UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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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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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 Thursday, June 2, 2005 at
the Company's principal executive 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 McGladrey & Pullen, LLP as the
Company's independent auditors for the fiscal year ending
December 31, 2005.
o To transact such other business as may properly come before
the meeting.
Only shareholders of record at the close of business on Monday, April 4, 2005
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 12, 2005
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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 2, 2005
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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 Thursday, June 2, 2005 at the Company's principal executive
offices, 16355 Laguna Canyon Road, Irvine, California 92618, and at any
adjournment thereof (the "Annual Meeting").
All shares represented by properly executed proxies received in time will be
voted at the Annual Meeting and, where the manner of voting is specified on the
proxy, will be voted in accordance with such specifications. Any shareholder who
executes and returns a proxy may revoke it at any time prior to the voting of
the proxy by giving written notice to the Secretary of the Company, by executing
a later-dated proxy, or by attending the meeting and giving oral notice of
revocation to the Secretary of the Company.
The Board of Directors of the Company has fixed the close of business on April
4, 2005, 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
21,607,228 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 12, 2005. 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.
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. 45 President, Chief Executive Officer, and
Chairman of the Board of Directors
E. Bruce Fredrikson 67 Director
John E. McConnaughy, Jr. 75 Director
John G. Poole 62 Vice Chairman of the Board of Directors
William B. Roberts 67 Director
John C. Warner 57 Director
Daniel S. Wood 46 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.
E. BRUCE FREDRIKSON has been a director of the Company since March 2003. He is a
Professor of Finance, Emeritus, at Syracuse University's Martin J. Whitman
School of Management, where he taught from 1966 to 2003. Mr. Fredrikson has
published numerous papers on accounting and finance topics. He is also a
director of Track Data Corporation and Colonial Commercial Corp.
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., Wave Systems,
Inc., Overhill Farms, Inc., Allis Chalmers Corp. and Positron 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 also a director of Reunion Industries, 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.
JOHN C. WARNER was elected as a director of the Company in April 2003. Mr.
Warner is chief executive officer of O'Neill Clothing, a manufacturer and
marketer of apparel and accessories. He has held that position since 1996.
DANIEL S. WOOD has been a director of the Company since July 2001. Mr. Wood is
president of Carclo Technical Plastics, a manufacturer of custom injection
moldings. Previously, from 1988 to September 2000, he was the chief operating
officer and co-owner of Carrera Corporation.
BANKRUPTCY PROCEEDINGS. In December 2001 Mr. Bradley resigned from his position
as chairman of the board of LINC Acceptance Company, LLC ("LINC"). LINC was 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 was 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 E. Bruce
Fredrikson (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 Audit Committee operates under a written
charter, adopted by the Board of Directors of the Company.
The members of the Compensation and Stock Option Committee are Daniel S. Wood
(chairman), 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 1997 Long-Term Stock Incentive Plan, and reviews and
approves compensation and benefit plans of the Company.
The Board of Directors has concluded that each member of the Audit Committee is
independent in accordance with the director independence standards prescribed by
NASDAQ, and has determined that none of them have a material relationship with
the Company which would impair the independence from management or otherwise
compromise the ability to act as an independent director. The Board of Directors
has further determined that Mr. Fredrikson has the qualifications and experience
necessary to serve as an "audit committee financial expert" as such term is
defined in Item 401(h) of Regulation S-K promulgated by the SEC. Such
qualifications and experience are described above in this section.
The Company does not have a Nominating Committee. Nominations for board
positions are considered by the members of the Board of Directors who are
"independent directors." The Company's independent directors are Messrs.
Fredrikson, McConnaughy, Poole, Roberts, Warner and Wood. The Board of Directors
believes that it is appropriate for the Company not to have a Nominating
Committee primarily because there have to date been no significant differences
of opinion expressed among the whole board of directors regarding nominations.
3
When considering a potential nominee, the independent directors consider the
benefits to the Company of such nomination, based on the nominee's skills and
experience related to managing a significant business, the willingness and
ability of the nominee to serve, and the nominee's character and reputation. It
is the policy of the Board of Directors to consider for nomination individuals
suggested by shareholders, should such recommendations be received. Shareholders
who wish to suggest individuals for possible future consideration for board
positions, or to otherwise communicate with the Board of Directors, should
direct written correspondence to the Board of Directors at the Company's
principal executive offices. The present policy of the Company is to forward all
such correspondence to the members of the Board of Directors.
The Board of Directors held five meetings (including regular and special
meetings) and acted five times by written consent during 2004. The Audit
Committee met eleven times during 2004, including at least one meeting per
quarter to review the Company's financial statements, and acted one time by
written consent, while the Compensation and Stock Option Committee met two times
during 2004 and acted eight 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 2004. The Company does not have a policy of
encouraging directors to attend or discouraging directors from attending its
annual meetings of shareholders. Other than Mr. Bradley, no directors attended
last year's annual meeting of shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES ABOVE.
4
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed the accounting firm
of McGladrey & Pullen, LLP ("McGladrey") to be the Company's independent
auditors for the year ending December 31, 2005.
A proposal to ratify that appointment will be presented to shareholders at the
Annual Meeting. If the shareholders do not ratify the selection of McGladrey at
the Annual Meeting, the Audit Committee will consider selecting another firm of
independent public accountants. Representatives of McGladrey 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.
As previously reported, on October 21, 2004 the Company notified KPMG LLP
("KPMG") that KPMG's appointment as the Company's independent auditor would
cease upon the completion of the review of the Company's consolidated financial
statements as of and for the three-month and nine-month periods ended September
30, 2004. The Audit Committee approved the decision to terminate such
appointment. KPMG's audit reports on the Company's financial statements for the
most recent two fiscal years, which ended December 31, 2003 and 2002
respectively, did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles.
On the same day, at the direction of the Audit Committee, the Company appointed
McGladrey to serve as the Company's independent public accountants, effective
with the audit of financial statements for the year ending December 31, 2004.
During the Company's two most recent fiscal years ended December 31, 2003 and
2002, and the subsequent interim period through October 21, 2004, neither the
Company nor anyone acting on its behalf consulted McGladrey regarding any of the
matters specified in Item 304(a)(2) of Regulation S-K.
On November 15, 2004, KPMG completed its review of the Company's consolidated
financial statements as of and for the three-and nine-month periods ended
September 30, 2004. KPMG's appointment as the Company's independent auditor
ended at that time.
In connection with KPMG's audits of the Company's financial statements for the
two most recent fiscal years, and through November 15, 2004:
a) there were no disagreements between the Company and KPMG on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to KPMG's
satisfaction, would have caused KPMG to make reference to the subject matter of
the disagreements in connection with its opinions on the financial statements;
and
b) there were no reportable events (as specified in Item 304(a) (1) (v)
of Regulation S-K).
Information relating to the fees billed by those firms to the Company appears
below.
AUDIT FEES
The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2004, and for the review of the financial statements included in
the Company's quarterly report for the period ended September 30, 2004 on Form
10-Q, for that fiscal year were $300,000.
The aggregate fees billed by KPMG for professional services rendered for the
review of the financial statements included in the Company's quarterly reports
on Form 10-Q for the three-and nine-month periods ended September 30, 2004 were
$122,400.
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, 2003, and for the review of the financial statements included in
the Company's quarterly reports on Form 10-Q for that fiscal year were $360,200.
5
AUDIT-RELATED FEES
The aggregate fees billed by McGladrey for audit-related services were $80,000
for the fiscal year ended December 31, 2004. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions, the audit of the MFN Financial Corporation's benefit plan.
The aggregate fees billed by KPMG for audit-related services were $137,260 for
the fiscal year ended December 31, 2004. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions.
The aggregate fees billed by KPMG for audit-related services were $295,621 for
the fiscal year ended December 31, 2003. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions, the audit of the Company's 401(k) Employee Savings Plan and the
acquisition of TFC Enterprises, Inc.
TAX FEES
McGladrey has not rendered any professional tax services for the fiscal year
ended December 31, 2004.
The aggregate fees billed in each of the last two fiscal years for tax services
by KPMG were $383,655 related to the fiscal year ended December 31, 2004 and
$1,533,622 related to the fiscal year ended December 31, 2003. The large
increase in fees billed for tax services during the fiscal year ended December
31, 2003 was largely attributable to work undertaken by KPMG to recover certain
state tax claims on behalf of the Company related to several tax years.
ALL OTHER FEES
No other fees were billed by McGladrey in the last fiscal year ended December
31, 2004.
The aggregate fees billed by KPMG for other services were $34,500 for the fiscal
year ended December 31, 2004. These other professional services were rendered in
conjunction with the Company's Registration Statement on Form S-8 and its
Registration Statement on Form S-2 filed with the S.E.C. No other fees were
billed by KPMG for the fiscal year ended December 31, 2003.
The Audit Committee acts pursuant to a written charter adopted by the Board of
Directors. Pursuant to the charter, the Audit Committee pre-approves the audit
and permitted non-audit fees to be paid to the independent auditor, and
authorizes on behalf of the Company the payment of such fees, or refuses such
authorization. The Audit Committee has delegated to its chairman the authority
to approve performance of services on an interim basis.
In the course of its meetings, the Audit Committee has considered whether the
provision of the non-audit fees outlined above is compatible with maintaining
the independence of the respective audit firms, and has concluded that such
independence is not impaired.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION OF
MCGLADREY & PULLEN, LLP.
6
INFORMATION REGARDING THE COMPANY
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 2004, 2003, and 2002 by the Company's chief executive
officer and by the four most highly compensated individuals (such five
individuals, the "named executive officers") who were serving as executive
officers at December 31, 2004.
SUMMARY COMPENSATION TABLE
Compensation for Long Term
period shown Compensation All Other
Awards (1) Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs ($) (2)
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CHARLES E. BRADLEY, JR. 2004 700,000 700,000 240,000 1,600
President & Chief 2003 650,000 650,000 40,000 1,525
Executive Officer 2002 600,000 850,000 185,000 450
NICHOLAS P. BROCKMAN 2004 252,000 159,000 20,000 1,600
Sr. Vice President - 2003 240,000 166,000 20,000 1,513
Collections 2002 222,000 174,792 25,000 450
CURTIS K. POWELL 2004 252,000 177,000 20,000 1,600
Sr. Vice President - 2003 238,000 186,000 20,000 1,511
Originations & Marketing 2002 222,000 154,734 25,000 450
ROBERT E. RIEDL 2004 240,000 144,000 80,000 1,576
Sr. Vice President - Finance 2003 200,000 158,000 95,000 428
& Chief Financial Officer (3) 2002 --- --- --- ---
MARK A. CREATURA 2004 205,000 121,000 20,000 1,492
Sr. Vice President & 2003 195,000 150,000 20,000 1,455
General Counsel 2002 184,000 100,832 25,000 404
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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 zero per individual in 2002
and $1,000 in 2003 and 2004.
(3) Mr. Riedl became an executive officer in January 2003.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 2004, did not grant any stock
appreciation rights to any of the named executive officers. The Company has from
time to time granted options to substantially all of its management and
marketing employees, and did so in April 2004. Under these grants, each named
executive officer other than the chief executive officer and the chief financial
officer, received grants with respect to 20,000 shares. The chief executive
officer received a grant with respect to 240,000 shares and the chief financial
officer received a grant with respect to 80,000 shares. All such options become
exercisable in five equal annual increments and are exercisable at $4.00 per
share, except for the grant of 240,000 shares to Mr. Bradley, which vested as to
200,000 shares on the date of the grant and become exercisable as to 40,000
shares in five equal annual increments.
7
OPTIONS/GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
Percent
Number of of Potential Realizable Value at
Shares Total Options Expiration Assumed Annual Rates
Underlying Granted to Exercise Date of Stock Price Appreciation for
Options Employees or Base Option Term
Name Granted in 2004 Price ($/Share) 5% ($) 10% ($) NOTES
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Charles E. Bradley, Jr. 240,000 25.07% $4.00 4/26/2014 $603,739 $1,529,993 (1)
Nicholas P. Brockman 20,000 2.09% $4.00 4/26/2014 $50,312 $127,499 (2)
Curtis K. Powell 20,000 2.09% $4.00 4/26/2014 $50,312 $127,499 (2)
Robert E. Riedl 80,000 8.36% $4.00 4/26/2014 $201,246 $509,998 (2)
Mark Creatura 20,000 2.09% $4.00 4/26/2014 $50,312 $127,499 (2)
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(1) Becomes exercisable as to 200,000 shares on April 26, 2004, and as to
40,000 shares in five equal installments on each April 26, 2005-2009.
(2) Becomes exercisable in five equal installments on each April 26,
2005-2009.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 2004, 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.
Shares Number of Unexercised Value* of Unexercised In-the-Money
Acquired On Value Options at December 31, 2004 Options at December 31, 2004
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Charles E. Bradley, Jr. 11,620 $39,934 682,002 305,197 $1,568,390 $736,463
Nicholas P. Brockman 11,800 33,335 32,000 73,000 84,280 165,520
Curtis K. Powell 29,000 96,115 32,000 63,000 84,280 123,070
Robert E. Riedl 0 0 19,000 156,000 53,170 282,280
Mark A. Creatura 8,000 21,000 32,000 63,000 84,280 123,070
* Valuation based on the last sales price on December 31, 2004 of $4.87
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, 2004, the Company paid all directors,
excluding Mr. Bradley, a retainer of $2,000 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. Pursuant to the Company's policy that is applicable to all of its
non-employee members, the Board on April 26, 2004, issued options with respect
to 10,000 shares to each non-employee director. All such options are exercisable
at $4.00 per share, the exercise price being the market price prevailing at date
of grant.
8
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES IN GENERAL
The Company's objectives with respect to compensation are several. The
significant objectives are to cause compensation (i) to be sufficient in total
amount to provide reasonable assurance of retaining key executives, (ii) to
include a significant contingent component, so as to provide strong incentives
to meet designated Company objectives, and (iii) to include a significant
component tied to the price of the Common Stock, so as to align management's
incentives with shareholder interests.
The Committee considers an executive's base salary to be the most critical
component with respect to the retention objective. Acting on the recommendations
of the chief executive officer, the Committee adjusts other officers' salaries
annually, with the adjustment generally consisting of a 3% to 10% increase from
the prior year's rate. Where exceptional circumstances apply, such as
recruitment of a new executive officer, a promotion to executive officer status
or a special need to retain an individual officer, the chief executive officer
may recommend, and the Committee may approve, a larger increase.
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 2004, 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 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. Factors in determining the amount of bonus are whether the executive
and his department have met individual objectives set by the chief executive
officer, whether the Company as a whole has met or exceeded budget targets,
whether certain objectives for the management group as a whole have been met,
and a subjective evaluation of the officer's performance. Numerical scores are
assigned to each of these factors, and weighed pursuant to a formula that can
result in a maximum bonus of 100% of base compensation.
Applying the above principles, the Committee in January 2005 approved bonus
compensation to the named executive officers, other than the chief executive
officer, of approximately 59% to 70% of their respective base salaries for the
year ended December 31, 2004. The variation in the percentages awarded is
generally reflective of the extent to which the named executive officers met
their individual and department objectives.
The Committee also makes awards of incentive and non-qualified stock options
under the Company's 1997 Long-Term Incentive Stock Plan. Such awards are
designed to assist in the retention of key executives and management personnel
and to create 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. During the year ended December 31, 2004,
the Committee approved grants of stock options to the Company's executive
officers, all of which carry exercise prices equal to the market price for the
Company's common stock at the date of grant. The terms of such options are
described above, in the table captioned "Options/Grants in Last Fiscal Year."
The numbers of shares made subject to each of the option grants were based on
various factors relating to the responsibilities of the individual officers and
on the extent of previous grants to such individuals.
Because the exercise price of these options is equal to the fair market value of
the Company's common stock on the date of grant, the option holders may realize
value only if the stock price appreciates from the value on the date the options
were granted. This design is intended to focus executives on the enhancement of
shareholder value over the long term.
In exercising its discretion as to the level of executive compensation and its
components, the Committee considers a number of factors. Financial factors
considered with respect to the year ended December 31, 2004 included the
Company's increase in revenue and originations, and its having increased its
servicing portfolio. The Committee also noted that the Company incurred a loss
for the year. Operational factors considered included the Company's cost of
funds; indicators of the performance and credit quality of the Company's
servicing portfolio, including levels of delinquencies and charge-offs; and
indicators of successful management of personnel, including employee stability.
All of such factors are assessed with reference to the judgment of the Committee
as to the degree of difficulty of achieving desired outcomes.
9
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 set that officer's base compensation by reference to his
base rate for the preceding year, to pay an annual bonus that is reflective of
the quality of that officer's performance during the year, and to grant
significant equity incentives, to date in the form of stock options, intended to
align the officer's interests with those of the shareholders. During the year
ended December 2004, the Company's chief executive officer, Charles E. Bradley,
Jr., received $700,000 in base salary. In setting that rate in the spring of
2004, the Committee considered the base salary rate that the Company had paid in
the prior year ($650,000), the desirability of providing an annual increase
(which in this case was approximately 7.7%), the desirability of ensuring
retention of the services of the Company's incumbent chief executive officer,
and the levels of chief executive officer compensation prevailing among other
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 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, and a
formula is not used.
The Committee in January 2005 reviewed the Company's and the chief executive
officer's performance in 2004, and approved bonus compensation in the amount of
$700,000, representing 100% of that executive's base salary for the year ended
December 31, 2004. In determining the appropriate levels of cash and equity
compensation, the Committee considered the Company's financial performance, the
performance of CPS common stock as compared with broad equity indices, the
Company's successful execution of a novel residual financing transaction in
February 2004, its success in the securitization market, and the levels of
compensation paid to chief executives of other financial services companies.
The Committee's award of stock options to the Company's officers in April 2004
included an award to the chief executive officer. In determining the appropriate
level of such award, the Committee considered the long-term performance of the
chief executive officer and the desirability of providing significant incentive
for future performance, as well as the desirability of ensuring that officer's
continued retention by the Company.
THE COMPENSATION COMMITTEE
Daniel S. Wood (chairman)
John E. McConnaughy, Jr.
William B. Roberts
10
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, 1999 through December
31, 2004, 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, 1999 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
(U.S. & FOREIGN).
[graph of data below depicted here]
DEC 1999 DEC 2000 DEC 2001 DEC 2002 DEC 2003 DEC 2004
-------- -------- -------- -------- -------- --------
Consumer Portfolio Services, Inc. 100.0 92.0 87.7 133.8 238.1 311.7
Nasdaq Stock Market (U.S. Companies) 100.0 60.3 47.8 33.1 49.4 53.8
Nasdaq Financial Stocks (U.S. & Foreign) 100.0 108.1 118.7 122.3 165.4 193.1
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of April 4,
2005, 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, Powell, Riedl and
Creatura is c/o Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road,
Irvine, CA 92618.
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class
---------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. ......................................................... 3,218,218(2) 14.9%
E. Bruce Fredrikson.............................................................. 41,000 0.2%
34437 N. 93rd Place, Scottsdale, AZ 85262
John E. McConnaughy, Jr.......................................................... 220,337 1.0%
Atlantic Capital Partners, 3 Parkland Drive, Darien, CT 06820
John G. Poole.................................................................... 697,193 3.2%
1 Rye Road, Port Chester, NY 10573
William B. Roberts............................................................... 1,084,882 5.0%
Monmouth Capital Corp., 126 East 56th Street, New York, NY 10022
John C. Warner................................................................... 40,000 0.2%
17 Pasteur, Irvine, CA 92618
Daniel S. Wood................................................................... 60,000 0.3%
600 Depot St., Latrobe, PA 05650
Nicholas P. Brockman............................................................. 229,297 1.1%
Curtis K. Powell................................................................. 201,671 0.9%
Robert E. Riedl.................................................................. 50,804 0.2%
Mark A. Creatura................................................................. 129,657 0.6%
All directors, nominees and executive officers combined (13 persons) 6,064,163(3) 28.1%
Charles E. Bradley, Sr........................................................... 1,267,860(4) 5.9%
Stanwich Consulting Corp., 62 Southfield Avenue, Stamford, CT 06902
Levine Leichtman Capital Partners II, L.P........................................ 4,553,500(5) 21.1%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
---------------------------------------------------------------------------------------------------------------------
(1) Includes certain shares that may be acquired within 60 days after April 4,
2005 from the Company upon exercise of options, as follows: Mr. Bradley,
Jr., 788,101 shares; Mr. Fredrikson, 40,000 shares, Mr. McConnaughy,
20,000 shares; Mr. Poole, 10,000 shares; Mr. Roberts, 10,000 shares; Mr.
Warner, 40,000 shares, Mr. Wood, 20,000 shares; Mr. Brockman, 47,000
shares; Mr. Powell, 47,000 shares; Mr. Riedl, 50,000 shares; and Mr.
Creatura, 47,000 shares. The calculation of beneficial ownership also
includes, in the case of the executive officers, an approximate number of
shares each executive officer could be deemed to hold through
contributions made to the Company's Employee 401(k) Plan (the "401(k)
Plan"). The 401(k) Plan provides an option for all participating employees
to indirectly purchase stock in the Company through buying units in a
mutual fund. Each "unit" in the mutual fund represents an interest in
Company stock, cash and cash equivalents.
12
(2) 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 4.9% of outstanding shares), is Kimball
Bradley, whose address is 11 Stanwix Street, Pittsburgh, PA 15222.
(3) Includes 1,197,601 shares that may be acquired within 60 days after April
4, 2005, upon exercise of options and conversion of convertible securities.
(4) Includes 207,490 shares owned by the named person's spouse and 1,002,800
shares that have been pledged to secure a loan, as to all of which he has
no voting or investment power, and 50,832 shares owned by a corporation
(Stanwich Consulting Corp.) of which the named person is controlling
stockholder, president and a director.
(5) Comprises 4,552,500 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.
The table below presents information regarding securities authorized for
issuance under equity compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN FIRST COLUMN)
---------------------------------------------------------------------------------------------------------------------------
Plans approved by stockholders 4,052,049 $ 2.51 1,391,631
Plans not approved by stockholders None N/A N/A
Total 4,052,049
---------------------------------------------------------------------------------------------------------------------------
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 2004
were timely filed, except that Mr. Bradley filed one report late, relating to
two transactions, and each other director (Messrs. Thomas L. Chrystie,
Fredrikson, McConnaughy, Poole, Roberts, Warner and Wood) and executive officer
(Messrs. Brockman, Powell, Riedl, Creatura, and Chris Terry) filed one report
late relating to one transaction.
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board and meets at least once per quarter to review the Company's
financial statements. The Audit Committee acts pursuant to a written charter
adopted by the Board of Directors. 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, 2004 (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, 2004, for filing with the Securities and Exchange Commission.
13
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. Pursuant to the terms of its
charter, the Audit Committee approves the engagement of auditing services and
permitted non-audit services including the related fees and general terms. Mr.
Fredrikson, a nominee for re-election to the Board of Directors, is considered
by the Board of Directors to have the qualifications and experience necessary to
serve as an "audit committee financial expert." A summary of his background is
contained in this proxy statement under "Proposal No. 1 - Election of
Directors."
THE AUDIT COMMITTEE
E. Bruce Fredrikson (chairman)
John E. McConnaughy, Jr.
John G. Poole
CERTAIN TRANSACTIONS
LEVINE LEICHTMAN. At December 31, 2003, the Company was indebted to Levine
Leichtman Capital Partners II, L.P. ("LLCP") in the amount of approximately $50
million. Such debt comprised three parts, represented by the "Term B Note,"
"Term C Note" and "Term D Note," respectively. The Term B Note was due January
2004, the Term C Note repayment schedule was based on the performance of one of
the Company's securitized pools, and the Term D Note was due January 2004.
In January 2004, the Company repaid in full the Term C Note and repaid $10.0
million of the Term D Note. In addition, the maturities of the Term B Note and
the Term D Note were extended to December 15, 2005 and the coupons on both notes
were decreased to 11.75% per annum from 14.50% and 12.00%, respectively. The
Company paid LLCP fees equal to $921,000 for these amendments, which will be
amortized over the remaining life of the notes. As of December 31, 2004, the
outstanding principal balances of the Term B Note and the Term D Note were $19.8
million and $15.0 million, respectively.
On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the "Term E
Note," and the "Term F Note," respectively, bears interest at 11.75% per annum.
Both the Term E Note and the Term F Note mature two years from their respective
funding dates. As of December 31, 2004, the outstanding principal balances of
the Term E Note and the Term F Note were $15.0 million and $10.0 million,
respectively.
All of the Company's indebtedness to LLCP is secured by a blanket security
interest in favor of LLCP. The terms of the transactions between the Company and
LLCP were determined by negotiation.
SFSC. At December 31, 2003, the Company was indebted to Stanwich Financial
Services Corp. ("SFSC") in the principal amount of $16.5 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 (subject to limitations disclosed above), 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. The Company
in 2004 paid interest in the aggregate amount of $780,000 with respect to its
debt to SFSC, representing interest for the period January through June 2004.
The Company repaid the outstanding debt in June 2004. The Company at December
31, 2003 was also indebted to John G. Poole, a director, in the principal amount
of $1,000,000, and in 2004 paid interest in the aggregate amount of $62,500 with
respect to that debt, representing interest for the period January through June
2004. Mr. Poole exercised the conversion option of his debt as of June 2004,
receiving in satisfaction of the debt 333,333 shares of the Company's common
stock.
14
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 December 31, 2004 both lines of credit have
been paid. 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 December 31,
2004, is approximately $2.0 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.
EMPLOYEE INDEBTEDNESS. To assist certain officers in exercising stock options,
the Company or a subsidiary lent to such officers the exercise price of options
such officers exercised in May and July 2002. The loans are fully secured by
common stock of the Company, bear interest at 5% per annum and are due in 2007.
The chief executive officer (Mr. Bradley) and five officers other than executive
officers borrowed money on those terms and still have a balance outstanding. The
highest balances of the loans for the period January 1, 2002 through April 30,
2005, were $350,000 for Mr. Bradley and $27,375 for one non-executive officer.
Pursuant to the Sarbanes-Oxley Act of 2002, Company has ceased providing any
loans to its executive officers.
The agreements and transactions described above (other than those between the
Company and LLCP) 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.
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.
15
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 (Ratification 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 ratification of the appointment of
McGladrey & Pullen LLP, as the Company's independent auditors for the year
ending December 31, 2005; 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 2006 Annual Meeting of Shareholders on May
3, 2006. In order to be considered for inclusion in the Company's proxy
statement and form of proxy for the 2006 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 12, 2006.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company has provided a copy of its 2004 Annual Report with this proxy
statement. SHAREHOLDERS MAY OBTAIN, WITHOUT CHARGE, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, UPON WRITTEN REQUEST. Any such request should be
directed to "Corporate Secretary, Consumer Portfolio Services, Inc., 16355
Laguna Canyon Road, Irvine, CA 92618." The Form 10-K is also available on the
Company's website "www.consumerportfolio.com."
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