<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Name of Registrant as Specified In Its Charter)
------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
<PAGE> 2
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 3
PRELIMINARY COPY; INTENDED RELEASE DATE
OF DEFINITIVE COPIES, JUNE 19, 1999
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
-----------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
-----------------------
DATE: Wednesday, July 14, 1999
TIME: 11:00 A.M.
PLACE: Central Financial Acceptance Corporation
5480 East Ferguson Drive
Commerce, California 90022
<PAGE> 4
[CFAC LETTERHEAD]
June ___, 1999
Dear Stockholder:
It is my pleasure to invite you to Central Financial Acceptance
Corporation's 1999 annual meeting of stockholders.
We will hold the meeting on Wednesday, July 14, 1999, at 11:00 a.m.
at our corporate headquarters, 5480 East Ferguson Drive in Commerce, California.
In addition to the formal items of business, I will review the major
developments of 1998 and answer your questions.
This booklet includes the notice of annual meeting and the proxy
statement. The proxy statement describes the business that we will conduct at
the meeting and provides information about CFAC.
Your vote is important. Whether you plan to attend the meeting or
not, please complete, date, sign and return the enclosed proxy card promptly. If
you received more than one proxy card because you own shares registered in
different names or at different addresses, please be sure to separately complete
and return each proxy card. If you attend the meeting and prefer to vote in
person, you may do so.
Please indicate on the proxy card whether or not you expect to attend
the meeting so that we can provide adequate seating.
We look forward to seeing you at the meeting.
Sincerely,
/s/ GARY M. CYPRES
------------------------------------
Gary M. Cypres
Chairman of the Board
<PAGE> 5
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
-----------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
-----------------------
Date: Wednesday, July 14, 1999
Time: 11:00 a.m.
Place: Central Financial Acceptance Corporation
5480 East Ferguson Drive
Commerce, California 90022
Dear Stockholders:
At our annual meeting, we will ask you to:
- Elect four directors to each serve for a term of one year;
- Amend the Certificate of Incorporation to authorize the board of
directors or stockholders to amend our Bylaws by majority vote
of the board or stockholders, respectively;
- Amend the Certificate of Incorporation to create a new class of
non-voting common stock, par value $0.01 per share, of which
3,000,000 shares will be authorized;
- 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;
- Ratify the selection of Arthur Andersen LLP, as independent
public accountants for 1999; and
- Transact any other business that may properly be presented at
the annual meeting.
For ten days prior to the annual meeting, a complete list of our
stockholders entitled to vote at the meeting will be available for inspection by
any stockholder for any purpose relating to the meeting during ordinary business
hours at our offices at 5480 East Ferguson Drive, Commerce, California. This
list will also be available for inspection at the annual meeting.
If you were a stockholder of record at the close of business on June
7, 1999, you may vote at the annual meeting.
By order of the board of directors,
/s/ GARY M. CYPRES
----------------------------------
Gary M. Cypres
Chairman of the Board
June ___, 1999
Commerce, California
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING..............................................................1
Why Did You Send Me This Proxy Statement?.............................................................1
Who Is Entitled to Vote?..............................................................................1
What Constitutes a Quorum?............................................................................1
How Many Votes Do I Have?.............................................................................1
How Do I Vote By Proxy?...............................................................................2
May I Change My Vote After I Return My Proxy?.........................................................2
How Do I Vote in Person?..............................................................................3
What Vote Is Required to Approve Each Proposal?.......................................................3
Proposal 1: Elect Four Directors...........................................................3
Proposals 2 and 3: Amend Certificate of Incorporation......................................3
Proposal 4: Approve Amendment to our 1996 Stock Option Plan and
the amended 1996 Stock Option Plan.............................................3
Proposal 5: Ratify Selection of Independent Public Accountants.....................3
The Effect of Broker Non-Votes..............................................................4
What Are the Costs of Soliciting these Proxies?.......................................................4
How Do I Obtain an Annual Report on Form 10-K?........................................................4
INFORMATION ABOUT CFAC COMMON STOCK OWNERSHIP................................................................4
Which Stockholders Own at Least 5% of CFAC? ..........................................................4
How Much Stock is Owned by Directors and Executive Officers?..........................................6
Compensation Committee Interlocks and Insider Participation...........................................6
Did Directors, Executive Officers and Greater-Than-10% Stockholders Comply With Section 16(a)
Beneficial Ownership Reporting in 1998?............................................................7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS...........................................................7
The Board of Directors................................................................................7
The Committees of the Board...........................................................................7
The Audit Committee.........................................................................7
The Compensation Committee..................................................................8
How Do We Compensate Directors?.......................................................................8
Certain Relationships and Related Transactions........................................................8
Financing Agreement.........................................................................9
Option Agreement............................................................................9
Operating Agreement........................................................................10
Tax Sharing Agreement......................................................................11
Indemnification Agreements.................................................................11
Executive Officers and Key Employees.................................................................11
How We Compensate Executive Officers.................................................................12
</TABLE>
i
<PAGE> 7
TABLE OF CONTENTS - (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD............................................................22
Proposal 1: Elect Four Directors.............................................................22
Proposal 2: Amend Certificate of Incorporation to authorize the board of directors or
stockholders to amend CFAC's Bylaws by majority vote of the board or
stockholders, respectively.......................................................23
Proposal 3: Amend Certificate of Incorporation to create a new class of non-voting common
stock, of which 3,000,000 shares will be authorized..........................24
Proposal 4: Amend 1996 Stock Option Plan and approve the amended 1996 Stock Option Plan......28
Proposal 5: Ratify Selection of Independent Public Accountants...............................34
INFORMATION ABOUT STOCKHOLDER PROPOSALS.....................................................................34
</TABLE>
ii
<PAGE> 8
PRELIMINARY PROXY STATEMENT
PROXY STATEMENT FOR CENTRAL FINANCIAL ACCEPTANCE CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at the 1999 annual meeting
of stockholders. This proxy statement summarizes the information you need to
know to cast a vote at the annual meeting. However, you do not need to attend
the annual meeting to vote your shares. Instead, you may simply complete, sign
and return the enclosed proxy card.
WHO IS ENTITLED TO VOTE?
We will begin sending this proxy statement, the attached notice of
annual meeting and the enclosed proxy card on or about June ___, 1999 to all
stockholders entitled to vote. Stockholders who owned CFAC common stock at the
close of business on June 7, 1999 are entitled to vote. On this record date,
there were 7,277,000 shares of CFAC common stock, par value $0.01 per share,
outstanding. CFAC common stock is our only class of voting stock. We are also
authorized to issue up to 5,000,000 shares of preferred stock, par value $0.01
per share, of which no shares are presently issued and outstanding. We are also
sending along with this proxy statement, the CFAC 1998 Annual Report, which
includes our financial statements.
WHAT CONSTITUTES A QUORUM?
The holders of a majority of the issued and outstanding shares of CFAC
common stock entitled to vote at the meeting must be present, in person or by
proxy, in order to constitute a quorum. We can only conduct the business of the
meeting if a quorum has been established. We will include proxies marked as
abstentions and broker non-votes in determining the number of shares present at
the meeting.
HOW MANY VOTES DO I HAVE?
Each share of CFAC common stock that you own entitles you to one vote.
The proxy card indicates the number of shares of CFAC common stock that you own.
1
<PAGE> 9
HOW DO I VOTE BY PROXY?
Whether you plan to attend the annual meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
postage-prepaid envelope provided. Returning the proxy card will not affect your
right to attend the annual meeting and vote.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the board
of directors as follows:
- "FOR" the election of all four nominees for director (see pages
22 to 23),
- "FOR" approval of the amendment to the Certificate of
Incorporation to authorize the board of directors or
stockholders to amend our Bylaws by majority vote of the board
or stockholders, respectively (see pages 23 to 24),
- "FOR" approval of the amendment to the Certificate of
Incorporation to create a new class of non-voting common stock,
par value $0.01 per share, of which 3,000,000 shares will be
authorized (see pages 24 to 28),
- "FOR" approval of the amendment to our 1996 Stock Option Plan to
increase the number of shares reserved for issuance from 700,000
to 1,000,000 and the amended 1996 Stock Option Plan (see pages
28 to 34), and
- "FOR" ratification of the selection of Arthur Andersen LLP as
independent public accountants for 1999 (see page 34).
If any other matter is presented, your proxy will vote in accordance
with the recommendation of the board of directors or, if no recommendation is
given, in their own discretion. At the time this proxy statement went to press,
we knew of no matters which needed to be acted on at the annual meeting, other
than those discussed in this proxy statement.
MAY I CHANGE MY VOTE AFTER I RETURN MY PROXY?
Yes. If you give a proxy, you may change your vote at any time before it
is exercised. You may change your vote in any one of three ways:
- You may send our Corporate Secretary another proxy with a later
date.
- You may notify our Corporate Secretary in writing before the
annual meeting that you have revoked your proxy.
2
<PAGE> 10
- You may attend the annual meeting and vote in person.
HOW DO I VOTE IN PERSON?
If you plan to attend the annual meeting and vote in person, we will
give you a ballot form when you arrive. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring the proxy card, an
account statement or a letter from the nominee indicating that you are the
beneficial owner of the shares on June 7, 1999, the record date for voting, and
a written instruction from the nominee authorizing you to vote the shares.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
<TABLE>
<S> <C>
PROPOSAL 1: The four nominees for director who receive the most votes
Elect Four Directors will be elected. So, if you do not vote for a particular
nominee, or you indicate "WITHHOLD AUTHORITY" to vote
for a particular nominee on your proxy card, your vote
will not count either "for" or "against" the nominee. Our
Certificate of Incorporation does not authorize cumulative
voting.
PROPOSALS 2 AND 3: The affirmative vote of a majority of the outstanding shares of
Amend Certificate common stock is required to approve the amendments to our
of Incorporation Certificate of Incorporation. So, if you do not vote, or mark
"ABSTAIN" on your proxy card, it has the same effect as if
you voted "against" these amendments.
PROPOSAL 4: The affirmative vote of a majority of shares of common stock
Approve Amendment to present in person or represented by proxy at the annual
our 1996 Stock Option Plan and meeting and entitled to vote on this proposal is required to
the amended 1996 Stock Option approve the amendment to the 1996 Stock Option and the Plan
Plan amended 1996 Stock Option Plan. So if you "ABSTAIN" from voting,
it has the same effect as if you voted "against" this proposal.
PROPOSAL 5: The affirmative vote of a majority of the votes cast at the
Ratify Selection of Independent annual meeting on this proposal is required to ratify the
Public Accountants selection of independent public accountants. So, if you
"ABSTAIN" from voting, it has the same effect as if you
voted "against" this proposal.
</TABLE>
3
<PAGE> 11
<TABLE>
<S> <C>
THE EFFECT OF BROKER NON-VOTES If your broker holds your shares in its name, the broker will be
entitled to vote your shares on Proposals 1 and 5 even if it
does not receive instructions from you. However, your broker
is not entitled to vote on Proposals 2, 3 or 4 unless it receives
instructions from you. A broker non-vote on Proposals 2 and
3 will have the same effect as a vote "against."
</TABLE>
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
We will pay all the costs of soliciting these proxies. In addition to
mailing proxy soliciting material, our directors, officers and employees also
may solicit proxies in person, by telephone or by other electronic means of
communications for which they will receive no compensation. We will ask banks,
brokers and other institutions, nominees and fiduciaries to forward the proxy
material to their principals and to obtain authority to execute proxies. We will
then reimburse them for their reasonable expenses. In addition, we may pay for
and use the services of individuals or companies that we do not regularly employ
in connection with the solicitation of proxies if the board of directors
determines this is advisable.
HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K?
IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1998, THAT WE FILED WITH THE SEC, WE WILL SEND YOU ONE
WITHOUT CHARGE. PLEASE WRITE TO:
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
ATTENTION: CORPORATE SECRETARY
INFORMATION ABOUT CFAC COMMON STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST 5% OF CFAC?
The following table shows, as of June 7, 1999, all persons or entities
we know to be "beneficial owners" of more than five percent of our common stock
(1). This information is based on Schedules 13D and 13G reports filed with the
SEC by each of the persons and entities listed in the table below. If you wish,
you may obtain these reports from the SEC.
4
<PAGE> 12
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(2) SHARES(3) CLASS(4)
- --------------------------------------------------------- ------------------- ------------
<S> <C> <C>
Gary M. Cypres(5)........................................ 5,175,000 71.1%
Banner Holdings, Inc.(6)................................. 5,150,000 70.8%
West Coast Private Equity Partners, L.P.(6).............. 5,150,000 70.8%
Wellington Management Company, LLP(7).................... 1,018,700 14.0%
Bay Pond Partners, L.P.(8)............................... 411,500 5.7%
Wellington Hedge Management LLC(9)....................... 411,500 5.7%
Wellington Hedge Management, Inc.(10).................... 411,500 5.7%
</TABLE>
- ------------
(1) "Beneficial ownership" is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. So, for example, you
"beneficially" own CFAC common stock not only if you hold it directly,
but also if you directly or indirectly (through a relationship, a
position as a director or trustee, or a contract or understanding), have
(or share) the power to vote the stock, to invest it, to sell it or you
currently have the right to acquire it or the right to acquire it within
60 days of June 7, 1999.
(2) The address for Mr. Cypres, Banner Holdings, Inc. and West Coast Private
Equity Partners, L.P. is 5480 East Ferguson Drive, Commerce, California
90022, and the address for Wellington Management Company, LLP, Bay Pond
Partners, L.P., Wellington Hedge Management LLC and Wellington Hedge
Management, Inc. is 75 State Street, Boston, Massachusetts 02109.
(3) Except as otherwise noted below, each person and entity named in the
table directly or indirectly has sole voting and investment power with
respect to the shares shown which each such person or entity
beneficially owns.
(4) Shares of CFAC common stock issuable upon exercise of stock options
exercisable within 60 days of June 7, 1999 are considered outstanding
for computing the percentage of the person or entity holding those
options but are not considered outstanding for computing the percentage
of any other person or entity.
(5) Consists of 5,150,000 shares owned by Banner Holdings, Inc.
("Holdings"), 12,500 shares owned by Mr. Cypres' spouse and 12,500
shares held by or in trust by Mr. Cypres and his spouse for their
children. Of the 5,175,000 shares, Mr. Cypres shares voting and
investment power of 25,000 shares with his spouse and 5,150,000 shares
with Holdings and West Coast Private Equity Partners, L.P. ("West
Coast").
(6) Holdings is the direct beneficial owner of 5,150,000 shares. West Coast
controls Holdings. West Coast beneficially owns 5,150,000 shares through
its control of Holdings. Mr. Cypres is Chairman of the Board, Chief
Executive Officer, President and Chief Financial Officer of Holdings and
the managing general partner of West Coast. Mr. Cypres controls CFAC
through West Coast and Holdings.
(7) Based on a Schedule 13G filed with the SEC on February 9, 1999. These
shares are held of record by Wellington Management Company, LLP's
("WMC") clients. Of the 1,018,700 shares, WMC shares the power to vote
751,900 of these shares and shares the power to dispose of all these
shares in its capacity as investment advisor to these clients.
(8) Based on a Schedule 13G filed with the SEC on January 19, 1999. Bay Pond
Partners shares voting and investment power over these shares with
Wellington Hedge Management LLC ("WHML") and Wellington Hedge
Management, Inc. ("WHMI"). WHML is the sole general partner of Bay Pond
and WHMI is the managing member of WHML.
(9) Based on a Schedule 13G filed with the SEC on January 19, 1999. WHML
shares voting and investment power over these shares with WMC and WHMI.
(10) Based on a Schedule 13G filed with the SEC on January 19, 1999. WHMI
shares voting and investment power over these shares with WMC and WHML.
5
<PAGE> 13
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows, as of June 7, 1999, the CFAC common stock
that our directors and executive officers beneficially own and those shares of
common stock owned by all executive officers and directors as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
--------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(2) CLASS(3)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Gary M. Cypres(4)........................................ 5,175,000 71.1%
Anthony S. Fortunato..................................... 500 *
Edward Valdez............................................ 2,100 *
Gerard T. McMahon(5)..................................... 6,000 *
Jose de Jesus Legaspi(6)................................. 2,800 *
Salvatore J. Caltagirone(6).............................. 2,800 *
William R. Sweet(6)...................................... 2,800 *
A. Keith Wall............................................ -- N/A
All directors and executive officers as a group
(8 persons)(7)........................................... 5,192,000 71.2%
</TABLE>
- ----------------------
* Less than 1%.
(1) See footnote 1 in table included above at page 5 under "Which
Stockholders Own at Least 5% of CFAC?"
(2) Except as otherwise noted below, each individual named in the table
directly or indirectly has sole voting and investment power with respect
to the shares shown which each such individual beneficially owns.
(3) Shares of CFAC common stock issuable upon exercise of stock options
exercisable within 60 days of June 7, 1999 are considered outstanding
for computing the percentage of the person holding those options but are
not considered outstanding for computing the percentage of any other
person.
(4) Consists of 5,150,000 shares owned by Holdings, 12,500 shares owned by
Mr. Cypres' spouse and 12,500 shares held by or in trust by Mr. Cypres
and his spouse for their children. Of the 5,175,000 shares, Mr Cypres
shares voting and investment power of 25,000 shares with his spouse and
5,150,000 shares with Holdings and West Coast.
(5) Consists of 6,000 shares issuable upon exercise of stock options
exercisable within 60 days of June 7, 1999.
(6) Consists of 2,800 shares issuable upon exercise of stock options.
(7) Includes 14,400 shares issuable upon exercise of stock options
exercisable within 60 days of June 7, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee consists of Messrs. Sweet and Caltagirone.
None of the members of the compensation committee is or has been an officer or
employee of CFAC or any of its subsidiaries. None of our executive officers
currently serves as a director or member of the compensation committee of
another entity or of any other committee of the board of directors of another
entity performing similar functions.
6
<PAGE> 14
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS COMPLY WITH
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING IN 1998?
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors, executive officers, and greater-than-10% stockholders to
file reports with the SEC and The Nasdaq Stock Market reflecting changes in
their beneficial ownership of CFAC stock and to provide us with copies of the
reports. Based on our review of these reports and of certifications furnished to
us, except for Anthony S. Fortunato who filed one late report involving the
purchase of CFAC stock on Form 4 and A. Keith Wall who filed one late report
involving his initial statement of beneficial ownership of CFAC stock on Form 3,
we believe that all of these reporting persons complied with their filing
requirements for 1998.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The board of directors oversees our business and affairs and monitors
the performance of management. In accordance with corporate governance
principles, the board does not involve itself in day-to-day operations. The
directors keep themselves informed through, among other things, discussions with
the chairman, other key executives and our principal external advisers (legal
counsel, outside auditors, investment bankers and other consultants), reading
reports and other materials that we send them and participating in board and
committee meetings.
The board met six times during fiscal 1998. Each incumbent director
attended at least 75% of the total number of board and committee meetings, of
which he was a member, held in fiscal 1998.
THE COMMITTEES OF THE BOARD
The board has an audit committee and a compensation committee. The full
board of directors nominates our officers and directors for election.
<TABLE>
<S> <C>
THE AUDIT COMMITTEE The audit committee reviews and reports to the board of
directors on various auditing and accounting matters,
including the annual report from our independent public
accountants. Messrs. Caltagirone, Legaspi and Sweet
currently serve as members of the audit committee. The audit
committee met one time during 1998.
</TABLE>
7
<PAGE> 15
<TABLE>
<S> <C>
THE COMPENSATION COMMITTEE The compensation committee determines the salary and bonus
structure for our executive officers and supervises the
compensation scheme for our other officers. In addition, the
compensation committee determines appropriate awards under
our 1996 Stock Option Plan (the "1996 Plan") and administers
our retirement plan. Messrs. Caltagirone and Sweet currently
serve as members of the compensation committee. The
compensation committee met two times during 1998.
</TABLE>
HOW DO WE COMPENSATE DIRECTORS?
In 1998, we paid our non-employee directors an annual fee of $15,000 for
board and committee meetings. Mr. Cypres, our Chairman, received no fees for
serving as a CFAC director. In addition, the compensation committee may in its
sole discretion grant to our non-employee directors options to purchase shares
of CFAC common stock. All options granted to non-employee directors vest in
equal annual installments over 5 year periods beginning on the date of grant,
subject to continued service on the board of directors. We have entered into
agreements with all directors pursuant to which we have agreed to indemnify them
against certain claims arising out of their services as directors. Directors are
also entitled to the protection of certain indemnification provisions in our
Certificate of Incorporation and Bylaws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed on April 11, 1996. We entered into an agreement with
Banner's Central Electric, Inc. ("Banner"), an affiliate of ours, and Holdings,
on June 24, 1996 which was subsequently amended (the "Reorganization Agreement")
under which Holdings contributed to Banner its investments in its subsidiaries
that operate the small loan, travel, automobile sales, and related businesses
(the "Holdings Subsidiaries"). Under this Agreement, Banner then contributed to
CFAC its investments in the Holdings Subsidiaries and in its subsidiary that
holds the Consumer Product Portfolio (collectively, the "Subsidiaries") and cash
in such amount so as to leave us with $500,000 on hand upon consummation of such
transaction (the "Reorganization"). The Reorganization Agreement also provides
that the intercompany accounts between CFAC, Banner and Holdings were forgiven,
except with respect to income taxes. As a result, we had $500,000 of cash on
hand upon the completion of the Reorganization.
In connection with the Reorganization and under the Reorganization
Agreement, we entered into various agreements with Banner and Holdings for the
purpose of defining our ongoing relationships among each other. Because Holdings
controls us and Banner (see "Which Stockholders own at least 5% of CFAC?" at
page 4), these agreements did not result from arm's-length negotiations. We
believe, however, that these agreements are at least as favorable to us as those
that could have been obtained from independent third parties.
8
<PAGE> 16
Financing Agreement
We have entered into an agreement with Banner and Holdings, which was
subsequently amended (the "Financing Agreement") under which Banner granted us
the exclusive right, at our option, (1) to purchase consumer finance receivables
which Banner originates for sales of merchandise at its stores in operation on
the date of the Financing Agreement and for all stores which Banner may
determine to open in the future during the term of the Financing Agreement (and
any extension thereof), or (2) to provide financing directly to Banner's
customers at all of such locations. We are not obligated to provide financing to
any particular Banner customer, or to offer financing at any Banner location or
locations. The Financing Agreement has a term of 15 years commencing on June 24,
1996. We may terminate the Financing Agreement at any time upon one year's prior
written notice to Banner.
During the term of the Financing Agreement, as long as Banner originates
its consumer finance receivables, we will have the right to purchase consumer
finance receivables at face value less a transaction fee which is currently set
at 2.5%. This transaction fee is subject to renegotiation at six-month intervals
to reflect our costs associated with providing financing under the Financing
Agreement. If we originate such receivables, Banner will be obligated to pay us
a transaction fee in an amount to be initially established by the parties and
subject to renegotiation at six-month intervals. As a result of increasing
delinquencies in the Consumer Product Portfolio, the Financing Agreement was
amended, effective July 1, 1997, to permit us for the year ended December 31,
1997 to return to Banner up to $5.8 million of the balance of the Consumer
Product Portfolio at December 31, 1996. In 1998, the Financing Agreement was
again amended and allowed Banner to repurchase $1.5 million in the year ended
December 31, 1998. Banner does not charge us for the space we occupy in its
locations in recognition of the value provided by the presence of our financial
products and services in its retail locations.
Option Agreement
We have entered into an agreement with Banner and Holdings (the "Option
Agreement") under which Holdings granted us an option to purchase all of
Banner's outstanding capital stock (the "Option") from Holdings at any time
during the period which commenced on June 24, 1997 and will end on June 24, 1999
(the "Option Termination Date"). The exercise price of the Option will be equal
to Banner's net book value as reflected on its balance sheet for the month ended
immediately preceding the exercise of the Option; such balance sheet shall have
been prepared in accordance with generally accepted accounting principles on a
basis consistent with prior periods. If we exercise the Option, the exercise
price is payable in cash or in shares of CFAC common stock valued at the average
last sale price of our common stock during the ten-trading-day period preceding
the date on which we deliver to Holdings our written notice of exercise. Until
the Option Termination Date, Holdings may not, without our prior written
consent, sell, offer or agree to sell, grant any option for the sale of, or
otherwise dispose of any of Banner's capital stock (or any securities
convertible into, exercisable for or exchangeable for Banner's capital stock)
nor will Banner sell substantially all of its assets.
9
<PAGE> 17
Operating Agreement
We have entered into an agreement with Banner and Holdings (the
"Operating Agreement") setting forth certain rights and obligations of the
parties following the Reorganization. The Operating Agreement covers the
following matters:
Allocation of Business Opportunities. Due to the potential
conflicts of interest resulting from the relationships among us, Banner
and Holdings, the Operating Agreement provides that Holdings and its
subsidiaries (other than CFAC and its subsidiaries) will not, without
our prior written consent, directly or indirectly engage in or enter
into any business competing with us and involving the financing of
consumer products, travel products, small loans, automobiles or
insurance (the "Restricted Businesses"). If Holdings shall acquire a
company engaged in a Restricted Business or shall otherwise directly or
indirectly engage in a Restricted Business, Holdings shall be obligated
to sell, at our election, such Restricted Business to us at a purchase
price equal to the fair market value of such Restricted Business, as
determined through an independent appraisal process. The foregoing
restriction shall terminate on December 31, 2002, or, if earlier, on the
date on which Holdings ceases to own, directly or indirectly, at least
25% of CFAC's outstanding voting stock.
Management and Other Services. The Operating Agreement provides
that Banner, Holdings or their affiliates are obligated to provide to
us, and we are obligated to use certain services, including accounting,
management information systems and employee benefits. Except for
management information systems, these arrangements will continue until
terminated by us, Banner, Holdings or such affiliate upon one-year's
prior written notice. Termination may be made on a service-by-service
basis or in its entirety. To the extent that such services directly
relate to the finance portion of the consumer products business Banner
contributes to us, or to the extent that Banner, Holdings or their
affiliates incur other costs that directly relate to us, we are
obligated to pay Banner's, Holdings' or their affiliates' actual cost of
providing such services or incurring such costs. Employee benefit
expenses are allocated to us based on the ratio of actual employer
payroll expenses in the consumer products business Banner contributes to
us compared to total actual payroll expenses of Banner before such
allocation. Accounting expenses are allocated 50% to us. The operating
costs of Banner's management information systems function are allocated
initially 50% to us for a period of five years, subject to adjustment
from time to time to reflect changing costs and usage. Such allocated
expenses totaled $2.1 million in 1998, $1.6 million in 1997 and $1.3
million in 1996.
Employee Benefits. Under the Operating Agreement, we assumed all
liabilities of Banner, Holdings and the Subsidiaries under existing
employee welfare benefit and profit sharing plans with respect to the
employees of Banner, Holdings and the Subsidiaries who became our
employees.
10
<PAGE> 18
Tax Sharing Agreement
We have entered into an agreement with Holdings and Banner (the "Tax
Sharing Agreement") providing for (1) the payment of federal, state and other
income tax remittances or refunds for periods during which we and Holdings were
included in the same consolidated group for federal income tax purposes, (2) the
allocation of responsibility for the filing of such tax returns, (3) the conduct
of tax audits and the handling of tax controversies and (4) various related
matters. For periods during which we were included in Holdings' consolidated
federal income tax returns, we are required to pay Holdings its allocable
portion of the consolidated federal, state and other income tax liabilities and
are entitled to receive refunds determined as if we and our subsidiaries had
filed separate income tax returns. With respect to Holdings' liability for
payment of taxes for all periods during which we were so included in Holdings'
consolidated federal income tax returns, we will indemnify Holdings for all
federal, state and other income tax liabilities for such periods. The date of
the consummation of the initial public offering was the last day on which we
were included in Holdings' consolidated federal income tax returns.
Indemnification Agreements
We have entered into an indemnification agreement with Holdings and
Banner (the "Indemnification Agreement") under which we will indemnify and hold
harmless Holdings and Banner with respect to any and all claims, losses,
damages, liabilities, costs and expenses (except when arising from Holdings' or
Banner's intentional misconduct or gross negligence or to the extent any
liability arises from Banner's breach of its fiduciary duty to our other
stockholders) that arise from or are based on the operations of the business of
CFAC and its subsidiaries after the date of the Reorganization. We will also
indemnify and hold harmless Holdings and Banner with respect to any and all
claims, losses, damages, liabilities, costs and expenses that arise from or are
based on guarantees or undertakings which Holdings or Banner makes to third
parties in respect of our liabilities or obligations, whether or not such
obligations arose before or after the Reorganization. Holdings and Banner will
indemnify and hold harmless CFAC with respect to any and all claims, losses,
damages, liabilities, costs and expenses that arise from or are based on the
operations of Holdings or Banner, other than the business of CFAC and its
subsidiaries, before or after the date of the Reorganization. The rights of any
party under the Indemnification Agreement are not assignable or transferable
without the prior written consent of the other parties.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
These are the biographies of CFAC's current executive officers, except
for Mr. Cypres, the Chairman, whose biography is included below at page 22 under
Proposal 1 "Elect Four Directors."
11
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ----------------------------- ---------------------------------------------------------------------------------------
<S> <C>
Anthony S. Fortunato(50) Mr. Fortunato has been CFAC's President since March 18, 1998. From October 18, 1996
to March 18, 1998, Mr. Fortunato was our Executive Vice President of Operations. Prior
to joining CFAC, Mr. Fortunato was Executive Vice President of Citibank, F.S.B.
California from November 1993 to October 1996, and Vice President of Citibank,
N.A./Citicorp from September 1976 to November 1993.
Gerard T. McMahon(51) Mr. McMahon has been CFAC's Executive Vice President of Credit and Collections since
September 23, 1996. Prior to joining CFAC, Mr. McMahon was Vice President of Credit
and Collections at Barry's Jewelers from 1991 to 1996 and Divisional Vice President of
Credit and Collections at Kay Jewelers from 1987 to 1991. From 1981 to 1987, Mr.
McMahon was Divisional Vice President of Credit Administration at The Broadway.
Edward Valdez(47) Mr. Valdez has been CFAC's Senior Vice President of Credit since its formation, Senior
Credit Manager of consumer product finance business since 1986, Senior Credit Manager
of small loan business since November 1992 and Senior Vice President of Operation since
1998. Mr. Valdez has been working for CFAC or its predecessors for over 30 years.
A. Keith Wall(46) Mr. Wall has been CFAC's Vice President and Chief Financial Officer since July 1998.
From June 1996 to July 1998, Mr. Wall was Vice President and Chief Financial Officer of
Central Rents, Inc., a sister company of CFAC. From July 1995 to March 1996, Mr. Wall
was Vice President and Controller of Thorn Americas, Inc., and from January 1994 to July
1995, the Vice President and Chief Financial Officer of Remco America, Inc.
</TABLE>
Set forth below are biographies of certain other significant employees
of CFAC.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ----------------------------- ---------------------------------------------------------------------------------------
<S> <C>
Alan E. Scheneman(47) Mr. Scheneman has been CFAC's Senior Vice President since its formation.
Mr. Scheneman joined our consumer product finance business in 1992 as Vice President
of Management Information Services. From 1988 to 1992, Mr. Scheneman was the
director of Product Development at JDA Software Services where, in 1989, he managed
the implementation of our management information system.
Marvin A. Torres(37) Mr. Torres has been President of CFAC's travel finance business since December 1995.
From April 1995 to December 1995, Mr. Torres was Vice President of Operations for our
travel finance business. From 1984 to 1995, Mr. Torres was Vice President of Operations
and General Manager at Solano Travel Service and Costa Rica Holiday Tours in Los
Angeles, California.
</TABLE>
HOW WE COMPENSATE EXECUTIVE OFFICERS
The following table shows the compensation paid during the last three
years to (or for such shorter period that we employed the individual) the Chief
Executive Officer and the other executive officers who received salary and bonus
at a rate in excess of $100,000 in such years (collectively, the "Named
Executive Officers"). No other executive officer received salary and bonus in
excess of $100,000 during 1998.
12
<PAGE> 20
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION COMPENSATION(1) AWARDS
- ---------------------------------- ---------------------------------- ------------ ------------
ALL OTHER
YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
--------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary M. Cypres(2) ................ 1998 $191,875 $ 500 120,000(5) $ 77,000(7)
Chairman of the Board 1997 $175,000 $ 500 -- $ 77,000(7)
1996 $175,000 $ 30,000 100,000 $ 77,000(7)
Anthony S. Fortunato(3) .......... 1998 $255,208 $ 500 120,000(5) --
President 1997 $230,000 $ 500 -- --
1996 $ 46,154 -- 100,000 --
Gerard T. McMahon(4) ............. 1998 $160,000 $ 500 30,000(6) --
Executive Vice President of 1997 $160,000 $ 500 -- --
Credit and Collections 1996 $ 43,692 -- 30,000 --
Edward Valdez .................... 1998 $ 98,750 $ 2,519 32,000(5) --
Senior Vice President of Credit 1997 $ 95,000 $ 500 -- --
1996 $ 95,000 $ 14,000 30,000 $ 1,327(8)
</TABLE>
- -----------
(1) Certain of our executive officers receive benefits in addition to salary
and cash bonuses. The aggregate amount of such benefits, however, does
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus of such Named Executive.
(2) Prior to July 2, 1996, Mr. Cypres' compensation was paid to G.M. Cypres
& Co. by Banner Holdings, Inc. for services rendered to it. Mr. Cypres
also served as President until Mr. Fortunato assumed such position in
March 1998 and as Chief Financial Officer until Mr. Wall assumed such
position in July 1998.
(3) Mr. Fortunato joined CFAC in October 1996. Mr. Fortunato served as
Executive Vice President of Operations until he was appointed President
in March 1998.
(4) Mr. McMahon joined CFAC in September 1996.
(5) Consists of options regranted at an exercise price of $5.00 per share on
December 1, 1998.
(6) Consists of options regranted at an exercise price of $12.00 per share
on March 4, 1998.
(7) Represents amount accrued under the Supplemental Executive Retirement
Plan for Mr. Cypres.
(8) Represents amounts contributed under the Banner's, a California
corporation dba Central Electric Profit Sharing Plan (the "Profit
Sharing Plan") for Mr. Valdez.
13
<PAGE> 21
The following table sets forth information concerning stock options
granted to the Named Executive Officers during 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED (2) 1998 PRICE (3) DATE 5% 10%
- ----------------------- --------------- ------------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Cypres 120,000 (4) 18.2% $ 5.00 12/01/08 $304,080 $ 839,520
Anthony S. Fortunato 100,000 (5) 15.2% $12.00 03/04/08 $714,000 $1,847,600
120,000 (6) 18.2% $ 5.00 12/01/08 $304,080 $ 839,520
Gerard T. McMahon 30,000 (5) 4.6% $12.00 12/01/08 $214,200 $ 554,280
Edward Valdez 10,000 (7) 1.5% $12.00 03/04/08 $ 71,400 $ 184,760
32,000 (8) 4.9% $ 5.00 12/01/08 $ 81,088 $ 223,872
</TABLE>
- ---------
(1) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the common stock, compounded annually over a
ten-year period and assuming that the closing price was the market value
of the common stock on the date of grant. The actual value (if any) that
an executive officer receives from a stock option will depend upon the
amount by which the market price of our common stock exceeds the
exercise price of the option on the date of exercise. We cannot assure
that the common stock will appreciate at any particular rate or at all
in future years.
(2) The options granted are exercisable 20% per year beginning on each of
the first five anniversary dates of grant, subject to certain
performance standards.
(3) The exercise price may be paid in cash, or at the discretion of the
Compensation Committee, by tendering shares of CFAC common stock, or the
delivery of an irrevocable direction to a securities broker to sell
shares and deliver the sale proceeds to CFAC in payment of all or part
of the exercise price, instead of cash.
(4) Represents options regranted on December 1, 1998 at $5.00 per share in
exchange for the cancellation of 100,000 options originally granted on
June 26, 1996 and December 16, 1996.
(5) These options were originally granted on December 16, 1996 and were
canceled and regranted on March 4, 1998 at $12.00 per share.
(6) Represents options regranted on December 1, 1998 at $5.00 per share in
exchange for the cancellation of 100,000 options originally granted on
March 4, 1998.
(7) These options were originally granted on March 4, 1998 and were canceled
and regranted on December 1, 1998 at $5.00 per share.
(8) Represents options regranted on December 1, 1998 at $5.00 per share in
exchange for the cancellation of 40,000 options originally granted on
June 26, 1996 and March 4, 1998.
The following table sets forth the number and value of stock options
held by the Named Executive Officers at December 31, 1998.
14
<PAGE> 22
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
-------------------------------------------- ----------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Gary M. Cypres -- 120,000 -- --
Anthony S. Fortunato -- 120,000 -- --
Gerard T. McMahon 6,000 24,000 -- --
Edward Valdez -- 32,000 -- --
</TABLE>
- ----------
(1) None of the options were in the money based upon the $4.375 per share
closing price of CFAC's common stock as reported on the Nasdaq National
Market on December 31, 1998.
OPTION REPRICINGS
The following table sets forth certain information with respect to
the Named Executives concerning the regrant of options during fiscal 1998.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES EXERCISE LENGTH OF ORIGINAL
UNDERLYING MARKET PRICE OF PRICE AT OPTION TERM
OPTIONS/SARS STOCK AT TIME OF TIME OF NEW REMAINING AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- --------------------- ------------ ------------ --------------- ------------ ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Cypres 12/1/98 75,000(1) $ 4.625(2) $12.00 $ 5.00 7 years, 7 months
12/1/98 25,000(1) $ 4.625(2) $18.25 $ 5.00 8 years, 1 month
Anthony S. Fortunato 3/4/98 100,000(3) $11.75(4) $18.25 $12.00 8 years, 10 months
12/1/98 100,000(5) $ 4.625(2) $12.00 $ 5.00 9 years, 3 months
Gerard T. McMahon 3/4/98 30,000 $11.75(4) $18.25 $12.00 8 years, 10 months
Edward Valdez 12/1/98 30,000(6) $ 4.625(2) $12.00 $ 5.00 7 years, 7 months
12/1/98 10,000(6) $ 4.625(2) $12.00 $ 5.00 9 years, 3 months
</TABLE>
(1) These options were canceled and Mr. Cypres was regranted an option to
purchase 120,000 shares at $5.00 per share.
(2) Based upon the closing price of CFAC's common stock as reported on the
Nasdaq National Market on December 1, 1998.
(3) This option was canceled and regranted on December 1, 1998.
(4) Based upon the closing price of CFAC's common stock as reported on the
Nasdaq National Market on March 4, 1998.
(5) This option was canceled and Mr. Fortunato was regranted an option to
purchase 120,000 shares at $5.00 per share.
(6) These options were canceled and Mr. Valdez was regranted an option to
purchase 32,000 shares at $5.00 per share.
EMPLOYMENT AGREEMENTS
Gary M. Cypres. In June 1996, we entered into an employment agreement
with Mr. Cypres. Under the employment agreement, Mr. Cypres will serve as our
Chairman of the Board for a period of five years at a base salary of $175,000
per year and is eligible to participate in our executive compensation plans. Mr.
Cypres also agreed to serve as our President and Chief
15
<PAGE> 23
Executive Officer until December 31, 1997. As provided in the employment
agreement, since we had not named a new Chief Executive Officer by December 31,
1997, Mr. Cypres continued in this capacity until March 1998 and received an
adjustment of his compensation as determined by our board of directors. The
employment agreement also provides that Mr. Cypres will participate in our
defined benefit Supplemental Executive Retirement Plan (the "SERP Plan") and be
credited with eight and one-half years of service for his contribution to us
since 1991 when we were acquired by our current management and for entering into
the employment agreement. In addition, on December 31, 1997, Mr. Cypres was
treated as satisfying his post-adoption service requirement under the SERP Plan.
If Mr. Cypres is terminated "for cause," which definition generally
includes our termination of him due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Cypres's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
we will be obligated to pay him only his base salary up to the date upon which
we notify him of his termination "for cause." If Mr. Cypres is terminated
without "cause," becomes disabled or dies, then we will be obligated to pay him
or his estate, commencing immediately, a lump sum payment equal to his base
salary for the remaining term of the employment agreement and to pay him under
the SERP Plan as if he had worked to his normal retirement date, which the
employment agreement provides is December 31, 2000.
Mr. Cypres has agreed not to solicit our employees or compete with us in
any manner following his resignation or termination from CFAC for any period for
which we have paid him a lump sum in accordance with the employment agreement,
which period shall be no less than 12 months.
Anthony S. Fortunato. In October 1996, we entered into an employment
agreement with Mr. Fortunato. Under the employment agreement, Mr. Fortunato will
serve as our Executive Vice President of Operations or in other senior
management positions for a period of three years at a base salary of $225,000,
$250,000 and $275,000 per year, respectively, and is eligible to receive an
annual discretionary bonus and participate in our executive compensation plans.
In addition, Mr. Fortunato was awarded an initial grant of options to acquire
100,000 shares of common stock pursuant to the 1996 Plan. In March 1998, these
options were canceled and regranted at an exercise price of $12.00 per share,
and in December 1998, the options regranted in March 1998 were canceled and Mr.
Fortunato was regranted an option to purchase 120,000 shares at an exercise
price of $5.00 per share. These options vest over a five-year period.
If Mr. Fortunato is terminated "for cause," which definition generally
includes our termination of him due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Fortunato's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
we will be obligated to pay him only his base salary up to the date upon which
we notify him of his termination "for cause." If we terminate Mr. Fortunato
without "cause," then we will be obligated to pay him, commencing immediately, a
lump sum
16
<PAGE> 24
payment equal to his base salary for the remaining term of the employment
agreement in addition to any other compensation and/or benefits the employment
agreement provides for.
Mr. Fortunato has agreed not to solicit our employees or compete with us
in any manner following his resignation or termination from CFAC for any period
for which we have paid him a lump sum in accordance with the employment
agreement, which period shall be no less than 12 months.
Gerard T. McMahon. In August 1996, we entered into an employment
agreement with Mr. McMahon. Under the employment agreement, Mr. McMahon will
serve as our Executive Vice President of Credit and Collections at a base salary
of $160,000 per year and is eligible to receive an annual discretionary bonus of
up to 20% of his base salary and participate in our executive compensation
plans. In addition, Mr. McMahon was awarded an initial grant of options to
acquire 30,000 shares of common stock pursuant to the 1996 Plan. In March 1998,
these options were canceled and regranted at an exercise price of $12.00 per
share. These options vest over a five-year period.
Except as described above, we have not entered into employment
agreements with any other of our executive officers or other members of
management.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In June 1996, we adopted the Supplemental Executive Retirement Plan
("SERP Plan"), which provides supplemental retirement benefits to certain key
management employees.
To vest in the SERP Plan, an employee must have at least 10 years of
service with us, including five years subsequent to the adoption of the plan.
Upon completion of our initial public offering, Mr. Cypres was credited with 10
years of service with us and was treated as having fulfilled his post-adoption
service on December 31, 1997 by acting as our President and Chief Executive
Officer through such date. The board of directors determines participation in
the SERP Plan. The SERP Plan benefits are a function of length of service with
us and final average compensation (average monthly compensation during the 36
consecutive months of the last 60 months of the participant's employment that
produces the highest average compensation, including salary and bonus).
Benefits are equal to a targeted percentage of final average
compensation as determined by the board of directors upon selection of the
employee to participate in the SERP Plan. In no case will the rate exceed fifty
percent (50%) of the final average compensation as of the date of the
participant's retirement or termination of employment, multiplied by the ratio
of the actual years of service as of the applicable event to the participant's
years of service projected to the participant's normal retirement date (the
first day of the month after the participant attains age 60). A vested
participant who terminates employment at or after his normal retirement date
will receive the full targeted percentage of his final average compensation. The
SERP Plan benefit is
17
<PAGE> 25
reduced, however, by the annuity value of the participant's benefit under the
Profit Sharing Plan. At December 31, 1998, only Mr. Cypres was a participant in
the SERP Plan.
The following table shows the estimated annual retirement benefits that
would be payable under the SERP Plan upon a participant's normal retirement date
on a straight life annuity basis, before any applicable offset for benefits
received under the Profit Sharing Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 OR MORE
- ------------ ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
$175,000......................................... $ 87,500 $ 87,500 $ 87,500 $ 87,500 $ 87,500
200,000.......................................... 100,000 100,000 100,000 100,000 100,000
225,000.......................................... 112,500 112,500 112,500 112,500 112,500
250,000.......................................... 125,000 125,000 125,000 125,000 125,000
</TABLE>
AS OF DECEMBER 31, 1998, MR. CYPRES WAS FULLY VESTED UNDER THE SERP PLAN.
COMPENSATION COMMITTEE'S REPORT
ON EXECUTIVE COMPENSATION AND REPRICING OF STOCK OPTIONS
The following Compensation Committee's Report on Executive Compensation
and Repricing of Stock Options shall not be deemed to be "soliciting material"
or to be "filed" with the SEC or subject to Regulations 14A or 14C of the SEC or
to the liabilities of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and shall not be deemed incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act,
notwithstanding any general incorporation by reference of this proxy statement
into any other document.
THE REPORT
The compensation committee of the board of directors (the "Committee")
is composed of the two directors who are not also our employees. The Committee
establishes our overall compensation and employee benefits and the specific
compensation of our executive officers. One of the Committee's goals is to
implement executive officer compensation programs that further our business
objectives and that attract, retain and motivate the best qualified executive
officers.
We adopt and administer our executive compensation policies and specific
executive compensation programs in accordance with the principal goal of
maximizing return on stockholders' equity. The Committee believes that we best
achieve this performance goal, and
18
<PAGE> 26
the long-term interests of our stockholders generally by attracting and
retaining management of high quality, and that such management will require
commensurate compensation. We believe that our executive officer compensation
policies are consistent with this policy.
Certain of our executive officers, including the Chairman and President,
have written employment agreements with us (see "Employment Agreements" at page
15 above). The Committee determines the levels of compensation that we grant in
such employment agreements, and the levels of compensation that we grant to
other executive officers from time to time, based on factors that it deems
appropriate.
The Committee determines annual compensation levels for executive
officers and compensation levels to be implemented from time to time in written
employment agreements with executive officers based primarily on its review and
analysis of the following factors: (1) the responsibilities of the position, (2)
the performance of the individual and his or her general experience and
qualifications, (3) our overall financial performance (including return on
equity, levels of general and administrative expense and budget variances) for
the previous year and the contributions that the individual or his or her
department made to such performance measures, (4) the officer's total
compensation during the previous year, (5) compensation levels comparable
companies pay in similar industries, (6) the officer's length of service with
us, and (7) the officer's effectiveness in dealing with external and internal
audiences. In addition, the Committee receives the recommendations of the
Chairman with respect to the compensation of other executive officers, which the
Committee reviews in light of the above factors. The Committee believes that the
base compensation of the executive officers is competitive with companies of
similar size and with comparable operating results in similar industries.
Mr. Cypres' base salary was established by an employment agreement
entered into concurrent with our initial public offering. In addition, Mr.
Cypres' compensation for 1998 was based in part on his progress in achieving
certain additional criteria. These criteria included results in meeting our
strategic business plan, and leadership abilities (including developing an
effective senior management team).
While the Committee establishes salary and bonus levels based on the
above described criteria, the Committee also believes that encouraging equity
ownership by executive officers further aligns the interests of the officers
with the performance objectives of our stockholders and enhances our ability to
attract and retain highly qualified personnel on a basis competitive with
industry practices. Stock options that we granted under our 1996 Plan help
achieve this objective, and provide additional compensation to the officers to
the extent that the price of the common stock increases over fair market value
on the date of grant. We have granted stock options to each of the Named
Executives and to our other officers or key employees. Through the 1996 Plan,
there will be an additional direct relationship between our performance and
benefits to executive officer Plan participants.
19
<PAGE> 27
On March 4, 1998, the Committee reviewed the options held by our
executive officers and noted that a decline in the price of our common stock had
resulted in their stock options having exercise prices well above the recent
historical trading prices for the common stock. The Committee believes that such
"out of the money" stock options no longer serve the performance incentive
purposes of the 1996 Plan, and that losses of executive officers could result
from the decline in the value of the total compensation package for our
long-term employees holding such options. The Committee identified two executive
officers, Messrs. Fortunato and McMahon, who the Committee believes held options
that did not sufficiently incentivize them to continue their significant efforts
and commitment to CFAC. Considering these factors, the Committee determined that
it was in our best interests and our stockholders to restore the incentives for
Messrs. Fortunato and McMahon to remain as employees and to exert their maximum
efforts on behalf of CFAC by canceling (1) an option to purchase 100,000 shares
previously granted to Mr. Fortunato and (2) an option to purchase 30,000 shares
previously granted to Mr. McMahon, both at $18.25 per share under the 1996 Plan,
and regranting these options at an exercise price of $12.00 per share. The new
exercise price of $12.00 per share was above the fair market value of $11.75 for
our common stock on March 4, 1998, the regrant date.
On December 1, 1998, the Committee again reviewed the options held by
executive officers and determined that, as a result of a further decline in the
price of CFAC common stock since March 4, 1998, many of these options no longer
sufficiently incentivize certain executive officers for the same reasons
described above. The Committee identified three executive officers, Messrs.
Cypres, Fortunato and Valdez, who the Committee believes held options that did
not sufficiently incentivized them to continue their significant efforts and
commitment to CFAC. Considering these factors, the Committee determined that it
was in our best interests and our stockholders to restore the incentives for
Messrs. Cypres, Fortunato and Valdez by canceling (1) options to purchase 75,000
shares at $12.00 per share and 25,000 shares at $18.25 per share previously
granted to Mr. Cypres, (2) options to purchase 40,000 shares previously granted
to Mr. Valdez at $12.00 per share and (3) an option to purchase 100,000 shares
previously granted to Mr. Fortunato at $12.00 per share, under the 1996 Plan.
Messrs. Cypres and Fortunato were each regranted 120,000 shares at $5.00 per
share, and Mr. Valdez was regranted 32,000 shares at $5.00 per share. The new
exercise price of $5.00 per share was above the fair market value of $4.625 for
our common stock on December 1, 1998, the regrant date.
Dated: June __, 1999 COMPENSATION COMMITTEE
William R. Sweet, Chairman
Salvatore J. Caltagirone
20
<PAGE> 28
PERFORMANCE GRAPH
The following graph compares, for the period from June 26, 1996 (the
date of our initial public offering) through December 31, 1998, the percentage
change in our cumulative total stockholder return of CFAC common stock with the
cumulative total return of the Nasdaq Total Return Index and the SNL Subprime
Lenders Index. The graph assumes an initial investment of $100 and reinvestment
of dividends. The graph is not necessarily indicative of future price
performance.
The graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that we specifically incorporate the information by
reference, and shall not otherwise be deemed filed under such acts.
COMPARISON OF TOTAL RETURN TO STOCKHOLDER
AMONG CFAC, NASDAQ STOCK MARKET
AND SNL SUBPRIME LENDERS INDEX
[INSERT GRAPH]
<TABLE>
<CAPTION>
Measurement Period Central Financial Nasdaq Total SNL Subprime
(Fiscal Year Covered) Acceptance Corporation Return Index Lenders Index
<S> <C> <C> <C>
6/26/96 100.00 100.00 100.00
9/30/96 160.94 106.50 119.00
12/31/96 166.67 111.73 113.78
3/31/97 133.33 105.67 86.38
6/30/97 92.71 125.04 92.82
9/30/97 91.67 146.20 105.02
12/31/97 80.21 137.11 68.28
6/30/98 73.96 165.01 83.32
12/31/98 36.46 192.66 37.07
</TABLE>
Source: SNL Securities L. C.
21
<PAGE> 29
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECT FOUR DIRECTORS
Our bylaws provide that the exact number of directors will be fixed
from time to time by action of our stockholders or board of directors. The
number of directors currently is fixed at four.
The board has nominated four directors for election at the annual
meeting. Each nominee is currently serving as one of our directors. If you
re-elect them, they will hold office until the annual meeting in 2000 or until
their successors have been elected or until they resign.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the board, or the board may reduce the number of directors
to be elected. If any director resigns, dies or is otherwise unable to serve out
his term, or the board increases the number of directors, the board may fill the
vacancy until the next annual meeting.
<TABLE>
<CAPTION>
NOMINEES
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- --------------------------------- -------------------------------------------------------------------------------------------------
<S> <C>
Gary M. Cypres (55) Mr. Cypres has been CFAC's Chairman of the Board since its formation. Mr. Cypres also served
as CFAC's President and Chief Executive Officer from its formation to March 18, 1998 and its
Chief Financial Officer from its formation to July 1998. Mr. Cypres has been Chairman of the
Board, Chief Executive Officer, President and Chief Financial Officer of Banner Holdings, Inc.
("Holdings") and Banner's Central Electric, Inc. ("Banner") since February 1991, Chairman of
the Board and Chief Executive Officer of Central Rents, Inc. since June 1994 and managing
general partner of West Coast Private Equity Partners, L.P. ("West Coast") since March 1990.
Prior to that, Mr. Cypres was a general partner of SC Partners, a private investment banking and
consulting firm. From 1983 to 1985, Mr. Cypres was Chief Financial Officer of The Signal
Companies. From 1973 to 1983, Mr. Cypres was Senior Vice President of Finance at
Wheelabrator-Frye Inc. Mr. Cypres was a member of the Board of Trustees and a faculty
member of The Amos Tuck School of Business at Dartmouth College.
Mr. Cypres spends that portion of his business time as is required to oversee our
operations and to direct or implement our business strategies. Mr. Cypres continues to
spend a portion of his business time as the managing general partner of West Coast, as
Chairman of the Board, Chief Executive Officer, President and Chief Financial
Officer of Holdings, as Chairman of the Board, Chief Executive Officer, President and
Chief Financial Officer of Banner, and as Chairman of the Board and Chief Executive
Officer of Central Rents.
Salvatore J. Caltagirone (56) Mr. Caltagirone has been a CFAC director since September 1997. Mr. Caltagirone has been retired
since October 1994. From the Fall of 1990 to October 1994, he was an employee of G.M. Cypres &
Company. From March 1987 to June 1990, he was employed as the Managing Director of Henley
Group.
</TABLE>
22
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ------------------------------- ------------------------------------------------------------------------------------------------
<S> <C>
Jose de Jesus Legaspi (46) Mr. Legaspi has been a CFAC director since July 1996. Since 1980, Mr. Legaspi has been a
principal of and broker at The Legaspi Company, a full service commercial real estate brokerage
firm. In addition, since 1992, Mr. Legaspi has been a principal of the FINCA Property
Management Company, a residential and commercial real estate management company. Mr. Legaspi is
also a Commissioner of the Los Angeles Department of Water and Power.
William R. Sweet (61) Mr. Sweet has been a CFAC director since September 1997. In July 1996, Mr. Sweet retired from
his position of Executive Vice President -- Wholesale Banking of Union Bank of California,
N.A., a position he had held since July 1985. Mr. Sweet currently serves as a trustee of
Berkeley Capital Management Funds.
</TABLE>
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL FOUR NOMINEES FOR
DIRECTOR.
PROPOSAL 2: AMEND CERTIFICATE OF INCORPORATION TO AUTHORIZE THE BOARD OF
DIRECTORS OR STOCKHOLDERS TO AMEND CFAC'S BYLAWS BY MAJORITY VOTE OF
THE BOARD OR STOCKHOLDERS, RESPECTIVELY
Your board of directors has approved an amendment to the Certificate of
Incorporation of CFAC which authorizes the board of directors or stockholders to
amend our Bylaws by majority vote of the board or stockholders, respectively.
Our Certificate of Incorporation does not currently permit the board of
directors to amend the Bylaws. We believe that it is important for the board of
directors to have the ability to amend the Bylaws without having to incur the
costs and delays related to amending the Bylaws by stockholder approval. The
board, however, cannot presently do so.
Section 109 of the Delaware General Corporation Law provides that "any
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors." Accordingly, CFAC, as a Delaware
corporation, must amend its Certificate of Incorporation in order to provide
that the board of directors will have the authority to amend the Bylaws. We
believe that it is important for the board to have the ability and the
flexibility to amend the Bylaws without having to incur the costs and delays
related to amending the Bylaws by stockholder approval. Although this amendment
expands the authority of the board of directors to influence the corporate
governance of CFAC, we believe that the flexibility this amendment provides to
the board is in the best interests of CFAC and its stockholders. The amendment
of the Certificate of Incorporation would allow the board to make amendments to
the Bylaws in the future without having to convene a special stockholders
meeting, solicit consents from stockholders or wait until the next annual
stockholders meeting. The proposed amendment will authorize the board of
directors to amend the Bylaws by majority vote of the board. The amendment will
add an Article NINTH to the Certificate of Incorporation to read 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
23
<PAGE> 31
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."
The board of directors is recommending approval of this amendment to the
Certificate of Incorporation so that it may have the ability to amend the Bylaws
without having to incur the costs and delays related to amending the Bylaws by
stockholder approval. If the stockholders approve this amendment, the board will
amend the Bylaws to add a provision which corresponds to this proposed amendment
to the Certificate of Incorporation. Assuming that the requisite approval from
the majority of stockholders authorizing the amendment of the Certificate of
Incorporation is received at the annual meeting, we anticipate that the
amendment of the Certificate of Incorporation would be on or about July ___,
1999. If this amendment is approved by the stockholders, the board of directors
intends to prepare and file a Certificate of Amendment to our Certificate of
Incorporation, which will become effective immediately upon acceptance of the
filing by the Secretary of State of Delaware. Upon the effectiveness of the
amendment of the Certificate of Incorporation, the board will amend the Bylaws
in the manner discussed above.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO AUTHORIZE THE BOARD OF DIRECTORS OR STOCKHOLDERS
TO AMEND OUR BYLAWS.
PROPOSAL 3: AMEND CERTIFICATE OF INCORPORATION TO CREATE A NEW CLASS OF
NON-VOTING COMMON STOCK, OF WHICH 3,000,000 SHARES WILL BE
AUTHORIZED
Your board of directors has approved an amendment of CFAC's Certificate
of Incorporation to create 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. Our Certificate of Incorporation currently authorizes
the issuance of 25,000,000 shares of capital stock, divided into 20,000,000
shares of voting common stock and 5,000,000 shares of preferred stock. Under the
proposed amendment, we will be authorized to issue up to 28,000,000 shares of
capital stock, of which 3,000,000 shares will be non-voting common stock, from
time to time in the board's discretion consistent with applicable law.
The terms, rights and privileges of the non-voting common stock will be
identical to those of the voting common stock except that the non-voting common
stock will have no right to vote on any matter to be presented to our
stockholders, except to amend the Certificate of Incorporation or as required by
law. The non-voting common stock will have dividend and distribution rights and
rights on dissolution that are identical to those of our voting common stock.
The voting common stock does not have and the non-voting common stock will not
have preemptive, subscription, redemption or conversion rights. Holders of
non-voting common stock will be entitled to receive dividends when, as and if
declared by the board of directors from funds
24
<PAGE> 32
legally available therefor. Upon liquidation of CFAC, subject to the rights of
holders of any preferred stock outstanding, the holders of non-voting common
stock are entitled to receive our assets remaining after payment of liabilities
proportionate to their pro rata ownership of the outstanding shares of voting
and non-voting common stock.
This amendment will amend Article FOURTH to the Certificate of
Incorporation which will 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.
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 NonVoting Common Stock shall be payable
only to holders of that class of stock. If the Corporation
25
<PAGE> 33
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, nonvoting securities of
the same issuer as the Voting Securities. Such nonvoting 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."
In February 1999, Banner's Central Electric, Inc., which formerly was
our principal stockholder, dividended 5,150,000 shares of CFAC common stock to
its sole shareholder, Banner Holdings, Inc. The 5,150,000 shares represent 70.8%
of the 7,277,000 shares of CFAC common stock currently outstanding. As a result
of this dividend, Banner Holdings is now our principal stockholder. Thereafter,
the board of directors and stockholders of Banner Holdings adopted a Plan of
Complete Liquidation, Dissolution and Winding Up. Under this plan of
liquidation, Banner Holdings is required to distribute to its stockholders their
respective shares of Banner Holdings' net assets. Currently, West Coast Private
Equity Partners, LP owns 1,067,485 shares and the Government of Singapore owns
110,685 shares, of voting Class A Common Stock of Banner Holdings which
represent 71.2% and 7.4%, respectively, of the total issued and outstanding
capital stock of Banner Holdings. Wells Fargo & Co. currently holds 321,830
shares of non-voting Class B Common Stock of Banner Holdings which represents
21.5% of the total issued and outstanding capital stock of Banner Holdings. The
Restated Certificate of Incorporation of Banner Holdings contains a provision
that if voting securities are distributed,
26
<PAGE> 34
then each holder of non-voting securities shall be entitled to receive
non-voting securities of the same issuer as the voting securities. Wells Fargo
which is the only holder of non-voting securities of Banner Holdings would be
entitled to receive non-voting common stock of CFAC upon a distribution of CFAC
voting common stock by Banner Holdings. Wells Fargo is required to hold
non-voting common stock because of the potential application of certain
restrictions contained in the Bank Holding Company Act of 1956, as amended (the
"BHCA"), which prohibits in certain circumstances bank holding companies from
acquiring more than 5% of the voting equity securities of a non-banking entity.
Accordingly, in connection with this plan of liquidation, CFAC proposes to
create a class of non-voting common stock. This proposed amendment has been
drafted so that the provisions relating to the non-voting securities are
substantially similar to such provisions in the Restated Certificate of
Incorporation of Banner Holdings. It is currently contemplated that Wells Fargo
will exchange the shares of voting common stock of CFAC that it will receive
from Banner Holdings pursuant to the liquidation for non-voting common stock of
CFAC.
If you approve the proposed amendment, we will exchange each share of
voting common stock distributed to Wells Fargo pursuant to the liquidation for
one share of non-voting common stock. After the exchange, Wells Fargo will hold
approximately 1,105,000 shares of non-voting common stock which represents 15.2%
of the outstanding capital stock of CFAC. However, the proposed amendment will
provide that once Wells Fargo ceases to own the issued and outstanding shares of
non-voting common stock it will automatically become voting common stock.
Accordingly, other than affecting the voting rights of Wells Fargo, no other
stockholder of CFAC will be affected.
Other than the 1,105,000 shares of non-voting common stock that we will
issue to Wells Fargo if this amendment is approved, we have no current plans or
commitments to issue the remaining authorized but unissued shares of non-voting
common stock. Additional shares of non-voting common stock might however be
issued as long as Wells Fargo holds the non-voting common stock in connection
with any stock dividends, stock splits or rights offerings to all non-voting
common stockholders. The issuance of non-voting common stock for any such
purpose would not dilute the voting power of our existing stockholders. However,
the holders of non-voting common stock shall be entitled to vote on any
amendments to our Certificate of Incorporation.
As discussed above, this amendment is being proposed by the board of
directors for reasons other than as an "anti-takeover" device, and, especially
in light of the fact that a majority of the shares of the outstanding voting
common stock are beneficially owned by Banner Holdings and West Coast Private
Equity Partners L.P., this amendment is not part of a plan by our board of
directors to propose a series of new anti-takeover measures. Under present
circumstances, Banner Holdings has the ability to disapprove and the ability to
substantially influence any acquisition of CFAC in a transaction involving a
merger, consolidation or sale of assets because of the voting power of the
shares of common stock it holds. Virtually all corporate acquisitions take one
of these three forms except acquisitions in the form of a tender
27
<PAGE> 35
offer to buy shares directly from the stockholders, a transaction that would not
be likely in the case of CFAC because, unless Banner Holdings would tender its
shares, the acquiror could not obtain voting control through the tender offer.
The amendment will neither change the fact that Banner Holdings has sufficient
voting power to disapprove or substantially influence the approval of a merger,
consolidation or sale of assets, nor will the amendment immediately give Banner
Holdings any greater voting control. By allowing us to issue shares of
non-voting common stock without causing a loss of the voting rights of the
holders of common stock, the amendment may, however, continue to make us a less
attractive target for a takeover bid than it otherwise may have been, or
continue to render more difficult or discourage a merger proposal, an unfriendly
tender offer, a proxy contest or the removal of incumbent directors or
management, even if such actions were favored by our stockholders other than
Banner Holdings.
If this amendment is approved by the stockholders, the board of
directors intends to prepare and file a Certificate of Amendment to our
Certificate of Incorporation, which will become effective immediately upon
acceptance of the filing by the Secretary of State of Delaware.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO CREATE A CLASS OF NON-VOTING COMMON STOCK.
PROPOSAL 4: AMEND 1996 STOCK OPTION PLAN AND APPROVE THE AMENDED 1996 STOCK
OPTION PLAN.
We are seeking your approval of an amendment to the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan was approved by the board of directors on
June 24, 1996 and by our sole stockholder on June 24, 1996. The board adopted an
amendment to increase the number of shares of common stock reserved for issuance
under the 1996 Plan on June __, 1999, subject to your approval at the annual
meeting.
We propose to amend the 1996 Plan to increase the number of shares of
common stock reserved for issuance under the 1996 Plan from 700,000 to
1,000,000. As of June 7, 1999, of the 700,000 shares reserved for issuance under
the 1996 Plan, only 27,000 are available for future grant. We believe that in
order to attract, retain and motivate officers, employees and non-employee
directors, the number of shares available for issuance under the 1996 Plan must
be increased.
While we recognize the possible dilutive effect on stockholders, we
believe, on balance, the incentive that is provided by the opportunity to
participate in the growth and earnings of CFAC through the granting of awards to
acquire CFAC common stock is important to our success and, accordingly, will
benefit CFAC and its stockholders. We believe it is in the best interests of our
stockholders to approve this amendment to the 1996 Plan. If the proposal is not
approved by the stockholders, the 1996 Plan will continue with only 700,000
shares of common stock reserved for issuance thereunder.
28
<PAGE> 36
We have provided below the proposed amendment which replaces Section 5
of the 1996 Plan. In addition, we have summarized below certain key provisions
of the 1996 Plan and have also included, for your review, the full text of the
amended 1996 Plan as Appendix A. If you approve this proposal, the additional
awards available under the 1996 Plan will be subject to the same terms and
provisions that are currently in the 1996 Plan. Amended Section 5 provides 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."
DESCRIPTION OF 1996 PLAN
General. The purpose of the 1996 Plan is to advance the interests of
CFAC by encouraging and enabling our key employees, directors and consultants to
acquire a larger personal proprietary interest in CFAC. We want to provide these
individuals upon whose judgment and keen interest we are largely dependent for
the successful conduct of our operations with incentives to put forth maximum
efforts for the success of our business.
Administration. The 1996 Plan provides that the board of directors or a
committee appointed by the board of directors (the "Option Committee") shall
administer it. The compensation committee has functioned as the Option
Committee. The Option Committee has the authority, within limitations as set
forth in the 1996 Plan, to establish rules and regulations
29
<PAGE> 37
concerning the 1996 Plan, to determine the persons to whom options may be
granted, the number of shares of common stock to be covered by each option, and
the terms and provisions of the option to be granted. The Option Committee has
the right to cancel any outstanding options and to issue new options on such
terms and upon such conditions as the affected optionee may consent to.
Shares Subject to the 1996 Plan. A total of 700,000 shares of common
stock are reserved for issuance under the 1996 Plan. If this proposal is
approved, the number of shares reserved for issuance will be increased to
1,000,000. No individual may be granted options under the 1996 Plan with respect
to more than 350,000 shares during the duration of the 1996 Plan. As of June 7,
1999, 27,000 shares of common stock remain available for future grants of
options under the 1996 Plan.
Adjustment. The number of shares which may be granted under the 1996
Plan or under any outstanding options will be proportionately adjusted in the
event of any stock dividend or if the common stock shall be split, converted,
exchanged, reclassified or in any way substituted. Notwithstanding any other
provision of the 1996 Plan, in the event of a recapitalization, merger,
consolidation, rights offering, separation, reorganization or liquidation, or
any other change in our corporate structure or outstanding shares, the Option
Committee may make such equitable adjustments to the number and class of shares
available under the 1996 Plan or to any outstanding options as it shall deem
appropriate to prevent dilution or enlargement of rights.
Participants. The class of eligible persons under the 1996 Plan
consists of our directors and employees, and consultants to CFAC or a parent or
subsidiary thereof, as determined by the Option Committee, except that
non-employee directors can only receive fixed grants of options under the terms
set forth in the 1996 Plan.
Terms. Options granted under the 1996 Plan may be incentive stock
options ("ISOs") or non-qualified options, at the discretion of the Option
Committee; however, ISOs can only be granted to employees of CFAC or a parent or
subsidiary. The 1996 Plan provides that the exercise price of an option (other
than a non-employee director's option) will be fixed by the Option Committee on
the date of grant; however, the exercise price of an ISO must be not less than
the fair market value of the common stock on the date of the grant. The exercise
price of an ISO granted to any participant who owns stock possessing more than
10% of the total combined voting power of all classes of outstanding stock of
CFAC must be at least equal to 110% of the fair market value of the common stock
on the date of grant. Any ISOs granted to such participants also must expire
within five years from the date of grant. Additionally, options granted under
the 1996 Plan will not be ISOs to the extent that the aggregate fair market
value of the shares with respect to which ISOs under the 1996 Plan (or under any
other plan maintained by CFAC or a parent or subsidiary thereof) first become
exercisable in any year exceeds $100,000. The maximum term of any option granted
pursuant to the 1996 Plan is ten years. In general, shares subject to options
granted under the 1996 Plan which expire, terminate or are canceled without
having been exercised in full become available again for option grants. No
30
<PAGE> 38
options shall be granted under the 1996 Plan on or after the tenth anniversary
of the adoption of the 1996 Plan.
Transferability. Options are non-transferable and non-assignable;
provided, however, that the estate of a deceased holder can exercise options.
Exercise of Options. Options (other than non-employee directors'
options) are exercisable by the holder thereof subject to terms fixed by the
Option Committee. An option will be exercisable immediately upon the occurrence
of such special circumstances or events as the Option Committee determines
merits special consideration. Under the 1996 Plan, an option holder generally
may pay the exercise price in cash, by check, by delivery to us of shares of
common stock already owned by the holder, by delivery of irrevocable
instructions to a broker promptly to deliver to us 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 as the Option Committee may permit from time
to time.
If an option holder terminates employment with us or service as a
director of or consultant to CFAC while holding an unexercised option, the
option will terminate 30 days after such termination of employment or service
unless the option holder exercises the option within such 30-day period.
However, all options held by an option holder will terminate immediately if the
termination is a result of a violation of such holder's duties. If cessation of
employment or service is due to retirement on or after attainment of age 65,
disability or death, the option holder or such holder's successor-in-interest,
as the case may be, is permitted to exercise any option within three months
after retirement or within one year after disability or death.
Termination and Amendment. The Option Committee or the board of
directors may terminate and may modify or amend the 1996 Plan at any time;
provided, however, that (1) no modification or amendment either increasing the
aggregate number of shares which may be issued under options or to any
individual or modifying the requirements as to eligibility to receive options
will be effective without stockholder approval within one year of the adoption
of such amendment and (2) no such termination, modification or amendment of the
1996 Plan will alter or affect the terms of any then outstanding options without
the consent of the holders thereof.
Performance Based Awards. Performance-based awards are options granted
under the 1996 Plan that the Option Committee intends to qualify as
"performance-based compensation" under Section 162(m) of the Code. The purpose
is to preserve our right to take a tax deduction in full for the compensation
attributable to such options.
Section 162(m) of the Code limits corporate deductions for compensation
to executives to $1,000,000 per year in certain circumstances. Compensation in
the category of "performance-based compensation" (as specifically defined) is
not subject to this deduction limitation.
31
<PAGE> 39
Currently, the 1996 Plan is not subject to these potential deduction limitation
rules, but the 1996 Plan will become subject to these rules in the future.
The Treasury Regulations promulgated under Code Section 162(m) contain
a special set of rules for public corporations that adopted compensation plans
and agreements prior to their initial public offering. In the case of a
corporation that was not a publicly held corporation and then becomes a publicly
held corporation, the deduction limit of Code Section 162(m) does not apply to
any remuneration paid pursuant to a compensation plan or agreement that existed
during that period in which the corporation was not publicly held. However, in
the case of such a corporation that becomes publicly held in connection with an
initial public offering, this relief from the rules of Code Section 162(m)
applies only to the extent that the prospectus accompanying the initial public
offering disclosed information concerning those plans and agreements that
satisfied all applicable securities laws then in effect. We believe that the
1996 Plan qualifies for this transition rule.
The relief from Code Section 162(m) expires at the end of a "reliance
period." The "reliance period" expires at the earliest of (a) the expiration of
the plan or agreement; (b) the "material modification" of the plan or agreement
(as specially defined); (c) the issuance of all employer stock and other
compensation that has been allocated under the plan; or (d) the first meeting of
shareholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar in which the initial public
offering occurs. Accordingly, the 1996 Plan inevitably will become subject to
Code Section 162(m) because the "reliance period" inevitably will expire under
one of the foregoing standards.
A favorable special rule applies to certain forms of compensation. The
exemption from application of the rules of Code Section 162(m) applies to any
compensation received pursuant to the exercise of a stock option or stock
appreciation right, or the substantial vesting of restricted property, granted
under a plan or agreement that qualifies for the transition rule if the grant
occurs on or before the earliest of the events terminating the "reliance period"
as described above. To date, we have issued solely options under the Plan, and
we believe that the "reliance period" for the 1996 Plan has not yet terminated.
When the "reliance period" for the 1996 Plan terminates, options under
the 1996 Plan must qualify as "performance-based compensation" in order to be
excluded from the computation of the $1,000,000 annual deduction limit. For the
option to so qualify, at the time of the grant the Option Committee must be
comprised solely of two or more "outside directors" (as such term is used in
Code Section 162(m) and the regulations thereunder).
In the case of options granted under the 1996 Plan, the grant will be
made by the Option Committee; the 1996 Plan states that the maximum number of
shares with respect to which options may be granted during the duration of the
1996 Plan to any one person shall not exceed 350,000; and, under the terms of
the option, the amount of compensation the person could receive is based solely
on an increase in value of our stock after the date of the grant. We believe
32
<PAGE> 40
that these features satisfy the requirement in the Treasury Regulations
promulgated under Code Section 162(m) that such grants are based on a
preestablished performance goal. The formula used to calculate the amount of
compensation to be paid to the holder of such an option if the above-described
performance goal is attained is the difference between the exercise price (i.e.,
the fair market value of a share of our stock on the date of grant) and the
current value of such share on the exercise date, times the number of shares
subject to the grant or award (subject to the maximum of 1,000,000 shares
provided for in the amended 1996 Plan). The maximum amount of compensation that
could be attributable to options may be calculated under this formula by using
assumptions as to future prices for our shares.
The table on page 15 sets forth the number of options our Named
Executive Officers have received under the 1996 Plan. In addition, Mr. Cypres,
our Chairman, was granted 80,000 options at an exercise price of $5.00 per share
on April 21, 1999. Collectively, all current executive officers have been
granted 412,000 options at an average exercise price of $5.51. Our non-employee
directors have been granted 42,000 options at an average exercise price of
$5.00. Collectively, all our current employees who are not executive officers,
as a group have received 219,000 options under the 1996 Plan at an average
exercise price of $5.51.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of issuing and exercising stock
options under the 1996 Plan (which is subject to the previous discussion of Code
Section 162(m)) may be summarized as follows:
Non-qualified Stock Options. The grant of a non-qualified stock option
has no immediate federal income tax effect: the optionee will not recognize
taxable income and CFAC will not receive a tax deduction at such time. When the
optionee exercises the option, the optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the common stock on the
date of exercise over the exercise price. In the case of employees, CFAC is
required to withhold tax on the amount of income recognized. CFAC will receive a
tax deduction equal to the amount of income recognized. The timing of such
deduction is based upon the timing of the optionee's income inclusion. When the
optionee sells common stock obtained from exercising a non-qualified stock
option, any gain or loss will be taxed as a capital gain or loss (long-term or
short-term, depending on how long the shares have been held). Certain additional
rules apply if the exercise price for an option is paid in shares previously
owned by the optionee.
Incentive Stock Options. Only employees may receive incentive stock
options. When an employee is granted an incentive stock option, or when the
employee exercises the option, the employee will generally not recognize taxable
income (but may incur the alternative minimum tax upon exercise of the option)
and CFAC will not receive a tax deduction. If the employee holds the shares of
common stock for at least two years from the date of grant, and one year from
the date of exercise, then any gain or loss upon a sale or exchange of the
shares will be treated as
33
<PAGE> 41
long-term capital gain or loss. If, however, the shares are sold or exchanged
before satisfaction of the required holding periods, the disposition will be
deemed to be a "disqualifying disposition." The optionee would have taxable
ordinary income at the time of the disposition equal to the lesser of the
difference between the exercise price and the fair market value of the shares
determined as of the date of exercise of the option or as of the date of the
disqualifying disposition. CFAC may qualify for a corresponding deduction. Any
additional gain on the disposition would be capital gain.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE 1996
STOCK OPTION PLAN AND THE AMENDED 1996 STOCK OPTION PLAN.
PROPOSAL 5: RATIFY SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999
We are asking you to ratify the board's selection of Arthur Andersen
LLP, certified public accountants, as independent public accountants for 1999.
The audit committee recommended the selection of Arthur Andersen to the Board.
All professional services Arthur Andersen rendered to us during 1998 were
furnished at customary rates and terms. Arthur Andersen has served as the
independent public accountants of CFAC since October 1996.
A representative of Arthur Andersen will attend the Annual Meeting and
be able to make a statement and to answer your questions.
We are submitting this proposal to you because the board believes that
such action follows sound corporate practice. If you do not ratify the selection
of independent public accountants, the board will consider it a direction to
consider selecting other public accountants. However, even if you ratify the
selection, the board may still appoint new independent public accountants at any
time during the year if it believes that such a change would be in the best
interests of CFAC and our stockholders.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE SELECTION OF ARTHUR
ANDERSEN AS INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999.
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 2000 proxy
statement, we must receive them, in a form which complies with the applicable
securities laws, on or before February 21, 2000. In addition, in the event a
stockholder proposal is not submitted to us prior to May 6, 2000, the proxy to
be solicited by the board of directors for the 2000 annual meeting will confer
authority on the holders of the proxy to vote the shares in accordance with
their best judgment and discretion if the proposal is presented at the 2000
annual meeting without any discussion of the proposal in the proxy statement for
such meeting. Please address your
34
<PAGE> 42
proposals to: Central Financial Acceptance Corporation, 5480 East Ferguson
Drive, Commerce, California 90022, Attention: Corporate Secretary.
By order of the board of directors,
/s/ JONI MAGGIO
-----------------------------------
Joni Maggio
Corporate Secretary
June ____, 1999
35
<PAGE> 43
APPENDIX A
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.
A-1
<PAGE> 44
(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
A-2
<PAGE> 45
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
A-3
<PAGE> 46
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 it 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 delivery
A-4
<PAGE> 47
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
A-5
<PAGE> 48
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
A-6
<PAGE> 49
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
A-7
<PAGE> 50
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.
A-8
<PAGE> 51
PRELIMINARY PROXY
REVOCABLE PROXY CENTRAL FINANCIAL ACCEPTANCE CORPORATION REVOCABLE PROXY
ANNUAL MEETING OF STOCKHOLDERS -- JULY 14, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Central Financial Acceptance Corporation
(the "Company") hereby nominate(s), constitute(s) and appoint(s) Salvatore J.
Caltagirone, Gary M. Cypres, Jose De Jesus Legaspi and William R. Sweet, and
each of them, the attorney, agent and proxy of the undersigned, with full power
of substitution, to vote all stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company (the
"Meeting") to be held at the Company's corporate headquarters, 5480 East
Ferguson Drive, Commerce, California 90022 at 11:00 a.m., on Wednesday, July 14,
1999, and any adjournments thereof, as fully and with the same force and effect
as the undersigned might or could do if personally present thereon, as follows:
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[ ] FOR all the nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
Salvatore J. Caltagirone, Gary M. Cypres, Jose De Jesus Legaspi and William
R. Sweet
Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
________________________________________________________________________________
2. FIRST AMENDMENT OF CERTIFICATE OF INCORPORATION. To amend the Certificate of
Incorporation to authorize the Board of Directors or stockholders to amend
the Bylaws by majority vote of the Board or stockholders, respectively.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. SECOND AMENDMENT OF CERTIFICATE OF INCORPORATION. To amend the Certificate of
Incorporation to create a new class of non-voting common stock, par value
$0.01 per share, of which 3,000,000 shares will be authorized.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMENDMENT OF THE 1996 STOCK OPTION PLAN. 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To ratify the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. OTHER BUSINESS. In their discretion, the proxyholders are authorized to
transact such other business as may properly come before the Meeting, and any
adjournment or adjournments thereof.
The Board of Directors recommends a vote "FOR" the election of the Board of
Directors' nominees listed, "FOR" approval of the amendment to the Certificate
of Incorporation to authorize the Board of Directors or stockholders to amend
the Bylaws by majority vote of the Board or stockholders, respectively, "FOR"
approval of the amendment to the
Please Sign and Date on Reverse Side
<PAGE> 52
(Continued from Front Side of Proxy Card)
Certificate of Incorporation to create a new class of non-voting common
stock, par value $0.01 per share, of which 3,000,000 shares will be
authorized, "FOR" approval of the amendment to the 1996 Stock Option Plan
to increase the number of shares reserved for issuance from 700,000 to
1,000,000 and "FOR" ratification of the appointment of Arthur Andersen LLP
as the Company's independent public accountants for the year ending
December 31, 1999.
This Proxy will be voted "FOR" the election of the Board of Directors'
nominees unless authority to do so is withheld and "FOR" approval of the
amendment to the Certificate of Incorporation to authorize the Board of
Directors or stockholders to amend the Bylaws by majority vote of the Board or
stockholders, respectively, "FOR" approval of the amendment to the Certificate
of Incorporation to create a new class of non-voting common stock, par value
$0.01 per share, of which 3,000,000 shares will be authorized, "FOR" approval of
the amendment to the 1996 Stock Option Plan to increase the number of shares
reserved for issuance from 700,000 to 1,000,000 and "FOR" ratification of the
appointment of Arthur Anderson LLP as the Company's independent public
accountants, unless "AGAINST" or "ABSTAIN" is marked on the Proxy. If any other
business is presented at the Meeting, this Proxy shall be voted by the
proxyholders in accordance with the recommendations of a majority of the Board
of Directors.
The undersigned hereby ratifies and confirms all that said attorneys and
proxyholders, or any of them, or their substitutes, shall lawfully do or cause
to be done by virtue hereof, and hereby revolves any and all proxies heretofore
given by the undersigned to vote at the Meeting. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting and the Proxy Statement
accompanying said notice.
Date:
-------------, 1999
-------------------------
Signature
-------------------------
Signature
Note: Please date this
Proxy and sign your name
exactly as it appears on
your stock certificates.
Executors,
administrators, trustees,
etc., should give their
full titles. All joint
owners should sign.
I (we) [ ] do [ ] do not
accept to attend the
Meeting.
PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.
