SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
CONSUMER PORTFOLIO SERVICES, INC.
---------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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|x| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road, Irvine California 92618
Phone: 949-753-6800
A special meeting of the shareholders of Consumer Portfolio Services, Inc. (the
"CPS" or the "Company") will be held at 10:00 a.m., local time, on Thursday,
September 4, 2008 at the Company's principal executive offices, 16355 Laguna
Canyon Road, Irvine, California for the following purposes:
o To approve an amendment to the Company's articles of incorporation to
increase the number of authorized common shares from 30 million to 75
million;
o To approve the future issuance, in connection with the exercise of
warrants issued to an investor in our recent private transaction
described in the attached proxy statement, of 1,848,309 shares of
CPS common stock, subject to adjustment pursuant to the anti-dilutive
provisions of the warrants; and
o To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on Monday, July 28, 2008
are entitled to notice of and to vote at the meeting.
Whether or not you expect to attend the meeting in person, please complete,
date, and sign the enclosed proxy exactly as your name appears thereon and
promptly return it in the envelope provided, which requires no postage if mailed
in the United States. Proxies may be revoked at any time and, if you attend the
meeting in person, your executed proxy will be returned to you upon request.
By Order of the Board of Directors
Mark Creatura, Secretary
Dated: August 7, 2008
[PAGE INTENTIONALLY LEFT BLANK]
1
CONSUMER PORTFOLIO SERVICES, INC.
16355 Laguna Canyon Road
Irvine, California 92618
949-753-6800
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 4, 2008
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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 a special meeting of the shareholders to be held at 10:00 A.M.
local time on Thursday, September 4, 2008 at the Company's principal executive
offices, 16355 Laguna Canyon Road, Irvine, California 92618, and at any
adjournment thereof (the "Meeting").
All shares represented by properly executed proxies received in time will be
voted at the Meeting and, where the manner of voting is specified on the proxy,
will be voted in accordance with such specifications. Any shareholder who
executes and returns a proxy may revoke it at any time prior to the voting of
the proxy by giving written notice to the Secretary of the Company, by executing
a later-dated proxy, or by attending the meeting and giving oral notice of
revocation to the Secretary of the Company.
The Board of Directors of the Company has fixed the close of business on July
28, 2008, as the record date for determining the holders of outstanding shares
of the Company's Common Stock, without par value ("CPS Common Stock") entitled
to notice of, and to vote at the Meeting. On that date, there were [19,815,709]
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.
The notice of the Meeting, this proxy statement and the form of proxy are first
being mailed to shareholders of the Company on or about August 7, 2008. 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.
2
PROPOSAL NO. 1
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES FROM 30 MILLION TO 75 MILLION
INTRODUCTION
The Company's articles of incorporation authorize the issuance of up to 30
million shares of common stock, and up to 10 million shares of preferred stock,
which may be issued in one or more series. No preferred shares are outstanding,
and the Company has no plans to issue any preferred shares.
As of July 10, 2008, the Company had 19,815,709 shares of common stock
outstanding, 6,621,799 shares of common stock reserved for issuance upon the
exercise of outstanding options, and 2,772,000 shares of common stock reserved
for issuance upon the exercise of outstanding warrants; thus, leaving 790,402
shares of common stock available to be issued for other purposes.
BOARD RECOMMENDATION. Your Board unanimously recommends amending the
Company's Articles of Incorporation to increase the authorized number of CPS
common shares from 30,000,000,000 to 75,000,000. The amendment will not change
the number of authorized shares of preferred stock or the par value per share of
any stock. The Board of Directors recommends increasing the authorized number of
shares to accomplish two major objectives: first, to allow flexibility to issue
additional shares of Common Stock with respect to corporate purposes in general,
and second, to eliminate the restrictions on exercise of certain warrants,
enabling the holders of those warrants to exercise the warrants for shares of
common stock rather than exercising their rights to cause the Company to
purchase such warrants for cash, as further described in Proposal 2 below.
GENERAL EFFECTS OF INCREASING AUTHORIZED SHARES
The Board of Directors believes that an increase in the number of
authorized shares will be advantageous, because it will provide the Company
flexibility to issue additional shares of Common Stock for corporate purposes as
considered appropriate by the Board of Directors. Such future activities may
include, without limitation, possible future financing and acquisition
transactions, increasing working capital, raising additional capital for
operations of the Company, secondary offerings, stock splits or stock dividends
and grants under the Company's equity-based compensation plans. As of the date
of this Proxy Statement, there are no arrangements, agreements or understandings
for the issuance or use of the additional shares of authorized Common Stock,
other than (i) possible future issuances of awards permitted under the Company's
existing stock-based employee benefits plans, and (ii) the future issuance, in
connection with the exercise of certain warrants as described in Proposal 2
below, of 1,848,309 shares of Common Stock, subject to adjustment pursuant
to the anti-dilutive provisions of the warrant.
The Board of Directors believes that the proposed amendment will provide
several long-term advantages to the Company and its shareholders. The passage of
the proposed amendment will enable the Company to pursue financings or enter
into transactions which the Board of Directors believes provide the potential
for growth and profit without having to expend cash. If additional authorized
shares are available, transactions dependent upon the issuance of additional
shares are less likely to be undermined by delays and expenses occasioned by the
need to obtain shareholder authorization to provide the shares necessary to
consummate such transactions. Without an increase in authorized shares of Common
Stock, the Company may have to rely on debt, (which debt may not even be
available without the concurrent grant of equity), seek alternative financing
means or forgo investment opportunities altogether. Additionally, the
shareholders of the Company have previously authorized up to an additional
2,255,000 shares of common stock in connection with awards that could be granted
in the future under the Company's 2006 Long-Term Equity Incentive Plan; however,
all of such additional shares will not be available for issuance unless and
until this Proposal 1 is approved by shareholders, creating a sufficient number
of authorized shares of common stock to cover shares previously authorized under
the plan.
In addition to the corporate purposes discussed above, the proposed
amendment could have an anti-takeover effect, although this is not the intent of
the Board of Directors. For example, if the Company becomes the subject of a
hostile takeover attempt, it could try to impede the takeover by issuing shares
of Common Stock, thereby diluting the voting power of the other outstanding
shares and increasing the cost of the takeover. The availability of this
defensive strategy to the Company could discourage unsolicited takeover
attempts. By potentially discouraging initiation of any such unsolicited
takeover attempts, the proposed amendment may limit the opportunity for
shareholders to realize a higher price for their shares than is generally
available in takeover attempts. The Board of Directors is not aware of any
attempt, or contemplated attempt, to acquire control of the Company, and the
Board of Directors has not presented this proposal with the intent that it be
utilized as a type of anti-takeover device. Shareholders should note that the
anti-takeover effect described above could also be accomplished by issuance of
preferred shares under existing authority granted to the Board of Directors,
whether or not the proposed amendment is adopted.
3
Except for Levine Leichtman, which currently owns 6.2% of our outstanding
common stock, shareholders do not have preemptive rights or similar rights to
subscribe for or purchase any additional shares of Common Stock that may be
issued in the future. If the Board of Directors elects to issue additional
shares of Common Stock, such issuance may, depending on the circumstances, have
a dilutive effect on the earnings per share and other interests of the existing
shareholders.
THE PROPOSAL
A vote FOR the proposal is a vote to amend the articles of incorporation
to increase the authorized number of common shares that the Company may issue.
One effect of that amendment would be that the warrants described in Proposal 2
below could become exercisable to purchase an aggregate of 1,848,309
shares of our common stock, subject to adjustment pursuant to the anti-dilutive
provisions of the warrant. That would give the holders of the warrants an option
to exercise for common stock in addition to their current right to cause the
Company to purchase the warrants for cash. The amendment would also permit the
Company to pursue other corporate transactions that might involve issuance of
shares, without having to expend cash and without having to seek specific
shareholder approval of such transactions.
FORM OF THE PROPOSAL. We expect to place before the meeting for action the
following resolution, which has been approved by the board of directors and
declared advisable:
RESOLVED, that the first paragraph of Article V of the Articles of Incorporation
of the Company be amended so that, as amended, such paragraph shall read in its
entirety as follows:
"The Corporation is authorized to issue two (2) classes of stock. One
class of shares is to be called "Common Stock," and the second class of
shares is to be called "Serial Preferred Stock." The total number of
shares which the Corporation shall have authority to issue is
Eighty-Five Million (85,000,000), of which Seventy-Five Million
(75,000,000) shall be Common Stock, without par value, and of which Ten
Million (10,000,000) shall be Serial Preferred Stock, having a par value
of $1.00 per share."
EFFECT OF A FAILURE TO APPROVE THIS PROPOSAL. In the event that our
shareholders do not approve this Proposal 1, our board of directors will have
significantly limited options to issue equity in future corporate transactions
as well as significant limitations on issuance of equity compensation under the
existing Long-Term Equity Incentive Plan. Further, the exercise of certain
warrants currently outstanding will continue to be restricted. Whether or not
shareholder approval is obtained, the holders of those warrants will continue to
have the right to cause the Company to purchase such warrants for cash, as
described in more detail in Proposal 2 below.
VOTE NECESSARY TO APPROVE THE AMENDMENT OF THE CPS ARTICLES OF INCORPORATION
The approval of this proposal requires that a majority of outstanding
shares be voted in favor of the proposal. Abstentions from voting on the
proposal will have the same effect as votes against the proposal. Further, we
believe that brokers holding shares for their customers in general will not be
permitted to vote on this proposal without instruction from their customers.
Such "broker non-votes" will have the same effect as votes against the proposal.
If Levine Leichtman, one of our largest shareholders, and Mr. Bradley, our
president and chief executive officer as well as one of our largest
shareholders, vote in favor of this Proposal 2, 11.98% of our total outstanding
shares will have voted in favor of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL 1.
4
PROPOSAL NO. 2
APPROVAL OF THE FUTURE ISSUANCE, IN CONNECTION WITH THE EXERCISE OF WARRANTS
ISSUED TO AN INVESTOR IN A RECENT
PRIVATE TRANSACTION, OF 1,848,309 SHARES OF
COMMON STOCK, SUBJECT TO ADJUSTMENT PURSUANT TO THE
ANTI-DILUTIVE PROVISIONS OF THE WARRANTS
INTRODUCTION
In June and July 2008, Levine Leichtman Capital Partners IV, L.P., which we
refer to as Levine Leichtman, invested $25 million in the long-term capital of
CPS by purchasing senior secured term notes and equity securities of CPS. As
part of the equity securities purchased by Levine Leichtman, CPS issued to
Levine Leichtman two warrants, which we refer to as the Levine Leichtman
Warrants, to purchase a total of 1,775,000 shares of CPS common stock. Other
material terms of the transaction are described below.
Bearing in mind the need for CPS to have available shares for issuance in
other possible transactions, Levine Leichtman agreed as an accommodation to CPS
that its warrants would not become exercisable into shares of common stock until
such time as the shareholders of CPS approved the issuance of any and all shares
issuable upon exercise of the warrants. CPS agreed to seek such shareholder
approval. At present, the holders of the Levine Leichtman Warrants have the
right to cause the Company to purchase such warrants for cash in an amount equal
to the number of shares issuable upon exercise of the warrants multiplied by the
excess of the fair market value of such shares over the applicable warrant
purchase price; however, at present, the Levine Leichtman Warrants cannot be
exercised for stock, as described below.
BASIC TERMS OF THE LEVINE LEICHTMAN WARRANTS. Pursuant to the June 30,
2008 securities purchase agreement between us and Levine Leichtman, which we
refer to as the securities purchase agreement, we issued the Levine Leichtman
Warrants in two series: (i) warrants that we refer to as the FMV Warrants,
which, upon the approval of our shareholders, would become exercisable for up to
1,500,000 shares of our common stock, at an exercise price of $2.573 per share,
and (ii) warrants that we refer to as the N Warrants, which, upon the approval
of our shareholders, would become exercisable for up to 275,000 shares of our
common stock, at a nominal exercise price. Following the receipt of shareholder
approval, both the FMV Warrants and the N Warrants would be exercisable in whole
or in part and at any time up to and including June 30, 2018, to the extent
permitted by applicable law and regulation.
RIGHT TO CAUSE THE COMPANY TO PURCHASE THE LEVINE LEICHTMAN WARRANTS FOR
CASH. Prior to our shareholders approving both the amendment to our articles of
incorporation set forth in Proposal 1 above and the issuance of the shares of
common stock issuable upon exercise of the Levine Leichtman Warrants, the
primary value in the Levine Leichtman Warrants is the right of the holder to
cause the Company to purchase such warrants for cash. The cash payable in the
event the holders of the Levine Leichtman Warrants exercise their put right is
equal to the product of (1) the number of shares of our common stock as to which
such warrants are otherwise exercisable (assuming the receipt of stockholder
approval), and (2) the excess of the market price of our common stock over the
exercise price of those warrants exercised. For this purpose, the market price
of our common stock is computed as the average of the closing prices of such
stock reported over the 20 consecutive trading days immediately preceding the
date on which Levine Leichtman or its assignee, as applicable, delivers such
warrants and a notice of exercise to us. We refer to this formula as the cash
exercise formula. If the holders of the Levine Leichtman Warrants exercise their
right to cause the Company to purchase such warrants for cash, we would be
required to deliver a cash payment within two business days following exercise .
OTHER MATERIAL TERMS OF THE LEVINE LEICHTMAN INVESTMENT. In consideration
of Levine Leichtman's investment of $25 million, the Company (i) issued $25
million principal face amount of secured senior notes due June 30, 2013, which
bear interest at an annual base rate of 16%, (ii) paid an origination fee to
Levine Leichtman of $1.1 million, (iii) issued to Levine Leichtman 1,225,000
shares of common stock, (iv) paid the out-of-pocket expenses of Levine
Leichtman, and (v) issued the Levine Leichtman Warrants. The notes may not be
prepaid prior to July 1, 2010; they may be prepaid with a prepayment penalty of
3% on or after July 1, 2010 but prior to July 1, 2011, of 1% on or after July 1,
2011 but prior to July 1, 2012, and thereafter without penalty. Additionally,
under the transaction documents executed in connection with the Levine Leichtman
transaction, CPS may not issue or grant any equity interests or equity rights to
any person (other than Levine Leichtman) prior to the date on which the
shareholders of the Company approve the issuance by the Company of any and all
shares of common stock otherwise issuable upon exercise of the Levine Leichtman
5
Warrants. Further, investment of $15 million of the $25 million total Levine
Leichtman investment was contingent on CPS entering into satisfactory amendments
to certain outstanding indebtedness of a CPS subsidiary in favor of an affiliate
of Citigroup. Those amendments are described below under "Amendments to our
Indebtedness to Citigroup."
ANTI-DILUTION ADJUSTMENTS. The Levine Leichtman Warrants are subject to
specified anti-dilution adjustments to take into account, among other things,
subsequent issuances of our common stock. Following the amendments to our
indebtedness to Citigroup, described below under "Amendments to our Indebtedness
to Citigroup," and the resulting anti-dilution adjustments of the Levine
Leichtman Warrants, the FMV Warrants became exercisable for up to an additional
64,324 shares of common stock, and their exercise price was adjusted to $2.4672,
and the N Warrants became exercisable for up to an additional 8,985 shares of
common stock, without effect on the nominal exercise price. After these
anti-dilution adjustments, the FMV Warrants are exercisable to purchase up to
1,564,324 shares of our common stock and the N Warrants are exercisable to
purchase up to 283,985 shares of our common stock, for a total of 1,848,309
shares of our common stock potentially issuable upon exercise of the Levine
Leichtman Warrants. There may be future anti-dilution adjustments as well,
resulting in an increase in the number of shares of common stock issuable upon
exercise of the Levine Leichtman Warrants, and your approval of this Proposal 2
will be approval of the issuance of such additional shares as a result of any
such adjustments. In all events the right to exercise such warrants for shares
(as opposed to the right to require the Company to purchase the warrants for
cash) is subject to shareholder approval of this Proposal 2 as well as approval
of the amendment to the CPS articles of incorporation set forth in Proposal 1.
COMMON STOCK OWNERSHIP OF LEVINE LEICHTMAN. As a part of the Levine
Leichtman investment, Levine Leichtman acquired 1,225,000 shares of our common
stock, in addition to any shares that may become issuable upon exercise of the
Warrants, assuming approval of Proposal 1 as well as Proposal 2. If all of the
Levine Leichtman Warrants are exercised, Levine Leichtman would hold, on a pro
forma basis after giving effect to such issuances as of the date hereof,
approximately 15.50% of the common stock of our company. Levine Leichtman
currently has the power to vote 1,225,000 shares of our common stock, or
approximately 6.17% of our aggregate outstanding common stock.
BOARD RECOMMENDATION. Your Board unanimously recommends approving the
issuance of 1,848,309 shares of CPS common stock, and any additional shares
issuable on account of the anti-dilutive provisions, upon exercise of the Levine
Leichtman Warrants, subject to adjustment pursuant to the anti-dilutive
provisions of the warrants. The Board of Directors believes that approval of the
issuance of these shares is in the best interests of the Company and its
stockholders as the Levine Leichtman transaction, together with the Citigroup
amendments described below, have provided the Company with necessary financing
and working capital for growth and operating needs.
AMENDMENTS TO OUR INDEBTEDNESS TO CITIGROUP
At March 31, 2008, we were indebted to an affiliate of Citigroup, which we
refer to as Citi, in the principal amount of $90,000,000, of which $30,000,000
was due on July 10, 2008. After March 31, 2008 and prior to the due date, we
prepaid approximately $3,163,328 in principal amount of that indebtedness,
leaving approximately $86,836,673 outstanding. Effective July 10, 2008, we
agreed with Citi to reduce the principal amount outstanding to $70,000,000, by
delivering to Citi's designee (i) warrants valued as being equivalent to
2,500,000 common shares, or $4,071,429 and (ii) cash of $12,765,244. These
warrants, which we refer to as the Citi Warrants, represent the right to
purchase 2,500,000 CPS common shares at a nominal exercise price, at any time
prior to July 10, 2018. For purposes of this transaction, the Citi Warrants were
valued at the average of closing prices for CPS common shares as reported by the
Nasdaq Stock Market for the seven trading days immediately preceding the
transaction (June 30 through July 9, inclusive), or $1.629 per share. Pursuant
to our agreements with Citi, the due date of the remaining $70,000,000 of
indebtedness was moved to June 15, 2009, and we obtained the option (contingent
on performance of the portfolio of interests pledged to Citi, and on payment of
a 1.00% extension fee), to extend the due date of such debt for an additional
year, to June 15, 2010.
STOCKHOLDER APPROVAL REQUIREMENT
By their respective terms, the Levine Leichtman Warrants provide that such
warrants may not be exercised to purchase common stock, prior to the shareholder
approval date. The shareholder approval date is defined as the date on which the
shareholders of the Company approve the issuance by the Company of any and all
shares of common stock otherwise issuable upon exercise of the Levine Leichtman
Warrants. Thus, the terms of the Levine Leichtman Warrants require shareholder
approval to remove the restrictions on exercise.
6
Further, because our common stock is traded on the NASDAQ market, we are
subject to the Nasdaq Marketplace Rules. Nasdaq Marketplace Rule 4350(i)(1)(D)
provides that, except in limited circumstances, shareholder approval is required
in connection with a transaction, other than a public offering, involving the
sale, issuance or potential issuance of common stock, or securities convertible
into or exercisable for common stock, if the number of shares of common stock to
be issued upon such conversion or exercise is, or will be upon issuance, equal
to or in excess of 20% of the number of shares outstanding prior to such
issuance, or if the common stock to be issued upon such exercise has, or will
upon issuance have, voting power equal to or in excess of 20% of the voting
power outstanding prior to such issuance, for less than the greater of book or
market value of the stock. If the Levine Leichtman transaction and the Citi
transaction described above were considered to be a single transaction, the
issuance of shares under the Levine Leichtman Warrants without restriction on
exercise would require shareholder consent. As such, the Levine Leichtman
Warrants were drafted to restrict their exercise prior to obtaining shareholder
approval. The contractual shareholder approval requirement, as well as the
Nasdaq Marketplace Rules shareholders requirement, if applicable, will each be
satisfied upon approval of this Proposal 2; provided that Proposal 1 is also
approved, which will provide sufficient authorized shares for issuance.
THE PROPOSAL
A vote For proposal 2 is a vote to approve the future issuance, in
connection with the exercise of the Levine Leichtman Warrants, of 1,848,309
shares of CPS Common Stock, subject to adjustment pursuant to the anti-dilutive
provisions of the warrants.
EFFECT OF A FAILURE TO APPROVE THIS PROPOSAL. In the event that our
shareholders do not approve the proposal set forth below, the Levine Leichtman
Warrants will not be exercisable for common stock; however, the holder of such
warrants will continue to have the right to cause the Company to purchase such
warrants for cash. Upon exercise of this right, the holder of the Levine
Leichtman Warrants will receive cash according to the cash exercise formula. The
exercise of this put right for cash of all of the Levine Leichtman Warrants,
depending on the price per share of our common stock on the trading day
preceding such exercise, could adversely affect our liquidity and cash on hand.
As examples, the table below presents the cash payable upon exercise of 100% of
the Levine Leichtman Warrants, based on an assumed exercise date of August __,
2008 (the latest practicable date), and based on market prices for our common
stock equal to the market price as of such date and 10% and 20% above and below
the market price on that date.
----------------------- ----------------------------------
Assumed Market Price Cash Payable Upon Exercise of
per Share* the Warrants*
----------------------- ----------------------------------
[$2.40] [$660,000]
----------------------- ----------------------------------
[$2.20] [$605,000]
----------------------- ----------------------------------
[$2.00] [$550,000]
----------------------- ----------------------------------
[$1.80] [$495,000]
----------------------- ----------------------------------
[$1.60] [$440,000]
----------------------- ----------------------------------
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* assumed illustrative prices and figures are included in this preliminary copy
of the proxy statement
The preceding summary of certain material features of the FMV Warrants and
the N Warrants does not purport to include all of the information regarding them
that may be important to your decision regarding this proposal. Copies of the
FMV Warrants and the N Warrants are included as Exhibits A and B, respectively,
and you should read the warrants carefully before casting your vote.
The terms of the transactions between the Company and Levine Leichtman were
determined by negotiation, and, in the case of the FMV Warrants issued to Levine
Leichtman, by reference to the prevailing market price for the Company's common
stock. The price per share was agreed to on June 30, 2008, on which date the
closing price of the common stock was $1.47 per share. The parties also
considered the recently prevailing prices for the common stock, which had
averaged, over the preceding 10 trading days, $2.573 per share.
7
VOTE NECESSARY TO APPROVE THE ISSUANCE OF COMMON STOCK UPON EXERCISE OF THE
LEVINE LEICHTMAN WARRANTS
Pursuant to Nasdaq Marketplace Rule 4350(i)(6), the affirmative vote of
a majority of votes cast on Proposal 2 is required to adopt the proposal.
Accordingly, failure to cast a vote on this Proposal 2 will not affect whether
this proposal is approved, and an abstention will not count as a vote in favor
of or against such proposal. If Levine Leichtman and Mr. Bradley, our president
and chief executive officer as well as one of our largest shareholders, vote in
favor of this Proposal 2, 11.98% of our total outstanding shares will have voted
in favor of the proposal.
We have also contractually agreed with Levine Leichtman that in the event
our shareholders do not approve this Proposal 2, as well as Proposal 1, we will
include similar proposals for such approvals at a meeting of our shareholders no
less than once per annual period until such approval is obtained.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL 2.
8
INFORMATION REGARDING THE COMPANY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of the record
date (July 28, 2008), by (i) each person known to CPS to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director or named
executive officer of CPS, and (iii) all directors and executive
officers of CPS as a group. Except as otherwise indicated, and subject to
applicable community property and similar laws, each of the persons named has
sole voting and investment power with respect to the shares shown as
beneficially owned by such persons. Except as otherwise noted, each person named
in the table has a mailing address at 16355 Laguna Canyon Road, Irvine, CA
92618.
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (1) of Class
--------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. ......................................................... 2,401,102 (2) 11.4%
Chris A. Adams .................................................................. 54,000 *
E. Bruce Fredrikson ............................................................. 110,000 *
Brian J. Rayhill................................................................. 115,000 *
William B. Roberts .............................................................. 939,107 4.7%
John C. Warner .................................................................. 105,000 *
Gregory S. Washer ............................................................ 127,550 *
Daniel S. Wood .................................................................. 132,000 *
Jeffrey P. Fritz................................................................. 194,000 1.0%
Curtis K. Powell................................................................. 307,000 1.5%
Robert E. Riedl.................................................................. 253,984 1.3%
Chris Terry...................................................................... 235,085 1.2%
All directors, nominees and executive officers combined (15 persons) 5,457,871 (2) (3) 24.1%
Millennium Management, L.L.C., 666 Fifth Ave., New York, NY 10103 .............. 1,469,618 (4) 7.4%
Dimensional Fund Advisors LP, 1299 Ocean Ave., Santa Monica, CA 90401 1,111,634 (5) 5.6%
Levine Leichtman Capital Partners IV, L.P. , 335 N. Maple Dr., Beverly
Hills, CA 90210.............................................................. 1,225,000 (6) 6.2%
Citigroup Inc., 399 Park Ave, New York, NY 10043................................. 2,509,335 (7) 12.7%
* Less than 1.0%
(1) Includes certain shares that may be acquired within 60 days after July
28, 2008 from the Company upon exercise of options, as follows: Mr.
Bradley, 1,184,099 shares; Mr. Adams, 40,000 shares; Mr. Fredrikson,
90,000 shares; Mr. Rayhill, 95,000 shares; Mr. Roberts, 45,000 shares;
Mr. Warner, 105,000 shares; Mr. Washer, 55,000 shares; Mr. Wood, 85,000
shares; Mr. Fritz, 194,000 shares; Mr. Powell, 139,000 shares; Mr.
Riedl, 249,000 shares; and Mr. Terry, 192,500 shares. The calculation
of beneficial ownership also includes, in the case of the executive
officers, an approximate number of shares each executive officer could
be deemed to hold through contributions made to the Company's Employee
401(k) Plan (the "401(k) Plan"). The 401(k) Plan provides an option for
all participating employees to purchase stock in the Company indirectly
by buying units in a mutual fund. Each "unit" in the mutual fund
represents an interest in Company stock, cash and cash equivalents.
(2) Includes shares pledged as security by the named person, with respect
to [1,149,780] shares of Mr. Bradley.
(3) Includes 2,782,099 shares that may be acquired within 60 days after
July 28, 2008, upon exercise of options and conversion of convertible
securities.
(4) Based on a report on Schedule 13G filed by the named person on February
12, 2008.
(5) Based on a report on Schedule 13G filed by the named person on February
6, 2008.
(6) Based on a report on Schedule 13D filed by the named person on July 10,
2008.
(7) Based on a report on Form 3 filed by the named person on July 18, 2008.
Includes 2,500,000 shares that may be acquired upon exercise of an
outstanding warrant.
9
FURTHER INFORMATION RELATING TO THE SPECIAL MEETING
VOTING OF SHARES
The Board of Directors recommends that an affirmative vote be cast in favor of
the each of the proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before the
meeting which require submission to a vote of the shareholders. If any other
matters are properly brought before the meeting, however, the persons named in
the enclosed proxy or their substitutes will vote in accordance with their best
judgment on such matters.
Holders of CPS Common Stock are entitled to one vote per share.
Votes cast in person or by proxy at the Meeting will be tabulated by the
Inspector of Elections with the assistance of the Company's transfer agent. 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
the proposal to amend the articles of incorporation requires the affirmative
vote of a majority of the outstanding shares. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy that is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted FOR the amendment of the Company's
articles of incorporation increasing the number of authorized common shares from
30 million to 75 million; FOR the issuance of up to 1,848,309]shares of CPS
common stock upon the exercise of the Levine Leichtman Warrants, subject to
adjustment pursuant to the anti-dilutive provisions of such warrants.; and will
be deemed to grant discretionary authority to vote upon any other matters
properly coming before the meeting. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will be
considered as abstentions with respect to that matter, and will therefore have
the effect of a vote against the proposal to amend the articles of
incorporation. but will have no effect on the vote for the issuance of shares of
CPS common stock upon the exercise of the Levine Leichtman Warrants. While there
is no definitive specific statutory or case law authority in California
concerning the proper treatment of abstentions and broker non-votes, the Company
believes that the tabulation procedures to be followed by the Inspector of
Elections are consistent with the general statutory requirements in California
concerning voting of shares and determination of a quorum.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
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.
10
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION OR QUALIFICATION THEREFROM.
WARRANT NO. LLCP-FMV 1 June 30, 2008
WARRANT TO PURCHASE
1,500,000 SHARES OF COMMON STOCK
FOR VALUE RECEIVED, CONSUMER PORTFOLIO SERVICES, INC., a California
corporation (the "COMPANY"), hereby certifies that LEVINE LEICHTMAN CAPITAL
PARTNERS IV, L.P., a Delaware limited partnership, or its assigns (the
"HOLDER"), is entitled to purchase, on the terms and subject to the conditions
contained herein, ONE MILLION FIVE HUNDRED THOUSAND (1,500,000) shares (the
"WARRANT SHARES") of the Company's common stock, no par value per share ("COMMON
STOCK"), at the exercise price of $2.573 per Warrant Share (the "WARRANT
PURCHASE PRICE") at any time and from time to time during the Exercise Period
(as such term is defined below). The number of Warrant Shares and the Warrant
Purchase Price shall be subject to adjustment as set forth in SECTION 3.
This Warrant (this "WARRANT") is the "Purchaser Closing FMV Warrant"
referred to in, and is being issued in connection with the consummation of the
transactions contemplated by, that certain Securities Purchase Agreement dated
as of June 30, 2008, by and between the Company and the initial Holder of this
Warrant (as amended or modified from time to time, the "SECURITIES PURCHASE
AGREEMENT"), and is subject to the following terms and conditions:
1. DEFINITIONS. For the purposes of this Warrant, (a) unless otherwise set forth
herein, capitalized terms used herein shall have the meanings given to them in
the Securities Purchase Agreement and (b) the following terms shall have the
respective meanings set forth below:
"COMMON STOCK" has the meaning set forth in the preamble of this
Warrant.
"COMPANY" has the meaning set forth in the preamble of this Warrant.
"CURRENT MARKET PRICE" per share of Common Stock means, as of any
specified date on which the Common Stock is publicly traded, the average of the
daily market prices of the Common Stock over the twenty (20) consecutive trading
days immediately preceding (and not including) such date. The 'daily market
price' for each such trading day shall be (i) the closing sales price on such
day on the principal stock exchange on which the Common Stock is then listed or
admitted to trading or on Nasdaq, as applicable, (ii) if no sale takes place on
such day on any such exchange or system, the average of the closing bid and
asked prices, regular way, on such day for the Common Stock as officially quoted
on any such exchange or system, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or system, the last reported sale
price, regular way, on such day for the Common Stock, or if no sale takes place
on such day, the average of the closing bid and asked prices for the Common
Stock on such day, as reported by Nasdaq or the National Quotation Bureau, or
(iv) if the Common Stock is not then listed or admitted to trading on any
securities exchange and if no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the City of Los Angeles customarily published on each Business
Day. If the daily market price cannot be determined for the twenty (20)
consecutive trading days immediately preceding such date in the manner specified
in the foregoing sentence, then the Common Stock shall not be deemed to be
publicly traded as of such date.
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"DESIGNATED OFFICE" has the meaning set forth in SECTION 2.1.
"DILUTIVE ISSUANCE" has the meaning set forth in SECTION 3.9.
"DISTRIBUTION" has the meaning set forth in SECTION 3.3.
"DISTRIBUTION AMOUNT" has the meaning set forth in SECTION 3.3.
"DOJ" has the meaning set forth in SECTION 2.4.
"EXCLUDED SHARES" shall mean (i) Common Stock, Equity Rights or
Convertible Securities issued in any of the transactions described in SECTIONS
3.1, 3.2, 3.3 OR 3.5, (ii) shares of Common Stock issued after the Issuance Date
upon conversion, exercise or exchange of Equity Rights or Convertible Securities
outstanding on the Issuance Date, and (iii) this Warrant or any securities
issued upon exercise hereof. Notwithstanding the foregoing, shares of Common
Stock, Equity Rights or Convertible Securities, and the shares of Common Stock
issuable in respect thereof described in clauses (i) or (ii) shall not
constitute "Excluded Shares" if the terms thereof are amended or revised after
the Issuance Date.
"EXERCISE NOTICE" has the meaning set forth in SECTION 2.1.
"EXERCISE PERIOD" means the period commencing on the Issuance Date and
ending on (and including) the Expiration Date.
"EXPIRATION DATE" means June 30, 2018.
"FAIR MARKET VALUE" per share of Common Stock as of any specified date
means (i) if the Common Stock is publicly traded on such date, the Current
Market Price per share, or (ii) if the Common Stock is not publicly traded (or
deemed not to be publicly traded) on such date, the fair market value per share
of Common Stock as determined in good faith by the Board of Directors of the
Company and set forth in a written notice to the Holder, subject to the Holder's
right to dispute such determination under SECTION 3.8(E).
"FTC" has the meaning set forth in SECTION 2.4.
"HOLDER" has the meaning set forth in the preamble of this Warrant.
"HSR ACT" has the meaning set forth in SECTION 2.4.
"ISSUANCE DATE" means June 30, 2008.
"NASDAQ" means the Nasdaq Stock Market or any successor reporting
system thereof.
"OTHER PROPERTY" has the meaning set forth in SECTION 3.5.
"REFERENCE PRICE" means, as of any time, the higher of (i) the Warrant
Purchase Price in effect as of such time, and (ii) the Fair Market Value per
share of Common Stock in effect at such time.
"SHAREHOLDER APPROVAL DATE" means the date on which Shareholder
Approval is obtained.
"WARRANT" means this Warrant, any amendment of this Warrant, and any
warrants issued upon transfer, division or combination of, or in substitution
for, this Warrant or any other such warrant. All such Warrants shall at all
times be identical as to terms and conditions and date, except as to the number
of Warrant Shares for which they may be exercised.
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"WARRANT PURCHASE PRICE" has the meaning set forth in the preamble of
this Warrant (as adjusted in accordance with the terms of this Warrant).
"WARRANT SHARES" has the meaning set forth in the preamble of this
Warrant.
2. EXERCISE.
2.1 EXERCISE; DELIVERY OF CERTIFICATES. Subject to the provisions of
SECTIONS 2.4 and 2.5, this Warrant may be exercised, in whole or in part, at the
option of the Holder, at any time and from time to time during the Exercise
Period, by (a) delivering to the Company at its principal executive office (the
"DESIGNATED OFFICE") (i) a notice of exercise, in substantially the form
attached hereto (the "EXERCISE NOTICE"), duly completed and signed by the
Holder, and (ii) this Warrant, and (b) paying the Warrant Purchase Price
pursuant to SECTION 2.2 for the number of Warrant Shares proposed to be
purchased in the Exercise Notice. Subject to the provisions of SECTION 2.4, the
Warrant Shares being purchased under this Warrant will be deemed to have been
issued to the Holder, as the record owner of such Warrant Shares, as of the
close of business on the date on which payment therefor is made by the Holder
pursuant to SECTION 2.2. Stock certificates representing the Warrant Shares so
purchased shall be delivered to the Holder within three (3) Business Days after
this Warrant has been exercised (or, if applicable, immediately after the
conditions set forth in SECTION 2.4 have been satisfied); PROVIDED, HOWEVER,
that in the case of a purchase of less than all of the Warrant Shares issuable
upon exercise of this Warrant, the Company shall cancel this Warrant and, within
three (3) Business Days after this Warrant has been surrendered, execute and
deliver to the Holder a new Warrant of like tenor for the number of unexercised
Warrant Shares. Each stock certificate representing the number of Warrant Shares
purchased pursuant to this Warrant shall be registered in the name of the Holder
or, subject to compliance with Applicable Laws, such other name as designated by
the Holder.
2.2 PAYMENT OF WARRANT PRICE. Payment of the Warrant Purchase Price
shall be made, at the option of the Holder, by (i) check from the Holder, (ii)
wire transfer, (iii) instructing the Company to withhold and cancel a number of
Warrant Shares then issuable upon exercise of this Warrant with respect to which
the excess, if any, of the Fair Market Value over the Warrant Purchase Price for
such canceled Warrant Shares is at least equal to the Warrant Purchase Price for
the Warrant Shares being purchased, (iv) surrendering to the Company of shares
of Common Stock previously acquired by the Holder with a Fair Market Value equal
to the Warrant Purchase Price for the Warrant Shares then being purchased or (v)
any combination of the foregoing.
2.3 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock upon the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay to the Holder an amount in cash calculated by it
to be equal to the then Fair Market Value per share of Common Stock multiplied
by such fraction computed to the nearest whole cent.
2.4 ANTITRUST NOTIFICATION. If the Holder determines, in its sole
judgment upon the advice of counsel, that an exercise of this Warrant pursuant
to the terms hereof is subject to the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the Holder shall
notify the Company, and the Company and the Holder shall, prior to the payment
of the Warrant Purchase Price, file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice (the "DOJ")
the notification and report form, if any, required in connection with the
exercise of this Warrant, and any supplemental information required in
connection therewith, pursuant to the HSR Act. Any information required to be
provided by or with respect to the Company shall be provided by the Company
within seven (7) Business Days after receiving notification from the Holder of
the applicability of the HSR Act. Any such notification, report form and
supplemental information will be in full compliance with the requirements of the
HSR Act. The Company will furnish to the Holder such necessary information and
such assistance as the Holder may reasonably request in connection with the
preparation of any filing or submission which is necessary under the HSR Act.
The Company shall respond promptly after receiving any inquiries or requests for
additional information from the FTC or the DOJ (and in no event more than five
(5) Business Days after receipt of such inquiry or request). The Company shall
keep the Holder apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC or the DOJ, and
shall respond promptly to any such inquiries or requests. The Company shall bear
all filing or other fees required to be paid by the Company and the Holder (or
the "ultimate parent entity" of the Holder, if any) under the HSR Act or any
other Applicable Law and the Company shall bear all costs and expenses
(including, without limitation, attorneys' fees) incurred by the Company and the
Holder (or the "ultimate parent entity" of the Holder, if any) in connection
with the preparation of such filings, responses to inquiries or requests and
A-3
compliance with the HSR Act and other Applicable Laws. In the event that this
SECTION 2.4 is applicable to any exercise of this Warrant, the purchase of the
Warrant Shares subject to the Exercise Notice, and the payment of the Warrant
Purchase Price, will be subject to the expiration or earlier termination of the
waiting period under the HSR Act.
2.5 RESTRICTIONS ON EXERCISE.
(a) This Warrant may not be exercised in whole or in part
prior to the Shareholder Approval Date. For the avoidance of doubt, the
foregoing restriction on exercise shall not limit the Holder's right to exercise
the Put Option set forth in SECTION 2.6.
(b) If, at any time prior to the Shareholder Approval Date,
the Company engages in a transaction that is subject to the provisions of
SECTION 3.5 or a majority of the outstanding shares of Common Stock is sold in
one transaction or a series of related transactions (each, a "TRANSACTION"),
then the Company shall either (i) obtain Shareholder Approval prior to or upon
the consummation of such Transaction or (ii) pay to the Holder prior to or upon
the consummation of such Transaction an amount in cash equal to (A) the
difference between the fair market value of the consideration to be received for
each share of Common Stock pursuant to such Transaction (as determined in good
faith by the Board of Directors of the Company and set forth in a written notice
to the Holder, subject to the Holder's right to dispute such determination under
SECTION 3.8(E)) and the Warrant Purchase Price then in effect, MULTIPLIED BY (B)
the number of shares of Common Stock then issuable upon exercise of this Warrant
(disregarding any restrictions on exercise).
2.6 PUT OPTION.
(a) From and after the Issuance Date, and continuing until the
date described in SECTION 2.6(C), the Holder shall have the right and option
(the "PUT OPTION"), exercisable at any time and from time to time, at its sole
option, to require the Company to purchase this Warrant (including any warrants
issued upon assignments of this Warrant), in whole or in part at a price equal
to (i) the number of shares of Common Stock subject to the portion of this
Warrant as to which the Put Option is being exercised (disregarding any
restrictions on exercise), multiplied by (ii) the excess of the Fair Market
Value of one share of Common Stock as of the date the Put Option is exercised,
over the Warrant Purchase Price.
(b) If the Holder wishes to exercise the Put Option, in whole
or in part, it shall furnish to the Company a written notice notifying the
Company of its election to exercise the Put Option. Upon receipt by the Company
of such written notice, the Company shall be obligated to purchase from the
Holder, on the second Business Day after its receipt of such notice, the portion
of this Warrant subject to the exercise of the Put Option at the price set forth
in CLAUSE (A) above. At the closing of the Put Option, the Holder shall deliver
to the Company this Warrant (or the portion being put to the Company), against
payment by the Company of the applicable price by wire transfer in immediately
available funds to a bank account designated by the Holder.
(c) The Put Option shall survive until the Expiration Date.
(d) In no event shall the Holder be obligated to make any
representations or warranties as to this Warrant in connection with any exercise
of the Put Option other than with respect to the Holder's organization, good
standing and authority, its title to this Warrant, no consents and no conflicts
with the Holder's organizational documents and material agreements.
3. ADJUSTMENTS TO THE NUMBER OF WARRANT SHARES AND TO THE WARRANT
PURCHASE PRICE. The number of Warrant Shares for which this Warrant is
exercisable and the Warrant Purchase Price shall be subject to adjustment from
time to time as set forth in this SECTION 3.
3.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Company:
A-4
(a) pays a dividend or other distribution on its Common Stock
in shares of Common Stock or shares of any other class or series of Capital
Stock,
(b) subdivides its outstanding shares of Common Stock (by
stock split, reclassification or otherwise) into a larger number of shares of
Common Stock, or
(c) combines (by reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be adjusted so that the
Holder shall thereafter be entitled to receive upon exercise of this Warrant the
kind and number of shares of Common Stock that the Holder would have owned or
have been entitled to receive immediately after such record date or effective
date had this Warrant been exercised immediately prior to such record date or
effective date. Any adjustment made pursuant to this SECTION 3.1 shall become
effective immediately after the effective date of such event, but be retroactive
to the record date, if any, for such event.
Upon any adjustment of the number of Warrant Shares purchasable upon
the exercise of this Warrant as herein provided, the Warrant Purchase Price per
share shall be adjusted by multiplying the Warrant Purchase Price immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment and the denominator of which shall be the
number of Warrant Shares so purchasable immediately thereafter.
3.2 RIGHTS; OPTIONS; WARRANTS. If, at any time after the Issuance Date,
the Company issues (without payment of any consideration) to all holders of
outstanding Common Stock any rights, options or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or exchangeable
for Common Stock, then the Company shall also distribute, at the same time as
the distribution to such holders, such rights, options, warrants or securities
to the Holder as if this Warrant had been exercised immediately prior to the
record date for such issuance.
3.3 DISTRIBUTION OF ASSETS OR SECURITIES. If at any time the Company
makes a distribution (other than a distribution covered by SECTION 3.1 or 3.2)
to its shareholders of any asset, including cash or securities (such
distribution, a "DISTRIBUTION", and the total of the cash, assets or securities
so distributed, the "DISTRIBUTION AMOUNT"), then, at the Holder's option:
(i) the Holder shall have the right to receive an amount of
assets, including cash or securities equal to the number of Warrant Shares for
which this Warrant is exercisable immediately prior to the Distribution,
multiplied by the Distribution Amount, divided by the number of shares of Common
Stock outstanding at such time. Upon the closing of the Distribution, the
Company shall distribute such portion of the Distribution Amount to the Holder;
or
(ii) the Warrant Purchase Price shall be adjusted and shall be
equal to the Warrant Purchase Price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
receive such distribution, multiplied by a fraction (which shall not be less
than zero), the numerator of which shall be the Fair Market Value per share of
Common Stock on the date fixed for such determination, less the amount of cash,
the then-fair market value of the portion of the assets, or the fair market
value of the portion of the securities, as the case may be (as determined in
good faith by the Board of Directors of the Company, subject to the Holder's
rights under SECTION 3.8(E)), so distributed applicable to one share of Common
Stock, and the denominator of which shall be the Fair Market Value per share of
Common Stock. Such adjustment to the Warrant Purchase Price shall become
effective immediately prior to the opening of business on the day immediately
following the date fixed for the determination of shareholders entitled to
receive such distribution. Upon any adjustment to the Warrant Purchase Price as
provided for in this SECTION 3.3(B)(II), the number of Warrant Shares issuable
upon the exercise of this Warrant shall also be adjusted and shall be equal to
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment multiplied by a fraction, the numerator of which is the
A-5
Warrant Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
3.4 ISSUANCE OF EQUITY SECURITIES AT LESS THAN FAIR MARKET VALUE OR
WARRANT PURCHASE PRICE.
(a) If, at any time after Issuance Date, the Company shall
issue or sell (or, in accordance with SECTION 3.4(B), shall be deemed to have
issued or sold) shares of Common Stock, or Equity Rights or Convertible
Securities representing the right to subscribe for or purchase shares of Common
Stock (other than any Excluded Shares) at a price per share of Common Stock that
is lower than the Reference Price in effect immediately prior to such sale and
issuance, then the Warrant Purchase Price shall be adjusted so that it shall
equal the price determined by multiplying the Warrant Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such sale and issuance plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Company (and in
the case of adjustments triggered in full or in part by the issuance of Equity
Rights or Convertible Securities, the aggregate consideration deemed received in
respect of such issuance determined as provided in SECTION 3.4(B) below) for
such sale or issuance would purchase at such Reference Price per share, and the
denominator of which shall be the total number of shares of Common Stock
outstanding (and in the case of adjustments triggered in full or in part by the
issuance of Equity Rights or Convertible Securities, the number of shares of
Common Stock deemed to be outstanding as a result of such issuance determined as
provided in SECTION 3.4(B) below) immediately after such sale or issuance.
Adjustments shall be made successively whenever such an issuance is made. Upon
any adjustment in the Warrant Purchase Price as provided in this SECTION 3.4(A),
the number of shares of Common Stock purchasable upon the exercise of this
Warrant shall also be adjusted and shall be that number determined by
multiplying the number of Warrant Shares issuable upon exercise immediately
prior to such adjustment by a fraction, the numerator of which is the Warrant
Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
(b) For the purpose of determining the adjusted Warrant
Purchase Price under SECTION 3.4(A), the following shall be applicable:
(i) If the Company in any manner issues or grants any
Equity Rights (including Equity Rights to acquire Convertible Securities), and
the price per share for which shares of Common Stock are issuable upon the
exercise of such Equity Rights or upon conversion or exchange of such
Convertible Securities is less than the Reference Price determined as of the
date of such issuance or grant of such Equity Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Equity
Rights (or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Equity Rights) shall
be deemed to be outstanding and to have been issued and sold by the Company for
such lower price per share. For purposes of this paragraph, the price per share
for which shares of Common Stock are issuable upon exercise of Equity Rights or
upon conversion or exchange of Convertible Securities issuable upon exercise of
Equity Rights shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the issuing or
granting of such Equity Rights, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Equity
Rights, plus in the case of such Equity Rights which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon exercise of such Equity Rights or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Equity Rights.
(ii) If the Company in any manner issues or grants
any Convertible Securities having an exercise or conversion or exchange price
per Share which is less than the Reference Price determined as of the date of
issuance or sale, then the maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Company for such lower
price per share. For purposes of this paragraph, the price per share for which
shares of Common Stock are issuable upon conversion or exchange of Convertible
Securities is determined by dividing (A) the total amount received by the
Company as consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
A-6
any, payable to the Company upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.
(iii) If the purchase price provided for in any
Equity Rights, the additional consideration, if any, payable upon the issuance,
conversion or exchange of any Convertible Securities or the rate at which any
Convertible Securities are convertible into or exchangeable for shares of Common
Stock decreases at any time, or if the number of shares of Common Stock issuable
upon the exercise, issuance, conversion or exchange of any Equity Rights or
Convertible Securities increases at any time, then the Warrant Purchase Price in
effect at the time of such decrease (or increase) shall be readjusted to the
Warrant Purchase Price which would have been in effect at such time had such
Equity Rights or Convertible Securities still outstanding provided for such
decreased purchase price, additional consideration, changed conversion rate or
increased shares, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares shall be correspondingly readjusted, by
taking the number of Warrant Shares issuable upon the exercise of this Warrant
immediately prior to such adjustment multiplied by a fraction, the numerator of
which is the Warrant Purchase Price in effect immediately prior to such
adjustment and the denominator of which is the Warrant Purchase Price as so
adjusted.
(iv) If at any time the Company sells and issues
shares of Common Stock or Equity Rights or Convertible Securities containing the
right to subscribe for or purchase shares of Common Stock for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then in determining the "price per share of Common Stock" and the "consideration
received by the Company" for purposes of the preceding paragraphs of this
SECTION 3.4, the Board of Directors of the Company shall determine, in good
faith, the fair market value of property, subject to the Holder's rights under
SECTION 3.8(E).
(v) There shall be no adjustment of the Warrant
Purchase Price in respect of the Common Stock pursuant to this SECTION 3.4 if
the amount of such adjustment is less than $0.00001 per share of Common Stock;
PROVIDED, HOWEVER, that any adjustments which by reason of this provision are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.
3.5 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. If at any time the Company reorganizes its capital,
reclassifies its capital stock, consolidates, merges or combines with or into
another Person (where the Company is not the surviving corporation or where
there is any change whatsoever in, or distribution with respect to, the
outstanding Common Stock), or the Company sells, transfers or otherwise disposes
of all or substantially all of its property, assets or business to another
Person, other than in a transaction provided for in SECTION 3.1, 3.2, 3.3, 3.4
OR 3.6, and, pursuant to the terms of such reorganization, reclassification,
consolidation, merger, combination, sale, transfer or other disposition of
assets, (i) shares of common stock of the successor or acquiring Person or of
the Company (if it is the surviving corporation) or (ii) any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring Person or the Company ("OTHER
PROPERTY") are to be received by or distributed to the holders of Common Stock
who are holders immediately prior to such transaction, then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the number
of shares of Common Stock, common stock of the successor or acquiring Person,
and/or Other Property which holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event would have
owned or received immediately after and as a result of such event. In such
event, the aggregate Warrant Purchase Price otherwise payable for the Warrant
Shares issuable upon exercise of this Warrant shall be allocated among such
securities and Other Property in proportion to the respective fair market values
of such securities and Other Property as determined in good faith by the Board
of Directors of the Company, subject to the Holder's rights under SECTION
3.8(E).
In case of any such event, the successor or acquiring Person (if other
than the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as the Holder may approve in writing
(as determined by resolution of the Board of Directors of the Company) in order
to provide for adjustments of any shares of common stock of such successor or
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acquiring Person for which this Warrant thus becomes exercisable, which
modifications shall be as equivalent as practicable to the adjustments provided
for in this SECTION 3.5. For purposes of this SECTION 3, "common stock of the
successor or acquiring Person" shall include stock or other equity securities,
or securities that are exercisable or exchangeable for or convertible into
equity securities, of such corporation, or other securities if such Person is
not a corporation, of any class that is not preferred as to dividends or assets
over any other class of stock of such corporation or Person and that is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
SECTION 3.5 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers and other
dispositions of assets.
3.6 DISSOLUTION, TOTAL LIQUIDATION OR WINDING-UP. If at any time there
is a voluntary or involuntary dissolution, total liquidation or winding-up of
the Company, other than as contemplated by SECTION 3.5, then the Company shall
cause to be mailed (by registered or certified mail, return receipt requested,
postage prepaid) to the Holder at the Holder's address as shown on the Warrant
register, at the earliest practicable time (and, in any event, not less than
thirty (30) calendar days before any date set for definitive action) written
notice of the date on which such dissolution, liquidation or winding-up shall
take place, as the case may be. Such notice shall also specify the date as of
which the record holders of shares of Common Stock shall be entitled to exchange
their shares for securities, money or other property deliverable upon such
dissolution, liquidation or winding-up, as the case may be. On such date, the
Holder shall be entitled to receive upon surrender of this Warrant the cash or
other property, less the Warrant Purchase Price for this Warrant then in effect,
that the Holder would have been entitled to receive had this Warrant been
exercised immediately prior to such dissolution, liquidation or winding-up. Upon
receipt of the cash or other property, any and all rights of the Holder to
exercise this Warrant shall terminate in their entirety. If the cash or other
property distributable in the dissolution, liquidation or winding-up has a fair
market value (as determined in good faith by the Board of Directors of the
Company and set forth in a written notice to the Holder, subject to the Holder's
right to dispute such determination under SECTION 3.8(E)) which is less than the
Warrant Purchase Price for this Warrant then in effect, this Warrant shall
terminate and be of no further force or effect upon the dissolution, liquidation
or winding-up.
3.7 OTHER DILUTIVE EVENTS. If any event occurs as to which the other
provisions of this SECTION 3 are not strictly applicable but as to which the
failure to make any adjustment would not protect the purchase rights represented
by this Warrant in accordance with the intent and principles hereof then, in
each such case, the Holder (or if the Warrant has been divided up, the Holders
of Warrants exercisable for the purchase of more than fifty percent (50%) of the
aggregate number of Warrant Shares then issuable upon exercise of all of the
then exercisable Warrants) may appoint an independent investment bank or firm of
independent public accountants which shall give its opinion as to the
adjustment, if any, on a basis consistent with the intent and principles
established herein, necessary to preserve the purchase rights represented by
this Warrant (or such Warrants). Upon receipt of such opinion, the Company will
mail (by registered or certified mail, return receipt requested, postage
prepaid) a copy thereof to the Holder within three (3) Business Days and shall
make the adjustments described therein. The fees and expenses of such investment
bank or independent public accountants shall be borne by the Company.
3.8 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the adjustments provided for
pursuant to this SECTION 3:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this SECTION 3 shall be made whenever and as often as any specified event
requiring such an adjustment shall occur. For the purpose of any such
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) RECORD DATE. If the Company fixes a record date of the
holders of Common Stock for the purpose of entitling them to (i) receive a
dividend or other distribution payable in shares of Common Stock or in shares of
any other class or series of capital stock or securities convertible into or
exchangeable for Common Stock or shares of any other class or series of capital
stock or (ii) subscribe for or purchase shares of Common Stock or such other
shares or securities, then all references in this SECTION 3 to the date of the
issuance or sale of such shares of Common Stock or such other shares or
securities shall be deemed to be references to that record date.
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(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company fixes a
record date of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights to
which the provisions of SECTION 3.1 would apply, but shall, thereafter and
before the distribution to shareholders, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(d) NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which this Warrant is exercisable or the Warrant Purchase Price
shall be adjusted or recalculated pursuant to this SECTION 3, the Company shall
immediately prepare a certificate to be executed by the chief financial officer
of the Company setting forth, in reasonable detail, the event requiring the
adjustment or recalculation and the method by which such adjustment or
recalculation was calculated, specifying the number of shares of Common Stock
for which this Warrant is exercisable and (if such adjustment was made pursuant
to SECTION 3.5) describing the number and kind of any other shares of stock or
Other Property for which this Warrant is exercisable, and any related change in
the Warrant Purchase Price, after giving effect to such adjustment,
recalculation or change. The Company shall mail (by registered or certified
mail, return receipt requested, postage prepaid) a signed copy of the
certificate to be delivered to the Holder within three (3) Business Days of the
event which caused the adjustment or recalculation. The Company shall keep at
the Designated Office copies of all such certificates and cause them to be
available for inspection at the Designated Office during normal business hours
by the Holder or any prospective transferee of this Warrant designated by the
Holder.
(e) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company is required to make a determination in good faith of
the fair market value of any item under this Warrant, or any item that may
affect the value of this Warrant, that determination may be challenged or
disputed by the Holder (or if the Warrant has been divided up, the Holders of
Warrants exercisable for more than fifty percent (50%) of the aggregate number
of Warrant Shares then issuable upon exercise of all of the then exercisable
Warrants), and any such challenge or dispute shall be resolved promptly, but in
no event in more than thirty (30) days, by an investment banking firm of
recognized national standing or one of the four (4) largest national accounting
firms agreed upon by the Company and the Holders and whose decision shall be
binding on the Company and the Holders. If the Company and the Holders cannot
agree on a mutually acceptable investment bank or accounting firm, then the
Holders, jointly, and the Company shall within five (5) Business Days each
choose one investment bank or accounting firm and the respective chosen firms
shall within five (5) Business Days jointly select a third investment bank or
accounting firm, which shall make the determination promptly, but in no event in
more than thirty (30) days, and such determination shall be binding upon all
parties thereto. The Company shall bear all costs in connection with such
determination, including without limitation, fees of the investment bank(s) or
accounting firm(s), unless the change in Warrant Purchase Price determined
pursuant to this paragraph is within five percent (5%) of the change in warrant
purchase price as computed by the Company, in which case the Holder or Holders
challenging the determination shall bear such costs pro rata.
(f) INDEPENDENT APPLICATION. Except as otherwise provided
herein, all subsections of this SECTION 3 are intended to operate independently
of one another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
3.9 FIDUCIARY DUTIES TO HOLDER. The Board of the Company shall at all
times, whether or not this Warrant has been exercised, owe the Holder the same
fiduciary duties that it would owe to a holder of the Warrant Shares underlying
the Warrant.
4. MISCELLANEOUS.
4.1 RESTRICTIVE LEGEND. This Warrant, any Warrant issued upon transfer
of this Warrant and, unless registered under the Securities Act, any Warrant
Shares issued upon exercise of this Warrant or any portion thereof shall be
imprinted with the following legend, in addition to any legend required under
applicable state securities laws:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT IN COMPLIANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION OR QUALIFICATION THEREFROM.
The legend shall be appropriately modified upon issuance of
certificates for shares of Common Stock.
Upon request of the holder of a Common Stock certificate, the Company
shall issue to that holder a new certificate free of the foregoing legend, if,
with such request, such holder provides the Company with an opinion of counsel
reasonably acceptable to the Company (PROVIDED that Irell & Manella LLP shall be
deemed to be acceptable to the Company) to the effect that the securities
evidenced by such certificate may be sold without restriction under Rule 144 (or
any other rule permitting resales of securities without restriction) promulgated
under the Securities Act.
4.2 HOLDER ENTITLED TO BENEFITS. This Warrant is the "Purchaser Closing
FMV Warrant" referred to in the Securities Purchase Agreement. The Holder is
entitled to certain rights, benefits and privileges with respect to this Warrant
and the Warrant Shares pursuant to the terms of this Warrant, the Securities
Purchase Agreement and the other Investment Documents.
4.3 OTHER COVENANTS. Without limiting the generality of SECTION 4.2,
the Company covenants and agrees that, as long as this Warrant remains
outstanding or any Warrant Shares are issuable with respect to this Warrant, the
Company will perform all of the following covenants for the express benefit of
the Holder: (a) the Warrant Shares shall, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock; (b) the
Holder shall, upon the exercise hereof in accordance with the terms hereof,
receive good and marketable title to the Warrant Shares, free and clear of all
voting and other trust arrangements to which the Company is a party or by which
it is bound, preemptive rights of any shareholder, liens, encumbrances, equities
and claims whatsoever, including, but not limited to, all Taxes, Liens and other
charges with respect to the issuance thereof; (c) at all times prior to the
Expiration Date, the Company shall have reserved for issuance a sufficient
number of authorized but unissued shares of Common Stock, or other securities or
property for which this Warrant may then be exercisable, to permit this Warrant
(or if this Warrant has been divided, all outstanding Warrants) to be exercised
in full; (d) the Company shall deliver to the Holder the information and reports
described in SECTION 8.3 of the Securities Purchase Agreement; and (e) the
Company shall provide the Holder with written notice of all corporate actions in
the same manner and to the same extent as the shareholders of the Company.
4.4 ISSUE TAX. The issuance of shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the Holder for any stamp,
documentary, issue or similar tax in respect thereof.
4.5 CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of this Warrant or of any Warrant Shares in any
manner which interferes with the timely exercise hereof.
4.6 NO VOTING RIGHTS; LIMITATION OF LIABILITY. Except as expressly set
forth in this Warrant and in the Securities Purchase Agreement, nothing
contained in this Warrant shall be construed as conferring upon the Holder (a)
the right to vote or to consent as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matter,
or (b) the right to receive dividends except as set forth in SECTION 3. No
provisions hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
Warrant Purchase Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.
4.7 MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement is sought.
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4.8 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Warrant shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon receipt, if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the Holder, at:
c/o Levine Leichtman Capital Partners, Inc.
335 North Maple Drive, Suite 240
Beverly Hills, CA 90210
Attention: Arthur E. Levine and Steven E. Hartman
Telephone: (310) 275-5335
Facsimile: (310) 275-1441
WITH A COPY TO:
--------------
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attention: Mitchell S. Cohen, Esq.
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
(b) If to the Company, at:
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, CA 92618
Attention: Charles E. Bradley, Jr., President
(with a copy to Mark Creatura,
General Counsel)
Telephone: (949) 753-6800
Facsimile: (949) 450-3951
or at such other address or addresses as the Holder or the Company, as the case
may be, may specify by written notice given in accordance with this SECTION 4.8.
4.9 SUCCESSORS AND ASSIGNS. The Company may not assign any of its
rights, or delegate any of its obligations, under this Warrant without the prior
written consent of the Holder (which consent may be withheld for any reason or
no reason at all). The Holder may make an Assignment of this Warrant, in whole
or in part, at any time or from time to time, without the consent of the
Company. The Holder may use the Warrant Assignment Form attached hereto to make
an Assignment of this Warrant. Each Assignment of this Warrant, in whole or in
part, shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the Designated Office, together with
appropriate instruments of assignment, duly completed and executed. Upon such
surrender, the Company shall, at its own expense, within three (3) Business Days
of surrender, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees specified in such assignment and in the denominations
specified therein and this Warrant shall promptly be canceled. If any portion of
this Warrant is not being assigned, the Company shall, at its own expense,
within three (3) Business Days issue to the Holder a new Warrant evidencing the
part not so assigned. If the Holder makes an Assignment of this Warrant to one
or more Persons, any decisions that the Holder is entitled to make at any time
hereunder shall be made by the Holders holding more than fifty percent (50%) of
the aggregate number of Warrant Shares issuable upon exercise of all of the then
exercisable Warrants.
In addition, the Holder may, without notice to or the consent of the
Company, grant or sell Participations to one or more participants in all or any
part of its right, title and interest in and to this Warrant.
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This Warrant shall be binding upon and inure to the benefit of the
Company, the Holder and their respective successors and permitted assigns, and
shall include, with respect to the Company, any Person succeeding the Company by
merger, consolidation, combination or acquisition of all or substantially all of
the Company's assets, and in such case, except as expressly provided herein and
in the Securities Purchase Agreement, all of the obligations of the Company
hereunder shall survive such merger, consolidation, combination or acquisition.
4.10 CONSTRUCTION AND INTERPRETATION. The headings of the paragraphs of
this Warrant are for convenience of reference only and do not constitute a part
of this Warrant and are not to be considered in construing or interpreting this
Warrant. No party, nor its counsel, shall be deemed the drafter of this
Agreement for purposes of construing the provisions of this Agreement, and all
provisions of this Agreement shall be construed in accordance with their fair
meaning, and not strictly for or against any party. The rules of construction
and interpretation specified in Sections 1.2 through 1.6 of the Securities
Purchase Agreement shall likewise govern the construction and interpretation of
this Warrant.
4.11 LOST WARRANT OR CERTIFICATES. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or of a stock certificate evidencing Warrant Shares and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company or, in the case of any such mutilation,
upon surrender and cancellation of the Warrant or stock certificate, the Company
shall make and deliver to the Holder, within three (3) Business Days of receipt
by the Company of such documentation, a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
4.12 NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its charter documents or regulations or through any
reorganization, reclassification, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company will (i) not increase the par value (if
any) of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (ii) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all liens, encumbrances, equities and claims, and (iii) use its
best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
4.13 NO IMPLIED WAIVER. Nothing in this Warrant, including any
reference herein to an act or transaction, shall be construed as, or imply, a
waiver of any provision of the Securities Purchase Agreement or any other
Investment Document, including any prohibition therein against such an act or
transaction.
4.14 GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE RIGHTS AND
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW
OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
4.15 CONSENT TO JURISDICTION AND VENUE. ANY SUIT, LEGAL ACTION OR
SIMILAR PROCEEDING WITH RESPECT TO THIS WARRANT SHALL BE BROUGHT IN THE COURTS
OF THE STATE OF CALIFORNIA SITTING IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA
SITTING IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS WARRANT, EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE
HEREOF) CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
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NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY AND THE HOLDER
(BY ACCEPTANCE HEREOF) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
WARRANT. EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE HEREOF) HEREBY WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE STATE OF THE NEW YORK.
4.16 REMEDIES. If the Company fails to perform, comply with or observe
any covenant or agreement to be performed, complied with or observed by it under
this Warrant, the Holder may proceed to protect and enforce its rights by suit
in equity or action at law, whether for specific performance of any term
contained in this Warrant or for an injunction against the breach of any such
term or in aid of the exercise of any power granted in this Warrant or to
enforce any other legal or equitable right, or to take any one or more of such
actions. The Company hereby agrees that the Holder shall not be required or
otherwise obligated to, and hereby waives any right to demand that the Holder,
post any performance or other bond in connection with the enforcement of its
rights and remedies hereunder. The Company agrees to pay all fees, costs, and
expenses, including, without limitation, fees and expenses of attorneys,
accountants and other experts retained by the Holder, and all fees, costs and
expenses of appeals, incurred or expended by the Holder in connection with the
enforcement of this Warrant or the collection of any sums due hereunder, whether
or not suit is commenced. None of the rights, powers or remedies conferred under
this Warrant shall be mutually exclusive, and each right, power or remedy shall
be cumulative and in addition to any other right, power or remedy whether
conferred by this Warrant or now or hereafter available at law, in equity, by
statute or otherwise.
4.17 ENTIRE AGREEMENT. This Warrant and the other Investment Documents
constitute the full and entire agreement and understanding between the Holder
and the Company with respect to the subject matter hereof and supersede all
prior oral and written, and all contemporaneous oral, agreements and
understandings relating to the subject matter hereof.
4.18 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAWS, THE COMPANY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER THIS WARRANT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY AND THE HOLDER WITH RESPECT
TO THE WARRANT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR
OTHERWISE; AND THE COMPANY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT THE COMPANY OR ANY HOLDER MAY FILE AN ORIGINAL COPY OF THIS
SECTION 4.18 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY
HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and issued by its duly authorized representative on the date first written
above.
CONSUMER PORTFOLIO SERVICES, INC.,
a California corporation
By: /s/ Charles E. Bradley, Jr.
---------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer
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EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION OR QUALIFICATION THEREFROM.
WARRANT NO. LLCP-P 1 June 30, 2008
WARRANT TO PURCHASE
275,000 SHARES OF COMMON STOCK
FOR VALUE RECEIVED, CONSUMER PORTFOLIO SERVICES, INC., a California
corporation (the "COMPANY"), hereby certifies that LEVINE LEICHTMAN CAPITAL
PARTNERS IV, L.P., a Delaware limited partnership, or its assigns (the
"HOLDER"), is entitled to purchase, on the terms and subject to the conditions
contained herein, TWO HUNDRED SEVENTY-FIVE THOUSAND (275,000) shares (the
"WARRANT SHARES") of the Company's common stock, no par value per share ("COMMON
STOCK"), at the exercise price of $0.0001 per Warrant Share (the "WARRANT
PURCHASE PRICE") at any time and from time to time during the Exercise Period
(as such term is defined below). The number of Warrant Shares and the Warrant
Purchase Price shall be subject to adjustment as set forth in SECTION 3.
This Warrant (this "WARRANT") is the "Purchaser Closing Penny Warrant"
referred to in, and is being issued in connection with the consummation of the
transactions contemplated by, that certain Securities Purchase Agreement dated
as of June 30, 2008, by and between the Company and the initial Holder of this
Warrant (as amended or modified from time to time, the "SECURITIES PURCHASE
AGREEMENT"), and is subject to the following terms and conditions:
5. DEFINITIONS. For the purposes of this Warrant, (a) unless otherwise
set forth herein, capitalized terms used herein shall have the meanings given to
them in the Securities Purchase Agreement and (b) the following terms shall have
the respective meanings set forth below:
"COMMON STOCK" has the meaning set forth in the preamble of this
Warrant.
"COMPANY" has the meaning set forth in the preamble of this Warrant.
"CURRENT MARKET PRICE" per share of Common Stock means, as of any
specified date on which the Common Stock is publicly traded, the average of the
daily market prices of the Common Stock over the twenty (20) consecutive trading
days immediately preceding (and not including) such date. The 'daily market
price' for each such trading day shall be (i) the closing sales price on such
day on the principal stock exchange on which the Common Stock is then listed or
admitted to trading or on Nasdaq, as applicable, (ii) if no sale takes place on
such day on any such exchange or system, the average of the closing bid and
asked prices, regular way, on such day for the Common Stock as officially quoted
on any such exchange or system, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or system, the last reported sale
price, regular way, on such day for the Common Stock, or if no sale takes place
on such day, the average of the closing bid and asked prices for the Common
Stock on such day, as reported by Nasdaq or the National Quotation Bureau, or
(iv) if the Common Stock is not then listed or admitted to trading on any
securities exchange and if no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the City of Los Angeles customarily published on each Business
Day. If the daily market price cannot be determined for the twenty (20)
consecutive trading days immediately preceding such date in the manner specified
in the foregoing sentence, then the Common Stock shall not be deemed to be
publicly traded as of such date.
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"DESIGNATED OFFICE" has the meaning set forth in SECTION 2.1.
"DILUTIVE ISSUANCE" has the meaning set forth in SECTION 3.9.
"DISTRIBUTION" has the meaning set forth in SECTION 3.3.
"DISTRIBUTION AMOUNT" has the meaning set forth in SECTION 3.3.
"DOJ" has the meaning set forth in SECTION 2.4.
"EXCLUDED SHARES" shall mean (i) Common Stock, Equity Rights or
Convertible Securities issued in any of the transactions described in SECTIONS
3.1, 3.2, 3.3 OR 3.5, (ii) shares of Common Stock issued after the Issuance Date
upon conversion, exercise or exchange of Equity Rights or Convertible Securities
outstanding on the Issuance Date, and (iii) this Warrant or any securities
issued upon exercise hereof. Notwithstanding the foregoing, shares of Common
Stock, Equity Rights or Convertible Securities, and the shares of Common Stock
issuable in respect thereof described in clauses (i) or (ii) shall not
constitute "Excluded Shares" if the terms thereof are amended or revised after
the Issuance Date.
"EXERCISE NOTICE" has the meaning set forth in SECTION 2.1.
"EXERCISE PERIOD" means the period commencing on the Issuance Date and
ending on (and including) the Expiration Date.
"EXPIRATION DATE" means June 30, 2018.
"FAIR MARKET VALUE" per share of Common Stock as of any specified date
means (i) if the Common Stock is publicly traded on such date, the Current
Market Price per share, or (ii) if the Common Stock is not publicly traded (or
deemed not to be publicly traded) on such date, the fair market value per share
of Common Stock as determined in good faith by the Board of Directors of the
Company and set forth in a written notice to the Holder, subject to the Holder's
right to dispute such determination under SECTION 3.8(E).
"FTC" has the meaning set forth in SECTION 2.4.
"HOLDER" has the meaning set forth in the preamble of this Warrant.
"HSR ACT" has the meaning set forth in SECTION 2.4.
"ISSUANCE DATE" means June 30, 2008.
"NASDAQ" means the Nasdaq Stock Market or any successor reporting
system thereof.
"OTHER PROPERTY" has the meaning set forth in SECTION 3.5.
"REFERENCE PRICE" means, as of any time, the higher of (i) the Warrant
Purchase Price in effect as of such time, and (ii) the Fair Market Value per
share of Common Stock in effect at such time.
"SHAREHOLDER APPROVAL DATE" means the date on which Shareholder
Approval is obtained.
"WARRANT" means this Warrant, any amendment of this Warrant, and any
warrants issued upon transfer, division or combination of, or in substitution
for, this Warrant or any other such warrant. All such Warrants shall at all
times be identical as to terms and conditions and date, except as to the number
of Warrant Shares for which they may be exercised.
"WARRANT PURCHASE PRICE" has the meaning set forth in the preamble of
this Warrant (as adjusted in accordance with the terms of this Warrant).
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"WARRANT SHARES" has the meaning set forth in the preamble of this
Warrant.
6. EXERCISE.
6.1 EXERCISE; DELIVERY OF CERTIFICATES. Subject to the provisions of
SECTIONS 2.4 and 2.5, this Warrant may be exercised, in whole or in part, at the
option of the Holder, at any time and from time to time during the Exercise
Period, by (a) delivering to the Company at its principal executive office (the
"DESIGNATED OFFICE") (i) a notice of exercise, in substantially the form
attached hereto (the "EXERCISE NOTICE"), duly completed and signed by the
Holder, and (ii) this Warrant, and (b) paying the Warrant Purchase Price
pursuant to SECTION 2.2 for the number of Warrant Shares proposed to be
purchased in the Exercise Notice. Subject to the provisions of SECTION 2.4, the
Warrant Shares being purchased under this Warrant will be deemed to have been
issued to the Holder, as the record owner of such Warrant Shares, as of the
close of business on the date on which payment therefor is made by the Holder
pursuant to SECTION 2.2. Stock certificates representing the Warrant Shares so
purchased shall be delivered to the Holder within three (3) Business Days after
this Warrant has been exercised (or, if applicable, immediately after the
conditions set forth in SECTION 2.4 have been satisfied); PROVIDED, HOWEVER,
that in the case of a purchase of less than all of the Warrant Shares issuable
upon exercise of this Warrant, the Company shall cancel this Warrant and, within
three (3) Business Days after this Warrant has been surrendered, execute and
deliver to the Holder a new Warrant of like tenor for the number of unexercised
Warrant Shares. Each stock certificate representing the number of Warrant Shares
purchased pursuant to this Warrant shall be registered in the name of the Holder
or, subject to compliance with Applicable Laws, such other name as designated by
the Holder.
6.2 PAYMENT OF WARRANT PRICE. Payment of the Warrant Purchase Price
shall be made, at the option of the Holder, by (i) check from the Holder, (ii)
wire transfer, (iii) instructing the Company to withhold and cancel a number of
Warrant Shares then issuable upon exercise of this Warrant with respect to which
the excess, if any, of the Fair Market Value over the Warrant Purchase Price for
such canceled Warrant Shares is at least equal to the Warrant Purchase Price for
the Warrant Shares being purchased, (iv) surrendering to the Company of shares
of Common Stock previously acquired by the Holder with a Fair Market Value equal
to the Warrant Purchase Price for the Warrant Shares then being purchased or (v)
any combination of the foregoing.
6.3 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock upon the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay to the Holder an amount in cash calculated by it
to be equal to the then Fair Market Value per share of Common Stock multiplied
by such fraction computed to the nearest whole cent.
6.4 ANTITRUST NOTIFICATION. If the Holder determines, in its sole
judgment upon the advice of counsel, that an exercise of this Warrant pursuant
to the terms hereof is subject to the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the Holder shall
notify the Company, and the Company and the Holder shall, prior to the payment
of the Warrant Purchase Price, file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice (the "DOJ")
the notification and report form, if any, required in connection with the
exercise of this Warrant, and any supplemental information required in
connection therewith, pursuant to the HSR Act. Any information required to be
provided by or with respect to the Company shall be provided by the Company
within seven (7) Business Days after receiving notification from the Holder of
the applicability of the HSR Act. Any such notification, report form and
supplemental information will be in full compliance with the requirements of the
HSR Act. The Company will furnish to the Holder such necessary information and
such assistance as the Holder may reasonably request in connection with the
preparation of any filing or submission which is necessary under the HSR Act.
The Company shall respond promptly after receiving any inquiries or requests for
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additional information from the FTC or the DOJ (and in no event more than five
(5) Business Days after receipt of such inquiry or request). The Company shall
keep the Holder apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC or the DOJ, and
shall respond promptly to any such inquiries or requests. The Company shall bear
all filing or other fees required to be paid by the Company and the Holder (or
the "ultimate parent entity" of the Holder, if any) under the HSR Act or any
other Applicable Law and the Company shall bear all costs and expenses
(including, without limitation, attorneys' fees) incurred by the Company and the
Holder (or the "ultimate parent entity" of the Holder, if any) in connection
with the preparation of such filings, responses to inquiries or requests and
compliance with the HSR Act and other Applicable Laws. In the event that this
SECTION 2.4 is applicable to any exercise of this Warrant, the purchase of the
Warrant Shares subject to the Exercise Notice, and the payment of the Warrant
Purchase Price, will be subject to the expiration or earlier termination of the
waiting period under the HSR Act.
6.5 RESTRICTIONS ON EXERCISE.
(a) This Warrant may not be exercised in whole or in part
prior to the Shareholder Approval Date. For the avoidance of doubt, the
foregoing restriction on exercise shall not limit the Holder's right to exercise
the Put Option set forth in SECTION 2.6.
(b) If, at any time prior to the Shareholder Approval Date,
the Company engages in a transaction that is subject to the provisions of
SECTION 3.5 or a majority of the outstanding shares of Common Stock is sold in
one transaction or a series of related transactions (each, a "TRANSACTION"),
then the Company shall either (i) obtain Shareholder Approval prior to or upon
the consummation of such Transaction or (ii) pay to the Holder prior to or upon
the consummation of such Transaction an amount in cash equal to (A) the
difference between the fair market value of the consideration to be received for
each share of Common Stock pursuant to such Transaction (as determined in good
faith by the Board of Directors of the Company and set forth in a written notice
to the Holder, subject to the Holder's right to dispute such determination under
SECTION 3.8(E)) and the Warrant Purchase Price then in effect, MULTIPLIED BY (B)
the number of shares of Common Stock then issuable upon exercise of this Warrant
(disregarding any restrictions on exercise).
6.6 PUT OPTION.
(a) From and after the Issuance Date, and continuing until the
date described in SECTION 2.6(C), the Holder shall have the right and option
(the "PUT OPTION"), exercisable at any time and from time to time, at its sole
option, to require the Company to purchase this Warrant (including any warrants
issued upon assignments of this Warrant), in whole or in part at a price equal
to (i) the number of shares of Common Stock subject to the portion of this
Warrant as to which the Put Option is being exercised (disregarding any
restrictions on exercise), multiplied by (ii) the excess of the Fair Market
Value of one share of Common Stock as of the date the Put Option is exercised,
over the Warrant Purchase Price.
(b) If the Holder wishes to exercise the Put Option, in whole
or in part, it shall furnish to the Company a written notice notifying the
Company of its election to exercise the Put Option. Upon receipt by the Company
of such written notice, the Company shall be obligated to purchase from the
Holder, on the second Business Day after its receipt of such notice, the portion
of this Warrant subject to the exercise of the Put Option at the price set forth
in CLAUSE (A) above. At the closing of the Put Option, the Holder shall deliver
to the Company this Warrant (or the portion being put to the Company), against
payment by the Company of the applicable price by wire transfer in immediately
available funds to a bank account designated by the Holder.
(c) The Put Option shall survive until the Expiration Date.
(d) In no event shall the Holder be obligated to make any
representations or warranties as to this Warrant in connection with any exercise
of the Put Option other than with respect to the Holder's organization, good
standing and authority, its title to this Warrant, no consents and no conflicts
with the Holder's organizational documents and material agreements.
7. ADJUSTMENTS TO THE NUMBER OF WARRANT SHARES AND TO THE WARRANT
PURCHASE PRICE. The number of Warrant Shares for which this Warrant is
exercisable and the Warrant Purchase Price shall be subject to adjustment from
time to time as set forth in this SECTION 3.
7.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Company:
(a) pays a dividend or other distribution on its Common Stock
in shares of Common Stock or shares of any other class or series of Capital
Stock,
(b) subdivides its outstanding shares of Common Stock (by
stock split, reclassification or otherwise) into a larger number of shares of
Common Stock, or
(c) combines (by reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior to the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be adjusted so that the
Holder shall thereafter be entitled to receive upon exercise of this Warrant the
kind and number of shares of Common Stock that the Holder would have owned or
have been entitled to receive immediately after such record date or effective
date had this Warrant been exercised immediately prior to such record date or
effective date. Any adjustment made pursuant to this SECTION 3.1 shall become
effective immediately after the effective date of such event, but be retroactive
to the record date, if any, for such event.
Upon any adjustment of the number of Warrant Shares purchasable upon
the exercise of this Warrant as herein provided, the Warrant Purchase Price per
share shall be adjusted by multiplying the Warrant Purchase Price immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment and the denominator of which shall be the
number of Warrant Shares so purchasable immediately thereafter.
7.2 RIGHTS; OPTIONS; WARRANTS. If, at any time after the Issuance Date,
the Company issues (without payment of any consideration) to all holders of
outstanding Common Stock any rights, options or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or exchangeable
for Common Stock, then the Company shall also distribute, at the same time as
the distribution to such holders, such rights, options, warrants or securities
to the Holder as if this Warrant had been exercised immediately prior to the
record date for such issuance.
7.3 DISTRIBUTION OF ASSETS OR SECURITIES. If at any time the Company
makes a distribution (other than a distribution covered by SECTION 3.1 or 3.2)
to its sharesholders of any asset, including cash or securities (such
distribution, a "DISTRIBUTION", and the total of the cash, assets or securities
so distributed, the "DISTRIBUTION AMOUNT"), then, at the Holder's option:
(i) the Holder shall have the right to receive an amount of
assets, including cash or securities equal to the number of Warrant Shares for
which this Warrant is exercisable immediately prior to the Distribution,
multiplied by the Distribution Amount, divided by the number of shares of Common
Stock outstanding at such time. Upon the closing of the Distribution, the
Company shall distribute such portion of the Distribution Amount to the Holder;
or
(ii) the Warrant Purchase Price shall be adjusted and shall be
equal to the Warrant Purchase Price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
receive such distribution, multiplied by a fraction (which shall not be less
than zero), the numerator of which shall be the Fair Market Value per share of
Common Stock on the date fixed for such determination, less the amount of cash,
the then-fair market value of the portion of the assets, or the fair market
value of the portion of the securities, as the case may be (as determined in
good faith by the Board of Directors of the Company, subject to the Holder's
rights under SECTION 3.8(E)), so distributed applicable to one share of Common
Stock, and the denominator of which shall be the Fair Market Value per share of
Common Stock. Such adjustment to the Warrant Purchase Price shall become
effective immediately prior to the opening of business on the day immediately
following the date fixed for the determination of shareholders entitled to
receive such distribution. Upon any adjustment to the Warrant Purchase Price as
provided for in this SECTION 3.3(B)(II), the number of Warrant Shares issuable
upon the exercise of this Warrant shall also be adjusted and shall be equal to
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment multiplied by a fraction, the numerator of which is the
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Warrant Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
7.4 ISSUANCE OF EQUITY SECURITIES AT LESS THAN FAIR MARKET VALUE OR
WARRANT PURCHASE PRICE.
(a) If, at any time after Issuance Date, the Company shall
issue or sell (or, in accordance with SECTION 3.4(B), shall be deemed to have
issued or sold) shares of Common Stock, or Equity Rights or Convertible
Securities representing the right to subscribe for or purchase shares of Common
Stock (other than any Excluded Shares) at a price per share of Common Stock that
is lower than the Reference Price in effect immediately prior to such sale and
issuance, then the Warrant Purchase Price shall be adjusted so that it shall
equal the price determined by multiplying the Warrant Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such sale and issuance plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Company (and in
the case of adjustments triggered in full or in part by the issuance of Equity
Rights or Convertible Securities, the aggregate consideration deemed received in
respect of such issuance determined as provided in SECTION 3.4(B) below) for
such sale or issuance would purchase at such Reference Price per share, and the
denominator of which shall be the total number of shares of Common Stock
outstanding (and in the case of adjustments triggered in full or in part by the
issuance of Equity Rights or Convertible Securities, the number of shares of
Common Stock deemed to be outstanding as a result of such issuance determined as
provided in SECTION 3.4(B) below) immediately after such sale or issuance.
Adjustments shall be made successively whenever such an issuance is made. Upon
any adjustment in the Warrant Purchase Price as provided in this SECTION 3.4(A),
the number of shares of Common Stock purchasable upon the exercise of this
Warrant shall also be adjusted and shall be that number determined by
multiplying the number of Warrant Shares issuable upon exercise immediately
prior to such adjustment by a fraction, the numerator of which is the Warrant
Purchase Price in effect immediately prior to such adjustment and the
denominator of which is the Warrant Purchase Price as so adjusted.
(b) For the purpose of determining the adjusted Warrant
Purchase Price under SECTION 3.4(A), the following shall be applicable:
(i) If the Company in any manner issues or grants any
Equity Rights (including Equity Rights to acquire Convertible Securities), and
the price per share for which shares of Common Stock are issuable upon the
exercise of such Equity Rights or upon conversion or exchange of such
Convertible Securities is less than the Reference Price determined as of the
date of such issuance or grant of such Equity Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Equity
Rights (or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Equity Rights) shall
be deemed to be outstanding and to have been issued and sold by the Company for
such lower price per share. For purposes of this paragraph, the price per share
for which shares of Common Stock are issuable upon exercise of Equity Rights or
upon conversion or exchange of Convertible Securities issuable upon exercise of
Equity Rights shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the issuing or
granting of such Equity Rights, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Equity
Rights, plus in the case of such Equity Rights which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon exercise of such Equity Rights or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Equity Rights.
(ii) If the Company in any manner issues or grants
any Convertible Securities having an exercise or conversion or exchange price
per Share which is less than the Reference Price determined as of the date of
issuance or sale, then the maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Company for such lower
price per share. For purposes of this paragraph, the price per share for which
shares of Common Stock are issuable upon conversion or exchange of Convertible
Securities is determined by dividing (A) the total amount received by the
Company as consideration for the issuance or sale of such Convertible
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Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.
(iii) If the purchase price provided for in any
Equity Rights, the additional consideration, if any, payable upon the issuance,
conversion or exchange of any Convertible Securities or the rate at which any
Convertible Securities are convertible into or exchangeable for shares of Common
Stock decreases at any time, or if the number of shares of Common Stock issuable
upon the exercise, issuance, conversion or exchange of any Equity Rights or
Convertible Securities increases at any time, then the Warrant Purchase Price in
effect at the time of such decrease (or increase) shall be readjusted to the
Warrant Purchase Price which would have been in effect at such time had such
Equity Rights or Convertible Securities still outstanding provided for such
decreased purchase price, additional consideration, changed conversion rate or
increased shares, as the case may be, at the time initially granted, issued or
sold and the number of Warrant Shares shall be correspondingly readjusted, by
taking the number of Warrant Shares issuable upon the exercise of this Warrant
immediately prior to such adjustment multiplied by a fraction, the numerator of
which is the Warrant Purchase Price in effect immediately prior to such
adjustment and the denominator of which is the Warrant Purchase Price as so
adjusted.
(iv) If at any time the Company sells and issues
shares of Common Stock or Equity Rights or Convertible Securities containing the
right to subscribe for or purchase shares of Common Stock for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then in determining the "price per share of Common Stock" and the "consideration
received by the Company" for purposes of the preceding paragraphs of this
SECTION 3.4, the Board of Directors of the Company shall determine, in good
faith, the fair market value of property, subject to the Holder's rights under
SECTION 3.8(E).
7.5 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. If at any time the Company reorganizes its capital,
reclassifies its capital stock, consolidates, merges or combines with or into
another Person (where the Company is not the surviving corporation or where
there is any change whatsoever in, or distribution with respect to, the
outstanding Common Stock), or the Company sells, transfers or otherwise disposes
of all or substantially all of its property, assets or business to another
Person, other than in a transaction provided for in SECTION 3.1, 3.2, 3.3, 3.4
OR 3.6, and, pursuant to the terms of such reorganization, reclassification,
consolidation, merger, combination, sale, transfer or other disposition of
assets, (i) shares of common stock of the successor or acquiring Person or of
the Company (if it is the surviving corporation) or (ii) any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring Person or the Company ("OTHER
PROPERTY") are to be received by or distributed to the holders of Common Stock
who are holders immediately prior to such transaction, then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the number
of shares of Common Stock, common stock of the successor or acquiring Person,
and/or Other Property which holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event would have
owned or received immediately after and as a result of such event. In such
event, the aggregate Warrant Purchase Price otherwise payable for the Warrant
Shares issuable upon exercise of this Warrant shall be allocated among such
securities and Other Property in proportion to the respective fair market values
of such securities and Other Property as determined in good faith by the Board
of Directors of the Company, subject to the Holder's rights under SECTION
3.8(E).
In case of any such event, the successor or acquiring Person (if other
than the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as the Holder may approve in writing
(as determined by resolution of the Board of Directors of the Company) in order
to provide for adjustments of any shares of common stock of such successor or
acquiring Person for which this Warrant thus becomes exercisable, which
modifications shall be as equivalent as practicable to the adjustments provided
for in this SECTION 3.5. For purposes of this SECTION 3, "common stock of the
successor or acquiring Person" shall include stock or other equity securities,
or securities that are exercisable or exchangeable for or convertible into
equity securities, of such corporation, or other securities if such Person is
not a corporation, of any class that is not preferred as to dividends or assets
over any other class of stock of such corporation or Person and that is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
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or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
SECTION 3.5 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers and other
dispositions of assets.
7.6 DISSOLUTION, TOTAL LIQUIDATION OR WINDING-UP. If at any time there
is a voluntary or involuntary dissolution, total liquidation or winding-up of
the Company, other than as contemplated by SECTION 3.5, then the Company shall
cause to be mailed (by registered or certified mail, return receipt requested,
postage prepaid) to the Holder at the Holder's address as shown on the Warrant
register, at the earliest practicable time (and, in any event, not less than
thirty (30) calendar days before any date set for definitive action) written
notice of the date on which such dissolution, liquidation or winding-up shall
take place, as the case may be. Such notice shall also specify the date as of
which the record holders of shares of Common Stock shall be entitled to exchange
their shares for securities, money or other property deliverable upon such
dissolution, liquidation or winding-up, as the case may be. On such date, the
Holder shall be entitled to receive upon surrender of this Warrant the cash or
other property, less the Warrant Purchase Price for this Warrant then in effect,
that the Holder would have been entitled to receive had this Warrant been
exercised immediately prior to such dissolution, liquidation or winding-up. Upon
receipt of the cash or other property, any and all rights of the Holder to
exercise this Warrant shall terminate in their entirety. If the cash or other
property distributable in the dissolution, liquidation or winding-up has a fair
market value (as determined in good faith by the Board of Directors of the
Company and set forth in a written notice to the Holder, subject to the Holder's
right to dispute such determination under SECTION 3.8(E)) which is less than the
Warrant Purchase Price for this Warrant then in effect, this Warrant shall
terminate and be of no further force or effect upon the dissolution, liquidation
or winding-up.
7.7 OTHER DILUTIVE EVENTS. If any event occurs as to which the other
provisions of this SECTION 3 are not strictly applicable but as to which the
failure to make any adjustment would not protect the purchase rights represented
by this Warrant in accordance with the intent and principles hereof then, in
each such case, the Holder (or if the Warrant has been divided up, the Holders
of Warrants exercisable for the purchase of more than fifty percent (50%) of the
aggregate number of Warrant Shares then issuable upon exercise of all of the
then exercisable Warrants) may appoint an independent investment bank or firm of
independent public accountants which shall give its opinion as to the
adjustment, if any, on a basis consistent with the intent and principles
established herein, necessary to preserve the purchase rights represented by
this Warrant (or such Warrants). Upon receipt of such opinion, the Company will
mail (by registered or certified mail, return receipt requested, postage
prepaid) a copy thereof to the Holder within three (3) Business Days and shall
make the adjustments described therein. The fees and expenses of such investment
bank or independent public accountants shall be borne by the Company.
7.8 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the adjustments provided for
pursuant to this SECTION 3:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this SECTION 3 shall be made whenever and as often as any specified event
requiring such an adjustment shall occur. For the purpose of any such
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) RECORD DATE. If the Company fixes a record date of the
holders of Common Stock for the purpose of entitling them to (i) receive a
dividend or other distribution payable in shares of Common Stock or in shares of
any other class or series of capital stock or securities convertible into or
exchangeable for Common Stock or shares of any other class or series of capital
stock or (ii) subscribe for or purchase shares of Common Stock or such other
shares or securities, then all references in this SECTION 3 to the date of the
issuance or sale of such shares of Common Stock or such other shares or
securities shall be deemed to be references to that record date.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company fixes a
record date of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights to
which the provisions of SECTION 3.1 would apply, but shall, thereafter and
before the distribution to shareholders, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
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thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(d) NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which this Warrant is exercisable or the Warrant Purchase Price
shall be adjusted or recalculated pursuant to this SECTION 3, the Company shall
immediately prepare a certificate to be executed by the chief financial officer
of the Company setting forth, in reasonable detail, the event requiring the
adjustment or recalculation and the method by which such adjustment or
recalculation was calculated, specifying the number of shares of Common Stock
for which this Warrant is exercisable and (if such adjustment was made pursuant
to SECTION 3.5) describing the number and kind of any other shares of stock or
Other Property for which this Warrant is exercisable, and any related change in
the Warrant Purchase Price, after giving effect to such adjustment,
recalculation or change. The Company shall mail (by registered or certified
mail, return receipt requested, postage prepaid) a signed copy of the
certificate to be delivered to the Holder within three (3) Business Days of the
event which caused the adjustment or recalculation. The Company shall keep at
the Designated Office copies of all such certificates and cause them to be
available for inspection at the Designated Office during normal business hours
by the Holder or any prospective transferee of this Warrant designated by the
Holder.
(e) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company is required to make a determination in good faith of
the fair market value of any item under this Warrant, or any item that may
affect the value of this Warrant, that determination may be challenged or
disputed by the Holder (or if the Warrant has been divided up, the Holders of
Warrants exercisable for more than fifty percent (50%) of the aggregate number
of Warrant Shares then issuable upon exercise of all of the then exercisable
Warrants), and any such challenge or dispute shall be resolved promptly, but in
no event in more than thirty (30) days, by an investment banking firm of
recognized national standing or one of the four (4) largest national accounting
firms agreed upon by the Company and the Holders and whose decision shall be
binding on the Company and the Holders. If the Company and the Holders cannot
agree on a mutually acceptable investment bank or accounting firm, then the
Holders, jointly, and the Company shall within five (5) Business Days each
choose one investment bank or accounting firm and the respective chosen firms
shall within five (5) Business Days jointly select a third investment bank or
accounting firm, which shall make the determination promptly, but in no event in
more than thirty (30) days, and such determination shall be binding upon all
parties thereto. The Company shall bear all costs in connection with such
determination, including without limitation, fees of the investment bank(s) or
accounting firm(s), unless the change in Warrant Purchase Price determined
pursuant to this paragraph is within five percent (5%) of the change in warrant
purchase price as computed by the Company, in which case the Holder or Holders
challenging the determination shall bear such costs pro rata.
(f) INDEPENDENT APPLICATION. Except as otherwise provided
herein, all subsections of this SECTION 3 are intended to operate independently
of one another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
7.9 FIDUCIARY DUTIES TO HOLDER. The Board of the Company shall at all
times, whether or not this Warrant has been exercised, owe the Holder the same
fiduciary duties that it would owe to a holder of the Warrant Shares underlying
the Warrant.
8. MISCELLANEOUS.
8.1 RESTRICTIVE LEGEND. This Warrant, any Warrant issued upon transfer
of this Warrant and, unless registered under the Securities Act, any Warrant
Shares issued upon exercise of this Warrant or any portion thereof shall be
imprinted with the following legend, in addition to any legend required under
applicable state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT IN COMPLIANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION OR QUALIFICATION THEREFROM.
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The legend shall be appropriately modified upon issuance of
certificates for shares of Common Stock.
Upon request of the holder of a Common Stock certificate, the Company
shall issue to that holder a new certificate free of the foregoing legend, if,
with such request, such holder provides the Company with an opinion of counsel
reasonably acceptable to the Company (PROVIDED that Irell & Manella LLP shall be
deemed to be acceptable to the Company) to the effect that the securities
evidenced by such certificate may be sold without restriction under Rule 144 (or
any other rule permitting resales of securities without restriction) promulgated
under the Securities Act.
8.2 HOLDER ENTITLED TO BENEFITS. This Warrant is the "Purchaser Closing
Penny Warrant" referred to in the Securities Purchase Agreement. The Holder is
entitled to certain rights, benefits and privileges with respect to this Warrant
and the Warrant Shares pursuant to the terms of this Warrant, the Securities
Purchase Agreement and the other Investment Documents.
8.3 OTHER COVENANTS. Without limiting the generality of SECTION 4.2,
the Company covenants and agrees that, as long as this Warrant remains
outstanding or any Warrant Shares are issuable with respect to this Warrant, the
Company will perform all of the following covenants for the express benefit of
the Holder: (a) the Warrant Shares shall, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock; (b) the
Holder shall, upon the exercise hereof in accordance with the terms hereof,
receive good and marketable title to the Warrant Shares, free and clear of all
voting and other trust arrangements to which the Company is a party or by which
it is bound, preemptive rights of any shareholder, liens, encumbrances, equities
and claims whatsoever, including, but not limited to, all Taxes, Liens and other
charges with respect to the issuance thereof; (c) at all times prior to the
Expiration Date, the Company shall have reserved for issuance a sufficient
number of authorized but unissued shares of Common Stock, or other securities or
property for which this Warrant may then be exercisable, to permit this Warrant
(or if this Warrant has been divided, all outstanding Warrants) to be exercised
in full; (d) the Company shall deliver to the Holder the information and reports
described in SECTION 8.3 of the Securities Purchase Agreement; and (e) the
Company shall provide the Holder with written notice of all corporate actions in
the same manner and to the same extent as the shareholders of the Company.
8.4 ISSUE TAX. The issuance of shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the Holder for any stamp,
documentary, issue or similar tax in respect thereof.
8.5 CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of this Warrant or of any Warrant Shares in any
manner which interferes with the timely exercise hereof.
8.6 NO VOTING RIGHTS; LIMITATION OF LIABILITY. Except as expressly set
forth in this Warrant and in the Securities Purchase Agreement, nothing
contained in this Warrant shall be construed as conferring upon the Holder (a)
the right to vote or to consent as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matter,
or (b) the right to receive dividends except as set forth in SECTION 3. No
provisions hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
Warrant Purchase Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.
8.7 MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement is sought.
8.8 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Warrant shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon receipt, if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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(a) If to the Holder, at:
c/o Levine Leichtman Capital Partners, Inc.
335 North Maple Drive, Suite 240
Beverly Hills, CA 90210
Attention: Arthur E. Levine and Steven E. Hartman
Telephone: (310) 275-5335
Facsimile: (310) 275-1441
WITH A COPY TO:
--------------
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attention: Mitchell S. Cohen, Esq.
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
(b) If to the Company, at:
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, CA 92618
Attention: Charles E. Bradley, Jr., President
(with a copy to Mark Creatura,
General Counsel)
Telephone: (949) 753-6800
Facsimile: (949) 450-3951
or at such other address or addresses as the Holder or the Company, as the case
may be, may specify by written notice given in accordance with this SECTION 4.8.
8.9 SUCCESSORS AND ASSIGNS. The Company may not assign any of its
rights, or delegate any of its obligations, under this Warrant without the prior
written consent of the Holder (which consent may be withheld for any reason or
no reason at all). The Holder may make an Assignment of this Warrant, in whole
or in part, at any time or from time to time, without the consent of the
Company. The Holder may use the Warrant Assignment Form attached hereto to make
an Assignment of this Warrant. Each Assignment of this Warrant, in whole or in
part, shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the Designated Office, together with
appropriate instruments of assignment, duly completed and executed. Upon such
surrender, the Company shall, at its own expense, within three (3) Business Days
of surrender, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees specified in such assignment and in the denominations
specified therein and this Warrant shall promptly be canceled. If any portion of
this Warrant is not being assigned, the Company shall, at its own expense,
within three (3) Business Days issue to the Holder a new Warrant evidencing the
part not so assigned. If the Holder makes an Assignment of this Warrant to one
or more Persons, any decisions that the Holder is entitled to make at any time
hereunder shall be made by the Holders holding more than fifty percent (50%) of
the aggregate number of Warrant Shares issuable upon exercise of all of the then
exercisable Warrants.
In addition, the Holder may, without notice to or the consent of the
Company, grant or sell Participations to one or more participants in all or any
part of its right, title and interest in and to this Warrant.
This Warrant shall be binding upon and inure to the benefit of the
Company, the Holder and their respective successors and permitted assigns, and
shall include, with respect to the Company, any Person succeeding the Company by
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merger, consolidation, combination or acquisition of all or substantially all of
the Company's assets, and in such case, except as expressly provided herein and
in the Securities Purchase Agreement, all of the obligations of the Company
hereunder shall survive such merger, consolidation, combination or acquisition.
8.10 CONSTRUCTION AND INTERPRETATION. The headings of the paragraphs of
this Warrant are for convenience of reference only and do not constitute a part
of this Warrant and are not to be considered in construing or interpreting this
Warrant. No party, nor its counsel, shall be deemed the drafter of this
Agreement for purposes of construing the provisions of this Agreement, and all
provisions of this Agreement shall be construed in accordance with their fair
meaning, and not strictly for or against any party. The rules of construction
and interpretation specified in Sections 1.2 through 1.6 of the Securities
Purchase Agreement shall likewise govern the construction and interpretation of
this Warrant.
8.11 LOST WARRANT OR CERTIFICATES. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or of a stock certificate evidencing Warrant Shares and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company or, in the case of any such mutilation,
upon surrender and cancellation of the Warrant or stock certificate, the Company
shall make and deliver to the Holder, within three (3) Business Days of receipt
by the Company of such documentation, a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
8.12 NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its charter documents or regulations or through any
reorganization, reclassification, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company will (i) not increase the par value (if
any) of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (ii) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all liens, encumbrances, equities and claims, and (iii) use its
best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
8.13 NO IMPLIED WAIVER. Nothing in this Warrant, including any
reference herein to an act or transaction, shall be construed as, or imply, a
waiver of any provision of the Securities Purchase Agreement or any other
Investment Document, including any prohibition therein against such an act or
transaction.
8.14 GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE RIGHTS AND
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW
OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
8.15 CONSENT TO JURISDICTION AND VENUE. ANY SUIT, LEGAL ACTION OR
SIMILAR PROCEEDING WITH RESPECT TO THIS WARRANT SHALL BE BROUGHT IN THE COURTS
OF THE STATE OF CALIFORNIA SITTING IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA
SITTING IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS WARRANT, EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE
HEREOF) CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY AND THE HOLDER
(BY ACCEPTANCE HEREOF) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
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THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
WARRANT. EACH OF THE COMPANY AND THE HOLDER (BY ACCEPTANCE HEREOF) HEREBY WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY THE LAW OF THE STATE OF THE NEW YORK.
8.16 REMEDIES. If the Company fails to perform, comply with or observe
any covenant or agreement to be performed, complied with or observed by it under
this Warrant, the Holder may proceed to protect and enforce its rights by suit
in equity or action at law, whether for specific performance of any term
contained in this Warrant or for an injunction against the breach of any such
term or in aid of the exercise of any power granted in this Warrant or to
enforce any other legal or equitable right, or to take any one or more of such
actions. The Company hereby agrees that the Holder shall not be required or
otherwise obligated to, and hereby waives any right to demand that the Holder,
post any performance or other bond in connection with the enforcement of its
rights and remedies hereunder. The Company agrees to pay all fees, costs, and
expenses, including, without limitation, fees and expenses of attorneys,
accountants and other experts retained by the Holder, and all fees, costs and
expenses of appeals, incurred or expended by the Holder in connection with the
enforcement of this Warrant or the collection of any sums due hereunder, whether
or not suit is commenced. None of the rights, powers or remedies conferred under
this Warrant shall be mutually exclusive, and each right, power or remedy shall
be cumulative and in addition to any other right, power or remedy whether
conferred by this Warrant or now or hereafter available at law, in equity, by
statute or otherwise.
8.17 ENTIRE AGREEMENT. This Warrant and the other Investment Documents
constitute the full and entire agreement and understanding between the Holder
and the Company with respect to the subject matter hereof and supersede all
prior oral and written, and all contemporaneous oral, agreements and
understandings relating to the subject matter hereof.
8.18 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAWS, THE COMPANY HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER THIS WARRANT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY AND THE HOLDER WITH RESPECT
TO THE WARRANT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR
OTHERWISE; AND THE COMPANY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT THE COMPANY OR ANY HOLDER MAY FILE AN ORIGINAL COPY OF THIS
SECTION 4.18 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY
HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and issued by its duly authorized representative on the date first written
above.
CONSUMER PORTFOLIO SERVICES, INC.,
a California corporation
By: /s/ Charles E. Bradley, Jr.
-------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer