<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION NO.: 333-37213
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
CENTRAL FINANCIAL ACCEPTANCE CORPORATION CFAC CAPITAL I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) ORGANIZATION)
95-4574983 95-4653518
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
6141 6719
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
5480 EAST FERGUSON DRIVE C/O CENTRAL FINANCIAL ACCEPTANCE CORPORATION
COMMERCE, CALIFORNIA 90022 5480 EAST FERGUSON DRIVE
(213)720-8600 COMMERCE, CALIFORNIA 90022
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (213)720-8600
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE (ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
OFFICE) INCLUDING AREA CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICE)
</TABLE>
GARY M. CYPRES
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(213) 720-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
WILLIAM T. QUICKSILVER, ESQ. RICHARD S. FORMAN, ESQ.
MANATT, PHELPS & PHILLIPS, LLP STROOCK & STROOCK & LAVAN LLP
11355 WEST OLYMPIC BOULEVARD 2029 CENTURY PARK EAST
LOS ANGELES, CA 90064-1614 SUITE 1800
TELEPHONE: (310)312-4210 LOS ANGELES, CA 90067
TELEPHONE: (310)556-5800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
========================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE PER UNIT(1) REGISTRATION FEE(5)
- ------------------------------------------------------------------------------------------------------------------------
% Cumulative Trust Preferred
Securities of CFAC Capital I.......... 2,415,000 shares $25 $60,375,000 $18,296
- ------------------------------------------------------------------------------------------------------------------------
Junior Subordinated Deferrable
Interest Debentures of Central
Financial Acceptance Corporation(2)... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Central Financial Acceptance
Corporation Guarantee with respect to
% Cumulative Trust Preferred
Securities(3)......................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total(4)...................... -- -- -- $18,296
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</TABLE>
(1) Estimated solely to calculate the registration fee pursuant to Rule 457(a).
(2) The Junior Subordinated Deferrable Interest Debentures will be purchased by
CFAC Capital I with the proceeds from the sale of the % Cumulative Trust
Preferred Securities. Such securities may later be distributed for no
additional consideration to the holders of the % Cumulative Trust
Preferred Securities of CFAC Capital I upon its dissolution and the
distribution of its assets.
(3) No separate consideration will be received for the Central Financial
Acceptance Corporation Guarantee.
(4) This Registration Statement is deemed to cover the Junior Subordinated
Deferrable Interest Debentures of Central Financial Acceptance Corporation,
the rights of holders of Junior Subordinated Deferrable Interest Debentures
of Central Financial Acceptance Corporation under the Indenture, the rights
of holders of Trust Preferred Securities of CFAC Capital I under the Trust
Agreement, the rights of holders of the % Cumulative Trust Preferred
Securities under the Guarantee and the Expense Agreement entered into by
Central Financial Acceptance Corporation and certain backup undertakings as
described herein, which taken together, fully, irrevocably and
unconditionally guarantee all of the obligations of CFAC Capital I under
the % Cumulative Trust Preferred Securities.
(5) The Registrants previously paid a filing fee of $15,247 in connection with
this Registration Statement.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1997
PROSPECTUS
2,100,000 TRUST PREFERRED SECURITIES
CFAC CAPITAL I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
LOGO
FINANCIAL ACCEPTANCE CORPORATION
The % Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of CFAC Capital I, a statutory business trust formed under the
laws of the State of Delaware ("CFAC Capital"). Central Financial Acceptance
Corporation, a Delaware corporation (referred to as the "Company" when such
reference includes Central Financial Acceptance Corporation and its
subsidiaries, collectively, or "Central" when referring only to the parent
company), will be the owner of all of the beneficial interests represented by
common securities of CFAC Capital (the "Common Securities" and, collectively
with the Trust Preferred Securities, the "Trust Securities"). CFAC Capital
exists for the sole purpose of issuing the Trust Securities and investing the
proceeds thereof in an equivalent amount of % Junior Subordinated Deferrable
Interest Debentures (the "Junior Subordinated Debentures") to be issued by
Central. The Junior Subordinated Debentures will mature on , 2027,
which date may be shortened (such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than , 2002, subject to redemption
on earlier dates as described below. The Trust Preferred Securities will have a
preference under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise over the Common
Securities, which will be held by Central. See "Description of the Trust
Preferred Securities -- Subordination of Common Securities of CFAC Capital Held
by Central."
(Continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 14 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO CFAC
PUBLIC DISCOUNT(1) CAPITAL(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Per Trust Preferred Security........................... $ 25 (2) $ 25
- ----------------------------------------------------------------------------------------------------------
Total(3)............................................... $52,500,000 (2) $ 52,500,000
==========================================================================================================
</TABLE>
(1) Central and CFAC Capital have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that all of the proceeds of the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated
Debentures, Central has agreed to pay the Underwriters, as compensation for
arranging the investment therein of such proceeds, $ per Trust
Preferred Security, or $ in the aggregate. See "Underwriting."
Central has also agreed to pay the expenses of the offering estimated to be
$300,000.
(3) CFAC Capital has granted the Underwriters an option exercisable within 30
days from the date of this Prospectus to purchase up to 315,000 additional
Trust Preferred Securities on the same terms and conditions set forth above
to cover over-allotments, if any. If all such additional Trust Preferred
Securities are purchased, the total Price to Public and Proceeds to CFAC
Capital will be $60,375,000. See "Underwriting."
The Trust Preferred Securities are being offered by the Underwriters named
herein subject to prior sale and when, as and if delivered to and accepted by
the Underwriters. It is expected that the Trust Preferred Securities will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company in New York, New York, on or about , 1997,
against payment therefor in immediately available funds.
SUTRO & CO. INCORPORATED
, 1997
<PAGE> 3
(Continued from previous page)
Holders of the Trust Preferred Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable quarterly in arrears on the 15th day of March, June,
September and December of each year (subject to possible deferral as described
below), commencing on December 15, 1997, at the annual rate of % of the
Liquidation Amount (as defined herein) of $25 per Trust Preferred Security
("Distributions"). The amount of each Distribution due with respect to the Trust
Preferred Securities will include amounts accrued through the date the
Distribution payment is due. Central will have the right, so long as no
Debenture Event of Default (as defined below) has occurred and is continuing, to
defer payments of interest on the Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, Central may elect to begin a new Extension
Period subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Trust
Preferred Securities will also be deferred and Central will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to its capital stock or to make any payment with
respect to its debt securities that rank pari passu with or junior to the Junior
Subordinated Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Trust Preferred Securities are entitled will accumulate)
at the rate of % per annum, compounded quarterly, and holders of the Trust
Preferred Securities will be required to accrue income and will be required to
pay United States federal income tax on that income. See "Description of Junior
Subordinated Debentures -- Option to Defer Interest Payment Period" and "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount."
Central has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement (each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of CFAC Capital's obligations under the Trust
Preferred Securities. See "Relationship Among the Trust Preferred Securities,
the Junior Subordinated Debentures and the Guarantee -- Full and Unconditional
Guarantee." Under the Guarantee, Central guarantees the payment of Distributions
by CFAC Capital and payments on liquidation of or redemption of the Trust
Preferred Securities (subordinate to the right to payment of Senior and
Subordinated Debt of Central, as defined herein) to the extent of funds held by
CFAC Capital. See "Description of Guarantee." If Central does not make required
payments on the Junior Subordinated Debentures held by CFAC Capital, CFAC
Capital will have insufficient funds to pay Distributions on the Trust Preferred
Securities. The Guarantee does not cover payment of Distributions when CFAC
Capital does not have sufficient funds to pay such Distributions. In such event,
a holder of the Trust Preferred Securities may institute a legal proceeding
directly against Central pursuant to the terms of the Indenture to enforce
payment of such Distributions to such holder. See "Description of Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of the Trust
Preferred Securities." The obligations of Central under the Guarantee and the
Junior Subordinated Debentures are subordinate and junior in right of payment to
all Senior and Subordinated Debt (as defined in "Description of Junior
Subordinated Debentures -- Subordination") of Central.
The Trust Preferred Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Junior Subordinated Debentures at the
Stated Maturity or their earlier redemption in each case at a redemption price
equal to the aggregate liquidation preference of the Trust Preferred Securities
plus any accumulated and unpaid Distributions thereon to the date of redemption.
Subject to restrictions contained in any Senior and Subordinated Debt or
regulatory approval if then required under applicable regulatory policies, the
Junior Subordinated Debentures are redeemable prior to maturity at the option of
Central (i) on or after , 2002, in whole at any time or in part
from time to time, or (ii) at any time (whether occurring before or after
, 2002) in whole (but not in part), within 90 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital Treatment
Event (each as defined herein), in each case at a redemption price equal to the
accrued and unpaid interest on the Junior Subordinated Debentures to
(Continued on next page)
2
<PAGE> 4
(Continued from previous page)
the date fixed for redemption, plus 100% of the principal amount thereof. See
"Description of the Trust Preferred Securities -- Redemption."
Central will have the right at any time to dissolve CFAC Capital and cause
a Like Amount (as defined herein) of the Junior Subordinated Debentures to be
distributed to the holders of the Trust Securities in liquidation of CFAC
Capital, subject to Central having received prior approval of the primary
federal regulator of Central if then required under applicable capital
guidelines or policies of such primary regulator. See "Description of the Trust
Preferred Securities -- Liquidation Distribution Upon Dissolution."
In the event of the dissolution of CFAC Capital, after satisfaction of
liabilities to creditors of CFAC Capital as required by applicable law, the
holders of Trust Preferred Securities will be entitled to receive a liquidation
amount of $25 per Trust Preferred Security ("Liquidation Amount"), plus
accumulated and unpaid Distributions thereon to the date of payment, which may
be in the form of a Distribution of such Like Amount of Junior Subordinated
Debentures, subject to certain exceptions. See "Description of the Trust
Preferred Securities -- Liquidation Distribution Upon Dissolution."
The Junior Subordinated Debentures and Guarantee are unsecured and
subordinated in right of payment to all Senior and Subordinated Debt. The terms
of the Junior Subordinated Debentures and Guarantee place no limitation on the
amount of Senior and Subordinated Debt that Central can issue. Central has a
revolving loan agreement with several banks and Wells Fargo Bank, N.A., as agent
(the "Line of Credit") that currently provides for borrowings by Central of up
to $100.0 million, subject to an allowable borrowing base. Borrowings under the
Line of Credit are guaranteed by all of the significant subsidiaries of the
Company and are secured by substantially all of the assets, including the
receivables, of the Company and a pledge by Central of the stock of all of its
significant subsidiaries. All borrowings under the Line of Credit are Senior and
Subordinated Debt. As of June 30, 1997, Central had approximately $66.7 million
aggregate principal amount outstanding under the Line of Credit, including
letters of credit. On a pro forma basis after giving effect to the offering and
application of the net proceeds therefrom to temporarily reduce the balance
outstanding under the Line of Credit, Central would have had approximately $16.6
million in Senior and Subordinated Debt outstanding as of June 30, 1997. As a
result of the funds which would be made available to the Company upon completion
of this offering, the Company does not anticipate that it will have an immediate
need for a $100.0 million credit facility. Concurrent with the consummation of
this offering, there will be a reduction in the maximum amount committed by the
lenders to be available for borrowing under the Line of Credit from $100.0
million to between $30.0 million to $43.0 million. Concurrent with the
consummation of the offering and such reduction in the maximum amount available
for borrowing under the Line of Credit, Wells Fargo Bank, N.A. will be paid off
in full and Union Bank of California, N.A. may be paid off in full and, to the
extent paid off, will no longer participate as a lender under the Line of
Credit. Both Wells Fargo Bank, N.A. and Union Bank of California, N.A., either
directly or through an affiliate, have an indirect ownership interest in
Central. If the offering is not consummated, the Line of Credit will remain in
place with all of the current lenders. Since the Line of Credit requires Central
to pay the lenders fees for the unused portion available under the Line of
Credit, the reduction in the lenders' commitment will reduce the amount of fees
payable by Central. In addition, because Central is a holding company,
substantially all of Central's assets consist of the capital stock of its
subsidiaries. All obligations of Central relating to the securities described
herein will be effectively subordinated to all existing and future liabilities
of Central's subsidiaries. Central may cause additional Trust Preferred
Securities to be issued by trusts similar to CFAC Capital in the future, and
there is no limit on the amount of such securities that may be issued. In this
event, Central's obligations under the Junior Subordinated Debentures to be
issued to such other trusts and Central's guarantees of the payments by such
trusts will rank pari passu with Central's obligations under the Junior
Subordinated Debentures and the Guarantee, respectively. See "Risk
Factors -- Subordination of Central's Obligations Under the Junior Subordinated
Debentures and the Guarantee," "Risk Factors -- Restrictions Imposed by the Line
of Credit," and "Risk Factors -- Need for Senior Credit Facility," "Description
of Junior Subordinated Debentures -- Subordination" and "Description of
Guarantee -- Status of Guarantee."
(Continued on next page)
3
<PAGE> 5
(Continued from previous page)
The lenders under the Line of Credit have given a preliminary indication of
their consent to the transactions contemplated by this offering and the
performance by Central and CFAC Capital of the obligations to be performed by
them under the Indenture, the Trust Agreement, the Guarantee Agreement and the
Expense Agreement (each as defined herein), subject to amendment of the Line of
Credit. The offering will not be consummated until the consent and amendment to
the Line of Credit, which are currently being documented, is executed.
Application has been made to list the Trust Preferred Securities on The
Nasdaq Stock Market's National Market (the "Nasdaq National Market"). Although
the Underwriters have indicated an intention to make a market in the Trust
Preferred Securities, the Underwriters are not obligated to do so, and any
market making may be discontinued at any time at the sole discretion of the
Underwriters. There can be no assurance that a market will develop for the Trust
Preferred Securities. See "Risk Factors -- Absence of Existing Public Market;
Market Prices" and "Underwriting."
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of The Depository Trust Company (the
"Depositary") or its nominee. Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary. Except as
described herein, the Trust Preferred Securities in certificate form will not be
issued in exchange for global certificates. See "Book-Entry Issuance."
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture
dated as of , 1997, as amended and supplemented from time to time,
between Central and Wilmington Trust Company, as trustee (the "Indenture
Trustee"), under which the Junior Subordinated Debentures will be issued, (ii)
the "Trust Agreement" means the Amended and Restated Trust Agreement relating to
CFAC Capital among Central, as Depositor, Wilmington Trust Company, as Property
Trustee (the "Property Trustee"), Wilmington Trust Company, as Delaware Trustee
(the "Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees"), (iii) the "Guarantee Agreement" means the Guarantee Agreement
relating to the Guarantee between Central and Wilmington Trust Company, as
Guarantee Trustee (the "Guarantee Trustee"), and (iv) the "Expense Agreement"
means the Expense Agreement between Central and CFAC Capital.
The Company will provide to the holders of the Trust Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly reports
on Form 10-Q free of charge to holders of the Trust Preferred Securities who so
request in writing to the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE TRUST PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING THE TRUST PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH TRUST PREFERRED SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL,"
"EXPECT," "BELIEVE," "INTEND," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS IN "RISK FACTORS" OF THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH
RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. For purposes of this Prospectus, unless otherwise
indicated or the context otherwise requires, (i) the "Company" refers to Central
Financial Acceptance Corporation, its predecessors and its wholly-owned
subsidiaries, collectively, (ii) "Central" refers to the parent company only and
(iii) the information herein (a) assumes that the Company has been in existence
and the Reorganization (as defined below) was consummated concurrently with the
1991 Acquisition (as defined below) and (b) assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing low income Hispanic population, a
market the Company believes is underserved. The Company (i) provides small,
unsecured personal loans to the Company's customers; (ii) purchases and services
consumer finance receivables generated by the Company's customers for purchases
of high quality, brand name consumer products, appliances and furniture sold by
Banner's Central Electric, Inc. ("Banner"), an affiliate of the Company, and by
independent retailers; (iii) sells airline tickets and originates and services
travel-related finance receivables; and (iv) provides insurance products and
insurance premium financing to its customers. The Company has catered to the low
income Hispanic population during its 40 years of operation by locating its
facilities primarily in Hispanic communities, advertising in Spanish, and
employing Spanish as the primary language at its locations. While the Company
operates primarily in the greater Los Angeles area and faces substantial
competition with respect to its lines of business, the Company's objective is to
become the leading provider of consumer credit and other financial services to
the low income Hispanic population in urban areas within California and
elsewhere in the United States.
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and have limited or
short-term employment histories. In addition, the Company's customers typically
have no or limited prior credit histories and are generally unable to secure
credit from traditional lending sources. The Company bases its credit decisions
on its assessment of a customer's ability to repay the obligation. In making a
credit decision, in addition to the size of the obligation, the Company
generally considers a customer's income level, type and length of employment,
stability of residence, personal references, and prior credit history with the
Company. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm other credit-related information. The Company,
however, is more susceptible to the risk that its customers will not satisfy
their repayment obligations than are less specialized consumer finance companies
or consumer finance companies that have more stringent underwriting criteria.
See "Risk Factors -- Credit Risk Associated with Customers; Lack of Collateral"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Trends -- Credit Quality" and "-- Delinquency Experience
and Allowance for Credit Losses."
Since 1950, Hispanics have been the fastest growing minority group in the
United States, increasing from 4.0 million in 1950 to approximately 27.0 million
in 1996, a compound annual growth rate of 4.3%. According to the 1996 U.S.
Bureau of the Census Current Population Report (the "1996 Report"), this trend
is expected to continue. The 1996 Report projects that the Hispanic population
will total 36.0 million by 2005. California is home to the largest Hispanic
population in the United States, and it is estimated that this population will
grow from 9.4 million in 1995 to 13.0 million by 2005, at which time Hispanics
will comprise approximately 34% of California's total population.
Recognizing these demographic trends, management's strategy has been to
identify new financial products and services that it believes could be
introduced successfully to the low income Hispanic population in urban areas
within California and to increase the number of locations through which it can
distribute its products and services. From 1991, when the Company was acquired
by its current management (the "1991 Acquisition"), until the Company's initial
public offering in June 1996, the Company grew primarily as a result of the
introduction of such financial products and services and increased pricing. See
"Management's
5
<PAGE> 7
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Trends -- Analysis of Changes in Net Interest Income."
The Company's most significant growth has occurred as a result of the
introduction of unsecured small loans in the fourth quarter of 1992, a product
which the Company believes offers significant continued growth potential. In
1995, the Company began offering company-financed sales of airline tickets and
in 1996, the Company began selling automobile insurance and offering insurance
premium financing and expanded its independent retail financing business. In
1997, the Company introduced a new financial product involving the issuance of a
card, called an "Efectiva Card", which provides customers of the Company with
the ability to access their established lines of credit with the Company by
withdrawing cash from the Company's cash dispensing machines. As of the date
hereof, the Company has installed a proprietary, non-networked, closed system of
20 such cash dispensing machines, of which 18 are in locations owned or leased
by the Company or Banner and 2 of which are in locations owned or leased by
unaffiliated parties.
To continue its growth, in 1996 the Company began to expand its
distribution network through acquisitions of businesses primarily serving the
Hispanic community. The Company also intends to develop new financial products
and services internally that the Company believes will complement or expand its
current financial products and services, or seek to acquire existing businesses
that offer such products and services. The Company also intends to expand its
consumer finance business for independent retailers. Prior to May 1996, the
Company offered its products and services through 12 locations, 11 of which were
in the greater Los Angeles area. From May 1996 to year end 1996, the Company
acquired the business of, and assumed the leasehold interests to, 80 travel
locations. In July 1996, the Company acquired the business of, and assumed the
leasehold interests in, 10 auto insurance locations in the greater Los Angeles
area. Although such transactions were not material from a financial point of
view, the Company believes that such businesses provide the Company with growth
opportunities while adding additional locations through which it can offer its
financial products and services.
As a result of internal expansions, acquisitions and consolidation of
certain of its operations, at June 30, 1997, the Company operated through 77
locations of which 54 are located in Southern California, 17 are located in
Northern California, and 6 are located outside of California. At June 30, 1997,
the Company's gross receivables portfolio was approximately $133.0 million,
consisting of $54.8 million in the portfolio of loan contracts (the "Small Loan
Portfolio"), $48.6 million in the portfolio of consumer product contracts from
sales by Banner (the "Consumer Product Portfolio"), $7.7 million in the
portfolio of consumer finance contracts from sales by independent retailers (the
"Independent Retail Finance Portfolio"), $5.6 million in the portfolio of travel
finance contracts (the "Travel Finance Portfolio"), $7.3 million in the
portfolio of insurance premium finance contracts (the "Premium Finance
Portfolio") and $9.0 million in the portfolio of automobile finance contracts
(the "Automobile Finance Portfolio"). At June 30, 1997, the range of average net
contract balances in each of the portfolios was between approximately $386 and
$648, except for the Automobile Finance Portfolio, where the average net
contract balance was approximately $5,500.
The Company's principal executive offices are located at 5480 Ferguson
Drive, Commerce, California, 90022, and its telephone number is (213) 720-8600.
CFAC CAPITAL
CFAC Capital is a statutory business trust formed under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a Certificate of
Trust with the Delaware Secretary of State on September 26, 1997. CFAC Capital's
business and affairs are conducted by the Property Trustee, Delaware Trustee and
three individual Administrative Trustees who are officers of the Company. CFAC
Capital exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures issued by Central, and (iii) engaging
in only those other activities necessary, advisable or incidental thereto. The
Junior Subordinated Debentures will be the sole assets of CFAC Capital, and
payments by Central under the Junior Subordinated Debentures and the Expense
Agreement will be the sole revenues of CFAC Capital. All of the Common
Securities will be owned by Central. The Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Trust Preferred Securities,
except that upon the occurrence and during the continuance of an event of
6
<PAGE> 8
default under the Trust Agreement resulting from an event of default under the
Indenture, the rights of Central as holder of the Common Securities to payment
in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. See "Description of the Trust Preferred
Securities -- Subordination of Common Securities of CFAC Capital Held by
Central." Central will acquire Common Securities in an aggregate liquidation
amount equal to 3% of the total capital of CFAC Capital. CFAC Capital has a term
of 31 years, but may terminate earlier as provided in the Trust Agreement.
CFAC Capital's principal offices are located at 5480 East Ferguson Drive,
Commerce, California 90022 and its telephone number is (213) 720-8600.
7
<PAGE> 9
THE OFFERING
Trust Preferred Securities
issuer................... CFAC Capital
Securities offered......... 2,100,000 Trust Preferred Securities having a
Liquidation Amount of $25 per Trust Preferred
Security. The Trust Preferred Securities represent
preferred undivided beneficial interests in CFAC
Capital's assets, which will consist solely of the
Junior Subordinated Debentures and payments
thereunder. CFAC Capital has granted the
Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase up
to an additional 315,000 Trust Preferred Securities
at the initial offering price, solely to cover
over-allotments, if any.
Distributions.............. The Distributions payable on each Trust Preferred
Security will be fixed at a rate per annum of %
of the Liquidation Amount of $25 per Trust
Preferred Security, will be cumulative, will accrue
from the date of issuance of the Trust Preferred
Securities, and will be payable quarterly in
arrears on the 15th day of March, June, September
and December of each year, commencing on December
15, 1997 (subject to possible deferral as described
below). The amount of each Distribution due with
respect to the Trust Preferred Securities will
include amounts accrued through the date the
Distribution payment is due. See "Description of
the Trust Preferred Securities."
Extension periods.......... So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing,
Central will have the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures by extending the interest payment period
thereon for a period not exceeding 20 consecutive
quarters with respect to each deferral period (each
an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. If interest
payments are so deferred, Distributions on the
Trust Preferred Securities will also be deferred
and Central will not be permitted, subject to
certain exceptions described herein, to declare or
pay any cash distributions with respect to
Central's capital stock or debt securities that
rank pari passu with or junior to the Junior
Subordinated Debentures. During an Extension
Period, Central would have the ability to continue
to make payments on Senior and Subordinated Debt.
During an Extension Period, Distributions will
continue to accumulate with interest thereon
compounded quarterly. Because interest would
continue to accrue and compound on the Junior
Subordinated Debentures, to the extent permitted by
applicable law, holders of the Trust Preferred
Securities will be required to accrue income for
United States federal income tax purposes. See
"Description of Junior Subordinated
Debentures -- Option to Defer Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Maturity................... The Junior Subordinated Debentures will mature on
, 2027, which date may be shortened
(such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than ,
2002, subject to redemption on earlier dates as
described below.
Redemption................. The Trust Preferred Securities are subject to
mandatory redemption upon repayment of the Junior
Subordinated Debentures at their Stated Maturity or
their earlier redemption at a redemption price
equal to the
8
<PAGE> 10
aggregate Liquidation Amount of the Trust Preferred
Securities plus accumulated and unpaid
Distributions thereon to the date of redemption.
Subject to restrictions contained in any Senior and
Subordinated Debt and regulatory approval, if then
required under applicable regulatory policies, the
Junior Subordinated Debentures are redeemable prior
to maturity at the option of Central (i) on or
after , 2002 in whole at any time or in
part from time to time, or (ii) at any time, in
whole (but not in part), within 90 days following
the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in each
case at a redemption price equal to 100% of the
principal amount of the Junior Subordinated
Debentures so redeemed, together with any accrued
but unpaid interest to the date fixed for
redemption. See "Description of the Trust Preferred
Securities -- Redemption" and "Description of
Junior Subordinated Debentures -- Redemption."
Distribution of Junior
Subordinated
Debentures............... Central has the right at any time to dissolve CFAC
Capital, after satisfaction of creditors of CFAC
Capital as required by applicable law, and cause
the Junior Subordinated Debentures to be
distributed to holders of Trust Preferred
Securities in liquidation of CFAC Capital, subject
to Central having received prior approval of the
primary federal regulator of Central to do so if
then required under applicable capital guidelines
or policies of such primary regulator. See
"Description of the Trust Preferred
Securities -- Distribution of Junior Subordinated
Debentures."
Guarantee.................. Taken together, Central's obligations under various
documents described herein, including the Guarantee
Agreement, provide a full, irrevocable and
unconditional guarantee of payments by CFAC Capital
of Distributions and other amounts due on the Trust
Preferred Securities. Under the Guarantee
Agreement, Central guarantees the payment of
Distributions by CFAC Capital and payments on
liquidation of or redemption of the Trust Preferred
Securities (subordinate to the right to payment of
Senior and Subordinated Debt of Central, as defined
herein) to the extent of funds held by CFAC
Capital. If CFAC Capital has insufficient funds to
pay Distributions on the Trust Preferred Securities
(i.e., if Central has failed to make required
payments under the Junior Subordinated Debentures),
a holder of the Trust Preferred Securities would
have the right to institute a legal proceeding
directly against Central to enforce payment of such
Distributions to such holder. See "Description of
Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of the Trust Preferred
Securities," "Description of Junior Subordinated
Debentures -- Debenture Events of Default" and
"Description of Guarantee."
Ranking.................... The Trust Preferred Securities will rank pari
passu, and payments thereon will be made pro rata,
with the Common Securities of CFAC Capital held by
Central, except as described under "Description of
the Trust Preferred Securities -- Subordination of
Common Securities of CFAC Capital Held by Central."
The obligations of Central under the Guarantee, the
Junior Subordinated Debentures and other documents
described herein are unsecured and rank subordinate
and junior in right of payment to all current and
future Senior and Subordinated Debt, the amount of
which is unlimited. Central has a revolving loan
agreement with several banks and Wells Fargo Bank,
N.A., as agent (the "Line of Credit") that provides
for borrowings by Central of up to $100 million,
9
<PAGE> 11
subject to an allowable borrowing base. Borrowings
under the Line of Credit are guaranteed by all of
the significant domestic subsidiaries of the
Company and are secured by substantially all of the
assets, including the receivables, of the Company
and a pledge by Central of the stock of all of its
significant subsidiaries. All borrowings under the
Line of Credit are Senior and Subordinated Debt. At
June 30, 1997, Central had approximately $66.7
million aggregate principal amount outstanding
under the Line of Credit, including letters of
credit. As of June 30, 1997, on a pro forma basis
after giving effect to the offering and application
of the net proceeds therefrom to temporarily reduce
the balance outstanding under the Line of Credit,
Central would have approximately $16.6 million in
Senior and Subordinated Debt outstanding. As a
result of the funds which would be made available
to the Company upon completion of this offering,
the Company does not anticipate that it will have
an immediate need for a $100.0 million credit
facility. Concurrent with the consummation of this
offering, there will be a reduction in the maximum
amount committed by the lenders to be available for
borrowing under the Line of Credit from $100.0
million to between $30.0 million to $43.0 million.
Concurrent with the consummation of the offering
and such reduction in the maximum amount available
for borrowing under the Line of Credit, Wells Fargo
Bank, N.A. will be paid off in full and Union Bank
of California, N.A. may be paid off in full and, to
the extent paid off, will no longer participate as
a lender under the Line of Credit. Both Wells Fargo
Bank, N.A. and Union Bank of California, N.A.
either directly or through an affiliate, have an
indirect ownership interest in Central. If the
offering is not consummated, the Line of Credit
will remain in place with all of the current
lenders. Since the Line of Credit requires Central
to pay the lenders fees for the unused portion
available under the Line of Credit, the reduction
in the lenders' commitment will reduce the amount
of fees payable by Central. In addition, because
Central is a holding company, substantially all of
Central's assets consist of the capital stock of
its subsidiaries. All obligations of Central
relating to the securities described herein will be
effectively subordinated to all existing and future
liabilities of Central's subsidiaries. Central may
cause additional Trust Preferred Securities to be
issued by trusts similar to CFAC Capital in the
future, and there is no limit on the amount of such
securities that may be issued. In this event,
Central's obligations under the Junior Subordinated
Debentures to be issued to such other trusts and
Central's guarantees of the payments by such trusts
will rank pari passu with Central's obligations
under the Junior Subordinated Debentures and the
Guarantee, respectively. See "Description of Junior
Subordinated Debentures -- Subordination" and
"Description of Guarantee -- Status of Guarantee."
Voting rights.............. The holders of the Trust Preferred Securities will
generally have limited voting rights relating only
to the modification of the Trust Preferred
Securities, the dissolution, winding-up or
termination of CFAC Capital and certain other
matters described herein. See "Description of the
Trust Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement."
ERISA considerations....... Prospective purchasers must carefully consider the
information set forth under "ERISA Considerations."
10
<PAGE> 12
Nasdaq National Market
symbol................... Application has been made to list the Trust
Preferred Securities on the Nasdaq National Market
under the symbol CFACP.
Use of proceeds............ The proceeds to CFAC Capital from the sale of the
Trust Preferred Securities offered hereby will be
invested by CFAC Capital in the Junior Subordinated
Debentures of Central. Central intends to use the
proceeds to temporarily reduce the balance
outstanding under the Line of Credit. See "Use of
Proceeds."
11
<PAGE> 13
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1995 and 1996, and
its results of operations for the years ended December 31, 1994, 1995 and 1996
has been derived from the audited consolidated financial statements of the
Company appearing elsewhere herein. This information should be read in
conjunction with such consolidated financial statements and the notes thereto.
The selected financial data with respect to the Company's consolidated financial
position as of October 31, 1993 and 1994 and December 31, 1994, its results of
operations for the two months ended December 31, 1993 and 1994 and the fiscal
years ended October 31, 1993 and 1994 all have been derived from the audited
consolidated financial statements of the Company, which are not presented
herein. The selected financial data with respect to the Company's consolidated
financial position as of October 31, 1992, and June 30, 1997 and its results of
operations for the fiscal year ended October 31, 1992, the year ended December
31, 1993, and the six months ended June 30, 1996 and 1997 has been derived from
unaudited financial statements, which in the opinion of the Company's management
reflect all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of operations for
the full fiscal year.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DEC. 31, DECEMBER 31,
--------------------------------- --------------------- ---------------------------------
1992 1993 1994 1993 1994 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues:
Interest income:
Consumer Product
Portfolio............... $ 8,145 $ 9,010 $ 11,444 $ 1,714 $ 2,057 $ 9,420 $ 11,787 $ 12,508
Small Loan Portfolio...... -- 134 672 54 439 188 1,057 5,095
Automobile Finance
Portfolio............... -- -- -- -- -- -- -- 240
Other(1).................. -- -- -- -- -- -- -- 176
Total interest
income.............. 8,145 9,144 12,116 1,768 2,496 9,608 12,844 18,019
Travel services............. -- -- -- -- -- -- -- 371
Transaction fees on
contracts purchased from
related party............. 747 830 844 137 150 829 857 916
Other income(2)............. 1,253 1,457 1,756 304 416 1,445 1,868 2,857
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues........ 10,145 11,431 14,716 2,209 3,062 11,882 15,569 22,163
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and Expenses:
Operating expenses.......... 3,986 4,519 5,009 864 1,025 4,461 5,170 7,288
Provision for credit
losses.................... 2,654 3,264 3,002 696 1,617 3,447 3,923 5,449
Interest expense............ 2,306 2,279 2,523 339 617 2,235 2,801 4,278
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before taxes... 1,199 1,369 4,182 310 (197) 1,739 3,675 5,148
Income tax expense
(benefit)................... 503 572 1,694 127 (74) 727 1,493 2,079
--------- --------- --------- --------- --------- --------- --------- ---------
Net income before
discontinued operations..... 696 797 2,488 183 (123) 1,012 2,182 3,069
--------- --------- --------- --------- --------- --------- --------- ---------
Discontinued operations net
income (loss)............... -- -- -- -- -- -- -- 50
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............ $ 696 $ 797 $ 2,488 $ 183 $ (123) $ 1,012 $ 2,182 $ 3,119
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues:
Interest income:
Consumer Product
Portfolio............... $ 12,850 $ 6,364 $ 6,036
Small Loan Portfolio...... 9,686 4,261 6,462
Automobile Finance
Portfolio............... 1,548 602 825
Other(1).................. 1,691 418 2,583
Total interest
income.............. 25,775 11,645 15,906
Travel services............. 2,449 605 3,955
Transaction fees on
contracts purchased from
related party............. 965 447 575
Other income(2)............. 7,238 2,337 5,596
--------- --------- ---------
Total revenues........ 36,427 15,034 26,032
--------- --------- ---------
Costs and Expenses:
Operating expenses.......... 12,676 4,380 12,187
Provision for credit
losses.................... 9,105 4,279 5,229
Interest expense............ 4,697 2,482 2,874
--------- --------- ---------
Income (loss) before taxes... 9,949 3,893 5,742
Income tax expense
(benefit)................... 3,979 1,559 2,210
--------- --------- ---------
Net income before
discontinued operations..... 5,970 2,334 3,532
--------- --------- ---------
Discontinued operations net
income (loss)............... (91) (22) --
--------- --------- ---------
Net income (loss)............ $ 5,879 $ 2,312 $ 3,532
========= ========= =========
PER SHARE DATA:
Net income (loss) per share
before discontinued
operations.................. $ 0.14 $ 0.15 $ 0.48 $ 0.04 $ (0.02) $ 0.20 $ 0.42 $ 0.60
Net income (loss) per share
discontinued operations..... 0 0 0 0 0 0 0 0.01
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per
share....................... $ 0.14 $ 0.15 $ 0.48 $ 0.04 $ (0.02) $ 0.20 $ 0.42 $ 0.61
========= ========= ========= ========= ========= ========= ========= =========
Weighted average number of
shares outstanding.......... 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000
<CAPTION>
PER SHARE DATA:
<S> <C> <C> <C>
Net income (loss) per share
before discontinued
operations.................. $ 0.96 $ 0.45 $ 0.49
Net income (loss) per share
discontinued operations..... (0.01) -- --
--------- --------- ---------
Net income (loss) per
share....................... $ 0.95 $ 0.45 $ 0.49
========= ========= =========
Weighted average number of
shares outstanding.......... 6,213,500 5,150,000 7,277,000
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DEC. 31, DECEMBER 31,
--------------------------------- --------------------- ---------------------------------
1992 1993 1994 1993 1994 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:(3)
Return on average
assets(4)................... 1.52% 1.60% 4.40% 2.00% (1.10)% 1.79% 3.48% 3.55%
Return on average
stockholders' equity(5)..... 5.74 5.22 13.94 5.89 (3.47) 5.65 10.62 10.83
Ratio of earnings to fixed
charges(6).................. 1.45x 1.54x 2.47x * * 1.72x 2.17x 2.11x
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
FINANCIAL RATIOS:(3)
Return on average
assets(4)................... 4.75% 4.42% 4.95%
Return on average
stockholders' equity(5)..... 12.38 13.41 11.19
Ratio of earnings to fixed
charges(6).................. 2.91x 2.43x 2.71x
Pro forma ratio of earnings
to fixed charges (6)........ 2.38x 2.00x 2.35x
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCE RECEIVABLES
RATIOS:(3)(7)
Average interest rate on
average net receivables..... 17.4% 17.3% 21.3% 19.8% 22.4% 17.9% 21.7% 22.8%
Average interest rate on
average interest bearing
liabilities................. 7.0 6.3 6.5 5.9 8.3 6.2 6.9 8.2
Net interest spread.......... 10.4 11.0 14.8 13.9 14.1 11.7 14.8 14.6
Provision for credit losses
as a percentage of average
net receivables............. 5.7 6.2 5.3 7.8 14.5 6.4 6.6 7.0
Net write-offs as a
percentage of average net
receivables................. 3.6 5.4 5.2 5.9 5.9 5.4 5.2 5.4
Allowance for credit losses
as a percentage of net
receivables (end of
period)..................... 4.8 5.4 4.6 5.1 5.0 5.1 5.0 5.1
Accounts with payments 31
days or more past due as a
percentage of gross
receivables (end of
period)..................... 5.4 5.1 5.9 4.5 6.0 4.5 6.0 5.2
FINANCE RECEIVABLES
RATIOS:(3)(7)
Average interest rate on
average net receivables..... 24.0% 23.4% 25.7%
Average interest rate on
average interest bearing
liabilities................. 8.0 8.0 8.3
Net interest spread.......... 16.0 15.4 17.4
Provision for credit losses
as a percentage of average
net receivables............. 9.1 9.1 9.4
Net write-offs as a
percentage of average net
receivables................. 7.2 6.3 8.4
Allowance for credit losses
as a percentage of net
receivables (end of
period)..................... 5.8 6.4 7.0
Accounts with payments 31
days or more past due as a
percentage of gross
receivables (end of
period)..................... 6.4 5.5 8.5
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
OCTOBER 31, DECEMBER 31, JUNE 30,
------------------------------- --------------------------------- ----------
1992 1993 1994 1994 1995 1996 1997
------- ------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................... $ -- $ 931 $ 1,886 $ 215 $ 57 $ 5,848 $ 6,388
Finance receivables, net(6)............... 45,094 47,626 56,662 70,328 90,471 109,699 97,575
Automobile finance receivables............ -- -- -- -- 4,203 8,728 7,375
Premium finance receivables, net.......... -- -- -- -- -- 1,964 6,903
Total assets.............................. 48,158 51,567 61,597 73,942 101,730 145,887 139,747
Total debt................................ 34,250 33,700 42,287 48,845 64,817 74,874 65,450
Stockholders' equity...................... 13,399 17,146 18,560 23,951 33,632 61,353 64,885
</TABLE>
- ---------------
(1) Other interest income includes interest earned on the Travel Finance
Portfolio, the Independent Retail Finance Portfolio and the Premium Finance
Portfolio.
(2) Other income includes administrative fees charged on certain small loan
contracts, late charges and revenue from the sale of insurance products.
(3) The Company's performance ratios are based on monthly averages (the average
of the beginning and end of the month balances) and are annualized where
appropriate.
(4) Net income (loss) divided by average total assets.
(5) Net income (loss) divided by average stockholders' equity.
(6) For purposes of calculating the ratio and pro forma ratio of earnings to
fixed charges, earnings consist of income before income taxes, plus fixed
charges. Fixed charges consist of the interest on all indebtedness and the
estimated representative interest factor of rental expense.
(7) Finance receivables include receivables in the Company's Consumer Product,
Small Loan, Travel Finance and Independent Retail Finance Portfolios.
* Not meaningful.
13
<PAGE> 15
RISK FACTORS
Prospective investors should consider, among other things, the following
factors in connection with a decision to purchase the Trust Preferred
Securities.
SUBORDINATION OF CENTRAL'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES
AND THE GUARANTEE
All obligations of Central under the Guarantee, the Junior Subordinated
Debentures and other documents described herein are unsecured and rank
subordinate and junior in right of payment to all current and future Senior and
Subordinated Debt, the amount of which is unlimited. Central has a Line of
Credit that provides for borrowings by Central of up to $100 million, subject to
an allowable borrowing base. Borrowings under the Line of Credit are guaranteed
by all of the significant domestic subsidiaries of the Company and are secured
by substantially all of the assets, including the receivables, of the Company
and a pledge by Central of the stock of all of its significant subsidiaries. All
borrowings under the Line of Credit are Senior and Subordinated Debt. At June
30, 1997, Central had approximately $66.7 million aggregate principal amount
outstanding under the Line of Credit, including letters of credit. As of June
30, 1997, on a pro forma basis after giving effect to the offering and
application of the net proceeds therefrom to temporarily reduce the balance
outstanding under the Line of Credit, Central would have approximately $16.6
million in Senior and Subordinated Debt outstanding. In addition, because
Central is a holding company, substantially all of Central's assets consist of
the capital stock of its subsidiaries. All obligations of Central relating to
the securities described herein will be effectively subordinated to all existing
and future liabilities of Central's subsidiaries. As a holding company, the
right of Central to participate in any distribution of assets of any subsidiary
upon such subsidiary's liquidation or reorganization or otherwise (and thus the
ability of holders of the Trust Preferred Securities to benefit indirectly from
such distribution) is subject to the prior claims of creditors of that
subsidiary, except to the extent that Central may itself be recognized as a
creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures and
all obligations of Central relating to the Trust Preferred Securities will be
effectively subordinated to all existing and future liabilities of the Company,
and holders of the Trust Preferred Securities should look only to the assets of
Central, and not of its subsidiaries, for principal and interest payments on the
Junior Subordinated Debentures. Due to the subordination of the Junior
Subordinated Debentures and the Guarantee, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding up of the
business of Central, or upon a default in payment with respect to any Senior and
Subordinated Debt or an event of default with respect to such indebtedness
resulting from an acceleration thereof, the assets of Central will be available
to pay amounts due on the Junior Subordinated Debentures and the Guarantee only
after all Senior and Subordinated Debt has been paid in full. None of the
Indenture, the Guarantee, the Guarantee Agreement or the Trust Agreement places
any limitation on the amount of secured or unsecured debt, including Senior and
Subordinated Debt, that may be incurred by Central or its subsidiaries. Further,
there is no limitation on Central's ability to issue additional Junior
Subordinated Debentures in connection with any further offerings of Trust
Preferred Securities, and such additional debentures would rank pari passu with
the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Subordination" and "Description of Guarantee -- Status of the
Guarantee."
RESTRICTIONS IMPOSED BY THE LINE OF CREDIT
The Line of Credit requires, among other things, the Company to maintain
specific financial ratios and to satisfy certain financial tests. The Company's
ability to meet these financial ratios and financial tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet these tests. The Line of Credit also restricts, among other things, the
Company's ability to (i) incur additional indebtedness, (ii) pay indebtedness
prior to the date when due, (iii) pay dividends, make certain other restricted
payments or consummate certain asset sales, (iv) merge or consolidate with any
other person, (v) enter into certain transactions with affiliates, (vi) incur
indebtedness that is subordinate in priority and right of payment to amounts
outstanding under the Line of Credit, and (vii) make future acquisitions in
excess of an aggregate amount. The breach of any of these covenants could result
in a default under the Line of Credit. In the event of a default under the Line
of Credit, the lenders could seek to declare all amounts
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<PAGE> 16
outstanding under the Line of Credit, together with accrued and unpaid interest,
to be immediately due and payable. If the Company were unable to repay the
amounts, the lenders under the Line of Credit could proceed against the
collateral granted to them to secure the indebtedness, which is substantially
all of the assets of Central and its subsidiaries. If the indebtedness under the
Line of Credit were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay in full that indebtedness and the
other indebtedness of the Company, all of which rank senior in right of payment
to the Junior Subordinated Debentures and the Guarantee. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Junior
Subordinated Debentures -- Subordination."
NEED FOR SENIOR CREDIT FACILITY
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to maintain its current level of operations
and to expand its operations will be affected by the availability of financing
and the terms thereof.
Currently, the Company funds its business activities under the Line of
Credit which expires June 12, 2000. Central pays commitment fees to the lenders
for the unused portion of the credit facility in an amount equal to 37.5 basis
points per annum times the average daily amount by which the maximum amount
available under the Line of Credit exceeds the usage of the facility. As a
result of the funds which would be made available to the Company upon the
completion of this offering, the Company does not anticipate that it will have
an immediate need for a $100.0 million credit facility. Concurrent with the
consummation of the offering, there will be a reduction in the maximum amount
committed by the lenders to be available under the Line of Credit from $100.0
million to between $30.0 million to $43.0 million. Concurrent with the
consummation of the offering and such reduction in the maximum amount available
for borrowing under the Line of Credit, Wells Fargo Bank, N.A. will be paid off
in full and Union Bank of California, N.A. may be paid off in full and, to the
extent paid off, will no longer participate as a lender under the Line of
Credit. Both Wells Fargo Bank, N.A. and Union Bank of California, N.A., either
directly or through an affiliate, have an indirect ownership interest in
Central. If the offering is not consummated, the Line of Credit will remain in
place with all of the current lenders. In addition, the Company intends, after
consummation of this offering, to enter into negotiations with the lenders under
the Line of Credit or another group of lenders to restructure the Company's
senior credit facilities upon terms and conditions more favorable to the
Company. The amount of credit available at any one time under the current Line
of Credit is limited to 75% of eligible contracts. At June 30, 1997, the total
amount available to the Company under the Line of Credit was $80.4 million.
Credit facilities are typically limited to a certain percentage of such eligible
contracts or receivables. No assurances can be given, however, that Central will
be successful in restructuring the Line of Credit or obtaining replacement
senior credit facilities, or that if obtained any such restructured Line of
Credit or replacement senior credit facility will be on terms more favorable to
the Company. In addition, no assurances can be given that any such restructured
Line of Credit or replacement senior credit facility will not contain terms and
conditions in addition to those already contained in the Junior Subordinated
Debentures which might cause Central under certain circumstances to exercise its
existing right under the Junior Subordinated Debentures to defer the payment of
interest on the Junior Subordinated Debentures or otherwise restrict the ability
of Central to pay interest on the Junior Subordinated Debentures and
consequently CFAC Capital's ability to pay Distributions on the Trust Preferred
Securities. See "-- Option to Defer Interest Payment Period; Tax Consequences of
a Deferral of Interest Payments" below and "Description of Junior Subordinated
Debentures -- Subordination."
In addition, the inability of the Company at any time to renew or replace
its Line of Credit or other senior credit facilities on acceptable terms could
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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<PAGE> 17
OPTION TO DEFER INTEREST PAYMENT PERIOD; TAX CONSEQUENCES OF A DEFERRAL OF
INTEREST PAYMENTS
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, Central has the right under the Indenture to defer payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Trust Preferred Securities by CFAC
Capital will be deferred (and the amount of Distributions to which holders of
the Trust Preferred Securities are entitled will accumulate additional amounts
thereon at the rate of % per annum, compounded quarterly, from the relevant
payment date for such Distributions, to the extent permitted by applicable law)
during any such Extension Period. Neither the default by Central on any Senior
and Subordinated Debt nor a default with respect to Senior and Subordinated Debt
resulting in the acceleration of a maturity thereof constitutes a Debenture
Event of Default. During any such Extension Period, Central will be prohibited
from making certain payments or distributions with respect to Central's capital
stock (including dividends on or redemptions of common or preferred stock) and
from making certain payments with respect to any debt securities of Central that
rank pari passu with or junior in interest to the Junior Subordinated
Debentures; however, Central will not be restricted from (a) paying dividends or
distributions in common stock of Central, (b) redeeming rights or taking certain
other actions under a shareholders' rights plan, (c) making payments under the
Guarantee or (d) making purchases of common stock related to the issuance of
common stock or rights under any of Central's benefit plans for its directors,
officers or employees. Further, during an Extension Period, Central would have
the ability to continue to make payments on Senior and Subordinated Debt. Prior
to the termination of any Extension Period, Central may further extend such
Extension Period provided that such extension does not cause such Extension
Period to exceed 20 consecutive quarters or to extend beyond the Stated
Maturity. Upon the termination of any Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the annual
rate of %, compounded quarterly, to the extent permitted by applicable
law), Central may elect to begin a new Extension Period subject to the above
requirements. There is no limitation on the number of times that Central may
elect to begin an Extension Period. See "Description of the Trust Preferred
Securities -- Distributions" and "Description of Junior Subordinated
Debentures -- Option to Defer Interest Payment Period" and "Description of
Junior Subordinated Debentures -- Debenture Events of Default."
Central has no current plan to exercise its option to defer payments of
interest and considers the likelihood of exercising the option to be a remote
contingency as of the issue date of the Junior Subordinated Debentures.
Therefore, it is Central's position that the Junior Subordinated Debentures will
be treated as issued without "original issue discount" for United States federal
income tax purposes. As a result, holders of Trust Preferred Securities will
include interest in taxable income under their own methods of accounting (i.e.,
cash or accrual). If Central exercises its right to defer payments of interest,
the holders of Trust Preferred Securities will be required to include their pro
rata share of original issue discount in gross income as it accrues for United
States federal income tax (and possibly other) purposes in advance of the
receipt of cash. If the tax authorities successfully asserted that, as of the
issue date of the Junior Subordinated Debentures, exercise of the option is not
a remote or incidental contingency, interest would be reportable under the
contingent payment debt rules of the Treasury Regulations as of the issue date.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount." Central has no current intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Junior Subordinated Debentures. However, should Central elect to exercise its
right to defer payments of interest in the future, the market price of the Trust
Preferred Securities is likely to be adversely affected. A holder that disposes
of such holder's Trust Preferred Securities during an Extension Period,
therefore, might not receive the same return on such holder's investment as a
holder that continues to hold the Trust Preferred Securities.
REDEMPTION PRIOR TO STATED MATURITY
Central may, at its option, on or after , 2002, redeem the
Junior Subordinated Debentures in whole at any time or in part from time to time
at 100% of the principal amount together with accrued but unpaid interest to the
date fixed for redemption and therefore cause a mandatory redemption of the
Trust Securities.
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<PAGE> 18
In addition, upon the occurrence and during the continuation of a Tax
Event, an Investment Company Event or a Capital Treatment Event (whether
occurring before or after , 2002), Central has the right to redeem
the Junior Subordinated Debentures in whole (but not in part) at 100% of the
principal amount together with accrued but unpaid interest to the date fixed for
redemption within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event and therefore cause a mandatory
redemption of the Trust Securities. See "Description of the Trust Preferred
Securities -- Redemption."
A "Tax Event" means the receipt by Central and CFAC Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) CFAC Capital is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, (ii)
interest payable by Central on the Junior Subordinated Debentures is not, or
within 90 days of such opinion, will not be, deductible by Central, in whole or
in part, for United States federal income tax purposes, or (iii) CFAC Capital
is, or will be within 90 days of the date of the opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges. See
"-- Possible Tax Law Changes Affecting the Trust Preferred Securities" below for
a discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit Central to cause a redemption of the Junior
Subordinated Debentures (and therefore the Trust Preferred Securities) prior to
, 2002.
An "Investment Company Event" means the receipt by Central and CFAC Capital
of an opinion of counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, CFAC Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, which change becomes effective on or after the original
issuance of the Trust Preferred Securities.
A "Capital Treatment Event" means, in the event the Company becomes subject
to capital adequacy guidelines, the reasonable determination by Central that, as
a result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement, or decision is announced on or after the
date of issuance of the Trust Preferred Securities under the Trust Agreement,
there is more than an insubstantial risk of impairment of Central's ability to
treat an amount equal to the Liquidation Amount of the Trust Preferred
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the primary federal regulator of Central, as
then in effect and applicable to Central.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
Congress and the Clinton Administration have recently considered proposals
that would deny an issuer a deduction for United States income tax purposes for
the payment of interest on instruments with characteristics similar to the
Junior Subordinated Debentures. While no such adverse legislation has been
enacted, there can be no assurance that similar legislation enacted after the
date hereof would not adversely affect the tax treatment of the Junior
Subordinated Debentures. Such a change would give rise to a Tax Event which may
permit Central to cause a redemption of the Trust Preferred Securities by
electing to prepay the Junior Subordinated Debentures. See "Description of the
Trust Preferred Securities -- Redemption"; "Description of Junior Subordinated
Debentures -- Redemption"; and "Certain Federal Income Tax Consequences."
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<PAGE> 19
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST
PREFERRED SECURITIES
Central will have the right at any time to terminate CFAC Capital and,
after satisfaction of liabilities to creditors of CFAC Capital as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Preferred Securities in liquidation of CFAC Capital.
Because holders of the Trust Preferred Securities may receive Junior
Subordinated Debentures in liquidation of CFAC Capital and because Distributions
are otherwise limited to payments on the Junior Subordinated Debentures,
prospective purchasers of the Trust Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution" and "Description of
Junior Subordinated Debentures."
Under current United States federal income tax law and interpretations and
assuming, as expected, CFAC Capital is classified as a grantor trust for such
purposes, a distribution of the Junior Subordinated Debentures upon a
liquidation of CFAC Capital should not be a taxable event to holders of the
Trust Preferred Securities. However, if a Tax Event were to occur which would
cause CFAC Capital to be subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures, a
distribution of the Junior Subordinated Debentures by CFAC Capital could be a
taxable event to CFAC Capital and the holders of the Trust Preferred Securities.
See "Certain Federal Income Tax Consequences -- Distribution of Junior
Subordinated Debentures to Holders of Trust Preferred Securities."
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
Central will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than five years from the
date of issuance and thereby cause the Trust Preferred Securities to be redeemed
on such earlier date. See "Description of Junior Subordinated
Debentures -- General."
LIMITATIONS ON DIRECT ACTIONS AGAINST CENTRAL AND ON RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Trust Preferred Securities
the following payments, to the extent not paid by CFAC Capital: (i) any
accumulated and unpaid Distributions required to be paid on the Trust Preferred
Securities, to the extent that CFAC Capital has funds on hand available therefor
at such time, (ii) the redemption price with respect to any Trust Preferred
Securities called for redemption, to the extent that CFAC Capital has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of CFAC Capital (unless the Junior
Subordinated Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent that
CFAC Capital has funds on hand available therefor at such time (the "Liquidation
Distribution") and (b) the amount of assets of CFAC Capital remaining available
for distribution to holders of the Trust Preferred Securities after satisfaction
of liabilities to creditors of CFAC Capital as required by applicable law. The
holders of not less than a majority in aggregate liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the
Trust Preferred Securities may institute a legal proceeding directly against
Central to enforce its rights under the Guarantee without first instituting a
legal proceeding against CFAC Capital, the Guarantee Trustee or any other person
or entity. If Central were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, CFAC Capital would lack funds for the
payment of Distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and, in such event, holders of the Trust Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, in the event a Debenture Event of Default shall have occurred
and be continuing and such event is attributable to the failure of Central to
pay interest on or principal of the Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of Trust
Preferred Securities may institute a legal proceeding directly against Central
for enforcement of payment to such holder of the principal of or interest on
such Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Trust Preferred Securities of such holder (a
"Direct Action"). In connection with such Direct Action, Central will have a
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<PAGE> 20
right of set-off under the Indenture to the extent of any payment made by
Central to such holder of Trust Preferred Securities in the Direct Action.
Except as described herein, holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures or assert directly any other rights in respect of
the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Trust Preferred
Securities" and "Description of Guarantee." The Trust Agreement provides that
each holder of Trust Preferred Securities by acceptance thereof agrees to the
subordination and other provisions of the Guarantee Agreement and the Indenture.
ABILITY TO MAKE PAYMENTS ON THE TRUST PREFERRED SECURITIES AND JUNIOR
SUBORDINATED DEBENTURES
Substantially all of the assets of Central consist of the capital stock of
its subsidiaries. Central is a legal entity separate and distinct from its
subsidiaries. The ability of CFAC Capital to pay amounts due on the Trust
Preferred Securities is solely dependent upon Central making payments on the
Junior Subordinated Debentures as and when required. Central's ability to pay
interest on the Junior Subordinated Debentures to CFAC Capital (and
consequently, CFAC Capital's ability to pay distributions on the Trust Preferred
Securities and Central's ability to pay its obligations under the Guarantee)
depends primarily on cash and liquid investments of Central and upon cash
dividends and interest payments Central may receive in the future from its
subsidiaries. Payment of dividends by subsidiaries is subject to the
subsidiaries' profitability, financial condition, capital expenditure and other
cash flow requirements and restrictions contained in any credit facilities or
securities of the subsidiary. Under the Line of Credit, all indebtedness of a
subsidiary to Central in an amount of $250,000 or more is required to be pledged
to collateralize outstanding indebtedness under the Line of Credit. At June 30,
1997, Central had only $50,000 of cash or liquid investments, as substantially
all available cash was held by the Company's subsidiaries. See "Use of
Proceeds."
LIMITED COVENANTS; ABSENCE OF SINKING FUND
The covenants in the Indenture are limited. The Company is not required
under the Indenture to meet any financial tests that measure the Company's
working capital, interest coverage, or net worth in order to comply with the
terms of the Indenture. There are no covenants relating to Central in the Trust
Agreement. As a result, neither the Indenture nor the Trust Agreement protects
holders of Junior Subordinated Debentures, or Trust Preferred Securities,
respectively, in the event of a material adverse change in Central's or the
Company's financial condition or results of operations or limits the ability of
Central or any subsidiary to incur additional indebtedness. Therefore, the
provisions of these governing instruments should not be considered a significant
factor in evaluating whether Central will be able to comply with its obligations
under the Junior Subordinated Debentures or the Guarantee. Further, the Junior
Subordinated Debentures do not have the benefit of any sinking fund payments by
Central.
LIMITED VOTING RIGHTS
Holders of Trust Preferred Securities will generally have limited voting
rights relating only to the modification of the Trust Preferred Securities, the
dissolution, winding-up or liquidation of CFAC Capital, and the exercise of CFAC
Capital's rights as holder of Junior Subordinated Debentures. Holders of Trust
Preferred Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence of
certain events described herein. In no event will the holders of the Trust
Preferred Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the holder
of the Common Securities. The Property Trustee, the Administrative Trustees and
Central may amend the Trust Agreement without the consent of holders of Trust
Preferred Securities to ensure that CFAC Capital will be classified for United
States federal income tax purposes as a grantor trust or to ensure that CFAC
Capital will not be required to register as an "investment company," even if
such action adversely affects the interests of such holders. See "Description of
Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement"
and "-- Removal of Trustees."
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ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
There is no existing market for the Trust Preferred Securities. Application
has been made to list the Trust Preferred Securities on the Nasdaq National
Market. There can be no assurance that an active and liquid trading market for
the Trust Preferred Securities will develop or that a continued listing of the
Trust Preferred Securities will be available on the Nasdaq National Market.
Although the Underwriters have informed CFAC Capital and the Company that the
Underwriters intend to make a market in the Trust Preferred Securities offered
hereby, the Underwriters are not obligated to do so and any such market making
activity may be terminated at any time without notice to the holders of the
Trust Preferred Securities. Future trading prices of the Trust Preferred
Securities will depend on many factors including, among other things, prevailing
interest rates, the operating results and financial condition of the Company,
and the market for similar securities. As a result of the existence of Central's
right to defer interest payments on or shorten the Stated Maturity of the Junior
Subordinated Debentures, the market price of the Trust Preferred Securities may
be more volatile than the market prices of debt securities that are not subject
to such optional deferrals or reduction in maturity. There can be no assurance
as to the market prices for the Trust Preferred Securities or the Junior
Subordinated Debentures that may be distributed in exchange for the Trust
Preferred Securities if Central exercises its right to terminate CFAC Capital.
Accordingly, the Trust Preferred Securities that an investor may purchase, or
the Junior Subordinated Debentures that a holder of the Trust Preferred
Securities may receive in liquidation of CFAC Capital, may trade at a discount
from the price that the investor paid to purchase the Trust Preferred Securities
offered hereby.
CREDIT RISK ASSOCIATED WITH CUSTOMERS; LACK OF COLLATERAL
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and have limited or
short-term employment histories. In addition, the Company's customers typically
have no prior credit histories and are unable to secure credit from traditional
lending sources. The Company bases its credit decisions primarily on its
assessment of a customer's ability to repay the obligation. In making a credit
decision, in addition to the size of the obligation, the Company generally
considers a customer's income level, type and length of employment, stability of
residence, personal references and prior credit history with the Company. The
Company, however, is more susceptible to the risk that its customers will not
satisfy their repayment obligations than are less specialized consumer finance
companies or consumer finance companies that have more stringent underwriting
criteria.
Because the Company relies on the creditworthiness of its customers for
repayment and does not rely on collateral securing the debt, the Company
experiences actual rates of losses higher than lenders who have collateral which
they can repossess in the event of a borrower's default. At June 30, 1997, the
Company had net finance receivables (comprised of all receivables except those
in the Automobile Finance and Premium Finance Portfolios) of $97.6 million, or
87% of the Company's total net receivables. At June 30, 1997, the finance
receivables had accounts with payments 31 days or more past due as a percentage
of end of period gross receivables of 8.5%, as compared to 6.4% and 5.2%, at
year-end 1996 and 1995, respectively. During the six months ended June 30, 1997,
the portfolios comprising the finance receivables had net write-offs of $4.7
million, as compared to $3.0 million during the six months ended June 30, 1996.
The provision for credit losses for such portfolios as a percentage of average
net finance receivables was 9.4% for the six months ended June 30, 1997, as
compared to 9.1% and 7.0% during 1996 and 1995, respectively. There can be no
assurance that the Company will not continue to experience increases in
delinquencies and net write-offs which would require additional increases in the
provisions for credit losses. Such increases would adversely affect results of
operations if the Company were not able to increase the rate charged on
receivables to reflect the additional risks in its portfolios. Since the Company
presently charges the maximum allowable interest rates on its various loan
products, further increases in delinquencies and write-offs will adversely
affect results of operations. For information concerning the Company's credit
quality experience, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Financial Trends -- Credit Quality" and
"-- Delinquency Experience and Allowance for Credit Losses."
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GENERAL ECONOMIC RISK
The risks associated with the Company's business become more significant in
an economic slowdown or recession. During periods of economic slowdown or
recession, the Company has experienced and may again experience a decreased
demand for its financial products and services and an increase in rates of
delinquencies and the frequency and severity of losses. The Company's actual
rates of delinquencies and frequency and severity of losses have been in the
past and may be in the future higher under adverse economic conditions than
those generally experienced in the consumer finance industry. Any sustained
period of economic slowdown or recession could materially adversely affect
Central's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Trends -- Portfolio," "-- Credit Quality" and
"-- Delinquency Experience and Allowances for Credit Losses."
DEPENDENCE ON CALIFORNIA MARKET
Substantially all of the Company's facilities are located, and
substantially all of the Company's revenues are generated in California. To
date, substantially all of the Company's operations have been in Southern
California. Therefore, the Company's performance depends upon economic
conditions in California, and in Southern California in particular, and may be
adversely affected by social factors or natural disasters in California. During
the early 1990's, California experienced adverse economic conditions. A decline
in the California economy could have a material adverse effect on the Company's
results of operations and financial condition.
DEPENDENCE OF CONSUMER PRODUCT PORTFOLIO ON BANNER
The Consumer Product Portfolio consists of consumer finance receivables
generated from products sold by Banner. The performance of the Consumer Product
Portfolio therefore depends substantially upon the success of Banner's stores.
The Consumer Product Portfolio accounted for 36.6% of the Company's gross
receivables portfolio as of June 30, 1997. Although as part of its business
strategy, the Company has begun to expand its installment credit business to
independent retailers, and acquire and utilize new distribution centers,
including the Company's travel locations, through which it may offer its
products and services to a larger pool of customers, the installment credit
business will, for the foreseeable future, continue to depend on Banner's stores
and customers. There can be no assurance that the Company will be able to
successfully further expand its installment credit finance business to other
retailers or its distribution network.
SEASONAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company experiences the highest demand for its financial products and
services between October and December, and experiences the lowest demand for its
financial products and services between January and March. These significant
seasonal fluctuations in its business directly impact the Company's operating
results and cash needs.
INTEREST RATE RISK
The net interest spread, which is the difference between the average
interest rate on average net receivables and the average interest rate on
average interest bearing liabilities (the "Net Interest Spread"), partially
determines the Company's profitability. Because the Company pays a floating
interest rate on borrowings under its Line of Credit, increases in such rate
have at times decreased, and in the future may decrease, the Company's Net
Interest Spread and have a material adverse effect on the Company's results of
operations and financial condition. The interest rate the Company is allowed to
charge its customers on its small loans is limited under California law. The
Company presently charges the maximum interest rate permitted in California.
There is no corresponding interest rate limitation on installment credit sales.
Increases in the interest rate the Company charges its customers could reduce
demand for the Company's financial products and services which, in turn, could
decrease the Company's net income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Business -- Regulation."
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ABILITY OF THE COMPANY TO EXECUTE ITS BUSINESS STRATEGY
The financial performance of the Company will depend, in part, on the
Company's ability (i) to integrate new locations into the Company's operations,
(ii) to generate satisfactory performance or enhance performance at such
locations, (iii) to open and/or acquire additional locations on favorable terms,
(iv) to integrate new financial products and services into the Company's
operations; and (v) to enter into arrangements with additional independent
retailers. As a result of acquisitions during 1996, the Company acquired 84 new
locations, several of which have been closed, from which to distribute both new
and established products and services, including 33 locations in new geographic
regions. There can be no assurance that any of such acquired locations and
operations will be effectively and profitably integrated into the Company's
existing operations. Such acquisitions may negatively impact the Company's
operating results, particularly during the periods immediately following an
acquisition. In addition, there can be no assurance that the Company will be
able to profitably implement its business strategy in new geographic areas.
Furthermore, the Company may compete for expansion and acquisition opportunities
with companies that have significantly greater financial and other resources
than the Company. There can be no assurance that the Company will be able to
locate suitable new locations or acquisition candidates, or that any operations
that the Company opens or acquires will be effectively and profitably integrated
into the Company's existing operations.
The Company's financial performance also depends, in part, on the Company's
ability to manage its various portfolios and the Company's ability to
successfully introduce additional financial products and services. There can be
no assurance that additional financial products and services will be introduced
or, if introduced, that such financial products and services will be successful.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
COMPETITION
Each of the Company's businesses operate in highly competitive industries.
The Company competes against a large number of national and regional firms
engaged in such businesses, many of which have substantially greater resources
than the Company. There can be no assurance that the Company's present
competitors or companies that choose to enter the marketplace in the future will
not exert significant competitive pressures on the Company which could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Competition."
IMPACT OF GOVERNMENT REGULATION
The operations of the Company are regulated by federal, state and local
government authorities and are subject to various laws and judicial and
administrative decisions imposing various requirements and restrictions
including, among other things, regulating credit granting activities,
establishing maximum interest rates and charges, requiring disclosures to
customers, governing secured transactions and setting collection, repossession
and claims handling procedures, regulating insurance claims practices and
procedures, and other trade practices. Although the Company believes that it is
in compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future which may make
compliance more difficult or expensive, restrict the Company's ability to
purchase or finance installment sales or small loans, further limit or restrict
the amount of interest and other charges imposed in installment sales or small
loans originated by retailers or the Company, or otherwise materially adversely
affect the business or prospects of the Company. See "Business -- Regulation."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends substantially on certain members of its
senior management, in particular Mr. Cypres, the Company's Chairman of the
Board, Chief Executive Officer, President and Chief Financial Officer. The
Company's business and financial condition could be materially adversely
affected by the loss of the services of Mr. Cypres. The Company does not
maintain key man life insurance. See "Management -- Board of Directors and
Executive Officers" and "-- Certain Relationships and Related Transactions."
22
<PAGE> 24
CONCENTRATION OF VOTING CONTROL
Banner beneficially owns or otherwise controls an aggregate of
approximately 70.8% of the outstanding common stock of Central. Consequently,
Banner is able to elect the entire Board of Directors, adopt amendments to
Central's Certificate of Incorporation or effect a merger, sale of assets, or
other fundamental corporate transaction without the approval of Central's other
stockholders. Banner is able to control the direction and future operations of
Central, including decisions regarding the issuance of additional shares of
common stock and other securities. As long as Banner is a majority stockholder
of Central, it will be impossible for third parties to obtain control of Central
through purchases of common stock not beneficially owned or otherwise controlled
by Banner. See "-- Relationships with Holdings, Banner and Affiliates; Potential
Conflicts of Interest" below, "Management," and "Security Ownership of Certain
Beneficial Owners and Management."
RELATIONSHIPS WITH HOLDINGS, BANNER AND AFFILIATES; POTENTIAL CONFLICTS OF
INTEREST
Gary M. Cypres, the Company's Chairman of the Board, Chief Executive
Officer, President and Chief Financial Officer, is the Chairman of the Board,
Chief Executive Officer, Chief Financial Officer and President of Banner and
Banner Holdings, Inc. ("Holdings") which owns 100% of the capital stock of
Banner. West Coast Private Equity Partners, L.P. ("West Coast"), of which Mr.
Cypres is the managing general partner, controls Holdings. Mr. Cypres controls
the Company, through West Coast, Holdings and Banner. Consequently, West Coast
and Mr. Cypres may have conflicts of interest with respect to transactions
concerning the Company and its affiliates. Additionally, West Coast, through
Holdings, controls two companies other than the Company, Banner and Central
Rents Holdings, Inc., all of which may have interests which are divergent from
one another and the Company. Banner owns and operates six installment credit
stores in the greater Los Angeles area and one installment credit store in San
Francisco. Central Rents Holdings, Inc., and its wholly-owned subsidiary,
Central Rents, Inc. ("Central Rents"), owns and operates 168 rental-purchase
stores in 20 states which rent a broad range of consumer products, including
electronics, appliances and furniture. Central Rents operates 20 rental-purchase
stores in Southern California and 25 rental-purchase stores in Northern
California.
Central, Banner and Holdings have entered into certain agreements setting
forth the ongoing relationships among them. None of these agreements is the
result of arm's-length negotiations. Therefore, there can be no assurance that
any of these agreements has been effected on terms comparable to those that
would have resulted from negotiations among independent parties. Furthermore,
Central, Banner and Holdings and their respective subsidiaries may enter into
additional or modified agreements, arrangements and transactions in the future.
Any such future agreements, arrangements or transactions will be determined
through negotiations between Central, Banner and Holdings or their respective
subsidiaries, as the case may be. See "-- Concentration of Voting Control" above
and "Management -- Certain Relationships and Related Transactions."
Prior to Central's initial public offering of its common stock, Mr. Cypres
rendered services to the Company through a consulting agreement between Holdings
and G.M. Cypres & Co., Inc., a Delaware corporation wholly-owned by Mr. Cypres
("G.M. Cypres & Co."). In June 1996, Mr. Cypres entered into a five year
employment agreement with the Company pursuant to which Mr. Cypres serves as
Chairman of the Board, Chief Executive Officer and President of the Company. In
such capacities, Mr. Cypres spends that portion of his business time as is
required to oversee the operations of the Company and to formulate and direct
the implementation of the Company's business strategies. Mr. Cypres continues to
spend a portion of his business time as the managing general partner of West
Coast, as Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and President of Holdings, as Chairman of the Board, Chief Executive
Officer, Chief Financial Officer and President of Banner, and as Chairman of the
Board, Chief Executive Officer and President of Central Rents. See
"-- Concentration of Voting Control" above, and "Management."
23
<PAGE> 25
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "may," "will," "expect," "believe,"
"anticipate," "intend," "estimate," "continue" or the negative thereof or other
variations thereon or words of similar import, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economics and business conditions in those areas in which the
Company operates; demographic changes; competition; fluctuations in interest
rates; changes in business strategy or development plans; changes in
governmental regulation; credit quality; the availability of capital to fund the
expansion of the Company's business; and other factors referenced in this
Prospectus including, without limitation, under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
24
<PAGE> 26
USE OF PROCEEDS
All of the proceeds from the sale of Trust Preferred Securities will be
invested by CFAC Capital in the Junior Subordinated Debentures. The net proceeds
to Central from the sale of the Junior Subordinated Debentures are estimated to
be $ ($ if the Underwriters' over-allotment option is
exercised in full), net of estimated underwriting commissions and other
estimated offering expenses. Central intends to use the net proceeds to reduce
amounts outstanding under the Line of Credit, which was approximately $66.7
million at June 30, 1997, including letters of credit, and is expected to be
approximately $66.7 million immediately prior to the closing of the offering.
Such amounts will then become available under the Line of Credit for reborrowing
by the Company to fund the Company's receivables and operations. The Line of
Credit, which expires June 12, 2000, bears interest, at the option of Central,
at a rate equal to either (a) 87.5 basis points above the higher of the prime
rate announced by Wells Fargo Bank or the federal funds rate plus 50 basis
points or (b) 225 basis points above the interest rate per annum at which
deposits in dollars are offered by Wells Fargo Bank to prime banks in the London
Eurodollar market. The aggregate amount of indebtedness outstanding under the
Line of Credit at June 30, 1997 bore interest at the rate of 7.9%. For
additional information concerning the Line of Credit, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Line of Credit was entered into on June 13, 1997. The initial
borrowings under the Line of Credit were used to repay amounts which were then
outstanding under the Company's $60 million credit facility with Bank of
American National Trust and Savings Association and $50 million line of credit
with Wells Fargo Bank, N.A. (the "Prior Lines of Credit"). Borrowings under the
Prior Lines of Credit were used and additional borrowings under the Line of
Credit were and will be used to fund the Company's receivables and operations.
ACCOUNTING TREATMENT
For financial reporting purposes, CFAC Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of CFAC Capital will be
included in the consolidated financial statements of the Company. The Trust
Preferred Securities will be presented as a separate line item in the
consolidated balance sheet of the Company under the caption "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures," and appropriate disclosures about the Trust
Preferred Securities, the Guarantee and the Junior Subordinated Debentures will
be included in the notes to consolidated financial statements. For financial
reporting purposes, the Company will record Distributions payable on the Trust
Preferred Securities as an interest expense in the consolidated statements of
operations.
Future reports of the Company filed under the Exchange Act, will include a
footnote to the financial statements stating that (i) CFAC Capital is wholly
owned, (ii) the sole assets of CFAC Capital are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date of
such Junior Subordinated Debentures), and (iii) the back up obligations, in the
aggregate, constitute a full and unconditional guarantee by the Company of the
obligations of CFAC Capital under the Trust Preferred Securities. CFAC Capital
will not provide separate reports under the Exchange Act.
25
<PAGE> 27
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997 and as adjusted to give effect to the issuance of the
Trust Preferred Securities offered by CFAC Capital and receipt by Central of the
proceeds, net of estimated underwriting commissions and other estimated offering
expenses, from the corresponding sale of the Junior Subordinated Debentures to
CFAC Capital and application thereof to reduce outstanding amounts under the
Line of Credit.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
DEBT:
Line of Credit(2)...................................................... $ 64,600 $ 14,500
Company obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated debentures(1).... 0 52,500
Long-term debt......................................................... 850 850
-------- --------
Total debt........................................................ $ 65,450 $ 67,850
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value: 5,000,000 shares authorized, none
issued............................................................... $ -- $ --
Common stock, $.01 par value: 20,000,000 shares authorized, 7,277,000
outstanding.......................................................... 73 73
Paid in capital........................................................ 47,903 47,903
Retained earnings...................................................... 16,909 16,909
-------- --------
Total stockholders' equity........................................ $ 64,885 $ 64,885
-------- --------
Total capitalization................................................. $130,335 $132,735
======== ========
</TABLE>
- ---------------
(1) The subsidiary trust is CFAC Capital, which will hold the Junior
Subordinated Debentures as its sole asset. The Trust Preferred Securities
are issued by CFAC Capital. The sole assets of CFAC Capital consist of the
Junior Subordinated Debentures issued by the Company to CFAC Capital. The
Junior Subordinated Debentures will bear interest at the rate of % per
annum and will mature on , 2027, which date may be shortened to
a date not earlier than , 2002. The Junior Subordinated
Debentures are redeemable prior to maturity at the option of the Company,
subject to restrictions contained in any Senior and Subordinated Debt and
the Company having received prior approval of the primary federal regulator
of the Company if then required under applicable capital guidelines or
policies of such primary regulator, (i) on or after , 2002, in
whole at any time or in part from time to time, or (ii) at any time, in
whole (but not in part), within 90 days following the occurrence and
continuation of a Tax Event, an Investment Company Event or a Capital
Treatment Event (each as defined herein). See "Description of Junior
Subordinated Debentures -- Redemption." The Company owns all of the Common
Securities of CFAC Capital.
(2) Does not include letters of credit of $2.1 million.
26
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1995 and 1996, and
its results of operations for the years ended December 31, 1994, 1995 and 1996
has been derived from the audited consolidated financial statements of the
Company appearing elsewhere herein. This information should be read in
conjunction with such consolidated financial statements and the notes thereto.
The selected financial data with respect to the Company's consolidated financial
position as of October 31, 1993 and 1994 and December 31, 1994, its results of
operations for the two months ended December 31, 1993 and 1994 and the fiscal
years ended October 31, 1993 and 1994 has been derived from the audited
consolidated financial statements of the Company, which are not presented
herein. The selected financial data with respect to the Company's consolidated
financial position as of October 31, 1992 and June 30, 1997 and its results of
operations for the fiscal year-ended October 31, 1992, the year-ended December
31, 1993 and the six months ended June 30, 1996 and 1997 has been derived from
unaudited financial statements, which in the opinion of the Company's management
reflect all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of operations for
the full fiscal year.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DEC. 31, DECEMBER 31,
------------------------------- ------------------ -------------------------------------------
1992 1993 1994 1993 1994 1993 1994 1995 1996
------- ------- ------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues:
Interest income:
Consumer Product
Portfolio.............. $ 8,145 $ 9,010 $11,444 $1,714 $ 2,057 $ 9,420 $11,787 $12,508 $12,850
Small Loan Portfolio..... -- 134 672 54 439 188 1,057 5,095 9,686
Automobile Finance
Portfolio.............. -- -- -- -- -- -- -- 240 1,548
Other(1)................. -- -- -- -- -- -- -- 176 1,691
------- ------- ------- ------ ------ ------- ------- ------- -------
Total interest income.... 8,145 9,144 12,116 1,768 2,496 9,608 12,844 18,019 25,775
------- ------- ------- ------ ------ ------- ------- ------- -------
Travel services.......... -- -- -- -- -- -- -- 371 2,449
Transaction fees on
contracts purchased
from related party..... 747 830 844 137 150 829 857 916 965
Other income(2)........ 1,253 1,457 1,756 304 416 1,445 1,868 2,857 7,238
------- ------- ------- ------ ------ ------- ------- ------- -------
Total revenues....... 10,145 11,431 14,716 2,209 3,062 11,882 15,569 22,163 36,427
------- ------- ------- ------ ------ ------- ------- ------- -------
Costs and Expenses:
Operating expenses....... 3,986 4,519 5,009 864 1,025 4,461 5,170 7,288 12,676
Provision for credit
losses............... 2,654 3,264 3,002 696 1,617 3,447 3,923 5,449 9,105
Interest expense....... 2,306 2,279 2,523 339 617 2,235 2,801 4,278 4,697
------- ------- ------- ------ ------ ------- ------- ------- -------
Income (loss) before
taxes.................. 1,199 1,369 4,182 310 (197) 1,739 3,675 5,148 9,949
Income tax expense
(benefit).............. 503 572 1,694 127 (74) 727 1,493 2,079 3,979
------- ------- ------- ------ ------ ------- ------- ------- -------
Net income before
discontinued
operations............. 696 797 2,488 183 (123) 1,012 2,182 3,069 5,970
------- ------- ------- ------ ------ ------- ------- ------- -------
Discontinued operations
net income (loss)...... -- -- -- -- -- -- -- 50 (91)
------- ------- ------- ------ ------ ------- ------- ------- -------
Net income (loss)........ $ 696 $ 797 $ 2,488 $ 183 $ (123) $ 2,182 $ 3,119 $ 5,879
======= ======= ======= ====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues:
Interest income:
Consumer Product
Portfolio.............. $ 6,364 $ 6,036
Small Loan Portfolio..... 4,261 6,462
Automobile Finance
Portfolio.............. 602 825
Other(1)................. 418 2,583
------- -------
Total interest income.... 11,645 15,906
------- -------
Travel services.......... 605 3,955
Transaction fees on
contracts purchased
from related party..... 447 575
Other income(2)........ 2,337 5,596
------- -------
Total revenues....... 15,034 26,032
------- -------
Costs and Expenses:
Operating expenses....... 4,380 12,187
Provision for credit
losses............... 4,279 5,229
Interest expense....... 2,482 2,874
------- -------
Income (loss) before
taxes.................. 3,893 5,742
Income tax expense
(benefit).............. 1,559 2,210
------- -------
Net income before
discontinued
operations............. 2,334 3,532
------- -------
Discontinued operations
net income (loss)...... (22) --
------- -------
Net income (loss)........ $ 2,312 $ 3,532
======= =======
PER SHARE DATA:
Net income (loss) per
share before
discontinued
operations............. $ 0.14 $ 0.15 $ 0.48 $ 0.04 $ (0.02) $ 0.20 $ 0.42 $ 0.60 $ 0.96
Net income (loss) per
share discontinued
operations............. 0 0 0 0 0 0 0 0.01 (0.01)
------- ------- ------- ------ ------ ------- ------- ------- -------
Net income (loss) per
share.................. $ 0.14 $ 0.15 $ 0.48 $ 0.04 $ (0.02) $ 0.20 $ 0.42 $ 0.61 $ 0.95
======= ======= ======= ====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PER SHARE DATA:
<S> <C> <C>
Net income (loss) per
share before
discontinued
operations............. $ 0.45 $ 0.49
Net income (loss) per
share discontinued
operations............. -- --
------- -------
Net income (loss) per
share.................. $ 0.45 $ 0.49
======= =======
Weighted average number
of shares
outstanding............ 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 6,213,500
Weighted average number
outstanding............ 5,150,000 7,277,000
of shares
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
AS OF
AS OF OCTOBER 31, AS OF DECEMBER 31, JUNE 30,
----------------------------- ------------------------------- -----------
1992 1993 1994 1994 1995 1996 1997
------- ------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ -- $ 931 $ 1,886 $ 215 $ 57 $ 5,848 $ 6,388
Finance receivables, net(3).................... 45,094 47,026 50,626 70,328 90,471 109,699 97,575
Automobile finance receivables................. -- -- -- -- 4,203 8,728 7,375
Premium finance receivables, net............... -- -- -- -- -- 1,964 6,903
Total assets................................... 48,158 51,567 61,597 73,942 101,730 145,887 139,747
Total debt..................................... 34,250 33,700 42,287 48,845 64,817 74,874 65,450
Stockholders' equity........................... 13,399 17,146 18,560 23,951 33,632 61,353 64,885
</TABLE>
- ---------------
(1) Other interest income includes interest earned on the Travel Finance
Portfolio, the Independent Retail Finance Portfolio and the Premium Finance
Portfolio.
(2) Other income includes administrative fees charged on certain small loan
contracts, late charges and revenue from the sale of insurance products.
(3) Finance receivables include receivables in the Company's Consumer Product,
Small Loan, Travel Finance and Independent Retail Finance Portfolios.
SUPPLEMENTAL FINANCIAL DATA
The following table sets forth certain unaudited consolidated operating
results for each of the periods presented. This information has been prepared on
the same basis as the audited consolidated financial statements and includes all
adjustments (which consist solely of normal recurring adjustments) considered
necessary to present fairly the financial information of such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------------------
JUNE JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
--------- ---- ------------- ------------ --------- ---- ------------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Interest
income:
Consumer
Product
Portfolio...... $ 2,955 $ 3,118 $ 3,348 $3,087 $ 3,205 3,159 3,163 $ 3,323 $ 3,165 $ 2,871
Small
Loan
Portfolio... 1,009 1,126 1,295 1,665 2,093 2,168 2,503 2,922 3,199 3,263
Automobile
Finance
Portfolio.. -- -- 32 208 260 342 461 485 416 409
Other(1)... -- -- 48 128 181 237 441 832 1,219 1,364
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Total
interest
income... 3,964 4,244 4,723 5,088 5,739 5,906 6,568 7,562 7,999 7,907
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Travel
services... -- 21 157 193 221 384 807 1,039 1,755 2,200
Transaction
fees on
contracts
purchased
from
related
party.. 229 227 226 234 227 220 239 279 280 295
Other
income(2)... 654 686 635 882 1,045 1,292 2,057 2,844 2,623 2,973
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Total
revenues... 4,847 5,178 5,741 6,397 7,232 7,802 9,671 11,722 12,657 13,375
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Operating
expenses... 1,522 1,667 1,879 2,220 2,019 2,361 3,520 4,776 5,811 6,376
Provision
for
credit
losses... 1,106 1,309 1,293 1,741 2,154 2,125 2,189 2,637 2,411 2,818
Interest
expense... 1,075 1,097 1,038 1,068 1,241 1,241 1,001 1,214 1,423 1,451
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Income
before
taxes... 1,144 1,105 1,531 1,368 1,818 2,075 2,961 3,095 3,012 2,730
Income
tax
expense... 465 447 609 558 727 832 1,182 1,238 1,205 1,005
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Net
income
before
discontinued
operations... $ 679 $ 658 $ 922 $ 810 $ 1,091 1,243 1,779 $ 1,857 $ 1,807 $ 1,725
Discontinued
operations
net
income
(loss)... -- 19 122 (91) 12 (34) (69) -- -- --
------- ------- ------- ------ ------ ------ ------ ------- ------- -------
Net
income... $ 679 $ 677 $ 1,044 $ 719 $ 1,103 1,209 1,710 $ 1,857 $ 1,807 $ 1,725
======= ======= ======= ====== ====== ====== ====== ======= ======= =======
</TABLE>
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
under "Selected Consolidated Financial Data" and the Company's consolidated
financial statements and notes thereto and other financial data, included
elsewhere in this Prospectus. Certain statements under this caption constitute
"forward-looking statements" under Section 27A of the Securities Act and Section
21E of the Exchange Act which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a difference, include
but are not limited to, credit quality, economic conditions, competition in the
geographic and business areas in which the Company conducts its operations,
fluctuations in interest rates and government regulation. For additional
information concerning these factors, see "Risk Factors."
OVERVIEW
In pursuit of the Company's business strategy, since 1992 the Company has
expanded its financing business by offering consumer financing through
additional installment credit stores opened by Banner, by increasing the number
and type of products and services financed, and by offering new financial
products and services. In 1992, the Company began offering small unsecured loans
generally ranging from $300 to $1,500 with average loan terms of 12 months, and
began offering installment credit finance to Banner's customers at three
additional installment credit stores in the greater Los Angeles area and one
additional installment credit store in San Francisco that were opened or
acquired by Banner in 1994. In 1995, the Company opened two finance centers
offering small loans and travel finance and one automobile sales location in the
greater Los Angeles area, and began offering consumer product finance to
Banner's customers at one additional installment credit store in the greater Los
Angeles area that was opened by Banner in 1995. In 1995, the Company also began
offering financing for the sale of used automobiles, which was discontinued in
May 1997. Beginning in late 1995, the Company expanded its indirect consumer
financing business by offering financing to consumers for the purchase of
products and services sold by independent retailers. At present, the Company has
retail installment financing arrangements with approximately 100 independent
retailers in the greater Los Angeles area. In 1996, the Company expanded its
travel business by acquiring 25 travel locations in June and 55 locations in
December. The Company presently has 77 travel locations, of which 71 are located
in California. In addition, the Company commenced its automobile insurance
business in 1996 through 12 locations in the greater Los Angeles area and also
began offering insurance premium financing to its customers. As a result of this
rapid growth, results of operations are not readily comparable from year to year
or from period to period, and are not necessarily indicative of future operating
results.
29
<PAGE> 31
FINANCIAL TRENDS
Portfolios
The following sets forth certain information relating to the Company's
portfolios for the periods indicated.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE NET CONTRACT BALANCE)
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- ----------------- ------------------------------------- -----------------
1992 1993 1993 1994 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivables (at end of
period).................... $54,038 $57,250 $60,590 $67,514 $60,590 $67,514 $67,811 $61,848 $62,611 $48,618
Deferred interest (at end of
period).................... 6,354 7,028 7,657 7,603 7,657 7,603 7,796 7,132 7,217 4,871
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net receivables (at end of
period).................... 47,684 50,222 52,933 59,911 52,933 59,911 60,015 54,716 55,394 43,747
Deferred insurance revenues
(at end of period)......... 294 536 529 405 529 405 401 270 314 166
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net carrying value before
allowance for credit
losses..................... $47,390 $49,686 $52,404 $59,506 $52,404 $59,506 $59,614 $54,446 $55,080 $43,581
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Average net receivables...... $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $55,742 $56,762 $48,868
Number of contracts (at end
of period)................. N/A N/A 66,353 76,984 66,353 76,984 84,555 81,361 81,912 73,501
Average net contract
balance.................... N/A N/A $ 798 $ 778 $ 798 $ 778 $ 710 $ 673 $ 676 $ 595
Average interest bearing
liabilities(1)............. 32,736 36,404 34,275 38,573 36,163 37,549 39,284 33,489 37,873 28,420
Total interest income(2)..... 8,145 9,010 1,714 2,057 9,420 11,787 12,508 12,850 6,364 6,036
Total interest expense(1).... 2,306 2,279 335 534 2,231 2,579 3,242 2,688 1,521 1,221
Net interest income before
provision for credit
losses..................... 5,839 6,731 1,379 1,523 7,189 9,208 9,266 10,162 4,843 4,815
Net provision for credit
losses..................... 2,654 3,198 655 1,229 3,340 3,332 3,852 4,955 2,443 1,964
Net write-offs............... 1,688 2,834 529 625 2,897 2,949 3,310 4,257 1,919 1,573
Average interest rate on
average net receivables.... 17.4% 17.4% 20.0% 21.9% 18.0% 22.0% 21.8% 23.1% 22.4% 24.7%
Average interest rate on
interest bearing
liabilities................ 7.0% 6.3% 5.9% 8.3% 6.2% 6.9% 8.3% 8.0% 8.0% 8.6%
Net interest spread.......... 10.4% 11.1% 14.1% 13.6% 11.8% 15.1% 13.5% 15.1% 14.4% 16.1%
</TABLE>
- ---------------
(1) Amounts represent borrowings and related interest expense on the Company's
lines of credit for the Consumer Product Portfolio, excluding amounts
related to the Company's other borrowings.
(2) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere
herein.
30
<PAGE> 32
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE NET CONTRACT BALANCE)
<TABLE>
<CAPTION>
YEAR TWO MONTHS ENDED YEARS ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
OCTOBER 31, ----------------- ------------------------------------- -----------------
1993(1) 1993 1994 1993 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivables (at end of
period).......................... $ 705 $ 4,314 $16,735 $ 4,314 $16,735 $37,868 $57,671 $41,331 $54,757
Deferred interest (at end of
period).......................... 26 241 1,809 241 1,809 4,187 6,041 4,186 4,636
Deferred administrative fees and
insurance revenues (at end of
period).......................... 13 166 392 166 392 576 978 733 707
------ ------- ------- ------- ------- ------- ------- ------- -------
Net carrying value before allowance
for credit losses................ $ 666 $ 3,907 $18,290 $ 3,907 $18,290 $33,105 $50,652 $36,412 $49,414
====== ======= ======= ======= ======= ======= ======= ======= =======
Average net receivables............ $ 850 $ 2,009 $10,509 $ 1,131 $ 5,662 $20,219 $38,847 $34,099 $50,502
Number of contracts (at end of
period).......................... 3,127 10,616 26,166 10,616 26,166 55,241 79,819 63,996 89,538
Average net contract balance....... $ 217 $ 384 $ 570 $ 384 $ 570 $ 610 $ 647 $ 580 $ 560
Average interest bearing
liabilities(2)................... -- 400 5,887 67 3,165 12,902 25,204 24,265 40,959
Total administrative fee income.... 52 13 145 65 458 1,133 1,897 869 1,005
Total interest income(3)........... 134 54 439 188 1,057 5,095 9,686 4,261 6,462
Total interest expense(2).......... -- 4 83 4 222 1,036 2,009 961 1,653
Net interest income before
provision for credit losses...... 134 50 356 184 835 4,059 7,677 3,300 4,809
Net provision for credit losses.... 66 41 388 107 591 1,547 3,349 1,632 2,224
Net write-offs..................... -- -- 35 -- 155 896 2,606 986 2,012
Average interest rate on average
net receivables.................. 15.8% 16.1% 25.1% 16.6% 18.7% 25.2% 24.9% 25.0% 25.6%
Average interest rate on interest
bearing liabilities.............. N/A 6.0% 8.5% 6.0% 7.0% 8.0% 8.0% 7.9% 8.1%
Net interest spread................ 15.8% 10.1% 16.6% 10.6% 11.7% 17.2% 17.0% 17.1% 17.5%
</TABLE>
- ---------------
(1) The Company commenced its small loan business in December 1992.
(2) Amounts represent borrowings and related interest expense on the Company's
lines of credit for the Small Loan Portfolio, excluding amounts related to
the Company's other borrowings.
(3) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere
herein.
Travel Finance Portfolio
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and 1996 and June 30, 1997, the gross
receivables of the Travel Finance Portfolio was $3.0 million, $5.6 million and
$5.6 million, respectively, and the net receivables before allowance for credit
losses was $2.7 million, $5.2 million and $5.2 million, respectively. In
addition, the number of contracts outstanding at December 31, 1995 and 1996, and
June 30, 1997 was 5,811, 11,772 and 13,116, respectively with an average net
contract balance of approximately $466, $438 and $395, respectively. At December
31, 1995 and 1996 and June 30, 1997, the average interest rate on the average
portfolio was approximately 23.7%, 25.0% and 25.3%, respectively.
Independent Retail Finance Portfolio
The Company began purchasing and servicing consumer finance receivables
generated by independent retailers in 1996. At December 31, 1996 and June 30,
1997, the gross receivables of the Independent Retail Finance Portfolio was $7.2
million, and $7.7 million, respectively, and the net receivables before
allowance for credit losses was $6.2 million and $6.8 million, respectively. In
addition, the number of contracts outstanding at December 31, 1996 and June 30,
1997, was 12,053 and 17,493, respectively, with an average net contract balance
of approximately $518 and $386, respectively. At December 31, 1996 and June 30,
1997, the average interest rate on the average portfolio was approximately 31.5%
and 33.2%, respectively.
31
<PAGE> 33
Premium Finance Portfolio
The Company began offering insurance premium financing in late 1996. At
December 31, 1996 and June 30, 1997, the gross receivables of the Premium
Finance Portfolio was $2.1 million and $7.4 million, respectively, and the net
receivables, before allowance for credit losses was $2.0 million and $6.9
million, respectively. In addition, the number of contracts outstanding at
December 31, 1996 and June 30, 1997 was 2,615 and 10,649, respectively, with an
average net contract balance of approximately $751 and $648, respectively. At
December 31, 1996 and June 30, 1997, the average interest rate on the average
portfolio was approximately 29.2% and 30.6%, respectively.
Automobile Finance Portfolio
The Company began offering Company-financed sales of used automobiles in
mid-1995. In August 1996, the Company sold the used car sales business to Banner
pursuant to an Agreement to Transfer Business Operations among Banner, Central
Consumer Finance Company, Central Auto Sales, Inc. and Central (the "Automobile
Financing Agreement") which granted the Company the exclusive right to finance
Banner's sales of automobiles or purchase automobile finance contracts generated
by Banner. The Company's decision to sell the used car sales business was due to
capital considerations and the Company's determination that such business did
not presently fit well into the Company's overall business strategy. At December
31, 1995 and 1996 and June 30, 1997, the gross receivables of the Automobile
Finance Portfolio was approximately $5.5 million, $11.0 million and $9.0
million, respectively, and the net receivables of the portfolio was $4.2
million, $8.7 million and $7.4 million, respectively. In addition, the number of
contracts outstanding at December 31, 1995 and 1996 and June 30, 1997 was 624,
1,376 and 1,330, respectively, with an average net contract balance of
approximately $6,700, $8,000 and $5,500, respectively. The average interest rate
on the average portfolio was 21% at both December 31, 1995 and 1996, and 20% at
June 30, 1997. Pursuant to the Automobile Financing Agreement, all purchases of
automobile finance receivables were made with full recourse to Banner in the
event of default by the customer. Accordingly, the Company maintains no
allowance for credit losses with respect to the Automobile Finance Portfolio.
Banner ceased selling used automobiles in May 1997 and, therefore, the Company
is not currently engaged in financing sales of used automobiles.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table segregates the changes in net interest income between
changes in average balances ("Volume") and average rates ("Rate") for both
average net receivables and average interest bearing liabilities of the Consumer
Product Portfolio and the Small Loan Portfolio (dollars in thousands) for the
periods presented.
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1997
VERSUS VERSUS VERSUS VERSUS
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996
---------------------- ---------------------- -------------------- --------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
income:
Consumer Product Portfolio....... $215 $2,152 $2,367 $ 795 $ (74) $ 721 $(354) $696 $ 342 $(975) $647 $ (328)
Small Loan Portfolio............. 753 116 869 2,718 1,320 4,038 4,645 (54) 4,591 2,099 102 2,201
---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ---- ------
968 2,268 3,236 3,513 1,246 4,759 4,291 642 4,933 1,124 749 1,873
---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ---- ------
Increase (decrease) in interest
expense:
Bank of America Line of Credit... 86 262 348 119 544 663 (465) (87) (552) (406) 106 (300)
Wells Fargo Line of Credit....... 185 33 218 683 131 814 980 (7) 973 674 18 692
---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ---- ------
271 295 566 802 675 1,477 515 (94) 421 268 124 392
---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ---- ------
Increase in net interest income.... $697 $1,973 $2,670 $2,711 $ 571 $3,282 $3,776 $736 $4,512 $ 856 $625 $1,481
==== ====== ====== ====== ====== ====== ====== ==== ====== ====== ==== ======
</TABLE>
CREDIT QUALITY
The Company makes provision for credit losses in the Consumer Product and
Travel Finance Portfolios at the time that the contract is purchased or the
retail sale is made. The provision for credit losses in the Small Loan and
Independent Retail Finance Portfolios is made following the origination of the
loans over the period
32
<PAGE> 34
that the events giving rise to the credit losses are estimated to occur. The
Company's portfolios comprise smaller-balance, homogeneous loans that are
evaluated collectively to determine an appropriate allowance for credit losses.
The allowance for credit losses is maintained at a level considered adequate to
cover losses in the existing portfolios. Collection of past due accounts is
pursued by the Company, and when the characteristics of an individual account
indicates that collection is unlikely, the account is charged off and turned
over to a collection agency. Accounts are generally charged off when they are
between 91 and 150 days past due.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs, net of recoveries. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolios, adverse situations that
may affect the borrower's ability to repay and current economic conditions.
The following sets forth certain information concerning the Company's
provisions for credit losses and chargeoff experience in the Consumer Product
and Small Loan Portfolios, its two largest portfolios. The Company does not
believe that its credit quality experience can be readily compared to less
specialized consumer finance companies due to the Hispanic orientation and
uniform credit profile of its customers.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- ----------------- ------------------------------------- -----------------
1992 1993 1993 1994 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average net receivables...... $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $55,742 $56,762 $48,868
Net provision for credit
losses..................... $ 2,654 $ 3,198 $ 655 $ 1,229 $ 3,340 $ 3,332 $ 3,852 $ 4,955 $ 2,443 $ 1,964
Net write-offs............... $ 1,688 $ 2,834 $ 529 $ 625 $ 2,897 $ 2,949 $ 3,310 $ 4,257 $ 1,919 $ 1,573
Provision for credit losses
as a percentage of average
net receivables............ 5.7% 6.2% 7.6% 13.1% 6.4% 6.2% 6.7% 8.9% 8.6% 8.0%
Net write-offs as a
percentage of average net
receivables................ 3.6% 5.5% 6.2% 6.7% 5.5% 5.5% 5.8% 7.6% 6.8% 6.4%
</TABLE>
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
ENDED SIX MONTHS
YEAR ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, ENDED
OCTOBER 31, ---------------- ----------------------------------- -----------------
1993(1) 1993 1994 1993 1994 1995 1996 1996 1997
----------- ------ ------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average net receivables............... $ 850 $2,009 $10,509 $1,131 $5,662 $20,219 $38,847 $34,099 $50,502
Net provision for credit losses....... $ 66 $ 41 $ 388 $ 107 $ 591 $ 1,547 $ 3,349 $ 1,632 $ 2,224
Net write-offs........................ $ 0 $ 0 $ 35 $ 0 $ 155 $ 896 $ 2,606 $ 986 $ 2,012
Provision for credit losses as a
percentage of average net
receivables......................... 8.5% 12.2% 22.2% 9.5% 10.4% 7.7% 8.6% 9.6% 8.8%
Net write-offs as a percentage of
average net receivables............. 0.0% 0.0% 2.0% 0.0% 2.7% 4.4% 6.7% 5.8% 8.0%
</TABLE>
- ---------------
(1) The Company commenced its small loan business in December 1992.
DELINQUENCY EXPERIENCE AND ALLOWANCE FOR CREDIT LOSSES
Borrowers under the Company's contracts are required to make monthly
payments. The following sets forth the Company's delinquency experience for
accounts with payments 31 days or more past due and allowance for credit losses
for its finance receivables.
33
<PAGE> 35
FINANCE RECEIVABLES(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, JUNE 30,
--------------- --------------------------------- ---------------
1992 1993 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Past due accounts (gross
receivables):
31-60 days.................... $1,485 $1,463 $1,325 $2,340 $2,482 $4,115 $2,534 $3,274
61 days or more............... 1,412 1,510 1,612 2,715 3,162 4,332 3,466 6,690
Accounts with payments 31 days
or more past due as a
percentage of end of period
gross receivables............. 5.4% 5.1% 4.5% 6.0% 5.2% 6.4% 5.5% 8.5%
Allowance for credit losses..... $2,296 $2,726 $2,893 $3,712 $4,955 $6,786 $6,244 $7,360
Allowance for credit losses as a
percentage of net
receivables................... 4.8% 5.4% 5.1% 5.0% 5.1% 5.7% 6.4% 7.0%
</TABLE>
- ---------------
(1) Includes receivables in the Company's Consumer Product, Small Loan, Travel
Finance and Independent Retailer Portfolios.
In 1996, delinquencies and net write-offs in the Consumer Product Portfolio
increased to levels which were substantially higher than those historically
experienced by the Company in such portfolio. These trends have continued during
1997. The increases occurred primarily with respect to the Company's existing
customers, rather than new credit customers. Management believes such increases
were a result of excessive credit burdens for some customers, due to an
aggregate overextension of credit in the marketplace, coupled with uncertainty
over proposed legislative reforms potentially impacting the Company's customers
and their extended families. Although the Company also experienced increases in
delinquencies and net write-offs in its other portfolios, such increases were
consistent with management's expectations.
Because of the Company's growth and expected continued growth, in late 1996
the Company took a number of steps to improve collections and credit quality.
The Company hired two senior executives in the credit and collections fields. In
December 1996, the Company installed an autodialer to assist its collections
personnel in successfully contacting past due borrowers. Finally, the Company
has hired CCN, Inc. to develop a proprietary credit scoring system for the
Company, which it expects to implement during 1998. Notwithstanding these
measures, there can be no assurance that the trend in increased delinquencies
and net write-offs will not continue.
The Financing Agreement among the Company, Banner and Holdings permits the
Company to return to Banner during each of 1996 and 1997 up to $1.5 million of
contracts purchased from or contributed by Banner. Banner repurchased $1.5
million of delinquent receivables during the second half of 1996 and repurchased
$1.4 million of delinquent receivables during the first six months of 1997. As a
result of increasing delinquencies in the Consumer Product Portfolio, the
Company anticipates that the Financing Agreement will be amended to increase the
aggregate amount of receivables which can be returned to Banner during 1997 to
in excess of $1.5 million. See "Management -- Certain Relationships and Related
Transactions -- Financing Agreement."
In addition, as a result of the increasing level of delinquencies, the
Company has requested, and the lenders under the Line of Credit have given a
preliminary indication of their consent, to an amendment to the Line of Credit
to increase the Past Due Receivables Ratio (as defined in the Line of Credit)
permitted under the Line of Credit as of the end of each month from no more than
0.06 to 1 to 0.08 to 1. The offering will not be consummated until the
amendment, which is currently being documented, is executed.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996
Total revenues in the six months ended June 30, 1997 increased to $26.0
million from $15.0 million in the six months ended June 30, 1996, an increase of
$11.0 million or 73.2%.
34
<PAGE> 36
Consumer Product Portfolio interest income in the six months ended June 30,
1997 decreased to $6.0 million from $6.4 million in the six months ended June
30, 1996. This decrease was primarily attributable to a decrease in the
portfolio which averaged $48.9 million in the six months ended June 30, 1997,
compared to $56.8 million in the six months ended June 30, 1996. The average
interest rate the Company charged on this portfolio increased to 24.7% for the
six months ended June 30, 1997, compared to 22.4% for the six months ended June
30, 1996.
Small Loan Portfolio interest income in the six months ended June 30, 1997
increased to $6.5 million from $4.3 million in the six months ended June 30,
1996. The increase was primarily attributable to an increase in the portfolio
which averaged $50.5 million in the six months ended June 30, 1997, compared to
$34.1 million in the six months ended June 30, 1996. The average interest rate
the Company charged on this portfolio was 25.6% for the six months ended June
30, 1997, compared to 25.0% for the six months ended June 30, 1996.
Interest income on the Automobile Finance Portfolio in the six months ended
June 30, 1997 increased to $0.8 million from $0.6 million in the six months
ended June 30, 1996. This increase was due to an increase in the automobile
finance receivables which averaged $8.2 million in the six months ended June 30,
1997, compared to $6.0 million in the six months ended June 30, 1996. On May 30,
1997, Banner ceased the sale of used automobiles and, therefore, the Company is
not financing used automobile sales.
Other interest income in the six months ended June 30, 1997 increased to
$2.6 million from $0.4 million in the six months ended June 30, 1996, an
increase of $2.2 million. Of this increase, $1.2 million was attributed to an
increase in interest income earned on the Company's Independent Retail Finance
Portfolio, $0.2 million was attributed to an increase in interest income earned
on the Company's Travel Finance Portfolio, and $0.8 million was attributed to an
increase in interest income earned on the Premium Finance Portfolio, which
averaged $5.1 million for the six months ended June 30, 1997. The Company did
not have a Premium Finance Portfolio during the six months ended June 30, 1996.
Revenues earned on the sales of travel services increased to $4.0 million for
the six months ended June 30, 1997 compared to $0.6 million for the six months
ended June 30, 1996, an increase of 3.4 million. This increase was primarily
attributable to the 80 travel locations acquired by the Company during the
period from May 1996 through December 1996.
Other income for the six months ended June 30, 1997 increased to $5.6
million from $2.3 million in the six months ended June 30, 1996, an increase of
$3.3 million. Other income primarily includes administrative fees earned on the
Company's Small Loan Portfolio, late and extension charge income transaction
fees charged on consumer product installment contracts and income earned on the
sale of insurance products. Other income in the six months ended June 30, 1997
includes an increase of $0.1 million in administrative fee income earned on
small loans, a $0.4 million increase in late and extension charges, and an
increase of $2.8 million in insurance product revenues.
Operating expenses in the six months ended June 30, 1997 increased to $12.2
million from $4.4 million in the six months ended June 30, 1996, an increase of
$7.8 million . Of this increase, $3.5 million is attributable to operating costs
and expenses incurred in connection with the sale of airline tickets and $1.6
million incurred in connection with the sale of auto insurance, which business
commenced in July 1996. The remaining increase of $2.7 million was primarily due
to the expansion of the small loan business and unaffiliated retailer business,
including an increase in the number of employees and related payroll expenses.
The provision for credit losses in the six months ended June 30, 1997
increased to $5.2 million from $4.3 million in the six months ended June 30,
1996, an increase of $0.9 million or 22.2%. This increase was primarily due to
the growth experienced by the Company in its unaffiliated third party retailers
receivable portfolio and to higher levels of delinquencies and write-off's. See
"-- Financial Trends -- Delinquency Experience and Allowance for Credit Losses"
above.
Interest expense in the six months ended June 30, 1997 increased to $2.9
million from $2.5 million in the six months ended June 30, 1996. This increase
was due to an increase in the amounts borrowed under the lines of credit which
averaged $69.4 million in the six months ended June 30, 1997, compared to $62.6
million in the six months ended June 30, 1996.
35
<PAGE> 37
As a result of the foregoing factors, net income in the six months ended
June 30, 1997 increased to $3.5 million from $2.3 million in the six months
ended June 30, 1996, an increase of $1.2 million or 52.8%.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues in the year ended December 31, 1996 increased to $36.4
million from $22.2 million in the year ended December 31, 1995, an increase of
$14.2 million or 64.4%.
Consumer Product Portfolio interest income in the year ended December 31,
1996 increased to $12.9 million from $12.5 million in the year ended December
31, 1995, an increase of $0.4 million. Of this increase, $0.7 million was
attributable to a 1.3% increase in the average interest rate earned on this
portfolio in the year ended December 31, 1996 compared to the year ended
December 31, 1995, offset by a $0.3 million decrease in interest income as a
result of a decrease of $1.5 million in the size of the average Consumer Product
Portfolio for the year ended December 31, 1996 compared to the year ended
December 31, 1995.
Small Loan Portfolio interest income in the year ended December 31, 1996
increased to $9.7 million from $5.1 million in the year ended December 31, 1995,
an increase of $4.6 million or 90.1%. Substantially all of this increase was
attributable to an increase in the size of the Small Loan Portfolio, which
averaged $38.8 million in the year ended December 31, 1996 compared to $20.2
million in the year ended December 31, 1995. For the year ended December 31,
1996, the Company earned an average interest rate of 24.9% compared to 25.2% in
the year ended December 31, 1995. The Company currently charges the maximum
interest rate permitted under California law on its small loans.
Automobile Finance Portfolio interest income in the year ended December 31,
1996 increased to $1.5 million from $0.2 million in the year ended December 31,
1995, an increase of $1.3 million. Substantially all of this increase was
attributable to an increase in the size of the Automobile Finance Portfolio,
which averaged $7.2 million in the year ended December 31, 1996 compared to $1.1
million in the year ended December 31, 1995. The Company commenced its business
of financing automobiles in July 1995.
Other interest income in the year ended December 31, 1996 increased to $1.7
million from $0.2 million in the year ended December 31, 1995, an increase of
$1.5 million. Of this increase, $0.8 million was attributed to an increase in
interest income earned on the Company's Travel Finance Portfolio, and $0.6
million was attributable to interest income earned on the Company's financing of
installment receivables generated from the sale of consumer products sold to
customers of independent retailers. The Company commenced this business in early
1996.
For the year ended December 31, 1996, the Company's Travel Finance
Portfolio averaged $4.9 million compared to $2.7 million in the year ended
December 31, 1995. The average interest rate earned on this portfolio was 25.0%
in the year ended December 31, 1996 compared to 23.7% in the year ended December
31, 1995.
Revenues earned on the sales of travel services increased to $2.4 million
in the year ended December 31, 1996 compared to $0.4 million in the year ended
December 31, 1995, an increase of $2.0 million. The Company commenced its travel
business in June 1995, and substantially expanded its operation through the
acquisition of 25 travel locations in May and June of 1996. In December 1996,
the Company acquired an additional 55 travel locations. However, such
acquisition did not materially contribute to 1996 revenues.
Other income for the year ended December 31, 1996 increased to $7.2 million
from $2.9 million in the year ended December 31, 1995, an increase of $4.3
million or 153.3%. Other income primarily includes administrative fees earned on
the Company's Small Loan Portfolio, late and extension charge income and income
earned on the sale of insurance products. For the year ended December 31, 1996,
administrative fee income increased to $1.9 million compared to $1.1 million in
the year ended December 31, 1995, an increase of $0.8 million. For the year
ended December 31, 1996, late and extension charge income increased to $2.6
million from $1.0 million in the year ended December 31, 1995, an increase of
$1.6 million. This increase was primarily attributable to the State of
California increasing the late charges the Company may charge coupled with an
increase in the size of the Company's combined receivable portfolios. For the
year ended December 31, 1996, income from the sale of credit life insurance,
credit accident and health insurance, and
36
<PAGE> 38
credit property insurance increased to $2.8 million from $0.8 million in the
year ended December 31, 1995, an increase of $2.0 million. This increase was
primarily attributable to the Company's commencing the sale of its insurance
products on its small loan portfolio in November 1995.
Operating expenses in the year ended December 31, 1996 increased to $12.7
million from $7.3 million in the year ended December 31, 1995, an increase of
$5.4 million or 74.0%. Of this increase, $1.7 million and $0.9 million are
attributable to operating costs and expenses incurred in connection with the
sale of travel services, which business commenced in June 1995, and was expanded
through acquisitions in 1996, and the commencement of the Company's automobile
insurance business. Of the remaining increase of $2.8 million, approximately
$0.6 million was attributable to increased costs of selling the Company's
insurance products with substantially all of the remaining increase attributable
to increased costs, including the number of employees and related payroll to
accommodate the increased number of outstanding contracts associated with the
expansion of the Company's businesses.
The provision for credit losses in the year ended December 31, 1996
increased to $9.1 million from $5.5 million in the year ended December 31, 1995,
an increase of $3.6 million or 67.1%. This increase was primarily due to the
growth experienced by the Company in the Small Loan Portfolio, which generated a
provision of $3.3 million in the year ended December 31, 1996 compared to $1.5
million in the comparable period of 1995. The remaining increase of $1.8 million
was primarily attributable to an increase of $1.1 million in the provision for
credit losses on the Company's Consumer Product Portfolio, as a result of
increased write-offs and delinquencies in such portfolio, and a $0.4 million
provision for credit losses provided on the Company's Independent Retail Finance
Portfolio. "-- Financial Trends -- Credit Quality" above and "-- Delinquency
Experience and Allowance for Credit Losses" above.
Interest expense in the year ended December 31, 1996 increased to $4.7
million from $4.3 million, an increase of $0.4 million or 9.8%. This increase
was primarily due to a higher level of borrowings under the Prior Lines of
Credit used to support the growth in the Company's Small Loan Portfolio and
Travel Finance Portfolio.
As a result of the foregoing factors, net income in the year ended December
31, 1996 increased to $5.9 million from $3.1 million in the year ended December
31, 1995, an increase of $2.8 million or 88.5%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues in the year ended December 31, 1995 increased to $22.2
million from $15.6 million in the year ended December 31, 1994, an increase of
$6.6 million or 42.4%.
Consumer Product Portfolio interest income in the year ended December 31,
1995 increased to $12.5 million from $11.8 million in the year ended December
31, 1994, an increase of $0.7 million or 6.1%. Of this increase, $0.8 million
was attributable to an increase in the size of the Consumer Product Portfolio,
which averaged $57.3 million in the year ended December 31, 1995 compared to
$53.7 million in the year ended December 31, 1994. For the year ended December
31, 1995, the number of active contracts outstanding in the Consumer Product
Portfolio increased to 84,600, an increase of 9.8% over the comparable period in
1994. For the year ended December 31, 1995, the average balance in such
portfolio decreased to $710 from $778 in the year ended December 31, 1994, a
decrease of 8.7%. The average interest rate the Company earned on its Consumer
Product Portfolio in the year ended December 31, 1995 decreased to 21.8% from
22.0% in the year ended December 31, 1994.
Small Loan Portfolio interest income in the year ended December 31, 1995
increased to $5.1 million from $1.1 million in the year ended December 31, 1994,
an increase of $4.0 million or 382.0%. Of this increase, $2.7 million was
attributable to an increase in loan demand and $1.3 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 25.2% for the year ended
December 31, 1995 from 18.7% for the year ended December 31, 1994. The Company
currently charges the maximum interest rate permitted under California law on
its small loans. The average size of the Small Loan Portfolio increased to $20.2
million in the year ended December 31, 1995 from $5.7 million in the year ended
December 31, 1994, an increase of $14.6 million.
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In the year ended December 31, 1995, revenues include $0.4 million
generated from the sale of travel services, which business commenced in June
1995, and $0.4 million of interest income earned on the Travel Finance and
Automobile Finance Portfolios.
Other income in the year ended December 31, 1995 increased to $2.9 million
from $1.9 million in the year ended December 31, 1994, an increase of $1.0
million or 52.9%. The remaining increase in other income was primarily due to an
increase of $0.7 million in administrative fee income earned on the Small Loan
Portfolio and $0.3 million from increases in late charges and sales of insurance
products.
Operating expenses in the year ended December 31, 1995 increased to $7.3
million from $5.2 million in the year ended December 31, 1994, an increase of
$2.1 million or 40.9%. Of this increase, $0.3 million is attributable to
operating expenses and costs incurred in connection with the sale of airline
tickets, which began in the year ended December 31, 1995. The remaining increase
of $1.8 million was primarily due to the expansion of the small loan business,
including an increase in the number of employees and related payroll expenses of
$0.9 million, and to an increase in advertising expenses of $0.3 million.
The provision for credit losses in the year ended December 31, 1995
increased to $5.5 million from $3.9 million in the year ended December 31, 1994,
an increase of $1.6 million or 38.9%. This increase was primarily due to the
growth experienced by the Company in its Small Loan Portfolio, which generated a
provision of $1.5 million for the year ended December 31, 1995 compared to $0.6
million in the comparable period of 1994. The Travel Finance Portfolio accounted
for $0.1 million of the provision for credit losses during 1995. The remaining
increase was attributable to growth in the Company's Consumer Product Portfolio
and a higher provision level on this portfolio in 1995 as compared to 1994.
Interest expense in the year ended December 31, 1995 increased to $4.3
million from $2.8 million in the year ended December 31, 1994, an increase of
$1.5 million or 52.7%. This increase was primarily due to a higher level of
borrowings under the Prior Lines of Credit used to support the growth in the
Company's Consumer Product Portfolio and Small Loan Portfolio, and to a higher
level of interest charged by the lenders under the respective Prior Lines of
Credit, as a result of increases in their borrowing rates.
As a result of the foregoing factors, net income in the year ended December
31, 1995 increased to $3.1 million from $2.2 million for the year ended December
31, 1994, an increase of $0.9 million or 42.9%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenues in the year ended December 31, 1994 increased to $15.6
million from $11.9 million in the year ended December 31, 1993, an increase of
$3.7 million or 31.0%.
Consumer Product Portfolio interest income in the year ended December 31,
1994 increased to $11.8 million from $9.4 million in the year ended December 31,
1993, an increase of $2.4 million or 25.1%. Of this increase, $2.2 million was
attributable to an increase in the average interest rate the Company earned on
the Consumer Product Portfolio, which increased to 22.0% in the year ended
December 31, 1994 from 18.0% in the year ended December 31, 1993. The remaining
increase of $0.2 million was attributable to an increase in the size of the
Consumer Product Portfolio, which averaged $53.7 million in the year ended
December 31, 1994 compared to $52.5 million in the year ended December 31, 1993.
Small Loan Portfolio interest income in the year ended December 31, 1994
increased to $1.1 million from $0.2 million in the year ended December 31, 1993,
an increase of $0.9 million or 462.2%. Of this increase, $0.8 million was
attributable to an increase in loan demand and $0.1 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 18.7% for the year ended
December 31, 1994 from 16.6% for the year ended December 31, 1993. The average
size of the Small Loan Portfolio increased to $5.7 million in the year ended
December 31, 1994 from $1.1 million in the year ended December 31, 1993, an
increase of $4.5 million.
Other income in the year ended December 31, 1994 increased to $1.9 million
from $1.4 million in the year ended December 31, 1993, an increase of $0.4
million or 29.3%. This increase was primarily due to an increase in
administrative fee income and to increased late fee income.
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Operating expenses in the year ended December 31, 1994 increased to $5.2
million from $4.5 million in the year ended December 31, 1993, an increase of
$0.7 million or 15.9%. This increase was primarily due to increased expenses in
connection with the Company's development of its small loan business, which
include an increase in the number of employees and related payroll necessary to
accommodate the increased number of contracts associated with the expansion of
this business.
The provision for credit losses in the year ended December 31, 1994
increased to $3.9 million from $3.4 million in the year ended December 31, 1993,
an increase of $0.5 million, or 13.8%. This increase was attributable to the
growth in the Company's Small Loan Portfolio. The Company's provision for credit
losses on its Consumer Product Portfolio was $3.3 million for both of the years
ended December 31, 1994 and 1993. The provision for credit losses as a
percentage of the average Consumer Product Portfolio was 6.2% in the year ended
December 31, 1994 compared to 6.4% in the year ended December 31, 1993.
Interest expense in the year ended December 31, 1994 increased to $2.8
million from $2.2 million during the year ended December 31, 1993, an increase
of $0.6 million or 25.3%. This increase was due to a higher level of bank
borrowings used to support the growth on the Company's receivables and to higher
interest rates on the Company's Prior Lines of Credit.
As a result of the foregoing factors, net income in the year ended December
31, 1994 increased to $2.2 million compared to $1.0 million in the year ended
December 31, 1993, an increase of $1.2 million or 115.6%.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in June 1996, the Company historically
financed its operations through the cash flow generated from operations,
borrowings under its lines of credit, and from periodic contributions to capital
made by Holdings and related entities.
Net cash provided from operations totaled $6.7 million, $9.2 million and
$17.6 million for the years ended December 31, 1994, 1995 and 1996,
respectively, and $8.2 million for the six months ended June 30, 1997. During
these periods, the primary source of net cash provided from operations was net
income before non-cash charges, principally the provision for credit losses.
Net cash flow generated from operations was insufficient to fund the
Company's outlays for capital expenditures and the significant growth it
experienced in its receivables in each of 1994, 1995 and 1996 and the
acquisitions completed in 1996. Net cash used in such investing activities was
$20.8 million, $31.9 million and $43.7 million in the years ended December 31,
1994, 1995 and 1996, respectively. To fund its expenditures and support the
growth in its combined receivables portfolio, the Company relied on capital
contributions from Holdings, the proceeds from the initial public offering and
bank borrowings made under its credit facilities. Capital contributions amounted
to $1.6 million and $6.6 million in the years ended December 31, 1994 and 1995,
respectively. Prior to the initial public offering, the Company made a return of
capital of $615,000 to Banner. Net proceeds from the initial public offering
were $22.5 million during 1996. Bank borrowings provided cash of $12.2 million,
$15.1 million and $10.1 million in the years ended December 31, 1994, 1995 and
1996, respectively.
During the six months ended June 30, 1997, net cash provided by investing
activities was $1.8 million as the Company experienced a decline in its
receivables. In addition, the Company paid down $9.4 million of bank borrowings
during the six months ended June 30, 1997.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to maintain its current level of operations
and to expand its operations will be affected by the availability of financing
and the terms thereof. Currently, the Company funds its financing activities and
operations with borrowings under the Line of Credit which expires June 12, 2000.
Holdings and all of the Company's significant domestic subsidiaries are
guarantors under the Line of Credit. In addition, borrowings under the Line of
Credit are secured by substantially all of the assets, including the
receivables, of the Company and a pledge by Central of the stock of all of its
significant subsidiaries. The maximum amount available under the Line of Credit
is $100.0 million. However, the amount of credit available at any one time under
the Line of
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Credit is limited to 75% of eligible contracts. As of June 30, 1997, the total
amount available to the Company under the Line of Credit was $80.4 million, of
which approximately $66.7 million was outstanding, including letters of credit.
Central pays commitment fees to the lenders for the unused portion of the credit
facility in an amount equal to 37.5 basis points per annum times the average
daily amount by which the maximum amount available under the Line of Credit
exceeds the usage of the facility. As a result of the funds which would be made
available to the Company upon the completion of this offering, the Company does
not anticipate that it will have an immediate need for a $100.0 million credit
facility. Concurrent with the consummation of the offering, there will be a
reduction in the maximum amount committed by the lenders to be available under
the Line of Credit from $100.0 million to between $30.0 million to $43.0
million. Concurrent with the consummation of the offering and such reduction in
the maximum amount available for borrowing under the Line of Credit, Wells Fargo
Bank, N.A. will be paid off in full and Union Bank of California, N.A. may be
paid off in full and, to the extent paid off, will no longer participate as a
lender under the Line of Credit. Both Wells Fargo Bank, N.A. and Union Bank of
California, N.A., either directly or through an affiliate, have an indirect
ownership interest in Central. If the offering is not consummated, the Line of
Credit will remain in place with all of the current lenders.
Interest on amounts outstanding under the Line of Credit is, at the option
of Central, equal to either (a) 87.5 basis points above the higher of the prime
rate announced by Wells Fargo Bank or the federal funds rate plus 50 basis
points or (b) 225 basis points above the interest rate per annum at which
deposits in dollars are offered by Wells Fargo Bank to prime banks in the London
Eurodollar market. The aggregate amount of indebtedness outstanding under the
Line of Credit at June 30, 1997 bore interest at the rate of 7.9%. The Company
is required to maintain interest rate hedging arrangements for at least 50% of
the Senior Funded Debt (as defined in the Line of Credit) of the Company.
However, this percentage may be reduced by the amount (expressed as a
percentage) of the ratio of any permitted fixed rate indebtedness issued by
Central to the total Senior Funded Debt (as defined in the Line of Credit).
The Line of Credit restricts, among other things, the Company's ability to
(i) incur additional indebtedness, (ii) pay indebtedness prior to the date when
due, (iii) pay dividends, make certain other restricted payments or consummate
certain asset sales, (iv) merge or consolidate with any other person, (v) enter
into certain transactions with affiliates, (vi) incur indebtedness that is
subordinate in priority and right of payment to amounts outstanding under the
Line of Credit, and (vii) make future acquisitions in excess of an aggregate
amount.
The Line of Credit also contains certain restrictive covenants that
require, among other things, the Company to maintain specific financial ratios
and to satisfy certain financial tests. These include: (a) Past Due Receivables
Ratio (as defined in the Line of Credit) as of the end of each month of no more
than 0.06 to 1.00, (b) Credit Loss Allowance Ratio (as defined in the Line of
Credit) as of the end of each month of not more than 0.05 to 1.00, (c) Interest
Coverage Ratio (as defined in the Line of Credit) as of the end of each quarter
of not less than 1.85 to 1.00, (d) Credit Loss/Net Chargeoff Percentage (as
defined in the Line of credit) as of the end of each month of not less than the
Minimum Credit Loss/Chargeoff Percentage (as defined in the Line of Credit) as
of such date, (e) Leverage Ratio (as defined in the Line of Credit) as of the
end of each quarter of no more than 2.00 to 1.00. The principal outstanding
amount of the Junior Subordinated Debentures or any other debt subordinated to
the Line of Credit would not be included in the calculation of the Leverage
Ratio. The Company has requested the lenders to modify the Past Due Receivables
ratio to be no more than 0.08 to 1.00 as of the end of each month. The lenders
under the Line of Credit have given a preliminary indication of their consent to
such increase in the Past Due Receivables Ratio. The offering will not be
consummated until the amendment, which is currently being documented, is
executed. The Company is also required to maintain a Tangible Net Worth (as
defined in the Line of Credit) as of the end of each quarter of not less than
$50 million, plus an amount equal to 75% of Net Income (as defined in the Line
of Credit) earned in each quarter (with no deduction for a net loss in a
quarter), plus an amount equal to 75% of the aggregate increases in
stockholders' equity as a result of the sale of capital stock of the Company.
The breach of any of these covenants or other terms of the Line of Credit could
result in a default under the Line of Credit, in which event the lenders could
seek to declare all amounts outstanding under the Line of Credit, together with
accrued and unpaid interest, to be immediately due and payable.
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The Company intends, after consummation of this offering, to enter into
negotiations with the lenders under the Line of Credit or another group of
lenders to restructure the Company's senior credit facilities upon terms and
conditions more favorable to the Company. The amount of credit available at any
one time under the current Line of Credit is limited to 75% of eligible
contracts. At June 30, 1997, the total amount available to the Company under the
Line of Credit was $80.4 million. Credit facilities are typically limited to a
certain percentage of such eligible contracts or receivables. No assurances can
be given, however, that Central will be successful in restructuring the Line of
Credit or obtaining replacement senior credit facilities, or that if obtained
any such restructured Line of Credit or replacement senior credit facility will
be on terms more favorable to the Company. In addition, no assurances can be
given that any such restructured Line of Credit or replacement senior credit
facility will not contain terms and conditions in addition to those already
contained in the Junior Subordinated Debentures which might cause Central under
certain circumstances to exercise its existing right under the Junior
Subordinated Debentures to defer the payment of interest on the Junior
Subordinated Debentures or otherwise restrict the ability of Central to pay
interest on the Junior Subordinated Debentures and consequently CFAC Capital's
ability to pay Distributions on the Trust Preferred Securities.
In addition, the inability of the Company at any time to renew or replace
its Line of Credit or other senior credit facilities on acceptable terms could
have a material adverse effect on the Company's results of operations and
financial condition. See "Risk Factors -- Subordination of Central's Obligations
Under the Junior Subordinated Debentures and the Guarantee", "Risk
Factors -- Restrictions Imposed by the Line of Credit", and "Risk
Factors -- Need for Senior Credit Facility."
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards Number 128 (Earnings per Share) ("SFAS 128"), Statement of
Financial Accounting Standards Number 130 (Reporting Comprehensive Income)
("SFAS 130") and Statement of Financial Accounting Standards Number 131
(Disclosures About Segments of an Enterprise and Related Information) ("SFAS
131"). The Company will be required to adopt SFAS 128, SFAS 130 and SFAS 131 in
fiscal year 1997. The Company does not expect that the adoption of SFAS 128,
SFAS 130 and SFAS 131 will have a material effect on its financial position or
its results of operations in 1997.
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BUSINESS
In addition to the historical information contained herein, certain
statements under this caption constitute "forward-looking statements" under
Section 27A of the Securities Act and 21E of the Exchange Act which involve
risks and uncertainties. The Company's actual results may differ significantly
from those discussed herein. Factors that might cause such a difference include,
but are not limited to, those discussed under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as those discussed elsewhere in this Prospectus.
COMPANY OVERVIEW
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing low income Hispanic population, a
market the Company believes is underserved. The Company (i) provides small,
unsecured personal loans to the Company's customers; (ii) purchases and services
consumer finance receivables generated by the Company's customers for purchases
of high quality brand name consumer products, appliances and furniture sold by
Banner, an affiliate of the Company, and by independent retailers; (iii) sells
airline tickets and originates and services travel-related finance receivables;
and (iv) provides insurance products and insurance premium financing to its
customers. The Company has catered to the low income Hispanic population during
its 40 years of operation by locating its facilities primarily in Hispanic
communities, advertising in Spanish, and employing Spanish as the primary
language at its locations. While the Company operates primarily in the greater
Los Angeles area and faces substantial competition with respect to its lines of
business, the Company's objective is to become the leading provider of consumer
credit and other financial services to the low income Hispanic population in
urban areas within California and elsewhere in the United States.
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and have limited or
short-term employment histories. In addition, the Company's customers typically
have no or limited prior credit histories and are generally unable to secure
credit from traditional lending sources. The Company bases its credit decisions
on its assessment of a customer's ability to repay the obligation. In making a
credit decision, in addition to the size of the obligation, the Company
generally considers a customer's income level, type and length of employment,
stability of residence, personal references, and prior credit history with the
Company. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm other credit-related information. The Company,
however, is more susceptible to the risk that its customers will not satisfy
their repayment obligations than are less specialized consumer finance companies
or consumer finance companies that have more stringent underwriting criteria.
See "Risk Factors -- Credit Risk Associated with Customers; Lack of Collateral"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Trends -- Credit Quality" and "-- Delinquency Experience
and Allowance for Credit Losses."
DEMOGRAPHIC TRENDS AND MARKET OPPORTUNITY
Since 1950 Hispanics have been the fastest growing minority group in the
United States, increasing from 4.0 million in 1950 to approximately 27.0 million
in 1996, a compound annual growth rate of 4.3%. According to the 1996 U.S.
Bureau of the Census Current Population Report (the "1996 Report"), this trend
is expected to continue. The 1996 Report projects that the Hispanic population
will total 36.0 million by 2005. California is home to the largest Hispanic
population in the United States and this population is estimated to grow from
9.4 million in 1995 to 13.0 million by 2005, at which time it will comprise
approximately 34% of California's total population. The Company believes that,
despite the current size and projected population growth of the Hispanic
population in the United States, this segment of the population will continue to
have limited access to traditional sources of credit.
The Company has identified certain metropolitan markets in which the
Company believes it can successfully introduce its financial products and
services. Specifically, the Company has determined that there exist significant
opportunities in markets having large Hispanic populations but in which such
populations account for less than 30% of such area's total population. The
Company believes that Hispanic consumers in
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these markets are more likely to be underserved than Hispanics in locations in
which they comprise a greater proportion of an area's total population.
BUSINESS STRATEGY
Recognizing these demographic trends, management's strategy has been to
identify new financial products and services that it believes could be
introduced successfully to the low income Hispanic population in urban areas
within California and increase the number of locations through which it can
distribute its products and services. From the 1991 Acquisition until the
Company's initial public offering in June 1996, the Company grew primarily as a
result of the introduction of such financial products and services and increased
pricing. The Company's most significant growth has occurred as a result of the
introduction of unsecured small loans in the fourth quarter of 1992, a product
which the Company believes offers significant continued growth potential. In
1995, the Company began offering company-financed sales of airline tickets and
in 1996, the Company began selling automobile insurance and offering insurance
premium financing and expanded its independent retail financing business. In
1997, the Company introduced a new financial product involving the issuance of a
card, called an "Efectiva Card", which provides customers of the Company with
the ability to access their established lines of credit with the Company by
withdrawing cash from the Company's cash dispensing machines. As of the date
hereof, the Company has installed a proprietary, non-networked closed system of
20 cash dispensing machines, of which 18 are in locations owned or leased by the
Company or Banner and 2 of which are in locations owned or leased by
unaffiliated parties.
To continue its growth, in 1996 the Company began to expand its
distribution network through acquisitions of businesses primarily serving the
Hispanic community. The Company also intends to develop new financial products
and services internally that the Company believes will complement or expand its
current financial products and services, or seek to acquire existing businesses
that offer such products and services. The Company also intends to expand its
consumer finance business for independent retailers. Prior to May 1996, the
Company offered its products and services through 12 locations, 11 of which were
in the greater Los Angeles area. In May 1996, the Company acquired the business
of, and assumed the leasehold interests to, six travel locations in the greater
Los Angeles area. In June 1996, the Company acquired the business of, and
assumed the leasehold interests to, 19 travel locations of which 14 are in the
greater Los Angeles area, two locations are in Chicago and one location is in
each of Dallas, Las Vegas and San Diego. In December 1996, the Company acquired
the assets of, and assumed the leasehold interests in, 55 travel locations in
California. In July 1996, the Company acquired the business of, and assumed the
leasehold interests in, 10 auto insurance locations in the greater Los Angeles
area. Although such transactions were not material from a financial point of
view, the Company believes that such businesses provide the Company with growth
opportunities while adding additional locations through which it can offer its
financial products and services.
BUSINESS ACTIVITIES
At June 30, 1997, the Company's gross receivables portfolio was
approximately $133.0 million, consisting of the Small Loan Portfolio, the
Consumer Product Portfolio, the Independent Retail Finance Portfolio, the Travel
Finance Portfolio, the Premium Finance Portfolio, and the Automobile Finance
Portfolio.
Installment Credit and Related Businesses
The Company provides credit to low income consumers who desire to purchase
consumer products and services on credit. By granting credit, the Company
provides such consumers with an increased number of purchasing options. The
Company purchases and services consumer finance receivables generated through
sales of brand name consumer products by Banner. The Company also purchases and
services consumer finance receivables generated by independent retailers and
originates and services consumer finance receivables generated through Company
sales of airline tickets and insurance products. From 1995 through May 30, 1997,
the Company also financed the sale of used automobiles.
Consumer Product Finance. The Company purchases and services consumer
finance receivables generated through sales of brand name consumer products by
Banner through six stores in the greater Los
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Angeles area and one store in San Francisco. Consumer products financed by the
Company include televisions, stereos, refrigerators, washers and dryers, ovens,
freezers, furniture, household accessories and special order items.
Independent Retail Installment Finance. The Company also provides financing
to consumers for the purchase of products and services sold by independent
retailers. At present, the Company has independent retail installment financing
arrangements with approximately 100 retailers in the greater Los Angeles area,
most with one or two locations. The Company regularly considers and evaluates
additional independent retail installment financing arrangements.
Travel Sales and Finance. As a complementary business line, the Company in
mid-1995 commenced its travel business, offering sales of airline tickets, as
well as the financing of such purchases. As a result of its recent acquisitions,
the Company believes that it is currently the largest provider of travel
services to the low income Hispanic population in California. Substantially all
of the Company's ticket sales are for international travel, which generally
provides a higher commission structure than does domestic travel. Prior to its
initial public offering, the Company was conducting this business at five of
Banner's installment credit stores in the greater Los Angeles area and two
finance centers offering small loans and travel finance in the greater Los
Angeles area that were opened in December 1995. At June 30, 1997, the Company
operated through 77 locations, of which 54 are located in Southern California,
17 are located in Northern California and 6 are located outside of California.
See "Business -- Business Strategy." The Company believes that both its small
loan and travel product lines can be offered out of 1,000 - 1,500 square foot
locations, and that such locations can efficiently offer additional financial
products and services which the Company anticipates it will make available in
the future.
Automobile Finance. From mid 1995 to May 30, 1997, the Company also
provided financing to consumers for the purchase of automobiles sold by Banner.
Banner offered used automobiles for prices ranging from $6,500 to $8,500. The
Company offered financing terms on sales of automobiles of up to 42 months. All
financing extended by the Company on automobiles sold by Banner is with full
recourse back to Banner in the event of default by the customer.
Small Loan Business
In December 1992, the Company began offering unsecured, closed-end, small
loans generally ranging from $350 to $1,500 for personal, family or household
purposes at Banner's flagship installment credit store. Prior to commencing this
business, the Company determined that there was a significant demand for small
loans, and that financial institutions in its geographic market were not making
loans of less than $1,500 and did not have adequate underwriting experience to
serve the low income Hispanic population. Commencing in May 1997, the Company
began offering unsecured open-end small loans which can be accessed through the
Efectiva Card. At June 30, 1997, the Company's small loan business was operating
through 19 facilities, six of which were at Banner locations and 13 of which
were finance centers.
Other Business Activities
The Company acts as an intermediary for an independent insurance carrier
with respect to the sale of credit life and credit accident and health insurance
to its customers and, as such, sells policies within limitations established by
agency contracts with that insurer. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of the borrower's death. Credit accident and health insurance provides for
repayment of loan installments to the lender during the insured's period of
involuntary unemployment resulting from disability, illness or injury. Premiums
for such credit insurance are at the maximum authorized rates and are stated
separately in the Company's disclosure to customers, as required by the
Truth-in-Lending Act and applicable state statutes. The Company does not act as
an intermediary with respect to the sale of credit insurance to non-borrowers.
The Company earns a commission from the insurance carrier on the sale of credit
insurance which is based in part on the claims experience on policies sold by
the insurance carrier through the Company. Commencing in mid-1996, the
independent insurance carrier reinsured the credit life and credit accident and
health risk with a newly formed subsidiary of
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<PAGE> 46
the Company. As a result of this reinsurance arrangement, the credit risk
remains with the Company. In 1996, the Company also commenced its automobile
insurance and insurance premium financing businesses.
COMPANY OPERATIONS
Credit Procedures
Because of the Company's growth and expected continued growth, in late
1996, the Company took a number of steps to improve collections and credit
quality. The Company hired two senior executives in the credit and collections
fields. In December 1996, the Company installed an autodialer to assist its
collections personnel in successfully contacting past due borrowers. Finally,
the Company hired CCN, Inc. to develop a proprietary credit scoring system for
the Company, which it expects to implement during 1998.
The Company has developed uniform guidelines and procedures for evaluating
credit applications for installment credit sales and small loans. Credit
applications are taken at all of the Company's locations and at each of Banner's
stores and are generally transmitted electronically through the Company's
computer system to the Company's credit processing facility, where all credit
approval and verification is centralized. Credit applications are also taken at
each of the independent retail locations for which the Company provides
financing, and are generally transmitted to the Company's credit processing
facility via facsimile. The Company believes that its underwriting policies and
procedures allow it to respond quickly to credit requests. The Company typically
responds to credit applicants within one hour. Management believes that because
of its prompt response, many customers prefer to deal with the Company instead
of its competitors.
The Company's credit managers and credit approvers make their decisions on
a case by case basis and are influenced by, among other things, whether an
applicant is a new or existing customer. New applicants complete standardized
credit applications which contain information concerning income level,
employment history, stability of residence, driver's license or state
identification card, social security number, capacity to pay and personal
references. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm other credit-related information. For an
established customer, in all instances the credit process currently includes a
review of the customer's credit and payment history with the Company. Because
the Company offers multiple lines of credit, a review is made with respect to
the aggregate amount owed by a customer. In cases where a customer makes a
request for a material increase in his or her aggregate outstanding balance, the
Company will obtain a credit bureau report and will seek to confirm employment.
In instances where the applicant has no or limited credit history, the Company
may require a co-signer with appropriate credit status to sign the contract and
may, in the installment credit business, also require a down payment. Depending
on the size of the transaction and other relevant factors, the applicant's
employment and residence may also be verified by the Company's credit verifiers.
See "Risk Factors -- Credit Risk Associated with Customers; Lack of Collateral."
Payment and Collections
Industry studies estimate that more than 25% of the adult population in the
United States does not maintain a checking account, which is a standard
prerequisite for obtaining a consumer loan, credit card or other form of credit
from most consumer credit sources. The Company's customers are required to make
their monthly payments using a payment schedule provided to them by the Company.
The vast majority of the Company's customers make their payments in cash at the
Company's locations or at the Company's payment facilities in Banner's stores.
For the Company's customers who are paid their wages by check but who do not
maintain checking accounts, the Company cashes such checks at no charge in order
to facilitate account payments.
Payments are considered past due if a borrower fails to make any payment in
full on or before its due date, as specified in the installment credit or small
loan contract signed by the customer. The Company currently attempts to contact
borrowers whose payments are not received by the due date within 10 days after
such due date. Such contacts are made by the Company by both letter and
telephone. In December 1996, the Company installed an autodialer which makes up
to 500 telephone calls per hour to assist its collections
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<PAGE> 47
personnel in successfully contacting past due borrowers. If no payment is
remitted to the Company after the initial contact, additional contacts are made
every seven days, and, after a loan becomes 31 days delinquent, the account is
generally turned over to the Company's credit collectors. Under the Company's
guidelines, an account is generally charged off and turned over to a collection
agency when the account is deemed uncollectible by the Company, which is
typically when the account is between 91 and 150 days past due.
Finance Contracts
The Company utilizes different types of financing contracts, depending on
the dollar amount of the financing and the product financed. Each of the
contracts is in Spanish and English and requires monthly financing payments.
Many of the terms, conditions and disclosures in the finance contracts are
governed by state and federal regulations. See "Business -- Regulation." When a
qualifying customer with an open account balance increases the amount
outstanding with an additional purchase or loan, the customer executes a new
contract for the new aggregate balance and, with the proceeds, pays off the
original contract.
Insurance
The Company maintains various insurance policies of the type, and in the
amounts, which are usual for its business. The Company maintains coverage for
business interruptions, including interruptions resulting from computer failure.
The Company believes that its insurance coverage is adequate.
Management Information Systems
Pursuant to an Operating Agreement dated June 24, 1996 among the Company,
Banner and Holdings, the Company utilizes Banner's management information
systems and has been granted a license to use Banner's management information
systems' software. Banner has invested significant resources to develop a
proprietary system that integrates all major aspects of the businesses of the
Company and Banner. The computer system utilizes a high-range IBM AS-400 as the
Company server, which provides on-line, real-time information processing
services to terminals located in each of Banner's locations and in the Company's
centralized credit processing facility. The system allows for complete
processing of the Company's consumer product finance, automobile finance, travel
finance and small loan businesses, including application processing and
credit-approval, acquisition of credit bureau reports, accessing the payment
history of all active accounts, preparation of contracts, payment posting, and
all other collection-monitoring activities. In addition, the system provides
customized reports to analyze each of the Company's portfolios on a daily,
weekly and monthly basis. The Company believes that the computer system is
sufficient to permit significant growth in each of the Company's business lines
and portfolios without the need for a material additional investment in
management information systems. Banner has adopted procedures designed to
minimize the effect of systems failures and other types of potential problems,
including routine backup and off-site storage of computer tapes, as well as
redundancy and "mirroring" of certain computer processes.
COMPETITION
The installment credit business is highly competitive. The Company, through
its relationship with Banner and other retailers, competes with those department
stores, discount stores and other retail outlets which also provide credit to
low income consumers. The largest national and regional competitors have
significantly greater resources than the Company. Competition may arise from new
sources having the expertise and resources to enter the Company's markets either
through expansion of operations or acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry or expansion of
any such company within the Company's markets could have a material adverse
effect on the Company's business strategy and results of operations and
financial condition. The Company does not believe it competes with commercial
banks, savings and loans and most other consumer finance lenders, because these
institutions typically do not make loans of less than $1,500 with maturities of
one year or less.
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<PAGE> 48
Each of the Company's other businesses, including travel sales and
automobile insurance sales, operate in highly competitive industries. The
Company competes against a large number of national and regional firms engaged
in such businesses, many of which have substantially greater financial,
marketing and sales resources than the Company. There can be no assurance that
the Company's present competitors or companies that choose to enter the
marketplace in the future will not exert significant competitive pressures on
the Company.
REGULATION
General
As a consumer finance company, the Company is subject to extensive
regulation. Violation of statutes and regulations applicable to the Company may
result in actions for damages, claims for refunds of payments made, certain
fines and penalties, injunctions against certain practices and the potential
forfeiture of rights to repayment of loans. The Company may be affected by
changes in state and federal statutes and regulations. The Company, in
conjunction with industry associations, actively participates in lobbying
efforts in the states in which it operates. Although the Company is not aware of
any pending or proposed legislation that could have a material adverse effect on
the Company's business, there can be no assurance that future regulatory changes
will not adversely affect the Company's lending practices, operations,
profitability or prospects.
State Regulation
Consumer Product and Travel Finance. The Company's consumer product finance
and travel finance businesses are regulated in California by the California
Retail Installment Sales Act (the "Unruh Act"). The Unruh Act requires the
Company to disclose to its customers, among other matters, the conditions under
which the Company may impose a finance charge, the method of determining the
balance which is subject to a finance charge, the method used to determine the
amount of the finance charge, and the minimum periodic payment required. In
addition, the Unruh Act provides consumer protection against unfair or deceptive
business practices by regulating the contents of retail installment sales
contracts, setting forth the respective rights and obligations of buyers and
sellers, and regulating the maximum legal finance rate or charge on installment
credit sales.
Small Loan Business. Small loan consumer finance companies are subject to
extensive regulation, supervision and licensing under various federal and state
statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees and other costs that may be charged. In addition, state laws regulate
collection procedures, the keeping of books and records and other aspects of the
operation of small-loan consumer finance companies. State agency approval
generally is required to open new branch offices. Accordingly, the ability of
the Company to expand by acquiring existing offices and opening new offices will
depend in part on obtaining the necessary regulatory approvals.
Each facility that offers small loans must be separately licensed under the
laws of California. Licenses granted by the regulatory agencies are subject to
renewal every year and may be revoked for failure to comply with applicable
state and federal laws and regulations. In California, licenses may be revoked
only after an administrative hearing.
Insurance Premium Finance. The Company's insurance premium finance business
is regulated by the State of California Department of Financial Institutions. In
general, state law and regulations set forth requirements and procedures for the
cancellation of policies and collection of unearned premiums, regulating the
form and content of premium finance agreements, limiting the amount of finance,
delinquency, cancellation and other fees the Company may charge, and prescribing
notice periods for the cancellation of policies for nonpayment.
Insurance Businesses. The Company's insurance businesses are regulated in
California by the State of California Department of Insurance. In general,
regulations issued by this agency require the Company to, among other things,
maintain fiduciary fund and trust accounts and follow specific market, general
business and claims practices.
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<PAGE> 49
Automobile Finance. The Rees-Levering Motor Vehicle Sales and Financing Act
(the "Rees-Levering Act") governs the Company's automobile finance business in
California. The Rees-Levering Act requires the Company to provide its customers
with information such as an itemization of the amount financed, including items
such as document preparation fees, taxes imposed on the sale, and the amount
charged for a service contract. The Rees-Levering Act also requires that the
Company's sales contracts comply with the disclosure requirements of the federal
Truth-in-Lending Act and Regulation Z issued thereunder. In addition, the Rees-
Levering Act protects consumers against unfair or deceptive sales practices by
setting forth the respective rights and obligations of buyers and sellers of
motor vehicles, and regulating the maximum legal finance rate or charge for
motor vehicle sales.
Federal Regulation
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the total
finance charge and the annual rate of finance charge or "Annual Percentage Rate"
on each loan. The Equal Credit Opportunity Act prohibits creditors from
discriminating against loan applicants on the basis of race, color, sex, age or
marital status. Pursuant to Regulation B promulgated under the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding
consumer rights and advise consumers whose credit applications are not approved
of the reasons for the rejection. The Fair Credit Reporting Act requires the
Company to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer reporting
agency. The Credit Practices Rule limits the types of property a creditor may
accept as collateral to secure a consumer loan.
Travel Agency Regulation
Each of the Company's travel locations are travel agencies which are
regulated by the Airline Reporting Corporation ("ARC"). The ARC represents the
major scheduled air carriers and sets the operating rules for travel agencies.
The Company is required to submit weekly reports to the ARC and to meet certain
procedural, funding and bonding requirements set by the ARC.
ADVERTISING
The Company actively advertises primarily on Hispanic television and
through direct mail, targeting both its present and former customers and
potential customers who have used other sources of consumer credit. The Company
believes that its advertising contributes significantly to its ability to
compete effectively with other providers of consumer credit.
EMPLOYEES
At June 30, 1997, the Company had 399 hourly employees, 70 salaried
employees and 110 commissioned employees. None of the Company's employees is
covered by a collective bargaining agreement. The Company believes its relations
with its employees are good.
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PROPERTIES
The Company's executive and administrative offices occupy approximately
17,000 square feet of a building owned by Holdings that is located at 5480 East
Ferguson Drive, California 90022. The Company believes that its executive and
administrative offices are adequate for current needs and that additional space
in its headquarters is available for future expansion. The Company's payment
centers located in Banner's stores are adequate for the Company's present and
anticipated needs. The Company owns an 86,000 square foot property in Los
Angeles on which the Company built a 10,000 square foot loan center. All of the
Company's other finance centers are leased pursuant to short-term leases.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the normal
course of its business. Management does not believe the outcome of these matters
will have a material adverse effect on the Company.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company, their ages (at June 30, 1997) and their
positions and offices with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ------------------------------------------------------
<S> <C> <C>
Gary M. Cypres 53 Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
Anthony Fortunato 48 Executive Vice President of Operations
Gerard T. McMahon 49 Executive Vice President of Credit and Collections
Ed Valdez 45 Senior Vice President of Credit
Salvatore J. Caltagirone 55 Director
Jose de Jesus Legaspi 45 Director
William R. Sweet 60 Director
</TABLE>
Members of the Board of Directors are elected for one-year terms expiring
at the next annual meeting of shareholders and hold office until their
successors are duly elected and qualified. All officers are appointed by and
serve at the discretion of the Board of Directors.
Gary M. Cypres has been Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer of the Company since its formation. Mr.
Cypres has been Chairman of the Board, Chief Executive Officer, President and
Chief Financial Officer of Holdings and Banner since February 1991, Chairman of
the Board and Chief Executive Officer of Central Rents since June 1994 and
managing general partner of West Coast since March 1990. Prior to that, Mr.
Cypres was a general partner of SC Partners, a private investment banking and
consulting firm. From 1983 to 1985, Mr. Cypres was Chief Financial Officer of
The Signal Companies. From 1973 to 1983 Mr. Cypres was Senior Vice President of
Finance at Wheelabrator-Frye Inc. Mr. Cypres was a member of the Board of
Trustees and a faculty member of The Amos Tuck School of Business at Dartmouth
College.
Mr. Cypres spends that portion of his business time as is required to
oversee the operations of the Company and to direct or implement the Company's
business strategies. Mr. Cypres continues to spend a portion of his business
time as the managing general partner of West Coast, as Chairman of the Board,
Chief Executive Officer, President and Chief Financial Officer of Holdings, as
Chairman of the Board, Chief Executive Officer, President and Chief Financial
Officer of Banner, and as Chairman of the Board and Chief Executive Officer of
Central Rents.
Anthony Fortunato has been Executive Vice President of Operations of the
Company since October 18, 1996. Prior to joining the Company, Mr. Fortunato was
Executive Vice President of Citibank, F.S.B. California from November 1993 to
October 1996, and Vice President of Citibank, N.A./Citicorp from September 1976
to November 1993.
Gerard T. McMahon has been Executive Vice President of Credit and
Collections of the Company since September 23, 1996. Prior to joining the
Company, Mr. McMahon was Vice President of Credit and Collections at Barry's
Jewelers from 1991 to 1996 and Divisional Vice President of Credit and
Collections at Kay Jewelers from 1987 to 1991. From 1981 to 1987, Mr. McMahon
was Divisional Vice President of Credit Administration at The Broadway. Barry's
Jewelers filed for protection under Title 11 of the United States Code (the
Bankruptcy Code) in February 1992. In conjunction therewith, Barry's Jewelers
filed a prenegotiated reorganization plan and emerged from Title 11 in June
1992.
Ed Valdez has been Senior Vice President of Credit of the Company since its
formation, Senior Credit Manager of the Company's consumer product finance
business since 1986 and Senior Credit Manager of the Company's small loan
business since November 1992. Mr. Valdez has been working for the Company for
over 28 years.
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Salvatore J. Caltagirone has been a director of the Company since September
1997. Mr. Caltagirone has been retired since October 1994. From the Fall of 1990
to October 1994, he was an employee of G.M. Cypres & Company. From March 1987 to
June 1990 he was employed as the Managing Director of Henley Group.
Jose De Jesus Legaspi has been a director of the Company since June 1996.
Since 1980, Mr. Legaspi has been a principal of and broker at The Legaspi
Company, a full service commercial real estate brokerage firm. In addition,
since 1992, Mr. Legaspi has been a principal of the FINCA Property Management
Company, a residential and commercial real estate management company. Mr.
Legaspi is also a Commissioner of the Los Angeles Department of Water and Power.
William R. Sweet has been a director of the Company since September 1997.
In July 1996, Mr. Sweet retired from his position of Executive Vice
President -- Wholesale Banking of Union Bank of California, N.A., a position he
had held since July 1985. Mr. Sweet currently serves as a trustee of Berkeley
Capital Management Funds.
Set forth below are brief summaries of the background and business
experience of certain other significant employees of the Company.
Ran Birkins, 48, has been Senior Vice President of Credit and Collections
of the Company since its formation and Vice President of Credit of the Company's
consumer product finance business and small loan business since September 1994.
From November 1992 to September 1994, Mr. Birkins was Director of Credit of the
Company's small loan business. From December 1989 to September 1994, Mr. Birkins
was Director of Credit of the Company's consumer product finance business.
Angel Lopez, 50, has been Vice President of the Company since May 1996.
From 1995 until joining the Company, Mr. Lopez was Vice President of Marketing
and Business Development at the Sacred Heart Hospital in Chicago, Illinois. From
1992 to 1995, Mr. Lopez was the Director of Ethnic Marketing for Sears
Merchandise Group in Hoffman Estates, Illinois. From 1990 to 1992, Mr. Lopez was
the General Manager for the Latin American Buying Office of Sears in Mexico
City, Mexico.
Alan E. Scheneman, 45, has been Senior Vice President of the Company since
its formation. Mr. Scheneman joined the Company's consumer product finance
business in 1992 as Vice President of Management Information Services. From 1988
to 1992, Mr. Scheneman was the director of Product Development at JDA Software
Services where, in 1989, he managed the implementation of the Company's
management information system.
Marvin A. Torres, 35, has been President of the Company's travel finance
business since December 1995. From April 1995 to December 1995, Mr. Torres was
Vice President of Operations for the Company's travel finance business. From
1984 to 1995, Mr. Torres was Vice President of Operations and General Manager at
Solano Travel Service and Costa Rica Holiday Tours in Los Angeles, California.
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<PAGE> 53
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary of Cash and Certain Other Compensation
The following table summarizes the compensation paid or accrued by the
Company to or on behalf of the Company's named executive officers (the "Named
Executives") for the years ended December 31, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) -----------------------------
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
- ------------------------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary M. Cypres(2)................... 1996 $175,000 $30,000 100,000 $ 77,000(5)
Chairman of the Board, Chief 1995 $175,000 -- --
Executive Officer, President and
Chief Financial Officer --
Anthony Fortunato(3)................ 1996 $ 46,154 -- 100,000 --
Executive Vice President of 1995 -- -- --
Operations --
Gerard T. McMahon(4)................ 1996 $ 43,692 -- 30,000 --
Executive Vice President of Credit 1995 -- -- --
and Collections --
Ed Valdez........................... 1996 $ 95,000 $14,000 30,000 $ 1,327(6)
Senior Vice President of Credit 1995 $ 84,615 $10,000 -- $ 1,815(6)
</TABLE>
- ---------------
(1) Certain of the Company's executive officers receive benefits in addition to
salary and cash bonuses. The aggregate amount of such benefits, however, do
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such Named Executive.
(2) Prior to July 2, 1996, Mr. Cypres' compensation was paid to G.M. Cypres &
Co. by Holdings for services rendered to it.
(3) Mr. Fortunato joined the Company in October 1996.
(4) Mr. McMahon joined the Company in September 1996.
(5) Represents amount accrued under the Supplemental Executive Retirement Plan
for Mr. Cypres.
(6) Represents amounts contributed under the Banner's, a California Corporation
dba Central Electric Profit Sharing Plan (the "Profit Sharing Plan") for Mr.
Valdez.
Stock Options
The following table shows certain information concerning stock options
granted during 1996 to the Named Executives.
FISCAL YEAR 1996 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL
OPTIONS REALIZABLE VALUE(2)
OPTIONS GRANTED TO EXERCISE EXPIRATION --------------------------
NAME GRANTED EMPLOYEES PRICE(1) DATE @5%(3) @10%(4)
- --------------------------------- ------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Cypres................... 75,000(5) 18.7% $12.00 6/26/06 $566,250 $1,434,000
25,000(6) 6.3% 18.25 12/16/06 287,000 727,250
Anthony Fortunato................ 100,000(6) 25.0% 18.25 12/16/06 1,148,000 2,909,000
Gerard T. McMahon................ 30,000(6) 7.5% 18.25 12/16/06 344,400 872,700
Ed Valdez........................ 30,000(5) 7.5% 12.00 6/26/06 226,500 573,600
</TABLE>
- ---------------
(1) The exercise price may be paid in cash or, at the discretion of the
Compensation Committee, by tendering shares of Company common stock, or the
delivery of an irrevocable direction to a securities
52
<PAGE> 54
broker to sell shares and deliver the sales proceeds to the Company in
payment of all or part of the exercise price, instead of cash.
(2) The potential realizable value is calculated pursuant to Securities and
Exchange Commission regulations by assuming the indicated annual rates of
stock price appreciation for the option term from the date of the grant when
the exercise price of the option was determined. Actual realized value will
depend on the actual annual rate of stock price appreciation for the option
term.
(3) The assumed stock price at the end of the option term is $19.55 for options
granted on June 26, 1996, and $29.73 for options granted on December 16,
1996.
(4) The assumed stock price at the end of the option term is $31.12 for options
granted on June 26, 1996 and $47.34 for options granted on December 16,
1996.
(5) The options granted are exercisable 20% per year beginning March 30, 1997
and on each of the first four anniversary dates thereafter, subject to
certain performance standards.
(6) The options granted are exercisable 20% per year beginning on each of the
first five anniversary dates of the grant, subject to certain performance
standards.
Option Exercises and Holdings
The following table provides information with respect to the Named
Executives concerning the number and value of specified unexercised options held
by the Named Executives as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary M. Cypres............................... 15,000 85,000 $ 120,000 $ 523,750
Anthony Fortunato............................ -- 100,000 -- 175,000
Gerard T. McMahon............................ -- 30,000 -- 52,500
Ed Valdez.................................... 6,000 24,000 48,000 192,000
</TABLE>
- ---------------
(1) The value of the Unexercised In-The-Money Options is based upon the $20.00
per share closing price of the Company's common stock on the Nasdaq National
Market on December 31, 1996.
Employment Agreements
Gary M. Cypres. In June 1996, the Company entered into an employment
agreement with Mr. Cypres. Under the employment agreement, Mr. Cypres will serve
as the Company's Chairman of the Board for a period of five years at a base
salary of $175,000 per year and is eligible to participate in the Company's
executive compensation plans. Mr. Cypres also agreed to serve as the Company's
President and Chief Executive Officer until December 31, 1997. If the Company
has not named a new President and Chief Executive Officer by December 31, 1997,
Mr. Cypres will continue in this capacity for a period of up to three additional
years and will receive an adjustment of his compensation as determined by the
Board of Directors. The employment agreement also provides that Mr. Cypres will
participate in the Company's defined benefit Supplemental Executive Retirement
Plan (the "SERP Plan") and be credited with eight and one-half years of service
for his contribution to the Company since the 1991 Acquisition and for entering
into the employment agreement. In addition, on December 31, 1997 Mr. Cypres will
be treated as satisfying his post-adoption service requirement under the SERP
Plan.
If Mr. Cypres is terminated "for cause," which definition generally
includes termination by the Company due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Cypres's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
the Company will be obligated to pay him only his base salary up to the date
upon which the Company notifies him of his
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<PAGE> 55
termination "for cause." If Mr. Cypres is terminated without "cause," becomes
disabled or dies, then the Company will be obligated to pay him or his estate,
commencing immediately, a lump sum payment equal to his base salary for the
remaining term of the employment agreement and to pay him under the SERP Plan as
if he had worked to his Normal Retirement Date, which the employment agreement
provides is December 31, 2000.
Mr. Cypres has agreed not to solicit employees of or compete with the
Company in any manner following his resignation or termination from the Company
for any period for which a lump sum has been paid by the Company in accordance
with the employment agreement, which period shall be no less than 12 months.
Anthony Fortunato. In October 1996, the Company entered into an employment
agreement with Mr. Fortunato. Under the employment agreement, Mr. Fortunato will
serve as the Company's Executive Vice President of Operations for a period of
three years at a base salary of $225,000, $250,000 and $275,000 per year,
respectively, and is eligible to receive an annual discretionary bonus and
participate in the Company's executive compensation plans. In addition, Mr.
Fortunato was awarded an initial grant of options to acquire 100,000 shares of
Common Stock pursuant to the 1996 Plan. Vesting of such options accrue over a
five-year period.
If Mr. Fortunato is terminated "for cause," which definition generally
includes termination by the Company due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Fortunato's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
the Company will be obligated to pay him only his base salary up to the date
upon which the Company notifies him of his termination "for cause." If Mr.
Fortunato is terminated without "cause," then the Company will be obligated to
pay him, commencing immediately, a lump sum payment equal to his base salary for
the remaining term of the employment agreement in addition to any other
compensation and/or benefits provided for by the employment agreement.
Mr. Fortunato has agreed not to solicit employees of or compete with the
Company in any manner following his resignation or termination from the Company
for any period for which a lump sum has been paid by the Company in accordance
with the employment agreement, which period shall be no less than 12 months.
Gerard T. McMahon. In August 1996, the Company entered into an employment
agreement with Mr. McMahon. Under the employment agreement, Mr. McMahon will
serve as the Company's Executive Vice President of Credit and Collections at a
base salary of $160,000 per year and is eligible to receive an annual
discretionary bonus of up to 20% of his base salary and participate in the
Company's executive compensation plans. In addition, Mr. McMahon was awarded an
initial grant of options to acquire 30,000 shares of Common Stock pursuant to
the 1996 Plan. Vesting of such options accrue over a five-year period.
Except as described above, the Company has not entered into employment
agreements with any other of its executive officers or other members of
management.
Supplemental Executive Retirement Plan
In June 1996, the Company adopted the SERP Plan, which provides
supplemental retirement benefits to certain key management employees.
To vest in the SERP Plan, an employee must have at least 10 years of
service with the Company, including five years subsequent to the adoption of the
plan. Upon completion of the Company's initial public offering, Mr. Cypres was
credited with ten years of service with the Company and will be treated as
having fulfilled his post-adoption service on December 31, 1997 by acting as the
Company's President and Chief Executive Officer until such date. Participation
in the SERP Plan is determined by the Board of Directors. The SERP Plan benefits
are a function of length of service with the Company and Final Average
Compensation (average monthly compensation during the 36 consecutive months of
the last 60 months of the participant's employment that produces the highest
average compensation, including salary and bonus).
Benefits are equal to a targeted percentage of Final Average Compensation
as determined by the Board of Directors upon selection of the employee to
participate in the SERP Plan. In no case will the rate exceed fifty
54
<PAGE> 56
percent (50%) of the Final Average Compensation as of the date of the
participant's retirement or termination of employment, multiplied by the ratio
of the actual years of service as of the applicable event to the participant's
years of service projected to the participant's Normal Retirement Date (the
first day of the month after the participant attains age 60). A vested
participant who terminates employment at or after his Normal Retirement Date
will receive the full targeted percentage of his Final Average Compensation. The
SERP Plan benefit is reduced, however, by the annuity value of the participant's
benefit under the Profit Sharing Plan. At December 31, 1996, only Mr. Cypres was
a participant in the SERP Plan.
The following table shows the estimated annual retirement benefits that
would be payable under the SERP Plan upon a participant's Normal Retirement Date
on a straight life annuity basis, before any applicable offset for benefits
received under the Profit Sharing Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 10 15 20 25 30 OR MORE
- ------------------------------------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$175,000............................ $ 87,500 $ 87,500 $ 87,500 $ 87,500 $ 87,500
200,000............................ 100,000 100,000 100,000 100,000 100,000
225,000............................ 112,500 112,500 112,500 112,500 112,500
250,000............................ 125,000 125,000 125,000 125,000 125,000
</TABLE>
- ---------------
As of December 31, 1996, Mr. Cypres was credited with 10 years of service under
the SERP Plan.
Compensation Committee Interlocks and Insider Participation
The Company has established a Compensation Committee. The Compensation
Committee consists of Messrs. Sweet, Caltagirone and Legaspi. Prior to the
establishment of the Compensation Committee, decisions concerning the
compensation of executive officers were made by Mr. Cypres, the Company's
Chairman of the Board, Chief Executive Officer and President. None of the
executive officers of the Company currently serves as a director or member of
the compensation committee of another entity or of any other committee of the
board of directors of another entity performing similar functions.
Director Compensation
In 1996, non-employee directors of the Company received an annual fee of
$15,000 for Board and Committee meetings. Mr. Cypres, the President and Chief
Executive Officer of the Company, received no fees for serving as a director of
the Company. The aggregate amount of directors' fees paid in 1996 was $15,000.
Mr. Legaspi received options to purchase 7,000 shares of the Company's common
stock at an exercise price of $12.00 per share under the Company's 1996 Stock
Option Plan. It is expected that Messrs. Caltagirone and Sweet will be granted
options to purchase 7,000 shares of the Company's common stock at 100% of the
fair market value of the Common Stock on the date of the grant. All options
granted to the Non-Employee Directors vest in equal annual installments over 5
year periods beginning on the date of grant, subject to continued service on the
Board of Directors; however, no option can be exercised until at least six
months after the date of grant. The Company has entered into agreements with all
directors pursuant to which the Company has agreed to indemnify them against
certain claims arising out of their services as directors. Directors are also
entitled to the protection of certain indemnification provisions in Central's
Certificate of Incorporation and Bylaws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Central was formed on April 11, 1996. Central, Banner and Holdings, on June
24, 1996, entered into an agreement, which was subsequently amended (the
"Reorganization Agreement") pursuant to which Holdings contributed to Banner its
investments in its subsidiaries that operate the small loan, travel, automobile
sales, and related businesses (the "Holdings Subsidiaries"), and Banner
contributed to Central its investments in the Holdings Subsidiaries and in its
subsidiary that holds the Consumer Product Portfolio (collectively, the
55
<PAGE> 57
"Subsidiaries") and cash in such amount so as to leave the Company with $500,000
on hand upon consummation of such transaction (the "Reorganization"). Pursuant
to the Reorganization Agreement, the intercompany accounts between the Company,
Banner and Holdings were forgiven, except with respect to income taxes. As a
result, the Company had $500,000 of cash on hand upon the Reorganization.
In connection with the Reorganization and pursuant to the Reorganization
Agreement, the Company, Banner and Holdings entered into various agreements for
the purpose of defining the ongoing relationships among them. Because Holdings
controls the Company and Banner (see "Beneficial Ownership of Principal
Stockholders and Management"), these agreements were not the result of
arm's-length negotiations. The Company believes, however, that these agreements
are at least as favorable to the Company as those that could have been obtained
from independent third parties.
Financing Agreement
The Company, Banner and Holdings have entered into an agreement, which was
subsequently amended (the "Financing Agreement") pursuant to which Banner
granted the Company the exclusive right, at the Company's option, (i) to
purchase consumer finance receivables originated by Banner for sales of
merchandise at Banner stores in operation on the date of the Financing Agreement
and for all stores which Banner may determine to open in the future during the
term of the Financing Agreement (and any extension thereof), or (ii) to provide
financing directly to Banner's customers at all of such locations. The Company
is not obligated to provide financing to any particular Banner customer, or to
offer financing at any Banner location or locations. The Financing Agreement has
a term of 15 years commencing on June 24, 1996. The Company may terminate the
Financing Agreement at any time upon one year's prior written notice to Banner.
During the term of the Financing Agreement, as long as Banner originates
its consumer finance receivables, the Company will have the right to purchase
consumer finance receivables at face value less a transaction fee which is
currently set at 2.5% and is subject to renegotiation at six month intervals to
reflect costs associated with the Company providing financing under the
Financing Agreement. If the Company originates such receivables, Banner will be
obligated to pay the Company a transaction fee in an amount to be initially
established by the parties and subject to renegotiation at six month intervals.
Under the Financing Agreement, the Company may also return to Banner up to $1.5
million of contracts purchased or contributed during each of 1996 and 1997. As a
result of increasing delinquencies in the Consumer Product Portfolio, the
Company anticipates that the Financing Agreement will be amended to increase the
aggregate amount of receivables which can be returned to Banner during 1997 to
in excess of $1.5 million. Recognizing the value to Banner of the Company
continuing to provide certain financial products and services, including check
cashing, travel and small loans, in Banner's retail locations, the space the
Company occupies in Banner's locations is provided by Banner at no cost or
charge to the Company.
Automobile Financing Agreement
In August 1996, the Company and Banner entered into the Automobile
Financing Agreement, under which the Company sold its used car sales business to
Banner for approximately its net book value, or $865,000. Under the provisions
of the Automobile Financing Agreement, Banner would operate the used car sales
business while the Company would have the exclusive right for a fifteen year
period to provide financing for all cars that Banner sells or to purchase
automobile finance contracts generated by Banner. In addition, all financing
extended by the Company on automobiles sold by Banner would be with full
recourse back to Banner in the event of default by the customer. Accordingly,
Banner would not provide any dealers discount for cars sold pursuant to this
Agreement. On May 30, 1997, Banner discontinued the used car sales business.
Option Agreement
The Company, Banner and Holdings have entered into an agreement (the
"Option Agreement") pursuant to which Holdings granted the Company an option to
purchase all of the outstanding capital stock of Banner (the "Option") from
Holdings at any time during the period which commenced on June 24, 1997 and will
end on June 24, 1999 (the "Option Termination Date"). The exercise price of the
Option will be equal to
56
<PAGE> 58
the net book value of Banner as reflected on Banner's balance sheet for the
month ended immediately preceding the exercise of the Option; such balance sheet
shall have been prepared in accordance with generally accepted accounting
principles on a basis consistent with prior periods. If the Company exercises
the Option, the exercise price is payable in cash or in shares of the Company's
common stock valued at the average last sale price of the Company's common stock
during the ten trading-day period preceding the date on which the Company
delivers to Holdings its written notice of exercise. Until the Option
Termination Date, Holdings may not, without the Company's prior written consent,
sell, offer or agree to sell, grant any option for the sale of, or otherwise
dispose of any of the capital stock of Banner (or any securities convertible
into, exercisable for or exchangeable for capital stock of Banner) nor will
Banner sell substantially all of its assets.
Operating Agreement
The Company, Banner and Holdings have entered into an agreement (the
"Operating Agreement") setting forth certain rights and obligations of the
parties following the Reorganization. The Operating Agreement covers the
following matters:
Allocation of Business Opportunities. Due to the potential conflicts
of interest resulting from the relationships among the Company, Banner and
Holdings, the Operating Agreement provides that Holdings and its
subsidiaries (other than the Company and its subsidiaries) will not,
without the prior written consent of the Company, directly or indirectly
engage in or enter into any business competing with the Company and
involving the financing of consumer products, travel products, small loans,
automobiles or insurance (the "Restricted Businesses"). If Holdings shall
acquire a company engaged in a Restricted Business or shall otherwise
directly or indirectly engage in a Restricted Business, Holdings shall be
obligated to sell, at the election of the Company, such Restricted Business
to the Company at a purchase price equal to the fair market value of such
Restricted Business, as determined through an independent appraisal
process. The foregoing restriction shall terminate on December 31, 2002,
or, if earlier, on the date on which Holdings ceases to own, directly or
indirectly, at least 25% of the outstanding voting stock of the Company.
Management and Other Services. The Operating Agreement provides that
Banner, Holdings or their affiliates are obligated to provide to the
Company, and the Company is obligated to utilize, certain services,
including accounting, management information systems and employee benefits.
Except for management information systems, these arrangements will continue
until terminated by the Company, Banner, Holdings or such affiliate upon
one-year's prior written notice. Termination may be made on a
service-by-service basis or in its entirety. To the extent that such
services directly relate to the finance portion of the consumer products
business contributed by Banner to the Company, or to the extent that other
costs are incurred by Banner, Holdings or their affiliates that directly
relate to the Company, the Company is obligated to pay Banner's, Holdings'
or their affiliates' actual cost of providing such services or incurring
such costs. Employee benefit expenses are allocated to the Company based on
the ratio of actual payroll expenses of employees in the consumer products
business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses are
allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for
a period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Such allocated expenses totaled $1.0 million and
$1.3 million for the six months ended June 30, 1997 and December 31, 1996,
respectively.
Employee Benefits. Under the Operating Agreement, the Company assumed
all liabilities of Banner, Holdings and the Subsidiaries under existing
employee welfare benefit and profit sharing plans cwith respect to the
employees of Banner, Holdings and the Subsidiaries who became employees of
the Company.
57
<PAGE> 59
Tax Sharing Agreement
The Company, Holdings and Banner have entered into an agreement (the "Tax
Sharing Agreement") providing for (i) the payment of federal, state and other
income tax remittances or refunds for periods during which the Company and
Holdings were included in the same consolidated group for federal income tax
purposes, (ii) the allocation of responsibility for the filing of such tax
returns, (iii) the conduct of tax audits and the handling of tax controversies
and (iv) various related matters. For periods during which the Company was
included in Holdings' consolidated federal income tax returns, the Company is
required to pay Holdings its allocable portion of the consolidated federal,
state and other income tax liabilities and is entitled to receive refunds
determined as if the Company and its subsidiaries had filed separate income tax
returns. With respect to Holdings' liability for payment of taxes for all
periods during which the Company was so included in Holdings' consolidated
federal income tax returns, the Company will indemnify Holdings for all federal,
state and other income tax liabilities for such periods. The date of the
consummation of the initial public offering was the last day on which the
Company was included in Holdings' consolidated federal income tax returns.
Indemnification Agreements
The Company, Holdings and Banner have entered into an indemnification
agreement (the "Indemnification Agreement") under which the Company will
indemnify and hold harmless Holdings and Banner with respect to any and all
claims, losses, damages, liabilities, costs and expenses (except when arising
from Holdings' or Banner's intentional misconduct or gross negligence or to the
extent any liability arises from a breach by Banner of its fiduciary duty to
other stockholders of the Company) that arise from or are based on the
operations of the business of the Company and its subsidiaries after the date of
the Reorganization. The Company will also indemnify and hold harmless Holdings
and Banner with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on guarantees or undertakings
made by Holdings or Banner to third parties in respect of liabilities or
obligations of the Company, whether or not such obligations arose before or
after the Reorganization. Holdings and Banner will indemnify and hold harmless
the Company with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on the operations of Holdings or
Banner, other than the business of the Company and its subsidiaries, before or
after the date of the Reorganization. The rights of any party under the
Indemnification Agreement are not assignable or transferable without the prior
written consent of the other parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a requested class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Executive officers, directors and greater than ten-percent stockholders are
required by Securities and Exchange Commission regulation to furnish to the
Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representation that no Form 5 was required, the Company
believes that during the fiscal year ended December 31, 1996 all executive
officers, directors and greater than ten-percent beneficial owners complied with
all Section 16(a) filing requirements applicable to them, except as follows:
Following the consummation of the Company's initial public offering, a Form 3
reporting initial ownership of the Company's securities was filed late for each
of the following persons or entities: Banner's Central Electric, Inc., Banner
Holdings, Inc., West Coast Private Equity Partners, L.P., Ran Birkins, Louis
Caldera, Gary M. Cypres, Anthony Fortunato, Jose de Jesus Legaspi, Gerard T.
McMahon and Ed Valdez. In addition, a Form 4 reporting a change in beneficial
ownership of the Company's securities was filed late for each of Anthony
Fortunato, Gerard T. McMahon and Ed Valdez, and two Form 4s were filed late for
Gary M. Cypres.
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<PAGE> 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of June 30, 1997 by (i) each person known to the Company to be
the beneficial owner of more than five percent of the outstanding shares of the
Company's common stock, (ii) each director of the Company, (iii) Named
Executives and (iv) all directors and Named Executives as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
----------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER(2) SHARES(3) CLASS(4)
----------------------------------------------------------------- --------- ----------
<S> <C> <C>
Gary M. Cypres(5)................................................ 5,190,000 71.2%
Banner's Central Electric, Inc.(6)............................... 5,150,000 70.8%
Wellington Management Company, LLP(7)............................ 770,500 10.6%
Ed Valdez(8)..................................................... 8,100 *
Jose de Jesus Legaspi(9)......................................... 2,800 *
Anthony Fortunato................................................ 100 *
Salvatore J. Caltagirone......................................... -- N/A
Gerard T. McMahon................................................ -- N/A
William R. Sweet................................................. -- N/A
All directors and Named Executives as a group (7 persons)(10).... 5,201,000 71.2%
</TABLE>
- ---------------
* Less than 1%.
(1) In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be
the beneficial owner of a security if he or she has or shares voting power
or investment power with respect to such security or has the right to
acquire such ownership within 60 days.
(2) The address for each of the beneficial owners, other than Wellington
Management Company LLP, is in care of the Company: 5480 East Ferguson
Drive, Commerce, California 90022.
(3) Except as otherwise noted below, each individual named in the table
directly or indirectly has sole or shared voting and investment power with
respect to the shares shown as beneficially owned by such individual.
(4) Shares of common stock issuable upon exercise of stock options exercisable
within 60 days of June 30, 1997 are deemed outstanding for computing the
percentage of the person or entity holding such securities but are not
deemed outstanding for computing the percentage of any other person or
entity.
(5) Consists of 5,150,000 shares owned by Banner, 12,500 shares owned by Mr.
Cypres' spouse, 12,500 shares held by or in trust by Mr. Cypres and his
spouse for their children, and 15,000 shares issuable upon exercise of
stock options exercisable within 60 days of June 30, 1997.
(6) Banner is a wholly-owned subsidiary of Holdings. West Coast controls
Holdings. Mr. Cypres is Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer of Holdings and Banner and the
managing general partner of West Coast. Mr. Cypres controls the Company
through West Coast, Holdings and Banner.
(7) Based on a Schedule 13G filed with the Commission on May 9, 1997. The
address of Wellington Management Company LLP is 75 State Street, Boston,
Massachusetts 02109.
(8) Includes 6,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1997.
(9) Consists of 2,800 shares issuable upon exercise of stock options
exercisable within 60 days of June 30, 1997.
(10) Includes 23,800 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1997.
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<PAGE> 61
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities and the Common Securities will be issued
pursuant to the terms of the Trust Agreement. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act. Initially, Wilmington
Trust Company will be the Delaware Trustee and the Property Trustee and will act
as trustee for the purpose of complying with the Trust Indenture Act. The terms
of the Trust Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Indenture Act.
This summary of certain terms and provisions of the Trust Preferred Securities
and the Trust Agreement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act. Wherever particular defined terms of the Trust Agreement (as
amended or supplemented from time to time) are referred to herein, such defined
terms are incorporated herein. The form of the Trust Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees
on behalf of CFAC Capital will issue the Trust Preferred Securities and the
Common Securities (collectively, the "Trust Securities"). The Trust Preferred
Securities will represent preferred undivided beneficial interests in the assets
of CFAC Capital and the holders thereof will be entitled to a preference in
certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities of CFAC Capital (which will
be held by Central), as well as other benefits as described in the Trust
Agreement.
The Trust Preferred Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities of CFAC Capital except as
described under "-- Subordination of Common Securities of CFAC Capital Held by
Central" below. Legal title to the Junior Subordinated Debentures will be held
by the Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Guarantee executed by Central for the benefit of the holders of
the Trust Preferred Securities (the "Guarantee") will be a guarantee on a
subordinated basis and will not guarantee payment of Distributions or amounts
payable on redemption of the Trust Preferred Securities or on liquidation of the
Trust Preferred Securities if CFAC Capital does not have funds on hand available
to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on the Trust Preferred Securities
will be payable at the annual rate of % of the stated Liquidation Amount of
$25, payable quarterly in arrears on the 15th day of March, June, September and
December in each year, commencing December 15, 1997 to the holders of the Trust
Preferred Securities on the relevant record dates (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). The amount of each Distribution due with respect to the Trust Preferred
Securities will include amounts accrued through the date the Distribution
payment is due. Distributions on the Trust Preferred Securities will be payable
to the holders thereof as they appear on the register of CFAC Capital on the
relevant record date which, for so long as the Trust Preferred Securities remain
in book-entry form, will be one Business Day (as defined below) prior to the
relevant Distribution Date and, in the event the Trust Preferred Securities are
not in book-entry form, will be the first day of the month in which the relevant
Distribution Date occurs. Distributions will accumulate from the date of
original issuance. The first Distribution Date for the Trust Preferred
Securities will be December 15, 1997.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Trust Preferred Securities is not a
Business Day, payment of the Distribution payable on such date will be made on
the next Business Day (and without any interest or other payment in respect to
any such delay), with the same force and effect as if made on the date such
payment was originally payable. As used in this Prospectus, a "Business Day"
shall mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in the State of California are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the Property Trustee or the Indenture Trustee is closed for business.
60
<PAGE> 62
The funds of CFAC Capital available for distribution to holders of its
Trust Preferred Securities will be limited to payments by Central under the
Junior Subordinated Debentures in which CFAC Capital will invest the proceeds
from the issuance and sale of its Trust Preferred Securities. See "Description
of Junior Subordinated Debentures." If Central does not make interest payments
on the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Trust Preferred Securities. The payment of
Distributions (if and to the extent CFAC Capital has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by Central. See "Description of Guarantee."
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, Central has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each such
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such election, quarterly Distributions on the Trust Preferred
Securities will be deferred by CFAC Capital during any such Extension Period.
Distributions to which holders of Trust Preferred Securities are entitled will
accumulate additional amounts thereon at the rate per annum of % thereof,
compounded quarterly from the relevant Distribution Date, to the extent
permitted under applicable law. The term "Distributions" as used herein shall
include any such additional accumulated amounts. Neither the default by Central
on any Senior and Subordinated Debt nor a default with respect to Senior and
Subordinated Debt resulting in an acceleration of the maturity thereof
constitutes a Debenture Event of Default. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." During any such
Extension Period, Central may not and shall not allow any of its subsidiaries to
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Central's capital
stock (which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of Central other than the Junior Subordinated Debentures that
rank pari passu with or junior in interest to the Junior Subordinated Debentures
or (iii) make any guarantee payments with respect to any guarantee by Central of
the debt securities of any subsidiary of Central if such guarantee ranks pari
passu with or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in common stock of Central, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee and (d) purchases of common stock related to the
issuance of common stock or rights under any of Central's benefit plans for its
directors, officers or employees) or (iv) redeem, purchase or acquire less than
all of the Junior Subordinated Debentures or the Trust Preferred Securities.
During an Extension Period, Central would have the ability to continue to make
payments on Senior and Subordinated Debt. Prior to the termination of any such
Extension Period, Central may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed 20
consecutive quarters or extend beyond the Stated Maturity. Upon the termination
of any such Extension Period and the payment of all amounts then due, and
subject to the foregoing limitations, Central may elect to begin a new Extension
Period. Subject to the foregoing, there is no limitation on the number of times
that Central may elect to begin an Extension Period. Central has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Junior Subordinated Debentures.
REDEMPTION
Upon the repayment or redemption at any time, in whole or in part, of any
Junior Subordinated Debentures, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
below) of the Trust Securities, upon not less than 30 nor more than 60 days'
notice of a date of redemption (the "Redemption Date"), at the Redemption Price
(as defined below). See "Description of Junior Subordinated
Debentures -- Redemption." If less than all of the Junior Subordinated
Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds
from such repayment or redemption shall be allocated to the redemption of the
Trust Securities pro rata. The amount of premium, if any, paid by Central upon
the redemption of all or any part of the Junior Subordinated
61
<PAGE> 63
Debentures to be repaid or redeemed on a Redemption Date shall be allocated to
the redemption pro rata of the Trust Securities.
Subject to restrictions contained in any Senior and Subordinated Debt or
regulatory approval if then required under applicable regulatory policy, Central
will have the right to redeem the Junior Subordinated Debentures (i) on or after
, 2002, in whole at any time or in part from time to time at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof, or (ii) at any time (whether occurring before
or after , 2002), in whole (but not in part), within 90 days
following the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption, plus 100% of the principal amount thereof. See "Description of
Junior Subordinated Debentures -- Redemption."
If a Tax Event, Capital Treatment Event or an Investment Company Event has
occurred and is continuing and Central does not elect to redeem the Junior
Subordinated Debentures and thereby cause a mandatory redemption of the Trust
Securities or to liquidate CFAC Capital and cause the Junior Subordinated
Debentures to be distributed to holders of the Trust Securities in liquidation
of CFAC Capital as described below, such Trust Securities will remain
outstanding and Additional Sums (as defined below) may be payable on the Junior
Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary to be
paid by Central with respect to the Junior Subordinated Debentures in order that
the amount of Distributions then due and payable by CFAC Capital on the
outstanding Trust Securities of CFAC Capital shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which CFAC
Capital has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of CFAC Capital, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to Central and CFAC Capital having received an opinion of counsel
to the effect that such distribution will not be a taxable event to the holders
of the Trust Preferred Securities, Central will have the right at any time to
liquidate CFAC Capital and, after satisfaction of the liabilities of creditors
of CFAC Capital as provided by applicable law, cause a Like Amount of the Junior
Subordinated Debentures to be distributed to the holders of Trust Securities in
liquidation of CFAC Capital. After the liquidation date fixed for any
distribution of Junior Subordinated Debentures for Trust Preferred Securities
(i) such Trust Preferred Securities will no longer be deemed to be outstanding,
(ii) certificates representing a Like Amount of Junior Subordinated Debentures
will be issued to holders of Trust Securities certificates, upon surrender of
such certificates to the Administrative Trustees or their agent for exchange,
(iii) Central shall use its best efforts to have the Junior Subordinated
Debentures listed on the Nasdaq National Market or on such other exchange,
interdealer quotation system or self-regulatory organization as the Trust
Preferred Securities are then listed,
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(iv) any Trust Securities certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Junior Subordinated Debentures, accruing
interest at the rate provided for in the Junior Subordinated Debentures from the
last Distribution Date on which a Distribution was made on such Trust Securities
certificates until such certificates are so surrendered (and until such
certificates are so surrendered, no payments of interest or principal will be
made to holders of Junior Subordinated Debentures represented by such
certificates) and (v) all rights of securityholders holding Trust Securities
will cease, except the right of such securityholders to receive a Like Amount of
Junior Subordinated Debentures upon surrender of Trust Securities certificates.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Preferred Securities if a dissolution and liquidation of
CFAC Capital were to occur. Accordingly, the Trust Preferred Securities that an
investor may purchase, or the Junior Subordinated Debentures that the investor
may receive on dissolution and liquidation of CFAC Capital, may trade at a
discount to the price that the investor paid to purchase the Trust Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
Trust Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of
the Trust Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that CFAC Capital has funds
on hand available for the payment of such Redemption Price. See
"-- Subordination of Common Securities of CFAC Capital Held by Central" below
and "Description of Guarantee."
If CFAC Capital gives a notice of redemption in respect of the Trust
Preferred Securities, then, by 12:00 noon, Eastern time on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably deposit
with the Depositary funds sufficient to pay the aggregate Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price to the holders of such Trust Preferred Securities. See
"Book-Entry Issuance." If such Trust Preferred Securities are no longer in book-
entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for such Trust Preferred Securities
funds sufficient to pay the aggregate Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such Trust
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date shall be payable to the holders of such Trust
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of the
Trust Preferred Securities will cease, except the right of the holders of the
Trust Preferred Securities to receive the applicable Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest on
such Redemption Price, and such Trust Preferred Securities will cease to be
outstanding. In the event that any date fixed for redemption of such Trust
Preferred Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding Business Day (and
without any interest or other payment in respect of any such delay). In the
event that payment of the Redemption Price in respect of Trust Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by CFAC Capital or by Central pursuant to the Guarantee, Distributions on
such Trust Preferred Securities will continue to accrue at the then applicable
rate, from the Redemption Date originally established by CFAC Capital for such
Trust Preferred Securities to the date such Redemption Price is actually paid,
in which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price. See "Description of Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and further provided that Central is not then
exercising its rights to defer interest payments on the Junior Subordinated
Debentures, the Company (other than CFAC Capital) may at any time and from time
to time purchase outstanding Trust Preferred Securities by tender, in the open
market or by private agreement.
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Payment of the Redemption Price on the Trust Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Trust Preferred
Securities shall be made to the applicable recordholders thereof as they appear
on the register of such Trust Preferred Securities on the relevant record date,
which date shall be one Business Day prior to the relevant Redemption Date or
Liquidation Date, as applicable; provided, however, that in the event that any
Trust Preferred Securities are not in book-entry form, the relevant record date
for such Trust Preferred Securities shall be a date at least 15 days prior to
the Redemption Date or Liquidation Date, as applicable. In the case of a
liquidation, the record date shall be no more than 45 days before the
Liquidation Date.
If less than all of the Trust Securities issued by CFAC Capital are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and Common Securities based upon the relative Liquidation
Amounts of such classes. The particular Trust Preferred Securities to be
redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts)
not more than 60 days prior to the Redemption Date by the Property Trustee from
the outstanding Trust Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions (equal to $25 or an
integral multiple thereof) of the Liquidation Amount of Trust Preferred
Securities. The Property Trustee shall promptly notify the Security registrar in
writing of the Trust Preferred Securities selected for redemption and, in the
case of any Trust Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of the Trust
Agreement, unless the context otherwise requires, all provisions relating to the
redemption of Trust Preferred Securities shall relate to the portion of the
aggregate Liquidation Amount of Trust Preferred Securities which has been or is
to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at such
holder's registered address. Unless CFAC Capital defaults in payment of the
applicable Redemption Price, on and after the Redemption Date, Distributions
will cease to accrue on such Trust Preferred Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES OF CFAC CAPITAL HELD BY CENTRAL
Payment of Distributions on, and the Redemption Price of, the Trust
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amounts of the Trust Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or applicable Redemption Price of, any of the Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of the Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all of the outstanding Trust Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the applicable Redemption Price the full amount of such Redemption Price on
all of the outstanding Trust Preferred Securities then called for redemption,
shall have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Trust Preferred Securities then
due and payable (including Additional Amounts, if applicable).
In the case of any Event of Default under the Trust Agreement resulting
from a Debenture Event of Default, Central as holder of the Common Securities
will be deemed to have waived any right to act with respect to any such Event of
Default until the effect of all such Events of Default have been cured, waived
or otherwise eliminated. Until any such Events of Default have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the holders of the Trust Preferred Securities and not on behalf of Central as
holder of the Common Securities, and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Central will have the right at any time to dissolve CFAC Capital and cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Preferred Securities. Such right is subject to Central having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "-- Distribution of Junior
Subordinated Debentures" above.
In addition, pursuant to the Trust Agreement, CFAC Capital shall
automatically dissolve upon expiration of its term and shall earlier dissolve on
the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of Central; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holder of its Trust Securities, if Central, as
Depositor, has delivered written direction to the Property Trustee to terminate
CFAC Capital (which direction is optional and, except as described above, wholly
within the discretion of Central, as Depositor); (iii) redemption of all of the
Trust Preferred Securities as described under "-- Redemption" above; and (iv)
the entry of an order for the dissolution of CFAC Capital by a court of
competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii), or (iv)
above or upon the Expiration Date, CFAC Capital shall be liquidated by the
Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of CFAC Capital as
provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of CFAC Capital available
for distribution to holders, after satisfaction of liabilities to creditors of
CFAC Capital as provided by applicable law, an amount equal to, in the case of
holders of Trust Preferred Securities, the aggregate of the Liquidation Amount
plus accrued and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because CFAC Capital has insufficient assets available
to pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by CFAC Capital on the Trust Preferred Securities shall be paid on a
pro rata basis (based upon Liquidation Amounts). The holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Trust Preferred Securities, except that if a
Debenture Event of Default has occurred and is continuing, the Trust Preferred
Securities shall have a priority over the Common Securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, CFAC Capital is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Trust Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Trust Preferred
Securities. See "Certain Federal Income Tax Consequences." If Central elects
neither to redeem the Junior Subordinated Debentures prior to maturity nor to
liquidate CFAC Capital and distribute the Junior Subordinated Debentures to
holders of the Trust Preferred Securities, the Trust Preferred Securities will
remain outstanding until the repayment of the Junior Subordinated Debentures.
If Central elects to dissolve CFAC Capital and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Trust Preferred
Securities in liquidation of CFAC Capital, Central shall continue to have the
right to redeem the Junior Subordinated Debentures prior to the Stated Maturity.
See "Description of Junior Subordinated Debentures -- General."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
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(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in the Trust Agreement (other
than a default or breach in the performance of a covenant or warranty which
is addressed in clause (ii) or (iii) above), and continuation of such
default or breach, for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Issuer Trustee or Trustees
by the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Trust Preferred Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by Central to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred
Securities, the Administrative Trustees and Central, as Depositor, unless such
Event of Default shall have been cured or waived. Central as Depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a preference over the Common Securities upon
termination of CFAC Capital as described above. See "-- Liquidation Distribution
upon Dissolution." Upon a Debenture Event of Default (other than with respect to
certain events in bankruptcy, insolvency or reorganization), unless the
principal of all the Junior Subordinated Debentures has already become due and
payable, either the Property Trustee or the holders of not less than 25% in
aggregate principal amount of the Junior Subordinated Debentures then
outstanding may declare all of the Junior Subordinated Debentures to be due and
payable immediately by giving notice in writing to Central (and to the Property
Trustee, if notice is given by holders of the Junior Subordinated Debentures).
If the Property Trustee or the holders of not less than 25% in principal amount
of the outstanding Junior Subordinated Debentures fail to declare the principal
of all of the Junior Subordinated Debentures due and payable upon a Debenture
Event of Default, the holders of at least 25% in Liquidation Amount of the Trust
Preferred Securities then outstanding shall have the right to declare the Junior
Subordinated Debentures immediately due and payable. In either event, payment of
principal and interest on the Junior Subordinated Debentures shall remain
subordinated to the extent provided in the Indenture. In addition, holders of
the Trust Preferred Securities have the right in certain circumstances to bring
a Direct Action (as hereinafter defined). See "Description of Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Trust
Preferred Securities."
If a Debenture Event of Default with respect to certain events in
bankruptcy, insolvency or reorganization occurs, the Junior Subordinated
Debentures shall automatically, and without any declaration or other action on
the part of the Property Trustee or the holders of the Junior Subordinated
Debentures, become immediately due and payable. In such event, payment of
principal and interest on the Junior Subordinated Debentures will also remain
subordinated to the extent provided in the Indenture.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any of the Property Trustee, the Depositary Trustee or the Administrative
Trustees may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
or the Delaware Trustee or both of them may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Trust Preferred
Securities. In no event will the holders of the Trust Preferred Securities have
the right to vote to appoint, remove or replace the Administrative Trustees,
which
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voting rights are vested exclusively in Central as the holder of the Common
Securities. An Administrative Trustee may be removed by the holder of the Common
Securities at any time. No resignation or removal of a Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of Trust Property may at
the time be located, Central, as the holder of the Common Securities, and the
Administrative Trustees by agreed action of the majority of such Trustees shall
have power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to act
as separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. If Central does not
join in such appointment within 15 days of the receipt by it of a request to do
so, or in case a Debenture Event of Default has occurred and is continuing, the
Property Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Issuer Trustee shall be a party, or any person succeeding to all or
substantially all the corporate trust business of such Issuer Trustee, shall be
the successor of such Issuer Trustee under the Trust Agreement, provided such
corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF CFAC CAPITAL
CFAC Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. CFAC Capital may, at the request of Central, with the consent
of the Administrative Trustees and without the consent of the holders of the
Trust Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of CFAC Capital with respect to the Trust Preferred Securities or
(b) substitutes for the Trust Preferred Securities other securities having
substantially the same terms as the Trust Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Trust
Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) Central expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Junior Subordinated Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Trust Preferred Securities are then listed, if any,
(iv) such merger, consolidation, amalgamation, conveyance, transfer or lease
does not cause the Trust Preferred Securities to be downgraded by any nationally
recognized statistical rating organization which gives ratings to the Trust
Preferred Securities; (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect, (vi) such successor entity has a
purpose identical to that of CFAC Capital, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, Central
has received an opinion from independent counsel to CFAC Capital experienced in
such matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Preferred Securities
(including any Successor
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Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
CFAC Capital nor such successor entity will be required to register as an
investment company under the Investment Company Act and (viii) Central owns all
of the common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, CFAC Capital shall
not, except with the consent of holders of 100% in Liquidation Amount of the
Trust Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
CFAC Capital or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee -- Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Trust Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by Central, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that CFAC Capital will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that CFAC Capital will not be required
to register as an "investment company" under the Investment Company Act;
provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of any holder of Trust
Securities, and any amendments of the Trust Agreement shall become effective
when notice thereof is given to the holders of the Trust Securities. The Trust
Agreement may be amended by the Administrative Trustees and the Property Trustee
with (i) the consent of holders representing not less than a majority of the
aggregate Liquidation Amount of the outstanding Trust Securities, and (ii)
receipt by the Issuer Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect CFAC Capital's status as a
grantor trust for United States federal income tax purposes or CFAC Capital's
exemption from status as an "investment company" under the Investment Company
Act, provided that without the consent of each holder of Trust Securities, the
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding Trust Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior consent of each holder of the Trust Preferred Securities. The Issuer
Trustees shall not revoke any action previously authorized or approved by a vote
of the holders of the Trust Preferred Securities except by subsequent vote of
the holders of the Trust Preferred Securities. The Property
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Trustee shall notify each holder of the Trust Preferred Securities of any notice
of default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of such holders of the Trust Preferred
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that CFAC Capital will not be classified as other than a grantor trust for
United States federal income tax purposes.
Any required approval of holders of the Trust Preferred Securities may be
given at a meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consent of the holders of a majority of the Trust
Preferred Securities (based on aggregate Liquidation Amount). Notwithstanding
the foregoing, CFAC Capital shall not, except with the consent of holders of
100% in Liquidation Amount of the Trust Preferred Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause CFAC Capital or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes. The Property Trustee will cause a notice of any meeting at which
holders of the Trust Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of the Trust Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of the Trust Preferred Securities will be
required for CFAC Capital to redeem and cancel the Trust Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned by Central, the Trustees or any
affiliate of Central or any Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee (a "Global
Trust Preferred Security"). Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary ("Participants").
Except as described below, Trust Preferred Securities in certificated form will
not be issued in exchange for the global certificates. See "Book-Entry
Issuance."
A global security shall be exchangeable for Trust Preferred Securities
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies Central that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depositary
is required to be so registered to act as such depositary, (ii) Central in its
sole discretion determines that such global security shall be so exchangeable,
or (iii) there shall have occurred and be continuing an Event of Default under
the Indenture. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in such names as the Depositary shall direct. It is expected that such
instructions will be based upon directions received by the Depositary with
respect to ownership of beneficial interests in such global security. In the
event that Trust Preferred Securities are issued in definitive form, such Trust
Preferred Securities will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
Trust Preferred Securities represented thereby, a Global Trust Preferred
Security may not be transferred except as a whole by the Depositary to a nominee
of such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by the Depositary or any nominee to a
successor Depositary or any nominee of such successor.
Payments on Trust Preferred Securities represented by a global security
will be made to the Depositary, as the depositary for the Trust Preferred
Securities. In the event the Trust Preferred Securities are issued in
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definitive form, Distributions will be payable, the transfer of the Trust
Preferred Securities will be registrable, and Trust Preferred Securities will be
exchangeable for Trust Preferred Securities of other denominations of a like
aggregate Liquidation Amount, at the corporate office of the Property Trustee,
or at the offices of any paying agent or transfer agent appointed by the
Administrative Trustees, provided that payment of any Distribution may be made
at the option of the Administrative Trustees by check mailed to the address of
the persons entitled thereto or by wire transfer. In addition, if the Trust
Preferred Securities are issued in certificated form, the record dates for
payment of Distributions will be the first day of the month in which the
relevant Distribution Date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit of
such Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for such Global Trust Preferred Security or its nominee will credit,
on its book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Trust Preferred Securities represented by
such Global Trust Preferred Securities to the accounts of Participants. Such
accounts shall be designated by the dealers, underwriters or agents with respect
to such Trust Preferred Securities. Ownership of beneficial interests in a
Global Trust Preferred Security will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global Trust Preferred Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owners of such Global Trust Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Trust Preferred Securities represented by such Global
Trust Preferred Security for all purposes under the Trust Agreement governing
such Trust Preferred Securities. Except as provided below, owners of beneficial
interests in a Global Trust Preferred Security will not be entitled to have any
of the individual Trust Preferred Securities represented by such Global Trust
Preferred Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Trust Preferred Securities in definitive
form and will not be considered the owners or holders thereof under the Trust
Agreement.
None of Central, the Property Trustee, any Paying Agent, or the Securities
Registrar (defined below) for such Trust Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Trust
Preferred Security representing such Trust Preferred Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Central expects that the Depositary for the Trust Preferred Securities or
its nominee, upon receipt of any payment of the Liquidation Amount or
Distributions in respect of a permanent Global Trust Preferred Security
immediately will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
Liquidation Amount of such Global Trust Preferred Security as shown on the
records of such Depositary or its nominee. Central also expects that payments by
Participants to owners of beneficial interests in such Global Trust Preferred
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.
If the Depositary for the Trust Preferred Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by Central within 90 days, CFAC Capital will issue
individual Trust Preferred Securities in exchange for the Global Trust Preferred
Security. In addition, CFAC Capital may at any time and in its sole discretion,
subject to any limitations described herein
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relating to such Trust Preferred Securities, determine not to have any Trust
Preferred Securities represented by one or more Global Trust Preferred
Securities and, in such event, will issue individual Trust Preferred Securities
in exchange for the Global Trust Preferred Security or Securities representing
the Trust Preferred Securities. Further, if CFAC Capital so specifies with
respect to the Trust Preferred Securities, an owner of a beneficial interest in
a Global Trust Preferred Security representing Trust Preferred Securities may,
on terms acceptable to Central, the Property Trustee and the Depositary for such
Global Trust Preferred Security, receive individual Trust Preferred Securities
in exchange for such beneficial interests, subject to any limitations described
herein. In any such instance, an owner of a beneficial interest in a Global
Trust Preferred Security will be entitled to physical delivery of individual
Trust Preferred Securities represented by such Global Trust Preferred Security
equal in Liquidation Amount to such beneficial interest and to have such Trust
Preferred Securities registered in its name. Individual Trust Preferred
Securities so issued will be issued in denominations, unless otherwise specified
by CFAC Capital, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Trust Preferred Securities are
not held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. The paying agent (the "Paying Agent") shall initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and Central. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
Administrative Trustees. In the event that the Property Trustee shall no longer
be the Paying Agent, the Administrative Trustees shall appoint a successor
(which shall be a bank or trust company acceptable to the Administrative
Trustees and Central) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Trust
Preferred Securities. Registration of transfers of the Trust Preferred
Securities will be effected without charge by or on behalf of CFAC Capital, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. CFAC Capital will not be required to
register or cause to be registered the transfer of the Trust Preferred
Securities after such Trust Preferred Securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Trust
Preferred Securities are entitled under the Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by Central and if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate CFAC Capital in such a way that CFAC Capital will not
be deemed to be an "investment company" required to be
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registered under the Investment Company Act or classified as an association
taxable as a corporation for United States federal income tax purposes and so
that the Junior Subordinated Debentures will be treated as indebtedness of
Central for United States federal income tax purposes. In this connection,
Central and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of CFAC Capital or
the Trust Agreement, that Central and the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Preferred Securities. Holders of the Trust Preferred Securities have no
preemptive or similar rights.
CFAC Capital may not borrow money or issue debt or mortgage or pledge any
of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Trust Preferred Securities, CFAC
Capital will invest the proceeds thereof, together with the consideration paid
by Central for the Common Securities, in Junior Subordinated Debentures issued
by Central. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture. The following summary of the terms and provisions of the
Junior Subordinated Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and to the Trust Indenture Act. The
Indenture is qualified under the Trust Indenture Act. Whenever particular
defined terms of the Indenture are referred to herein, such defined terms are
incorporated herein or therein by reference.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate
of % of the principal amount thereof, payable quarterly in arrears on the
15th day of March, June, September and December of each year (each, an "Interest
Payment Date"), commencing December 15, 1997, to the person in whose name each
Junior Subordinated Debenture is registered, subject to certain exceptions, at
the close of business on the Business Day next preceding such Interest Payment
Date. Notwithstanding the above, in the event that either the (i) Junior
Subordinated Debentures are held by the Property Trustee and the Trust Preferred
Securities are no longer in book-entry only form or (ii) the Junior Subordinated
Debentures are not represented by a Global Subordinated Debenture (as defined
herein), the record date for such payment shall be the first day of the month in
which such payment is made. The amount of each interest payment due with respect
to the Junior Subordinated Debentures will include amounts accrued through the
date the interest payment is due. It is anticipated that, until the liquidation,
if any, of CFAC Capital, each Junior Subordinated Debenture will be held in the
name of the Property Trustee in trust for the benefit of the holders of the
Trust Preferred Securities. The amount of interest payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Junior Subordinated Debentures
is not a Business Day, then payment of the interest payable on such date will be
made on the next Business Day (and without any interest or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable. Accrued interest that is not paid on
the applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of %
thereof, compounded quarterly. The term "interest" as used herein shall include
quarterly interest payments, interest on quarterly interest payments not paid on
the applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on , 2027 (such
date, as it may be shortened as hereinafter described, the "Stated Maturity").
Such date may be shortened once at any time by Central to any date not earlier
than , 2002. In the event that Central elects to shorten the Stated
Maturity of the Junior Subordinated Debentures, it shall give notice to the
Indenture Trustee, and the Indenture Trustee shall give notice of such
shortening to the holders of the Junior Subordinated Debentures no less than 90
days prior to the effectiveness thereof.
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The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior and Subordinated Debt of
Central. Because Central is a holding company, substantially all of Central's
assets consist of the capital stock of its subsidiaries. The right of Central to
participate in any distribution of assets of any subsidiaries upon any such
subsidiaries' liquidation or reorganization or otherwise (and thus the ability
of holders of the Trust Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary,
except to the extent that Central may itself be recognized as a creditor of that
subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company, and holders
of Junior Subordinated Debentures should look only to the assets of Central for
payments on the Junior Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of Central and its
subsidiaries, including Senior and Subordinated Debt, whether under the
Indenture or any existing or other indenture that Central may enter into in the
future or otherwise. See "-- Subordination" below.
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
Central has the right under the Indenture at any time during the term of the
Junior Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding 20 consecutive quarters (each such
period an "Extension Period"), during which Extension Periods the Company shall
have the right to make partial payments of interest on any Interest Payment
Date. No Extension Period shall end other than on an Interest Payment Date. No
Extension Period may extend beyond the Stated Maturity. At the end of such
Extension Period, Central must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of %, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated
Debentures will be required to accrue interest income for United States federal
income tax purposes. See "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount." Neither the default by Central on any
Senior and Subordinated Debt nor a default with respect to Senior and
Subordinated Debt resulting in acceleration of the maturity thereof constitutes
a Debenture Event of Default. See "-- Debenture Events of Default" below.
During any such Extension Period, Central may not and shall not permit any
of its subsidiaries to (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
Central's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Central (including other Junior Subordinated Debentures) that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by Central of the debt
securities of any subsidiary of Central if such guarantee ranks pari passu with
or junior in interest to the Junior Subordinated Debentures (other than (a)
dividends or distributions in capital stock of Central, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, and (d) purchases of common stock related to the issuance of common
stock or rights under any of Central's benefit plans for its directors, officers
or employees) or (iv) redeem, purchase or acquire less than all of the Junior
Subordinated Debentures or of the Trust Preferred Securities. During an
Extension Period, Central would have the ability to continue to make payments on
Senior and Subordinated Debt. Prior to the termination of any such Extension
Period, Central may further extend such Extension Period, provided that such
extension does not cause such Extension Period to exceed 20 consecutive quarters
or extend beyond the Stated Maturity. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date,
Central may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. Central must give the Property Trustee, the
Administrative Trustees and the Indenture Trustee notice of its election of any
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Trust Preferred Securities would have been payable
except for the election to begin or extend such Extension Period or (ii) the
date the Administrative Trustees are required to give notice to the New York
Stock Exchange, the Nasdaq National Market or any applicable
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stock exchange or automated quotation system on which the Trust Preferred
Securities are then listed or quoted or to the holders of the Trust Preferred
Securities on the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The
Indenture Trustee shall give notice of Central's election to begin or extend a
new Extension Period to the holders of the Trust Preferred Securities. There is
no limitation on the number of times that Central may elect to begin an
Extension Period.
Distributions on the Trust Preferred Securities will be deferred by CFAC
Capital during any such Extension Period. See "Description of the Trust
Preferred Securities -- Distributions." For a description of certain federal
income tax consequences and special considerations applicable to any such Junior
Subordinated Debentures, see "Certain Federal Income Tax Consequences."
ADDITIONAL SUMS
If CFAC Capital is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, Central will pay as additional
amounts on the Junior Subordinated Debentures such amounts ("Additional Sums")
as shall be required so that the Distributions payable by CFAC Capital shall not
be reduced as a result of any such additional taxes, duties or other
governmental charges.
REDEMPTION
Subject to restrictions contained in any Senior and Subordinated Debt or
regulatory approval if then required under applicable regulatory policies, the
Junior Subordinated Debentures are redeemable prior to maturity at the option of
Central (i) on or after , 2002, in whole at any time (whether occurring
before or after , 2002) or in part from time to time, or (ii) at any
time in whole (but not in part), within 90 days following a Tax Event, a Capital
Treatment Event or an Investment Company Event, in each case at a redemption
price equal to the accrued and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless Central
defaults in payment of the redemption price, on and after the redemption date
interest ceases to accrue on such Junior Subordinated Debentures or portions
thereof called for redemption.
If CFAC Capital is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, Central will pay as additional
amounts on the Junior Subordinated Debentures the Additional Sums (as defined
herein).
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution," under certain
circumstances involving the dissolution of CFAC Capital, the Junior Subordinated
Debentures may be distributed to the holders of the Trust Preferred Securities
in liquidation of CFAC Capital after satisfaction of liabilities to creditors of
CFAC Capital as provided by applicable law. If distributed to holders of the
Trust Preferred Securities in liquidation, the Junior Subordinated Debentures
will initially be issued in the form of one or more global securities and the
Depositary, or any successor depositary for the Trust Preferred Securities, will
act as depositary for the Junior Subordinated Debentures. It is anticipated that
the depositary arrangements for the Junior Subordinated Debentures would be
substantially identical to those in effect for the Trust Preferred Securities.
If the Junior Subordinated Debentures are distributed to the holders of Trust
Preferred Securities upon the liquidation of CFAC Capital. Central will use its
best efforts to list the Junior Subordinated Debentures on the Nasdaq National
Market or such other stock exchanges or automated quotation system, if any, on
which the Trust Preferred Securities are then listed or quoted. There can be no
assurance as to the market price of any Junior Subordinated Debentures that may
be distributed to the holders of Trust Preferred Securities.
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RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which Central has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute a Debenture Event of Default and (b) in respect of which
Central shall not have taken reasonable steps to cure, or (ii) Central shall
have given notice of its election of an Extension Period as provided in the
Indenture with respect to the Junior Subordinated Debentures and shall not have
rescinded such notice, or such Extension Period, or any extension thereof, shall
be continuing, or (iii) while the Junior Subordinated Debentures are held by
CFAC Capital, Central shall be in default with respect to its payment of any
obligation under the Guarantee, then Central will not and will not allow any of
its subsidiaries to (1) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
Central's capital stock or (2) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Central (including other Junior Subordinated Debt) that rank pari passu with or
junior in interest to the Junior Subordinated Debentures or (3) make any
guarantee payments with respect to any guarantee by Central of the debt
securities of any subsidiary of Central if such guarantee ranks pari passu with
or junior in interest to the Junior Subordinated Debentures (other than (a)
dividends or distributions in common stock of the Company, (b) any declaration
of a dividend in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future or the
redemption or repurchase of any such rights pursuant thereto, (c) payments under
the Guarantee and (d) purchases of Common Stock related to issuance of common
stock or rights under any of Central's benefit plans for its directors, officers
or employees) or (4) redeem, purchase or acquire less than all of the Junior
Subordinated Debentures or Trust Preferred Securities.
SUBORDINATION
In the Indenture, Central has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior and Subordinated Debt to the extent provided in
the Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of Central, the holders of Senior and Subordinated Debt
will first be entitled to receive payment in full of principal of all Allocable
Amounts (as defined below) on such Senior and Subordinated Debt before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect thereof.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior and Subordinated Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior and Subordinated Debt
or an event of default with respect to any Senior and Subordinated Debt
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Allocable Amounts," when used with respect to any Senior and Subordinated
Debt, means all amounts due or to become due on such Senior and Subordinated
Debt less, if applicable, any amount which would have been paid to, and retained
by, the holders of such Senior and Subordinated Debt (whether as a result of the
receipt of payments by the holders of such Senior and Subordinated Debt from
Central or any other obligor thereon or from any holders of, or trustee in
respect of, other indebtedness that is subordinate and junior in right of
payment to such Senior and Subordinated Debt pursuant to any provision of such
indebtedness for the payment over of amounts received on account of such
indebtedness to the holders of such Senior and Subordinated Debt or otherwise)
but for the fact that such Senior and Subordinated Debt is subordinated or
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junior in right of payment to (or subject to a requirement that amounts received
on such Senior and Subordinated Debt be paid over to obligees on) trade accounts
payable or accrued liabilities arising in the ordinary course of business.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; (vi) all
indebtedness of such person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another person and all dividends
of another person the payment of which, in either case, such person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior and Subordinated Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to Central whether or not
such claim for post-petition interest is allowed in such proceeding), on Debt of
Central whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior and Subordinated Debt shall not be
deemed to include (i) any Debt of Central which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to Central, (ii) any Debt of
Central to any of its subsidiaries, (iii) Debt to any employee of Central, and
(iv) any other debt securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of Senior and Subordinated
Debt that may be incurred by Central. Central has a Line of Credit that provides
for borrowings by Central of up to $100 million, subject to an allowable
borrowing base. As a result of the funds which would be made available to the
Company upon completion of this offering, the Company does not anticipate that
it will have an immediate need for a $100.0 million credit facility. Concurrent
with the consummation of this offering, there will be a reduction in the maximum
amount committed by the lender to be available for borrowing under the Line of
Credit from $100.0 million to between $30.0 million to $43.0 million. Concurrent
with the consummation of the offering and such reduction in the maximum amount
available for borrowing under the Line of Credit, Wells Fargo Bank, N.A. will be
paid off in full and Union Bank of California, N.A. may be paid off in full and,
to the extent paid off, will no longer participate as a lender under the Line of
Credit. Both Wells Fargo Bank, N.A. and Union Bank of California, N.A., either
directly or through an affiliate, have an indirect ownership interest in
Central. Since the Line of Credit requires Central to pay the lenders fees for
the unused portion available under the Line of Credit, the reduction in the
lenders' fees for the unused portion available under the Line of Credit, the
reduction in the lenders' commitment will reduce the amount of fees payable by
Central. If the offering is not consummated, the Line of Credit will remain in
place with all of the current lenders. Borrowings under the Line of Credit are
guaranteed by all of the significant domestic subsidiaries of the Company and
are secured by substantially all of the assets, including receivables of the
Company, and a pledge by Central of the stock of all of its significant
subsidiaries. The Line of Credit contains many restrictive covenants including,
among other things, requirements that the Company maintain specific financial
ratios and satisfy certain financial tests. All borrowings under the Line of
Credit constitute Senior and Subordinated Debt. Central anticipates that it may
from time to time incur additional indebtedness constituting Senior and
Subordinated Debt. No assurance can be given that the terms of any such
additional Senior and Subordinated Debt will not contain terms, covenants or
conditions which are more restrictive or less favorable than those currently
existing under the Line of Credit. See "Risk Factors -- Subordination of
Central's Obligations Under the
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Junior Subordinated Debentures and the Guarantee", "Risk Factors -- Restrictions
Imposed by the Line of Credit", "Risk Factors -- Need for Senior Credit
Facility", and "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources."
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of the Depositary or its nominee (a "Global
Subordinated Debenture"). Beneficial interests in the Junior Subordinated
Debentures will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary. Except as described below, Junior
Subordinated Debentures in certificated form will not be issued in exchange for
the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or
in part for the individual Junior Subordinated Debentures represented thereby,
it may not be transferred except as a whole by the Depositary for such Global
Subordinated Debenture to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies Central that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depositary
is required to be so registered to act as such depositary, (ii) Central in its
sole discretion determines that such global security shall be so exchangeable or
(iii) there shall have occurred and be continuing a Debenture Event of Default
with respect to such global security. Any global security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for definitive
certificates registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary from its Participants with respect to ownership of beneficial
interests in such global security. In the event that Junior Subordinated
Debentures are issued in definitive form, such Junior Subordinated Debentures
will be in denominations of $25 and integral multiples thereof and may be
transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to the Depositary, as the depositary for the Junior Subordinated
Debentures. In the event Junior Subordinated Debentures are issued in definitive
form, principal and interest will be payable, the transfer of the Junior
Subordinated Debentures will be registrable, and Junior Subordinated Debentures
will be exchangeable for Junior Subordinated Debentures of other denominations
of a like aggregate principal amount, at the corporate office of the Indenture
Trustee, or at the offices of any paying agent or transfer agent appointed by
Central, provided that payment of interest may be made at the option of Central
by check mailed to the address of the persons entitled thereto or by wire
transfer. In addition, if the Junior Subordinated Debentures are issued in
certificated form, the record dates for payment of interest will be the first
day of the month in which such payment is to be made. For a description of the
Depositary and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"Book-Entry Issuance."
Central will appoint the Indenture Trustee as securities registrar under
the Indenture (the "Securities Registrar"). Junior Subordinated Debentures may
be presented for exchange as provided above, and may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the Securities Registrar. Central may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer agent acts, provided that Central maintains a transfer agent in the
place of payment. Central may at any time designate additional transfer agents
with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither Central nor the Indenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Junior Subordinated
Debentures and ending
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at the close of business on the day of mailing of the relevant notice of
redemption or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
GLOBAL SUBORDINATED DEBENTURES
Upon the issuance of the Global Subordinated Debenture, and the deposit of
such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to the accounts of Participants. Ownership of
beneficial interests in a Global Subordinated Debenture will be limited to
Participants or persons that may hold interests through Participants. Ownership
of beneficial interests in such Global Subordinated Debenture will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by such Global
Subordinated Debenture for all purposes under the Indenture governing such
Junior Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any of
the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated Debentures
in definitive form and will not be considered the owners or holders thereof
under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Subordinated Debenture
representing such Junior Subordinated Debentures. None of Central, the Indenture
Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debentures will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Central expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a permanent Global Subordinated
Debenture representing the Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. Central also expects that payments by Participants to owners of
beneficial interests in such Global Subordinated Debenture held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by Central
within 90 days, Central will issue individual Junior Subordinated Debentures in
exchange for the Global Subordinated Debenture. In addition, Central may at any
time and in its sole discretion, determine not to have the Junior Subordinated
Debentures represented by one or more Global Junior Subordinated Debentures and,
in such event, will issue individual Junior Subordinated Debentures in exchange
for the Global Subordinated Debenture. Further, if Central so specifies with
respect to the Junior Subordinated Debentures, an owner of a beneficial interest
in a Global Subordinated Debenture representing Junior Subordinated Debentures
may, on terms acceptable to Central, the Indenture Trustee and
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the Depositary for such Global Subordinated Debenture, receive individual Junior
Subordinated Debentures in exchange for such beneficial interests. In any such
instance, an owner of a beneficial interest in a Global Subordinated Debenture
will be entitled to physical delivery of individual Junior Subordinated
Debentures equal in principal amount to such beneficial interest and to have
such Junior Subordinated Debentures registered in its name. Individual Junior
Subordinated Debentures so issued will be issued in denominations, unless
otherwise specified by Central, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the office of the Indenture Trustee, except that at
the option of Central payment of any interest may be made (i) except in the case
of Global Junior Subordinated Debentures, by check mailed to the address of the
person entitled thereto as such address shall appear in the securities register
or (ii) by transfer to an account maintained by the person entitled thereto as
specified in the securities register, provided that proper transfer instructions
have been received by the regular record date. Payment of any interest on Junior
Subordinated Debentures will be made to the person in whose name such Junior
Subordinated Debenture is registered at the close of business on the regular
record date for such interest. Central may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however Central
will at all times be required to maintain a Paying Agent in each place of
payment for the Junior Subordinated Debentures. Any moneys deposited with the
Indenture Trustee or any Paying Agent, or then held by Central in trust, for the
payment of the principal of or interest on the Junior Subordinated Debentures
and remaining unclaimed for two years after such principal or interest has
become due and payable shall, at the request of Central, be repaid to Central
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to Central for payment thereof.
MODIFICATION OF INDENTURE
From time to time Central and the Indenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interests of the holders of the Junior
Subordinated Debentures or the Trust Preferred Securities so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting
Central and the Indenture Trustee, with the consent of the holders of not less
than a majority in principal amount of the outstanding Junior Subordinated
Debentures, to modify the Indenture in a manner affecting the rights of the
holders of the Junior Subordinated Debentures; provided, that no such
modification may, without the consent of the holder of each outstanding Junior
Subordinated Debenture, (i) change the Stated Maturity of the Junior
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon or (ii) reduce the
percentage of principal amount of Junior Subordinated Debentures, the holders of
which are required to consent to any such modification of the Indenture,
provided that so long as any of the Trust Preferred Securities remain
outstanding, no such modification may be made that adversely affects the holders
of such Trust Preferred Securities in any material respect, and no termination
of the Indenture may occur, and no waiver of any Debenture Event of Default or
compliance with any covenant under the Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate Liquidation
Amount of the Trust Preferred Securities unless and until the principal of the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied. Where a consent
under the Indenture would require the consent of each holder of Junior
Subordinated Debentures, no such consent shall be given by the Property Trustee
without the prior consent of each holder of Trust Preferred Securities. In
addition, Central and the Indenture Trustee may execute, without the consent of
any holder of Junior Subordinated Debentures, any supplemental Indenture for the
purpose of creating any new series of Junior Subordinated Debentures.
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DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due including any Additional Interest in respect thereof
(subject to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption by
declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to Central from the Indenture Trustee or to Central and the Indenture
Trustee by the holders of at least 25% in aggregate outstanding principal
amount of the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
Central.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee. The Indenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default. If the Indenture Trustee or such holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
Junior Subordinated Debentures which has become due solely by such acceleration)
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Indenture Trustee. Should the holders of the Junior Subordinated Debentures fail
to annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
In case a Debenture Event of Default shall occur and be continuing as to
the Junior Subordinated Debentures, the Property Trustee will have the right to
declare the principal of and the interest on such Junior Subordinated
Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
such Junior Subordinated Debentures. If a Debenture Event of Default with
respect to certain events in bankruptcy, insolvency or reorganization occurs,
the Junior Subordinated Debentures shall automatically, and without any
declaration or other action on the part of the Property Trustee or the holders
of the Junior Subordinated Debentures, become immediately due and payable. In
either event, payment of principal and interest on the Junior Subordinated
Debentures shall remain subordinated to the extent provided in the Indenture.
See "-- Subordination" above.
Central is required to file annually with the Indenture Trustee a
certificate as to whether or not Central is in compliance with all the
conditions and covenants applicable to it under the Indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of Central to pay interest or principal on
the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of Trust Preferred Securities may institute a legal
proceeding directly against Central for enforcement of payment to such holder of
the principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Trust
Preferred Securities of such holder ("Direct Action"). Central may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities
outstanding. If the right to bring a Direct Action is removed, CFAC Capital may
become subject to the reporting obligations under the Exchange Act. Central
shall have the right under the Indenture to set-off any payment made to such
holder of Trust Preferred Securities by Central in connection with a Direct
Action.
The holders of the Trust Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of the Trust Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Central shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into Central or convey, transfer or lease its properties and assets
substantially as an entirety to Central, unless (i) in case Central consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia, and such successor Person expressly assumes Central's obligations on
the Junior Subordinated Debentures issued under the Indenture; (ii) immediately
after giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, shall have occurred and be continuing; (iii) such transaction is
permitted under the Trust Agreement and the Guarantee Agreement; and does not
give rise to any breach or violation of the Trust Agreement or Guarantee
Agreement; and (iv) certain other conditions as prescribed in the Indenture are
met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving Central that may adversely affect holders of the Junior
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and Central deposits or causes to be
deposited with the Indenture Trustee trust funds, in trust, for the purpose and
in an amount in the currency or currencies in which the Junior Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Indenture
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the Stated Maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to Central's obligations to pay all
other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and Central will be
deemed to have satisfied and discharged the Indenture.
COVENANTS OF CENTRAL
Central will covenant in the Indenture, as to the Junior Subordinated
Debentures, that so long as no Event of Default has occurred and is continuing,
if and so long as (i) CFAC Capital is the holder of all such Junior Subordinated
Debentures, (ii) a Tax Event in respect of CFAC Capital has occurred and is
continuing
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and (iii) Central has elected, and has not revoked such election, to pay
Additional Sums (as defined under "Description of the Trust Preferred
Securities -- Redemption") in respect of the Trust Preferred Securities, Central
will pay to CFAC Capital such Additional Sums. Central will also covenant, as to
the Junior Subordinated Debentures, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of CFAC Capital, provided that certain
successors which are permitted pursuant to the Indenture may succeed to
Central's ownership of the Common Securities, (ii) not to voluntarily terminate,
wind up or liquidate CFAC Capital, except (a) in connection with a distribution
of Junior Subordinated Debentures to the holders of the Trust Preferred
Securities in liquidation of CFAC Capital or (b) in connection with certain
mergers, consolidations, or amalgamations permitted by the Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions of
the Trust Agreement, to cause CFAC Capital to remain classified as a grantor
trust and not as an association taxable as a corporation for United States
federal income tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of California, except
that the immunities and standard of care of the Indenture Trustee will be
governed by Delaware law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and the Junior Subordinated Debentures. The Trust Preferred
Securities and the Junior Subordinated Debentures will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global certificates will be
issued for the Trust Preferred Securities and the Junior Subordinated Debentures
and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Commission.
Purchases of Trust Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Trust Preferred Securities or Junior
Subordinated Debentures on the Depositary's records. The ownership interest of
each actual
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purchaser of each Trust Preferred Securities and each Subordinated Debenture
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchases, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Trust Preferred Securities or
Junior Subordinated Debentures. Transfers of ownership interests in the Trust
Preferred Securities or Junior Subordinated Debentures are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Trust Preferred Securities or Junior Subordinated Debentures,
except in the event that use of the book-entry system for the Junior
Subordinated Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the
Trust Preferred Securities or Junior Subordinated Debentures; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Trust Preferred Securities or Junior Subordinated Debentures. If less than
all of the Trust Preferred Securities or the Junior Subordinated Debentures are
being redeemed, the Depositary will determine by lot or pro rata the amount of
the Trust Preferred Securities of each Direct Participant to be redeemed.
Although voting with respect to the Trust Preferred Securities or the
Junior Subordinated Debentures is limited to the holders of record of the Trust
Preferred Securities or Junior Subordinated Debentures, as applicable, in those
instances in which a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities or Junior
Subordinated Debentures. Under its usual procedures, the Depositary would mail
an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts such
Trust Preferred Securities or Junior Subordinated Debentures are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Trust Preferred Securities or the Junior
Subordinated Debentures will be made by the relevant Trustee to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of the
Depositary, the relevant Trustee, CFAC Capital or Central, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the relevant
Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Trust Preferred Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the relevant
Trustee and Central. In the event that a successor securities depositary is not
obtained, definitive Trust Preferred Securities or Subordinated Debenture
certificates representing such Trust Preferred Securities or Junior Subordinated
Debentures are required to be printed and delivered. Central, at its option, may
decide to discontinue use of the system of book-entry transfers through the
Depositary (or a successor depositary). After a Debenture Event of Default, the
holders of a majority in liquidation preference of Trust Preferred Securities or
aggregate principal amount of Junior Subordinated Debentures may determine to
discontinue the
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system of book-entry transfers through the Depositary. In any such event,
definitive certificates for such Trust Preferred Securities or Junior
Subordinated Debentures will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that CFAC Capital
and Central believe to be accurate, but CFAC Capital and Central assume no
responsibility for the accuracy thereof. Neither CFAC Capital nor Central has
any responsibility for the performance by the Depositary or its Participants of
their respective obligations as described herein or under the rules and
procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by Central
concurrently with the issuance of the Trust Preferred Securities for the benefit
of the holders of the Trust Preferred Securities. Wilmington Trust Company will
act as Guarantee Trustee under the Guarantee Agreement for the purposes of
compliance with the Trust Indenture Act, and the Guarantee will be qualified as
an Indenture under the Trust Indenture Act. The following summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee Agreement, including the definitions therein of certain terms, and the
Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the Trust
Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of
CFAC Capital's obligations under the Trust Preferred Securities, but will apply
only to the extent that CFAC Capital has funds sufficient to make such payments,
and is not a guarantee of collection.
Central will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the Trust Preferred Securities, as and when
due, regardless of any defense, right of set-off or counterclaim that CFAC
Capital may have or assert other than the defense of payment. The following
payments with respect to the Trust Preferred Securities, to the extent not paid
by or on behalf of CFAC Capital (the "Guarantee Payments"), will be subject to
the Guarantee: (i) any accrued and unpaid Distributions required to be paid on
the Trust Preferred Securities, to the extent that CFAC Capital has funds on
hand available therefor at such time, (ii) the redemption price with respect to
any Trust Preferred Securities called for redemption, to the extent that CFAC
Capital has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of CFAC Capital
(unless the Junior Subordinated Debentures are distributed to holders of the
Trust Preferred Securities), the lesser of (a) the Liquidation Distribution and
(b) the amount of assets of CFAC Capital remaining available for distribution to
holders of Trust Preferred Securities after satisfaction of liabilities to
creditors of CFAC Capital as required by applicable law. Central's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by Central to the holders of the Trust Preferred Securities or by
causing CFAC Capital to pay such amounts to such holders.
If Central does not make interest payments on the Junior Subordinated
Debentures held by CFAC Capital, CFAC Capital will not be able to pay
Distributions on the Trust Preferred Securities and will not have funds legally
available therefor. The Guarantee will constitute unsecured obligations of
Central and will rank subordinate and junior in right of payment to all Senior
and Subordinated Debt of Central. See "-- Status of the Guarantee" below.
Central has a Line of Credit that provides for borrowings by Central of up to
$100 million, subject to an allowable borrowing base. As a result of the funds
which would be made available to the Company upon completion of this offering,
the Company does not anticipate that it will have and immediate need for a
$100.00 million credit facility. Concurrent with the consummation of this
offering, there will be a reduction in the maximum amount committed by the
lender to be available for borrowing under the Line of Credit from $100.0
million to between $30.0 million to $43.0 million. Concurrent with the
consummation of the offering and such reduction in the maximum amount available
for borrowing under the
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Line of Credit, Wells Fargo Bank, N.A. will be paid off in full and Union Bank
of California, N.A. may be paid off in full and, to the extent paid off, will no
longer participate as a lender under the Line of Credit. Both Wells Fargo bank,
N.A. and Union Bank of California, either directly or through an affiliate, have
an indirect ownership interest in Central. Since the Line of Credit requires
Central to pay the lenders fees for the unused portion available under the Line
of Credit, the reduction in the lenders' commitment will reduce the amount of
fees payable by Central. If the offering is not consummated, the Line of Credit
will remain in place with all of the current lenders. Borrowings under the Line
of Credit are guaranteed by all of the significant domestic subsidiaries of the
Company and are secured by substantially all of the assets, including the
receivables, of the Company and a pledge by Central of the stock of all of its
significant subsidiaries. All borrowings under the Line of Credit are Senior and
Subordinated Debt. In addition, because Central is a holding company,
substantially all of Central's assets consist of the capital stock of its
subsidiaries. The right of Central to participate in any distribution of assets
of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent Central may itself be recognized as a creditor of that
subsidiary. Accordingly, Central's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of Central's
subsidiaries, and claimants should look only to the assets of Central for
payments thereunder. Except as otherwise described herein, the Guarantee does
not limit the incurrence or issuance of other secured or unsecured debt of
Central, including Senior and Subordinated Debt whether under the Indenture, any
other indenture that Central may enter into in the future, or otherwise.
Central has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of CFAC Capital's obligations under the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of CFAC Capital's obligations under the Trust Preferred
Securities. See "Relationship Among the Trust Preferred Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Central and will
rank subordinate and junior in right of payment to all Senior and Subordinated
Debt in the same manner as the Junior Subordinated Debentures. See "Description
of Junior Subordinated Debentures -- Subordination."
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against Central to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The Guarantee
will be held for the benefit of the holders of the Trust Preferred Securities.
The Guarantee will not be discharged except by payment of the Guarantee Payments
in full to the extent not paid by CFAC Capital or upon distribution to the
holders of the Trust Preferred Securities of the Junior Subordinated Debentures
to the holders of the Trust Preferred Securities. The Guarantee does not place a
limitation on the amount of additional Senior and Subordinated Debt that may be
incurred by Central. Central expects from time to time to incur additional
indebtedness constituting Senior and Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantee Agreement may not be amended without the prior
approval of the holders of not less than a majority of the aggregate Liquidation
Amount of such outstanding Trust Preferred Securities. See "Description of the
Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement."
All guarantees and agreements contained in the Guarantee Agreement shall bind
the successors, assigns, receivers, trustees and representatives of Central and
shall inure to the benefit of the holders of the Trust Preferred Securities then
outstanding.
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EVENTS OF DEFAULT
An event of default under the Guarantee Agreement will occur upon the
failure of Central to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate Liquidation
Amount of the Trust Preferred Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee
Agreement. Any holder of the Trust Preferred Securities may institute a legal
proceeding directly against Central to enforce its rights under the Guarantee
without first instituting a legal proceeding against CFAC Capital, the Guarantee
Trustee or any other person or entity.
Central, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not Central is in compliance with all the
conditions and covenants applicable to it under the Guarantee Agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by Central in performance of the Guarantee, undertakes to perform only
such duties as are specifically set forth in the Guarantee Agreement and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee Agreement at the
request of any holder of the Trust Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon the
earliest of (i) full payment of the Redemption Price of the Trust Preferred
Securities, (ii) full payment of the amounts payable or (iii) liquidation of
CFAC Capital or upon distribution of Junior Subordinated Debentures to the
holders of the Trust Preferred Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Trust Preferred Securities must restore payment of any sums paid under
the Trust Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance
with the laws of the State of California.
EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by Central under the Trust
Agreement, Central will irrevocably and unconditionally guarantee to each person
or entity to whom CFAC Capital becomes indebted or liable, the full payment of
any costs, expenses or liabilities of CFAC Capital, other than obligations of
CFAC Capital to pay to the holders of the Trust Preferred Securities or other
similar interests in CFAC Capital of the amounts due such holders pursuant to
the terms of the Trust Preferred Securities or such other similar interests, as
the case may be.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent CFAC Capital has funds available for the payment of
such Distributions) are irrevocably guaranteed by Central as
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and to the extent set forth under "Description of Guarantee." Taken together,
Central's obligations under the Junior Subordinated Debentures, the Indenture,
the Trust Agreement, the Expense Agreement, the Guarantee Agreement and the
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of those documents that has the
effect of providing a full, irrevocable and unconditional guarantee of CFAC
Capital's obligations under the Trust Preferred Securities. If and to the extent
that Central does not make payments on the Junior Subordinated Debentures, CFAC
Capital will not pay Distributions or other amounts due on the Trust Preferred
Securities. The Guarantee does not cover payment of Distributions when CFAC
Capital does not have sufficient funds to pay such Distributions. In such event,
the remedy of a holder of the Trust Preferred Securities is to institute a legal
proceeding directly against Central for enforcement of payment of such
Distributions to such holder. The obligations of Central under the Guarantee are
subordinate and junior in right of payment to all Senior and Subordinated Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount of the
Trust Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Preferred Securities; (iii) Central shall pay for all and any costs,
expenses and liabilities of CFAC Capital except CFAC Capital's obligations to
holders of Trust Preferred Securities; and (iv) the Trust Agreement further
provides that CFAC Capital will not engage in any activity that is not
consistent with its limited purposes.
Notwithstanding anything to the contrary in the Indenture, Central has the
right to set-off any payment it is otherwise required to make thereunder with
and to the extent Central has theretofore made, or is concurrently on the date
of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE
GUARANTEE
A holder of Trust Preferred Securities may institute a legal proceeding
directly against Central to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, CFAC Capital or
any other person or entity.
A default or event of default under any Senior and Subordinated Debt would
not constitute a default or Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior and
Subordinated Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF CFAC CAPITAL
The Trust Preferred Securities evidence a beneficial interest in CFAC
Capital, and CFAC Capital exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in Junior Subordinated Debentures.
A principal difference between the rights of a holder of the Trust Preferred
Securities and a holder of a Junior Subordinated Debenture is that a holder of a
Junior Subordinated Debenture is entitled to receive from Central the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of the Trust Preferred Securities is entitled to receive Distributions
from CFAC Capital (or from Central under the Guarantee) if and to the extent
CFAC Capital has funds available for the payment of such Distributions.
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RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
CFAC Capital involving the liquidation of the Junior Subordinated Debentures,
the holders of Trust Preferred Securities will be entitled to receive, out of
assets held by CFAC Capital, the Liquidation Distribution in cash. See
"Description of the Trust Preferred Securities -- Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of
Central, the Property Trustee, as holder of the Junior Subordinated Debentures,
would be a subordinated creditor of Central, subordinated in right of payment to
all Senior and Subordinated Debt as set forth in the Indenture, but entitled to
receive payment in full of principal and interest, before any stockholders of
Central receive payments or distributions. Since Central is the guarantor under
the Guarantee and has agreed to pay for all costs, expenses and liabilities of
CFAC Capital (other than CFAC Capital's obligations to the holders of its Trust
Preferred Securities), the positions of a holder of the Trust Preferred
Securities and a holder of Junior Subordinated Debentures relative to other
creditors and to stockholders of Central in the event of liquidation or
bankruptcy of Central are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Manatt, Phelps & Phillips, LLP, counsel to the Company
("Counsel"), the following summary accurately describes the material United
States federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Trust Preferred Securities. Unless otherwise
stated, this summary deals only with Trust Preferred Securities held as capital
assets by United States Persons (defined below) who purchase the Trust Preferred
Securities upon original issuance at their original offering price. As used
herein, a "United States Person" means a person that is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust the
income of which is subject to United States federal income taxation regardless
of its source; provided, however, that for taxable years beginning after
December 31, 1996 (or, if a trustee so elects, for taxable years ending after
August 20, 1996), a "United States Person" shall include any trust if a court is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust. The tax treatment of holders may vary
depending on their particular situation. This summary does not address all the
tax consequences that may be relevant to a particular holder or to holders who
may be subject to special tax treatment, such as banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or foreign investors. In
addition, this summary does not include any description of any alternative
minimum tax consequences or the tax laws of any state, local or foreign
government that may be applicable to a holder of Trust Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
The following discussion does not discuss the tax consequences that might
be relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors as to
the specific United States federal income tax consequences of the purchase,
ownership and disposition of Trust Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the Service with
respect to the transactions described herein. Accordingly, there can be no
assurance that the Service will not challenge the opinions expressed herein or
that a court would not sustain such a challenge. Nevertheless, Counsel has
advised that it is of the view that, if challenged, the opinions expressed
herein more likely than not would be sustained by a court with jurisdiction in a
properly presented case.
Holders should consult their own tax advisors with respect to the tax
consequences to them of the purchase, ownership and disposition of the Trust
Preferred Securities, including the tax consequences under
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state, local, foreign, and other tax laws and the possible effects of changes in
United States federal or other tax laws. For a discussion of the possible
redemption of the Trust Preferred Securities upon the occurrence of certain tax
events, see "Description of the Trust Preferred Securities -- Redemption."
CLASSIFICATION OF CFAC CAPITAL
In connection with the issuance of the Trust Preferred Securities, Counsel
is of the opinion that, under current law and assuming compliance with the terms
of the Trust Agreement, and based on certain facts and assumptions contained in
such opinion, CFAC Capital will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the Trust Preferred Securities
(a "Securityholder") will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures. Accordingly, each Securityholder will be
required to include in its gross income its pro rata share of the interest
income or original issue discount that is paid or accrued on the Junior
Subordinated Debentures. See "-- Interest Income and Original Issue Discount"
herein. No amount included in income with respect to the Trust Preferred
Securities will be eligible for the dividends received deduction. However, if
the Service asserted successfully that CFAC Capital is not a grantor trust, CFAC
Capital could become taxed like a corporation and a Tax Event could occur. The
Securityholders would be taxed like corporate shareholders in that event.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
It is Counsel's opinion that the Junior Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of the
Company under current law, and, by acceptance of a Trust Preferred Security,
each holder covenants to treat the Junior Subordinated Debentures as
indebtedness and the Trust Preferred Securities as evidence of an indirect
beneficial ownership interest in the Junior Subordinated Debentures. No
assurance can be given, however, that such position of the Company will not be
challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful. The remainder of this discussion assumes that
the Junior Subordinated Debentures will be classified for United States federal
income tax purposes as indebtedness of the Company. See "Risk
Factors -- Possible Tax Law Changes Affecting the Trust Preferred Securities."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the time
such interest income is paid or accrued in accordance with such Securityholder's
regular method of tax accounting.
Central believes that, under the applicable Treasury regulations, the
likelihood, as of the date of issuance of the Junior Subordinated Debentures,
that Central will exercise its option to defer payments of interest is a remote
or incidental contingency and, therefore, Central will take the position that
the Junior Subordinated Debentures will not be considered to have been issued
with "original issue discount" ("OID") within the meaning of Section 1273(a) of
the Code. If, however, Central exercises its right to defer payments of interest
on the Junior Subordinated Debentures, the Junior Subordinated Debentures will
become OID instruments at such time and all Securityholders will be required to
accrue the stated interest on the Junior Subordinated Debentures on a daily
basis during the Extension Period, even though Central will not pay such
interest until the end of the Extension Period, and even though some
Securityholders may use the cash method of tax accounting. Moreover, thereafter
the Junior Subordinated Debentures will be taxed as OID instruments for as long
as they remain outstanding. Thus, even after the end of the Extension Period,
all Securityholders would be required to continue to include the stated interest
on the Junior Subordinated Debentures in income on a daily economic accrual
basis, regardless of their method of tax accounting and in advance of receipt of
the cash attributable to such interest income. Under the OID economic accrual
rules, a Securityholder would accrue an amount of interest income each year that
approximates the stated interest payments called for under the Junior
Subordinated Debentures, and actual cash payments of interest on the Junior
Subordinated Debentures would not be reported separately as taxable income.
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The Treasury regulations described above have not yet been addressed in any
definitive interpretations by the Service, and it is possible that the Service
could take a contrary position. If the Service were to assert successfully that
the likelihood that Central will exercise its deferral option is not a remote or
incidental contingency as of the issue date and, therefore, that the stated
interest on the Junior Subordinated Debentures was OID regardless of whether
Central exercises its right to defer payments of interest on such debentures,
all Securityholders would be required to include such stated interest in income
on a daily economic accrual basis as described above.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES
Under current law, a distribution by CFAC Capital of the Junior
Subordinated Debentures as described under the caption "Description of the Trust
Preferred Securities -- Liquidation Distribution Upon Dissolution" will be
non-taxable and will result in the Securityholder receiving directly its pro
rata share of the Junior Subordinated Debentures previously held indirectly
through CFAC Capital, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such Securityholder had in its Trust
Preferred Securities before such distribution. If, however, the liquidation of
CFAC Capital were to occur because CFAC Capital is subject to United States
federal income tax with respect to income accrued or received on the Junior
Subordinated Debentures as a result of a Tax Event or otherwise, the
distribution of Junior Subordinated Debentures to Securityholders by CFAC
Capital could be a taxable event to CFAC Capital and each Securityholder, and a
Securityholder would recognize gain or loss as if the Securityholder had
exchanged its Trust Preferred Securities for the Junior Subordinated Debentures
it received upon the liquidation of CFAC Capital. A Securityholder would
recognize interest income in respect of Junior Subordinated Debentures received
from CFAC Capital in the manner described above under "-- Interest Income and
Original Issue Discount" herein.
SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Trust
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Trust Preferred
Securities sold or so redeemed. Gain or loss recognized by a Securityholder on
Trust Preferred Securities held for more than one year will generally be taxable
as long-term capital gain or loss. Under recent tax legislation, the maximum
federal income tax rate applicable to net long term capital gains will depend
upon whether the capital asset sold or exchanged had a holding period in excess
of one year or a holding period in excess of 18 months. Amounts attributable to
accrued interest with respect to a Securityholder's pro rata share of the Junior
Subordinated Debentures not previously included in income will be taxable as
ordinary income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Trust Preferred Securities held of record
by United States Persons (other than corporations and other exempt
Securityholders), if any, will be reported to the Service. "Backup" withholding
at a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury Regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions. Any amounts withheld from a Securityholder
under the backup withholding rules will be allowed as a refund or a credit
against such Securityholder's United States federal income tax liability,
provided the required information is furnished to the Service.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
There can be no assurance that future legislative proposals or final
legislation will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit Central to cause a redemption of the Trust Preferred
Securities. See
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"Description of the Trust Preferred Securities -- Redemption" and "Description
of Junior Subordinated Debentures -- Redemption."
ERISA CONSIDERATIONS
GENERAL
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") should consider
fiduciary standards under ERISA in the context of the particular circumstances
of such plan before authorizing an investment in the Trust Preferred Securities.
Such fiduciary should consider whether the investment satisfies ERISA's
diversification and prudence requirements, whether the investment constitutes
unauthorized delegation of fiduciary authority and whether the investment is in
accordance with the documents and instruments governing the plan. In addition,
ERISA and the Code prohibit a wide range of transactions ("Prohibited
Transactions") involving the assets of a plan subject to ERISA or the assets of
an individual retirement account or plan subject to Section 4975 of the Code or
any entity in which such plan invests whose assets are deemed "plan assets"
(hereinafter an "ERISA Plan") and persons who have certain specified
relationships to the ERISA Plan ("parties in interest," within the meaning of
ERISA, and "disqualified persons," within the meaning of the Code). Such
transactions may require "correction" and may cause the ERISA Plan fiduciary to
incur certain liabilities and the parties in interest or disqualified persons to
be subject to excise taxes.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the Trust Preferred Securities. Any fiduciary of such a
governmental or church plan considering an investment in the Trust Preferred
Securities should determine the need for, and the availability, if necessary, of
any exemptive relief under such laws or regulations.
TRUST ASSETS AS "PLAN ASSETS"
The Department of Labor has issued final regulations (the "Labor
Regulations") as to what constitutes assets of an employee benefit plan ("plan
asset") under ERISA. The Labor Regulations provide that, as a general rule, when
an ERISA Plan acquires an equity interest in an entity and such interest does
not represent a "publicly offered security" nor a security issued by an
investment company registered under the 1940 Act, the ERISA Plan's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an operating company or that equity participation in the entity by "benefit
plan investors" is not "significant." For purposes of the Labor Regulations,
CFAC Capital will be neither an investment company nor an operating company.
Under the Labor Regulations, equity participation by benefit plan investors
will not be considered "significant" on any date only if, immediately after the
most recent acquisition of Trust Preferred Securities, the aggregate interest in
the Trust Preferred Securities held by benefit plan investors will be less than
25% of the aggregate outstanding principal amount of the Trust Preferred
Securities. Although it is possible that the equity participation by benefit
plan investors on any date will not be "significant" for purposes of the Labor
Regulations, such result cannot be assured. Consequently, if ERISA Plans or
investors using plan assets of ERISA Plans purchase the Trust Preferred
Securities, CFAC Capital's assets could be deemed to be "plan assets" of such
ERISA Plans for purposes of the fiduciary responsibility provisions of ERISA and
the Code. Under ERISA, any person who exercises any authority or control
respecting the management or disposition of the assets of an ERISA Plan is
considered to be a fiduciary of such ERISA Plan. For example, the Property
Trustee could therefore become a fiduciary of the ERISA Plans that invest in the
Trust Preferred Securities and be subject to the general fiduciary requirements
of ERISA in exercising its authority with respect to the management of the
assets of CFAC Capital. However, the Property Trustee will have only limited
discretionary authority with respect to CFAC Capital assets and the remaining
functions and responsibilities performed by the Property Trustee will be for the
most part custodial and ministerial in nature.
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PROHIBITED TRANSACTIONS
Central may be a party in interest or a disqualified person with respect to
an ERISA Plan investing in the Trust Preferred Securities or acquiring Junior
Subordinated Debentures, and therefore, such investment by an ERISA Plan may
give rise to a Prohibited Transaction in the form of a direct or indirect
extension of credit by the investing ERISA Plan to the Company. Consequently,
before investing in the Trust Preferred Securities or acquiring Junior
Subordinated Debentures, any person who is, or who is acquiring such securities
for, or on behalf of, an ERISA Plan should determine that either a statutory or
an administrative exemption from the Prohibited Transaction rules discussed
below or otherwise available is applicable to such investment in the Trust
Preferred Securities or acquisition of Junior Subordinated Debentures, or that
such investment in, or acquisition of, such securities will not result in a
Prohibited Transaction.
The statutory or administrative exemptions from the Prohibited Transaction
rules under ERISA and the Code which may be available to an ERISA Plan which is
investing in the Trust Preferred Securities include: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by qualified
professional asset managers; PTCE 96-23, regarding transactions effected by
in-house asset managers; and PTCE 95-60, regarding investments by insurance
company general accounts (collectively referred to as the "ERISA Investor
Exemptions").
Notwithstanding the foregoing, Trust Preferred Securities may not be
acquired by any person who is, or who in acquiring such Trust Preferred
Securities is using the assets of, an ERISA Plan unless one of the ERISA
Investor Exemptions or another applicable exemption is available to the ERISA
Plan. The acquisition of the Trust Preferred Securities by any person who is, or
who in acquiring such Trust Preferred Securities is using the assets of, an
ERISA Plan shall be deemed to constitute a representation by such person to the
Trust that such person is eligible for exemptive relief available pursuant to
either the ERISA Investor Exemptions or another applicable exemption with
respect to the acquisition and holding of such Trust Preferred Securities.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE ALL INCLUSIVE. ANY FIDUCIARY OF AN ERISA PLAN, GOVERNMENTAL PLAN OR CHURCH
PLAN CONSIDERING AN INVESTMENT IN THE TRUST PREFERRED SECURITIES SHOULD CONSULT
WITH ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES OF SUCH INVESTMENT.
92
<PAGE> 94
UNDERWRITING
The Underwriters named below, represented by Sutro & Co. Incorporated (the
"Representative"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, to
purchase from CFAC Capital the number of Trust Preferred Securities set forth
opposite their respective names below. The several Underwriters have agreed in
the Underwriting Agreement, subject to the terms and conditions set forth
therein, to purchase all the Trust Preferred Securities offered hereby if any of
the Trust Preferred Securities are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF TRUST
UNDERWRITER PREFERRED SECURITIES
------------------------------------------------------------ --------------------
<S> <C>
Sutro & Co. Incorporated....................................
---------
Total............................................. 2,100,000
=========
</TABLE>
The Representative has advised Central and CFAC Capital that it proposes
initially to offer the Trust Preferred Securities to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per Trust
Preferred Security. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per Trust Preferred Security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
Central, the Underwriting Agreement provides that Central will pay as
compensation to the Underwriters arranging the investment therein of such
proceeds, an amount in immediately available funds of $ per Trust
Preferred Security (or $ in the aggregate) for the accounts of the
Underwriters.
CFAC Capital has granted the Underwriters an option to purchase up to an
additional 315,000 Trust Preferred Securities at the public offering price Such
option, which expires 30 days from the date of this Prospectus, may be exercised
solely to cover over-allotments.
To the extent that the Underwriter exercises its option to purchase
additional Trust Preferred Securities, CFAC Capital will issue and sell to
Central additional Common Securities in such aggregate Liquidation Amount as is
required for Central to continue to hold Common Securities in an aggregate
Liquidation Amount equal to at least 3% of the total capital of CFAC Capital and
Central will issue and sell to CFAC Capital Junior Subordinated Debentures in an
aggregate principal amount equal to the total aggregate Liquidation Amount of
the additional Trust Preferred Securities being purchased pursuant to the option
and the additional Common Securities.
In connection with the offering of the Trust Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Trust Preferred Securities. Such transactions may include
over-allotment transactions in which the Underwriters create a short position
for their own account by selling more Trust Preferred Securities than it is
committed to purchase from CFAC Capital. In such case, to cover all or part of
the short position, the Underwriters may exercise the over-allotment option
described above or may purchase Trust Preferred Securities in the open market
following completion of the initial offering of the Trust Preferred Securities.
The Underwriters may also engage in stabilizing transactions in which they bid
for, and purchase, shares of the Trust Preferred Securities at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Trust Preferred
Securities. The Underwriters also may reclaim any selling concession allowed to
an Underwriter or dealer if the Underwriters repurchase shares distributed by
that Underwriter or dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Trust Preferred Securities at a level above that
which might otherwise
93
<PAGE> 95
prevail in the open market. Neither the Company nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Trust Preferred
Securities. The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
During a period of 180 days from the date of this Prospectus, neither CFAC
Capital nor the Company will, subject to certain exceptions, without the prior
written consent of the Representative, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any Trust Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Trust Preferred Securities or Junior Subordinated Debentures or any debt
securities substantially similar to the Junior Subordinated Debentures or equity
securities substantially similar to the Trust Preferred Securities (except for
Junior Subordinated Debentures and the Trust Preferred Securities offered
hereby).
Because the National Association of Securities Dealer, Inc. ("NASD") is
expected to view the Trust Preferred Securities as interests in a direct
participation program, the offering of the Trust Preferred Securities is being
made in compliance with the applicable provisions of Rule 2810 of the NASD's
Conduct Rules.
The Trust Preferred Securities are a new issue of securities with no
established trading market. Application has been made to list the Trust
Preferred Securities on the Nasdaq National Market. The Underwriters have
advised Central and CFAC Capital that they presently intend to make a market in
the Trust Preferred Securities after the commencement of trading on the Nasdaq
National Market, but no assurances can be made as to the liquidity of such Trust
Preferred Securities or that an active and liquid trading market will develop
or, if developed, that it will continue. The offering price and distribution
rate have been determined by negotiations among representatives of Central and
the Representative, and the offering price of the Trust Preferred Securities may
not be indicative of the market price following the offering. The Underwriters
will have no obligation to make a market in the Trust Preferred Securities,
however, and may cease market-making activities, if commenced, at any time.
Central and CFAC Capital have agreed to indemnify the Underwriters against,
or contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the Trust Agreement and the
formation of CFAC Capital will be passed upon by Richards, Layton & Finger,
P.A., Wilmington, Delaware, special counsel to Central and CFAC Capital. The
validity of the Guarantee and the Junior Subordinated Debentures will be passed
upon for the Company by Manatt, Phelps & Phillips, LLP, Los Angeles, California,
counsel to the Company. Certain legal matters in connection with this Offering
will be passed upon for the Underwriters by Stroock & Stroock & Lavan LLP.
Manatt, Phelps & Phillips, LLP and Stroock & Stroock & Lavan LLP will rely on
the opinions of Richards, Layton & Finger, P.A. as to matters of Delaware law.
Certain matters relating to United States federal income tax considerations will
be passed upon for the Company by Manatt, Phelps & Phillips, LLP.
EXPERTS
The consolidated financial statements as of December 31, 1996 and for the
year ended December 31, 1996 included in this Prospectus have been audited by
Arthur Andersen LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements as of December 31, 1995 and the years
ended December 31, 1994 and 1995 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the authority of
said firm as experts in accounting and auditing.
94
<PAGE> 96
AVAILABLE INFORMATION
Central has filed with the Commission a Registration Statement on Form S-1
under the Securities Act, with respect to the offering of the securities offered
hereby. This Prospectus does not contain all of the information set forth in
such Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission.
Central is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
filed by Central can be inspected and copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048. The Commission also maintains a Web site (http://www.sec.gov) at which
reports, proxy and information statements and other information regarding
Central may be accessed. In addition, such reports, proxy statements and other
information can also be inspected at the offices of The Nasdaq Stock Market,
1735 K Street, N.W., Washington, D.C. 20006.
No separate financial statements of CFAC Capital have been included herein.
Central and CFAC Capital do not consider that such financial statements would be
material to holders of the Trust Preferred Securities because CFAC Capital is a
newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures of Central
and issuing the Trust Securities. See "CFAC Capital," "Description of Trust
Preferred Securities," "Description of Junior Subordinated Debentures" and
"Description of Guarantee."
95
<PAGE> 97
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS............................................ F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS............................................ F-3
CONSOLIDATED FINANCIAL STATEMENTS:
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1995 and 1996......................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and
1996........................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1995 and 1996............................................................ F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996....................................................................... F-7
Notes to Consolidated Financial Statements........................................ F-8
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at December 31, 1996 and June 30, 1997...... F-19
Condensed Consolidated Statements of Operations for the Six Months Ended June 30,
1996 and 1997.................................................................. F-20
Condensed Consolidated Statement of Cash Flow for the Six Months Ended June 30,
1996 and 1997.................................................................. F-21
Notes to Consolidated Financial Statements........................................ F-22
</TABLE>
F-1
<PAGE> 98
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Central Financial Acceptance
Corporation:
We have audited the accompanying consolidated balance sheet of Central
Financial Acceptance Corporation, a Delaware corporation, and subsidiaries (the
"Company") as of December 31, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 19, 1997
F-2
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Central Financial Acceptance Corporation
Los Angeles, California:
We have audited the accompanying consolidated balance sheet of Central Financial
Acceptance Corporation and subsidiaries (the "Company") as of December 31, 1995,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Central Financial Acceptance
Corporation and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Los Angeles, California
April 12, 1996 (June 25, 1996 as to the effects
of the reorganization described in Note 1)
F-3
<PAGE> 100
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash............................................................ $ 5,848,000 $ 57,000
Finance receivables, net........................................ 120,391,000 94,674,000
Prepaid expenses and other current assets....................... 3,962,000 200,000
Net assets of discontinued operation............................ -- 1,033,000
Deferred income taxes........................................... 3,536,000 2,307,000
Property and equipment, net..................................... 3,425,000 2,060,000
Intangible assets, net.......................................... 8,725,000 1,399,000
------------ ------------
Total................................................. $145,887,000 $101,730,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable................................................... $ 74,024,000 $ 63,967,000
Accrued expenses and other current liabilities.................. 8,708,000 1,688,000
Income taxes payable............................................ 952,000 1,593,000
Long term debt.................................................. 850,000 850,000
------------ ------------
Total liabilities..................................... 84,534,000 68,098,000
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares outstanding...................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized;
7,277,000 and 5,150,000 shares issued and outstanding,
respectively............................................... 73,000 52,000
Paid in capital............................................... 47,903,000 26,082,000
Retained earnings............................................. 13,377,000 7,498,000
------------ ------------
Total stockholders' equity................................. 61,353,000 33,632,000
------------ ------------
Total................................................. $145,887,000 $101,730,000
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-4
<PAGE> 101
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Interest income
Consumer product portfolio..................... $12,850,000 $12,508,000 $11,787,000
Small loan portfolio........................... 9,686,000 5,095,000 1,057,000
Automobile finance portfolio................... 1,548,000 240,000 0
Other.......................................... 1,691,000 176,000 0
----------- ----------- -----------
Total interest income..................... 25,775,000 18,019,000 12,844,000
Travel services................................... 2,449,000 371,000 0
Transaction fees from affiliate................... 965,000 916,000 857,000
Other income...................................... 7,238,000 2,857,000 1,868,000
----------- ----------- -----------
Total revenues............................ 36,427,000 22,163,000 15,569,000
----------- ----------- -----------
Costs and expenses:
Operating expenses................................ 12,676,000 7,288,000 5,170,000
Provision for credit losses....................... 9,105,000 5,449,000 3,923,000
Interest expense.................................. 4,697,000 4,278,000 2,801,000
----------- ----------- -----------
Total costs and expenses.................. 26,478,000 17,015,000 11,894,000
----------- ----------- -----------
Income before taxes and discontinued operations..... 9,949,000 5,148,000 3,675,000
Income tax expense.................................. 3,979,000 2,079,000 1,493,000
----------- ----------- -----------
Income from continuing operations................... 5,970,000 3,069,000 2,182,000
Discontinued operations net income (loss)........... (91,000) 50,000 0
----------- ----------- -----------
Net income.......................................... $ 5,879,000 $ 3,119,000 $ 2,182,000
=========== =========== ===========
Per share data: (Note 3)
Earnings per share from continuing operations..... $ 0.96 $ 0.60 $ 0.42
Earnings (loss) per share discontinued
operations..................................... (0.01) 0.01 0.00
----------- ----------- -----------
Net income per share.............................. $ 0.95 $ 0.61 $ 0.42
=========== =========== ===========
Weighted average common shares outstanding........ 6,213,500 5,150,000 5,150,000
=========== =========== ===========
Supplementary net income per share (unaudited).... $ 0.88 $ 0.58 $ 0.43
=========== =========== ===========
Supplementary weighted average number of common
shares outstanding (unaudited)................. 7,277,000 7,277,000 7,277,000
=========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-5
<PAGE> 102
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............. 5,150,000 $52,000 $17,916,000 $ 2,197,000 $20,165,000
Net income......................... 2,182,000 2,182,000
Capital contribution............... 1,604,000 1,604,000
--------- -------- ----------- ----------- -----------
Balance, December 31, 1994........... 5,150,000 52,000 19,520,000 4,379,000 23,951,000
Net income......................... 3,119,000 3,119,000
Capital contribution............... 6,562,000 6,562,000
--------- -------- ----------- ----------- -----------
Balance, December 31, 1995........... 5,150,000 52,000 26,082,000 7,498,000 33,632,000
Net income......................... 5,879,000 5,879,000
Capital withdrawal................. (615,000) (615,000)
Net proceeds from public
offering........................ 2,127,000 21,000 22,436,000 22,457,000
--------- -------- ----------- ----------- -----------
Balance, December 31, 1996........... 7,277,000 $73,000 $47,903,000 $13,377,000 $61,353,000
========= ======== =========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-6
<PAGE> 103
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 5,879,000 $ 3,119,000 $ 2,182,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 224,000 386,000 264,000
Provision for credit losses.................... 9,105,000 5,449,000 3,923,000
Deferred income taxes.......................... (1,229,000) (663,000) (281,000)
Changes in assets and liabilities:
Prepaid expenses and other current assets...... (3,762,000) (166,000) 131,000
Net assets of discontinued operations.......... 1,033,000 (1,033,000) 0
Accrued expenses and other current liabilities
and income taxes payable.................... 6,379,000 2,135,000 521,000
----------- ----------- -----------
Net cash provided by operating activities... 17,629,000 9,227,000 6,740,000
----------- ----------- -----------
Cash flows from investing activities:
Installment contracts (originated and acquired)
collected, net.............................. (34,822,000) (29,795,000) (20,833,000)
Capital expenditures........................... (1,492,000) (2,124,000) (7,000)
Acquisitions................................... (7,423,000) 0 0
----------- ----------- -----------
Net cash used in investing activities....... (43,737,000) (31,919,000) (20,840,000)
----------- ----------- -----------
Cash flows from financing activities:
Capital contribution (withdrawal).............. (615,000) 6,562,000 1,604,000
Net proceeds from public offering.............. 22,457,000 0 0
Proceeds from long-term debt................... 0 850,000 0
Net proceeds from notes payable................ 10,057,000 15,122,000 12,195,000
----------- ----------- -----------
Net cash provided by financing activities... 31,899,000 22,534,000 13,799,000
----------- ----------- -----------
Net increase (decrease) in cash.................. 5,791,000 (158,000) (301,000)
Cash, beginning of year.......................... 57,000 215,000 516,000
----------- ----------- -----------
Cash, end of year................................ $ 5,848,000 $ 57,000 $ 215,000
=========== =========== ===========
Cash paid during the year for:
Interest....................................... $ 4,531,000 $ 4,250,000 $ 2,772,000
=========== =========== ===========
Income taxes................................... $ 5,909,000 $ 1,675,000 $ 1,549,000
=========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-7
<PAGE> 104
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation -- Central Financial Acceptance Corporation ("CFAC")
was formed in April 1996 and was a wholly owned subsidiary of Banner's Central
Electric, Inc ("Banner"). Banner's Central Electric, Inc. is wholly owned by
Banner Holdings, Inc. ("Holdings") and is a consumer products retailer that
provides its customers with financing for the merchandise it sells. On June 24
1996, CFAC, Banner's Central Electric, Inc. and Holdings entered into an
agreement (the "Reorganization Agreement") whereby Holdings contributed to
Banner its investments in certain wholly owned subsidiaries, along with the
subsidiaries' operations, (the "Holding Subsidiaries") and Banner's Central
Electric, Inc. contributed to CFAC its investments in the Holdings Subsidiaries
and the finance portion of its consumer products business, and cash in such
amount so as to leave CFAC with $500,000 of cash on hand. Pursuant to the
Reorganization Agreement, the intercompany accounts between CFAC, Banner's
Central Electric, Inc. and Holdings that arose as a result of the Reorganization
Agreement and from other transactions, except with respect to income taxes, were
forgiven and reclassified as stockholders' equity.
In addition to the Reorganization Agreement, CFAC, Banner's Central
Electric, Inc. and Holdings entered into certain agreements for the purpose of
defining the ongoing relationships among them (see Note 11). The transactions
and agreements entered into pursuant to the Reorganization Agreement are
referred to herein as the "Reorganization." Management of CFAC believes that
such agreements provide for reasonable allocations of costs between the parties.
The reorganization was accounted for at historical cost in a manner similar
to a pooling of interests. The accompanying consolidated financial statements
reflect the combined historical operations of CFAC and its subsidiaries as if
the Reorganization had taken place at the beginning of the periods presented,
except for the contribution of cash in such amount so as to leave CFAC with
$500,000 upon the Reorganization.
On July 2, 1996, CFAC consummated its initial public offering when it sold
2.127 million shares of common stock, which resulted in net proceeds to the
Company of $22.5 million.
On August 1, 1996, the business of Central Auto Sales, Inc., (a wholly
owned subsidiary of CFAC) was sold to CFAC's parent company for net book value.
The consolidated financial statements have been restated to reflect this
business as a discontinued operation.
Nature of Operations -- The Company (i) purchases and services consumer
finance receivables generated by the Company's customers for purchases of high
quality brand name consumer products, appliances and furniture sold by Banner,
and by independent retailers; (ii) provides financing for purchases of used
automobiles sold by Banner; (iii) provides small loans to its customers; (iv)
originates and services consumer finance receivables generated by the Company's
customers for purchases of airline tickets sold by the Company; and (v) provides
insurance products and insurance premium financing to its customers. The
majority of the Company's business is focused in Southern California, and the
Company experiences the highest demand for its financial products and services
between October and December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Central Financial Acceptance Corporation and
its wholly owned subsidiaries, Central Installment Credit Corporation, Central
Consumer Finance Company, Centravel, Inc., Central Financial
Acceptance/Insurance Agency, Central Premium Finance Company, Central
International, Ltd. and BCE Properties, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Finance Receivables -- Central's finance receivables include installment
contracts that are purchased from Banner (referred to herein as the "Consumer
Product Portfolio"), receivables that arise from unsecured, small loans
(referred to herein as the "Small Loan Portfolio"), installment contracts that
are originated when
F-8
<PAGE> 105
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
customers buy used cars and travel tickets (referred to herein as the
"Automobile Finance Portfolio" and the "Travel Finance Portfolio,"
respectively), and installment contracts purchased from unaffiliated third party
retailers that sell products or services and receivables that arise from
automobile insurance premium contracts (referred to herein as the "Other
Portfolio.") Add-on interest of 11% to 13% per annum is included in the face
amount of the finance receivables together with administrative fees that are
charged on certain small loan contracts. The annual percentage rate varies
depending on the length of the contract and the amount of administrative fees.
The contracts provide for scheduled monthly payments and mature generally from 1
to 24 months in the Consumer Product Finance Portfolio and the Other Portfolio,
which includes the independent retailers, from 1 to 12 months in the Small Loan
and Travel Finance Portfolios, and from 36 to 42 months in the Automobile
Finance Portfolio.
Certain direct loan origination costs are capitalized and recognized into
expense over the life of the related loan using a method that approximates the
interest method.
The Company provides an allowance for credit losses in the Consumer Product
and Travel Finance Portfolios at the time that the contract is purchased or the
retail sale is made. The allowance for credit losses in the Small Loan Portfolio
and independent retailers is provided for following the origination of the loans
over the period that the events giving rise to the credit losses are estimated
to occur. The Company's portfolios comprise smaller-balance, homogeneous loans
that are evaluated collectively to determine an appropriate allowance for credit
losses. The allowance for credit losses is maintained at a level considered
adequate to cover losses in the existing portfolios. Collection of past due
accounts is pursued by the Company, and when the characteristics of an
individual account indicates that collection is unlikely, the account is charged
off and turned over to a collection agency. Accounts are generally charged off
when they are between 91 and 150 days past due.
Allowance for loan losses is increased by charges to income and decreased
by chargeoffs, net of recoveries. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay and current economic conditions. The Company's
customers are typically between the ages of 21 and 45 and earn less than $25,000
per year, have little or no savings and limited short-term employment histories.
In addition, the Company's customers typically have no prior credit histories
and are unable to secure credit from traditional lending sources. The Company
makes its credit decisions primarily on its assessment of a customer's ability
to repay the obligation. In making a credit decision, in addition to the size of
the obligation, the Company generally considers a customer's income level, type
and length of employment, stability of residence, personal references and prior
credit history with the Company. As a result, the Company is more susceptible to
the risk that its customers will not satisfy their repayment obligations than
are less specialized consumer companies or consumer finance companies that have
more stringent underwriting criteria. Because the Company relies on the
creditworthiness of its customers for repayment and does not rely on collateral
securing the debt, the Company experiences actual rates of losses higher than
lenders who have collateral which they can repossess in the event of a
borrower's default.
Deferred insurance revenue arises from the deferral of the recognition of
revenue from certain credit insurance contracts. Insurance premium revenue is
recognized over the life of the related contract using a method that
approximates the interest method.
Property and Equipment -- Property and equipment are carried at cost.
Long-lived property is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such an asset may not be
recoverable. If the carrying amount of the asset exceeds the estimated
undiscounted future cash flows to be generated by the asset, an impairment loss
would be recorded to reduce the asset's carrying
F-9
<PAGE> 106
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
value to its estimated fair value. Depreciation and amortization are computed
primarily using the straight-line method over the estimated lives of the assets,
as follows:
<TABLE>
<S> <C>
Furniture, equipment and software........................... Five to ten years
Leasehold improvements...................................... Life of lease
Building improvements....................................... 7 to 39 years
</TABLE>
Intangible Assets -- Intangible assets primarily arose in connection with
the Company's acquisition of the net assets of certain travel and automobile
insurance businesses during 1996. The excess of the purchase price over the fair
value of net assets acquired is being amortized using the straight-line method
over 30 years. The recoverability of the intangible asset is analyzed annually
based on undiscounted future cash flows. If the carrying value of the intangible
asset exceeds the estimated undiscounted future cash flows, an impairment loss
would be recorded to reduce the asset's carrying value to its estimated fair
value.
Income Recognition -- Interest income on the Consumer Product, Automobile
Finance and Travel Finance Portfolios is deferred and recognized over the lives
of the contracts using the "Rule of 78s," which approximates the interest
method. Interest income on the Small Loan Portfolio and independent retailers is
deferred and recognized using the interest method. Transaction fees on contracts
purchased from a related party are deferred and recognized using the interest
method. Administrative fees are deferred and recognized over the estimated
average life of the Small Loan Portfolio using the "Rule of 78s," which
approximates the interest method. Administrative fees are included in other
income in the consolidated statements of income. Premiums and commissions for
credit life insurance are recognized as revenue using the interest method.
Premiums and commissions for credit accident and health insurance are recognized
over the terms of the contracts based on the means of the straight line and
interest method and are included in other income in the consolidated statements
of income.
Travel Services -- Revenues from the sale of travel tickets represent
airline commissions paid to the Company.
Insurance Liabilities -- The liability for losses and loss-adjustment
expenses includes an amount determined from loss reports and individual cases
and an amount, based on past experience, for losses incurred but not reported.
Such liabilities are necessarily based on estimates and, while management
believes that the amount is adequate, the ultimate liability may be in excess of
or less than the amounts provided. The methods for making such estimates and for
establishing the resulting liability are continually reviewed, and any
adjustments are reflected in earnings in the current period.
Income Taxes -- The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 109. Under SFAS No. 109, income tax expense includes
income taxes payable for the current year and the change in deferred income tax
assets and liabilities for the future tax consequences of events that have been
recognized in the Company's financial statements or income tax returns. A
valuation allowance is recognized to reduce the carrying value of the deferred
tax assets if it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Fair Value of Financial Instruments -- The carrying value of the Company's
finance receivables approximates their fair value due to their short term nature
and generally stable rates of interest currently being charged in comparison to
the rates reflected in the existing portfolios. The carrying value of the
Company's notes payable approximates their fair value, as these notes represent
a series of short-term notes at floating interest rates. The carrying value of
the Company's long-term debt approximates its fair value, as the promissory note
bears interest at a floating rate.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
F-10
<PAGE> 107
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. EARNINGS PER SHARE
Earnings per common share is computed by dividing net income by the average
number of common shares outstanding during the periods using the treasury stock
method. Stock options were not considered as dilutive in the earnings per share
calculation since they have less than 3% effect in the aggregate.
Supplementary net income per share is based upon 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 2,127,000 shares
of Common Stock sold by the Company in its initial public offering as if all
such shares were outstanding as of January 1, 1994, and also gives effect to a
reduction in interest expenses resulting from the reduction of indebtedness upon
application of the net proceeds of the initial public offering as if it has
occurred on January 1, 1994.
4. ACQUISITIONS
During 1994, the Company acquired the receivables portfolio of a furniture
retailer in the San Francisco area that provided installment credit for its
customers. The receivables portfolio was acquired for approximately $6,125,000.
During 1996, the Company acquired the business of, and assumed the leasehold
interest to 80 travel locations, and 10 automobile insurance agencies for an
aggregate purchase price of approximately $7.5 million.
These acquisitions were accounted for as purchases and the results of their
operations, which are not significant, have been included since the applicable
acquisition dates.
5. FINANCE RECEIVABLES
Finance receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Consumer Product Portfolio...................... $ 61,848,000 $ 67,811,000
Small Loan Portfolio............................ 57,671,000 37,868,000
Automobile Finance Portfolio.................... 11,002,000 5,545,000
Travel Finance Portfolio........................ 5,609,000 2,969,000
Other........................................... 9,349,000 0
------------ ------------
145,479,000 114,193,000
Less deferred interest.......................... 17,049,000 13,587,000
Less allowance for credit losses................ 6,786,000 4,955,000
Less deferred administrative fees and insurance
revenues...................................... 978,000 576,000
Less unearned premiums and unpaid claim
liabilities related to finance receivables.... 275,000 401,000
------------ ------------
$ 120,391,000 $ 94,674,000
============ ============
</TABLE>
F-11
<PAGE> 108
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Customers are required to make monthly payments on installment contracts.
The aggregate gross balance of accounts with payments 31 days or more past due
are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Consumer Product Portfolio:
Past due 31 - 60 days............................. $ 2,393,000 $ 1,943,000
Past due 61 days or more.......................... 2,277,000 2,465,000
---------- ----------
$ 4,670,000 $ 4,408,000
========== ==========
Small Loan Portfolio:
Past due 31 - 60 days............................. $ 1,239,000 $ 500,000
Past due 61 days or more.......................... 1,615,000 649,000
---------- ----------
$ 2,854,000 $ 1,149,000
========== ==========
Travel Finance Portfolio:
Past due 31 - 60 days............................. $ 129,000 $ 39,000
Past due 61 days or more.......................... 213,000 48,000
---------- ----------
$ 342,000 $ 87,000
========== ==========
Other:
Past due 31 - 60 days............................. $ 437,000 $ 0
Past due 61 days or more.......................... 252,000 0
---------- ----------
$ 689,000 $ 0
========== ==========
</TABLE>
The allowance for credit losses in the Consumer Product Portfolio includes
the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for credit losses,
beginning of year................. $ 3,711,000 $ 3,169,000 $ 2,786,000
Provision for credit losses......... 4,955,000 3,852,000 3,332,000
Write-offs, net of recoveries....... (4,257,000) (3,310,000) (2,949,000)
----------- ----------- -----------
Allowance for credit losses, end of
year.............................. $ 4,409,000 $ 3,711,000 $ 3,169,000
=========== =========== ===========
</TABLE>
The allowance for credit losses in the Small Loan Portfolio includes the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for credit losses,
beginning of year................. $ 1,194,000 $ 543,000 $ 107,000
Provision for credit losses......... 3,349,000 1,547,000 591,000
Write-offs, net of recoveries....... (2,606,000) (896,000) (155,000)
----------- ----------- -----------
Allowance for credit losses, end of
year.............................. $ 1,937,000 $ 1,194,000 $ 543,000
=========== =========== ===========
</TABLE>
F-12
<PAGE> 109
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The allowance for credit losses in the Travel Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1996 1995
--------- -------
<S> <C> <C>
Allowance for credit losses, beginning of year......... $ 50,000 $ 0
Provision for credit losses............................ 395,000 50,000
Write-offs, net of recoveries.......................... (232,000) 0
--------- -------
Allowance for credit losses, end of year............... $ 213,000 $50,000
========= =======
</TABLE>
The allowance for credit losses in the Other Finance Portfolio, which
businesses began in 1996, includes the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Allowance for credit losses, beginning of year.................. $ 0
Provision for credit losses..................................... 406,000
Write offs, net of receivables.................................. (179,000)
---------
Allowance for credit losses, end of year........................ $ 227,000
=========
</TABLE>
The Automobile Finance Portfolio is financed by the Company with full
recourse back to Banner, and accordingly, no allowance for credit losses is
provided for by the Company.
6. PROPERTY AND EQUIPMENT
Property and equipment, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land................................................ $1,568,000 $1,568,000
Improvements........................................ 507,000 146,000
Furniture, equipment and software................... 1,548,000 417,000
---------- ----------
3,623,000 2,131,000
Less accumulated depreciation and amortization...... 198,000 71,000
---------- ----------
$3,425,000 $2,060,000
========== ==========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Excess of purchase price over the fair value of net
assets acquired................................... $9,085,000 $1,662,000
Less accumulated amortization....................... 360,000 263,000
---------- ----------
$8,725,000 $1,399,000
========== ==========
</TABLE>
F-13
<PAGE> 110
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Bank of America line of credit.................... $35,208,000 $40,317,000
Wells Fargo line of credit........................ 38,816,000 23,650,000
----------- -----------
$74,024,000 $63,967,000
=========== ===========
</TABLE>
The Company has a line of credit agreement with Bank of America National
Trust and Savings Association (the "Bank of America Line of Credit") that, as
amended, provides for the issuance of notes up to $60,000,000, subject to an
allowable borrowing base. The amounts outstanding under these notes bear
interest at rates that are determined by the type of borrowing. Borrowings under
the notes are collateralized by the Consumer Product Portfolio and Banner is a
guarantor. The Bank of America Line of Credit, as amended, matures on April 30,
1997 and contains certain restrictive covenants that require, among other
things, the maintenance of certain financial ratios and amounts. The Company is
required to maintain specified levels of tangible net worth and cash flow to
interest coverage ratios for one of its subsidiaries and Banner combined, and
cannot exceed a specified ratio of debt to tangible net worth for such
subsidiary and Banner combined, as such terms are defined in the line of credit
agreement. Other ratios related to the performance of the Company's Consumer
Product Portfolio must be maintained within limits, including maximum ratios of
past due accounts to eligible contracts, net write-offs to average net
receivables, and a minimum ratio of the allowance for credit losses to net
receivables, in all cases as such terms are defined in the line of credit
agreement. Borrowings under the facility bore interest at weighted average rates
of 9.13% and 8.21% per annum as of December 31, 1996 and December 31, 1995,
respectively. The amount of unused credit under the facility was limited by the
allowable borrowing base and was approximately $1,572,000 at December 31, 1996.
The Company has a line of credit agreement with Wells Fargo Bank, National
Association (the "Wells Fargo Line of Credit") that, as amended, provides for
the issuance of notes up to $50,000,000, subject to an allowable borrowing base.
The amounts outstanding under these notes bear interest at rates that are
determined by the type of borrowing. Borrowings under the notes are
collateralized by the Small Loan, Automobile Finance and Travel Finance
Portfolios. The Wells Fargo Line of Credit, as amended, expires on April 30,
1997. The credit facility contains certain restrictive covenants that require,
among other things, the maintenance of certain financial ratios and amounts. The
Company is required to maintain specified levels of tangible net worth, net
income, and cash flow to interest coverage ratios for one of its subsidiaries,
and cannot exceed a specified ratio of debt to tangible net worth for such
subsidiary, as such terms are defined in the line of credit agreement. In
addition, the ratio of the net provision for credit losses to net receivables
for the Company's Small Loan, Automobile Finance and Travel Finance Portfolios
must be maintained below a specified level as such terms are defined in the line
of credit agreement. Borrowings under the facility bore interest at weighted
average rates of 7.89% and 8.11% per annum as of December 31, 1996 and December
31, 1995, respectively. The amount of unused credit under the facility was
limited by the allowable borrowing base and was approximately $6,624,000 at
December 31, 1996. The Company believes that the Lines of Credit can be renewed
or that it can obtain alternative financing.
The Company is required to pay a commitment fee of 0.375% per annum for
unused portions of its lines of credit. These fees totaled $179,000 for the
years ended December 31, 1996 and 1995, and $78,000 for the year ended December
31, 1994, and are included in operating expenses in the consolidated statements
of income.
The Company was not in compliance with certain financial covenants as of
December 31, 1996; however, a waiver has been received from each of Bank of
America National Trust and Savings Association and Wells Fargo Bank, National
Association.
F-14
<PAGE> 111
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate of 8.25% at December 31, 1996. Interest is
payable monthly and the principal is due July 1998. The note is secured by a
deed of trust.
10. INCOME TAXES
The Company has agreed to indemnify Holdings for all federal, state, and
other income taxes for periods prior to July 2, 1996, when it was included as
part of Holdings consolidated tax group.
Subsequent to July 2, 1996, the Company and its subsidiaries will file a
consolidated federal income tax return. For California and certain other states,
the Company will continue to file on a combined or separate company tax basis,
as appropriate. The income tax provisions as presented in the accompanying
financial statements are based upon the amount the Company would have paid as if
it filed separate income tax returns for the entire periods presented.
The provision (benefit) for income taxes from continuing operations
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal............................. $ 4,127,000 $2,121,000 $1,373,000
State............................... 1,081,000 621,000 401,000
----------- ---------- ----------
5,208,000 2,742,000 1,774,000
----------- ---------- ----------
Deferred:
Federal............................. (1,041,000) (521,000) (220,000)
State............................... (188,000) (142,000) (61,000)
----------- ---------- ----------
(1,229,000) (663,000) (281,000)
----------- ---------- ----------
Provision for income taxes............ $ 3,979,000 $2,079,000 $1,493,000
=========== ========== ==========
</TABLE>
A reconciliation of the provision for income taxes from continuing
operations to the statutory rates is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rates................ 35.0% 35.0% 35.0%
State franchise taxes, net of federal benefit.......... 5.8 6.0 6.0
Amortization of the excess purchase price over the fair
value of assets acquired............................. 0.2 0.4 0.5
Other.................................................. (1.0) (1.0) (0.9)
---- ---- ----
40.0% 40.4% 40.6%
==== ==== ====
</TABLE>
F-15
<PAGE> 112
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences giving rise to the deferred income
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred income tax assets (liabilities):
Allowance for credit losses....................... $2,908,000 $2,157,000
Deferred revenue.................................. 466,000 162,000
Other............................................. 162,000 (12,000)
---------- ----------
$3,536,000 $2,307,000
========== ==========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In connection with its formation, the Company, Banner and Holdings, entered
into the Reorganization Agreement and certain other agreements (the "Financing
Agreement", the "Option Agreement", and the "Operating Agreement").
The Financing Agreement, as amended, grants the Company exclusive right to
provide financing to Banner customers for a term of fifteen years from the date
of the Reorganization and provides that any contracts purchased pursuant to this
Agreement will be at face value less a transaction fee, which is subject to
renegotiation at six month intervals. The Agreement also provides that for the
years ended December 31, 1996 and 1997, up to $1.5 million of contracts
purchased can be returned to Banner at amortized principal balance. The Company
can terminate the Financing Agreement at any time upon one year's prior written
notice to Banner.
In the accompanying consolidated financial statements the transaction fee
was computed based upon 1.6% of average net receivables in the Consumer Product
Portfolio prior to July 2, 1996, and 2.5% thereafter. During 1996, Banner sold
approximately $55 million of Consumer Product Receivables, net of $1.5 million
which the Company returned pursuant to the Financing Agreement.
Pursuant to the Option Agreement, Holdings granted the Company an option,
exercisable for a two-year period commencing one year from the date of the
Reorganization, to acquire all of the outstanding capital stock of Banner (the
"Option") at an exercise price equal to the book value of Banner for the month
ended immediately preceding the exercise. If the Company exercises the Option,
the exercise price is payable in cash or in shares of the Company's common
stock.
The Operating Agreement provides, among other things, that Banner, Holdings
or their affiliates are obligated to provide to the Company, and the Company is
obligated to utilize certain services, including accounting, management
information systems and employee benefits. If such services involve an
allocation of expenses, such allocation shall be made on a reasonable basis. To
the extent that such services directly relate to the finance portion of the
consumer products business contributed by Banner to the Company, or to the
extent that other costs are incurred by Banner, Holdings or their affiliates
that directly relate to the Company, the Company is obligated to pay Banner,
Holdings' or their affiliates; actual cost of providing such services or
incurring such costs. Employee benefit expenses are allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses are
allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for a
period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice.
F-16
<PAGE> 113
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Termination may be made on a service-by-service basis or in total. Such
allocated expenses totaled $1,338,000, $1,000,000, and $559,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
In August 1996, following CFAC's initial public offering, CFAC, Central
Auto Sales, Inc., Central Consumer Finance Company and Banner entered into an
Agreement to Transfer Business Operations (the "Automobile Financing
Agreement"), under which CFAC sold its used car sales business to Banner for
approximately its net book value, or $865,000. Under the provisions of the
Automobile Financing Agreement, Banner will operate the used car sales business
while the Company will have the exclusive right for a fifteen year period to
provide financing for all cars that Banner sells or to purchase automobile
finance contracts generated by Banner. In addition, all financing extended by
the Company on automobiles sold by Banner will be with full recourse back to
Banner in the event of default by the customer. Accordingly, Banner will not
provide any dealers discount for cars sold pursuant to the Automobile Financing
Agreement.
12. PROFIT-SHARING PLAN
The Company participates along with other affiliated companies, in a
profit-sharing plan that covers substantially all employees who meet certain age
and length-of-service requirements. Annual contributions are contingent upon
current and accumulated profits and are at the sole discretion of the Board of
Directors. Profit-sharing expense allocated to the Company for the years ended
December 31, 1996, 1995 and 1994 was $27,000, $55,000 and $48,000, respectively.
13. STOCK OPTION PLAN
In connection with its initial public offering the Company adopted the 1996
Stock Option Plan, under which 700,000 shares of authorized common stock have
been reserved for issuance pursuant to terms and conditions as determined by the
Board of Directors. The options have a maximum duration of ten years and are
subject to certain vesting and cancellation provisions, and may not be granted
at less than the market value of the Company's Common Stock on the date of grant
of the option. During 1996, the Company granted options to acquire an aggregate
of 425,000 shares of common stock with exercise prices ranging from $12.00 to
$18.25 per share which approximates market value. As of December 31, 1996, no
options were exercisable.
In October 1995, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for employee stock compensation plans, but allows for the
continuation of the intrinsic value based method of accounting to measure
compensation cost prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). For companies electing
not to change their accounting, SFAS 123 requires pro-forma disclosures of
earnings and earnings per share as if the change in accounting provision of SFAS
123 has been adopted.
The Company has elected to continue to utilize the accounting method
prescribed by APB 25, under which no compensation cost has been recognized, and
adopt the disclosure requirements of SFAS 123. As a result, SFAS 123 has no
effect on the financial condition or results of operations of the Company at
December 31, 1996.
Had compensation cost for this plan been determined consistent with SFAS
123, the Company's net income and earnings per share would have been reduced to
the following pro forma amounts.
<TABLE>
<S> <C>
Net Income
As Reported.......................................... $5,879,000
Pro Forma............................................ $5,496,000
Primary EPS
As Reported.......................................... $ 0.95
Pro Forma............................................ $ 0.88
</TABLE>
F-17
<PAGE> 114
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes information about the stock option plan
outstanding as of December 31, 1996:
<TABLE>
<S> <C>
Range of exercise price...................................... $12.00 - $18.25
Number outstanding........................................... 425,000
Weighted average remaining contractual life.................. 9.5 years
Expected life of options..................................... 5 years
Risk-free interest rate...................................... 6.1%
Expected volatility.......................................... 51%
Expected dividend yield...................................... 0%
</TABLE>
14. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
During 1996, the Company adopted a Supplemental Executive Retirement Plan
(the "SERP Plan") which will provide supplemental retirement benefits to certain
key management employees. To vest in the SERP Plan, an employee must have at
least ten years of service with the Company, including five years subsequent to
the adoption of the plan.
The Supplemental Executive Retirement Plan, which is unfunded, expense for
the year ended December 31, 1996 amounted to approximately $80,000.
15. COMMITMENTS AND CONTINGENCIES
The Company is allocated 50% of the cost of various computer equipment
operating leases from Banner. These leases expire at various times from 1997
through 2001. The Company's stand-alone loan and travel centers are leased under
noncancelable operating leases that generally have two to five-year terms with
options to renew.
Aggregate minimum lease commitments under the location leases and one-half
of the computer equipment minimum lease commitments of Banner are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, BANNER OTHERS
---------------------------------------------------- ---------- ----------
<S> <C> <C>
1997................................................ $ 609,000 $1,212,000
1998................................................ 520,000 765,000
1999................................................ 384,000 444,000
2000................................................ 340,000 255,000
2001................................................ 222,000 157,000
Thereafter.......................................... 0 101,000
---------- ----------
$2,075,000 $2,934,000
========== ==========
</TABLE>
Aggregate rental expense for the years ended December 31, 1996, 1995 and
1994 were $1,039,000, $458,000 and $348,000, respectively.
Employment Agreement -- The Company has an agreement with the Chairman of
the Board of Directors for a period of five years at a base salary of $175,000
per year with eligibility to participate in the Company's executive compensation
plans. Any changes to the agreement require approval of the Board of Directors.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Management of the Company believes that
litigation currently pending will not have a material adverse effect on the
Company's financial position or results of operations.
* * * * * *
F-18
<PAGE> 115
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Cash................................................................. $ 6,388 $ 5,848
Consumer Finance receivables, net.................................... 104,478 111,663
Automobile Finance receivables....................................... 7,375 8,728
Other receivables.................................................... 1,153 2,289
Prepaid expenses and other current assets............................ 3,461 1,673
Deferred income taxes................................................ 3,536 3,536
Property and equipment, net.......................................... 4,791 3,425
Intangible asset, net................................................ 8,565 8,725
-------- --------
Total assets.................................................... $ 139,747 $145,887
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable........................................................ $ 64,600 $ 74,024
Accrued expenses and other current liabilities....................... 9,087 8,708
Income taxes payable................................................. 325 952
Long term debt....................................................... 850 850
-------- --------
Total liabilities............................................... 74,862 84,534
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares outstanding.............................................. -- --
Common stock, $.01 par value, 20,000,000 shares authorized;
7,277,000 shares issued and outstanding......................... 73 73
Paid-in capital.................................................... 47,903 47,903
Retained earnings.................................................. 16,909 13,377
-------- --------
Total stockholders' equity...................................... 64,885 61,353
-------- --------
Total liabilities and stockholders' equity................. $ 139,747 $145,887
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 116
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Interest income
Consumer product portfolio.......................................... $ 6,036 $ 6,364
Small loan portfolio................................................ 6,462 4,261
Automobile finance portfolio........................................ 825 602
Other............................................................... 2,583 418
------- -------
Total interest income.......................................... 15,906 11,645
------- -------
Travel services........................................................ 3,955 605
Transaction fees from affiliate........................................ 575 447
Other income........................................................... 5,596 2,337
------- -------
Total revenues................................................. $26,032 $15,034
======= =======
Costs and Expenses:
Operating expenses..................................................... $12,187 $ 4,380
Provision for credit losses............................................ 5,229 4,279
Interest expense....................................................... 2,874 2,482
------- -------
Total costs and expenses....................................... 20,290 11,141
------- -------
Income before taxes and discontinued operations.......................... 5,742 3,893
Income tax expense....................................................... 2,210 1,559
Loss from discontinued operations, (net of tax).......................... 0 (22)
------- -------
Net income..................................................... $ 3,532 $ 2,312
======= =======
Per Share Data:
Earnings per share from continuing operations.......................... $ 0.49 $ 0.45
Loss per share discontinued operations................................. 0.00 0.00
------- -------
Net income per share................................................... $ 0.49 $ 0.45
======= =======
Weighted average common shares outstanding............................. 7,277 5,150
======= =======
Supplementary net income per share..................................... $ 0.40
=======
Supplementary weighted average number of common shares outstanding..... 7,277
=======
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 117
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 3,532 $ 2,312
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 313 80
Provision for credit losses......................................... 5,229 4,279
Changes in assets and liabilities:
Prepaid expenses and other current assets........................... (1,788) (584)
Other receivables................................................... 1,136 0
Net assets of discontinued operations............................... 0 (252)
Accrued expenses and other current liabilities...................... (248) 237
------- -------
Net cash provided by operating activities...................... 8,174 6,072
------- -------
Cash flows from investing activities:
Installment contracts (originated and acquired) collected, net......... 3,309 (7,242)
Acquisition of travel companies........................................ -- (1,611)
Capital expenditures................................................... (1,519) (276)
------- -------
Net cash provided by (used in) investing activities............ 1,790 (9,129)
------- -------
Cash flows from financing activities:
Capital withdrawal..................................................... 0 (615)
Net proceeds (repayments of) notes payable............................. (9,424) 4,113
------- -------
Net cash provided by (used in) financing activities............ (9,424) 3,498
------- -------
Net increase in cash..................................................... 540 441
Cash, beginning of period................................................ 5,848 57
------- -------
Cash, end of period...................................................... $ 6,388 $ 498
======= =======
Cash paid during the period for:
Interest............................................................... $ 2,940 $ 2,396
======= =======
Income taxes........................................................... $ 2,837 $ 2,693
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 118
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying condensed consolidated financial statements of Central
Financial Acceptance Corporation ("CFAC") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition and operating results for the interim periods presented have been
included. Operating results for the quarter are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. These
interim financial statements should be read in conjunction with the year ended
December 31, 1996 financial statements and notes contained therein, filed with
the Securities and Exchange Commission.
CFAC was formed in April 1996 and consummated its initial public offering
on July 2, 1996, when it sold 2.127 million shares of common stock, which
resulted in net proceeds to the Company of approximately $22.5 million CFAC was
a wholly owned subsidiary of Banner's Central Electric, Inc. Banner's Central
Electric, Inc. is wholly owned by Banner Holdings, Inc. ("Holdings") and is a
consumer products retailer that provides its customers with financing for the
merchandise it sells. On June 24, 1996, CFAC, Banner's Central Electric, Inc.
and Holdings entered into an agreement (the "Reorganization Agreement") whereby
Holdings contributed to Banner its investments in certain wholly owned
subsidiaries, along with the subsidiaries' operations, (the "Holdings
Subsidiaries") and Banner's Central Electric, Inc. contributed to CFAC its
investments in the Holdings Subsidiaries and the finance portion of its consumer
products business, and cash in such amount so as to leave CFAC with $500,000 of
cash on hand. Pursuant to the Reorganization Agreement, the intercompany
accounts between CFAC, Banner's Central Electric, Inc. and Holdings that arose
as a result of the Reorganization Agreement and from other transactions, except
with respect to income taxes, were forgiven and reclassified as stockholders'
equity.
In addition to the Reorganization Agreement, CFAC, Banner's Central
Electric, Inc. and Holdings entered into certain agreements for the purpose of
defining the ongoing relationships among them. The transactions and agreements
entered into pursuant to the Reorganization Agreement are referred to herein as
the "Reorganization." Management of CFAC believes that such agreements provide
for reasonable allocations of costs between the parties.
The reorganization was accounted for at historical cost in a manner similar
to a pooling of interests. The accompanying condensed consolidated financial
statements reflect the combined historical operations of CFAC and its
subsidiaries as if the Reorganization had taken place at the beginning of the
periods presented, except for the contribution of cash in such amount so as to
leave CFAC with $500,000 upon the Reorganization. CFAC and its subsidiaries, as
reorganized, are referred to herein as "Central" or the "Company." Banner's
Central Electric, Inc., including the operations of Banner's Central Electric,
Inc. that remain after contributing the finance portion of its consumer products
business to CFAC, is referred to herein as "Banner."
On August 1, 1996, the business of Central Auto Sales, Inc. (a wholly owned
subsidiary of CFAC) was sold to CFAC's parent company for net book value. The
condensed consolidated financial statements have been restated to reflect this
business as a discontinued operation. On May 30, 1997, Central Auto Sales, Inc.
stopped selling automobiles and closed its sales lot.
The Company (i) purchases and services consumer finance receivables
generated by the Company's customers for purchases of high quality brand name
consumer products, appliances and furniture sold by Banner, and by independent
retailers; (ii) provided financing for purchases of used automobiles sold by
Banner, (iii) provides small loans to its customers; (iv) originates and
services consumer finance receivables generated by the Company's customers for
purchases of airline tickets sold by the Company; and (v) provides
F-22
<PAGE> 119
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
insurance products and insurance premium financing to its customers. The
majority of the Company's business is focused in Southern California, and the
Company experiences the highest demand for its financial products and services
between October and December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
See Note 2 of Notes to Consolidated Financial Statements in Central
Financial Acceptance Corporation's Annual Report on 10-K for the year ended
December 31, 1996.
3. ACQUISITIONS
During 1996, the Company acquired the business of, and assumed the
leasehold interests to 80 travel locations, and 10 automobile insurance agencies
for an aggregate purchase price of approximately $7.5 million. Such acquisitions
were accounted for as purchases and the results of their operation are not
material from a financial point of view, and have been included since the
applicable acquisition dates.
4. EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income by the average
number of common shares outstanding during the periods using the treasury stock
method. Stock options were not considered as dilutive in the earnings per share
calculation since they have less than 3% effect in the aggregate or were
antidilutive.
Supplementary net income per share is based on the number of common shares
issued by the Company pursuant to the Reorganization and the number of shares
sold by the Company in its initial public offering, as if all such shares were
outstanding as of January 1, 1996, and also gives effect to a reduction of
interest expense, net of income tax expense, resulting from the reduction of
indebtedness upon application of the net proceeds of the proposed offering as if
it had occurred on January 1, 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards Number 128 (earnings per share) [SFAS 128] and Statement of
Financial Accounting Standards Number 129 (Disclosure of information about
Capital Structure) [SFAS 129]. The Company will be required to adopt SFAS 128
and SFAS 129 in fiscal year 1997. The Company does not expect that the adoption
of SFAS 128 and SFAS 129 will have a material effect on its financial position
or its results of operations in 1997.
5. FINANCE AND OTHER RECEIVABLES
<TABLE>
<CAPTION>
CONSUMER AUTOMOBILE
FINANCE RECEIVABLES FINANCE RECEIVABLES
------------------------ ------------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1997 1996 1997 1996
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Gross receivables........................ $124,006 $134,477 $8,992 $ 11,002
Deferred interest........................ 11,293 14,775 1,617 2,274
-------- -------- ------ -------
Net receivable........................... 112,713 119,702 7,375 8,728
Deferred administrative fee &
insurance.............................. 875 1,253 -- --
Allowance for credit losses.............. 7,360 6,786 -- --
-------- -------- ------ -------
$104,478 $111,663 $7,375 $ 8,728
======== ======== ====== =======
</TABLE>
Other receivables consist of commissions receivables from automobile
insurance companies of $148,000 and $101,000 at June 30, 1997 and December 31,
1996, respectively, receivables from insurance company for insurance products
sold of $34,000 and $2,188,000 at June 30, 1997 and December 31, 1996,
respectively, and $971,000 receivables from an affiliate at June 30, 1997.
F-23
<PAGE> 120
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Bank of America line of credit........................ $ -- $ 35,208
Wells Fargo line of credit............................ 64,600 38,816
------- -------
$ 64,600 $ 74,024
======= =======
</TABLE>
The Company had a credit agreement with Bank of America National Trust and
Savings Association (the "Bank of America Line of Credit") that, as amended,
provided for the issuance of notes up to $60,000,000, subject to an allowable
borrowing base. The Bank of America Line of Credit was repaid on June 13, 1997.
The Company had a credit agreement with Wells Fargo Bank National
Association that provided for the issuance of notes up to $50,000,000 subject to
an allowable borrowing base. The Wells Fargo line of credit was repaid on June
13, 1997.
The Company entered into a credit agreement with several banks and Wells
Fargo Bank National Association, as Agent, (the "Wells Fargo Line of Credit") on
June 13, 1997 that provides for the issuance of notes up to $100,000,000 subject
to an allowable borrowing base. The amounts outstanding under these notes bear
interest at rates that are determined by the type of borrowing. Borrowings under
the notes are collateralized by all receivables in the Company. The Wells Fargo
Line of Credit expires on June 12, 2000. The credit facility contains certain
restrictive covenants that require, among other things, the maintenance of
certain financial ratios and amounts. The amount of unused credit under the
facility was limited by the allowable borrowing base and was approximately
$13,730,000 at June 30, 1997.
7. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate. Interest is payable monthly and the
principal is due July 1998. The note is secured by a deed of trust.
8. RELATED PARTY TRANSACTIONS
In connection with its formation, the Company, Banner and Holdings, entered
into the Reorganization Agreement and certain other agreements (the "Financing
Agreement", the "Option Agreement", and the "Operating Agreement").
The Financing Agreement, as amended, grants the Company exclusive right to
provide financing to Banner customers for a term of fifteen years from the date
of the Reorganization and provides that any contracts purchased pursuant to this
Agreement will be at face value less a transaction fee, which is subject to
renegotiation at six month intervals. The Agreement also provides that for the
years ended December 31, 1996 and 1997, up to $1.5 million of contracts
purchased can be returned to Banner at amortized principal balance. The Company
can terminate the Financing Agreement at any time upon one year's prior written
notice to Banner. Effective July 1, 1997 the Company and Banner have entered
into negotiations to amend the Financing Agreement to permit the Company to
return in excess of the $1.5 million of contracts purchased from Banner for the
year ended December 31, 1997.
In the accompanying condensed consolidated financial statements the
transaction fee was computed based upon 1.6% of average net receivables in the
Consumer Product Portfolio prior to July 2, 1996, and 2.5% thereafter. During
the first six months ended June 30, 1997, Banner sold approximately $19.5
million of
F-24
<PAGE> 121
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consumer Product Receivables, net of $1.4 million which the Company returned
pursuant to the Financing Agreement.
In August 1996, following CFAC's initial public offering, CFAC, Central
Auto Sales, Inc., Central Consumer Finance Company and Banner entered into an
Agreement to Transfer Business Operations (the "Automobile Financing
Agreement"), under which CFAC sold its used car sales business to Banner for
approximately its net book value, or $865,000. Under the provisions of the
Automobile Financing Agreement, Banner will operate the used car sales business
while the Company will have the exclusive right for a fifteen-year period to
provide financing for all cars that Banner sells or to purchase automobile
finance contracts generated by Banner. In addition, all financing extended by
the Company on automobiles sold by Banner will be with full recourse back to
Banner in the event of default by the customer. Accordingly, Banner will not
provide any dealers discount for cars sold pursuant to the Automobile Financing
Agreement. On May 30, 1997, Central Auto Sales Inc. discontinued its business.
Pursuant to the Option Agreement, Holdings granted the Company an option,
exercisable for a two-year period commencing one year from the date of the
Reorganization, to acquire all of the outstanding capital stock of Banner (the
"Option") at an exercise price equal to the book value of Banner for the month
ended immediately preceding the exercise. If the Company exercises the Option,
the exercise price is payable in cash or in shares of the Company's common
stock.
The Operating Agreement provides, among other things, that Banner, Holdings
or their affiliates are obligated to provide to the Company, and the Company is
obligated to utilize, certain services, including accounting, management
information systems and employee benefits. If such services involve an
allocation of expenses, such allocation shall be made on a reasonable basis. To
the extent that such services directly relate to the finance portion of the
consumer products business contributed by Banner to the Company, or to the
extent that other costs are incurred by Banner, Holdings or their affiliates
that directly relate to the Company, the Company is obligated to pay Banner's,
Holdings' or their affiliates' actual cost of providing such services or
incurring such costs. Employee benefit expenses are allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses are
allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for a
period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice. Termination may be made
on a service-by-service basis or in total.
F-25
<PAGE> 122
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Summary Selected Consolidated
Financial Data...................... 12
Risk Factors.......................... 14
Use of Proceeds....................... 25
Accounting Treatment.................. 25
Capitalization........................ 26
Selected Consolidated Financial
Data................................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 42
Management............................ 50
Security Ownership of Certain
Beneficial Owners and Management.... 59
Description of the Trust Preferred
Securities.......................... 60
Description of Junior Subordinated
Debentures.......................... 72
Book-Entry Issuance................... 82
Description of Guarantee.............. 84
Expense Agreement..................... 86
Relationship Among the Trust Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........ 86
Certain Federal Income Tax
Consequences........................ 88
ERISA Considerations.................. 91
Underwriting.......................... 93
Legal Matters......................... 94
Experts............................... 94
Available Information................. 95
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
2,100,000 TRUST
PREFERRED SECURITIES
CFAC CAPITAL I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25
PER TRUST PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
LOGO
FINANCIAL ACCEPTANCE
CORPORATION
------------------------
PROSPECTUS
------------------------
SUTRO & CO. INCORPORATED
, 1997
======================================================
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 18,296
NASD fee.......................................................................... 6,538
Nasdaq fees....................................................................... 11,500
Trustees' fees and expenses....................................................... 11,000
Legal fees and expenses........................................................... 135,000
Blue Sky fees and expenses........................................................ 10,000
Accounting fees and expenses...................................................... 40,000
Printing expenses................................................................. 40,000
Miscellaneous expenses............................................................ 27,666
Total................................................................... $300,000
</TABLE>
All of the above items except the registration fee and NASD fee are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations such as the Registrant are entitled, under certain circumstances,
to be indemnified against all expenses and liabilities (including attorneys'
fees) incurred by them as a result of suits brought against them in their
capacity as a director or officer, if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjusted to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Article Eight of the
Registrant's Certificate of Incorporation and Article Six of the Registrant's
By-laws entitles officers, directors and controlling persons of the Registrant
to indemnification to the full extent permitted by Section 145 of the DGCL, as
the same may be supplemented or amended from time to time.
Article Seven of the Registrant's Certificate of Incorporation provides
that no director shall have any personal liability to the Registrant or its
stockholders for any monetary damages for breach of fiduciary duty as a
director, provided that such provision does not limit or eliminate the liability
of any director (i) for breach of such director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (involving certain unlawful dividends or stock
repurchases) or (iv) for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with Registrant's formation in April 1996, as of June 24,
1996, the Registrant issued 5,150,000 shares of Common Stock to Banner's Central
Electric, Inc. in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
II-1
<PAGE> 124
ITEM 16. EXHIBITS
(A) EXHIBITS
<TABLE>
<S> <C> <C>
1.1 Form of Underwriting Agreement.**
2.1 Reorganization Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24,
1996(1)
3.1 Certificate of Incorporation of Central Financial Acceptance Corporation.(1)
3.2 By-laws of Central Financial Acceptance Corporation.(1)
4.1 Form of Subordinated Indenture dated , 1997 to be entered into
between the Registrant and Wilmington Trust Company, as Indenture Trustee.*
4.2 Form of Officers' Certificate and Company Order, dated , 1997.*
4.3 Form of Junior Subordinated Debenture (included as part of Exhibit 4.1).
4.4 Certificate of Trust of CFAC Capital I.
4.5 Trust Agreement of CFAC Capital I dated as of September 26, 1997.
4.6 Form of Amended and Restated Trust Agreement of CFAC Capital I, dated as of
1997.*
4.7 Form of Trust Preferred Certificate of CFAC Capital I (included as an exhibit to
Exhibit 4.6).
4.8 Form of Common Securities Certificate of CFAC Capital I (included as an exhibit
to Exhibit 4.6).
4.9 Form of Trust Preferred Securities Guarantee Agreement.*
4.10 Form of Agreement as to Expenses and Liabilities (included as an exhibit to
Exhibit 4.6).
5.1 Opinion of Manatt, Phelps & Phillips, LLP.**
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.**
8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Central
Financial Acceptance Corporation, as to certain federal income tax matters.**
10.1 1996 Stock Option Plan dated as of June 24, 1996.+*
10.2 Indemnification Agreement between Central Financial Acceptance Corporation and
certain directors and officers of the Company.(1)+
10.3 Employment Agreement between Central Financial Acceptance Corporation and Gary M.
Cypres dated as of June 24, 1996.(1)+
10.4 Financing Agreement between Central Installment Credit Corporation, Banner's
Central Electric, Inc., Central Ram, Inc. and Banner Holdings, Inc. dated as of
June 24, 1996.(1)
10.5 Option Agreement between Central Financial Acceptance Corporation, Banner's
Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996.
10.6 Operating Agreement between Central Financial Acceptance Corporation, Banner's
Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996.
10.7 Tax Sharing Agreement between Central Financial Acceptance Corporation, Banner's
Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996.
10.8 Indemnification Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24,
1996.
10.9 Indemnification Agreement dated June 24, 1996 between Central Financial
Acceptance Corporation and Banner Holdings, Inc.
10.10 Reserved
10.11 Reserved
10.12 Central Financial Acceptance Corporation Supplemental Executive Retirement Plan
dated as of June 24, 1996.+
10.13 Central Financial Acceptance Corporation Executive Deferred Salary and Bonus Plan
dated as of June 24, 1996.+*
10.14 Reserved
10.15 Reserved
</TABLE>
II-2
<PAGE> 125
<TABLE>
<S> <C> <C>
10.16 Reserved
10.17 Reserved
10.18 Reserved
10.19 Reserved
10.20 Reserved
10.21 Reserved
10.22 Adoption Agreement for the Qualified Benefits, Inc. Regional Prototype
Non-Standardized Profit Sharing Plan and Trust effective as of November 1,
1989.(1)+
10.23 Reserved
10.24 Reserved
10.25 Reserved
10.26 Employment Agreement between the Company and Anthony Fortunato dated October 25,
1996.(2)+
10.27 Employment Agreement between the Company and Gerard T. McMahon dated August 30,
1996.(2)+
10.28 Reserved
10.29 Agreement to Transfer Business Operations among Banner's Central Electric, Inc.,
Central Consumer Finance Company, Central Financial Acceptance Corporation and
Central Auto Sales, Inc. dated as of July 31, 1996.(2)
10.30 Reserved
10.31 Amendment One to Financing Agreement between Central Installment Credit
Corporation, Banner's Central Electric, Inc., Central Ram, Inc. and Banner
Holdings, Inc., dated as of July 1, 1996.(2)
10.34 Revolving Loan Agreement, dated as of June 13, 1997, by and among the Company,
each Lender who is named therein or who may thereafter become a party to the
Revolving Loan Agreement and Wells Fargo Bank, National Association, as Agent and
Arranger and Notes executed by the Company with each of the Lenders.(3)
10.35 Security Agreement, dated as of June 13, 1997, by and among the Company and each
of the Persons listed on the signature pages thereto, together with other Persons
who may become a party thereto, jointly and severally in favor of Wells Fargo
Bank, National Association, as Agent.(3)
10.36 Pledge Agreement, dated as of June 13, 1997, by and among Banner Holdings, Inc.
Banner's Central Electric, Inc., the Company and each of the Persons listed on
the signature pages thereto, together with other Persons who may become a party
thereto, jointly and severally in favor of Wells Fargo Bank, National Association
as Agent under the Revolving Loan Agreement, and in favor of each of the Lenders
named therein.(3)
10.37 Trademark Collateral Assignment, dated as of June 13, 1997, by Banner Holdings,
Inc. each of the Persons listed on the signature pages thereto, together with
other Persons who may become a party thereto, jointly and severally in favor of
Wells Fargo Bank, National Association, as Agent for the benefit of the Lenders
that are or become a party to the Revolving Loan Agreement.(3)
10.38 Subsidiary Guaranty, dated as of June 13, 1997, by each of the Persons listed on
the signature pages thereto, together with each other Person who may become a
party thereto, jointly and severally in favor of Wells Fargo Bank, National
Association, as Agent for the benefit of the Lenders that are a party to the
Revolving Loan Agreement.(3)
11.1 Statement re Computation of Per Share Earnings.*
12.1 Statement re Computation of Ratios.*
21.1 Subsidiaries of the Registrants.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
</TABLE>
II-3
<PAGE> 126
<TABLE>
<S> <C> <C>
23.6 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1 above).
23.7 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 above).
24.1 Power of attorney.*
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee
under the Subordinated Indenture.*
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee
under the Amended and Restated Trust Agreement.*
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee
under the Trust Preferred Securities Guarantee Agreement.*
27.1 Financial Data Schedule of CFAC Capital I*
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
(1) Incorporated by reference to exhibits filed with the Commission in the
Company's Registration Statement on Form S-1 (Registration No. 333-3790).
(2) Incorporated by reference to exhibits filed with the Commission in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(3) Incorporated by reference to exhibits filed with the Commission in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
ITEM 17. UNDERTAKINGS
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(i) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Commerce, State of California, on October 15, 1997.
CENTRAL FINANCIAL ACCEPTANCE
CORPORATION
By /s/ GARY M. CYPRES
------------------------------------
Gary M. Cypres
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ GARY M. CYPRES Chairman of the Board of October 15, 1997
- --------------------------------------------- Directors, Chief Executive
Gary M. Cypres Officer, President and Chief
Financial Officer (Principal
Executive Officer and
Principal Financial Officer)
* Director October 15, 1997
- ---------------------------------------------
Salvatore J. Caltagirone
* Director October 15, 1997
- ---------------------------------------------
Jose de Jesus Legaspi
* Director October 15, 1997
- ---------------------------------------------
William Sweet
* Principal Accounting Officer October 15, 1997
- ---------------------------------------------
Neal E. Gower
</TABLE>
II-5
<PAGE> 128
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Commerce, State of California, on October 15, 1997.
CFAC CAPITAL I
By: /s/ GARY M. CYPRES
------------------------------------
Gary M. Cypres,
Trustee
By: *
------------------------------------
Neal E. Gower,
Trustee
By: *
------------------------------------
Steven D. Olson,
Trustee
*By: /s/ GARY M. CYPRES
---------------------------------
Gary M. Cypres,
Attorney-in-fact
II-6
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement**.............................................
2.1 Reorganization Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June
24, 1996(1)..................................................................
3.1 Certificate of Incorporation of Central Financial Acceptance
Corporation(1)...............................................................
3.2 By-laws of Central Financial Acceptance Corporation(1).......................
4.1 Form of Subordinated Indenture dated , 1997 to be entered into
between the Registrant and Wilmington Trust Company, as Indenture Trustee*...
4.2 Form of Officers' Certificate and Company Order, dated , 1997*...
4.3 Form of Junior Subordinated Debenture (included as part of Exhibit 4.1)......
4.4 Certificate of Trust of CFAC Capital I.......................................
4.5 Trust Agreement of CFAC Capital I dated as of September 26, 1997.............
4.6 Form of Amended and Restated Trust Agreement of CFAC Capital I, dated as of
, 1997*.......................................................
4.7 Form of Trust Preferred Certificate of CFAC Capital I (included as an exhibit
to Exhibit 4.6)..............................................................
4.8 Form of Common Securities Certificate of CFAC Capital I (included as an
exhibit to Exhibit 4.6)......................................................
4.9 Form of Trust Preferred Securities Guarantee Agreement*......................
4.10 Form of Agreement as to Expenses and Liabilities (included as an exhibit to
Exhibit 4.6).................................................................
5.1 Opinion of Manatt, Phelps & Phillips, LLP**..................................
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.**.....................
8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Central
Financial Acceptance Corporation, as to certain federal income tax
matters**....................................................................
10.1 1996 Stock Option Plan dated as of June 24, 1996+*...........................
10.2 Indemnification Agreement between Central Financial Acceptance Corporation
and certain directors and officers of the Company(1)+........................
10.3 Employment Agreement between Central Financial Acceptance Corporation and
Gary M. Cypres dated as of June 24, 1996(1)+.................................
10.4 Financing Agreement between Central Installment Credit Corporation, Banner's
Central Electric, Inc., Central Ram, Inc. and Banner Holdings, Inc. dated as
of June 24, 1996(1)..........................................................
10.5 Option Agreement between Central Financial Acceptance Corporation, Banner's
Central Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996...
10.6 Operating Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June
24, 1996.....................................................................
10.7 Tax Sharing Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June
24, 1996.....................................................................
10.8 Indemnification Agreement between Central Financial Acceptance Corporation,
Banner's Central Electric, Inc. and Banner Holdings, Inc. dated as of June
24, 1996.....................................................................
10.9 Indemnification Agreement dated June 24, 1996 between Central Financial
Acceptance Corporation and Banner Holdings, Inc..............................
10.10 Reserved.....................................................................
10.11 Reserved.....................................................................
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
10.12 Central Financial Acceptance Corporation Supplemental Executive Retirement
Plan dated as of June 24, 1996+..............................................
10.13 Central Financial Acceptance Corporation Executive Deferred Salary and Bonus
Plan dated as of June 24, 1996+*.............................................
10.14 Reserved.....................................................................
10.15 Reserved.....................................................................
10.16 Reserved.....................................................................
10.17 Reserved.....................................................................
10.18 Reserved.....................................................................
10.19 Reserved.....................................................................
10.20 Reserved.....................................................................
10.21 Reserved.....................................................................
10.22 Adoption Agreement for the Qualified Benefits, Inc. Regional Prototype
Non-Standardized Profit Sharing Plan and Trust effective as of November 1,
1989(1)+.....................................................................
10.23 Reserved.....................................................................
10.24 Reserved.....................................................................
10.25 Reserved.....................................................................
10.26 Employment Agreement between the Company and Anthony Fortunato dated October
25, 1996(2)+.................................................................
10.27 Employment Agreement between the Company and Gerard T. McMahon dated August
30, 1996(2)+.................................................................
10.28 Reserved.....................................................................
10.29 Agreement to Transfer Business Operations among Banner's Central Electric,
Inc., Central Consumer Finance Company, Central Financial Acceptance
Corporation and Central Auto Sales, Inc. dated as of July 31, 1996(2)........
10.30 Reserved.....................................................................
10.31 Amendment One to Financing Agreement between Central Installment Credit
Corporation, Banner's Central Electric, Inc., Central Ram, Inc. and Banner
Holdings, Inc., dated as of July 1, 1996(2)..................................
10.34 Revolving Loan Agreement, dated as of June 13, 1997, by and among the
Company, each Lender who is named therein or who may thereafter become a
party to the Revolving Loan Agreement and Wells Fargo Bank, National
Association, as Agent and Arranger and Notes executed by the Company with
each of the Lenders(3).......................................................
10.35 Security Agreement, dated as of June 13, 1997, by and among the Company and
each of the Persons listed on the signature pages thereto, together with
other Persons who may become a party thereto, jointly and severally in favor
of Wells Fargo Bank, National Association, as Agent(3).......................
10.36 Pledge Agreement, dated as of June 13, 1997, by and among Banner Holdings,
Inc. Banner's Central Electric, Inc., the Company and each of the Persons
listed on the signature pages thereto, together with other Persons who may
become a party thereto, jointly and severally in favor of Wells Fargo Bank,
National Association as Agent under the Revolving Loan Agreement, and in
favor of each of the Lenders named therein(3)................................
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
10.37 Trademark Collateral Assignment, dated as of June 13, 1997, by Banner
Holdings, Inc. each of the Persons listed on the signature pages thereto,
together with other Persons who may become a party thereto, jointly and
severally in favor of Wells Fargo Bank, National Association, as Agent for
the benefit of the Lenders that are or become a party to the Revolving Loan
Agreement(3).................................................................
10.38 Subsidiary Guaranty, dated as of June 13, 1997, by each of the Persons listed
on the signature pages thereto, together with each other Person who may
become a party thereto, jointly and severally in favor of Wells Fargo Bank,
National Association, as Agent for the benefit of the Lenders that are a
party to the Revolving Loan Agreement(3).....................................
11.1 Statement re Computation of Per Share Earnings*..............................
12.1 Statement re Computation of Ratios*..........................................
21.1 Subsidiaries of the Registrants*.............................................
23.1 Consent of Arthur Andersen LLP...............................................
23.2 Consent of Deloitte & Touche LLP.............................................
23.6 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1 above)....
23.7 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 above)...
24.1 A power of attorney is set forth on the signature page of the Registration
Statement....................................................................
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Subordinated Indenture*....................................
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Amended and Restated Trust Agreement*......................
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Trust Preferred Securities Guarantee Agreement*............
27.1 Financial Data Schedule of CFAC Capital I*...................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
(1) Incorporated by reference to exhibits filed with the Commission in the
Company's Registration Statement on Form S-1 (Registration No. 333-3790).
(2) Incorporated by reference to exhibits filed with the Commission in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(3) Incorporated by reference to exhibits filed with the Commission in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
<PAGE> 1
EXHIBIT 4.4
CERTIFICATE OF TRUST
OF
CFAC CAPITAL I
THIS CERTIFICATE OF TRUST of CFAC CAPITAL I (the "Trust"), dated
September 26, 1997, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (Section) 3801 et seq.).
1. Name. The name of the business trust being formed hereby is CFAC
CAPITAL I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware are Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon its
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ DONALD G. MACKELCAN
-------------------------------
Name: Donald G. MacKelcan
--------------------------
Title: Assistant Vice President
-------------------------
/s/ GARY M. CYPRES
----------------------
Gary M. Cypres,
Administrative Trustee
/s/ NEAL E. GOWER
----------------------
Neal E. Gower,
Administrative Trustee
/s/ STEVEN D. OLSON
----------------------
Steven D. Olson,
Administrative Trustee
<PAGE> 1
EXHIBIT 4.5
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of September 26, 1997 (this "Trust
Agreement"), among Central Financial Acceptance Corporation, a Delaware
corporation (the "Depositor"), (ii) Wilmington Trust Company a Delaware banking
corporation, as trustee (the "Delaware Trustee"), and (iii) Gary M. Cypres, Neal
E. Gower, and Steven D. Olson, each an individual, as trustees (the
"Administrative Trustees" and, together with the Delaware Trustee, the
"Trustees"). The Depositor and the Trustees hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "CFAC
Capital I" in which name the Trustees, or the Depositor to the extent provided
herein, may engage in the transactions contemplated hereby, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trustees the sum of Ten Dollars ($10.00). The Trustees hereby acknowledge
receipt of such amount in trust from the Depositor, which amount shall
constitute the initial trust estate. The Trustees hereby declare that they will
hold the trust estate in trust for the Depositor. It is the intention of the
parties hereto that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq.
(the "Business Trust Act"), and that this document constitutes the governing
instrument of the Trust. The parties hereto hereby ratify the Trustees' filing
of a Certificate of Trust with the Delaware Secretary of State under the name
"CFAC Capital I."
3. The Depositor and the Trustees will enter into a amended and restated
Trust Agreement, satisfactory to each such party and substantially in the form
included as an exhibit to the 1933 Act Registration Statement (as defined
below), to provide for the contemplated operation of the Trust created hereby
and the issuance of the Trust Preferred Securities and Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustees shall not have any duty or obligation
hereunder or with respect to the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by applicable law or
otherwise.
4. The Depositor and the Trustees hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on Form S-1 (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Trust Preferred Securities
of the Trust and possibly certain other securities and (b) if required, a
Registration Statement on Form 8-A (the "1934 Act Registration Statement")
(including all pre-effective and post-effective amendments thereto) relating to
the registration of the Trust Preferred Securities of the Trust under the
Securities Exchange Act of 1934, as amended; (ii) to file with the Nasdaq
National Market or a national stock exchange (each, an "Exchange") and execute
on behalf of
1
<PAGE> 2
the Trust one or more listing applications and all other applications,
statements, certificates, agreements and other instruments as shall be necessary
or desirable to cause the Trust Preferred Securities to be listed on any of the
Exchanges; (iii) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable to register the Trust Preferred Securities under the securities or
blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust,
may deem necessary or desirable; and (iv) to execute on behalf of the Trust that
certain Underwriting Agreement relating to the Trust Preferred Securities, among
the Trust, the Depositor and the Underwriters named therein, substantially in
the form included as an exhibit to the 1933 Act Registration Statement. In the
event that any filing referred to in clauses (i), (ii) and (iii) above is
required by the rules and regulations of the Commission, an Exchange or state
securities or blue sky laws to be executed on behalf of the Trust by one or more
of the Trustees, each of the Trustees, in such Trustee's capacity as a trustee
of the Trust, is hereby authorized and, to the extent so required, directed to
join in any such filing and to execute on behalf of the Trust any and all of the
foregoing, it being understood that the Delaware Trustee in its capacity as a
trustee of the Trust shall not be required to join in any such filing or execute
on behalf of the Trust any such document unless required by the rules and
regulations of the Commission, the Exchange or state securities or blue sky
laws. In connection with the filings referred to above, the Depositor and Gary
M. Cypres, Neal E. Gower and Steven D. Olson, each as Trustees and not in their
individual capacities, hereby constitutes and appoints Gary M. Cypres, Neal E.
Gower and Steven D. Olson, and each of them, as the Depositor's or such
Trustee's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the Depositor or such Trustee or in the
Depositor's or such Trustee's name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to the 1933
Act Registration Statement and the 1934 Act Registration Statement (if required)
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Commission, the Exchange and administrators of
the state securities or blue sky laws, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully and to all
intents and purposes as the Depositor or such Trustee might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their respective substitute or substitutes, shall do
or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be four (4) and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor which may increase or decrease the
number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware law. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any Trustee at any
time. The Trustees may resign upon thirty (30) days' prior notice to the
Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws of principles).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
CENTRAL FINANCIAL ACCEPTANCE
CORPORATION
as Depositor
By: /s/ GARY M. CYPRES
-------------------
Name: Gary M. Cypres
Title: President
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ DONALD G. MACKELCAN
----------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
By: /s/ GARY M. CYPRES
--------------------------------------
Gary M. Cypres, as Administrative Trustee
By: /s/ NEAL E. GOWER
-------------------------------------
Neal E. Gower, as Administrative Trustee
By: /s/ STEVEN D. OLSON
---------------------------------------
Steven D. Olson, as Administrative Trustee
3
<PAGE> 1
EXHIBIT 10.5
OPTION AGREEMENT
This OPTION AGREEMENT (the "Agreement") is dated as of June 24, 1996
among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings
have entered into a Reorganization Agreement dated as of the date hereof
pursuant to which Central will acquire the consumer finance business of Holdings
and Banner (the "Reorganization");
WHEREAS, Central has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by Central of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, Holdings desires to grant to Central an option (the "Option")
to purchase all of the outstanding capital stock of Banner (the "Shares"), which
Shares are owned beneficially and of record by Holdings.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Option. Holdings hereby grants to Central the Option to purchase
the Shares at any time commencing with the first anniversary of the
Reorganization and terminating on the third anniversary of the Reorganization
(the "Option Termination Date"). Central may exercise the option by delivering
to Holdings a written notice of exercise.
2. Exercise Price. The exercise price for the Shares shall be equal to
the book value of Banner as reflected on Banner's balance sheet for the month
ended immediately preceding the exercise of the Option (the "Exercise Price").
The balance sheet shall be prepared in accordance with generally accepted
accounting principles on a basis consistent with prior periods.
3. Payment of Exercise Price. The Exercise Price is payable, at
Central's option, in cash or in shares of common stock, par value $0.01 per
share, of Central (the "Common Stock"). If Central chooses to pay the Exercise
Price in shares of Common Stock, the number of shares of Common Stock that
Central shall deliver shall be equal to the quotient of the Exercise Price
divided by the average last sales, close, or bid and asked price of the
Common Stock as reported
<PAGE> 2
by the Nasdaq National Market or such other market on which the Common Stock is
traded, listed or quoted during the ten trading days preceding the date on which
Central delivers its notice of exercise or, if the Common Stock is not so
traded, listed or quoted, as reasonably determined by the Board of Directors of
Central.
4. Representations and Warranties of Banner and Holdings. All of the
Shares have been duly and validly authorized and issued and are fully paid and
nonassessable and were not issued and are not now in violation of or subject to
any preemptive rights. The Shares are owned of record and beneficially by
Holdings free and clear of any security interests, liens, encumbrances, equities
or claims.
5. Covenants of Banner and Holdings.
(a) From the date hereof up to and including the Option Termination
Date, Banner will not, without Central's prior written consent, (i) issue, sell,
offer or agree to sell, grant any option for the sale of or otherwise dispose of
any capital stock of Banner (or any securities convertible into, exercisable for
or exchangeable for capital stock of Banner), or (ii) sell all or substantially
all of its assets.
(b) From the date hereof up to and including the Option Termination
Date, Holdings will not, without Central's prior written consent, sell, offer or
agree to sell, grant any option for the sale of or otherwise dispose of any of
the Shares.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of the
State of California without giving effect to the principles of conflicts of law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any
-2-
<PAGE> 3
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-3-
<PAGE> 1
EXHIBIT 10.6
OPERATING AGREEMENT
This OPERATING AGREEMENT (the "Agreement") is dated as of June 24, 1996
among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into a Reorganization Agreement dated as of the date hereof pursuant to
which Central will acquire the consumer finance business of Holdings and Banner
(the "Reorganization");
WHEREAS, Central has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by Central of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, in order to avoid a possible conflict of interest in the
operation of the businesses of Central and its subsidiaries (individually and
collectively, the "Central Group") and Holdings and its subsidiaries
(individually and collectively, the "Holdings Group") following the
Reorganization, the parties desire that Holdings follow certain procedures
as set forth herein; and
WHEREAS, in order to provide cost savings and operating efficiencies
following the Reorganization, the parties desire that the Holdings Group perform
various administrative functions for the Central Group upon the terms and
conditions set forth herein following the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Allocation of Business Opportunities.
(a) Restricted Businesses. The Holdings Group will not, without the
prior written consent of Central, directly or indirectly engage in or enter into
any business competing with the Central Group that involves consumer finance
lending, including, but not limited to, the financing of consumer products,
travel products, small loans, automobiles or insurance (the "Restricted
Businesses"). If, notwithstanding the foregoing, any member of the Holdings
Group shall acquire a company engaged in a Restricted Business or shall
otherwise directly or indirectly engage in a Restricted Business, Holdings shall
be obligated to sell to Central, at Central's election, such Restricted Business
at a purchase price equal to the fair market value of such Restricted Business
as determined in accordance with Section 1(b). The foregoing restriction shall
terminate on the earlier of December 31, 2002 or
<PAGE> 2
the date on which Holdings ceases to own, directly or indirectly, at least 25%
of the outstanding voting stock of Central.
(b) Valuation. The fair market value of a Restricted Business shall
be determined by an independent qualified and recognized investment banking firm
agreed to by Central, on the one hand, and Banner and Holdings, on the other
hand. If the parties are unable to mutually agree on a single appraiser within a
seven day period, then Central, on the one hand, and Banner and Holdings, on the
other hand, shall each immediately appoint an independent qualified appraiser of
the type set forth above. Within seven days of such appointment, the two
appointed appraisers shall appoint a third independent qualified appraiser of
the type set forth above who shall determine the current value of the Restricted
Business within 30 days of appointment. The cost of this appointment process and
the appraisal fees shall be divided equally between Central, on the one hand,
and Banner and Holdings, on the other hand.
2. Services to be Performed by the Holdings Group and Allocation of
Costs and Benefits.
(a) Services. Each of the following services shall be performed by,
and the Central Group agrees to utilize the following services of, the Holdings
Group:
(1) Accounting. To the extent requested by the Central Group,
the Holdings Group shall provide accounting services to the Central
Group in connection with the preparation of quarterly, annual and other
financial statements.
(2) Management Information Systems. The Holdings Group shall
provide the Central Group with information processing, data retrieval
and other management information systems services. If the Central Group
elects to discontinue receiving such services from the Holdings Group,
the Holdings Group shall return all information pertaining to the
business and operations of the Central Group and shall use its best
efforts in the transition of all data processing functions in a manner
that does not unduly disrupt the business or operation of the Central
Group.
(3) Employee Benefit Plans. The Holdings Group shall
administer all health plans and any other benefits offered
for the benefit of the employees of the Central Group.
(4) Legal. The Holdings Group shall provide to the Central
Group all legal assistance provided in the ordinary course of business
to the Holdings Group.
(5) Insurance. The Holdings Group shall include every member
of the Central Group under any insurance policy maintained by the
Holdings Group. The Holdings Group shall cause each member of the
Central Group to be named as an additional insured under any such
policies. The Holdings Group shall agree to deliver to Central any
insurance proceeds received by it or one of the other members of the
Holdings Group if such
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<PAGE> 3
proceeds relate to any claim relating to the business of the Central
Group. The Holdings Group shall make appropriate cost allocations to
the Central Group for any policy which provides joint coverage to the
Holdings Group, or any other member of the Holdings Group, and to the
Central Group.
(6) Purchasing. The Holdings Group shall provide purchasing
services, including warehousing, to the Central Group for all products
Central may request. Central shall either reimburse the Holdings Group
for, or pay directly, the actual cost of all products acquired for its
account (after giving effect to its ratable share of any discounts,
allowances, rebates or other similar benefits realized by the Holdings
Group).
(7) Advertising. The Holdings Group shall provide advertising
services to the Central Group. Such services shall include the
purchasing of broadcast, newspaper or other advertising in accordance
with the specifications and requirements provided by the Central Group.
Each party to this Agreement agrees not to utilize any form of
advertising that would be reasonably likely to be detrimental to the
business or prospects of the other party.
(8) Other Services. To the extent requested by Central and
approved by the members of its board of directors, the Holdings Group
may provide the Central Group with such other administrative services
as may be deemed necessary or appropriate.
(b) Payment of Costs. The Central Group shall be responsible for the
actual cost of any goods or services provided for their account by the Holdings
Group. Except as provided herein with respect to management information systems,
the allocable share of such costs for each member of the Central Group shall be
determined on the basis of its percentage utilization of the applicable service
or management's best estimate thereof. Fifty percent of the expenses of the
costs and expenses of operating the Holdings Group's management information
systems shall be allocated to each of Banner and Central for a period of five
years, subject to adjustment from time to time to reflect changing costs and
usage and prior termination pursuant to Section 4 below. The Central Group
shall either pay such costs directly or reimburse the Holdings Group for its
prior payment (after giving effect to its ratable share of any discounts,
allowances, rebates or other similar benefits realized by such member of the
Holdings Group). The Holdings Group shall maintain appropriate records to
substantiate the costs associated with the services provided to the Central
Group.
3. Employee Benefits. Central hereby agrees to assume all
liabilities of Banner, Holdings and the subsidiaries thereof that become
subsidiaries of Central pursuant to the Reorganization under existing employee
welfare benefit and profit sharing plans with respect to the employees of Banner
and Holdings who have become employees of the Central Group pursuant to the
Reorganization. The employment by the Central Group of individuals who were
employees of Banner, Holdings or the subsidiaries thereof that become
subsidiaries of Central pursuant to the Reorganization prior to the
Reorganization will not be deemed a severance of employment from Banner or
Holdings for purposes of any policy, plan, program or agreement of Banner or
Holdings that provides for the payment of severance, salary continuation or
similar benefits.
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<PAGE> 4
4. Term. Except as provided in Section 1, this Agreement or any
service provided herein may be terminated by any party hereto upon one year's
prior written notice.
5. Independent Parties. The parties are independent parties engaged
in the operation of their respective businesses. No party has the authority to
enter into contracts or assume any obligations for any other party or is to be
considered as the agent or employee of any other party for any purpose
whatsoever. Nothing in this Agreement shall be construed to establish a
relationship of partners or joint venturers among the parties.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
-4-
<PAGE> 5
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
---------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-6-
<PAGE> 1
EXHIBIT 10.7
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (the "Agreement") is dated as of June 24,
1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into a Reorganization Agreement dated as of the date hereof pursuant to
which Central will acquire the consumer finance businesses of Holdings and
Banner (the "Reorganization");
WHEREAS, Central has filed a registration statement with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering the issuance and sale by Central of up to 2,127,000 shares of
its common stock, par value of $.01 per share (the "Offering");
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, the consumer finance businesses of Central will be included
in the consolidated federal, state and other income tax returns of Holdings
until the consummation of the Offering;
WHEREAS, effective upon the consummation of the Offering, Central and
its subsidiaries (collectively with Central and any predecessor of any
subsidiary, the "Subsidiaries," and individually, a "Subsidiary") will not be
included in Holdings' consolidated federal, state and other income tax returns.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Remittance to Holdings. For all periods during which the
Subsidiaries were included in the consolidated federal, state and other income
tax returns of Holdings, Central shall remit to
<PAGE> 2
Holdings in a timely manner all taxes that would have been due the respective
governmental entities from each of the Subsidiaries if such Subsidiary had
filed separate income tax returns for the applicable period. For purposes of
this Agreement, the tax which would have been payable by a Subsidiary if it had
filed separate returns shall be computed as if such Subsidiary had filed
separate returns for all years during which such Subsidiary is includible in
the consolidated income tax returns of Holdings.
2. Refunds. Holdings shall remit to each Subsidiary in a timely
manner all refunds, together with interest thereon, that would be due the
Subsidiary if the Subsidiary had filed separate income tax returns.
3. Indemnification; Audits. The Subsidiaries shall indemnify
Holdings for all income tax liabilities for periods during which the
Subsidiaries were included in Holdings' consolidated income tax returns. In
the event of any changes to such consolidated income tax returns upon audit by
the Internal Revenue Service, a recalculation of the tax liability of each
Subsidiary shall be made and appropriate payments (including any interest and
penalties) shall be made by the Subsidiary based on the result of such audit.
4. Filing of Consolidated Returns; Taxes Due. Holdings shall be
responsible for filing the consolidated federal, state and other income tax
returns, for making all elections with respect thereto and for the payment of
all taxes due in respect thereof for all periods during which the Subsidiaries
were members of the affiliated group of which Holdings is the common parent.
The parties agree to cooperate with each other in the preparation of all
required tax returns and in connection with the audit of such tax returns
including making available to each other all applicable records and other
documents pertinent thereto. Holdings shall not consent to any adjustments
which would increase the tax liability of a Subsidiary without the consent of
such Subsidiary, provided that Holdings may consent to such adjustments if it
has the right to and does file a refund claim which preserves the right of such
Subsidiary to contest the adjustment.
5. Use of Accountants. For the purposes of this Agreement, all
computations or recomputations of income tax
- 2 -
<PAGE> 3
liability, and all determinations of payments or repayments, or determinations
of any other nature required to be made by this Agreement, shall be based on
the conclusions of the independent public accountants for Holdings and Central.
6. Dispute Resolution. In an effort to resolve informally and
amicably any claim or controversy arising out of or related to the
interpretation or performance of this Agreement without resorting to
litigation, the parties shall first notify the other parties of any difference
or dispute hereunder that requires resolution. The disputing parties shall
each designate an employee to investigate, discuss and seek to settle the
matter between them. If such parties are unable to settle the matter within 30
days after such notification, the matter shall be submitted to an independent
director of each for consideration. If settlement cannot be reached through
their efforts within an additional 30 days, or such longer time period as they
shall agree upon, the parties shall consider arbitration or other alternative
means to resolve the dispute. If they are unable to agree on an alternative
dispute resolution mechanism, any party may initiate legal proceedings to
resolve such matter.
7. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any
party without the consent of the other parties.
8. Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing (including
telecopier or similar writing) and shall be deemed to have been given at the
time when mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, or sent by
Federal Express or other similar overnight courier service, addressed to the
appropriate party at 5480 East Ferguson Drive, Commerce, California, 90022,
attention: Secretary, or to such changed address as such party may have fixed
by notice or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
9. Governing Law. This Agreement shall be governed by the laws
of the State of California without giving effect to the principles of conflicts
of law.
- 3 -
<PAGE> 4
10. Entire Agreement. This Agreement sets forth the entire
agreement among the parties with respect to its subject matter. This Agreement
may not be amended or otherwise modified except in writing duly executed by all
of the parties. No waiver of any provision or breach of this Agreement shall
be effective unless such waiver is in writing and signed by the party against
which enforcement of such waiver is sought. A waiver by any party of any
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
11. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
12. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
13. Headings. Section headings are for convenience only and do
not control or affect the meaning or interpretation of any terms or provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
--------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By /s/ GARY M. CYPRES
---------------------------------
- 4 -
<PAGE> 5
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By /s/ GARY M. CYPRES
--------------------------------------
Gary M. Cypres
Chief Executive Officer and President
- 5 -
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is dated as of June
24, 1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("CFAC"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation ("BCE"),
and BANNER HOLDINGS, INC., a Delaware corporation ("BHI").
WHEREAS, concurrently herewith, CFAC, BCE and BHI have entered into
a Reorganization Agreement dated as of the date hereof pursuant to which CFAC
will acquire the consumer finance business of BHI and BCE (the
"Reorganization");
WHEREAS, CFAC has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by CFAC of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, CFAC, BCE and BHI have entered into
various additional agreements for the purpose of defining the ongoing
relationship among the parties following the Reorganization;
WHEREAS, CFAC, BCE and BHI desire to enter into this Agreement to
indemnify one another (and provide for contribution to one another)
against liabilities arising from the operation of the parties' respective
businesses after the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Indemnification.
(a) CFAC agrees to indemnify and hold harmless BCE and its subsidiaries
following the Reorganization (collectively and individually, "Banner") and BHI
and its subsidiaries following the Reorganization (collectively and
individually, "Holdings") against any and all claims, losses, damages,
liabilities, costs and expenses, joint or several (including reasonable
attorneys' fees and costs of investigation), to which Banner or Holdings may
become subject insofar as such claims, losses, damages, liabilities, costs and
expenses (or actions in respect thereof) arise from or are based on the
operations of the business of CFAC and its subsidiaries following the
Reorganization (collectively and individually, "Central"); provided, however,
that neither Banner nor Holdings shall be indemnified hereunder for liabilities
arising from either party's intentional misconduct or gross negligence or to the
extent any liability arises from a breach by Banner or Holdings of a fiduciary
duty owed by Banner or Holdings to other stockholders of CFAC.
(b) BCE and BHI, jointly and severally, agree to indemnify and hold
harmless Central against any and all claims, losses, damages, liabilities, costs
and expenses, joint or several (including reasonable attorneys' fees and costs
of investigation), to which Central may become
<PAGE> 2
subject insofar as such claims, losses, damages, liabilities, costs or expenses
(or actions in respect thereof) arise from or are based on the operations of the
businesses of Banner or Holdings, other than the business of Central before or
after the Reorganization.
(c) CFAC agrees to indemnify and hold harmless each of Banner and
Holdings against any all claims, losses, damages, liabilities, costs and
expenses, joint or several (including reasonable attorneys' fees and costs of
investigation) to which Banner or Holdings may become subject insofar as such
claims, losses, damages, liabilities, costs or expenses (or actions in respect
thereof) arise from or are based on guarantees or undertakings made by Banner or
Holdings to third parties in respect of liabilities or obligations of Central,
whether such guarantees or undertakings are made by Banner or Holdings before or
after the Reorganization; provided, however, that neither Banner nor Holdings
shall be indemnified hereunder for liabilities arising from either party's
intentional misconduct or gross negligence or to the extent any liability arises
from a breach by Banner or Holdings of a fiduciary duty owed by Banner or
Holdings to other stockholders of Central; provided, further, however, that if
the events giving rise to a particular claim, loss, damage, liability, cost or
expense occurred prior to the Reorganization, neither Banner nor Holdings shall
be indemnified pursuant to this Section.
2. Substitution.
(a) With respect to any litigation, proceeding or investigation by or
before any court or governmental agency or body which may be commenced or
threatened against Banner or Holdings after the date hereof which arises out of
or is based upon the business or operations of Central following the
Reorganization, at the option of Banner or Holdings, as the case may be, Central
and Banner or Holdings shall use their best efforts to have Central substituted
in the place of and for Banner or Holdings and to have Banner or Holdings
removed as a party as promptly as is reasonably practicable. Pending such
substitution, and in cases where such substitution cannot be effected, Central
shall promptly assume and direct the defense, prosecution and/or settlement of
the claims involved, employing for this purpose counsel satisfactory to each of
Banner and Holdings, and shall pay all expenses related thereto. To the extent
that any such expenses are paid by Banner or Holdings, Central shall promptly
reimburse such party therefor.
(b) With respect to any litigation, proceeding or investigation by or
before any court or governmental agency or body which may be commenced or
threatened against Central after the date hereof which arises out of or is based
upon the past, present or future business or operations of Banner or Holdings,
at Central's option, Central and Banner and Holdings shall use their best
efforts to have Banner or Holdings or both substituted in the place of and for
Central and to have Central removed as a party as promptly as is reasonably
practicable. Pending such substitution, and in cases where such substitution
cannot be effected, Banner or Holdings shall promptly assume and direct the
defense, prosecution and/or settlement of the claims involved, employing for
this purpose counsel satisfactory to Central, and shall pay all
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<PAGE> 3
expenses related thereto. To the extent that any such expenses are paid by
Central, Banner or Holdings shall promptly reimburse Central therefor.
3. Notice and Payment of Claims. If any party entitled to
indemnification hereunder (an "Indemnified Party") is threatened in writing with
any claim, or any claim is presented in writing to, or any action or proceeding
formally commenced against, an Indemnified Party which may give rise to the
right of indemnification hereunder, the Indemnified Party will promptly give
written notice thereof to the other party (the "Indemnifying Party"), provided
that any delay by the Indemnified Party in so notifying the Indemnifying Party
shall not relieve the Indemnifying Party of any liability to the Indemnified
Party hereunder except to the extent the Indemnifying Party is materially and
adversely prejudiced by such delay. The Indemnifying Party, by delivery of
written notice to the Indemnified Party within 30 days of receipt of notice of
claim to indemnity from the Indemnified Party, may elect to contest such claim,
action or proceeding at the Indemnifying Party's expense and by counsel of its
own choosing. If the Indemnified Party requests in writing that such claim,
action or proceeding not be contested, then it shall not be contested but shall
not be covered by the indemnities provided herein. The Indemnifying Party may
settle an indemnifiable matter which it has duly elected to contest with the
consent of the Indemnified Party after delivering a written description of the
proposed settlement to, and receiving consent from, the Indemnified Party. In
the event that the Indemnified Party declines to consent to a bona fide
settlement acceptable to the claimant, then the Indemnified Party shall have no
right to indemnification beyond the amount of the proposed settlement.
4. Dispute Resolution. In an effort to resolve informally and
amicably any claim or controversy arising out of or related to the
interpretation or performance of this Agreement without resorting to litigation,
each party shall first notify the others of any difference or dispute hereunder
that requires resolution. BCE, BHI and CFAC shall each designate an employee to
investigate, discuss and seek to settle the matter among them. If they are
unable to settle the matter within 30 days after such notification, the matter
shall be submitted to a director of each of BCE, BHI and CFAC for consideration.
If settlement cannot be reached through their efforts within an additional 30
days, or such longer time period as they shall agree upon, CFAC, on the one
hand, or BCE and BHI, on the other hand, may initiate legal proceedings to
resolve such matter.
5. Cooperation. So long as any books, records and files retained by
either Banner or Holdings relating to the business operations or assets of
Central remain in existence and available, Central shall have the right upon
prior notice to inspect and copy the same at any time during business hours for
any proper purpose. Neither Banner nor Holdings shall destroy or permit the
destruction of (without first having offered to deliver to the other) any such
books, records and files for the time period during which they would be required
to retain such books, records or files by applicable law. Banner, Holdings and
Central shall cooperate with one another in a timely manner in any
administrative or judicial proceeding involving any matter affecting the
potential liability of any such party or with respect to any governmental
authority. Such
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<PAGE> 4
cooperation shall include, without limitation, making available to each of the
other parties, during normal business hours, all books, records and information,
officers and employees (without substantial interruption of employment)
necessary or useful in connection with any inquiry, audit, investigation or
dispute, any litigation or any other matter requiring any such books, records,
information, officers or employees for any reasonable business purpose. The
party requesting or otherwise entitled to any books, records, information,
officers or employees pursuant to this Section shall bear all reasonable
out-of-pocket costs and expenses (except reimbursement of salaries, employee
benefits and general overhead) incurred in connection with providing such books,
records, information, officers or employees.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
-4-
<PAGE> 5
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By /s/ GARY M. CYPRES
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
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EXHIBIT 10.9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 East Ferguson Drive
Commerce, California 90022
(213) 720-8600
June 24, 1996
Banner Holdings, Inc.
5480 East Ferguson Drive
Commerce, California 90022
Dear Sirs:
Central Financial Acceptance Corporation ("Central") has filed
a registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), covering the sale by Central of shares of its common stock, par
value of $.01 per share, pursuant to the Registration Statement (the
"Offering"). In connection with the Offering, Central desires to enter into an
underwriting agreement substantially in the form of Exhibit A attached hereto
(the "Underwriting Agreement"). At the request of the underwriters named in the
Underwriting Agreement (the "Underwriters"), you have agreed to become a party
to the Underwriting Agreement and, as such, to jointly and severally with
Central indemnify the Underwriters as provided in Section 10 of the Underwriting
Agreement. In addition, by becoming a party to the Underwriting Agreement at the
request of the Underwriters, you also will agree to the contribution provisions
set forth in Section 10 of the Underwriting Agreement. Notwithstanding that the
indemnification and contribution provisions set forth in Section 10 of the
Underwriting Agreement provide for the joint and several liability of you and
Central, Central hereby agrees that between you and Central it is intended that
Central will be the primary obligor under the Underwriting Agreement and that
your liability thereunder is intended to be that of a guarantor.
In consideration of your execution and delivery of the
Underwriting Agreement and other good and valuable consideration, Central hereby
agrees with you as follows:
1. Indemnification. Central agrees to indemnify and hold harmless you
and each person, if any, who controls you (a "Control Person") within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any and all losses, claims,
damages, liabilities and expenses (including but limited to reasonable
attorneys' fees and all costs whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), to which you or any such Control Person may become subject insofar
as such losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arise from or are based on the indemnification and contribution
provisions set forth in Section 10 in the Underwriting Agreement.
<PAGE> 2
This indemnity agreement will be in addition to any liability which Central may
otherwise have, including under the Underwriting Agreement.
2. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
1 hereof is for any reason held to be unenforceable by you although applicable
in accordance with its terms, you and Central shall contribute to the aggregate
claims, losses, damages, liabilities, costs and expenses of the nature
contemplated by such indemnity incurred by you and Central in such proportion
that is appropriate to reflect the relative fault of Central and you in
connection with the matters which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
For purposes of this Section 2, each Control Person, if any, shall have the same
rights to contribution as you.
3. Notice and Payment of Claims. Central agrees that you shall not be
required to give Central any notice with respect to an event which may give rise
to the right of indemnification or contribution hereunder. Central agrees that
you shall have the right to settle any indemnifiable matter without Central's
prior consent.
4. Dispute Resolution. In order to resolve informally and amicably any
claim or controversy arising out of or related to the interpretation or
performance of this Agreement without resorting to litigation, each party shall
first notify the other of any difference or dispute hereunder that requires
resolution. You and Central shall each designate an employee to investigate,
discuss and seek to settle the matter between them. If the two are unable to
settle the matter within 30 days after such notification, the matter shall be
submitted to an independent director of each of you and Central for
consideration. If settlement cannot be reached through their efforts within an
additional 30 days, or such longer time period as they shall agree upon, either
party may initiate legal proceedings to resolve such matter.
5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other party.
6. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the address of the parties set
forth above or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
7. Governing Law. This agreement shall be governed by the laws of the
State of California without giving effect to principles of conflicts of laws.
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8. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
9. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
10. Effectiveness. This Agreement shall become effective upon the
execution by you and Central of the Underwriting Agreement.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
[Remainder of Page Intentionally Left Blank]
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to Central a counterpart hereof, whereupon
this instrument will become a binding agreement between you and Central in
accordance with its terms.
Very truly yours,
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
--------------------------------------
Gary M. Cypres
Chief Executive Officer and President
Confirmed and accepted as of
the date first above written:
BANNER HOLDINGS, INC.
By /s/ GARY M. CYPRES
-----------------------------------
Gary M. Cypres
Chief Executive Officer and President
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EXHIBIT 10.12
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE> 2
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Purpose - The purpose of this Plan is to provide key executives with
an incentive to become or remain long-term employees of the Company. This Plan
is intended to be a "tophat" plan within the meaning of Sections 201(2),
301(a)(3), 401(a)(1) and 4021(b)(6) of the Employee Retirement Income Security
Act of 1974, as amended.
2. Definitions - As used in this Plan, the following terms shall have
the meanings set forth below, unless the context requires otherwise:
(a) "Accrued Benefit" shall mean a Participant's Target
Benefit Level adjusted by: (i) multiplying it by a fraction not to exceed one,
the numerator of which is the Participant's active Years of Service and the
denominator of which is the Years of Service the Participant would have had at
his Normal Retirement Date if he continued in employment with the Company until
such date, and (ii) reducing it by the annuity value (as determined by an
actuary who is selected by the Board of Directors) of the Participant's Profit
Sharing Plan Account.
(b) "Actuarial Equivalent" shall mean equality in
<PAGE> 3
value of the aggregate sums expected to be received under the form of payment
under the Plan, or equality in value of the same form of payment under the Plan
if payments begin as of a different date, or both, determined in each case by
actuarial assumptions determined by an actuary who is selected by the Board of
Directors.
(c) "Affiliate" shall mean (i) the Company, (ii) any
corporation of which the Company or any other Affiliate owns more than 50% of
the outstanding shares or (iii) any corporation which owns more than 50% of the
outstanding shares of the Company or any other Affiliate.
(d) "Surviving Spouse" shall mean the person determined in
accordance with Section 8.
(e) "Board of Directors" shall mean the Board of Directors of
the Company.
(f) "Company" shall mean Central Financial Acceptance
Corporation, a Delaware corporation, and any successor thereto.
(g) "Compensation" shall mean the Participant's fixed salary
or base pay which is paid to the Participant in consideration for his personal
services actually rendered to the Company, including any amount contributed by
the Company pursuant to a salary reduction agreement which is not includible
<PAGE> 4
in the gross income of the Participant under Section 125 or 402(e)(3) of the
Internal Revenue Code of 1986, as amended, and any bonuses accrued by the
Company with respect to such Participant.
(h) "Effective Date" shall mean June __, 1996.
(i) "Employee" shall mean any key employee on the payroll of
the Company whose wages are subject to withholding for Federal income tax
purposes.
(j) "Final Average Compensation" shall mean the average
monthly Compensation earned by a Participant during those 36 consecutive
calendar months out of the last 60 calendar months preceding the Participant's
termination of employment with the Company which produces the highest monthly
average.
(k) "Normal Retirement Date" shall mean the first day of the
month following the date the Participant attains his 60th birthday.
(l) "Participant" shall mean each Employee who is eligible to
participate in the Plan in accordance with the provisions of Section 3.
(m) "Plan" shall mean the Central Financial Acceptance
Corporation Supplemental Executive Retirement Plan, as embodied herein and as
amended from time to time.
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(n) "Post-Effective Date Year of Service" shall mean each Year
of Service completed after the Effective Date.
(o) "Profit Sharing Plan Account" shall mean a Participant's
Company contribution account, including earnings thereon, under the Banner's, a
California corporation, dba Central Electric Profit Sharing Plan and any
successor plan thereto.
(p) "Surviving Spouse" shall mean the person determined in
accordance with Section 8.
(q) "Target Benefit Level" shall mean a monthly benefit
beginning at the Participant's Normal Retirement Date, equal to a percentage
designated by the Board of Directors of a Participant's Final Average
Compensation, but in no event more than 50% of the Participant's Final Average
Compensation.
(q) "Year of Service" shall mean each twelve consecutive month
period or fraction thereof (to the nearest whole month) beginning with the date
the Participant is hired by the Company or its Affiliates (whether completed
before or after the Effective Date and before or after the Employee becomes a
Participant in this Plan).
3. Eligibility. The Board of Directors shall designate, from time to
time, the Employees who are eligible to participate
<PAGE> 6
in the Plan. An Employee shall cease to be a Participant in the Plan upon his
termination of employment.
4. Benefit Agreement. Upon his designation, each Participant shall
enter into a written agreement (the "Agreement") with the Company, which shall
be executed for the Company by the Chairman of the Board of Directors or the
President, and which shall include the Target Benefit Level and such other terms
as the Board of Directors shall deem appropriate. The Board of Directors may
amend the Agreement to provide for an increase or decrease of the Target Benefit
Level for an eligible Employee; provided that any decrease shall apply only to
Years of Service after the date of such decrease.
5. Normal Retirement Benefit. If a Participant terminates his
employment with the Company on or after his Normal Retirement Date and after
having completed at least ten Years of Service (at least five of which are
Post-Effective Date Years of Service), he shall be entitled to receive a benefit
in a monthly amount equal to his Accrued Benefit , or the Actuarial Equivalent
of such Accrued Benefit if the Participant's termination of employment occurs
after his Normal Retirement Date. Such Benefit shall be paid monthly in the form
of a straight life annuity for the Participant's life, commencing on
<PAGE> 7
the later of the Participant's Normal Retirement Date or the first day of the
month following the Participant's termination of employment.
6. Death Benefits. In the event a Participant dies after completing at
least ten Years of Service (at least five of which are Post-Effective Date Years
of Service), while either an Employee or after having retired under Section 5 or
having terminated employment under Section 7 but before having received any
payment of his Accrued Benefit and he is survived by a Surviving Spouse, the
Company shall pay a death benefit to his Surviving Spouse, in an amount equal to
the Actuarial Equivalent of the Participant's Accrued Benefit as of the date of
his death determined on the basis of his Final Average Compensation and Years of
Service as of such date. Such amount shall be paid monthly for the life of the
Participant's Surviving Spouse, commencing as of the first day of the month
following the Participant's death.
7. Termination of Employment. If a Participant's employment with the
Company and its Affiliates is involuntarily terminated (other than by reason of
death) prior to his Normal Retirement Date, he will receive a benefit under the
Plan, provided he completed at least ten Years of Service (at least
<PAGE> 8
five of which are Post-Effective Date Years of Service). The benefit payable
pursuant to this Section 7 shall be a monthly amount equal to the Participant's
Accrued Benefit determined on the basis of his Final Average Compensation and
Years of Service as of the date of his termination of employment and shall be
paid monthly in the form of a straight life annuity for the Participant's life,
commencing on the Participant's Normal Retirement Date. Notwithstanding the
preceding, a Participant shall not be entitled to any benefits under the Plan if
his employment with the Company and its Affiliates is terminated for "cause".
For purposes of this Plan, a Participant shall be terminated for "cause" if his
employment is terminated because of the Participant's fraud, misappropriation of
funds or property of the Company or its Affiliates for his own use, embezzlement
of the property of the Company or its Affiliates or a material and intentional
breach by the Participant of the provisions of his employment.
8. Surviving Spouse. Any amount payable pursuant to this Plan upon the
death of a Participant shall be payable to the spouse, if any, to whom the
Participant was married at the time of his death.
<PAGE> 9
9. Funding. Benefits under this Plan shall be unfunded, shall be
payable out of the general assets of the Company, and no special or separate
fund shall be established to assure payment of such amounts. No Participant or
Surviving Spouse shall have any rights under the terms of the Plan or a Benefit
Agreement greater than the rights of an unsecured general creditor of the
Company.
10. Other Retirement Benefits. The benefits and payments provided under
this Plan are independent of any and all retirement benefits provided to the
Participant from any other source, except that in determining the amount of the
Participant's Accrued Benefit pursuant to Section 2(a), the value of the
Participant's Profit Sharing Plan Account shall be taken into account as
provided in Section 2(a).
11. Incapacity. In the event that the Board of Directors determines
that the Participant or his Surviving Spouse is unable to care for his affairs
due to any physical or mental condition, any payment due the Participant or
Surviving Spouse under this Plan may be made to his duly appointed legal
representative. The Board of Directors may, in its discretion, make such payment
to a child, parent or spouse of such Participant or Surviving Spouse or to any
other person with whom
<PAGE> 10
he resides or who is charged with his care. Any such payment so made shall be in
complete discharge of the liability of the Company under this Plan to each and
every person with respect to the amount so paid.
12. Assignment. The interest in this Plan of a Participant or Surviving
Spouse shall not be subject to assignment or transfer or otherwise be alienable
either by voluntary or involuntary acts of such person, or by operation of law,
nor shall it be subject to attachment, execution, garnishment, sequestration or
other seizure under any legal, equitable or other process. If any Participant or
Surviving Spouse shall attempt to or shall alienate, sell, transfer, pledge or
otherwise encumber any amount to which he is or might become entitled, or if by
reason of the bankruptcy or insolvency of any such person or the issuance of any
garnishment, writ of execution or other court process, or other event happening
at any time, any amount otherwise payable hereunder to such person should
devolve upon anyone other than him or would not be enjoyed by him, the Board of
Directors, in its absolute discretion, may terminate such interest and may hold
or apply it to or for the benefit of such Participant, or Surviving Spouse, as
the case may be, or the spouse, children or other dependents
<PAGE> 11
of such person, in such manner as the Board of Directors may deem proper.
13. No Employment Contract. This Plan shall not be construed as
creating any contract of employment between the Company and the Participant nor
shall it change any rights or obligations under any existing employment contract
between the Company and the Participant. The Company shall have the same right
with respect to, and control over, its Employees as though this Plan had never
been executed.
14. Covenant Not to Compete.
(a) If a Participant shall, during the 24-month period
immediately following his termination of employment with the Company, engage in
"Competition" with the Company (as hereinafter defined), within the territories
in which the Company is actively engaged in the conduct of business during the
term of employment hereunder including, without limitation, the territories in
which customers are then being solicited, his benefit payments shall be
suspended, and he shall be required to return the amount of any previous
benefits paid to him under this Plan plus any interest thereon, as liquidated
damages, or if no such payments have been made, his benefit under the Plan shall
be forfeited.
<PAGE> 12
(b) The word "Competition" for purposes of this Section 14 or
any other provision of this Plan shall mean:
(i) Engaging in or carrying on, directly or
indirectly, either for himself or as a member of a partnership or as a
stockholder, investor, lender, officer or director of a corporation
(other than the Company), or as an employee or agent of, or consultant
or advisor to, any person, partnership, corporation, joint venture or
enterprise (other than the Company), or in any capacity on behalf of
any trust or other organization or entity, any business in competition
with (as defined below) any business then carried on by the Company as
long as any like business is carried on by the Company or by any
person, corporation, partnership, trust or other organization or entity
deriving title to the good will of such business, directly or
indirectly, from the Company; provided, however, that nothing herein
contained shall prevent the Participant from purchasing securities of
any publicly owned company, the securities of which are listed on a
national securities exchange or registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, (the "1934 Act") but the total
holding of such security so
<PAGE> 13
listed or registered shall be limited to 1% of the amount of any such
security outstanding. The Participant may make investments, without
restriction on amount, in noncompetitive private businesses. For the
purposes of this Section 14(b)(i) the term "any business in competition
with" shall mean any business engaged principally or in part in the
business of the Company as described in its Registration Statement on
Form S-1 (Registration No. 333- 3790) relating to the registration of
shares of the common stock of the Company (the "Registration
Statement") and in any other filing made after the Effective Date by
the Company with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, or the 1934 Act ("Subsequent
Filings"); or
(ii) soliciting, raiding, enticing, inducing or
attempting to persuade any person that presently is or is at any time
during the term of the Participant's employment as an Employee (or, in
the case of termination, is at the time of termination or within the
24-month period thereafter) an employee of the Company to become
employed by any person, firm, partnership, corporation or other
enterprise or entity, and the Participant shall not
<PAGE> 14
approach any such employee for such purpose or authorize the taking of
such actions by any other person, firm, partnership, corporation or
other enterprise or entity in taking such action; or
(iii) divulging, furnishing or making accessible
to any person, corporation, partnership, trust or other organization or
entity, any information, trade secrets, technical data or know-how
relating to the business, business practices, methods, attorney-client
communications, pending or contemplated acquisitions or other
transactions, products, processes, equipment or any confidential or
secret aspect of the business of the Company without the prior written
consent of the Company, unless such information shall have become
public knowledge or shall have become known generally to competitors of
the Company through sources other than the Participant.
15. Amendment and Termination. The Company may amend, terminate or
suspend this Plan at any time or from time to time by a resolution by the Board
of Directors; provided, however, that no amendment or termination of the Plan
shall reduce the Accrued Benefit to which any Participant or Surviving Spouse is
entitled under this Plan by reason of the Participant's prior
<PAGE> 15
Years of Service or the Participant's death, or other termination of employment.
16. Administration. This Plan shall be administered by the Board of
Directors. The Board of Directors shall be charged with the operation and
administration of the Plan. The Board of Directors shall have discretionary
authority to interpret and construe this Plan and to determine all questions
arising under this Plan, and to adopt and amend from time to time such by-laws
and rules and regulations necessary for the administration of this Plan which
are not inconsistent with the terms and provisions of this Plan.
17. Binding Effect. This Plan shall inure to the benefit of and be
binding upon the Company, its successors and assigns, including without
limitation any corporation which may acquire all its assets or into which the
Company may be consolidated or merged, and any Participant, his heirs,
executors, administrators and legal representatives, provided that the
obligations of the Participant hereunder may not be delegated.
18. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of California governing contracts to be
made and performed therein without giving effect to principles of conflicts of
law, except to the
<PAGE> 16
extent such laws have been superseded by Federal law.
19. Gender and Number. The masculine pronoun whenever used
herein shall include the feminine pronoun and the singular number shall include
the plural number and vice versa unless the context of the Plan requires
otherwise.
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IN WITNESS WHEREOF, Central Financial Acceptance Corporation
has executed this Plan on this 24th of June 1996.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By /s/ GARY M. CYPRES
-----------------------------------
Gary M. Cypres
President and Chief Executive Officer
ATTEST:
________________________________
Secretary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
Amendment No. 1 to the Registration Statement (File Nos. 333-37213 and
333-37213-01).
/s/ ARTHUR ANDERSEN LLP
------------------------------
Los Angeles, California Arthur Andersen LLP
October 15, 1997
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement (No.
333-37213) of Central Financial Acceptance Corporation and Subsidiaries on
Form S-1 of our report dated April 12, 1996 (June 25, 1996 as to the effects
of the reorganization described in Note 1), appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
October 15, 1997
