Item 10. Directors, Executive Officers and Corporate
Governance.
Directors
The names of the Company’s directors, their
principal occupations, and certain other information regarding them are set forth below. None of the Company’s directors currently
serves on the board of directors of any other publicly-traded companies.
Charles E. Bradley, Jr., 61, has been
the President and a director of the Company since its formation in March 1991, and was elected Chairman of the Board of Directors in
July 2001. Mr. Bradley has been the Company's Chief Executive Officer since January 1992. From April 1989 to November 1990, he
served as Chief Operating Officer of Barnard and Company, a private investment firm. From September 1987 to March 1989, Mr. Bradley,
Jr. was an associate of The Harding Group, a private investment banking firm. Having been with the Company since its
inception, Mr. Bradley brings comprehensive knowledge of the Company’s business, structure, history and culture to the Board
and the Chairman position.
Chris A. Adams, 72, has been a director of
the Company since August 2007. Since 1982 he has been the owner and chief executive of Latrobe Pattern Company and K Castings Inc., which
are firms engaged in the business of fabricating metal parts. With his experience as chief executive of manufacturing companies, Mr. Adams
contributes to the Company’s Board significant organizational and operational management skills.
Louis M. Grasso, 75, has been a director of
the Company since October 2019. Mr. Grasso was the founder and majority owner of PFC Corporation until his retirement in November 2011,
upon sale of PFC’s portfolio of assets to Capstone Realty Advisors. Over a period of 35 years, PFC Corporation originated over $1.8
billion of mortgage loans, and issued $1.8 billion of mortgage-backed securities. He brings to the Board knowledge and experience bearing
in particular on the Company’s strategies for meeting its capital requirements, and broad organizational and management skills.
Brian J. Rayhill, 58, has been a director
of the Company since August 2006. Mr. Rayhill has been a practicing attorney in New York State since 1988. As an experienced
advocate, counselor and litigator, Mr. Rayhill brings legal knowledge and perspective to the Company’s Board.
William B. Roberts, 83, has been a director
of the Company since its formation in March 1991. Since 1981, he has been the President of Monmouth Capital Corp., an investment
firm that specializes in management buyouts. Having spent decades in the business of finance, Mr. Roberts brings to the Company’s
Board his perspective and judgment regarding means of financing its business.
Gregory S. Washer, 59, has been a director
of the Company since June 2007. He was the president and owner of Clean Fun Promotional Marketing, a promotional marketing company, from
its founding in 1986 through its sale in September 2014. He continued to act as a consultant to Clean Fun OR continued to act as president
of Clean Fun through August 2017, and is now retired. With his experience in promotions and marketing, Mr. Washer contributes to the Board
significant organizational and operational management skills, combined with a wealth of experience in promotion and marketing of services.
Daniel S. Wood, 62, has been a director of
the Company since July 2001. Mr. Wood was president of Carclo Technical Plastics, a manufacturer of custom injection moldings,
from September 2000 until his retirement in April 2007. Previously, from 1988 to September 2000, he was the chief operating
officer and co-owner of Carrera Corporation, the predecessor to the business of Carclo Technical Plastics. As president of Carclo, Mr.
Wood was responsible for the overall operation of that company and for the quality and integrity of its financial statements. He brings
to the Board the knowledge and perspective useful in evaluating the Company’s financial statements, and broad organizational and
management skills.
Executive Officers
The information regarding the Company’s executive officers set
forth in Part I of this report under the caption “Executive Officers of the Registrant” is incorporated herein by reference.
Section
16(a) Beneficial Ownership Reporting Compliance
Directors, executive officers and holders of in excess of 10% of the
Company's common stock are required to file reports concerning their transactions in and holdings of equity securities of the Company. Based
on a review of reports filed by each such person, and inquiry of each regarding holdings and transactions, the Company believes that all
reports required with respect to the year 2020 were timely filed, except that one report of a disposition of 4,477 shares by a senior
vice president, Chris Terry, was filed late.
Code
of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers,
which applies to the Company's chief executive officer, chief financial officer, controller and others. A copy of the Code
of Ethics may be obtained at no charge by written request to the Corporate Secretary at the Company's principal executive offices.
Audit
and Other Committees
The Board of Directors has established an Audit Committee,
a Compensation Committee, and a Nominating Committee. Each
of these three committees operates under a written charter, adopted by the Board of Directors. The charters are available on the
Company’s website, www.consumerportfolio.com/charters.html. The Board of Directors has concluded that each member of these
three committees (every director other than Mr. Bradley, the Company's chief executive officer), is independent in accordance with the
director independence standards prescribed by Nasdaq, and has determined that none of them have a material relationship with the Company
that would impair their independence from management or otherwise compromise the ability to act as an independent director.
The
members of the Audit Committee are Mr. Wood (chairman), Mr. Rayhill and Mr. Washer.
The Audit Committee is empowered by the Board of
Directors to review the financial books and records of the Company in consultation with the Company's accounting and auditing staff and
its independent auditors and to review with the accounting staff and independent auditors any questions that may arise with respect to
accounting and auditing policy and procedure.
The Board of Directors has further determined that
Mr. Wood has the qualifications and experience necessary to serve as an "audit committee financial expert" as such term is defined
in Item 407 of Regulation S-K promulgated by the SEC. Mr. Wood, as president of Carclo Technical Plastics, was responsible
for the preparation and evaluation of the audited financial statements of that company.
Item 11. Executive Compensation.
Compensation Committee
Interlocks and Insider Participation
The Compensation Committee
comprises non-employee directors Chris Adams (chairman), William Roberts and Daniel Wood. From December 2007 through January 2019, Mr.
Roberts held $4,000,000 of subordinated notes issued by the Company. The board of directors considered whether such holdings would reasonably
be expected to impair Mr. Roberts’ exercise of independent judgment, and concluded that his independence was not impaired. In coming
to that conclusion, the board noted that the Company’s repayment obligation was subordinated to all other debt of the Company, creating
a near-alignment of interest with the holders of common stock, and also noted Mr. Roberts’ substantial beneficial ownership of Company
common stock.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management
the Compensation Discussion and Analysis contained in this report. Based on such review and discussions and relying thereon,
we have recommended to the Company's Board of Directors that the Compensation Discussion and Analysis set forth below be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2020.
THE COMPENSATION COMMITTEE
Chris
A. Adams (chairman) William B. Roberts Daniel S. Wood
Compensation Discussion and Analysis
2020 Say-on-Pay Advisory Vote Outcome
The Compensation Committee
annually considers the results of the most recent advisory vote by shareholders to approve executive officer compensation. In the 2020
advisory vote, a majority of the voted shares (65.7%) approved of the compensation of our named executive officers. The Compensation Committee
has noted the substantial negative vote, but has determined to retain the existing design, purposes and structure of our executive compensation
programs. The Compensation Committee will continue to consider the results from future shareholder advisory votes regarding executive
officer compensation in its future administration of executive compensation.
Compensation Objectives
The Company's objectives
with respect to compensation are several. The significant objectives are to cause compensation (i) to be sufficient in total
amount to provide reasonable assurance of retaining key executives, (ii) to include a significant contingent component, so as to provide
strong incentives to meet designated Company objectives, and (iii) to include a significant component tied to the price of the Common
Stock, so as to align management's incentives with shareholder interests. The compensation committee ("Committee")
of the Company's Board of Directors is charged with administering the Company’s compensation plans to meet those objectives. To
the extent that elements of compensation would not advance such objectives, or would do so less effectively than would other elements,
the Committee seeks to avoid paying compensation in those forms.
Role of the Compensation Committee and
the chief executive officer
Our Board of Directors
has authorized the Compensation Committee, which is composed solely of independent directors, to make all decisions regarding executive
compensation, including administration of our compensation plans. In that regard, the Compensation Committee:
|
·
|
Reviews and discusses with management the factors underlying our compensation policies and decisions, including overall compensation
objectives;
|
|
·
|
Reviews and approves all company goals and objectives (both financial and non-financial) relevant to the compensation of the chief
executive officer;
|
|
·
|
Evaluates, together with the other independent directors, the performance of the chief executive officer in light of these goals and
objectives and that individual’s overall effectiveness;
|
|
·
|
Fixes and approves directors each element of the compensation of the chief executive officer;
|
|
·
|
Reviews the performance evaluations of all other members of executive management (the chief executive officer prepares and presents
to the Compensation Committee the performance evaluations of the other executive officers);
|
|
·
|
Reviews and approves each element of compensation, as well as the terms and conditions of employment, of those other executive officers;
|
|
·
|
Grants awards under our equity compensation plans and oversees the administration of those plans; and
|
|
·
|
Reviews the costs and structure of our key employee benefit and fringe-benefit plans and programs.
|
The Compensation Committee is authorized to form subcommittee(s) and to retain experts and consultants to assist in the discharge of its
responsibilities. To date it has not done so.
The chief executive officer,
who attends meetings of the Compensation Committee by invitation of the Committee’s chairman, assists the Committee in determining
the compensation of our other executive officers by, among other things:
|
·
|
Proposing annual merit increases to the base salaries of the other executive officers;
|
|
·
|
Establishing annual individual performance objectives for the other executive officers and evaluating their performance against such
objectives (the Committee reviews these performance evaluations); and
|
|
·
|
Making recommendations, from time to time, for special stock option and restricted stock grants (e.g., for motivational or
retention purposes) to other executive officers.
|
The other executive officers
do not have a role in determining their own compensation, other than to discuss their annual individual performance objectives and results
achieved with the chief executive officer.
Our Overall Approach
The Committee has put
into place a compensation system consisting of three key components: base salary, an annual cash bonus pursuant to an incentive plan,
and long-term equity incentives in the form of stock options.
The table below provides
comparative information regarding the components of our year 2020 executive compensation program. We are applying the same elements in
our executive compensation program for the year 2021.
Element
|
|
Form
|
|
Objectives and Basis
|
Base Salary
|
|
Cash
|
|
·
|
Attract and retain high quality personnel
|
|
|
|
|
·
|
Targeted to be superior to compensation offered by our competitors
|
|
|
|
|
|
|
Annual Incentive Bonus
|
|
Cash
|
|
·
|
Achieve objectives set annually
|
|
|
|
|
·
|
Annual bonus amount is set and computed as a percentage of base salary
|
|
|
|
|
·
|
Actual payout determined by Company and individual performance
|
|
|
|
|
·
|
Target total cash (base salary + target bonus) designed to be superior to compensation offered by our competitors
|
|
|
|
|
|
|
Long-Term Incentive
|
|
Stock
|
|
·
|
Align interests of executives with those of shareholders;
|
Compensation
|
|
options
|
|
·
|
Target long-term incentive award size designed to retain executives through long-term vesting and the potential for wealth accumulation, contingent on benefit to the shareholders
|
The Committee has from
time to time considered providing additional elements of executive compensation. It has considered elements such as restricted
stock awards, restricted stock units, compensation contingent on a change in control, defined benefit pension plans, deferred cash compensation,
and supplemental retirement plans (supplemental in the sense that they exceed the limits for tax advantaged treatment). To
date, the Committee has elected not to pay compensation in such forms, having determined that the Company's objectives are better met
by one or more of the elements of compensation that it does pay.
Regarding restricted
stock and restricted stock units, the Committee has noted that any form of equity equivalent to or closely tied to common stock does serve
to meet the objective of aligning officers' personal interest with that of the shareholders generally. The Committee believes,
however, that the objective is better met by grants of stock options than by grants of share equivalents, because recipients of the grants
will face the same degree of variance in results at a lesser cost to the Company, when option grants are compared to grants of restricted
stock units. Further, unlike restricted stock, option grants will not provide a reward to the holder absent an improvement over time
in the Company’s stock price. The committee has elected not to provide material perquisites as compensation, having determined
that cash is a better medium of exchange.
Regarding compensation
that would be payable contingent on a change in control of the Company, the Committee believes that there are certain legitimate objectives
to be met by such contingent compensation. As of the date of this proxy statement, however, no such contingent compensation
plans are in place. Regarding defined benefit pension plans, deferred cash compensation and supplemental retirement plans,
the Committee believes that the Company's retention objective is better met by straight cash payments, whether in the form of base salary
or in the form of bonus compensation. In particular with respect to plans for deferred compensation, the Committee believes
those make sense for the Company and for the recipient only on the basis of assumptions regarding future tax rates payable by each. Having
no assurance that such assumptions would be correct, the Committee has chosen not to put into place any special deferred compensation
programs for the company’s executive officers. Those officers do participate in a company-sponsored tax-deferred savings plan, commonly
known as a 401(k) plan, on the same terms available to company employees generally.
The Committee may in
the future revisit its conclusions as to any of the components discussed above, or may consider other forms of compensation.
The Base Salary Element
With respect to the retention
objective, the Committee considers an executive's base salary to be the most critical component. Acting primarily on the basis
of recommendations of the chief executive officer, the Committee adjusts other officers' base salaries annually, with the adjustment generally
consisting of a 2% to 10% increase from the prior year's rate. Where exceptional circumstances apply, such as recruitment of
a new executive officer, a promotion to executive officer status or a special need to retain an individual officer, the chief executive
officer may recommend, and the Committee may approve, a larger increase.
The Company's general
approach in setting the annual compensation of its named executive officers is to set those officers’ base compensation by reference
to their base rates for the preceding year. During the year ended December 2020, the Company's chief executive officer, Charles E. Bradley,
Jr., received $995,000 in base salary. In setting that rate in the first quarter of 2020, the Committee considered the base salary rate
that the Company had paid in the prior year ($995,000), the desirability of providing an annual increase, the desirability of ensuring
retention of the services of the Company's incumbent chief executive officer, the Company’s financial performance, and the levels
of chief executive officer compensation prevailing among other financial services companies. The Committee considered whether to adjust
officers’ base compensation for 2020, and determined not to increase the base rate for the chief executive officer, nor generally
for the other named executive officers. The Committee did approve an upward adjustment of somewhat under 2% to Ms. Robinson’s base
rate, making hers equal to Ms. Straten’s.
The Annual Incentive
Bonus (EMB) element
To encourage executive
officers and key management personnel to exercise their best efforts and management skills toward causing the Company to meet its overall
objective, and toward achieving designated specific individual objectives, the Company has implemented an Executive Management Bonus Plan,
with annual payouts. Under the Company's bonus plan as applied to the year ended December 2020, the Company’s two executive
vice presidents (each of whom is among the named executive officers) were eligible to receive a cash bonus of up to 160% of their base
salaries, and the Company’s senior vice presidents (two of whom are among the named executive officers) were eligible to receive
a cash bonus of up to 120% of their base salaries. The chief executive officer was eligible to receive a cash bonus of up to
600% of his base salary. The implementation of this element for the year 2020 is discussed below.
The Long-Term Incentive
Compensation Element
The Committee also awards
incentive and non-qualified stock options under the Company's stock option plans. Such awards are designed to assist in the
retention of key executives and management personnel and to create an incentive to create shareholder value over a sustained period of
time. The Company believes that stock options are a valuable tool in compensating and retaining employees. During
the year ended December 31, 2020, the Committee granted stock options to the Company's executive officers. All such grants
were awarded on June 1, 2020, and all carry exercise prices equal to the market price for the Company's common stock at the date of grant. The
terms of such options are described below, under the caption "Grants of Plan-Based Awards in Last Fiscal Year." The
numbers of shares made subject to each of the option grants were based on various factors relating to the responsibilities of the individual
officers and to the extent of previous grants to such individuals.
Because the exercise
price of all options granted is equal to or above the fair market value of the Company's common stock on the date of grant, the option
holders may realize value only if the stock price appreciates from the price on the date the options were granted. This design
is intended to focus executives on the enhancement of shareholder value over the long term.
Other Elements
The Company also maintains
certain broad-based employee benefit plans, such as medical and dental insurance, and a qualified defined contribution retirement savings
plan (401(k) plan), in which executive officers are permitted to participate. Such officers participate on the same terms as
non-executive personnel who meet applicable eligibility criteria, and are subject to any legal limitations on the amounts that may be
contributed or the benefits that may be payable under the plans. The Company does not maintain any form of defined benefit
pension or retirement plan in which executive officers may participate, nor does it maintain any form of supplemental retirement savings
or supplemental deferred compensation plan.
Exercise of Discretion
In exercising its discretion
as to the level of executive compensation and its components, the Committee considers a number of factors. Members of the Committee
conduct informal surveys of compensation paid to comparable executives within and without the consumer finance industry. The
Committee finds these data useful primarily in evaluating the overall level of compensation paid or to be paid to the Company's executive
officers. The Committee noted that the Company met and exceeded its budget objectives for the year. Operational
factors considered included individual and group management goals; indicators of the performance and credit quality of the Company's servicing
portfolio, including levels of delinquencies and charge-offs; and indicators of successful management of personnel, including employee
stability. All of such factors are assessed with reference to the judgment of the Committee as to the degree of difficulty
of achieving desired outcomes. With respect to payment of annual bonuses and grants of stock options, the Committee also takes
note of factors relating to the degree of the Company's success over the most recent year.
Specific Objectives
and Evaluation
In the December
2019 and January 2020 the compensation committee designated specific objectives with respect to the chief executive officer to be
accomplished within the year 2020, and fixed weights to be associated with each such objective. The chief executive officer proposed
to the committee specific annual objectives with respect to each other executive officer of the company, which the committee, after
making certain modifications, approved. These objectives and the Committee’s administration of the annual incentive bonus
element of compensation are discussed in detail below, under the heading “ - Grants of Plan-Based Awards in Last Fiscal Year -
Executive Management Bonus Plan.”
Grants of Options
The Committee's award
of stock options to the Company's officers in June 2020 included option grants to the chief executive officer and the other named executive
officers. In determining the appropriate level of such grant, the Committee considered the long-term performance of the chief
executive officer and the desirability of providing significant incentive for future performance, as well as the desirability of ensuring
that officer's continued retention by the Company, and the various factors noted above with respect to option grants generally. These
grants and the Committee’s administration of the long-term incentive element of compensation are discussed in detail below, under
the heading “-Grants of Plan-Based Awards in Last Fiscal Year – Equity Incentives.”
Stock Ownership, Hedging
and Pledging. Our board of directors and compensation committee have considered whether to establish a minimum stock ownership
goal for members of our senior management. We have elected not to do so, considering that such a policy would either be strict and mandatory,
in which case it would undermine the compensatory objectives of our equity compensation plans, or would be merely hortatory, in which
case it could be expected to have little effect. We’ve also noted that the multiyear vesting terms of the equity incentives granted
under our plans have the effect of aligning our executives’ individual personal financial incentives with the future price performance
of the Company’s stock.
As part of our comprehensive
compliance policy, we remind all company executive officers of the mandatory legal prohibition on selling short company shares. We also
prohibit company executive officers from entering into transactions that would have the effect of causing those individuals to benefit
from a decline in the price of the company stock, such as the purchase of “put” options. We prohibit such “hedging”
transactions but we do not find it appropriate to prohibit our executive officers from pledging their shares of company stock as security
for a loan. We believe that the beneficial incentives of owning company stock remain substantially the same with or without such a pledge.
Summary of Compensation
The following table summarizes all compensation earned during the three
fiscal years ended December 31, 2020 by the Company's chief executive officer, its chief financial officer, and the other three most highly
compensated individuals (such five individuals, the "named executive officers") who were serving in such position or as executive
officers at any time in 2020. It lists their names, the principal positions in which they served in those years, and each component of
compensation paid with respect to those years.
Summary Compensation
Table
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Option Awards (1)
|
|
|
All Other Compen-
sation (2)
|
|
|
Total
|
|
Charles E. Bradley, Jr.
|
|
|
2020
|
|
|
$
|
995,000
|
|
|
$
|
2,600,000
|
|
|
$
|
318,696
|
|
|
|
360
|
|
|
$
|
3,914,056
|
|
President & Chief
|
|
|
2019
|
|
|
|
995,000
|
|
|
|
2,600,000
|
|
|
|
334,290
|
|
|
|
480
|
|
|
|
3,929,770
|
|
Executive Officer
|
|
|
2018
|
|
|
|
995,000
|
|
|
|
2,700,000
|
|
|
|
327,000
|
|
|
|
600
|
|
|
|
4,022,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey P Fritz
|
|
|
2020
|
|
|
|
411,000
|
|
|
|
327,000
|
|
|
|
119,511
|
|
|
|
360
|
|
|
|
857,991
|
|
Executive Vice President
|
|
|
2019
|
|
|
|
411,000
|
|
|
|
233,000
|
|
|
|
100,287
|
|
|
|
480
|
|
|
|
744,767
|
|
& Chief Financial Officer
|
|
|
2018
|
|
|
|
411,000
|
|
|
|
452,000
|
|
|
|
98,100
|
|
|
|
600
|
|
|
|
961,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Lavin
|
|
|
2020
|
|
|
|
411,000
|
|
|
|
493,000
|
|
|
|
199,185
|
|
|
|
360
|
|
|
|
1,103,665
|
|
Executive Vice President
|
|
|
2019
|
|
|
|
411,000
|
|
|
|
461,000
|
|
|
|
100,287
|
|
|
|
480
|
|
|
|
972,767
|
|
& Chief Operating Officer
|
|
|
2018
|
|
|
|
411,000
|
|
|
|
506,000
|
|
|
|
98,100
|
|
|
|
600
|
|
|
|
1,015,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teri L. Robinson
|
|
|
2020
|
|
|
|
368,000
|
|
|
|
355,000
|
|
|
|
106,232
|
|
|
|
360
|
|
|
|
829,712
|
|
Senior Vice President
|
|
|
2019
|
|
|
|
368,000
|
|
|
|
328,000
|
|
|
|
66,858
|
|
|
|
480
|
|
|
|
763,338
|
|
- Originations
|
|
|
2018
|
|
|
|
368,000
|
|
|
|
354,000
|
|
|
|
65,400
|
|
|
|
600
|
|
|
|
788,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurie A. Straten
|
|
|
2020
|
|
|
|
368,000
|
|
|
|
355,000
|
|
|
|
106,232
|
|
|
|
360
|
|
|
|
829,712
|
|
Senior Vice President
|
|
|
2019
|
|
|
|
362,000
|
|
|
|
328,000
|
|
|
|
66,858
|
|
|
|
480
|
|
|
|
757,338
|
|
- Servicing
|
|
|
2018
|
|
|
|
362,000
|
|
|
|
340,000
|
|
|
|
65,400
|
|
|
|
600
|
|
|
|
768,000
|
|
|
(1)
|
Represents the dollar value of accrued for financial accounting purposes in connection with the grant of such options, computed
in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 and SFAS 123R. Value was
estimated using a Black-Scholes option pricing model for the years 2020 and 2019, and using a binomial model for 2018. For the year
2020 the weighted average fair value per option was $1.33, based on assumptions of 4.11 years expected life, expected volatility of
72.10%, and a risk-free rate of 0.26%. For the year 2019 the weighted average fair value per option was $1.11, based on assumptions
of 4.11 years expected life, expected volatility of 37.13%, and a risk-free rate of 1.53%. For the year 2018 the weighted average
fair value per option was $1.09, based on assumptions of 4.11 years expected life, expected volatility of 33.93%, and a risk-free
rate of 2.75%. In all cases, we assumed a dividend yield of 0.0%.
|
|
(2)
|
Amounts in this column represent premiums paid by the Company for group life insurance.
|
Grants of Plan-Based Awards in Last Fiscal Year
Equity Incentives
In the year ended December 31, 2020, we did not grant any stock awards
or stock appreciation rights to any of our named executive officers. We granted options to substantially all of our management
level employees on June 1, 2020. The option grants noted in the tables above and below were awarded to the named executive officers as
part of those grants. We also granted awards under our Executive Management Bonus Plan, which were evaluated and paid out after the end
of the year. The amounts paid are shown in the table above (Summary Compensation Table) as “Non-Equity Incentive Plan Compensation.”
In the June 2020 grant, the chief executive officer received an option
to purchase 240,000 shares of the Company's common stock at the market closing price ($2.47 per share) on the date of grant, with such
right to purchase to become exercisable in increments of 25% on each of the first through fourth anniversaries of the grant date, and
to expire on the seventh anniversary. Each of the other executive officers of the Company received a grant at that time on the same terms.
Mr. Fritz and Mr. Lavin received such grants with respect to 90,000 shares and 150,000 shares, respectively, and the other named executive
officers of the Company each received such a grant with respect to 80,000 shares.
The table below provides information regarding the awards granted to
the named executive officers in 2020.
Grants of Plan-Based Awards
Name
|
|
Estimated future payouts under non-equity incentive plan awards Threshold Target Maximum
|
|
|
Grant Date
|
|
|
Number of Shares Underlying Options
|
|
|
Exercise Price
|
|
|
Grant Date Fair Value
|
|
Mr. Bradley
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6/01/2020
|
|
|
|
240,000
|
|
|
$
|
2.47
|
|
|
$
|
318,696
|
|
|
|
$
|
–
|
|
|
$
|
5,970,000
|
|
|
$
|
5,970,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Mr. Fritz
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6/01/2020
|
|
|
|
90,000
|
|
|
$
|
2.47
|
|
|
$
|
119,511
|
|
|
|
$
|
–
|
|
|
$
|
657,600
|
|
|
$
|
657,600
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Mr. Lavin
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6/01/2020
|
|
|
|
150,000
|
|
|
$
|
2.47
|
|
|
$
|
199,181
|
|
|
|
$
|
–
|
|
|
$
|
657,600
|
|
|
$
|
657,600
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Ms. Robinson
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6/01/2020
|
|
|
|
80,000
|
|
|
$
|
2.47
|
|
|
$
|
106,232
|
|
|
|
$
|
–
|
|
|
$
|
441,600
|
|
|
$
|
441,600
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Ms. Straten
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6/01/2020
|
|
|
|
80,000
|
|
|
$
|
2.47
|
|
|
$
|
106,232
|
|
|
|
$
|
–
|
|
|
$
|
441,660
|
|
|
$
|
441,600
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
The “target” and “maximum” figures appearing
in the table above represent the maximum cash payout under the individual executives’ Executive Management Bonus Plan awards
as of the date the incentive was fixed. The actual payout to each individual named in the table above has been determined and paid prior
to the date of this proxy statement. That amount was in each case materially less than the maximum (approximately 44% of the maximum,
in the case of the chief executive). The respective actual payments are described below, and appear above in the Summary Compensation
Table under the heading “Non-Equity Plan Compensation.” Because each non-equity incentive plan award has been settled and
paid, the future payout under such awards as of the date of this report is in each case zero. The “grant date fair value”
figures appearing in the table above, which are the computed fair values of stock option awards, are computed as described in note 1
to the Summary Compensation Table.
Executive Management Bonus Plan
The Executive Management Bonus Plan award granted to the chief executive
officer, Mr. Bradley, called for him to meet as many as possible of seven separate operational and financial objectives within the year
2020. The Compensation Committee assigned to each of those objectives a value as a percentage of base salary. The objectives and their
weightings were as follows: to meet the Company’s quarterly budgeted earnings (25% each quarter, total of 100%), to raise $70 million
or more of debt capital (50%), to renew, extend or replace one or more warehouse credit facilities (50%, pro rata if less than a two-year
revolving term), to acquire a material new servicing portfolio (100%), to execute four rated securitization transactions (40% each, 160%
total), to increase the Company’s annual originations of receivables to each of three targets (60% in the aggregate, creditable
in increments of 20% for reaching aggregate amounts of $800 million, $900 million, and $1.0 billion), and to cause the Company’s
common stock to trade in excess of each of four targets (80% in the aggregate, creditable in increments of 20% for reaching prices of
$5.00, $5.50, $6.00 and $6.50 per share).
The total of the seven weightings is 600%; accordingly, the target
and maximum possible value to that officer of the award was 600% of his base salary for 2020.
In a series of meetings, the committee evaluated the chief executive’s
performance in comparison to the goals. The Compensation Committee determined that the budget objective was met in all four quarters of
2020, and credited the chief executive with the maximum value, or 100%. The Company did not raise new capital, nor acquire a material
portfolio, and the Committee found no credit was earned in those respects.
The Committee also determined that the December renewal of a warehouse
line was on beneficial terms and for a full two years, and credited the chief executive with the full 50% designated for that objective.
The Committee noted that the Company had executed three rated securitizations
during the year, representing creditable performance of 120%. It determined that our originations volume was less than the minimum target.
The Committee considered applying an allowance to the originations volume target, in light of the worldwide COVID-19 pandemic, but determined
not to vary the objective, and thus evaluated creditable performance at zero with respect to the originations objective. The Committee
noted that none of the stock price objectives were fulfilled.
The aggregate valuation of all creditable performance for the chief
executive officer was thus 270%, which would imply a bonus payment under our Executive Management Bonus Plan of $2,686,500. The committee
elected to pay a bonus of somewhat less than the maximum creditable percentage, in the amount of $2,600,000, representing 261% of our
chief executive’s base salary.
The Executive Management Bonus Plan awards granted to the named executive
officers other than the chief executive officer are evaluated on a more subjective basis, and were set by the Compensation Committee in
consultation with and on the recommendation of the chief executive officer. Factors used in determining the amount of bonus for the two
named executive officers who are executive vice presidents of the Company are these: (I) an evaluation of the executive’s skills
and performance, 43.6%, (II) whether the executive has met two individual objectives approved by the compensation committee, 26.2% in
aggregate, (III) whether the Company as a whole has met or exceeded budget targets, 17.5%, (IV) a subjective evaluation of the officer's
performance, 29.1%, and (V) a discretionary allocation recommended by the chief executive officer and approved by the compensation committee,
43.6%.
Numerical scores are assigned to each of these factors, up to the maximum
percentages stated above, and can result in a maximum bonus of 160% of base compensation.
Similar factors are applied in determining the amount of annual bonus
for executive officers who are senior vice presidents of the Company: (I) skills and performance, 30%, (II) two individual objectives,
18%, (III) Company budget, 12%, (IV) subjective evaluation of that executive’s department, 20%, and (V) discretionary allocation,
30%, resulting in a maximum bonus of 110% of base compensation.
Following the end of the year 2020, our compensation committee
evaluated each named executive officer’s performance in relation to these standards and goals. The Company met its overall
budget target in each quarter, and each officer accordingly received full credit with respect to that target.
With respect to the individual factors, the compensation committee,
acting in part on the advice of our chief executive officer, determined that creditable performance for 2020 for each named executive
officer other than the chief executive officer was as set forth below:
|
|
Maximum percentage
|
|
|
Creditable percentage
|
|
|
Base Salary
|
|
|
Result (rounded to nearest $1000)
|
|
Mr. Fritz
|
|
|
160%
|
|
|
|
79.5%
|
|
|
$
|
411,000
|
|
|
$
|
327,000
|
|
Mr. Lavin
|
|
|
160%
|
|
|
|
120.0%
|
|
|
|
411,000
|
|
|
|
493,000
|
|
Ms. Robinson
|
|
|
110%
|
|
|
|
96.5%
|
|
|
|
368,000
|
|
|
|
355,000
|
|
Ms. Straten
|
|
|
110%
|
|
|
|
96.5%
|
|
|
|
368,000
|
|
|
|
355,000
|
|
On that basis, the Compensation Committee approved payments to these
named executive officers in the amounts shown in the rightmost column.
Outstanding Equity Awards at Fiscal Year-end
The following table sets forth as of December 31, 2020 the number of
unexercised options held by each of the named executive officers, the number of shares subject to then exercisable and unexercisable options
held by such persons and the exercise price and expiration date of each such option. Each option referred to in the table was
granted at an option price per share no less than the fair market value per share on the date of grant. None of such individuals holds
a stock award; accordingly, only information concerning option awards is presented.
Name
|
|
Number of securities underlying unexercised options (exercisable)
|
|
|
Number of securities underlying unexercised options (unexercisable)
|
|
|
Option exercise price
|
|
|
Option expiration date
|
Charles E. Bradley, Jr.
|
|
|
100,000
|
|
|
|
–
|
|
|
$
|
1.03
|
|
|
6/3/2021
|
|
|
|
333,333
|
|
|
|
–
|
|
|
$
|
1.75
|
|
|
11/23/2021
|
|
|
|
166,666
|
|
|
|
–
|
|
|
$
|
1.50
|
|
|
11/23/2021
|
|
|
|
100,000
|
|
|
|
–
|
|
|
$
|
0.95
|
|
|
11/23/2021
|
|
|
|
140,000
|
|
|
|
–
|
|
|
$
|
1.20
|
|
|
4/3/2022
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
1.94
|
|
|
7/16/2022
|
|
|
|
100,000
|
|
|
|
–
|
|
|
$
|
3.72
|
|
|
11/8/2022
|
|
|
|
250,000
|
|
|
|
–
|
|
|
$
|
6.86
|
|
|
2/1/2023
|
|
|
|
250,000
|
|
|
|
–
|
|
|
$
|
7.97
|
|
|
5/7/2023
|
|
|
|
300,000
|
|
|
|
–
|
|
|
$
|
6.59
|
|
|
7/28/2021
|
|
|
|
300,000
|
|
|
|
–
|
|
|
$
|
6.11
|
|
|
5/19/2022
|
|
|
|
300,000
|
|
|
|
–
|
|
|
$
|
3.48
|
|
|
5/12/2023
|
|
|
|
225,000
|
|
|
|
75,000
|
(1)
|
|
$
|
4.35
|
|
|
5/17/2024
|
|
|
|
150,000
|
|
|
|
150,000
|
(2)
|
|
$
|
3.48
|
|
|
5/9/2025
|
|
|
|
75,000
|
|
|
|
225,000
|
(3)
|
|
$
|
3.53
|
|
|
8/8/2026
|
|
|
|
–
|
|
|
|
240,000
|
(4)
|
|
$
|
2.47
|
|
|
6/1/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey P. Fritz
|
|
|
50,000
|
|
|
|
–
|
|
|
$
|
1.03
|
|
|
6/3/2021
|
|
|
|
36,000
|
|
|
|
–
|
|
|
$
|
1.20
|
|
|
4/3/2022
|
|
|
|
14,000
|
|
|
|
–
|
|
|
$
|
1.94
|
|
|
7/16/2022
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.86
|
|
|
2/1/2023
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
7.97
|
|
|
5/7/2023
|
|
|
|
180,000
|
|
|
|
–
|
|
|
$
|
6.59
|
|
|
7/28/2021
|
|
|
|
90,000
|
|
|
|
–
|
|
|
$
|
6.11
|
|
|
5/19/2022
|
|
|
|
90,000
|
|
|
|
–
|
|
|
$
|
3.48
|
|
|
5/12/2023
|
|
|
|
67,500
|
|
|
|
22,500
|
(1)
|
|
$
|
4.35
|
|
|
5/17/2024
|
|
|
|
45,000
|
|
|
|
45,000
|
(2)
|
|
$
|
3.48
|
|
|
5/9/2025
|
|
|
|
22,500
|
|
|
|
67,500
|
(3)
|
|
$
|
3.53
|
|
|
8/8/2026
|
|
|
|
–
|
|
|
|
90,000
|
(4)
|
|
$
|
2.47
|
|
|
6/1/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Lavin
|
|
|
20,000
|
|
|
|
–
|
|
|
$
|
1.03
|
|
|
6/3/2021
|
|
|
|
30,000
|
|
|
|
–
|
|
|
$
|
0.95
|
|
|
11/23/2021
|
|
|
|
21,600
|
|
|
|
–
|
|
|
$
|
1.20
|
|
|
4/3/2022
|
|
|
|
8,400
|
|
|
|
–
|
|
|
$
|
1.94
|
|
|
7/16/2022
|
|
|
|
75,000
|
|
|
|
–
|
|
|
$
|
6.86
|
|
|
2/1/2023
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
7.97
|
|
|
5/7/2023
|
|
|
|
130,000
|
|
|
|
–
|
|
|
$
|
6.59
|
|
|
7/28/2021
|
|
|
|
90,000
|
|
|
|
–
|
|
|
$
|
6.11
|
|
|
5/19/2022
|
|
|
|
90,000
|
|
|
|
–
|
|
|
$
|
3.48
|
|
|
5/12/2023
|
|
|
|
67,500
|
|
|
|
22,500
|
(1)
|
|
$
|
4.35
|
|
|
5/17/2024
|
|
|
|
45,000
|
|
|
|
45,000
|
(2)
|
|
$
|
3.48
|
|
|
5/9/2025
|
|
|
|
22,500
|
|
|
|
67,500
|
(3)
|
|
$
|
3.53
|
|
|
8/8/2026
|
|
|
|
–
|
|
|
|
150,000
|
(4)
|
|
$
|
2.47
|
|
|
6/1/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teri L. Robinson
|
|
|
50,000
|
|
|
|
–
|
|
|
$
|
1.03
|
|
|
6/3/2021
|
|
|
|
5,000
|
|
|
|
–
|
|
|
$
|
1.75
|
|
|
11/23/2021
|
|
|
|
10,000
|
|
|
|
–
|
|
|
$
|
1.50
|
|
|
11/23/2021
|
|
|
|
36,000
|
|
|
|
–
|
|
|
$
|
1.20
|
|
|
4/3/2022
|
|
|
|
14,000
|
|
|
|
–
|
|
|
$
|
1.94
|
|
|
7/16/2022
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.86
|
|
|
2/1/2023
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
7.97
|
|
|
5/7/2023
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.59
|
|
|
7/28/2021
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.11
|
|
|
5/19/2022
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
3.48
|
|
|
5/12/2023
|
|
|
|
45,000
|
|
|
|
15,000
|
(1)
|
|
$
|
4.35
|
|
|
5/17/2024
|
|
|
|
30,000
|
|
|
|
30,000
|
(2)
|
|
$
|
3.48
|
|
|
5/9/2025
|
|
|
|
15,000
|
|
|
|
45,000
|
(3)
|
|
$
|
3.53
|
|
|
8/8/2026
|
|
|
|
–
|
|
|
|
80,000
|
(4)
|
|
$
|
2.47
|
|
|
6/1/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurie A. Straten
|
|
|
25,000
|
|
|
|
–
|
|
|
$
|
1.03
|
|
|
6/3/2021
|
|
|
|
9,000
|
|
|
|
–
|
|
|
$
|
1.95
|
|
|
11/23/2021
|
|
|
|
1,250
|
|
|
|
–
|
|
|
$
|
1.75
|
|
|
11/23/2021
|
|
|
|
2,500
|
|
|
|
–
|
|
|
$
|
1.50
|
|
|
11/23/2021
|
|
|
|
18,000
|
|
|
|
–
|
|
|
$
|
1.20
|
|
|
4/3/2022
|
|
|
|
7,000
|
|
|
|
–
|
|
|
$
|
1.94
|
|
|
7/16/2022
|
|
|
|
25,000
|
|
|
|
–
|
|
|
$
|
6.86
|
|
|
2/1/2023
|
|
|
|
90,000
|
|
|
|
–
|
|
|
$
|
7.97
|
|
|
5/7/2023
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.59
|
|
|
7/28/2021
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
6.11
|
|
|
5/19/2022
|
|
|
|
60,000
|
|
|
|
–
|
|
|
$
|
3.48
|
|
|
5/12/2023
|
|
|
|
45,000
|
|
|
|
15,000
|
(1)
|
|
$
|
4.35
|
|
|
5/17/2024
|
|
|
|
30,000
|
|
|
|
30,000
|
(2)
|
|
$
|
3.48
|
|
|
5/9/2025
|
|
|
|
15,000
|
|
|
|
45,000
|
(3)
|
|
$
|
3.53
|
|
|
8/8/2026
|
|
|
|
–
|
|
|
|
80,000
|
(4)
|
|
$
|
2.47
|
|
|
6/1/2027
|
(1) Becomes exercisable as to the unexercisable portion on May 17, 2021.
(2) Becomes exercisable as to cumulative increments of one-half of the unexercisable portion on May 9, 2021 and 2022.
(3) Becomes exercisable as to cumulative increments of one-third of the unexercisable portion on August 8, 2021, 2022 and 2023.
(4) Becomes exercisable as to cumulative increments of 25% of the unexercisable portion on June 1, 2021, 2022, 2023 and 2024.
Option Exercises in Last Fiscal Year
Three of the five named executive officers exercised stock options
during 2020. The table below shows the realized value and the number of options exercised for those three individuals. None of our officers
hold stock awards; accordingly, no stock awards vested during 2020.
Option Exercises and Stock Vested
|
|
Value realized on exercise (1)
|
|
|
Number of shares acquired on exercise
|
|
Mr. Bradley
|
|
$
|
657,000
|
|
|
|
250,000
|
|
Mr. Fritz
|
|
|
–
|
|
|
|
–
|
|
Mr. Lavin
|
|
|
–
|
|
|
|
–
|
|
Ms. Robinson
|
|
|
42,750
|
|
|
|
25,000
|
|
Ms. Straten
|
|
|
6,240
|
|
|
|
12,000
|
|
(1) The value realized is the difference
between the fair market value of the Company’s common stock on the date of exercise (the closing price reported by Nasdaq) and the
exercise price of the option.
Executive Management Bonus Plan (Non-equity
Incentive Plan)
The salary and cash bonus of the named executive officers are determined
by the Compensation Committee. The compensation appearing in the Summary Compensation Table above under the caption "Non-Equity Incentive
Plan Compensation" is paid pursuant to an executive management bonus plan (the “EMB Plan”). The EMB Plan
is administered by the Compensation Committee. Among other things, the Compensation Committee selects participants in the EMB Plan from
among the Company’s executive officers and determines the performance goals, target amounts and other terms and conditions of awards
under the EMB Plan. With respect to officers other than the chief executive officer, determinations of base salary and of criteria relating
to the EMB Plan are based in part on evaluations of such officers prepared by the chief executive officer, which are furnished to and
discussed with the Compensation Committee.
Director Compensation
Throughout 2020, we paid our non-employee directors a retainer of $5,167
per month, with an additional fee of $500 per month for service on a board committee ($1,000 for a committee chairman). Non-employee
directors also received per diem fees of $1,000 for attendance in person at meetings of the board of directors, or $500 for attendance
by telephone. No per diem fees are paid for attendance at committee meetings. The Board in 2020 approved issuance to
each non-employee director of options to purchase an aggregate of 30,000 shares. The exercise prices of all such options are the closing
price of the Company’s common stock on the date of grant, which was $2.47 per share. The following table summarizes compensation
received by our directors for the year 2020:
Name of Director
|
|
Fees Earned or Paid in Cash (1)
|
|
|
Option Awards (2)
|
|
|
Total
|
|
Chris A. Adams
|
|
$
|
82,004
|
|
|
$
|
39,348
|
|
|
$
|
121,352
|
|
Charles E. Bradley, Jr. (3)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Louis M. Grasso
|
|
|
66,004
|
|
|
|
39,348
|
|
|
|
105,352
|
|
Brian J. Rayhill
|
|
|
88,504
|
|
|
|
39,348
|
|
|
|
127,852
|
|
William B. Roberts
|
|
|
70,004
|
|
|
|
39,348
|
|
|
|
109,352
|
|
Gregory S. Washer
|
|
|
77,504
|
|
|
|
39,348
|
|
|
|
116,852
|
|
Daniel S. Wood
|
|
|
88,504
|
|
|
|
39,348
|
|
|
|
127,852
|
|
(1) This column reports
cash compensation earned in 2020 for Board and committee service.
(2) This column
represents the dollar amount recognized for financial statement reporting purposes with respect to the 2020 fiscal year for the fair value
of stock options granted to the directors in 2020. The fair value was estimated using a Black-Scholes option-pricing model in accordance
with SFAS 123R. The fair value per option was $1.31, based on assumptions of 3.24 years expected life, expected volatility
of 80.17%, expected dividend yield of 0.0%, and a risk-free rate of 0.21%. In addition to the stock option awards granted in 2020, our
directors held at December 31, 2020 option awards granted in previous years. The total options held at December 31, 2020 represent the
right to purchase shares as follows: Mr. Bradley, 3,539,999 shares; Mr. Adams, 330,000 shares; Mr. Grasso, 30,000 shares; Mr. Rayhill,
435,000 shares; Mr. Roberts, 180,000 shares; Mr. Washer, 330,000 shares; and Mr. Wood, 345,000 shares.
(3) Mr. Bradley's
compensation as chief executive officer of the Company is described elsewhere in this report. He received no additional compensation for
service on the Company's Board of Directors.
Pension Plans
The Company's officers
do not participate in any pension or retirement plan, other than a tax-qualified defined contribution plan (commonly known as a 401(k)
plan).
Potential Payments Upon Termination or Change of Control
This section provides
information regarding payments and benefits to the named executive officers that would be triggered by termination of the officer’s
employment (including resignation, or voluntary termination; severance, or involuntary termination; and retirement) or a change of control
of the Company.
Each of the named
executive officers is an at-will employee and, as such, does not have an employment contract. In addition, if the officer’s employment
terminates for any reason other than a change of control of the Company, any unvested stock options are terminated, and vested options
become subject to accelerated expiration: ordinarily three months following separation from service, or twelve months in the case of disability,
retirement or death. Accordingly, there are no payments or benefits that are triggered by any termination event (including resignation
and severance) other than in connection with a change of control of the Company.
Benefits Triggered by Change of Control or Termination after Change
of Control
Our stock option
plans provide that each employee of ours who holds outstanding unexpired options under our stock option may have the right to exercise
such options following a change of control of the Company, without regard to the date such option would first be exercisable. Each of
the named executive officers holds such options. The “acceleration” of options is mandatory following certain changes of control,
and subject to the discretion of the Compensation Committee following certain others. Acceleration is mandatory in the event of (i) the
sale, or other disposition of substantially all of the Company’s assets, or (ii) a merger or similar transaction in which shareholders
of the Company hold less than 50% of the shares of the surviving entity; provided, however, that acceleration following a merger or similar
transaction is mandatory only if the holder suffers a Qualifying Termination (defined below) within one year following the transaction,
or if the surviving entity does not provide the holder with an equivalent award. Acceleration is also mandatory if a holder suffers a
Qualifying Termination within one year following (iii) a change within a three-year period in the membership of a majority of the board
of directors (excluding changes recommended by the board), or (iv) a person’s acquisition of outstanding voting securities of the
Company, other than directly from the Company and without approval of the board, resulting in that person’s having beneficial ownership
of greater than 25% of the Company.
Under our stock
option plans, the Compensation Committee may exercise its discretion to provide for acceleration under other circumstances than those
described above with respect to any particular stock option or class of stock options. The committee would expect to exercise its discretion
with the intention of preserving the value of the stock option award. To date, such discretion has not been exercised. A “Qualifying
Termination” is a termination of the holder’s employment by the Company other than for cause, disability or death, or by the
holder for “good reason” (principally relating to a material diminution in the holder’s authority, compensation or responsibilities,
or a relocation of greater than 50 miles). The preceding description applies to options held by officers and employees. Options issued
to non-employee directors accelerate without the exercise of discretion upon any of the four categories of change of control described
above.
As of December
31, 2020, each of the named executive officers would realize a benefit if unvested stock options were to become immediately exercisable
upon a change in control, based on the value of the shares underlying such options at the closing market price on December 31, 2020 ,
which was $4.24 per share. The respective amounts of such possible benefit are set forth in the following table:
|
|
Potential Value Upon Acceleration
|
Mr. Bradley
|
|
$
|
698,550
|
|
Mr. Fritz
|
|
$
|
241,425
|
|
Mr. Lavin
|
|
$
|
347,625
|
|
Ms. Robinson
|
|
$
|
196,350
|
|
Ms. Straten
|
|
$
|
196,350
|
|
Management Structure
The board of directors is responsible for overseeing the management
of the Company. Its oversight is aimed at seeing to it that the company’s business is managed to meet our goals, and that the interests
of the shareholders are served.
Charles E. Bradley currently serves as both the chairman of the board
and our chief executive officer, and is the only member of our board who is not independent of the Company. Largely because of the small
number of directors (six members in total), our board has chosen not to designate any individual formally as the lead independent director.
Each director retains his full oversight responsibility.
Our board structure supports the independence of our non-management
directors. Our audit committee, compensation committee and nominating committee are each composed solely of independent directors. Our
bylaws provide that any two directors have the authority to call meetings of the board of directors, as do specified officers, including
the president and the secretary. To enhance the possible use of that authority by independent directors, the corporate secretary is under
standing instructions to call a meeting at the instance of any one director.
The board believes that combining the chairman and chief executive
officer positions is currently the most effective leadership structure given Mr. Bradley’s in-depth knowledge of our business and
industry and his demonstrated ability to formulate and implement strategic initiatives. Mr. Bradley is continuously involved in developing
and implementing our strategies, working closely with the company’s other senior executives to seek continued disciplined growth
and excellence in operations. His close involvement in management places Mr. Bradley in the best position to decide which business issues
require consideration by the independent directors of the board. In addition, having a combined chairman and chief executive officer enables
us to speak with a unified voice to shareholders, customers and others concerned with our company. The board believes that combining the
chief executive and chairman roles, as part of a governance structure that includes oversight of management responsibilities by independent
directors, provides the preferred system for meeting the requirement that the Company be managed in the best interest of our shareholders.
Risk Oversight
The board’s overall responsibility for directing the management
of the company includes risk oversight. The risk oversight function is performed at the board level, and by the Audit and Compensation
Committees.
The board of directors as a whole in its regular meetings discusses
and considers the risk inherent in the existing business of the Company and in proposed initiatives. Because the Company’s business
consists of extending consumer credit to individuals believed to be of higher risk than others (sub-prime credit), the assessment of the
risk assumed in such extensions of credit is a primary consideration on the part of the board. Risk oversight is also a key function of
the Audit and Compensation Committees.
The principal risk management function performed by the Audit Committee
is the ongoing assessment of the credit estimates and allowances periodically recorded in the Company’s books. The committee reviews
that assessment regularly. Other risk assessments performed by the Audit Committee include assessments of contingent liabilities, and
of other reserves and allowances.
The principal risk management functions performed by the Compensation
Committee are its setting and evaluation of objectives for the chief executive officer, in connection with its administration of the executive
management bonus plan. The committee recognizes that the company’s business of extending subprime credit inherently includes a conflict
between growing the business and managing the risk of credit losses: one means to increase the company’s business is to offer credit
on terms that are priced too low for the risk assumed. The Compensation Committee manages that risk by insisting that objectives to grow
the business are qualified by a mandate that credit quality be maintained at appropriate levels. To some extent, such risk management
is shared with the Audit Committee, which performs the primary oversight of whether credit risk assumed is reflected with adequate allowances
in the company’s financial statements.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
Citigroup. On July 10, 2008, CPS and its wholly owned subsidiary
Folio Funding II, LLC, as borrower, agreed with Citigroup Financial Products Inc. (“CGFP”), an affiliate of Citigroup Inc.
(“Citigroup”), to amend and restate the agreements governing a pre-existing revolving residual credit facility. CGFP was
the note purchaser in and administrative agent of that credit facility. The amendments included the issuance to an affiliate of CGFP
of a ten-year warrant to purchase (for nominal consideration) 2,500,000 shares of Company common stock, which warrant was subsequently
transferred to CGFP. Upon issuance of such warrant, CGFP became a person with beneficial ownership of greater than 5% of the Company’s
common stock. On March 10, 2010, the Company repurchased a portion of the warrant, representing 500,000 of the 2,500,000 shares available
for purchase upon exercise of such warrant. On July 10, 2018, CGFP exercised the remaining warrant, receiving 1,999,995 shares, after
surrender of shares equal in value to the nominal exercise price.
In September 2011, and approximately quarterly thereafter, CGMI acted
as a placement agent of asset-backed notes issued by securitization trusts sponsored by CPS. The issuances of investment-grade and below
investment-grade notes, and the placement compensation to CGMI, from January 1, 2016 to the present, are set forth in the table below.
In each case, one or more other placement agents also received compensation for placing such notes, as well as CGMI.
|
|
Investment-grade notes issued
|
|
|
Below investment-grade notes issued
|
|
|
Fees paid to CGMI
|
|
January 2018
|
|
$
|
169,964,000
|
|
|
$
|
20,036,000
|
|
|
$
|
557,922
|
|
April 2018
|
|
|
179,478,000
|
|
|
|
22,345,000
|
|
|
|
347,397
|
|
July 2018
|
|
|
207,967,000
|
|
|
|
22,308,000
|
|
|
|
667,150
|
|
October 2018
|
|
|
207,515,000
|
|
|
|
26,215,000
|
|
|
|
400,709
|
|
January 2019
|
|
|
228,695,000
|
|
|
|
25,705,000
|
|
|
|
739,269
|
|
April 2019
|
|
|
196,650,000
|
|
|
|
32,625,000
|
|
|
|
384,106
|
|
July 2019
|
|
|
213,242,000
|
|
|
|
30,271,000
|
|
|
|
756,072
|
|
October 2019
|
|
|
240,075,000
|
|
|
|
34,238,000
|
|
|
|
457,261
|
|
January 2020
|
|
|
227,240,000
|
|
|
|
32,760,000
|
|
|
|
787,117
|
|
June 2020
|
|
|
179,935,000
|
|
|
|
22,408,000
|
|
|
|
328,280
|
|
September 2020
|
|
|
221,000,000
|
|
|
|
31,200,000
|
|
|
|
784,245
|
|
January 2021
|
|
|
211,925,000
|
|
|
|
18,620,000
|
|
|
|
370,654
|
|
On May 11, 2012, the Company entered into a one-year revolving credit
agreement (the "Citi Warehouse Agreement") and related agreements with affiliates of Citigroup and others, under which the lenders
have agreed to lend up to a maximum of $100 million, to be secured by automobile receivables. In connection with the Citi Warehouse Agreement,
the Company paid a closing fee of $1,000,000. The Company first incurred indebtedness under the Citi Warehouse Agreement in the amount
of $9.1 million on May 14, 2012. The Company used the proceeds of that draw for working capital.
Following earlier extensions in 2013, 2014, 2016 and 2018, the Company
and the lenders agreed on December 18, 2020 to extend the revolving term of the Citi Warehouse Agreement to December 18, 2022. At the
conclusion of the revolving period, at the election of either the borrower or the lender, the loans are to amortize for an additional
one year, and then become due in full. Loans under the Citi Warehouse Agreement bear interest during the revolving period at a floating
rate equal to one-month LIBOR plus 3.00%, but in all events no less than 3.75% per year, and during the amortization period (if any) at
a floating rate equal to one-month LIBOR plus 4.00%, but in all events no less than 4.75% per year. The loans are subject to
acceleration upon the occurrence of certain defined events of default. In connection with the renewals of the Citi Warehouse Agreement
in 2018 and 2020, we paid closing fees of $730,000 and $1,000,000, respectively, in each case representing a fee calculated as the product
of 0.5% and the fractional number of years by which the revolving period was extended.
The maximum principal amount of indebtedness under the Citi Warehouse
Agreement during 2020 was $100 million. During 2020, the Company paid $197.7 million of principal and $1.4 million of interest on
such debt. As of April 27, 2021, the principal amount owed was $96.8 million. The Company intends to incur additional indebtedness
under the Citi Warehouse Agreement from time to time as it purchases motor vehicle receivables from dealers.
CPS Leasing. The Company holds 80% of the outstanding shares
of the capital stock of CPS Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by Charles E. Bradley, Jr., who is the
chief executive officer and chairman of the board of directors of the Company. CPSL engaged in the equipment leasing business, and is
currently in the process of liquidation as its leases come to term. The Company financed the operations of CPSL by making operating advances
and by advancing to CPSL the fraction of the purchase prices of its leased equipment that CPSL did not borrow under its lines of credit.
The aggregate amounts of the advances made by the Company and outstanding to CPSL as of December 31, 2018, 2019 and 2020, were approximately
$153,000, $122,000, and $90,000, respectively.
Subordinated Notes. Director William Roberts on December 3,
2007 purchased $4,000,000 of unsecured subordinated three-year notes directly from the Company. The interest rate was determined by negotiation,
and Mr. Roberts and the Company have agreed to a series of successive extensions of such indebtedness, with interest paid at 10% per annum
throughout the year 2018. The Company in 2018 paid interest of $400,000 on such notes, and in 2019 paid interest of $33,333, in accordance
with those terms. The Company repaid the notes in full on February 1, 2019.
Policy on Related Party Transactions and Director
Independence. The agreements and transactions described above, other than those described under the caption “Citigroup,”
were entered into by the Company with parties who personally benefited from such transactions and who had a control or fiduciary relationship
with the Company. It is the Company's policy that any such transactions with persons having a control or fiduciary relationship
with the Company may take place only if approved by the Audit Committee or by the members of the Company's Board of Directors who are
disinterested with respect to the transaction, and independent in accordance with the standards for director independence prescribed by
Nasdaq. Such policy is maintained in writing in the charter of the Audit Committee. The agreements and transactions
above were reviewed and approved by the members of the Company's Board of Directors who were disinterested with respect to the transaction,
except that the subordinated notes transaction was reviewed and approved by the Audit Committee.
The seven directors of the Company are Charles E.
Bradley, Jr., Chris A. Adams, Brian J. Rayhill, William B. Roberts, Gregory S. Washer, and Daniel S. Wood, of whom Messrs. Wood, Rayhill,
Louis M. Grasso, and Washer compose the Audit Committee. The Board of Directors has concluded that other than Mr. Bradley (who is the
Company's chief executive officer), each of the other six directors is independent in accordance with the director independence standards
prescribed by Nasdaq, and has determined that none of them has a material relationship with the Company that would impair his independence
from management or otherwise compromise his ability to act as an independent director.