<PAGE>
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.
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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.
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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, July 12, 2000,
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 amend the Company's 1997 Long-Term Incentive Stock Plan to increase the
number of shares issuable pursuant to awards under the plan.
o To ratify the appointment of KPMG LLP as the Company's independent auditors
for the fiscal year ending December 31, 2000.
o To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on June 14, 2000, 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: June 15, 2000
<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 JULY 12, 2000
-----------
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, July 12, 2000, 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 June
14, 2000, 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
20,323,651 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 June 15, 2000.
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.
NAME AGE POSITION(S) WITH THE COMPANY
Charles E. Bradley, Sr. 70 Chairman of the Board of Directors
Charles E. Bradley, Jr. 40 President, Chief Executive Officer,
and Director
William B. Roberts 62 Director
John G. Poole 57 Vice Chairman of the Board of Directors
Robert A. Simms 61 Director
Thomas L. Chrystie 67 Director
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 a director of Texon Energy
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 March 1991 until December 1995 he
served as Vice President and a director of CPS Holdings, Inc. 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, Texon
Energy Corporation, and Thomas Nix Distributor, Inc. Charles E. Bradley, Sr.,
Chairman of the board of directors of the Company, is his father.
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.
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.,
and DeVlieg-Bullard, Inc.
2
<PAGE>
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.
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.
BANKRUPTCY PROCEEDINGS. Mr. Bradley, Sr. is chairman of the board of directors
and Mr. Poole is a director of DeVlieg-Bullard, Inc. ("DBI"). On July 15, 1999,
DBI filed a voluntary petition in the United States Bankruptcy Court for the
Northern District of Ohio for reorganization under Chapter 11 of the United
States Bankruptcy Code. Mr. Bradley, Jr. is chairman of the board of members and
Mr. Bradley, Sr. is a member of the board of members of LINC Acceptance Company,
LLC ("LINC"). LINC is a limited liability company organized under the laws of
Delaware, and its board of members has certain management authority. The
operating agreement of LINC designated the chairman of the board of members as
LINC's chief executive officer. LINC is a majority-owned subsidiary of the
Company, which engaged in the business of purchasing retail motor vehicle
installment purchase contracts, and selling such contracts to the Company or
other affiliates. LINC ceased operations in the second quarter of 1999. On
October 29, 1999, three former employees of LINC filed an involuntary petition
in the United States Bankruptcy Court for the District of Connecticut seeking
LINC's liquidation under Chapter 7 of the United States Bankruptcy Code.
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. John G. Poole is an
alternate member of the Audit Committee. 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 Stock 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 one special meeting in
1999, and twice acted by written consent. The Audit Committee met twice during
1999, and the Compensation Committee met three times and monthly (twelve times)
acted by written consent. Each director attended at least 75% of the meetings,
of the Board and its committees of which he was a member.
The Board of Directors recommends a vote "FOR" each of the nominees above.
3
<PAGE>
PROPOSAL NO. 2 - AMENDMENT TO 1997 LONG-TERM INCENTIVE PLAN
At the Annual Meeting, the Company's shareholders will be asked to approve an
amendment (the "Amendment") to the Company's 1997 Long-Term Incentive Stock Plan
(the "1997 Plan"). The Amendment would increase by 1,000,000, to a total of
2,500,000, the number of shares of the Common Stock that may be issued pursuant
to awards under the 1997 Plan.
In April 1997 the Board of Directors adopted the 1997 Plan, which was
subsequently approved by the Company's shareholders. The principal reason for
the proposed amendment to the 1997 Plan is that the Company has made grants, net
of cancellations, under the 1997 Plan with respect to 1,387,350 of the 1,500,000
shares currently authorized for issuance thereunder. In addition to the 1997
Plan, the Company's shareholders have authorized the issuance of options to
purchase up to 2,700,000 shares under the 1991 Stock Option Plan (the "1991
Plan"), and the Board of Directors has granted non-plan options with respect to
an aggregate of 235,000 shares. As of May 31, 2000, there are 6,950 shares
remaining available under the 1991 Plan, which will terminate (without affecting
outstanding options) in December 2001. Of the total of 4,200,000 shares
authorized for issuance under the 1991 Plan or the 1997 Plan (prior to approval
of the Amendment), 1,434,900 have been issued upon exercise of options,
2,645,500 are subject to outstanding options, and 119,600 remain available for
grant. None of the 235,000 non-plan options have been exercised.
The Board of Directors has determined that the Company's ability to retain and
attract qualified personnel would be best served by authorizing the issuance of
additional long-term incentives, including stock options, and has therefore
amended the 1997 Plan and directed that the amendment be submitted to the
shareholders for approval.
The purposes of the 1997 Plan are to align employees' long-term financial
interests with those of shareholders, reinforce a performance-oriented culture
and strategy, reward employees for increasing the Company's stock price over
time and to attract, retain and motivate employees.
The 1997 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which has complete discretion to select the
optionee and to establish the terms and conditions of each award, subject to the
provisions of the 1997 Plan. The Committee is authorized to grant any of the
following awards to such eligible persons as the Committee may select: options
to purchase common stock; stock appreciation rights; other stock awards; and
stock payments, any of which may be granted singly, in tandem or in combination
as the Committee may determine. Shares of stock subject to awards are shares of
common stock, no par value, of the Company.
The 1997 Plan permits the grant of stock options to purchase shares at such
exercise price as the Committee may determine. The 1997 Plan permits the grant
of stock options in the form of nonqualified stock options as well as incentive
stock options as described in Section 422 of the Code. The 1997 Plan is not a
qualified deferred compensation plan under Section 401(a) of the Code, and is
not subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
The exercise period for any stock option granted is determined by the Committee
at the time of grant, but may not be longer than 10 years from the date of
grant. Upon exercise, the option exercise price may be paid in cash, or, if so
provided in the option agreement or with the consent of the Committee, by
tendering shares of Company stock owned by the optionee, by authorizing the
Company or its affiliates to sell the shares subject to the option and assigning
to the Company a sufficient amount of the sale proceeds to pay the option price,
or any combination of such methods. A stock appreciation right (an "SAR")
represents a right to receive a payment in cash, shares or a combination of
both, equal to the excess of the fair market value of a specified number of
shares on the date the SAR is exercised over an amount that is no less than the
fair market value of the shares on the date of grant, unless such award is
granted retroactively in substitution for an existing stock option. No SARs have
been granted under the 1997 Plan.
4
<PAGE>
Stock awards (including restricted stock) and stock payments may also be granted
pursuant to the 1997 Plan. Stock awards may be made in shares of common stock or
denominated in units equivalent in value to shares or may otherwise be based on
or related to shares of common stock. All or part of any stock award may be
subject to conditions and restrictions established by the Committee, which may
include continuous service and/or achievement of performance goals. The
performance criteria that may be used by the Committee in granting awards
contingent on performance goals for officers to which Section 162(m) of the Code
is applicable consist of stock price, earnings level and return on equity. The
Committee may select one criterion or multiple criteria for measuring
performance and the measurement may be based on the performance of the Company
and/or on comparative performance with other companies. The Committee may grant
awards under the 1997 Plan that are not based on the performance criteria
specified above, in which case the compensation paid under such awards to
officers to which Section 162(m) of the Code is applicable may not be
deductible. In all cases, the minimum vesting requirement for all or a portion
of any stock award will be not less than six months. Stock payments may be made
pursuant to the 1997 Plan to compensate individuals for amounts otherwise
payable in cash, in which case the shares used for such payment will not be
applied to the share limitations of the 1997 Plan and no minimum vesting period
will apply. No stock awards or stock payments have been granted under the 1997
Plan.
The Committee may grant awards to employees of the Company or of entities in
which the Company has a controlling or significant equity interest. As of May
31, 2000, there were approximately 488 persons eligible to participate in the
1997 Plan. Stock options, stock appreciation rights, other stock awards and
stock payments may also be granted to employees of other companies who become
employees of the Company or an affiliate as a result of a merger, consolidation
or acquisition in substitution for stock options or other stock denominated
awards held by such employees in such other companies.
The 1997 Plan currently provides that an aggregate maximum of up to 1,500,000
shares of the Company's common stock may be subject to awards under the 1997
Plan, which maximum will increase to 2,500,000 shares if the Amendment is
approved at the Annual Meeting. No more than 750,000 shares represented by
awards may be granted to any single individual over the life of the 1997 Plan.
The market value of the maximum 2,500,000 shares, if all were outstanding as of
May 31, 2000, would be $2,500,000, based on the $1.00 per share closing price
reported by Nasdaq for that date. All shares of common stock subject to the 1997
Plan and covered by outstanding awards will be proportionately adjusted, subject
to the Committee's discretion, for any future stock splits or consolidations or
other corporate transactions.
The provisions governing the disposition of specific awards granted under the
1997 Plan in the event of the retirement, disability, death or other termination
of employment of the participant may be determined by the Committee at the time
such awards are granted. In general, upon termination of employment of an
optionee, all options granted to such person that were not exercisable on the
date of such termination terminate immediately, and any options that were then
exercisable terminate 90 days (one year in the case of termination by reason of
death or disability) following termination of employment, except in the event of
termination for cause. In the event of termination for cause, all unexercised
options terminate immediately. Awards granted under the 1997 Plan are not
transferable or assignable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order.
Prior to a change of control of the Company, the Committee or the Board of
Directors may alter, amend, suspend or discontinue the 1997 Plan or any
agreements granted thereunder to the extent permitted by law. However, approval
of the shareholders is necessary to increase the number of shares available for
awards.
In the event of a change of control of the Company or an affiliate, the
Committee or the Board of Directors may take action to accelerate the time
period for exercising or realizing awards, to provide for the purchase of awards
for an amount equal to the amount that could have been obtained upon the
exercise or realization of rights had the awards been currently exercisable or
payable, to make adjustments to the awards to reflect the change of control, or
to cause outstanding awards to be assumed, or new rights substituted therefore,
by the corporation surviving such change.
5
<PAGE>
A copy of the complete text of the 1997 Plan may be obtained upon request from
the Office of the Secretary, Consumer Portfolio Services, Inc., 16355 Laguna
Canyon Road, Irvine, CA 92618.
As the Company's executive officers are eligible to receive awards under the
1997 Plan, such individuals may be deemed to have a personal interest in
approval of the Amendment. The table captioned "Options/Grants in Last Fiscal
Year," which appears below in this Proxy Statement, gives information regarding
all stock options granted in the year ended December 31, 1999, to the Company's
chief executive officer and its four most highly-compensated other executive
officers (together with the chief executive officer, the "Named Executive
Officers"), whether such options were granted under the 1997 Plan or 1991 Plan,
or were non-plan options. Such grants are not contingent on approval of the
Amendment. On an aggregate basis, in the year ended December 31, 1999, (i) all
current executive officers of the Company as a group were granted options with
respect to a total of 1,587,000 shares, at an exercise price of $0.625 per share
(excluding options that were both granted and canceled in 1999), (ii) all
directors who are not executive officers were granted options with respect to a
total of 60,000 shares, at an exercise price of $0.625 per share, and (iii) all
employees other than executive officers were granted options with respect to a
total of 1,392,900 shares, at a weighted average exercise price of $0.633 per
share.
Options granted under the 1997 Plan may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code, or nonstatutory stock
options.
The recipient of an incentive stock option does not incur ordinary taxable
income at the time of grant or exercise of the option. However, the optionee may
incur alternative minimum tax upon exercise of the option. The Company is not
entitled to a tax deduction at the time of exercise of an incentive stock option
regardless of the applicability of the alternative minimum tax. Upon the sale or
exchange of the shares at least one year after receipt of the shares by the
optionee and two years after grant of the incentive stock option, any gain is
treated as long-term capital gain. If these holding periods are not satisfied,
the optionee recognizes ordinary taxable income equal to the difference between
the exercise price, and the lower of the fair market value of the stock at the
date of the option exercise or the sale price of the stock. In turn, the Company
is entitled to a tax deduction for the amount of the ordinary income recognized
by the optionee. Any gain to the optionee in excess of the ordinary income from
a disposition which does not meet the statutory holding period requirements, is
long-term capital gain if the sale occurs more than one year after exercise or
short-term capital gain if the sale occurs within one year after the exercise.
Options which do not qualify as incentive stock options are nonstatutory stock
options. An optionee does not recognize taxable income at the time of grant of a
nonstatutory stock option. However, upon exercise, the optionee does recognize
ordinary taxable income equal to the excess of the fair market value of the
shares at time of exercise over the exercise price. Upon resale of such shares
by the optionee, any difference between the sale price and the optionee's tax
basis (exercise price plus the income recognized upon exercise) is treated as
capital gain or loss.
Approval of the Amendment to the 1997 Plan requires the affirmative vote of a
majority of the votes cast at the meeting by the shareholders entitled to vote
thereon. The Board of Directors recommends a vote FOR this proposal.
PROPOSAL NO. 3 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, on recommendation of the Audit Committee, has appointed
the accounting firm of KPMG LLP to be the Company's independent auditors for the
year ending December 31, 2000.
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 LLP,
another firm of independent public accountants will be selected by the Board of
Directors at the Annual Meeting. Representatives of KPMG LLP 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 LLP.
6
<PAGE>
INFORMATION REGARDING THE COMPANY
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 1999, 1998 and 1997 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, 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term All Other
Compensation for Compensation Compensation
period shown Awards(1) (2)
--------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary Bonus Options/SARs
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CHARLES E. BRADLEY, JR. 1999 $500,000 $300,000 780,240 1,380
President & Chief Executive 1998 450,000 750,000 498,400 1,380
Officer 1997 425,000 575,000 0 1,380
--------------------------------------------------------------------------------------------------------
CURTIS K. POWELL 1999 182,000 73,000 178,000 1,130
Senior Vice President - 1998 170,000 107,000 178,000 1,046
Marketing 1997 143,000 97,000 0 1,045
--------------------------------------------------------------------------------------------------------
NICHOLAS P. BROCKMAN 1999 151,000 72,000 103,000 1,027
Senior Vice President - 1998 137,000 88,000 84,600 996
Collections 1997 127,000 62,000 0 974
--------------------------------------------------------------------------------------------------------
RICHARD P. TROTTER 1999 148,000 65,000 192,600 1,027
Senior Vice President - 1998 137,000 87,000 192,600 988
Originations 1997 124,500 81,000 43,000 953
--------------------------------------------------------------------------------------------------------
WILLIAM L. BRUMMUND, JR. 1999 153,000 58,000 132,600 1,046
Senior Vice President - 1998 143,000 92,000 84,600 1,002
Administration 1997 129,000 84,000 0 974
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) Number of shares that might be purchased upon exercise of options that were
granted in the period shown. Some of such options have been cancelled in
connection with repricings. See table on next page.
(2) Amounts in this column represent (a) Company contributions to the Employee
Savings Plan (401(k) Plan), in the amount of $600 per year per individual, and
(b) premiums paid by the Company for group life insurance, as applicable to the
named executive officers.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 1999, 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 1999 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 10,000 shares, to become
exercisable at the then-current market price of $4.4375 per share. The chief
executive officer received in January a grant of options with respect to 175,000
shares, also to become exercisable at $4.4375 per share. On October 29, 1999,
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 $0.625 per share, which
was the market price of such shares on the October date of the amendment, and
(ii) to prohibit the exercise of all or any part of such modified options prior
to April 29, 2000. The following table summarizes each 1999 grant to any of the
named executive officers.
7
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
OPTIONS/GRANTS IN LAST FISCAL YEAR -- at Assumed Annual Rates of
Stock Price Appreciation for
INDIVIDUAL GRANTS Option Term
---------------------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Shares Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in 1999 ($/Share) Date 5% 10% Notes
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Bradley, Jr. 175,000* 2.1243 $4.4375 01/26/09 $488,375* $1,237,640* *
1,840 0.0223 $0.6250 08/01/01 $102 $209 **
200,000 2.4277 $0.6250 03/31/06 $45,973 $105,471 **
8,400 0.1020 $0.6250 12/15/04 $1,492 $3,309 (1)
150,000 1.8208 $0.6250 03/31/04 $22,573 $49,141 **
30,800 0.3739 $0.6250 01/12/08 $9,477 $22,830 (2)
39,200 0.4758 $0.6250 01/12/08 $12,062 $29,056 **
175,000 2.1243 $0.6250 01/26/09 $62,332 $154,589 **
---------------------------------------------------------------------------------------------------------------------
Richard P. Trotter 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
18,000 0.2185 $0.6250 05/08/07 $4,989 $11,794 (3)
70,000 0.8497 $0.6250 01/04/04 $9,906 $21,434 **
7,600 0.0923 $0.6250 03/31/05 $1,437 $3,211 (4)
25,000 0.3035 $0.6250 05/08/07 $6,929 $16,380 (5)
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (6)
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
---------------------------------------------------------------------------------------------------------------------
Curtis K. Powell 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
10,000 0.1214 $0.6250 01/12/08 $3.077 $7,412 (8)
40,000 0.4855 $0.6250 03/31/06 $9,194 $21,094 **
10,000 0.1214 $0.6250 01/12/08 $3,077 $7,412 (8)
35,000 0.4249 $0.6250 03/31/06 $8,045 $18,457 (9)
43,000 0.5220 $0.6250 10/31/04 $7,434 $16,430 (10)
20,000 0.2428 $0.6250 01/17/05 $3,625 $8,056 **
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
---------------------------------------------------------------------------------------------------------------------
William L. Brummund, Jr. 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
36,800 0.4467 $0.6250 12/15/01 $2,517 $5,173 **
11,200 0.1360 $0.6250 10/29/09 $4,402 $11,156 **
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (11)
5,000 0.0607 $0.6250 03/31/06 $1,149 $2,636 (12)
7,600 0.0923 $0.6250 10/31/04 $1,313 $2,903 (7)
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833.68 (7)
---------------------------------------------------------------------------------------------------------------------
Nicholas P. Brockman 10,000* 0.1214 $4.4375 01/26/06 $27,907* $70,722* *
18,400 0.2234 $0.6250 12/15/01 $1,258 $2,586 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (13)
12,600 0.1529 $0.6250 03/31/06 $2,896 $6,644 (14)
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* The recipients of such options will receive no value, as such options were
cancelled and replaced in October 1999.
** fully exercisable at present.
Numbered notes above refer to the associated options becoming exercisable in
cumulative installments as follows:
(1) 5380 shares on 5/1/03 and 3020 shares on 5/1/04
(2) 8600 shares on 1/12/04, 11,100 on 1/12/05 and 11,100 on 1/12/06
(3) 8100 shares presently exercisable, 5200 on 5/8/01, and 4700 on 5/8/02
(4) as to all shares on 5/1/01
(5) 80% presently exercisable, and 20% on 5/8/01
(6) 6600 shares on 1/12/03, 11,000 on 1/12/04 and 2400 on 1/12/05
(7) 2000 shares presently exercisable, and 2000 on each of 1/26/01, 1/26/02,
1/26/03 & 1/26/04
8
<PAGE>
(8) as to 50% on 1/12/01 and 50% on 1/12/02
(9) 2000 shares on 5/1/01, and 11,000 on each of 5/1/02, 5/1/03 & 5/1/04
(10) 32,250 shares presently exercisable, and the remainder on 5/1/01
(11) 3000 shares presently exercisable, 1500 on 1/12/01, 1800 on 1/12/02, 6100
on 1/12/03 and 7600 on 1/12/04
(12) as to all shares on 5/1/02
(13) 3000 shares presently exercisable, 1500 on 1/12/01, 3600 on 1/12/02, 6100
on 1/12/03, and 5800 on 1/12/04
(14) 7600 shares on 5/1/01 and 5000 on 5/1/02
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>
OPTION/ MARKET VALUE EXERCISE PRICE NEW LENGTH OF ORIGINAL
DATE OF SAR SHARES AT TIME OF AT TIME OF EXERCISE OPTION TERM AT
NAME REPRICING REPRICED REPRICING REPRICING PRICE TIME OF REPRICING
<S> <C> <C> <C> <C> <C> <C>
Thurman L. Blizzard 10/21/1998 70,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Sr VP - Risk Management 10/29/1999 70,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 10,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
Charles E. Bradley, Jr. 10/29/1999 1,840 $0.6250 $2.6875 $0.6250 1 Years 276 Days
President 10/21/1998 150,000 $3.2500 $5.3750 $3.2500 5 Years 162 Days
10/21/1998 8,400 $3.2500 $7.2500 $3.2500 6 Years 55 Days
10/21/1998 200,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/21/1998 39,200 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/21/1998 30,800 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 39,200 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 30,800 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 200,000 $0.6250 $3.2500 $0.6250 6 Years 153 Days
10/29/1999 8,400 $0.6250 $3.2500 $0.6250 5 Years 47 Days
10/29/1999 150,000 $0.6250 $3.2500 $0.6250 4 Years 154 Days
10/29/1999 175,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
Nicholas P. Brockman 10/29/1999 18,400 $0.6250 $2.6875 $0.6250 2 Years 47 Days
Sr VP - Collections 10/21/1998 32,000 $3.2500 $5.3750 $3.2500 5 Years 162 Days
10/21/1998 12,600 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/21/1998 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 12,600 $0.6250 $3.2500 $0.6250 6 Years 153 Days
10/29/1999 32,000 $0.6250 $3.2500 $0.6250 4 Years 154 Days
10/29/1999 10,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
10/29/1999 20,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
William L. Brummund 10/29/1999 11,200 $0.6250 $2.5000 $0.6250 2 Years 154 Days
Sr VP - Administration 10/29/1999 36,800 $0.6250 $2.6875 $0.6250 2 Years 47 Days
10/21/1998 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
10/21/1998 7,600 $3.2500 $11.0000 $3.2500 6 Years 10 Days
10/21/1998 5,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/21/1998 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 32,000 $0.6250 $3.2500 $0.6250 4 Years 154 Days
10/29/1999 7,600 $0.6250 $3.2500 $0.6250 5 Years 2 Days
10/29/1999 5,000 $0.6250 $3.2500 $0.6250 6 Years 153 Days
10/29/1999 10,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
Mark A. Creatura 10/21/1998 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Sr VP & General Counsel 05/07/1997 50,000 $8.4375 $12.0000 $8.5000 8 Years 177 Days
10/21/1998 50,000 $3.2500 $8.5000 $3.2500 8 Years 198 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 50,000 $0.6250 $3.2500 $0.6250 7 Years 190 Days
10/29/1999 40,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
OPTION/ MARKET VALUE EXERCISE PRICE NEW LENGTH OF ORIGINAL
DATE OF SAR SHARES AT TIME OF AT TIME OF EXERCISE OPTION TERM AT
NAME REPRICING REPRICED REPRICING REPRICING PRICE TIME OF REPRICING
<S> <C> <C> <C> <C> <C> <C>
Jeffrey P. Fritz 10/21/1998 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Former Sr. V.P. & CFO 10/21/1998 7,600 $3.2500 $11.0000 $3.2500 6 Years 10 Days
10/21/1998 5,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/21/1998 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
Curtis K. Powell 10/21/1998 35,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
Sr VP - Marketing 10/21/1998 40,000 $3.2500 $8.8750 $3.2500 7 Years 161 Days
10/21/1998 43,000 $3.2500 $7.2500 $3.2500 6 Years 10 Days
10/21/1998 20,000 $3.2500 $6.6250 $3.2500 6 Years 10 Days
10/21/1998 10,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/21/1998 10,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 10,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 10,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 35,000 $0.6250 $3.2500 $0.6250 6 Years 153 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 5 Years 2 Days
10/29/1999 43,000 $0.6250 $3.2500 $0.6250 5 Years 2 Days
10/29/1999 40,000 $0.6250 $3.2500 $0.6250 6 Years 153 Days
10/29/1999 10,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
James L. Stock 10/21/1998 3,000 $3.2500 $8.3750 $3.2500 7 Years 290 Days
Sr VP & CFO 10/21/1998 32,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 32,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 3,000 $0.6250 $3.2500 $0.6250 6 Years 282 Days
10/29/1999 11,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
10/29/1999 25,000 $0.6250 $0.6250 $0.6250 10 Years 0 Days
Kris I. Thomsen 10/29/1999 19,000 $0.6250 $2.5000 $0.6250 2 Years 47 Days
Sr VP - Systems 10/29/1999 23,000 $0.6250 $2.6875 $0.6250 2 Years 64 Days
10/21/1998 20,000 $3.2500 $5.5625 $3.2500 5 Years 194 Days
10/21/1998 4,560 $3.2500 $7.2500 $3.2500 6 Years 161 Days
10/21/1998 3,000 $3.2500 $12.0000 $3.2500 7 Years 10 Days
10/21/1998 12,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/29/1999 12,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 3,000 $0.6250 $3.2500 $0.6250 6 Years 2 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 4 Years 186 Days
10/29/1999 4,560 $0.6250 $3.2500 $0.6250 5 Years 153 Days
10/29/1999 20,000 $0.6250 $1.5625 $0.6250 9 Years 245 Days
10/29/1999 6,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
10/29/1999 2,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
Richard P. Trotter 10/21/1998 32,000 $3.2500 $5.3750 $3.2500 5 Years 194 Days
Sr VP - Originations 10/21/1998 70,000 $3.2500 $4.3750 $3.2500 5 Years 75 Days
10/21/1998 7,600 $3.2500 $7.2500 $3.2500 6 Years 161 Days
05/07/1997 25,000 $8.4375 $12.0000 $8.5000 8 Years 177 Days
05/07/1997 18,000 $8.4375 $12.0000 $8.5000 8 Years 177 Days
10/21/1998 20,000 $3.2500 $9.0000 $3.2500 9 Years 83 Days
10/21/1998 25,000 $3.2500 $8.5000 $3.2500 8 Years 199 Days
10/21/1998 18,000 $3.2500 $8.5000 $3.2500 8 Years 199 Days
10/29/1999 20,000 $0.6250 $3.2500 $0.6250 8 Years 75 Days
10/29/1999 70,000 $0.6250 $3.2500 $0.6250 4 Years 67 Days
10/29/1999 7,600 $0.6250 $3.2500 $0.6250 5 Years 153 Days
10/29/1999 25,000 $0.6250 $3.2500 $0.6250 7 Years 191 Days
10/29/1999 32,000 $0.6250 $3.2500 $0.6250 4 Years 186 Days
10/29/1999 18,000 $0.6250 $3.2500 $0.6250 7 Years 191 Days
10/29/1999 10,000 $0.6250 $4.4375 $0.6250 9 Years 89 Days
</TABLE>
10
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 1999, 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, 1999, 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 Stock Plan, at an option price per share equal to the fair market
value per share on the date of grant. All options held at December 31, 1999,
were subject to a period of non-exercisability, which extended through April 29,
2000; accordingly, the number of options exercisable at December 31, 1999, was
zero for each individual.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Name Number of Unexercised Options Value of Unexercised In-the-Money
at December 31, 1999 Options at December 31, 1999(1)
Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles E. Bradley, Jr. 0/605,240 $0/$567,715
-------------------------------------------------------------------------------------------------
Nicholas P. Brockman 0/93,000 $0/$87,234
-------------------------------------------------------------------------------------------------
William L. Brummund, Jr. 0/122,600 $0/$114,999
-------------------------------------------------------------------------------------------------
Richard P. Trotter 0/182,600 $0/$171,279
-------------------------------------------------------------------------------------------------
Curtis K. Powell 0/168,000 $0/$157,584
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Valuation based on the last sales price on December 31, 1999 of $1.5625 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, and if such employees achieve certain individual objectives.
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, 1999, the Company paid director compensation
of $125,000 to Mr. Bradley, Sr., for his service as Chairman of the Board of
Directors, and $25,962 to Mr. Poole for his service as Vice-Chairman of the
Board of Directors. Compensation to Mr. Poole was paid only for the period ended
April 1999. 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. Options originally issued to Mr. Chrystie and Mr. Simms
in 1995 (as to 30,000 shares each) were included in the October 1999 repricing.
11
<PAGE>
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 1999, 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 initially by the Compensation Committee, acting on the
recommendation of the chief executive officer, and is then made definite by
action of the Board of Directors as a whole. The principal determining factor in
the amount of bonus is whether the Company as a whole has met its earnings
objective. Such objective is 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 2000 approved bonus
compensation to each of the named executive officers, other than the chief
executive officer, of approximately 38% to 48% of his base salary for the year
ended December 31, 1999. Such percentages were substantially lower that those of
recent years, and reflect the fact that the Company did not meet its earnings
objective for 1999, but instead recorded a loss. The named executive officers
generally met their individual objectives. The Compensation Committee determined
that some level of bonus compensation was appropriate so that the Company could
pay roughly competitive levels of overall compensation, and thus expect to
retain valuable personnel.
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
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 29,
1999, 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. To ensure
that the effect of the repricing was to promote employee retention, the repriced
options were not exercisable, in whole or in part, until at least six months had
passed, that is, until April 29, 2000.
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 the Company's revenue, income and earnings per share;
the change 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.
12
<PAGE>
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 1999, the Company's chief executive officer, Charles E.
Bradley, Jr., received $500,000 in base salary, which was an increase from a
rate of $450,000 per year applicable to 1998. In setting that rate in the spring
of 1999, the Compensation Committee considered primarily the levels of chief
executive officer compensation prevailing among competitive financial services
companies. The Committee also took note of the growth in the Company's revenues
and earnings in the year 1998 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. In the
spring of 1999, the Compensation Committee reviewed the Company's internal
projections for 1999, took note of the uncertainties facing the Company, and
determined to set the target bonus for the chief executive officer at 100% of
base salary.
The Compensation Committee in April 2000 reviewed the Company's and the chief
executive officer's performance in 1999, and approved bonus compensation to the
chief executive officer of $300,000, representing 60% of that executive's base
salary for the year ended December 31, 1999. In determining to reduce the bonus
awarded below the target level of 100%, the Compensation Committee considered
the overall level of compensation earned by chief executive officers at
comparable firms, the market performance of the Company's common stock, the
Company's having incurred a loss for the year, and the ratio of chief executive
compensation to the market capitalization of the Company. The Compensation
Committee also noted that the chief executive during 1999 successfully retained
key personnel, persuaded third parties to amend agreements with the Company so
as to allow releases of cash from securitized pools, disposed of a $300 million
portfolio of pledged collateral at prices that enabled the Company to pay the
secured lenders in full, and maintained the Company's operational structure
intact, all in the face of significant challenges.
/S/ THE COMPENSATION COMMITTEE
Robert A. Simms (chairman)
Thomas L. Chrystie
William B. Roberts
13
<PAGE>
INCORPORATION BY REFERENCE
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.
PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative total
shareholder return on its common stock from March 31, 1995 through December 31,
1999, 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, 1995 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 HERE]
<TABLE>
<CAPTION>
MAR 1995 DEC 1995 DEC 1996 DEC 1997 DEC 1998 DEC 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consumer Portfolio Services, Inc. $100.00 112.30 138.46 118.46 47.69 19.23
Nasdaq Stock Market (U.S.) $100.00 129.72 159.60 195.55 275.74 511.76
Nasdaq Financial Stocks (U.S. & Foreign) $100.00 132.46 170.06 260.14 252.50 252.18
</TABLE>
14
<PAGE>
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 May 31,
2000, 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, Brummund, Jr., Powell and Trotter is c/o
Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road, Irvine, CA 92618.
<TABLE>
<CAPTION>
Amount & Nature of Percent of
------------------ ----------
Name & Address of Beneficial Owner Beneficial Ownership (1) Class
---------------------------------- ------------------------ -----
<S> <C> <C>
Charles E. Bradley, Sr........................................................... 5,250,552 (2) 24.2%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
William B. Roberts............................................................... 1,033,982 5.1%
Monmouth Capital Corp., 126 East 56th Street, New York, NY 10022
John G. Poole.................................................................... 637,193 (3) 3.1%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
Thomas L. Chrystie............................................................... 182,100 (4) 0.9%
P.O. Box 640, Wilson, WY 83014
Robert A. Simms.................................................................. 306,944 (5) 1.5%
55 Railroad Ave., Plaza Suite, Greenwich, CT 06830
Charles E. Bradley, Jr........................................................... 1,929,187 (6) 9.3%
Nicholas P. Brockman............................................................. 122,795 0.6%
William L. Brummund, Jr.......................................................... 129,873 0.6%
Richard P. Trotter .............................................................. 135,759 0.7%
Curtis K. Powell................................................................. 94,966 0.5%
All directors and executive officers combined (14 persons) ...................... 9,392,262 (7) 40.7%
Levine Leichtman Capital Partners II, L.P........................................ 4,553,500 (8) 22.4%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
Robert T. Gilhuly and Kimball J. Bradley, Trustees............................... 1,058,818 (9) 5.2%
c/o Cummings & Lockwood, Box 2505, Greenwich, CT 06830
</TABLE>
(1) Includes certain shares that may be acquired within 60 days after May 31,
2000 from the Company upon exercise of options, as follows: Mr. Chrystie, 30,000
shares, Mr. Simms, 30,000 shares, Mr. Bradley, Jr., 517,640 shares, Mr.
Brummund, 85,000 shares, Mr. Brockman, 55,400 shares, Mr. Powell, 94,250 shares,
and Mr. Trotter, 132,100 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
1,333,333 shares issuable upon conversion of $4,000,000 of Company indebtedness
held by the named person. Includes 620,000 shares subject to options in favor of
Mr. Chrystie and Mr. Bradley, Jr.
(3) Includes 333,333 shares issuable upon conversion of $1,000,000 of Company
debt held by the named person.
(4) Includes 132,100 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.
(5) Includes 16,944 shares owned by Mr. Simms' spouse, as to which he has no
voting or investment power.
(6) 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.
(7) Includes 2,770,056 shares that may be acquired within 60 days after May 31,
2000, upon exercise of options and warrants and conversion of convertible
securities.
(8) Comprises 4,552,500 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.
(9) 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).
15
<PAGE>
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each executive officer of the Company is a participant in a savings plan
available generally to employees of the Company and qualified under Section
401(k) of the Internal Revenue Code. Transactions in Company common stock by
that plan on behalf of each executive officer, as often as every pay period,
have not yet been reported on the required form. In addition, the option grants
and cancellations reported elsewhere in this Proxy Statement should have been
reported by such executive officers and by two non-officer directors, but have
not yet been reported on the required form. A total of eleven required reports
have not been filed. The individuals and the number of transactions (excluding
savings plan transactions, as to which the Company has been unable to obtain
adequate records) are Charles E. Bradley, Jr. (two), Thurman L. Blizzard (two),
Nicholas P. Brockman (two), William L. Brummund, Jr. (two), Thomas L. Chrystie
(one), Mark A. Creatura (two), Curtis K. Powell (two), Kris I. Thomsen (two),
Richard P. Trotter (two), Robert A. Simms (one), and James L. Stock (two).
CERTAIN TRANSACTIONS
From May 1999 through February 2000, the Company paid Stanwich Partners, Inc. (a
corporation of which Charles E. Bradley, Sr. and John G. Poole are principal
shareholders) $62,500 for consulting services. 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. The
consulting arrangement is not continuing.
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, 2000, the total amount outstanding under the two lines of credit
was approximately $3.0 million, of which the Company had guarantied
approximately $1.5 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, 2000, is approximately $2.4 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 $2.1 million at
December 31, 1998, which indebtedness bears interest at the rate of 13% per
annum. During 1999, NAB repaid the entire amount owed.
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,
1999, the Company purchased 57 such contracts, with an aggregate principal
balance of approximately $827,000. The Company paid an aggregate of
approximately $802,000 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 11 such vehicles to Cars USA in
1999, for aggregate consideration of $83,800. The Company has provided inventory
financing ("flooring") and has lent additional monies to Cars USA. As of
December 31, 1999, the total amount owed to the Company was approximately
$671,000, of which $321,100 represented flooring. The largest aggregate amount
of indebtedness outstanding under the flooring line at any time since January 1,
1999 was $321,100, as of December 31, 1999. 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 $350,000 do
not bear interest. The remainder of the amount owed to the Company represents
fees for services performed for the dealer by the Company.
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On November 17, 1998, the Company sold $25,000,000 aggregate principal amount of
13.50% 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. That exercise price per share was determined by negotiation
between the Company and LLCP, and represented a slight discount from the $3.1875
closing price per share reported by Nasdaq on September 11, 1998, which was the
date of the first of several investment proposals from LLCP pursuant to which
the November Warrant ultimately was issued.
On April 15, 1999, the Company sold an additional $5,000,000 aggregate principal
amount of 14.50% Senior Subordinated Notes to LLCP. As part of that transaction
(the "April Transaction"), (i) LLCP waived or modified certain provisions of the
documentation of the November Transaction, (ii) the Company and LLCP modified
certain provisions of the November Notes, including an increase in the interest
rate to 14.50% per annum, (iii) 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 $0.01 per share, and (iv) 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 $0.01 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
$0.01 per share. The April Warrant was contingent on shareholder approval, which
was obtained on May 26, 1999. Immediately following shareholder approval, LLCP
exercised the April Warrant for 1,334,000 shares at $0.01 per share, giving LLCP
aggregate holdings of 4,449,000 shares, or approximately 22.5% of outstanding
shares. Also in the April Transaction, (i) the Company agreed to defer to July
and August 1999 the commitment of SFSC to make an additional $15.0 million
investment into the Company, (ii) Charles E. Bradley, Sr., and Charles E.
Bradley, Jr., personally guaranteed a portion of the related debt, and (iii)
those individuals pledged certain collateral in conjunction with those
commitments. Those guarantees and that collateral were released in connection
with the March 2000 restructuring described below.
The increase in the interest rate on the November Notes, and the $0.01 per share
exercise price of the April Warrant and of the amended November Warrant, were
conditions to LLCP's willingness to lend money to the Company in the April
Transaction. Such exercise price was not similar to the market price of CPS
Common Stock, which was $3.625 per share on April 15, 1999. The Company obtained
in those transactions long-term debt financing in the aggregate principal amount
of $30 million.
The documents governing the Company's transactions with LLCP also include, among
other things, provisions giving LLCP the right to require the Company to
register shares issued or 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.
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 connection with the April Transaction, SFSC and Mr. Poole agreed to
additional terms making more strict the subordination of this indebtedness to
the Company's indebtedness in favor of LLCP.
17
<PAGE>
In connection with the Company's sale of approximately $234.2 million of
Contracts in June 1999 to an affiliate of General Electric Capital Corporation,
Mr. Bradley, Jr., gave his personal guaranty of certain of the Company's
representations and warranties concerning the Contracts to be sold. Mr. Bradley
received no separate compensation in exchange for that guaranty.
On September 30, 1999, the Company issued $1.5 million of promissory notes 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 notes bear interest at
the rate of 14.5% per annum. As part of the related agreement, the Company
agreed to issue warrants to purchase 207,000 shares of the Company's common
stock at the price of $0.01 per share. Those warrants were never issued, and in
the March 2000 restructuring, described below, SFSC agreed to accept 103,500
shares of common stock in place of such 207,000 warrants.
In March 2000, the Company and LLCP restructured the outstanding indebtedness of
the Company in favor of LLCP, which had been in default. In the restructuring,
(i) all existing defaults were waived or cured, (ii) LLCP lent an additional $16
million ("Tranche A") to the Company, (iii) the proceeds of that loan (net of
fees and expenses) were used to repay all of the Company's outstanding senior
secured indebtedness, (iv) the outstanding $30 million of subordinated
indebtedness in favor of LLCP was exchanged for senior indebtedness ("Tranche
B"), (v) the Company granted a blanket security interest in favor of LLCP, to
secure both Tranche A and Tranche B, and (vi) LLCP released SFSC and its
affiliates (including Mr. Bradley, Sr., Mr. Bradley, Jr., and Mr. Poole) of any
liability for failure to invest $15 million in the Company. Tranche A is due
July 2001, and bears interest at 12.50% per annum; Tranche B is due November
2003, and bears interest at 14.50% per annum. In each case the interest rate is
subject to increase by 2.0% in the event of a default by the Company. In the
restructuring, the Company paid a fee of $325,000, paid accrued default interest
of $300,000, issued 103,500 shares of common stock to LLCP, and paid
out-of-pocket expenses of approximately $250,000. The terms of the transaction
were determined by negotiation between the Company and LLCP.
The Company has from time to time lent money to its employees, including
officers. Such borrowings are evidenced by promissory notes, and generally bear
interest at 10% per annum. Charles E. Bradley, Jr. (president and a director)
and Nicholas P. Brockman (a senior vice president) were indebted to the Company
in excess of $60,000 at various times since January 1, 1999. The maximum
indebtedness of Mr. Bradley was $625,303, as of January 1, 1999, and the maximum
indebtedness of Mr. Brockman was $154,618, as of January 1, 2000. As of March
14, 2000, Mr. Bradley's and Mr. Brockman's indebtedness to the Company was
approximately $88,436 and $154,618, respectively. Mr. Bradley's indebtedness as
of March 14, 2000, includes approximately $15,000 representing his profits
recoverable for the benefit of the Company under Section 16(b) of the Securities
Exchange Act. Mr. Bradley has agreed to pay that amount to the Company not later
than May 31, 2000.
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.
18
<PAGE>
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 (Amendment to 1997 Long-Term Incentive Stock Plan)
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 that is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted FOR election of the nominees for
director named herein; FOR the amendment to the 1997 Long-Term Incentive Stock
Plan; and FOR the ratification of the appointment of KPMG LLP as the Company's
independent auditors for the year ending December 31, 2000; 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
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 2001 Annual Meeting of Shareholders on
Wednesday, May 30, 2001. In order to be considered for inclusion in the
Company's proxy statement and form of proxy for the 2001 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, 2001.
19
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 12, 2000
The undersigned shareholder of CONSUMER PORTFOLIO SERVICES, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement with respect to the Annual Meeting
of Shareholders of Consumer Portfolio Services, Inc. to be held at the offices
of said corporation at 16355 Laguna Canyon Road, Irvine, California 92618 on
Wednesday, July 12, 2000, at 10:00 a.m., and hereby appoints Charles E. Bradley,
Jr. and James L. Stock, and each of them, proxies and attorneys-in-fact, each
with power of substitution and revocation, and each with all powers that the
undersigned would possess if personally present, to vote the Consumer Portfolio
Services, Inc. Common Stock of the undersigned at such meeting and any
postponements or adjournments of such meeting, as set forth below, and in their
discretion upon any other business that may properly come before the meeting
(and any such postponements or adjournments).
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR
THE ELECTION OF THE NOMINEES, FOR PROPOSALS 2 AND 3, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
<TABLE>
<CAPTION>
/x/ Please mark
votes as in
this example Please Detach and Mail in the Envelope Provided
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Election of Directors Nominees: 2. To approve an amendment to the / / / / / /
Charles E. Bradley, Sr., Charles E. Bradley, Jr., Company's 1997 Long-Term Incentive
John G. Poole, Robert A. Simms, William B. Roberts Plan to increase the number of shares
and Thomas L. Chrystie issuable pursuant to awards to awards
under the plan.
FOR ALL WITHHELD
NOMINEES FROM ALL
NOMINEES
/ / / / 3. To ratify the appointment of KPMG / / / / / /
LLP as independent auditors of the
For all nominees except as noted below Company for the year ending December
31, 1999.
---------------------------------- 4. To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
MARK HERE FOR / /
ADDRESS CHANGE
AND NOTE AT LEFT
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD
Signature:_____________________________ Date:_________________ Signature:_____________________________ Date:__________________
NOTE: This proxy should be signed by the shareholder(s) exactly as his or her name(s) appear(s) hereon, dated and returned
promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants
or as community property, both persons should sign.
</TABLE>
