Schedule 14(a) Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
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14a-6(e)(2))
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Affinity Technology Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
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AFFINITY TECHNOLOGIES
[LOGO]
April 30, 2002
Dear Stockholders of Affinity Technology Group, Inc.:
On behalf of the Board of Directors of Affinity Technology Group, Inc.,
it is my pleasure to invite you to attend the 2002 Annual Meeting of
Stockholders of Affinity Technology Group, Inc., to be held at Embassy Suites,
200 Stoneridge Drive, Columbia, South Carolina, on Thursday, May 30, 2002, at
9:00 a.m. local time.
The principal business of the meeting will be the election of directors
and the ratification of the appointment of independent auditors. In addition, we
plan to review the Company's business during the past year and our outlook for
the current year.
This booklet, which contains the Notice of Annual Meeting and the Proxy
Statement, describes the business to be transacted at the meeting and provides
certain other information about the Company and its directors and executive
officers which you should consider when voting your shares.
It is important that your shares be represented at the meeting, whether
or not you plan to attend. In order to be certain that your shares will be voted
at the meeting, please complete, date and sign the accompanying proxy card and
return it in the enclosed postage prepaid envelope, which requires no postage if
mailed in the United States.
I look forward to seeing you at the meeting.
Very truly yours,
Joseph A. Boyle
Chairman, President and Chief
Executive Officer
AFFINITY TECHNOLOGY GROUP, INC.
1122 Lady Street, 11th Floor
Suite 1145
Columbia, SC 29201
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
To the Stockholders of Affinity Technology Group, Inc.:
The Annual Meeting of the Stockholders of Affinity Technology Group,
Inc. (the "Company") will be held at Embassy Suites, 200 Stoneridge Drive,
Columbia, South Carolina, on Thursday, May 30, 2002, at 9:00 a.m. local time for
the following purposes:
O To elect four members to the Board of Directors;
O To consider and vote upon a proposal to ratify the appointment
Scott McElveen LLP as independent auditors for the year ending
December 31, 2002; and
O To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 9,
2002, as the record date for the determination of stockholders entitled to vote
at the meeting. Accordingly, only stockholders who are holders of record at the
close of business on that date are entitled to notice of and to vote at the
meeting.
A list of stockholders entitled to vote at the Annual Meeting will be
open for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the principal executive offices of the Company at 1122 Lady
Street, Suite 1145, Columbia, South Carolina.
By order of the Board of
Directors:
Joseph A. Boyle
Chairman, President and Chief
Executive Officer
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD
AND TO RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
April 30, 2002
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Affinity Technology Group, Inc. (the "Company") of
proxies to be voted at the 2002 Annual Meeting of Stockholders of the Company to
be held at Embassy Suites, 200 Stoneridge Drive, Columbia, South Carolina, on
Thursday, May 30, 2002, at 9:00 a.m. local time. The entire cost of such
solicitation will be borne by the Company. In addition to solicitation by mail,
arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy materials to their principals, and the Company may
reimburse them for their expenses in doing so. Personal solicitations may be
conducted by directors, officers and employees of the Company. This Proxy
Statement and accompanying proxy card will be mailed to stockholders on or about
April 30, 2002.
VOTING PROCEDURES
The Company's common stock, par value $0.0001 per share ("Common
Stock"), is the only outstanding voting security of the Company. Holders of
record of the Common Stock at the close of business on April 9, 2002, are
entitled to vote at the Annual Meeting and are entitled to one vote for each
share held. At the close of business on April 9, 2002, there were 40,731,355
shares of Common Stock outstanding.
Under Article II, Section 6 of the Amended and Restated By-Laws of the
Company (the "By-Laws"), the holders of a majority of the shares of Common Stock
entitled to vote at the Annual Meeting, present in person or represented by
proxy, constitute a quorum for the transaction of business at the Annual
Meeting. The By-Laws further provide that if a quorum is initially present, the
stockholders of the Company may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken is approved by a majority of the stockholders
initially constituting a quorum for the meeting. Abstentions, shares that are
withheld as to voting with respect to one or more of the nominees for director
and shares held by a broker, as nominee, that are voted at the discretion of
such broker on any matter will be counted in determining the existence of a
quorum.
Under the Company's By-Laws, directors are elected by a plurality of
the votes of shares of Common Stock present in person or represented by proxy at
the Annual Meeting and entitled to vote on the election of directors. Shares
that are withheld as to voting with respect to a nominee for director will not
be treated as votes cast with respect to the election of directors. The proposal
to ratify the appointment of independent auditors for the year ending December
31, 2002, will be approved if it receives the affirmative vote of the holders of
a majority of shares of Common Stock present in person or represented by proxy
at the Annual Meeting and entitled to vote on such matter. For such purposes,
abstentions will be treated as shares present and entitled to vote and,
consequently, will be treated as a vote against such proposal. However, shares
held of record by a broker, as nominee, that are not voted on such proposal will
not be treated as shares present and entitled to vote on such proposal and,
accordingly, will not affect the outcome of such proposal.
VOTING OF PROXIES
The shares represented by the accompanying proxy card and entitled to
vote will be voted if the proxy card is properly signed and received by the
Secretary of the Company prior to the meeting. Where a choice is specified on
any proxy card as to the vote on any matter to come before the meeting, the
proxy will be voted in accordance with such specification. Where no choice is
specified, the proxy will be voted for the election of the persons nominated to
serve as the directors of the Company named in this Proxy Statement and for the
proposal to ratify the appointment of Scott McElveen LLP as independent auditors
for the year ending December 31, 2002, and in such manner as the persons named
on the enclosed proxy card in their discretion determine upon such other
business as may properly come before the meeting or any adjournment thereof. Any
stockholder giving a proxy has the right to revoke it at any time before it is
voted by giving written notice to the Secretary of the Company, by attending the
meeting and giving notice of his or her intention to vote in person or by
executing and delivering to the Company a proxy bearing a later date.
1
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of April 1, 2002, by: (i) each
director and nominee for director of the Company; (ii) each current executive
officer of the Company named under the caption "Executive Compensation--Summary
Compensation Table," below; (iii) each other person who is known by the Company
to beneficially own more than five percent of the outstanding shares of Common
Stock (a "five percent stockholder"); and (iv) all directors and executive
officers as a group. Except as set forth in the footnotes to the table below,
each of the stockholders identified in the table below has sole voting and
investment power over the shares beneficially owned by such person. Except as
noted in the footnotes to the following table, the address of each five percent
stockholder is 1122 Lady Street, 11th Floor, Suite 1145, Columbia, South
Carolina, 29201.
Percent of
Number of Shares Outstanding
DIRECTORS AND EXECUTIVE OFFICERS Beneficially Owned Shares Owned
- -------------------------------- ------------------ ------------
Peter R. Wilson (1) 178,400 *
Robert M. Price (2) 242,274 *
Terrence J. Sabol, Sr. (3) 263,300 *
Joseph A. Boyle (4) 1,233,500 3.03%
Alan H. Fishman (5) 2,388,498 5.86%
Wade H. Britt, III (6) 145,500 *
Directors and executive officers as a group (6 persons) 4,451,472 10.93%
OTHER FIVE PERCENT STOCKHOLDER
The South Financial Group (7) 4,876,340 11.97%
- --------------------------------
* Indicates less than one percent.
(1) Includes options to acquire 40,000 shares of Common Stock.
(2) Includes options to acquire 50,600 shares of Common Stock.
(3) Includes options to acquire 262,500 shares of Common Stock. Mr. Sabol's
employment with the Company was terminated effective January 31, 2002.
Unless exercised, his options will expire 90 days after January 31,
2002.
(4) Includes options to acquire 721,000 shares of Common Stock.
(5) Includes options to acquire 50,600 shares of Common Stock. Mr. Fishman
has advised the Company of his intention not to stand for re-election
to the Board of Directors.
(6) Includes options to acquire 140,000 shares of Common Stock.
(7) The South Financial Group was formerly known as Carolina First
Corporation. Also includes 3,471,340 shares held by CF Investment
Company, which is a wholly owned subsidiary of Blue Ridge Finance
Company, which is a wholly owned subsidiary of The South Financial
Group. The South Financial Group's address is Post Office Box 1029,
Greenville, South Carolina, 29602.
THE SOUTH FINANCIAL GROUP (FORMERLY CAROLINA FIRST CORPORATION)
On November 8, 1995, the Company issued a warrant (the "Warrant") to
The South Financial Group (formerly Carolina First Corporation) that entitled
The South Financial Group to purchase an aggregate of 6,666,340 shares of Common
Stock of the Company for a purchase price of approximately $0.0001 per share.
The terms of the Warrant provided, among other things, that such warrant could
not be exercised by The South Financial Group into a number of shares of Common
Stock equal to or greater than five percent of all outstanding shares of Common
Stock of the Company unless The South Financial Group obtained the written
consent of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). During 1997, The South Financial Group obtained the consent of
the Federal Reserve Board to exercise the Warrant in full, and in 2001, The
South Financial Group exercised the warrant in full. As a bank holding company,
The South Financial Group may be required by the Federal Reserve Board to reduce
its ownership of Common Stock of the Company to less than five percent of
2
the Company's outstanding shares of Common Stock if the Company engages in any
business activity determined by the Federal Reserve Board to be impermissible
for a bank holding company.
BOARD OF DIRECTORS
The business and affairs of the Company is managed by or under the
direction of the Board of Directors, as provided by Delaware law and the
Company's By-Laws. The directors establish overall policies and standards for
the Company and review the performance of management. The directors are kept
informed of the Company's operations at meetings of the Board, through reports
and analyses and through discussions with management.
MEETINGS OF THE BOARD
The Board of Directors met four times during the year ended December
31, 2001. Except for Alan H. Fishman, all directors participated in at least 75%
of the aggregate of all meetings of the Board of Directors and of the Committees
of the Board of Directors on which they served during 2001.
COMMITTEES OF THE BOARD
The Board of Directors has established an Audit Committee and a
Compensation Committee. There is no nominating committee of the Board of
Directors.
The Audit Committee, established in 1996, has the authority to
recommend the annual appointment of the Company's independent auditors, with
whom the Audit Committee reviews the scope of audit and non-audit assignments
and related fees, the accounting principles used by the Company in financial
reporting and the adequacy of the Company's internal control procedures. The
members of the Audit Committee, which met once during the year ended December
31, 2001, are Dr. Peter R. Wilson (Chairman) and Robert M. Price.
The Compensation Committee has the authority, among other things, to:
(i) determine the cash and non-cash compensation of each of the Company's
executive officers and any other employee with an annual salary in excess of
$100,000; (ii) consider and recommend to the Board such general and specific
employee equity and other incentives as it may from time to time deem advisable;
and (iii) administer the Company's stock option plans. The members of the
Compensation Committee, which met three times during the year ended December 31,
2001, are Alan H. Fishman (Chairman), Robert M. Price and Dr. Peter R. Wilson.
NOMINEES FOR DIRECTOR
Article III, Section 2 of the By-Laws of the Company provides that the
Board of Directors shall consist of at least three and no more than fifteen
members, which number will be determined, from time to time, by resolution
adopted by the Board of Directors of the Company. The Board of Directors has set
the number of directors at four. The four persons named below are nominated to
serve on the Board of Directors until the 2003 Annual Meeting of Stockholders or
until their successors are elected and qualified. Other than Mr. Britt, each
nominee is currently a director of the Company.
The age and a brief biographical description of each nominee for
director are set forth below.
JOSEPH A. BOYLE (48) became President and Chief Executive Officer of the Company
in January 2000, a director in March 2000, and Chairman in March 2001. Mr. Boyle
has also served as Chief Financial Officer of the Company since September 1996.
Mr. Boyle held the title of Senior Vice President from September 1996 to January
2000 and Treasurer from May 1997 to January 2000. From May 1997 to July 1998,
Mr. Boyle also served as Secretary of the Company. Prior to joining the Company,
Mr. Boyle served as Price Waterhouse, LLP's engagement partner for most of its
Kansas City, Missouri financial services clients and as a member of the firm's
Mortgage Banking Group. Mr. Boyle was employed by Price Waterhouse, LLP from
June 1982 to August 1996.
3
ROBERT M. PRICE (71) has served as a director of the Company since November
1994. He has been President of PSV, Inc., a technology consulting business
located in Burnsville, Minnesota, since 1990. Between 1961 and 1990, Mr. Price
served in various executive positions, including Chairman and Chief Executive
Officer, with Control Data Corporation, a mainframe computer manufacturer and
business services provider. Mr. Price is a graduate of Duke University, and
earned a master's degree at the Georgia Institute of Technology. Mr. Price is a
director of Public Service Company of New Mexico and Datalink Corporation.
DR. PETER R. WILSON (48) has been a director of the Company since March 1994.
Dr. Wilson served as Secretary of the Company from March 1994 until February
1996 and has been an Associate Professor at the Fuqua School of Business at Duke
University since September 1991. He was an Assistant Professor at New York
University's Stern School of Business between January 1983 and August 1991. Dr.
Wilson teaches in the areas of financial accounting, financial reporting,
financial statement analysis and strategic cost management. He earned a
bachelor's degree and a Ph.D. in accounting at the University of North Carolina.
WADE H. BRITT, III (60) has served the Company as the Managing Director of
Surety Mortgage, Inc. since 1997 and since 1998 served as a director of the
Company's subsidiaries, Multi Financial Services, Inc. and Surety Mortgage, Inc.
Since 1988 Mr. Britt has also served as a consultant and advisor to numerous
clients in the financial services industry and legal profession. From 1982 until
1988 he was the President and Chief Executive Officer of SCN Mortgage
Corporation and Senior Vice President of South Carolina National Bank. Mr. Britt
earned a bachelor's and Juris Doctor degrees from the University of South
Carolina.
COMPENSATION OF DIRECTORS
During 2001, the Company had a policy under which all non-employee
directors of the Company received a fee of $2,000 for each meeting attended in
person and $500 for each meeting attended by teleconference. In addition, each
non-employee director was entitled to receive an annual grant, effective on the
fifth business day after each annual stockholders' meeting, of an option to
acquire 5,000 shares of Common Stock. Each such option was exercisable at the
closing sales price of shares of Common Stock on the business day immediately
prior to the date of grant, was immediately exercisable and had a term of five
years from the date of grant. In March 2002, the Board of Directors approved a
new director compensation program under which all non-employee directors will
receive a one-time grant of options to purchase 100,000 shares of the Company's
stock at the closing sales price of the Company's Common Stock on the business
day immediately prior to the date of grant. Such options will vest ratably over
a two-year period. Under the program, all non-employee directors currently on
the Board of Directors were granted options to purchase 100,000 shares at $0.09
per share on March 20, 2002, and any new non-employee director appointed to the
Board will be granted options to purchase 100,000 shares at the time of his or
her election to the Board. Under the new program, directors are not entitled to
receive any cash compensation for their service as directors. However, the Board
of Directors may determine to change the Company's policy for compensating
non-employee directors, including the number and terms of options to be granted
to directors, at any time and for any reason. All directors are reimbursed for
out-of-pocket expenses incurred in attending any Board of Directors or Committee
meetings.
The Company also has adopted the Non-employee Directors' Stock Option
Plan of Affinity Technology Group, Inc. (the "Directors' Option Plan"), under
which directors who are not employees of the Company or any of its subsidiaries
were entitled to receive an initial award ("Initial Awards") in the form of an
option to purchase shares of Common Stock having an aggregate fair market value
of $50,000 and a subsequent award ("Annual Awards") in each year in the form of
an option to purchase shares of Common Stock having an aggregate fair market
value of $15,000. The Directors' Option Plan authorizes the issuance of no more
than 100,000 shares of Common Stock. During 1997, each of the Company's current
non-employee directors (Messrs. Fishman, Price and Wilson) was granted an
Initial Award consisting of an option to purchase 12,903 shares of Common Stock
of the Company at $3.88 per share under the Directors' Option Plan. During 1998,
each of the Company's current non-employee directors (Messrs. Fishman, Price and
Wilson) was granted an Annual Award consisting of an option to purchase 12,097
shares of Common Stock of the Company at $1.22 per share under the Directors'
Option Plan. The Board of Directors has suspended any further grants under the
Directors' Option Plan.
4
During 1995, certain current non-employee directors of the Company
(Messrs. Fishman and Price) were each granted an option to purchase 10,600
shares of Common Stock at an exercise price of approximately $0.44 per share.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation earned by the Chief Executive Officer and the one other
highly compensated executive officer employed by the Company at December 31,
2001 (the "Named Executives") for services rendered to the Company and its
subsidiaries in all capacities for the years ended December 31, 2001, 2000, and
1999.
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SARS (#)
- --------------------------- ---- ------- ----- ----- ----------------
Joseph A. Boyle 2001 $ 110,769 $ - $ - 200,000
President, Chief Executive Officer, 2000 140,000 - - 400,000(1)
and Chief Financial Officer 1999 140,000 - - -
Terrence J. Sabol, Sr. 2001 110,769(2) - - -
Senior Vice President - Technology 2000 140,000 - - 50,000
1999 140,000 - - -
- --------------------------------------------------------------------------------
(1) Includes 200,000 performance-based stock options.
(2) Mr. Sabol's employment with the Company was terminated on January 31,
2002.
5
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth the number of shares of the Company's
Common Stock covered by outstanding stock options held by each of the Named
Executives at December 31, 2001 and the value of those options based on the
closing share price of $0.055 on December 31, 2001. None of the Named Executives
exercised any outstanding options during the year ended December 31, 2001.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
------------- -------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------- -------------
Joseph A. Boyle 431,000 / 464,000 $ 0 / $ 0
Terrence J. Sabol, Sr.(1) 217,500 / 90,000 $ 0 / $ 0
OPTION / SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL APPRECIATION FOR OPTION
GRANTS TERM
----------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING / SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE
NAME GRANTED (#) IN FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- ---- ----------- -------------- ------ --------------- ------ -------
Joseph A. Boyle 200,000 (2) 100.00% $ 0.09 April 19, 2011 $11,320 $28,687
- --------------------------
(1) Mr. Sabol's employment with the Company was terminated on January 31,
2002.
(2) Options granted to Mr. Boyle in 2001 were vested immediately in lieu of
certain reductions in Mr. Boyle's cash compensation.
6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
PERFORMANCE GRAPH
The graph set forth below compares, for the five-year period beginning
December 31, 1996, the "cumulative stockholder return" to stockholders of the
Company as compared with the return of The Nasdaq Stock Market Index (U.S.
Companies) (the "Nasdaq Market Index"), the J.P. Morgan Hambrecht & Quist
Technology Index ("J.P. Morgan H&Q Technology Index"), the Company's previous
industry index, and of the Media General Computer Software and Sources Group
Index ("Media General Software and Services Group"), the Company's current
industry index. The J.P. Morgan H&Q Technology Index has been discontinued
effective April 5, 2002. "Cumulative stockholder return" has been computed
assuming an investment of $100, at the beginning of the period indicated, in the
Common Stock of the Company and the stock of the companies included in the
Nasdaq Market Index, the J.P. Morgan H&Q Technology Index, and the Media General
Software and Services Group, and assuming the reinvestment of dividends.
[PERFORMANCE GRAPH]
7
MEDIA GENERAL AFFINITY
J. P. MORGAN H&Q SOFTWARE AND TECHNOLOGY
DATES NASDAQ MARKET INDEX TECHNOLOGY INDEX SERVICES GROUP GROUP, INC.
----------------- ------------------- ---------------- -------------- --------------
December 31, 1996 100.00 100.00 100.00 100.00
December 31, 1997 122.32 117.24 120.65 36.54
December 31, 1998 172.52 182.36 180.07 9.62
December 31, 1999 304.29 407.27 309.02 10.58
December 31, 2000 191.25 263.28 185.66 1.92
December 31, 2001 152.46 181.99 164.49 0.85
REPORT OF THE COMPENSATION COMMITTEE
ON
EXECUTIVE COMPENSATION
This report has been prepared to describe the Company's executive
compensation policies and the basis for the compensation earned by the Company's
President and Chief Executive Officer during the year ended December 31, 2001.
OVERVIEW
The Compensation Committee of the Board of Directors of the Company was
formed in July 1995 to approve certain matters with respect to compensation paid
to highly compensated employees of the Company, including executive officers.
The Committee, which currently consists of two non-employee directors, has the
authority, among other things, to: (i) determine the cash and non-cash
compensation of each of the Company's executive officers and any other employee
with an annual salary in excess of $100,000; (ii) consider and recommend to the
Board such general and specific employee equity and other incentives as it may
from time to time deem advisable; and (iii) administer the Company's stock
option plans. The Committee currently consists of Robert M. Price and Dr. Peter
R. Wilson.
COMPONENTS OF COMPENSATION
Executive compensation presently consists of base salaries and options
to acquire Common Stock of the Company.
Base Salaries. The base salary initially paid by the Company to its
executive officers primarily reflects negotiations between the Company and each
such officer at the time such officer was offered employment with the Company.
During 2001, in consideration of the Company's financial situation, the
Compensation Committee reduced the salaries paid to its executive officers by
25%, in the aggregate. Such measures were part of the Company's overall efforts
to reduce cash expenses.
Options. By awarding stock options to executive officers that otherwise
do not have a significant equity interest in the Company, the Company attempts
to align the interests of its executive officers with those of the Company's
stockholders. The Compensation Committee has not adopted any objective criteria
that relate the number of options granted to executive officers to the Company's
performance. However, the Company has attempted to use its option plan to offer
a significant component of potential compensation paid to executive officers,
many of whom the Company believes would require additional cash compensation in
the absence of stock options. During 2001, the Compensation Committee determined
to award additional options to certain executive officers to increase their
equity interests in the Company and their participation in future stock price
increases.
8
COMPENSATION PAID TO THE CHIEF EXECUTIVE OFFICER
Effective April 2, 2001, Mr. Boyle agreed to reduce his salary to
$100,000 in an effort to reduce cash expenses. During 2001 the Company granted
to Mr. Boyle options to acquire 200,000 shares of Common Stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
to $1 million the deductible amount of compensation paid to any Named Executive
unless certain actions are taken by the Company. Generally, the Company's stock
option plans have been designed to qualify for a deduction without limitation
under these rules. Due to current salary levels, the Company believes that it is
unlikely that the application of these rules will prevent the Company from
claiming a deduction for the amount of compensation paid to executive officers.
This report is submitted by the Compensation Committee of the Company.
Compensation Committee:
Robert M. Price
Dr. Peter R. Wilson
REPORT OF THE AUDIT COMMITTEE
Pursuant to its written charter, the Audit Committee of the Board of
Directors oversees the Company's financial reporting process on behalf of the
Board of Directors. Each member of the Audit Committee is independent within the
meaning of Rule 4200 of the National Association of Securities Dealers' listing
standards. Management has the primary responsibility for the Company's Annual
Report, including the quality of the accounting principles, the reasonableness
of significant judgments and the clarity of disclosures in the financial
statements.
The Committee reviewed and discussed the Company's audited financial
statements with management and the Company's independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles. The
Committee has discussed with the independent auditors the matters required by
Statement on Auditing Standards 61 (Communication with Audit Committees). In
addition, the Committee discussed with the independent auditors the auditors'
independence from management and the Company, including receipt of the written
disclosures and the letter from the independent auditors required by
Independence Standards Board, Standard No. 1 (Independence Discussion with Audit
Committees) and the compatibility of non-audit services provided by the auditors
with the auditors' independence.
Based on the reviews and discussions referred to above, the Audit
Committee has recommended to the Board of Directors that the Board approve the
inclusion of the audited financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission.
Audit Committee:
Dr. Peter R. Wilson
Robert M. Price
9
ACCOUNTING FEES
As discussed under "Appointment of Independent Auditors" the Company
dismissed its previous independent auditors, Ernst & Young LLP, in March 2002
and engaged Scott McElveen LLP to perform the audit of the Company's 2001
financial statements. Audit fees paid to Ernst & Young LLP in 2001 relating to
the audit of the Company's 2000 financial statements and certain reviews of the
Company's 2001 quarterly information totaled $154,852. The Company paid no
amounts to Scott McElveen LLP in 2001. The fees paid to independent auditors
during 2001 are summarized as follows:
Audit Fees: $100,300
Financial Information Systems Design and Implementation Fees: $ -
All other Fees: $ 54,552
PROPOSALS TO BE VOTED UPON
ELECTION OF DIRECTORS
The four individuals set forth under the caption "Board of
Directors-Nominees for Director" have been nominated by the Board of Directors
for election at the 2002 Annual Meeting of Stockholders. Each nominee for
director has indicated that he is willing and able to serve as a director, if
elected. However, if any nominee should become unable to serve or for good cause
will not serve, the persons named on the enclosed proxy card will vote for such
other nominees and substituted nominees as designated by the Board of Directors.
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Scott McElveen LLP, Columbia, South Carolina, has been
appointed by the Board of Directors of the Company as independent auditors for
the year ending December 31, 2002, subject to ratification of that appointment
by the stockholders of the Company. Scott McElveen LLP has acted as independent
auditors for the Company since March 2002. Representatives of Scott McElveen LLP
are expected to be present at the Annual Meeting with the opportunity to make a
statement if they so desire and will also be available to respond to appropriate
questions.
In March 2002 the Company's Board of Directors dismissed the Company's
former independent auditors, Ernst & Young LLP. The decision to change
independent auditors was approved by resolution of the Board of Directors. The
former auditors' report on the Company's financial statements as of and for the
period ended December 31, 2000 did not contain any adverse opinion or a
disclaimer of opinion and was not qualified or modified as to audit scope or
accounting principles; however, the report on the Company's December 31, 2000
financial statements contained an explanatory paragraph regarding the
uncertainty as to the Company's ability to continue as a going concern. There
were no disagreements with the former auditors on any matters of accounting
principles or practices, financial statement disclosure or auditing scope and
procedure with respect to the Company's consolidated financial statements up
through the time of dismissal that, if not resolved to the former auditor's
satisfaction, would have caused them to make reference to the matter in their
report.
The persons named on the accompanying proxy card intend to vote in
favor of the ratification of the appointment of Scott McElveen LLP as
independent auditors for the year ending December 31, 2002, unless a contrary
choice is indicated on the enclosed proxy card. The Board of Directors
unanimously recommends that each stockholder vote FOR this proposal.
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PROPOSALS BY STOCKHOLDERS
Under certain conditions, stockholders may request the Company to
include a proposal for action at a forthcoming meeting of the stockholders of
the Company in the proxy material of the Company for such meeting. All proposals
of stockholders intended to be presented at the 2003 Annual Meeting of
Stockholders of the Company must be received by the Company no later than
December 27, 2002 for inclusion in the Proxy Statement and proxy card relating
to such meeting.
In addition, under Article II, Section 9 of the Company's By-Laws,
nominations for election as a director of the Company and proposals for
stockholder action must be made in writing and be delivered or mailed to the
Secretary of the Company (i) in the case of an annual meeting of stockholders
that is called for a date that is within 30 days before or after the anniversary
date of the immediately preceding annual meeting of stockholders, not less than
60 days nor more than 90 days prior to such anniversary date and (ii) in the
case of an annual meeting of stockholders that is called for a date that is not
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, or in the case of a special meeting of
stockholders, not later than the close of business on the tenth day following
the day on which the notice of meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. Such notification must
contain a written statement of the stockholder's proposal and of the reasons
therefor, and, in the case of a nomination for director, nominations must
contain the following information to the extent known by the notifying
stockholder: (a) the name, age and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the nominee's qualifications
to serve as a director; (d) the name and residence address of the notifying
stockholder; and (e) the number of shares owned by the notifying stockholder.
Nominations or proposals not made in accordance with these procedures may be
disregarded by the chairman of the meeting in his discretion, and upon his
instructions all votes cast for each such nominee or for such proposal may be
disregarded.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors and certain officers of the Company, and persons who own more
than 10% of the outstanding shares of the Company's Common Stock, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock. Such persons are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. The Company believes that during 2001, all such persons filed such
reports on a timely basis.
OTHER MATTERS
The management of the Company knows of no other business that will be
presented for consideration at the Annual Meeting. However, if other matters are
properly presented at the meeting, it is the intention of the persons named on
the accompanying proxy card to vote such proxies in accordance with their best
judgment.
By order of the Board of Directors.
Joseph A. Boyle
Chairman, President and Chief Executive Officer
April 30, 2002
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Appendix A
PROXY CARD
AFFINITY TECHNOLOGY GROUP, INC.
1122 Lady Street, 11th Floor, Suite 1145
Columbia, SC 29201
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph A. Boyle and S. Sean Douglas as agents,
each with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote, as designated on the reverse side, all the shares
of Common Stock of Affinity Technology Group, Inc. held by the undersigned on
April 9, 2002 at the 2002 Annual Meeting of the Stockholders to be held on May
30, 2002 at 9:00 a.m. at Embassy Suites, 200 Stoneridge Drive, Columbia, South
Carolina, 29210 and at any adjournment thereof.
(see other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[X] Please mark your votes as indicated in this example.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
--------------------------------------------------------------------
Joseph A. Boyle, Wade H. Britt III, Robert M. Price, Peter R. Wilson
2. PROPOSAL TO RATIFY THE APPOINTMENT OF SCOTT McELVEEN LLP, INDEPENDENT
AUDITORS, FOR THE YEAR ENDING DECEMBER 31, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, THE PROXY AGENTS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This proxy, when properly dated and executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted for all the nominees for director named above and for
Proposal 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in
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full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
_________________________________________
Signature
_________________________________________
Signature if held jointly
DATED: _______________________________, 2002
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
FOLD AND DETACH HERE
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