SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant
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 ss.240.14a-12
CONSUMER PORTFOLIO SERVICES, INC.
---------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
--------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Dated Filed:
NOTICE OF MEETING OF SHAREHOLDERS
OF
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road, Irvine California 92618
Phone: 949-753-6800
A special meeting of the shareholders of Consumer Portfolio Services, Inc.
("CPS" or the "Company") will be held at 10:00 A.M., local time, on Tuesday,
September 16, 2008 at the Company's principal executive offices, 16355 Laguna
Canyon Road, Irvine, California for consideration of the following matters:
o To approve an amendment to the Company's articles of incorporation
to increase the number of authorized common shares from 30 million
to 75 million;
o To approve the future issuance, in connection with the exercise of
warrants issued to an investor in our recent private transaction
described in the attached proxy statement, of 1,848,309 shares of
CPS common stock, subject to adjustment pursuant to the
anti-dilutive provisions of the warrants; and
o To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on Monday, July 28, 2008
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: August 18, 2008
[PAGE INTENTIONALLY LEFT BLANK]
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road
Irvine, California 92618
949-753-6800
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 16, 2008
-----------
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 a special meeting of the shareholders to be held
at 10:00 A.M. local time on Tuesday, September 16, 2008 at the Company's
principal executive offices, 16355 Laguna Canyon Road, Irvine, California 92618,
and at any adjournment thereof (the "Meeting").
Shareholders of record of our common stock at the close of business on
the record date will be entitled to vote at the Meeting and any adjournments or
postponements thereof. All shares represented by properly executed proxies
received in time will be voted at the 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 July 28, 2008, as the record date for determining the holders of outstanding
shares of the Company's Common Stock, without par value ("Common Stock")
entitled to notice of, and to vote at the Meeting. As of the record date, the
Company had 19,729,703 shares of Common Stock outstanding and entitled to vote.
The notice of the Meeting, this proxy statement and the form of proxy
are first being mailed to shareholders of the Company on or about August 18,
2008. The Company will pay the expenses incurred in connection with the
solicitation of proxies. The proxies are being solicited by mail and by
telephone. 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. The Company has retained
Georgeson Inc. for an estimated fee of from $12,000 to $15,000, plus appropriate
out-of-pocket expenses, to help solicit proxies from holders of record, brokers
and nominees.
1
PROPOSAL NO. 1
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES FROM 30 MILLION TO 75 MILLION
INTRODUCTION
The Company's articles of incorporation authorize the issuance of up to
30 million shares of common stock, and up to 10 million shares of preferred
stock, which may be issued in one or more series. No preferred shares are
outstanding, and the Company has no plans to issue any preferred shares.
As of July 28, 2008, the record date, the Company had 19,729,703 shares
of common stock outstanding, 6,618,999 shares of common stock reserved for
issuance upon the exercise of outstanding options, and 2,772,000 shares of
common stock reserved for issuance upon the exercise of outstanding warrants,
thus leaving 879,298 shares of common stock available to be issued for other
purposes. Such warrants do not include the FMV Warrants or N Warrants described
below, in the discussion of Proposal 2.
BOARD RECOMMENDATION. Your Board unanimously recommends amending the
Company's Articles of Incorporation to increase the authorized number of CPS
common shares from 30,000,000 to 75,000,000. The amendment will not change the
number of authorized shares of preferred stock or the par value per share of any
stock. The Board of Directors recommends increasing the authorized number of
shares to accomplish two major objectives: first, to allow flexibility to issue
additional shares of Common Stock with respect to corporate purposes in general,
and second, to eliminate the restrictions on the exercise of certain outstanding
warrants, enabling the holders of those warrants to exercise the warrants for
shares of Common Stock rather than exercising their rights to cause the Company
to purchase such warrants for cash, as further described in Proposal 2 below.
GENERAL EFFECTS OF INCREASING AUTHORIZED SHARES
The Board of Directors believes that an increase in the number of
authorized shares will be advantageous, because it will provide the Company
flexibility to issue additional shares of Common Stock for corporate purposes as
considered appropriate by the Board of Directors. Such future activities may
include, without limitation, possible future financing and acquisition
transactions, increasing working capital, raising additional capital for
operations of the Company, secondary offerings, stock splits or stock dividends
and grants under the Company's equity-based compensation plans. As of the date
of this Proxy Statement, there are no arrangements, agreements or understandings
for the issuance or use of the additional shares of authorized Common Stock,
other than (i) possible future issuances of awards permitted under the Company's
existing stock-based employee benefits plans, and (ii) the future issuance, in
connection with the exercise of certain warrants as described in Proposal 2
below, of 1,848,309 shares of Common Stock, subject to adjustment pursuant to
the anti-dilutive provisions of the warrant.
The Board of Directors believes that the proposed amendment will
provide several long-term advantages to the Company and its shareholders. The
passage of the proposed amendment will enable the Company to pursue financings
or enter into transactions, which the Board of Directors believes provide the
potential for growth and profit without having to expend cash. If additional
authorized shares are available, transactions dependent upon the issuance of
additional shares are less likely to be undermined by delays and expenses
occasioned by the need to obtain shareholder authorization to provide the shares
necessary to consummate such transactions. Without an increase in authorized
shares of Common Stock, the Company may have to rely on debt, (which debt may
not even be available without the concurrent grant of equity), seek alternative
financing means or forgo investment opportunities altogether. Additionally, the
shareholders of the Company have previously authorized up to an additional
2,255,000 shares of common stock in connection with awards that could be granted
in the future under the Company's 2006 Long-Term Equity Incentive Plan. Such
additional shares will not be available for issuance, however, unless and until
an amendment to our articles of incorporation such as this Proposal 1 is
approved by shareholders, creating a sufficient number of authorized shares of
common stock to cover shares previously authorized under the plan.
In addition to the corporate purposes discussed above, the proposed
amendment could have an anti-takeover effect, although this is not the intent of
the Board of Directors. For example, if the Company becomes the subject of a
hostile takeover attempt, it could try to impede the takeover by issuing shares
of Common Stock, thereby diluting the voting power of the other outstanding
shares and increasing the cost of the takeover. The availability of this
defensive strategy to the Company could discourage unsolicited takeover
attempts. By potentially discouraging initiation of any such unsolicited
takeover attempts, the proposed amendment may limit the opportunity for
2
shareholders to realize the higher price for their shares that is generally
available in takeover attempts. The Board of Directors is not aware of any
attempt, or contemplated attempt, to acquire control of the Company, and the
Board of Directors has not presented this proposal with the intent that it be
utilized as a type of anti-takeover device. Shareholders should note that the
anti-takeover effect described above could also be accomplished by issuance of
preferred shares under existing authority granted to the Board of Directors,
whether or not the proposed amendment is adopted.
Except for Levine Leichtman, which currently owns 6.2% of our
outstanding common stock, shareholders do not have preemptive rights or similar
rights to subscribe for or purchase any additional shares of Common Stock that
may be issued in the future. If the Board of Directors elects to issue
additional shares of Common Stock, such issuance may, depending on the
circumstances, have a dilutive effect on the earnings per share and other
interests of the existing shareholders.
THE PROPOSAL
A vote FOR the proposal is a vote to amend the articles of
incorporation to increase the authorized number of common shares that the
Company may issue. One effect of that amendment would be that the warrants
described in Proposal 2 below could become exercisable to purchase an aggregate
of 1,848,309 shares of our Common Stock, subject to adjustment pursuant to the
anti-dilutive provisions of the warrant. That would give the holders of the
warrants an option to exercise for Common Stock in addition to their current
right to cause the Company to purchase the warrants for cash. The amendment
would also permit the Company to pursue other corporate transactions that might
involve issuance of shares, without having to expend cash and without having to
seek specific shareholder approval of such transactions.
FORM OF THE PROPOSAL. We expect to place before the Meeting for action
the following resolution, which has been approved by the Board of Directors and
declared advisable:
RESOLVED, that the first paragraph of Article V of the Articles of Incorporation
of the Company be amended so that, as amended, such paragraph shall read in its
entirety as follows:
"The Corporation is authorized to issue two (2) classes of stock. One class
of shares is to be called "Common Stock," and the second class of shares is
to be called "Serial Preferred Stock." The total number of shares which the
Corporation shall have authority to issue is Eighty-Five Million
(85,000,000), of which Seventy-Five Million (75,000,000) shall be Common
Stock, without par value, and of which Ten Million (10,000,000) shall be
Serial Preferred Stock, having a par value of $1.00 per share."
EFFECT OF A FAILURE TO APPROVE THIS PROPOSAL. In the event that our
shareholders do not approve this Proposal 1, our Board of Directors will have
significantly limited options to issue equity in future corporate transactions
as well as significant limitations on issuance of equity compensation under the
existing Long-Term Equity Incentive Plan. Further, the exercise of certain
warrants currently outstanding will continue to be restricted. Whether or not
shareholder approval is obtained, the holders of those warrants will continue to
have the right to cause the Company to purchase such warrants for cash, as
described in more detail in Proposal 2 below.
VOTE NECESSARY TO APPROVE THE AMENDMENT OF THE CPS ARTICLES OF INCORPORATION
The approval of this proposal requires that a majority of outstanding
shares be voted in favor of the proposal. Abstentions from voting on the
proposal therefore will have the same effect as votes against the proposal.
Further, we believe that brokers holding shares for their customers in general
will not be permitted to vote on this proposal without instruction from their
customers. Such "broker non-votes" will have the same effect as votes against
the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL 1.
3
PROPOSAL NO. 2
APPROVAL OF THE FUTURE ISSUANCE, IN CONNECTION WITH THE EXERCISE OF WARRANTS
ISSUED TO AN INVESTOR IN A RECENT PRIVATE TRANSACTION, OF 1,848,309 SHARES
OF COMMON STOCK, SUBJECT TO ADJUSTMENT PURSUANT TO THE ANTI-DILUTIVE
PROVISIONS OF THE WARRANTS
In June and July 2008, Levine Leichtman Capital Partners IV, L.P.,
which we refer to as Levine Leichtman, invested $25 million in the long-term
capital of CPS by purchasing senior secured term notes and equity securities of
CPS. As part of the equity securities purchased by Levine Leichtman, CPS issued
to Levine Leichtman two warrants, which we refer to as the Levine Leichtman
Warrants, to purchase a total of 1,775,000 shares of Common Stock. Other
material terms of the transaction are described below.
Bearing in mind the need for CPS to have available shares for issuance
in other possible transactions, Levine Leichtman agreed as an accommodation to
CPS that its warrants would not become exercisable into shares of Common Stock
until such time as the shareholders of CPS approved the issuance of any and all
shares issuable upon exercise of the warrants. CPS agreed to seek such
shareholder approval. At present, the holders of the Levine Leichtman Warrants
have the right to cause the Company to purchase such warrants for cash in an
amount equal to the number of shares issuable upon exercise of the warrants
multiplied by the excess of the fair market value of such shares over the
applicable warrant purchase price; however, at present, the Levine Leichtman
Warrants cannot be exercised for stock, as described below.
BASIC TERMS OF THE LEVINE LEICHTMAN WARRANTS. Pursuant to the June 30,
2008 securities purchase agreement between us and Levine Leichtman, which we
refer to as the securities purchase agreement, we issued the Levine Leichtman
Warrants in two series: (i) warrants that we refer to as the FMV Warrants,
which, upon the approval of our shareholders, would become exercisable for up to
1,500,000 shares of our common stock, at an exercise price of $2.573 per share,
and (ii) warrants that we refer to as the N Warrants, which, upon the approval
of our shareholders, would become exercisable for up to 275,000 shares of our
common stock, at a nominal exercise price. Following the receipt of shareholder
approval, both the FMV Warrants and the N Warrants would be exercisable in whole
or in part and at any time up to and including June 30, 2018, to the extent
permitted by applicable law and regulation.
RIGHT TO CAUSE THE COMPANY TO PURCHASE THE LEVINE LEICHTMAN WARRANTS
FOR CASH. Prior to our shareholders approving both the amendment to our articles
of incorporation set forth in Proposal 1 above and the issuance of the shares of
common stock issuable upon exercise of the Levine Leichtman Warrants, the
primary value in the Levine Leichtman Warrants is the right of the holder to
cause the Company to purchase such warrants for cash. The cash payable in the
event the holders of the Levine Leichtman Warrants exercise their put right is
equal to the product of (1) the number of shares of our Common Stock as to which
such warrants are otherwise exercisable (assuming the receipt of shareholder
approval), and (2) the excess of the market price of our Common Stock over the
exercise price of those warrants exercised. For this purpose, the market price
of our Common Stock is computed as the average of the closing prices of such
stock reported over the 20 consecutive trading days immediately preceding the
date on which Levine Leichtman or its assignee, as applicable, delivers such
warrants and a notice of exercise to us. We refer to this formula as the cash
exercise formula. If the holders of the Levine Leichtman Warrants exercise their
right to cause the Company to purchase such warrants for cash, we would be
required to deliver a cash payment within two business days following exercise.
OTHER MATERIAL TERMS OF THE LEVINE LEICHTMAN INVESTMENT. In
consideration of Levine Leichtman's investment of $25 million, the Company (i)
issued $25 million principal face amount of secured senior notes due June 30,
2013, which bear interest at an annual base rate of 16%, (ii) paid an
origination fee to Levine Leichtman of $1.1 million, (iii) issued to Levine
Leichtman 1,225,000 shares of Common Stock, (iv) paid the out-of-pocket expenses
of Levine Leichtman, and (v) issued the Levine Leichtman Warrants. We also
agreed to register for public sale, at our expense, the 1,225,000 issued shares
and the shares issuable upon exercise of the Levine Leichtman Warrants. The
notes may not be prepaid prior to July 1, 2010; they may be prepaid with a
prepayment penalty of 3% on or after July 1, 2010 but prior to July 1, 2011, of
1% on or after July 1, 2011 but prior to July 1, 2012, and thereafter without
penalty. Additionally, under the transaction documents executed in connection
with the Levine Leichtman transaction, CPS may not issue or grant any equity
interests or equity rights to any person (other than Levine Leichtman) prior to
the date on which the shareholders of the Company approve the issuance by the
Company of any and all shares of common stock otherwise issuable upon exercise
of the Levine Leichtman Warrants. Further, investment of $15 million of the $25
million total Levine Leichtman investment was contingent on CPS entering into
satisfactory amendments to certain outstanding indebtedness of a CPS subsidiary
in favor of an affiliate of Citigroup. Those amendments are described below
under "Amendments to our Indebtedness to Citigroup."
4
ANTI-DILUTION ADJUSTMENTS. The Levine Leichtman Warrants are subject to
specified anti-dilution adjustments to take into account, among other things,
subsequent issuances of our Common Stock. Following the amendments to our
indebtedness to Citigroup, described below under "Amendments to our Indebtedness
to Citigroup," and the resulting anti-dilution adjustments of the Levine
Leichtman Warrants, the FMV Warrants became exercisable for up to an additional
64,324 shares of Common Stock, and their exercise price was adjusted to $2.4672,
and the N Warrants became exercisable for up to an additional 8,985 shares of
Common Stock, without effect on their nominal exercise price. After these
anti-dilution adjustments, the FMV Warrants are exercisable to purchase up to
1,564,324 shares of our Common Stock and the N Warrants are exercisable to
purchase up to 283,985 shares of our Common Stock, for a total of 1,848,309
shares of our Common Stock potentially issuable upon exercise of the Levine
Leichtman Warrants. There may be future anti-dilution adjustments as well,
resulting in an increase in the number of shares of Common Stock issuable upon
exercise of the Levine Leichtman Warrants, and your approval of this Proposal 2
will be approval of the issuance of such additional shares as a result of any
such adjustments. In all events, the right to exercise such warrants for shares
(as opposed to the right to require the Company to purchase the warrants for
cash) is subject to shareholder approval of this Proposal 2 as well as approval
of the amendment to the CPS articles of incorporation set forth in Proposal 1.
COMMON STOCK OWNERSHIP OF LEVINE LEICHTMAN. As a part of the Levine
Leichtman investment, Levine Leichtman acquired 1,225,000 shares of our Common
Stock, in addition to any shares that may become issuable upon exercise of the
Levine Leichtman Warrants, assuming approval of Proposal 1 as well as Proposal
2. If all of the Levine Leichtman Warrants were exercised, Levine Leichtman
would hold, on a pro forma basis after giving effect to such issuances as of the
date hereof, approximately 14.24% of the Common Stock of the Company. Levine
Leichtman currently has the power to vote 1,225,000 shares of our Common Stock,
or approximately 6.21% of our aggregate outstanding common stock.
BOARD RECOMMENDATION. Your Board unanimously recommends approving the
issuance of 1,848,309 shares of Common Stock, and any additional shares issuable
on account of the anti-dilutive provisions, upon exercise of the Levine
Leichtman Warrants. The Board of Directors believes that approval of the
issuance of these shares is in the best interests of the Company and its
shareholders as the Levine Leichtman transaction, together with the Citigroup
amendments described below, have provided the Company with necessary financing
and working capital for growth and operating needs.
AMENDMENTS TO OUR INDEBTEDNESS TO CITIGROUP
At March 31, 2008, we were indebted to an affiliate of Citigroup, which
we refer to as Citi, in the principal amount of $90,000,000, of which
$30,000,000 was due on July 10, 2008. After March 31, 2008 and prior to the due
date, we prepaid approximately $3,163,328 in principal amount of that
indebtedness, leaving approximately $86,836,673 outstanding. Effective July 10,
2008, we agreed with Citi to reduce the principal amount outstanding to
$70,000,000, by delivering to Citi's designee (i) warrants valued as being
equivalent to 2,500,000 shares of Common Stock, or $4,071,429 and (ii) cash of
$12,765,244. These warrants, which we refer to as the Citi Warrants, represent
the right to purchase 2,500,000 shares of Common Stock at a nominal exercise
price, at any time prior to July 10, 2018. For purposes of this transaction, the
Citi Warrants were valued at the average of closing prices for CPS Common Stock
as reported by the Nasdaq Stock Market for the seven trading days immediately
preceding the transaction (June 30 through July 9, inclusive), or $1.629 per
share. Pursuant to our agreements with Citi, the due date of the remaining
$70,000,000 of indebtedness was moved to June 15, 2009, and we obtained the
option (contingent on performance of the portfolio of interests pledged to Citi,
and on payment of a 1.00% extension fee), to extend the due date of such debt
for an additional year, to June 15, 2010.
SHAREHOLDER APPROVAL REQUIREMENT
By their respective terms, the Levine Leichtman Warrants provide that
such warrants may not be exercised to purchase Common Stock prior to the
shareholder approval date. The shareholder approval date is defined as the date
on which the shareholders of the Company approve the issuance by the Company of
any and all shares of common stock otherwise issuable upon exercise of the
Levine Leichtman Warrants. Thus, the terms of the Levine Leichtman Warrants
require shareholder approval to remove the restrictions on exercise.
5
Further, because our Common Stock is traded on the Nasdaq Stock Market,
we are subject to the Nasdaq Marketplace Rules. Nasdaq Marketplace Rule
4350(i)(1)(D) provides that, except in limited circumstances, shareholder
approval is required in connection with a transaction, other than a public
offering, involving the sale, issuance or potential issuance of common stock, or
securities convertible into or exercisable for common stock, if the number of
shares of common stock to be issued upon such conversion or exercise is, or will
be upon issuance, equal to or in excess of 20% of the number of shares
outstanding prior to such issuance, or if the common stock to be issued upon
such exercise has, or will upon issuance have, voting power equal to or in
excess of 20% of the voting power outstanding prior to such issuance, for less
than the greater of book or market value of the stock. If the Levine Leichtman
transaction and the Citi transaction described above were considered to be a
single transaction, the issuance of shares under the Levine Leichtman Warrants
without restriction on exercise would require shareholder consent. For that
reason and because of the Company's existing limit on authorized shares, the
Levine Leichtman Warrants were drafted to restrict their exercise prior to
obtaining shareholder approval. The contractual shareholder approval
requirement, as well as the Nasdaq Marketplace Rules requirement, if applicable,
will each be satisfied upon approval of this Proposal 2; provided that an
amendment to our articles of incorporation such as Proposal 1 is also approved,
which will provide sufficient authorized shares for issuance. However, Proposal
1 and Proposal 2 are not dependent on each other: either proposal may be
approved without the other.
THE PROPOSAL
A vote "For" Proposal 2 is a vote to approve the future issuance, in
connection with the exercise of the Levine Leichtman Warrants, of 1,848,309
shares of Common Stock, subject to adjustment pursuant to the anti-dilutive
provisions of the warrants.
EFFECT OF A FAILURE TO APPROVE THIS PROPOSAL. In the event that our
shareholders do not approve the proposal set forth below, the Levine Leichtman
Warrants will not be exercisable for Common Stock; however, the holder of such
warrants will continue to have the right to cause the Company to purchase such
warrants for cash. Upon exercise of this right, the holder of the Levine
Leichtman Warrants will receive cash according to the cash exercise formula. The
exercise of this put right for cash of all of the Levine Leichtman Warrants,
which depends on the average closing price per share of our Common Stock on the
20 trading days preceding such exercise, could adversely affect our liquidity
and cash on hand. As examples, the table below presents the cash payable upon
exercise of 100% of the Levine Leichtman Warrants, based on various assumed
average prices for our Common Stock equal to the 20-day average applicable to
August 15, 2008 ($2.074 per share), and to average prices 20% and 40% above and
below the price applicable to that date. The reader should note that the
variation in the cash exercise formula is non-linear over the range presented in
the table, but that to the extent the applicable average price exceeds the
warrant exercise price of the FMV Warrants (currently $2.4672 per share), the
aggregate cost to CPS of such warrant exercise would increase at the rate of
$18,483 per $.01 per share increase in the applicable average.
Assumed 20-Day Average Cash Payable Upon Exercise
Market Price per Share of the Warrants
---------------------- --------------------------
$2.9036 $1,507,221
$2.4888 $740,543
$2.074 $588,956
$1.6592 $471,160
$1.2444 $353,363
The preceding summary of certain material features of the FMV Warrants
and the N Warrants does not purport to include all of the information regarding
them that may be important to your decision regarding this proposal. A copy of
the FMV Warrants issued June 30, 2008 is included as Exhibit A to this proxy
statement. You should read the exhibit carefully before casting your vote. The
form of the N Warrants is the same as the FMV Warrants in all material respects,
other than the exercise price and number of shares issuable, disclosed above.
The terms of the transactions between the Company and Levine Leichtman
were determined by negotiation, and, in the case of the FMV Warrants issued to
Levine Leichtman, by reference to the prevailing market price for the Company's
common stock. The price per share was agreed to on June 30, 2008, on which date
the closing price of the Common Stock had averaged, over the preceding 10
trading days, $2.573 per share. The parties also considered the closing price on
the date of agreement, which was $1.47 per share.
6
VOTE NECESSARY TO APPROVE THE ISSUANCE OF COMMON STOCK UPON EXERCISE OF THE
LEVINE LEICHTMAN WARRANTS
Approval of this proposal requires the affirmative vote of a majority
of those shares voting on the proposal, provided that such affirmative votes are
at least a majority of the required quorum. The required quorum is a majority of
the 19,729,703 shares outstanding. In other words, approval of this proposal
requires that the affirmative votes must be greater than the negative votes, and
must be no less than 4,932,427. To the extent that approval of Proposal 2 is
required for compliance with Nasdaq Marketplace Rules, such approval will be
effective only if a majority of the votes cast on the proposal are voted in
favor, and if Levine Leichtman is not permitted to vote the 1,225,000 shares
issued to it in the transaction described above. Levine Leichtman has advised
that it will not vote on Proposal 2; on that basis, any approval that meets the
requisites of California law will also be effective for Nasdaq purposes.
Further, we believe that brokers holding shares for their customers in general
will not be permitted to vote on this proposal without instruction from their
customers. Such "broker non-votes" will have the same effect as abstentions with
respect to the proposal.
We have contractually agreed with Levine Leichtman that in the event
our shareholders do not approve this Proposal 2, as well as Proposal 1, we will
include similar proposals for such approvals at a meeting of our shareholders no
less than once per annual period until such approval is obtained.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL 2.
INFORMATION REGARDING THE COMPANY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the number and percentage of shares of
Common Stock (its only class of voting securities) owned beneficially as of the
record date (July 28, 2008), by (i) each person known to CPS to own beneficially
more than 5% of the outstanding Common Stock, (ii) each director or named
executive officer of CPS, and (iii) all directors and executive officers of CPS
as a group. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has sole voting and
investment power with respect to the shares shown as beneficially owned by such
persons. Except as otherwise noted, each person named in the table has a mailing
address at 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. ......................................................... 2,855,488 (2) 13.7%
Chris A. Adams .................................................................. 54,000 *
E. Bruce Fredrikson ............................................................. 110,000 *
Brian J. Rayhill................................................................. 115,000 *
William B. Roberts .............................................................. 939,107 4.7%
John C. Warner .................................................................. 105,000 *
Gregory S. Washer ............................................................... 127,550 *
Daniel S. Wood .................................................................. 137,000 *
Jeffrey P. Fritz................................................................. 194,000 1.0%
Curtis K. Powell................................................................. 307,000 1.5%
Robert E. Riedl.................................................................. 253,994 1.3%
Chris Terry...................................................................... 235,097 1.2%
All directors and executive officers combined (15 persons)....................... 5,952,888 (2) (3) 26.4%
Millennium Management, L.L.C., 666 Fifth Ave., New York, NY 10103................ 1,469,618 (4) 7.4%
Dimensional Fund Advisors LP, 1299 Ocean Ave., Santa Monica, CA 90401............ 1,111,634 (5) 5.6%
Levine Leichtman Capital Partners IV, L.P. 335 N. Maple Dr., Beverly Hills,
CA 90210..................................................................... 1,225,000 (6) 6.2%
Citigroup Inc., 399 Park Ave, New York, NY 10043................................. 2,509,335 (7) 12.7%
* Less than 1.0% (FOOTNOTES CONTINUE ON NEXT PAGE)
7
(1) Includes certain shares that may be acquired within 60 days after July 28,
2008 from the Company upon exercise of options, as follows: Mr. Bradley,
1,184,099 shares; Mr. Adams, 40,000 shares; Mr. Fredrikson, 90,000 shares;
Mr. Rayhill, 95,000 shares; Mr. Roberts, 45,000 shares; Mr. Warner, 105,000
shares; Mr. Washer, 55,000 shares; Mr. Wood, 85,000 shares; Mr. Fritz,
194,000 shares; Mr. Powell, 139,000 shares; Mr. Riedl, 249,000 shares; and
Mr. Terry, 192,500 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 purchase stock
in the Company indirectly by buying units in a mutual fund. Each "unit" in
the mutual fund represents an interest in Company stock, cash and cash
equivalents.
(2) Includes shares pledged as security by the named person, with respect to
1,300,000 shares of Mr. Bradley.
(3) Includes 2,792,099 shares that may be acquired within 60 days after July
28, 2008, upon exercise of options and conversion of convertible
securities.
(4) Based on a report on Schedule 13G filed by the named person on February 12,
2008.
(5) Based on a report on Schedule 13G filed by the named person on February 6,
2008.
(6) Based on a report on Schedule 13D filed by the named person on July 10,
2008.
(7) Based on a report on Form 3 filed by the named person on July 18, 2008.
Includes 2,500,000 shares that may be acquired upon exercise of an
outstanding warrant.
FURTHER INFORMATION RELATING TO THE MEETING
VOTING OF SHARES
The Board of Directors recommends that an affirmative vote be cast in
favor of the each of the 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 Common Stock are entitled to one vote per share. If you are
a shareholder of record (that is, if you hold shares of Common Stock in your own
name), you may vote your shares by proxy using any of the following methods (i)
telephoning the phone number listed on the proxy card; (ii) using the Internet
site listed on the proxy card; or (iii) completing, signing, dating and
returning the proxy card in the postage-paid envelope provided. California law
permits shareholders to vote their shares by proxy through an electronic
transmission authorized by the shareholder. The telephone and Internet voting
procedures set forth on the proxy card allow us to authenticate shareholders'
identities and permit shareholders to provide their voting instructions and
confirm their instructions have been properly recorded. If you vote by telephone
or through the Internet, you do not need to return your proxy card. If your
shares of Common Stock are held by a broker, bank or other nominee in "street
name," you will receive voting instructions (including instructions, if any, on
how to vote by telephone or through the Internet) from the record holder that
you must follow in order to have your shares voted at the Meeting.
Votes cast in person or by proxy at the Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent
and Georgeson Inc. The Inspector of Elections will also determine whether or not
a quorum is present. The law governing voting of shares is that of California,
which is the Company's state of incorporation. 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.
Approval of Proposal 1, the proposal to amend the articles of
incorporation, requires the affirmative vote of a majority of the outstanding
shares, that is, not less than 9,864,852 shares of the total 19,729,703 shares
outstanding must be voted in favor of the proposal if it is to be approved; an
abstention has the same effect as a negative vote.
Approval of Proposal 2, the proposal to approve the issuance of up to
1,848,309 shares of Common Stock upon the exercise of the Levine Leichtman
Warrants, requires the affirmative vote of a majority of those shares voting on
the proposal, provided that such affirmative votes are at least a majority of
the required quorum, that is, the affirmative votes must be greater than the
negative votes, and must be no less than 4,932,427. To the extent that approval
of Proposal 2 is required for compliance with Nasdaq Marketplace Rules, such
approval will be effective only if a majority of the votes cast on the proposal
8
are voted in favor, and if Levine Leichtman is not permitted to vote the
1,225,000 shares issued to it in the transactions described on pages 4-7 above.
Levine Leichtman has advised that it will not vote on Proposal 2; on that basis,
any approval that meets the requisites of California law will also be effective
for Nasdaq purposes. Provided that at least the minimum number of affirmative
votes are cast in favor of Proposal 2, an abstention will have no effect on the
outcome; however, if less than 4,932,427 affirmative votes are cast in favor of
Proposal 2, then abstentions will have an effect equivalent to that of a
negative vote.
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 the amendment of the Company's articles of incorporation increasing
the number of authorized common shares from 30 million to 75 million; FOR the
issuance of up to 1,848,309 shares of Common Stock upon the exercise of the
Levine Leichtman Warrants, subject to adjustment pursuant to the anti-dilutive
provisions of such warrants; and will be deemed to grant discretionary authority
to vote upon any other matters properly coming before the Meeting, including
procedural matters such as a recess or adjournment. We believe that brokers
holding shares for their customers in general will not be permitted to vote on
either proposal without instruction from their customers. 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, and will have the effect of abstentions as described above. 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.
AVAILABILITY OF ADDITIONAL INFORMATION
SHAREHOLDERS MAY OBTAIN, WITHOUT CHARGE, A COPY OF OUR ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007, AND ANY OF OUR REPORTS
SUBSEQUENTLY FILED UNDER THE SECURITIES EXCHANGE ACT, UPON WRITTEN OR TELEPHONIC
REQUEST. Any such request should be directed to "Corporate Secretary, Consumer
Portfolio Services, Inc., 16355 Laguna Canyon Road, Irvine, CA 92618," or to CPS
Investor Relations, toll-free 888-505-9200. The subsequently filed reports
include our quarterly reports on Form 10-Q for the quarterly periods ended March
31 and June 30, 2008. Our reports are also available on our website,
www.consumerportfolio.com.
SHAREHOLDER PROPOSALS
We plan to hold our year 2009 Annual Meeting of Shareholders on June 3,
2009. In order to be considered for inclusion in our proxy statement and form of
proxy for the 2009 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 December 30, 2008.
9
SPECIAL MEETING OF SHAREHOLDERS OF
CONSUMER PORTFOLIO SERVICES, INC.
SEPTEMBER 16, 2008
-------------------------
PROXY VOTING INSTRUCTIONS
-------------------------
MAIL -Sign, date and mail your proxy card in
the envelope provided as soon as possible. =============== ==============
-OR COMPANY NUMBER
--------------- --------------
TELEPHONE -Call toll-free 1-800-PROXIES ACCOUNT NUMBER
(1-800-776-9437) in the United States or --------------- --------------
1-718921-8500 from foreign countries and
follow the instructions. Have your proxy --------------- --------------
card available when you call.
=============== ==============
-OR
IN PERSON -You may vote your shares in
person by attending the Special Meeting.
---------------------------------------------------------------------------------------------------------------------
You may enter your voting instructions at 1-800-PROXIES in the United States or 1-718-921-8500 from foreign countries
until 11:59 PM Eastern Time the day before the cut-off or meeting date.
---------------------------------------------------------------------------------------------------------------------
Please detach along perforated line and mail in the envelope provided.
00030300000000000000 8 091608
------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [ ]
------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. To approve an amendment to the [ ] [ ] [ ]
Company's articles of incorporation
to increase the number of
authorized common shares from 30
million to 75 million.
2. To approve the future issuance, in [ ] [ ] [ ]
connection with the exercise of
warrants issued to an investor in
our recent private transaction
described in the attached proxy
statement, of 1,848,309 shares of
Common Stock, subject to adjustment
pursuant to the anti-dilutive
provisions of the warrants.
3. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED,
FOR PROPOSALS 1 AND 2, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD.
To change the address on your account,
please check the box at right and
indicate your new address in the
address space above. Please note that [ ]
changes to the registered name(s) on
the account may not be submitted via
this method.
Signature of Shareholder _________________ Date: ______________ Signature of Shareholder _________________ Date: ______________
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF THE SIGNER
IS A CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER, GIVING FULL TITLE AS SUCH. IF SIGNER IS
A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
CONSUMER PORTFOLIO SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 16, 2008
The undersigned shareholder of CONSUMER PORTFOLIO SERVICES, INC., a
California corporation, hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement with respect to the Special 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
September 16, 2008, at 10:00 a.m., and hereby appoints Charles E. Bradley, Jr.
and Jeffrey P. Fritz, 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).
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
SPECIAL MEETING OF SHAREHOLDERS OF
CONSUMER PORTFOLIO SERVICES, INC.
SEPTEMBER 16, 2008
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
00030300000000000000 8 091608
------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [ ]
------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. To approve an amendment to the [ ] [ ] [ ]
Company's articles of incorporation
to increase the number of
authorized common shares from 30
million to 75 million.
2. To approve the future issuance, in [ ] [ ] [ ]
connection with the exercise of
warrants issued to an investor in
our recent private transaction
described in the attached proxy
statement, of 1,848,309 shares of
Common Stock, subject to adjustment
pursuant to the anti-dilutive
provisions of the warrants.
3. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED,
FOR PROPOSALS 1 AND 2, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD.
To change the address on your account,
please check the box at right and
indicate your new address in the
address space above. Please note that [ ]
changes to the registered name(s) on
the account may not be submitted via
this method.
Signature of Shareholder _________________ Date: ______________ Signature of Shareholder _________________ Date: ______________
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF THE SIGNER
IS A CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER, GIVING FULL TITLE AS SUCH. IF SIGNER IS
A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION OR QUALIFICATION THEREFROM.
WARRANT NO. LLCP-FMV 1 June 30, 2008
WARRANT TO PURCHASE
1,500,000 SHARES OF COMMON STOCK
--------------------------------
FOR VALUE RECEIVED, CONSUMER PORTFOLIO SERVICES, INC., a California
corporation (the "COMPANY"), hereby certifies that LEVINE LEICHTMAN CAPITAL
PARTNERS IV, L.P., a Delaware limited partnership, or its assigns (the
"HOLDER"), is entitled to purchase, on the terms and subject to the conditions
contained herein, ONE MILLION FIVE HUNDRED THOUSAND (1,500,000) shares (the
"WARRANT SHARES") of the Company's common stock, no par value per share ("COMMON
STOCK"), at the exercise price of $2.573 per Warrant Share (the "WARRANT
PURCHASE PRICE") at any time and from time to time during the Exercise Period
(as such term is defined below). The number of Warrant Shares and the Warrant
Purchase Price shall be subject to adjustment as set forth in SECTION 3. [THE
READER SHOULD NOTE THAT THE EXERCISE PRICE AND NUMBER OF SHARES WERE ADJUSTED
EFFECTIVE JULY 10, 2008 TO $2.4672 PER SHARE AND 1,564,324 SHARES,
RESPECTIVELY.]
This Warrant (this "WARRANT") is the "Purchaser Closing FMV Warrant"
referred to in, and is being issued in connection with the consummation of the
transactions contemplated by, that certain Securities Purchase Agreement dated
as of June 30, 2008, by and between the Company and the initial Holder of this
Warrant (as amended or modified from time to time, the "SECURITIES PURCHASE
AGREEMENT"), and is subject to the following terms and conditions:
1. DEFINITIONS. For the purposes of this Warrant, (a) unless otherwise
set forth herein, capitalized terms used herein shall have the meanings given to
them in the Securities Purchase Agreement and (b) the following terms shall have
the respective meanings set forth below:
"COMMON STOCK" has the meaning set forth in the preamble of this Warrant.
"COMPANY" has the meaning set forth in the preamble of this Warrant.
"CURRENT MARKET PRICE" per share of Common Stock means, as of any specified date
on which the Common Stock is publicly traded, the average of the daily market
prices of the Common Stock over the twenty (20) consecutive trading days
immediately preceding (and not including) such date. The 'daily market price'
for each such trading day shall be (i) the closing sales price on such day on
the principal stock exchange on which the Common Stock is then listed or
admitted to trading or on Nasdaq, as applicable, (ii) if no sale takes place on
such day on any such exchange or system, the average of the closing bid and
asked prices, regular way, on such day for the Common Stock as officially quoted
on any such exchange or system, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or system, the last reported sale
price, regular way, on such day for the Common Stock, or if no sale takes place
on such day, the average of the closing bid and asked prices for the Common
Stock on such day, as reported by Nasdaq or the National Quotation Bureau, or
(iv) if the Common Stock is not then listed or admitted to trading on any
securities exchange and if no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the City of Los Angeles customarily published on each Business
Day. If the daily market price cannot be determined for the twenty (20)
consecutive trading days immediately preceding such date in the manner specified
in the foregoing sentence, then the Common Stock shall not be deemed to be
publicly traded as of such date.
"DESIGNATED OFFICE" has the meaning set forth in SECTION 2.1.
"DILUTIVE ISSUANCE" has the meaning set forth in SECTION 3.9.
"DISTRIBUTION" has the meaning set forth in SECTION 3.3.
"DISTRIBUTION AMOUNT" has the meaning set forth in SECTION 3.3.
"DOJ" has the meaning set forth in SECTION 2.4.
A-1
"EXCLUDED SHARES" shall mean (i) Common Stock, Equity Rights or Convertible
Securities issued in any of the transactions described in SECTIONS 3.1, 3.2, 3.3
OR 3.5, (ii) shares of Common Stock issued after the Issuance Date upon
conversion, exercise or exchange of Equity Rights or Convertible Securities
outstanding on the Issuance Date, and (iii) this Warrant or any securities
issued upon exercise hereof. Notwithstanding the foregoing, shares of Common
Stock, Equity Rights or Convertible Securities, and the shares of Common Stock
issuable in respect thereof described in clauses (i) or (ii) shall not
constitute "Excluded Shares" if the terms thereof are amended or revised after
the Issuance Date.
"EXERCISE NOTICE" has the meaning set forth in SECTION 2.1.
"EXERCISE PERIOD" means the period commencing on the Issuance Date and ending on
(and including) the Expiration Date.
"EXPIRATION DATE" means June 30, 2018.
"FAIR MARKET VALUE" per share of Common Stock as of any specified date means (i)
if the Common Stock is publicly traded on such date, the Current Market Price
per share, or (ii) if the Common Stock is not publicly traded (or deemed not to
be publicly traded) on such date, the fair market value per share of Common
Stock as determined in good faith by the Board of Directors of the Company and
set forth in a written notice to the Holder, subject to the Holder's right to
dispute such determination under SECTION 3.8(E).
"FTC" has the meaning set forth in SECTION 2.4.
"HOLDER" has the meaning set forth in the preamble of this Warrant.
"HSR ACT" has the meaning set forth in SECTION 2.4.
"ISSUANCE DATE" means June 30, 2008.
"NASDAQ" means the Nasdaq Stock Market or any successor reporting system
thereof.
"OTHER PROPERTY" has the meaning set forth in SECTION 3.5.
"REFERENCE PRICE" means, as of any time, the higher of (i) the Warrant Purchase
Price in effect as of such time, and (ii) the Fair Market Value per share of
Common Stock in effect at such time.
"SHAREHOLDER APPROVAL DATE" means the date on which Shareholder Approval is
obtained.
"WARRANT" means this Warrant, any amendment of this Warrant, and any warrants
issued upon transfer, division or combination of, or in substitution for, this
Warrant or any other such warrant. All such Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of
Warrant Shares for which they may be exercised.
"WARRANT PURCHASE PRICE" has the meaning set forth in the preamble of this
Warrant (as adjusted in accordance with the terms of this Warrant).
"WARRANT SHARES" has the meaning set forth in the preamble of this Warrant.
2. EXERCISE.
2.1 EXERCISE; DELIVERY OF CERTIFICATES. Subject to the
provisions of SECTIONS 2.4 and 2.5, this Warrant may be exercised, in whole or
in part, at the option of the Holder, at any time and from time to time during
the Exercise Period, by (a) delivering to the Company at its principal executive
office (the "DESIGNATED OFFICE") (i) a notice of exercise, in substantially the
form attached hereto (the "EXERCISE NOTICE"), duly completed and signed by the
Holder, and (ii) this Warrant, and (b) paying the Warrant Purchase Price
pursuant to SECTION 2.2 for the number of Warrant Shares proposed to be
purchased in the Exercise Notice. Subject to the provisions of SECTION 2.4, the
Warrant Shares being purchased under this Warrant will be deemed to have been
issued to the Holder, as the record owner of such Warrant Shares, as of the
close of business on the date on which payment therefor is made by the Holder
pursuant to SECTION 2.2. Stock certificates representing the Warrant Shares so
purchased shall be delivered to the Holder within three (3) Business Days after
this Warrant has been exercised (or, if applicable, immediately after the
conditions set forth in SECTION 2.4 have been satisfied); PROVIDED, HOWEVER,
that in the case of a purchase of less than all of the Warrant Shares issuable
upon exercise of this Warrant, the Company shall cancel this Warrant and, within
three (3) Business Days after this Warrant has been surrendered, execute and
deliver to the Holder a new Warrant of like tenor for the number of unexercised
Warrant Shares. Each stock certificate representing the number of Warrant Shares
purchased pursuant to this Warrant shall be registered in the name of the Holder
or, subject to compliance with Applicable Laws, such other name as designated by
the Holder.
A-2
2.2 PAYMENT OF WARRANT PRICE. Payment of the Warrant Purchase
Price shall be made, at the option of the Holder, by (i) check from the Holder,
(ii) wire transfer, (iii) instructing the Company to withhold and cancel a
number of Warrant Shares then issuable upon exercise of this Warrant with
respect to which the excess, if any, of the Fair Market Value over the Warrant
Purchase Price for such canceled Warrant Shares is at least equal to the Warrant
Purchase Price for the Warrant Shares being purchased, (iv) surrendering to the
Company of shares of Common Stock previously acquired by the Holder with a Fair
Market Value equal to the Warrant Purchase Price for the Warrant Shares then
being purchased or (v) any combination of the foregoing.
2.3 NO FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares of Common Stock upon the exercise of this Warrant. If
any fraction of a share of Common Stock would, except for the provisions of this
paragraph, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay to the Holder an amount in cash calculated by it
to be equal to the then Fair Market Value per share of Common Stock multiplied
by such fraction computed to the nearest whole cent.
2.4 ANTITRUST NOTIFICATION. If the Holder determines, in its
sole judgment upon the advice of counsel, that an exercise of this Warrant
pursuant to the terms hereof is subject to the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), the Holder shall notify the Company, and the Company and the Holder
shall, prior to the payment of the Warrant Purchase Price, file with the United
States Federal Trade Commission (the "FTC") and the United States Department of
Justice (the "DOJ") the notification and report form, if any, required in
connection with the exercise of this Warrant, and any supplemental information
required in connection therewith, pursuant to the HSR Act. Any information
required to be provided by or with respect to the Company shall be provided by
the Company within seven (7) Business Days after receiving notification from the
Holder of the applicability of the HSR Act. Any such notification, report form
and supplemental information will be in full compliance with the requirements of
the HSR Act. The Company will furnish to the Holder such necessary information
and such assistance as the Holder may reasonably request in connection with the
preparation of any filing or submission which is necessary under the HSR Act.
The Company shall respond promptly after receiving any inquiries or requests for
additional information from the FTC or the DOJ (and in no event more than five
(5) Business Days after receipt of such inquiry or request). The Company shall
keep the Holder apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC or the DOJ, and
shall respond promptly to any such inquiries or requests. The Company shall bear
all filing or other fees required to be paid by the Company and the Holder (or
the "ultimate parent entity" of the Holder, if any) under the HSR Act or any
other Applicable Law and the Company shall bear all costs and expenses
(including, without limitation, attorneys' fees) incurred by the Company and the
Holder (or the "ultimate parent entity" of the Holder, if any) in connection
with the preparation of such filings, responses to inquiries or requests and
compliance with the HSR Act and other Applicable Laws. In the event that this
SECTION 2.4 is applicable to any exercise of this Warrant, the purchase of the
Warrant Shares subject to the Exercise Notice, and the payment of the Warrant
Purchase Price, will be subject to the expiration or earlier termination of the
waiting period under the HSR Act.
2.5 RESTRICTIONS ON EXERCISE.
(a) This Warrant may not be exercised in whole or in
part prior to the Shareholder Approval Date. For the avoidance of doubt, the
foregoing restriction on exercise shall not limit the Holder's right to exercise
the Put Option set forth in SECTION 2.6.
(b) If, at any time prior to the Shareholder Approval
Date, the Company engages in a transaction that is subject to the provisions of
SECTION 3.5 or a majority of the outstanding shares of Common Stock is sold in
one transaction or a series of related transactions (each, a "TRANSACTION"),
then the Company shall either (i) obtain Shareholder Approval prior to or upon
the consummation of such Transaction or (ii) pay to the Holder prior to or upon
the consummation of such Transaction an amount in cash equal to (A) the
difference between the fair market value of the consideration to be received for
each share of Common Stock pursuant to such Transaction (as determined in good
faith by the Board of Directors of the Company and set forth in a written notice
to the Holder, subject to the Holder's right to dispute such determination under
SECTION 3.8(E)) and the Warrant Purchase Price then in effect, MULTIPLIED BY (B)
the number of shares of Common Stock then issuable upon exercise of this Warrant
(disregarding any restrictions on exercise).
A-3
2.6 PUT OPTION.
(a) From and after the Issuance Date, and continuing
until the date described in SECTION 2.6(C), the Holder shall have the right and
option (the "PUT OPTION"), exercisable at any time and from time to time, at its
sole option, to require the Company to purchase this Warrant (including any
warrants issued upon assignments of this Warrant), in whole or in part at a
price equal to (i) the number of shares of Common Stock subject to the portion
of this Warrant as to which the Put Option is being exercised (disregarding any
restrictions on exercise), multiplied by (ii) the excess of the Fair Market
Value of one share of Common Stock as of the date the Put Option is exercised,
over the Warrant Purchase Price.
(b) If the Holder wishes to exercise the Put Option, in
whole or in part, it shall furnish to the Company a written notice notifying the
Company of its election to exercise the Put Option. Upon receipt by the Company
of such written notice, the Company shall be obligated to purchase from the
Holder, on the second Business Day after its receipt of such notice, the portion
of this Warrant subject to the exercise of the Put Option at the price set forth
in CLAUSE (A) above. At the closing of the Put Option, the Holder shall deliver
to the Company this Warrant (or the portion being put to the Company), against
payment by the Company of the applicable price by wire transfer in immediately
available funds to a bank account designated by the Holder.
(c) The Put Option shall survive until the Expiration
Date.
(d) In no event shall the Holder be obligated to make
any representations or warranties as to this Warrant in connection with any
exercise of the Put Option other than with respect to the Holder's organization,
good standing and authority, its title to this Warrant, no consents and no
conflicts with the Holder's organizational documents and material agreements.
3. ADJUSTMENTS TO THE NUMBER OF WARRANT SHARES AND TO THE WARRANT
PURCHASE PRICE. The number of Warrant Shares for which this Warrant is
exercisable and the Warrant Purchase Price shall be subject to adjustment from
time to time as set forth in this SECTION 3.
3.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time the Company:
(a) pays a dividend or other distribution on its Common
Stock in shares of Common Stock or shares of any other class or series of
Capital Stock,
(b) subdivides its outstanding shares of Common Stock
(by stock split, reclassification or otherwise) into a larger number of shares
of Common Stock, or
(c) combines (by reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be adjusted so that the
Holder shall thereafter be entitled to receive upon exercise of this Warrant the
kind and number of shares of Common Stock that the Holder would have owned or
have been entitled to receive immediately after such record date or effective
date had this Warrant been exercised immediately prior to such record date or
effective date. Any adjustment made pursuant to this SECTION 3.1 shall become
effective immediately after the effective date of such event, but be retroactive
to the record date, if any, for such event.
Upon any adjustment of the number of Warrant Shares purchasable upon
the exercise of this Warrant as herein provided, the Warrant Purchase Price per
share shall be adjusted by multiplying the Warrant Purchase Price immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment and the denominator of which shall be the
number of Warrant Shares so purchasable immediately thereafter.
3.2 RIGHTS; OPTIONS; WARRANTS. If, at any time after the
Issuance Date, the Company issues (without payment of any consideration) to all
holders of outstanding Common Stock any rights, options or warrants to subscribe
for or purchase shares of Common Stock or securities convertible into or
exchangeable for Common Stock, then the Company shall also distribute, at the
same time as the distribution to such holders, such rights, options, warrants or
securities to the Holder as if this Warrant had been exercised immediately prior
to the record date for such issuance.
A-4
3.3 DISTRIBUTION OF ASSETS OR SECURITIES. If at any time the
Company makes a distribution (other than a distribution covered by SECTION 3.1
or 3.2) to its shareholders of any asset, including cash or securities (such
distribution, a "DISTRIBUTION", and the total of the cash, assets or securities
so distributed, the "DISTRIBUTION AMOUNT"), then, at the Holder's option:
(i) the Holder shall have the right to receive an
amount of assets, including cash or securities equal to the number of Warrant
Shares for which this Warrant is exercisable immediately prior to the
Distribution, multiplied by the Distribution Amount, divided by the number of
shares of Common Stock outstanding at such time. Upon the closing of the
Distribution, the Company shall distribute such portion of the Distribution
Amount to the Holder; or
(ii) the Warrant Purchase Price shall be adjusted and
shall be equal to the Warrant Purchase Price in effect immediately prior to the
close of business on the date fixed for the determination of shareholders
entitled to receive such distribution, multiplied by a fraction (which shall not
be less than zero), the numerator of which shall be the Fair Market Value per
share of Common Stock on the date fixed for such determination, less the amount
of cash, the then-fair market value of the portion of the assets, or the fair
market value of the portion of the securities, as the case may be (as determined
in good faith by the Board of Directors of the Company, subject to the Holder's
rights under SECTION 3.8(E)), so distributed applicable to one share of Common
Stock, and the denominator of which shall be the Fair Market Value per share of
Common Stock. Such adjustment to the Warrant Purchase Price shall become
effective immediately prior to the opening of business on the day immediately
following the date fixed for the determination of shareholders entitled to
receive such distribution. Upon any adjustment to the Warrant Purchase Price as
provided for in this SECTION 3.3(B)(II), the number of Warrant Shares issuable
upon the exercise of this Warrant shall also be adjusted and shall be equal to
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment multiplied by a fraction, the numerator of which is the
Warrant Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
3.4 ISSUANCE OF EQUITY SECURITIES AT LESS THAN FAIR MARKET
VALUE OR WARRANT PURCHASE PRICE.
(a) If, at any time after Issuance Date, the Company
shall issue or sell (or, in accordance with SECTION 3.4(b), shall be deemed to
have issued or sold) shares of Common Stock, or Equity Rights or Convertible
Securities representing the right to subscribe for or purchase shares of Common
Stock (other than any Excluded Shares) at a price per share of Common Stock that
is lower than the Reference Price in effect immediately prior to such sale and
issuance, then the Warrant Purchase Price shall be adjusted so that it shall
equal the price determined by multiplying the Warrant Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such sale and issuance plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Company (and in
the case of adjustments triggered in full or in part by the issuance of Equity
Rights or Convertible Securities, the aggregate consideration deemed received in
respect of such issuance determined as provided in SECTION 3.4(B) below) for
such sale or issuance would purchase at such Reference Price per share, and the
denominator of which shall be the total number of shares of Common Stock
outstanding (and in the case of adjustments triggered in full or in part by the
issuance of Equity Rights or Convertible Securities, the number of shares of
Common Stock deemed to be outstanding as a result of such issuance determined as
provided in SECTION 3.4(b) below) immediately after such sale or issuance.
Adjustments shall be made successively whenever such an issuance is made. Upon
any adjustment in the Warrant Purchase Price as provided in this SECTION 3.4(A),
the number of shares of Common Stock purchasable upon the exercise of this
Warrant shall also be adjusted and shall be that number determined by
multiplying the number of Warrant Shares issuable upon exercise immediately
prior to such adjustment by a fraction, the numerator of which is the Warrant
Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
(b) For the purpose of determining the adjusted Warrant
Purchase Price under SECTION 3.4(A), the following shall be applicable:
A-5
(i) If the Company in any manner issues or grants
any Equity Rights (including Equity Rights to acquire Convertible Securities),
and the price per share for which shares of Common Stock are issuable upon the
exercise of such Equity Rights or upon conversion or exchange of such
Convertible Securities is less than the Reference Price determined as of the
date of such issuance or grant of such Equity Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Equity
Rights (or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Equity Rights) shall
be deemed to be outstanding and to have been issued and sold by the Company for
such lower price per share. For purposes of this paragraph, the price per share
for which shares of Common Stock are issuable upon exercise of Equity Rights or
upon conversion or exchange of Convertible Securities issuable upon exercise of
Equity Rights shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the issuing or
granting of such Equity Rights, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Equity
Rights, plus in the case of such Equity Rights which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon exercise of such Equity Rights or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Equity Rights.
(ii) If the Company in any manner issues or grants
any Convertible Securities having an exercise or conversion or exchange price
per Share which is less than the Reference Price determined as of the date of
issuance or sale, then the maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Company for such lower
price per share. For purposes of this paragraph, the price per share for which
shares of Common Stock are issuable upon conversion or exchange of Convertible
Securities is determined by dividing (A) the total amount received by the
Company as consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.
(iii) If the purchase price provided for in any
Equity Rights, the additional consideration, if any, payable upon the issuance,
conversion or exchange of any Convertible Securities or the rate at which any
Convertible Securities are convertible into or exchangeable for shares of Common
Stock decreases at any time, or if the number of shares of Common Stock issuable
upon the exercise, issuance, conversion or exchange of any Equity Rights or
Convertible Securities increases at any time, then the Warrant Purchase Price in
effect at the time of such decrease (or increase) shall be readjusted to the
Warrant Purchase Price which would have been in effect at such time had such
Equity Rights or Convertible Securities still outstanding provided for such
decreased purchase price, additional consideration, changed conversion rate or
increased shares, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares shall be correspondingly readjusted, by
taking the number of Warrant Shares issuable upon the exercise of this Warrant
immediately prior to such adjustment multiplied by a fraction, the numerator of
which is the Warrant Purchase Price in effect immediately prior to such
adjustment and the denominator of which is the Warrant Purchase Price as so
adjusted.
(iv) If at any time the Company sells and issues
shares of Common Stock or Equity Rights or Convertible Securities containing the
right to subscribe for or purchase shares of Common Stock for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then in determining the "price per share of Common Stock" and the "consideration
received by the Company" for purposes of the preceding paragraphs of this
SECTION 3.4, the Board of Directors of the Company shall determine, in good
faith, the fair market value of property, subject to the Holder's rights under
SECTION 3.8(E).
(v) There shall be no adjustment of the Warrant
Purchase Price in respect of the Common Stock pursuant to this SECTION 3.4 if
the amount of such adjustment is less than $0.00001 per share of Common Stock;
PROVIDED, HOWEVER, that any adjustments which by reason of this provision are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.
3.5 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. If at any time the Company reorganizes its capital,
reclassifies its capital stock, consolidates, merges or combines with or into
another Person (where the Company is not the surviving corporation or where
there is any change whatsoever in, or distribution with respect to, the
outstanding Common Stock), or the Company sells, transfers or otherwise disposes
of all or substantially all of its property, assets or business to another
Person, other than in a transaction provided for in SECTION 3.1, 3.2, 3.3, 3.4
OR 3.6, and, pursuant to the terms of such reorganization, reclassification,
consolidation, merger, combination, sale, transfer or other disposition of
assets, (i) shares of common stock of the successor or acquiring Person or of
the Company (if it is the surviving corporation) or (ii) any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring Person or the Company ("OTHER
PROPERTY") are to be received by or distributed to the holders of Common Stock
who are holders immediately prior to such transaction, then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the number
of shares of Common Stock, common stock of the successor or acquiring Person,
and/or Other Property which holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event would have
owned or received immediately after and as a result of such event. In such
event, the aggregate Warrant Purchase Price otherwise payable for the Warrant
Shares issuable upon exercise of this Warrant shall be allocated among such
securities and Other Property in proportion to the respective fair market values
of such securities and Other Property as determined in good faith by the Board
of Directors of the Company, subject to the Holder's rights under SECTION
3.8(e).
A-6
In case of any such event, the successor or acquiring Person (if other
than the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as the Holder may approve in writing
(as determined by resolution of the Board of Directors of the Company) in order
to provide for adjustments of any shares of common stock of such successor or
acquiring Person for which this Warrant thus becomes exercisable, which
modifications shall be as equivalent as practicable to the adjustments provided
for in this SECTION 3.5. For purposes of this SECTION 3, "common stock of the
successor or acquiring Person" shall include stock or other equity securities,
or securities that are exercisable or exchangeable for or convertible into
equity securities, of such corporation, or other securities if such Person is
not a corporation, of any class that is not preferred as to dividends or assets
over any other class of stock of such corporation or Person and that is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
SECTION 3.5 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers and other
dispositions of assets.
3.6 DISSOLUTION, TOTAL LIQUIDATION OR WINDING-UP. If at any
time there is a voluntary or involuntary dissolution, total liquidation or
winding-up of the Company, other than as contemplated by SECTION 3.5, then the
Company shall cause to be mailed (by registered or certified mail, return
receipt requested, postage prepaid) to the Holder at the Holder's address as
shown on the Warrant register, at the earliest practicable time (and, in any
event, not less than thirty (30) calendar days before any date set for
definitive action) written notice of the date on which such dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify the date as of which the record holders of shares of Common
Stock shall be entitled to exchange their shares for securities, money or other
property deliverable upon such dissolution, liquidation or winding-up, as the
case may be. On such date, the Holder shall be entitled to receive upon
surrender of this Warrant the cash or other property, less the Warrant Purchase
Price for this Warrant then in effect, that the Holder would have been entitled
to receive had this Warrant been exercised immediately prior to such
dissolution, liquidation or winding-up. Upon receipt of the cash or other
property, any and all rights of the Holder to exercise this Warrant shall
terminate in their entirety. If the cash or other property distributable in the
dissolution, liquidation or winding-up has a fair market value (as determined in
good faith by the Board of Directors of the Company and set forth in a written
notice to the Holder, subject to the Holder's right to dispute such
determination under SECTION 3.8(E)) which is less than the Warrant Purchase
Price for this Warrant then in effect, this Warrant shall terminate and be of no
further force or effect upon the dissolution, liquidation or winding-up.
3.7 OTHER DILUTIVE EVENTS. If any event occurs as to which the
other provisions of this SECTION 3 are not strictly applicable but as to which
the failure to make any adjustment would not protect the purchase rights
represented by this Warrant in accordance with the intent and principles hereof
then, in each such case, the Holder (or if the Warrant has been divided up, the
Holders of Warrants exercisable for the purchase of more than fifty percent
(50%) of the aggregate number of Warrant Shares then issuable upon exercise of
all of the then exercisable Warrants) may appoint an independent investment bank
or firm of independent public accountants which shall give its opinion as to the
adjustment, if any, on a basis consistent with the intent and principles
established herein, necessary to preserve the purchase rights represented by
this Warrant (or such Warrants). Upon receipt of such opinion, the Company will
mail (by registered or certified mail, return receipt requested, postage
prepaid) a copy thereof to the Holder within three (3) Business Days and shall
make the adjustments described therein. The fees and expenses of such investment
bank or independent public accountants shall be borne by the Company.
3.8 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the adjustments
provided for pursuant to this SECTION 3:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments
required by this SECTION 3 shall be made whenever and as often as any specified
event requiring such an adjustment shall occur. For the purpose of any such
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
A-7
(b) RECORD DATE. If the Company fixes a record date of
the holders of Common Stock for the purpose of entitling them to (i) receive a
dividend or other distribution payable in shares of Common Stock or in shares of
any other class or series of capital stock or securities convertible into or
exchangeable for Common Stock or shares of any other class or series of capital
stock or (ii) subscribe for or purchase shares of Common Stock or such other
shares or securities, then all references in this SECTION 3 to the date of the
issuance or sale of such shares of Common Stock or such other shares or
securities shall be deemed to be references to that record date.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company fixes
a record date of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights to
which the provisions of SECTION 3.1 would apply, but shall, thereafter and
before the distribution to shareholders, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(d) NOTICE OF ADJUSTMENTS. Whenever the number of
shares of Common Stock for which this Warrant is exercisable or the Warrant
Purchase Price shall be adjusted or recalculated pursuant to this SECTION 3, the
Company shall immediately prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment or recalculation and the method by which such
adjustment or recalculation was calculated, specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such adjustment was
made pursuant to SECTION 3.5) describing the number and kind of any other shares
of stock or Other Property for which this Warrant is exercisable, and any
related change in the Warrant Purchase Price, after giving effect to such
adjustment, recalculation or change. The Company shall mail (by registered or
certified mail, return receipt requested, postage prepaid) a signed copy of the
certificate to be delivered to the Holder within three (3) Business Days of the
event which caused the adjustment or recalculation. The Company shall keep at
the Designated Office copies of all such certificates and cause them to be
available for inspection at the Designated Office during normal business hours
by the Holder or any prospective transferee of this Warrant designated by the
Holder.
(e) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the
Board of Directors of the Company is required to make a determination in good
faith of the fair market value of any item under this Warrant, or any item that
may affect the value of this Warrant, that determination may be challenged or
disputed by the Holder (or if the Warrant has been divided up, the Holders of
Warrants exercisable for more than fifty percent (50%) of the aggregate number
of Warrant Shares then issuable upon exercise of all of the then exercisable
Warrants), and any such challenge or dispute shall be resolved promptly, but in
no event in more than thirty (30) days, by an investment banking firm of
recognized national standing or one of the four (4) largest national accounting
firms agreed upon by the Company and the Holders and whose decision shall be
binding on the Company and the Holders. If the Company and the Holders cannot
agree on a mutually acceptable investment bank or accounting firm, then the
Holders, jointly, and the Company shall within five (5) Business Days each
choose one investment bank or accounting firm and the respective chosen firms
shall within five (5) Business Days jointly select a third investment bank or
accounting firm, which shall make the determination promptly, but in no event in
more than thirty (30) days, and such determination shall be binding upon all
parties thereto. The Company shall bear all costs in connection with such
determination, including without limitation, fees of the investment bank(s) or
accounting firm(s), unless the change in Warrant Purchase Price determined
pursuant to this paragraph is within five percent (5%) of the change in warrant
purchase price as computed by the Company, in which case the Holder or Holders
challenging the determination shall bear such costs pro rata.
(f) INDEPENDENT APPLICATION. Except as otherwise
provided herein, all subsections of this SECTION 3 are intended to operate
independently of one another (but without duplication). If an event occurs that
requires the application of more than one subsection, all applicable subsections
shall be given independent effect without duplication.
3.9 FIDUCIARY DUTIES TO HOLDER. The Board of the Company shall
at all times, whether or not this Warrant has been exercised, owe the Holder the
same fiduciary duties that it would owe to a holder of the Warrant Shares
underlying the Warrant.
A-8
4. MISCELLANEOUS.
4.1 RESTRICTIVE LEGEND. This Warrant, any Warrant issued upon
transfer of this Warrant and, unless registered under the Securities Act, any
Warrant Shares issued upon exercise of this Warrant or any portion thereof shall
be imprinted with the following legend, in addition to any legend required under
applicable state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT IN COMPLIANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION OR QUALIFICATION THEREFROM.
The legend shall be appropriately modified upon issuance of
certificates for shares of Common Stock.
Upon request of the holder of a Common Stock certificate, the Company
shall issue to that holder a new certificate free of the foregoing legend, if,
with such request, such holder provides the Company with an opinion of counsel
reasonably acceptable to the Company (PROVIDED that Irell & Manella LLP shall be
deemed to be acceptable to the Company) to the effect that the securities
evidenced by such certificate may be sold without restriction under Rule 144 (or
any other rule permitting resales of securities without restriction) promulgated
under the Securities Act.
4.2 HOLDER ENTITLED TO BENEFITS. This Warrant is the
"Purchaser Closing FMV Warrant" referred to in the Securities Purchase
Agreement. The Holder is entitled to certain rights, benefits and privileges
with respect to this Warrant and the Warrant Shares pursuant to the terms of
this Warrant, the Securities Purchase Agreement and the other Investment
Documents.
4.3 OTHER COVENANTS. Without limiting the generality of
SECTION 4.2, the Company covenants and agrees that, as long as this Warrant
remains outstanding or any Warrant Shares are issuable with respect to this
Warrant, the Company will perform all of the following covenants for the express
benefit of the Holder: (a) the Warrant Shares shall, upon issuance, be duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock; (b) the Holder shall, upon the exercise hereof in accordance with the
terms hereof, receive good and marketable title to the Warrant Shares, free and
clear of all voting and other trust arrangements to which the Company is a party
or by which it is bound, preemptive rights of any shareholder, liens,
encumbrances, equities and claims whatsoever, including, but not limited to, all
Taxes, Liens and other charges with respect to the issuance thereof; (c) at all
times prior to the Expiration Date, the Company shall have reserved for issuance
a sufficient number of authorized but unissued shares of Common Stock, or other
securities or property for which this Warrant may then be exercisable, to permit
this Warrant (or if this Warrant has been divided, all outstanding Warrants) to
be exercised in full; (d) the Company shall deliver to the Holder the
information and reports described in SECTION 8.3 of the Securities Purchase
Agreement; and (e) the Company shall provide the Holder with written notice of
all corporate actions in the same manner and to the same extent as the
shareholders of the Company.
4.4 ISSUE TAX. The issuance of shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder for any
stamp, documentary, issue or similar tax in respect thereof.
4.5 CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of this Warrant or of any Warrant Shares in
any manner which interferes with the timely exercise hereof.
4.6 NO VOTING RIGHTS; LIMITATION OF LIABILITY. Except as
expressly set forth in this Warrant and in the Securities Purchase Agreement,
nothing contained in this Warrant shall be construed as conferring upon the
Holder (a) the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matter, or (b) the right to receive dividends except as set forth in
Section 3. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
4.7 MODIFICATION AND WAIVER. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement is sought.
A-9
4.8 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Warrant shall be in
writing and shall be deemed to have been duly given if transmitted by telecopier
with receipt acknowledged, or upon delivery, if delivered personally or by
recognized commercial courier with receipt acknowledged, or upon receipt, if
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
[NOTICE ADDRESSES AND TELEPHONE NUMBERS OMITTED]
or at such other address or addresses as the Holder or the Company, as the case
may be, may specify by written notice given in accordance with this SECTION 4.8.
4.9 SUCCESSORS AND ASSIGNS. The Company may not assign any of
its rights, or delegate any of its obligations, under this Warrant without the
prior written consent of the Holder (which consent may be withheld for any
reason or no reason at all). The Holder may make an Assignment of this Warrant,
in whole or in part, at any time or from time to time, without the consent of
the Company. The Holder may use the Warrant Assignment Form attached hereto to
make an Assignment of this Warrant. Each Assignment of this Warrant, in whole or
in part, shall be registered on the books of the Company to be maintained for
such purpose, upon surrender of this Warrant at the Designated Office, together
with appropriate instruments of assignment, duly completed and executed. Upon
such surrender, the Company shall, at its own expense, within three (3) Business
Days of surrender, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees specified in such assignment and in the denominations
specified therein and this Warrant shall promptly be canceled. If any portion of
this Warrant is not being assigned, the Company shall, at its own expense,
within three (3) Business Days issue to the Holder a new Warrant evidencing the
part not so assigned. If the Holder makes an Assignment of this Warrant to one
or more Persons, any decisions that the Holder is entitled to make at any time
hereunder shall be made by the Holders holding more than fifty percent (50%) of
the aggregate number of Warrant Shares issuable upon exercise of all of the then
exercisable Warrants.
In addition, the Holder may, without notice to or the consent of the
Company, grant or sell Participations to one or more participants in all or any
part of its right, title and interest in and to this Warrant.
This Warrant shall be binding upon and inure to the benefit of the
Company, the Holder and their respective successors and permitted assigns, and
shall include, with respect to the Company, any Person succeeding the Company by
merger, consolidation, combination or acquisition of all or substantially all of
the Company's assets, and in such case, except as expressly provided herein and
in the Securities Purchase Agreement, all of the obligations of the Company
hereunder shall survive such merger, consolidation, combination or acquisition.
4.10 CONSTRUCTION AND INTERPRETATION. The headings of the
paragraphs of this Warrant are for convenience of reference only and do not
constitute a part of this Warrant and are not to be considered in construing or
interpreting this Warrant. No party, nor its counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all provisions of this Agreement shall be construed in accordance
with their fair meaning, and not strictly for or against any party. The rules of
construction and interpretation specified in Sections 1.2 through 1.6 of the
Securities Purchase Agreement shall likewise govern the construction and
interpretation of this Warrant.
4.11 LOST WARRANT OR CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant or of a stock certificate evidencing Warrant Shares
and, in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company or, in the case of any such
mutilation, upon surrender and cancellation of the Warrant or stock certificate,
the Company shall make and deliver to the Holder, within three (3) Business Days
of receipt by the Company of such documentation, a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
4.12 NO IMPAIRMENT. The Company shall not by any action,
including, without limitation, amending its charter documents or regulations or
through any reorganization, reclassification, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder against impairment. Without
limiting the generality of the foregoing, the Company will (i) not increase the
par value (if any) of any shares of Common Stock receivable upon the exercise of
this Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, free and clear of all liens, encumbrances, equities and claims, and
(iii) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
A-10
4.13 NO IMPLIED WAIVER. Nothing in this Warrant, including any
reference herein to an act or transaction, shall be construed as, or imply, a
waiver of any provision of the Securities Purchase Agreement or any other
Investment Document, including any prohibition therein against such an act or
transaction.
4.14 GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE RIGHTS AND
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW
OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
4.15 CONSENT TO JURISDICTION AND VENUE. ANY SUIT, LEGAL ACTION
OR SIMILAR PROCEEDING WITH RESPECT TO THIS WARRANT SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF CALIFORNIA SITTING IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA
SITTING IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS WARRANT, EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE
HEREOF) CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY AND THE HOLDER
(BY ACCEPTANCE HEREOF) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
WARRANT. EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE HEREOF) HEREBY WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE STATE OF THE NEW YORK.
4.16 REMEDIES. If the Company fails to perform, comply with or
observe any covenant or agreement to be performed, complied with or observed by
it under this Warrant, the Holder may proceed to protect and enforce its rights
by suit in equity or action at law, whether for specific performance of any term
contained in this Warrant or for an injunction against the breach of any such
term or in aid of the exercise of any power granted in this Warrant or to
enforce any other legal or equitable right, or to take any one or more of such
actions. The Company hereby agrees that the Holder shall not be required or
otherwise obligated to, and hereby waives any right to demand that the Holder,
post any performance or other bond in connection with the enforcement of its
rights and remedies hereunder. The Company agrees to pay all fees, costs, and
expenses, including, without limitation, fees and expenses of attorneys,
accountants and other experts retained by the Holder, and all fees, costs and
expenses of appeals, incurred or expended by the Holder in connection with the
enforcement of this Warrant or the collection of any sums due hereunder, whether
or not suit is commenced. None of the rights, powers or remedies conferred under
this Warrant shall be mutually exclusive, and each right, power or remedy shall
be cumulative and in addition to any other right, power or remedy whether
conferred by this Warrant or now or hereafter available at law, in equity, by
statute or otherwise.
4.17 ENTIRE AGREEMENT. This Warrant and the other Investment
Documents constitute the full and entire agreement and understanding between the
Holder and the Company with respect to the subject matter hereof and supersede
all prior oral and written, and all contemporaneous oral, agreements and
understandings relating to the subject matter hereof.
4.18 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAWS, THE COMPANY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER THIS WARRANT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY AND THE HOLDER WITH RESPECT
TO THE WARRANT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR
OTHERWISE; AND THE COMPANY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT THE COMPANY OR ANY HOLDER MAY FILE AN ORIGINAL COPY OF THIS
SECTION 4.18 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY
HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
A-11
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and issued by its duly authorized representative on the date first written
above.
CONSUMER PORTFOLIO SERVICES, INC., a
California corporation
By: /S/ CHARLES E. BRADLEY, JR.
-------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer
A-12