UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential For Use of the Commission Only
(as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-12
PORTSMOUTH SQUARE, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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PORTSMOUTH SQUARE, INC.
820 MORAGA DRIVE
LOS ANGELES, CALIFORNIA 90049
(310) 889-2500
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 26, 2004
To the Shareholders of Portsmouth Square, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Portsmouth
Square, Inc. ("Portsmouth" or the "Company") will be held on February 26,
2004 at 3:30 P.M. at the Luxe Summit Hotel Bel-Air located at 11461 Sunset
Boulevard, Angeles, California 90049 for the purpose of considering and
acting on the following:
1. To elect five Directors to serve until the next Annual Meeting or
until their successors have been duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending June 30, 2004;
and
3. To consider and act upon any other matters that may properly come
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on January 9, 2004 as
the record date for determining the shareholders having the right to vote at
the meeting or any adjournment thereof.
Your proxy is important to us whether you own a few or many shares. Please
complete, sign, date and promptly return the enclosed proxy in the self
addressed, postage-paid envelope provided. Return the proxy even if you plan
to attend the meeting. You may always revoke your proxy and vote in person.
Dated: January 20, 2004
By Order of the Board of Directors,
/S/ Michael G. Zybala
Michael G. Zybala
Secretary
PORTSMOUTH SQUARE, INC.
820 MORAGA DRIVE
LOS ANGELES, CALIFORNIA 90049
(310) 889-2500
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 2004
The Board of Directors of Portsmouth Square, Inc. (the "Company" or
"Portsmouth") is soliciting proxies in the form enclosed with this statement
in connection with the Annual Meeting of Shareholders to be held February 26,
2004 or at any adjournment or adjournments thereof.
This Proxy Statement and the accompanying Proxy are first being sent to
Shareholders on or about January 26, 2004. Only shareholders of record at
the close of business on January 9, 2004 are entitled to notice of, and to
vote at, the Annual Meeting.
If you give us a proxy, you can revoke it at any time before it is used. To
revoke it, you may file a written notice revoking it with the Secretary of
the Company, execute a proxy with a later date or attend the meeting and vote
in person.
You may vote at the Annual Meeting only shares that you owned of record on
January 9, 2004. There were 734,183 shares of stock outstanding on that
date. A majority, or 367,092 of those shares will constitute a quorum for
the transaction of business at this meeting. Each share is entitled to one
vote on each matter to be presented at the meeting. Unless cumulative voting
is elected as described under "Election of Directors" below, the affirmative
vote of the holders of the majority of the shares of the Company's stock
present or represented at the meeting and entitled to vote is required to
elect directors and ratify or approve the other item being voted on at this
time.
In addition to mailing this material to shareholders, the Company has asked
banks and brokers to forward copies to persons for whom they sold stock of
the Company and to request authority for execution of the proxies. The
Company will reimburse the banks and brokers for their reasonable out-of-
pocket expenses in doing so. Officers of the Company may, without being
additionally compensated, solicit proxies by mail, telephone, telegram or
personal contact. All proxy-soliciting expenses will be paid by the Company.
The Company does not expect to employ anyone else to assist in the
solicitation of proxies.
1
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of five directors. We
propose to elect five directors, each to hold office until we have the next
Annual Meeting and until his successor is elected and qualified. The Board
of Directors has nominated John V. Winfield, Jerold R. Babin, Josef A.
Grunwald, John C. Love and William J. Nance. The person named in the
enclosed form of proxy will vote it for the election of the nominees listed
below unless you instruct him otherwise, or a nominee is unwilling to serve.
The Board of Directors has no reason to believe that any nominee will be
unavailable. However, in that event, the proxy may vote for another
candidate or candidates nominated by the Board of Directors.
The California Corporations Code, as applicable to the Company, provides that
a shareholder may cumulate votes if a shareholder gives notice, prior to the
voting, of an intention to cumulate votes. If such a notice is given, every
shareholder may cumulate votes. Cumulating votes means that you can take the
total number of votes you have for all directors and distribute them among
one or more nominees as you see fit. For example, assume you have 100
shares. We have five directors so you have a total of 5 x 100 = 500 votes.
You could give all 500 votes to one person or 250 votes to each of two
nominees, or 100 votes to each of five nominees. You can use this power only
under the circumstances described herein. If cumulative voting is elected,
the enclosed form of proxy gives the proxy discretion to cumulate votes so
that he can elect the maximum possible number of the nominees identified
below.
Any shareholder executing the enclosed form of proxy may withhold authority
to vote for any one or more nominees by so indicating in the manner described
in the form of proxy. However, the number of votes authorized by the form of
proxy will not be affected and the named proxies could probably offset any
such action by using cumulative voting if they thought it necessary. Under
the California Corporations Code any shareholder or any person who claims to
have been denied the right to vote may apply to a state superior court for a
determination of the validity of any election or appointment of any director.
2
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company. There is no relationship by
blood, marriage or adoption among the Directors and Officers. All Directors
serve one-year terms with their terms expiring at the Annual Meeting. All
Officers of the Company are elected or appointed by the Board of Directors
and hold office until the Annual Meeting or until replaced at the discretion
of the Board.
Shares of
Common Stock
Beneficially
Present Owned on Percent
Position Director January 9, of
Name Age With the Company Since 2004 Class (1)
- -------------------------------------------------------------------------------------------------
John V. Winfield (2) 57 Chairman of the Board, 1996 0(4) 0.0%
President and Chief
Executive Officer
Jerold R. Babin (3) 71 Director 1996 48,345 6.6%
John C. Love 63 Director 1998 0(4) 0.0%
Josef A. Grunwald 55 Director 1996 0 0.0%
William J. Nance 59 Director, 1996 0(4) 0.0%
Michael G. Zybala 51 Vice President, N/A 0 0.0%
Secretary and
General Counsel
David T. Nguyen 30 Treasurer and N/A 0 0.0%
Controller
Santa Fe Financial 507,772 69.2%
Corporation and The
InterGroup
Corporation(4)
All of the above as a group 556,117 75.7%
- ------------------------------
(1) Based on 734,183 common shares issued and outstanding as of January 9,
2004.
(2) John V. Winfield is the sole beneficial owner of 49,400 shares
of Portsmouth's majority owner Santa Fe Financial Corporation ("Santa
Fe"). The InterGroup Corporation ("InterGroup") is the beneficial owner
of 811,896 common shares and 63,600 convertible voting preferred shares
of Santa Fe. As the President and Chairman of the Board and a 58.6%
shareholder of InterGroup, Mr. Winfield has voting and dispositive power
over a total of 924,896 voting shares of Santa Fe, which represents
74.5% of the voting power of Santa Fe.
(3) Jerold R. Babin claims sole voting power over the 48,345 shares
identified herein, of which he has sole dispositive power over 9,667
shares held in his retirement account. He claims shared dispositive
power with his wife over 38,478 shares which they hold as trustees of a
family trust.
(4) Santa Fe Financial Corporation is the record and beneficial owner of
505,272 common shares of Portsmouth and Santa Fe's parent company,
InterGroup, is the record and beneficial owner of 2,500 shares of
Portsmouth. As directors of Santa Fe and InterGroup, Messrs. Winfield,
Nance and Love have the power to direct the vote of the shares of
Portsmouth owned by Santa Fe and InterGroup.
3
Security Ownership of Management in Parent Corporation.
As of January 9, 2004 John V. Winfield is the beneficial owner of 49,400
shares of the common stock of Portsmouth's parent corporation, Santa Fe. The
InterGroup Corporation is the beneficial owner of 811,896 shares of common
stock and 63,600 shares of convertible, voting preferred stock of Santa Fe.
Pursuant to a Voting Trust Agreement dated June 30, 1998, InterGroup also has
the power to vote the 49,400 shares of common stock owned by Mr. Winfield
giving it a total of 924,896 voting shares, which represents 74.5% of the
voting power of Santa Fe. As President, Chairman of the Board and a 58.6%
shareholder of InterGroup, Mr. Winfield has voting and dispositive power over
the shares owned of record and beneficially by InterGroup. No other director
or executive officer of Portsmouth has a beneficial interest in Santa Fe's
shares.
Business Experience:
The principal occupation and business experience during the last five years
for each of the Directors and Executive Officers of the Company are as
follows:
John V. Winfield -- Mr. Winfield was first elected to the Board in May of
1996 and currently serves as the Company's Chairman of the Board, President
and Chief Executive Officer. Mr. Winfield is also Chairman of the Board,
President and Chief Executive Officer of Portsmouth's parent company Santa Fe
Financial Corporation, having held those positions since April 1996. Mr.
Winfield is Chairman of the Board, President and Chief Executive Officer of
The InterGroup Corporation ("InterGroup"), a public company, and has held
those positions since 1987.
Jerold R. Babin -- Mr. Babin was appointed as a Director of the Company on
February 1996. Mr. Babin has been a retail securities broker for the past 37
years. From 1989 to present, he has worked for Prudential Securities, (now
Wachovia Securities) where he currently holds the title of First Vice-
President.
John C. Love -- Mr. Love was appointed a Director of the Company on March 5,
1998. Mr. Love is an international hospitality and tourism consultant based
in Orinda, California. He was formerly a partner in the national CPA and
consulting firm of Pannel Kerr and Forster. Mr. Love has extensive
experience in hotel development, acquisition and development. He is Chairman
Emeritus of Golden Gate University in San Francisco. Mr. Love is also a
Director of Santa Fe, having first been appointed on March 2, 1999 and a
Director of InterGroup, having first been appointed in January 1998.
Josef A. Grunwald -- Mr. Grunwald was elected as a Director of the Company in
May 1996. Mr. Grunwald is an industrial, commercial and residential real
estate developer. He serves as Chairman of PDG N.V. (Belgium), a hotel
management company, and President of I.B.E. Services S.A. (Belgium), an
international trading company. Mr. Grunwald is also a Director of
InterGroup, having held that position since 1987.
William J. Nance -- Mr. Nance was first elected to the Board in May 1996. Mr.
Nance is also a Director of Santa Fe. He is the President and CEO of Century
Plaza Printers, Inc., a company he founded in 1979. He has also served as a
consultant in the acquisition and disposition of multi-family and commercial
real estate. Mr. Nance is a Certified Public Accountant and, from 1970 to
1976, was employed by Kenneth Leventhol & Company where he was a Senior
Accountant specializing in the area of REITS and restructuring of real estate
companies, mergers and acquisitions, and all phases of real estate
development and financing. Mr. Nance is a Director of InterGroup and has
held such position since 1984.
Michael G. Zybala - Mr. Zybala was appointed Vice President and Secretary of
the Company on February 20, 1998. He is also Vice President, Secretary and
General Counsel of Santa Fe. He also served as the Treasurer of Santa Fe and
Portsmouth from May 2000 until February 27, 2003. Mr. Zybala has served as
the Company's General Counsel since 1995 and has represented the Company as
its corporate counsel since 1978. Mr. Zybala also serves as Assistant
Secretary and counsel to InterGroup and served as InterGroup's Vice President
Operations from January 1999 to July 15, 2002.
David T. Nguyen - Mr. Nguyen was appointed as Treasurer of the Company on
February 27, 2003. Mr. Nguyen also serves as Treasurer of InterGroup and
Santa Fe, having been appointed to those positions on February 26, 2003 and
February 27, 2003, respectively. Mr. Nguyen is a Certified Public Accountant
4
and, from 1995 to 1998, was employed by PricewaterhouseCoopers LLP where he
was a Senior Accountant specializing in real estate. Mr. Nguyen has also
served as the Company's Controller from 1998 to December 2001 and from
December 2002 to present.
Family Relationships: There are no family relationships among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
Involvement in Certain Legal Proceedings: No director or executive officer,
or person nominated or chosen to become a director or executive officer, was
involved in any legal proceeding requiring disclosure.
BOARD AND COMMITTEE INFORMATION
Portsmouth is an unlisted company and a small business issuer under the rules
and regulations of the Securities and Exchange Commission ("SEC"). The
majority of its Board of Directors consists of "independent" directors as
independence is defined by the applicable rules of the SEC and the National
Association of Securities Dealers' ("NASD"). The Board of Directors held four
meetings during the 2003 Fiscal Year (in person, telephonically or by written
consent). No Director attended (whether in person, telephonically, or by
written consent) less than 75% of all meetings held during the period of time
he or she served as Director during the 2003 Fiscal Year.
Committees
Portsmouth has established two standing committees, a Securities Investment
Committee and an Audit Committee. The Company does not have any standing
nominating or compensation committees of the Board of Directors. Executive
compensation is determined by the independent members of the Board. New
director nominations, if any, will be considered and determined by the Board
of Directors. The Company has no policy with regard to consideration of any
director candidates recommended by security holders. As a small business
issuer that has more than 69% of its voting securities controlled by one
shareholder, the Company has not deemed it appropriate to institute such a
policy.
On March 17, 1998, the Company established a Securities Investment Committee
to establish guidelines and to review the Company's investment policies. The
Committee consists of all of the Directors of the Company, John V. Winfield
(Chair), John C. Love and William J. Nance. During fiscal 2003, the
Securities Investment Committee held four meetings, in person, telephonically
or by written consent with, all members attending each meeting.
Portsmouth is an unlisted company and small business issuer under SEC rules.
The Company's Audit Committee is currently comprised of Messrs. Nance
(Chairperson) and Love, each of whom are independent directors as
independence is defined by the applicable rules of the SEC and the NASD, and
as may be modified or supplemented. Each of these directors also meets the
audit committee financial expert test. The primary function of the Audit
Committee is to assist the Board of Directors in fulfilling its oversight
responsibilities by reviewing: the financial reports provided by the Company
to any governmental body or the public; the Company's system of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Company's auditing,
accounting and financial processes generally. The Audit Committee is
responsible for the selection and retention of the Company's independent
auditors. The Audit Committee held five meetings during the 2003 Fiscal Year.
On June 8, 2000, the Company's Board of Directors adopted a written charter
for the Audit Committee, which was amended in January 2003 and December 2003.
A copy of that written charter, as amended, is attached as Appendix A to this
proxy statement.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and each beneficial owner of more than ten
percent of the Common Stock of the Company, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based upon a review of the copies of such reports received by it,
or written representations from certain reporting persons that no Form 5's
were required for those persons, the Company believes that during fiscal 2003
all filing requirements applicable to its officers, directors, and greater
than ten-percent beneficial owners were complied with.
5
EXECUTIVE COMPENSATION
As a small business issuer, Portsmouth has no compensation committee.
Executive Officer compensation is set by the independent members of the Board
of Directors. Set forth below is a summary compensation table concerning
compensation of the Chief Executive Officer ("CEO"), and any qualifying
Executive Officer or employee, for the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ---------- ------------
John V. Winfield 2003 $76,500 $411,355(1) $6,000(2)
Chairman, President and 2002 $88,125 $ - $6,000(2)
Chief Executive Officer 2001 $90,000 $ - $6,000(2)
- -----------------------
(1) Amounts shown reflect a performance bonus, approved by the independent
and disinterested members of the Board of Directors, based on the results of
Mr. Winfield's management of the Company's securities portfolio for the
fiscal year ended June 30, 2003.
(2) Amounts shown reflect regular Directors fees. During fiscal 2003, 2002
and 2001, the Company also paid annual premiums of $17,000 for a split dollar
whole life insurance policy, owned by, and the beneficiary of which is, a
trust for the benefit of Mr. Winfield's family. The Company has a secured
right to receive, from any proceeds of the policy, reimbursement of all
premiums paid prior to any payments to the beneficiary.
Portsmouth has no stock option plan or stock appreciation rights for its
executive officers. The Company has no pension or long-term incentive plans.
There are no employment contracts between Portsmouth and any executive
officer, nor are there any termination-of-employment or change-in-control
arrangements.
On July 18, 2003, the independent and disinterested members of the Board of
Directors established a performance compensation program for the Company's
CEO, John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio. The Company's previous
experience and results with outside money managers was not acceptable.
Pursuant to the criteria established by the Board, Mr. Winfield will be
entitled to performance compensation for his management of the Company's
securities portfolio equal to 20% of all net investment gains generated in
excess of the performance of the S&P 500 Index. Compensation amounts will be
calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter. Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company. The compensation program will be administered so
that total amount of compensation paid to Mr. Winfield in any tax year will
not exceed $1 million. This performance compensation program may be modified
or terminated at the discretion of the Board.
Internal Revenue Code Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, in the case of a publicly held corporation, the corporation is
not generally allowed to deduct remuneration paid to its chief executive
officer and certain other highly compensated officers to the extent that such
remuneration exceeds $1,000,000 for the taxable year. Certain remuneration,
however, is not subject to disallowance, including compensation paid on a
commission basis and, if certain requirements prescribed by the Code are
satisfied, other performance based compensation. No compensation paid by the
Company to its CEO or other executive officers was subject the deduction
disallowance prescribed by Section 162(m) of the Code.
6
Securities Authorized for Issuance Under Equity Compensation Plans.
Portsmouth has no securities authorized for issuance under any equity
compensation plans.
DIRECTOR COMPENSATION
The bylaws of Portsmouth permit directors to be paid a fixed sum for
attendance at each meeting of the Board or a stated salary as director. Each
director is paid a fee of $1,500 per quarter for a total annual compensation
of $6,000. This policy has been in effect since July 1, 1985. Members of the
Company's Audit Committee also receive a fee of $500 per quarter.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 9, 2004, Santa Fe and InterGroup owned 69.2% of the common
stock of Portsmouth, and InterGroup and John V. Winfield, in the aggregate,
owned approximately 74.5% of the voting stock of Santa Fe. Certain costs and
expenses, primarily salaries, rent and insurance, are allocated between the
Company, Santa Fe, and InterGroup based on management's estimate of the
utilization of resources. Effective June 30, 1998, certain accounting and
administrative functions of the Company and its subsidiaries, were
transferred to the Los Angeles, California offices of InterGroup. During the
fiscal years ended June 30, 2003 and 2002, the Company made payments to
InterGroup in the total amount of approximately $85,000 and $126,000,
respectively, for administrative costs and reimbursement of direct and
indirect costs associated with the management of the Company and its
investments, including the partnership asset. During fiscal 2003 and 2002,
the Company also paid annual consulting fees to an officer of InterGroup in
the amount of $62,004 and $86,400, respectively.
As Chairman of the Securities Investment Committee, the Company's President
and Chief Executive officer, John V. Winfield, oversees the investment
activity of the Company in public and private markets pursuant to authority
granted by the Board of Directors. Mr. Winfield also serves as Chief
Executive Officer of Santa Fe and InterGroup and oversees the investment
activity of those companies. Depending on certain market conditions and
various risk factors, the Chief Executive Officer, his family, Santa Fe and
InterGroup may, at times, invest in the same companies in which the Company
invests. The Company encourages such investments because it places personal
resources of the Chief Executive Officer and his family members, and the
resources of Santa Fe and InterGroup, at risk in connection with investment
decisions made on behalf of the Company.
In December 1998, the Board of Directors authorized the Company to obtain
whole life insurance and split dollar insurance policies covering the
Company's President and Chief Executive Officer, Mr. Winfield. During fiscal
2003 and 2002, the Company paid annual premiums of $17,000 for the split
dollar whole life insurance policy, owned by, and the beneficiary of which
is, a trust for the benefit of Mr. Winfield's family. The Company has a
secured right to receive, from any proceeds of the policy, reimbursement of
all premiums paid prior to any payments to the beneficiary.
There are no other relationships or related transactions between the Company
and any of its officers, directors, five-percent security holders or their
families that require disclosure.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF JOHN V.
WINFIELD, JEROLD R. BABIN, JOSEF A. GRUNWALD, JOHN C. LOVE AND WILLIAM J.
NANCE AS DIRECTORS OF THE COMPANY.
7
PRINCIPAL HOLDERS OF EQUITY SECURITIES
The following table shows, as of January 9, 2004, the Common Stock owned by
every person owning of record (other than securities depositories), or known
by the Company to own beneficially, more than 5% of the outstanding shares.
Any voting securities beneficially owned by directors and director nominees
are also disclosed under Proposal 1 - Election of Directors herein.
Name Shares of Common Stock Percent of Class (1)
---- ---------------------- --------------------
Santa Fe Financial Corporation 507,772(2) 69.2%
and The InterGroup Corporation
820 Moraga Drive
Los Angeles, CA 90049
Jerold R. Babin 48,345(3) 6.6%
4 Embarcadero Center
Suite 2400
San Francisco, CA 94111-4131
- -------------------------------
(1) Based on 734,183 shares issued and outstanding.
(2) Santa Fe Financial Corporation is the record and beneficial owner of
505,272 common shares of Portsmouth and Santa Fe's parent company,
InterGroup, is the record and beneficial owner of 2,500 shares of
Portsmouth. The President and Chairman of the Boards of Santa Fe and
InterGroup votes these shares.
(3) Jerold R. Babin claims sole voting power over the 48,345 shares
identified herein, of which he has sole dispositive power over 9,667 held
in his retirement account. He claims shared dispositive power with his
wife over the 38,478 shares which they hold as trustees of a family
trust.
As of January 9, 2004, there were 734,183 shares of the Company's Common
Stock issued and outstanding, which were held by approximately 221
shareholders of record and approximately 349 beneficial holders.
PROPOSAL II
Ratification of Appointment of Independent Auditors
The Audit Committee of the Board of Directors has selected the firm of
PricewaterhouseCoopers LLP, certified public accountants, as the Company's
independent auditors for the fiscal year ending June 30, 2004 and recommends
to shareholders that they vote for the ratification of this selection.
PricewaterhouseCoopers LLP has served as the Company's independent auditors
commencing with the audit for the year ended December 31, 1997. Ratification
requires the affirmative vote of a majority of the shares represented and
voted at the Annual Meeting. A representative of PricewaterhouseCoopers LLP
is expected to be present at the Annual Meeting to make a statement, if
desired, and to respond to appropriate questions.
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH THE SEC UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN
ANY DOCUMENT SO FILED.
8
AUDIT COMMITTEE REPORT
The Audit Committee's responsibilities are described in a written charter
adopted by the Board of Directors, which is attached as Appendix A to this
Proxy Statement. The Audit Committee primary duties and responsibilities are
to: serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system; appoint and approve
the compensation of the Company's independent auditors; review and appraise
the audit efforts of the Company's independent auditors; and provide an open
avenue of communications among the independent accountants, financial and
senior management, and the Board of Directors. During fiscal year ended June
30, 2003, the Company retained its independent auditors,
PricewaterhouseCoopers LLP, to provide audit and audit related services.
There were no fees paid for non-audit services.
The Audit Committee reviewed and discussed the audited financial statements
with management and PricewaterhouseCoopers LLP and management represented to
the Audit Committee that the consolidated financial statements were prepared
in accordance with generally accepted accounting principals. The discussions
with PricewaterhouseCoopers LLP also included the matters required by
Statement on Auditing Standards No. 61 (Communication with Audit Committees),
as amended by FAS No. 90 with respect to quarterly financial statements. The
Audit Committee has also received the written disclosures and the letter from
PricewaterhouseCoopers LLP regarding its independence as required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), which was discussed with PricewaterhouseCoopers LLP.
Based on the Audit Committee's review of the audited financial statements,
and the review and discussions with management and PricewaterhouseCoopers LLP
referred to above, the Audit Committee recommended to the Company's Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003 for
filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE:
WILLIAM J. NANCE, CHAIRPERSON
JOHN C. LOVE
Principal Accountant Fees and Services.
Audit Fees - The aggregate fees billed for each of the last two fiscal years
ended June 30, 2003 and 2002 for professional services rendered by
PricewaterhouseCoopers LLP, the principal accountant for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's Form 10-QSB or services normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years, were as follows: Fiscal 2003 - $32,500; Fiscal 2002 -
$27,405.
There were no fees paid to PricewaterhouseCoopers LLP for "Audit Related
Fees", "Tax Fees" or for "Other Fees" as defined in Item 9(e) of Schedule
14A.
All of the services and fees described above were approved by the Company's
Audit Committee. It is the Audit Committee's policy to approve all services
to be performed by the Company's principal accountant prior to the rendering
of those services.
All hours expended on the principal accountant's engagement to audit the
Company's financial statements for the most recent fiscal year were
attributed to work performed by persons that were the full time, permanent
employees of PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT AUDITORS FOR THE COMPANY.
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OTHER BUSINESS
As of the date of this statement, management knows of no business to be
presented at the meeting that is not referred to in the accompanying notice,
other than the approval of the minutes of the last shareholders' meeting,
which action will not amount to ratification of the actions taken at that
meeting. As to other business that may properly come before the meeting, it
is intended that the proxies properly executed and returned will be voted in
respect thereof at the discretion of the person voting the proxies in
accordance with the best judgment of the person voting the proxies.
SHAREHOLDER PROPOSALS
It is presently anticipated that the fiscal 2004 Annual Meeting of
Shareholders will be held on or around February 24, 2005. Any shareholder
proposals intended to be considered for inclusion in the proxy statement for
presentation at the fiscal 2004 Annual Meeting must be received by the
Company no later than October 24, 2004. The proposal must be in accordance
with the provisions of Rule 14a-8 promulgated by the Securities and Exchange
Commission under the Securities Act of 1934. It is suggested that the
proposal be submitted by certified mail - return receipt requested.
FORM 10-KSB and ANNUAL REPORT
The Annual Report to Shareholders for the 2003 fiscal year accompanies this
proxy statement, but is not deemed a part of the proxy solicitation material.
A copy of the Company's Form 10-KSB for the fiscal year ended June 30, 2003,
as required to be filed with the Securities and Exchange Commission,
excluding exhibits, will be mailed to shareholders without charge upon
written request to: Michael G. Zybala, Secretary, Portsmouth Square, Inc.,
820 Moraga Drive, Los Angeles, CA 90049. Such request must set forth a good-
faith representation that the requesting party was either a holder of record
or a beneficial owner of the common stock of the company on January 9, 2004.
The Company's Form 10-KSB and other reports are also available through the
Securities and Exchange Commission's world-wide-web site
(http://www.sec.gov).
By Order of the Board of Directors
PORTSMOUTH SQUARE, INC.
Michael G. Zybala
Secretary
Dated: Los Angeles, California
January 20, 2004
10
APPENDIX A
PORTSMOUTH SQUARE, INC.
AUDIT COMMITTEE CHARTER
Purpose:
- -------
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibility of overseeing management's conduct
of the Company's financial reporting process, the Company's systems of
internal accounting and financial controls, and the annual independent audit
of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to investigate
any matter brought to its attention and shall have full access to all books,
records, facilities and personnel of the Company and the power to retain
outside counsel, auditors or other experts for this purpose. The Board and
the Committee are in place to represent the Company's shareholders, and the
outside auditor is ultimately accountable to the Board and the Committee as
such representatives of shareholders. It is the responsibility of the
Committee to maintain free and open means of communication between the Board,
the outside auditor and the financial management and internal auditors of the
Company.
The Committee shall review the adequacy of this Charter on an annual basis.
Membership:
- ----------
The Committee shall be comprised of "independent" directors that meet the
composition requirements as defined by the rules of the Securities and
Exchange Commission ("SEC") and the National Association of securities
Dealers ("NASD") as may be modified and supplemented from time to time.
Accordingly, all of the members of the Committee will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company;
2. Are not affiliates of the Company;
3. Do not receive any compensation from the Company other than in the
capacity as director; and
4. Who are financially literate or who become financially literate
within a reasonable period of time after appointment to the Committee.
In addition, at least one member of the Committee will be an audit committee
financial expert as defined by the Securities and Exchange Commission.
The members of the Committee shall be elected by the Board at the annual
meeting of the Board and shall serve until their successors shall be duly
elected and qualified. Unless a Chairman of the Committee is elected by the
full Board, the members of the Committee may designate a Chairman of the
Committee by majority vote of the full Committee Membership.
Meetings:
- --------
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. A majority of the members of the Committee shall
constitute a quorum for the transaction of business. Minutes of each meeting
of the Committee should be recorded by the Secretary to the Committee.
Approval by a majority of the members present at a meeting at which a quorum
is present shall constitute approval by the Committee. The Committee may also
act by unanimous written consent without a meeting. As part of its job to
foster open communication, the Committee should meet at least annually with
management and the independent accountants in separate executive sessions to
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discuss any matters that the Committee or each of these groups believe should
be discussed privately. In addition, the Committee or at least its Chairman
should meet with the independent accountants and management quarterly to
review the Company's financials consistent with #2 below. The Committee may
request any officer or employee of the Company or the Company's outside
counsel or independent auditor to attend a meeting of the Committee or to
meet with any members of, or consultants to, the Committee.
Key Responsibilities:
- --------------------
The Committee's job is one of oversight, and it recognizes that the Company's
management is responsible for preparing the Company's financial statements
and that the outside auditor is responsible for auditing those financial
statements pursuant to professional standards. Additionally, the Committee
recognizes that financial management has more time, knowledge and detailed
information about the Company than do Committee members. Consequently, in
carrying out its oversight responsibilities, the Committee is not providing
any expert or special assurance as to the Company's financial statements or
any professional certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set
forth as a guide with the understanding that the Committee may diverge from
this guide as appropriate given the circumstances.
1. The Committee shall review with management and the outside auditor
the audited financial statements to be included in the Company's Annual
Report on Form 10-KSB (or the Annual Report to Shareholders if distributed
prior to the filing of the Form 10-KSB) prior to the filing of the Form 10-
KSB or, if deemed appropriate, prior to any year-end earnings release. The
Committee shall review and consider with the outside auditors all matters
required to be discussed by Statement of Auditing Standards ("SAS") No. 61,
as amended by SAS No.90, by auditors with audit committees.
2. As a whole, or through the Committee chair, the Committee shall
review with the outside auditor the Company's interim financial results to be
included in the Company's quarterly reports to be filed with Securities and
Exchange Commission and the matters required to be discussed by SAS No. 61,
as amended by SAS No. 90 with respect to quarterly financial statements. Such
review will occur prior to the Company's filing of the Form 10-QSB or, if
deemed appropriate, prior to any quarterly earnings releases.
3. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-KSB and Form 10-QSB
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management or
other employees who have a significant role in the Company's internal
controls.
4. The Committee shall:
(a) request from the outside auditor annually a formal written
statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board Standard No. 1;
(b) discuss with the outside auditor any disclosed relationships or
services which may impact the outside auditor's objectivity or
independence; and
(c) recommend that the Board take appropriate action in response to
the outside auditor's report to satisfy itself of the auditor's
independence.
5. The Committee shall have the sole authority to appoint or replace
the independent auditor (subject, if applicable, to shareholder
ratification). The Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an
audit report or related work. The independent auditor shall report directly
to the Committee.
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6. The Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the company by its independent auditor, subject to the de minimus exceptions
for non-audit services described in Section 10A (i)(1)(B) of the Exchange Act
which are approved by the Committee prior to the completion of the audit. The
Committee may form and delegate authority to subcommittees consisting of one
or more members when appropriate, including the authority to grant
preapprovals of audit and permitted nonaudit services, provided that
decisions of such subcommittee to grant preapprovals shall be presented to
the full Committee at its next scheduled meeting.
7. Review and discuss quarterly reports from the independent auditors
on:
(a) All critical accounting policies and practices to be
used.
(b) All alternative treatments of financial information
within generally accepted accounting principles that have
been discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the
treatment preferred by the independent auditor.
(c) Other material written communications between the
independent auditor and management, such as any management
letter or schedule of unadjusted differences.
8. Periodically consult with the independent accountants, out of the
presence of management, about internal controls and the fullness and accuracy
of the organization's financial statements.
9. Recommend to the Board policies for the Company's hiring of
employees or former employees of the independent auditor who participated in
any capacity in the audit of the Company.
10. Discuss with management the Company's use of "pro forma" or
"adjusted" non-GAAP information, as well as financial information and
earnings guidance provided to analysts and rating agencies. Such discussion
may be done generally (consisting of discussing the types of information to
be disclosed and the types of presentations to be made).
11. Establish regular and separate systems of reporting to the
Committee by each of management, the independent accountants, and the
internal accountants regarding any significant judgments made in management's
preparation of the financial statements, and the view of each as to
appropriateness of such judgments.
12. Following completion of the annual audit, review separately with
each of management and the independent accountants any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
13. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the financial
statements.
14. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
15. Establish, review, and update periodically a Code of Ethical
Conduct, and ensure that management has established a system to enforce this
Code.
16. Review and approve any transactions between the Company and its
officers, directors or 5% shareholders.
13
17. The Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to the independent auditor for the
purpose of rendering or issuing an audit report and to any advisors employed
by the Committee.
Reporting Responsibilities:
- --------------------------
The Committee shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement.
The Committee shall prepare such other reports for the full Board of
Directors and others as it shall deem necessary to discharge its
responsibilities under this Charter.
14
PROXY
PORTSMOUTH SQUARE, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John V. Winfield and Michael G. Zybala, and
each of them, the attorneys, agents and proxies of the undersigned, with full
powers of substitution to each, to attend and act as proxy or proxies of the
undersigned at the Annual Meeting of Shareholders of Portsmouth Square, Inc.
to be held at the Luxe Summit Hotel Bel-Air, 11461 Sunset Boulevard, Los
Angeles, Ca 90049, on Thursday, February 26, 2004 at 3:30 p.m., and at any
and all adjournments thereof, and to vote as specified herein the number of
shares which the undersigned, if personally present, would be entitled to
vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS, AND "FOR" RATIFICATION OF THE RETENTION
OF INDEPENDENT AUDITORS. THE PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE
RETENTION OF INDEPENDENT AUDITORS.
PLEASE SIGN AND DATE ON REVERSE SIDE
- -----------------------------------------------------------------------------
1. Election of Directors: [ ] FOR all nominees listed
below (except as indicated)
[ ] WITHHOLD AUTHORITY to vote
for all nominees listed below
[ ] EXCEPTIONS
Director
Nominees: John V. Winfield, Jerold R. Babin, Josef A. Grunwald, John C. Love
and William J. Nance.
(INSTRUCTIONS: To withhold authority to vote for any one individual nominee,
mark the "Exceptions" box and write that nominee's name on the space below.)
Exceptions:
- ----------------------------------------------------------------------------
[ ] FOR [ ] AGAINST [ ] ABSTAIN 2. RATIFICATION OF RETENTION OF
PRICEWATERHOUSECOOPERS LLP as the
independent auditors for the Company
for the fiscal year ending June 30,
2004.
3. OTHER BUSINESS. In their discretion,
the proxies are authorized to vote
upon such other business as may
properly come before the meeting and
at any and all adjournments thereof.
The Board of directors at present
knows of no other business to be
presented by or on behalf of the
Company or the Board of Directors
at the meeting.
[ ] Mark here for address change I (WE) WILL [ ] WILL NOT [ ] ATTEND
and note below. THE MEETING IN PERSON
The undersigned hereby ratifies and
Confirms all that the attorneys and
proxies, or any of them, or their
substitutes shall lawfully do or cause
to be done by virtue hereof, and
hereby revokes any and all proxies
heretofore given by the undersigned to
vote at the meeting. The undersigned
acknowledges receipt of the Notice of
Annual Meeting and the Proxy Statement
accompanying such notice.
Dated: _________________________, 2004
_______________________________
Signature
_______________________________
Signature
Please date this proxy card and sign
above exactly as your name appears on
this card. Joint owners should each
sign personally. Corporate proxies
should be signed by an authorized
officer. Executors, administrators,
trustees, etc., should give their full
titles.
7