SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CONSUMER PORTFOLIO SERVICES, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road, Irvine California 92618
Phone: 949-753-6800
The annual meeting of the shareholders of Consumer Portfolio Services, Inc. (the
"Company") will be held at 10:00 a.m., local time, on Wednesday, May 26, 1999,
at the Company's offices, 16355 Laguna Canyon Road, Irvine, California for the
following purposes:
o To elect the Company's entire Board of Directors for a one-year term.
o To approve the issuance of a warrant initially exercisable to purchase
1,335,000 shares of common stock, granted as a condition to the issuance of
$5 million of debt.
o To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
o To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on April 19, 1999 are
entitled to notice of and to vote at the meeting.
Whether or not you expect to attend the meeting in person, please complete,
date, and sign the enclosed proxy exactly as your name appears thereon and
promptly return it in the envelope provided, which requires no postage if mailed
in the United States. Proxies may be revoked at any time and, if you attend the
meeting in person, your executed proxy will be returned to you upon request.
By Order of the Board of Directors
Mark A. Creatura, Secretary
Dated: May 3, 1999
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road
Irvine, California 92618
949-753-6800
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 1999
-----------
INTRODUCTION
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Consumer Portfolio Services, Inc. (the
"Company" or "CPS") for use at the annual meeting of the shareholders to be held
at 10:00 a.m., local time, on Wednesday, May 26, 1999 at the Company's offices,
16355 Laguna Canyon Road, Irvine, California 92618, and at any adjournment
thereof (the "Annual Meeting").
All shares represented by properly executed proxies received in time
will be voted at the Annual Meeting and, where the manner of voting is specified
on the proxy, will be voted in accordance with such specifications. Any
shareholder who executes and returns a proxy may revoke it at any time prior to
the voting of the proxy by giving written notice to the Secretary of the
Company, by executing a later-dated proxy, or by attending the meeting and
giving oral notice of revocation to the Secretary of the Company.
The Board of Directors of the Company has fixed the close of business
on April 19, 1999, as the record date for determining the holders of outstanding
shares of the Company's Common Stock, without par value ("CPS Common Stock")
entitled to notice of, and to vote at the Annual Meeting. On that date, there
were 18,773,501 shares of CPS Common Stock issued and outstanding. Each such
share of CPS Common Stock is entitled to one vote on all matters to be voted
upon at the meeting, except that holders of CPS Common Stock have the right to
cumulative voting in the election of directors, as described herein under the
heading "Voting of Shares."
The notice of the Annual Meeting, this proxy statement and the form of
proxy are first being mailed to shareholders of the Company on or about May 3,
1999. Expenses incurred in connection with the solicitation of proxies will be
paid by the Company. The proxies are being solicited principally by mail. In
addition, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone, for which they will receive no payment other
than their regular compensation. The Company will also request brokerage houses,
nominees, custodians and fiduciaries to forward soliciting material to the
beneficial owners of Common Stock of the Company and will reimburse such persons
for their expenses so incurred.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINATIONS
Each of the of the Company's six current directors has been nominated for
election as a director at the Annual Meeting, and each has agreed to serve as a
director if elected. Directors of the Company are elected annually to serve
until the next annual meeting of shareholders and until their successors are
duly elected and qualified.
The names of the nominees, their principal occupations, and certain other
information regarding them set forth below is based upon information furnished
to the Company by them.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
<S> <C> <C>
Charles E. Bradley, Sr. 69 Chairman of the Board of Directors
Charles E. Bradley, Jr. 39 President, Chief Executive Officer, and Director
William B. Roberts 62 Director
John G. Poole 56 Vice Chairman of the Board of Directors
Robert A. Simms 60 Director
Thomas L. Chrystie 66 Director
</TABLE>
CHARLES E. BRADLEY, SR. has been the Chairman of the Board of the Company since
its formation in March 1991. Mr. Bradley is one of the founders of Stanwich
Partners, Inc. ("Stanwich"), a Connecticut investment firm which acquires
controlling interests in companies in conjunction with the existing operating
management of such companies, and has been President, a director and a
shareholder of that company since its formation in 1982. He is also President,
Chief Executive Officer and a director of Reunion Industries, Inc., a publicly
held company which manufactures precision plastic products and provides
engineered plastics services. Mr. Bradley is currently Chairman of the Board and
Chief Executive Officer of DeVlieg-Bullard, Inc. and Chatwins Group, Inc., and a
director of Texon Energy Corp., General Housewares Corp., and Sanitas, Inc. He
is Chairman of the Board and Chief Executive Officer of NAB Asset Corporation
(38% of whose outstanding shares of voting stock are held by the Company). Other
than Stanwich, all of the above corporations are publicly-held or are required
to file periodic reports under Section 13 or 15(d) of the Securities Exchange
Act of 1934. Mr. Bradley is the father of Charles E. Bradley, Jr.
CHARLES E. BRADLEY, JR. has been the President and a director of the Company
since its formation in March 1991. In January 1992, Mr. Bradley was appointed
Chief Executive Officer of the Company. From April 1989 to November 1990, he
served as Chief Operating Officer of Barnard and Company, a private investment
firm. From September 1987 to March 1989, Mr. Bradley, Jr. was an associate of
The Harding Group, a private investment banking firm. Mr. Bradley, Jr. is
currently serving as a director of NAB Asset Corporation, Chatwins Group, Inc.,
Texon Energy Corporation and Thomas Nix Distributor, Inc. Charles E. Bradley,
Sr. is his father.
WILLIAM B. ROBERTS has been a director of the Company since its formation in
March 1991. Since 1981, he has been the President of Monmouth Capital Corp., an
investment firm which specializes in management buyouts. Mr. Roberts serves on
the board of directors of Atlantic City Racing Association, a publicly-held
corporation, which owns and operates a race track.
JOHN G. POOLE has been a director of the Company since November 1993 and its
Vice Chairman since January 1996. He was a co-founder of Stanwich in 1982 and
has been a director, vice president and shareholder of that company since its
formation. Mr. Poole is a director of Reunion Industries, Inc., Sanitas, Inc.,
Chatwins Group, Inc., and DeVlieg-Bullard, Inc.
ROBERT A. SIMMS has been a director of the Company since April 1995. He has been
the Chairman and Chief Executive Officer of Simms Capital Management, Inc. since
1984. He is a director of the National Football Foundation and Hall of Fame. Mr.
Simms also serves on the Board of Overseers of Rutgers University and was
formerly a partner in Bear Stearns & Co.
THOMAS L. CHRYSTIE has been a director of the Company since April 1995. He has
been self-employed as an investor, through Wycap Corporation, since 1988. His
previous experience includes 33 years at Merrill Lynch & Co. in various
capacities including heading Merrill Lynch's investment banking, capital markets
and merchant banking activities. In addition, he served as Merrill Lynch & Co.'s
Chief Financial Officer.
2
<PAGE>
The Board of Directors has established an Audit Committee and a Compensation and
Stock Option Committee. The members of the Audit Committee are Thomas L.
Chrystie (chairman), Robert A. Simms and William B. Roberts. The Audit Committee
is empowered by the Board of Directors to review the financial books and records
of the Company in consultation with the Company's accounting and auditing staff
and its independent auditors and to review with the accounting staff and
independent auditors any questions raised with respect to accounting and
auditing policy and procedure.
The members of the Compensation and Stock Option Committee are Robert A. Simms
(chairman), Thomas L. Chrystie and William B. Roberts. This Committee makes
recommendations to the Board of Directors as to general levels of compensation
for all employees of the Company, the annual salary of each of the executive
officers of the Company, authorizes the grants of options to employees under the
Company's 1991 Stock Option Plan, and the 1997 Long-Term Incentive Plan and
reviews and approves compensation and benefit plans of the Company.
The Company does not have a Nominating Committee. Shareholders who wish to
suggest individuals for possible future consideration for board positions should
direct recommendations to the Board of Directors at the Company's principal
offices.
The Board of Directors held four regular meetings and three special meetings in
1998. The Audit Committee and the Compensation Committee each met twice during
1998.
The Board of Directors recommends a vote "FOR" each of the nominees above.
PROPOSAL NO. 2
APPROVAL OF ISSUANCE OF WARRANT INITIALLY EXERCISABLE FOR 1,335,000 SHARES,
GRANTED AS A CONDITION TO THE ISSUANCE OF $5 MILLION OF DEBT
TRANSACTIONS WITH LLCP
On November 17, 1998, the Company sold $25,000,000 aggregate principal amount
of Senior Subordinated Notes to Levine Leichtman Capital Partners II, L.P.
("LLCP"). As part of that transaction, the Company issued a common stock
purchase warrant (the "November Warrant") giving LLCP the right to purchase up
to 3,450,000 shares of Common Stock of the Company for an exercise price of
$3.00 per share.
On April 15, 1999, to meet its capital requirements, the Company sold an
additional $5,000,000 aggregate principal amount of Senior Subordinated Notes to
LLCP. As part of that transaction, (i) LLCP waived or modified certain
provisions of the November 1998 documentation, (ii) the Company and LLCP
modified the November Warrant by reducing the number of shares thereunder to
3,115,000 and reducing the exercise price to $.01 per share, and (iii) the
Company issued a second stock purchase warrant (the "April Warrant") to LLCP,
giving LLCP the right to purchase 1,335,000 shares of CPS Common Stock for an
exercise price of $.01 per share at any time through April 15, 2009. Immediately
following the issuance of the April Warrant, LLCP exercised the November Warrant
for 3,115,000 shares at $.01 per share.
The Common Stock of the Company is traded on the Nasdaq National Market. It is
the policy of the Nasdaq National Market to require stockholder approval of the
issuance of common stock or securities convertible into or exercisable for
common stock in any transaction other than a public offering, at a price less
than book value or market value, if the number of shares of common stock to be
issued will amount to 20% or more of the number of shares of common stock
outstanding before the issuance.
Since the November Warrant (as amended to cover only 3,115,000 shares) was
within the 20% Nasdaq limitation, it did not require stockholder approval.
However, since the November 1998 and April 1999 transactions could be deemed a
series of related transactions, the Company has agreed with LLCP to obtain
stockholder approval. (As originally issued, the November Warrant would have
exceeded the 20% threshold; it therefore contained provisions limiting its
exercise prior to obtaining shareholder approval of the amount in excess of such
threshold). The Company has agreed with LLCP to obtain stockholder approval of
the April Warrant, which, by its terms, will not become exercisable until such
approval is obtained.
3
<PAGE>
Under the agreements related to the issuance of the notes in April 1999, the
failure of the Company to obtain the requisite stockholder approval by May 31,
1999 would constitute an Event of Default under the two Senior Subordinated
Notes described above, and LLCP could then demand immediate repayment of the
entire $30,000,000 principal amount of the two Senior Subordinated Notes. The
Company would have great difficulty satisfying such a demand for repayment
unless it liquidated substantial assets, which would materially adversely affect
the Company's financial condition and future operations; and there can be no
assurance that, even by liquidating assets, the Company could satisfy such a
demand.
The documents governing the November 1998 and April 1999 transactions also
include, among other things, provisions giving LLCP the right to require the
Company to register shares issuable under the Warrants for resale, and the right
to designate one member of the Board of Directors of the Company. The Company
appointed Arthur E. Levine, a principal of LLCP, as a member of the Board of
Directors on November 17, 1998. Mr. Levine resigned from the Board on April 2,
1999.
Several past or present directors of the Company have a personal interest in the
approval of this proposal: Mr. Levine, as a principal of LLCP, has an interest
in seeing the April Warrant held by LLCP become exercisable. Mr. Bradley, Sr.
and Mr. Bradley, Jr. have personally guaranteed the $5 million of the Company's
indebtedness to LLCP incurred in April 1999, which, as noted above, would be in
default if this proposal is not approved.
DILUTION RESULTING FROM THE APRIL WARRANT
The November Warrant, as amended, has been exercised in full to purchase
3,115,000 shares of Common Stock for $0.01 per share. Exercise of part or all of
the April Warrant would result in an increase in the number of shares of Common
Stock outstanding. An issuance of Common Stock at a price below the book value
per share (i.e., the exercise of the April Warrant at any time that the CPS
Common Stock has a book value of more than $.01 per share) would have a dilutive
effect on the book value of outstanding shares of Common Stock. Such issuance
would also have a dilutive effect on earnings per share and the relative voting
power of present stockholders. Even before exercise, the Company's diluted
earnings per share (if any) will be reduced, because this figure will be
calculated as if the April Warrant were exercised in full on the date of
shareholder approval (if obtained). The exercise price of each of the Warrants
is $.01 per share. The book value per share of the Common Stock as of December
31, 1998 was $7.60 per share, and the reported closing sale price of the Common
Stock on the Nasdaq National Market on April 28, 1999 was $2.94 per share.
The April Warrant contains anti-dilution provisions that would, upon the
occurrence of certain events, adjust upward the number of shares issuable upon
the exercise thereof. Among such events are changes to the Company's capital
stock that cause more shares to be outstanding (such as stock splits or stock
dividends) and any issuances of Common Stock (or its equivalents) at less than
fair market value. If, for example, the Company were to raise capital by
issuance of convertible debt (or debt with warrants), and the conversion or
exercise price were to be less than the prevailing market price of the Company's
Common Stock at the time such convertible debt was issued, then the number of
shares issuable upon exercise of the April Warrant would increase. The April
Warrant also provides for the issuance of additional shares of Common Stock for
no additional consideration in the event of any issuance or deemed issuable by
the Company of Common Stock at less than fair market value, to the extent such
issuance would have increased the number of shares issuable upon exercise of the
November Warrant (which has been exercised in full).
VOTE REQUIRED
Approval of the issuance of the April Warrant will require the affirmative vote
of a majority of the shares voted on this proposal in person or by proxy.
Abstentions and broker non-votes, if any, will not be treated as votes cast and,
therefore, will have no effect on the outcome of the vote on this proposal.
LLCP intends to vote its 3,115,000 shares in favor of this proposal. In
addition, each of the Company's directors, and certain other shareholders, have
given irrevocable proxies to LLCP and entered into voting agreements with LLCP
with respect to an aggregate of 7,107,117 shares of the Company's Common Stock,
granting LLCP the right to vote such shares on this proposal. Thus, LLCP has the
power to vote an aggregate of 10,222,117 shares (more than 50% of the total
number of shares entitled to vote) on this proposal, and the Company therefore
believes that this proposal is certain to be approved.
4
<PAGE>
BOARD RECOMMENDATION
The Board of Directors has approved the issuance of the April Warrant, and
recommends that the Company's stockholders vote "FOR" approval of the proposal
regarding the issuance of the April Warrant.
PROPOSAL NO. 3
RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, on recommendation of the Audit Committee, has appointed
the accounting firm of KPMG Peat Marwick to be the Company's independent
auditors for the year ending December 31, 1999.
A proposal to ratify that appointment will be presented to shareholders at the
Annual Meeting. If the shareholders do not ratify the selection of KPMG Peat
Marwick, another firm of independent public accountants will be selected by the
Board of Directors at the Annual Meeting. Representatives of KPMG Peat Marwick
will be present at the Annual Meeting. Such representatives will have an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions from shareholders in attendance.
The Board of Directors recommends a vote "FOR" ratification of the selection of
KPMG Peat Marwick.
5
<PAGE>
INFORMATION REGARDING THE COMPANY
EXECUTIVE COMPENSATION
The following pages set forth information in tabular form regarding compensation
of the Company's executive officers.
SUMMARY OF COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 1998, 1997 and 1996 by the Company's Chief Executive
Officer and by its four most highly compensated other executive officers (such
five individuals, the "named executive officers") who were serving as executive
officers at December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Compensation for Long Term Compensation
period shown Awards
----------------------------------------- ------------ -------------------------------- -------------------------
Name and Principal Position Year Salary Bonus Options/SARs(1)
----------------------------------------- ------------ --------------- -------------- -------------------------
<S> <C> <C> <C> <C>
CHARLES E. BRADLEY, JR. 1998 $ 450,000 $ 750,000 598,400
President & Chief Executive Officer 1997 425,000 575,000 0
1996 381,250 372,500 200,000
----------------------------------------- ------------ --------------- -------------- -------------------------
NICHOLAS P. BROCKMAN 1998 137,000 88,000 84,600
Senior Vice President - Collections 1997 127,000 62,000 0
1996 117,039 59,500 12,600
----------------------------------------- ------------ --------------- -------------- -------------------------
WILLIAM L. BRUMMUND, JR. 1998 143,000 92,000 84,600
Senior Vice President - Systems 1997 129,000 84,000 0
1996 117,039 55,500 5,000
----------------------------------------- ------------ --------------- -------------- -------------------------
JEFFREY P. FRITZ 1998 200,000 130,000 84,600
Senior Vice President - Finance 1997 175,000 96,000 0
1996 154,938 78,250 5,000
----------------------------------------- ------------ --------------- -------------- -------------------------
CURTIS K. POWELL 1998 170,000 107,000 178,000
Senior Vice President - Marketing 1997 143,000 97,000 0
1996 124,500 51,000 75,000
</TABLE>
(1) Number of shares that may be purchased upon exercise of options that
were granted in the period shown. Includes, for the year 1998, a
repricing of options previously granted and outstanding at October 22,
1998. See table on next page.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 1998, did not grant any stock
appreciation rights to any of the named executive officers, and granted options
to such officers on two occasions. The Company in the past had made a practice
of granting stock options to its executive officers and other employees from
time to time, and in January 1998 granted options to each of its named executive
officers. Each named executive officer other than the chief executive officer
received in January a grant of options with respect to 20,000 shares, to become
exercisable at the then-current market price of $9.00 per share. The chief
executive officer received in January a grant of options with respect to 70,000
shares, also to become exercisable at $9.00 per share. On October 22, 1998, the
compensation committee of the board of directors determined that the decline in
the prevailing market price of the Company's common stock had greatly impaired
the incentive value of the Company's outstanding options, and made it advisable
to alter the terms of such options so as to maintain an incentive value. The
Company therefore at that time amended each outstanding option in two respects:
(i) to reduce the exercise price thereof to $3.25 per share, which was the
market price of such shares on the October date of the amendment, and (ii) to
prohibit the exercise of all or any part of such modified options prior to
October 23, 1999. The following table summarizes each 1998 grant to any of the
named executive officers.
6
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
INDIVIDUAL GRANTS Price Appreciation for Option
Term
- - ----------------------------------------------------------------------------------------------- -------------------------------
Number of Percent of
Shares Total Options Exercise or
Under-lying Granted to Base Price Expiration
Name Options Granted Employees in ($/Share) Date 5% 10%
1998
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bradley, Jr. 70,000 2.0% $3.25 1/12/08 $72,444 $179.584
----------------- ----------------- ------------- ------------- --------------- ---------------
President and Chief 200,000 5.7% $3.25 3/31/06 $284,512 $671,053
----------------- ----------------- ------------- ------------- --------------- ---------------
Executive Officer 8,400 0.2% $3.25 12/15/04 $9,555 $21,763
----------------- ----------------- ------------- ------------- --------------- ---------------
150,000 4.3% $3.25 3/31/04 $148,308 $331,548
----------------- ----------------- ------------- ------------- --------------- ---------------
70,000 2.0% $9.00 1/12/08 $396,204* $1,004,058*
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
Jeffrey P. Fritz 20,000 0.6% $3.25 1/12/08 $36,961 $91,625
----------------- ----------------- ------------- ------------- --------------- ---------------
Senior Vice President - 32,000 0.9% $3.25 5/02/04 $32,220 $72,196
----------------- ----------------- ------------- ------------- --------------- ---------------
Finance 7,600 0.2% $3.25 10/31/04 $8,445 $19,172
----------------- ----------------- ------------- ------------- --------------- ---------------
5,000 0.1% $3.25 3/31/06 $7,113 $16,776
----------------- ----------------- ------------- ------------- --------------- ---------------
20,000 0.6% $9.00 1/12/08 $113,201* $286,874*
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
Curtis K. Powell 20,000 0.6% $3.25 1/12/08 $18,481 $45,812
----------------- ----------------- ------------- ------------- --------------- ---------------
Senior Vice President - 35,000 1.0% $3.25 3/13/06 $49,790 $117,434
----------------- ----------------- ------------- ------------- --------------- ---------------
Marketing 20,000 0.6% $3.25 1/17/05 $23,137 $52,828
----------------- ----------------- ------------- ------------- --------------- ---------------
43,000 1.2% $3.25 10/31/04 $47,779 $108,473
----------------- ----------------- ------------- ------------- --------------- ---------------
40,000 1.1% $3.25 3/31/06 $56,902 $134,211
----------------- ----------------- ------------- ------------- --------------- ---------------
20,000 0.6% $9.00 1/12/08 $113,201* $286,874*
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
William L. Brummund, Jr. 20,000 0.6% $3.25 1/12/08 $36,961 $91,625
----------------- ----------------- ------------- ------------- --------------- ---------------
Senior Vice President - 32,000 0.9% $3.25 5/02/04 $32,220 $72,196
----------------- ----------------- ------------- ------------- --------------- ---------------
Systems 7,600 0.2% $3.25 10/31/04 $8,445 $19,172
----------------- ----------------- ------------- ------------- --------------- ---------------
5,000 0.1% $3.25 3/31/06 $7,113 $16,776
----------------- ----------------- ------------- ------------- --------------- ---------------
20,000 0.6% $9.00 1/12/08 $113,201* $286,874*
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
Nicholas P. Brockman 20,000 0.6% $3.25 1/12/08 $36,961 $91,625
----------------- ----------------- ------------- ------------- --------------- ---------------
Senior Vice President - 12,600 0.4% $3.25 3/31/06 $17,924 $42,276
----------------- ----------------- ------------- ------------- --------------- ---------------
Collections 32,000 0.9% $3.25 5/02/04 $32,220 $72,196
----------------- ----------------- ------------- ------------- --------------- ---------------
20,000 0.6% $9.00 1/12/08 $113,201* $286,874*
- - ------------------------------- ----------------- ----------------- ------------- ------------- --------------- ---------------
</TABLE>
* The recipients of such options will receive no value therefrom, as such
options were cancelled and replaced in October 1998, as shown in the above
table
7
<PAGE>
OPTIONS REPRICING
The following table sets forth information regarding each repricing of any
options held by any executive officer of the Company, at any time from inception
to the present:
<TABLE>
<CAPTION>
Name and Position Date Number of Market Price Exercise Price New Length of Original
Shares Under- of Stock at at Time Exercise Option Term
lying Options Time of of Repricing Price Remaining at Date
Repriced or Repricing or or of Repricing or
Amended Amendment Amendment Amendment
<S> <C> <C> <C> <C> <C> <C>
Thurman L. Blizzard 10/22/98 70,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Sr. Vice President -
Collections
Charles E. Bradley, Jr. 10/22/98 150,000 $3.2500 $5.3750 $3.2500 5 Years 162 Days
President and Chief 10/22/98 8,400 $3.2500 $7.2500 $3.2500 6 Years 55 Days
Executive Officer 10/22/98 200,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/22/98 70,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Nicholas P. Brockman 10/22/98 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Sr. Vice President - 10/22/98 12,600 $3.2500 $8.8750 $3.2500 7 Years 161 Days
Collections 10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
William L. 10/22/98 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Brummund, Jr. 10/22/98 7,600 $3.2500 $11.0000 $3.2500 6 Years 10 Days
Sr. Vice President - 10/22/98 5,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
Systems 10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Mark A. Creatura 10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Sr. Vice President - 5/7/97 50,000 $8.4375 $12.0000 $8.5000 8 Years 177 Days
Legal 10/22/98 50,000 $3.2500 $8.5000 $3.2500 8 Years 198 Days
Jeffrey P. Fritz 10/22/98 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Sr. Vice President - 10/22/98 7,600 $3.2500 $11.0000 $3.2500 6 Years 10 Days
Finance 10/22/98 5,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Curtis K. Powell 10/22/98 35,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
Sr. Vice President - 10/22/98 40,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
Marketing 10/22/98 43,000 $3.2500 $7.2500 $3.2500 6 Years 10 Days
10/22/98 20,000 $3.2500 $6.6250 $3.2500 6 Years 88 Days
10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Richard P. Trotter 10/22/98 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Sr. Vice President - 10/22/98 70,000 $3.2500 $4.3750 $3.2500 5 Years 75 Days
Originations 10/22/98 7,600 $3.2500 $7.2500 $3.2500 6 Years 161 Days
5/7/97 43,000 $8.4375 $12.0000 $8.5000 8 Years 177 Days
10/22/98 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/22/98 43,000 $3.2500 $8.5000 $3.2500 8 Years 199 Days
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 1998, and for the year then
ended, the number of unexercised options held by each of the named executive
officers, the number of shares subject to then exercisable and unexercisable
options held by such persons and the December 31, 1998 value of all unexercised
options held by such persons. Each option referred to in the table was granted
under the Company's 1991 Stock Option Plan, or under the 1997 Long-Term
Incentive Plan, at an option price per share equal to the fair market value per
share on the date of grant.
8
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------- ---------------------------------------- -------------------------------------
Name Number of Unexercised Options at Value of Unexercised In-the-Money
December31, 1998 Options at December 31, 1998(1)
Exercisable/Unexercisable Exercisable/Unexercisable
- - ---------------------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
Charles E. Bradley, Jr. 1,840/164,000 $7,130 / $635,500
- - ---------------------------- ---------------------------------------- -------------------------------------
Nicholas P. Brockman 18,400/64,600 71,300/ 250,325
- - ---------------------------- ---------------------------------------- -------------------------------------
William L. Brummund, Jr. 48,000/64,600 186,000/250,325
- - ---------------------------- ---------------------------------------- -------------------------------------
Jeffrey P. Fritz 69,000/64,600 267,375/250,325
- - ---------------------------- ---------------------------------------- -------------------------------------
Curtis K. Powell 0/29,400 0 / 113,925
- - ---------------------------- ---------------------------------------- -------------------------------------
</TABLE>
(1) Valuation is based on the last sales price on December 31, 1998 of $3.875
per share, as reported by Nasdaq.
BONUS PLAN
The named executive officers and other officers participate in a management
bonus plan, pursuant to which such employees are entitled to earn cash bonuses,
if the Company achieves certain net income levels or goals established by the
Board of Directors. The amount of bonus payable to each officer is determined by
the Board of Directors upon recommendation of the Compensation Committee.
DIRECTOR COMPENSATION
During the year ended December 31, 1998, the Company paid director compensation
of $125,000 to Mr. Bradley, Sr., for his service as Chairman of the Board of
Directors, and $75,000 to Mr. Poole for his service as Vice-Chairman of the
Board of Directors. Mr. Bradley, Jr., President of the Company, received no
additional compensation for his service as a director. The remaining directors
received a retainer of $1,000 per month and an additional fee of $500 per diem
for attendance at meetings.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES IN GENERAL
As to base salary, the Company's objective is to establish base salaries at
levels competitive with those in its industry. Annual adjustments in base
salaries of officers other than the chief executive officer are approved by the
Compensation Committee, acting on the recommendation of the chief executive
officer.
The Company has made a practice of paying annual bonuses to encourage executive
officers and key management personnel to exercise their best efforts and
management skills toward achieving the Company's objectives. Under the Company's
bonus plan as applied to the year ended December 1998, executive officers of the
Company other than its chief executive officer were eligible to receive a cash
bonus of up to 100% of their base salaries. The amount of such bonus is
determined by the Compensation Committee, acting on the recommendation of the
chief executive officer. The principal determining factor in the amount of bonus
is whether the Company as a whole has met its earnings objectives. Such
objectives are set by the board of directors at its spring meeting of the prior
year. Other factors in determining the amount of bonus are whether the executive
has met individual objectives set by the chief executive officer and a
subjective evaluation of the officer's performance. The Compensation Committee
also considers whether the level of compensation proposed would be fully
deductible to the Company for federal income tax purposes.
Applying the above principles, the Compensation Committee in 1999 approved bonus
compensation to each of the named executive officers, other than the chief
executive officer, of approximately 63% to 65% of his base salary for the year
ended December 31, 1998.
The Company's long-term incentive plan has consisted of awards of incentive and
non-qualified stock options designed to promote the identity of long-term
interests between the Company's executives and its shareholders and to assist in
9
<PAGE>
the retention of key executives and management personnel. Since the full benefit
of stock option compensation cannot be realized unless stock appreciation occurs
over a number of years, stock option grants are designed to provide an incentive
to create shareholder value over a sustained period of time. On October 22,
1998, the Company reduced the exercise price of substantially all of the
outstanding common stock options under the 1991 Stock Option Plan and the 1997
Long-Term Incentive Stock Plan to the fair market value per share as of the date
of the reduction in price. The Company repriced these options in an effort to
retain employees at a time when a significant percentage of stock options had
exercise prices that were above fair market value. The Company believes that
stock options are a valuable tool in compensating and retaining employees. All
of the Company's executive officers participated in this repricing.
In exercising its discretion as to the level of executive compensation and its
components, the Compensation Committee considers a number of factors. Financial
factors considered include growth in the Company's revenue, income and earnings
per share; the extent of appreciation in its stock price; and return on equity.
Operational factors considered include the Company's cost of funds; indicators
of the credit quality of the Company's servicing portfolio, including levels of
delinquencies and charge-offs; and indicators of successful management of
personnel, including the number of employees hired and employee stability.
The Company also maintains certain broad-based employee benefit plans in which
executive officers are permitted to participate on the same terms as
non-executive personnel who meet applicable eligibility criteria, subject to any
legal limitations on the amounts that may be contributed or the benefits that
may be payable under the plans.
COMPENSATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
The Company's general approach in setting the annual compensation of its chief
executive officer is to seek to be competitive with financial services companies
similar to the Company, but to have a large percentage of his target
compensation be dependent upon the Company's financial performance. During the
year ended December 1998, the Company's chief executive officer, Charles E.
Bradley, Jr., received $450,000 in base salary, which was an increase from a
rate of $425,000 per year applicable to 1997. In setting that rate, the
Compensation Committee considered primarily the levels of chief executive
officer compensation prevailing among fast-growing financial services companies.
The Committee also took note of the growth in the Company's revenues and
earnings in deciding to approve an increase in base salary.
The Company's policy regarding cash bonuses paid to its chief executive officer
has been similar to its policy regarding cash bonuses for other executive
officers, except that the Compensation Committee exercises a greater degree of
discretion with respect to award of a bonus to the chief executive officer than
it exercises with respect to bonuses paid to other executive officers. Pursuant
to a plan adopted and approved by the shareholders in 1998, the maximum annual
bonus for which the chief executive officer could be eligible would be a bonus
of 3% of the Company's pre-tax earnings for that year. The Compensation
Committee in 1998 determined to set the target bonus for the chief executive
officer at 3% of the Company's pre-tax earnings for the year.
Pursuant to the plan, the Compensation Committee in 1999 approved bonus
compensation to the chief executive officer of $750,000, representing 1.69% of
the Company's pre-tax earnings for the year ended December 31, 1998. In
determining to exercise its discretion to reduce the bonus awarded below the
target level of 3%, the Compensation Committee considered the overall level of
compensation earned by chief executive officers at comparable firms, the
existence of adverse conditions in the industry, and the market performance of
the Company's common stock.
THE COMPENSATION COMMITTEE Robert A. Simms
William B. Roberts
Thomas L. Chrystie
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate by reference future filings, including this Proxy
Statement, in whole or in part, the preceding report and the following
Performance Graph shall not be incorporated by reference into any such filings.
10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative total
shareholder return on its common stock from March 31, 1994 through December 31,
1998, with (i) the cumulative total return of the Center for Research in
Security Prices ("CRSP") Index for the Nasdaq Stock Market (U.S. Companies), and
(ii) the cumulative total return of the CRSP Index for Nasdaq Financial Stocks.
The graph assumes $100 was invested on March 31, 1994 in the Company's common
stock, and in each of the two indices shown, and that all dividends were
reinvested. Data are presented for the last trading day in each of the Company's
fiscal years. The Company's fiscal year ended on March 31 until 1995, when the
Company changed its fiscal year-end to December 31.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG CONSUMER PORTFOLIO SERVICES,
INC., NASDAQ STOCK MARKET (U.S. COMPANIES) AND NASDAQ FINANCIAL STOCKS.
[PERFORMANCE GRAPH REPRESENTED HERE]
<TABLE>
<CAPTION>
MAR 1994 MAR 1995 DEC 1995 DEC 1996 DEC 1997 DEC 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consumer Portfolio Services, Inc. $100.00 $151.16 $169.76 $209.30 $179.07 $72.09
Nasdaq Stock Market (U.S.) $100.00 $111.25 $144.33 $177.49 $217.41 $306.36
Nasdaq Financial Stocks (U.S. & Foreign) $100.00 $112.01 $148.38 $190.21 $290.58 $281.62
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of April 19,
1999, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director or named executive officer of CPS,
and (iii) all directors and executive officers of CPS as a group. Except as
otherwise indicated, and subject to applicable community property and similar
laws, each of the persons named has sole voting and investment power with
respect to the shares shown as beneficially owned by such persons. The address
of Messrs. Bradley, Jr., Brockman, Fritz, Brummund, Jr. and Powell is c/o
Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road, Irvine, CA 92618.
11
<PAGE>
<TABLE>
<CAPTION>
Amount & Nature of Percent
Name & Address of Beneficial Owner Beneficial of Class
---------------------------------- ---------- --------
Ownership(1)
------------
<S> <C> <C>
Charles E. Bradley, Sr.......................................................... 3,817,719 (2) 20.3%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
William B. Roberts.............................................................. 1,033,982 5.5%
Monmouth Capital Corp., 126 East 56th Street, New York, NY10022
John G. Poole................................................................... 298,532 1.6%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
Thomas L. Chrystie.............................................................. 90,000 (3) 0.5%
P.O. Box 640, Wilson, WY 83014
Robert A. Simms................................................................. 150,144 (4) 0.8%
55 Railroad Ave., Plaza Suite, Greenwich, CT 06830
Charles E. Bradley, Jr.......................................................... 1,401,754 (5) 7.5%
Nicholas P. Brockman............................................................ 76,557 0.4%
William L. Brummund, Jr......................................................... 92,896 0.5%
Jeffrey P. Fritz................................................................ 60,686 0.3%
Curtis K. Powell................................................................ 291 0%
All directors and executive officers combined (13 persons) ..................... 6,407,648 33.9%
Levine Leichtman Capital Partners II, L.P....................................... 4,450,000 (6) 22.1%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
New South Capital Management ................................................... 2,484,700 (7) 13.2%
1000 Ridgeway Loop Road, Suite 233, Memphis, TN 38120
Robert T. Gilhuly and Kimball J. Bradley, Trustees.............................. 1,058,818 (8) 5.6%
c/o Cummings & Lockwood, Box 2505, Greenwich, CT 06830
</TABLE>
(1) Includes certain shares that may be acquired at present from the Company
upon exercise of options, as follows: Mr. Bradley, Jr., 1,840 shares, Mr.
Fritz, 32,200 shares, Mr. Brummund, 48,000 shares, and Mr. Brockman,
18,400 shares.
(2) Includes 207,490 shares owned by the named person's spouse, as to which he
has no voting or investment power, and 594,381 shares owned by two
corporations (Stanwich Financial Services Corp., or "SFSC," and Stanwich
Partners, Inc., or "Stanwich") of which the named person is president and a
director. Includes 620,000 shares subject to options in favor of Mr.
Chrystie and Mr. Bradley, Jr.
(3) Includes 70,000 shares held by the Thomas L. Chrystie Living Trust, and
20,000 shares that Mr. Chrystie may acquire upon exercise of an option
written by SFSC.
(4) Includes 16,944 shares owned by Mr. Simms' spouse, as to which he has no
voting or investment power.
(5) Includes 211,738 shares held by a trust of which Mr. Bradley is the
beneficiary, as to which he has no voting or investment power. Also
includes 600,000 shares that Mr. Bradley, Jr. has the presently exercisable
right to acquire from Mr. Bradley, Sr.
(6) Comprises 3,115,000 issued shares and the 1,335,000 shares that would
become issuable upon approval of Proposal Two. The named person also holds
the right to vote, as to such a proposal only, an additional 7,107,117
shares, pursuant to irrevocable proxies and voting agreements.
(7) Included herein in reliance on the amended statement on Schedule 13G filed
by the named person on February 11, 1999.
(8) These shares are held in trusts of which the beneficiaries are Charles E.
Bradley, Sr.'s adult children, including, among others, Charles E. Bradley,
Jr., (as to 211,738 shares) and Kimball J. Bradley (as to 211,802 shares).
12
<PAGE>
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's directors, certain officers, and persons holding more than ten
percent of the Company's common stock are required to report, within certain
periods, their initial ownership of and any subsequent transactions in any of
the Company's equity securities. Based solely upon reports furnished to the
Company and written representations and information provided to the Company by
the persons required to make such filings, all such individuals have satisfied
such filing requirements in full with respect to the year 1998.
CERTAIN TRANSACTIONS
The Company has retained Stanwich (a corporation of which Charles E. Bradley,
Sr. and John G. Poole are principal shareholders) to provide consulting services
for compensation at the rate of $75,000 per year. Stanwich has agreed to provide
such level of consulting services relating to strategic business and tax
planning and investment analysis as the Company reasonably may request. No
fixed, minimum or maximum number of hours of service is specified. Concurrently
with issuance of the April Warrant, the Company and Stanwich terminated the
consulting agreement.
The Company holds 80% of the outstanding shares of the capital stock of CPS
Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by Charles E. Bradley,
Jr., who is the President and a director of the Company. CPSL is engaged in the
equipment leasing business. CPSL finances its purchases of the equipment that it
leases to others through either of two lines of credit. Amounts borrowed by CPSL
under one of those two lines of credit have been guaranteed by the Company. As
of March 31, 1999, the total amount outstanding under the two lines of credit
was approximately $3.9 million, of which the Company had guaranteed
approximately $1.9 million. The Company has also financed the operations of CPSL
by making operating advances and by advancing to CPSL the fraction of the
purchase prices of its leased equipment that CPSL does not borrow under its
lines of credit. The aggregate amount of advances made by the Company to CPSL as
of March 31, 1999, is approximately $3.6 million. The advances related to
operations bear interest at the rate of 8.5% per annum. The advances related to
the fraction of the purchase price of leased equipment are not interest bearing.
The Company holds 38% of the outstanding shares of NAB Asset Corp. ("NAB"), a
corporation of which Mr. Bradley, Sr. is the chairman and chief executive
officer and of which Mr. Bradley, Jr. is a director. The Company held
outstanding indebtedness of NAB in the principal amount of $5.5 million at
December 31, 1997, which indebtedness bears interest at the rate of 13% per
annum. During 1998, NAB repaid approximately $3.4 million of the principal
thereof. In June 1998, the Company borrowed $3.0 million from NAB, issuing in
exchange its promissory note, bearing interest at 14% per annum. The Company
repaid that note in full during 1998. The amount remaining outstanding of NAB's
indebtedness to the Company, as of March 31, 1999, was approximately $700,000.
In the ordinary course of its business operations, the Company from time to time
purchases retail automobile installment contracts from an automobile dealer,
Cars USA, which is owned by a corporation of which Mr. Bradley, Sr. and Mr.
Bradley, Jr. are the principal shareholders. During the year ended December 31,
1998, the Company purchased 296 such contracts, with an aggregate principal
balance of approximately $4.2 million. The Company paid an aggregate of
approximately $4.1 million for such contracts. All such purchases were on the
Company's normal business terms. The Company also from time to time sells
repossessed automobiles to Cars USA, and sold 51 such vehicles to Cars USA in
1998, for aggregate consideration of $432,790.
The Company has provided inventory financing ("flooring") and has lent
additional monies to Cars USA. As of December 31, 1998, the total amount owed to
the Company was approximately $904,000, of which $330,000 represented flooring.
The largest aggregate amount of indebtedness outstanding under the flooring line
at any time since the beginning of the last fiscal year was $1.0 million, as of
March 31, 1998. The flooring financing is a revolving line of credit, bearing
interest at 10% per year, with a maximum advance depending upon the value of
used car inventory, and with an overall maximum of $1,500,000. Other borrowings
in the aggregate amount of $250,000 do not bear interest. The remainder of the
amount owed to the Company represents fees for services performed for the dealer
by the Company.
On July 21, 1998, the Company sold 443,459 shares of its common stock for cash
consideration of $5 million. The securities were sold in a private transaction
to Stanwich Financial Services Corp. ("SFSC"), which is a corporation of which
the Company's chairman of the board, Charles E. Bradley, Sr., is the sole
director, chief executive officer, and principal shareholder. The price at which
the shares were sold was determined by reference to the market price of such
shares, which was $12.625 per share on July 21, 1998. The Company agreed to
13
<PAGE>
apply a discount of 11% to such price to reflect the absence of any underwriting
discount to be paid the by the Company, the large block being purchased, and
that the shares issued were not registered for resale to the public.
In August and September of 1998, SFSC and Mr. Poole lent the Company $4 million
and $1 million, respectively, on a short-term basis, and with an interest rate
of 15% per annum. Simultaneously with the November 1998 issuance of senior
subordinated notes to LLCP, Mr. Poole and SFSC agreed to certain modifications
to that indebtedness. In particular, they agreed to subordinate their
indebtedness to the indebtedness in favor of LLCP, to extend the maturity of
their debt until June 2004, and to reduce their interest rate from 15% to 12.5%.
SFSC and Mr. Poole received in return the option to convert such debt into an
aggregate of 1,666,667 shares of common stock at the rate of $3.00 per share
through maturity at June 30, 2004. SFSC further agreed to subordinate to LLCP up
to $15 million of other Company indebtedness held by SFSC, to the extent the
notes representing such indebtedness had not been pledged to unaffiliated third
parties.
In November 1998 and April 1999, the Company issued certain warrants and senior
subordinated notes to LLCP, on the terms and conditions set forth above in the
description of Proposal Two. In connection therewith, the Company also retained
LLCP to provide consulting services, and to pay a consulting fee at the rate of
$275,000 per year, effective December 1, 1999, through November 30, 2003. No
fixed, minimum or maximum number of hours of service is specified.
The agreements and transactions described above were entered into by the Company
with the parties who personally benefited from such transactions and who had a
control or fiduciary relationship with the Company (Mr. Levine, with whom the
Company negotiated the LLCP transactions, was a director of the Company after
the consummation of the November 1998 transaction until April 1999). In each
case such agreements and transactions have been reviewed and approved by the
members of the Company's Board of Directors who are disinterested with respect
thereto.
VOTING OF SHARES
The Board of Directors recommends that an affirmative vote be cast in favor of
each of the nominees and proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before the
meeting which require submission to a vote of the shareholders. If any other
matters are properly brought before the meeting, however, the persons named in
the enclosed proxy or their substitutes will vote in accordance with their best
judgment on such matters.
Holders of CPS Common Stock are entitled to one vote per share on each matter
other than election of directors. As to election of directors, each holder of
CPS Common Stock may cumulate such holder's votes and give any nominee an
aggregate number of votes equal to the number of directors to be elected
multiplied by the number of shares of CPS Common Stock held of record by such
holder as of the record date, or distribute such aggregate number of votes among
as many nominees as the holder thinks fit. However, no such holder shall be
entitled to cumulate votes for any nominee unless such nominee's name has been
placed in nomination prior to the voting and the holder has given notice at the
annual meeting prior to the voting of the holder's intention to cumulate votes.
If any one holder has given such notice, all holders may cumulate their votes
for nominees. Discretionary authority is sought hereby to cumulate votes of
shares represented by proxies.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by the
Inspector of Elections with the assistance of the Company's transfer agent. The
Inspector of Elections will also determine whether or not a quorum is present.
The affirmative vote of a majority of shares represented and voting on the
proposal at a duly held meeting at which a quorum is present is required for
approval of Proposal No. 2 (Approval of Warrant to Purchase 1,335,000 Shares)
and Proposal No. 3 (Selection of Independent Auditors). In general, California
law provides that a quorum consists of a majority of the shares entitled to
vote, represented either in person or by proxy. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted FOR the election of nominees for
director named herein; FOR the approval the Warrant to Purchase 1,335,000
Shares; and FOR the ratification of the appointment of KPMG Peat Marwick as the
Company's independent auditors for the year ending December 31, 1999; and will
be deemed to grant discretionary authority to vote upon any other matters
properly coming before the meeting. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will be
considered as abstentions with respect to that matter. While there is no
definitive specific statutory or case law authority in California concerning the
14
<PAGE>
proper treatment of abstentions and broker non-votes, the Company believes that
the tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
SHAREHOLDER PROPOSALS
The Company expects to hold its year 2000 Annual Meeting of Shareholders on
Wednesday, May 31, 2000. In order to be considered for inclusion in the
Company's proxy statement and form of proxy for the 1999 Annual Meeting, any
proposals by shareholders intended to be presented at such meeting must be
received by the Secretary of the Company at 16355 Laguna Canyon Road, Irvine,
California 92618 by no later than January 3, 2000.
