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SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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CONSUMERS FINANCIAL CORPORATION
(Name of registrant as Specified in its Charter)
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CONSUMERS FINANCIAL CORPORATION
1513 Cedar Cliff Drive
Camp Hill, Pennsylvania 17011
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 9, 2003
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Dear Shareholders:
A Special Meeting of Shareholders of Consumers Financial Corporation, a
Pennsylvania corporation (the "Company"), will be held on January 9, 2003 at
10:00 a.m. local time, at 132 Spruce Street, Cedarhurst, New York for the
following purposes:
1. To consider and vote upon a proposal to reinstate the voting rights of
the 2,700,000 shares of common stock of the Company owned by CFC
Partners, Ltd., a New York corporation, which shares were issued on
August 28, 2002.
2. To transact such other business as may properly come before the
Special Meeting and any adjournment or postponement thereof.
Only shareholders of record at the close of business on November 25, 2002
(the "Record Date") will be entitled to notice of the Special Meeting or any
adjournment or postponement thereof. Only holders of the Company's common
stock on the Record Date will be entitled to vote at the Special Meeting or any
adjournment or postponement thereof, provided, however, that CFC Partners, Ltd.
and the Company's Directors and executive officers will not be entitled to vote
2,700,000 shares of common stock at the Special Meeting.
Your proxy is important to ensure a quorum at the Special Meeting, even if
you hold only a few shares of the Company's common stock. Whether or not you
plan to be present, please mark, sign and return promptly the enclosed proxy so
that your shares will be represented at the meeting. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
By Order of the Board of Directors,
/s/ Shalom S. Maidenbaum
SHALOM S. MAIDENBAUM
Secretary
Camp Hill, Pennsylvania
December 12, 2002
CONSUMERS FINANCIAL CORPORATION
1513 CEDAR CLIFF DRIVE
CAMP HILL, PENNSYLVANIA 17011
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 9, 2003
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Consumers
Financial Corporation, a Pennsylvania corporation (the "Company"), in connection
with the solicitation on behalf of the Company's Board of Directors of proxies
to be used at the Special Meeting of Shareholders to be held on January 9, 2003
at 132 Spruce Street, Cedarhurst, New York, at 10:00 a.m. local time, and any
adjournment or postponement thereof (the "Special Meeting"). This Proxy
Statement, the Notice of Special Meeting and the accompanying proxy card and
related materials are first being mailed to the Company's shareholders on or
about December 12, 2002.
At the Special Meeting, holders of common stock (the "Common Stock") of the
Company will be asked to consider and vote upon a proposal to reinstate the
voting rights of the 2,700,000 shares of Common Stock of the Company owned by
CFC Partners, Ltd., a New York corporation ("CFC Partners"), which shares were
issued on August 28, 2002. Under Section 2564 of the Pennsylvania Business
Corporation Law, as amended (the "PBCL"), the shares issued to CFC Partners,
which represent a majority of the total issued and outstanding common shares of
the Company, are not entitled to vote on any matters unless and until the voting
rights for such shares have been reinstated by the holders of a majority of the
outstanding common shares of the Company, excluding the shares owned by CFC
Partners and beneficially owned by the Company's Directors and executive
officers.
Holders of the Company's 8 1/2% Convertible Preferred Stock, Series A (the
"Preferred Stock") are not entitled to vote at the Special Meeting since none of
the rights and preferences of the holders of the Preferred Stock are to be
adversely affected by the proposal to reinstate the voting rights for the shares
of Common Stock owned by CFC Partners, and no other preferred stock or other
class of shares of the Company will rank ahead of or be on a parity with the
Preferred Stock with respect to the payment of dividends or the distribution of
assets in liquidation as a result of the reinstatement of these voting rights.
If the proposal to reinstate the voting rights of the shares of Common
Stock owned by CFC Partners is not approved, CFC Partners may ask the Company's
Board of Directors to consider liquidating and dissolving the Company, since CFC
Partners could not be assured that its future plans for the Company, including
merger and acquisition transactions, would be approved, when necessary, by the
remaining common shareholders. Because the Company's Directors are also
affiliates of CFC Partners, any plan of liquidation and dissolution proposed by
CFC Partners would be afforded substantial weight by the Board of Directors.
However, any plan of liquidation and dissolution would require prior shareholder
approval.
The Company's principal executive offices are located at 1513 Cedar Cliff
Drive, Camp Hill, Pennsylvania 17011. The Company also maintains an office at
132 Spruce Street, Cedarhurst, New York 11516.
THIS PROPOSAL TO REINSTATE CERTAIN VOTING RIGHTS HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED ON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
The following information, presented in a question and answer format,
is intended to explain to you, as common shareholders of Consumers Financial
Corporation, the reasons for the Special Meeting and the procedures for casting
your vote at the Special Meeting. This explanation will assist you in deciding
whether or not to vote in favor of the proposal to be presented at the Special
Meeting. This proposal involves the reinstatement of the voting rights of the
common shares now owned by CFC Partners, which shares represent approximately
51.2% of the Company's total issued and outstanding shares of Common Stock.
THIS EXPLANATION SERVES ONLY AS AN INTRODUCTION, AND WE URGE YOU TO CAREFULLY
READ THE REMAINDER OF THIS PROXY STATEMENT IN ORDER TO FULLY INFORM YOURSELF
REGARDING THE DETAILS OF THE PROPOSED REINSTATEMENT OF VOTING RIGHTS.
Cross-referenced text refers to sections within this Proxy Statement.
WHEN AND WHERE WILL THE SPECIAL MEETING BE HELD?
The Special Meeting will take place on January 9, 2003 at 10:00 a.m. local
time, at 132 Spruce Street, Cedarhurst, New York.
WHO IS ELIGIBLE TO VOTE?
All holders of the Company's Common Stock as of the close of business on
November 25, 2002 (except for CFC Partners, which owns 2,700,000 shares of the
Company's Common Stock, and the Company's Directors and executive officers, who
are deemed to also beneficially own such shares) are entitled to vote at the
Special Meeting. Under the PBCL, the shares owned by CFC Partners are not
entitled to vote on any matters unless and until the voting rights for such
shares have been reinstated by the remaining disinterested common shareholders
at the Special Meeting.
WHAT AM I BEING ASKED TO VOTE UPON?
You are being asked to vote to approve a proposal to reinstate the voting
rights of 2,700,000 shares of Common Stock owned by CFC Partners. Such shares
represent approximately 51.2% of the Company's issued and outstanding shares of
Common Stock. The PBCL contains a provision that generally prevents a person or
group that crosses certain thresholds of 20%, 33 1/3% or 50% for the first time
from voting those shares, the ownership of which puts that person over the
relevant threshold, unless the shareholders first approve the reinstatement of
the voting rights of such shares at a meeting of shareholders. Therefore, the
purpose of this proxy solicitation is to obtain the requisite shareholder
approval to reinstate the voting rights of the 2,700,000 shares owned by CFC
Partners. See "Special Factors -- Purpose of the Special Meeting."
HOW MANY VOTES DO I HAVE?
Each share of Common Stock of the Company owned as of November 25, 2002
(excluding the shares owned by CFC Partners and beneficially owned by the
Company's Directors and executive officers) entitles the holder thereof to one
vote at the Special Meeting.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL TO REINSTATE THE VOTING RIGHTS OF
THE SHARES OF COMMON STOCK OWNED BY CFC PARTNERS?
Under the PBCL, a resolution to reinstate the voting rights of shares must
be approved by the affirmative vote of the holders of a majority of the voting
power entitled to vote in two separate votes, as follows: (i) the affirmative
vote of a majority of the voting power entitled to vote all of the disinterested
shares of the Company, and (ii) the affirmative vote of a majority of the voting
power entitled to vote all of the voting shares of the Company. For a
discussion of the voting power defined in category (i) and the voting power
defined in category (ii), please see "Voting and Proxy Information."
WHAT IF THE PROPOSAL TO REINSTATE THE VOTING RIGHTS IS NOT APPROVED?
If the holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote at the Special Meeting (excluding the CFC Partners
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shares, which includes shares beneficially owned by the Company's Directors and
executive officers) do not approve the proposal to reinstate the voting rights
of CFC Partners' common shares, CFC Partners may ask the Board of Directors to
consider liquidating and dissolving the Company, since CFC Partners could not be
assured that its future plans for the Company, including merger and acquisition
transactions, would be approved, when necessary, by the remaining common
shareholders. In that event, the Company would be required to obtain
shareholder approval of any plan of liquidation and dissolution. See "Special
Factors -- Future Plans of the Company."
HOW DO I VOTE?
You may cast your vote in either of the following ways:
- by completing the accompanying proxy card and returning it in the
enclosed envelope; or
- by appearing and voting in person at the Special Meeting.
If your shares are held in "street name," which means that your shares are
held in the name of a bank, broker, or other financial institution instead of in
your own name, you must either direct the financial institution as to how to
vote your shares or obtain a proxy from the financial institution to vote at the
Special Meeting. See "Voting and Proxy Information."
MAY I CHANGE MY VOTE?
Yes. You may change your vote by following any of these procedures. If
you are a shareholder "of record," meaning that your shares are registered in
your name, then in order for you to revoke your proxy, you must either:
- send another signed proxy card with a later date to the address
indicated on the proxy card; or
- send a letter revoking your proxy to the Company at the address
indicated at the bottom of this page of the Proxy Statement; or
- attend the Special Meeting, notify the Company in writing that you are
revoking your proxy, and then vote in person.
See "Voting and Proxy Information."
HOW DO I VOTE IN PERSON?
If you plan to attend the Special Meeting and wish to vote in person, you
will be given a ballot when you arrive. If your shares are held in street name,
you must bring an account statement or letter from the brokerage firm or bank
showing that you were the beneficial owner of the shares on the Record Date in
order to be admitted to the Special Meeting. Furthermore, if you want to vote
your shares that are held in street name, you must obtain a "legal proxy" from
the holder of record and present it at the Special Meeting. See "Voting and
Proxy Information."
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
If you have any questions about the Special Meeting or your ownership of
the Company's Common Stock, please contact R. Fredric Zullinger at the following
address:
Consumers Financial Corporation
P.O. Box 26
Camp Hill, Pennsylvania 17001-0026
Telephone: (717) 730-6306
3
SUMMARY OF THE PROXY STATEMENT
The following is a brief summary of certain information in this Proxy
Statement. This summary is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement. SHAREHOLDERS ARE URGED
TO READ THE ENTIRE PROXY STATEMENT AND ANY OTHER DOCUMENTS ACCOMPANYING THE
PROXY STATEMENT. SOME OF THE TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE
IN THIS PROXY STATEMENT. Copies of any documents referred to in this Proxy
Statement are available for inspection at the Company's principal executive
offices at 1513 Cedar Cliff Drive, Camp Hill, Pennsylvania 17011 or at its
office at 132 Spruce Street, Cedarhurst, New York 11516.
BRIEF HISTORY OF THE COMPANY
The Company was incorporated in Pennsylvania in April 1966 as 20th Century
Corporation and adopted its present name in 1980. The Company was an insurance
holding company which, until 1997, was a leading provider, through its
subsidiaries, of credit life and credit disability insurance in the states of
Pennsylvania, Delaware, Maryland, Nebraska, Ohio and Virginia. In connection
with its credit insurance operations, the Company also marketed, as an agent, an
automobile extended service warranty product. The Company also marketed
traditional whole-life, term and annuity business as well as universal life
insurance products. Through another subsidiary, the Company also conducted
wholesale and retail automobile auctions of used vehicles for automobile
dealers, banks and leasing companies. All of the Company's subsidiaries have now
either been sold or liquidated and dissolved.
In 1992, the Company sold all of its traditional insurance business, and,
in 1994 and 1997, it sold all of its universal life insurance business. In 1996,
the Company sold the business and the related operating assets of its auto
auction subsidiary. At a special meeting of shareholders held in March 1998, the
Company's preferred and common shareholders approved the sale of the Company's
credit insurance and related products business, which was the Company's only
remaining business operation. At the special meeting, the shareholders also
approved a Plan of Liquidation and Dissolution.
The Board of Directors later determined that selling the Company for its
value as a "public company shell" was a better alternative for the Company's
shareholders than the Plan of Liquidation and Dissolution. Accordingly, during
2000 and early 2001, the Company's management had discussions with several
investor groups that had indicated an interest in acquiring control of the
Company. The Board of Directors ultimately approved an option agreement with CFC
Partners, which permitted CFC Partners to acquire 2,700,000 shares of the
Company's Common Stock following the completion by the Company of a tender offer
to its preferred shareholders. As a result of the issuance of the new shares to
CFC Partners, the Board of Directors terminated the Plan of Liquidation and
Dissolution. See "Special Factors -- Background of the Proposed Reinstatement of
Voting Rights."
THE SPECIAL MEETING
The Special Meeting of the shareholders of the Company will be held at 132
Spruce Street, Cedarhurst, New York, on January 9, 2003 at 10:00 a.m. local
time. At the Special Meeting, the holders of the Company's Common Stock, other
than CFC Partners and the Company's Directors and executive officers, will be
asked to consider and vote upon a proposal to reinstate the voting rights for
the 2,700,000 shares of Common Stock owned by CFC Partners. Only holders of
record at the close of business on Monday, November 25, 2002 will be entitled to
vote at the Special Meeting. Under the PBCL, CFC Partners and the Company's
Directors and executive officers are not entitled to vote at the Special
Meeting. At the close of business on November 25, 2002, there were 2,576,810
shares of Common Stock outstanding and entitled to vote (excluding the CFC
Partners shares, which includes shares beneficially owned by the Company's
Directors and executive officers) and approximately 6,500 holders of record
(excluding participants in securities positions listings). The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
the Common Stock entitled to vote is necessary to constitute a quorum at the
Special Meeting. Under the PBCL, a resolution to reinstate the voting rights of
shares must be approved by the affirmative vote of the holders of a majority of
the voting power entitled to vote in two separate votes, as follows: (i) the
affirmative vote of a majority of the voting power entitled to vote all of the
disinterested shares of the Company, and (ii) the affirmative vote of a majority
of the voting power entitled to vote all of the voting shares of the Company.
For a discussion of the voting power defined in category (i) and the voting
power defined in category (ii), please see "Voting and Proxy Information."
4
BACKGROUND OF THE PROPOSAL TO REINSTATE VOTING RIGHTS
As a result of several years of operating losses in its insurance
businesses, followed by the Company's inability to complete a major acquisition
in late 1995, the Company's Board of Directors decided that the best alternative
for both the common and preferred shareholders was to offer to sell the Company
to or merge it with a strategic buyer or partner. During 1996, the Company,
with the assistance of a financial advisor, solicited potential buyers for its
insurance business and for its auto auction business. The Company received
three letters of intent for the purchase of the auto auction and, in November
1996, sold that business to one of the bidders for cash of $4.85 million.
During 1996, the Company also received and reviewed offers for the
remaining segments of the Company and an offer for the entire Company which was
structured as a stock purchase. After reviewing and analyzing each offer, the
Board of Directors determined that the offer to purchase the entire Company was
the best offer, since it would provide cash in a single payment to the Company's
common shareholders at the closing of the transaction. Accordingly, the Company
and the purchaser entered into a merger agreement in October 1996, and in March
1997, the Company's common shareholders approved the merger transaction.
However, in July 1997, the Company terminated the merger agreement as a result
of the purchaser's inability to provide the cash fund to complete the
transaction. The Company then renewed its search for another acquiror, and, in
December 1997, the Company entered into an agreement to sell its remaining
insurance business.
At a special meeting of shareholders held in March 1998, the Company's
common and preferred shareholders approved the sale of the remaining insurance
business and also approved a Plan of Liquidation and Dissolution, pursuant to
which the Company would be voluntarily liquidated and dissolved. The sale of
the remaining insurance business was completed in May 1998.
The Plan of Liquidation and Dissolution permitted the Board of Directors to
continue to consider other alternatives to liquidating the Company. Because the
common shareholders would not receive a distribution under the Plan of
Liquidation and Dissolution, and the preferred shareholders would receive less
than the full liquidation value of their shares, the Board of Directors
determined that selling the Company for its value as a "public company shell"
was a better alternative for the common and preferred shareholders than
liquidating the Company. Accordingly, in August 2001, the Company sent request
for proposal letters to several investor groups that had expressed an interest
in acquiring the Company and issued a press release soliciting similar offers.
In October 2001, the Board of Directors met to consider three offers which were
received, one of which was from CFC Partners. Following its review of each
offer, the Board determined that the offer from CFC Partners was the best offer.
In February 2002, the Company and CFC Partners entered into an option agreement
which permitted CFC Partners to acquire a 51.2% interest in the Company at $.04
per share. The option held by CFC Partners was exercisable within 15 business
days following the completion by the Company of a tender offer to the preferred
shareholders. The completion of this tender offer was, in turn, dependent on
the sale of the Company's remaining insurance subsidiary, since substantially
all of the Company's assets were held by the subsidiary and state insurance laws
would not permit the withdrawal of those assets.
In June 2002, the Company completed the sale of the insurance subsidiary.
In July 2002, the Board of Directors approved a tender offer to the Company's
preferred shareholders at a price of $4.40 per share, and on July 19, 2002,
tender offer materials were mailed to the holders of the Preferred Stock. On
August 23, 2002, the Company purchased 377,288 shares of Preferred Stock, or
83.4% of the total preferred shares outstanding, from those shareholders who
elected to tender their shares.
On August 28, 2002, the Board of Directors terminated the Plan of
Liquidation and Dissolution and authorized the issuance of 2,700,000 shares of
Common Stock to CFC Partners. Donald J. Hommel, the president of CFC Partners,
was also appointed as a Director of the Company to fill an existing vacancy on
the Board. Following such appointment, the Company's officers resigned and the
Board elected Mr. Hommel as the Company's President and Chief Executive Officer.
In addition, James C. Robertson and John E. Groninger, who had been Directors
of the Company for more than 30 years, also resigned.
On October 17, 2002, the Board of Directors appointed Shalom S. Maidenbaum,
Esq. as an additional Director of the Company to fill an existing vacancy on the
Board. In addition, the Directors elected Mr. Hommel as the Company's Treasurer
and Mr. Maidenbaum as the Company's Vice President and Secretary.
5
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of the Company's Common Stock (other
than CFC Partners and the Company's Directors and executive officers) will be
asked to consider and vote upon a proposal to reinstate the voting rights of the
2,700,000 shares of Common Stock of the Company which were issued to CFC
Partners on August 28, 2002. Under Pennsylvania law, the shares of Common Stock
owned by CFC Partners are not entitled to vote on any matters unless and until
such voting rights are reinstated by the affirmative vote of the majority of the
Company's outstanding and disinterested common shares, which excludes the shares
owned by CFC Partners and beneficially owned by the Company's Directors and
executive officers.
EFFECTS OF THE PROPOSAL TO REINSTATE VOTING RIGHTS
If a majority of the Company's outstanding and disinterested shares of
Common Stock entitled to vote at the Special Meeting vote to reinstate the
voting rights of CFC Partners' 2,700,000 shares, CFC Partners will control 51.2%
of the outstanding Common Stock of the Company and will, therefore, control the
Company's Board of Directors, its management and its operations.
FUTURE PLANS OF THE COMPANY
If a majority of the holders of the Company's Common Stock vote in favor of
reinstating the voting rights of the 2,700,000 shares of Common Stock owned by
CFC Partners, it is CFC Partners' intention to cause the Board of Directors to
pursue strategic alliances with existing businesses, or a merger or combination
of existing businesses with the Company. If, for any reason, the voting rights
of the shares of Common Stock owned by CFC Partners are not reinstated, CFC
Partners may consider proposing to the Board of Directors that the Company be
liquidated and dissolved, since CFC Partners could not be assured that its
future plans for the Company, including merger and acquisition transactions,
would be approved, when necessary, by the remaining common shareholders. Because
the Company's Directors are also affiliates of CFC Partners, any plan of
liquidation and dissolution proposed by CFC Partners would be afforded
substantial weight by the Board of Directors. Any plan of liquidation and
dissolution, however, would require prior shareholder approval. In the event of
a liquidation, the holders of Common Stock would not receive any distribution
because the Company's Preferred Stock has a liquidation value of $10.00 per
share, which exceeds the net assets of the Company. See "Special Factors -
Future Plans of the Company."
INTEREST OF CERTAIN PERSONS IN THE PROPOSAL TO REINSTATE VOTING RIGHTS
Each of the Company's current Directors and executive officers is
affiliated with CFC Partners. Donald J. Hommel and Shalom S. Maidenbaum, who
are the directors and executive officers of the Company, are also the directors,
officers and, together with Michael P. Ehrenhaus, the sole shareholders of CFC
Partners. Although neither Mr. Hommel, Mr. Maidenbaum nor Mr. Ehrenhaus own any
shares of Common Stock directly, each of these individuals may be deemed to be
the beneficial owner of the 2,700,000 shares of Common Stock owned by CFC
Partners. See "Security Ownership." Upon reinstatement of the voting rights of
the 2,700,000 shares of Common Stock owned by CFC Partners, it is currently
anticipated that Donald J. Hommel would be granted a proxy to vote all of these
shares based on the instructions of the Board of Directors of CFC Partners.
In addition, as of November 8, 2002, James C. Robertson, the former
Chairman of the Board, President and Chief Executive Officer of the Company, and
John E. Groninger, a former Director, and R. Fredric Zullinger, the former Chief
Financial Officer, Secretary and Treasurer of the Company, all of whom resigned
from their positions on August 28, 2002, owned 63,775, 57,521 and 29,522 shares
of Common Stock, respectively. Each of these persons has indicated his
intention to vote his shares in favor of the proposal to reinstate the voting
rights of the shares owned by CFC Partners.
Except as set forth below, none of the current or former Directors and
officers named above will receive any benefits as a result of the approval of
the reinstatement of the voting rights of the shares of Common Stock owned by
CFC Partners other than the potential future benefits that may accrue to all
holders of the Company's Common Stock as a result of any future profits earned
by the Company. The current Directors and executive officers of the Company
will benefit from the reinstatement of voting rights of the shares of Common
Stock owned by CFC Partners since such Directors and executive officers are
deemed to be the beneficial owners of such shares. Consequently, reinstatement
of such voting rights will effectively give the Directors and executive officers
voting control of the Company.
6
VOTING AND PROXY INFORMATION
The record date fixed by the Board of Directors for the determination of
shareholders entitled to vote at the Special Meeting is November 25, 2002, at
the close of business (the "Record Date"). On the Record Date, the Company had
outstanding and entitled to vote at the Special Meeting 2,576,810 shares of
Common Stock (excluding the 2,700,000 shares of Common Stock owned by CFC
Partners and beneficially owned by the Company's Directors and executive
officers, which are not entitled to vote at the Special Meeting). Each share of
Common Stock entitles the holder to one (1) vote. As of the Record Date, the
Company also had outstanding 75,326 shares of Preferred Stock. Holders of the
Preferred Stock are not entitled to vote at the Special Meeting. See
"Description of Capital Stock."
The presence, in person or by proxy, of the holders of a majority of the
total number of issued and outstanding shares of Common Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum for the transaction
of business at the Special Meeting. Furthermore, Section 2564 of the PBCL
requires the affirmative vote of a majority of the voting power entitled to vote
of (i) all of the disinterested shares of common stock and (ii) all of the
voting shares of Common Stock entitled to vote in order to approve the proposal
to reinstate the voting rights of the shares of Common Stock owned by CFC
Partners.
To ensure that a majority of the disinterested shares vote on and approve
any reinstatement of voting rights of shares held by CFC Partners, the PBCL
requires that two separate votes be taken. Under category (i) above, those
shares owned by CFC Partners (the shares seeking to obtain reinstatement of
voting rights) are prohibited from voting. Therefore, the requisite majority is
calculated from the remaining shares otherwise entitled to vote at the Special
Meeting. Under category (ii) above, in addition to excluding from the body of
shares entitled to vote at the Special Meeting the shares owned by CFC Partners,
all shares owned by the executive officers of the Company and Directors who are
also employees of the Company are also excluded from the body of shares entitled
to vote at the Special Meeting. Therefore, the requisite majority is calculated
from the remaining shares otherwise entitled to vote which does not include the
shares owned by CFC Partners and any shares owned by executive officers and
Directors who are employees of the Company. In this case, each of these votes
excludes the same shares from voting on the proposal since none of the Directors
and executive officers of the Company own any shares other than those shares
deemed to be beneficially owned by them through their affiliation with CFC
Partners.
If a proxy in the accompanying form is duly executed and returned, the
shares represented thereby will be voted as specified. Any person executing the
proxy may revoke it at anytime prior to its exercise at the Special Meeting, by
written notice to the Secretary of the Company. The proxy may also be revoked
by delivery of a later dated executed proxy. Mere attendance at the Special
Meeting, without such notice, will not revoke the proxy.
Votes cast by proxy or in person at the Special Meeting will be tabulated
by the judges of election appointed for the meeting, who will also determine
whether or not a quorum is present. A proxy submitted by a shareholder may
indicate that all or a portion of the shares of Common Stock represented by such
proxy are not to be voted by such shareholder with respect to a particular
matter. This could occur, for example, when a broker is not permitted to vote
shares (broker non-votes) held in street name on certain matters in the absence
of instructions from the beneficial owner of the shares. Broker non-votes and
shares voted to abstain are considered shares of stock outstanding and entitled
to vote and are counted in determining the number of votes necessary for a
majority. A broker non-vote and an abstention, therefore, have the practical
effect of voting against approval of the proposal to reinstate the voting rights
of the 2,700,000 shares of Common Stock owned by CFC Partners.
All shares of Common Stock represented at the Special Meeting by proxies in
the form accompanying this Proxy Statement which are received prior to or at the
Special Meeting will be voted in accordance with the instructions thereon,
provided the proxies are properly signed and dated. If no instructions are
indicated thereon, the proxies will be voted FOR reinstatement of the voting
rights of the shares of Common Stock owned by CFC Partners. The Board of
Directors knows of no other matters which are expected to come before the
Special Meeting.
The cost of soliciting proxies pursuant to this Proxy Statement will be
borne by the Company. However, CFC Partners has agreed to reimburse the Company
for these costs. Although the Company is mailing this Proxy Statement, it may
also solicit proxies through its Directors, executive officers or other
designees, in person or by telephone, facsimile or other electronic means of
communication. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding proxy solicitation materials to beneficial owners of
Common Stock, and the Company will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
7
SPECIAL FACTORS
BACKGROUND OF THE PROPOSAL TO REINSTATE VOTING RIGHTS
As a result of several years of operating losses in its insurance
businesses, followed by the Company's inability to complete a major acquisition
in late 1995 (because the target company terminated the proposed transaction),
the Company's Board of Directors decided that the best alternative for both the
common and preferred shareholders was to offer to sell the Company to or merge
it with a strategic buyer or partner. Accordingly, on March 11, 1996, the
Company announced its plans to explore opportunities to find a strategic buyer
or partner.
The Board engaged Ernst & Young LLP ("E&Y") as its financial advisor to
assist in the sale of the Company or its three lines of business (credit
insurance and related products, individual life insurance and an auto auction
business). The Company determined that it could maximize the consideration
received for the sale of the auto auction business if a separate group of
potential purchasers was solicited for that business. Accordingly, E&Y and the
Company identified more than 45 potential buyers for the Company's insurance
operations and approximately 60 potential purchasers for the auto auction
business. Of these respective groups, 35 expressed an interest in acquiring all
or a portion of the Company's insurance operations and 16 indicated an interest
in purchasing the auto auction business. The Company ultimately received three
letters of intent for the purchase of the auto auction and, in November 1996,
sold that business to one of the bidders, ADESA Corporation, for cash of $4.85
million.
By late-April 1996, the Company had also received 11 offers to buy the
Company or various segments of the Company (not including the auto auction). In
May 1996, the Company also received an offer from LaSalle Group, Inc.
("LaSalle") which was structured as a stock purchase. The Company's management
reviewed and analyzed each offer and advised the Board of Directors to accept
the LaSalle offer as the best offer, since it would provide cash in a single
payment to the Company's common shareholders at the closing of the transaction.
On October 30, 1996, the Company and LaSalle entered into a merger agreement
(the "Merger Agreement"), and, on October 31, 1996, the Company issued a press
release publicly announcing the proposed merger.
At a special meeting of shareholders held on March 25, 1997, the Company's
common shareholders approved the merger transaction, which was still subject to
insurance regulatory approval. However, on May 15, 1997, LaSalle disclosed to
the Company that it was unlikely that its original source of funding for the
merger would be available and that it was in the process of securing alternate
funding. In response to this disclosure by LaSalle, the Company exercised its
right under the Merger Agreement to renew its search for another acquiror to
protect the Company in the event LaSalle was unable to complete the merger. The
Company contacted several of the companies which had previously submitted bids
for the Company's credit insurance operations (the principal business segment
remaining) and received viable proposals from three of those companies. On July
25, 1997, the Company terminated the Merger Agreement with LaSalle because,
despite continued assurances to the contrary, LaSalle was unable to provide the
cash funds necessary to complete the merger transaction. The Board of Directors
subsequently reviewed each of the three alternative offers (each of which
related to the purchase of the Company's credit insurance operations) and
determined that the offer from Life of the South Corporation ("LOTS"), of
Jacksonville, Florida, was the best offer available.
On July 28, 1997, the Company signed a letter of intent with LOTS. Inasmuch
as the Board of Directors determined that no other viable alternatives were
available to the Company, on November 25, 1997, the Board unanimously voted to
approve a Plan of Liquidation and Dissolution (the "Plan of Liquidation")
contingent upon the execution of a definitive agreement with LOTS. On December
30, 1997, the Company and LOTS entered into an Asset Purchase Agreement
providing for the sale of (i) the Company's inforce block of credit insurance
business, (ii) its credit insurance customer accounts and (iii) one of its
insurance company subsidiaries.
At a special meeting of shareholders held on March 24, 1998, the Company's
common and preferred shareholders, each voting as a class, approved the sale of
the credit insurance operations to LOTS (the "Sale of Assets") and also approved
the Plan of Liquidation, pursuant to which the Company would be voluntarily
liquidated and dissolved in accordance with the appropriate sections of the PBCL
and the Internal Revenue Code. Closing on the Sale of Assets transaction with
LOTS took place in May 1998.
8
From March 24, 1998 to August 27, 2002, the Company proceeded to complete
the Plan of Liquidation. During that period, the following major actions were
taken:
- All remaining real estate investments were sold.
- All mortgage loan investments were liquidated.
- Ten subsidiary companies were either sold or liquidated and dissolved.
- A defined benefit pension plan and an employee stock ownership plan
were terminated.
- All of the indemnity reinsurance agreements of the Company's life
insurance subsidiary were replaced with assumption and novation
agreements.
- All major litigation was settled.
- All but two employees were terminated.
In addition, the Company continued to pay all quarterly dividends due to
the preferred shareholders. As a result of the payment of these dividends, the
payment of ongoing corporate expenses (for salaries, professional fees and other
costs) and the required funding of the Company's pension plan, the Company
reported to its shareholders in March 2001 that there would not be sufficient
assets remaining under the Plan of Liquidation to make any distribution to the
Company's common shareholders and that the preferred shareholders would receive
less than the $10.00 per share liquidation value of their shares.
The Plan of Liquidation permitted the Board of Directors to continue to
consider other alternatives to liquidating the Company. Because the common
shareholders would not receive a distribution under the Plan of Liquidation and
the preferred shareholders would receive less than the full liquidation value of
their shares, the Board of Directors determined that selling the Company for its
value as a "public company shell" was a better alternative for the common
shareholders and could also be a better alternative for the preferred
shareholders than the Plan of Liquidation. Accordingly, during 2000 and early
2001, the Company's management had numerous discussions with several investor
groups that had indicated an interest in acquiring control of the Company. At
various times during this period, each of these groups discussed informally
their acquisition proposals with the Company.
While the Board remained committed to pursuing an acquisition transaction
which would permit the Company to continue in various new businesses, thereby
potentially creating future value for the common shareholders, the Board was
also convinced that such a transaction should only be completed following the
distribution of substantially all of the Company's remaining net assets to the
preferred shareholders. Otherwise, the acquiror of a majority of the outstanding
Common Stock could conceivably utilize the Company's remaining assets, which
were designated for the preferred shareholders under the Plan of Liquidation,
for potentially speculative and highly risky business ventures.
The Board also recognized that any distribution to the preferred
shareholders was not possible unless and until the Company either sold or
liquidated and dissolved its only remaining life insurance company subsidiary,
Consumers Life Insurance Company ("Consumers Life"), since substantially all of
the Company's assets were held by Consumers Life, and Delaware insurance laws
would not permit the withdrawal of those assets. The Company had been attempting
to sell the subsidiary since 1998 but had been unsuccessful in finding a
suitable buyer. Liquidating and dissolving the subsidiary was considered a less
attractive alternative to selling it, because the Company would not receive any
value for the subsidiary's state insurance licenses if it was liquidated. The
Board believed these licenses were worth $250,000 to $500,000. Furthermore, the
liquidation alternative was complicated by the fact that, until late 2001,
Consumers Life was still a party to several indemnity-type reinsurance
agreements, through which it had sold its various blocks of insurance business.
Pursuant to the terms of these agreements, Consumers Life remained contingently
liable for risks arising from the reinsured policies in the event any of the
assuming insurers were unable to meet their obligations under those policies.
State insurance laws would not permit the liquidation and dissolution of an
insurance company which had contingent insurance exposure of this kind.
As a result of the Company's inability to sell Consumers Life, coupled with
the regulatory impediments to liquidating the subsidiary (because of the
reinsurance agreements), the Board of Directors determined in mid-2001 that in
order to retain the interest of the various potential investors and to be able
to proceed with an acquisition transaction in lieu of the Plan of Liquidation,
the potential buyers should be offered an option to acquire a majority interest
9
in the Company, with the option to become exercisable only after the insurance
subsidiary was sold or liquidated and the preferred shareholders were given a
chance to receive cash for their shares.
Following its decision to consider granting an option to a prospective
purchaser, in August 2001, the Board of Directors authorized the mailing of
request for proposal ("RFP") letters to three investor groups that had expressed
an interest in acquiring the Company. The RFP's outlined the terms upon which
the Company would be evaluating the proposals and described the option concept
that all bidders would have to incorporate into their proposals.
On August 9, 2001, the Company publicly announced that it was seeking
acquisition proposals and that any such acquisition transaction would take place
only after a tender offer to the Company's preferred shareholders had been
completed. As a result of its public announcement that it was seeking proposals
from prospective buyers, the Company received several calls from brokers and
other advisors who expressed an interest on behalf of clients in submitting a
proposal. The Company sent RFP's to each of these parties. From August to
October 2001, the Company had discussions with several bidders who had submitted
offers to acquire the Company in order to clarify certain aspects of their
offers. Discussions also took place with other potential bidders, primarily to
encourage the submission of an offer.
On October 20, 2001, the Board of Directors met to consider and act upon
the three offers which had been received. Notwithstanding the requirement by the
Board that no acquisition transaction could be completed until a tender offer to
the preferred shareholders had taken place, one of the offers was conditioned on
retaining the preferred shareholders' equity in the Company. Another offer did
not provide sufficient information as to future plans for the Company.
The third offer was from a New York-based investor group, which later
formed a corporation named CFC Partners, Ltd. for the purpose of acquiring the
Company. The offer from CFC Partners was considered the best offer in that it
contemplated a tender offer to the preferred shareholders prior to the exercise
of an option to acquire a majority interest in the Company's Common Stock, and
it described and provided information regarding future plans for the Company. In
its proposal, CFC Partners offered to acquire approximately 51.2% of the
outstanding Common Stock of the Company, through the issuance of 2,700,000 new
shares, for $.04 per share, which was about equal to the market price of the
Common Stock at that time.
Based on the Board's assessment that an acquisition of the Company by CFC
Partners had a greater chance of creating future value for the Company's common
shareholders than either of the other two offers which were received, and
because the CFC Partners offer provided for a tender offer to the Company's
preferred shareholders prior to CFC Partners' purchase of the Common Stock, the
Board of Directors selected CFC Partners as the potential acquiror of 51.2% of
the Company's Common Stock, subject to the negotiation of an acceptable option
agreement between the parties.
On February 13, 2002, the Company and CFC Partners entered into an option
agreement (the "Option Agreement") which permitted CFC Partners to acquire a
51.2% interest in the Company at $.04 per share through the issuance of
2,700,000 authorized but unissued shares of Common Stock. CFC Partners
deposited the $108,000 purchase price for the shares into an escrow account held
by the Company. The Option Agreement provided that the option was exercisable 15
business days following the completion by the Company of a cash tender offer to
the preferred shareholders.
On January 31, 2002, the Company entered into a stock purchase agreement to
sell Consumers Life to Black Diamond Insurance Group, Inc., a Delaware
corporation ("Black Diamond"). As indicated above, either the sale or
liquidation of Consumers Life was essential to moving forward with the Board's
plan to offer cash to the preferred shareholders in exchange for their shares
prior to the acquisition of the Company by CFC Partners. On February 21, 2002,
Black Diamond filed a request for approval of its purchase of Consumers Life
with the Delaware Insurance Department.
At a meeting of the Board of Directors held on March 15, 2002, the Board
authorized management to proceed with the preparation of the preferred stock
tender offer documents, pending the expected completion of the sale of Consumers
Life. The Board reiterated at that time its desire to provide the preferred
shareholders with the choice of receiving cash in exchange for their shares or
remaining as preferred shareholders of the Company, which would be operated and
managed by CFC Partners if the option to acquire the Common Stock of the Company
was exercised.
10
On June 5, 2002, the Delaware Insurance Department approved the sale of
Consumers Life to Black Diamond, and on June 19, 2002, the sale was completed.
As a result, all of the assets previously held by Consumers Life, plus $250,000
in cash that Black Diamond paid for the subsidiary's state insurance licenses,
became the direct assets of the Company.
On June 27, 2002, the Board of Directors met to review management's initial
computation of the proposed tender offer price. Following its analysis, the
Board asked management to review certain assumptions and computations used in
developing the proposed tender offer price and, if necessary, to revise the per
share calculation. As a result, management revised its estimate of the net
expenses that would be paid by the Company prior to the completion of the tender
offer and thereafter. Management also settled an outstanding claim for
commissions due to the Company. The net effect of these revisions was to adjust
the offer price from $4.00 to $4.40 per share. On July 16, 2002, the Board met
to review management's revised calculation and, following such review, approved
the tender offer to be made by the Company to its preferred shareholders at a
price of $4.40 per share.
On July 19, 2002, the tender offer materials were mailed to the holders of
the Preferred Stock. The tender offer expired on August 16, 2002. The Company
had reserved $1,991,502 in cash in the event all shares of the Preferred Stock
were tendered. On August 23, 2002, the Company purchased 377,288 shares of the
Preferred Stock, or 83.4% of the total preferred shares outstanding, from those
shareholders who tendered their shares. The 75,326 shares of Preferred Stock
which were not tendered remain outstanding with all of the same rights and
preferences. The Company deposited the remaining $331,434 of the cash reserve
not used in the tender offer (representing the tender offer price of $4.40
multiplied by the 75,326 preferred shares not tendered) into a bank trust
account for the benefit of the remaining preferred shareholders. The funds in
this account may only be withdrawn by the Company to pay dividends or make other
distributions to the preferred shareholders. See "Description of Capital Stock -
8 1/2% Preferred Stock, Series A."
On August 27, 2002, CFC Partners notified the Company of its intent to
exercise its option to acquire 2,700,000 shares of the Company's Common Stock.
On August 28, 2002, the Company's Board of Directors met to approve the
termination of the Plan of Liquidation, to authorize the issuance of the
2,700,000 shares of Common Stock to CFC Partners and to approve management's
recommendation to appoint three individuals who were satisfactory to CFC
Partners to fill existing vacancies on the Board of Directors. At the August 28
meeting, Donald J. Hommel, the President of CFC Partners, was also appointed as
a Director of the Company to fill an existing vacancy on the Board. Following
such appointment, James C. Robertson, who served as the Company's President and
Chief Executive Officer, and R. Fredric Zullinger, the Company's Senior Vice
President, Chief Financial Officer, Secretary and Treasurer, both resigned, and
the Board elected Mr. Hommel as the Company's President and Chief Executive
Officer. In addition, Mr. Robertson and John E. Groninger, who had been
Directors of the Company for more than 30 years, also resigned. Pursuant to the
Board approval received on August 28, the Company issued 2,700,000 shares of
Common Stock to CFC Partners for an aggregate purchase price of $108,000, or
$.04 per share. CFC Partners paid the purchase price in cash without the use of
outside financing.
On October 17, 2002, the Board of Directors appointed Shalom S. Maidenbaum,
Esq. as an additional Director of the Company to fill an existing vacancy on the
Board. In addition, the Directors elected Mr. Hommel as the Company's Treasurer
and Mr. Maidenbaum as the Company's Vice President and Secretary.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of the Company's Common Stock (other
than CFC Partners and the Company's Directors and executive officers) will be
asked to consider and vote upon a proposal to reinstate the voting rights of the
2,700,000 shares of Common Stock of the Company which were issued to CFC
Partners on August 28, 2002. Pursuant to Section 2564 of the PBCL, the shares
of Common Stock owned by CFC Partners, and beneficially owned by the Company's
Directors and executive officers, are not entitled to vote on any matters unless
and until such voting rights are reinstated by the affirmative vote of the
majority of the outstanding common shares, excluding the shares owned by CFC
Partners and beneficially owned by the Company's Directors and executive
officers.
11
EFFECTS OF THE PROPOSAL TO REINSTATE VOTING RIGHTS
If the proposal to reinstate the voting rights of CFC Partners' 2,700,000
shares receives the requisite shareholder approval, CFC Partners will control
51.2% of the outstanding Common Stock of the Company and will, therefore,
control the Company's Board of Directors, its management and its operations.
Further, CFC Partners will have sufficient voting power of the Common Stock to
control the vote on any matter which requires majority approval of the Common
Stock.
FUTURE PLANS OF THE COMPANY
If the voting rights of the 2,700,000 shares of Common Stock owned by CFC
Partners are reinstated, it is CFC Partners' intention to pursue strategic
alliances, as well as a merger or combination of existing businesses with the
Company. In connection with strategic alliances, the Company will initially
focus on partnering with companies specializing in construction management and
real estate development. In furtherance of its plans for the construction
management business, CFC Partners is planning to establish, through the Company
or a to-be-formed subsidiary of the Company, a dealer network for the sale of
residential and commercial conservatories manufactured by Hampton
Conservatories, a United Kingdom company ("Hampton"). In addition, CFC Partners
intends to pursue a future partnership arrangement with Hampton for the
manufacture and distribution of Hampton's conservatory products throughout the
United States. CFC Partners also intends to expand the construction management
business into other market segments, including providing services to the
Company's planned real estate development business.
With respect to the real estate development business, which would be
operated through a to-be-formed subsidiary of the Company, CFC Partners
initially intends to acquire residential apartment and commercial office
buildings in the states of Illinois and New York. These properties would be
upgraded as necessary to enhance their value and, where possible, converted into
either co-op or condominium units. This plan would be expanded to other
metropolitan locations in the future. CFC Partners believes that values for
residential apartment units in particular will continue to increase because of
stricter zoning regulations and a general lack of available land for new
construction.
The Company's current management has significant experience in the
construction and real estate industries. The Company's success in either
business, however, will depend on its ability to attract the capital necessary
to carry out its plans.
At this time, the Company has not identified a particular company with
which to pursue a merger or business combination. Upon approving a plan of
merger, business combination or any other fundamental transaction, the Board of
Directors would submit such plan to the shareholders for a vote if required by
applicable laws and regulations. Such applicable laws and regulations would
require a plan of liquidation to be submitted to shareholders for a vote.
Prior management of the Company considered and approved a plan of
liquidation but terminated the plan upon its determination that the investment
of CFC Partners in the Company offered a better alternative for the shareholders
than liquidating the Company. If, for any reason, the voting rights of the
shares of Common Stock owned by CFC Partners are not reinstated, the current
Board of Directors may have to consider liquidating and dissolving the Company,
since CFC Partners could not be assured that its future plans for the Company,
including merger and acquisition transactions, would be approved, when
necessary, by the remaining common shareholders. Such proposal by CFC Partners
to liquidate and dissolve the Company would be afforded substantial weight by
the Board of Directors because the Company's Directors are also affiliates of
CFC Partners. However, in the exercise of its fiduciary duty to the Company's
shareholders, a plan of liquidation and dissolution would only be approved if
the Board deemed that such a plan would be in the best interests of the
shareholders and no other viable options existed for the Company to continue as
an ongoing business or to otherwise enhance or preserve shareholder value.
In the event of a liquidation, the holders of Common Stock would not
receive any distribution because the Company's Preferred Stock has a liquidation
value of $10.00 per share, which exceeds the net assets of the Company. Any
plan of liquidation and dissolution, however, would require prior shareholder
approval. The liquidation value of the Preferred Stock at September 30, 2002
(based on the Company's net assets as of that date) was approximately $590,000,
or $7.83 per outstanding share of Preferred Stock. In the event the Company is
liquidated, management estimates that the holders of the Preferred Stock would
receive approximately $375,000, or $4.98 per share.
12
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL TO REINSTATE VOTING RIGHTS
Each of the Company's current Directors and officers is affiliated with CFC
Partners. Donald J. Hommel and Shalom S. Maidenbaum, who are the directors and
officers of the Company are also the directors, officers and, together with
Michael P. Ehrenhaus, the sole shareholders of CFC Partners. Although neither
Mr. Hommel, Mr. Maidenbaum nor Mr. Ehrenhaus own any shares of Common Stock
directly, each of these individuals may be deemed to be the beneficial owner of
the 2,700,000 shares of Common Stock owned by CFC Partners. See "Security
Ownership."
In addition, as of November 8, 2002, James C. Robertson, the former
Chairman of the Board, President and Chief Executive Officer of the Company, and
John E. Groninger, a former Director, and R. Fredric Zullinger, the former Chief
Financial Officer, Secretary and Treasurer of the Company, all of whom resigned
from their positions on August 28, 2002, owned 63,775, 57,521 and 29,522 shares
of Common Stock, respectively. From August 28 through November 8, 2002, Mr.
Robertson has sold 36,000 shares of Common Stock through open market
transactions. Each of the above individuals has indicated his intention to vote
his shares in favor of the proposal to reinstate the voting rights of the shares
owned by CFC Partners.
Except as set forth below, none of the former Directors and officers named
above will receive any benefits as a result of the approval of the reinstatement
of the voting rights of the shares of Common Stock owned by CFC Partners other
than the potential future benefits that may accrue to all holders of the
Company's Common Stock as a result of any future profits earned by the Company.
The current Directors and executive officers of the Company will benefit from
the reinstatement of voting rights of the shares of Common Stock owned by CFC
Partners since such Directors and executive officers are deemed to be the
beneficial owners of such shares. Consequently, the reinstatement of such
voting rights will effectively give the Directors and executive officers voting
control of the Company.
COMPARATIVE MARKET PRICE DATA AND DIVIDENDS
The Company's Common Stock is traded on the NASD OTC Bulletin Board under
the symbol "CFIN." The OTC Bulletin Board is operated by The NASDAQ Stock
Market, Inc. The following table presents high, low and closing bid price
information for the quarters indicated, as reported by the OTC Market Report
(Pink Sheets LLC), a provider of historical stock price data for all companies
traded on the OTC market. Such quotations reflect inter-dealer prices, without
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.
2000: HIGH LOW CLOSE
First Quarter . . . . . . . . . . . $0.10 $0.07 $ 0.07
Second Quarter . . . . . . . . . . . $0.15 $0.05 $ 0.14
Third Quarter . . . . . . . . . . . $0.14 $0.08 $ 0.08
Fourth Quarter . . . . . . . . . . . $0.08 $0.02 $ 0.02
2001: HIGH LOW CLOSE
First Quarter . . . . . . . . . . . $0.02 $0.01 $ 0.01
Second Quarter . . . . . . . . . . . $0.01 $0.01 $ 0.01
Third Quarter . . . . . . . . . . . $0.10 $0.01 $ 0.08
Fourth Quarter . . . . . . . . . . . $0.08 $0.04 $ 0.04
13
2002: HIGH LOW CLOSE
First Quarter . . . . . . . . . . . $0.09 $0.03 $ 0.07
Second Quarter . . . . . . . . . . . $0.22 $0.07 $ 0.10
Third Quarter . . . . . . . . . . . $0.28 $0.09 $ 0.20
Fourth Quarter (through November 8) . $0.65 $0.15 $ 0.40
There were 6,500 holders of record (plus approximately 1,200 nonrecord
beneficial owners) of the Company's Common Stock as of November 8, 2002. The
first number includes stockholders of record who hold stock for the benefit of
others. As of November 8, 2002, the most recent sale of shares of Common Stock,
as reported on the OTC Bulletin Board, occurred on November 6, 2002 at a price
of $0.55 per share.
The Company has not paid cash dividends on its Common Stock since 1994.
Dividends on both the Common Stock and Preferred Stock are declared by the Board
of Directors. Cash dividends on the Common Stock had been paid for 14
consecutive years through 1994 in amounts ranging from $.05 to $.14 per share.
The payment of dividends on the Common Stock in the future, if any, will be
subordinate to the Preferred Stock, must comply with the provisions of the PBCL
and will be determined by the Board of Directors. In addition, the payment of
such dividends will depend on the Company's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant. See "Description of Capital Stock - Common Stock."
Dividends on the Preferred Stock are paid quarterly on the first day of January,
April, July and October. The annual cash dividend on the Preferred Stock is
$.85 per share.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of the following:
COMMON STOCK
As of the Record Date, there were 10,000,000 authorized shares of Common
Stock with a stated value of $.01 per share, of which 5,276,810 shares were
issued and outstanding (including 2,700,000 issued to CFC Partners). The
holders of the Common Stock vote as a single class and are entitled to one vote
per share on all matters to be voted on by the shareholders and have the right
of cumulative voting in connection with the election of directors. The holders
of Common Stock are entitled to receive pro rata dividends, when and as declared
by the Board of Directors in its discretion, out of funds legally available
therefor, but only if all dividends on the Preferred Stock have been paid in
accordance with the terms of such Preferred Stock and there exists no deficiency
in the sinking fund for the Preferred Stock.
8 1/2% CONVERTIBLE PREFERRED STOCK, SERIES A
As of the Record Date, there were 632,500 authorized shares of Preferred
Stock, of which 75,326 shares were issued and outstanding. The Preferred Stock
has a liquidation preference of $10.00 per share and is convertible at any time,
unless previously redeemed, into shares of Common Stock at the rate of 1.482
shares of Common Stock for each share of Preferred Stock (equivalent to a
conversion price of $6.75). The Preferred Stock is currently redeemable at the
option of the Company at $10.00 per share. The terms of the Preferred Stock
require the Company to make annual payments to a sinking fund. Such payments
were to have commenced on July 1, 1998. The Preferred Stock terms also provide
that any purchases of Preferred Stock by the Company will reduce the sinking
fund requirements by an amount equal to the redemption value ($10.00 per share)
of the shares acquired. As a result of the Company's purchases of Preferred
Stock in the open market and in the tender offer completed on August 23, 2002,
no sinking fund payment for the Preferred Stock is due until July 1, 2006.
Following the completion of the tender offer, the Company deposited $331,434
into a bank trust account for the benefit of the holders of the Preferred Stock
who did not tender their shares of Preferred Stock (the "Trust Account for
Preferred Shareholders"). See "Background of the Proposed Reinstatement of
Voting Rights."
14
Annual dividends at the rate of $.85 per share are cumulative from the date
of original issue and are payable quarterly on the first day of January, April,
July and October. If at any time the Company is in arrears as to the preferred
dividends or sinking fund appropriations for the Preferred Stock, dividends to
the holders of the Common Stock, as well as redemptions and acquisitions by the
Company of shares of Common Stock, are restricted. If the Company is in default
in an aggregate amount equal to four quarterly preferred dividends, the holders
of Preferred Stock are entitled to elect two additional board members to the
then existing Board of Directors while such arrearage exists. As of the Record
Date, there were no arrearages with respect to dividend payments or sinking fund
payments on the Preferred Stock. The Company is required to use the funds
deposited into the Trust Account for Preferred Shareholders to pay dividends due
on the Preferred Stock and for other distributions to the remaining preferred
shareholders.
Except in certain limited circumstances, the holders of Preferred Stock
have no voting rights; however, they can vote as a single class when the Company
attempts to (i) sell, transfer or dispose of all or substantially all of the
property, business or assets of the Company or participate in a statutory share
exchange whereby the Preferred Stock or the Common Stock is converted into other
securities or property or in a consolidation or merger of the Company with any
corporation, provided, however, that this restriction shall not prevent any such
statutory share exchange, consolidation or merger or require such separate class
vote if none of the preferences or other rights of the holders of the Preferred
Stock shall be adversely affected thereby, and if the corporation resulting from
or surviving any such statutory share exchange, consolidation or merger shall
not have authorized or outstanding, after such transaction, any preferred stock
or other class of shares ranking prior to or on a parity with the Preferred
Stock with respect to the payment of dividends or the distribution of assets in
liquidation; or (ii) amend the Articles of Incorporation or By-Laws of the
Company so as to affect adversely any of the preferences or other rights of the
holders of the Preferred Stock; or (iii) authorize any additional series of
preferred stock, any class of stock ranking prior to the Preferred Stock with
respect to either the payment of dividends or the distribution of assets in
liquidation or any securities convertible into preferred stock or any such
shares ranking prior thereto.
Since none of the preferences or other rights of the holders of Preferred
Stock are to be adversely affected by the reinstatement of voting rights of the
shares of Common Stock owned by CFC Partners, and no other preferred stock or
other class of shares of the Company will rank ahead of or be on a parity with
the Preferred Stock with respect to the payment of dividends or the distribution
of assets in liquidation as a result of the reinstatement of the voting rights
of the shares of Common Stock owned by CFC Partners, no vote, written consent or
affirmation of such reinstatement of voting rights is required from the holders
of the Preferred Stock.
15
SECURITY OWNERSHIP
The following table sets forth, as of November 8, 2002, the beneficial
ownership of the Company's Common Stock (i) by any person or group known by the
Company to beneficially own more than 5% of the outstanding Common Stock, (ii)
by each Director and executive officer and (iii) by all Directors and executive
officers as a group. Unless otherwise indicated, the holders of the shares
shown in the table have sole voting and investment power with respect to such
shares.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------------------ ---------- -----
Principal Shareholders:
CFC Partners, Ltd.
132 Spruce Street
Cedarhurst, New York 11516 2,700,000(1) 51.17%
Stephen J. Burns
3922 Wrexam Court
Bensalem, Pennsylvania 19020 323,000 6.12%
Michael P. Ehrenhaus, M.D.
132 Spruce Street
Cedarhurst, New York 11516 0(1) ---
Directors and Executive Officers:
Donald J. Hommel(2)
132 Spruce Street
Cedarhurst, New York 11516 0(1) ---
Shalom S. Maidenbaum, Esq.(2)
132 Spruce Street
Cedarhurst, New York 11516 0(1) ---
All Directors and Executive Officers as a
group (2 persons) 0(1) ---
(1) Mr. Hommel, Mr. Maidenbaum and Dr. Ehrenhaus each own one-third
of the outstanding common stock of CFC Partners. These
individuals may each be deemed to be beneficial owners of the
2,700,000 shares pursuant to Rule 13d-3 of the Securities and
Exchange Act of 1934, as amended. These individuals have shared
voting and investment power with respect to the 2,700,000 shares
of Common Stock.
(2) Mr. Hommel and Mr. Maidenbaum are also deemed to be principal
shareholders due to their beneficial ownership of the 2,700,000
shares owned by CFC Partners.
16
SHAREHOLDER PROPOSALS
Shareholder proposals submitted pursuant to Rule 14a-8 of the Exchange Act
for inclusion in our proxy statement for the 2003 Annual Meeting of Shareholders
must be received by the Company by December 19, 2002. Each proposal must
comply with the requirements as to form and substance established by the
Securities and Exchange Commission (the "Commission") for such a proposal to be
included in the proxy statement and form of proxy. The Commission has
established rules as to the shareholder proposals corporations must include in
a proxy statement for an annual meeting.
In addition, the proxy solicited by the Board of Directors for the 2003
Annual Meeting of Shareholders will confer discretionary authority on the
agents named on the proxy card to vote on any shareholder proposal presented at
the meeting (rather than included in our proxy statement), unless we are
provided with notice of the proposal no later than March 4, 2003. The persons
named as proxies intend to vote or not vote in accordance with the
recommendation of our management and our Board.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, files
reports and other information with the Commission. Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Please call the Commission at (800) SEC-0330 for further
information. Copies of such materials may also be accessed electronically by
means of the Commission's home page on the Internet at "http://www.sec.gov."
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
- The Company's Annual Report on Form 10-K for the year ended December
31, 2001
- The Company's Quarterly Report on Form 10-Q for the nine months ended
September 30, 2002
- The Company's Current Report on Form 8-K filed on September 4, 2002
Any document incorporated herein by reference can be obtained by contacting
the Commission as described above under "Available Information" or by contacting
the Company by mail at 1513 Cedar Cliff Drive, Camp Hill, Pennsylvania 17011, by
telephone at (717) 730-6306 or by facsimile at (717) 761-9473. The Company will
provide the documents incorporated by reference without charge upon such written
or oral request.
OTHER BUSINESS
The management of the Company knows of no matter other than the approval of
the proposal to reinstate the voting rights of the 2,700,000 shares of Common
Stock owned by CFC Partners that is to be brought before the Special Meeting.
However, the enclosed proxy gives discretionary authority in the event any
additional matters should be presented.
The foregoing Notice and Proxy Statement are sent by order of the Board of
Directors.
/s/ Shalom S. Maidenbaum
SHALOM S. MAIDENBAUM, Secretary
December 12, 2002
17
CONSUMERS FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
NAME
ADDRESS
ADDRESS
ADDRESS
PLEASE VOTE YOUR SHARES, SIGN AND RETURN THE BOTTOM PORTION OF THIS PROXY CARD.
A POSTPAID ENVELOPE IS ENCLOSED.
TEAR HERE
--------------------------------------------------------------------------------
CONSUMERS FINANCIAL CORPORATION
PROXY
SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder(s) of Consumers Financial Corporation, a
Pennsylvania corporation, hereby appoints Shalom S. Maidenbaum, Esq. as the
undersigned's proxy, with full power of substitution, to vote all shares of
Consumers Financial Corporation Common Stock which the undersigned is entitled
to vote at the Special Meeting of Shareholders to be held on Thursday, January
9, 2003 at 10:00 a.m. local time at 132 Spruce Street, Cedarhurst, New York, and
at any adjournment or postponement thereof.
NAME A/C NUMBER. 00000000
ADDRESS NUMBER OF SHARES 0000
ADDRESS SS NUMBER 000-00-0000
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
Every properly signed and dated Proxy will be voted in accordance with the
specifications made thereon. If not otherwise specified, an executed and dated
Proxy will be voted FOR the proposal to reinstate the voting rights of the
2,700,000 shares of the Company's Common Stock owned by CFC Partners, Ltd. In
addition, such Proxies are authorized to vote upon such other business as may
properly come before the Special Meeting and at any adjournment or postponement
thereof.
(1) To consider and vote upon the proposal to reinstate the voting rights of
the 2,700,000 shares of Common Stock of the Company owned by CFC Partners,
Ltd., a New York corporation, which shares were issued on August 28, 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(2) To consider and vote upon the proposal to vote in favor of postponement or
adjournment for the solicitation of additional proxies, if necessary.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To transact such other non-substantive business as may properly come before
the Special Meeting and any adjournment or postponement thereof.
SIGNATURE(S) ___________________ / __________________ DATED _________, 200__
Please sign exactly as your name(s) appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, give your full title as such. If
a corporation, sign the full corporate name by an authorized officer. If a
partnership, sign in partnership name by an authorized person. If shares are
owned jointly, each owner should sign.
PLEASE SIGN, DATE AND RETURN THIS PORTION PROMPTLY, USING THE ENCLOSED ENVELOPE.