UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential For Use of the Commission Only
(as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-12
SANTA FE FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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SANTA FE FINANCIAL CORPORATION
820 MORAGA DRIVE
LOS ANGELES, CALIFORNIA 90049
(310) 889-2500
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 24, 2005
To The Shareholders of Santa Fe Financial Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Santa Fe
Financial Corporation ("Santa Fe" or the "Company") will be held on February
24, 2005 at 2:30 P.M. at the Luxe Summit Hotel Bel Air located at 11461
Sunset Boulevard, Los Angeles, California 90049 for the purpose of
considering and acting on the following:
1. The election of three Directors to serve until the next Annual
Meeting or until successors have been duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending June 30, 2005;
and
3. To transact such other business as may properly come before the
Meeting, or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on January 12, 2005 as
the record date for determining the shareholders having the right to vote at
the meeting or any adjournments thereof.
Your proxy is important to us whether you own a few or many shares. Please
complete, sign, date and promptly return the enclosed proxy in the self-
addressed, postage-paid envelope provided. Return the proxy even if you plan
to attend the meeting. You may always revoke your proxy and vote in person.
Dated: January 20, 2005
By Order of the Board of Directors,
/s/ Michael G. Zybala
Michael G. Zybala
Secretary
SANTA FE FINANCIAL CORPORATION
820 MORAGA DRIVE
LOS ANGELES, CALIFORNIA 90049
(310) 889-2500
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 2005
The Board of Directors of Santa Fe Financial Corporation (the "Company" or
"Santa Fe") is soliciting proxies in the form enclosed with this statement in
connection with the Annual Meeting of Shareholders to be held on February 24,
2005 or at any adjournment or adjournments thereof.
This Proxy Statement and the accompanying Proxy are first being sent to
Shareholders on or about January 26, 2005. Only shareholders of record at the
close of business on January 12, 2005 are entitled to notice of, and to vote
at, the Annual Meeting.
If you give us a proxy, you can revoke it at any time before it is used. To
revoke it, you may file a written notice revoking it with the Secretary of
the Company, execute a proxy with a later date or attend the meeting and vote
in person.
You may vote at the Annual Meeting only shares that you owned of record on
January 12, 2005. There were 1,178,210 shares of common stock and 63,600
shares of convertible voting preferred stock outstanding on that date. The
preferred shares are entitled to vote as if converted to common stock. Of
the total 1,241,810 voting shares outstanding, a majority, or 620,906 shares
will constitute a quorum for the transaction of business at the meeting.
Each share is entitled to one vote on each matter to be presented at the
meeting. Unless cumulative voting is elected as described under "Election of
Directors" below, the affirmative vote of the holders of the majority of the
shares of the Company's stock present or represented at the meeting and
entitled to vote is required to elect directors and ratify or approve the
other item being voted on at this time.
In addition to mailing this material to shareholders, the Company has asked
banks and brokers to forward copies to persons for whom they hold stock of
the Company and to request authority for the execution of proxies. The
Company will reimburse banks and brokers for their reasonable out-of-pocket
expenses in doing so. Officers of the Company may, without being additionally
compensated, solicit proxies by mail, telephone, telegram or personal
contact. All proxy soliciting expenses will be paid by the Company. The
Company does not expect to employ anyone else to assist in the solicitation
of proxies.
1
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's bylaws set the number of directors at three. We propose to
elect three directors, each to hold office until the next Annual Meeting of
Shareholders and until his or her successor is elected and qualified. The
Board of Directors has nominated John V. Winfield, John C. Love and William
J. Nance. The persons named in the enclosed form of proxy will vote it for
the election of the nominees listed below unless you instruct otherwise, or
a nominee is unable or unwilling to serve. The Board of Directors has no
reason to believe that any nominee will be unavailable. However, in that
event, the proxy may vote for another candidate or candidates nominated by
the Board of Directors.
The California Corporations Code, as applicable to the Company, provides that
a shareholder may cumulate votes if a shareholder gives notice, prior to the
voting, of an intention to cumulate votes. If such a notice is given, every
shareholder may cumulate votes. Cumulating votes means that you can take the
total number of votes you have for all directors and distribute them among
one or more nominees as you see fit. For example, assume you have 100
shares. We have three directors so you have a total of 3 x 100 = 300 votes.
You could give all 300 votes to one person or 150 votes to each of two
nominees, or 100 votes to each of three nominees. You can use this power
only under the circumstances described herein. If cumulative voting is
elected, the enclosed form of proxy gives the proxy discretion to cumulate
votes so that he can elect the maximum possible number of the nominees
identified below.
Any shareholder executing the enclosed form of proxy may withhold authority
to vote for any one or more nominee by so indicating in the manner described
in the form of proxy. However, the number of votes authorized by the form of
proxy will not be affected and the named proxies could probably offset any
such action by using cumulative voting if they thought it necessary. Under
the California Corporations Code any shareholder or any person who claims to
have been denied the right to vote may apply to a state superior court for a
determination of the validity of any election or appointment of any director.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company. There is no relationship by
blood, marriage or adoption among the Directors and Officers. All Directors
serve one year terms with their terms expiring at the Annual Meeting. All
Officers of the Company are elected or appointed by the Board of Directors
and hold office until the Annual Meeting or until replaced at the discretion
of the Board.
Shares of
Common Stock
Beneficially
Owned on Percent
Position Director January 12, of
Name Age With the Company Since 2005 Class(1)
- --------------------------------------------------------------------------------------------
John V. Winfield 58 Chairman, President 1995 937,996(2) 75.5%
and Chief Executive
Officer
William J. Nance 60 Director 1996 0(3) 0.0%
John C. Love 64 Director 1998 0(3) 0.0%
Michael G. Zybala 52 Vice President, N/A 0 0.0%
Secretary and
General Counsel
David T. Nguyen 31 Treasurer and N/A 0 0.0%
Controller
All of the above as a group 937,996 75.5%
- ---------------------------
(1) Based on 1,241,810 voting shares issued and outstanding as of January 12,
2005, which consist of 1,178,210 shares of common stock and 63,600 shares
of convertible voting preferred stock.
(2) John V. Winfield is the sole beneficial owner of 49,400 shares of common
stock. The InterGroup Corporation ("InterGroup") is the beneficial owner
of 824,996 shares of common stock and 63,600 shares of preferred stock.
2
As the President, Chairman of the Board and a 60.1% shareholder of
InterGroup, Mr. Winfield has voting and dispositive power with respect to
the shares of Santa Fe owned of record and beneficially by InterGroup.
(3) William J. Nance is a 3.1% shareholder of InterGroup as well as a
Director thereof. John C. Love is also a Director of InterGroup and a
less than 1% shareholder.
Security Ownership of Management in Subsidiary
As of January 12, 2005, Santa Fe was the record and beneficial owner of
505,437 shares of the common stock of Portsmouth Square, Inc. (Portsmouth")
and Santa Fe's parent company, InterGroup was the record owner of 14,700
shares of Portsmouth, representing 70.9% of the outstanding common shares of
Portsmouth. The President and Chairman of the Board of Santa Fe and
InterGroup has voting power with respect to common shares of Portsmouth owned
by Santa Fe and InterGroup. No other director or executive officer of Santa
Fe has a beneficial interest in Portsmouth's shares.
BUSINESS EXPERIENCE:
The principal occupation and business experience during the last five years
for each of the Directors and Executive Officers of the Company are as
follows:
John V. Winfield -- Mr. Winfield was first elected to the Board in May of
1995 and currently serves as the Company's Chairman of the Board, President
and Chief Executive Officer, having been appointed as such in April 1996.
Mr. Winfield is also the Chairman of the Board, President and Chief Executive
Officer of the Company's subsidiary Portsmouth, having held those positions
since May of 1996. Mr. Winfield is Chairman of the Board, President and
Chief Executive Officer of The InterGroup Corporation ("InterGroup"), a
public company, and has held those positions since 1987.
William J. Nance -- Mr. Nance was first elected to the Board in May of 1996.
Mr. Nance is also a director of Portsmouth. Mr. Nance is the President and
CEO of Century Plaza Printers, Inc., a company he founded in 1979. He has
also served as a consultant in the acquisition and disposition of multi-
family and commercial real estate. Mr. Nance is a Certified Public
Accountant and, from 1970 to 1976, was employed by Kenneth Leventhol &
Company where he was a Senior Accountant specializing in the area of REITS
and restructuring of real estate companies, mergers and acquisitions, and all
phases of real estate development and financing. Mr. Nance is a Director of
InterGroup and has held such position since 1984.
John C. Love -- Mr. Love was appointed a Director of the Company on March 5,
1998. Mr. Love is an international hospitality and tourism consultant based
in Orinda, California and a hotel broker. He is a retired partner in the
national CPA and consulting firm of Pannell Kerr Forster. Mr. Love has
extensive experience in hotel development, acquisition and development. He
is chairman emeritus of Golden Gate University in San Francisco. Mr. Love is
also a Director of Portsmouth, having first been appointed in March 1998, and
a Director of InterGroup, having first been appointed in January 1998.
Michael G. Zybala -- Mr. Zybala was appointed as Vice President and Secretary
of the Company on February 20, 1998. He is also Vice President, Secretary and
General Counsel of Portsmouth. He also served as the Treasurer of Santa Fe
and Portsmouth from May 2000 until February 27, 2003. Mr. Zybala has served
as the Company's General Counsel since 1995 and has represented the Company
as its corporate counsel since August 1993. Mr. Zybala also serves as
Assistant Secretary and counsel to InterGroup and served as InterGroup's Vice
President Operations from January 1999 to July 15, 2002.
David T. Nguyen - Mr. Nguyen was appointed as Treasurer of the Company on
February 27, 2003. Mr. Nguyen also serves as Treasurer of InterGroup and
Portsmouth, having been appointed to those positions on February 26, 2003 and
February 27, 2003, respectively. Mr. Nguyen is a Certified Public Accountant
and, from 1995 to 1999, was employed by PricewaterhouseCoopers LLP where he
was a Senior Accountant specializing in real estate. Mr. Nguyen has also
served as the Company's Controller from 1999 to December 2001 and from
December 2002 to present.
3
BOARD AND COMMITTEE INFORMATION
Board of Directors:
Santa Fe is an unlisted company and a small business issuer under the rules
and regulations of the Securities and Exchange Commission ("SEC"). The
majority of its Board of Directors consists of "independent" directors as
independence is defined by the applicable rules of the SEC and the National
Association of Securities Dealers' ("NASD"). The Board of Directors held four
meetings during the 2004 Fiscal Year (in person, telephonically or by written
consent). No Director attended (whether in person, telephonically, or by
written consent) less than 75% of all meetings held during the period of time
he or she served as Director during the 2004 Fiscal Year.
The Board of Directors has not established a formal process for security
holders to send communications to the Board of Directors and the Board has
not deemed it necessary to establish such a procedure at this time.
Historically, almost all communications that the Company receives from
security holders are ministerial in nature and are not directed to the Board
of Directors. If the Company should receive a security holder communication
directed to the Board of Directors, or to an individual director, said
communication will be relayed to the Board of Directors or the individual
director as the case may be.
The Company does not have any formal policy with regard to board members
attendance at annual meetings of shareholders but encourages each director to
attend said meetings. All of the Company's directors attended the fiscal 2003
annual meeting of shareholders.
Committees:
Santa Fe has established two standing committees, a Securities Investment
Committee and an Audit Committee. The Company does not have any standing
nominating or compensation committees of the Board of Directors. Executive
compensation is determined by the independent members of the Board. New
director nominations, if any, will be considered and determined by the Board
of Directors. The Company has no policy with regard to consideration of any
director candidates recommended by security holders. As a small business
issuer that has more than 75% of its voting securities controlled by one
shareholder, the Company has not deemed it appropriate to institute such a
policy.
On March 17, 1998, the Company established a Securities Investment Committee
to establish guidelines and to review the Company's investment policies. The
Committee consists of all the members of the Board, with Mr. Winfield serving
as Chairperson. During fiscal 2004, the Securities Investment Committee held
four meetings, in person, telephonically or by written consent with, all
members attending each meeting.
Santa Fe is an unlisted company and small business issuer under SEC rules.
The Company's Audit Committee is currently comprised of Messrs. Nance
(Chairperson) and Love, each of whom are independent directors as
independence is defined by the applicable rules of the SEC and the NASD, and
as may be modified or supplemented. Each of these directors also meets the
audit committee financial expert test. The primary function of the Audit
Committee is to assist the Board of Directors in fulfilling its oversight
responsibilities by reviewing: the financial reports provided by the Company
to any governmental body or the public; the Company's system of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Company's auditing,
accounting and financial processes generally. The Audit Committee is
responsible for the selection and retention of the Company's independent
auditors. The Audit Committee held five meetings during the 2004 Fiscal
Year. The Company's Board of Directors has adopted a written charter for the
Audit Committee. A copy of that written charter, as amended, is attached as
Appendix A to this proxy statement.
4
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and each beneficial owner of more than ten percent of
the Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors
and greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by the Company, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company is aware of one delinquent filing by
a more than 10% shareholder. On July 15, 2004, The InterGroup Corporation
filed a Form 5 reporting an acquisition of 9,200 shares of Santa Fe's common
stock on June 30, 2004, which was a Form 4 transaction not reported on a
timely basis. Other than that filing, the Company believes that during fiscal
2004 all filing requirements applicable to its officers, directors, and
greater than ten-percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
As a small business issuer, Santa Fe has no compensation committee. Executive
officer compensation is set by the independent members of the Board of
Directors. Set forth below is a summary compensation table concerning
compensation awarded to, earned by, or paid to the Chief Executive Officer
("CEO"), and any qualifying Executive Officers or employees, for all services
to the Company and its subsidiaries for fiscal years ended June 30, 2004,
2003 and 2002.
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
- ------------------ ---- --------- --------- -------------
John V. Winfield 2004 $240,000(1) $618,000(2) $12,000(3)
Chairman, President and 2003 $200,000(1) $654,000(2) $12,000(3)
Chief Executive Officer 2002 $230,000(1) $ - $12,000(3)
Michael G. Zybala 2004 $ 63,000(4) $ - $ -
Vice President, Secretary, 2003 $ 47,000(4) $ 2,000 $ -
and General Counsel 2002 $ 88,000(4) $ - $ -
- --------------------------
(1) Includes salary received from the Company's subsidiary, Portsmouth, in
the amounts of $92,000, $77,000 and $88,000 for the fiscal years 2004, 2003
and 2002 respectively. Does not include compensation received from Santa Fe's
parent corporation, InterGroup, of $1,729,000, $948,000 and $339,000 for
fiscal years ended June 30, 2004, 2003 and 2002, respectively.
(2) Amounts shown reflect a performance bonus, approved by the disinterested
members of the Board of Directors of the Company and its subsidiary
Portsmouth based on the results of Mr. Winfield's management of the Company's
securities portfolio for the fiscal years ended June 30, 2004 and 2003. Of
the total amount of the bonus, $407,000 was paid by Portsmouth in 2004 and
$411,000 was paid for fiscal 2003.
(3) Amounts shown reflect regular annual director's fees paid by Santa Fe and
Portsmouth, each in the amount of $6,000. During fiscal 2004, 2003 and 2002,
the Company and Portsmouth also paid combined annual premiums of $42,500 and
$42,500, respectively, for a split dollar whole life insurance policy, owned
by, and the beneficiary of which is, a trust for the benefit of Mr.
Winfield's family. The Company has a secured right to receive, from any
proceeds of the policy, reimbursement of all premiums paid prior to any
payments to the beneficiary.
5
(4) Approximately $50,000, $38,000 and $71,000 of Mr. Zybala's salary and
bonus was allocated to Portsmouth in fiscal years 2004, 2003 and 2002,
respectively. Does not include total compensation received from Santa Fe's
parent corporation, InterGroup, of $29,000, $16,000 and $33,000 for fiscal
years ended June 30, 2004, 2003 and 2002, respectively.
As a small business issuer, Santa Fe has no compensation committee. Executive
Officer compensation is set by disinterested members of the Board of
Directors. Santa Fe has no stock option plan or stock appreciation rights
for its executive officers. The Company has no pension or long-term
incentive plans. There are no employment contracts between Santa Fe and any
executive officer, nor is there any termination-of-employment or change-in-
control arrangements.
On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO,
John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio. The Company's previous
experience and results with outside money managers was not acceptable.
Pursuant to the criteria established by the Board, Mr. Winfield was be
entitled to performance compensation for his management of the Company's
securities portfolio equal to 20% of all net investment gains generated in
excess of the performance of the S&P 500 Index. Compensation amounts will be
calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter. Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company. On February 26, 2004, the Board of Directors
amended the performance threshold to require an annualized return equal to
the Prime Rate of Interest (as published in the Wall Street Journal) plus 2%
instead of the S&P 500 Index, effective with the quarterly period commencing
January 1, 2004. This change was made to make the Company's plan be
consistent with that established by its parent company, InterGroup. This
performance based compensation program may be further modified or terminated
at the discretion of the Board.
Internal Revenue Code Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, in the case of a publicly held corporation, the corporation is
not generally allowed to deduct remuneration paid to its chief executive
officer and certain other highly compensated officers to the extent that such
remuneration exceeds $1,000,000 for the taxable year. Certain remuneration,
however, is not subject to disallowance, including compensation paid on a
commission basis and, if certain requirements prescribed by the Code are
satisfied, other performance based compensation. No compensation paid by the
Company to its CEO or other executive officers was subject the deduction
disallowance prescribed by Section 162(m) of the Code.
DIRECTOR COMPENSATION
The bylaws of Santa Fe permit directors to be paid a fixed sum for attendance
at each meeting of the Board or a stated salary as director. Each director
is paid a fee of $1,500 per quarter for a total annual compensation of
$6,000. This policy has been in effect since July 1, 1985. Members of the
Company's Audit Committee also receive a fee of $500 per quarter.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 12, 2005, Santa Fe and InterGroup owned 70.9% of the common
stock of Portsmouth, and InterGroup and John V. Winfield, in the aggregate,
owned approximately 75.5% of the voting stock of Santa Fe. All of the
Company's Directors serve as directors of InterGroup and all three of the
Company's Directors serve on the Board of Portsmouth.
Certain costs and expenses, primarily administrative salaries, rent and
insurance, are allocated among the Company, its subsidiary, Portsmouth, and
parent InterGroup based on management's estimate of the pro rata utilization
of resources. During the fiscal years ended June 30, 2004 and 2003, the
Company and Portsmouth made payments to InterGroup of approximately $171,000
and $223,000, respectively, for administrative costs and reimbursement of
direct and indirect costs associated with the management of the Companies and
their investments, including the partnership asset. During fiscal 2003,
Portsmouth also paid consulting fees to an officer of InterGroup in the
amount of $62,000.
6
John V. Winfield, the Company's Chairman and President, and Michael G.
Zybala, the Company's Vice President, Secretary and General Counsel, also
serve as officers of InterGroup and Portsmouth. Santa Fe and Portsmouth
share corporate office space with Santa Fe's parent company, InterGroup.
Since all three companies share the same office space, Mr. Winfield and Mr.
Zybala can allocate their time between the different companies more
efficiently on an as needed basis. Mr. Winfield' time and salary is
primarily allocated according to the asset base of the three companies that
he oversees. The Company believes that such an allocation is a fair estimate
of the actual time Mr. Winfield spends managing the respective companies.
Mr. Zybala's time and salary is allocated based on the amount of time he
spends on each company according to their needs. Such an arrangement also
results in savings in corporate overhead. For example, Mr. Zybala serves as
legal counsel for all three companies and assists with all of their corporate
functions including governmental compliance. Mr. Zybala also helps oversee
the operations of Santa Fe and Portsmouth, with a primary emphasis on the
operations of Portsmouth's hotel asset. By sharing the costs of Mr. Zybala's
salary, the companies obtain the full benefit of his services at a fraction
of the cost that it would incur by engaging separate counsel or hiring
additional personnel.
In September 1999, the Company's subsidiary, Woodland Village, obtained a 5-
year interest only note in the amount of $162,563 from InterGroup. The note
carries a 7.75% interest rate and was scheduled to mature on September 29,
2004. In September 2002, the Company repaid InterGroup $162,563 and assumed
the note.
During each of the fiscal years 2004 and 2003, the Company paid $51,516 in
preferred stock dividends to InterGroup.
As Chairman of the Securities Investment Committee, the Company's President
and Chief Executive officer, John V. Winfield, directs the investment
activity of the Company in public and private markets pursuant to authority
granted by the Board of Directors. Mr. Winfield also serves as Chief
Executive Officer and Chairman of Portsmouth and InterGroup and oversees the
investment activity of those companies. Depending on certain market
conditions and various risk factors, the Chief Executive Officer, his family,
Portsmouth and InterGroup may, at times, invest in the same companies in
which the Company invests. The Company encourages such investments because
it places personal resources of the Chief Executive Officer and his family
members, and the resources of Portsmouth and InterGroup, at risk in
connection with investment decisions made on behalf of the Company.
On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO to
keep and retain his services as a direct and active manager of the Company's
securities portfolio. Pursuant to the criteria established by the Board, Mr.
Winfield is entitled to performance compensation for his management of the
Company's securities portfolio equal to 20% of all net investment gains
generated in excess of the performance of the S&P 500 Index. Compensation
amounts are calculated and paid quarterly based on the results of the
Company's investment portfolio for that quarter. Should the Company have a
net investment loss during any quarter, Mr. Winfield would not be entitled to
any further performance-based compensation until any such investment losses
are recouped by the Company. On February 26, 2004, the Board of Directors
amended the performance threshold to require an annualized return equal to
the Prime Rate of Interest (as published in the Wall Street Journal) plus 2%
instead of the S&P 500 Index, effective with the quarterly period commencing
January 1, 2004. For the fiscal years ended June 30, 2004 and 2003, Mr.
Winfield was paid performance based compensation of $618,000 and $654,000,
respectively. This performance based compensation program may be further
modified or terminated at the discretion of the Board.
In December 1998, Board of Directors authorized the Company to obtain whole
life insurance and split dollar insurance policies covering the Company's
President and Chief Executive Officer, Mr. Winfield. During fiscal years
2004 and 2003, the Company paid annual premiums of $25,500 for the split
dollar whole life insurance policy, owned by, and the beneficiary of which
is, a trust for the benefit of Mr. Winfield's family. The Company has a
secured right to receive, from any proceeds of the policy, reimbursement of
all premiums paid prior to any payments to the beneficiary. During fiscal
2004 and 2003, Portsmouth paid annual premiums of $17,000 for a split dollar
policy also covering Mr. Winfield.
There are no other relationships or related transactions between the Company
and any of its officers, directors, five-percent security holders or their
families which require disclosure.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF JOHN V.
WINFIELD, JOHN C. LOVE AND WILLIAM J. NANCE AS DIRECTORS OF THE COMPANY
7
PRINCIPAL HOLDERS OF EQUITY SECURITIES
The following table shows, as of January 12, 2005, the Common Stock owned by
every person owning of record (other than securities depositories), or known
by the Company to own beneficially, more than 5% of its outstanding common
shares. Any voting securities owned by directors or director nominees are
also disclosed under Election of Directors herein.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(2)
- ------------------- ---------------------- ------------------
Guinness Peat Group plc ("GPG") 93,058(3) 7.9%
Allied Mutual Insurance
Services, Ltd. ("AMI")
First Floor, Times Place
London SW1Y 5GP, UK
The InterGroup Corporation 888,596(4) 71.6%
820 Moraga Drive
Los Angeles, CA 90049
John V. Winfield 49,400 4.0%
820 Moraga Drive
Los Angeles, CA 90049
The InterGroup Corporation and 937,996(5) 75.5%
John V. Winfield as a group
- ------------------------------
(1) Unless otherwise indicated, and subject to applicable community property
laws, each person has sole voting and investment power with respect to the
shares beneficially owned.
(2) Percentages are calculated on the basis of 1,178,210 shares of Common
Stock issued and outstanding as of January 12, 2005, plus any securities that
the person has a right to acquire within 60 days pursuant to options,
warrants, conversion privileges or other rights.
(3) Based on their Statement on Schedule 13D (Amendment No. 6) dated June 13,
2001, GPG and its wholly-owned subsidiary AMI claim shared power to vote, or
to direct the vote, and to dispose of, or to direct the disposition of,
93,058 shares of Santa Fe's Common Stock owned of record by AMI.
(4) InterGroup is the beneficial owner of 824,996 shares of Common Stock and
63,600 shares of convertible, voting preferred stock, which shares are
entitled to vote as if converted to Common Stock.
(5) Pursuant to a Voting Trust Agreement dated June 30, 1998, InterGroup has
the power to vote the 49,400 shares of Common Stock owned by Mr. Winfield.
As President, Chairman of the Board and a 60.1% shareholder of InterGroup,
Mr. Winfield has voting and dispositive power over the shares owned of record
and beneficially by InterGroup.
As of January 12, 2005, there were 1,178,210 shares of the Company's Common
Stock outstanding, which were held by approximately 315 shareholders of
record and approximately 430 beneficial owners.
Securities Authorized for Issuance Under Equity Compensation Plans.
Santa Fe has no securities authorized for issuance under equity compensation
plans.
8
PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected the firm of
PricewaterhouseCoopers LLP, certified public accountants, as the Company's
independent auditors for the fiscal year ending June 30, 2005 and recommends
to shareholders that they vote for the ratification of this selection.
PricewaterhouseCoopers LLP has served as the Company's independent auditors
commencing with the audit for the year ended December 31, 1997. Ratification
requires the affirmative vote of a majority of the shares represented and
voted at the Annual Meeting. A representative of PricewaterhouseCoopers LLP
is expected to be present at the Annual Meeting to make a statement, if
desired, and to respond to appropriate questions.
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH THE SEC UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN
ANY DOCUMENT SO FILED.
AUDIT COMMITTEE REPORT
The Audit Committee's responsibilities are described in a written charter
adopted by the Board of Directors, which is attached as Appendix A to this
Proxy Statement. The Audit Committee primary duties and responsibilities are
to: serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system; appoint and approve
the compensation of the Company's independent auditors; review and appraise
the audit efforts of the Company's independent auditors; and provide an open
avenue of communications among the independent auditors, financial and senior
management, and the Board of Directors. During fiscal year ended June 30,
2004, the Company retained its independent auditors, PricewaterhouseCoopers
LLP, to provide audit and audit related services. There were no fees paid
for non-audit services.
The Audit Committee reviewed and discussed the audited financial statements
with management and PricewaterhouseCoopers LLP and management represented to
the Audit Committee that the consolidated financial statements were prepared
in accordance with generally accepted accounting principals. The discussions
with PricewaterhouseCoopers LLP also included the matters required by
Statement on Auditing Standards No. 61 (Communication with Audit Committees),
as amended by FAS No. 90 with respect to quarterly financial statements. The
Audit Committee has also received the written disclosures and the letter from
PricewaterhouseCoopers LLP regarding its independence as required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), which was discussed with PricewaterhouseCoopers LLP.
Based on the Audit Committee's review of the audited financial statements,
and the review and discussions with management and PricewaterhouseCoopers LLP
referred to above, the Audit Committee recommended to the Company's Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004 for
filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE:
WILLIAM J. NANCE, CHAIRPERSON
JOHN C. LOVE
9
Audit Fees:
The aggregate fees billed for each of the last two fiscal years ended June
30, 2004 and 2003 for professional services rendered by
PricewaterhouseCoopers LLP, the principal auditor for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's Form 10-QSB or services normally provided by the
auditor in connection with statutory and regulatory filings or engagements
for those fiscal years, were as follows:
Fiscal Year
-------------------------
2004 2003
-------- --------
Audit Fees $ 81,000 $ 68,800
Audit Related Fees - -
Tax Fees - -
All Other Fees - -
Audit Committee Pre-Approval Policies
The Audit Committee shall pre-approve all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Company by its independent auditor, subject to any de minimus exceptions
that may be set for non-audit services described in Section 10A(i)(1)(B) of
the Exchange Act which are approved by the Committee prior to the completion
of the audit. The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority
to grant pre-approvals of audit and permitted non-audit services, provided
that decisions of such subcommittee to grant pre-approvals shall be presented
to the full Committee at its next scheduled meeting. All of the services
described herein were approved by the Audit Committee pursuant to its pre-
approval policies.
None of the hours expended on the principal auditor's engagement to audit the
Company's financial statements for the most recent fiscal year were
attributed to work performed by persons other than the principal auditor's
full-time permanent employees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT AUDITORS FOR THE COMPANY.
10
OTHER BUSINESS
As of the date of this statement, management knows of no business to be
presented at the meeting that is not referred to in the accompanying notice,
other than the approval of the minutes of the last shareholders' meeting,
which action will not amount to ratification of the actions taken at that
meeting. As to other business that may properly come before the meeting, it
is intended that the proxies properly executed and returned will be voted in
respect thereof at the discretion of the person voting the proxies in
accordance with the best judgment of the person voting the proxies.
SHAREHOLDER PROPOSALS
It is presently anticipated that the fiscal 2005 Annual Meeting of
Shareholders will be held on or around February 23, 2006. Any shareholder
proposals intended to be considered for inclusion in the proxy statement for
presentation at the fiscal 2005 Annual Meeting must be received by the
Company no later than October 23, 2005. The proposal must be in accordance
with the provisions of Rule 14a-8 promulgated by the Securities and Exchange
Commission under the Securities Act of 1934. It is suggested that the
proposal be submitted by certified mail - return receipt requested.
FORM 10-KSB and ANNUAL REPORT
The Annual Report to Shareholders for the 2004 fiscal year accompanies this
proxy statement, but is not deemed a part of the proxy solicitation material.
A copy of the Company's Form 10-KSB for the fiscal year ended June 30, 2004,
as required to be filed with the Securities and Exchange Commission,
excluding exhibits, will be mailed to shareholders without charge upon
written request to: Michael G. Zybala, Secretary, Santa Fe Financial
Corporation, 820 Moraga Drive, Los Angeles, CA 90049. Such request must set
forth a good-faith representation that the requesting party was either a
holder of record or a beneficial owner of the common stock of the Company on
January 12, 2005. The Company's Form 10-KSB and other reports are also
available through the Securities and Exchange Commission's world-wide-web
site (http://www.sec.gov).
By Order of the Board of Directors
SANTA FE FINANCIAL CORPORATION
Michael G. Zybala
Secretary
Dated: Los Angeles, California
January 20, 2005
11
APPENDIX A
SANTA FE FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
(As Amended January 20, 2005)
Purpose:
- -------
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibility of overseeing management's conduct
of the Company's financial reporting process, the Company's systems of
internal accounting and financial controls, and the annual independent audit
of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to investigate
any matter brought to its attention and shall have full access to all books,
records, facilities and personnel of the Company and the power to retain
outside counsel, auditors or other experts for this purpose. The Board and
the Committee are in place to represent the Company's shareholders, and the
outside auditor is ultimately accountable to the Board and the Committee as
such representatives of shareholders. It is the responsibility of the
Committee to maintain free and open means of communication between the Board,
the outside auditor and the financial management and internal auditors of the
Company.
The Committee shall review the adequacy of this Charter on an annual basis.
Membership:
- ----------
The Committee shall be comprised of "independent" directors that meet the
composition requirements as defined by the rules of the Securities and
Exchange Commission ("SEC") and the National Association of securities
Dealers ("NASD") as may be modified and supplemented from time to time.
Accordingly, all of the members of the Committee will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company;
2. Are not affiliates of the Company;
3. Do not receive any compensation from the Company other than in the
capacity as director; and
4. Who are financially literate or who become financially literate
within a reasonable period of time after appointment to the Committee.
In addition, at least one member of the Committee will be an audit committee
financial expert as defined by the Securities and Exchange Commission.
The members of the Committee shall be elected by the Board at the annual
meeting of the Board and shall serve until their successors shall be duly
elected and qualified. Unless a Chairman of the Committee is elected by the
full Board, the members of the Committee may designate a Chairman of the
Committee by majority vote of the full Committee Membership.
Meetings:
- --------
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. A majority of the members of the Committee shall
constitute a quorum for the transaction of business. Minutes of each meeting
of the Committee should be recorded by the Secretary to the Committee.
Approval by a majority of the members present at a meeting at which a quorum
is present shall constitute approval by the Committee. The Committee may also
12
act by unanimous written consent without a meeting. As part of its job to
foster open communication, the Committee should meet at least annually with
management and the independent auditors in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should
be discussed privately. In addition, the Committee or at least its Chairman
should meet with the independent auditors and management quarterly to review
the Company's financials consistent with #2 below. The Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
Key Responsibilities:
- --------------------
The Committee's job is one of oversight, and it recognizes that the Company's
management is responsible for preparing the Company's financial statements
and that the outside auditor is responsible for auditing those financial
statements pursuant to professional standards. Additionally, the Committee
recognizes that financial management has more time, knowledge and detailed
information about the Company than do Committee members. Consequently, in
carrying out its oversight responsibilities, the Committee is not providing
any expert or special assurance as to the Company's financial statements or
any professional certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set
forth as a guide with the understanding that the Committee may diverge from
this guide as appropriate given the circumstances.
1. The Committee shall review with management and the outside auditor
the audited financial statements to be included in the Company's Annual
Report on Form 10-KSB (or the Annual Report to Shareholders if distributed
prior to the filing of the Form 10-KSB) prior to the filing of the Form 10-
KSB or, if deemed appropriate, prior to any year-end earnings release. The
Committee shall review and consider with the outside auditors all matters
required to be discussed by Statement of Auditing Standards ("SAS") No. 61,
as amended by SAS No.90, by auditors with audit committees.
2. As a whole, or through the Committee chair, the Committee shall
review with the outside auditor the Company's interim financial results to be
included in the Company's quarterly reports to be filed with Securities and
Exchange Commission and the matters required to be discussed by SAS No. 61,
as amended by SAS No. 90 with respect to quarterly financial statements. Such
review will occur prior to the Company's filing of the Form 10-QSB or, if
deemed appropriate, prior to any quarterly earnings releases.
3. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-KSB and Form 10-QSB
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management or
other employees who have a significant role in the Company's internal
controls.
4. The Committee shall:
(a) request from the outside auditor annually a formal written
statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board Standard No. 1;
(b) discuss with the outside auditor any disclosed relationships or
services which may impact the outside auditor's objectivity or
independence; and
(c) recommend that the Board take appropriate action in response to
the outside auditor's report to satisfy itself of the auditor's
independence.
13
5. The Committee shall have the sole authority to appoint or replace
the independent auditor (subject, if applicable, to shareholder
ratification). The Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an
audit report or related work. The independent auditor shall report directly
to the Committee.
6. The Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the company by its independent auditor, subject to the de minimus exceptions
for non-audit services described in Section 10A (i)(1)(B) of the Exchange Act
which are approved by the Committee prior to the completion of the audit. The
Committee may form and delegate authority to subcommittees consisting of one
or more members when appropriate, including the authority to grant
preapprovals of audit and permitted nonaudit services, provided that
decisions of such subcommittee to grant preapprovals shall be presented to
the full Committee at its next scheduled meeting.
7. Review and discuss quarterly reports from the independent auditors
on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information
within generally accepted accounting principles that have
been discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the
treatment preferred by the independent auditor.
(c) Other material written communications between the
independent auditor and management, such as any management
letter or schedule of unadjusted differences.
8. Periodically consult with the independent auditors, out of the
presence of management, about internal controls and the fullness and accuracy
of the organization's financial statements.
9. Recommend to the Board policies for the Company's hiring of
employees or former employees of the independent auditor who participated in
any capacity in the audit of the Company.
10. Discuss with management the Company's use of "pro forma" or
"adjusted" non-GAAP information, as well as financial information and
earnings guidance provided to analysts and rating agencies. Such discussion
may be done generally (consisting of discussing the types of information to
be disclosed and the types of presentations to be made).
11. Establish regular and separate systems of reporting to the
Committee by each of management, the independent auditors, and the internal
accountants regarding any significant judgments made in management's
preparation of the financial statements, and the view of each as to
appropriateness of such judgments.
12. Following completion of the annual audit, review separately with
each of management and the independent auditors any significant difficulties
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information.
13. Review any significant disagreement among management and the
independent auditors in connection with the preparation of the financial
statements.
14. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
14
15. Establish, review, and update periodically a Code of Ethical
Conduct, and ensure that management has established a system to enforce this
Code.
16. Review and approve any transactions between the Company and its
officers, directors or 5% shareholders.
17. The Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to the independent auditor for the
purpose of rendering or issuing an audit report and to any advisors employed
by the Committee.
Reporting Responsibilities:
- --------------------------
The Committee shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement.
The Committee shall prepare such other reports for the full Board of
Directors and others as it shall deem necessary to discharge its
responsibilities under this Charter.
15
PROXY
SANTA FE FINANCIAL CORPORATION
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John V. Winfield and Michael G. Zybala, and
each of them, the attorneys, agents and proxies of the undersigned, with full
powers of substitution to each, to attend and act as proxy or proxies of the
undersigned at the Annual Meeting of Shareholders of Santa Fe Financial
Corporation to be held at the Luxe Summit Hotel Bel-Air, 11461 Sunset
Boulevard, Los Angeles, Ca 90049, on Thursday, February 24, 2005 at 2:30
p.m., and at any and all adjournments thereof, and to vote as specified
herein the number of shares which the undersigned, if personally present,
would be entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS, AND "FOR" RATIFICATION OF THE RETENTION
OF INDEPENDENT AUDITORS. THE PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE
RETENTION OF INDEPENDENT AUDITORS.
PLEASE SIGN AND DATE ON REVERSE SIDE
- -----------------------------------------------------------------------------
1. Election of Directors: [ ] FOR all nominees listed
below (except as indicated)
[ ] WITHHOLD AUTHORITY to vote
for all nominees listed below
[ ] EXCEPTIONS
Director
Nominees: John V. Winfield, John C. Love and William J. Nance.
(INSTRUCTIONS: To withhold authority to vote for any one individual nominee,
mark the "Exceptions" box and write that nominee's name on the space below.)
Exceptions:
- ----------------------------------------------------------------------------
[ ] FOR [ ] AGAINST [ ] ABSTAIN 2. RATIFICATION OF RETENTION OF
PRICEWATERHOUSECOOPERS LLP as the
independent auditors for the Company
for the fiscal year ending June 30,
2005.
3. OTHER BUSINESS. In their discretion,
the proxies are authorized to vote
upon such other business as may
properly come before the meeting and
at any and all adjournments thereof.
The Board of directors at present
knows of no other business to be
presented by or on behalf of the
Company or the Board of Directors
at the meeting.
[ ] Mark here for address change I (WE) WILL [ ] WILL NOT [ ] ATTEND
and note below. THE MEETING IN PERSON
The undersigned hereby ratifies and
Confirms all that the attorneys and
proxies, or any of them, or their
substitutes shall lawfully do or cause
to be done by virtue hereof, and
hereby revokes any and all proxies
heretofore given by the undersigned to
vote at the meeting. The undersigned
acknowledges receipt of the Notice of
Annual Meeting and the Proxy Statement
accompanying such notice.
Dated: _________________________, 2005
_______________________________
Signature
_______________________________
Signature
Please date this proxy card and sign
above exactly as your name appears on
this card. Joint owners should each
sign personally. Corporate proxies
should be signed by an authorized
officer. Executors, administrators,
trustees, etc., should give their full
titles.