BANNER CENTRAL FINANCE COMPANY
(BCFN)
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
---------------------------
DATE: Tuesday, June 4, 2002
TIME: 11:00 a.m.
PLACE: Banner Central Finance Company
5480 East Ferguson Drive, 3rd Floor
Commerce, California 90022
1
BANNER CENTRAL FINANCE COMPANY
5480 FERGUSON DRIVE, COMMERCE, CA 90022 (323) 720-8600 FAX (323) 702-8647
April 26, 2002
Dear Fellow Stockholder:
It is my pleasure to invite you to Banner Central Finance Company's annual
meeting of stockholders.
We will hold the meeting on Tuesday, June 4, 2002, 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 2001 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 Banner Central Finance Company.
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
2
BANNER CENTRAL FINANCE COMPANY
---------------------------
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
---------------------------
Date: Tuesday, June 4, 2002
Time: 11:00 a.m.
Place: Banner Central Finance Company
5480 East Ferguson Drive, 3rd Floor
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; 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 April 26,
2002, 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
April 26, 2002
Commerce, California
3
TABLE OF CONTENTS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING.......................... 5
Why Did You Send Me This Proxy Statement?............................ 5
Who Is Entitled To Vote?............................................. 5
What Constitutes A Quorum?........................................... 5
How Many Votes Do I Have?............................................ 5
How Do I Vote By Proxy?.............................................. 6
May I Change My Vote After I Return My Proxy?........................ 6
How Do I Vote In Person?............................................. 6
What Vote Is Required To Approve Each Proposal?...................... 7
What Are The Costs Of Soliciting These Proxies?...................... 7
How Do I Obtain An Annual Report On Form 10-KSB?..................... 7
INFORMATION ABOUT BCFN COMMON STOCK OWNERSHIP............................ 8
Which Stockholders Own at Least 5% of BCFN?.......................... 8
How Much Stock Is Owned By Directors And Executive Officers?......... 8
Compensation Committee Interlocks and Insider Participation.......... 9
Did Directors, Executive Officers and Greater Than 10% Stockholders
Comply With Section 16(a) Beneficial Ownership Reporting in 2001?.... 9
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS.......................10
The Board of Directors...............................................10
The Committees of the Board..........................................10
How Do We Compensate Directors?......................................10
Certain Relationships and Related Transactions.......................11
Contribution Agreement...............................................11
Financing Agreement..................................................11
4
Operating Agreement..................................................12
Tax Sharing Agreement................................................13
How We Compensate Executive Officers................................ 14
Stock Option Plan................................................... 15
Executive Deferred Salary & Bonus Plan.............................. 18
Compensation Committee's Report on Executive Compensation .......... 19
The Report.......................................................... 19
Audit Committee..................................................... 20
Audit Committee Report.............................................. 21
DISCUSSION OF PROPOSAL RECOMMENDED BY THE BOARD.............................. 23
Proposal 1: Elect Four Directors................................... 23
INFORMATION ABOUT STOCKHOLDER PROPOSAL................................... 25
ANNUAL REPORT................................................................ 25
OTHER BUSINESS............................................................... 25
5
PROXY STATEMENT FOR BANNER CENTRAL FINANCE COMPANY 2002
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 2002 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 May 13, 2002 to all stockholders
entitled to vote at the annual meeting. Stockholders who owned BCFN voting
common stock at the close of business on April 26, 2002 are entitled to vote. On
this record date, there were 7,417,400 shares of BCFN voting common stock, par
value $0.01 per share, outstanding. BCFN has only this one class of voting
stock. We are also sending along with this proxy statement the BCFN 2001 Annual
Report, which includes our financial statements.
What Constitutes A Quorum?
The holders of a majority of the issued and outstanding shares of BCFN
voting 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 BCFN voting common stock that you own entitles you to one
vote. The proxy card indicates the number of shares of BCFN voting common stock
that you own. In the election of directors, under California law as applied to
the Company, you have the right to cumulate your votes. This means that you may
give one properly nominated candidate a number of votes equal to the number of
directors to be elected, multiplied by the number of shares that you are
entitled to vote, or you may divide that total number of shares among the
candidates as you see fit.
6
How Do I Vote By Proxy?
Whether you plan to attend the annual meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
postage-prepaid envelope provided. Returning the proxy card will not affect your
right to attend the annual meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the Board of
Directors as follows:
o "FOR" the election of all four nominees for director (see page 19).
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 that 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.
- 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 April 26, 2002, the record date for voting, and a written
instruction from the nominee authorizing you to vote the shares.
7
What Vote Is Required To Approve Each Proposal?
Proposal 1:
Elect Four Directors Under California law, as it applies
to BCFN, you may cumulate your votes
for the election of directors as
described above under the caption
"How Many Votes Do I Have?" The four
nominees for director who receive
the most votes 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.
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 even
if it does not receive instructions
from you.
What Are The Costs Of Soliciting These Proxies?
We will pay all of 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
communication 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-KSB?
If you would like a copy of our Annual Report on Form 10-KSB for the year
ended December 31, 2001, that we filed with the SEC, we will send you one
without charge. Please write to Banner Central Finance Company, 5480 East
Ferguson Drive, Commerce, California 90022, Attention: Corporate Secretary.
8
INFORMATION ABOUT BCFN COMMON STOCK OWNERSHIP
Which Stockholders Own at Least 5% of BCFN?
The following table shows, as of April 26, 2002, 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 Company information and 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.
Common Stock
Beneficially Owned(1)
---------------------------------
Name and Address of Beneficial Owner(2) Number of Percent of
Shares(3) Class(4)
- --------------------------------------------- ----------------- ---------------
Gary M. Cypres(5) ................................. 4,625,267 61.70%
Carpenters Pension Trust forSouthern California ... 702,115 9.47%
Wellington Management Company, LLP(6) ............. 688,200 9.28%
- ----------------------
(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 BCFN common stock not only if you hold it directly, but
also if you directly or indirectly (through a relationship, a position as a
director or trustee, or a contract or understanding), have (or share) the
power to vote the stock, to invest it, to sell it or you currently have the
right to acquire it or the right to acquire it within 60 days of April 26,
2002.
(2) The address for Mr. Cypres is 5480 East Ferguson Drive, Commerce,
California 90022; the address for Carpenters Pension Trust for Southern
California is 533 So. Fremont Avenue, Los Angeles, CA 90071-1706 the
address for Wellington Management Company, LLP ("WMC"), 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 BCFN common stock issuable upon exercise of stock options
exercisable within 60 days of April 26, 2002 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 701,891 shares held of record by Cypres Investment Holdings LP,
80,656 shares held directly by G.M. Cypres Investments, LP, 3,738,720
shares directly held by Mr. Cypres, 12,500 shares directly held by Mr.
Cypres' spouse and 12,500 shares held by or in trust by Mr. Cypres and his
spouse for their children. An additional 79,000 shares is included
representing options exercisable within 60 days of April 26, 2002. Of the
4,625,267 shares, Mr. Cypres shares voting and investment power of 25,000
shares with his spouse.
(6) Based on a Schedule 13G filed with the SEC on February 14, 2002. These
shares are held of record by WMC's clients. Of the 688,200 shares, WMC
shares the power to vote 114,000 of these shares and shares the power to
dispose of all of these shares in its capacity as investment advisor to
these clients.
How Much Stock Is Owned By Directors And Executive Officers?
The following table shows, as of April 26, 2002, the BCFN 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.
9
Common Stock
Beneficially Owned(1)
--------------------------------
Name of Beneficial Owner Number of Percent of
Shares(2) Class(3)
- ------------------------------------------------ --------------- ----------------
Gary M. Cypres (4) .................................... 4,625,267 61.70%
Arturo Ochoa(5) ....................................... 15,000 *
William R. Sweet(6) ................................... 11,800 *
Salvatore J. Caltagirone (7) .......................... 10,800 *
All directors and executive officers as a group
(4 persons) (8) ....................................... 4,662,867 62.02%
- ----------------------
* Less than 1%.
(1) See footnote 1 in table included above at page 4.
(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 BCFN common stock issuable upon exercise of stock options
exercisable within 60 days of April 26, 2002 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 701,891 shares held of record by Cypres Investment Holdings LP,
80,656 shares held directly by G.M. Cypres Investments, LP, 3,738,720
shares directly held by Mr. Cypres, 12,500 shares directly held by Mr.
Cypres' spouse and 12,500 shares held by or in trust by Mr. Cypres and his
spouse for their children. An additional 79,000 shares is included
representing options exercisable within 60 days of April 26, 2002. Of the
4,625,267 shares, Mr. Cypres shares voting and investment power of 25,000
shares with his spouse.
(5) Consists of 15,000 shares issuable upon exercise of stock options
exercisable within 60 days of April 26, 2002.
(6) Consists of 8,200 shares directly owned by Mr. Sweet and 3,600 shares
issuable upon exercise of stock options exercisable
within 60 days of April 26, 2002.
(7) Consists of 7,200 shares directly owned by Salvatore Caltagirone and 3,600
issuable upon exercise of stock options exercisable within 60 days of April
26, 2002.
(8) Consists of 101,200 shares issuable upon exercise of stock options
exercisable within 60 days of April 26, 2002 .
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 served us as an officer
or employee of BCFN or any of its subsidiaries. None of our executive officers
currently serves as a director or member of the compensation committee of
another entity or of any other committee of the Board of Directors of another
entity performing similar functions.
Did Directors, Executive Officers and Greater Than 10% Stockholders Comply With
Section 16(a) Beneficial Ownership Reporting in 2001?
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 reflecting changes in their beneficial ownership of BCFN
stock and to provide us with copies of the reports.
Based on our review of these reports and of certifications furnished to us,
we believe that all of these reporting persons complied with their filing
requirements for 2001.
10
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 Committees of the Board
The board has an audit committee and a compensation committee. We do not
have a nominating committee. The full Board of Directors nominates our officers
and directors for election.
The Audit Committee The audit committee reviews and
reports to the Board of Directors
on various auditing and accounting
matters, including the annual report
from our independent public
accountants. Messrs.Caltagirone and
Sweet currently serve as members of
the audit committee.
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 2000 Stock Option
Plan (the "2000 Plan") and
administers our retirement plan.
Messrs. Caltagirone and Sweet
currently serve as members
of the compensation committee.
How Do We Compensate Directors?
We pay our members Board of Directors who are not also employees of Banner
Central Finance Company, referred to as the Non-Employee Directors, an annual
fee of $5,000. Members of the Board of Directors who are our employees do not
receive any Directors' fees. In addition, we may reimburse members of the Board
of Directors for expenses incurred in connection with their activities on our
behalf. Non-Employee Directors also each received options to purchase 18,000 and
15,000 shares of Common Stock at an exercise prices of $1.00 and $0.94 per share
as determined by the Board of Directors on February 28, 2001 and June 25, 2001,
respectively, under the 2000 Stock Option Plan. Initially options granted to the
Non-Employee Directors were 40% vested with remaining balance to vest in equal
11
annual installments over 3 years beginning on the date of grant, subject to
continued service on the Board of Directors; however, no option can be exercised
until at least six months after the date of grant. Options granted after the
initial awards vested in equal annual installments over 5 years from date of
grant. 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
On September 6, 2000, the Board of Directors of Central Financial
Acceptance Corporation, or Central Financial, approved a Plan of Complete
Dissolution, Liquidation and Distribution, or the Plan, which provided for the
dissolution and liquidation of Central Financial, and the liquidating
distribution to its stockholders of all the common stock of its two wholly-owned
subsidiaries, one of which is our company, Banner Central Finance Company, or
Banner Central Finance and the other of which is Hispanic Express, Inc. or
Hispanic Express. Banner Central Finance and Hispanic Express were formed on
September 5, 2000 to accomplish the Plan. On February 28, 2001, the Plan was
completed and Central Financial was dissolved and liquidated.
In connection with the Plan, we entered into various agreements with
Central Financial and Hispanic Express for the purpose of defining our ongoing
relationships among the entities. Because Central Financial controlled Hispanic
Express and us, 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.
Contribution Agreement
We entered into a contribution agreement, referred to as the Contribution
Agreement, with Central Financial. The Contribution Agreement covered the
following:
Contribution of Central Financial Subsidiaries. The Contribution Agreement
provides for the contribution of certain of the assets and businesses of Central
Financial to us. Specifically: Central Financial contributed to our company all
of the issued and outstanding capital stock of Central Installment Credit
Corporation, Central Financial Acceptance/Insurance Agency and Central Premium
Finance Company. In addition, Central Financial contributed to Central
Installment Credit Corporation the assets and liabilities of the mortgage
business owned by a subsidiary of Central Finance.
Financing Agreement
Banner's Central Electric and Banner Central Finance have entered into an
agreement, referred to as the Financing Agreement, pursuant to which Banner's
Central Electric grants Banner Central Finance the exclusive right, at Banner
Central Finance's option, to purchase without recourse consumer finance
receivables originated by Banner's Central Electric for sales of merchandise at
Banner's Central Electric stores in operation on the date of the Financing
Agreement and for all stores which Banner's Central Electric may determine to
open in the future during the term of the Financing Agreement. Banner Central
Finance is not obligated to provide financing to any particular Banner's Central
Electric customers, or to offer financing at any Banner's Central Electric
12
location or locations. As part of this agreement, Banner Central Finance agrees
to provide Banner's Central Electric with up to $6 million of inventory or
inventory financing as long as the Financing Agreement remains in effect and
Banner's Central Electric agrees to provide Banner Central Finance, at no
charge, an amount of floor space at Banner's Central Electric's stores as Banner
Central Finance may from time to time request. The Financing Agreement has a
term of 10 years. Banner Central Finance or Banner's Central Electric may
terminate the Financing Agreement at any time upon one-year's prior written
notice to either party. By mutual consent of the parties, the Financing
Agreement was canceled on December 31, 2001, expect that Hispanic Express will
continue to provide a guarantee up to $4 million of financing.
Operating Agreement
Banner Central Finance and Hispanic Express have entered into an agreement,
referred to as the Operating Agreement, which covers the following matters:
Allocation of Business Opportunities. Due to the potential conflicts of
interest resulting from the relationships among Banner Central Finance and
Hispanic Express, the Operating Agreement provides that Banner Central Finance
and its subsidiaries and Hispanic Express and its subsidiaries will not, without
prior written consent of each other, directly or indirectly, engage in or enter
any business which the other is currently engaged in.
Management and Other Services. The Operating Agreement provides that
Hispanic Express and its subsidiaries are obligated to provide to Banner Central
Finance and its subsidiaries and Banner Central Finance and its subsidiaries are
obligated to utilize, certain services, including management information
systems, employee benefit plans, legal and accounting, insurance, computer and
data processing systems. These arrangements will continue until terminated by
Hispanic Express or Banner Central Finance upon one-year's prior written notice.
Termination may be made on a service-by-service basis or in its entirety. Banner
Central Finance agrees to pay Hispanic Express its actual cost of providing
services to Banner Central Finance. If such services involve an allocation of
expenses, Hispanic Express shall determine the allocation on the basis of the
percentage utilization of such service or Hispanic Express's management's best
estimate thereof.
Employee Benefits. The Operating Agreement provides that Hispanic Express
and Banner Central Finance will assume all liabilities under the existing
employee welfare benefit and profit sharing plans of Central Financial with
respect to the employees of Hispanic Express and Banner Central Finance and
their subsidiaries who have become employees of each company. The Operating
Agreement also provides that the employment by Hispanic Express and Banner
Central Finance of individuals who were employees of Central Financial and the
subsidiaries prior to the Distribution will not be deemed a severance of
employment from Central Finance and the subsidiaries for the purpose of any
policy, plan, program or agreement that provides for the payment of severance,
salary continuation or similar benefits. The Operating Agreement also provides
for Hispanic Express to assume Central Financial's Supplemental Executive
Retirement Plan.
Guaranty of Banner Central Finance Debt. The Operating Agreement provides
for Hispanic Express to guarantee up to $4 million of bank or similar financing
which Banner Central Finance may borrow.
13
Tax Sharing Agreement
Central Financial, Hispanic Express and Banner Central Finance have entered
into a tax sharing agreement, referred to as the Tax Sharing Agreement,
providing for:
- - the payment of federal, state and other income tax remittances or refunds
for periods during which Hispanic Express and Banner Central Finance are
included in the same consolidated group for federal income tax purposes;
- - the allocation of responsibility for the filing of such tax returns;
- - the conduct of tax audits and the handling of tax controversies; and
- - various related matters.
For periods during which Hispanic Express and Banner Central Finance were
included in Central Financial's consolidated federal and state income tax
returns, Hispanic Express and Banner Central Finance are each be required to pay
its allocable portion of the consolidated federal, state and other income tax
liabilities and are entitled to receive refunds determined as if Hispanic
Express and Banner Central Finance and its subsidiaries had filed separate
income tax returns. With respect to Central Financial's liability for payment of
taxes for all periods during which Hispanic Express and Banner Central Finance
were so included in Central Financial's consolidated federal income tax returns,
Hispanic Express and Banner Central Finance will indemnify Central Financial for
all federal, state, and other income tax liabilities for such periods. February
28, 2001 was the last day on which Hispanic Express and Banner Central Finance
were required to be included in Central Financial's consolidated federal income
tax returns.
14
Executive Officers and Key Employees
These are the biographies of the Company's current executive officers,
except for Mr. Cypres, the Chairman, whose biography is included below under
"Proposal 1: Elect Four Directors." There are no arrangements or understandings
among these individuals or any other person relating to their election as
officers.
Name and Age Principal Occupation and Business Experience
- ------------------------------ -------------------------------------------------
Arturo Ochoa (40) Arturo J. Ochoa has been our President since our
formation. Since August 1998, Mr. Ochoa has been
President of Central Financial's mortgage
business. Prior to joining Central Financial,
Mr. Ochoa was Area Manager and then Regional
Vice President with Home Savings of America.
From 1983 to 1992 he served as a District
Manager with Transamerica Financial Services.
Mr. Ochoa graduated from the University of
Southern California, School of Business.
None of the directors or officers are related to each other by blood or
marriage and none of the directors or officers are involved in any legal
proceedings as described in Section 401(f) of Regulation S-K.
How We Compensate Executive Officers?
The following table sets forth information concerning compensation for each
of the last three years paid or awarded to or earned by the Chief Executive
Officer of the Company and our one other most highly compensated executive
officers of the Company and its predecessors who received salary and bonus in
excess of $100,000 in 2001 (collectively, the "Named Executive Officers").
Summary Compensation Table
Long-Term
Annual Compensation(1) Compensation
Name and Principal Position Year Salary Bonus Awards Options(2)
- --------------------------- ---- ------ ----- -----------------
Gary M. Cypres 2001 $ 75,000 $ 95,000 155,000
Chairman of the Board, Chief 2000 25,000 -- 395,000
Executive Officer and Chief 1999 25,000 -- --
Financial Officer
Arturo Ochoa 2001 $146,000 $ 15,000 --
President 2000 140,000 5,000 50,000
1999 140,000 20,000 --
(1) Certain of our executive officers receive benefits in addition to salary
and cash bonuses. The aggregate amount of such benefits, do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus of such Named
Executive. Also, see "Executive Deferred Salary and Bonus Plan" on page 14.
(2) Consists of options granted at an exercise price of $1.00 per share on
February 28, 2001 and options granted at an exercise price of $0.94 per
share on June 25, 2001.
15
Stock Option Plan
Concurrent with the completion of the Plan on February 28, 2001, Central
Financial terminated its Stock Option Plan and all options granted under the
plan were terminated. The 2000 Stock Option Plan of Banner Central Finance, or
the 2000 Plan, has been approved by our Board of Directors and stockholders. The
2000 Plan provides that it is to be administered by a committee of the Board of
Directors, referred to as the Option Committee, consisting of at least two
independent directors. The Compensation Committee functions as the Option
Committee. The Option Committee has the authority, within limitations as set
forth in the 2000 Plan, to establish rules and regulations concerning the 2000
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, provided, that such grants shall conform
with ss. 260.140.41 of the California Securities Code. Subject to the terms set
forth in the 2000 Plan, the Option Committee has the right to cancel any
outstanding options and to issue new options on such terms and upon such
conditions as may be consented to by the optionee affected.
A total of 1,100,000 shares are reserved for issuance under the 2000 Plan.
No individual may be granted options under the 2000 Plan with respect to more
than 550,000 shares during the duration of the 2000 Plan. Banner Central Finance
granted 716,000 shares of Common Stock of to eligible participants under the
2000 Plan during 2001, including options to certain executive officers as set
forth below. Options granted pursuant to the 2000 Plan vest over two different
time periods. Options granted which equal the number of options granted to
executive officers and employees under the Central Financial Stock Option Plan
vest as they would have been vested under the Central Financial Stock Option
Plan at the time of distribution, except for those officers and employees which
had been with Central Financial or its predecessor company for a period in
excess of 5 years, which shall be 60% vested in total options granted to them.
Options granted to executive officers and employees which exceed the amounts
granted to them under the Central Financial Stock Option Plan vest in such
options over a five-year period in equal annual amounts. Upon the effectiveness
of these grants, 384,000 shares of Common Stock remain available for future
grants of options under the 2000 Plan.
The number of shares which may be granted under the 2000 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 up, combined, recapitalized,
converted, exchanged, reclassified or in any way substituted. Subject to the
terms of the 2000 Plan, and 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 2000 Plan or to any outstanding options as it shall deem
appropriate to prevent dilution or enlargement of rights. The maximum term of
any option granted pursuant to the 2000 Plan is ten years. In general, shares
subject to options granted under the 2000 Plan which expire, terminate or are
canceled without having been exercised in full become available again for
options grants.
The class of eligible persons under the 2000 Plan consists of directors and
employees of, and consultants to, us or a parent or subsidiary of ours, 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 2000 Plan. See
"Compensation of the Board of Directors." Options granted under the 2000 Plan
may be incentive stock options, or ISOs, or non-qualified options, at the
discretion of the Option Committee; however, ISOs can only be granted to our
employees or a parent or subsidiary. The 2000 Plan provides that the exercise
price of an option (other than Non-Employee Director's option) is fixed by the
Option Committee on the date of grant; however, the exercise price of an ISOs
must be not less than the fair market value of the Common Stock on the date of
the grant. The exercise price of an ISOs granted to any participant who owns
16
stock possessing more than 10% of the total combined voting power of all classes
of our outstanding stock must be at least equal to 110% of the fair market value
of the Common Stock on the date of grant and the rate of exercise shall be at
least twenty percent per year over five years. Any ISOs granted to such
participants also must expire within five years from the date of grant.
Additionally, options granted under the 2000 Plan will not be ISOs to the extent
that aggregate fair market value of the shares with respect to which ISOs under
the 2000 Plan (or under any other plan maintained by us or a parent or
subsidiary of ours) first become exercisable in any year exceeds $100,000. No
options shall be granted under the 2000 Plan or after the tenth anniversary of
the adoption of the 2000 Plan.
Options are be non-transferable and non-assignable except by will, the laws
of descent and distribution, by instrument to an inter vivos or testamentary
trust in which the Options are to be passed to beneficiaries upon the death of
the trustor (settlor), or by gift to "immediate family" as defined in 17 C.F.R.
240.16a-1(e). Options (other than Non-Employee Director's options) are
exercisable by the holder thereof subject to terms fixed by the Option
Committee. However, no option can be exercised until at least six months after
the date of grant.
Notwithstanding the above, an option is exercisable immediately upon the
happening of any of the following (but in no event during the six-month period
following the date of grant or subsequent to the expiration of the term of an
option): (1) the holder's retirement on or after attainment of age 65; (2) the
holder's disability or death; (3) a "change of control" (as defined in the 2000
Plan) of us while the holder is in the employ or service of Banner Central
Finance Company; or (4) the occurrence of such special circumstances or events
as the Option Committee determines merits special consideration, except with
respect to Non-Employee Directors' options, 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 one of our
directors or as our consultant while holding an unexercised option, the option
is terminated 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 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.
The 2000 Plan may be terminated and may be modified or amended by the
Option Committee or the Board of Directors 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 2000 Plan will alter or affect
the terms of any then outstanding options without the consent of the holders
thereof.
17
The following table sets forth information concerning stock options granted
to Mr. Caltagirone, Mr. Cypres and Mr. Sweet during 2001. No other Named
Executive Officers received stock options during 2001.
Option Grants in Last Fiscal Year
Individual Grants
----------------------------------
Percent of Potential Realizable Value
Number of Total Options at Assumed Annual Rates
Securities Granted to of Stock Appreciation for
Underlying Employees Exercise Expiration Option Term (1)
Name Granted in 2001 Price (2) Date 5% 10%
--------- ---------- ----------- --------- ---------- --------- --------
Gary M. Cypres 155,000 70.5% $ 0.94 06/25/11 $232,500 $457,250
William Sweet 15,000 6.8% $ 0.94 06/25/11 $ 22,500 $ 44,250
Salvatore Caltagirone 15,000 6.8% $ 0.94 06/25/11 $ 22.500 $ 44,250
(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 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 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.
(3) The exercise price may be paid in cash, or at the discretion of the
Compensation Committee, by tendering shares of BCFN common stock, or the
delivery of an irrevocable direction to a securities broker to sell shares
and deliver the sale proceeds to BCFN in payment of all or part of the
exercise price, instead of cash.
(4) Represents options granted on June 25, 2001 at $0.94 per share.
18
The following table provides information, with respect to the Named
Executive Officers and Directors, concerning the exercise of options during 2001
and unexercised options held by them at December 31, 2001.
Aggregated Option Exercises in Fiscal Year 2001 and
Fiscal Year-End Option
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Realized Options at 12/31/01 Options at 12/31/01(2)
Name Exercise (#) $ (1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----- ----------- ------------- ----------- -------------
Gary M. Cypres 237,000 -- -- 313,000 -- $165,800
Arturo Ochoa -- -- 5,000 45,000 $ 2,500 $ 22,500
William Sweet 7,200 -- -- 25,800 -- $ 13,800
Salvatore Caltagirone 7,200 -- -- 25,800 -- $ 13,800
(1) Based on the market price of the purchased shares on the exercise date,
less the option exercise price paid for those shares.
(2) The stock price of the Company at December 31, 2001 was $1.50 per share.
Mr. Cypres, Mr. Caltagirone, and Mr. Sweet have options to purchase
155,000, 15,000, and 15,000, respectively, at $0.94 per share. All other
shares indicated have an exercisable price of $1.00 per share once vested.
Executive Deferred Salary and Bonus Plan
On December 13, 2001, the Company adopted the Executive Deferred Salary and
Bonus Plan, or the EDP, which covers the Named Executive Officers and certain
other executives of the Company. Pursuant to the EDP, a participant may elect to
defer up to 50% of the participant's base salary and up to 100% of any bonus
awarded pursuant to our Executive Incentive Bonus Program. Elections under the
EDP to defer base salary and bonus are made annually prior to the commencement
of each year. Executives electing to participate in the program may invest
deferred amounts in either of two accounts: (1) which earns interest based upon
the prime rate; or (2) which mirrors the performance of our Common Stock price.
Amounts deferred are generally payable in a lump sum within 30 days after the
participant's termination of employment with us for any reason. The EDP is
administrated by the Compensation Committee of the Board of Directors. Mr.
Cypres and Mr. Ochoa had elected to defer 100% of their bonus in 2001 and
elected to invest their deferred bonus amounts of $95,000 and $15,000 in an
account which mirrors the performance of our common stock. At December 31, 2001,
Mr. Cypres' and Mr. Ochoa's accounts had a value of $128,000 and $20,000,
respectively.
19
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 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.
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 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.
In addition, Mr. Cypres' compensation for 2001 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).
20
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 2000 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 2000 Plan,
there will be an additional direct relationship between our performance and
benefits to executive officer Plan participants.
On December 13, 2001, the Committee adopted the Executive Deferred Salary
and Bonus Plan, or the EDP, which covers the Named Executive Officers and
certain other executives of Banner Central Finance Company. Pursuant to the EDP,
a participant may elect to defer up to 50% of the participant's base salary and
up to 100% of any bonus awarded pursuant to our Executive Incentive Bonus
Program. Elections under the EDP to defer base salary and bonus are made
annually prior to the commencement of each year. Executives electing to
participate in the program may invest deferred amounts in either of two
accounts: (1) which earns interest based upon the prime rate; or (2) which
mirrors the performance of our Common Stock price. Amounts deferred are
generally payable in a lump sum within 30 days after the participant's
termination of employment with us for any reason. The EDP is administrated by
the Compensation Committee of the Board of Directors.
On January 18, 2001, and again on February 13, 2001, the Committee reviewed
the options to be granted to our executive officers. Considering these factors,
the Committee determined that it was in the Company's and our stockholders' best
interest to grant initial options at $1.00 per share. On June 25, 2001, the
Committee reviewed the options to be granted to our executive officers and
granted 225,000 new options at $0.94 per share.
Dated: April 26, 2002
COMPENSATION COMMITTEE
William R. Sweet, Chairman
Salvatore J. Caltagirone
Audit Committee
The Audit Committee of the Board of Directors (the "Committee") is composed
of two members and operates under a written charter adopted by the Board of
directors. The responsibilities of the Committee are contained in the Audit
Committee Report. The Committee during fiscal year 2000 consisted of Messrs.
Caltagirone and Sweet. Each of the members is "independent," as defined by
Banner Central Finance Company policy and the National Association of Securities
Dealers, Inc. listing standards. The Committee held meetings on December 13,
2001 and April 25, 2002.
21
Audit Committee Report
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filings under the Securities Act of 1933 or under the Securities
Act of 1934, except to the extent we specifically incorporate this Report by
reference.
The Committee reports to the Board and is responsible for overseeing and
monitoring financial accounting and reporting, the system of internal controls
established by management and the audit process of Banner Central Finance
Company.
The Audit Committee Charter adopted by the Board sets out the
responsibilities, authority and specific duties of the Committee. A copy of the
Committee Charter is attached to this Proxy Statement as Appendix A.
Pursuant to the charter, the Committee has the following
responsibilities:
- - To monitor the preparation of quarterly and annual financial reports;
- - To review the adequacy of internal control systems and financial reporting
procedures with management and independent auditors; and
- - To review the general scope of the annual audit and the fees charged by the
independent auditors.
In discharging its oversight responsibility the Committee has met and held
discussions with management and Arthur Andersen LLP, the independent auditors
for Banner Central Finance Company. Management represented to the Committee that
all consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The Committee discussed with the independent auditors matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees).
The Committee also obtained from the independent auditors a formal written
statement describing all relationships between Banner Central Finance Company
and the auditors that bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committee. The Committee discussed with the independent auditors any
relationships that may impact on the firm's objectivity and independence and
satisfied itself as to the auditors' independence.
Based on these discussions and reviews, the Committee recommended that the
Board of Directors approved the inclusion of the Company's audited consolidated
financial statements in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2001, for filing with the Securities and Exchange Commission.
22
The Committee of the Board of Directors of BCFN is reviewing the selection
of independent public accountants to audit the financial statements of BCFN and
its subsidiaries for the year ending December 31, 2002, in light of the recent
indictment of Arthur Andersen LLP. Arthur Andersen LLP has audited BCFN's
consolidated financial statements annually since 2000. A member of that firm is
expected to be present at the annual meeting, will have an opportunity to make a
statement if so desired and will be available to respond to appropriate
questions.
Respectfully submitted by the members of the Committee of the Board of
Directors:
Dated: April 26, 2002
AUDIT COMMITTEE
William R. Sweet, Chairman
Salvatore J. Caltagirone
23
Audit and Related Fees
Audit Fees. The fees billed by Arthur Andersen LLP for professional
services rendered in connection with the audit of the Company's annual
consolidated financial statements for the year ended December 31, 2001 and the
review of the consolidated financial statements included in the Company's
Quarterly Reports on Form 10-QSB for the first three quarters of 2001 were
$59,000.
Financial Information Systems Design and Implementation Fees. There were no
fees billed by Arthur Andersen LLP to the Company for financial information
systems design and implementation for 2001.
All Other Fees. There were no fees billed by Arthur Andersen LLP for other
audit-related services for 2001. Fees billed to the Company for non
audit-related services rendered by Arthur Andersen LLP for 2001, including fees
for tax compliance and tax consulting services, were $4,000. All other fees in
the aggregate, including audit-related fees, totaled $63,000.
The Audit Committee has determined that all non-audit services provided by
Arthur Andersen are compatible with maintaining Arthur Andersen's audit
independence.
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 three.
The Board has nominated four directors for election at the annual meeting.
Each nominee is currently serving as one of our directors with the exception of
Mr. Cohen. If you elect them, they will hold office until the annual meeting in
2002 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.
24
Nominees
Name and Age Principal Occupation and Business Experience
- ----------------------------- --------------------------------------------------
Gary M. Cypres (58) Mr.Cypres has been our Chairman of the Board,
Chief Executive Officer and Chief Financial
Officer since our formation. Mr. Cypres also
currently serves as Hispanic Express, Inc.'s
Chairman of the Board, Chief Executive Officer
and President. Mr.Cypres has also served as
Central Financial's Chairman of the Board, and
Chief Executive Officer since its formation.
Mr. Cypres has been Chairman of the Board, Chief
Executive Officer, President and Chief Financial
Officer of Banner Holdings and Banner's Central
Electric 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 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 will spend that portion of his
business time as may be required to oversee
our operations and to direct or implement our
business strategies. Mr. Cypres will continue to
spend a portion of his business time as the
managing general partner of West Coast, and
as Chairman of the Board and President of Hispanic
Express, Inc. See "Certain Relatinships."
Salvatore J.Caltagirone (59) Mr. Caltagirone has been one of our directors
since our formation and a director of Central
Financial 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.
William R. Sweet (64) Mr. Sweet has been one of our directors since
our formation and a director of Central Financial
since September 1997. In July 1996, Mr. Sweet
retired from his position of Executive Vice
President-- Wholesale Banking at Union Bank of
California, N.A., a position he had held since
July 1985. Mr. Sweet currently serves as a
trustee of CNI Charter Funds.
David Cohen (58) Mr. Cohen is a former Senior Partner at Arthur
Andersen LLP. He retired in August 2000 after
35 years of service with that organization,
including 25 years as a partner. During his
career at Andersen, he served eight years as an
audit practice division head in the New York
office. In addition, he served as the engagement
partner and/or the advisory partner for over 50
public companies. Mr.Cohen served for seven years
on the Board of Directors of the VITAM Youth
Treatment Center in Fairfield County, Connecticut,
and served for ten years on the Board of Overseers
of the Lemberg Graduate School of Brandeis
University.
The Board recommends that you vote "FOR" the election of all four nominees
for director.
25
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 2003 proxy statement,
we must receive them, in a form which complies with the applicable securities
laws, on or before January 15, 2003. In addition, in the event a stockholder
proposal is not submitted to us prior to March 29, 2003, the proxy to be
solicited by the Board of Directors for the 2003 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 2003
annual meeting without any discussion of the proposal in the proxy statement for
such meeting. Please address your proposals to: Banner Central Finance Company,
5480 East Ferguson Drive, Commerce, California 90022, Attention: Corporate
Secretary.
ANNUAL REPORT
Our Annual Report for the fiscal year ended December 31, 2001, accompanies
this proxy statement. The Annual report contains our consolidated financial
statements and the report thereon of Arthur Andersen, LLP, our independent
auditors.
OTHER BUSINESS
Management knows of no business that will be presented for consideration at
the meeting other than as stated in the notice of meeting. If other matters are
properly brought before the meeting, however, it is the intention of the
proxyholders to vote the shares represented thereby on such matters in
accordance with the recommendation of the Board of Directors and authority to do
so is included in the proxy.
By order of the Board of Directors,
/s/ Joni Maggio
--------------------------------------------
Joni Maggio
April 26, 2002 Assistant Corporate Secretary
26
APPENDIX A
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to provide
independent and objective oversight of the accounting functions and
internal controls of Banner Central Finance Company. (the "Company"), its
subsidiaries and affiliates and to ensure the objectivity of the Company's
financial statements. The Committee and the Board shall have the ultimate
authority and responsibility to select, evaluate and, where appropriate,
replace the independent accountants. The Committee's function is one of
oversight and review, and it is not expected to audit the Company, to
define the scope of the audit, to control the Company's accounting
practices, or to define the standards to be used in preparation of the
Company's financial statements. The Audit Committee shall perform the
following functions:
- - Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
- - Monitor the independence and performance of the Company's independent
accountants.
- - Provide an avenue of communication among independent accountants,
management, and the Board of Directors.
- - Report to the Board of Directors.
- - Encourage adherence to, and continuous improvement of, the Company's
policies, procedures, and practices of all levels.
- - Review areas of potential significant financial risk to the Company.
- - Monitor compliance with legal and regulatory requirements.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
accountants and everyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition
The Audit Committee shall be comprised of not less than two directors appointed
by the Board of Directors, each of whom shall be independent non-executive
directors, free from any relationship that would interfere with the exercise of
his or her independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements or within a reasonable period of time after the
27
appointment to the Committee develop such skills. At least one member of the
Committee shall have accounting related financial management expertise or other
comparable experience or background sufficient to provide the individual with
financial sophistication. No member of the Committee shall be employed or have
any other relationship with the Company's independent accountants.
In the event that a Committee member faces a potential or actual conflict of
interest with respect to a matter before the Committee, that Committee member
shall be responsible for alerting the Committee Chair, and in the case where the
Committee Chair faces a potential or actual conflict of interest, the Committee
Chair shall advise the Chairman of the Board of Directors. In the event that the
Committee Chair, or the Chairman of the Board of Directors, concurs that a
potential or actual conflict of interest exists, an independent substitute
director shall be appointed as a Committee member until the matter, posing the
potential or actual conflict of interest, is resolved.
III. MEETINGS
If an Audit Committee Chair is not designated or present, the members of the
Committee may designate a Chair by majority vote. The Committee members shall
meet at least four times annually, or more frequently as circumstances dictate.
The Audit Committee Chair shall prepare or approve, as the case may be, an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent
accountants, and as a Committee to discuss any matter that the Committee or any
of these groups believe should be discussed.
A quorum of the Committee shall be declared when a majority of the appointed
members of the Committee are in attendance. Meetings shall be scheduled at the
discretion of the Chair. Notice of the meetings shall be provided at least three
days in advance. The Committee may ask members of management or others to attend
the meeting and provide pertinent information as necessary.
The Committee shall maintain minutes of the meetings and periodically report to
the Board of Directors on significant activities.
IV. Audit Committee Responsibilities and Duties
1. Charter. Review and reassess the adequacy of this Charter at least
annually. Submit the charter to the Board of Directors for approval
and have the document published at least every three years in accordance
with Securities and Exchange Commission ("SEC") regulations.
2. Financial Disclosure Documents. Review with management and the independent
accountants the Company's financial disclosure documents, including all
financial statements and reports filed with the SEC or sent to stockholders
and, following the satisfactory completion of each year-end review,
recommend to the Board of Directors the inclusion of the audited financial
statements in the Company's filing on Form 10-K. The review shall include
any significant problems and material disputes between management and the
independent accountants and a discussion with the independent accountants
out of management's presence of the quality of the Company's accounting
principles as applied in its financial reporting, the clarity of the
Company's financial disclosures and degree of aggressiveness or
conservatism of the Company's accounting principles and underlying
estimates, and a frank and open discussion of other significant decisions
made by management in preparing the financial disclosure and reviewed by
the independent accountants.
28
3. Quarterly Reports. Review with management and the independent accountants
the Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's accounting
principles and any items required to be communicated by the independent
accountants in accordance with SAS 61. The Chair of the Committee may
represent the entire Audit Committee for purposes of this review.
4. Internal Control Systems. In consultation with management and the
independent accountants, the Committee shall consider the integrity of the
Company's financial reporting process and controls to ensure reliability of
the financial reporting and compliance with applicable codes of conduct,
laws and regulations. Review significant findings prepared by the
independent accountants together with management's responses.
5. Oversight of Independent Accountants. Evaluate the independent accountants
on an annual basis and where appropriate recommend to the Board of
Directors the need for replacement of the independent accountants. In such
evaluation, the Committee shall ensure that the independent accountants
deliver to the Committee a formal written statement delineating all
relationships between the accountants and the Company. The Committee also
shall engage in a dialogue with the accountants with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent accountants and in response to the
independent accountants' report take, or recommend that the Board of
Directors take, appropriate action to satisfy itself of the independent
accountants' independence.
6. Compensation. Approve fees and other significant compensation to be paid to
the independent accountants.
7. Plan of Audit. Consult with the independent accountants regarding the plan
of audit, including scope and staffing. The Committee also shall review the
independent accountants' report on the audit and review with management the
independent accountants' suggested changes or improvements in the Company's
accounting practices or controls.
29
8. Accounting Principles and Disclosure. Review significant developments in
accounting rules. The Committee shall review with management recommended
changes in the Company's methods of accounting or financial statements. The
Committee also shall review with the independent accountants any
significant proposed changes in accounting principles and financial
statements. Discuss certain matters required to be communicated to audit
committees in accordance with AICPA SAS 61.
9. Consultation with Legal Counsel. On at least an annual basis, review with
the Company's counsel, any legal matters that could have a significant
impact on the Company's financial statements, or the Company's compliance
with applicable laws and regulations, and any inquiries received from the
regulators or governmental agencies.
10. Report to Shareholders. Annually prepare a report to shareholders as
required by the SEC. The report shall be included in the Company's annual
proxy statement.
11. Adequacy of Personnel. Review periodically the adequacy of the Company's
accounting, financial and auditing personnel resources.
12. Risk Management. Review and evaluate risk management policies in light of
business strategy, capital strength, and overall risk tolerance. The
Committee also shall evaluate on a periodic basis the Company's investments
and derivatives risk management policies, including the internal system to
review operational risks, procedures for derivatives investment and
trading, and safeguards to ensure compliance with procedures.
13. Tax Policies. Review periodically the Company's tax policies, reserves and
pending audits or assessments.
30
Revocable Proxy BANNER CENTRAL FINANCE COMPANY Revocable Proxy
Anual Meeting Of Stockholders -- June 4, 2002
This Proxy Is Solicited By The Board Of Directors
The undersigned stockholder(s) of Banner Central Finance Company. (the
"Company") hereby nominate(s), constitute(s) and appoint(s) Salvatore J.
Caltagirone, Gary M. Cypres, William R. Sweet, and David Cohen and each of them,
the attorney, agent and proxy of the undersigned, with full power of
substitution, to vote all stock of the Company which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company (the "Meeting") to
be held at the Company's corporate headquarters, 5480 East Ferguson Drive,
Commerce, California 90022 at 10:00 a.m., Tuesday, June 4, 2002, 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.
[ ] FOR all the nominees listed below [ ]WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
Salvatore J. Caltagirone, Gary M. Cypres, William R. Sweet and David Cohen
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. 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.
Please Sign and Date on Reverse Side
31
(Continued from Front Side of Proxy Card)
This Proxy will be voted "FOR" the election of the Board of Directors'
nominees unless authority to do so is withheld. If any other business is
presented at the Meeting, this Proxy shall be voted by the proxyholders in
accordance with the recommendations of a majority of the Board of Directors.
The undersigned hereby ratifies and confirms all that said attorneys and
proxyholders, or any of them, or their substitutes, shall lawfully do or cause
to be done by virtue hereof, and hereby revokes any and all proxies heretofore
given by the undersigned to vote at the Meeting. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting and the Proxy Statement
accompanying said notice.
Date: ___________, 2002
---------------------
Signature
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Signature
NOTE: Please date this Proxy and
sign your name exactly as
it appears on your stock
certificates. Executors,
administrators, trustees,
etc., should give their full
titles. All joint owners
should sign.
I (we) [ ] do [ ] do not
expect to attend the Meeting.
PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.