<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-11815
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4574983
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
(Address of principal executive offices) (Zip Code)
(323) 720-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
------ ------
Number of shares outstanding of the Registrant's Common Stock, as of August 11,
1999: 7,277,000.
<PAGE> 2
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 ................ 1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998....................................................................... 2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998....................................................................... 3
Notes to Condensed Consolidated Financial Statements ........................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15
Item 5. Other Information............................................................................. 16
Item 6. Exhibits and Reports on Form 8-K.............................................................. 16
Signatures................................................................................................. 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(UNAUDITED)
A S S E T S
<S> <C> <C>
Cash $ 5,602 $ 8,295
Restricted cash 2,690 1,195
Finance receivables, net 85,275 96,195
Prepaid expenses and other current assets 2,034 1,686
Inventory 3,070 --
Note receivable from affiliate -- 2,478
Deferred income taxes 2,442 2,442
Income taxes receivable, net -- 1,458
Property and equipment, net 7,407 6,677
Intangible asset, net 11,008 8,659
-------- --------
Total assets $119,528 $129,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 36,200 $ 52,000
Accrued expenses and other current liabilities 9,338 6,941
Note payable to affiliate 586 --
Income taxes payable, net 551 --
-------- --------
Total liabilities 46,675 58,941
-------- --------
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 24,877 22,168
-------- --------
Total stockholders' equity 72,853 70,144
-------- --------
Total liabilities and stockholders' equity $119,528 $129,085
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Interest income on consumer finance receivables $ 5,646 $ 5,900 $11,651 $12,331
Interest income on auto finance receivables 56 182 137 412
Travel services income 3,432 2,247 5,675 4,105
Other income 3,659 2,835 7,294 6,390
------- ------- ------- -------
Total revenues 12,793 11,164 24,757 23,238
------- ------- ------- -------
Costs and expenses:
Operating expenses 7,542 6,519 14,273 13,540
Provision for credit losses 2,189 1,756 4,208 3,775
Interest expense 800 951 1,758 2,102
------- ------- ------- -------
Total costs and expenses 10,531 9,226 20,239 19,417
------- ------- ------- -------
Income before provision for income taxes 2,262 1,938 4,518 3,821
Provision for income taxes 907 776 1,809 1,528
------- ------- ------- -------
Net income $ 1,355 $ 1,162 $ 2,709 $ 2,293
======= ======= ======= =======
Per Share Data:
Basic earnings per share $ 0.19 $ 0.16 $ 0.37 $ 0.32
Diluted earnings per share $ 0.19 $ 0.16 $ 0.37 $ 0.32
Weighted average common shares outstanding 7,277 7,277 7,277 7,277
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,709 $ 2,293
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 678 476
Provision for credit losses 4,208 3,775
Deferred income taxes -- 2
Changes in assets and liabilities:
Inventory (3,070) --
Note receivable from affiliate, net 3,064 4,556
Prepaid expenses and other current assets (348) 1,735
Restricted cash (1,495) (231)
Income taxes, net 2,009 463
Accrued expenses and other current liabilities 2,374 1,396
-------- --------
Net cash provided by operating activities 10,129 14,465
-------- --------
Cash flows from investing activities:
Installment contracts collected, net 6,712 10,774
Acquisitions (2,772) --
Capital expenditures (962) (399)
-------- --------
Net cash provided by investing activities 2,978 10,375
-------- --------
Cash flows from financing activities:
Net repayments of notes payable (15,800) (23,600)
-------- --------
Net cash used in financing activities (15,800) (23,600)
Net (decrease) increase in cash (2,693) 1,240
Cash, beginning of period 8,295 4,794
-------- --------
Cash, end of period $ 5,602 $ 6,034
======== ========
Cash paid during the period for:
Interest $ 2,086 $ 2,449
Income taxes $ 800 $ 18
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
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" or the "Company") 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 footnotes 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 herein have been included. Operating results for the period ended June
30, 1999 are not necessarily indicative of the results that may be expected for
any subsequent period or for the year ended December 31, 1999. These interim
financial statements should be read in conjunction with the Annual Report filed
on Form 10-K for the year ended December 31, 1998 and the audited 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 is a majority owned subsidiary of Banner Holdings, Inc. ("Holdings").
Banner's Central Electric, Inc. ("Banner"), which is wholly owned by Holdings,
is a consumer products retailer that provides its customers with financing for
the merchandise it sells.
CFAC, Banner 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 Company (1) purchases and services consumer finance receivables
generated through the sale of high quality brand name consumer products,
appliances and furniture sold by Banner, and by independent retailers; (2)
provides unsecured small loans to its customers; (3) originates and services
consumer finance receivables generated by the Company's customers for purchases
of airline tickets sold by the Company; (4) provides insurance products and
insurance premium financing to its customers; (5) provides check cashing and
income tax return preparation services; (6) provides mortgage loan financing to
its customers; (7) purchases consumer product inventory which it holds under a
consignment arrangement until sold by Banner; and, (8) provided financing for
purchases of used automobiles sold by Banner through May 30, 1997. The majority
of the Company's business is focused in Southern California, and the Company
experiences the highest demand for its products and services between October and
December.
Reclassification - Certain reclassifications have been made to
previously reported amounts to conform to the current year presentation.
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 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
See Note 2 of Notes to Consolidated Financial Statements in the
Company's Annual Report filed on Form 10-K for the year ended December 31, 1998
for a summary of significant accounting principles.
4
<PAGE> 7
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. EARNINGS PER SHARE
The Company reports earnings per share according to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The following table presents a reconciliation of basic earnings per
share and diluted earnings per share. Options to purchase 446,000 shares of
common stock at $12.00-$18.25 per share, were outstanding during the first six
months of 1998, but were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price of the
common shares. Options to purchase 673,000 shares of common stock at
$5.00-$12.00 per share were outstanding during the first six months of 1999, but
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Basic Diluted Basic Diluted
Earnings Earnings Earnings Earnings
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C>
Numerator- income from continuing operations $1,355 $1,355 $1,162 $1,162
Denominator-weighted average shares outstanding 7,277 7,277 7,277 7,277
Earnings per share $ 0.19 $ 0.19 $ 0.16 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Basic Diluted Basic Diluted
Earnings Earnings Earnings Earnings
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C>
Numerator- income from continuing operations $2,709 $2,709 $2,293 $2,293
Denominator-weighted average shares outstanding 7,277 7,277 7,277 7,277
Earnings per share $ 0.37 $ 0.37 $ 0.32 $ 0.32
</TABLE>
5
<PAGE> 8
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. CONSUMER FINANCE RECEIVABLES
Consumer Finance receivables consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(In thousands)
<S> <C> <C>
Consumer Product Portfolio $ 28,622 $ 33,886
Small Loan Portfolio 55,883 62,248
Automobile Finance Portfolio 1,235 2,445
Travel Finance Portfolio 4,759 4,988
Other 5,395 4,715
-------- --------
95,894 108,282
Less deferred interest 3,619 4,657
Less allowance for credit losses 4,649 4,649
Less deferred administrative fees, Efectiva
membership fees and insurance revenues 1,874 2,263
Less credit insurance and reserves for
policyholders' benefits 477 518
-------- --------
$ 85,275 $ 96,195
======== ========
</TABLE>
5. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(In thousands)
<S> <C> <C>
Wells Fargo Line of Credit $ 36,200 $ 52,000
======== ========
</TABLE>
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. Holdings and all of the
Company's significant domestic subsidiaries are guarantors under the Wells Fargo
Line of Credit. In addition, the Company has pledged substantially all of its
assets, including its receivables, and the stock of all of its significant
subsidiaries as collateral for the amounts the Company borrows under the Wells
Fargo Line of Credit. 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 held by 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 available credit
under the facility was approximately $21,600,000 at June 30, 1999 and was
limited by the allowable borrowing base.
6
<PAGE> 9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. 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 an 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 Financing Agreement, as
amended, also allowed the Company, in 1998, to return to Banner $1.5 million of
previously purchased receivable contracts. The Company did not return any
receivable contracts purchased during the six months ended June 30, 1999. The
Company can terminate the Financing Agreement at any time upon one year's prior
written notice to Banner. All unpaid amounts are due within 18 months and bear
interest at the Company's borrowing rate.
In the accompanying condensed consolidated financial statements the
transaction fee is computed based upon 2.5% of the net receivables written in
the consumer product portfolio. Effective July 1, 1999, the transaction fee will
be based on 1.75% of the net receivables written in the consumer product
portfolio.
In August, 1996, CFAC sold its used automobile business back to Banner,
which discontinued this business in May, 1997. Under the terms of the sale
covering this transaction, 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.
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. 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. Such
allocated expenses totaled approximately $600,000 and $760,000 for the six
months ended June 30, 1999 and 1998, respectively.
In July 1998, the Company agreed to provide financing to Banner for the
purchase of inventory and in return will receive a security interest in the
financed inventory. In connection with such financing the Company will charge
Banner interest at the Company's borrowing rate and the notes will be due on
demand. The Company has also agreed to provide third party guaranties to
selected vendors of Banner for inventory purchases. Through June 30, 1999 the
Company has net advances to Banner for inventory purchases or to vendors on
behalf of Banner for inventory purchases, including other ongoing affiliate
receivables of approximately $1.3 million. Interest income realized on the
amount due from Banner was approximately $59,000 for the six months ended June
30, 1999.
In April 1999, the Company, through its subsidiary, Central Banner's,
Inc., began purchasing inventory which it holds under a consignment arrangement
with Banner until sold by Banner. For the six months ending June 30, 1999, the
Company has sold, at cost, $2.7 million of inventory to Banner. At June 30,
1999, the Company has on hand $3.1 million of inventory.
7
<PAGE> 10
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. INDUSTRY SEGMENTS
Effective January 1, 1998, the Company adopted the provisions of SFAS
131 "Disclosures About Segments of an Enterprise and Related Information." The
Company has identified four reportable segments through which it conducts its
continuing operations: Finance Business, Travel Business, Other and Corporate.
The factors for determining the reportable segments are based on the distinct
nature of their operations. They are managed as separate business units because
each requires and is responsible for executing a unique business strategy. The
Finance Business includes the Consumer Product Portfolio, Small Loan Portfolio,
Independent Retail Loan Portfolio, Automobile Finance Portfolio, Travel Finance
Portfolio, Premium Finance Portfolio and the Mortgage Loan Portfolio. The Travel
Business includes the Company's travel locations. Other includes the Company's
insurance business including the captive insurance company, the income tax
preparation business, the check cashing business and the inventory consignment
business. Corporate includes all corporate overhead not specifically allocated
to any business segment. Substantially all of the operations of the above
businesses are concentrated in Southern California.
The accounting policies of these reportable segments are the same as
those described in the summary of significant accounting policies. Management
evaluates and monitors segment performance primarily through revenues and
earnings before interest and taxes, (EBIT). Results of operations and financial
position of the reporting segments are shown in the table below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------------------
FINANCE TRAVEL
BUSINESS BUSINESS OTHER CORPORATE TOTAL
-------- -------- ----- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $ 16.0 $ 5.7 $ 3.0 $ -- $ 24.7
Depreciation & amortization 0.4 0.2 0.1 -- 0.7
Corporate expenses -- -- -- 5.4 5.4
Earnings before interest
and taxes (EBIT) 9.3 1.4 1.1 (5.4) 6.4
Total assets 100.1 10.4 8.5 0.6 119.6
Additions to long-lived assets 0.3 0.2 0.4 0.2 1.1
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------------------
FINANCE TRAVEL
BUSINESS BUSINESS OTHER CORPORATE TOTAL
-------- -------- ----- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $ 16.2 $ 4.1 $ 2.8 $ 0.1 $ 23.2
Depreciation & amortization 0.4 0.1 0.1 -- 0.6
Corporate expenses -- -- -- 4.6 4.6
Earnings before interest
and taxes (EBIT) 9.3 0.5 0.7 (4.6) 5.9
Total assets 101.3 8.0 4.9 0.9 115.1
Additions to long-lived assets 0.2 -- 0.1 0.1 0.4
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In February 1998, CFAC entered into a definitive agreement to acquire
Mission Savings and Loan Association (Mission), a federally chartered savings
association based in Riverside, California. On May 31, 1999, the acquisition
agreement between CFAC and Mission expired pursuant to its terms and was not
renewed.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-Q may
constitute forward-looking statements under 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"). These statements may
involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which the
Company operates, projections of future performance, expectations regarding the
Company's efforts to resolve Year 2000 issues and the effects of a failure to
resolve such issues, perceived opportunities in the market and statements
regarding the Company's mission and vision. The Company's actual results,
performance, or achievements may differ significantly from the results,
performance, or achievements expressed or implied in such forward-looking
statements. For discussion of the factors that might cause such a difference,
see "Item 1: Business -- Business Considerations and Certain Factors that May
Affect Future Results of Operations and Stock Price" contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
The following sets forth certain information relating to the Company's
financial trends, credit quality and delinquency experienced in the Company's
consumer finance receivables portfolio, for the periods presented. Such amounts
exclude the automobile portfolio.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FINANCIAL TRENDS
Gross receivables (at end of period) $94,660 $98,157 $94,660 $98,157
Deferred interest (at end of period) 3,585 4,282 3,585 4,282
------- ------- ------- -------
Net receivables (at end of period) 91,075 93,875 91,075 93,875
Deferred administrative fees, membership fees, loan fees, insurance
and reserves for policyholders benefit (at end of period) 2,352 2,048 2,352 2,048
Allowance for credit losses (at end of period) 4,649 7,712 4,649 7,712
------- ------- ------- -------
Net carrying value $84,074 $84,115 $84,074 $84,115
======= ======= ======= =======
Average net receivables $92,612 $95,661 $96,080 $99,851
Average interest bearing liabilities(1) 37,854 46,850 45,033 52,671
Administrative and membership fee income 1,010 816 2,021 1,583
Total interest income(2) 5,646 5,900 11,651 12,331
Total interest expense(3) 777 1,051 1,785 2,297
------- ------- ------- -------
Net interest income before provision for credit losses 4,869 4,849 9,866 10,034
Net provision for credit losses 2,189 1,756 4,208 3,775
Net write-offs 2,189 1,801 4,208 3,898
Effective average interest rate on average net receivables 24.4% 24.7% 24.3% 24.7%
Effective average interest rate on interest bearing liabilities 8.2% 9.0% 7.9% 8.7%
------- ------- ------- -------
Net interest spread 16.2% 15.7% 16.4% 16.0%
======= ======= ======= =======
</TABLE>
(1) The amounts represent borrowings and related interest expense on the
Company's line of credit, excluding amounts related to the Company's other
borrowings.
(2) The amounts represent interest income on consumer finance receivables,
excluding administrative fees, late charges and other charges, which are
included in the Condensed Consolidated Statements of Operations.
(3) Amounts represent interest expense and loan commitment fees on the Wells
Fargo Line of Credit.
9
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
CREDIT QUALITY
Average net receivables $92,612 $95,661 $96,080 $99,851
Net provision for credit losses 2,189 1,756 4,208 3,775
Net write-offs 2,189 1,801 4,208 3,898
Net provision for credit losses as a % of average net receivables
(annualized) 9.5% 7.3% 8.8% 7.6%
Net write-offs as a % of average net receivables (annualized) 9.5% 7.5% 8.8% 7.8%
END OF PERIOD
Net receivables $91,075 $93,875
Allowance for credit losses 4,649 7,712
Allowance for credit losses as a % of net receivables 5.1% 8.2%
DELINQUENCY EXPERIENCE
Past due accounts (gross receivables)
31-60 days $ 1,858 $ 1,725
61 days or more 3,216 6,383
------- -------
Total 5,074 8,108
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables 5.4% 8.3%
</TABLE>
10
<PAGE> 13
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1998.
Total revenues in the three months ended June 30, 1999 increased to
$12.8 million from $11.2 million in the three months ended June 30, 1998, an
increase of $1.6 million.
Interest income on the consumer finance receivables portfolio in the
three months ended June 30, 1999 decreased to $5.6 million from $5.9 million in
the three months ended June 30, 1998, a decrease of $0.3 million. This decrease
was primarily attributable to a decrease in the net consumer finance receivables
portfolio which averaged $92.6 million in the three months ended June 30, 1999,
compared to $95.7 million in the three months ended June 30, 1998. The average
interest rate earned on this portfolio decreased to 24.4% for the three months
ended June 30, 1999, compared to 24.7% for the three months ended June 30, 1998.
Interest income on the automobile finance receivables portfolio in the
three months ended June 30, 1999 decreased to $0.1 million from $0.2 million in
the three months ended June 30, 1998, a decrease of $0.1 million. This decrease
was due to a decrease in the automobile finance receivables portfolio which
averaged $1.4 million in the three months ended June 30, 1999, compared to $4.1
million in the three months ended June 30, 1998. At the present time, the
Company no longer offers automobile financing.
Revenue from travel services increased to $3.4 million for the three
months ended June 30, 1999 compared to $2.2 million for the three months ended
June 30, 1998, an increase of $1.2 million. The increase was due primarily to an
acquisition, which increased revenue for the quarter by $0.6 million, and an
increase in total system ticket sales, which increased net ticket revenue by
$0.6 million.
Other income for the three months ended June 30, 1999 increased to $3.7
million compared to $2.8 million in the three months ended June 30, 1998, an
increase of $0.9 million. Other income in the three months ended June 30, 1999
included an increase of $0.2 million in administrative and membership fee income
earned on small loans, an increase of $0.4 million in late and extension fees,
and a increase of $0.3 million in insurance income.
Operating expenses in the three months ended June 30, 1999 increased to
$7.5 million compared to $6.5 million for the three months ended June 30, 1998,
an increase of $1.0 million. The increase was due primarily to an acquisition,
which accounted for all the increase in employee and related expenses of $0.3
million, $0.2 million of the $0.4 million increase in occupancy expenses, and
$0.1 million of the $0.3 million increase in other overhead costs.
The provision for credit losses in the three months ended June 30, 1999
increased to $2.2 million compared to $1.8 million for the three months ended
June 30, 1998. During the three months ended June 30, 1999, the Company
wrote-off $2.2 million of bad debts, or 9.5%, annualized, of the average net
receivables, as compared to $1.8 million in bad debt write-offs or 7.5%,
annualized, of the average net receivables for the second quarter of 1998. At
June 30, 1999, the Company had an allowance for credit losses of $4.6 million as
compared to $7.7 million at June 30, 1998. In the fourth quarter of 1998, the
Company changed its policy regarding write-offs and began to write-off
receivables, which were greater than 151 days past due. The change in write-off
policy and resultant write-offs in the fourth quarter of 1998 and, first and
second quarter of 1999 accounted for the majority of the decrease in allowance
for credit losses in 1999 as compared to 1998.
Interest expense in the three months ended June 30, 1999 decreased to
$0.8 million from $1.0 million in the three months ended June 30, 1998, a
decrease of $0.2 million. This decrease was due to a decrease in the amounts
borrowed under the lines of credit which averaged $37.8 million in the three
months ended June 30, 1999, compared to $46.9 million in the three months ended
June 30, 1998, and a decrease in the effective borrowing rate to 8.2 % for the
three months ended June 30, 1999 compared to 9.0% for the three months ended
June 30, 1998.
As a result of the foregoing factors, net income in the three months
ended June 30, 1999 increased to $1.4 million from $1.2 million in the three
months ended June 30, 1998, an increase of $0.2 million.
11
<PAGE> 14
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1998.
Total revenues in the six months ended June 30, 1999 increased to $24.8
million from $23.2 million in the six months ended June 30, 1998, an increase of
$1.6 million.
Interest income on the consumer finance receivables portfolio in the
six months ended June 30, 1999 decreased to $11.7 million from $12.3 million in
the six months ended June 30, 1998, a decrease of $0.6 million. This decrease
was primarily attributable to a decrease in the net consumer finance receivables
portfolio which averaged $96.1 million in the six months ended June 30, 1999,
compared to $99.9 million in the six months ended June 30, 1998. The average
interest rate earned on this portfolio decreased to 24.3% for the six months
ended June 30, 1999, compared to 24.7% for the six months ended June 30, 1998.
Interest income on the automobile finance receivables portfolio in the
six months ended June 30, 1999 decreased to $0.1 million from $0.4 million in
the six months ended June 30, 1998, a decrease of $0.3 million. This decrease
was due to a decrease in the automobile finance receivables portfolio which
averaged $1.7 million in the six months ended June 30, 1999, compared to $4.6
million in the six months ended June 30, 1998. At the present time, the Company
no longer offers automobile financing.
Revenue from travel services increased to $5.7 million for the six
months ended June 30, 1999 compared to $4.1 million for the six months ended
June 30, 1998, an increase of $1.6 million. The increase was due primarily to an
acquisition, which increased revenue by $0.7 million, and an increase in total
system ticket sales, which increased net ticket revenue by $0.9 million.
Other income for the six months ended June 30, 1999 increased to $7.3
million compared to $6.4 million in the six months ended June 30, 1998, an
increase of $0.9 million. Other income in the six months ended June 30, 1999
included an increase of $0.4 million in administrative and membership fee income
earned on small loans, an increase of $0.7 million in late and extension fees,
and an increase of $0.3 million in insurance income, offset by a decrease of
$0.5 million in other miscellaneous income.
Operating expenses in the six months ended June 30, 1999 increased to
$14.3 million compared to $13.5 million for the six months ended June 30, 1998,
an increase of $0.8 million. The increase was due primarily to an acquisition,
which accounted for all the increase in employee and related expenses of $0.3
million, and $0.3 million of the $0.5 million increase in occupancy expenses.
The provision for credit losses in the six months ended June 30, 1999
increased to $ 4.2 million compared to $3.8 million for the six months ended
June 30, 1998. During the six months ended June 30, 1999, the Company wrote-off
$4.2 million of bad debts, or 8.8%, annualized, of the average net receivables,
as compared to $3.9 million in bad debt write-offs or 7.8%, annualized, of the
average net receivables for the first six months of 1998. At June 30, 1999, the
Company had an allowance for credit losses of $4.6 million as compared to $7.7
million at June 30, 1998. In the fourth quarter of 1998, the Company changed its
policy regarding write-offs and began to write-off receivables, which were
greater than 151 days past due. The change in write-off policy and resultant
write-offs in the fourth quarter of 1998 and, first and second quarter of 1999
accounted for the majority of the decrease in allowance for credit losses in
1999 as compared to 1998.
Interest expense in the six months ended June 30, 1999 decreased to
$1.8 million from $2.1 million in the six months ended June 30, 1998, a decrease
of $0.3 million. This decrease was due to a decrease in the amounts borrowed
under the lines of credit which averaged $45.0 million in the six months ended
June 30, 1999, compared to $52.7 million in the six months ended June 30, 1998,
and a decrease in the effective borrowing rate to 7.9% for the six months ended
June 30, 1999 compared to 8.7% for the six months ended June 30, 1998.
As a result of the foregoing factors, net income in the six months
ended June 30, 1999 increased to $2.7 million from $2.3 million in the six
months ended June 30, 1998, an increase of $0.4 million.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations primarily through cash flow
generated from operations and borrowings under its line of credit.
For the six months ended June 30, 1999, net cash provided by operating
activities totaled $10.1 million, while investing activities provided $3.0
million of cash flow. During this period the Company paid down $15.8 million of
debt.
The Company funds its lending activities and operations with borrowings
under the Wells Fargo Line of Credit. Holdings and all of the Company's
significant domestic subsidiaries are guarantors under the Wells Fargo Line of
Credit. In addition, the Company has pledged substantially all of its assets,
including its receivables, and the stock of all of its significant subsidiaries
as collateral for the amounts the Company borrows under the Wells Fargo Line of
Credit. The amount of credit available at any one time under the Wells Fargo
Line of Credit is limited to 70% of eligible receivables contracts. As of June
30, 1999 under the Wells Fargo Line of Credit, approximately $36.7 million was
outstanding, including $0.5 million in letters of credit, and $21.6 million was
available to the Company under the Wells Fargo Line of Credit.
The Wells Fargo Line of Credit also contains certain restrictive
covenants that require, among other things, that the Company maintain specific
financial ratios and satisfy certain financial tests.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof. The
amount of debt the Company requires from time to time depends on the Company's
needs for cash, as determined by its operating performance and its ability to
borrow under the terms of its various loan agreements. The Company intends to
meet its short-term liquidity needs with cash flow from operations and
borrowings under its lines of credit. However, there can be no assurance that
the Company will have access to financing sources necessary to sustain its
operations and its growth plans, or that such financing will be available to the
Company on favorable terms.
In July 1998, the Company agreed to provide financing to Banner for the
purchase of inventory and in return will receive a security interest in the
financed inventory. In connection with such financing the Company will charge
Banner interest at the Company's borrowing rate and the notes will be due on
demand. The Company has also agreed to provide third party guaranties to
selected vendors of Banner for inventory purchases. Through June 30, 1999 the
Company has net advances to Banner for inventory purchases or to vendors on
behalf of Banner for inventory purchases, including other ongoing affiliate
receivables of approximately $1.3 million. Interest income realized on the
amount due from Banner was approximately $59,000 for the six months ended June
30, 1999.
In April 1999, the Company, through its subsidiary, Central Banner's,
Inc., began purchasing inventory which it holds under a consignment arrangement
with Banner until sold by Banner. For the six months ending June 30, 1999, the
Company has sold $2.7 million of inventory to Banner. At June 30, 1999, the
Company has on hand $3.1 million of inventory.
IMPACT OF THE YEAR 2000 ISSUE
STATE OF READINESS
The Company is working to resolve the potential impact of the Year 2000
on the ability of its computerized information systems to accurately process
information that may be date-sensitive. Any of the Company's programs that
recognize a date using "00" as the Year 1900 rather than the Year 2000 could
result in error or system failures. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities which may have a material adverse effect on the Company's
financial condition, results of operations or liquidity. The Company uses a
number of computer programs across its entire operations. At this time, the
Company is unable to predict with any certainty the estimated lost revenue it
may experience as a result of such failure or disruption. The Company is
addressing its Year 2000 issues under a three pronged approach. These are
identified as (1) material internally developed software; (2) purchased
software; and, (3) microcontrollers and computers.
In 1998, the Company engaged an outside consulting firm, JCR &
Associates, to help the Company evaluate, assess and make compliant the
Company's material internally developed software with the Year 2000. The
Company's internally developed code is the principal software used to evaluate,
process, approve, initiate and collect on loans in the Company's various finance
portfolios.
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<PAGE> 16
The Company, with help from outside consultants, is responsible for
evaluating the existing software, modifying code where applicable, testing such
modifications and installation of the modified software. Such modifications are
primarily focused on the Company's smaller declining portfolios. Based on its
testing, the Company believes its larger and growing Efectiva portfolio is
already substantially Year 2000 compliant. The Company has completed the
required software modifications for the smaller declining portfolios, tested and
installed those modifications and is now operating, based on its testing, in
what it believes is a Year 2000 compliant computing environment. Further
evaluation is underway and will include technical testing as well as user
testing covering a range of dates both prior to and after the year 2000.
Testing and compliance work began on the Company's purchased software
in 1998. Most of the purchased software is ancillary in nature to the Company's
primary business activities, supporting non-core business functions such as new
product offerings and peripheral activities. The Company initiated formal
communications with its vendors in August 1998 to determine the extent to which
it may be affected by the failure of these parties to correct their own Year
2000 issues. The Company's borrowers and customers are generally consumers,
which mitigates much of the Year 2000 risk. The Company has already received
compliance certification from the majority of the third party developers or
vendors and indications from most of the remaining vendors that their software
will be compliant before the Year 2000.
The Company has evaluated its mid range AS/400 computer, the various
microcontrollers and other computers and determined that relatively few systems
will need to be replaced to support the Year 2000. Where such replacements are
necessary, they will occur in the normal course of business prior to the Year
2000. The Company does not anticipate accelerating the replacement of these
systems due to the Year 2000 issues.
COST TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company has budgeted expenditures of approximately $0.7 million in
1998 and 1999 to ensure that its systems are ready for processing information in
the Year 2000. The majority of these expenditures relate to the cost of software
development and testing. The Company estimates that it has incurred
approximately $0.6 million of its Year 2000 budget expenditures through June 30,
1999 and will incur an additional $0.1 million by the end of 1999. In addition,
the Company incurred, and will continue to incur, certain costs relating to the
temporary reallocation of its internal resources to address Year 2000 issues.
These expenditures have been and are expected to be funded by operating cash
flows and are expensed as incurred.
RISKS PRESENTED BY THE YEAR 2000 ISSUE
Should the Company and/or its third party developers or vendors fail to
timely identify, address and correct material Year 2000 issues, such failure
could have a material adverse impact on the Company's ability to operate. The
adverse impacts may include the requirement to pay significant overtime to
manually process certain transactions and added costs to process certain
financing activity. Despite the Company's activities in regards to the Year 2000
issue, there can be no assurance that partial or total systems interruptions or
the costs necessary to update hardware and software will not have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects.
THE COMPANY'S YEAR 2000 CONTINGENCY PLANS
The most reasonably likely worst case Year 2000 scenario for the
Company is failure to complete the required modifications to the internally
developed software for the Company's smaller declining portfolios. It is likely,
that if such a failure were to occur the Company would experience an inability
to correctly age accounts in these portfolios and may therefore experience some
deterioration in the customer receivable quality and an increase in credit
losses.
As a contingency, in the event the Company is unable to successfully
complete such installation and testing of the modifications for these smaller
portfolios, they will be transferred to the Company's Efectiva portfolio which
at the present time the Company believes is Year 2000 compliant.
14
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk management discussion and the estimated amounts generated from
the analysis that follows are forward-looking statements of interest rate risk
assuming certain adverse market conditions occur. Actual results in the future
may differ materially from these projected results due to changes in our debt
mix and developments in the global financial markets. The analytical methods we
use to assess and mitigate these risks should not be considered projections of
future events or operating performances.
We are exposed to interest rate risk in the form of variable interest
rates on our Wells Fargo Line of Credit. During the first six months of 1999,
the average interest rate charged on the Wells Fargo Line of Credit, which was
$36.2 million at June 30, 1999, was 7.93%. We have hedged our interest rate risk
by purchasing a hedge agreement in the notional amount of $40.0 million. The
interest rate hedge agreement caps our interest rate at 8.75% on up to $40.0
million of the $36.2 million Wells Fargo Line of Credit which was outstanding at
June 30, 1999.
We have an interest rate risk exposure of 0.82% on the difference
between the interest rate cap of 8.75% and the 7.93% average interest rate for
the first six months of 1999 on the $40.0 million hedge agreement. The Wells
Fargo Line of Credit agreement terminates on June 12, 2000, and the interest
rate hedge agreement terminates on July 31, 2000.
For an immediate 1.0% increase in interest rates effective July 1,
1999, projected after-tax earnings would decline approximately $0.1 million in
1999 and $0.2 million in 2000. An immediate 1.0% rise in interest rates is a
hypothetical rate scenario, used to estimate risk, and does not currently
represent management's expectations of future market developments.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 19, 1999, the Company filed a Certificate of Amendment of its
Certificate of Incorporation.
The amendment to the Certificate of Incorporation created a new class
of non-voting common stock designated as Non-Voting Common Stock, par value
$0.01 per share, with 3,000,000 shares being authorized for issuance.
The terms, rights and privileges of the Non-Voting Common Stock are
identical to those of the Common Stock, par value $0.01 per share, except that
the Non-Voting Common Stock will have no right to vote on any matter to be
presented to the stockholders, except to amend the Certificate of Incorporation
or as required by law. The Non-Voting Common Stock has dividend and distribution
rights and rights on dissolution that are identical to those of the Common
Stock. The Non-Voting Common Stock, like the Common Stock, does not have
preemptive, subscription, redemption or conversion rights. Any holder of
Non-Voting Common Stock will be entitled to received dividends when, as and if
declared by the Board of Directors from funds legally available therefor. Upon
liquidation of the Company, subject to the rights of holders of any preferred
stock outstanding, the holders of Non-Voting Common Stock are entitled to
receive assets remaining after payment of liabilities proportionate to their
prorata ownership of the outstanding shares of Common Stock and Non-Voting
Common Stock.
The amendment to the Certificate of Incorporation also added a new
provision authorizing the Board of Directors of the Company to amend the Bylaws.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders was held on July 14, 1999.
(b) At the meeting, management's nominees as set forth in the
proxy statement for the meeting, Gary M. Cypres, Salvatore J.
Caltagirone, Jose de Jesus Legaspi and William R. Sweet were
elected. The election of Mr. Cypres was approved by a vote of
7,178,839 shares in favor and 8,200 shares withheld, and each
of Messrs. Caltagirone, Legaspi and Sweet was approved by a
vote of 7,178,839 shares in favor and 8,200 shares withheld.
(c) The proposal to amend the Certificate of Incorporation to
authorize the board of directors or stockholders to amend the
Bylaws by a majority vote of the board or stockholders,
respectively, was approved by a vote of 5,763,341 shares in
favor, 810,200 shares against and 0 shares abstaining.
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<PAGE> 18
(d) The proposal to amend the Certificate of Incorporation to
create a class of non-voting common stock, par value $0.01 per
share, of which 3,000,000 shares was authorized, was approved
by a vote of 7,124,739 shares in favor, 58,800 shares against
and 0 shares abstaining.
(e) The proposal to amend the 1996 Stock Option Plan to increase
the number of shares reserved for issuance from 700,000 to
1,000,000 and approve the amended 1996 Stock Option Plan was
approved by a vote of 6,995,773 shares in favor, 188,766
shares against and 0 shares abstaining.
(f) The proposal to ratify the appointment of Arthur Andersen LLP,
as independent public accountants for 1999 was approved by a
vote of 7,181,739 shares in favor, 5,300 shares against and 0
shares abstaining.
ITEM 5. OTHER INFORMATION
In February 1999, the Company was notified by the Nasdaq Stock Market
that based upon a review by Nasdaq, the Company's common stock over the previous
30 days prior to the notification had failed to maintain a market value of
public float greater than or equal to $5 million.
Market value of public float greater than or equal to $5 million is
required for continued listing of the Company's common stock on the Nasdaq
National Market. Nasdaq advised that the Company would be delisted at the
opening of business on June 1, 1999, if the Company failed to increase the
market value of its public float or take other procedural remedies to stay the
delisting of its common stock.
On June 1, 1999, the Company's common stock was delisted from the
Nasdaq National Market System. The Company's common stock currently trades on
the Over the Counter Bulletin Board, OTCBB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation
3.2 Certificate of Incorporation, as amended
10.1 1996 Stock Option Plan, as amended
10.2 Certificate of Amendment of 1996 Stock Option Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
August 11, 1999 /s/ Gary M. Cypres
---------------------------------
Gary M. Cypres
Chairman of the Board
August 11, 1999 /s/ Anthony S. Fortunato
---------------------------------
Anthony S. Fortunato
President
August 11, 1999 /s/ A. Keith Wall
---------------------------------
A. Keith Wall
Chief Financial Officer
August 11, 1999 /s/ Wanda Anesh
---------------------------------
Wanda Anesh
Controller
17
<PAGE> 20
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation
3.2 Certificate of Incorporation, as amended
10.1 1996 Stock Option Plan
10.2 Certificate of Amendment of 1996 Stock Option Plan
27.1 Financial Data Schedule
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware") hereby
certifies that:
FIRST: The name of this Corporation (the "Corporation") is Central
Financial Acceptance Corporation.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1050 State
Street, City of Dover, County of Kent. The name of the Corporation's registered
agent at that address is CorpAmerica, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
the authority to issue is 25,000,000 shares, divided into 20,000,000 shares of
Common Stock, par value $0.01 per share and 5,000,000 shares of Preferred Stock,
par value $0.01 per share. The Board of Directors is authorized to provide for
the issuance of the shares of the preferred stock in series, and, whether by
filing a certificate pursuant to the applicable law of the State of Delaware or
otherwise, to establish from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and rights of
the shares of each such series of preferred stock and the qualifications,
limitations or restrictions imposed thereon.
FIFTH: The name and mailing address of the incorporator are as follows:
David S. Lippes, Esq.
Stroock & Stroock & Lavan
2029 Century Park East, Suite 1800
Los Angeles, California 90067
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
1
<PAGE> 2
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders, of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of directors, no
director of this Corporation shall be personally liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation, existing at the time of such amendment, repeal or adoption.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, or by any successor thereto, indemnify any and
all persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said section. Such right to indemnification and
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The indemnification and
advancement of expenses provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Executed at Los Angeles, California on April 11, 1996.
/s/ David S. Lippes
-----------------------------------
David S. Lippes, Incorporator
2
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
a Delaware Corporation
Central Financial Acceptance Corporation, a corporation organized and
existing under and by virtue of the laws of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. That Article FOURTH to the Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"FOURTH: Section 4.1. The aggregate number of shares which the
Corporation shall have the authority to issue is 28,000,000 shares,
divided into 20,000,000 shares of Common Stock, par value $0.01 per
share, 3,000,000 shares of Non-Voting Common Stock, par value $0.01 per
share, and 5,000,000 shares of Preferred Stock, par value $0.01 per
share. All issued and outstanding shares of Non-Voting Common Stock
shall become Common Stock when it ceases to be owned by Wells Fargo &
Co., its subsidiaries or affiliates, or any of their successors.
Section 4.2. The Board of Directors is authorized to provide for the
issuance of the shares of the preferred stock in series, and, whether
by filing a certificate pursuant to the applicable law of the State of
Delaware or otherwise, to establish from time to time the number of
shares to be included in each such series, and to fix the designations,
powers, preferences and rights of the shares of each such series of
preferred stock and the qualifications, limitations or restrictions
imposed thereon.
Section 4.3. The powers, preferences and rights of the Common Stock and
Non-Voting Common Stock, and the qualifications, limitations or
restrictions thereof shall in all respects be identical except as
otherwise provided by law or expressly provided herein.
Section 4.4. Except as otherwise provided herein or by law, each share
of Common Stock shall entitle the holder to one vote on all matters
submitted to a vote of the Corporation's stockholders and each share of
Non-Voting Common Stock shall have no voting rights, except that the
consent of the holders of all of the outstanding shares of the
Non-Voting Common Stock, voting separately as a single class, in person
or by proxy, either in writing without a meeting or at a special or
annual meeting of stockholders called for the purpose, shall be
necessary to amend the certificate of incorporation of the Corporation.
1
<PAGE> 2
Section 4.5. (a) If and when dividends on the Common Stock and
Non-Voting Common Stock are declared payable from time to time by the
Board of Directors, whether payable in cash, in property or in shares
of stock of the Corporation, the holders of Common Stock and the
holders of Non-Voting Common Stock shall be entitled to share equally,
on a per share basis, in such dividends, except that, if dividends are
declared that are payable in shares of Common Stock or Non-Voting
Common Stock, dividends shall be declared that are payable at the same
rate on both classes of stock and the dividends payable in shares of
Common Stock shall be payable only to holders of that class of stock
and the dividends payable in shares of Non-Voting Common Stock shall be
payable only to holders of that class of stock. If the Corporation
shall in any manner subdivide or combine the outstanding shares of
Common Stock or Non-Voting Common Stock, the outstanding shares of the
other such class of stock shall be proportionally subdivided or
combined in the same manner and on the same basis as the outstanding
shares of Common Stock or Non-Voting Common Stock, as the case may be,
which have been subdivided or combined.
(b) In the event of any dividend or distribution with respect to the
stock of the Corporation that includes Voting Securities, as defined
under the Bank Holding Company Act of 1956, as amended, and any
Regulations thereunder ("Voting Securities"), any holder of Non-Voting
Common Stock shall have the rights described in Section 4.7 below.
Section 4.6. In the event of any consolidation of the Corporation with,
or merger of the Corporation into, any other entity (other than a
consolidation or merger in which the Corporation is the surviving
corporation and in which no change is made in the outstanding Common
Stock of the Corporation), or in the event of any sale or transfer of
all or substantially all of the assets of the Corporation, each holder
of Non-Voting Common Stock shall be entitled to receive with respect to
each share of Non-Voting Common Stock the kind and amount of shares of
stock and other securities and property receivable upon such
consolidation, merger, sale or transfer by holders of Common Stock with
respect to each share thereof.
Section 4.7. To the extent that any distribution or dividend to, or
that any securities receivable in respect of any consolidation, merger,
sale or transfer by, holders of Non-Voting Common Stock include Voting
Securities, each holder, unless such holder, after notice, otherwise
elects, shall be entitled to receive, in lieu of such Voting
Securities, non-voting securities of the same issuer as the
2
<PAGE> 3
Voting Securities. Such non-voting securities shall have (except for
voting rights) powers, preferences and rights, and be subject to
qualifications, limitations or restrictions, substantially similar to
such Voting Securities and as provided with respect to Non-Voting
Common Stock in this Article FOURTH."
2. That Article NINTH is added to the Certificate of Incorporation of
the Corporation to read in full as follows:
"NINTH: Except as otherwise may be provided by the terms of any class
or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, the By-laws of the Corporation may be
adopted, repealed, rescinded, altered or amended only by the
affirmative vote of a majority or more of the entire Board of Directors
or the affirmative vote of the holders of a majority or more of the
outstanding shares of the stock of the Corporation entitled to vote
thereon."
3. That said amendment has been duly adopted in accordance with
Sections 242 and 222 of the Delaware General Corporation Law ("DGCL") by:
(a) the adoption of resolutions of the Board of Directors
of the Corporation; and
(b) the adoption of resolutions by the holders of a
majority of the outstanding shares of capital stock
entitled to vote thereon.
IN WITNESS WHEREOF, said CENTRAL FINANCIAL ACCEPTANCE CORPORATION has
caused this Certificate of Amendment to be signed by Gary M. Cypres and Jonathan
Martin, its Chairman of the Board and Assistant Secretary, respectively.
/s/ Gary M. Cypres
--------------------------------------
Gary M. Cypres, Chairman of the Board
/s/ Jonathan Martin
--------------------------------------
Jonathan Martin, Assistant Secretary
3
<PAGE> 1
1996 STOCK OPTION PLAN, AS AMENDED
OF
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
1. Purpose. The purpose of this Stock Option Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by key employees and
directors of, and consultants to, the Corporation, its Parent and its
Subsidiaries upon whose judgment and keen interest the Corporation is largely
dependent for the successful conduct of its operations and by providing such key
employees, directors and consultants with incentives to put forth maximum
efforts for the success of the Corporation's business. It is anticipated that
the acquisition of such proprietary interest in the Corporation and such
incentives will stimulate the efforts of such key employees, directors and
consultants on behalf of the Corporation, its Parent and Subsidiaries of the
Corporation and strengthen their desire to remain with the Corporation, its
Parent and Subsidiaries of the Corporation. It is also expected that such
incentives and the opportunity to acquire such a proprietary interest will
enable the Corporation, its Parent and its Subsidiaries to attract desirable
personnel.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Board of Directors" or "Board" shall mean the Board of
Directors of the Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee or committees hereinafter
described in Section 3, or if no committee exists, the Board of Directors.
(e) "Consummation Date" shall mean the date of the consummation of
the Corporation's initial public offering.
(f) "Corporation" shall mean Central Financial Acceptance
Corporation, a Delaware corporation.
(g) "Eligible Persons" shall mean those persons described in Section
4 who are potential recipients of Options.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1
<PAGE> 2
(i) "Fair Market Value" on a specified date shall mean the average
of the high and low sales prices at which a Share is traded on the stock
exchange, if any, on which Shares are primarily traded or, if the Shares are not
then traded on a stock exchange, the average of the high and low sales prices of
a Share as reported on the Nasdaq Stock Market's National Market or, if the
Shares are not then traded on the Nasdaq Stock Market's National Market, the
average of the high and low sales prices at which a Share is traded on the
over-the-counter market, but if no Shares were traded on such date, then on the
last previous date on which a Share was so traded, or, if none of the above are
applicable, the value of a Share as established by the Committee for such date
using any reasonable method of valuation.
(j) "Initial Public Offering Price" shall mean the price per Share
at which Shares are offered to the public in the Corporation's initial public
offering as set forth on the cover page of the prospectus relating thereto.
(k) "Options" shall mean the stock options granted pursuant to this
Plan.
(l) "Parent" shall mean a corporation (other than the Corporation)
owning 50% or more of stock having general voting power of the Corporation.
(m) "Plan" shall mean this 1996 Stock Option Plan of Central
Financial Acceptance Corporation, as adopted by the Board of Directors on June
24, 1996, and approved by the sole stockholder on June 24, 1996, as such Plan
from time to time may be amended.
(n) "President" shall mean the person who at the time shall be the
President of the Corporation.
(o) "Share" shall mean a share of common stock, $.01 par value per
share, of the Corporation.
(p) "Subsidiary" shall mean (A)(i) any corporation, 50% or more of
whose stock having general voting power is owned by the Corporation, or by
another Subsidiary, as herein defined, of the Corporation, or (ii) any other
person (other than a corporation) in which the Corporation, one or more
Subsidiaries or the Corporation and one or more Subsidiaries, directly or
indirectly has at least majority ownership interest and either directly or
indirectly has the power to direct the policies, management and affairs thereof,
and (B) that, in accordance with generally accepted accounting principles, the
accounts of which would be included on a consolidated basis in the Corporation's
financial statements.
3. Administration. The Plan shall be administered by the Board of
Directors or one or more Committee(s) appointed by the Board of Directors. If no
persons are designated by the Board of Directors to serve on the Committee, the
Plan shall be administered by the Board and all references herein to the
Committee (other than in this Section 3) shall refer to the Board of Directors.
The Board of Directors shall have the discretion to appoint, add, remove or
replace members of the Committee, and shall have the sole authority to fill
vacancies on the Committee. Unless otherwise provided by the Board of Directors:
(i) with respect to any grant of Options for which it is necessary and desired
for such grant of Options to be exempted by Rule 16b-3 of the
2
<PAGE> 3
Exchange Act, the Committee shall consist of two or more directors, each of whom
is a "non-employee director" (as such term is defined in Rule 16b-3 promulgated
under the Exchange Act, as such Rule may be amended from time to time), (ii)
with respect to any grant of Options that is intended to qualify as "performance
based compensation" under Section 162(m) of the Code, the Committee shall
consist of two or more directors, each of whom is an "outside director" (as such
term is defined under Section 162(m) of the Code), and (iii) with respect to any
other grant of Options, the Committee shall consist of one or more directors
(any of whom also may be an Eligible Person who has been granted or is eligible
to be granted Options under the Plan).
4. Participants. All key employees of, and consultants to, the
Corporation, the Parent or a Subsidiary of the Corporation, as determined by the
Committee, shall be eligible to receive Options under the Plan. The parties to
whom Options are granted under this Plan, and the number of Shares subject to
each such Option, shall be determined by the Committee in its sole discretion,
subject, however, to the terms and conditions of this Plan. Employees to whom
Options may be granted include key employees who are also directors of the
Corporation, the Parent or a Subsidiary. Each director of the Corporation who is
not also an employee of the Corporation, and/or its Parent and/or Subsidiaries
of the Corporation (hereinafter referred to as a "Non-Employee Director") shall
be eligible to receive Options in accordance with the provisions of Section 14
hereof.
5. Shares. Subject to the provisions of Section 15 hereof, the
Committee may grant Options with respect to an aggregate of up to 700,000
Shares, all of which Shares may be either Shares held in treasury or authorized
but unissued Shares. The maximum number of Shares which may be the subject of
Options granted to any individual during the duration of the Plan shall not
exceed 350,000 Shares. If the Shares that would be issued or transferred
pursuant to any Option are not issued or transferred and cease to be issuable or
transferable for any reason, the number of Shares subject to such Option will no
longer be charged against the limitation provided for herein and may again be
made subject to Options; provided, that the counting of Shares subject to
Options granted under the Plan against the number of Shares available for
further Options shall in all cases conform to the requirements of Rule 16b-3
under the Exchange Act; and provided, further, that with respect to any Option
granted to any Eligible Person who is a "covered employee" as defined in Section
162(m) of the Code and the regulations promulgated thereunder that is canceled
or repriced, the number of Shares subject to such Option shall continue to count
against the maximum number of Shares which may be the subject of Options granted
to such Eligible Person and such maximum number of Shares shall be determined in
accordance with Section 162(m) of the Code and the regulations promulgated.
6. Grant of Options. The number of any Options to be granted to any
Eligible Person shall be determined by the Committee in its sole discretion. At
the time an Option is granted, the Committee may, in its sole discretion,
designate whether such Option (a) is to be considered as an incentive stock
option within the meaning of Section 422 of the Code, or (b) is not to be
treated as an incentive stock option for purposes of this Plan and the Code. No
Option which is intended to qualify as an incentive stock option shall be
granted under this Plan to any individual who, at the time of such grant, is not
an employee of the Corporation, the Parent, or a Subsidiary of the Corporation.
Notwithstanding any other provision of this Plan to the contrary, to the extent
that the aggregate Fair Market Value (determined as of the date an Option is
3
<PAGE> 4
granted) of the Shares with respect to which Options which are designated as (or
deemed to be) incentive stock options granted to an employee (and any incentive
stock options granted to such employee under any other incentive stock option
plan maintained by the Corporation, the Parent or any Subsidiary of the
Corporation that meets the requirements of Section 422 of the Code) first become
exercisable in any calendar year exceeds $100,000, such Options shall be treated
as Options which are not incentive stock options. Options with respect to which
no designation is made by the Committee shall be deemed to be incentive stock
options to the extent that the $100,000 limitation described in the preceding
sentence is met. This paragraph shall be applied by taking Options into account
in the order in which they are granted. Nothing herein contained shall be
construed to prohibit the issuance of Options at different times to the same
person. The form of an Option shall be determined from time to time by the
Committee in its sole discretion. A certificate of Option signed by the Chairman
of the Board or the President or a Vice President of the Corporation, attested
by the Treasurer or an Assistant Treasurer, or Secretary or an Assistant
Secretary of the Corporation, shall be issued to each person to whom an Option
is granted. The certificate of Option for an Option shall be legended to
indicate whether or not the Option is an incentive stock option.
7. Purchase Price. The purchase price per Share for the Shares
purchased pursuant to the exercise of an Option shall be fixed by the Committee
at the time of grant of the Option; provided, however, that the purchase price
per Share for the Shares to be purchased pursuant to the exercise of an
incentive stock option shall not in any event be less than 100% of the Fair
Market Value of a Share on the date of grant of the Option.
8. Duration of Options. The duration of each Option shall be determined
by the Committee in its sole discretion at the time of grant; provided, however,
that the duration of any Option shall not be more than ten years from the date
upon which the Option is granted.
9. Ten Percent Stockholders. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as an
incentive stock option may be granted under this Plan to any employee who, at
the time the Option is granted, owns Shares possessing more than 10 percent of
the total combined voting power or value of all classes of stock of the
Corporation, unless the exercise price under such Option is at least 110% of the
Fair Market Value of a Share on the date such Option is granted and the duration
of such Option is no more than five years.
10. Exercise of Options. Except as otherwise provided herein, Options,
after the grant thereof, shall be exercisable by the holder at such rate, times
and subject to such conditions as may be fixed by the Committee, in its sole
discretion, at the time of grant. Notwithstanding the foregoing, all or any part
of any remaining unexercised Options granted to any person may be exercised upon
the occurrence of such special circumstance or event as in the opinion of the
Committee merits special consideration. An Option shall be exercised by the
delivery of a written notice duly signed by the holder thereof to such effect
("Exercise Notice"), together with the Option certificate and the full purchase
price of the Shares purchased pursuant to the exercise of the Option, to the
Chairman of the Board or an officer of the Corporation appointed by the Chairman
of the Board for the purpose of receiving the same. Payment of the full purchase
price shall be made as follows: in cash or by check payable to the order of the
Corporation; by
4
<PAGE> 5
delivery to the Corporation of Shares which shall be valued at their Fair Market
Value on the date of exercise of the Option; by delivery, concurrently with such
exercise and in accordance with applicable law and regulations, of irrevocable
instructions to a broker promptly to deliver to the Corporation a specified
dollar amount of the proceeds of a sale of or a loan secured by purchased Shares
issuable on exercise of the Option; by a combination of the methods of payment
previously described; or by such other method of payment as the Committee in its
sole discretion may permit. Within a reasonable time after the exercise of an
Option, the Corporation shall cause to be delivered to the person entitled
thereto, a certificate for the Shares purchased pursuant to the exercise of the
Option. If the Option shall have been exercised with respect to less than all of
the Shares subject to the Option, the Corporation shall also cause to be
delivered to the person entitled thereto a new Option certificate in replacement
of the certificate surrendered at the time of the exercise of the Option,
indicating the number of Shares with respect to which the Option remains
available for exercise, or the original Option certificate shall be endorsed to
give effect to the partial exercise thereof. Notwithstanding any other provision
of the Plan or of any Option, no Option granted pursuant to the Plan may be
exercised at any time when the Option or the granting or exercise thereof
violates any law or governmental order or regulation.
11. Consideration for Options. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its sole discretion
may determine.
12. Nontransferability of Options. Options and all other rights
thereunder shall be nontransferable or non-assignable by the holder thereof
except to the extent that the estate of a deceased holder of an Option may be
permitted to exercise them. Options may be exercised or surrendered during the
holder's lifetime only by the holder thereof.
13. Termination of Employment or Service. All or any part of any
Option, to the extent unexercised, shall terminate immediately, upon the
cessation or termination for any reason of the holder's employment by, or
service with, the Corporation, the Parent or any Subsidiary of the Corporation,
except that the holder shall have until the end of the thirtieth day following
the cessation of his employment or service with the Corporation, the Parent or
Subsidiaries of the Corporation, and no longer, to exercise any unexercised
Option to the extent he could have exercised such Option on the day on which
such employment or service terminated; provided, that such exercise must be
accomplished prior to the expiration of the term of such Option. Notwithstanding
the foregoing, except as otherwise determined by the Committee in its sole
discretion, if the cessation of employment or service is due to retirement on or
after attaining the age of sixty-five (65) years, or to disability (to an extent
and in a manner as shall be determined in each case by the Committee in its sole
discretion) or to death, the holder or the representative of the estate of a
deceased holder shall have the privilege of exercising any unexercised Option to
the extent he could have exercised such Option on the day of such retirement, or
of such disability or death; provided, however, that such exercise must be
accomplished prior to the expiration of the term of such Option and (a) within
three months of the holder's retirement or (b) within one year of the holder's
disability or death, as the case may be. If the employment or service of any
holder of an Option with the Corporation, the Parent or Subsidiary of the
Corporation shall be terminated for cause, the existence of which shall be
determined by the Committee in its sole discretion (which determination by the
Committee shall be conclusive) all
5
<PAGE> 6
unexercised Options of such holder shall terminate immediately upon such
termination of the holder's employment or service with the Corporation, the
Parent and all Subsidiaries of the Corporation, and a holder of Options whose
employment or service with the Corporation, the Parent and any Subsidiaries of
the Corporation is so terminated, shall have no right after such termination to
exercise any unexercised Option he might have exercised prior to the termination
of his employment or service with the Corporation, the Parent and Subsidiaries
of the Corporation.
14. Grants of Options to Non-Employee Directors. Each Non-Employee
Director who is serving on the Board of Directors as of the Consummation Date
shall be granted an Option to purchase 7,000 Shares on the Consummation Date at
the Initial Public Offering Price. Thereafter, commencing on January 1, 1997,
each Non-Employee Director shall be eligible to be granted Options to purchase
no more than 7,000 Shares in any calendar year at a purchase price per share
equal to the Fair Market Value of a Share on the date of grant. The Non-Employee
Directors to whom Options are granted under this Plan, and the number of Shares
subject to each such Option (up to a maximum of 7,000 Shares in any calendar
year) shall be determined by the Committee in its sole discretion. Each Option
granted pursuant to this Section 14 shall have a duration of ten years from the
date of grant and shall become exercisable cumulatively as to 20% of the Shares
on the date of grant and on each of the first, second, third and fourth
anniversaries of the date of grant. Notwithstanding the foregoing, all or any
part of any remaining unexercised Options granted pursuant to this Section 14
also may be exercised upon the occurrence of such special circumstance or event
as in the opinion of the Committee merits special consideration. Any Option
granted pursuant to this Section 14, to the extent unexercised, shall terminate
immediately upon the holder's ceasing to serve as a member of the Board, except
that the holder shall have until the end of the thirtieth day following the
cessation of such service to exercise any unexercised Option to the extent he
could have exercised such Option on the day on which such service terminated;
provided that such exercise must be accomplished prior to the expiration of the
term of such Option. Notwithstanding the foregoing, except as otherwise
determined by the Committee in its sole discretion, if the cessation of service
as a director is due to retirement on or after attaining the age of 65 years, or
to disability (to the extent and in a manner as shall be determined in each case
by the Committee in its sole discretion) or to death, the holder or the
representative of the estate of a deceased shareholder shall have the privilege
of exercising any unexercised Option to the extent he could have exercised such
Option on the day of such retirement, or of such disability or death; provided,
however, that such exercise must be accomplished prior to the expiration of the
term of the Option and (a) within three months of the holder's retirement or (b)
within one year of the holder's disability or death, as the case may be.
Notwithstanding the preceding, if the service of any holder of an Option granted
pursuant to this Section 14 shall be terminated for cause, the existence of
which shall be determined by the Committee in its sole discretion (which
determination by the Committee shall be conclusive), then all such unexercised
Options of the holder shall terminate immediately upon such termination of the
holder's service. Upon the exercise of any Option granted pursuant to this
Section 14, payment of the full purchase price shall be made in cash or by check
payable to the order of the Corporation, by delivery to the Corporation of
Shares which shall be valued at their Fair Market Value on the date of exercise
of the Option; by delivery, concurrently with such exercise and in accordance
with applicable law and regulations, of irrevocable instructions to a
6
<PAGE> 7
broker promptly to deliver to the Corporation a specified dollar amount of the
proceeds or a sale of a loan secured by Purchaser Shares issuable on exercise of
an option; or by a combination of the methods of payment previously described,
or by such other method of payment as the Committee in its sole discretion may
permit.
15. Adjustment Provision. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the Shares or if
the Shares shall be split up, converted, exchanged, reclassified, or in any way
substituted for, then the Option, to the extent that it has not been exercised,
shall entitle the holder thereof upon the future exercise of the Option to such
number and kind of securities or cash or other property subject to the terms of
the Option to which he would have been entitled had he actually owned the Shares
subject to the unexercised portion of the Option at the time of the occurrence
of such stock dividend, split-up, conversion, exchange, reclassification or
substitution, and the aggregate purchase price upon the future exercise of the
Option shall be the same as if the originally optioned Shares were being
purchased thereunder. Any fractional shares or securities issuable upon the
exercise of the Option as a result of such adjustment shall be payable in cash
based upon the Fair Market Value of such shares or securities at the time of
such exercise. If any such event should occur, the number of Shares with respect
to which Options remain to be issued, or with respect to which Options may be
reissued, shall be adjusted in a similar manner. Notwithstanding any other
provision of the Plan, in the event of a recapitalization, merger,
consolidation, rights offering, separation, reorganization or liquidation, or
any other change in the corporate structure or outstanding shares, the Committee
may make such equitable adjustments to the number of Shares and the class of
shares available hereunder or to any outstanding Options as it shall deem
appropriate to prevent dilution or enlargement of rights.
16. Issuance of Shares and Compliance with Securities Act. The
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Option until (a) the admission of such Shares to
listing on any stock exchange on which Shares of the Corporation of the same
class are then listed, and (b) the completion of such registration or other
qualification of such Shares under any State or Federal law, rule or regulation
as the Corporation shall determine to be necessary or advisable. Any holder of
an Option shall make such representations and furnish such information as may,
in the opinion of counsel for the Corporation, be appropriate to permit the
Corporation, in the light of the then existence or non-existence with respect to
such Shares of an effective Registration Statement under the Securities Act of
1933, as from time to time amended (the "Securities Act"), to issue the Shares
in compliance with the provisions of the Securities Act or any comparable act.
The Corporation shall have the right, in its sole discretion, to legend any
Shares which may be issued pursuant to the grant or exercise of any Option, or
may issue stop transfer orders in respect thereof.
17. Income Tax Withholding. If the Corporation, the Parent or a
Subsidiary of the Corporation shall be required to withhold any amounts by
reason of any Federal, State or local tax rules or regulations in respect of the
issuance of Shares pursuant to the exercise of any Option, the Corporation, the
Parent or such Subsidiary shall be entitled to deduct and withhold such amounts
from any cash payments to be made to the holder of such Option or permit the
holders of such Option to pay such holders' tax withholding obligation by
delivery of other property deemed acceptable by the Committee, including but not
limited to delivery of
7
<PAGE> 8
previously owned Shares or a reduction in the amount of Shares otherwise
issuable pursuant to the Option. In any event, the holder shall make available
to the Corporation, the Parent or such Subsidiary, promptly when requested by
the Corporation, the Parent or such Subsidiary, sufficient funds or other
property to meet the requirements of such withholding; and the Corporation, the
Parent or such Subsidiary shall be entitled to take and authorize such steps as
it may deem advisable in order to have such funds or other property made
available to the Corporation, the Parent or Subsidiary out of any funds or
property due or to become due to the holder of such Option.
18. Administration and Amendment of the Plan. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Option not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of Shares issuable under the Plan or to any individual or change the
class of Eligible Persons shall be subject to the approval of the stockholders
of the Corporation within one year of such amendment. Determinations of the
Committee as to any question which may arise with respect to the interpretation
of the provisions of the Plan and Options shall be final. The Committee may
authorize and establish such rules, regulations and revisions thereof not
inconsistent with the provisions of the Plan, as it may deem advisable to make
the Plan and Options effective or provide for their administration, and may take
such other action with regard to the Plan and Options as it shall deem desirable
to effectuate their purpose. The Plan is intended to comply with Rule l6b-3
under the Exchange Act. Any provision inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
19. No Right of Employment or Service. Nothing contained herein or in
an Option shall be construed to confer on any employee, consultant or director
any right to be continued in the employ or service of the Corporation, the
Parent or any Subsidiary of the Corporation or derogate from any right of the
Corporation, the Parent and any Subsidiary to retire, request the resignation of
or discharge or otherwise cease its service arrangement with any employee,
consultant or director (without or with pay), at any time, with or without
cause.
20. Final Issuance Date. No Option shall be granted under the Plan
after June 24, 2006.
8
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
1996 STOCK OPTION PLAN OF
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
a Delaware Corporation
Central Financial Acceptance Corporation, a corporation organized and
existing under and by virtue of the laws of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. That Section 5 of the 1996 Stock Option Plan of the Corporation is
amended to read in full as follows:
"5. Shares. Subject to the provisions of Section 15 hereof, the
Committee may grant Options with respect to an aggregate of up to
1,000,000 Shares, all of which Shares may be either Shares held in
treasury or authorized by unissued Shares. The maximum number of Shares
which may be the subject of Options granted to any individual during
the duration of the Plan shall not exceed 350,000 Shares. If the Shares
that would be issued or transferred pursuant to any Option are not
issued or transferred and cease to be issuable or transferable for any
reason, the number of Shares subject to such Option will no longer be
charged against the limitation provided for herein and may again be
made subject to Options; provided, that the counting of Shares subject
to Options granted under the Plan against the number of Shares
available for further Options shall in all cases conform to the
requirements of Rule 16b-3 under the Exchange Act; and provided,
further, that with respect to any Option granted to any Eligible Person
who is a "covered employee" as defined in Section 162(m) of the Code
and the regulations promulgated thereunder that is canceled or
repriced, the number of Shares subject to such Option shall continue to
count against the maximum number of Shares which may be the subject of
Options granted to such Eligible Person and such maximum number of
Shares shall be determined in accordance with Section 162(m) of the
Code and the regulations promulgated."
2. That said amendment has been duly adopted by:
(a) the adoption of resolutions of the Board of Directors
of the Corporation; and
(b) the adoption of resolutions by the holders of a
majority of the outstanding shares of capital stock
entitled to vote thereon.
1
<PAGE> 2
IN WITNESS WHEREOF, said CENTRAL FINANCIAL ACCEPTANCE CORPORATION has
caused this Certificate of Amendment to be signed by Gary M. Cypres and Jonathan
Martin, its Chairman of the Board and Assistant Secretary, respectively.
/s/ Gary M. Cypres
-------------------------------------
Gary M. Cypres, Chairman of the Board
/s/ Jonathan Martin
-------------------------------------
Jonathan Martin, Assistant Secretary
2
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,602
<SECURITIES> 0
<RECEIVABLES> 85,275
<ALLOWANCES> 0
<INVENTORY> 3,070
<CURRENT-ASSETS> 0
<PP&E> 7,407
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<TOTAL-ASSETS> 119,528
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<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 72,780
<TOTAL-LIABILITY-AND-EQUITY> 119,528
<SALES> 0
<TOTAL-REVENUES> 12,793
<CGS> 0
<TOTAL-COSTS> 7,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,189
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 2,262
<INCOME-TAX> 907
<INCOME-CONTINUING> 1,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,355
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
