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.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/X/ No fee required.
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and 0-11.
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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 Friday, June 21, 2002, 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 ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2002.
o To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on May 16, 2002, 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 Creatura, Secretary
Dated: May 24, 2002
[intentionally left blank]
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road
Irvine, California 92618
949-753-6800
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 21, 2002
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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 Friday, June 21, 2002 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 May 16,
2002, 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
19,364,950 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 24, 2002. The
Company will pay the expenses incurred in connection with the solicitation of
proxies. 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.
1
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
NOMINATIONS
The individuals named below have been nominated for election as directors of the
Company at the Annual Meeting, and each has agreed to serve as a director if
elected. The entire board of directors of the Company is elected annually.
Directors 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 are based upon information furnished
to the Company by them.
NAME AGE POSITION(S) WITH THE COMPANY
Charles E. Bradley, Jr. 42 President, Chief Executive Officer, and
Chairman of the Board of Directors
Thomas L. Chrystie 69 Director
John E. McConnaughy, Jr. 73 Director
John G. Poole 59 Vice Chairman of the Board of Directors
William B. Roberts 64 Director
Daniel S. Wood 43 Director
CHARLES E. BRADLEY, JR. has been the President and a director of the Company
since its formation in March 1991, and was elected Chairman of the Board of
Directors in July 2001. 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 does not currently serve
on the board of directors of any other publicly-traded companies.
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 E. MCCONNAUGHY, JR. has been a director of the Company since 2001. He is
the Chairman and Chief Executive Officer of JEMC Corporation. From 1981 to 1992
he was the Chairman and Chief Executive Officer of GEO International Corp, a
company in the business of nondestructive testing, screen-printing and oil field
services. Mr. McConnaughy was previously and concurrently Chairman and Chief
Executive Officer of Peabody International Corp., from 1969 to 1986. He
currently serves as a director of Levcor International, Inc., Varsity Brands,
Inc., Wave Systems, Inc., Fortune Natural Resources and Rate Exchange Corp. Mr.
McConnaughy is also Chairman of the Board of Trustees of the Strang Clinic and
is the Chairman Emeritus of the Board of the Harlem School of the Arts.
JOHN G. POOLE has been a director of the Company since November 1993 and its
Vice Chairman since January 1996. He is now a private investor, having
previously been a director and Vice President of Stanwich Partners ("SPI") until
July 2001. SPI, which Mr. Poole co-founded in 1982, acquired controlling
interests in companies in conjunction with their existing management. Mr. Poole
is a director of Reunion Industries, Inc. and Sanitas, Inc.
2
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 that 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.
DANIEL S. WOOD has been a director of the Company since July 2001. Mr. Wood is
president and chief executive officer of CTP Carrera, a manufacturer of custom
injection moldings. Previously, from 1988 to September 2000, he was the chief
operating officer and co-owner of CTP Carrera Corporation. Mr. Wood does not
currently serve on the board of directors of any other publicly-traded
companies.
BANKRUPTCY PROCEEDINGS. In December 2001 Mr. Bradley resigned from his position
as chairman of the board 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. Mr. McConnaughy was the Chairman of the
Board of the Excellence Group, LLC, which on January 13, 1999, filed a voluntary
petition for in the United States Bankruptcy Court for the District of
Connecticut for reorganization under Chapter 11 of the United States Bankruptcy
Code. The Excellence Group's subsidiaries produced labels for a variety of
customers.
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), John E. McConnaughy, Jr. and John G. Poole. 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 Daniel S. Wood
(chairman), Thomas L. Chrystie, John E. McConnaughy, Jr. 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 six meetings during 2001 and acted four times by
unanimous written consent. The Audit Committee met four times during 2001, while
the Compensation and Stock Option Committee met twice and acted twelve times by
written consent. Each nominee attended at least 75% of the meetings of the Board
of Directors and its committees that such individual was eligible to attend in
2001.
The Board of Directors recommends a vote "FOR" each of the nominees above.
3
PROPOSAL NO. 2 - 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, 2002.
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 at
the Annual Meeting, the Board of Directors will select another firm of
independent public accountants. 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.
AUDIT FEES
The aggregate fees billed by KPMG for professional services rendered for the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2001, and for the review of the financial statements included in
the Company's quarterly reports on Form 10-Q for that fiscal year were $220,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not incur any fees billed by KPMG for professional services
rendered for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed by KPMG for services rendered to the Company,
including the services described above under "Audit Fees" and "Financial
Information Systems Design and Implementation Fees," for the fiscal year ended
December 31, 2001, were $576,349, consisting of audit related fees in the amount
of $220,000 and non-audit fees in the amount of $356,349. Audit related services
included accounting consultation, services related to review of quarterly
reports, and registration of the Company's securities. The non-audit services
consisted primarily of tax services and services relating to the Company's
securitization transactions. In the course of its meetings, the Audit Committee
has considered whether KPMG's provision of these other services is compatible
with maintaining KPMG's independence, and concluded that KPMG's independence is
not impaired.
The Board of Directors recommends a vote "FOR" ratification of the selection of
KPMG LLP.
4
INFORMATION REGARDING THE COMPANY
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 2001, 2000, and 1999 by the Company's chief executive
officer and by the four most highly compensated individuals (such five
individuals, the "named executive officers") who were serving as executive
officers at December 31, 2001.
SUMMARY COMPENSATION TABLE
------------------------------------------- --------------------------- ---------------- --------------
Compensation for Long Term All Other
period shown Compensation Compensation
Awards (1) (2)
----------------------------- ----------- --------------------------- -----------------
Name and Principal Position Year Salary Bonus Options/SARs
----------------------------- ----------- ------------ ------------- ----------------- -------------
CHARLES E. BRADLEY, JR. 2001 565,000 1,100,000 166,666 846
President & Chief 2000 525,000 750,000 333,333 1,446
Executive Officer 1999 500,000 300,000 780,240 1,380
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ROD RIFAI 2001 335,000 44,000 52,500 183
Senior Vice President - 2000 373,000 - 2,500 -
Marketing (3) 1999 234,000 - - -
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CURTIS K. POWELL 2001 206,000 124,000 20,000 830
Senior Vice President - 2000 191,000 105,000 10,000 1,430
Originations 1999 182,000 73,000 178,000 1,130
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NICHOLAS P. BROCKMAN 2001 206,000 117,000 20,000 692
Senior Vice President - 2000 165,000 116,000 10,000 1,292
Collections 1999 151,000 72,000 103,000 1,027
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WILLIAM L. BRUMMUND, JR. 2001 172,000 100,000 20,000 702
Senior Vice President - 2000 161,000 89,000 10,000 1,302
Administration 1999 153,000 58,000 132,600 1,046
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(1) Number of shares that might be purchased upon exercise of options that
were granted in the period shown.
(2) Amounts in this column represent (a) any Company contributions to the
Employee Savings Plan (401(k) Plan), and (b) premiums paid by the Company
for group life insurance, as applicable to the named executive officers.
Company contributions to the 401(k) Plan were $600 per individual in 1999
and 2000, and zero in 2001.
(3) Mr. Rifai became an executive officer as Senior Vice President -
Marketing, in July 2001. The salary amount for 2001 includes $228,000 in
salary and commissions earned while Mr. Rifai was serving as a regional
vice president for CPS Marketing, Inc., a subsidiary of the Company.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 2001, did not grant any stock
appreciation rights to any of the named executive officers. The Company in the
past had made a practice of granting stock options to its executive officers and
other employees from time to time. In January 2001 the Board of Directors made
two such grants, subject to the approval of shareholders, which was given at the
Annual Meeting of July 5, 2001. Under these grants, each named executive officer
other than the chief executive officer received grants with respect to 20,000
shares; 10,000 of which are to become exercisable at a price of $2.50 per share
and 10,000 at $4.25 per share. Such options become exercisable in five equal
annual increments, from 2002 through 2006 for the $2.50 options, and from 2003
through 2007 for the $4.25 options. The chief executive officer received two
grants of 83,333 options each, on otherwise the same terms as the named
executive officers.
5
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OPTIONS/GRANTS IN LAST FISCAL YEAR - Potential Realizable
Value at Assumed Annual
Rates
of Stock Price
Appreciation for Option
INDIVIDUAL GRANTS Term
------------------------------------------------------------------------------------------------------------------
Name Number of Percent of
Shares Total Options Exercise
Underlying Granted to or Base
Options Employees Price Expiration
Name Granted in 2001 ($/Share) Date 5% 10% NOTES
------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. 83,333 8.07% 2.50 1/7/11 $50,416 $203,682 (1)
83,333 8.07% 4.25 1/8/11 $0 $57,849 (2)
------------------------------------------------------------------------------------------------------------------
Rod Rifai 2,500 0.24% 2.50 1/17/11 $1,513 $6,110 (1)
2,500 0.24% 4.25 1/17/11 $0 $1,735 (2)
47,500 4.60% 1.35 8/1/11 $40,328 $102,199 (3)
------------------------------------------------------------------------------------------------------------------
Curtis K. Powell 10,000 0.97% 2.50 1/11/11 $6,050 $24,442 (1)
10,000 0.97% 4.25 1/12/11 $0 $6,942 (2)
------------------------------------------------------------------------------------------------------------------
Nicholas P. Brockman 10,000 0.97% 2.50 1/9/11 $6,050 $24,442 (1)
10,000 0.97% 4.25 1/10/11 $0 $6,942 (2)
------------------------------------------------------------------------------------------------------------------
William L. Brummund, Jr. 10,000 0.97% 2.50 1/13/11 $6,050 $24,442 (1)
10,000 0.97% 4.25 1/14/11 $0 $6,942 (2)
------------------------------------------------------------------------------------------------------------------
Numbered notes above refer to the associated options becoming exercisable
in cumulative installments as follows:
(1) Becomes exercisable in five equal installments on each January 1,
2002-2006.
(2) Becomes exercisable in five equal installments on each January 1,
2003-2007.
(3) Becomes exercisable in five equal installments on each August 1,
2002-2006.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 2001, 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 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 no less than the fair market value per share
on the date of grant.
===================================================================================================
Name Number of Unexercised Options at Value of Unexercised
December 31, 2001 In-the-Money Options
at December 31, 2001 (1)
Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. 801,067 302,332 $1,097,462 $414,195
---------------------------------------------------------------------------------------------------
Rod Rifai 9,500 65,500 $13,015 $89,735
---------------------------------------------------------------------------------------------------
Curtis K. Powell 116,000 73,000 $158,920 $100,010
---------------------------------------------------------------------------------------------------
Nicholas P. Brockman 58,100 66,500 $79,597 $91,105
---------------------------------------------------------------------------------------------------
William L. Brummund, Jr. 4,340 54,500 $5,946 $74,665
===================================================================================================
(1) Valuation based on the last sales price on December 31, 2001 of $1.370
per share, as reported by Nasdaq.
6
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, 2001, the Company paid all directors,
excluding Mr. Bradley, a retainer of $1,000 per month and an additional fee of
$1,000 PER DIEM for attendance at meetings of the board, and $500 for meetings
of committees. Mr. Bradley received no additional compensation for his service
as a director. In April 2001, the Board granted to Mr. Poole an option to
purchase up to 30,000 shares of the Company's common stock at $1.70 per share,
which was the then-prevailing market price. The Board subsequently approved a
policy applicable to all of its non-employee members, which awards each such
director upon joining the board an option to purchase 30,000 shares of the
Company's common stock, and annually thereafter an option to purchase an
additional 10,000 shares. All such options are exercisable at the market price
prevailing at date of grant.
--------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES IN GENERAL
The Company's objective is to establish base salaries at levels competitive with
those in its industry. The Compensation Committee, acting on the recommendation
of the chief executive officer, approves annual adjustments in base salaries of
officers other than 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 2001, 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. Fctors 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.
Applying the above principles, the Compensation Committee in April 2002 approved
bonus compensation to the named executive officers, other than the chief
executive officer, of approximately 27% to 60% of their respective base salaries
for the year ended December 31, 2001. The percentages awarded are generally
reflective of the extent to which the named executive officers met their
individual objectives.
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. Such stock option
compensation is designed to provide an incentive to create shareholder value
over a sustained period of time. The Company believes that stock options are a
valuable tool in compensating and retaining employees.
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 and income (or loss) and cash
flow. 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.
7
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 2001, the Company's chief executive officer, Charles E.
Bradley, Jr., received $565,000 in base salary, which was a 7.6% increase from a
rate of $525,000 per year applicable to 2000. In setting that rate in the spring
of 2001, the Compensation Committee considered primarily the levels of chief
executive officer compensation prevailing among competitive financial services
companies.
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.
The Compensation Committee in April 2002 reviewed the Company's and the chief
executive officer's performance in 2001, and approved bonus compensation in two
components. Firstly, in the amount of $750,000 representing 133% of that
executive's base salary for the year ended December 31, 2001. In determining to
award such a bonus, the Compensation Committee considered the levels of
compensation that are paid by other companies comparable in size to the Company.
The Committee also considered the challenges faced in maintaining the Company's
origination and collection mechanisms in adverse market conditions, the Company
posting a profit for the year ended December 31, 2001 after posting two
consecutive losses, the success in closing a $68.5 million term securitization
transaction in September 2001, and work undertaken during 2001 which led in
March 2002 to a further $45.65 million term securitization and the opening of a
$100 million credit line. In addition, the Compensation Committee approved a
special bonus of $350,000 to the chief executive officer for work undertaken
during 2001 leading to the $100 million acquisition of MFN Financial Corporation
in March 2002. Combined, the two bonuses total $1.1 million, or 194% of that
executive's base salary for the year ended December 31, 2001.
/s/ THE COMPENSATION COMMITTEE
Daniel S. Wood (chairman)
Thomas L. Chrystie
John E. McConnaughy, Jr.
William B. Roberts
--------------------------------------------------------------------------------
8
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 of the Compensation
Committee, the following Performance Graph and the report of the Audit
Committee, below, 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 December 31, 1996 through December
31, 2001, 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 December 31, 1996 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.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG CONSUMER PORTFOLIO SERVICES, INC.,
NASDAQ STOCK MARKET (U.S. COMPANIES) AND NASDAQ FINANCIAL STOCKS.
[graph of Cumulative Total Return here]
DEC 1996 DEC 1997 DEC 1998 DEC 1999 DEC 2000 DEC 2001
-------- -------- -------- -------- -------- --------
Consumer Portfolio Services, Inc. 100.0 85.6 34.4 13.9 12.8 12.2
Nasdaq Stock Market (U.S) 100.0 122.5 172.7 320.9 193.0 153.1
Nasdaq Financial Stocks (U.S & Foreign) 100.0 153.2 148.9 147.9 159.7 175.7
9
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 20,
2002, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director, nominee or named executive officer
of CPS, and (iii) all directors, nominees 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 Rifai is c/o Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road,
Irvine, CA 92618.
Amount and Nature
of Beneficial Percent
Name and Address of Beneficial Owner Ownership (1) of Class
------------------------------------ ------------- --------
William B. Roberts.............................................................. 1,054,882 5.5%
Monmouth Capital Corp., 126 East 56th Street, New York, NY 10022
John G. Poole................................................................... 667,193 (2) 3.5%
1 Rye Road, Portchester, NY 10573
Robert A. Simms................................................................. 361,944 (3) 1.9%
55 Railroad Ave., Plaza Suite, Greenwich, CT 06830
Thomas L. Chrystie.............................................................. 202,100 (4) 1.0%
P.O. Box 640, Wilson, WY 83014
John E. McConnaughy, Jr......................................................... 135,000 0.7%
Atlantic Capital Partners, 3 Parkland Drive, Darien, CT 06820
Daniel S. Wood.................................................................. 0 0.0%
600 Depot St., Latrobe, PA 05650
Charles E. Bradley, Jr.......................................................... 2,559,000 (5) 13.2%
Nicholas P. Brockman............................................................ 169,121 0.9%
William L. Brummund, Jr......................................................... 156,923 0.8%
Curtis K. Powell................................................................ 138,715 0.7%
Rod Rifai....................................................................... 11,992 0.1%
All directors, nominees and executive officers combined (15 persons)............ 5,744,396 (6) 29.7%
Charles E. Bradley, Sr.......................................................... 3,004,867 (7) 15.6%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
Levine Leichtman Capital Partners II, L.P....................................... 4,553,500 (8) 23.6%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
FSA Portfolio Management Inc.................................................... 1,702,334 (9) 8.8%
(1) Includes certain shares that may be acquired within 60 days after May 20,
2002 from the Company upon exercise of options, as follows: Mr. Poole,
363,333 shares; Mr. Bradley, Jr., 853,001 shares; Mr. Brockman, 169,121,
Mr. Brummund, 156,923 shares; Mr. Powell, 138,715 shares; and Mr. Rifai,
11,992 shares.
(2) Includes 333,333 shares issuable upon conversion of $1,000,000 of Company
debt held by the named person.
(3) Includes 16,944 shares owned by Mr. Simms's spouse, as to which he has no
voting or investment power.
(4) Includes 162,100 shares held by the Thomas L. Chrystie Living Trust, and
40,000 shares that Mr. Chrystie may acquire upon exercise of an option
written by Stanwich Financial Services Corp.
10
(5) Includes 1,058,818 shares held by trusts of which Mr. Bradley is the
co-trustee, and as to which shares Mr. Bradley has shared voting and
investment power. One such trust holds 211,738 shares for the benefit of
Mr. Bradley. The co-trustee, who has shared voting and investment power as
to all such shares (representing 5.4% of outstanding shares), is Kimball
Bradley, whose address is 11 Stanwix Street, Pittsburgh, PA 15222.
(6) Includes 1,703,034 shares that may be acquired within 60 days after May
20, 2001, upon exercise of options and conversion of convertible
securities.
(7) Includes 207,490 shares owned by the named person's spouse, as to which he
has no voting or investment power, and 697,791 shares owned by two
corporations (Stanwich Financial Services Corp. and Stanwich Partners,
Inc.) of which the named person is controlling stockholder, president and
a director.
(8) Comprises 4,552,500 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.
(9) Represents shares issuable upon exercise of a presently exercisable
warrant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, executive officers and holders of in excess of 10% of the Company's
common stock are required to file reports concerning their transactions in and
holdings of equity securities of the Company. Based on a review of reports filed
by each such person, and inquiry of each regarding holdings and transactions,
the Company believes that all reports required with respect to the year 2001
were timely filed, except as follows: Nicholas P. Brockman and William L.
Brummund, Jr., filed one report late with respect to exercising options for
common stock, Rod Rifai filed one report late with respect to holdings on
becoming an executive officer, John E. McConnaughy filed one report late with
respect to holdings on becoming a director, and Charles E. Bradley, Sr., filed
one report late with respect to a sale of 4,600 shares. Mr. McConnaughy is a
director, Mr. Bradley, Sr., is a holder of more than 10% of the Company's common
stock, and the other individuals are senior vice presidents.
--------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board. Management has the primary responsibility for the financial
statements and the reporting process. The Company's independent auditors are
responsible for expressing an opinion on the conformity of the Company's audited
financial statements to accounting principles generally accepted in the United
States of America.
In this context, the Audit Committee reviewed and discussed with management and
the independent auditors the audited financial statements for the year ended
December 31, 2001 (the "Audited Financial Statements"). The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees). In
addition, the Audit Committee has received from the independent auditors the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company. Following the reviews and discussions referred to
above, the Audit Committee recommended to the Board that the Audited Financial
Statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, for filing with the Securities and Exchange Commission.
The Audit Committee members do not serve as professional accountants or auditors
and their functions are not intended to duplicate or to certify the activities
of management and the independent auditors. The Committee serves a board-level
oversight role where it receives information from, consults with, and provides
its views and directions to, management and the independent auditors on the
basis of the information it receives and the experience of its members in
business, financial and accounting matters.
/s/ The Audit Committee
Thomas L. Chrystie (chairman)
John E. McConnaughy, Jr.
John G. Poole
--------------------------------------------------------------------------------
11
CERTAIN TRANSACTIONS
CPS LEASING. 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 engaged in the equipment leasing business, and is currently in the process
of liquidation as its leases come to term. CPSL financed 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, 2002, the total amount outstanding
under the two lines of credit was approximately $1.4 million, of which the
Company had guarantied approximately $641,000. 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 did not borrow
under its lines of credit. The aggregate amount of advances made by the Company
to CPSL as of March 31, 2002, is approximately $1.9 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.
CARS USA. 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, 2001, the Company purchased 16 such contracts, with an
aggregate principal balance of approximately $233,431 All such purchases were on
the Company's normal business terms. Cars USA is indebted to the Company in the
amount of approximately $669,000 as of December 31, 2001.
LEVINE LEICHTMAN. At December 31, 2000, the Company was indebted to Levine
Leichtman Capital Partners II, L.P. ("LLCP") in the amount of approximately $38
million, comprising $8 million of $16 million that was first advanced in March
2000 ("Tranche A") and $30 million ("Tranche B") that was already outstanding.
Both Tranche A and Tranche B were secured by a blanket security interest in
favor of LLCP. Tranche A was due (and was paid) in June 2001, and accrued
interest at 12.50% per annum; Tranche B is due November 2003, and bears interest
at 14.50% per annum. The interest rate is subject to increase by 2.0% in the
event of a default by the Company. In January 2001, the Company prepaid $4
million of the $30 million then outstanding of Tranche B. Such prepayment was a
condition to obtaining LLCP's consent to the prepayment of $4 million of debt
outstanding in favor of SFSC. In connection with such prepayment, the Company
paid LLCP a consent fee of $200,000.
In March 2002, the Company and LLCP entered into a series of agreements under
which LLCP provided additional funding to enable the Company to acquire by
merger MFN Financial Corporation. Under the March 2002 agreements, the Company
borrowed $35 million from LLCP as "Bridge Notes," bearing interest at 13.50% per
annum and due February 2003, and approximately $8.5 million as "Tranche C
Notes," bearing interest on a deemed principal amount of approximately $11.2
million at 12.00% per annum and due in March 2008. Notwithstanding the due
dates, all of the Company's outstanding indebtedness to LLCP includes mandatory
prepayment terms that are tied to the performance of the Company's securitized
pools. One effect of such prepayment provisions is that it is not possible to
predict with assurance the amount of interest and principal that the Company
will pay to LLCP in the current year; however, the Company's payments to LLCP in
the year 2001 comprised $12 million of principal and $4.2 million of interest.
In connection with the March 2002 agreements and the acquisition of MFN
Financial Corporation, the Company paid LLCP a structuring fee of $1.75 million
and an investment banking fee of $1.0 million, and paid LLCP's out-of-pocket
expenses of approximately $315,000. In addition, the Company paid LLCP certain
fees and interest amounting to $426,181. The terms of the transactions between
the Company and LLCP were determined by negotiation.
12
SFSC. At December 31, 2000, the Company was indebted to Stanwich Financial
Services Corp. ("SFSC") in the principal amount of $20.5 million. SFSC is a
corporation wholly-owned by Stanwich Holdings, Inc., which in turn is
wholly-owned by Charles E. Bradley, Sr. Mr. Bradley, Sr. holds in excess of 5%
of the Company's common stock, is the father of the Company's president, Charles
E. Bradley, Jr., and was the chairman of the Company's Board of Directors from
March 1991 until June 2001. In the first quarter of 2001, the Company prepaid $4
million of its indebtedness outstanding to SFSC. A $200,000 consent fee required
by LLCP was recouped by application of a $200,000 discount in the prepayment to
SFSC. The Company pays interest monthly with respect to its debt to SFSC. Such
interest payments totaled $1.5 million in 2001, and are estimated to be $1.7
million for the current year. In June 2001 SFSC filed for reorganization under
the Bankruptcy Code, in the United States Bankruptcy Court for the District of
Connecticut. The Company also throughout 2001 was indebted to John G. Poole, a
director, in the principal amount of $1,000,000, and paid interest monthly with
respect to that debt. Such interest payments totaled $125,000 in 2001, and are
estimated to be the same in the current year.
EMPLOYEE INDEBTEDNESS. 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. As of April 30, 2002
Nicholas P. Brockman, a senior vice president, was indebted to the Company in
the amount of $60,618.
FSA. In November 1999 the Company entered into a revolving note purchase
facility, using the proceeds of sale of such notes to purchase automotive
receivables. Financial Security Assurance Inc. ("FSA"), which is the beneficial
holder of in excess of 5% of the Company's stock, issued a financial guaranty
insurance policy with respect to all payments of principal and interest called
for by such notes, for which it receives fees and insurance premiums. FSA has
also issued financial guaranty insurance policies with respect to payments of
interest and principal due under specified asset-backed securities sponsored by
the Company and issued at various times since 1994, including transactions in
September 2001 and March 2002, for which it also receives fees and insurance
premiums. The amounts of such fees and premiums have been determined by
negotiation between the Company and FSA.
The agreements and transactions described above (other than those between the
Company and LLCP or the Company and FSA) were entered into by the Company with
parties who personally benefited from such transactions and who had a control or
fiduciary relationship with the Company. 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.
13
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 (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; and FOR the ratification of the appointment
of KPMG LLP as the Company's independent auditors for the year ending December
31, 2002; 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 2002 Annual Meeting of Shareholders on May
28, 2003. In order to be considered for inclusion in the Company's proxy
statement and form of proxy for the 2003 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 24, 2003.
14
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 JUNE 21, 2002
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
Friday, June 21, 2002, at 10:00 a.m., and hereby appoints Charles E. Bradley,
Jr. and David N. Kenneally, 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 PROPOSAL 2, 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)
/x/ Please mark
votes as in
this example PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD
FOR AGAINST ABSTAIN
1. Election of Directors Nominees: 2. To ratify the appointment of KPMG / / / / / /
Charles E. Bradley, Jr., Thomas L. Chrystie, LLP as independent auditors of the
John E. McConnaughy, Jr., John G. Poole, Company for the year ending December 31, 2002.
William B. Roberts, Daniel S. Wood
FOR ALL WITHHELD
NOMINEES FROM ALL
NOMINEES
/ / / / 3. To transact such other business as
may properly come before the meeting
or any adjournment(s) thereof.
/ /----------------------------------
For all nominees except as noted above
MARK HERE FOR / /
ADDRESS CHANGE
AND NOTE AT LEFT
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD
Signature:_____________________________ Date:_________________ Signature:_____________________________ Date:________________
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.