ALLSTATE FINANCIAL CORPORATION
2700 S. Quincy Street
Arlington, Virginia 22206
703-931-2274
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on May 11, 1999
The Annual Meeting of Shareholders of Allstate Financial Corporation will be
held at the Sheraton National Hotel, 900 South Orme Street, Arlington, Virginia
22204, on May 11, 1999, at 11:00 a.m., for the following purposes:
1. To elect seven directors for a term of one year or until their
successors have been elected and qualified.
2. To transact such other business as may properly come before the meeting.
Except with respect to procedural matters incident to the conduct of the
meeting, management is not aware of any other such business.
Shareholders of record of the Company as of the close of business on March
22, 1999 are entitled to notice of and to vote at, the Annual Meeting or any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
David W. Campbell
Chairman
Arlington, Virginia
April 15, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPERESENTED REGARDLESS OF THE NUMBER YOU
OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO PROMPTLY COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU
ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY
GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO
THE EXERCISE THEREOF.
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ALLSTATE FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 11, 1999
The enclosed proxy is solicited by the Board of Directors of Allstate
Financial Corporation (the "Company") for use at the Annual Meeting of
Shareholders to be held at 11:00 a.m., at the Sheraton National Hotel, 900 South
Orme Street, Arlington, Virginia 22204 on May 11, 1999, and at any adjournment
thereof (the "Annual Meeting"). This proxy is first being sent to shareholders
on April 15, 1999.
At the Annual Meeting, shareholders will be asked to consider and vote
upon one proposal: the election of seven directors to serve for a term of one
year or until their successors have been elected and qualified (the "Proposal").
In addition to solicitation by mail, officers, directors and employees
of the Company may solicit proxies by telephone, facsimile, telegraph or in
person. None of these persons will receive additional compensation for such
solicitation but will be reimbursed for actual expenses in connection therewith.
Expenses in connection with the solicitation of proxies, including the
reasonable expenses of brokers, fiduciaries and other nominees in forwarding
proxy material, will be borne by the Company.
VOTING OF PROXIES
Each holder of the Company's common stock of record as of the close of
business on the record date, March 22, 1999, is entitled to vote in person or by
proxy on all matters to be voted upon at the Annual Meeting. As of the record
date, the Company had 2,324,216 shares of common stock outstanding, each of
which shares is entitled to one vote.
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If a proxy in the accompanying form is properly executed and returned
to the Company in time for the Annual Meeting and is not revoked prior to the
time it is exercised, the shares represented by the proxy will be voted in
accordance with the directions specified therein for the matters listed on the
proxy card. Unless the proxy specifies that authority to vote is withheld,
proxies will be voted FOR the Proposal and otherwise in the discretion of the
proxy holders as to any other matter that may come before the Annual Meeting.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Company written
notice thereof, delivered to Allstate Financial Corporation, 2700 South Quincy
Street, Arlington, Virginia 22206; (ii) submitting a duly executed proxy bearing
a later date; or (iii) appearing at the Annual Meeting and giving the Secretary
notice of his or her intention to vote in person. Proxies solicited hereby may
be exercised only at the Annual Meeting and any adjournment thereof and will not
be used for any other meeting.
Directors are elected by a plurality of the votes cast with a quorum
present. A quorum consists of shareholders representing, either in person or by
proxy, a majority of the outstanding common stock entitled to vote at the
meeting. Abstentions are considered in determining the presence of a quorum but
will not affect the plurality vote required for the election of directors. Under
rules of the New York Stock Exchange applicable to broker-dealers, the election
of directors is considered a "discretionary" item upon which brokerage firms may
vote in their discretion on behalf of their clients if such clients have not
furnished voting instructions and for which there will not be "broker
non-votes."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 22, 1999, the amount of
common stock of the Company beneficially owned by: (i) each person known to the
Company to be the beneficial owner of more than 5% of the aggregate shares of
the Company's outstanding common stock, (ii) each director of the Company, (iii)
each of the named executive officers in the Summary Compensation Table below,
and (iv) all executive officers and directors as a group.
Common Shares
Beneficially Percent of
Name and Address Owned(l)(2) Class
--------------------------------------------------------------------------
Timothy G. Ewing (3)(4)
Managing Partner
Value Partners, Ltd.
4514 Cole Avenue, Suite 808
Dallas, Texas 75201 1,314,060 44.2%
Tweedy, Browne Company L.L.C.
52 Vanderbilt Avenue
New York, NY 10017 165,100 7.1%
C. C. Partners Ltd. (5)
P. O. Box 832
Shelter Island Heights
New York, N.Y. 11965 163,177 7.0%
Franklin Resources, Inc. (6)
777 Mariners Island Blvd.
San Mateo, CA 94403-7777 132,000 5.7%
Directors:
C. Scott Bartlett, Jr. (7) 9,495 0.4%
David W. Campbell (8) 30,000 1.3%
Charles G. Johnson 60,000 2.6%
Steven W. Lefkowitz 10,000 0.4%
Edward A. McNally 23,000 1.0%
William H. Savage (9) 59,384 2.5%
Lindsay B. Trittipoe 83,289 3.6%
Executive Officers who are not Directors:
C. Fred Jackson (10) 20,133 0.9%
Peter Matthy 19,333 0.9%
Lawrence M. Winkler 13,358 0.6%
Wade Hotsenpiller 12,000 0.5%
For all Executive Officers and 339,992 14.6%
Directors as a group (11 persons)
(See footnotes on following page)
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(1) Based on filings or other information furnished by the respective
individuals or entities. Under applicable regulations, shares are
deemed to be beneficially owned by a person if he directly or
indirectly has or shares the power to vote or dispose of the shares,
whether or not he has any economic interest in the shares. Unless
otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of common stock which may be acquired within
60 days of March 22, 1999 pursuant to the exercise of outstanding
stock options or convertible notes. Shares of common stock owned by
such person or group are deemed to be outstanding for the purpose of
computing the percentage of outstanding common stock owned by such
person or group, but not deemed outstanding for the purpose of
computing the percentage of common stock owned by any other person or
group. The amounts set forth in the table include shares which may be
received upon the exercise of stock options within 60 days of March
22, 1999 as follows: Mr. Bartlett, 9,000 shares; Mr. Campbell, 11,000
shares; Mr. Johnson, 60,000 shares; Mr. Lefkowitz, 10,000 shares; Mr.
McNally, 22,000 shares; Mr. Savage, 22,000 shares; Mr. Trittipoe,
12,000 shares; Mr. Jackson, 15,000 shares; Mr. Matthy, 13,333 shares;
Mr. Winkler, 13,333 shares; Mr. Hostenpiller, 10,000 shares; and all
directors and officers as a group, 197,666 shares.
(3) Ewing & Partners, a Texas general partnership, is the general partner
of Value Partners. Timothy G. Ewing is the general partner and the
Managing Partner of Ewing & Partners. In addition, Ewing Asset
Management, L.L.C., a Texas limited liability company ("EAM"), holds a
1% general partnership interest in Ewing & Partners. Mr. Ewing is the
Manager and 100% owner of EAM. The principal place of business for
Ewing & Partners, EAM, and Mr. Ewing is the same as for Value
Partners.
(4) Value Partners owns $4,197,000 of Allstate's Convertible Subordinated
Notes due September 30, 2003 ("the Notes"), which are currently
convertible into 645,692 shares of common stock and are included in
the table. Excluding such shares, Value Partners owns 668,368 shares
or 28.8% of the issued and outstanding common stock.
(5) Includes 5,000 shares held of record by Raffles Associates, L.P., a
Delaware limited partnership ("Raffles"), and 19,077 shares which may
be acquired by C.C. Partners, a Texas limited partnership, upon the
conversion of its Notes. Paul O'Leary is an investment manager of C.C.
Partners (having discretionary authority both individually and together
with R. Cromwell Coulson) and the sole general partner of Raffles. The
business address of Raffles is One Penn Plaza, Suite 4720, New York,
New York 10119.
(6) The shares are beneficially owned by one or more investment companies
or other managed accounts which are advised by investment advisory
subsidiaries of Franklin Resources, Inc. ("FRI"), including Franklin
Advisory Services, Inc. located at One Parker Plaza, Sixteenth Floor,
Fort Lee, New Jersey 07024 (the "Adviser Subsidiary"). Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
FRI and, together with FRI, may be deemed to beneficially own the
shares held by persons and entities advised by the Adviser Subsidiary.
(7) Mr. Bartlett owns $1,000 of Notes, which are currently convertible into
153 shares of common stock.
(8) Includes 10,000 shares, which are owned jointly with Mr. Campbell's
spouse.
(9) Mr. Savage owns $100,000 of Notes, which are currently convertible
into 15,384 shares of` common stock. Also includes 1,000 shares which
are owned by Mr. Savage's spouse.
(10) Mr. Jackson owns $1,000 of the Company's convertible subordinated notes
due September 30, 2000, which are convertible into 133 shares of common
stock.
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INFORMATION WITH RESPECT TO NOMINEES FOR
DIRECTORS AND EXECUTIVE OFFICERS
Election Of Directors
The Company's Articles of Incorporation provide that the number of
directors shall be ten or such lesser number, as the Board of Directors shall
fix. The Board of Directors has fixed that number at seven for purposes of the
Annual Meeting. There is only one class of directors, and all the current
Directors will be candidates for election at the Annual Meeting.
Directors of the Company are elected to serve until the next annual
meeting of the shareholders of the Company and until their respective successors
are elected and qualified.
Messrs. Bartlett, Campbell, McNally, Savage and Trittipoe were elected
at the 1998 annual meeting through a proxy contest conducted by the Allstate
Financial Corporation Independent Shareholders/Directors Committee (the
"Shareholders/Directors Committee") and financed by Value Partners, Ltd.
Following the 1998 annual meeting, the committee was dissolved and Value
Partners was reimbursed for its expenses. See - "Certain Transactions". Mr.
Lefkowitz was appointed to the Board in June 1998 pursuant to the right of
Scoggin Capital Management, LP, formerly a major holder of the Company's
convertible subordinated notes due 2000, to appoint a director. Other than as
set forth above, there are no arrangements or understandings between the Company
and any person pursuant to which such person has been elected or nominated as a
director, and no director or nominee for director is related to any other
director, nominee for director or executive officer of the Company by blood,
marriage or adoption.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees for director listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Annual Meeting, the proxies will nominate and
vote for any replacement nominee or nominees recommended by the Board of
Directors. At this time, the Board of Directors knows of no reason why any of
the nominees listed below may not be able to serve as a director if elected.
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Principal Occupation Director
Name Age And Other Directorships Since
C. Scott Bartlett, Jr. 65 1998
Mr. Bartlett was Executive Vice President, Senior Lending Officer and
Chairman of the Credit Policy Committee at National Westminster Bank USA from
1984 to 1990, where he managed all of the credit functions of the bank and was
responsible for an approximately $11 billion portfolio. Mr. Bartlett served in
various other capacities with National Westminster from 1973 to 1984. Mr.
Bartlett currently serves as a director of Harvard Industries, Inc. (Chairman of
the Audit Committee and member of Compensation Committee); NVR, Inc. (member of
the Audit and Nominating Committees); and Janus American Group, Inc. (Audit
Committee). Since 1994, Mr. Bartlett has served as a director of various
companies and performed limited arbitration and consulting services. From 1992
to 1994, Mr. Bartlett served as Senior Vice President and Chief Credit Officer
of MTB Bank.
David W. Campbell 52 1995
Chairman of the Board since June 1998, Interim CEO from June 1998 to
January 1999. Formerly President and Chief Operating Officer and Director of
Southern Financial Bancorp, Inc., and Southern Financial Bank in Warrenton,
Virginia from April 1996 to June 1997; formerly President and Chief Executive
Officer of Ameribanc Savings Bank ("ASB") in Annandale, Virginia (June 1990
through March 1995); 1995 prior to that, Executive Vice President and Chief
Operating Officer of ASB (1984 through June 1990); also, a director of ASB (1988
through March 1995); served as a Trustee of the Ameribanc Investors Group, a
savings and loan holding company headquartered in Annandale, Virginia, from 1992
to March 1995.
Charles G. Johnson 53 1999
President and CEO of the Company since January 1999. Mr. Johnson is First
Vice President of the Commercial Finance Association, the national trade
association of the factoring and asset based lending industry, and will become
its President in the year 2000. From February 1997 to November 1998, Mr. Johnson
was Executive Vice President and Division Manager for Heller Commercial Funding
in Chicago, Illinois. From 1993 to February 1997, Mr. Johnson was Senior Vice
President and Region Manager for Heller Business Credit. Mr. Johnson was Vice
President and Regional Manager of Whirlpool Financial Corporation from 1989 to
1993. Mr. Johnson was President and CEO of First Union Commercial Corporation
from 1983 to 1987 and Vice President and Senior Credit Officer of that
organization during 1982 and 1983.
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Steven W. Lefkowitz 43 1998
Founder and President Wade Capital Corporation, a privately held investment
firm in New York City, since 1990. From 1988 to 1990, he served as Vice
President of Corporate Finance for Drexel Burnham Lambert, Inc., where he had
been employed since 1985. Mr. Lefkowitz serves on the Board of Franklin Credit
Management Corporation (NASDAQ: "FCSC"), as well as several private companies.
Edward A. McNally 55 1996
Managing Director, Windham Partners, LLC (commencing August 1996), and
President, McNally and Co. (commencing August 1995). The principal business of
each company is management consulting for the financial services industry, and
each company is headquartered in Ridgefield, Connecticut. Since 1991, Mr.
McNally has served as a management consultant specializing in financial services
companies. Prior to 1991, he was Senior Vice President, National Westminster
Bank USA, specializing in loans to equipment leasing, commercial finance, media,
and textile and apparel companies.
William H. Savage 66 1995
Chairman of Island Preservation Partnership, developer of a 1,200 acre
private, oceanfront retreat near Charleston, S.C.; President and Director of
Richards United Corporation, a real estate investment company based in
Alexandria, Virginia, and Chairman of 1995 Arbec Orchids Dominicana, S.A., Santo
Domingo, D.R., which propagates and cultivates orchid plants for the U.S.
market. From 1994 to 1995, Mr. Savage was a Director of Jefferson Federal
Savings Bank in Warrenton, Virginia. Prior to 1990, Mr. Savage was the Chief
Executive Officer and Trustee of Ameribanc Investors Group, headquartered in
Annandale, Virginia.
Lindsay B. Trittipoe 41 1997
Since January 1998, President of Commonwealth Acceptance, Inc., a recently
formed company in Richmond, Virginia specializing in commercial finance
transactions. Prior to forming Commonwealth, Mr. Trittipoe was Vice President,
Capital Markets of Wheat First Securities (now Wheat First Union), a Richmond,
Virginia based investment bank and brokerage firm, from September 1995 to
October 1997. Mr. Trittipoe was Vice President of Craigie Incorporated, a
Richmond, Virginia based investment bank and bond trading firm, from 1989 to
September 1995. Mr. Trittipoe also served as a director of TideMark Bancorp, a
Virginia savings and loan holding company, from 1989 to the sale of the company
in 1995 to Crestar Bank. He served on TideMark's Executive Committee and as
Chairman of its Investment Committee.
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Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to the
current executive officers of the Company who are not directors. There are no
arrangements or understandings between the Company and any such person pursuant
to which such person was elected an executive officer of the Company, and no
such officer is related to any director or officer of the Company by blood,
marriage or adoption.
Principal Occupation
Name Age During The Past Five Years
Wade Hotsenpiller 57
Senior Vice President and Chief Operating Officer since December 1996.
Formerly President and Director (June 1985 to July 1996) and Chief Operating
Officer (April 1984 to July 1996) of Washington Federal Savings Bank, Herndon,
VA.
C. Fred Jackson 46
Senior Vice President, Treasurer and Chief Financial Officer, of the
Company since August 1998. From October 1996 to June 1997, Senior Vice President
and Chief Financial Officer of Jayhawk Acceptance Corp. From 1991 to 1996,
employed by The Money Store Inc. most recently as Vice President, Finance. From
1981 to 1991, employed at National Westminister Bank USA.
Meetings and Committees of the Board
During 1998, there were 11 regular meetings of the Board of Directors
and six telephonic meetings. The Board has Audit and Compensation Committees as
described below, as well as certain other committees. Each of the directors of
the Company attended at least 75% of the meetings of the Board of Directors held
during the period he served, and 75% of the meetings of any committees upon
which he serves.
The Audit Committee currently consists of Messrs. Bartlett, Lefkowitz
and Campbell, ex officio. The committee met four times during 1998. The Audit
Committee reviews the internal controls and operations of the Company,
recommends independent accountants for appointment by the Board of Directors,
and reviews the scope of the work of the independent accountants and their audit
reports.
The Compensation Committee currently consists of Messrs. McNally,
Savage and Trittipoe. The Compensation Committee met once in 1998. The committee
reviews executive compensation, employment contracts, and other related
compensation matters, and makes recommendations to the Board of Directors
concerning the selection of employees to receive stock options and the terms of
such option grants.
The Board does not have a nominating committee. The functions of this
committee are performed by the Board of Directors. The Board also does not have
a separate executive committee.
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Compensation of Directors
Directors who are not officers of the Company receive a fee of $2,000
per board meeting attended in person, plus reimbursement for their expenses
associated with attending those meetings. Directors who are not officers of the
Company also may receive a fee of $500 per board meeting attended by conference
telephone call. Of the six telephonic Board meetings held during 1998, a $500
fee was paid with respect to one of those meetings. Directors do not receive
additional fees to serve on any committee or as Chair of any committee. In
addition, commencing August 1996 and continuing through December 31, 1997,
directors who are not officers of the Company were granted 1,000 stock options
per meeting attended at an exercise price equal to the greater of (i) $7.00 per
share and (ii) 110% of the fair market value per share of the Company's common
stock on the date of grant. The options are exercisable until December 31, 1999.
During the period January 1, 1998 to December 31, 1998, directors were granted
1,000 stock options per meeting attended under the same terms described above,
with the exception that the options are exercisable through December 31, 2000.
All stock option grants made to directors during these periods were made under
the Company's Non Qualified Stock Option Plan.
Directors who are officers of the Company receive no compensation or
stock options for serving as directors, but are reimbursed for out-of-pocket
expenses related to attending board or committee meetings.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company for the years ended December 31,
1998, 1997 and 1996, to or on behalf of the Company's Chief Executive Officer
and each of the four most highly compensated executive officers of the Company
whose total compensation exceeded $100,000 for the year ended December 31, 1998.
Annual Compensation
Awards-
Securities All Other
Name and Fiscal Salary Other Underlying Compensation
Principal Position Year (1) Bonus (2) Options (3)
- -------------------------- ------------------------------------- ---------------
David W. Campbell(4) 1998 $98,700 -- -- -- $1,464
Director/Chairman 1997 22,365 -- -- 8,000 --
Interim CEO 1996 16,500 -- -- 3,000 --
Craig Fishman(5) 1998 373,130 $28,100 -- -- 4,413
Director, President 1997 207,060 21,000 -- -- 3,632
and CEO 1996 170,330 -- -- 30,000 3,219
Peter Matthy(6) 1998 163,269 16,500 -- -- 4,306
Executive Vice 1997 146,957 15,000 -- -- 3,247
President 1996 105,435 -- -- 20,000 --
Lawrence M. Winkler(7) 1998 163,550 17,685 -- -- 4,417
Secretary/Treasury and 1997 163,373 23,572 -- -- 3,580
Chief Financial Officer 1996 169,540 -- -- 20,000 3,219
Wade Hotsenpiller 1998 138,096 23,750 -- -- 3,631
Senior Vice President 1997 122,831 12,500 -- -- 2,263
1996 -- -- -- 15,000 --
- ---------------------------------
(1) Includes directors' fees of $8,500, $14,500 and $16,500 paid to Mr.
Campbell in 1998, 1997 and 1996, respectively, and a $7,865 consulting fee paid
to Mr. Campbell in 1997.
(2) Annual compensation does not include amounts attributable to other
miscellaneous benefits received by the named executive officers. The costs to
the Company of providing such benefits during 1998 did not exceed 10% of the
total salary and bonus paid to or accrued for the benefit of such individual
executive officer.
(3) Represents contributions made by the Company to its 401(k) plan.
(4) Interim CEO from June 29, 1998 to January 21, 1999. Stock option grants
issued under the Company's Non Qualified Plan, See -"Stock Options".
(5) Resigned effective July 31, 1998, See -"Severance Agreements".
(6) Effective April 1, 1999, Mr. Matthy's contract was not renewed and he
is no longer an employee of the Company. (7) Effective April 1, 1999, Mr.
Winkler's contract was not renewed. See -"Severance Agreements".
Stock Options
None of the named executive officers received a grant of stock options
during the preceding fiscal year ended December 31, 1998.
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<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE
<CAPTION>
Number of
Underlying Number Of
Securities Securities Underlying
Acquired On Unexercised Options/SARs At Value Of Unexercised
Exercise Value Fiscal Year-End In-The-Money Options/SARs At
Realized Fiscal Year-End
Name ($)
-------------- ----------------- -------------- ----------------
Non Exercisable Non Exercisable
Exercisable Exercisable
- ---------------------------------------------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David W. Campbell -- -- 11,000 -- $ 0 $ 0
Craig Fishman 3,500 $21,870 -- -- -- --
Wade Hostenpiller -- -- 10,000 5,000 0 0
Peter Matthy -- -- 13,333 6,667 0 0
Lawrence Winkler -- -- 13,333 6,667 0 0
- ---------------------------------------------- -------------- ----------------- -------------- ----------------
</TABLE>
All options granted and reported in the above tables were made pursuant
to the 1990 Qualified Stock Option Plan (or the Company's Non-Qualified Stock
Option Plan for the options to Mr. Campbell) and have the following material
terms:
Options may be either (i) "incentive stock options" under Section 422
of the Internal Revenue Code of 1986 or (ii) non-qualified stock options. The
per share exercise price of the common stock subject to an incentive stock
option may not be less than the fair market value of the common stock on the
date the option is granted. The aggregate fair market value (determined as of
the date the option is granted) of the common stock that first becomes
exercisable by any employee in any one calendar year pursuant to the exercise of
incentive stock options may not exceed $100,000. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to him, 10%
or more of the total combined voting power of all classes of stock of the
Company (a "10% Stockholder") shall be eligible to receive any incentive stock
options under the Plan unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of the grant.
Incentive stock options granted under the Plan cannot be exercised more
than ten years from the date of grant, except that incentive stock options
issued to a 10% Stockholder are limited to five year terms.
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Employment Agreements
The Company is currently party to employment agreements with Messrs.
Johnson and Jackson. The following sets forth their principal terms.
Mr. Johnson, the Company's President and CEO, has entered into an
employment agreement with the Company dated January 20, 1999. The agreement is
for a term of three years from the initial date. However, commencing on January
1, 2001, the term shall be extended one day at the end of every day during its
length and the new maturity date of the term shall be increased by that day,
unless either party shall notify the other of its intention to stop such
extension, in which case the
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new maturity date shall be one year from the date
of such notice. Mr. Johnson's salary was established at $185,000 per annum,
subject to periodic increases by the Board of Directors. Mr. Johnson may receive
an annual incentive bonus of up to 100% of his annual salary at the sole
discretion of the Board. Mr. Johnson received a grant of 60,000 stock options
(30,000 with an exercise price equal to $4.00 per share and 30,000 options with
an exercise price of $6.50 per share). All of the options have a maturity date
of seven years from the date of issuance and are immediately exercisable. Mr.
Johnson was provided an automobile allowance of $500 per month, reimbursement of
housing expenses up to $15,000, and reimbursement of moving and short-term
storage expenses up to $10,000, with the housing and moving expenses to be
grossed-up to reflect federal, state and local taxes.
The agreement contains confidentiality and non-compete provisions,
obligates the Company to include Mr. Johnson in any benefit plans generally made
available to employees, provides reimbursement of bona fide business and trade
association expenses, and provides for certain death and disability benefits. In
addition, if Mr. Johnson's employment is terminated by the Company for other
than death, disability or cause or by Mr. Johnson for Good Reason (as defined),
then Mr. Johnson will receive severance equal to (1) a lump sum payment equal to
his base salary for the greater of one year or the remaining term, (2) various
fringe benefits, including his automobile allowance, for one year, and (3)
bonuses through and including the year of termination, pro-rated as appropriate.
"Good Reason" is defined to include certain adverse actions following a business
combination or Change of Control. "Change of Control" is defined to include the
acquisition of a controlling interest in the Company, including beneficial
ownership of 25% or more of the common stock, by any person or entity other than
Value Partners.
The Company is currently a party to an employment agreement with C.
Fred Jackson, the Company's Senior Vice President. The agreement dated September
1, 1998 provides Mr. Jackson with a base salary of $175,000, and has a term of
one year that is extended one day at the end of every day during the term,
unless either party shall notify the other of its intention to stop such
extensions, in which case the closing date of the term shall be one year from
the date of such notice. Pursuant to the agreement, Mr. Jackson received a grant
of 30,000 incentive stock options with an exercise price of $5.00 per share.
Said options will expire upon the earlier of ten years from the date of issuance
or termination of employment. The agreement contains confidentiality and
non-compete provisions, obligates the Company to provide Mr. Jackson with an
automobile allowance of $500 per month, requires the Company to include Mr.
Jackson in any benefit plans generally made available to employees, and provides
for certain death and disability benefits. In addition, if Mr. Jackson's
employment is terminated either by the Company for other than death, disability
or cause or following certain adverse actions subsequent to a business
combination or Change of Control, then Mr. Jackson will receive severance equal
to (1) a lump sum payment equal to his base salary for one year, and (2) various
fringe benefits, including his bonuses and automobile allowance, for one year.
The definition of Change in Control in Mr. Jackson's agreement is similar to the
definition in Mr. Johnson's agreement.
Severance Agreements
Craig Fishman, who was formerly the President and Chief Executive
Officer of the Company, had an employment agreement with a term expiring on June
30, 1999. The employment agreement provided that if Mr. Fishman's employment was
terminated for other than cause, the Company would pay him an amount equal to
the lesser of (1) one year's compensation or (2) the compensation due for the
then remaining term of the agreement (but in no event less than six months'
compensation), plus benefits (except in the event of death) for such period.
In July 1998, the Company and Mr. Fishman agreed that (1) Mr. Fishman's
employment would be terminated without cause effective July 31, 1998, (2) the
Company would pay Mr. Fishman $100,833 on each of July 31, 1998 and September
30, 1998, (3) the Company would provide various fringe benefits required by the
employment agreement, including health insurance for the remaining 11 months for
Mr. Fishman and his spouse, (4) Mr. Fishman would receive the Company car driven
by him at no cost to him, (5) the Company would pay $5,000 to Mr. Fishman for
out-placement services, and (6) each party would release the other from any and
all damages, actions or liabilities of any kind, other than breaches of future
obligations. The non-compete and confidentiality provisions in Mr.
Fishman's employment agreement remained in force.
Lawrence W. Winkler, formerly the Senior Vice President, Secretary and
Treasurer of the Company, had a contract with the Company that expired on March
31, 1999. Effective April 1, 1999, the Company and Mr. Winkler agreed that (1)
Mr. Winkler's employment would be terminated without cause effective
immediately, (2) the Company would pay Mr. Winkler a severance amount of
$115,706 upon execution of a Separation and Release Agreement, and (3) the
Company and Mr. Winkler agreed he would be retained as a consultant
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for the Company for up to six weeks beginning April l, 1999, with compensation
paid at an hourly rate based on his previous compensation level.
CERTAIN TRANSACTIONS
The Company was a party to an employment arrangement with Leon Fishman,
a former director, President and Chief Executive Officer of the Company, under
which Mr. Fishman was to work Monday through Friday for 13 weeks during the six
months ending June 30, 1998. His base salary was $75,000, and the Company was
obligated to reimburse Mr. Fishman for travel and living expenses incurred by
him in performing Company business. In addition to his salary, Mr. Fishman was
entitled to incentive based compensation equal to 2% of the Company's
consolidated total revenue for the first six months of 1998 (excluding certain
subsidiaries) in excess of $5,903,000. During 1998, 1997 and 1996, the Company
paid Mr. Fishman $118,558, $228,713 and $295,009, respectively. The agreement
also obligated the Company to provide Mr. Fishman with the use of an automobile
and required the Company to include Mr. Fishman in any benefit plans generally
made available to employees. The arrangement was terminated effective June 30,
1998.
Certain members of the immediate families of Eugene Haskin (former
Chairman of the Board) and Leon Fishman, directly or through trusts, have in the
past provided financing to a subsidiary of the Company through unsecured loans
with interest payable monthly at an annual interest rate of .25% over the prime
rate, the same rate paid by the Company to its unaffiliated bank lender. Total
indebtedness to members of Mr. Haskin's and Mr. Fishman's immediate families was
$0 at December 31, 1998 and $53,217 as of December 31, 1997. During 1998 and
1997, the Company paid aggregate interest on these loans of $2,058 and $5,326,
respectively.
Rental payments of $13,173 were received by the Company in 1998, and
$24,000 in each of 1997 and 1996, respectively, from Leon Fishman, for the
personal use of a condominium owned by a subsidiary of the Company. Mr. Fishman
ceased renting the apartment on June 30, 1998.
In 1998, the Shareholders/Directors Committee, which was composed of
Value Partners, Ltd. (a major shareholder) and Messrs. Bartlett, Campbell,
McNally, Savage and Trittipoe, current directors of the Company, proposed the
election of a slate of directors in opposition to the nominees proposed by
management. In its proxy statement, the Shareholders/Directors Committee advised
shareholders that, if successful in the election, it would seek reimbursement
for its expenses. The Company paid directly or reimbursed Value Partners, Ltd.
for expenses incurred by the Committee a total of $397,318 in 1998.
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In September 1998, Value Partners purchased $2,896,000 of Notes for
cash from the Company in order to fund the Company's repurchase of a similar
amount of subordinated convertible notes due September 30, 2000 ("Old Notes").
The new Notes have a higher interest rate (10% fixed), a lower conversion rate
into the common stock ($6.50 per share versus $7.50 per share under the Old
Notes), a maturity date of September 30, 2003, and more restrictive financial
covenants. The Company made an exchange offer of new Notes to all holders of Old
Notes who were accredited investors and who did not have their Old Notes
repurchased by the Company, and $1,701,000 of Old Notes (including $1,301,000
held by Value Partners) were exchanged for new Notes. As the holder of over 50%
of the new Notes, Value Partners has the right to name, at any time and from
time to time so long as the Notes are outstanding, (a) one of the directors of
the Company so long as the Board shall have eight or fewer members, including
the director named by Value Partners, and (b) two directors of the Company if
the Board exceeds eight members, including the first director named by Value
Partners. To date, Value Partners has not exercised this right.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("1934
Act")requires the Company's officers and directors, and persons who own more
than ten percent of its Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and greater than ten percent stockholders are required by
the Commission to furnish the Company with copies of all Section 16(a) forms
that they file.
Based solely on its review of the copies of such forms received by it,
and written representations from certain reporting persons, the Company believes
that all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent stockholders were complied with during 1998, except
that Mr. Jackson filed his initial form late.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP served as the independent auditors
for the Company for the fiscal year ending December 31, 1998. Deloitte & Touche
LLP has served in this capacity for the Company since 1988. The Company has not
yet appointed independent auditors for the year ending December 31, 1999.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and will have an opportunity
to make a statement if they desire to do so.
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SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of shareholders of
the Company, which is scheduled to be held in May 2000, must be received at the
principal executive offices of the Company, 2700 S. Quincy Street, Arlington,
Virginia 22206, Attention: Corporate Secretary, no later than December 17, 1999.
If such proposal is in compliance with all of the requirements of Rule 14a-8
under the 1934 Act, it will be included in the proxy statement and set forth on
the form of proxy issued for such annual meeting of shareholders. It is urged
that any such proposals be sent by certified mail, return receipt requested.
ANNUAL REPORTS
A copy of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 accompanies this Proxy Statement. The Form 10-KSB includes a
list of the exhibits that have been filed with the Securities and Exchange
Commission under the 1934 Act.
The Form 10-KSB is not part of the proxy solicitation materials.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Company to vote the proxy with respect to the approval
of the minutes of the last meeting of shareholders, the election of any person
as a director if the nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the Annual Meeting. Management is not aware
of any business that may properly come before the Annual Meeting other than
those matters described above in this Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
PLEASE PROMPTLY SIGN, DATE AND RETURN YOUR PROXY IN
THE ENCLOSED POSTAGE PAID ENVELOPE.
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