SECURITIES OPTION AGREEMENT
This Securities Option Agreement is entered into as of November 17, 1998
(this "Agreement"), by and among Xxxxxx Xxxxxxxxx Capital Partners II, L.P., a
California limited partnership ("LLCP"), Stanwich Financial Services Corp., a
Rhode Island corporation ("SFSC"), and Consumer Portfolio Services, Inc., a
California corporation ("CPS").
RECITALS
A. On the terms and subject to the conditions set forth in that certain
Securities Purchase Agreement of even date herewith (the "Purchase Agreement")
between LLCP and CPS, on the date hereof, CPS is issuing, selling and delivering
to LLCP, and LLCP is purchasing from CPS, a Senior Subordinated Primary Note in
the aggregate principal amount of $25,000,000 (the "LLCP Senior Subordinated
Note") and a Primary Warrant to Purchase 3,450,000 Shares of Common Stock (the
"Primary Warrant"). Capitalized terms used and not otherwise defined herein
have the meanings set forth in the Purchase Agreement.
B. LLCP may purchase a New Senior Facility Note (the "LLCP Senior Note")
in connection with the establishment of the New Senior Credit Facility by the
Company and the payment of the outstanding principal amount of and all accrued
interest on the LLCP Senior Subordinated Note.
C. SFSC wishes to acquire from LLCP, and LLCP is willing to grant to
SFSC, on the terms and subject to the conditions set forth herein, an option to
purchase from LLCP (i) a participation interest in (A) the LLCP Senior
Subordinated Note, to the extent the LLCP Senior Subordinated Note is
outstanding or (B) the LLCP Senior Note, to the extent LLCP acquires a New
Senior Facility Note equal, in either case to $2,500,000 of the principal amount
of the LLCP Senior Subordinated Note or the LLCP Senior Note, as the case may
be, together with the right to receive all accrued and unpaid interest on such
principal amount on the date of purchase and all interest on such principal
amount that accrues on or after the date of purchase (such participation
interest being referred to as the "SFSC Note Participation") and (ii) a portion
of the Primary Warrant (the "SFSC Warrant") representing the right to purchase
250,000 of the 3,450,000 Warrant Shares purchasable under the Primary Warrant
(such number of Warrant Shares which may be purchased by SFSC being referred to
herein as the "SFSC Warrant Shares").
D. In addition, CPS wishes to acknowledge and consent to the issuance by
LLCP to SFSC of such option and to provide for the purchase of the SFSC Note
Participation and the SFSC Warrant pursuant to the terms and conditions set
forth in this Agreement.
AGREEMENT
Now, therefore, in consideration of the mutual covenants and agreements set
forth herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. OPTION.
1.1 GRANT OF OPTION. On the terms and subject to the conditions set forth
in this Agreement, LLCP hereby grants to SFSC the right and option (the
"Option") to purchase from LLCP, in whole and not in part, the SFSC Note
Participation and the SFSC Warrant (collectively, the "SFSC Securities"),
without recourse to, or representation or warranty by LLCP, whether express or
implied, other than as to the organization and authority of LLCP, title to the
LLCP Note and the Primary Warrant (which shall be good and marketable title,
free and clear of all Liens) and the absence of conflict with material
agreements of LLCP. The exercise price (the "Exercise Price") for the SFSC
Securities shall be equal to the sum of (a) $2,500,000, PLUS (b) all accrued and
unpaid interest on the SFSC Note Participation through the date of purchase.
The Option granted under this SECTION 1.1 is not transferable to any Person and
may be exercised only by SFSC; PROVIDED, HOWEVER, that the Option may be
transferred to, and exercised by, Xxxxxxx X. Xxxxxxx, Xx. or a member of the
Immediate Family of Xxxxxxx X. Xxxxxxx Xx., or Xxxxxxx X. Xxxxxxx, Xx., or a
member of the Immediate Family of Xxxxxxx X. Xxxxxxx, Xx., and to no other
Person.
1.2 CONDITIONS TO EXERCISE. The obligation of LLCP to sell and assign to
SFSC the SFSC Securities pursuant to the Option shall be subject to the
following conditions precedent:
(a) No later than May 31, 1999, the shareholders of CPS shall have
approved the issuance by CPS of the Excess Warrant Shares (as defined in SECTION
2.5 of the Primary Warrant);
(b) Stanwich shall have made an investment in the Company of at least
$15,000,000 (whether through the purchase of debt or equity securities)
generating net cash proceeds (after the payment of all fees and expenses) to the
Company of at least $14,400,000 on terms and conditions approved by a majority
of the disinterested members of the Board of Directors of CPS (and, if such
investment is made through the purchase of debt securities, the indebtedness
evidenced thereby shall be expressly made subordinate (A) to the LLCP Senior
Subordinated Note, if the LLCP Senior Subordinated Note is then outstanding, to
the same extent as Stanwich Indebtedness other than Stanwich Senior Subordinated
Debt is subordinated to the LLCP Senior Subordinated Note as of the date hereof
or (B) to the LLCP Senior Note, if the LLCP Senior Note is then outstanding, to
the same extent as Senior Subordinated Indebtedness is subordinated to Senior
Indebtedness as of the date hereof), which investment shall have been made
either (i) within the one hundred twenty (120) day period immediately following
the date hereof or (ii) within the two hundred seventy (270) day period
immediately following the date hereof if, within the one hundred twenty (120)
day period immediately following the date hereof, a third party makes an
investment in the Company of at least $15,000,000 (whether through the purchase
of debt or equity securities) generating net cash proceeds
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(after the payment of all fees and expenses) to the Company of at least
$14,400,000 on terms and conditions approved by a majority of the disinterested
members of the Board of Directors of CPS (and if such investment is in the form
of Senior Indebtedness or Senior Subordinated Indebtedness, such terms and
conditions shall also be approved by LLCP, which approval shall not be
unreasonably withheld); and
(c) The New Senior Facility Establishment Date shall have occurred.
1.3 EXERCISE PERIOD. The Option shall be exercisable only after SFSC has
satisfied the conditions precedent set forth in SECTION 1.2 and only during the
period (the "Exercise Period") commencing on the later to occur of (a) the date
upon which SFSC satisfies the conditions precedent set forth in SECTION 1.2 in
accordance with the terms thereof and (b) May 17, 1999, and ending on the
earlier of (y) the date that is six (6) months after the date upon which the
Exercise Period commences and (z) June 30, 2000 (the "Expiration Date").
1.4 NO REPRESENTATIONS OR WARRANTIES. LLCP shall not be responsible for,
and makes no representation or warranty as to, any representation or warranty
made by CPS in connection with the Purchase Agreement or any other Related
Agreement, and shall not be responsible for, and makes no representation or
warranty as to, the correctness as to form, due execution, legality, validity,
enforceability, genuineness or sufficiency of the Purchase Agreement or the LLCP
Senior Subordinated Note or the LLCP Senior Note or the collectability of the
Indebtedness evidenced thereby or other amounts owing thereunder, or for any
failure by CPS to perform its obligations thereunder.
2. EXERCISE.
2.1 METHOD OF EXERCISE.
(a) SFSC may exercise the Option granted hereunder by (a) delivering
to LLCP a written Exercise Notice, in substantially the form of EXHIBIT A (the
"Exercise Notice"), with a copy simultaneously delivered by SFSC to CPS, and (b)
paying to LLCP an amount equal to the Exercise Price no later than 12:00 p.m.
(noon) (Los Angeles time) on the date of exercise by wire transfer of
immediately available funds to Bank of America, Century City, Private Banking,
0000 Xxxxxxx Xxxx Xxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000; ABA No. 000000000;
Account No. 11546-03239; Attention: Xxxxxx Xxxxxxx (or such other place of
payment that LLCP may designate in writing to SFSC).
(b) Upon the exercise by SFSC of the Option in accordance with the
terms and conditions of this Agreement, LLCP will be deemed to have sold and
conveyed the SFSC Securities to SFSC and, in connection therewith, will promptly
deliver to CPS the LLCP Senior Subordinated Note or the LLCP Senior Note, as the
case may be, and the LLCP Warrant. Within three (3) Business Days following its
receipt thereof, CPS shall deliver to SFSC a promissory note of like tenor to
the LLCP Senior Subordinated Note or the LLCP Senior Note, as the case may be,
representing the SFSC Note Participation and a warrant representing the SFSC
Warrant, and (b)
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deliver to LLCP a replacement note in the principal amount of $22,500,000 and a
replacement warrant to purchase 3,200,000 shares of Common Stock.
2.2 INVESTOR STATUS. SFSC represents and warrants to LLCP and CPS on the
date hereof, and shall represent and warrant at the time it exercises the Option
pursuant to the terms hereof, that (a) SFSC is acquiring the SFSC Securities for
its own account, for investment purposes, and not with a view to or for sale in
connection with any distribution thereof, (b) SFSC understands that the SFSC
Securities have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance upon specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of SFSC's investment intent as expressed herein, (c) SFSC is an
"accredited investor" (as such term is defined in Rule 501 of Regulation D under
the Securities Act), (d) by reason of its business and financial experience,
SFSC has such knowledge, sophistication and experience in business and financial
matters as to be capable of evaluating the merits and risks of the investment in
the SFSC Securities and has the capacity to protect its own interests and is
able to bear the economic risk of such investment, (e) SFSC has had an
opportunity to review the books and records of CPS and to ask questions of
representatives of LLCP and CPS concerning the terms and conditions of the
transactions contemplated by this Agreement and (f) the Option will be exercised
in compliance with all applicable federal and state securities laws.
2.3 FURTHER ASSURANCES. SFSC hereby agrees to execute and deliver such
agreements, instruments and other documents, in form and substance satisfactory
to LLCP, and to take such actions as may be requested by LLCP, to implement and
effect the intent and purpose of this Agreement.
3. MISCELLANEOUS
3.1 MODIFICATION AND WAIVER. This Agreement 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.
3.2 NOTICES. All notices, requests, demands and other communications which
are required or may be given under this Agreement 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 the expiration of
seventy-two (72) hours after mailing, if mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to LLCP, at: x/x Xxxxxx Xxxxxxxxx Capital Partners, Inc.
000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, President
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Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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(b) If to SFSC, at: Stanwich Financial Services Corp.
c/o Stanwich Partners, Inc.
One Stamford Landing
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) If to CPS, at: Consumer Portfolio Services, Inc.
00000 Xxxxxx Xxxxxx Xxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Xx., President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address or addresses as LLCP, SFSC or CPS, as the case may be,
may specify by written notice given in accordance with this SECTION 3.2.
3.3 NO SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties; PROVIDED, HOWEVER, that with respect to
CPS, any Person succeeding to CPS by way of merger, consolidation, combination
or acquisition of all or substantially all of CPS's assets shall assume all of
the obligations of CPS hereunder, which obligations shall survive such merger,
consolidation, combination or acquisition. Except as provided in SECTION 1.1,
SFSC may not assign its rights or delegate its obligations hereunder without the
prior written consent of LLCP.
3.4 DESCRIPTIVE HEADINGS. The descriptive headings of the paragraphs of
this Agreement are for convenience of reference only and do not constitute a
part of this Agreement and are not to be considered in construing or
interpreting this Agreement. All section, preamble, recital, exhibit, schedule,
clause and party references are to this Agreement unless otherwise stated. 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.
3.5 TERMINATION OF THIS AGREEMENT. This Agreement shall terminate upon the
earlier of (a) the date upon which the Option shall have been exercised pursuant
to the terms hereof and CPS shall have fulfilled its obligations under SECTION
2.1(b) and (b) the Expiration Date; PROVIDED, HOWEVER, that the representations
and warranties of SFSC shall survive the termination of this Agreement.
3.6 GOVERNING LAW. In all respects, including all matters of construction,
validity and performance, this Agreement and the rights and obligations arising
hereunder shall be governed by, and construed and enforced in accordance with,
the laws of the State of California applicable to
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contracts made and performed in California, without regard to choice of law or
conflicts of law principles.
3.7 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
agreement and understanding among the parties and supersedes all prior oral and
written, and all contemporaneous oral, agreements and understandings related to
the subject matter hereof.
3.8 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
3.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts or by facsimile, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
3.10 REMEDIES. If any party fails to perform, comply with or observe any
covenant or agreement to be performed, complied with or observed by it under
this Agreement, any other party 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 Agreement or for an injunction against the breach of any such
term or in aid of the exercise of any power granted in this Agreement or to
enforce any other legal or equitable right, or to take any one or more of such
actions. The party that fails to perform shall pay all fees, costs, and
expenses, including, without limitation, fees and expenses of attorneys,
accountants and other experts retained by such other party, and all fees, costs
and expenses of appeals, incurred or expended by such other party in connection
with the enforcement of this Agreement or the collection of any sums due
hereunder, whether or not suit is commenced. None of the rights, powers or
remedies conferred under this Agreement 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 Agreement or now or hereafter
available at law, in equity, by statute or otherwise.
3.11 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE
PARTIES WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING
BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
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TO, THIS AGREEMENT AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS COMPLETED
HEREBY OR THEREBY.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
issued by its duly authorized representatives on the date first above written.
XXXXXX XXXXXXXXX CAPITAL PARTNERS, INC.,
a California corporation
On behalf of XXXXXX XXXXXXXXX CAPITAL
PARTNERS II, L.P.,
a California limited partnership
By: /s/ XXXXXX X. XXXXXXXXX
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Xxxxxx X. Xxxxxxxxx
Chief Executive Officer
STANWICH FINANCIAL SERVICES CORP.,
a Rhode Island corporation
By: /s/ XXXXXXX X. XXXXXXX, XX.
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Name: Xxxxxxx X. Xxxxxxx, Xx.
Title:President
CONSUMER PORTFOLIO SERVICES, INC.,
a California corporation
By: /s/ XXXXXXX X. XXXXXXX, XX.
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Xxxxxxx X. Xxxxxxx, Xx.,
President and Chief Executive Officer
By: /s/ XXXXXXX X. XXXXX
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Xxxxxxx X. Xxxxx
Senior Vice President and
Chief Financial Officer
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EXHIBIT A
FORM OF EXERCISE NOTICE
(To be signed only upon exercise of the Option)
The undersigned hereby irrevocably elects to exercise the Option to
purchase the SFSC Note Participation and the SFSC Warrant.
The undersigned represents that it is acquiring the SFSC Note Participation
and the SFSC Warrant for its own account for investment purposes only and not
with a view to or for sale in connection with any distribution thereof.
Dated: STANWICH FINANCIAL SERVICES CORP.
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By:
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[TO BE NOTARIZED]
