shares received on each successive exercise. This
procedure could permit an optionee to pay the option price by using a single
share of Common Stock or a small number of shares of Common Stock and to acquire
a number of shares of Common Stock having an aggregate fair market value equal
to the excess of (a) the fair market value of all shares to which the option
relates over (b) the aggregate exercise price under the option.
20
<PAGE>
Special Provisions for Incentive Stock Options
The maximum aggregate fair market value of the shares of Common Stock
(determined when the Incentive Stock Option is granted) with respect to which
Incentive Stock Options are first exercisable by an employee in any calendar
year cannot exceed $100,000. In addition, no Incentive Stock Option may be
granted to an employee owning directly or indirectly stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
unless the exercise price is set at not less than 110% of the fair market value
of the shares subject to such Incentive Stock Option on the date of the grant
and such Incentive Stock Option expires not later than five years from the date
of grant. No Incentive Stock Option granted under the 1999 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, any Incentive Stock
Option granted under the 1999 Stock Option Plan is exercisable only during the
lifetime of an optionee, and are exercisable only by such optionee. Awards of
Non-Qualified Stock Options are not subject to these special limitations.
Exercisability and Expiration of Options
All options granted pursuant to the 1999 Stock Option Plan are
exercisable in accordance with a vesting schedule (if any) which is set by the
Committee at the time of grant. The expiration date of an option is also
determined by the Committee at the time of the grant, but in no event will an
option be exercisable after the expiration of ten years from the date of grant
of the option.
All unexercised options terminate three months following the date on
which an optionee's employment with 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).
The 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.
Expiration of the Stock Option Plan
Unless terminated earlier by the Board of Directors, the 1999 Stock
Option Plan will remain in effect until all awards granted under 1999 Stock
Option Plan have been satisfied by the issuance of shares provided that no new
awards may be granted under such 1999 Stock Option Plan more than ten years from
of the date the 1999 Stock Option Plan was adopted by the Company.
Adjustments
The 1999 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
21
<PAGE>
Committee in the event of a declaration of a stock dividend, distribution or
other offering of shares, merger, consolidation, transfer of assets,
reorganization, split up, combination or recapitalization.
Transferability of Non-Qualified Stock Options
Except as otherwise provided by the Rules and Regulations of the SEC,
the 1999 Stock Option Plan provides that the Committee at the time of grant of a
Non-Qualified Stock Option may provide that such stock option is transferrable
to any "family member" of the optionee by gift or qualified domestic relations
order. For purposes of this section, a family member includes any child,
stepchild, grandchild, parent, step-parent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
Amendments
Except as required pursuant to Rule 422 of the Code or any successor or
provision, the Board of Directors may amend or supplement the 1999 Stock Option
Plan, including the form of option agreement, in any way, or suspend or
terminate such plan at any time, as determined by the Board of Directors without
the approval of stockholders; provided, however, that such action shall not
affect options granted under the 1999 Stock Option 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.
22
<PAGE>
Awards Under the 1999 Stock Option Plan
The following table sets forth information regarding the options
granted under the 1999 Stock Option Plan as of the date hereof, subject to
stockholder approval of such plan.
NEW PLAN BENEFITS
1999 Stock Option Plan
<TABLE>
<CAPTION>
Name and Position Dollar Value ($)(1) Number of Units
- -------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Anthony J. Santilli $0 10,000
Chairman, President, Chief Executive Officer, Chief
Operating Officer and Director of ABFS
Beverly Santilli 0 20,000
President of ABC and First Executive Vice President and
Secretary of ABFS
Jeffrey M. Ruben 0 20,000
Executive Vice President and General
Counsel of ABFS
Albert W. Mandia 0 20,000
Executive Vice President - Finance
and Chief Financial Officer of ABFS
Executive Officer Group (4 persons) 0 70,000
Michael DeLuca 0 10,000
Director
Harold E. Sussman 0 10,000
Director
Richard Kaufman 0 10,000
Director
Leonard Becker 0 10,000
Director
Non-Executive Director Group (4 persons) 0 40,000
Non-Executive Officer Group (1 person) 0 20,000
Employee Group 0 0
</TABLE>
- ----------------------------
(1) Represents the aggregate market value (market price of the Common Stock
less the exercise price of $13.00 per share) of the options granted on
October 1, 1999, subject to stockholder approval of the 1999 Stock Option
Plan.
On October 25, 1999, the last sale price of the Common Stock was
$12.125 as reported in the NASDAQ National Market System.
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Federal Income Tax Consequences of the 1999 Stock Option Plan
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE 1999 STOCK OPTION
PLAN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE
PROVISIONS OF THE INTERNAL REVENUE CODE DESCRIBED IN THIS SECTION INCLUDE
CURRENT TAX LAW ONLY AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW.
Incentive Stock Options
Generally, under the Internal Revenue Code, an optionee will not
realize taxable income by reason of the grant or the exercise of an Incentive
Stock Option (see, however, discussion of Alternative Minimum Tax below) granted
pursuant to the 1999 Stock Option Plan. If an optionee exercises an Incentive
Stock Option and does not dispose of the shares until the later of (i) two years
from the date the option was granted and (ii) one year from the date of
exercise, the entire gain, if any, realized upon disposition of such shares will
be taxable to the optionee as long-term capital gain, and the Company will not
be entitled to any deduction. If an optionee disposes of the shares within the
period of two years from the date of grant or one year from the date of exercise
(a "disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and the Company will receive a corresponding
deduction, in an amount equal to the excess of (1) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (2) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges, makes a gift of
or transfers legal title to the share (except transfers, among others, by
pledge, on death or to a spouse). If the disposition is by sale or exchange, the
optionee's tax basis will equal the amount paid for the share plus any ordinary
income realized as a result of the disqualifying disposition.
The exercise of an Incentive Stock Option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the Incentive Stock Option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to
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such stock, such disposition will be a disqualifying disposition that may cause
the optionee to recognize ordinary income as discussed above.
Under the Internal Revenue Code, all of the shares received by an
optionee upon exercise of an Incentive Stock Option by surrendering shares will
be subject to the incentive stock option holding period requirements. Of those
shares, a number of shares (the "Exchange Shares") equal to the number of shares
surrendered by the optionee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of a
disqualifying disposition of the surrendered shares if they were incentive stock
option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the Exchange Shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered. The
balance of the shares received by the optionee will have a tax basis (and a
deemed purchase price) of zero and a capital gains holding period beginning on
the date of exercise. The Incentive Stock Option holding period for all shares
will be the same as if the option had been exercised for cash.
Non-Qualified Stock Options
Generally, there will be no federal income tax consequences to either
the optionee or the Company on the grant of Non-Qualified Stock Options pursuant
to the 1999 Stock Option Plan. On the exercise of a Non-Qualified Stock Option,
the optionee has taxable ordinary income equal to the excess of the fair market
value of the shares acquired on the exercise date over the option price of the
shares. The Company will be entitled to a federal income tax deduction (subject
to the limitations contained in Section 162(m)) in an amount equal to such
excess, provided that the Company complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Capital losses are
deductible only to the extent of capital gains for the year plus $3,000 for
individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "Incentive Stock Options." The optionee will recognize ordinary
income on the exercise of the Non-Qualified Stock Option as described above. Of
the shares received in such an exchange, that number of shares equal to the
number of shares surrendered have the same tax basis and capital gains holding
period as the shares surrendered. The balance of shares received will have a tax
basis equal to their fair market value on the date of exercise and the capital
gains holding period will begin on the date of exercise.
In the event of a permitted transfer by gift of a Non-Qualified Stock
Option, the transferor will remain taxable on the ordinary income realized as
and when such Non-Qualified Stock Option is exercised by the transferee. All
other tax consequences described above will be applicable to the
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transferee of the Non-Qualified Stock Option. A permitted transfer by gift of a
Non-Qualified Stock Option may result in federal transfer taxes (gift tax) to
the transferor at such time as the option is transferred, as well as such later
time or times as the Non-Qualified Stock Option vests, if not fully vested on
the date of the initial transfer.
Limitation on the Company's Deduction
Section 162(m) of the Internal Revenue Code will generally limit to
$1,000,000 the Company's federal income tax deduction for compensation paid in
any year to its chief executive officer and its four highest paid executive
officers, to the extent that such compensation is not "performance based." Under
Treasury regulations, a stock option will, in general, qualify as "performance
based" compensation if it (i) has an exercise price of not less than the fair
market value of the underlying stock on the date of grant, (ii) is granted under
a plan that limits the number of shares for which options may be granted to an
employee during a specified period, which plan is approved by a majority of the
stockholders entitled to vote thereon, and (iii) is granted and administered by
a compensation committee consisting solely of at least two outside directors (as
defined in Section 162(m)). If a stock option to an executive referred to above
is not "performance based", the amount that would otherwise be deductible by the
Company in respect of such stock option will be disallowed to the extent that
the executive's aggregate non-performance based compensation paid in the
relevant year exceeds $1,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
PROPOSAL II.
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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.
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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.
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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 1999 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 1999 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 1999, options to purchase approximately 14,175 shares were granted to
officers and employees of the Company at exercise prices ranging from $15.00 to
$21.375 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. Mr. Santilli
was the only executive officer to receive options during fiscal 1999. Mr.
Santilli was granted 5,250 options in fiscal 1999.
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 1999, Mr. Santilli's base salary was $421,875. During fiscal 1999,
Mr. Santilli also received a cash bonus of $512,344 under the Management
Incentive Plan. Pursuant to the terms of his employment agreement, Mr.
Santilli's bonus is equal
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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 1999, 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 calendar year to the chief
executive officer and the four other highest paid executive officers.
Notwithstanding the foregoing, certain 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 exercise of options under the Company's Amended and Restated
Stock Option Plan and the 1999 Stock Option Plan will be deductible. Any future
employee incentive plan or other form of performance based 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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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 Common 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 6/30/99
- ------------------------------------ --------- ---------- ---------- ----------
ABFS $100.00 $100.00 $110.00 $ 62.00
NASDAQ Stock Market $100.00 $106.00 $139.00 $200.00
Peer Group Index $100.00 $ 97.00 $ 78.00 $ 10.00
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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, 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, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
STOCKHOLDER PROPOSALS
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 2000 Annual Meeting of Stockholders (the "2000 Meeting") will be
September 13, 2000. As to all such matters which the Company does not have
notice on or prior to September 13, 2000, discretionary authority shall be
granted to the persons designated in the Company's proxy related to the 2000
Meeting to vote on such proposal. In addition, the Rule 14a-8 requirements
applicable to inclusion of stockholder proposals in the Company's proxy
materials related to the 2000 Meeting require that a stockholder proposal
regarding the 2000 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, 2000 to receive consideration for inclusion in
the Company's 2000 proxy materials. Any such proposal must also comply with the
proxy rules under the Exchange Act, including Rule 14a-8.
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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 2000.
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 or she 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, 1999 (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-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 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
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APPENDIX A
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
1999 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1999 Stock Option Plan (the "Plan") is to
provide additional incentive to officers, other key employees, and directors of,
and important consultants to, American Business Financial Services, Inc., a
Delaware corporation (the "Company"), and each present or future parent or
subsidiary corporation of 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
500,000 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 officers and key employees of the Company and of any
present or future Company parent or subsidiary corporation are eligible to
receive an option or options under this Plan. All directors of, and important
consultants to, the Company and of any present or future Company parent or
subsidiary corporation are also eligible to receive an option or options under
this Plan. The individuals who shall, in fact, receive an option or options
shall be selected by the Committee, in its sole discretion, except as otherwise
specified in Section 4 hereof. No individual may receive options under this Plan
for more than 90% of the total number of shares of the Company's Common Stock
authorized for issuance under this Plan.
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4. Administration of Plan
(a) This Plan shall be administered either by the Company's
Board of Directors or a Compensation Committee appointed by the Company's Board
of Directors. The Compensation Committee shall consist of a minimum of two and a
maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Compensation Committee for any reason to be
composed solely of Non-Employee Directors shall not prevent an option from
being considered granted under this Plan. The term "Committee," as used herein,
shall refer to either the Company's Board of Directors or such Compensation
Committee, depending upon who is administering the Plan. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan,
determine which individuals shall in fact be granted an option or options,
whether the option shall be an Incentive Stock Option or a Non-Qualified Stock
Option (as such terms are defined in Section 5(a)), the number of shares to be
subject to each of the options, the time or times at which the options shall be
granted, the rate of option exercisability, and, subject to Section 5 hereof,
the price at which each of the options is exercisable and the duration of the
option.
(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. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either
Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified
Stock Options granted pursuant to Section 5(c) hereof, as determined by the
Committee. An "Incentive Stock Option" is an option which satisfies all of the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option"
is an option which either does not satisfy all of those requirements or the
terms of the option provide that
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it will not be treated as an Incentive Stock Option. The Committee may grant
both an Incentive Stock Option and a Non-Qualified Stock Option to the same
person, or more than one of each type of option to the same person. The option
price for options issued under this Plan shall be equal at least 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 Stock Market, 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 Stock Market, 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, Incentive Stock Options issued 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. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
(c) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
key employees pursuant to this Plan shall be issued substantially in the form
set forth in Appendix II hereof, which form is hereby incorporated by reference
and made a part hereof, and shall contain substantially the terms and conditions
set forth therein. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to directors and
important consultants pursuant to this Plan shall be issued substantially in the
form set forth in Appendix III 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
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hereunder, the Committee may, in its discretion, amend or supplement any of the
option terms contained in Appendix II or Appendix III for any particular
optionee.
(d) 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 (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422 of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
(e) Except as otherwise provided in Section 422 of the Code
and regulations thereunder or any successor provision, no Incentive Stock Option
granted pursuant to this Plan shall be transferable other than by will or the
laws of descent and distribution. Except as otherwise provided by the Rules and
Regulations of the Securities and Exchange Commission, the Committee at the time
of grant of a Non-Qualified Stock Option may provide that such stock option is
transferrable to any "family member" of the optionee by gift or qualified
domestic relations order. For purposes of this section, a family member includes
any child, stepchild, grandchild, parent, step-parent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of the Company. The Board of Directors reserves the right at any time,
and from time to time, to amend or supplement this Plan, including the forms of
option agreement attached hereto, 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 an amendment or supplement
of this Plan is required by the Code or the regulations thereunder to be
approved by the shareholders of the Company in order to permit the granting of
"Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the amended or supplemented Plan, such
amendment or supplement shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. 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.
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7. 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 in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ 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 to terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, 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 or the consultancy relationship
of any such consultant.
(c) 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.
(d) 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.
(e) References in this Plan to the Code shall be deemed to
also refer to the corresponding provisions of any future United States revenue
law.
(f) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
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APPENDIX I
INCENTIVE STOCK OPTION
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
1999 Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
__________ years from the date of grant, your option may be exercised for up to
_____% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines 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). Each succeeding year thereafter, your
option may be exercised for up to an additional _____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as 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). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion)
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and your vesting date may accelerate accordingly. A "Change of Control" shall be
deemed to have occurred upon the happening of any of the following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. 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.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, 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 your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by
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reason of your becoming disabled (within the meaning of Section 22(e)(3) of the
Code and the regulations thereunder), you or your legal guardian or custodian
may at any time within one year after the date of such termination (but in no
event later than the Scheduled Termination Date), exercise the option as to any
shares which you had a right to purchase and did not purchase prior to such
termination. Your executor, administrator, guardian or custodian must present
proof of his authority satisfactory to the Company prior to being allowed to
exercise this option.
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.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
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.
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<PAGE>
(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 federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise, and (ii) your
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, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem 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, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the
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<PAGE>
event this option is in any way inconsistent with the legal requirements of the
Code or the regulations thereunder for an "Incentive Stock Option," this option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
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.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
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<PAGE>
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, including Attachment A hereto.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By:_____________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
___________].
_________________________ ________________________________
(Date) (Signature)
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<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original
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(unextended) term of such covenants and agreements is scheduled to terminate or
(b) the date of the final court order (without further right of appeal)
enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
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APPENDIX II
NON-QUALIFIED STOCK OPTION FOR OFFICERS
AND OTHER KEY EMPLOYEES
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 1999
Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to _____
years from the date of grant, your option may be exercised for up to _______ of
the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted as the Committee in
its sole discretion determines 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). Each succeeding year thereafter, your
option may be exercised for up to an additional ____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as 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). Thus, this option is fully exercisable
on and after_____ years after the date of grant, except if terminated earlier as
provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion)
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and your vesting date may accelerate accordingly. A "Change of Control" shall be
deemed to have occurred upon the happening of any of the following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. 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.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, 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 your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by
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reason of your becoming disabled (within the meaning of Section 22(e)(3) of the
Code and the regulations thereunder), you or your legal guardian or custodian
may at any time within one year after the date of such termination (but in no
event later than the Scheduled Termination Date), exercise the option as to any
shares which you had a right to purchase and did not purchase prior to such
termination. Your executor, administrator, guardian or custodian must present
proof of his authority satisfactory to the Company prior to being allowed to
exercise this option.
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.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to ___________ under the terms set forth in the
Plan, 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
II-3
<PAGE>
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 federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your 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, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem 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.
II-4
<PAGE>
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.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
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.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
II-5
<PAGE>
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, including Attachment A hereto.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By:_______________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previously
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
_______________].
_________________________ __________________________________
(Date) (Signature)
II-6
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original
II-7
<PAGE>
(unextended) term of such covenants and agreements is scheduled to terminate or
(b) the date of the final court order (without further right of appeal)
enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
II-8
<PAGE>
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
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 1999
Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
______years from the date of grant, your option may be exercised for up to
______% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines 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). Each succeeding year thereafter, your
option may be exercised for up to an additional ______% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as 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). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion)
III-1
<PAGE>
and your vesting date may accelerate accordingly. A "Change of Control" shall be
deemed to have occurred upon the happening of any of the following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. 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.
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, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
this option is granted. After the date you cease to be a director or consultant,
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 or
consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
(a) a director of, or consultant to, the Company or another subsidiary
corporation or (b) an employee of the Company or a 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
III-2
<PAGE>
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.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to __________ under the terms set forth in the
Plan, 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 federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your 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
III-3
<PAGE>
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, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem 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.
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
III-4
<PAGE>
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.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
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, including Attachment A hereto.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
By:__________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions, including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated ________].
_________________________ _____________________________________
(Date) (Signature)
III-5
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company or at any time thereafter, except with the express
prior written consent of the Company or pursuant to the lawful order of any
judicial or administrative agency of government, directly or indirectly,
disclose, communicate or divulge to any individual or entity, or use for the
benefit of any individual or entity, any knowledge or information with respect
to the conduct or details of the Company's business which you, acting
reasonably, believe or should believe to be of a confidential nature and the
disclosure of which not to be in the Company's interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company and for a period of two years thereafter, except with
the express prior written consent of the Company, directly or indirectly,
whether as employee, owner, partner, consultant, agent, director, officer,
shareholder or in any other capacity, engage in or assist any individual or
entity to engage in any act or action which you, acting reasonably, believe or
should believe would be harmful or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your term as
a director of, or a consultant to, the Company ceases for any reason whatsoever
(whether voluntary or not), except with the express prior written consent of the
Company, directly or indirectly, whether as employee, owner, partner,
consultant, agent, director, officer, shareholder or in any other capacity, for
your own account or for the benefit of any individual or entity, (i) solicit any
customer of the Company for business which would result in such customer
terminating their relationship with the Company; or (ii) solicit or induce any
individual or entity which is an employee of the Company to leave the Company or
to otherwise terminate their relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of
III-6
<PAGE>
such breach, which extension shall commence on the later of (a) the date on
which the original (unextended) term of such covenants and agreements is
scheduled to terminate or (b) the date of the final court order (without further
right of appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
III-7
<PAGE>
REVOCABLE PROXY
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Annual Meeting of Stockholders - November 30, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ABFS
The undersigned hereby constitutes and appoints Anthony J. Santilli 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 November 30, 1999, 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 NOMINEE AND PROPOSAL II. 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 nominee
listed below and "for" Proposal II.
I. The election as director of the following nominee for the term of three
years:
LEONARD BECKER
[ ] FOR [ ] VOTE WITHHELD
II. To ratify the adoption of the 1999 Stock Option Plan.
III. 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 1999 Annual
Report to Stockholders, 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:__________________, 1999
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.
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible.
Annual Meeting of Stockholders
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
November 30, 1999
