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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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Affinity Technology Group, Inc.
(Name of Registrant as Specified in its Charter)
------------------------------------------------------------------------
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Affinity Technologies
April 30, 2007
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 2007 Annual Meeting of
Stockholders of Affinity Technology Group, Inc., to be held at the Embassy
Suites, 200 Stoneridge Drive, Columbia, South Carolina, on Thursday, May 31,
2007, at 10:00 a.m. local time.
The principal business of the meeting will be the election of directors
and the ratification of the appointment of our independent registered public
accounting firm. In addition, we plan to review the Company's business during
the past year and our plans 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,
/s/ Joseph A. Boyle
-------------------
Joseph A. Boyle
Chairman, President and
Chief Executive Officer
AFFINITY TECHNOLOGY GROUP, INC.
1310 Lady Street, Suite 601
Columbia, South Carolina 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 the Embassy Suites, 200 Stoneridge Drive,
Columbia, South Carolina, on Thursday, May 31, 2007, at 10:00 a.m. local time
for the following purposes:
o To elect three members to the Board of Directors;
o To consider and vote upon a proposal to ratify the appointment
Scott McElveen L.L.P. as the Company's independent registered
public accounting firm for the year ending December 31, 2007;
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 6,
2007, 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 1310 Lady
Street, Suite 601, Columbia, South Carolina.
By order of the Board of Directors:
/s/ Joseph A. Boyle
-------------------
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, 2007
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 2007 Annual Meeting of Stockholders of the Company
(the "Annual Meeting") to be held at the Embassy Suites, 200 Stoneridge Drive,
Columbia, South Carolina, on Thursday, May 31, 2007, at 10:00 a.m. local time.
The entire cost of this solicitation will be paid 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 the accompanying proxy card will be mailed
to stockholders on or about April 30, 2007.
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 6, 2007, 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 6, 2007, there were 45,267,398
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 in 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 the Company's independent registered public
accounting firm for the year ending December 31, 2007 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
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, for the proposal to ratify the
appointment of Scott McElveen L.L.P. as the Company's independent registered
public accounting firm for the year ending December 31, 2007, and in such manner
as the persons named on the enclosed proxy card in their discretion determine
upon any such other business that 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 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.
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 6, 2007, 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.
Percent of
Number of Shares Outstanding
DIRECTORS AND EXECUTIVE OFFICERS Beneficially Owned Shares Owned
- -------------------------------- ------------------ ------------
Peter R. Wilson (1) 630,067 1.38%
Robert M. Price (2) 686,179 1.50%
Joseph A. Boyle (3) 3,375,148 7.01%
S. Sean Douglas (4) 507,033 1.11%
Directors and executive officers as a group (4 persons) 5,198,427 10.54%
FIVE PERCENT STOCKHOLDERS
- -------------------------
The South Financial Group (5) 5,064,765 11.04%
- ---------------------
*Indicates less than one percent.
(1) Includes options to acquire 350,000 shares of Common Stock. that are
currently exercisable.
(2) Includes options to acquire 350,000 shares of Common Stock. that are
currently exercisable.
(3) Includes options to acquire 2,028,333 shares of Common Stock. that are
currently exercisable. Also includes 834,315 shares of Common Stock that
may be acquired upon conversion of a convertible note in the principal
amount of $166,863 held by Mr. Boyle. This amount does not include 43,887
shares that may be issued in lieu of cash, at the Company's election, in
payment of accrued interest on such convertible note.
(4) Consists entirely of options to acquire Common Stock that are exercisable
as of April 28, 2007.
(5) In March 2005, The South Financial Group, Inc. ("The South Financial
Group") transferred 4,876,340 shares of the Company's Common Stock to The
South Financial Group Foundation (the "Foundation"), and, based on an
amended Schedule 13G filed on or about February 14, 2006, the Foundation
held 4,454,190 shares of the Company's Common Stock. The shares shown in
the table above also include 610,575 shares of Common Stock that may be
acquired upon conversion of a convertible note in the principal amount of
$122,115 held by CF Investment Company, a subsidiary of The South Financial
Group. This amount does not include 32,118 shares that may be issued in
lieu of cash, at the Company's election, in payment of accrued interest on
such convertible note. 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 for 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. In November 2003, The South
Financial Group acquired a convertible note issued by the Company in the
original principal amount of $100,000, which is convertible into 500,000 shares
of Common Stock. In March 2005, The South Financial Group transferred all of its
remaining shares of Common Stock acquired upon exercise of the Warrant to The
South Financial Group Foundation. The South Financial Group Foundation holds
4,454,190 shares of the Company's Common Stock based on an amended Schedule 13G
filed on or about February 14, 2007. We have treated all shares held by The
South Financial Group Foundation as beneficially held by The South Financial
Group.
BOARD OF DIRECTORS
The business and affairs of the Company are 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 five times during the year ended December
31, 2006. All directors participated in at least 80% of all meetings of the
Board of Directors and the committees of the Board of Directors on which they
served during 2006.
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 appoint
and remove the Company's independent registered public accounting firm, 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, 2006, are Dr. Peter R. Wilson (Chairman) and Robert M. Price. The Board of
Directors has adopted a charter for the Audit Committee, and a copy of the
charter is attached as Appendix A to this Proxy Statement.
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 one time during the year ended December 31,
2006, are Robert M. Price (Chairman) and Dr. Peter R. Wilson. The Compensation
Committee does not have a formal written charter. As a matter of practice, the
Compensation Committee does not delegate any of its authority regarding the
determination of executive compensation. Further, in determining executive
compensation the opinions and recommendations of executive management are
considered by the Compensation Committee.
The Board of Directors has not established a nominating committee
primarily because it believes that the current composition and size of the Board
permit candid and open discussion regarding potential new candidates for
director. The entire Board of Directors currently operates as the nominating
committee for the Company, and all directors participate in the consideration of
director nominees. Of the three directors currently serving on the Board, the
Company believes that Dr. Peter R. Wilson and Robert M. Price are independent
directors within the meaning of the NASDAQ Marketplace Rules applicable to
directors and audit, compensation and nominating committee members of companies
listed on the NASDAQ Global Market. The Company does not believe that Messrs.
Wilson or Price are parties to other transactions, relationships or arrangements
not otherwise disclosed that affect their independence. There is no formal
process or policy that governs the manner in which the Company identifies
potential candidates for director, and the Board of Directors has not adopted
any specific, minimum qualifications that must be met to be nominated to serve
as a director. Historically, however, the Board of Directors has considered
several factors in evaluating candidates for nomination to the Board, including
the candidate's knowledge of the Company and its business, the candidate's
business experience and credentials, and whether the candidate would represent
the interests of all the Company's stockholders as opposed to a specific group
of stockholders. The Company does not have a formal policy with respect to its
consideration of director nominees recommended by stockholders of the Company
because the Board of Directors believes that it has been able to give
appropriate consideration to candidates recommended by stockholders in prior
years on a case-by-case basis. A stockholder who desires to recommend a
candidate for nomination to the Board of Directors should do so in writing to
the Company at 1310 Lady Street, Suite 601, Columbia, South Carolina 29201 Attn:
Chief Executive Officer.
Audit Committee Financial Expert
The Board of Directors has determined that Dr. Peter R. Wilson is an
"audit committee financial expert" for purposes of the rules and regulations of
the Securities and Exchange Commission ("SEC") adopted pursuant to the
Sarbanes-Oxley Act of 2002. Mr. Wilson also is an independent director within
the meaning of the NASDAQ Marketplace Rules applicable to audit committee
members of companies listed on the NASDAQ Global Market.
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 three, effective at the Annual Meeting. The three
persons named below are nominated to serve on the Board of Directors until the
2008 Annual Meeting of Stockholders or until their successors are elected and
qualified. Each nominee is currently a director of the Company.
There is no formal policy regarding attendance by directors at annual
stockholder meetings, although attendance is encouraged. Last year, three of the
four directors of the Company attended the 2006 Annual Meeting of Stockholders
of the Company.
The age and a brief biographical description of each nominee for
director are set forth below.
Joseph A. Boyle (53) has been a director since March 2000. Mr. Boyle became
President and Chief Executive Officer of the Company in January 2000 and
Chairman in March 2001. Mr. Boyle has also served as Chief Financial Officer of
the Company since September 1996. Mr. Boyle also held the title of Senior Vice
President from September 1996 to January 2000. Mr. Boyle has also previously
served as Secretary and Treasurer of the Company. To conserve the Company's
limited financial resources, Mr. Boyle has from time to time adjusted his time
commitment to and compensation received from the Company. Since January 3, 2005,
Mr. Boyle has performed consulting services for a local financial institution.
From April 2003 to August 2004, Mr. Boyle also was a partner of Elliott Davis,
LLC, a South Carolina public accounting firm. 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 was a member of the firm's
Mortgage Banking Group. Mr. Boyle was employed by Price Waterhouse, LLP from
June 1982 to August 1996.
Robert M. Price (76) 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 PNM Resources and Datalink Corporation.
Dr. Peter R. Wilson (54) 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.
Compensation of Directors
The Company has two non-employee directors, Robert M. Price and Dr.
Peter R. Wilson. In order to conserve its cash resources, since March 2002 the
Company has compensated its directors through stock-based compensation,
primarily in the form of stock option grants. Prior to that time its policy was
to compensate non-employee directors primarily through cash compensation and
each received $2,000 for each meeting attended in person and $500 for each
meeting attended by teleconference. In January 2003, the Company issued to Mr.
Price and Dr. Wilson, each, 141,667 shares of its common stock to compensate
them for cash compensation they had deferred due to the Company's limited cash
resources.
In March 2002, we adopted a director compensation plan under which
non-employee directors received a one-time grant to purchase 100,000 shares of
our common stock at the closing price on the date immediately preceding the
grant date. The options vested over two years and were designed to compensate
our non-employee directors for the two-year period ending in March 2004.
From March 2004 until July 2006, our non-employee directors received no
compensation from us. In July 2006 our Board of Directors approved a stock
option grant in which our non-employee directors participated, the details of
which are set forth in the table below. Our objectives in granting our
non-employee directors the stock options were to compensate them for the period
in which we have not compensated them, to provide them with future compensation
during the period that the stock options vest and to further align their
interest with the interest of our stockholders.
Other than the reimbursement of out-of-pocket expenses incurred in
attending meetings, we currently provide no other compensation to our
non-employee directors.
The following summary compensation table sets forth information
concerning the cash and non-cash compensation earned by, paid to and awarded to
our non-employee directors during the year ended December 31, 2006:
Director Compensation in 2006
Fees
Earned
or Paid Option All Other
Name In Cash Awards Compensation Total
- --------------------- ------------ ------------ ------------ ------------
Robert M. Price $ - $ 90,020 (1) $ - $ 90,020
Peter R. Wilson $ - $ 90,020 (1) $ - $ 90,020
(1) Amount represents the expense we recognized in 2006 related to the stock
options we granted to Mr. Price and Dr. Wilson in July 2006 in accordance
with a compensation plan adopted by the Board of Directors. The expense we
recognized represents the portion of the estimated fair value of the
options we granted allocable to 2006 and was determined in accordance with
Statement of Financial Accounting Standards No. 123R, "Share-Based
Payments." Under the plan Mr. Price and Dr. Wilson, each, received options
to purchase 500,000 shares of our common stock at an exercise price of
$0.35 per share and options to purchase 500,000 shares of our common stock
at an exercise price of $0.50 per share. The total fair value of the
options we granted to Mr. Price and Dr. Wilson was $132,500. The options
with an exercise price of $0.35 vested immediately and the options with and
exercise price of $0.50 vest ratably on the first and second anniversary of
the grant date. The options are classified as non-qualified stock options
for federal tax purposes and were granted outside of a shareholder-approved
plan. The assumptions used in valuing these options are set forth in Note 5
of our consolidated financial statements included in the Company's 2006
Annual Report, as well as the Company's Annual Report on Form 10-K for the
year ended December 31, 2006, as filed with the SEC.
Code of Ethics
The Board of Directors has adopted a Code of Ethics for the Company's
Chief Executive Officer and all other senior financial officers, including the
principal accounting officer. The Company has filed a copy of the Code of Ethics
as Exhibit 14 to its Annual Report on Form 10-K for the year ended December 31,
2003.
Stockholder Communications with Directors
The Board of Directors has not adopted a formal process by which
stockholders may communicate with the Board of Directors. However, a stockholder
who desires to communicate with one or more of the Company's directors may do so
by sending a written communication to the Company at 1310 Lady Street, Suite
601, Columbia, South Carolina 29201, Attn: Chief Executive Officer. The Company
will provide all such written communications to the individual director(s) to
whom such communications are directed.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Affinity has two employees, a Chief Executive Officer and a Chief
Operating Officer. Both of these employees are "named executives" as such term
is used for purposes of a discussion of our compensation policies and
arrangements. Historically, our compensation policies and arrangements have, to
a great extent, been dictated by the limited cash resources available for cash
compensation to our named executives. Due to our limited cash resources, from
2003 until August 2006 both of our named executives received only a portion of
the cash compensation each earned. During that period, our Chief Executive
Officer and Chief Operating Officer received 60% and 63%, respectively, of cash
compensation they earned. Moreover, during that period our Chief Executive
Officer, from time to time, reduced his time commitment to Affinity in order to
conserve cash resources.
Due to our limited cash resources we have placed a high degree of
emphasis on stock-based compensation, primarily in the form of stock option
grants. These grants are intended to achieve our principal compensation
objectives of retaining executive officers who have developed the significant
historical experience, knowledge and relationships necessary to continue
operating our highly specialized business and rewarding them for their
contributions to the further development of our business and prospects. Further,
we believe that stock-based compensation achieves an important compensation
objective of aligning the interest of our named executives with the interest of
our stockholders over a long period of time.
As more fully explained in our Annual Report on Form 10-K for the year
ended December 31, 2006 under the section heading "Our Business - Patents and
Legal Matters," during 2006, we successfully concluded the reexamination of our
U.S. Patent No. 6,105,007 in 2006. The successful conclusion of the
reexamination caused the lifting of our patent infringement lawsuits,
facilitated our ability to raise additional capital and necessitated the return
to full time status of our Chief Executive Officer.
In light of the general advance of our business activities as a result
of the successful conclusion of the reexamination of our U.S. Patent 6,105,007,
in July 2006 our Board of Directors approved new compensation terms for our
named executives. The compensation terms consisted of the establishment of base
cash compensation for and the granting of stock options to our named executives
as described in the tables below. In determining the base cash compensation
amounts our Board considered numerous factors, including: cash compensation
levels of executives in comparably sized and complex companies; the cash
compensation amount our named executives would likely receive from other
companies based on their experience levels and the historical amounts we have
paid to them, including these executives' history of voluntary salary reductions
and deferral of earned cash compensation.
During 2006, we granted a significant number of options to our named
executives. Key factors considered in determining the level of stock options
granted of to our named executives in 2006 included: levels of ownership of
executives considered appropriate for similar companies at a comparable stage of
development; the absence of stock option grants to the named executives in the
preceding two years; and, our progress in advancing our patent and business
interests in 2006.
Other than cash compensation, which includes our named executives' base
salary and amounts paid to them to defray the cost of their health care
premiums, and stock-based compensation in the form of stock option grants, we
currently provide no other compensation to our named executives. It is possible
that, depending on our progress in the future, our Board of Directors could
grant bonuses to our named executives based on factors they consider relevant at
that time or that a formal bonus plan could be developed to reward our named
executives for the achievement of specific objectives.
Furthermore, neither of our named executives is subject to an
employment contract and there are no formal or informal agreements with them
concerning severance arrangements, other than common accelerated vesting
provisions related to unvested stock options in the event we have a change of
control.
During 2006, neither of our named executives exercised any stock
options.
Summary Compensation Table
The following summary compensation table sets forth information
concerning the cash and non-cash compensation earned by, paid to and awarded to
our named executives during the year ended December 31, 2006:
Annual Compensation
------------------------------------------------
Name and Option All Other
Principal Position Year Salary Awards Compensation Total
- --------------------------------- -------- -------------- -------------- -------------- -------------
Joseph A. Boyle 2006 $ 137,310 (1) $ 366,803 (2) $ 3,058 (3) $ 507,171
President and Chief 2005 24,000 (4) - 3,180 (5) 27,180
Executive Officer 2004 50,307 (6) - 2,907 (7) 53,214
S. Sean Douglas 2006 $ 111,918 (8) $ 124,713 (9) $ 3,058 (10) $ 239,689
Executive Vice President 2005 100,000 (11) - 3,180 (12) 103,180
And Chief Operating Officer 2004 100,000 (13) - 3,180 (14) 103,180
(1) Amount represents cash compensation of $93,071 Mr. Boyle received
subsequent to his returning to full-time employment with Affinity in July
2006 and accrued compensation of $44,239 which has not been paid to Mr.
Boyle due to our limited cash resources. From January 2006 through June
2006, Mr. Boyle received no cash compensation and compensation was accrued
on his behalf at an annual rate of $24,000. From July 2006 through
September 2006, Mr. Boyle was paid cash compensation at a rate less than
the amount of compensation he earned due to limited cash resources. In July
2006, Mr. Boyle's base annual salary was established at $250,000.
(2) Amount represents the expense we recognized in 2006 related to the stock
options we granted to Mr. Boyle in July 2006 in accordance with a
compensation plan adopted by the Board of Directors. The expense we
recognized represents the portion of the estimated fair value of the
options we granted allocable to 2006 and was determined in accordance with
Statement of Financial Accounting Standards No. 123R, "Share-Based
Payments." Under the plan Mr. Boyle received options to purchase 2.5
million shares of our common stock at an exercise price of $0.50 per share.
The options are classified as non-qualified stock options for federal tax
purposes and were granted outside of a shareholder-approved plan. One-third
(833,333) of the options vested at the date of grant and an additional
833,333 will vest on the first and second anniversary of the grant date,
respectively. The assumptions used in valuing these options are set forth
in Note 5 of our consolidated financial statements included herewith.
(3) Amount represents payments of $979 to Mr. Boyle and accrued payments of
$2,079 for the maintenance of health insurance coverage under a non-company
sponsored plan. We discontinued offering health insurance to our employees
in 2003 in an effort to conserve cash.
(4) Amount represents accrued compensation which has not been paid to Mr. Boyle
due to the limited cash resources of the Company.
(5) Amount represents accrued payments to Mr. Boyle for the maintenance of
health insurance coverage under a non-company sponsored plan. The Company
discontinued offering health insurance coverage to its employees in 2003 in
an effort to conserve cash resources.
(6) Amount represents cash compensation of $34,615 Mr. Boyle received during
the period August 20, 2004 through December 31, 2004 and accrued
compensation of $15,692 for the period January 1, 2004 through August 19,
2004 which has not been paid to Mr. Boyle due to the limited cash resources
of the Company.
(7) Amount includes $2,295 in payroll taxes paid on Mr. Boyle's behalf related
to issuance of 500,000 shares of Common Stock in 2002. The amount also
includes payments of $612 to Mr. Boyle for the maintenance of health
insurance coverage under a non-company sponsored plan. The Company
discontinued offering health insurance coverage to its employees in 2003 in
an effort to conserve cash resources.
(8) Amount represents cash compensation of $66,789 Mr. Douglas received during
2006 and accrued compensation of $45,129 which has not been paid to Mr.
Douglas due to our limited cash resources. In July 2006, Mr. Douglas' base
annual salary was established at $125,000.
(9) Amount represents the expense we recognized in 2006 related to the stock
options we granted to Mr. Douglas in July 2006 in accordance with a
compensation plan adopted by the Board of Directors. The expense we
recognized represents the portion of the estimated fair value of the
options we granted allocable to 2006 and was determined in accordance with
Statement of Financial Accounting Standards No. 123R, "Share-Based
Payments." Under the plan Mr. Douglas received options to purchase 850
thousand shares of our common stock at an exercise price of $0.50 per
share. The options are classified as non-qualified stock options for
federal tax purposes and were granted outside of a shareholder-approved
plan. One-third (283,333) of the options vested at the date of grant and an
additional 283,333 will vest on the first and second anniversary of the
grant date, respectively. The assumptions used in valuing these options are
set forth in Note 5 of our consolidated financial statements included
herewith.
(10) Amount represents payments of $2,324 to Mr. Douglas and accrued payments of
$734 for the maintenance of health insurance coverage under a non-company
sponsored plan. We discontinued offering health insurance to our employees
in 2003 in an effort to conserve cash.
(11) Amount represents cash compensation of $35,738 paid to Mr. Douglas during
2005 and accrued compensation of $64,262 for 2005 which has not been paid
to Mr. Douglas due to the limited cash resources of the Company.
(12) Amount represents cash payments of $1,712 to Mr. Douglas in 2005 and
accrued payments of $1,468 in 2005 for the maintenance of health insurance
coverage under a non-company sponsored plan. The Company discontinued
offering health insurance coverage to its employees in 2003 in an effort to
conserve cash resources.
(13) Amount represents cash compensation of $75,600 paid to Mr. Douglas during
2004 and accrued compensation of $24,400 for 2004 which has not been paid
to Mr. Douglas due to the limited cash resources of the Company.
(14) Amount represents payments to Mr. Douglas for the maintenance of health
insurance coverage under a non-company sponsored plan. The Company
discontinued offering health insurance coverage to its employees in 2003 in
an effort to conserve cash resources.
The following table provides information regarding awards of equity
compensation (all in the form of options to purchase our common stock) to our
named executives during the year ended December 31, 2006.
Grants of Plan-Based Awards Table
Option Awards
---------------------------------------------------------
Number of
Securities Exercise
Grant Underlying Price of Grant Date
Name Date Options Options Fair Value
- ---------------- ----------------- ----------------- ----------------- -----------------
Joseph A. Boyle July 14, 2006 2,500,000 $ 0.50 $ 650,000
S. Sean Douglas July 14, 2006 850,000 $ 0.50 $ 221,000
The following table provides information with respect to unexercised
options for our named executives as of December 31, 2006.
Outstanding Equity Awards at December 31, 2006
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option Option
Options- Options- Exercise Expiration
Name Exercisable Unexercisable Price Date
- ---------------- ----------------- ----------------- ----------------- -----------------
Joseph A. Boyle 70,000 $ 3.75 7/9/2007
125,000 0.94 7/28/2008
100,000 0.50 10/4/2008
200,000 1.47 2/28/2010
200,000 0.09 4/19/2011
500,000 0.09 3/19/2012
833,333 1,666,667 0.50 7/13/2016
S. Sean Douglas 200 2.31 3/23/2008
1,000 1.50 7/6/2009
15,000 1.06 2/22/2010
7,500 1.06 7/21/2010
80,000 20,000 0.09 3/19/2012
75,000 50,000 0.19 4/27/2013
283,333 566,667 0.50 7/13/2016
REPORT OF THE COMPENSATION COMMITTEE
ON
EXECUTIVE COMPENSATION
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis contained in this Proxy Statement with management. Based
on the review and discussion referred to above, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
Compensation Committee:
Robert M. Price
Dr. Peter R. Wilson
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review and Approval of Related Person Transactions
The Company's Audit Committee pursuant to prior practice in the
exercise of its judgment and discretion, and as provided in its charter, reviews
and approves the terms of any relationships and transactions in which the
Company and directors and executive officers or their immediate family members
have a direct or indirect material interest.
Related Party Transactions
Since June 2002, the Company has primarily financed its operations from
the proceeds received through the issuance of convertible notes. In June 2002,
the Company's Chief Executive Officer purchased a convertible note in the
principal amount of $125,000. In June 2004, all of the Company's then
outstanding convertible notes, including the note issued to its Chief Executive
Officer, went into default. In August 2006, the Company reached an agreement
with the holders of its notes outstanding at that time (the "existing notes"),
under which the Company exchanged the existing notes, all of which were in
default, for new notes. The principal of the new notes included the original
principal of the existing notes plus the accrued interest on the existing notes
and mature in August 2008. In accordance with the exchange, the Company issued
to its Chief Executive Officer a new note in the amount of $166,863. Additional
information regarding the Company's convertible notes and this transaction with
our Chief Executive Officer is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and in Note 4 to our consolidated financial statements
included in the Company's 2006 Annual Report, as well as the Company's Annual
Report on Form 10-K for the year ended December 31, 2006, as filed with the
SEC.
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 NASDAQ Marketplace Rules applicable to audit committee members of
companies listed on the NASDAQ Global Market. 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 registered public
accounting firm, which is 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
registered public accounting firm the matters required by Statement on Auditing
Standards 61 (Communication with Audit Committees). In addition, the Committee
discussed with the independent registered public accounting firm the firm's
independence from management and the Company, including receipt of the written
disclosures and the letter from the independent registered public accounting
firm required by Independence Standards Board, Standard No. 1 (Independence
Discussion with Audit Committees). If applicable, the Committee also considers
the compatibility of non-audit services provided by the independent registered
public accounting firm with the firm's 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, 2006, as filed with the Securities and
Exchange Commission.
Audit Committee:
Dr. Peter R. Wilson
Robert M. Price
ACCOUNTING FEES
The following table presents fees billed by Scott McElveen, LLP, the
Company's independent registered public accounting firm, for 2006 and 2005 for
(i) audit fees, (ii) audit related fees (consisting entirely of fees associated
with the Company's registration statement), (iii) tax fees, and (iv) all other
fees :
2006 2005
---------------------------------
Audit Fees $28,500 $27,500
Audit Related Fees 2,225 -
Tax Fees - -
All Other Fees - -
---------------------------------
Total Fees $30,725 $27,500
=================================
Pre-Approval Policy
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent registered public accounting firm. Under
the policy, and in accordance with the Sarbanes-Oxley Act of 2002, the Audit
Committee may delegate pre-approval authority to one or more of its members.
However, any member to whom such authority is delegated is required to report on
any pre-approval decisions to the Audit Committee at its next scheduled meeting.
The Audit Committee did not fail to pre-approve any of the services provided by
Scott McElveen L.L.P. during 2006.
PROPOSALS TO BE VOTED UPON
Election of Directors
The three individuals set forth under the caption "Board of
Directors-Nominees for Director" have been nominated by the Board of Directors
for election at the 2007 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 Registered Public Accounting Firm
The firm of Scott McElveen L.L.P., Columbia, South Carolina, has been
appointed by the Audit Committee as the Company's independent registered public
accounting firm for the year ending December 31, 2007, subject to ratification
of that appointment by the stockholders of the Company. Scott McElveen L.L.P.
has acted as the independent public accounting firm for the Company since March
2002. Representatives of Scott McElveen L.L.P. 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.
The persons named on the accompanying proxy card intend to vote in
favor of the ratification of the appointment of Scott McElveen L.L.P. as the
Company's independent registered public accounting firm for the year ending
December 31, 2007, unless a contrary choice is indicated on the enclosed proxy
card. The Board of Directors unanimously recommends that each stockholder vote
FOR this proposal.
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. Only persons
who have held beneficially or of record the lesser of at least $2,000 in market
value, or 1% of the outstanding Common Stock, for at least one year on the date
the proposal is submitted and who continue in such capacity through the meeting
date are eligible to submit proposals to be considered for inclusion in the
Company's proxy statement. All such proposals of stockholders intended to be
presented at the 2008 Annual Meeting of Stockholders of the Company must be
received by the Company no later than January 2, 2008 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
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 therefore 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 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. Based on the Company's
review of the reports filed during 2006, the Company believes that all such
reports were filed 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.
/s/ Joseph A. Boyle
-------------------
Joseph A. Boyle
Chairman, President and
Chief Executive Officer
April 30, 2007
Appendix A
AFFINITY TECHNOLOGY GROUP, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AMENDED AND RESTATED CHARTER
I. PURPOSE
The primary function of the Audit Committee (the "Committee") is to assist the
Board of Directors of Affinity Technology Group, Inc. (the "Corporation") in
overseeing (a) the Corporation's accounting and financial reporting processes
generally, (b) the audits of the Corporation's financial statements, and (c) the
Corporation's systems of internal controls regarding finance and accounting.
While the Committee has the responsibilities and authority set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Corporation's financial statements are complete, accurate or
in accordance with generally accepted accounting principles. That is the
responsibility of management and the independent accountants.
The independent accountants are ultimately accountable to the Committee, which
has the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent accountants. The Committee has direct
responsibility for the compensation and oversight of the work of the independent
accountants (including resolution of disagreements between management and the
independent accountants regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. The independent
accountants shall report directly to the Committee.
The Corporation shall provide appropriate funding, as determined by the
Committee, for payment of compensation to the independent accountants for all
audit and other services approved by the Committee or pursuant to its policies
and to discharge any of the Committee's powers or responsibilities.
II. COMPOSITION
The Committee shall be comprised of such directors as appointed by the Board
from time to time. Unless otherwise determined by the Board, each member of the
Committee will be an "independent director" within the meaning of such standards
as deemed appropriate by the Board. Unless a Chairman of the Committee is
appointed by the Board, the members of the Committee may designate a Chairman by
majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least one time annually, or more frequently as
circumstances dictate. The Committee may ask members of management or others to
attend any meeting and provide information or advice as needed. As part of its
responsibility to foster open communication, the Committee may meet periodically
with management and the independent accountants in separate executive sessions
to discuss any matters that the Committee or either of these groups believes
should be discussed privately.
IV. ACTIVITIES
To fulfill its responsibilities and duties, the Committee shall:
Review of Documents and Reports; Audit Committee Report
- -------------------------------------------------------
1. Review this Charter from time to time and recommend its revision by
the Board, as conditions require.
2. Review the Corporation's annual financial statements and any
accompanying certification, report, opinion, or review by the independent
accountants.
3. Have the authority to retain special legal, accounting or other
consultants to advise the Committee, and otherwise to seek information or advice
in any manner it deems appropriate.
4. Inquire of management and the independent accountants about
significant risks or exposures and assess the steps management has taken to
minimize such risks to the Corporation.
5. Provide a report or any other disclosures required of the Committee
to be included in each proxy statement of the Corporation. Such report shall
include the name of each Committee member and shall contain such information as
is required to be included in such report by the rules and regulations of the
Securities and Exchange Commission, including, without limitation, the
representation that the Committee has received the disclosures and letter from
the independent accountants consistent with Standard No. 1 of the Independence
Standards Board, or any such successor standard then in effect.
Independent Accountants
- -----------------------
6. Select the independent accountants, considering independence and
effectiveness, and approve the scope of the proposed audit for each fiscal year
and the fees and other compensation to be paid to the independent accountants
therefor.
7. Review and periodically discuss with the accountants all significant
relationships the accountants have with the Corporation and others that may
affect the accountants' independence.
8. Review the performance of the independent accountants, and replace
the independent accountants if and when circumstances warrant.
9. Periodically consult with the independent accountants about internal
controls and the Corporation's financial statements.
10. Preapprove all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Corporation by
its independent accountants, subject to such exceptions for non-audit services
as permitted by applicable laws and regulations. The Committee may form and
delegate authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant preapprovals of audit and
permitted non-audit services, provided that decisions of such subcommittee to
grant preapprovals shall be presented to the full Committee at its next
scheduled meeting.
11. Evaluate the qualifications, performance and independence of the
independent accountants, including considering whether the provision of
permitted non-audit services is compatible with maintaining the accountant's
independence, and taking into account the opinion of management.
Financial Reporting Processes
- -----------------------------
12. In consultation the independent accountants, review the integrity
and adequacy of the Corporation's financial reporting processes, both internal
and external.
13. Discuss with the independent accountants their judgments about the
quality and appropriateness of the Corporation's accounting principles as
applied in its financial reporting.
14. Review and discuss reports from the independent accountants on: (a)
all critical accounting policies and practices to be used; (b) all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the treatment preferred by the
independent accountants; and (c) other material written communications between
the independent accountants and management, such as any management letter or
schedule of unadjusted differences.
15. Consider and review with the independent accountants any
significant findings and recommendations of those accountants, together with
management's responses thereto.
16. Consider, and approve if appropriate, any major changes to the
Corporation's auditing and accounting principles and practices suggested by the
independent accountants or management.
Process Improvement
- -------------------
17. Facilitate the reporting to the Committee by both management and
the independent accountants of any significant judgments made in management's
preparation of the financial statements and the view of both management and the
accountants as to appropriateness of such judgments.
18. After completion of the annual audit, review with both management
and the independent accountants any significant difficulties encountered during
the course of the audit, including any restrictions on the scope of work or
access to required information.
19. Review and resolve any significant disagreement among management
and the independent accountants in connection with the preparation of the
financial statements.
20. Review with the independent accountants and management the extent
to which any changes or improvements in financial or accounting practices that
have been approved by the Committee have been implemented.
Miscellaneous
- -------------
21. Report Committee activities to the Board of Directors and make such
recommendations to the Board of Directors as the Committee deems appropriate.
22. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law that the Committee or the Board may deem
necessary or appropriate.
23. Receive reports regarding, and review, any "related person"
transactions, within the meaning of applicable disclosure rules of the
Securities and Exchange Commission or any other applicable stock exchange or
trading market rules, and determine whether to ratify or approve such
transactions.
PROXY CARD
AFFINITY TECHNOLOGY GROUP, INC.
1310 Lady Street, Suite 601
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 as of
the close of business on April 6, 2007 at the 2007 Annual Meeting of the
Stockholders of Affinity Technology Group, Inc. to be held on Thursday, May 31,
2007, at 10:00 a.m. at the Embassy Suites, 200 Stoneridge Drive, Columbia, South
Carolina 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, Robert M. Price, Peter R. Wilson
2. PROPOSAL TO RATIFY THE APPOINTMENT OF SCOTT McELVEEN L.L.P.,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, FOR THE YEAR ENDING
DECEMBER 31, 2007.
[ ] 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 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: ____________________________ , 2007
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
FOLD AND DETACH HERE