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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-14116
CONSUMER PORTFOLIO SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0459135
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16355 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 753-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS:
RISING INTEREST SUBORDINATED REDEEMABLE SECURITIES DUE 2006
10.50% PARTICIPATING EQUITY NOTES DUE 2004
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value on April 26, 2000 (based on the $1.31 per
share closing price on the Nasdaq Stock Market on that date) of the voting stock
beneficially held by non-affiliates of the registrant was $18,051,634. The
number of shares of the registrant's Common Stock outstanding on April 26, 2000,
was 20,316,501.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Preliminary Note -- This amendment is filed May 1, 2000 to include information
required by Part III of this report on Form 10-K, to revise information
regarding market risk, and to file an additional exhibit. Other than with
respect to market risk and exhibits, the information previously filed as Parts
I, II and IV of this report is not changed by this amendment.
PART I
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is not currently issuing interest bearing asset-backed securities
nor is it holding any Contracts for sale. All Contracts purchased are sold on a
flow basis, for which the Company receives a fee. Therefore, any strategies the
Company has used in the past to minimize interest rate risk do not apply
currently. Described below are strategies the Company has used in the past to
minimize interest rate risk.
The strategies the Company has used in the past to minimize interest rate risk
include offering only fixed rate contracts to obligors, regular sales of
Contracts to the Trusts, and pre-funding securitizations, whereby the amount of
asset-backed securities issued exceeds the amount of Contracts initially sold to
the Trusts. In pre-funding, the proceeds from the pre-funded portion are held in
an escrow account until the Company sells the additional Contracts to the Trust
in amounts up to the balance of the pre-funded escrow account. In pre-funded
securitizations, the Company locks in the borrowing costs with respect to the
Contracts it subsequently delivers to the Trust. However, the Company incurs an
expense in pre-funded securitizations equal to the difference between the money
market yields earned on the proceeds held in escrow prior to subsequent delivery
of Contracts and the interest rate paid on the asset-backed securities
outstanding.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers of the Company appears in Part I of
this report, under the caption "Executive Officers of the Registrant."
Information regarding the directors of the Company appears below:
Charles E. Bradley, Sr., 70, has been the Chairman of the Board of the Company
since its formation in March 1991. Mr. Bradley is one of the founders of
Stanwich Partners, Inc. ("Stanwich"), a Connecticut investment firm which
acquires controlling interests in companies in conjunction with the existing
operating management of such companies, and has been President, a director and a
shareholder of that company since its formation in 1982. He is also President,
Chief Executive Officer and a director of Reunion Industries, Inc., a publicly
held company which manufactures precision plastic products and provides
engineered plastics services. Mr. Bradley is currently Chairman of the Board and
Chief Executive Officer of DeVlieg-Bullard, Inc., and a director of Texon Energy
Corp., and Sanitas, Inc. He is Chairman of the Board and Chief Executive Officer
of NAB Asset Corporation (38% of whose outstanding shares of voting stock are
held by the Company). Other than Stanwich, all of the above corporations are
publicly-held or are required to file periodic reports under Section 13 or 15(d)
of the Securities Exchange Act of 1934. Mr. Bradley is the father of Charles E.
Bradley, Jr.
Charles E. Bradley, Jr., 40, has been the President and a director of the
Company since its formation in March 1991. In January 1992, Mr. Bradley was
appointed Chief Executive Officer of the Company. From March 1991 until December
1995 he served as Vice President and a director of CPS Holdings, Inc. From April
1989 to November 1990, he served as Chief Operating Officer of Barnard and
Company, a private investment firm. From September 1987 to March 1989, Mr.
Bradley, Jr. was an associate of The Harding Group, a private investment banking
firm. Mr. Bradley, Jr. is currently serving as a director of NAB Asset
Corporation, Texon Energy Corporation, and Thomas Nix Distributor, Inc. Charles
E. Bradley, Sr., Chairman of the board of directors of the Company, is his
father.
2
Thomas L. Chrystie, 66, has been a director of the Company since April 1995. He
has been self- employed as an investor, through Wycap Corporation, since 1988.
His previous experience includes 33 years at Merrill Lynch & Co. in various
capacities including heading Merrill Lynch's investment banking, capital markets
and merchant banking activities. In addition, he served as Merrill Lynch & Co.'s
Chief Financial Officer.
John G. Poole, 57, has been a director of the Company since November 1993 and
its Vice Chairman since January 1996. He was a co-founder of Stanwich in 1982
and has been a director, vice president and shareholder of that company since
its formation. Mr. Poole is a director of Reunion Industries, Inc., Sanitas,
Inc., and DeVlieg-Bullard, Inc.
William B. Roberts, 62, has been a director of the Company since its formation
in March 1991. Since 1981, he has been the President of Monmouth Capital Corp.,
an investment firm which specializes in management buyouts. Mr. Roberts serves
on the board of directors of Atlantic City Racing Association, a publicly-held
corporation, which owns and operates a race track.
Robert A. Simms, 61, has been a director of the Company since April 1995. He has
been the Chairman and Chief Executive Officer of Simms Capital Management, Inc.
since 1984. He is a director of the National Football Foundation and Hall of
Fame. Mr. Simms also serves on the Board of Overseers of Rutgers University and
was formerly a partner in Bear Stearns & Co.
BANKRUPTCY PROCEEDINGS. Mr. Bradley, Sr. is chairman of the board of directors
and Mr. Poole is a director of DeVlieg-Bullard, Inc. ("DBI"). On July 15, 1999,
DBI filed a voluntary petition in the United States Bankruptcy Court for the
Northern District of Ohio for reorganization under Chapter 11 of the United
States Bankruptcy Code. Mr. Bradley, Jr. is chairman of the board of members and
Mr. Bradley, Sr. is a member of the board of members of LINC Acceptance Company,
LLC ("LINC"). LINC is a limited liability company organized under the laws of
Delaware, and its board of members has certain management authority. The
operating agreement of LINC designated the chairman of the board of members as
LINC's chief executive officer. LINC is a majority-owned subsidiary of the
Company, which engaged in the business of purchasing retail motor vehicle
installment purchase contracts, and selling such contracts to the Company or
other affiliates. LINC ceased operations in the second quarter of 1999. On
October 29, 1999, three former employees of LINC filed an involuntary petition
in the United States Bankruptcy Court for the District of Connecticut seeking
LINC's liquidation under Chapter 7 of the United States Bankruptcy Code.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each executive officer of the Company is a participant in a savings plan
available generally to employees of the Company and qualified under Section
401(k) of the Internal Revenue Code. Transactions in Company common stock by
that plan on behalf of the participants should have been reported by each of the
executive officers of the Company on nine individual reports, but have not yet
been reported. The individuals are Charles E. Bradley, Jr., Thurman L. Blizzard,
Nicholas P. Brockman, William L. Brummund, Jr., Mark A. Creatura, Curtis K.
Powell, Kris I. Thomsen, Richard P. Trotter, and James L. Stock.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 1999, 1998 and 1997 by the Company's chief executive
officer and by its four most highly compensated other executive officers (such
five individuals, the "named executive officers") who were serving as executive
officers at December 31, 1999.
3
SUMMARY COMPENSATION TABLE
========================================= ============ ============================== =========================
Compensation for Long Term Compensation
period shown Awards
----------------------------------------- ------------ ------------------------------ -------------------------
Name and Principal Position Year Salary Bonus Options/SARs(1)
----------------------------------------- ------------ --------------- -------------- -------------------------
CHARLES E. BRADLEY, JR. 1999 $500,000 $300,000 780,240
President & Chief Executive Officer 1998 450,000 750,000 498,400
1997 425,000 575,000 0
----------------------------------------- ------------ --------------- -------------- -------------------------
CURTIS K. POWELL 1999 182,000 73,000 178,000
Senior Vice President - Marketing 1998 170,000 107,000 178,000
1997 143,000 97,000 0
----------------------------------------- ------------ --------------- -------------- -------------------------
NICHOLAS P. BROCKMAN 1999 151,000 72,000 103,000
Senior Vice President - Collections 1998 137,000 88,000 84,600
1997 127,000 62,000 0
----------------------------------------- ------------ --------------- -------------- -------------------------
RICHARD P. TROTTER 1999 148,000 65,000 192,600
Senior Vice President - Originations 1998 137,000 87,000 192,600
1997 124,500 81,000 43,000
----------------------------------------- ------------ --------------- -------------- -------------------------
WILLIAM L. BRUMMUND, JR. 1999 153,000 58,000 132,600
Senior Vice President - Administration 1998 143,000 92,000 84,600
1997 129,000 84,000 0
========================================= ============ =============== ============== =========================
(1) Number of shares that might be purchased upon exercise of options that were
granted in the period shown. Some of such options have been cancelled in
connection with repricings. See table on next page.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 1999, did not grant any stock
appreciation rights to any of the named executive officers, and granted options
to such officers on two occasions. The Company in the past had made a practice
of granting stock options to its executive officers and other employees from
time to time, and in January 1999 granted options to each of its named executive
officers. Each named executive officer other than the chief executive officer
received in January a grant of options with respect to 10,000 shares, to become
exercisable at the then-current market price of $4.4375 per share. The chief
executive officer received in January a grant of options with respect to 175,000
shares, also to become exercisable at $4.4375 per share. On October 29, 1999,
the compensation committee of the board of directors determined that the decline
in the prevailing market price of the Company's common stock had greatly
impaired the incentive value of the Company's outstanding options, and made it
advisable to alter the terms of such options so as to maintain an incentive
value. The Company therefore at that time amended each outstanding option in two
respects: (i) to reduce the exercise price thereof to $0.625 per share, which
was the market price of such shares on the October date of the amendment, and
(ii) to prohibit the exercise of all or any part of such modified options prior
to April 29, 2000. The following table summarizes each 1999 grant to any of the
named executive officers.
4
OPTIONS/GRANTS IN LAST FISCAL YEAR
..................................................................................................................................
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
INDIVIDUAL GRANTS Term
..................................................................................................................................
Percent of N
Number of Total Options O
Shares Granted to Exercise or T
Under-lying Employees in Base Price Expiration E
Name Options Granted 1999 ($/Share) Date 5% 10% S
..................................................................................................................................
Charles E. Bradley, Jr. 175,000* 2.1243 $4.4375 01/26/09 $488,375* $1,237,640* *
1,840 0.0223 $0.6250 08/01/01 $102 $209 **
200,000 2.4277 $0.6250 03/31/06 $45,973 $105,471 **
8,400 0.1020 $0.6250 12/15/04 $1,492 $3,309 (1)
150,000 1.8208 $0.6250 03/31/04 $22,573 $49,141 **
30,800 0.3739 $0.6250 01/12/08 $9,477 $22,830 (2)
39,200 0.4758 $0.6250 01/12/08 $12,062 $29,056 **
175,000 2.1243 $0.6250 01/26/09 $62,332 $154,589 **
..................................................................................................................................
Richard P. Trotter 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
18,000 0.2185 $0.6250 05/08/07 $4,989 $11,794 (3)
70,000 0.8497 $0.6250 01/04/04 $9,906 $21,434 **
7,600 0.0923 $0.6250 03/31/05 $1,437 $3,211 (4)
25,000 0.3035 $0.6250 05/08/07 $6,929 $16,380 (5)
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (6)
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
..................................................................................................................................
Curtis K. Powell 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
10,000 0.1214 $0.6250 01/12/08 $3.077 $7,412 (8)
40,000 0.4855 $0.6250 03/31/06 $9,194 $21,094 **
10,000 0.1214 $0.6250 01/12/08 $3,077 $7,412 (8)
35,000 0.4249 $0.6250 03/31/06 $8,045 $18,457 (9)
43,000 0.5220 $0.6250 10/31/04 $7,434 $16,430 (10)
20,000 0.2428 $0.6250 01/17/05 $3,625 $8,056 **
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
..................................................................................................................................
William L. Brummund, Jr. 10,000* 0.1214 $4.4375 01/26/09 $27,907* $70,722* *
36,800 0.4467 $0.6250 12/15/01 $2,517 $5,173 **
11,200 0.1360 $0.6250 10/29/09 $4,402 $11,156 **
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (11)
5,000 0.0607 $0.6250 03/31/06 $1,149 $2,636 (12)
7,600 0.0923 $0.6250 10/31/04 $1,313 $2,903 (7)
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833.68 (7)
..................................................................................................................................
Nicholas P. Brockman 10,000* 0.1214 $4.4375 01/26/06 $27,907* $70,722* *
18,400 0.2234 $0.6250 12/15/01 $1,258 $2,586 **
20,000 0.2428 $0.6250 01/12/08 $6,154 $14,824 (13)
12,600 0.1529 $0.6250 03/31/06 $2,896 $6,644 (14)
32,000 0.3884 $0.6250 05/02/04 $4,922 $10,739 **
10,000 0.1214 $0.6250 01/26/09 $3,561 $8,833 (7)
..................................................................................................................................
* The recipients of such options will receive no value therefrom, as such
options were cancelled and replaced in October 1999.
** fully exercisable at present. Numbered notes above refer to the associated
options becoming exercisable in cumulative installments as follows:
(1) 5380 shares on 5/1/03 and 3020 shares on 5/1/04
(2) 8600 shares on 1/12/04, 11,100 on 1/12/05 and 11,100 on 1/12/06
(3) 6500 shares presently exercisable, 1600 on 5/8/00, 5200 on 5/8/01, and
4700 on 5/8/02
(4) as to all shares on 5/1/01
(5) 60% presently exercisable, 20% on 5/8/00, and 20% on 5/8/01
(6) 6600 shares on 1/12/03, 11,000 on 1/12/04 and 2400 on 12/12/05
(7) 2000 shares presently exercisable, and 2000 on each of 1/26/01, 1/26/02,
1/26/03 & 1/26/04
(8) as to 50% on 1/12/01 and 50% on 1/12/02
(9) 2000 shares on 5/1/01, and 11,000 on each of 5/1/02, 5/1/03 & 5/1/04
(10) 32,250 shares presently exercisable, and the remainder on 5/1/01
(11) 3000 shares presently exercisable, 1500 on 1/12/01, 1800 on 1/12/02, 6100
on 1/12/03 and 7600 on 1/12/04
(12) as to all shares on 5/1/02
(13) 3000 shares presently exercisable, 1500 on 1/12/01, 3600 on 1/12/02, 6100
on 1/12/03, and 5800 on 1/12/04
(14) 7600 shares on 5/1/01 and 5000 on 5/1/02
5
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 1999, and for the year then
ended, the number of unexercised options held by each of the named executive
officers, the number of shares subject to then exercisable and unexercisable
options held by such persons and the December 31, 1999 value of all unexercised
options held by such persons. Each option referred to in the table was granted
under the Company's 1991 Stock Option Plan, or under the 1997 Long-Term
Incentive Stock Plan, at an option price per share equal to the fair market
value per share on the date of grant. All options held at December 31, 1999 were
subject to a period of non-exercisability, which extends through April 29, 2000;
accordingly, the number of options exercisable at December 31, 1999 was zero for
each individual.
================================== ============================================ ============================================
Number of Unexercised Options at Value of Unexercised In-the-Money Options
December 31, 1999 at December 31, 1999(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------- -------------------------------------------- --------------------------------------------
Charles E. Bradley, Jr. 0/605,240 $0/$567,715
- ---------------------------------- -------------------------------------------- --------------------------------------------
Nicholas P. Brockman 0/93,000 $0/$87,234
- ---------------------------------- -------------------------------------------- --------------------------------------------
William L. Brummund, Jr. 0/122,600 $0/$114,999
- ---------------------------------- -------------------------------------------- --------------------------------------------
Richard P. Trotter 0/182,600 $0/$171,279
- ---------------------------------- -------------------------------------------- --------------------------------------------
Curtis K. Powell 0/168,000 $0/$157,584
================================== ============================================ ============================================
(1) Valuation based on the last sales price on December 31, 1999 of $1.5625 per
share, as reported by Nasdaq.
BONUS PLAN
The named executive officers and other officers participate in a management
bonus plan, pursuant to which such employees are entitled to earn cash bonuses,
if the Company achieves certain net income levels or goals established by the
Board of Directors. The amount of bonus payable to each officer is determined by
the Board of Directors upon recommendation of the Compensation Committee.
DIRECTOR COMPENSATION
During the year ended December 31, 1999, the Company paid director compensation
of $125,000 to Mr. Bradley, Sr., for his service as Chairman of the Board of
Directors, and $23,884 to Mr. Poole for his service as Vice-Chairman of the
Board of Directors. Mr. Bradley, Jr., President of the Company, received no
additional compensation for his service as a director. The remaining directors
received a retainer of $1,000 per month and an additional fee of $500 per diem
for attendance at meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the Company's board of directors throughout the
year 1999 and through the date of this report consisted of Robert A. Simms
(chairman), Thomas L. Chrystie and William B. Roberts. None of the members of
the committee is or has been an officer or employee of the Company or any of its
subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of April 18,
2000, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director or named executive officer of CPS,
and (iii) all directors and executive officers of CPS as a group. Except as
otherwise indicated, and subject to applicable community property and similar
laws, each of the persons named has sole voting and investment power with
respect to the shares shown as beneficially owned by such persons. The address
of Messrs. Bradley, Jr., Brockman, Brummund, Jr., Powell and Trotter is c/o
Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road, Irvine, CA 92618.
6
Amount & Nature of Percent
Name & Address of Beneficial Owner Beneficial Ownership (1) Of Class
---------------------------------- ------------------------- --------
Charles E. Bradley, Sr........................................................... 5,250,552 (2) 24.2%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
William B. Roberts............................................................... 1,033,982 5.1%
Monmouth Capital Corp., 126 East 56th Street, New York, NY10022
John G. Poole.................................................................... 637,193 (3) 3.1%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
Thomas L. Chrystie............................................................... 182,100 (4) 0.9%
P.O. Box 640, Wilson, WY 83014
Robert A. Simms.................................................................. 306,944 (5) 1.5%
55 Railroad Ave., Plaza Suite, Greenwich, CT 06830
Charles E. Bradley, Jr........................................................... 1,931,600 (6) 9.3%
Nicholas P. Brockman............................................................. 122,183 0.6%
William L. Brummund, Jr.......................................................... 132,787 0.6%
Richard P. Trotter .............................................................. 137,564 0.7%
Curtis K. Powell................................................................. 95,023 0.5%
All directors and executive officers combined (14 persons) ...................... 7,624,155 35.7%
Levine Leichtman Capital Partners II, L.P........................................ 4,553,500 (7) 22.4%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
Robert T. Gilhuly and Kimball J. Bradley, Trustees............................... 1,058,818 (8) 5.2%
c/o Cummings & Lockwood, Box 2505, Greenwich, CT 06830
(1) Includes certain shares that may be acquired within 60 days after April 18,
2000 from the Company upon exercise of options, as follows: Mr. Chrystie, 30,000
shares, Mr. Simms, 30,000 shares, Mr. Bradley, Jr., 517,640 shares, Mr.
Brummund, 85,000 shares, Mr. Brockman, 55,400 shares, Mr. Powell, 94,250 shares,
and Mr. Trotter, 132,100 shares,.
(2) Includes 207,490 shares owned by the named person's spouse, as to which he
has no voting or investment power, and 594,381 shares owned by two corporations
(Stanwich Financial Services Corp., or "SFSC," and Stanwich Partners, Inc., or
"Stanwich") of which the named person is president and a director. Includes
1,333,333 shares that may be acquired upon conversion of $4,000,000 of Company
indebtedness held by the named person. Includes 620,000 shares that are subject
to options in favor of Mr. Chrystie and Mr. Bradley, Jr.
(3) Includes 333,333 shares that may be acquired upon conversion of $1,000,000
of Company indebtedness held by the named person.
(4) Includes 132,100 shares held by the Thomas L. Chrystie Living Trust, and
20,000 shares that Mr. Chrystie may acquire upon exercise of an option written
by SFSC.
(5) Includes 16,944 shares owned by Mr. Simms' spouse, as to which he has no
voting or investment power.
(6) Includes 211,738 shares held by a trust of which Mr. Bradley is the
beneficiary, as to which he has no voting or investment power. Also includes
600,000 shares that Mr. Bradley, Jr. has the presently exercisable right to
acquire from Mr. Bradley, Sr.
(7) Comprises 4,552,500 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.
(8) These shares are held in trusts of which the beneficiaries are Charles E.
Bradley, Sr.'s adult children, including, among others, Charles E. Bradley, Jr.,
(as to 211,738 shares) and Kimball J. Bradley (as to 211,802 shares).
7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From May 1999 through February 2000, the Company paid Stanwich Partners, Inc. (a
corporation of which Charles E. Bradley, Sr. and John G. Poole are principal
shareholders) $62,500 for consulting services. Stanwich has agreed to provide
such level of consulting services relating to strategic business and tax
planning and investment analysis as the Company reasonably may request. No
fixed, minimum or maximum number of hours of service is specified. The
consulting arrangement is not continuing.
The Company holds 80% of the outstanding shares of the capital stock of CPS
Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by Charles E. Bradley,
Jr., who is the President and a director of the Company. CPSL is engaged in the
equipment leasing business. CPSL finances its purchases of the equipment that it
leases to others through either of two lines of credit. Amounts borrowed by CPSL
under one of those two lines of credit have been guaranteed by the Company. As
of March 31, 2000, the total amount outstanding under the two lines of credit
was approximately $3.0 million, of which the Company had guarantied
approximately $1.5 million. The Company has also financed the operations of CPSL
by making operating advances and by advancing to CPSL the fraction of the
purchase prices of its leased equipment that CPSL does not borrow under its
lines of credit. The aggregate amount of advances made by the Company to CPSL as
of March 31, 2000, is approximately $2.4 million. The advances related to
operations bear interest at the rate of 8.5% per annum. The advances related to
the fraction of the purchase price of leased equipment are not interest bearing.
The Company holds 38% of the outstanding shares of NAB Asset Corp. ("NAB"), a
corporation of which Mr. Bradley, Sr., is the chairman and chief executive
officer and of which Mr. Bradley, Jr., is a director. The Company held
outstanding indebtedness of NAB in the principal amount of $2.1 million at
December 31, 1998, which indebtedness bears interest at the rate of 13% per
annum. During 1999, NAB repaid the entire amount owed.
In the ordinary course of its business operations, the Company from time to time
purchases retail automobile installment contracts from an automobile dealer,
Cars USA, which is owned by a corporation of which Mr. Bradley, Sr., and Mr.
Bradley, Jr., are the principal shareholders. During the year ended December 31,
1999, the Company purchased 57 such contracts, with an aggregate principal
balance of approximately $827,000. The Company paid an aggregate of
approximately $802,000 for such contracts. All such purchases were on the
Company's normal business terms. The Company also from time to time sells
repossessed automobiles to Cars USA, and sold 11 such vehicles to Cars USA in
1999, for aggregate consideration of $83,800. The Company has provided inventory
financing ("flooring") and has lent additional monies to Cars USA. As of
December 31, 1999, the total amount owed to the Company was approximately
$671,000, of which $321,100 represented flooring. The largest aggregate amount
of indebtedness outstanding under the flooring line at any time since January 1,
1999 was $321,100, as of December 31, 1999. The flooring financing is a
revolving line of credit, bearing interest at 10% per year, with a maximum
advance depending upon the value of used car inventory, and with an overall
maximum of $1,500,000. Other borrowings in the aggregate amount of $350,000 do
not bear interest. The remainder of the amount owed to the Company represents
fees for services performed for the dealer by the Company.
On November 17, 1998, the Company sold $25,000,000 aggregate principal amount of
13.50% Senior Subordinated Notes to Levine Leichtman Capital Partners II, L.P.
("LLCP"). As part of that transaction, the Company issued a common stock
purchase warrant (the "November Warrant") giving LLCP the right to purchase up
to 3,450,000 shares of Common Stock of the Company for an exercise price of
$3.00 per share. That exercise price per share was determined by negotiation
between the Company and LLCP, and represented a slight discount from the $3.1875
closing price per share reported by Nasdaq on September 11, 1998, which was the
date of the first of several investment proposals from LLCP pursuant to which
the November Warrant ultimately was issued.
8
On April 15, 1999, the Company sold an additional $5,000,000 aggregate principal
amount of 14.50% Senior Subordinated Notes to LLCP. As part of that transaction
(the "April Transaction"), (i) LLCP waived or modified certain provisions of the
documentation of the November Transaction, (ii) the Company and LLCP modified
certain provisions of the November Notes, including an increase in the interest
rate to 14.50% per annum, (iii) the Company and LLCP modified the November
Warrant by reducing the number of shares thereunder to 3,115,000 and reducing
the exercise price to $0.01 per share, and (iv) the Company issued a second
stock purchase warrant (the "April Warrant") to LLCP, giving LLCP the right to
purchase 1,335,000 shares of CPS Common Stock for an exercise price of $0.01 per
share at any time through April 15, 2009. Immediately following the issuance of
the April Warrant, LLCP exercised the November Warrant for 3,115,000 shares at
$0.01 per share. The April Warrant was contingent on shareholder approval, which
was obtained on May 26, 1999. Immediately following shareholder approval, LLCP
exercised the April Warrant for 1,334,000 shares at $0.01 per share, giving LLCP
aggregate holdings of 4,449,000 shares, or approximately 22.5% of outstanding
shares. Also in the April Transaction, (i) the Company agreed to defer to July
and August 1999 the commitment of SFSC to make an additional $15.0 million
investment into the Company, (ii) Charles E. Bradley, Sr., and Charles E.
Bradley, Jr., personally guaranteed a portion of the related debt, and (iii)
those individuals pledged certain collateral in conjunction with those
commitments. Those guarantees and that collateral were released in connection
with the March 2000 restructuring described below.
The increase in the interest rate on the November Notes, and the $0.01 per share
exercise price of the April Warrant and of the amended November Warrant, were
conditions to LLCP's willingness to lend money to the Company in the April
Transaction. Such exercise price is not similar to the market price of CPS
Common Stock, which was $3.625 per share on April 15, 1999. The Company obtained
in those transactions long-term debt financing in the aggregate principal amount
of $30 million.
The documents governing the Company's transactions with LLCP also include, among
other things, provisions giving LLCP the right to require the Company to
register shares issued or issuable under the Warrants for resale, and the right
to designate one member of the Board of Directors of the Company. The Company
appointed Arthur E. Levine, a principal of LLCP, as a member of the Board of
Directors on November 17, 1998. Mr. Levine resigned from the Board on April 2,
1999.
In August and September of 1998, SFSC and Mr. Poole lent the Company $4 million
and $1 million, respectively, on a short-term basis, and with an interest rate
of 15% per annum. Simultaneously with the November 1998 issuance of senior
subordinated notes to LLCP, Mr. Poole and SFSC agreed to certain modifications
to that indebtedness. In particular, they agreed to subordinate their
indebtedness to the indebtedness in favor of LLCP, to extend the maturity of
their debt until June 2004, and to reduce their interest rate from 15% to 12.5%.
SFSC and Mr. Poole received in return the option to convert such debt into an
aggregate of 1,666,667 shares of common stock at the rate of $3.00 per share
through maturity at June 30, 2004. SFSC further agreed to subordinate to LLCP up
to $15 million of other Company indebtedness held by SFSC, to the extent the
notes representing such indebtedness had not been pledged to unaffiliated third
parties. In connection with the April Transaction, SFSC and Mr. Poole agreed to
additional terms making more strict the subordination of this indebtedness to
the Company's indebtedness in favor of LLCP.
In connection with the Company's sale of approximately $234.2 million of
Contracts in June 1999 to an affiliate of General Electric Capital Corporation,
Mr. Bradley, Jr., gave his personal guaranty of certain of the Company's
representations and warranties concerning the Contracts to be sold. Mr. Bradley
received no separate compensation in exchange for that guaranty.
On September 30, 1999, the Company issued $1.5 million of promissory notes to
Stanwich Financial Services Corp. ("SFSC"), which is a corporation of which the
Company's chairman of the board, Charles E. Bradley, Sr., is the sole director,
chief executive officer, and principal shareholder. The notes bear interest at
the rate of 14.5% per annum. As part of the related agreement, the Company
agreed to issue warrants to purchase 207,000 shares of the Company's common
stock at the price of $0.01 per share. Those warrants were never issued, and in
the March 2000 restructuring, described below, SFSC agreed to accept 103,500
shares of common stock in place of such 207,000 warrants.
9
In March 2000, the Company and LLCP restructured the outstanding indebtedness of
the Company in favor of LLCP, which had been in default. In the restructuring,
(i) all existing defaults were waived or cured, (ii) LLCP lent an additional $16
million ("Tranche A") to the Company, (iii) the proceeds of that loan (net of
fees and expenses) were used to repay all of the Company's outstanding senior
secured indebtedness, (iv) the outstanding $30 million of subordinated
indebtedness in favor of LLCP was exchanged for senior indebtedness ("Tranche
B"), (v) the Company granted a blanket security interest in favor of LLCP, to
secure both Tranche A and Tranche B, and (vi) LLCP released SFSC and its
affiliates (including Mr. Bradley, Sr., Mr. Bradley, Jr., and Mr. Poole) of any
liability for failure to invest $15 million in the Company. Tranche A is due
July 2001, and bears interest at 12.50% per annum; Tranche B is due November
2003, and bears interest at 14.50% per annum. In each case the interest rate is
subject to increase by 2.0% in the event of a default by the Company. In the
restructuring, the Company paid a fee of $325,000, paid accrued default interest
of $300,000, issued 103,500 shares of common stock to LLCP, and paid
out-of-pocket expenses of approximately $250,000. The terms of the transaction
were determined by negotiation between the Company and LLCP.
The Company has from time to time lent money to its employees, including
officers. Such borrowings are evidenced by promissory notes, and generally bear
interest at 10% per annum. Charles E. Bradley, Jr. (president and a director)
and Nicholas P. Brockman (a senior vice president) were indebted to the Company
in excess of $60,000 at various times since January 1, 1999. The maximum
indebtedness of Mr. Bradley was $625,303, as of January 1, 1999, and the maximum
indebtedness of Mr. Brockman was $154,618, as of January 1, 2000. As of March
14, 2000, Mr. Bradley's and Mr. Brockman's indebtedness to the Company was
approximately $88,436 and $154,618, respectively. Mr. Bradley's indebtedness as
of March 14, 2000, includes approximately $15,000 representing his profits
recoverable for the benefit of the Company under Section 16(b) of the Securities
Exchange Act. Mr. Bradley has agreed to pay that amount to the Company not later
than May 31, 2000.
The agreements and transactions described above were entered into by the Company
with the parties who personally benefited from such transactions and who have or
had a control or fiduciary relationship with the Company. (Mr. Levine, with whom
the Company negotiated the LLCP transactions, was a director of the Company
after the consummation of the November 1998 transaction until April 2,1999.) In
each case such agreements and transactions have been reviewed and approved by
the members of the Company's Board of Directors who are disinterested with
respect thereto.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements listed above under the caption "Index to
Financial Statements" are filed as a part of this report. No financial statement
schedules are filed as the required information is inapplicable or the
information is presented in the consolidated financial statements or the related
notes. Separate financial statements of the Company have been omitted as the
Company is primarily an operating company and its subsidiaries are wholly owned
and do not have minority equity interests and/or indebtedness to any person
other than the Company in amounts which together exceed 5% of the total
consolidated assets as shown by the most recent year-end consolidated balance
sheet.
The following exhibits are filed as part of this report:
3.1 Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (2)
4.1 Indenture re Rising Interest Subordinated Redeemable Securities
("RISRS") (3)
4.2 First Supplemental Indenture re RISRS (3)
4.3 Form of Indenture re 10.50% Participating Equity Notes ("PENs") (4)
4.4 Form of First Supplemental Indenture re PENs (4)
10.1 1991 Stock Option Plan & forms of Option Agreements thereunder (5)
10.2 1997 Long-Term Incentive Stock Plan (2)
10
10.3 Lease Agreement re Chesapeake Collection Facility (6)
10.4 Lease of Headquarters Building (7)
10.5 Partially Convertible Subordinated Note (7)
10.6 Registration Rights Agreement (7)
10.7 Residual Interest in Securitizations Revolving Credit and Term Loan
Agreement dated as of April 30, 1998, between registrant and State
Street Bank and Trust Company (8)
10.7a Second Amendment Agreement dated November 17, 1998 re: State Street
residual interest in Securitizations Revolving Credit and Term Loan
Agreement (9)
10.7b Amendment and Forbearance Agreement (10)
10.8 Pledge and Security Agreement dated as of April 30, 1998, between the
Company and State Street Bank and Trust Company (8)
10.9 Revolving Credit and Term Note dated April 30, 1998 (8)
10.10 Subscription Agreement regarding shares issued in July 1998 (11)
10.11 Registration Rights Agreement regarding shares issued in July 1998
(11)
10.12 Amended and Restated Motor Vehicle Installment Contract Loan and
Security Agreement (9)
10.13 FSA Warrant Agreement dated November 30, 1998 (9)
10.14 Securities Purchase Agreement dated November 17, 1998 (12)
10.14a First Amendment dated as of April 15, 1999, to Securities Purchase
Agreement dated as of November 17, 1998, between the Company and
Levine Leichtman Capital Partners II, L.P. ("LLCP"), (said Securities
Purchase Agreement, as amended, is referred to below as the "Amended
SPA") (13)
10.14b Amended and Restated Securities Purchase Agreement dated as of March
15, 2000, between the LLCP and the Company (14)
10.15 Senior Subordinated Primary Note dated November 17, 1998 (12)
10.15a Senior Subordinated Primary Note in the principal amount of
$25,000,000, as amended and restated pursuant to the Amended SPA (13)
10.16 Primary Warrant to purchase 3,450,000 shares of common stock dated
November 17, 1998 (12)
10.16a Primary Warrant to Purchase 3,115,000 Shares of Common Stock, as
amended and restated pursuant to the Amended SPA (13)
10.17 Investor Rights Agreement dated November 17, 1998 (12)
10.17a First Amendment to Investors Rights Agreement, dated as of April 15,
1999 (13)
10.18 Waiver Agreement dated as of March 15, 2000, between LLCP and the
Company (14)
10.19 Amended and Restated Investor Rights Agreement dated as of March 15,
2000 (14)
10.20 Registration Rights Agreement dated as of November 17, 1998 (12)
10.20a First Amendment to Registration Rights Agreement, dated as of April
15, 1999 (13)
10.20b Amended and Restated Registration Rights Agreement dated as of March
15, 2000, between LLCP and the Company (14)
10.21 Subordination Agreement dated as of November 17, 1998 re: Stanwich
Note and Poole Note (9)
10.22 Investment Agreement and Continuing Guaranty, dated as of April 15,
1999 (13)
10.23 Termination and Settlement Agreement with Respect to Investment
Agreement and Continuing Guaranty dated as of March 15, 2000 (14)
10.24 Consolidated Registration Rights Agreement dated November 17, 1998 re
1997 Stanwich Notes (9)
10.25 Securities Purchase Agreement dated as of April 15, 1999, between the
Company and LLCP (13)
10.26 Senior Subordinated Note in the principal amount of $5,000,000 (13)
10.27 Amended and Restated Secured Senior Note Due 2003 in the principal
amount of $30,000,000 (14)
10.28 Secured Senior Note Due 2001 in the principal amount of $16,000,000
(14)
10.29 Warrant to Purchase 1,335,000 Shares of Common Stock (13)
10.30 Agreement dated May 29, 1999 for Sale of Contracts on a Flow Basis
(15)
10.31 Amended and Restated Master Spread Account Agreement dated as of
December 1, 1998 (filed herewith)
10.32 Amendment dated September 1, 1999 to Master Spread Account Agreement
(previously filed as an exhibit to this report)
21.1 Subsidiaries of the Company (2)
23.1 Consent of independent auditors (previously filed as an exhibit to
this report)
27.1 Financial Data Schedule (previously filed as an exhibit to this
report)
11
Each exhibit marked above with a number enclosed in parentheses is
incorporated in this report by reference. The reference is to the
report filed by or with respect to Consumer Portfolio Services, Inc.
as specified below:
(1) Form 10-KSB dated December 31, 1995
(2) Form 10-K dated December 31, 1997
(3) Form 8-K filed December 26, 1995
(4) Form S-3, no. 333-21289
(5) Form 10-KSB dated March 31, 1994
(6) Form 10-K dated December 31, 1996
(7) Form 10-Q dated September 30, 1997
(8) Form 10-Q dated March 31, 1998
(9) Form 10-K dated December 31, 1998
(10) Form 10-Q dated September 30, 1999
(11) Form 10-Q dated June 30, 1998
(12) Schedule 13D filed November 25, 1988
(13) Schedule 13D filed on April 21, 1999
(14) Schedule 13D filed on March 24, 200
(15) Form 10-Q dated June 30, 1999
(b) REPORTS ON FORM 8-K
During the last quarter of the fiscal year ended December 31, 1999, the Company
filed no Form 8-K reports.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this amendment to report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONSUMER PORTFOLIO SERVICES, INC.
(Registrant)
May 1, 2000 By: /s/ CHARLES E. BRADLEY, JR.
------------------------------
Charles E. Bradley, Jr.,
PRESIDENT