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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
<PAGE> 2
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
------------------------
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DATE: Wednesday, May 27, 1998
TIME: 10:00 A.M.
PLACE: Central Financial Acceptance
Corporation
5480 East Ferguson Drive
Commerce, California 90022
</TABLE>
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[LOGO]
April 27, 1998
Dear Stockholder:
It is my pleasure to invite you to Central Financial Acceptance
Corporation's 1998 Annual Meeting of Stockholders.
We will hold the meeting on Wednesday, May 27, 1998, at 10:00 a.m. at our
corporate headquarters, 5480 East Ferguson Drive in Commerce, California. In
addition to the formal items of business, I will review the major developments
of 1997, answer your questions and discuss CFAC's future prospects.
This booklet includes the Notice of Annual Meeting and the Proxy Statement.
The Proxy Statement describes the business that we will conduct at the meeting
and provides information about CFAC.
Your vote is important. Whether you plan to attend the meeting or not,
please complete, date, sign and return the enclosed proxy card promptly. If you
received more than one proxy card because you own shares registered in different
names or at different addresses, please be sure to separately complete and
return each proxy card. If you attend the meeting and prefer to vote in person,
you may do so.
Please indicate on the proxy card whether or not you expect to attend the
meeting so that we can provide adequate seating.
We look forward to seeing you at the meeting.
Sincerely,
/s/ GARY M. CYPRES
Gary M. Cypres
Chairman of the Board
and Chief Executive Officer
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
------------------------
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Date: Wednesday, May 27, 1998
Time: 10:00 a.m.
Place: Central Financial Acceptance Corporation
5480 East Ferguson Drive
Commerce, California 90022
</TABLE>
Dear Stockholders:
At our Annual Meeting, we will ask you to:
O Elect four directors to each serve for a term of one year;
O Ratify the selection of Arthur Andersen LLP, as independent public
accountants for 1998; and
O Transact any other business that may properly be presented at the
Annual Meeting.
For ten days prior to the Annual Meeting, a complete list of our
stockholders entitled to vote at the Meeting will be available for inspection by
any stockholder for any purpose relating to the Meeting during ordinary business
hours at our offices at 5480 East Ferguson Drive, Commerce, California. This
list will also be available for inspection at the Annual Meeting.
If you were a stockholder of record at the close of business on April 3,
1998, you may vote at the Annual Meeting.
By order of the Board of Directors,
/s/ GARY M. CYPRES
Gary M. Cypres
Chairman of the Board
and Chief Executive Officer
April 27, 1998
Commerce, California
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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<S> <C>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING............. 1
Why Did You Send Me This Proxy Statement?................. 1
Who Is Entitled to Vote?.................................. 1
What Constitutes a Quorum?................................ 1
How Many Votes Do I Have?................................. 1
How Do I Vote By Proxy?................................... 1
May I Change My Vote After I Return My Proxy?............. 2
How Do I Vote in Person?.................................. 2
What Vote Is Required to Approve Each Proposal?........... 2
Proposal 1: Elect Four Directors........................ 2
Proposal 2: Ratify Selection of Independent Public
Accountants............................................ 2
The Effect of Broker Non-Votes.......................... 2
What Are the Costs of Soliciting these Proxies?........... 2
How Do I Obtain an Annual Report on Form 10-K?............ 2
INFORMATION ABOUT CFAC COMMON STOCK OWNERSHIP............... 3
Which Stockholders Own at Least 5% of CFAC................ 3
How Much Stock is Owned by Directors and Executive
Officers?............................................... 4
Compensation Committee Interlocks and Insider
Participation........................................... 5
Did Directors, Executive Officers and Greater-Than-10%
Stockholders Comply with Section 16(a) Beneficial
Ownership Reporting in 1997?............................ 5
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS.......... 5
The Board of Directors.................................... 5
The Committees of the Board............................... 5
The Audit Committee..................................... 5
The Compensation Committee.............................. 5
How Do We Compensate Directors?........................... 6
Certain Relationships and Related Transactions............ 6
Financing Agreement..................................... 6
Automobile Financing Agreement.......................... 7
Option Agreement........................................ 7
Operating Agreement..................................... 7
Tax Sharing Agreement................................... 8
Indemnification Agreements.............................. 8
Executive Officers and Key Employees...................... 9
How We Compensate Executive Officers...................... 10
Summary Compensation Table.............................. 10
Aggregated Option Exercises in Fiscal Year 1997 and
Fiscal Year-End Option Values.......................... 10
Employment Agreements................................... 11
Supplemental Executive Retirement Plan.................. 12
Pension Plan Table...................................... 12
Compensation Committee's Report On Executive
Compensation........................................... 12
The Report............................................ 13
Performance Graph......................................... 14
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD............ 15
Proposal 1: Elect Four Directors........................ 15
Nominees..................................... 15
Proposal 2: Ratify Selection of Independent Public
Accountants for 1998................................... 16
INFORMATION ABOUT STOCKHOLDER PROPOSALS..................... 17
</TABLE>
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PROXY STATEMENT FOR CENTRAL FINANCIAL ACCEPTANCE CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this Proxy Statement and the enclosed proxy card because our
Board of Directors is soliciting your proxy to vote at the 1998 Annual Meeting
of Stockholders. This Proxy Statement summarizes the information you need to
know to cast an informed vote at the Annual Meeting. However, you do not need to
attend the Annual Meeting to vote your shares. Instead, you may simply complete,
sign and return the enclosed proxy card.
WHO IS ENTITLED TO VOTE?
We will begin sending this Proxy Statement, the attached Notice of Annual
Meeting and the enclosed proxy card on April 27, 1998 to all stockholders
entitled to vote. Stockholders who owned CFAC common stock at the close of
business on April 3, 1998 are entitled to vote. On this record date, there were
7,277,000 shares of CFAC common stock, par value $0.01 per share, outstanding.
CFAC common stock is our only class of voting stock. We are also authorized to
issue up to 5,000,000 shares of preferred stock, par value $0.01 per share, of
which no shares are presently issued and outstanding. We are also sending along
with this Proxy Statement, the CFAC 1997 Annual Report, which includes our
financial statements.
WHAT CONSTITUTES A QUORUM?
A majority of our stockholders entitled to vote at the meeting must be
present, in person or by proxy, in order to constitute a quorum. We can only
conduct the business of the meeting if a quorum has been established. We will
include proxies marked as abstentions and broker non-votes in determining the
number of shares present at the meeting.
HOW MANY VOTES DO I HAVE?
Each share of CFAC common stock that you own entitles you to one vote. The
proxy card indicates the number of shares of CFAC common stock that you own.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
postage-prepaid envelope provided. Returning the proxy card will not affect your
right to attend the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the Board of
Directors as follows:
O "FOR" the election of all four nominees for director (see pages 15 to
16), and
O "FOR" ratification of the selection of Arthur Andersen LLP as independent
public accountants for 1998 (see page 16).
If any other matter is presented, your proxy will vote in accordance with
the recommendation of the Board of Directors or, if no recommendation is given,
in their own discretion. At the time this Proxy Statement went to press, we knew
of no matters which needed to be acted on at the Annual Meeting, other than
those discussed in this Proxy Statement.
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MAY I CHANGE MY VOTE AFTER I RETURN MY PROXY?
Yes. If you give a proxy, you may change your vote at any time before it is
exercised. You may change your vote in any one of three ways:
O You may send CFAC's Corporate Secretary another proxy with a later date.
O You may notify CFAC's Corporate Secretary in writing before the Annual
Meeting that you have revoked your proxy.
O You may attend the Annual Meeting and vote in person.
HOW DO I VOTE IN PERSON?
If you plan to attend the Annual Meeting and vote in person, we will give
you a ballot form when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring the proxy card, an account
statement or letter from the nominee indicating that you are the beneficial
owner of the shares on April 3, 1998, the record date for voting, and a written
instruction from the nominee authorizing you to vote the shares.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
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PROPOSAL 1: The four nominees for director who receive the most votes
Elect Four Directors will be elected. So, if you do not vote for a particular
nominee, or you indicate "WITHHOLD AUTHORITY" to vote for a
particular nominee on your proxy card, your vote will not
count either "for" or "against" the nominee. Our Certificate
of Incorporation does not authorize cumulative voting.
PROPOSAL 2: The affirmative vote of a majority of the votes cast at the
Ratify Selection of Independent Annual Meeting on this proposal is required to ratify the
Public Accountants selection of independent public accountants. So, if you
"ABSTAIN" from voting, it has the same effect as if you
voted "against" this proposal.
THE EFFECT OF BROKER NON-VOTES If your broker holds your shares in its name, the broker
will be entitled to vote your shares on Proposals 1 and 2
even if it does not receive instructions from you.
</TABLE>
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
We will pay all the costs of soliciting these proxies. In addition to
mailing proxy soliciting material, our directors, officers and employees also
may solicit proxies in person, by telephone or by other electronic means of
communications for which they will receive no compensation. We will ask banks,
brokers and other institutions, nominees and fiduciaries to forward the proxy
material to their principals and to obtain authority to execute proxies. We will
then reimburse them for their reasonable expenses. In addition, we may pay for
and use the services of individuals or companies that we do not regularly employ
in connection with the solicitation of proxies if the Board of Directors
determines this is advisable.
HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K?
IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997, THAT WE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO:
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
ATTENTION: CORPORATE SECRETARY
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<PAGE> 9
INFORMATION ABOUT CFAC COMMON STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST 5% OF CFAC?
The following table shows, as of April 3, 1998, all persons or entities we
know to be "beneficial owners" of more than five percent of our common stock(1).
This information is based on Schedules 13D and 13G reports filed with the
Securities and Exchange Commission (SEC) by each of the persons and entities
listed in the table below. If you wish, you may obtain these reports from the
SEC.
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COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(2) SHARES(3) CLASS(4)
--------------------------------------- --------- ----------
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Gary M. Cypres(5)........................................... 5,195,000 71.2%
Banner's Central Electric, Inc.(6).......................... 5,150,000 70.8%
Banner Holdings, Inc.(6).................................... 5,150,000 70.8%
West Coast Private Equity Partners, L.P.(6)................. 5,150,000 70.8%
Wellington Management Company, LLP(7)....................... 1,018,700 14.0%
Bay Pond Partners, L.P.(8).................................. 471,000 6.5%
Wellington Hedge Management LLC(9).......................... 471,000 6.5%
Wellington Hedge Management, Inc.(10)....................... 471,000 6.5%
</TABLE>
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(1) "Beneficial ownership" is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. So, for example, you
"beneficially" own CFAC common stock not only if you hold it directly, but
also if you directly or indirectly (through a relationship, a position as a
director or trustee, or a contract or understanding), have (or share) the
power to vote the stock, to invest it, to sell it or you currently have the
right to acquire it or the right to acquire it within 60 days of April 3,
1998.
(2) The address for Mr. Cypres, Banner's Central Electric, Inc., Banner
Holdings, Inc. and West Coast Private Equity Partners, L.P. is 5480 East
Ferguson Drive, Commerce, California 90022, and the address for Wellington
Management Company, LLP, Bay Pond Partners, L.P., Wellington Hedge
Management LLC and Wellington Hedge Management, Inc. is 75 State Street,
Boston, Massachusetts 02109.
(3) Except as otherwise noted below, each person and entity named in the table
directly or indirectly has sole voting and investment power with respect to
the shares shown which each such person or entity beneficially owns.
(4) Shares of CFAC common stock issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998 are considered outstanding for
computing the percentage of the person or entity holding those options but
are not considered outstanding for computing the percentage of any other
person or entity.
(5) Consists of 5,150,000 shares owned by Banner's Central Electric, Inc.
("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 20,000
shares issuable upon exercise of stock options exercisable within 60 days
of April 3, 1998. Of the 5,195,000 shares, Mr. Cypres shares voting and
investment power of 25,000 shares with his spouse and 5,150,000 shares with
Banner, Banner Holdings, Inc. ("Holdings") and West Coast Private Equity
Partners, L.P. ("West Coast").
(6) Banner is the direct beneficial owner of 5,150,000 shares. Banner is a
wholly-owned subsidiary of Holdings. West Coast controls Holdings. Holdings
beneficially owns 5,150,000 shares through its ownership of Banner, and
West Coast beneficially owns 5,150,000 shares through its control of
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 CFAC through
West Coast, Holdings and Banner.
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<PAGE> 10
(7) Based on a Schedule 13G filed with the SEC on February 10, 1998. These
shares are held of record by Wellington Management Company, LLP's ("WMC")
clients. Of the 1,018,700 shares, WMC shares the power to vote 741,900 of
these shares and shares the power to dispose of all these shares in its
capacity as investment advisor to these clients.
(8) Based on a Schedule 13G filed with the SEC on February 27, 1998. Bay Pond
Partners shares voting and investment power over these shares with
Wellington Hedge Management LLC ("WHML") and Wellington Hedge Management,
Inc. ("WHMI"). WHML is the sole general partner of Bay Pond, and WHMI is
the managing member of WHML.
(9) Based on a Schedule 13G filed with the SEC on February 27, 1998. WHML
shares voting and investment power over these shares with WMC and WHMI.
(10) Based on a Schedule 13G filed with the SEC on February 27, 1998. WHMI
shares voting and investment power over these shares with WMC and WHML.
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows, as of April 3, 1998, the CFAC common stock that
our directors and executive officers beneficially own and those shares of common
stock owned by all executive officers and directors as a group.
<TABLE>
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COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(2) CLASS(3)
------------------------ --------- ----------
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Gary M. Cypres(4)........................................... 5,195,000 71.2%
Anthony Fortunato(5)........................................ 20,100 *
Ed Valdez(6)................................................ 14,100 *
Gerard T. McMahon(7)........................................ 6,000 *
Jose de Jesus Legaspi(8).................................... 2,800 *
Salvatore J. Caltagirone(9)................................. 1,400 *
William R. Sweet(10)........................................ 1,400 *
All directors and executive officers as a group (7
persons)(11).............................................. 5,240,800 71.4%
</TABLE>
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* Less than 1%.
(1) See footnote 1 in table included above at page 3 under "Which Stockholders
Own at Least 5% of CFAC?"
(2) Except as otherwise noted below, each individual named in the table
directly or indirectly has sole voting and investment power with respect to
the shares shown which each such individual beneficially owns.
(3) Shares of CFAC common stock issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998 are considered outstanding for
computing the percentage of the person holding those options but are not
considered outstanding for computing the percentage of any other person.
(4) 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 20,000 shares issuable upon exercise of
stock options exercisable within 60 days of April 3, 1998. Of the 5,195,000
shares, Mr. Cypres shares voting and investment power of 25,000 shares with
his spouse and 5,150,000 shares with Banner, Holdings and West Coast.
(5) Includes 20,000 shares issuable upon exercise of stock options exercisable
within 60 days of April 3, 1998.
(6) Includes 12,000 shares issuable upon exercise of stock options exercisable
within 60 days of April 3, 1998.
(7) Consists of 6,000 shares issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998.
(8) Consists of 2,800 shares issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998.
(9) Consists of 1,400 shares issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998.
(10) Consists of 1,400 shares issuable upon exercise of stock options
exercisable within 60 days of April 3, 1998.
(11) Includes 63,600 shares issuable upon exercise of stock options exercisable
within 60 days of April 3, 1998.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Sweet and Caltagirone. Mr.
Legaspi was also a member of the Compensation Committee until his resignation
from such committee on March 4, 1998. Prior to resigning as a CFAC director,
Louis Caldera also served on the Compensation Committee. None of the members of
the Compensation Committee is or has been an officer or employee of CFAC or any
of its subsidiaries. None of our executive officers 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.
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS COMPLY WITH
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING IN 1997?
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers, and greater-than-10% stockholders to file
reports with the SEC and The Nasdaq Stock Market reflecting changes in their
beneficial ownership of CFAC common stock and to provide us with copies of the
reports. Based on our review of these reports and of certifications furnished to
us, we believe that all of these reporting persons complied with their filing
requirements for 1997.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The Board of Directors oversees our business and affairs and monitors the
performance of management. In accordance with corporate governance principles,
the Board does not involve itself in day-to-day operations. The directors keep
themselves informed through, among other things, discussions with the Chairman,
other key executives and our principal external advisers (legal counsel, outside
auditors, investment bankers and other consultants), reading reports and other
materials that we send them and participating in Board and committee meetings.
The Board met two times during fiscal 1997. Each incumbent director
attended at least 75% of the total number of Board and committee meetings, of
which he was a member, held in fiscal 1997.
THE COMMITTEES OF THE BOARD
The Board has an Audit Committee and a Compensation Committee. The full
Board of Directors nominates our officers and directors for election.
THE AUDIT COMMITTEE The Audit Committee reviews and reports to the
Board of Directors on various auditing and
accounting matters, including the annual report
from our independent public accountants. Messrs.
Caltagirone, Legaspi and Sweet currently serve as
members of the Audit Committee. The Audit
Committee met one time during 1997.
THE COMPENSATION COMMITTEE The Compensation Committee determines the salary
and bonus structure for our executive officers
and supervises the compensation scheme for our
other officers. In addition, the Compensation
Committee determines appropriate awards under our
1996 Stock Option Plan (the "1996 Plan") and
administers our retirement plan. Messrs.
Caltagirone and Sweet currently serve as members
of the Compensation Committee. The Compensation
Committee met two times during 1997.
5
<PAGE> 12
HOW DO WE COMPENSATE DIRECTORS?
In 1997, we paid our non-employee directors an annual fee of $15,000 for
Board and Committee meetings, subject to proration for length of service during
the year. We paid Mr. Caldera an additional $4,000 for consulting services
during the period he served as a CFAC director. Mr. Cypres, our Chief Executive
Officer, received no fees for serving as a CFAC director. In addition, the
Compensation Committee may in its sole discretion grant to our non-employee
directors options to purchase shares of CFAC common stock. All options granted
to 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. We have entered into agreements with all directors pursuant to which
we have 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 our Certificate of Incorporation and Bylaws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed on April 11, 1996. We entered into an agreement with Banner
and Holdings, on June 24, 1996 which was subsequently amended (the
"Reorganization Agreement") under which Holdings contributed to Banner its
investments in its subsidiaries that operate the small loan, travel, automobile
sales, and related businesses (the "Holdings Subsidiaries"). Under this
Agreement, Banner then contributed to CFAC its investments in the Holdings
Subsidiaries and in its subsidiary that holds the Consumer Product Portfolio
(collectively, the "Subsidiaries") and cash in such amount so as to leave us
with $500,000 on hand upon consummation of such transaction (the
"Reorganization"). The Reorganization Agreement also provides that the
intercompany accounts between CFAC, Banner and Holdings were forgiven, except
with respect to income taxes. As a result, we had $500,000 of cash on hand upon
the Reorganization.
In connection with the Reorganization and under the Reorganization
Agreement, we entered into various agreements with Banner and Holdings for the
purpose of defining our ongoing relationships among each other. Because Holdings
controls us and Banner (see "Which Stockholders Own at Least 5% of CFAC?" at
page 3), these agreements did not result from arm's-length negotiations. We
believe, however, that these agreements are at least as favorable to us as those
that could have been obtained from independent third parties.
Financing Agreement
We have entered into an agreement with Banner and Holdings, which was
subsequently amended (the "Financing Agreement") under which Banner granted us
the exclusive right, at our option, (i) to purchase consumer finance receivables
which Banner originates for sales of merchandise at its 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. We are 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. We 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, we will have the right to purchase consumer
finance receivables at face value less a transaction fee which is currently set
at 2.5%. This transaction fee is subject to renegotiation at six month intervals
to reflect our costs associated with providing financing under the Financing
Agreement. If we originate such receivables, Banner will be obligated to pay us
a transaction fee in an amount to be initially established by the parties and
subject to renegotiation at six month intervals. As a result of increasing
delinquencies in the Consumer Product Portfolio, the Financing Agreement was
amended, effective July 1, 1997, to permit us for the year ended December 31,
1997 to return to Banner up to $5.8 million of the balance of the Consumer
Product Portfolio at December 31, 1996. Banner does not charge us for the space
we occupy in its locations in recognition of the value provided by the presence
of our financial products and services in its retail locations.
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<PAGE> 13
Automobile Financing Agreement
In August 1996, we entered into the Automobile Financing Agreement with
Banner, under which we sold our 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 we 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 Banner generates. In addition, all financing we extend on automobiles
Banner sells would be with full recourse back to Banner in the event the
customer defaults. Accordingly, Banner would not provide any dealers discount
for cars sold under this Agreement. On May 30, 1997, Banner discontinued the
used car sales business.
Option Agreement
We have entered into an agreement with Banner and Holdings (the "Option
Agreement") under which Holdings granted us an option to purchase all of
Banner's outstanding capital stock (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 Banner's net book value as reflected on its 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 we exercise the Option, the exercise
price is payable in cash or in shares of CFAC common stock valued at the average
last sale price of our common stock during the ten trading-day period preceding
the date on which we deliver to Holdings our written notice of exercise. Until
the Option Termination Date, Holdings may not, without our prior written
consent, sell, offer or agree to sell, grant any option for the sale of, or
otherwise dispose of any of Banner's capital stock (or any securities
convertible into, exercisable for or exchangeable for Banner's capital stock)
nor will Banner sell substantially all of its assets.
Operating Agreement
We have entered into an agreement with Banner and Holdings (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 us, Banner and Holdings,
the Operating Agreement provides that Holdings and its subsidiaries (other
than CFAC and its subsidiaries) will not, without our prior written
consent, directly or indirectly engage in or enter into any business
competing with us 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 our election, such
Restricted Business to us 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 CFAC's outstanding voting stock.
Management and Other Services. The Operating Agreement provides that
Banner, Holdings or their affiliates are obligated to provide to us, and we
are obligated to use certain services, including accounting, management
information systems and employee benefits. Except for management
information systems, these arrangements will continue until terminated by
us, 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 Banner contributes to us, or to
the extent that Banner, Holdings or their affiliates incur other costs that
directly relate to us, we are 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 us based on the ratio of actual
employer payroll expenses in the consumer products business contributed by
Banner to the Company compared to total actual payroll expenses of Banner
before such allocation. Accounting
7
<PAGE> 14
expenses are allocated 50% to us. The operating costs of Banner's
management information systems function are allocated initially 50% to us
for a period of five years, subject to adjustment from time to time to
reflect changing costs and usage. Such allocated expenses totaled $1.6
million and $1.3 million for the years ended December 31, 1997 and 1996,
respectively.
Employee Benefits. Under the Operating Agreement, we assumed all
liabilities of Banner, Holdings and the Subsidiaries under existing
employee welfare benefit and profit sharing plans with respect to the
employees of Banner, Holdings and the Subsidiaries who became our
employees.
Tax Sharing Agreement
We have entered into an agreement with Holdings and Banner (the "Tax
Sharing Agreement") providing for (i) the payment of federal, state and other
income tax remittances or refunds for periods during which we 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 we were included in Holdings'
consolidated federal income tax returns, we are required to pay Holdings its
allocable portion of the consolidated federal, state and other income tax
liabilities and are entitled to receive refunds determined as if we and our
subsidiaries had filed separate income tax returns. With respect to Holdings'
liability for payment of taxes for all periods during which we were so included
in Holdings' consolidated federal income tax returns, we 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 we were included in Holdings' consolidated federal income tax returns.
Indemnification Agreements
We have entered into an indemnification agreement with Holdings and Banner
(the "Indemnification Agreement") under which we 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 Banner's breach of its fiduciary duty to our other
stockholders) that arise from or are based on the operations of the business of
CFAC and its subsidiaries after the date of the Reorganization. We 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 which Holdings or Banner makes to third
parties in respect of our liabilities or obligations, whether or not such
obligations arose before or after the Reorganization. Holdings and Banner will
indemnify and hold harmless CFAC 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 CFAC 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.
8
<PAGE> 15
EXECUTIVE OFFICERS AND KEY EMPLOYEES
These are the biographies of CFAC's current executive officers, except for
Mr. Cypres, the Chief Executive Officer and Chief Financial Officer, whose
biography is included below at page 15 under Proposal 1 "Elect Four Directors."
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
------------ --------------------------------------------
<S> <C>
Anthony Fortunato (49) Mr. Fortunato has been CFAC's President since March 18,
1998. From October 18, 1996 to March 18, 1998, Mr. Fortunato
was our Executive Vice President of Operations. Prior to
joining CFAC, 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 (50) Mr. McMahon has been CFAC's Executive Vice President of
Credit and Collections since September 23, 1996. Prior to
joining CFAC, 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 (46) Mr. Valdez has been CFAC's Senior Vice President of Credit
since its formation, Senior Credit Manager of consumer
product finance business since 1986 and Senior Credit
Manager of small loan business since November 1992. Mr.
Valdez has been working for CFAC or its predecessors for
over 28 years.
</TABLE>
Set forth below are biographies of certain other significant employees of
CFAC.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
------------ --------------------------------------------
<S> <C>
Alan E. Scheneman (46) Mr. Scheneman has been CFAC's Senior Vice President since
its formation. Mr. Scheneman joined our 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 our
management information system.
Marvin A. Torres (36) Mr. Torres has been President of CFAC's travel finance
business since December 1995. From April 1995 to December
1995, Mr. Torres was Vice President of Operations for our
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.
</TABLE>
9
<PAGE> 16
HOW WE COMPENSATE EXECUTIVE OFFICERS
The following table shows the compensation paid during the last three years
to (or for such shorter period that we employed the individual), the Chief
Executive Officer and the other executive officers who received salary and bonus
at a rate in excess of $100,000 in such years (collectively, the "Named
Executive Officers"). No other executive officer received salary and bonus in
excess of $100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary M. Cypres(2)........................... 1997 $175,000 $ 500 -- $77,000(5)
Chairman of the Board, Chief Executive 1996 $175,000 $30,000 100,000 $77,000(5)
Officer and Chief Financial Officer 1995 $175,000 -- -- --
Anthony Fortunato(3)........................ 1997 $230,000 $ 500 -- --
President 1996 $ 46,154 -- 100,000 --
1995 -- -- -- --
Gerard T. McMahon(4)........................ 1997 $160,000 $ 500 -- --
Executive Vice President of Credit and 1996 $ 43,692 -- 30,000 --
Collections 1995 -- -- -- --
Ed Valdez................................... 1997 $ 95,000 $ 500 -- --
Senior Vice President of Credit 1996 $ 95,000 $14,000 30,000 $ 1,327(6)
1995 $ 84,615 $10,000 -- $ 1,815(6)
</TABLE>
- - ---------------
(1) Certain of our 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. Mr. Cypres also served as
President until Mr. Fortunato assumed such position in March 1998.
(3) Mr. Fortunato joined CFAC in October 1996. Mr. Fortunato served as Executive
Vice President of Operations until he was appointed President in March 1998.
(4) Mr. McMahon joined CFAC 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.
We granted no stock options to any of the Named Executives during 1997. The
following table sets forth the number and value of stock options held by the
Named Executive Officers at December 31, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 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....................... 20,000 80,000 -- --
Anthony Fortunato.................... 20,000 80,000 -- --
Gerard T. McMahon.................... 6,000 24,000 -- --
Ed Valdez............................ 6,000 24,000 -- --
</TABLE>
- - ---------------
(1) None of the options were in the money based upon the $9 5/8 per share
closing price of CFAC's common stock on the Nasdaq National Market on
December 31, 1997.
10
<PAGE> 17
EMPLOYMENT AGREEMENTS
Gary M. Cypres. In June 1996, we entered into an employment agreement with
Mr. Cypres. Under the employment agreement, Mr. Cypres will serve as our
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 our executive compensation plans. Mr.
Cypres also agreed to serve as our President and Chief Executive Officer until
December 31, 1997. As provided in the employment agreement, since we had not
named a new 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 our Board of
Directors. The employment agreement also provides that Mr. Cypres will
participate in our defined benefit Supplemental Executive Retirement Plan (the
"SERP Plan") and be credited with eight and one-half years of service for his
contribution to us since 1991 when we were acquired by our current management
and for entering into the employment agreement. In addition, on December 31,
1997 Mr. Cypres was treated as satisfying his post-adoption service requirement
under the SERP Plan.
If Mr. Cypres is terminated "for cause," which definition generally
includes our termination of him 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
we will be obligated to pay him only his base salary up to the date upon which
we notify him of his termination "for cause." If Mr. Cypres is terminated
without "cause," becomes disabled or dies, then we 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 our employees or compete with us in
any manner following his resignation or termination from CFAC for any period for
which we have paid him a lump sum in accordance with the employment agreement,
which period shall be no less than 12 months.
Anthony Fortunato. In October 1996, we entered into an employment agreement
with Mr. Fortunato. Under the employment agreement, Mr. Fortunato will serve as
our Executive Vice President of Operations or in other senior management
positions 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 our 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. In March 1998, these
options were cancelled and regranted at an exercise price of $12.00 per share.
These options vest over a five-year period.
If Mr. Fortunato is terminated "for cause," which definition generally
includes our termination of him 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
we will be obligated to pay him only his base salary up to the date upon which
we notify him of his termination "for cause." If we terminate Mr. Fortunato
without "cause," then we 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 the
employment agreement provides for.
Mr. Fortunato has agreed not to solicit our employees or compete with us in
any manner following his resignation or termination from CFAC for any period for
which we have paid him a lump sum in accordance with the employment agreement,
which period shall be no less than 12 months.
Gerard T. McMahon. In August 1996, we entered into an employment agreement
with Mr. McMahon. Under the employment agreement, Mr. McMahon will serve as our
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 our 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. In March 1998, these options
were cancelled and regranted at an exercise price of $12.00 per share. These
options vest over a five-year period.
11
<PAGE> 18
Except as described above, we have not entered into employment agreements
with any other of our executive officers or other members of management.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In June 1996, we adopted the Supplemental Executive Retirement Plan ("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 us, including five years subsequent to the adoption of the plan.
Upon completion of our initial public offering, Mr. Cypres was credited with
eight and one-half years of service with us and was treated as having fulfilled
his post-adoption service on December 31, 1997 by acting as our President and
Chief Executive Officer through such date. The Board of Directors determines
participation in the SERP Plan. The SERP Plan benefits are a function of length
of service with us 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 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, 1997, 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, 1997, Mr. Cypres was fully vested under the SERP Plan.
COMPENSATION COMMITTEE'S REPORT
ON EXECUTIVE COMPENSATION
The following Compensation Committee's Report on Executive Compensation
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission ("SEC") or subject to Regulations 14A or 14C
of the SEC or to the liabilities of Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and shall not be deemed incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
notwithstanding any general incorporation by reference of this Proxy Statement
into any other document.
12
<PAGE> 19
THE REPORT
The Compensation Committee of the Board of Directors (the "Committee") is
composed of the two directors who are not also our employees. The Committee
establishes our overall compensation and employee benefits and the specific
compensation of our executive officers. One of the Committee's goals is to
implement executive officer compensation programs that further our business
objectives and that attract, retain and motivate the best qualified executive
officers.
We adopt and administer our Company's executive compensation policies and
specific executive compensation programs in accordance with the principal goal
of maximizing return on stockholders' equity. The Committee believes that we
best achieve this performance goal, and the long-term interests of our
stockholders generally by attracting and retaining management of high quality,
and that such management will require commensurate compensation. We believe that
our executive officer compensation policies are consistent with this policy.
Certain of our executive officers, including the Chief Executive Officer,
have written employment agreements with us (see "Employment Agreements" at page
11 to 12 above). The Committee determines the levels of compensation that we
grant in such employment agreements, and the levels of compensation that we
grant to other executive officers from time to time, based on factors that it
deems appropriate.
The Committee determines annual compensation levels for executive officers
and compensation levels to be implemented from time to time in written
employment agreements with executive officers based primarily on its review and
analysis of the following factors: (i) the responsibilities of the position,
(ii) the performance of the individual and his or her general experience and
qualifications, (iii) our overall financial performance (including return on
equity, levels of general and administrative expense and budget variances) for
the previous year and the contributions that the individual or his or her
department made to such performance measures, (iv) the officer's total
compensation during the previous year, (v) compensation levels comparable
companies pay in similar industries, (vi) the officer's length of service with
us, and (vii) the officer's effectiveness in dealing with external and internal
audiences. In addition, the Committee receives the recommendations of the Chief
Executive Officer with respect to the compensation of other executive officers,
which the Committee reviews in light of the above factors. The Committee
believes that the base compensation of the executive officers is competitive
with companies of similar size and with comparable operating results in similar
industries.
Mr. Cypres' base salary was established by an employment agreement entered
into concurrent with our initial public offering. In addition, the Chief
Executive Officer's compensation for 1997 was based in part on his progress in
achieving certain additional criteria. These criteria included results in
meeting our strategic business plan, and leadership abilities (including
developing an effective senior management team).
While the Committee establishes salary and bonus levels based on the above
described criteria, the Committee also believes that encouraging equity
ownership by executive officers further aligns the interests of the officers
with the performance objectives of our stockholders and enhances our ability to
attract and retain highly qualified personnel on a basis competitive with
industry practices. Stock options that we granted under our 1996 Plan help
achieve this objective, and provide additional compensation to the officers to
the extent that the price of the common stock increases over fair market value
on the date of grant. We have granted stock options to each of the Named
Executives and to our other officers or key employees. Through the 1996 Plan,
there will be an additional direct relationship between our performance and
benefits to executive officer Plan participants.
Dated: April 27, 1998 COMPENSATION COMMITTEE
William Sweet, Chairman
Salvatore Caltagirone
13
<PAGE> 20
PERFORMANCE GRAPH
The following graph compares, for the period from June 26, 1996 (the date
of our initial public offering) through December 31, 1997, the percentage change
in our cumulative total stockholder return of CFAC common stock with the
cumulative total return of (i) the Nasdaq Total Return Index, (ii) the Nasdaq
Financial Index, and (iii) the SNL Subprime Lenders Index. We have adopted the
SNL Subprime Lenders Index for this Proxy Statement because we believe it
provides a more representative composite peer group performance comparison than
the Nasdaq Financial Index. We believe that the business of the companies that
make up the SNL Subprime Lenders Index are more representative of our
specialized consumer finance focus. The graph assumes an initial investment of
$100 and reinvestment of dividends. The graph is not necessarily indicative of
future price performance.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent that we specifically incorporate the information by reference, and
shall not otherwise be deemed filed under such acts.
COMPARISON OF TOTAL RETURN TO STOCKHOLDER
AMONG CFAC, NASDAQ STOCK MARKET, NASDAQ
FINANCIAL INDEX AND SNL SUBPRIME LENDERS INDEX
Central Financial Acceptance Corporation
Total Return Performance
<TABLE>
<CAPTION>
Period Ending
---------------------------------------------------------------------------
Index 6/26/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Central Financial Acceptance Corporation 100.00 160.94 166.67 133.33 92.71 91.67 80.21
NASDAQ - Total US 100.00 106.50 111.73 105.67 125.04 146.20 137.11
NASDAQ Financial Index 100.00 109.31 121.43 126.67 147.51 172.13 186.36
SNL Subprime Lenders Index 100.00 119.00 113.78 86.38 92.82 105.22 68.28
</TABLE>
14
<PAGE> 21
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECT FOUR DIRECTORS
Our bylaws provide that the exact number of directors will be fixed from
time to time by action of our stockholders or Board of Directors. The number of
directors currently is fixed at four.
The Board has nominated four directors for election at the Annual Meeting.
Each nominee is currently serving as one of our directors. If you re-elect them,
they will hold office until the annual meeting in 1999 or until their successors
have been elected or until they resign.
We know of no reason why any nominee may be unable to serve as a director.
If any nominee is unable to serve, your proxy may vote for another nominee
proposed by the Board, or the Board may reduce the number of directors to be
elected. If any director resigns, dies or is otherwise unable to serve out his
term, or the Board increases the number of directors, the Board may fill the
vacancy until the next annual meeting.
NOMINEES
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
------------ --------------------------------------------
<S> <C>
Gary M. Cypres (54) Mr. Cypres has been CFAC's Chairman of the Board, Chief
Executive Officer and Chief Financial Officer since its
formation. Mr. Cypres also served as CFAC's President from
its formation to March 18, 1998. Mr. Cypres has been
Chairman of the Board, Chief Executive Officer, President
and Chief Financial Officer of Banner Holdings, Inc.
("Holdings") and Banner's Central Electric, Inc. ("Banner")
since February 1991, Chairman of the Board and Chief
Executive Officer of Central Rents, Inc. since June 1994 and
managing general partner of West Coast Private Equity
Partners, L.P. ("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 our operations and to direct or
implement our 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.
Salvatore J. Caltagirone (55) Mr. Caltagirone has been a CFAC director 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.
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
------------ --------------------------------------------
<S> <C>
Jose de Jesus Legaspi (45) Mr. Legaspi has been a CFAC director since July 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 (60) Mr. Sweet has been a CFAC director 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.
</TABLE>
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL FOUR NOMINEES
FOR DIRECTOR.
PROPOSAL 2: RATIFY SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS FOR 1998
We are asking you to ratify the Board's selection of Arthur Andersen LLP,
certified public accountants, as independent public accountants for 1998. The
Audit Committee recommended the selection of Arthur Andersen to the Board. All
professional services Arthur Andersen rendered to us during 1997 were furnished
at customary rates and terms. Arthur Andersen has served as the independent
public accountants of CFAC since October 1996.
On October 17, 1996, we changed our independent accountant by terminating
our engagement of Deloitte & Touche LLP ("Deloitte & Touche") and selecting
Arthur Andersen as our independent accountant to audit our financial statements
for the year ended December 31, 1996.
Deloitte & Touche audited our consolidated balance sheets and our
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income, stockholders equity, and cash flows for the years ended
October 31, 1993 and 1994, the two months ended December 31, 1993 and 1994, and
the years ended December 31, 1994 and 1995 (collectively referred to as the
"Financial Statements"). Deloitte & Touche's report on the Financial Statements
did not contain an adverse opinion or disclaimer of opinion nor was it qualified
or modified as to uncertainty, audit scope, or accounting principles.
The decision to terminate our engagement of Deloitte & Touche and select
Arthur Andersen was unanimously recommended by our Audit Committee and
unanimously approved by our Board of Directors.
During our three most recent fiscal years and/or our subsidiaries', and the
subsequent interim period preceding the aforesaid change, there were no
reportable events as contemplated by Item 304 of Regulation S-K and no
disagreements between us and/or our subsidiaries and Deloitte & Touche on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which if not resolved to the satisfaction of
Deloitte & Touche would have caused them to make reference to the subject matter
of the disagreement in their report. We have authorized Deloitte & Touche to
fully respond to any inquiries by our new independent auditor, Arthur Andersen.
A representative of Arthur Andersen will attend the Annual Meeting and be
able to make a statement and to answer your questions.
We are submitting this proposal to you because the Board believes that such
action follows sound corporate practice. If you do not ratify the selection of
independent public accountants, the Board will consider it a direction to
consider selecting other public accountants. However, even if you ratify the
selection, the Board may still appoint new independent public accountants at any
time during the year if it believes that such a change would be in the best
interests of CFAC and our stockholders.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE SELECTION OF
ARTHUR ANDERSEN AS INDEPENDENT PUBLIC ACCOUNTANTS FOR 1998.
16
<PAGE> 23
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 1999 proxy statement,
we must receive them, in a form which complies with the applicable securities
laws, on or before December 28, 1998. Please address your proposals to: Central
Financial Acceptance Corporation, 5480 East Ferguson Drive, Commerce, California
90022, Attention: Corporate Secretary.
By order of the Board of Directors,
/s/ JONI MAGGIO
Joni Maggio
Corporate Secretary
April 27, 1998
17
<PAGE> 24
REVOCABLE PROXY CENTRAL FINANCIAL ACCEPTANCE CORPORATION REVOCABLE PROXY
ANNUAL MEETING OF STOCKHOLDERS -- MAY 27, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Central Financial Acceptance Corporation
(the "Company") hereby nominate(s), constitute(s) and appoint(s) Salvatore J.
Caltagirone, Gary M. Cypres, Jose de Jesus Legaspi and William R. Sweet, and
each of them, the attorney, agent and proxy of the undersigned, with full power
of substitution, to vote all stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company (the
"Meeting") to be held at the Company's corporate headquarters, 5480 East
Ferguson Drive, Commerce, California 90022 at 10:00 a.m., on Wednesday, May 27,
1998, and any adjournments thereof, as fully and with the same force and effect
as the undersigned might or could do if personally present thereat, as follows:
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[ ] FOR all the nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
Salvatore J. Caltagirone, Gary M. Cypres, Jose de Jesus Legaspi and William R.
Sweet
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
- - --------------------------------------------------------------------------------
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. OTHER BUSINESS. In their discretion, the proxyholders are authorized to
transact such other business as may properly come before the Meeting, and
any adjournment or adjournments thereof.
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE> 25
(CONTINUED FROM FRONT SIDE OF PROXY CARD)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES LISTED AND "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1998.
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE BOARD OF DIRECTORS'
NOMINEES UNLESS AUTHORITY TO DO SO IS WITHHELD AND "FOR" RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS UNLESS "AGAINST" OR "ABSTAIN" IS MARKED ON THE PROXY. IF ANY OTHER
BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED BY THE
PROXYHOLDERS IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD
OF DIRECTORS.
THE UNDERSIGNED HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEYS AND
PROXYHOLDERS, OR ANY OF THEM, OR THEIR SUBSTITUTES, SHALL LAWFULLY DO OR CAUSE
TO BE DONE BY VIRTUE HEREOF, AND HEREBY REVOKES ANY AND ALL PROXIES HERETOFORE
GIVEN BY THE UNDERSIGNED TO VOTE AT THE MEETING. THE UNDERSIGNED HEREBY
ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND THE PROXY STATEMENT
ACCOMPANYING SAID NOTICE.
DATED:
-------------------------------------------------------------------------, 1998
-------------------------
SIGNATURE
-------------------------
SIGNATURE
NOTE: Please date this
Proxy and sign your name
exactly as it appears on
your stock certificates.
Executors,
administrators, trustees,
etc., should give their
full titles. All joint
owners should sign.
I (we) [ ] do [ ] do not
expect to attend the
Meeting.
PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.
