UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CONSUMER PORTFOLIO SERVICES, INC.
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(Name of Registrant as Specified In Its Charter)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road, Irvine California 92618
Phone: 949-753-6800
The annual meeting of the shareholders of Consumer Portfolio Services, Inc. (the
"Company") will be held at 10:00 a.m., local time, on Thursday, June 15, 2006 at
the Company's principal executive offices, 16355 Laguna Canyon Road, Irvine,
California for the following purposes:
o To elect the Company's entire Board of Directors for a one-year term.
o To ratify the appointment of McGladrey & Pullen, LLP as the Company's
independent auditors for the fiscal year ending December 31, 2006.
o To approve the Company's 2006 Long-Term Equity Incentive Plan.
o To approve the material terms of the Company's Executive Management
Bonus Plan.
o To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on Monday, May 1, 2006 are
entitled to notice of and to vote at the meeting.
Whether or not you expect to attend the meeting in person, please complete,
date, and sign the enclosed proxy exactly as your name appears thereon and
promptly return it in the envelope provided, which requires no postage if mailed
in the United States. Proxies may be revoked at any time and, if you attend the
meeting in person, your executed proxy will be returned to you upon request.
By Order of the Board of Directors
Mark Creatura, Secretary
Dated: May 19, 2006
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road
Irvine, California 92618
949-753-6800
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 2006
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INTRODUCTION
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Consumer Portfolio Services, Inc. (the "Company" or
"CPS") for use at the annual meeting of the shareholders to be held at 10:00
A.M. local time on Thursday, June 15, 2006 at the Company's principal executive
offices, 16355 Laguna Canyon Road, Irvine, California 92618, and at any
adjournment thereof (the "Annual Meeting").
All shares represented by properly executed proxies received in time will be
voted at the Annual Meeting and, where the manner of voting is specified on the
proxy, will be voted in accordance with such specifications. Any shareholder who
executes and returns a proxy may revoke it at any time prior to the voting of
the proxy by giving written notice to the Secretary of the Company, by executing
a later-dated proxy, or by attending the meeting and giving oral notice of
revocation to the Secretary of the Company.
The Board of Directors of the Company has fixed the close of business on May 1,
2006, as the record date for determining the holders of outstanding shares of
the Company's Common Stock, without par value ("CPS Common Stock") entitled to
notice of, and to vote at the Annual Meeting. On that date, there were
21,857,368 shares of CPS Common Stock issued and outstanding. Each such share of
CPS Common Stock is entitled to one vote on all matters to be voted upon at the
meeting, except that holders of CPS Common Stock have the right to cumulative
voting in the election of directors, as described herein under the heading
"Voting of Shares."
The notice of the Annual Meeting, this proxy statement and the form of proxy are
first being mailed to shareholders of the Company on or about May 19, 2006. The
Company will pay the expenses incurred in connection with the solicitation of
proxies. The proxies are being solicited principally by mail. In addition,
directors, officers and regular employees of the Company may solicit proxies
personally or by telephone, for which they will receive no payment other than
their regular compensation. The Company will also request brokerage houses,
nominees, custodians and fiduciaries to forward soliciting material to the
beneficial owners of Common Stock of the Company and will reimburse such persons
for their expenses so incurred.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
NOMINATIONS
The individuals named below have been nominated for election as directors of the
Company at the Annual Meeting, and each has agreed to serve as a director if
elected. The entire board of directors of the Company is elected annually.
Directors serve until the next annual meeting of shareholders and until their
successors are duly elected and qualified.
The names of the nominees, their principal occupations, and certain other
information regarding them set forth below are based upon information furnished
to the Company by them.
NAME AGE POSITION(S) WITH THE COMPANY
Charles E. Bradley, Jr. 46 President, Chief Executive Officer, and
Chairman of the Board of Directors
E. Bruce Fredrikson 68 Director
John E. McConnaughy, Jr. 77 Director
John G. Poole 63 Vice Chairman of the Board of Directors
William B. Roberts 68 Director
John C. Warner 58 Director
Daniel S. Wood 47 Director
CHARLES E. BRADLEY, JR. has been the President and a director of the Company
since its formation in March 1991, and was elected Chairman of the Board of
Directors in July 2001. In January 1992, Mr. Bradley was appointed Chief
Executive Officer of the Company. From April 1989 to November 1990, he served as
Chief Operating Officer of Barnard and Company, a private investment firm. From
September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The Harding
Group, a private investment banking firm. Mr. Bradley does not currently serve
on the board of directors of any other publicly-traded companies.
E. BRUCE FREDRIKSON has been a director of the Company since March 2003. He is a
Professor of Finance, Emeritus, at Syracuse University's Martin J. Whitman
School of Management, where he taught from 1966 to 2003. Mr. Fredrikson has
published numerous papers on accounting and finance topics. He is also a
director of Track Data Corporation and Colonial Commercial Corp.
JOHN E. MCCONNAUGHY, JR. has been a director of the Company since 2001. He is
the Chairman and Chief Executive Officer of JEMC Corporation, which is a
personal holding company he formed in 1985. From 1981 to 1992 he was the
Chairman and Chief Executive Officer of GEO International Corp, a company in the
business of nondestructive testing, screen-printing and oil field services. Mr.
McConnaughy was previously and concurrently Chairman and Chief Executive Officer
of Peabody International Corp., from 1969 to 1986. He currently serves as a
director of Levcor International, Inc., Wave Systems, Inc., Overhill Farms,
Inc., Allis Chalmers Corp. and Arrow Resources Development Ltd. Mr. McConnaughy
is also Chairman of the Board of Trustees of the Strang Clinic and is the
Chairman Emeritus of the Board of the Harlem School of the Arts.
JOHN G. POOLE has been a director of the Company since November 1993 and its
Vice Chairman since January 1996. He is now a private investor, having
previously been a director and Vice President of Stanwich Employees ("SPI")
until July 2001. SPI, which Mr. Poole co-founded in 1982, acquired controlling
interests in companies in conjunction with their existing management. Mr. Poole
is also a director of Reunion Industries, Inc.
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WILLIAM B. ROBERTS has been a director of the Company since its formation in
March 1991. Since 1981, he has been the President of Monmouth Capital Corp., an
investment firm that specializes in management buyouts.
JOHN C. WARNER was elected as a director of the Company in April 2003. Mr.
Warner was chief executive officer of O'Neill Clothing, a manufacturer and
marketer of apparel and accessories from 1996 until his retirement in May 2005.
DANIEL S. WOOD has been a director of the Company since July 2001. Mr. Wood is
president of Carclo Technical Plastics, a manufacturer of custom injection
moldings. Previously, from 1988 to September 2000, he was the chief operating
officer and co-owner of Carrera Corporation.
The Board of Directors has established an Audit Committee and a Compensation and
Stock Option Committee. The members of the Audit Committee are E. Bruce
Fredrikson (chairman), John C. Warner and John G. Poole. The Audit Committee is
empowered by the Board of Directors to review the financial books and records of
the Company in consultation with the Company's accounting and auditing staff and
its independent auditors and to review with the accounting staff and independent
auditors any questions raised with respect to accounting and auditing policy and
procedure. The Audit Committee operates under a written charter, adopted by the
Board of Directors of the Company.
The members of the Compensation and Stock Option Committee are Daniel S. Wood
(chairman), John E. McConnaughy, Jr. and William B. Roberts. This Committee
makes determinations as to general levels of compensation for all employees of
the Company and the annual salary of each of the executive officers of the
Company, and administers the Company's compensation plans. Those plans include
the Company's 1997 Long-Term Stock Incentive Plan, the Executive Management
Bonus Plan, and, assuming approval at the Annual Meeting, the CPS 2006 Long-Term
Equity Incentive Plan.
The Board of Directors has concluded that each member of the Audit Committee is
independent in accordance with the director independence standards prescribed by
Nasdaq, and has determined that none of them have a material relationship with
the Company which would impair the independence from management or otherwise
compromise the ability to act as an independent director. The Board of Directors
has further determined that Mr. Fredrikson has the qualifications and experience
necessary to serve as an "audit committee financial expert" as such term is
defined in Item 401(h) of Regulation S-K promulgated by the SEC. Such
qualifications and experience are described above in this section.
The Company does not have a Nominating Committee. Nominations for board
positions are considered by the members of the Board of Directors who are
"independent directors." The Company's independent directors are Messrs.
Fredrikson, McConnaughy, Poole, Roberts, Warner and Wood. The Board of Directors
believes that it is appropriate for the Company not to have a Nominating
Committee primarily because there have to date been no significant differences
of opinion expressed among the whole board of directors regarding nominations,
and no recommendations from shareholders as to nominees. For the same reasons,
the Board of Directors has determined that it is and remains appropriate to
operate without a policy with regard to any director candidates who may in the
future be recommended by shareholders.
When considering a potential nominee, the independent directors consider the
benefits to the Company of such nomination, based on the nominee's skills and
experience related to managing a significant business, the willingness and
ability of the nominee to serve, and the nominee's character and reputation. It
is the policy of the Board of Directors to consider for nomination individuals
suggested by shareholders, should such recommendations be received. Shareholders
who wish to suggest individuals for possible future consideration for board
positions, or to otherwise communicate with the Board of Directors, should
direct written correspondence to the Board of Directors at the Company's
principal executive offices. The present policy of the Company is to forward all
such correspondence to the members of the Board of Directors.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, executive officers and holders of in excess of 10% of the Company's
common stock are required to file reports concerning their transactions in and
holdings of equity securities of the Company. Based on a review of reports filed
by each such person, and inquiry of each regarding holdings and transactions,
the Company believes that all reports required with respect to the year 2005
were timely filed, except that Mr. Poole filed two reports late, relating to one
transaction each (a total of 1,000 shares).
CODE OF ETHICS
The Company has adopted a Code of Ethics for Senior Financial Officers. A copy
of the Code of Ethics may be obtained at no charge by written request to the
Corporate Secretary at the Company's principal executive offices.
MEETINGS OF THE BOARD
The Board of Directors held six meetings (including regular and special
meetings) and acted six times by written consent during 2005. The Audit
Committee met seven times during 2005, including at least one meeting per
quarter to review the Company's financial statements, and did not act by written
consent, while the Compensation and Stock Option Committee met three times
during 2005 and acted nine times by written consent. Each nominee attended at
least 75% of the meetings of the Board of Directors and its committees that such
individual was eligible to attend in 2005. The Company does not have a policy of
encouraging directors to attend or discouraging directors from attending its
annual meetings of shareholders. Other than Mr. Bradley, no directors attended
last year's annual meeting of shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES ABOVE.
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed the accounting firm
of McGladrey & Pullen, LLP ("McGladrey") to be the Company's independent
auditors for the year ending December 31, 2006. McGladrey was the Company's
principal auditor for the preceding year, ended December 31, 2005.
A proposal to ratify that appointment will be presented to shareholders at the
Annual Meeting. If the shareholders do not ratify the selection of McGladrey at
the Annual Meeting, the Audit Committee will consider selecting another firm of
independent public accountants. Representatives of McGladrey are expected to be
present at the Annual Meeting. Such representatives will have an opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions from shareholders in attendance.
As previously reported, on October 21, 2004 the Company notified KPMG LLP
("KPMG") that KPMG's appointment as the Company's independent auditor would
cease upon the completion of the review of the Company's consolidated financial
statements as of and for the three-month and nine-month periods ended September
30, 2004. The Audit Committee approved the decision to terminate such
appointment. KPMG's audit reports on the Company's financial statements for the
most recent two fiscal years, which ended December 31, 2003 and 2002
respectively, did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles.
On the same day, at the direction of the Audit Committee, the Company appointed
McGladrey to serve as the Company's independent public accountants, effective
with the audit of financial statements for the year ending December 31, 2004.
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During the Company's two most recent fiscal years ended December 31, 2003 and
2002, and the subsequent interim period through October 21, 2004, neither the
Company nor anyone acting on its behalf consulted McGladrey regarding any of the
matters specified in Item 304(a)(2) of Regulation S-K.
On November 15, 2004, KPMG completed its review of the Company's consolidated
financial statements as of and for the three-month and nine-month periods ended
September 30, 2004. KPMG's appointment as the Company's independent auditor
ended at that time.
In connection with KPMG's audits of the Company's financial statements for the
two most recent fiscal years, and through November 15, 2004:
a) there were no disagreements between the Company and KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to KPMG's satisfaction,
would have caused KPMG to make reference to the subject matter of the
disagreements in connection with its opinions on the financial statements; and
b) there were no reportable events (as specified in Item 304(a)(1)(v) of
Regulation S-K).
Information relating to the fees billed by those firms to the Company appears
below.
AUDIT FEES
The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2005, for the review of the financial statements included in the
Company's quarterly reports on Form 10-Q filed in 2005 and for services that are
normally provided by the auditor in connection with statutory or regulatory
filings or engagements were $548,500.
The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2004, for the review of the financial statements included in the
Company's quarterly report for the period ended September 30, 2004, and for
services that are normally provided by the auditor in connection with statutory
or regulatory filings or engagements were $309,000.
The aggregate fees billed by KPMG for audit services in the years ended December
31, 2005 and 2004 were $34,500 and $12,400, respectively. These fees were for
professional services rendered in connection with the review of the Company's
quarterly reports filed in 2004, and its registration statements filed or
amended in both of those years.
AUDIT-RELATED FEES
The aggregate fees billed by McGladrey for audit-related services for the fiscal
year ended December 31, 2005 were $227,775. McGladrey did not bill any
audit-related fees for the fiscal year ended December 31, 2004. These
professional services were rendered in conjunction with the Company's
securitization and financing transactions, the audit of the MFN Financial
Corporation benefit plan, and consultations concerning financial accounting and
reporting standards.
The aggregate fees billed by KPMG for audit-related services were $137,260 for
the fiscal year ended December 31, 2004. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions.
TAX FEES
The aggregate fees billed by McGladrey for tax services in the last fiscal year
ended December 31, 2005 were $346,025. McGladrey did not render any professional
tax services for the fiscal year ended December 31, 2004. Tax services provided
by McGladrey consisted of preparation of various 2004 State and Federal income
tax returns for the Company and its subsidiaries.
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The aggregate fees billed in each of the last two fiscal years ended December
31, 2005 and December 31, 2004 for tax services by KPMG were $125,418 and
$383,655, respectively. Tax services provided by KPMG consisted of preparation
of various 2003 State and Federal income tax returns and assistance with
accounting for income taxes.
ALL OTHER FEES
No other fees were billed by McGladrey or KPMG in the last fiscal years ended
December 31, 2005 and December 31, 2004.
The Audit Committee acts pursuant to a written charter adopted by the Board of
Directors. Pursuant to the charter, the Audit Committee pre-approves the audit
and permitted non-audit fees to be paid to the independent auditor, and
authorizes on behalf of the Company the payment of such fees, or refuses such
authorization. The Audit Committee has delegated to its chairman and its
vice-chairman the authority to approve performance of services on an interim
basis.
In the course of its meetings, the Audit Committee has considered whether the
provision of the non-audit fees outlined above is compatible with maintaining
the independence of the respective audit firms, and has concluded that such
independence is not impaired.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT
OF MCGLADREY & PULLEN, LLP.
PROPOSAL 3 - APPROVAL OF CPS 2006 LONG-TERM EQUITY INCENTIVE PLAN
GENERAL INFORMATION
Subject to approval of shareholders that will be sought at the Annual
Meeting, the Compensation Committee has adopted the CPS 2006 Long-Term Equity
Incentive Plan (the "2006 Equity Incentive Plan"). A copy of the 2006 Equity
Incentive Plan is attached to this proxy statement as Appendix A.
Equity compensation is an essential and long-standing element of the
Company's culture. The Company currently awards stock options to employees,
officers and directors under the CPS 1997 Long-Term Incentive Plan (the "Current
Plan").
As of May 1, 2006 and taking into account the shares subject to options
that have been granted to date, the Company has an aggregate of approximately
127,131 shares remaining for future awards under the Current Plan. No further
awards will be made pursuant to the Current Plan upon shareholder approval of
the 2006 Equity Incentive Plan, and the remaining shares available for future
awards will be issued in connection with awards made under the 2006 Equity
Incentive Plan. Additionally, the Company is requesting 1,500,000 new shares be
approved for future awards under the 2006 Equity Incentive Plan, for a total of
1,627,131 shares. Based on the last sale price of the Common Stock ($7.81 per
share) reported by Nasdaq for May 17, 2006, such shares have an aggregate market
value of $12,707,893.
The following is a summary of the material terms of the 2006 Equity
Incentive Plan and is qualified in its entirety by reference to the 2006 Equity
Incentive Plan.
SUMMARY OF THE 2006 EQUITY INCENTIVE PLAN
ADMINISTRATION
The Compensation Committee (in discussion of this Proposal 3, the
"Committee") will administer the 2006 Equity Incentive Plan, with certain
actions subject to the review and approval of the full Board or a panel
consisting of all of the Independent Directors. The Committee will have full
power and authority to determine when and to whom awards will be granted,
including the type, amount, form of payment and other terms and conditions of
each award, consistent with the provisions of the 2006 Equity Incentive Plan. In
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addition the Committee has the authority to interpret the 2006 Equity Incentive
Plan and the awards granted under the plan, and establish rules and regulations
for the administration of the plan. The Committee may delegate the
administration of the plan to the Company's officers, including the maintenance
of records of the awards and the interpretation of the terms of the awards.
ELIGIBLE PARTICIPANTS
Any employee, officer, consultant or director providing services to the
Company or to any affiliate of the Company, who is selected by the Committee, is
eligible to receive awards under the 2006 Equity Incentive Plan. Under current
policies of the Committee, directors of the Company and employees of the Company
at the level of manager or above, a total of approximately 53 individuals, are
expected to participate in the 2006 Equity Incentive Plan. The total number of
individuals eligible to participate, should those policies change, would include
all employees of the Company, and its directors, for a total of approximately
746 individuals. There are no current plans to change the existing policies
regarding participation.
SHARES AVAILABLE FOR AWARDS
The aggregate number of shares of the Common Stock that may be issued as
awards under the 2006 Equity Incentive Plan will include approximately 127,131
shares of Common Stock as of May 1, 2006 that are not subject to a grant or a
pending grant or as to which the award granted has been forfeited under the
Current Plans, and an additional 1,500,000 shares of Common Stock. The aggregate
number of shares of Common Stock that may be granted to any one participant over
the life of the 2006 Equity Incentive Plan is 500,000. The Committee may adjust
the aggregate number of shares reserved for issuance under the plan in the case
of a stock dividend or other distribution, including a stock split, merger,
extraordinary dividend, or other similar corporate transaction or event, in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be provided under the 2006 Equity Incentive Plan.
If any shares of Common Stock subject to any award or to which an award
relates, granted under the Current Plan or the 2006 Equity Incentive Plan, are
forfeited, become unexercisable, or if any award terminates without the delivery
of any shares, the shares of Common Stock previously set aside for such awards
will be available for future awards under the 2006 Equity Incentive Plan.
The aggregate number of shares of Common Stock that may be issued under the
2006 Equity Incentive Plan will be reduced by one share for each share delivered
in settlement of a stock option or of any award of restricted stock, restricted
stock unit or stock appreciation right ("SAR").
TYPES OF AWARDS AND TERMS AND CONDITIONS
The 2006 Equity Incentive Plan permits the grant of the following awards:
o nonqualified stock options
o incentive stock options
o restricted stock
o restricted stock units
o stock appreciation rights
Awards may be granted alone, in addition to, or in combination with any
other award granted under the 2006 Equity Incentive Plan.
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STOCK OPTIONS
The holder of an option will be entitled to purchase a number of shares of
Common Stock at a specified exercise price during a specified time period, all
as determined by the Committee. The option exercise price may be payable either
in cash or, at the discretion of the Committee, in shares of Common Stock having
a fair market value on the exercise date equal to the exercise price.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The holder of restricted stock will own shares of Common Stock subject to
restrictions imposed by the Committee (including for example, restrictions on
the right to vote the restricted shares or to receive any dividends with respect
to the shares) and subject to forfeiture to the Company if the holder does not
satisfy certain requirements (including, for example, continued employment with
the Company) for a specified period of time. The holder of restricted stock
units will have the right, subject to any restrictions imposed by the Committee,
to receive shares of Common Stock, or a cash payment equal to the fair market
value of those shares, at some future date determined by the Committee, provided
that the holder has satisfied certain requirements (including, for example,
continued employment with the Company until such future date).
The awards of restricted stock and restricted stock units that are intended
to qualify as "performance based compensation" within the meaning of Section
162(m) of the Internal Revenue Code will be subject to fulfillment of
performance goals relating to the performance criteria selected by the
Committee. Performance goals must be based solely on one or more of the
following business criteria: (i) earnings per share, including earnings per
share as adjusted (a) to exclude the effect of any (1) significant acquisitions
or dispositions of businesses by the Company, (2) one-time, non-operating
charges and (3) accounting changes (including but not limited to any accounting
changes that alter the recognition of stock option expense and any accounting
changes the Company adopts early); and (b) for any stock split, stock dividend
or other recapitalization; (ii) earnings per share before taxes, subject to any
of the adjustments described above; (iii) earnings; (iv) earnings before
interest, taxes and amortization; (v) total shareholder return; (vi) share price
performance; (vii) return on equity; (viii) return on managed assets; (ix)
revenue; (x) operating expenses; (xi) operating income; (xii) originations
volume; (xiii) originations growth; (xiv) net charge-offs; (xv) net charge-off
percentage; (xvi) portfolio growth; (xvii) net interest margin; or (xviii) cash
flow.
STOCK APPRECIATION RIGHTS
Participants may be granted tandem SARs (consisting of SARs with underlying
options) and stand-alone SARs. The holder of a tandem SAR is entitled to elect
between the exercise of the underlying option for shares of Common Stock or the
surrender of the option in exchange for the receipt of a cash payment equal to
the excess of the fair market value on the surrender date over the aggregate
exercise price payable for such shares. The holder of stand-alone SARs will be
entitled to receive the excess of the fair market value (on the exercise date)
over the exercise price for such shares.
TERMS APPLICABLE TO AWARDS GENERALLY
CHANGE OF CONTROL
In the event of a Change of Control of the Company (as defined in the 2006
Equity Incentive Plan), subject to certain limitations and restrictions as more
fully described in the 2006 Equity Incentive Plan:
o options and SARs may become fully vested and immediately exercisable;
o restriction periods and restrictions imposed on restricted stock or
restricted stock units that are not performance-based may lapse; and
o restrictions and deferral limitations and other conditions applicable
to other awards may lapse, and the awards may become free of
restrictions, limitations or conditions and become fully vested and
transferable.
Generally, accelerated vesting or lapse of restrictions on awards held by
an employee will occur only if an employee's employment is terminated within a
year after a Change in Control, the acquiring company does not assume
outstanding awards or substitute equivalent awards or other conditions in the
Plan are satisfied.
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TERMINATION OF EMPLOYMENT
Vested Awards granted under the 2006 Equity Incentive Plan will expire,
terminate, or otherwise be forfeited as follows:
o three (3) months after termination of a participant, including
voluntary termination by the participant, other than upon termination
of a participant employee for Misconduct (as defined in the 2006
Equity Incentive Plan);
o twelve (12) months after the date on which a participant, other than a
non-employee director, suffers total or permanent Disability (as
defined in the 2006 Equity Incentive Plan);
o twelve (12) months after the date of the participant's Retirement (as
defined in the 2006 Equity Incentive Plan), or his death.
DURATION, TERMINATION AND AMENDMENT
The 2006 Equity Incentive Plan will terminate on the tenth anniversary of
the date the Company's shareholders approve the plan, unless terminated by the
Board or the Committee earlier, or extended by an amendment approved by the
Company's shareholders. No awards may be made after the termination date.
However, unless otherwise expressly provided in an applicable award agreement,
any award granted under the 2006 Equity Incentive Plan prior to the expiration
may extend beyond the end of such period through the award's normal expiration
date.
The Board, and the Committee, may generally amend or terminate the plan as
determined to be advisable. Shareholder approval may also be required for
certain amendments by the Internal Revenue Code, the rules of Nasdaq, or rules
of the Securities and Exchange Commission. The Board or the Committee has
specific authority to amend the plan without shareholder approval to comply with
legal, regulatory and listing requirements and to avoid unanticipated
consequences determined to be inconsistent with the purpose of the plan or any
award agreement.
PROHIBITION ON REPRICING AWARDS
Without the approval of the Company's shareholders, no option or SAR may be
amended to reduce its exercise price or grant price and no option or SAR may be
canceled and replaced with an option or SAR having a lower exercise price.
TRANSFERABILITY OF AWARDS
Unless otherwise provided by the Committee, awards under the 2006 Equity
Incentive Plan may only be transferred by will or the laws of descent and
distribution. The Committee may permit further transferability pursuant to
conditions and limitations that it may impose, except that no transfers for
consideration will be permitted.
INTEREST OF CERTAIN PERSONS
It has been the Company's practice to grant stock options from time to time
to directors, officers and key employees of the Company. No such grants of
options (or of other awards under the 2006 Equity Incentive Plan) are
anticipated in the current year, other than grants related to promotions of
employees to key positions. It is therefore not possible to state the number,
names or positions of employees who may receive future stock options or other
awards under the 2006 Equity Incentive Plan or the number of shares for which
any such awards may be granted to any employee or non-employee director.
Nevertheless, it is likely that executive officers and directors of the Company
will receive some awards under the 2006 Equity Incentive Plan at some point
prior to such plan's expiration in 2016, and such persons should therefore be
deemed to have a personal interest in the shareholders' approval of such plan at
the Annual Meeting.
9
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of awards under the 2006 Equity
Incentive Plan to the Company and the Company's Employees, officers and
directors are complex and subject to change. The following discussion is only a
summary of the general rules applicable to the 2006 Equity Incentive Plan.
Recipients of awards under the 2006 Equity Incentive Plan should consult their
own tax advisors since a taxpayer's particular situation may be such that some
variation of the rules described below will apply.
OPTIONS
Options granted under the 2006 Equity Incentive Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
are options which are designated as such by the Company and which meet certain
requirements under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder. Any option that does not satisfy
these requirements will be treated as a nonqualified stock option.
INCENTIVE STOCK OPTIONS
If an option granted under the 2006 Equity Incentive Plan is treated as an
incentive stock option, the optionee will not recognize any income upon either
the grant or the exercise of the option, and the Company will not be entitled to
a deduction for federal tax purposes. Upon a sale of the shares, the tax
treatment to the optionee and the Company will depend primarily upon whether the
optionee has met certain holding period requirements at the time he or she sells
the shares. In addition, as discussed below, the exercise of an incentive stock
option may subject the optionee to alternative minimum tax liability.
If an optionee exercises an incentive stock option and does not dispose of
the shares received within two years after the date the option was granted or
within one year after the transfer of the shares to him or her, any gain
realized upon the disposition will be characterized as long-term capital gain
and, in such case, the Company will not be entitled to a federal tax deduction.
If the optionee disposes of the shares either within two years after the
date the option is granted or within one year after the transfer of the shares
to him or her, the disposition will be treated as a disqualifying disposition
and an amount equal to the lesser of (1) the fair market value of the shares on
the date of exercise minus the exercise price, or (2) the amount realized on the
disposition minus the exercise price, will be taxed as ordinary income to the
optionee in the taxable year in which the disposition occurs. (However, in the
case of gifts, sales to related parties, and certain other transactions, the
full difference between the fair market value of the stock and the purchase
price will be treated as compensation income). The excess, if any, of the amount
realized upon disposition over the fair market value at the time of the exercise
of the option will be treated as long-term capital gain if the shares have been
held for more than one year following the exercise of the option.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability. The excess of the fair market value of the
shares at the time an incentive stock option is exercised over the purchase
price of the shares is included in income for purposes of the alternative
minimum tax even though it is not included in taxable income for purposes of
determining the regular tax liability of an optionee. Consequently, an optionee
may be obligated to pay alternative minimum tax in the year he or she exercises
an incentive stock option.
In general, the Company will not be entitled to a federal income tax
deduction upon the grant, exercise, or termination of an incentive stock option.
However, in the event an optionee sells or otherwise disposes of the stock
received on the exercise of an incentive stock option in a disqualifying
disposition, the Company will be entitled to a deduction for federal income tax
purposes in an amount equal to the ordinary income, if any, recognized by the
optionee upon disposition of the shares, provided that the deduction is not
otherwise disallowed under the Code.
10
NONQUALIFIED STOCK OPTIONS
Nonqualified stock options granted under the 2006 Equity Incentive Plan do
not qualify as "incentive stock options" and will not qualify for any special
tax benefits to the optionee. An optionee generally will not recognize any
taxable income at the time he or she is granted a nonqualified option. However,
upon its exercise, the optionee will recognize ordinary income for federal tax
purposes measured by the excess of the then fair market value of the shares over
the exercise price. The income realized by the optionee will be subject to
income and other employment withholding taxes.
The optionee's basis for determination of gain or loss upon the subsequent
disposition of shares acquired upon the exercise of a nonqualified stock option
will be the amount paid for such shares plus any ordinary income recognized as a
result of the exercise of such option. Upon disposition of any shares acquired
pursuant to the exercise of a nonqualified stock option, the difference between
the sale price and the optionee's basis in the shares will be treated as a
capital gain or loss and generally will be characterized as long-term capital
gain or loss if the shares have been held for more than one year at the time of
their disposition.
In general, the Company will not be entitled to a federal income tax
deduction upon the grant or termination of a nonqualified stock option or a sale
or disposition of the shares acquired upon the exercise of a nonqualified stock
option. However, upon the exercise of a nonqualified stock option, the Company
will be entitled to a deduction for federal income tax purposes equal to the
amount of ordinary income that an optionee is required to recognize as a result
of the exercise, provided that the deduction is not otherwise disallowed under
the Code.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
Generally, the holder of restricted stock will recognize ordinary
compensation income at the time the stock becomes vested. The amount of ordinary
compensation income recognized will be equal to the excess, if any, of the fair
market value of the stock on the date it becomes vested over any amount paid by
the holder in exchange for stock.
In the case of restricted stock units, the holder will recognize ordinary
compensation income at the time the stock is received equal to the excess of
value of the stock on the date of receipt over any amount paid by the holder in
exchange for stock. If the holder of a restricted stock unit receives the cash
equivalent of the stock issuable under the restricted stock unit in lieu of
actually receiving the stock, the holder will recognize ordinary compensation
income at the time of the receipt of such cash in the amount of the cash
received. In the case of both restricted stock and restricted stock units, the
income recognized by the holder will generally be subject to U.S. income tax
withholding and employment taxes.
In the year that the recipient of a stock award recognizes ordinary taxable
income in respect of restricted stock or a restricted stock unit, the Company
will be entitled to a deduction for federal income tax purposes equal to the
amount of ordinary income that the recipient is required to recognize, provided
that the deduction is not otherwise disallowed under the Code.
STOCK APPRECIATION RIGHTS
As discussed above, the Company may grant either stand-alone SARs or tandem
SARs under the 2006 Equity Incentive Plan. Generally, the recipient of a SAR
will not recognize any taxable income at the time the SAR is granted.
With respect to stand-alone SARs, if the holder receives the appreciation
inherent in the SARs in cash, the cash will be taxable as ordinary compensation
income to the employee at the time that it is received. If the holder receives
the appreciation inherent in the stand-alone SARs in stock, the holder will
recognize ordinary compensation income equal to the excess of the fair market
value of the stock on the day it is received over any amounts paid by the holder
for the stock.
11
With respect to tandem SARs, if a holder elects to surrender the underlying
option in exchange for cash or stock equal to the appreciation inherent in the
underlying option, the tax consequences to the holder will be the same as
discussed above relating to stand-alone SARs. If the holder elects to exercise
the underlying option, the holder will be taxed at the time of exercise as if he
or she had exercised a nonqualified stock option (discussed above), i.e., the
holder will recognize ordinary income for federal tax purposes measured by the
excess of the then fair market value of the shares of stock over the exercise
price.
The income recognized by the holder of a stand-alone SAR or tandem SAR will
generally be subject to U.S. income tax withholding and employment taxes.
In general, the Company will not be entitled to a federal income tax
deduction upon the grant or termination of stand-alone SARs or tandem SARs.
However, upon the exercise of either a stand-alone SAR or a tandem SAR, the
Company will be entitled to a deduction for federal income tax purposes equal to
the amount of ordinary income that the holder is required to recognize as a
result of the exercise, provided that the deduction is not otherwise disallowed
under the Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE CPS 2006
LONG-TERM EQUITY INCENTIVE PLAN.
PROPOSAL 4 -- APPROVAL OF THE MATERIAL TERMS OF THE COMPANY'S
EXECUTIVE MANAGEMENT BONUS PLAN
INTRODUCTION
At the Annual Meeting, the Company's shareholders will be requested to
consider and act upon a proposal to approve the material terms of the updated
Executive Management Bonus Plan (the "EMB Plan"), a copy of which is attached as
Appendix B.
The EMB Plan is a formal statement of policies that have generally guided
the Company's criteria for award of annual bonus compensation to its officers
for some time. The Compensation Committee, pursuant to authorization by the
Board of Directors, has directed that the material terms of the EMB Plan be
submitted to the Company's shareholders to request approval. The purpose of the
EMB Plan is to increase shareholder value by providing an incentive for the
achievement of goals that support CPS strategic plan. Although no shareholder
approval is required for the Company to enact and maintain a bonus plan for its
executives, shareholder approval of the material terms of the EMB Plan is
required to ensure tax deductibility by the Company of bonuses payable
thereunder.
DESCRIPTION
Set forth below is a summary of the material terms of the EMB Plan that
shareholders are being asked to approve.
ADMINISTRATION. The EMB Plan will be administered by the Compensation
Committee of the Board. Among other things, the Compensation Committee will have
the authority to select participants in the EMB Plan from among the Company's
executive officers and to determine the performance goals, target amounts and
other terms and conditions of awards under the EMB Plan. The Compensation
Committee also will have the authority to establish and amend rules and
regulations relating to the administration of the EMB Plan. All decisions made
by the Compensation Committee in connection with the EMB Plan will be made in
the Compensation Committee's sole discretion and will be final and binding.
ELIGIBILITY. The chief executive officer and other officers of the Company
and its subsidiaries (approximately 19 officers), as recommended and designated
by the Compensation Committee, are eligible to be granted awards under the EMB
Plan.
12
TERMS OF AWARDS. Awards under the EMB Plan will be payable upon the
achievement during each fiscal year of specified objective and individual
performance goals. At the beginning of each fiscal year, the Compensation
Committee will establish the performance goals (both objective and individual)
for each plan participant, the relative weighting between the objective and
individual performance goals and the target amount of the award that will be
earned if the performance goals are achieved in full. After the end of the
performance period, the Compensation Committee will certify the extent to which
the performance goals are achieved and determine the amount of the award that is
payable; provided that the Compensation Committee will have the discretion to
determine that the actual amount paid with respect to an award will be less than
(but not greater than) the payout calculated under the EMB Plan.
OBJECTIVE PERFORMANCE GOALS. The EMB Plan provides that at the beginning of
each plan year (the Company's fiscal year), the Compensation Committee selects
one or more specific objective performance measures from among the following:
earnings per share, earnings per share before tax, return on capital,
originations growth, originations volume, return on assets shareholder total
return, and portfolio net loss percentage (collectively, the "Objective
Performance Measures"). The Compensation Committee then sets Objective
Performance Goals for each participant based on the Objective Performance
Measure or Measures selected, together with related target awards. The weighting
of the Objective Performance Goals may vary from participant to participant. For
the year 2006, the Compensation Committee has selected earnings per share before
tax as the Objective Performance Measure for all participants. The maximum
amount payable to any individual with respect to achievement of the Objective
Performance Goals is $1,500,000 in the case of an individual serving as chief
executive officer, and $300,000 in the case of any other participant.
The actual awards to be paid under the EMB Plan cannot be determined at
this time since the awards are dependent on the Company's financial performance
for the year 2006.
INDIVIDUAL PERFORMANCE GOALS. The EMB Plan provides further that the
remaining portion of the total bonus payout available to participants is to be
based on individual goals with corresponding percentage weights designed to
measure a participant's achievements. Such Individual Performance Goals may
differ from participant to participant and are established for each plan year.
TARGET AWARDS. The Compensation Committee will also determine the amount of
the target awards that will be paid to each plan participant if the Objective
Performance Goals and Individual Performance Goals are met and the method by
which such amounts will be calculated.
REASON FOR SHAREHOLDER APPROVAL
The EMB Plan has been designed to take into account certain limits on the
ability of a public corporation to claim tax deductions for compensation paid to
certain highly compensated executives. Section 162(m) of the Internal Revenue
Code generally denies a corporate tax deduction for annual compensation
exceeding $1 million paid to the chief executive officer and the four other most
highly compensated officers of a public corporation. (See "Report of the
Compensation Committee on Executive Compensation," below.) However,
"performance-based compensation," which is compensation paid solely upon the
achievement of Objective Performance Goals, the material terms of which are
approved by the shareholders of the paying corporation, will still qualify for a
corporate tax deduction. The shareholders of the Company are accordingly being
asked to approve the material terms of the EMB Plan, as described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MATERIAL TERMS OF
THE EXECUTIVE MANAGEMENT BONUS PLAN.
13
INFORMATION REGARDING THE COMPANY
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 2005, 2004, and 2003 by the Company's chief executive
officer and by the four most highly compensated individuals (such five
individuals, the "named executive officers") who were serving as executive
officers at December 31, 2005.
SUMMARY COMPENSATION TABLE
Compensation for Long Term
period shown Compensation All Other
Awards (1) Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs ($) (2)
--------------------------------------------------------------------------------------------------------------
CHARLES E. BRADLEY, JR. 2005 735,000 1,000,000 160,000 1,600
President & Chief 2004 700,000 700,000 240,000 1,600
Executive Officer 2003 650,000 650,000 40,000 1,525
CURTIS K. POWELL 2005 270,000 208,000 40,000 1,600
Sr. Vice President - 2004 252,000 177,000 20,000 1,600
Originations & Marketing 2003 238,000 186,000 20,000 1,511
ROBERT E. RIEDL 2005 255,000 209,000 60,000 1,594
Sr. Vice President - Finance 2004 240,000 144,000 80,000 1,576
& Chief Investment Officer (3) 2003 200,000 158,000 95,000 428
JEFFREY P. FRITZ 2005 240,000 197,000 80,000 1,552
Sr. Vice President - Accounting 2004 87,500 70,000 80,000 60,902
& Chief Financial Officer (4) 2003 --- --- --- ---
CHRIS TERRY 2005 203,000 191,000 66,000 1,463
Sr. Vice President - 2004 162,000 125,000 20,000 1,367
Asset Recovery 2003 135,000 117,000 50,000 1,248
--------------------------------------------------------------------------------------------------------------
(1) Number of shares that might be purchased upon exercise of options that
were granted in the period shown.
(2) Amounts in this column represent (a) any Company contributions to the
Employee Savings Plan (401(k) Plan), and (b) premiums paid by the
Company for group life insurance, as applicable to the named executive
officers. Company contributions to the 401(k) Plan were $1000 per
individual in 2003, 2004 and 2005.
(3) Mr. Riedl became an executive officer in January 2003, was chief
financial officer from August 2003 to April 2006, and was named chief
investment officer in April 2006.
(4) Mr. Fritz became an executive officer in August 2004, and was named
chief financial officer in April 2006. The amount shown under "All
other compensation" includes $59,782 paid to him for consulting
services provided in 2004 prior to his becoming an employee and
officer of the Company.
14
OPTION AND SAR GRANTS
The Company in the year ended December 31, 2005, did not grant any stock
appreciation rights to any of the named executive officers. The Company has from
time to time granted options to substantially all of its management and
marketing employees, and did so in May and December 2005. Under the May grant,
Messrs. Powell and Terry each received grants with respect to 20,000 shares, Mr.
Bradley received a grant with respect to 120,000 shares, Mr. Riedl received a
grant with respect to 40,000 shares, and Mr. Fritz received a grant with respect
to 80,000 shares. All such options were to become exercisable in five equal
annual increments and are exercisable at $5.04 per share, except for the grant
of 120,000 shares to Mr. Bradley, which was immediately exercisable as to 80,000
shares and was to become exercisable as to the remaining 40,000 shares in five
equal annual increments. As previously reported on January 5, 2006, the
Compensation Committee of the Board of Directors on December 29, 2005 approved
accelerated vesting of all stock options outstanding as of December 30, 2005, to
the extent not then exercisable. These options were previously awarded to
officers and to other employees under the Company's 1997 Long-Term Incentive
Plan, and its 1991 Stock Option Plan. The decision to accelerate the vesting of
the options, which the Company believes is in the best interests of its
shareholders, was made primarily to reduce a non-cash compensation expense that
would have been recorded in its income statement in future periods upon the
adoption of the Financial Accounting Standards Board Statement No. 123R
(Share-Based Payment) effective January 1, 2006. Simultaneously with that
amendment, the Compensation Committee elected to grant in December 2005 the
stock options grants that would otherwise have been awarded in 2006. Under that
December grant, each named executive officer, other than Mr. Bradley and Mr.
Terry, received grants with respect to 20,000 shares. Mr. Bradley received a
grant with respect to 40,000 shares and Mr. Terry received a grant with respect
to 46,000 shares. All such options are exercisable at $6.00 per share, and have
been exercisable in full since the date of grant.
OPTIONS/GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
Percent
Number of of Potential Realizable Value at
Shares Total Options Assumed Annual Rates of Stock Price
Underlying Granted to Exercise Appreciation for Option Term
Options Employees or Base Expiration
Name Granted in 2005 Price ($/Share) Date 5% ($) 10% ($) NOTES
------------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. 120,000 6.96% $5.04 04/29/15 $341,065 $898,072 (1)
Charles E. Bradley, Jr. 40,000 2.32% $6.00 12/30/15 $134,515 $356,353 (3)
Curtis K. Powell 20,000 1.16% $5.04 04/29/15 $56,844 $149,679 (2)
Curtis K. Powell 20,000 1.16% $6.00 12/30/15 $67,258 $178,177 (3)
Robert E. Riedl 40,000 2.32% $5.04 04/29/15 $113,688 $299,357 (2)
Robert E. Riedl 20,000 1.16% $6.00 12/30/15 $67,258 $178,177 (3)
Jeffrey P. Fritz 80,000 4.64% $5.04 04/29/15 $227,377 $598,715 (2)
Jeffrey P. Fritz 20,000 1.16% $6.00 12/30/15 $67,258 $178,177 (3)
Chris Terry 20,000 1.16% $5.04 04/29/15 $56,844 $149,679 (2)
Chris Terry 46,000 2.67% $6.00 12/30/15 $154,693 $409,806 (3)
------------------------------------------------------------------------------------------------------------------------
(1) Was to become exercisable as to 80,000 shares on May 16, 2005, and as
to 40,000 shares in five equal installments on each April 29,
2006-2010. As of December 30, 2005, all outstanding options to the
extent not yet exercisable were amended to be exercised in full.
(2) Was to become exercisable in five equal installments on each April 29,
2006-2010. As of December 30, 2005, all outstanding options to the
extent not yet exercisable were amended to be exercised in full.
(3) Became fully vested on date of grant.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 2005, and for the year then
ended, the number of unexercised options held by each of the named executive
officers, the number of shares subject to then exercisable and unexercisable
options held by such persons and the value of all unexercised options held by
such persons. Each option referred to in the table was granted under the
Company's 1991 Stock Option Plan or under the 1997 Long-Term Incentive Stock
Plan, at an option price per share no less than the fair market value per share
on the date of grant.
15
====================================================================================================================
Number of Unexercised Value* of Unexercised In-the-Money
Shares Options at December 31, 2005 Options at December 31, 2005
Acquired On Value ---------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Charles E. Bradley, Jr. 11,100 $47,897 1,136,099 0 $3,199,709 0
Curtis K. Powell 0 $0 145,000 0 356,150 0
Robert E. Riedl 0 $0 235,000 0 517,420 0
Jeffrey P. Fritz 0 $0 180,000 0 176,480 0
Chris Terry 0 $0 178,500 0 386,660 0
====================================================================================================================
* Valuation based on the last sales price on December 31, 2005 of $5.748 per
share, as reported by Nasdaq.
BONUS PLAN
The named executive officers and other officers participate in a management
bonus plan, the material terms of which are described above under the caption
"Proposal 4 -- Approval of the Material Terms of the Company's Executive
Management Bonus Plan."
DIRECTOR COMPENSATION
During the year ended December 31, 2005, the Company paid all directors,
excluding Mr. Bradley, a retainer of $2,500 per month and an additional fee of
$1,000 PER DIEM for attendance at meetings of the board. The two directors who
chair the Audit Committee and the Compensation Committee receive an additional
monthly retainer of $500. Mr. Bradley received no additional compensation for
his service as a director. Pursuant to the Company's policy that is applicable
to all of its non-employee members, the Board on April 20, 2005, issued options
with respect to 10,000 shares to each non-employee director. All such options
are exercisable at $5.04 per share, the exercise price being the market price
prevailing at date of grant. On December 29, 2005, the Board of Directors also
authorized issuance of additional options with respect to 10,000 shares to each
non-employee director. All such options are exercisable at $6.00 per share,
somewhat above the $5.75 per share price prevailing on the date of grant. The
Board and the Compensation Committee further resolved that such December 29
grants would be in place of any options that would otherwise be granted to
directors in 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Stock Option Committee throughout the fiscal
year ended December 31, 2005 were Daniel S. Wood (chairman), John E.
McConnaughy, Jr. and William B. Roberts. This Committee makes determinations as
to general levels of compensation for all employees of the Company and the
annual salary of each of the executive officers of the Company, and administers
the Company's compensation plans. Those plans include the Company's 1997
Long-Term Stock Incentive Plan, the Executive Management Bonus Plan, and,
assuming approval at the Annual Meeting, the CPS 2006 Long- Term Equity
Incentive Plan. None of the members of the committee is or has been an officer
or employee of the Company or any of its subsidiaries.
16
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES IN GENERAL
The Company's objectives with respect to compensation are several. The
significant objectives are to cause compensation (i) to be sufficient in total
amount to provide reasonable assurance of retaining key executives, (ii) to
include a significant contingent component, so as to provide strong incentives
to meet designated Company objectives, and (iii) to include a significant
component tied to the price of the Common Stock, so as to align management's
incentives with shareholder interests.
The Committee considers an executive's base salary to be the most critical
component with respect to the retention objective. Acting on the recommendations
of the chief executive officer, the Committee adjusts other officers' salaries
annually, with the adjustment generally consisting of a 3% to 10% increase from
the prior year's rate. Where exceptional circumstances apply, such as
recruitment of a new executive officer, a promotion to executive officer status
or a special need to retain an individual officer, the chief executive officer
may recommend, and the Committee may approve, a larger increase.
The Company has made a practice of paying annual bonuses to encourage executive
officers and key management personnel to exercise their best efforts and
management skills toward achieving the Company's objectives. Under the Company's
bonus plan as applied to the year ended December 2005, executive officers of the
Company other than its chief executive officer were eligible to receive a cash
bonus of up to 100% of their base salaries. The amount of such bonus is
determined initially by the Committee, acting on the recommendation of the chief
executive officer, and is then made definite by action of the Board of Directors
as a whole. Factors in determining the amount of bonus are whether the executive
and his department have met individual objectives set by the chief executive
officer, whether the Company as a whole has met or exceeded budget targets,
whether certain objectives for the management group as a whole have been met,
and a subjective evaluation of the officer's performance. Numerical scores are
assigned to each of these factors, and weighed pursuant to a formula that can
result in a maximum bonus of 100% of base compensation.
Applying the above principles, the Committee in January 2006 approved bonus
compensation to the named executive officers, other than the chief executive
officer, of approximately 77% to 94% of their respective base salaries for the
year ended December 31, 2005. The variation in the percentages awarded is
generally reflective of the extent to which the named executive officers met
their individual and department objectives.
The Committee also makes awards of incentive and non-qualified stock options
under the Company's 1997 Long-Term Incentive Stock Plan. Such awards are
designed to assist in the retention of key executives and management personnel
and to create an incentive to create shareholder value over a sustained period
of time. The Company believes that stock options are a valuable tool in
compensating and retaining employees. During the year ended December 31, 2005,
the Committee approved grants of stock options to the Company's executive
officers, all of which carry exercise prices equal to or above the market price
for the Company's common stock at the date of grant. The terms of such options
are described above, in the table captioned "Options/Grants in Last Fiscal
Year." The numbers of shares made subject to each of the option grants were
based on various factors relating to the responsibilities of the individual
officers and on the extent of previous grants to such individuals.
Because the exercise price of these options is equal to or above the fair market
value of the Company's common stock on the date of grant, the option holders may
realize value only if the stock price appreciates from the value on the date the
options were granted. This design is intended to focus executives on the
enhancement of shareholder value over the long term.
In exercising its discretion as to the level of executive compensation and its
components, the Committee considers a number of factors. Financial factors
considered with respect to the year ended December 31, 2005 included the
Company's increase in revenue and originations, and its having increased its
servicing portfolio. Most important, the Committee noted that the Company
attained profitability for the year. Operational factors considered included the
Company's successful expansion of its warehouse credit facilities; cost of
17
funds; indicators of the performance and credit quality of the Company's
servicing portfolio, including levels of delinquencies and charge-offs; and
indicators of successful management of personnel, including employee stability.
All of such factors are assessed with reference to the judgment of the Committee
as to the degree of difficulty of achieving desired outcomes.
The Company also maintains certain broad-based employee benefit plans in which
executive officers are permitted to participate on the same terms as
non-executive personnel who meet applicable eligibility criteria, subject to any
legal limitations on the amounts that may be contributed or the benefits that
may be payable under the plans.
COMPENSATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
The Company's general approach in setting the annual compensation of its chief
executive officer is to set that officer's base compensation by reference to his
base rate for the preceding year, to pay an annual bonus that is reflective of
the quality of that officer's performance during the year, and to grant
significant equity incentives, to date in the form of stock options, intended to
align the officer's interests with those of the shareholders. During the year
ended December 2005, the Company's chief executive officer, Charles E. Bradley,
Jr., received $735,000 in base salary. In setting that rate in January 2005, the
Committee considered the base salary rate that the Company had paid in the prior
year ($700,000), the desirability of providing an annual increase (which in this
case was approximately 5%), the desirability of ensuring retention of the
services of the Company's incumbent chief executive officer, and the levels of
chief executive officer compensation prevailing among other financial services
companies.
The Company's policy regarding cash bonuses paid to its chief executive officer
has been similar to its policy regarding cash bonuses for other executive
officers, except that the Committee exercises a greater degree of discretion
with respect to award of a bonus to the chief executive officer than it
exercises with respect to bonuses paid to other executive officers.
The Committee in January 2006 reviewed the Company's and the chief executive
officer's performance in 2005, and approved bonus compensation in the amount of
$1,000,000, representing 136% of that executive's base salary for the year ended
December 31, 2005. In determining the appropriate levels of cash and equity
compensation, the Committee considered the Company's financial performance, the
performance of CPS common stock as compared with broad equity indices, its
success in the securitization market, and the levels of compensation paid to
chief executives of other financial services companies.
The Committee's award of stock options to the Company's officers in May and
December 2005 included awards to the chief executive officer. In determining the
appropriate level of such awards, the Committee considered the long-term
performance of the chief executive officer and the desirability of providing
significant incentive for future performance, as well as the desirability of
ensuring that officer's continued retention by the Company.
THE COMPENSATION COMMITTEE
Daniel S. Wood (chairman)
John E. McConnaughy, Jr.
William B. Roberts
18
INCORPORATION BY REFERENCE
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate by reference future filings, including this Proxy
Statement, in whole or in part, the preceding report of the Compensation
Committee, the following Performance Graph and the report of the Audit
Committee, below, shall not be incorporated by reference into any such filings.
PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative total
shareholder return on its common stock from December 31, 2000 through December
31, 2005, with (i) the cumulative total return of the Center for Research in
Security Prices ("CRSP") Index for the Nasdaq Stock Market (U.S. Companies), and
(ii) the cumulative total return of the CRSP Index for Nasdaq Financial Stocks.
The graph assumes $100 was invested on December 31, 2000 in the Company's common
stock, and in each of the two indices shown, and that all dividends were
reinvested. Data are presented for the last trading day in each of the Company's
fiscal years.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG CONSUMER PORTFOLIO SERVICES,
INC., NASDAQ STOCK MARKET (U.S. COMPANIES) AND NASDAQ FINANCIAL STOCKS
(U.S. & FOREIGN).
[GRAPHIC OMITTED]
DEC 2000 DEC 2001 DEC 2002 DEC 2003 DEC 2004 DEC 2005
-------- -------- -------- -------- -------- --------
Consumer Portfolio Services, Inc. 100.0 95.3 145.4 258.8 338.8 399.9
Nasdaq Stock Market (U.S. Companies) 100.0 79.3 54.8 82.0 89.2 91.1
Nasdaq Financial Stocks (SIC 6000-6799 U.S. &
Foreign) 100.0 109.8 113.1 153.0 178.6 182.7
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of May 1,
2006, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director, nominee or named executive officer
of CPS, and (iii) all directors, nominees and executive officers of CPS as a
group. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has sole voting and
investment power with respect to the shares shown as beneficially owned by such
persons. The address of Messrs. Bradley, Fritz, Powell, Riedl and Terry is c/o
Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road, Irvine, CA 92618.
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (1) of Class
---------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. ..................................................... 3,226,990 (2) 14.8%
E. Bruce Fredrikson, 34437 N. 93rd Place, Scottsdale, AZ 85262............... 61,000 0.3%
John E. McConnaughy, Jr., Atlantic Capital Employees, 3 Parkland Drive,
Darien, CT 06820......................................................... 10,000 0.0%
John G. Poole, 1 Rye Road, Port Chester, NY 10573............................ 699,693 3.2%
William B. Roberts, Monmouth Capital Corp., 126 East 56th Street,
New York, NY 10022....................................................... 864,107 4.1%
John C. Warner, 17 Pasteur, Irvine, CA 92618................................. 60,000 0.3%
Daniel S. Wood, 600 Depot St., Latrobe, PA 05650............................. 80,000 0.4%
Jeffrey P. Fritz............................................................. 180,000 0.8%
Curtis K. Powell............................................................. 306,262 1.4%
Robert E. Riedl.............................................................. 237,008 1.1%
Chris Terry.................................................................. 221,076 1.0%
All directors, nominees and executive officers combined (12 persons) 6,193,775 (3) 28.3%
Levine Leichtman Capital Partners II, L.P., 335 North Maple Drive,
Suite 240, Beverly Hills, CA 90210....................................... 3,988,558 (4) 18.2%
LG Capital Master Fund, c/o Lampe Conway & Co LLC, 730 Fifth Avenue
Suite 1002, New York NY 10019............................................ 1,126,915 5.2%
(1) Includes certain shares that may be acquired within 60 days after May 1,
2006 from the Company upon exercise of options, as follows: Mr. Bradley,
Jr., 1,136,099 shares; Mr. Fredrikson, 60,000 shares, Mr. McConnaughy,
10,000 shares; Mr. Poole, 30,000 shares; Mr. Roberts, 30,000 shares; Mr.
Warner, 60,000 shares, Mr. Wood, 40,000 shares; Mr. Fritz, 180,000 shares;
Mr. Powell, 125,000 shares; Mr. Riedl, 235,000 shares; and Mr. Terry,
178,500 shares. The calculation of beneficial ownership also includes, in
the case of the executive officers, an approximate number of shares each
executive officer could be deemed to hold through contributions made to the
Company's Employee 401(k) Plan (the "401(k) Plan"). The 401(k) Plan
provides an option for all participating employees to indirectly purchase
stock in the Company through buying units in a mutual fund. Each "unit" in
the mutual fund represents an interest in Company stock, cash and cash
equivalents.
(2) Includes 495,540 shares held by trusts of which Mr. Bradley is the
co-trustee, and as to which shares Mr. Bradley has shared voting and
investment power. The co-trustee, who has shared voting and investment
power as to all such shares (representing 2.27% of outstanding shares), is
Kimball Bradley, whose address is 11 Stanwix Street, Pittsburgh, PA 15222.
(3) Includes 2,219,599 shares that may be acquired within 60 days after May 1,
2006, upon exercise of options and conversion of convertible securities.
(4) Comprises 3,987,558 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.
20
The table below presents information regarding securities authorized for
issuance under equity compensation plans, not including the CPS 2006 Long-Term
Equity Incentive Plan.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN FIRST COLUMN)
--------------------------------------------------------------------------------------------------------------
Plans approved by stockholders 4,863,654 $ 3.38 165,261
Plans not approved by stockholders None N/A N/A
Total 4,863,654 $ 3.38 165,261
--------------------------------------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board and meets at least once per quarter to review the Company's
financial statements. The Audit Committee acts pursuant to a written charter
adopted by the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. The Company's independent
auditors are responsible for expressing an opinion on the conformity of the
Company's audited financial statements to accounting principles generally
accepted in the United States of America.
In this context, the Audit Committee reviewed and discussed with management and
the independent auditors the audited financial statements for the year ended
December 31, 2005 (the "Audited Financial Statements"). The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees). In
addition, the Audit Committee has received from the independent auditors the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company. Following the reviews and discussions referred to
above, the Audit Committee recommended to the Board that the Audited Financial
Statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2005, for filing with the Securities and Exchange Commission.
The Audit Committee members do not serve as professional accountants or auditors
and their functions are not intended to duplicate or to certify the activities
of management and the independent auditors. The Committee serves a board-level
oversight role where it receives information from, consults with, and provides
its views and directions to, management and the independent auditors on the
basis of the information it receives and the experience of its members in
business, financial and accounting matters. Pursuant to the terms of its
charter, the Audit Committee approves the engagement of auditing services and
permitted non-audit services including the related fees and general terms. Mr.
Fredrikson, a nominee for re-election to the Board of Directors, is considered
by the Board of Directors to have the qualifications and experience necessary to
serve as an "audit committee financial expert." A summary of his background is
contained in this proxy statement under "Proposal No. 1 - Election of
Directors."
THE AUDIT COMMITTEE
E. Bruce Fredrikson (chairman)
John G. Poole
John C. Warner
21
CERTAIN TRANSACTIONS
LEVINE LEICHTMAN. At December 31, 2003, the Company was indebted to Levine
Leichtman Capital Partners II, L.P. ("LLCP") in the amount of approximately $50
million. Such debt comprised three parts, represented by the "Term B Note,"
"Term C Note" and "Term D Note," respectively. The Term B Note was due January
2004, the Term C Note repayment schedule was based on the performance of one of
the Company's securitized pools, and the Term D Note was due January 2004.
In January 2004, the Company repaid in full the Term C Note and repaid $10.0
million of the Term D Note. In addition, the maturities of the Term B Note and
the Term D Note were extended to December 15, 2005 and the coupons on both notes
were decreased to 11.75% per annum from 14.50% and 12.00%, respectively. The
Company paid LLCP fees equal to $921,000 for these amendments, which will be
amortized over the remaining life of the notes. The Company repaid the remaining
$19.8 million on the Term B Note in December 2005. On December 13, 2005 the
maturity of the Term D Note was extended to December 18, 2006. The Company paid
LLCP fees equal to $150,000 for this amendment, which will be amortized over the
remaining life of the note. As of December 31, 2005, the outstanding principal
balance of the Term D Note was $15.0 million.
On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the "Term E
Note," and the "Term F Note," respectively, bears interest at 11.75% per annum.
Both the Term E Note and the Term F Note mature two years from their respective
funding dates. As of December 31, 2005, the outstanding principal balances of
the Term E Note and the Term F Note were $15.0 million and $10.0 million,
respectively.
On December 13, 2005, the Company agreed with LLCP to extend the maturity date
of the Term D Note. The Company's debt to LLCP comprised four pieces, with
different maturity dates. The following table sets forth the principal amount of
each piece of such debt as of December 13, 2005, and the maturity date before
and after the December 13 amendment:
Term Note Principal amount Date due prior to Date due after
amendment amendment
Term B Note $19,828,527 December 15, 2005 December 15, 2005
Term D Note 15,000,000 December 15, 2005 December 18, 2006
Term E Note 15,000,000 May 27, 2006 May 27, 2006
Term F Note 10,000,000 June 24, 2006 June 24, 2006
The Company agreed to pay LLCP a modification fee in the amount of $600,000;
however, if the extended debt is paid on or prior to June 14, 2006, then the
modification fee is reduced to $150,000 (which portion was paid in December
2005). The Term B Note, due December 15, 2005, was paid on that date.
All of the Company's indebtedness to LLCP is secured by a blanket security
interest in favor of LLCP. The terms of the transactions between the Company and
LLCP were determined by negotiation.
CPS LEASING. The Company holds 80% of the outstanding shares of the capital
stock of CPS Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by
Charles E. Bradley, Jr., who is the President and a director of the Company.
CPSL engaged in the equipment leasing business, and is currently in the process
of liquidation as its leases come to term. CPSL financed its purchases of the
equipment that it leases to others through either of two lines of credit.
Amounts borrowed by CPSL under one of those two lines of credit have been
guaranteed by the Company. As of December 31, 2005 both lines of credit have
been paid. The Company has also financed the operations of CPSL by making
22
operating advances and by advancing to CPSL the fraction of the purchase prices
of its leased equipment that CPSL did not borrow under its lines of credit. The
aggregate amount of advances made by the Company to CPSL as of December 31,
2005, is approximately $1.3 million. The advances related to operations bear
interest at the rate of 8.5% per annum. The advances related to the fraction of
the purchase price of leased equipment are not interest bearing.
EMPLOYEE INDEBTEDNESS. To assist certain officers in exercising stock options,
the Company or a subsidiary lent to such officers the exercise price of options
such officers exercised in May and July 2002. The loans are fully secured by
common stock of the Company, bear interest at 5.50% per annum and are due in
2007. The chief executive officer (Mr. Bradley), one executive officer (Mr.
Terry), and four officers other than executive officers borrowed money on those
terms and still have a balance outstanding. The highest balances of the loans
for the period January 1, 2002 through April 30, 2006, were $350,000 for Mr.
Bradley and $27,375 for one non-executive officer. Pursuant to the
Sarbanes-Oxley Act of 2002, Company has ceased providing any loans to its
executive officers.
The agreements and transactions described above (other than those between the
Company and LLCP) were entered into by the Company with parties who personally
benefited from such transactions and who had a control or fiduciary relationship
with the Company. In each case such agreements and transactions have been
reviewed and approved by the members of the Company's Board of Directors who are
disinterested with respect thereto.
FURTHER INFORMATION RELATING TO THE ANNUAL MEETING
VOTING OF SHARES
The Board of Directors recommends that an affirmative vote be cast in favor of
each of the nominees and proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before the
meeting which require submission to a vote of the shareholders. If any other
matters are properly brought before the meeting, however, the persons named in
the enclosed proxy or their substitutes will vote in accordance with their best
judgment on such matters.
Holders of CPS Common Stock are entitled to one vote per share on each matter
other than election of directors. As to election of directors, each holder of
CPS Common Stock may cumulate such holder's votes and give any nominee an
aggregate number of votes equal to the number of directors to be elected
multiplied by the number of shares of CPS Common Stock held of record by such
holder as of the record date, or distribute such aggregate number of votes among
as many nominees as the holder thinks fit. However, no such holder shall be
entitled to cumulate votes for any nominee unless such nominee's name has been
placed in nomination prior to the voting and the holder has given notice at the
annual meeting prior to the voting of the holder's intention to cumulate votes.
If any one holder has given such notice, all holders may cumulate their votes
for nominees. Discretionary authority is sought hereby to cumulate votes of
shares represented by proxies.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by the
Inspector of Elections with the assistance of the Company's transfer agent. The
Inspector of Elections will also determine whether or not a quorum is present.
In general, California law provides that a quorum consists of a majority of the
shares entitled to vote, represented either in person or by proxy. Approval of
each proposal other than election of directors requires the affirmative vote of
a majority of shares represented and voting on the proposal at a duly held
meeting at which a quorum is present (which shares voting affirmatively must
also constitute at least a majority of the required quorum). The Inspector of
Elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as not voting for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. Any proxy that is returned using the form of proxy enclosed and
which is not marked as to a particular item will be voted FOR election of the
nominees for director named herein; FOR the ratification of the appointment of
McGladrey & Pullen LLP as the Company's independent auditors for the year ending
December 31, 2006; FOR approval of the CPS 2006 Long-Term Equity Incentive Plan;
23
FOR approval of the material terms of the Executive Management Bonus Plan; and
will be deemed to grant discretionary authority to vote upon any other matters
properly coming before the meeting. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will be
considered as abstentions with respect to that matter. While there is no
definitive specific statutory or case law authority in California concerning the
proper treatment of abstentions and broker non-votes, the Company believes that
the tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
SHAREHOLDER PROPOSALS
The Company expects to hold its year 2007 Annual Meeting of Shareholders on May
9, 2007. In order to be considered for inclusion in the Company's proxy
statement and form of proxy for the 2007 Annual Meeting, any proposals by
shareholders intended to be presented at such meeting must be received by the
Secretary of the Company at 16355 Laguna Canyon Road, Irvine, California 92618
by no later than January 12, 2007.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company has provided a copy of its 2005 Annual Report with this proxy
statement. SHAREHOLDERS MAY OBTAIN, WITHOUT CHARGE, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, UPON WRITTEN REQUEST. Any such request should be
directed to "Corporate Secretary, Consumer Portfolio Services, Inc., 16355
Laguna Canyon Road, Irvine, CA 92618." The Form 10-K is also available on the
Company's website "www.consumerportfolio.com."
24
APPENDIX A
CPS 2006 LONG-TERM EQUITY INCENTIVE PLAN
PART I - PURPOSE, ADMINISTRATION AND RESERVATION OF SHARES
SECTION 1. PURPOSE OF THE PLAN. The purposes of this Plan are (a) to
attract and retain the most talented Employees, officers and Directors
available, and (b) to promote the growth and success of the Company's business,
(i) by aligning the long-term interests of Employees, officers and Directors
with those of the shareholders by providing an opportunity to acquire an
interest in the Company and (ii) by providing both rewards for exceptional
performance and long term incentives for future contributions to the success of
the Company and its Subsidiaries.
The Plan permits the grant of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Restricted Stock Units, or SARs, at the discretion of
the Committee and as reflected in the terms of the Award Agreement. Each Award
will be subject to conditions specified in the Plan, such as continued
employment or satisfaction of performance criteria.
This Plan will serve as a framework for the Committee to establish
sub-plans or procedures governing the grants to employees, officers, directors
and consultants. The awards granted under the Former Plan shall continue to be
administered under the Former Plan until such time as those options are
exercised, expire or become unexercisable for any reason.
SECTION 2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ACTIVE STATUS" shall mean (i) for employees, the absence of any
interruption or termination of service as an employee, (ii) for Directors, that
the Director has not been removed from the Board for cause (as determined by the
Company's shareholders), and (iii) for Consultants, the absence of any
interruption, expiration, or termination of such person's consulting or advisory
relationship with the Company or any Subsidiary or the occurrence of any
termination event as set forth in such person's Award Agreement. Active Status
shall not be considered interrupted (A) for an employee in the case of sick
leave, maternity leave, infant care leave, medical emergency leave, military
leave, or any other leave of absence properly taken in accordance with the
policies of the Company or any applicable Subsidiary as may be in effect from
time to time, and (B) for a Consultant, in the case of any temporary
interruption in such person's availability to provide services to the Company or
any Subsidiary which has been granted in writing by an authorized officer of the
Company. Whenever a mandatory severance period applies under applicable law with
respect to a termination of service as an employee, Active Status shall be
considered terminated upon such Employee's receipt of notice of termination in
whatever form prescribed by applicable law.
(b) "AWARD" shall mean any award or benefits granted under the Plan,
including Options, Restricted Stock, Restricted Stock Units, and SARs.
(c) "AWARD AGREEMENT" shall mean a written or electronic agreement between
the Company and the Participant setting forth the terms of the Award.
(d) "BENEFICIAL OWNERSHIP" shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act.
(e) "BOARD" shall mean the Board of Directors of the Company.
(f) "CHANGE OF CONTROL" shall mean the first day that any one or more of
the following conditions shall have been satisfied:
(i) the sale, liquidation or other disposition of all or substantially
all of the Company's assets in one or a series of related transactions;
(ii) an acquisition (other than directly from the Company) of any
outstanding voting securities by any person, after which such person (as
the term is used for purposes of Section 13(d) or 14(d) of the Exchange
Act) has Beneficial Ownership of twenty-five percent (25%) or more of the
then outstanding voting securities of the Company, other than a Board
approved transaction;
(iii) during any 36-consecutive month period, the individuals who, at
the beginning of such period, constitute the Board ("Incumbent Directors")
cease for any reason other than death to constitute at least a majority of
the members of the Board; provided however that except as set forth in this
Section 2(f)(iii), an individual who becomes a member of the Board
subsequent to the beginning of the 36-month period, shall be deemed to have
satisfied such 36-month requirement and shall be deemed an Incumbent
A-1
Director if such Director was elected by or on the recommendation of or
with the approval of at least two-thirds of the Directors who then
qualified as Incumbent Directors either actually (because they were
Directors at the beginning of such period) or by operation of the
provisions of this section; if any such individual initially assumes office
as a result of or in connection with either an actual or threatened
solicitation with respect to the election of Directors (as such terms are
used in Rule 14a-12(c) of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitations of proxies or consents by
or on behalf of a person other than the Board, then such individual shall
not be considered an Incumbent Director; or
(iv) a merger, consolidation or reorganization of the Company, as a
result of which the shareholders of the Company immediately prior to such
merger, consolidation or reorganization own directly or indirectly
immediately following such merger, consolidation or reorganization less
than fifty percent (50%) of the combined voting power of the outstanding
voting securities of the entity resulting from such merger, consolidation
or reorganization.
(g) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" shall mean the Compensation Committee appointed by the
Board.
(i) "COMMON STOCK" shall mean the common stock of the Company, no par value
per share.
(j) "COMPANY" shall mean CPS, a California corporation, and any successor
thereto.
(k) "CONSULTANT" shall mean any person, except an employee, engaged by the
Company or any Subsidiary of the Company, to render personal services to such
entity, including as an advisor, pursuant to the terms of a written agreement.
(l) "DIRECTOR" shall mean a member of the Board.
(m) "DISABILITY" shall mean (i) in the case of a Participant whose
employment with the Company or a Subsidiary is subject to the terms of an
employment or consulting agreement that includes a definition of "Disability" as
used in this Plan shall have the meaning set forth in such employment or
consulting agreement during the period that such employment or consulting
agreement remains in effect; and (ii) in all other cases, the term "Disability"
as used in this Plan shall have the same meaning as set forth under the
Company's long-term disability plan applicable to the Participant as may be
amended from time to time, and in the event the Company does not maintain any
such plan with respect to a Participant, a physical or mental condition
resulting from bodily injury, disease or mental disorder which renders the
Participant incapable of continuing his or her usual and customary employment
with the Company or a Subsidiary, as the case may be, for a period of not less
than 120 days or such other period as may be required by applicable law.
(n) "EFFECTIVE DATE" shall mean the date on which the Company's
shareholders have approved this Plan in accordance with applicable Nasdaq rules.
(o) "EMPLOYEE" shall mean any person, including an officer, who is a common
law employee of, receives remuneration for personal services to, is reflected on
the official human resources database as an employee of, and is on the payroll
of the Company or any Subsidiary of the Company. A person is on the payroll if
he or she is paid from or at the direction of the payroll department of the
Company, or any Subsidiary of the Company. Persons providing services to the
Company, or to any Subsidiary of the Company, pursuant to an agreement with a
staff leasing organization, temporary workers engaged through or employed by
temporary or leasing agencies, and workers who hold themselves out to the
Company, or a Subsidiary to which they are providing services as being
independent contractors, or as being employed by or engaged through another
company while providing the services, and persons covered by a collective
bargaining agreement (unless the collective bargaining agreement applicable to
the person specifically provides for participation in this Plan) are not
employees for purposes of this Plan and do not and cannot participate in this
Plan, whether or not such persons are, or may be reclassified by the courts, the
Internal Revenue Service, the U.S. Department of Labor, or other person or
entity as, common law employees of the Company, or any Subsidiary, either solely
or jointly with another person or entity.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(q) "EXECUTIVE OFFICERS" shall mean the officers of the Company as such
term is defined in Rule 16a-1 under the Exchange Act.
A-2
(r) "FAIR MARKET VALUE" shall mean the closing price per share of the
Common Stock on Nasdaq as to the date specified (or the previous trading day if
the date specified is a day on which no trading occurred), or if Nasdaq shall
cease to be the principal exchange or quotation system upon which the shares of
Common Stock are listed or quoted, then such exchange or quotation system as the
Company elects to list or quote its shares of Common Stock and that the
Committee designates as the Company's principal exchange or quotation system.
(s) "FAS 123" shall mean Statements of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", as promulgated by the Financial
Accounting Standards Board.
(t) "FLSA" shall mean the Fair Labor Standards Act of 1938, as amended.
(u) "FORMER PLAN" shall mean the CPS 1997 Long-Term Incentive Plan, as
amended.
(v) "INCENTIVE STOCK OPTION" shall mean any Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(w) "INDEPENDENT DIRECTOR" shall mean a Director who: (1) meets the
independence requirements of Nasdaq, or if Nasdaq shall cease to be the
principal exchange or quotation system upon which the shares of Common Stock are
listed or quoted, then such exchange or quotation system as the Company elects
to list or quote its shares of Common Stock and that the Committee designates as
the Company's principal exchange or quotation system; (2) qualifies as an
"outside director" under Section 162(m) of the Code; (3) qualifies as a
"non-employee director" under Rule 16b-3 promulgated under the Exchange Act; and
(4) satisfies independence criteria under any other applicable laws or
regulations relating to the issuance of Shares to Employees.
(x) "MAXIMUM ANNUAL PARTICIPANT AWARD" shall have the meaning set forth in
Section 6(b).
(y) "MISCONDUCT" shall mean any of the following; provided, however, that
with respect to Non-Employee Directors "Misconduct" shall mean subsection (viii)
only:
(i) any material breach of an agreement between the Participant and
the Company or any Subsidiary which, if curable, has not been cured within
twenty (20) days after the Participant has been given written notice of the
need to cure such breach, or which breach, if previously cured, recurs;
(ii) willful unauthorized use or disclosure of confidential
information or trade secrets of the Company or any Subsidiary by the
Participant;
(iii) the Participant's continued willful and intentional failure to
satisfactorily perform Participant's essential responsibilities, provided
that the Participant has been given at least thirty (30) days' written
notice of the need to cure the failure and cure has not been effected
within that time period, or which failure, if previously cured, recurs;
(iv) material failure of the Participant to comply with rules,
policies or procedures of the Company or any Subsidiary as they may be
amended from time to time, provided that the Participant has been given at
least thirty (30) days' written notice of the need to cure the failure, if
such failure is curable, and cure has not been effected within that time
period, or which failure, if previously cured, recurs;
(v) Participant's dishonesty, fraud or gross negligence related to the
business or property of the Company or any Subsidiary;
(vi) personal conduct that is materially detrimental to the business
of the Company or any Subsidiary;
(vii) conviction of or plea of NOLO CONTENDERE to a felony; or
(viii) in the case of Non-Employee Directors, the removal from the
Board for cause (as determined by the Company's shareholders).
(z) "NASDAQ" shall mean The Nasdaq Stock Market, Inc.
(aa) "NON-EMPLOYEE DIRECTOR" shall mean a Director who is not an employee.
(bb) "NONQUALIFIED STOCK OPTION" shall mean an Option that does not qualify
or is not intended to qualify as an Incentive Stock Option.
(cc) "OPTION" shall mean a stock option granted pursuant to Section 10 of
the Plan.
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(dd) "OPTIONEE" shall mean a Participant who has been granted an Option.
(ee) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(ff) "PARTICIPANT" shall mean an employee, Director or Consultant granted
an Award.
(gg) "PERFORMANCE CRITERIA" shall have the meaning set forth in Section
11(b).
(hh) "PLAN" shall mean this CPS 2006 Long-Term Equity Incentive Plan,
including any amendments thereto.
(ii) "REPRICE" shall mean the adjustment or amendment of the exercise price
of Options or SARs previously awarded whether through amendment, cancellation,
replacement of grants or any other means.
(jj) "RESIGNATION (OR RESIGN) FOR GOOD REASON" shall mean any voluntary
termination by written resignation of the Active Status of any employee after a
Change of Control because of: (1) a material reduction in the employee's
authority, responsibilities or scope of employment; (2) an assignment of duties
to the Employee inconsistent with the employee's role at the Company (including
its Subsidiaries) prior to the Change of Control, (3) a reduction in the
employee's base salary or total incentive compensation; (4) a material reduction
in the Employee's benefits unless such reduction applies to all employees of
comparable rank; or (5) the relocation of the employee's primary work location
more than fifty (50) miles from the employee's primary work location prior to
the Change of Control; provided that the employee's written notice of voluntary
resignation must be tendered within one (1) year after the Change of Control,
and shall specify which of the events described in (1) through (5) resulted in
the resignation.
(kk) "RESTRICTED STOCK" shall mean a grant of Shares pursuant to Section 11
of the Plan.
(ll) "RESTRICTED STOCK UNITS" shall mean a grant of the right to receive
Shares in the future or their cash equivalent (or both) pursuant to Section 11
of the Plan.
(mm) "RETIREMENT" shall mean, (i) with respect to any employee, voluntary
termination of employment after age 55 and at least ten (10) years of credited
service with the Company or any Subsidiary (but only during the time the
Subsidiary was a Subsidiary), as determined by the Committee in its sole
discretion, and (ii) with respect to any Non-Employee Director, ceasing to be a
Director pursuant to election by the Company's shareholders or by voluntary
resignation with the approval of the Board's chair after having attained the age
of 55 years and served continuously on the Board for at least six years.
(nn) "SAR" shall mean a stock appreciation right awarded pursuant to
Section 12 of the Plan.
(oo) "SEC" shall mean the Securities and Exchange Commission.
(pp) "SHARE" shall mean one share of Common Stock, as adjusted in
accordance with Section 5 of the Plan.
(qq) "STAND-ALONE SARS" shall have the meaning set forth in Section 12(c)
of the Plan.
(rr) "SUBCOMMITTEE" shall have the meaning set forth in Section 3(d).
(ss) "SUBSIDIARY" shall mean (1) in the case of an Incentive Stock Option a
"subsidiary corporation," whether now or hereafter existing, as defined in
Section 424(f) of the Code, and (2) in the case of a Nonqualified Stock Option,
Restricted Stock, a Restricted Stock Unit or a SAR, in addition to a subsidiary
corporation as defined in (1), (A) a limited liability company, employeeship or
other entity in which the Company controls fifty percent (50%) or more of the
voting power or equity interests, or (B) an entity with respect to which the
Company possesses the power, directly or indirectly, to direct or cause the
direction of the management and policies of that entity, whether through the
Company's ownership of voting securities, by contract or otherwise.
(tt) "TANDEM SARS" shall have the meaning set forth in Section 12(b) of the
Plan.
SECTION 3. ADMINISTRATION OF THE PLAN.
(a) AUTHORITY. The Plan shall be administered by the Committee. The
Committee shall have full and exclusive power to administer the Plan on behalf
of the Board, subject to such terms and conditions as the Committee may
prescribe. Notwithstanding anything herein to the contrary, the Committee's
power to administer the Plan, and actions the Committee takes under the Plan,
shall be limited by the provisions set forth in the Committee's charter, as such
charter may be amended from time to time, and the further limitation that
certain actions may be subject to review and approval by either the full Board
or a panel consisting of all of the Independent Directors of the Company.
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(b) POWERS OF THE COMMITTEE. Subject to the other provisions of this Plan,
the Committee shall have the authority, in its discretion:
(i) to grant Incentive Stock Options, Nonqualified Stock Options,
Restricted Stock, Restricted Stock Units, and SARs to Participants and to
determine the terms and conditions of such Awards, including the
determination of the Fair Market Value of the Shares and the exercise
price, and to modify or amend each Award, with the consent of the
Participant when required;
(ii) to determine the Participants, to whom Awards, if any, will be
granted hereunder, the timing of such Awards, and the number of Shares to
be represented by each Award;
(iii) to construe and interpret the Plan and the Awards granted
hereunder;
(iv) to prescribe, amend, and rescind rules and regulations relating
to the Plan, including the form of Award Agreement, and manner of
acceptance of an Award, such as correcting a defect or supplying any
omission, or reconciling any inconsistency so that the Plan or any Award
Agreement complies with applicable law, regulations and listing
requirements and to avoid unanticipated consequences deemed by the
Committee to be inconsistent with the purposes of the Plan or any Award
Agreement;
(v) to establish performance criteria for Awards made pursuant to the
Plan in accordance with a methodology established by the Committee, and to
determine whether performance goals have been attained;
(vi) to accelerate or defer (with the consent of the Participant) the
exercise or vested date of any Award;
(vii) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Award previously granted
by the Committee;
(viii) to establish sub-plans, procedures or guidelines for the grant
of Awards to Directors, Consultants and Employees working outside of the
United States; and
(ix) to make all other determinations deemed necessary or advisable
for the administration of the Plan;
Provided that, no consent of a Participant is necessary under clauses (i)
or (vi) if a modification, amendment, acceleration, or deferral, in the
reasonable judgment of the Committee confers a benefit on the Participant or is
made pursuant to an adjustment in accordance with Section 5.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations, and
interpretations of the Committee shall be final and binding on all Participants,
the Company (including its Subsidiaries), any shareholder and all other persons.
(d) DELEGATION. Consistent with the Committee's charter, as such charter
may be amended from time to time, the Committee may delegate (i) to one or more
separate committees consisting of members of the Committee or other Directors
who are Independent Directors (any such committee a "Subcommittee"), or (ii) to
an Executive Officer of the Company, the ability to grant Awards and take the
other actions described in Section 3(b) with respect to Participants who are not
Executive Officers, and such actions shall be treated for all purposes as if
taken by the Committee; provided that the grant of Awards shall be made in
accordance with parameters established by the Committee. Any action by any such
Subcommittee or Executive Officer within the scope of such delegation shall be
deemed for all purposes to have been taken by the Committee.
(e) ADMINISTRATION. The Committee may delegate the administration of the
Plan to an officer or officers of the Company, and such administrator(s) may
have the authority to directly, or under their supervision, execute and
distribute agreements or other documents evidencing or relating to Awards
granted by the Committee under this Plan, to maintain records relating to the
grant, vesting, exercise, forfeiture or expiration of Awards, to process or
oversee the issuance of Shares upon the exercise, vesting and/or settlement of
an Award, to interpret the terms of Awards and to take such other actions as the
Committee may specify. Any action by any such administrator within the scope of
its delegation shall be deemed for all purposes to have been taken by the
Committee and references in this Plan to the Committee shall include any such
administrator, provided that the actions and interpretations of any such
administrator shall be subject to review and approval, disapproval or
modification by the Committee.
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SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) RESERVATION OF SHARES. The shares of Common Stock reserved under this
Plan will include reserved shares of Common Stock that are not subject to a
grant or as to which the option award granted has been forfeited under the
Former Plan, and an additional 1,500,000 shares of Common Stock. The aggregate
number of Shares available for issuance under the Plan will be reduced by one
Share for each Share delivered in settlement of any award of Restricted Stock,
Restricted Stock Unit, or SAR and one Share for each Share delivered in
settlement of an Option. If an Award expires, is forfeited or becomes
unexercisable for any reason without having been exercised in full, the
undelivered Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future Awards under the Plan. Without
limiting the foregoing, unless the Plan shall have been terminated, Shares
underlying an Award that has been exercised, either in part or in full,
including any Shares that would otherwise be issued to a Participant that are
used to satisfy any withholding tax obligations that arise with respect to any
Award, shall become available for future Awards under the Plan except to the
extent Shares were issued in settlement of the Award. Shares available for
issuance under the Plan shall be increased by any shares of Common Stock subject
to outstanding awards under the Former Plans on the date of shareholder approval
of the Plan that later cease to be subject to such awards for any reason other
than such awards having been exercised, subject to adjustment from time to time
as provided in Section 5, which shares of Common Stock shall, as of the date
such shares cease to be subject to such awards, cease to be available for grant
and issuance under the Former Plans, but shall be available for issuance under
the Plan. The Shares may be authorized but unissued, or reacquired shares of
Common Stock. The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) TIME OF GRANTING AWARDS. The date of grant of an Award shall, for all
purposes, be the date on which the Company completes the corporate action
relating to the grant of such Award and all conditions to the grant have been
satisfied, provided that conditions to the exercise of an Award shall not defer
the date of grant. Notice of a grant shall be given to each Participant to whom
an Award is so granted within a reasonable time after the determination has been
made.
(c) SECURITIES LAW COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Award unless the exercise of such Award and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated under either
such Act, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(d) SUBSTITUTIONS AND ASSUMPTIONS. The Board or the Committee shall have
the right to substitute or assume Awards in connection with mergers,
reorganizations, separations, or other transactions to which Section 424(a) of
the Code applies, provided such substitutions and assumptions are permitted by
Section 424 of the Code and the regulations promulgated thereunder. The number
of Shares reserved pursuant to Section 4(a) may be increased by the
corresponding number of Awards assumed and, in the case of a substitution, by
the net increase in the number of Shares subject to Awards before and after the
substitution.
SECTION 5. ADJUSTMENTS TO SHARES SUBJECT TO THE PLAN. If any change is made
to the Shares by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Shares as a class without the Company's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
and/or the price per Share covered by outstanding Awards under the Plan and
(iii) the Maximum Annual Participant Award. The Committee may also make
adjustments described in (i)-(iii) of the previous sentence in the event of any
distribution of assets to shareholders other than a normal cash dividend. In
determining adjustments to be made under this Section 5, the Committee may take
into account such factors as it deems appropriate, including the restrictions of
applicable law and the potential tax consequences of an adjustment, and in light
of such factors may make adjustments that are not uniform or proportionate among
outstanding Awards. Adjustments, if any, and any determinations or
interpretations, including any determination of whether a distribution is other
than a normal cash dividend, made by the Committee shall be final, binding and
conclusive. For purposes of this Section 5, conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration."
Except as expressly provided herein, no issuance by the Company of shares
of any class, or securities convertible into shares of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an Award.
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PART II - TERMS APPLICABLE TO ALL AWARDS
SECTION 6. GENERAL ELIGIBILITY.
(a) AWARDS. Awards may be granted to Participants who are Employees,
Directors or Consultants; provided however that Incentive Stock Options may only
be granted to Employees.
(b) MAXIMUM ANNUAL PARTICIPANT AWARD. The aggregate number of Shares with
respect to which an Award or Awards may be granted to any one Participant over
the life of the Plan (the "Maximum Participant Award") shall not exceed 500,000
shares of Common Stock (increased, proportionately, in the event of any stock
split or stock dividend with respect to the Shares). If an Option is in tandem
with a SAR, such that the exercise of the Option or SAR with respect to a Share
cancels the tandem SAR or Option right, respectively, with respect to each
Share, the tandem Option and SAR rights with respect to each Share shall be
counted as covering but one Share for purposes of the Maximum Annual Participant
Award.
(c) NO EMPLOYMENT/ SERVICE RIGHTS. Nothing in the Plan shall confer upon
any Participant the right to an Award or to continue in service as an employee
or Consultant for any period of specific duration, or interfere with or
otherwise restrict in any way the rights of the Company (or any Subsidiary
employing or retaining such person), or of any Participant, which rights are
hereby expressly reserved by each, to terminate such person's services at any
time for any reason, with or without cause.
SECTION 7. PROCEDURE FOR EXERCISE OF AWARDS; RIGHTS AS A SHAREHOLDER.
(a) PROCEDURE. An Award shall be exercised when written, electronic or
verbal notice of exercise has been given to the Company, or the brokerage firm
or firms approved by the Company to facilitate exercises and sales under this
Plan, in accordance with the terms of the Award by the person entitled to
exercise the Award and full payment for the Shares with respect to which the
Award is exercised has been received by the Company or the brokerage firm or
firms, as applicable. The notification to the brokerage firm shall be made in
accordance with procedures of such brokerage firm approved by the Company. Full
payment may, as authorized by the Committee, consist of any consideration and
method of payment allowable under Section 7(b) of the Plan. The Company shall
issue (or cause to be issued) such share certificate promptly upon exercise of
the Award. In the event that the exercise of an Award is treated in part as the
exercise of an Incentive Stock Option and in part as the exercise of a
Nonqualified Stock Option pursuant to Section 10(a), the Company shall issue a
share certificate evidencing the Shares treated as acquired upon the exercise of
an Incentive Stock Option and a separate share certificate evidencing the Shares
treated as acquired upon the exercise of a Nonqualified Stock Option, and shall
identify each such certificate accordingly in its share transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the share certificate is issued, except as provided in
Section 5 of the Plan.
(b) METHOD OF PAYMENT. The consideration to be paid for any Shares to be
issued upon exercise or other required settlement of an Award, including the
method of payment, shall be determined by the Committee at the time of
settlement and which forms may include: (i) with respect to an Option, a request
that the Company or the designated brokerage firm conduct a cashless exercise of
the Option; (ii) cash; and (iii) tender of shares of Common Stock owned by the
Participant in accordance with rules established by the Committee from time to
time. Shares used to pay the exercise price shall be valued at their Fair Market
Value on the exercise date. Payment of the aggregate exercise price by means of
tendering previously-owned shares of Common Stock shall not be permitted when
the same may, in the reasonable opinion of the Company, cause the Company to
record a loss or expense as a result thereof.
(c) WITHHOLDING OBLIGATIONS. To the extent required by applicable federal,
state, local or foreign law, the Committee may and/or a Participant shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise with respect to any Incentive Stock Option,
Nonqualified Stock Option, SAR, Restricted Stock or Restricted Stock Units, or
any sale of Shares. The Company shall not be required to issue Shares or to
recognize the disposition of such Shares until such obligations are satisfied.
These obligations may be satisfied by having the Company withhold a portion of
the Shares that otherwise would be issued to a Participant under such Award or
by tendering Shares previously acquired by the Participant in accordance with
rules established by the Committee from time to time.
(d) SHAREHOLDER RIGHTS. Except as otherwise provided in this Plan, until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the share certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Shares subject to the
Award, notwithstanding the exercise of the Award.
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(e) NON-TRANSFERABILITY OF AWARDS. An Award may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in exchange for
consideration, except that an Award may be transferred by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant; unless the Committee permits further
transferability, on a general or specific basis, in which case the Committee may
impose conditions and limitations on any permitted transferability.
SECTION 8. EXPIRATION OF AWARDS.
(a) EXPIRATION, TERMINATION OR FORFEITURE OF AWARDS. Unless otherwise
provided in the applicable Award Agreement or any severance agreement, vested
Awards granted under this Plan shall expire, terminate, or otherwise be
forfeited as follows:
(i) three (3) months after the date the Company delivers a notice of
termination of a Participant's Active Status, other than in circumstances
covered by (ii), (iii), (iv) or (v) below;
(ii) immediately upon termination of a Participant's Active Status for
Misconduct;
(iii) twelve (12) months after the date on which a Participant other
than a Non-Employee Director ceased performing services as a result of his
or her total and permanent Disability;
(iv) twelve (12) months months after the date on which the Participant
ceased performing services as a result of Retirement, or after his death.
(b) EXTENSION OF TERM. Notwithstanding subsection (a) above, the Committee
shall have the authority to extend the expiration date of any outstanding
Option, other than an Incentive Stock Option, or SAR in circumstances in which
it deems such action to be appropriate (provided that no such extension shall
extend the term of an Option or SAR beyond the date on which the Option or SAR
would have expired if no termination of the Employee's Active Status had
occurred).
SECTION 9. EFFECT OF CHANGE OF CONTROL. Notwithstanding any other provision
in the Plan to the contrary, the following provisions shall apply unless
otherwise provided in the most recently executed agreement between the
Participant and the Company, or specifically prohibited under applicable laws,
or by the rules and regulations of any applicable governmental agencies or
national securities exchanges or quotation systems.
(a) ACCELERATION. Awards of a Participant shall be Accelerated (as defined
in Section 9(b) below) as follows:
(i) With respect to Non-Employee Directors, upon the occurrence of a
Change of Control;
(ii) With respect to any employee, upon the occurrence of a Change of
Control described in Section 2(f)(i);
(iii) With respect to any employee who Resigns for Good Reason or
whose Active Status is terminated within one year after a Change of Control
described in Section 2(f)(ii) or (iii);
(iv) With respect to any employee, upon the occurrence of a Change of
Control described in Section 2(f)(iv) in connection with which each Award
is not assumed or an equivalent award substituted by such successor entity
or a parent or subsidiary of such successor entity; and
(v) With respect to any employee who Resigns for Good Reason or whose
Active Status is terminated within one year after a Change of Control
described in Section 2(f)(iv) in connection with which each Award is
assumed or an equivalent award substituted by the successor entity or a
parent or subsidiary of such successor entity.
(b) DEFINITION. For purposes of this Section 9, Awards of a Participant
being "Accelerated" means, with respect to such Participant:
(i) any and all Options and SARs shall become fully vested and
immediately exercisable, and shall remain exercisable throughout their
entire term;
(ii) any restriction periods and restrictions imposed on Restricted
Stock or Restricted Stock Units that are not performance-based shall lapse;
and
(iii) the restrictions and deferral limitations and other conditions
applicable to any other Awards shall lapse, and such other Awards shall
become free of all restrictions, limitations or conditions and become fully
vested and transferable to the full extent of the original grant.
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PART III - SPECIFIC TERMS APPLICABLE TO OPTIONS, STOCK AWARDS AND SARS
SECTION 10. GRANT, TERMS AND CONDITIONS OF OPTIONS.
(a) DESIGNATION. Each Option shall be designated in an Award Agreement as
either an Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any employee during any calendar
year (under all plans of the Company) exceeds $100,000, such excess Options
shall be treated as Nonqualified Stock Options. Options shall be taken into
account in the order in which they were granted.
(b) TERMS OF OPTIONS. The term of each Incentive Stock Option shall be no
more than ten (10) years from the date of grant. However, in the case of an
Incentive Stock Option granted to a Participant who, at the time the Option is
granted, owns Shares representing more than ten percent (10%) of the voting
power of all classes of shares of the Company or any Parent or Subsidiary, the
term of the Option shall be no more than five (5) years from the date of grant.
The terms of all Nonqualified Stock Options shall be at the discretion of the
Committee.
(c) OPTION EXERCISE PRICES.
(i) The per Share exercise price under an Incentive Stock Option shall
be as follows:
(A) If granted to an employee who, at the time of the grant of
such Incentive Stock Option, owns shares representing more than ten
percent (10%) of the voting power of all classes of shares of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the
date of grant.
(B) If granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) The per Share exercise price under a Nonqualified Stock Option or
SAR shall be no less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(iii) In no event shall the Board or the Committee be permitted to
Reprice an Option after the date of grant without shareholder approval.
(d) VESTING. To the extent Options vest and become exercisable in
increments, such Options shall cease vesting as of the date of the Optionee's
Disability or termination of such Optionee's Active Status for reasons other
than Retirement or death, in each of which cases such Options shall immediately
vest in full.
(e) SUBSTITUTION OF STOCK SARS FOR OPTIONS. Notwithstanding anything in
this Plan to the contrary, if the Company is required to or elects to record as
an expense in its consolidated statements of earnings the cost of Options
pursuant to FAS 123 or a similar accounting requirement, the Committee shall
have the sole discretion to substitute, without receiving Participants'
permission, SARs paid only in stock for outstanding Options; provided, the terms
of the substituted stock SARs are the same as the terms of the Options, the
number of shares underlying the number of stock SARs equals the number of shares
underlying the Options and the difference between the Fair Market Value of the
underlying Shares and the grant price of the SARs is equivalent to the
difference between the Fair Market Value of the underlying shares and the
exercise price of the Options.
(f) EXERCISE. Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Committee at the time of
grant, and as are permissible under the terms of the Plan. An Option may not be
exercised for a fraction of a Share.
SECTION 11. GRANT, TERMS AND CONDITIONS OF STOCK AWARDS.
(a) DESIGNATION. Restricted Stock or Restricted Stock Units may be granted
either alone, in addition to, or in tandem with other Awards granted under the
Plan. Restricted Stock or Restricted Stock Units may include a dividend
equivalent right, as permitted by Section 5. After the Committee determines that
it will offer Restricted Stock or Restricted Stock Units, it will advise the
Participant in writing or electronically, by means of an Award Agreement, of the
terms, conditions and restrictions, including vesting, if any, related to the
offer, including the number of Shares that the Participant shall be entitled to
receive or purchase, the price to be paid, if any, and, if applicable, the time
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within which the Participant must accept the offer. The offer shall be accepted
by execution of an Award Agreement or as otherwise directed by the Committee.
Restricted Stock Units may be paid as permitted by Section 7(b). The term of
each award of Restricted Stock or Restricted Stock Units shall be at the
discretion of the Committee.
(b) PERFORMANCE CRITERIA. Restricted Stock and Restricted Stock Units
granted pursuant to the Plan that are intended to qualify as "performance based
compensation" under Section 162(m) of the Code shall be subject to the
fulfillment of performance goals relating to the Performance Criteria selected
by the Committee and specified at the time such Restricted Stock and Restricted
Stock Units are granted. For purposes of this Plan, "Performance Criteria" means
one or more of the following (as selected by the Committee): (i) earnings per
share, including earnings per share as adjusted (a) to exclude the effect of any
(1) significant acquisitions or dispositions of businesses by the Company, (2)
one-time, non-operating charges and (3) accounting changes (including but not
limited to any accounting changes that alter the recognition of stock option
expense and any accounting changes the Company adopts early); and (b) for any
stock split, stock dividend or other recapitalization; (ii) earnings per share
before taxes, subject to any of the adjustments described above; (iii) earnings;
(iv) earnings before interest, taxes and amortization; (v) total shareholder
return; (vi) share price performance; (vii) return on equity; (viii) return on
managed assets; (ix) revenue; (x) operating expenses; (xi) operating income;
(xii) originations volume; (xiii) originations growth; (xiv) net charge-offs;
(xv) net charge-off percentage; (xvi) portfolio growth; (xvii) net interest
margin; or (xviii) cash flow.
(c) VESTING. Unless the Committee determines otherwise, the Award Agreement
shall provide for the forfeiture of the non-vested Shares underlying Restricted
Stock or Restricted Stock Units upon the termination of a Participant's Active
Status. To the extent that the Participant purchased the Shares granted under
such Restricted Stock or Restricted Stock Units and any such Shares remain
non-vested at the time the Participant's Active Status terminates, the
termination of Active Status shall cause an immediate sale of such non-vested
Shares to the Company at the original price per Share paid by the Participant.
SECTION 12. GRANT, TERMS AND CONDITIONS OF SARS.
(a) GRANTS. The Committee shall have the full power and authority,
exercisable in its sole discretion, to grant SARs to selected Participants. The
Committee is authorized to grant both tandem stock appreciation rights,
consisting of SARs with underlying Options ("Tandem SARs"), and stand-alone
stock appreciation rights ("Stand-Alone SARs") as described below. The terms of
SARs shall be at the discretion of the Committee. In no event shall the Board or
the Committee be permitted to Reprice a SAR after the date of grant without
shareholder approval.
(b) TANDEM SARS.
(i) Participants may be granted a Tandem SAR, exercisable upon such
terms and conditions as the Committee shall establish, to elect between the
exercise of the underlying Option for Shares or the surrender of the Option
in exchange for a distribution from the Company in an amount equal to the
excess of (A) the Fair Market Value (on the Option surrender date) of the
number of Shares in which the Participant is at the time vested under the
surrendered Option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such vested Shares.
(ii) No such Option surrender shall be effective unless it is approved
by the Committee, either at the time of the actual Option surrender or at
any earlier time. If the surrender is so approved, then the distributions
to which the Participant shall become entitled under this Section 12(b) may
be made in Shares valued at Fair Market Value (on the Option surrender
date), in cash, or partly in Shares and partly in cash, as the Committee
shall deem appropriate.
(iii) If the surrender of an Option is not approved by the Committee,
then the Participant shall retain whatever rights he or she had under the
surrendered Option (or surrendered portion thereof) on the Option surrender
date and may exercise such rights at any time prior to the later of (A)
five (5) business days after the receipt of the rejection notice or (B) the
last day on which the Option is otherwise exercisable in accordance with
the terms of the instrument evidencing such Option, but in no event may
such rights be exercised more than ten (10) years after the date of the
Option grant.
(c) STAND-ALONE SARS.
(i) A Participant may be granted a Stand-Alone SAR not tied to any
underlying Option under Section 10 of the Plan. The Stand-Alone SAR shall
cover a specified number of Shares and shall be exercisable upon such terms
and conditions as the Committee shall establish. Upon exercise of the
Stand-Alone SAR, the holder shall be entitled to receive a distribution
from the Company in an amount equal to the excess of (A) the aggregate Fair
Market Value (on the exercise date) of the Shares underlying the exercised
right over (B) the aggregate base price in effect for those Shares.
A-10
(ii) The number of Shares underlying each Stand-Alone SAR and the base
price in effect for those Shares shall be determined by the Committee at
the time the Stand-Alone SAR is granted. In no event, however, may the base
price per Share be less than the Fair Market Value per underlying Share on
the grant date.
(iii) The distribution with respect to an exercised Stand-Alone SAR
may be made in Shares valued at Fair Market Value on the exercise date, in
cash, or partly in Shares and partly in cash, as the Committee shall deem
appropriate.
(d) EXERCISED SARS. The Shares issued in settlement of any SARs exercised
under this Section 12 shall not be available for subsequent issuance under the
Plan. In accordance with Section 4, Shares underlying any exercised SARs that
were not issued in settlement of the SAR shall become available for future
issuance under the Plan.
PART IV - TERM OF PLAN AND SHAREHOLDER APPROVAL
SECTION 13. TERM OF PLAN. The Plan shall become effective as of the
Effective Date. It shall continue in effect until the tenth anniversary of the
Effective Date or until terminated under Section 14 of the Plan or extended by
an amendment approved by the shareholders of the Company pursuant to Section
14(a).
SECTION 14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board or the Committee may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable (including, but not limited to amendments which the Board deems
appropriate to enhance the Company's ability to claim deductions related to
stock option exercises); provided that to the extent required by the Code or the
rules of Nasdaq, of any national stock exchange on which the Company's common
shares are listed, or of the SEC, shareholder approval shall be required for any
amendment of the Plan. Subject to the foregoing, it is specifically intended
that the Board or Committee may amend the Plan without shareholder approval to
comply with legal, regulatory and listing requirements and to avoid
unanticipated consequences deemed by the Committee to be inconsistent with the
purpose of the Plan or any Award Agreement.
(b) PARTICIPANTS IN FOREIGN COUNTRIES. The Committee shall have the
authority to adopt such modifications, procedures, and sub-plans as may be
necessary or desirable to comply with provisions of the laws of foreign
countries in which the Company or its Subsidiaries may operate to assure the
viability of the benefits from Awards granted to Participants performing
services in such countries and to meet the objectives of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any amendment or termination of the
Plan shall not affect Awards already granted and such Awards shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Participant and the Committee, which
agreement must be in writing and signed by the Participant and the Company.
SECTION 15. SHAREHOLDER APPROVAL. The effectiveness of the Plan is subject
to approval by the shareholders of the Company in accordance with applicable
Nasdaq rules.
A-11
APPENDIX B
CPS EXECUTIVE MANAGEMENT BONUS PLAN
APPROVAL BY The material terms of the Executive Management
SHAREHOLDERS Bonus Plan will be submitted to the shareholders
of CPS ("CPS" or the "Company") on June 15, 2006.
Shareholder approval of the material terms of the
Plan, including the Objective Performance
Measures, is required in order for the bonuses
paid upon achievement of the Objective Performance
Goals to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code.
PLAN TERM Five fiscal years beginning January 1, 2006.
PLAN EFFECTIVE DATE January 1, 2006
PLAN YEAR Calendar year
PURPOSE The purpose of the Plan is to increase shareholder
value by providing an incentive for the
achievement of goals that support CPS strategic
plan.
ELIGIBILITY CPS employees serving in positions of vice
president and above are eligible to participate in
the Plan.
The chief executive officer may recommend
Participants. The Compensation Committee has the
sole authority to designate Participants.
Eligibility will cease upon termination of the
Participant's employment, withdrawal of
designation by the Compensation Committee,
transfer to a position compensated otherwise than
as provided in the Plan, termination of the Plan
by CPS, or if the Participant engages, directly or
indirectly, in any activity that is competitive
with any CPS activity.
If a Participant changes from an eligible position
to an ineligible position during the Plan Period,
eligibility to participate will be at the
discretion of the Compensation Committee.
TARGET BONUS The Target Bonus for each Participant shall be
established by the Compensation Committee no later
than ninety (90) days after the beginning of the
Plan Year. The Target Bonus shall be the maximum
amount that would be paid to the Participant under
the Plan if 100% of Objective Performance Goals
and 100% of Individual Performance Goals were met.
The Target Bonus may be established as a
percentage of Base Pay, a specific dollar amount,
or according to another method established by the
Compensation Committee. The amount of the Target
Bonus earned by the Participant shall be based on
the achievement of Objective Performance Goals and
Individual Performance Goals.
Base Pay is the annual pay rate established for
the Participant by CPS and in effect on the last
day of the Plan Period or, in the case of a
deceased or disabled Participant, on the last day
of participation in the Plan. CPS, in conjunction
with the Compensation Committee, may at any time,
in its sole discretion, prospectively revise the
Participant's Base Pay.
OBJECTIVE GOALS In accordance with Section 162(m) of the Internal
Revenue Code, the Compensation Committee shall
select one or more objective performance measures
from among Earnings Per Share, Earnings Per Share
Before Taxes, Return on Capital, Originations
Growth, Originations Volume, Return on Assets,
Shareholder Total Return, and/or Portfolio Net
Loss Percentage, and shall establish Objective
Performance Goals based on such measures. The
Compensation Committee shall select the Objective
Performance Goals for each Participant no later
than ninety (90) days after the beginning of the
Plan Year and while the outcome is substantially
uncertain. The Compensation Committee shall select
the amount of the Target Bonus for each
Participant that will be determined by achievement
of the Objective Performance Goals.
B-1
The Compensation Committee may establish any
special adjustments that will be applied in
calculating whether the Objective Performance
Goals have been met to factor out extraordinary
items no later than ninety (90) days after the
beginning of the Plan Year and while the outcome
is substantially uncertain.
If the Objective Performance Goals selected by the
Compensation Committee are not met, no bonus
related to those goals is payable under the Plan.
INDIVIDUAL GOALS The portion of the Target Bonus not determined by
achievement of the Objective Performance Goals
shall be determined by the Participant's
achievement of Individual Goals.
Each Participant with Individual Goals shall
submit such Individual Goals for approval by the
Compensation Committee.
Bonus payable with respect to achievement of
Individual Goals shall be neither increased nor
decreased by reason of achievement or
non-achievement of Objective Goals.
BONUS PAYOUT AND Bonus Payout for each Participant is based on the
ELIGIBILITY achievement of the Objective Performance Goals and
the Individual Goals. A Bonus Payout under this
Plan is earned as of the end of the Plan Year and
will be paid according to the Plan, if the
Participant:
1) remains a CPS employee through the end of the
Plan Year, unless employment is terminated prior
to the end of the Plan Year due to death or
disability, and
2) refrains from engaging during the Plan Year,
directly or indirectly, in any activity that is
competitive with any CPS activity.
The Compensation Committee, in its discretion, may
determine that the Bonus Payout for any
Participant will be less than (but not greater
than) the amount earned by such Participant under
the Plan.
BONUS PAYOUT Within ninety (90) days after the beginning of the
CALCULATION Plan Year and while the outcome is substantially
uncertain, the Compensation Committee shall review
and approve for each Participant: the target
bonus; the Objective Performance Goals; and the
relative weighting of the Goals for the Plan Year.
Those metrics will be used to calculate the Bonus
Payout for each Participant. Upon completion of
the Plan Year, the Compensation Committee shall
review the Bonus Payout Calculation for each
Participant. The maximum Bonus Payout for the
achievement of Objective Performance Goals payable
to any one Participant in any Plan Year is
$1,500,000 in the case of an individual serving as
chief executive officer, and $300,000 in the case
of any other participant.
BONUS PAYOUT For any employee who meets eligibility criteria
PRORATIONS and becomes a Participant after the start of the
Plan Year or whose employment with CPS is
terminated prior to the end of the Plan Year
because of disability or death, the Compensation
Committee (1) shall prorate the Bonus Payout
related to the Objective Performance Goals, and
(2) in its discretion, may prorate the Bonus
Payout related to Individual Performance Goals. If
the Participant is on a leave of absence for a
portion of the Plan Year, the Compensation
Committee in its discretion may reduce the
Participant's Bonus Payout on a pro-rata basis.
The proration is based on the number of full
months during which the Participant participated
in the Plan during the Plan Year. Credit is given
for a full month if the Participant is eligible
for 15 or more calendar days during that month.
If a Participant changes positions within CPS
during the Plan Year, the Compensation Committee
in its discretion may prorate the Participant's
Bonus Payout by the number of months in each
position.
B-2
ADMINISTRATION Compensation Committee Responsibilities: Approve
the Plan design, Objective Performance Goals, and
Individual Goals for each Participant. Determine
and certify the achievement of the Objective
Performance Goals and Individual Goals. Approve
the Bonus Payout calculation and Bonus Payout for
each Participant.
In the event of a dispute regarding the Plan, the
Participant may seek resolution through the chief
executive officer and the Compensation Committee.
All determinations by the Compensation Committee
shall be final and conclusive.
BONUS PAYOUT The Bonus Payout will be made as soon as
ADMINISTRATION administratively feasible and is expected to be on
or before the 15th of March, following the end of
each Plan Year. No amount is due and owing to any
Participant before the Compensation Committee has
determined the Bonus Payout.
The Company will withhold amounts applicable to
Federal, state and local taxes, domestic or
foreign, required by law or regulation.
Contributions for 401(k) Plan are deducted from
cash Bonus Payouts, based on the Participants'
elections then in effect.
TERMINATION OF The Plan is not a contract of employment for any
EMPLOYMENT period of time. Any Participant may resign or be
terminated at any time for any reason or for no
reason. Employment and termination of employment
are governed by CPS policy and not by the Plan.
REVISIONS TO The Plan will be reviewed by the chief executive
THE PLAN officer and the Compensation Committee on a
periodic basis for revisions. CPS may, in its
discretion with or without notice, review, change,
amend or cancel the Plan at any time.
B-3
ANNUAL MEETING OF SHAREHOLDERS OF
CONSUMER PORTFOLIO SERVICES, INC.
JUNE 15, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
DIRECTORS AND "FOR" PROPOSALS 2, 3 AND 4. PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE [X]
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1. Election of Directors: NOMINEES
[ ] FOR ALL NOMINEES [ ] Charles E. Bradley, Jr.
[ ] E. Bruce Fredrikson
[ ] WITHHOLD AUTHORITY [ ] John E. McConnaughy, Jr.
FOR ALL NOMINEES [ ] John G. Poole
[ ] William B. Roberts
[ ] FOR ALL EXCEPT [ ] John C. Warner
(See instructions below) [ ] Daniel S. Wood
INSTRUCTION: To withhold authority to vote for any andiviual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: [X]
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FOR AGAINST ABSTAIN
2. To ratify the appointment of McGladrey & Pullen, LLP [ ] [ ] [ ]
as independent auditors of the Company for the year
ending December 31, 2006.
3. To approve the Company's 2006 Long-Term Equity [ ] [ ] [ ]
Incentive Plan.
4. To approve the material terms of the Company's [ ] [ ] [ ]
Executive Management Bonus Plan.
5. To transact such other business as may properly come before the meeting or
any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR THE
ELECTION OF THE NOMINEES, FOR PROPOSALS 2, 3 AND 4, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD.
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To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note [ ]
that changes to the registered name(s) on the account may not be
submitted via this method.
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Signature of Shareholder_______________________ Date:______________
Signature of Shareholder_______________________ Date:______________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
CONSUMER PORTFOLIO SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 15, 2006
The undersigned shareholder of CONSUMER PORTFOLIO SERVICES, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement with respect to the Annual Meeting
of Shareholders of Consumer Portfolio Services, Inc. to be held at the offices
of said corporation at 16355 Laguna Canyon Road, Irvine, California 92618 on
June 15, 2006, at 10:00 a.m., and hereby appoints Charles E. Bradley, Jr. and
Jeffrey P. Fritz, and each of them, proxies and attorneys-in-fact, each with
power of substitution and revocation, and each with all powers that the
undersigned would possess if personally present, to vote the Consumer Portfolio
Services, Inc. Common Stock of the undersigned at such meeting and any
postponements or adjournments of such meeting, as set forth below, and in their
discretion upon any other business that may properly come before the meeting
(and any such postponements or adjournments).
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)